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:



	June 30, 2017
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	38	$	1,990	$	—	$	2,028
Available-for-Sale securities:
Corporate debt securities	—		14,524		1,333		15,857
Residential mortgage backed securities	—		6,749		172		6,921
Commercial mortgage backed securities	—		3,443		—		3,443
Asset backed securities	—		1,645		33		1,678
State and municipal obligations	—		2,423		—		2,423
U.S. government and agencies obligations	7		—		—		7
Foreign government bonds and obligations	—		300		—		300
Common stocks	5		8		—		13
Common stocks measured at net asset value (“NAV”)							5		⁽¹⁾
Total Available-for-Sale securities	12		29,092		1,538		30,647
Trading securities	117		39		—		156
Separate account assets measured at NAV							83,661		⁽¹⁾
Investments segregated for regulatory purposes	125		—		—		125
Other assets:
Interest rate derivative contracts	2		1,262		—		1,264
Equity derivative contracts	49		1,710		—		1,759
Credit derivative contracts	—		1		—		1
Foreign exchange derivative contracts	2		44		—		46
Other derivative contracts	—		6		—		6
Total other assets	53		3,023		—		3,076
Total assets at fair value	$	345	$	34,144	$	1,538	$	119,693



Liabilities
Policyholder account balances, future policy benefits and claims:
EIA embedded derivatives	$	—	$	4	$	—	$	4
IUL embedded derivatives	—		—		527		527
GMWB and GMAB embedded derivatives	—		—		272		272		⁽²⁾
Total policyholder account balances, future policy benefits and claims	—		4		799		803		⁽³⁾
Customer deposits	—		8		—		8
Other liabilities:
Interest rate derivative contracts	—		451		—		451
Equity derivative contracts	7		2,284		—		2,291
Foreign exchange derivative contracts	—		30		—		30
Other derivative contracts	—		138		—		138
Other	11		7		14		32
Total other liabilities	18		2,910		14		2,942
Total liabilities at fair value	$	18	$	2,922	$	813	$	3,753



	December 31, 2016
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	30	$	1,796	$	—	$	1,826
Available-for-Sale securities:
Corporate debt securities	—		14,925		1,311		16,236
Residential mortgage backed securities	—		6,650		268		6,918
Commercial mortgage backed securities	—		3,367		—		3,367
Asset backed securities	—		1,481		68		1,549
State and municipal obligations	—		2,358		—		2,358
U.S. government and agencies obligations	8		—		—		8
Foreign government bonds and obligations	—		261		—		261
Common stocks	8		8		1		17
Common stocks at NAV							5		⁽¹⁾
Total Available-for-Sale securities	16		29,050		1,648		30,719
Trading securities	9		16		—		25
Separate account assets at NAV							80,210		⁽¹⁾
Investments segregated for regulatory purposes	425		—		—		425
Other assets:
Interest rate derivative contracts	—		1,775		—		1,775
Equity derivative contracts	42		1,526		—		1,568
Credit derivative contracts	—		1		—		1
Foreign exchange derivative contracts	13		80		—		93
Other derivative contracts	1		8		—		9
Total other assets	56		3,390		—		3,446
Total assets at fair value	$	536	$	34,252	$	1,648	$	116,651



Liabilities
Policyholder account balances, future policy benefits and claims:
EIA embedded derivatives	$	—	$	5	$	—	$	5
IUL embedded derivatives	—		—		464		464
GMWB and GMAB embedded derivatives	—		—		614		614		⁽⁴⁾
Total policyholder account balances, future policy benefits and claims	—		5		1,078		1,083		⁽⁵⁾
Customer deposits	—		8		—		8
Other liabilities:
Interest rate derivative contracts	2		977		—		979
Equity derivative contracts	3		2,024		—		2,027
Foreign exchange derivative contracts	2		45		—		47
Other derivative contracts	—		118		—		118
Other	3		8		13		24
Total other liabilities	10		3,172		13		3,195
Total liabilities at fair value	$	10	$	3,185	$	1,091	$	4,286

⁽¹⁾ Amounts are comprised of certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.

⁽²⁾ The fair value of the GMWB and GMAB embedded derivatives included $637 million of individual contracts in a liability position and $365 million of individual contracts in an asset position as of June 30, 2017.


⁽³⁾	The Company’s adjustment for nonperformance risk resulted in a $425 million cumulative decrease to the embedded derivatives as of June 30, 2017.


⁽⁴⁾	The fair value of the GMWB and GMAB embedded derivatives included $880 million of individual contracts in a liability position and $266 million of individual contracts in an asset position as of December 31, 2016.


⁽⁵⁾	The Company’s adjustment for nonperformance risk resulted in a $498 million cumulative decrease to the embedded derivatives as of December 31, 2016.

