Fair Value

Certain assets and liabilities are measured at fair value in the Consolidated Financial Statements or have fair values disclosed in the Notes to the Consolidated Financial Statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement is categorized in its entirety based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The fair value hierarchy is summarized as follows:

Level 1 — Quoted prices (unadjusted) for identical assets/liabilities in active markets.

Level 2 — Other observable inputs, either directly or indirectly, including:


•	Quoted prices for similar assets/liabilities in active markets;


•	Quoted prices for identical or similar assets/liabilities in inactive markets (e.g., few transactions, limited information, noncurrent prices, high variability over time);


•	Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, implied volatilities, credit spreads); and


•	Inputs that are corroborated by other observable market data.

Level 3 — Unobservable inputs that cannot be corroborated by observable market data.

Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs; there were no transfers between Levels 1, 2 or 3 of any financial assets or liabilities during 2015 or 2014.

Nonfinancial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment. There were no significant fair value adjustments for these assets and liabilities recorded during the years ended December 31, 2015 or 2014.

The following methods and assumptions were used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument included in the tables below:

Cash and Cash Equivalents. The carrying value of cash and cash equivalents approximates fair value as maturities are less than three months. Fair values of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2.

Debt and Equity Securities. Fair values of debt and equity securities are based on quoted market prices, where available. The Company obtains one price for each security primarily from a third-party pricing service (pricing service), which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, and, if necessary, makes adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and nonbinding broker quotes. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to prices reported by a secondary pricing source, such as its custodian, its investment consultant and third-party investment advisors. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and reviews of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.

Fair values of debt securities that do not trade on a regular basis in active markets but are priced using other observable inputs are classified as Level 2.

Fair value estimates for Level 1 and Level 2 equity securities are based on quoted market prices for actively traded equity securities and/or other market data for the same or comparable instruments and transactions in establishing the prices.

The fair values of Level 3 investments in venture capital portfolios are estimated using a market valuation technique that relies heavily on management assumptions and qualitative observations. Under the market approach, the fair values of the Company’s various venture capital investments are computed using limited quantitative and qualitative observations of activity for similar companies in the current market. The Company’s market modeling utilizes, as applicable, transactions for comparable companies in similar industries that also have similar revenue and growth characteristics and preferences in their capital structure. Key significant unobservable inputs in the market technique include implied earnings before interest, taxes, depreciation and amortization (EBITDA) multiples and revenue multiples. Additionally, the fair values of certain of the Company’s venture capital securities are based on recent transactions in inactive markets for identical or similar securities. Significant changes in any of these inputs could result in significantly lower or higher fair value measurements.

Throughout the procedures discussed above in relation to the Company’s processes for validating third-party pricing information, the Company validates the understanding of assumptions and inputs used in security pricing and determines the proper classification in the hierarchy based on that understanding.

Other Assets. The fair values of the Company’s other assets are estimated and classified using the same methodologies as the Company’s investments in debt securities.

AARP Program-Related Investments. AARP Program-related investments consist of debt securities and other investments held to fund costs associated with the AARP Program and are priced and classified using the same methodologies as the Company’s investments in debt and equity securities.

Interest Rate Swaps. Fair values of the Company’s swaps are estimated using the terms of the swaps and publicly available information, including market yield curves. Because the swaps are unique and not actively traded but are valued using other observable inputs, the fair values are classified as Level 2.

Long-Term Debt. The fair values of the Company’s long-term debt are estimated and classified using the same methodologies as the Company’s investments in debt securities.

AARP Program-Related Other Liabilities. AARP Program-related other liabilities consist of liabilities that represent the amount of net investment gains and losses related to AARP Program-related investments that accrue to the benefit of the AARP policyholders.

The following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the Consolidated Balance Sheets excluding AARP Program-related assets and liabilities, which are presented in a separate table below:



(in millions)	Quoted Prices in Active Markets (Level 1)			Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)			Total Fair and Carrying Value
December 31, 2015
Cash and cash equivalents	$	10,906		$	17		$	—		$	10,923
Debt securities - available-for-sale:
U.S. government and agency obligations	1,779			198			—			1,977
State and municipal obligations	—			6,168			—			6,168
Corporate obligations	5			7,308			93			7,406
U.S. agency mortgage-backed securities	—			2,124			—			2,124
Non-U.S. agency mortgage-backed securities	—			951			5			956
Total debt securities - available-for-sale	1,784			16,749			98			18,631
Equity securities - available-for-sale	1,223			14			402			1,639
Interest rate swap assets	—			93			—			93
Total assets at fair value	$	13,913		$	16,873		$	500		$	31,286
Percentage of total assets at fair value	44		%	54		%	2		%	100		%
Interest rate swap liabilities	$	—		$	11		$	—		$	11
December 31, 2014
Cash and cash equivalents	$	7,472		$	23		$	—		$	7,495
Debt securities - available-for-sale:
U.S. government and agency obligations	1,427			193			—			1,620
State and municipal obligations	—			6,668			—			6,668
Corporate obligations	2			7,257			68			7,327
U.S. agency mortgage-backed securities	—			2,056			—			2,056
Non-U.S. agency mortgage-backed securities	—			874			6			880
Total debt securities - available-for-sale	1,429			17,048			74			18,551
Equity securities - available-for-sale	1,200			12			310			1,522
Interest rate swap assets	—			62			—			62
Total assets at fair value	$	10,101		$	17,145		$	384		$	27,630
Percentage of total assets at fair value	37		%	62		%	1		%	100		%
Interest rate swap liabilities	$	—		$	55		$	—		$	55

