FAIR VALUE DISCLOSURES

6 Months Ended

Jun. 30, 2017

FAIR VALUE DISCLOSURES

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance established a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and identifies three levels of inputs that may be used to measure fair value:


Level 1	Unadjusted quoted prices for identical instruments in active markets. Level 1 fair values generally are supported by market transactions that occur with sufficient frequency and volume to provide pricing information on an ongoing basis.


Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, and inputs to model-derived valuations that are directly observable or can be corroborated by observable market data.


Level 3	Unobservable inputs supported by little or no market activity and often requiring significant management judgment or estimation, such as an entity’s own assumptions about the cash flows or other significant components of value that market participants would use in pricing the asset or liability.

The Company uses unadjusted quoted market prices to measure the fair value of instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are measured using present value or other valuation techniques. The fair value determinations are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such adjustments do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value cannot be substantiated by direct comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

Management is responsible for the determination of the value of investments carried at fair value and the supporting methodologies and assumptions. Under the terms of various service agreements, the Company often utilizes independent valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual securities. These independent valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested. As further described below with respect to specific asset classes, these inputs include, but are not limited to, market prices for recent trades and transactions in comparable securities, benchmark yields, interest rate yield curves, credit spreads, quoted prices for similar securities, and other market-observable information, as applicable. Specific attributes of the security being valued also are considered, including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other security- or issuer-specific information. When insufficient market observable information is available upon which to measure fair value, the Company either will request brokers knowledgeable about these securities to provide a non-binding quote or will employ internal valuation models. Fair values received from independent valuation service providers and brokers and those internally modeled or otherwise estimated are assessed for reasonableness.

Assets and liabilities measured at fair value on a recurring basis are summarized below. Fair value measurements also are required on a non-recurring basis for certain assets, including goodwill equity real estate held for production of income, and mortgage loans on real estate, only when an OTTI or other event occurs. When such fair value measurements are recorded, they must be classified and disclosed within the fair value hierarchy. At June 30, 2017 and December 31, 2016, no assets were required to be measured at fair value on a non-recurring basis.

Fair Value Measurements at June 30, 2017



	Level 1		Level 2		Level 3		Total
	(In Millions)
Assets:
Investments:
Fixed maturities, available-for-sale:
Public Corporate	$	—	$	13,157	$	73	$	13,230
Private Corporate	—		6,292		995		7,287
U.S. Treasury, government and agency	—		10,849		—		10,849
States and political subdivisions	—		442		42		484
Foreign governments	—		367		—		367
Commercial mortgage-backed	—		13		290		303
Residential mortgage-backed⁽¹⁾	—		281		—		281
Asset-backed⁽²⁾	—		28		12		40
Redeemable preferred stock	214		322		1		537
Subtotal	214		31,751		1,413		33,378
Other equity investments	3		—		5		8
Trading securities	509		10,460		—		10,969
Other invested assets:
Short-term investments	—		1,261		—		1,261
Assets of consolidated VIEs/VOEs	539		119		3		661
Swaps	—		111		—		111
Credit Default Swaps	—		20		—		20
Options	—		1,249		—		1,249
Subtotal	539		2,760		3		3,302
Cash equivalents	2,175		—		—		2,175
Segregated securities	—		1,078		—		1,078
GMIB reinsurance contract asset	—		—		11,290		11,290
Separate Accounts’ assets	113,282		3,010		333		116,625
Total Assets	$	116,722	$	49,059	$	13,044	$	178,825
Liabilities
GWBL and Other Features’ liability	$	—	$	—	$	121	$	121
SCS, SIO, MSO and IUL indexed features’ liability	—		1,169		—		1,169
Liabilities of consolidated VIEs/VOEs	407		3		—		410
Contingent payment arrangements	—		—		17		17
Total Liabilities	$	407	$	1,172	$	138	$	1,717


(1)	Includes publicly-traded agency pass-through securities and collateralized obligations.


(2)	Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans.

Fair Value Measurements at December 31, 2016



	Level 1		Level 2			Level 3		Total
	(In Millions)
Assets:
Investments:
Fixed maturities, available-for-sale:
Public Corporate	$	—	$	12,984		$	28	$	13,012
Private Corporate	—		6,223			817		7,040
U.S. Treasury, government and agency	—		10,336			—		10,336
States and political subdivisions	—		451			42		493
Foreign governments	—		390			—		390
Commercial mortgage-backed	—		22			349		371
Residential mortgage-backed⁽¹⁾	—		314			—		314
Asset-backed⁽²⁾	—		36			24		60
Redeemable preferred stock	218		335			1		554
Subtotal	218		31,091			1,261		32,570
Other equity investments	3		—			5		8
Trading securities	478		8,656			—		9,134
Other invested assets:
Short-term investments	—		574			—		574
Assets of consolidated VIEs	342		205			6		553
Swaps	—		(925		)	—		(925		)
Credit Default Swaps	—		5			—		5
Options	—		960			—		960
Floors	—		11			—		11
Subtotal	342		830			6		1,178
Cash equivalents	1,529		—			—		1,529
Segregated securities	—		946			—		946
GMIB reinsurance contract asset	—		—			10,309		10,309
Separate Accounts’ assets	108,085		2,818			313		111,216
Total Assets	$	110,655	$	44,341		$	11,894	$	166,890
Liabilities:
GWBL and Other Features’ liability	$	—	$	—		$	164	$	164
SCS, SIO, MSO and IUL indexed features’ liability	—		887			—		887
Liabilities of consolidated VIEs	248		2			—		250
Contingent payment arrangements	—		—			18		18
Total Liabilities	$	248	$	889		$	182	$	1,319


(1)	Includes publicly-traded agency pass-through securities and collateralized obligations.


