Fair Values of Assets and Liabilities

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.

Valuation Hierarchy

The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

Level 1 Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.


Level 2	Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.


Level 3	Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The following tables present the balances of assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:



	December 31, 2013
	Level 1		Level 2		Level 3			Total
	(in millions)
Assets
Cash equivalents	$	12	$	1,841	$	—		$	1,853
Available-for-Sale securities:
Corporate debt securities	—		15,826		1,640			17,466
Residential mortgage backed securities	—		5,937		187			6,124
Commercial mortgage backed securities	—		2,711		30			2,741
Asset backed securities	—		1,244		260			1,504
State and municipal obligations	—		2,160		—			2,160
U.S. government and agencies obligations	17		35		—			52
Foreign government bonds and obligations	—		245		—			245
Common stocks	5		7		6			18
Total Available-for-Sale securities	22		28,165		2,123			30,310
Trading securities	3		32		2			37
Separate account assets	—		81,223		—			81,223
Other assets:
Interest rate derivative contracts	—		1,570		—			1,570
Equity derivative contracts	265		1,576		—			1,841
Credit derivative contracts	—		3		—			3
Foreign currency derivative contracts	2		2		—			4
Total other assets	267		3,151		—			3,418
Total assets at fair value	$	304	$	114,412	$	2,125		$	116,841

Liabilities
Policyholder account balances, future policy benefits and claims:
EIA embedded derivatives	$	—	$	5	$	—		$	5
IUL embedded derivatives	—		—		125			125
GMWB and GMAB embedded derivatives	—		—		(575		)	(575		)	⁽²⁾
Total policyholder account balances, future policy benefits and claims	—		5		(450		)	(445		)	⁽¹⁾
Customer deposits	—		7		—			7
Other liabilities:
Interest rate derivative contracts	—		1,693		—			1,693
Equity derivative contracts	550		2,565		—			3,115
Other	—		12		—			12
Total other liabilities	550		4,270		—			4,820
Total liabilities at fair value	$	550	$	4,282	$	(450	)	$	4,382

⁽¹⁾ The Company’s adjustment for nonperformance risk resulted in a $150 million cumulative decrease to the embedded derivatives.

⁽²⁾The fair value of the GMWB and GMAB embedded derivatives was a net asset at December 31, 2013 and the amount is reported as a contra liability.



	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	18	$	1,539	$	—	$	1,557
Available-for-Sale securities:
Corporate debt securities	—		17,051		1,764		18,815
Residential mortgage backed securities	—		5,145		284		5,429
Commercial mortgage backed securities	—		3,213		206		3,419
Asset backed securities	—		1,097		178		1,275
State and municipal obligations	—		2,239		—		2,239
U.S. government and agencies obligations	19		39		—		58
Foreign government bonds and obligations	—		224		—		224
Common stocks	3		4		6		13
Other debt obligations	—		—		—		—
Total Available-for-Sale securities	22		29,012		2,438		31,472
Trading securities	1		24		—		25
Separate account assets	—		72,397		—		72,397
Other assets:
Interest rate derivative contracts	—		2,358		—		2,358
Equity derivative contracts	285		973		—		1,258
Credit derivative contracts	—		—		—		—
Foreign currency derivative contracts	—		6		—		6
Commodity derivative contracts	—		1		—		1
Total other assets	285		3,338		—		3,623
Total assets at fair value	$	326	$	106,310	$	2,438	$	109,074

Liabilities
Policyholder account balances, future policy benefits and claims:
EIA embedded derivatives	$	—	$	2	$	—	$	2
IUL embedded derivatives	—		—		45		45
GMWB and GMAB embedded derivatives	—		—		833		833
Total policyholder account balances, future policy benefits and claims	—		2		878		880		⁽¹⁾
Customer deposits	—		8		—		8
Other liabilities:
Interest rate derivative contracts	—		1,486		—		1,486
Equity derivative contracts	258		1,565		—		1,823
Foreign currency derivative contracts	1		—		—		1
Other	1		3		—		4
Total other liabilities	260		3,054		—		3,314
Total liabilities at fair value	$	260	$	3,064	$	878	$	4,202

⁽¹⁾The Company’s adjustment for nonperformance risk resulted in a $398 million cumulative decrease to the embedded derivatives.