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
	Corporate Debt Securities			Residential Mortgage Backed Securities			Asset Backed Securities			Common Stocks			Total
	(in millions)
Balance, April 1, 2017	$	1,344		$	316		$	64		$	8		$	1,732
Total gains included in:
Other comprehensive income	2			1			1			—			4
Purchases	8			—			5			—			13
Settlements	(21		)	(13		)	(2		)	—			(36		)
Transfers into Level 3	—			—			14			—			14
Transfers out of Level 3	—			(132		)	(49		)	(8		)	(189		)
Balance, June 30, 2017	$	1,333		$	172		$	33		$	—		$	1,538

Changes in unrealized losses relating to assets held at June 30, 2017	$	—		$	—		$	(1	)	$	—		$	(1	)	⁽¹⁾



	Policyholder Account Balances, Future Policy Benefits and Claims											Other Liabilities
	IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total			Other Liabilities
	(in millions)
Balance, April 1, 2017	$	493			$	188			$	681		$	13
Total losses included in:
Net income	21			⁽²⁾	10			⁽³⁾	31			1		⁽⁴⁾
Issues	22				77				99			—
Settlements	(9		)		(3		)		(12		)	—
Balance, June 30, 2017	$	527			$	272			$	799		$	14

Changes in unrealized losses relating to liabilities held at June 30, 2017	$	21		⁽²⁾	$	20		⁽³⁾	$	41		$	—



	Available-for-Sale Securities																Other Derivative Contracts
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total				Other Derivative Contracts
	(in millions)
Balance, April 1, 2016	$	1,411		$	174		$	10		$	170		$	1,765			$	—
Total gains (losses) included in:
Net income	(1		)	—			—			—			(1		)	⁽¹⁾	—
Other comprehensive income	13			2			—			(3		)	12				—
Purchases	14			—			—			15			29				2
Settlements	(87		)	(23		)	(1		)	(1		)	(112		)		—
Transfers into Level 3	—			—			—			12			12				—
Transfers out of Level 3	—			—			(9		)	(15		)	(24		)		—
Balance, June 30, 2016	$	1,350		$	153		$	—		$	178		$	1,681			$	2

Changes in unrealized gains (losses) relating to assets held at June 30, 2016	$	—		$	—		$	—		$	—		$	—			$	—



	Policyholder Account Balances, Future Policy Benefits and Claims
	IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, April 1, 2016	$	382			$	1,515			$	1,897
Total losses included in:
Net income	4			⁽²⁾	386			⁽³⁾	390
Issues	29				70				99
Settlements	(7		)		(6		)		(13		)
Balance, June 30, 2016	$	408			$	1,965			$	2,373

Changes in unrealized losses relating to liabilities held at June 30, 2016	$	4		⁽²⁾	$	405		⁽³⁾	$	409



	Available-for-Sale Securities
	Corporate Debt Securities			Residential Mortgage Backed Securities			Asset Backed Securities			Common Stocks			Total
	(in millions)
Balance, January 1, 2017	$	1,311		$	268		$	68		$	1		$	1,648
Total gains included in:
Other comprehensive income	2			1			2			—			5
Purchases	70			132			54			—			256
Settlements	(50		)	(25		)	(15		)	—			(90		)
Transfers into Level 3	—			—			14			8			22
Transfers out of Level 3	—			(204		)	(90		)	(9		)	(303		)
Balance, June 30, 2017	$	1,333		$	172		$	33		$	—		$	1,538

Changes in unrealized losses relating to assets held at June 30, 2017	$	—		$	—		$	(1	)	$	—		$	(1	)	⁽¹⁾



	Policyholder Account Balances, Future Policy Benefits and Claims											Other Liabilities
	IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total			Other Liabilities
	(in millions)
Balance, January 1, 2017	$	464			$	614			$	1,078		$	13
Total (gains) losses included in:
Net income	40			⁽²⁾	(489		)	⁽³⁾	(449		)	1		⁽⁴⁾
Issues	44				154				198			—
Settlements	(21		)		(7		)		(28		)	—
Balance, June 30, 2017	$	527			$	272			$	799		$	14

Changes in unrealized (gains) losses relating to liabilities held at June 30, 2017	$	40		⁽²⁾	$	(464	)	⁽³⁾	$	(424	)	$	—



	Available-for-Sale Securities																Other Derivative Contracts
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total				Other Derivative Contracts
	(in millions)
Balance, January 1, 2016	$	1,425		$	218		$	3		$	162		$	1,808			$	—
Cumulative effect of change in accounting policies	—			—			—			21			21				—
Total gains (losses) included in:
Net income	(2		)	—			—			(1		)	(3		)	⁽¹⁾	—
Other comprehensive income	31			(1		)	—			(6		)	24				—
Purchases	14			—			9			16			39				2
Settlements	(118		)	(39		)	(3		)	(1		)	(161		)		—
Transfers into Level 3	—			—			—			12			12				—
Transfers out of Level 3	—			(25		)	(9		)	(25		)	(59		)		—
Balance, June 30, 2016	$	1,350		$	153		$	—		$	178		$	1,681			$	2

Changes in unrealized losses relating to assets held at June 30, 2016	$	(1	)	$	—		$	—		$	(1	)	$	(2	)	⁽¹⁾	$	—



	Policyholder Account Balances, Future Policy Benefits and Claims
	IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, January 1, 2016	$	364			$	851			$	1,215
Total (gains) losses included in:
Net income	(4		)	⁽²⁾	988			⁽³⁾	984
Issues	61				138				199
Settlements	(13		)		(12		)		(25		)
Balance, June 30, 2016	$	408			$	1,965			$	2,373

Changes in unrealized (gains) losses relating to liabilities held at June 30, 2016	$	(4	)	⁽²⁾	$	1,021		⁽³⁾	$	1,017

⁽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.