(2)	Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans.

At June 30, 2017 and December 31, 2016, respectively, the fair value of public fixed maturities is approximately $25,550 million and $24,918 million or approximately 15.3% and 16.0% of the Company’s total assets measured at fair value on a recurring basis (excluding GMIB reinsurance contracts and segregated securities measured at fair value on a recurring basis). The fair values of the Company’s public fixed maturity securities are generally based on prices obtained from independent valuation service providers and for which the Company maintains a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. Although each security generally is priced by multiple independent valuation service providers, the Company ultimately uses the price received from the independent valuation service provider highest in the vendor hierarchy based on the respective asset type, with limited exception. To validate reasonableness, prices also are internally reviewed by those with relevant expertise through comparison with directly observed recent market trades. Consistent with the fair value hierarchy, public fixed maturity securities validated in this manner generally are reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from independent valuation service providers is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process in accordance with the terms of the respective independent valuation service provider agreement. If as a result it is determined that the independent valuation service provider is able to reprice the security in a manner agreed as more consistent with current market observations, the security remains within Level 2. Alternatively, a Level 3 classification may result if the pricing information then is sourced from another vendor, non-binding broker quotes, or internally-developed valuations for which the Company’s own assumptions about market-participant inputs would be used in pricing the security.

At June 30, 2017 and December 31, 2016, respectively, the fair value of private fixed maturities is approximately $7,828 million and $7,652 million or approximately 4.7% and 4.9% of the Company’s total assets measured at fair value on a recurring basis. The fair values of the Company’s private fixed maturities are determined from prices obtained from independent valuation service providers. Prices not obtained from an independent valuation service provider are determined by using a discounted cash flow model or a market comparable company valuation technique. In certain cases, these models use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model or a market comparable company valuation technique may also incorporate unobservable inputs, which reflect the Company’s own assumptions about the inputs market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are significant to the fair value measurement of a security, a Level 3 classification generally is made.

As disclosed in Note 3, at June 30, 2017 and December 31, 2016, respectively, the net fair value of freestanding derivative positions is approximately $1,380 million and $51 million or approximately 41.8% and 8.2% of Other invested assets measured at fair value on a recurring basis. The fair values of the Company’s derivative positions are generally based on prices obtained either from independent valuation service providers or derived by applying market inputs from recognized vendors into industry standard pricing models. The majority of these derivative contracts are traded in the OTC derivative market and are classified in Level 2. The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that require use of the contractual terms of the derivative instruments and multiple market inputs, including interest rates, prices, and indices to generate continuous yield or pricing curves, including OIS curves and volatility factors, which then are applied to value the positions. The predominance of market inputs is actively quoted and can be validated through external sources or reliably interpolated if less observable. If the pricing information received from independent valuation service providers is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process in accordance with the terms of the respective independent valuation service provider agreement. If, as a result, it is determined that the independent valuation service provider is able to reprice the derivative instrument in a manner agreed as more consistent with current market observations, the position remains within Level 2. Alternatively, a Level 3 classification may result if the pricing information then is sourced from another vendor, non-binding broker quotes, or internally-developed valuations for which the Company’s own assumptions about market-participant inputs would be used in pricing the security.

At June 30, 2017 and December 31, 2016, respectively, investments classified as Level 1 comprise approximately 70.1% and 71.1% of assets measured at fair value on a recurring basis and primarily include redeemable preferred stock, trading securities, cash equivalents and Separate Accounts assets. Fair value measurements classified as Level 1 include exchange-traded prices of fixed maturities, equity securities and derivative contracts, and net asset values for transacting subscriptions and redemptions of mutual fund shares held by Separate Accounts. Cash equivalents classified as Level 1 include money market accounts, overnight commercial paper and highly liquid debt instruments purchased with an original maturity of three months or less, and are carried at cost as a proxy for fair value measurement due to their short-term nature.

At June 30, 2017 and December 31, 2016, respectively, investments classified as Level 2 comprise approximately 28.8% and 27.9% of assets measured at fair value on a recurring basis and primarily include U.S. government and agency securities and certain corporate debt securities, such as public and private fixed maturities. As market quotes generally are not readily available or accessible for these securities, their fair value measures are determined utilizing relevant information generated by market transactions involving comparable securities and often are based on model pricing techniques that effectively discount prospective cash flows to present value using appropriate sector-adjusted credit spreads commensurate with the security’s duration, also taking into consideration issuer-specific credit quality and liquidity. Segregated securities classified as Level 2 are U.S. Treasury Bills segregated by AB in a special reserve bank custody account for the exclusive benefit of brokerage customers, as required by Rule 15c3-3 of the Exchange Act and for which fair values are based on quoted yields in secondary markets.