The following tables provide a summary of changes in Level 3 assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:



	Available-for-Sale Securities																					Policyholder Account Balances, Future Policy Benefits and Claims
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks			Total				Trading Securities		IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, January 1, 2013	$	1,764		$	284		$	206		$	178		$	6		$	2,438			$	—	$	(45	)		$	(833	)		$	(878	)
Total gains (losses) included in:
Net income	(3		)	—			—			2			—			(1		)	⁽¹⁾	—		(19		)	⁽²⁾	1,617			⁽³⁾	1,598
Other comprehensive income	(41		)	—			(6		)	9			1			(37		)		—		—				—				—
Purchases	135			335			25			259			—			754				2		—				—				—
Sales	—			—			—			—			—			—				—		—				—				—
Issues	—			—			—			—			—			—				—		(62		)		(228		)		(290		)
Settlements	(215		)	(18		)	(36		)	(5		)	—			(274		)		—		1				19				20
Transfers into Level 3	—			—			—			8			—			8				—		—				—				—
Transfers out of Level 3	—			(414		)	(159		)	(191		)	(1		)	(765		)		—		—				—				—
Balance, December 31, 2013	$	1,640		$	187		$	30		$	260		$	6		$	2,123			$	2	$	(125	)		$	575			$	450

Changes in unrealized gains (losses) relating to assets and liabilities held at December 31, 2013 included in:
Net investment income	$	(3	)	$	—		$	—		$	2		$	—		$	(1	)		$	—	$	—			$	—			$	—
Interest credited to fixed accounts	—			—			—			—			—			—				—		(19		)		—				(19		)
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—				—		—				1,598				1,598

⁽¹⁾ Included in net investment income in the Consolidated Statements of Operations.

⁽²⁾ Included in interest credited to fixed accounts in the Consolidated Statements of Operations.

⁽³⁾ Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.



	Available-for-Sale Securities																			Policyholder Account Balances, Future Policy Benefits and Claims
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks			Total				IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, January 1, 2012	$	1,355		$	215		$	50		$	189		$	5		$	1,814			$	—			$	(1,585	)		$	(1,585	)
Total gains (losses) included in:
Net income	(1		)	(45		)	1			3			—			(42		)	⁽¹⁾	8			⁽²⁾	948			⁽³⁾	956
Other comprehensive income	12			68			8			1			—			89				—				—				—
Purchases	543			309			20			—			2			874				—				—				—
Sales	—			(75		)	(19		)	(18		)	—			(112		)		—				—				—
Issues	—			—			—			—			—			—				(31		)		(188		)		(219		)
Settlements	(155		)	(56		)	(3		)	(19		)	—			(233		)		—				(8		)		(8		)
Transfers into Level 3	10			42			183			22			—			257				(22		)		—				(22		)
Transfers out of Level 3	—			(174		)	(34		)	—			(1		)	(209		)		—				—				—
Balance, December 31, 2012	$	1,764		$	284		$	206		$	178		$	6		$	2,438			$	(45	)		$	(833	)		$	(878	)

Changes in unrealized gains (losses) relating to assets and liabilities held at December 31, 2012 included in:
Net investment income	$	(1	)	$	—		$	1		$	2		$	—		$	2			$	—			$	—			$	—
Interest credited to fixed accounts	—			—			—			—			—			—				8				—				8
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—				—				908				908

⁽¹⁾ Included in net investment income in the Consolidated Statements of Operations.

⁽²⁾ Included in interest credited to fixed accounts in the Consolidated Statements of Operations.

⁽³⁾ Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.