The following table presents a summary of fair value measurements by level and carrying values for certain financial instruments not measured at fair value on a recurring basis in the Consolidated Balance Sheets:



(in millions)	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total Fair Value		Total Carrying Value
December 31, 2015
Debt securities - held-to-maturity:
U.S. government and agency obligations	$	164	$	—	$	—	$	164	$	163
State and municipal obligations	—		—		8		8		8
Corporate obligations	91		10		238		339		339
Total debt securities - held-to-maturity	$	255	$	10	$	246	$	511	$	510
Other assets	$	—	$	493	$	—	$	493	$	500
Long-term debt and other financing obligations	$	—	$	29,455	$	—	$	29,455	$	28,107
December 31, 2014
Debt securities - held-to-maturity:
U.S. government and agency obligations	$	180	$	—	$	—	$	180	$	178
State and municipal obligations	—		—		19		19		19
Corporate obligations	46		10		242		298		298
Total debt securities - held-to-maturity	$	226	$	10	$	261	$	497	$	495
Other assets	$	—	$	478	$	—	$	478	$	484
Long-term debt and other financing obligations	$	—	$	18,863	$	—	$	18,863	$	17,085

The carrying amounts reported on the Consolidated Balance Sheets for other current financial assets and liabilities approximate fair value because of their short-term nature. These assets and liabilities are not listed in the table above.

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:



	December 31, 2015									December 31, 2014									December 31, 2013
(in millions)	Debt Securities			Equity Securities			Total			Debt Securities			Equity Securities			Total			Debt Securities			Equity Securities			Total
Balance at beginning of period	$	74		$	310		$	384		$	42		$	269		$	311		$	17		$	224		$	241
Purchases	27			106			133			32			105			137			38			71			109
Sales	(4		)	(24		)	(28		)	(1		)	(180		)	(181		)	(10		)	(25		)	(35		)
Net unrealized gains (losses) in other comprehensive income	2			5			7			1			6			7			(2		)	(7		)	(9		)
Net realized (losses) gains in investment and other income	(1		)	5			4			—			110			110			(1		)	6			5
Balance at end of period	$	98		$	402		$	500		$	74		$	310		$	384		$	42		$	269		$	311

The following table presents quantitative information regarding unobservable inputs that were significant to the valuation of assets measured at fair value on a recurring basis using Level 3 inputs:

Range

(in millions)

Fair Value

Valuation Technique

Unobservable Input

Low

High

December 31, 2015

Equity securities - available-for-sale:

Venture capital portfolios

358

Market approach - comparable companies

Revenue multiple

1.0

5.0

EBITDAmultiple

9.0

10.0

Market approach - recent transactions

Inactive market transactions

N/A

Total equity securities

available-for-sale

402

Also included in the Company’s assets measured at fair value on a recurring basis using Level 3 inputs were $98 million of available-for-sale debt securities as of December 31, 2015, which were not significant.

The Company elected to measure the entirety of the AARP Program assets under management at fair value pursuant to the fair value option. See Note 2 for further detail on the AARP Program. The following table presents fair value information about the AARP Program-related financial assets and liabilities:



(in millions)	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Total Fair and Carrying Value
December 31, 2015
Cash and cash equivalents	$	274	$	—	$	274
Debt securities:
U.S. government and agency obligations	482		140		622
State and municipal obligations	—		103		103
Corporate obligations	—		1,244		1,244
U.S. agency mortgage-backed securities	—		398		398
Non-U.S. agency mortgage-backed securities	—		195		195
Total debt securities	482		2,080		2,562
Other investments	76		86		162
Total assets at fair value	$	832	$	2,166	$	2,998
December 31, 2014
Cash and cash equivalents	$	415	$	—	$	415
Debt securities:
U.S. government and agency obligations	409		245		654
State and municipal obligations	—		95		95
Corporate obligations	—		1,200		1,200
U.S. agency mortgage-backed securities	—		340		340
Non-U.S. agency mortgage-backed securities	—		177		177
Total debt securities	409		2,057		2,466
Equity securities - available-for-sale	—		81		81
Total assets at fair value	$	824	$	2,138	$	2,962
Other liabilities	$	5	$	13	$	18