Observable inputs generally used to measure the fair value of securities classified as Level 2 include benchmark yields, reported secondary trades, issuer spreads, benchmark securities and other reference data. Additional observable inputs are used when available, and as may be appropriate, for certain security types, such as prepayment, default, and collateral information for the purpose of measuring the fair value of mortgage- and asset-backed securities. At June 30, 2017 and December 31, 2016, respectively, approximately $299 million and $340 million of AAA-rated mortgage- and asset-backed securities are classified as Level 2 for which the observability of market inputs to their pricing models is supported by sufficient, albeit more recently contracted, market activity in these sectors.

Certain AXA Equitable products such as the SCS and EQUI-VEST variable annuity products and the IUL product, as well as the MSO feature available in some AXA Equitable life contracts, offer investment options that permit the contract owner to participate in the performance of an index, ETF or commodity price. These investment options (depending on the product and index selected) can have 1, 3 or 5 year terms and permit participation in the index, ETF or commodity price up to a segment-specific declared maximum rate. Under certain conditions that vary by product, e.g. holding these segments for the full term, these segments also shield policyholders from some or all negative investment performance associated with these indices, ETFs or commodity prices. These investment options have defined formulaic liability amounts, and the current values of the option component of these segment reserves are accounted for as Level 2 embedded derivatives. The fair values of these embedded derivatives are based on prices obtained from independent valuation service providers.

At June 30, 2017 and December 31, 2016, respectively, investments classified as Level 3 comprise approximately 1.1% and 1.0% of assets measured at fair value on a recurring basis and primarily include CMBS and corporate debt securities, such as private fixed maturities. Determinations to classify fair value measures within Level 3 of the valuation hierarchy generally are based upon the significance of the unobservable factors to the overall fair value measurement. Included in the Level 3 classification at June 30, 2017 and December 31, 2016, respectively, were approximately $102 million and $111 million of fixed maturities with indicative pricing obtained from brokers that otherwise could not be corroborated to market observable data. The Company applies various due-diligence procedures, as considered appropriate, to validate these non-binding broker quotes for reasonableness, based on its understanding of the markets, including use of internally-developed assumptions about inputs a market participant would use to price the security. In addition, approximately $302 million and $373 million of mortgage- and asset-backed securities, including CMBS, are classified as Level 3 at June 30, 2017 and December 31, 2016, respectively. The Company utilizes prices obtained from an independent valuation service vendor to measure fair value of CMBS securities.

The Company also issues certain benefits on its variable annuity products that are accounted for as derivatives and are also considered Level 3. The GMWB feature allows the policyholder to withdraw at minimum, over the life of the contract, an amount based on the contract’s benefit base. The GWBL feature allows the policyholder to withdraw, each year for the life of the contract, a specified annual percentage of an amount based on the contract’s benefit base. The GMAB feature increases the contract account value at the end of a specified period to a GMAB base. The GIB feature provides a lifetime annuity based on predetermined annuity purchase rates if and when the contract account value is depleted. This lifetime annuity is based on predetermined annuity purchase rates applied to a GIB base.

Level 3 also includes the GMIB reinsurance contract asset which is accounted for as derivative contracts. The GMIB reinsurance contract asset’s fair value reflects the present value of reinsurance premiums and recoveries and risk margins over a range of market consistent economic scenarios while the GIB and GWBL and Other Features related liability reflects the present value of expected future payments (benefits) less fees, adjusted for risk margins, attributable to the GIB and GWBL and Other Features over a range of market-consistent economic scenarios. The valuations of both the GMIB reinsurance contract asset and GIB and GWBL and Other Features’ liability incorporate significant non-observable assumptions related to policyholder behavior, risk margins and projections of equity Separate Account funds. The credit risks of the counterparty and of the Company are considered in determining the fair values of its GMIB reinsurance contract asset and GIB and GWBL and Other Features’ liability positions, respectively, after taking into account the effects of collateral arrangements. Incremental adjustment to the swap curve, adjusted for non-performance risk, is made to the resulting fair values of the GMIB reinsurance contract asset to reflect change in the claims-paying ratings of counterparties to the reinsurance treaties. After giving consideration to collateral arrangements, the Company reduced the fair value of its GMIB reinsurance contract asset by $89 million and $139 million at June 30, 2017 and December 31, 2016, respectively, to recognize incremental counterparty non-performance risk. The unadjusted swap curve was determined to reflect a level of general swap market counterparty risk; therefore, no adjustment was made for purpose of determining the fair value of the GIB and GWBL and Other Features’ liability embedded derivative at June 30, 2017. Equity and fixed income volatilities were modeled to reflect the current market volatility.

The Company’s Level 3 liabilities include contingent payment arrangements associated with acquisitions in 2010, 2013 and 2014 by AB. At each reporting date, AB estimates the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.