	Available-for-Sale Securities																		Policyholder Account Balances, Future Policy Benefits and Claims
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks		Total				GMWB and GMAB Embedded Derivatives
	(in millions)
Balance, January 1, 2011	$	1,325		$	4,532		$	51		$	191		$	5	$	6,104			$	(421	)
Total gains (losses) included in:
Net income	7			53			—			3			—		63			⁽¹⁾	(1,007		)	⁽²⁾
Other comprehensive income	11			(118		)	—			(10		)	—		(117		)		—
Purchases	189			556			104			118			—		967				—
Sales	(51		)	(2		)	—			—			—		(53		)		—
Issues	—			—			—			—			—		—				(149		)
Settlements	(122		)	(943		)	(4		)	(29		)	—		(1,098		)		(8		)
Transfers into Level 3	7			—			1			14			—		22				—
Transfers out of Level 3	(11		)	(3,863		)	(102		)	(98		)	—		(4,074		)		—
Balance, December 31, 2011	$	1,355		$	215		$	50		$	189		$	5	$	1,814			$	(1,585	)

Changes in unrealized gains (losses) relating to assets and liabilities held at December 31, 2011 included in:
Net investment income	$	—		$	(33	)	$	—		$	2		$	—	$	(31	)		$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—				(1,035		)

⁽¹⁾ Included in net investment income in the Consolidated Statements of Operations.

⁽²⁾ Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

The impact to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(168) million, $(71) million and $216 million, net of DAC, DSIC and unearned revenue amortization and the reinsurance accrual, for the years ended December 31, 2013, 2012 and 2011, respectively.

During the years ended December 31, 2012 and 2011, transfers from Level 3 included certain non-agency residential mortgage backed securities with a fair value of approximately $146 million and $3.9 billion, respectively. The transfers reflect improved pricing transparency of these securities, a continuing trend of increased activity in the non-agency residential mortgage backed securities market and observability of significant inputs to the valuation methodology. All other securities transferred from Level 3 represent securities with fair values that are now obtained from a third party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. The transfer of the IUL embedded derivatives to Level 3 is due to the impact of the unobservable inputs to the valuation becoming more significant during 2012. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.

The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:



	December 31, 2013
	Fair Value			Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,589		Discounted cash flow	Yield/spread to U.S. Treasuries	0.9	%	–	5.3%	1.5%
IUL embedded derivatives	$	125		Discounted cash flow	Nonperformance risk⁽³⁾	74			bps
GMWB and GMAB embedded derivatives	$	(575	)	Discounted cash flow	Utilization of guaranteed withdrawals⁽¹⁾	0.0	%	–	51.1%
					Surrender rate	0.1	%	–	57.9%
					Market volatility⁽²⁾	4.9	%	–	18.8%
					Nonperformance risk⁽³⁾	74			bps
					Elective contractholder strategy allocations ⁽⁴⁾	0.0	%	–	50.0%



	December 31, 2012
	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,712	Discounted cash flow	Yield/spread to U.S. Treasuries	1.1	%	–	8.5%	2.1%
IUL embedded derivatives	$	45	Discounted cash flow	Nonperformance risk ⁽³⁾	97			bps
GMWB and GMAB embedded derivatives	$	833	Discounted cash flow	Utilization of guaranteed withdrawals ⁽¹⁾	0.0	%	–	56.4%
				Surrender rate	0.0	%	–	56.3%
				Market volatility ⁽²⁾	5.6	%	–	21.2%
				Nonperformance risk ⁽³⁾	97			bps

⁽¹⁾ The utilization of guaranteed withdrawals represents the percentage of policyholders that will begin withdrawing in any given year.

⁽²⁾ Market volatility is implied volatility of fund of funds and managed volatility funds.

⁽³⁾ The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.

⁽⁴⁾ The elective allocation represents the percentage of contractholders that are assumed to electively switch their investment allocation to a different allocation model.

Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs are not reasonably available to the Company.

Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs

Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would result in a significantly lower (higher) fair value measurement.

Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would result in a significantly lower (higher) fair value measurement.

Significant increases (decreases) in utilization, surrender rate and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly lower (higher) asset value, possibly creating a liability. Significant increases (decreases) in nonperformance risk and elective investment allocation model used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly higher (lower) asset value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution system and whether the value of the guaranteed benefit exceeds the contract accumulation value.

Determination of Fair Value

The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.

The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.

Assets

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their net asset value (“NAV”) and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.

Investments (Available-for-Sale Securities and Trading Securities)

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries. Level 2 securities primarily include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal bonds and U.S. agency and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. In addition to the general pricing controls, the Company reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.