In the first six months of 2017, AFS fixed maturities with fair values of $6 million were transferred out of Level 3 and into Level 2 principally due to the availability of trading activity and/or market observable inputs to measure and validate their fair values. In addition, AFS fixed maturities with Fair Value of $13 million were transferred from Level 2 into the Level 3 classification. These transfers in the aggregate represent approximately 0.1% of total equity at June 30, 2017.

In the first six months of 2016, AFS fixed maturities with fair values of $43 million were transferred out of Level 3 and into Level 2 principally due to the availability of trading activity and/or market observable inputs to measure and validate their fair values. In addition, AFS fixed maturities with Fair Value of $19 million were transferred from Level 2 into the Level 3 classification. These transfers in the aggregate represent approximately 0.3% of total equity at June 30, 2016.

The table below presents a reconciliation for all Level 3 assets and liabilities for the second quarter and first six months of 2017 and 2016, respectively:

Level 3 Instruments

Fair Value Measurements



	Corporate			State and Political Sub- divisions			Foreign Govts		Commercial Mortgage- backed			Asset- backed
	(In Millions)
Balance, April 1, 2017	$	1,014		$	42		$	—	$	324		$	31
Total gains (losses), realized and unrealized, included in:
Earnings (loss) as:
Net investment income (loss)	3			—			—		1			—
Investment gains (losses), net	—			—			—		(9		)	15
Subtotal	3			—			—		(8		)	15
Other comprehensive income (loss)	(51		)	—			—		7			(11		)
Purchases	169			—			—		—			—
Sales	(39		)	—			—		(33		)	(18		)
Settlements	—			—			—		—			—
Transfers into Level 3⁽¹⁾	6			—			—		—			—
Transfers out of Level 3⁽¹⁾	(34		)	—			—		—			(5		)
Balance, June 30, 2017	$	1,068		$	42		$	—	$	290		$	12
Balance, April 1, 2016	$	498		$	45		$	—	$	448		$	37
Total gains (losses), realized and unrealized, included in:
Earnings (loss) as:
Net investment income (loss)	—			—			—		—			—
Investment gains (losses), net	1			—			—		(18		)	—
Subtotal	1			—			—		(18		)	—
Other comprehensive income (loss)	(1		)	1			—		1			2
Purchases	97			—			—		—			—
Sales	(58		)	(1		)	—		(27		)	(4		)
Transfers into Level 3⁽¹⁾	3			—			—		—			—
Transfers out of Level 3⁽¹⁾	(45		)	—			—		(2		)	(9		)
Balance, June 30, 2016	$	495		$	45		$	—	$	402		$	26



	Corporate			State and Political Sub- divisions			Foreign Govts			Commercial Mortgage- backed			Asset- backed
	(In Millions)
Balance, January 1, 2017	$	845		$	42		$	—		$	349		$	24
Total gains (losses), realized and unrealized, included in:
Earnings (loss) as:
Net investment income (loss)	4			—			—			1			—
Investment gains (losses), net	—			—			—			(20		)	15
Subtotal	4			—			—			(19		)	15
Other comprehensive income (loss)	(6		)	—			—			19			(7		)
Purchases	322			—			—			—			—
Sales	(105		)	—			—			(59		)	(19		)
Settlements	—			—			—			—			—
Transfers into Level 3⁽¹⁾	13			—			—			—			—
Transfers out of Level 3⁽¹⁾	(5		)	—			—			—			(1		)
Balance, June 30, 2017	$	1,068		$	42		$	—		$	290		$	12
Balance, January 1, 2016	$	420		$	45		$	1		$	503		$	40
Total gains (losses), realized and unrealized, included in:
Earnings (loss) as:
Net investment income (loss)	(1		)	—			—			—			—
Investment gains (losses), net	—			—			—			(24		)	—
Subtotal	(1		)	—			—			(24		)	—
Other comprehensive income (loss)	8			1			—			(11		)	2
Purchases	150			—			—			—			—
Sales	(72		)	(1		)	—			(60		)	(7		)
Transfers into Level 3⁽¹⁾	17			—			—			—			—
Transfers out of Level 3⁽¹⁾	(27		)	—			(1		)	(6		)	(9		)
Balance, June 30, 2016	$	495		$	45		$	—		$	402		$	26



	Redeemable Preferred Stock		Other Equity Investments⁽²⁾			GMIB Reinsurance Asset			Separate Accounts Assets			GWBL and Other Features’ Liability			Contingent Payment Arrangement
	(In Millions)
Balance, April 1, 2017	$	1	$	15		$	9,795		$	325		$	106		$	17
Total gains (losses), realized and unrealized, included in:
Earnings (loss) as:
Net investment income (loss)	—		—			—			—			—			—
Investment gains (losses), net	—		—			—			8			—			—
Increase (decrease) in the fair value of the reinsurance contract asset	—		—			1,446			—			—			—
Policyholders’ benefits	—		—			—			—			(48		)	—
Subtotal	—		—			1,446			8			(48		)	—
Other comprehensive income (loss)	—		—			—			—			—			—
Purchases⁽³⁾	—		—			70			2			63			—
Sales⁽⁴⁾	—		—			(21		)	(1		)	—			—
Settlements⁽⁵⁾	—		—			—			(1		)	—			—
Activity related to consolidated VIEs	—		(7		)	—			—			—			—
Transfers into Level 3⁽¹⁾	—		—			—			—			—			—
Transfers out of Level 3⁽¹⁾	—		—			—			—			—			—
Balance, June 30, 2017	$	1	$	8		$	11,290		$	333		$	121		$	17
Balance, April 1, 2016	$	—	$	25		$	12,207		$	323		$	265		$	31
Total gains (losses), realized and unrealized, included in:
Earnings (loss) as:
Net investment income (loss)	—		—			—			—			—			1
Investment gains (losses), net	—		(1		)	—			5			—			—
Increase (decrease) in the fair value of the reinsurance contract asset	—		—			1,065			—			—			—
Policyholders’ benefits	—		—			—			—			10			—
Subtotal	—		(1		)	1,065			5			10			1
Other comprehensive income (loss)	—		—			—			—			—			—
Purchases⁽³⁾	—		—			55			10			55			—
Sales⁽⁴⁾	—		—			(16		)	(1		)	—			—
Settlements⁽⁵⁾	—		—			—			(1		)	—			(1		)
Transfers into Level 3⁽¹⁾	—		—			—			1			—			—
Transfers out of Level 3⁽¹⁾	—		(6		)	—			(30		)	—			—
Balance, June 30, 2016	$	—	$	18		$	13,311		$	307		$	330		$	31



	Redeemable Preferred Stock		Other Equity Investments⁽²⁾			GMIB Reinsurance Asset			Separate Accounts Assets			GWBL and Other Features’ Liability			Contingent Payment Arrangement
	(In Millions)
Balance, January 1, 2017	$	1	$	11		$	10,309		$	313		$	164		$	18
Total gains (losses), realized and unrealized, included in:
Earnings (loss) as:
Net investment income (loss)	—		—			—			—			—			—
Investment gains (losses), net	—		—			—			18			—			—
Increase (decrease) in the fair value of the reinsurance contracts	—		—			906			—			—			—
Policyholders’ benefits	—		—			—			—			(166		)	—
Subtotal	—		—			906			18			(166		)	—
Other comprehensive income (loss)	—		—			—			—			—			—
Purchases⁽³⁾	—		4			110			6			123			—
Sales⁽⁴⁾	—		(1		)	(35		)	(2		)	—			—
Settlements⁽⁵⁾	—		—			—			(2		)	—			(1		)
Activity related to consolidated VIEs	—		(7		)	—			—			—			—
Transfers into Level 3⁽¹⁾	—		1			—			—			—			—
Transfers out of Level 3⁽¹⁾	—		—			—			—			—			—
Balance, June 30, 2017	$	1	$	8		$	11,290		$	333		$	121		$	17
Balance, January 1, 2016	$	—	$	17		$	10,570		$	313		$	184		$	31
Total gains (losses), realized and unrealized, included in:
Earnings (loss) as:
Net investment income (loss)	—		—			—			—			—			1
Investment gains (losses), net	—		(1		)	—			13			—			—
Increase (decrease) in the fair value of the reinsurance contracts	—		—			2,662			—			—			—
Policyholders’ benefits	—		—			—			—			40			—
Subtotal	—		(1		)	2,662			13			40			1
Other comprehensive income (loss)	—		—			—			—			—			—
Purchases⁽³⁾	—		—			110			10			106			—
Sales⁽⁴⁾	—		—			(31		)	(1		)	—			—
Settlements⁽⁵⁾	—		—			—			(2		)	—			(1		)
Transfers into Level 3⁽¹⁾	—		2			—			1			—			—
Transfers out of Level 3⁽¹⁾	—		—			—			(27		)	—			—
Balance, June 30, 2016	$	—	$	18		$	13,311		$	307		$	330		$	31


(1)	Transfers into/out of Level 3 classification are reflected at beginning-of-period fair values.


(2)	Includes Level 3 amounts for Trading securities and consolidated VIE investments.


(3)	For the GMIB reinsurance contract asset and GWBL and other features reserves, represents premiums.


(4)	For the GMIB reinsurance contract asset, represents recoveries from reinsurers and for GWBL and other features reserves represents benefits paid.


(5)	For contingent payment arrangements, it represents change in estimates.