In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.

Separate Account Assets

The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV represents the exit price for the separate account. Separate account assets are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information.

Other Assets

Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or derivatives that are exchange-traded are classified as Level 1 measurements. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial at December 31, 2013 and 2012. See Note 15 and Note 16 for further information on the credit risk of derivative instruments and related collateral.

Liabilities

Policyholder Account Balances, Future Policy Benefits and Claims

The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk and expenses less embedded derivative fees. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to contractholder behavior assumptions, implied volatility, and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.

The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its EIA and IUL products. Significant inputs to the EIA calculation include observable interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The fair value of the IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and the significant unobservable estimate of the Company’s nonperformance risk. Given the significance of the nonperformance risk assumption to the fair value, the IUL embedded derivatives are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.

The Company’s Corporate Actuarial Department calculates the fair value of the embedded derivatives on a monthly basis. During this process, control checks are performed to validate the completeness of the data. Actuarial management approves various components of the valuation along with the final results. The change in the fair value of the embedded derivatives is reviewed monthly with senior management. The Level 3 inputs into the valuation are consistent with the pricing assumptions and updated as experience develops. Significant unobservable inputs that reflect policyholder behavior are reviewed quarterly along with other valuation assumptions.

Customer Deposits

The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates. The inputs to these calculations are primarily market observable and include interest rates, volatilities and equity index levels. As a result, these measurements are classified as Level 2.

Other Liabilities

Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or derivatives that are exchange-traded, are classified as Level 1 measurements. The fair value of derivatives that are traded in less active OTC markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial at December 31, 2013 and 2012. See Note 15 and Note 16 for further information on the credit risk of derivative instruments and related collateral.

Securities sold but not yet purchased include highly liquid investments which are short-term in nature. Securities sold but not yet purchased are measured using amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization and are classified as Level 2.

During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities Ameriprise Financial measured at fair value on a recurring basis.



	December 31, 2013
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	3,510	$	—	$	—	$	3,490	$	3,490
Policy and certificate loans	774		—		1		765		766
Receivables	1,141		107		1,026		8		1,141
Restricted and segregated cash	2,360		2,360		—		—		2,360
Other investments and assets	440		—		368		73		441

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	14,106	$	—	$	—	$	14,724	$	14,724
Investment certificate reserves	3,977		—		—		3,982		3,982
Brokerage customer deposits	3,088		3,088		—		—		3,088
Separate account liabilities	4,007		—		4,007		—		4,007
Debt and other liabilities	3,416		137		3,372		134		3,643



	December 31, 2012
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	3,609	$	—	$	—	$	3,694	$	3,694
Policy and certificate loans	754		—		2		725		727
Receivables	1,067		135		926		12		1,073
Restricted and segregated cash	2,538		2,538		—		—		2,538
Other investments and assets	390		—		333		60		393

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	14,701	$	—	$	—	$	15,982	$	15,982
Investment certificate reserves	3,504		—		—		3,494		3,494
Brokerage customer deposits	3,024		3,024		—		—		3,024
Separate account liabilities	3,362		—		3,362		—		3,362
Debt and other liabilities	3,033		145		3,109		142		3,396

Mortgage Loans, Net

The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities, liquidity and characteristics including loan-to-value ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for the Company’s estimate of the amount recoverable on the loan. Given the significant unobservable inputs to the valuation of commercial mortgage loans, these measurements are classified as Level 3.

The fair value of consumer loans is determined by discounting estimated cash flows and incorporating adjustments for prepayment, administration expenses, loss severity, liquidity and credit loss estimates, with discount rates based on the Company’s estimate of current market conditions. The fair value of consumer loans is classified as Level 3 as the valuation includes significant unobservable inputs.

Policy and Certificate Loans

Policy loans represent loans made against the cash surrender value of the underlying life insurance or annuity product. These loans and the related interest are usually realized at death of the policyholder or contractholder or at surrender of the contract and are not transferable without the underlying insurance or annuity contract. The fair value of policy loans is determined by estimating expected cash flows discounted at rates based on the U.S. Treasury curve. Policy loans are classified as Level 3 as the discount rate used may be adjusted for the underlying performance of individual policies.