The table below details changes in unrealized gains (losses) for the second quarter and first six months of 2017 and 2016 by category for Level 3 assets and liabilities still held at June 30, 2017 and 2016, respectively:



	Earnings (Loss)
	Net Investment Income (Loss)		Investment Gains (Losses), Net		Increase (Decrease) in Fair Value of Reinsurance Contracts		OCI			Policy- holders’ Benefits
	(In Millions)
Level 3 Instruments
Second Quarter 2017
Held at June 30, 2017:
Change in unrealized gains (losses):
Fixed maturities, available-for-sale:
Corporate	$	—	$	—	$	—	$	(45	)	$	—
State and political subdivisions	—		—		—		—			—
Commercial mortgage-backed	—		—		—		5			—
Asset-backed	—		—		—		(11		)	—
Other fixed maturities, available-for-sale	—		—		—		—			—
Subtotal	$	—	$	—	$	—	$	(51	)	$	—
GMIB reinsurance contracts	—		—		1,495		—			—
Separate Accounts’ assets⁽¹⁾	—		8		—		—
GWBL and other features’ liability	—		—		—		—			15
Total	$	—	$	8	$	1,495	$	(51	)	$	15
Level 3 Instruments
Second Quarter 2016
Held at June 30, 2016:
Change in unrealized gains (losses):
Fixed maturities, available-for-sale:
Corporate	$	—	$	—	$	—	$	(2	)	$	—
State and political subdivisions	—		—		—		1			—
Commercial mortgage-backed	—		—		—		(4		)	—
Asset-backed	—		—		—		2			—
Other fixed maturities, available-for-sale	—		—		—		—			—
Subtotal	$	—	$	—	$	—	$	(3	)	$	—
Other equity investments	—		—		—		—			—
GMIB reinsurance contracts	—		—		1,104		—			—
Separate Accounts’ assets⁽¹⁾	—		6		—		—			—
GWBL and other features’ liability	—		—		—		—			65
Total	$	—	$	6	$	1,104	$	(3	)	$	65



	Earnings (Loss)
	Net Investment Income (Loss)		Investment Gains (Losses), Net		Increase (Decrease) in Fair Value of Reinsurance Contracts		OCI			Policy- holders’ Benefits
	(In Millions)
Level 3 Instruments
First Six Months of 2017
Held at June 30, 2017:
Change in unrealized gains (losses):
Fixed maturities, available-for-sale:
Corporate	$	—	$	—	$	—	$	(4	)	$	—
State and political subdivisions	—		—		—		—			—
Commercial mortgage-backed	—		—		—		17			—
Asset-backed	—		—		—		(7		)	—
Other fixed maturities, available-for-sale	—		—		—		—			—
Subtotal	$	—	$	—	$	—	$	6		$	—
GMIB reinsurance contracts	—		—		981		—			—
Separate Accounts’ assets⁽¹⁾	—		18		—		—			—
GWBL and other features’ liability	—		—		—		—			(43		)
Total	$	—	$	18	$	981	$	6		$	(43	)
Level 3 Instruments
First Six Months of 2016
Held at June 30, 2016:
Change in unrealized gains (losses):
Fixed maturities, available-for-sale:
Corporate	$	—	$	—	$	—	$	9		$	—
State and political subdivisions	—		—		—		1			—
Commercial mortgage-backed	—		—		—		(16		)	—
Asset-backed	—		—		—		2			—
Other fixed maturities, available-for-sale	—		—		—		—			—
Subtotal	$	—	$	—	$	—	$	(4	)	$	—
Other equity investments	—		—		—		—			—
GMIB reinsurance contracts	—		—		2,733		—			—
Separate Accounts’ assets⁽¹⁾	—		13		—		—			—
GWBL and other features’ liability	—		—		—		—			146
Total	$	—	$	13	$	2,733	$	(4	)	$	146


(1)	There is an investment expense that offsets this investment gain (loss).

The following tables disclose quantitative information about Level 3 fair value measurements by category for assets and liabilities as of June 30, 2017 and December 31, 2016, respectively.

Quantitative Information about Level 3 Fair Value Measurements

June 30, 2017



	Fair Value		Valuation Technique	Significant Unobservable Input	Range
	(In Millions)
Assets:
Investments:
Fixed maturities, available-for-sale:
Corporate	$	46	Matrix pricing model	Spread over the industry-specific benchmark yield curve	25 bps - 565 bps
	774		Market comparable companies	EBITDA multiples Discount rate Cash flow multiples	5.1x- 27.3x 7.2%-17.8% 9.0x- 17.7x
Separate Accounts’ assets	314		Third party appraisal	Capitalization rate	4.7%
				Exit capitalization rate	5.7%
				Discount rate	6.6%
	1		Discounted cash flow	Spread over U.S. Treasury curve	243 bps
				Discount factor	4.0%
GMIB reinsurance contract asset	11,290		Discounted cash flow	Lapse Rates	1.0%- 6.3%
				Withdrawal Rates	0.0% - 8.0%
				GMIB Utilization Rates	0.0% - 16.0%
				Non-performance risk	4 bps - 9 bps
				Volatility rates - Equity	10.0% - 30.0%
Liabilities:
GIB, GWBLand other features liability	121		Discounted Cash flow	Lapse Rates	0.5% - 11.0%
				Withdrawal Rates	0.0% - 8.0%
				Volatility rates - Equity	10.0% - 30.0%

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2016



	Fair Value		Valuation Technique	Significant Unobservable Input	Range
	(In Millions)
Assets:
Investments:
Fixed maturities, available-for-sale:
Corporate	$	55	Matrix pricing model	Spread over the industry-specific benchmark yield curve	0 bps - 565 bps
	636		Market comparable companies	EBITDA multiples Discount Rate Cash flow Multiples	4.3x-25.6x 7.0% - 17.8% 14.0x - 16.5x
Asset-backed	2		Matrix pricing model	Spread over U.S. Treasury curve	25 bps - 687 bps
Separate Accounts’ assets	295		Third party appraisal	Capitalization rate	4.8%
				Exit capitalization rate	5.7%
				Discount rate	6.6%
	3		Discounted cash flow	Spread over U.S. Treasury curve	273 bps - 512 bps
				Discount factor	1.1% - 7.0%
GMIB reinsurance contract asset	10,309		Discounted Cash flow	Lapse Rates	1.5% - 5.7%
				Withdrawal Rates	0.0% - 8.0%
				GMIB Utilization Rates	0.0% - 16.0%
				Non-performance risk	5 bps - 17 bps
				Volatility rates - Equity	11.0%- 38.0%
Liabilities:
GIB, GWBL and other features liability	164		Discounted Cash flow	Lapse Rates	1.0% - 11.0%
				Withdrawal Rates	0.0% - 8.0%
				Volatility rates - Equity	11.0% -38.0%

Excluded from the tables above at June 30, 2017 and December 31, 2016, are approximately $619 million and $594 million, respectively, of Level 3 fair value measurements of investments for which the underlying quantitative inputs are not developed by the Company and are not reasonably available. The fair value measurements of these Level 3 investments comprise approximately 35.3% and 37.5% of total assets classified as Level 3 at June 30, 2017 and December 31, 2016, respectively, and represent only 0.4% and 0.4% of total assets measured at fair value on a recurring basis. These investments primarily consist of certain privately placed debt securities with limited trading activity, including commercial mortgage-, residential mortgage- and asset-backed instruments, and their fair values generally reflect unadjusted prices obtained from independent valuation service providers and indicative, non-binding quotes obtained from third-party broker-dealers recognized as market participants. Significant increases or decreases in the fair value amounts received from these pricing sources may result in the Company’s reporting significantly higher or lower fair value measurements for these Level 3 investments.

Included in the tables above at June 30, 2017 and December 31, 2016, respectively, are approximately $820 million and $691 million fair value of privately placed, available-for-sale corporate debt securities classified as Level 3. The fair value of private placement securities is determined by application of a matrix pricing model or a market comparable company value technique, representing approximately 76.8% and 81.8% of the total fair value of Level 3 securities in the corporate fixed maturities asset class. The significant unobservable input to the matrix pricing model valuation technique is the spread over the industry-specific benchmark yield curve. Generally, an increase or decrease in spreads would lead to directionally inverse movement in the fair value measurements of these securities. The significant unobservable input to the market comparable company valuation technique is the discount rate. Generally, a significant increase (decrease) in the discount rate would result in significantly lower (higher) fair value measurements of these securities.

Residential mortgage-backed securities classified as Level 3 primarily consist of non-agency paper with low trading activity. Included in the tables above at June 30, 2017 and December 31, 2016, there were no Level 3 securities that were determined by application of a matrix pricing model and for which the spread over the U.S. Treasury curve is the most significant unobservable input to the pricing result. Generally, a change in spreads would lead to directionally inverse movement in the fair value measurements of these securities.

Asset-backed securities classified as Level 3 primarily consist of non-agency mortgage loan trust certificates, including subprime and Alt-A paper, credit tenant loans, and equipment financings. Included in the tables above at June 30, 2017 and December 31, 2016, are approximately 0.0% and 8.3%, respectively, of the total fair value of these Level 3 securities that is determined by application of a matrix pricing model and for which the spread over the U.S. Treasury curve is the most significant unobservable input to the pricing result. Significant increases (decreases) in spreads would result in significantly lower (higher) fair value measurements.

Assets of VIEs and VOEs classified as Level 3 securities primarily consist of corporate bonds that are vendor priced with no ratings available, bank loans, non-agency collateralized mortgage obligations and asset-backed securities.

Separate Accounts’ assets classified as Level 3 in the table at June 30, 2017 and December 31, 2016, primarily consist of a private real estate fund with a fair value of approximately $314 million and $295 million, a private equity investment with a fair value of approximately $0 million and $1 million and mortgage loans with fair value of approximately $1 million and $2 million, respectively. A third party appraisal valuation technique is used to measure the fair value of the private real estate investment fund, including consideration of observable replacement cost and sales comparisons for the underlying commercial properties, as well as the results from applying a discounted cash flow approach. Significant increase (decrease) in isolation in the capitalization rate and exit capitalization rate assumptions used in the discounted cash flow approach to the appraisal value would result in a higher (lower) measure of fair value. A discounted cash flow approach is applied to determine the private equity investment for which the significant unobservable assumptions are a gross domestic product rate formula and a discount factor that takes into account various risks, including the illiquid nature of the investment. A significant increase (decrease) in the gross domestic product rate would have a directionally inverse effect on the fair value of the security. With respect to the fair value measurement of mortgage loans a discounted cash flow approach is applied, a significant increase (decrease) in the assumed spread over U.S. Treasuries would produce a lower (higher) fair value measurement. Changes in the discount rate or factor used in the valuation techniques to determine the fair values of these private equity investments and mortgage loans generally are not correlated to changes in the other significant unobservable inputs. Significant increase (decrease) in isolation in the discount rate or factor would result in significantly lower (higher) fair value measurements. The remaining Separate Accounts’ investments classified as Level 3 excluded from the table consist of mortgage- and asset-backed securities with fair values of approximately $13 million and $5 million at June 30, 2017 and $12 million and $3 million at December 31, 2016, respectively. These fair value measurements are determined using substantially the same valuation techniques as earlier described above for the Company’s General Account investments in these securities.