Certificate loans represent loans made against and collateralized by the underlying certificate balance. These loans do not transfer to third parties separate from the underlying certificate. The outstanding balance of these loans is considered a reasonable estimate of fair value and is classified as Level 2.

Receivables

Brokerage margin loans are measured at outstanding balances, which are a reasonable estimate of fair value because of the sufficiency of the collateral and short term nature of these loans. Margin loans that are sufficiently collateralized are classified as Level 2. Margin loans that are not sufficiently collateralized are classified as Level 3.

Securities borrowed require the Company to deposit cash or collateral with the lender. As the market value of the securities borrowed is monitored daily, the carrying value is a reasonable estimate of fair value. The fair value of securities borrowed is classified as Level 1 as the value of the underlying securities is based on unadjusted prices for identical assets.

Restricted and Segregated Cash

Restricted and segregated cash is generally set aside for specific business transactions and restrictions are specific to the Company and do not transfer to third party market participants; therefore, the carrying amount is a reasonable estimate of fair value.

Amounts segregated under federal and other regulations may also reflect resale agreements and are measured at the cost at which the securities will be sold. This measurement is a reasonable estimate of fair value because of the short time between entering into the transaction and its expected realization and the reduced risk of credit loss due to pledging U.S. government-backed securities as collateral.

The fair value of restricted and segregated cash is classified as Level 1.

Other Investments and Assets

Other investments and assets primarily consist of syndicated loans. The fair value of syndicated loans is obtained from a third party pricing service or non-binding broker quotes. Syndicated loans that are priced by multiple non-binding broker quotes are classified as Level 2 and loans priced using a single non-binding broker quote are classified as Level 3.

Other investments and assets also include the Company’s membership in the Federal Home Loan Bank of Des Moines and investments related to the Community Reinvestment Act. The fair value of these assets is approximated by the carrying value and classified as Level 3 due to restrictions on transfer and lack of liquidity in the primary market for these assets.

Policyholder Account Balances, Future Policy Benefits and Claims

The fair value of fixed annuities, in deferral status, is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit margin, expense margin, early policy surrender behavior, a provision for adverse deviation from estimated early policy surrender behavior and the Company’s nonperformance risk specific to these liabilities. The fair value of other liabilities including non-life contingent fixed annuities in payout status, equity indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner. Given the use of significant unobservable inputs to these valuations, the measurements are classified as Level 3.

Investment Certificate Reserves

The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and the Company’s nonperformance risk specific to these liabilities. Given the use of significant unobservable inputs to this valuation, the measurement is classified as Level 3.

Brokerage Customer Deposits

Brokerage customer deposits are liabilities with no defined maturities and fair value is the amount payable on demand at the reporting date. The fair value of these deposits is classified as Level 1.

Separate Account Liabilities

Certain separate account liabilities are classified as investment contracts and are carried at an amount equal to the related separate account assets. The NAV of the related separate account assets represents the exit price for the separate account liabilities. Separate account liabilities are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information. A nonperformance adjustment is not included as the related separate account assets act as collateral for these liabilities and minimize nonperformance risk.

Debt and Other Liabilities

The fair value of long-term debt is based on quoted prices in active markets, when available. If quoted prices are not available, fair values are obtained from third party pricing services, broker quotes, or other model-based valuation techniques such as present value of cash flows. The fair value of long-term debt is classified as Level 2.

The fair value of short-term borrowings is obtained from a third party pricing service. A nonperformance adjustment is not included as collateral requirements for these borrowings minimize the nonperformance risk. The fair value of short-term borrowings is classified as Level 2.

The fair value of future funding commitments to affordable housing partnerships is determined by discounting cash flows. The fair value of these commitments includes an adjustment for the Company’s nonperformance risk and is classified as Level 3 due to the use of the significant unobservable input.

Securities loaned require the borrower to deposit cash or collateral with the Company. As the market value of the securities loaned is monitored daily, the carrying value is a reasonable estimate of fair value. Securities loaned are classified as Level 1 as the fair value of the underlying securities is based on unadjusted prices for identical assets.