Significant unobservable inputs with respect to the fair value measurement of the Level 3 GMIB reinsurance contract asset and the Level 3 liabilities identified in the table above are developed using Company data. Validations of unobservable inputs are performed to the extent the Company has experience. When an input is changed the model is updated and the results of each step of the model are analyzed for reasonableness.

The significant unobservable inputs used in the fair value measurement of the Company’s GMIB reinsurance contract asset are lapse rates, withdrawal rates and GMIB utilization rates. Significant increases in GMIB utilization rates or decreases in lapse or withdrawal rates in isolation would tend to increase the GMIB reinsurance contract asset.

Fair value measurement of the GMIB reinsurance contract asset includes dynamic lapse and GMIB utilization assumptions whereby projected contractual lapses and GMIB utilization reflect the projected net amount of risks of the contract. As the net amount of risk of a contract increases, the assumed lapse rate decreases and the GMIB utilization increases. Increases in volatility would increase the asset.

The significant unobservable inputs used in the fair value measurement of the Company’s GMWB and GWBL liability are lapse rates and withdrawal rates. Significant increases in withdrawal rates or decreases in lapse rates in isolation would tend to increase these liabilities. Increases in volatility would increase these liabilities.

The three AB acquisition-related contingent consideration liabilities (with a combined fair value of $17 million and $18 million at June 30, 2017 and December 31, 2016, respectively) were valued using projected AUM growth rates with a weighted average of 18.0% for one acquisition and revenue growth rates and discount rates ranging from 4.0% to 31.0% and 1.4% to 6.4%, respectively, for the three acquisitions.

The carrying values and fair values at June 30, 2017 and December 31, 2016 for financial instruments not otherwise disclosed in Note 3 are presented in the table below. Certain financial instruments are exempt from the requirements for fair value disclosure, such as insurance liabilities other than financial guarantees and investment contracts, limited partnerships accounted for under the equity method and pension and other postretirement obligations.



	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(In Millions)
June 30, 2017:
Mortgage loans on real estate	$	10,403	$	—	$	—	$	10,493	$	10,493
Loans to affiliates	703		—		774		—		774
Policyholders’ liabilities: Investment contracts	2,146		—		—		2,260		2,260
Funding Agreements	2,637		—		2,624		—		2,624
Policy loans	3,322		—		—		4,224		4,224
Short-term debt	512		—		512		—		512
Separate Account Liabilities	6,846		—		—		6,846		6,846
December 31, 2016:
Mortgage loans on real estate	$	9,757	$	—	$	—	$	9,608	$	9,608
Loans to affiliates	703		—		775		—		775
Policyholders’ liabilities: Investment contracts	2,226		—		—		2,337		2,337
Funding Agreements	2,255		—		2,202		—		2,202
Policy loans	3,361		—		—		4,257		4,257
Short-term debt	513		—		513		—		513
Separate Account Liabilities	6,194		—		—		6,194		6,194

Fair values for commercial and agricultural mortgage loans on real estate are measured by discounting future contractual cash flows to be received on the mortgage loan using interest rates at which loans with similar characteristics and credit quality would be made. The discount rate is derived from taking the appropriate U.S. Treasury rate with a like term to the remaining term of the loan and adding a spread reflective of the risk premium associated with the specific loan. Fair values for mortgage loans anticipated to be foreclosed and problem mortgage loans are limited to the fair value of the underlying collateral, if lower.

The Company’s short-term debt primarily includes commercial paper issued by AB with short term maturities and book value approximates fair value. The fair values of the Company’s borrowing and lending arrangements with AXA affiliated entities are determined in the same manner as for such transactions with third parties, including matrix pricing models for debt securities and discounted cash flow analysis for mortgage loans.

Fair values for FHLBNY funding agreements are determined from a matrix pricing model and are internally assessed for reasonableness. The matrix pricing model for FHLBNY funding agreements utilizes an independently-sourced U.S. Treasury curve which is separately sourced from Barclays’ suite of curves.

The fair values for the Company’s association plans contracts, supplementary contracts not involving life contingencies (“SCNILC”), deferred annuities and certain annuities, which are included in Policyholder’s account balances are estimated using projected cash flows discounted at rates reflecting current market rates. Significant unobservable inputs reflected in the cash flows include lapse rates and withdrawal rates. Incremental adjustments may be made to the fair value to reflect non-performance risk. Certain other products such as Access Accounts and FHLBNY funding agreements and escrow shield plus product policyholders’ account balances are held at book value.

- 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.

+ References + Details