⁽⁴⁾ Included in general and administrative expense in the Consolidated Statements of Operations.

The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(9) million and $97 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the three months ended June 30, 2017 and 2016, respectively. The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(54) million and $287 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the six months ended June 30, 2017 and 2016, respectively.

Securities transferred from Level 3 primarily 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 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:



	June 30, 2017
	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,331	Discounted cash flow	Yield/spread to U.S. Treasuries	0.8	%	–	2.4%	1.2%
Asset backed securities	$	14	Discounted cash flow	Annual short-term default rate	4.3%
				Annual long-term default rate	2.5%
				Discount rate	11.0%
				Constant prepayment rate	5.0	%	–	10.0%	9.8%
				Loss recovery	36.4	%	–	63.6%	62.6%
IUL embedded derivatives	$	527	Discounted cash flow	Nonperformance risk ⁽¹⁾	73 bps
GMWB and GMAB embedded derivatives	$	272	Discounted cash flow	Utilization of guaranteed withdrawals ⁽²⁾	0.0	%	–	75.6%
				Surrender rate	0.1	%	–	66.4%
				Market volatility ⁽³⁾	5.0	%	–	19.9%
				Nonperformance risk ⁽¹⁾	73 bps
Contingent consideration liability	$	14	Discounted cash flow	Discount rate	9.0%



	December 31, 2016
	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,308	Discounted cash flow	Yield/spread to U.S. Treasuries	0.9	%	–	2.5%	1.3	%
Asset backed securities	$	14	Discounted cash flow	Annual short-term default rate	4.8%
				Annual long-term default rate	2.5%
				Discount rate	13.5%
				Constant prepayment rate	5.0	%	–	10.0%	9.9	%
				Loss recovery	36.4	%	–	63.6%	62.8	%
IUL embedded derivatives	$	464	Discounted cash flow	Nonperformance risk ⁽¹⁾	82 bps
GMWB and GMAB embedded derivatives	$	614	Discounted cash flow	Utilization of guaranteed withdrawals ⁽²⁾	0.0	%	–	75.6%
				Surrender rate	0.1	%	–	66.4%
				Market volatility ⁽³⁾	5.3	%	–	21.2%
				Nonperformance risk ⁽¹⁾	82 bps
Contingent consideration liability	$	13	Discounted cash flow	Discount rate	9.0%


⁽¹⁾	The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.


⁽²⁾	The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.


⁽³⁾	Market volatility is implied volatility of fund of funds and managed volatility funds.

Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation 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 the annual default rate and discount rate used in the fair value measurement of Level 3 asset backed securities in isolation, generally, would result in a significantly lower (higher) fair value measurement and a significant increase (decrease) in loss recovery in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the constant prepayment rate 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 and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly higher (lower) liability value. Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly lower (higher) liability 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 channel and whether the value of the guaranteed benefit exceeds the contract accumulation value.

Significant increases (decreases) in the discount rate used in the fair value measurement of the contingent consideration liability in isolation would result in a significantly lower (higher) fair value measurement.

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 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, state and municipal obligations 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 and asset backed securities. The fair value of corporate bonds, non-agency residential 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. The fair value of certain asset backed securities is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about discount rates and default, prepayment and recovery rates of the underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the investment in certain asset backed securities is classified as Level 3. 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 is used as a practical expedient for fair value and represents the exit price for the separate account. Separate account assets are excluded from classification in the fair value hierarchy.

Investments Segregated for Regulatory Purposes

Investments segregated for regulatory purposes includes U.S. Treasuries that are classified as Level 1.

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 variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is 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. Other derivative contracts consist of the Company’s macro hedge program. See Note 12 for further information on the macro hedge program. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of June 30, 2017 and December 31, 2016. See Note 11 and Note 12 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 variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active OTC markets is 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. Other derivative contracts consist of the Company’s macro hedge program. See Note 12 for further information on the macro hedge program. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial as of June 30, 2017 and December 31, 2016. See Note 11 and Note 12 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.

In 2016, the Company recorded a contingent consideration liability for an earn-out related to the Company’s acquisition of Emerging Global Advisors. The earn-out is based on the net revenues generated by net flows of assets under management and may be paid over a three year period beginning on the third anniversary of the acquisition date. The contingent consideration liability is recorded at fair value using a discounted cash flow model under multiple scenarios and includes an unobservable input. Given the use of an unobservable input, the fair value of the contingent consideration liability is classified as Level 3 within the fair value hierarchy.

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:



	June 30, 2017
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,993	$	—	$	—	$	3,016	$	3,016
Policy and certificate loans	836		—		—		795		795
Receivables	1,556		170		1,381		3		1,554
Restricted and segregated cash	2,947		2,947		—		—		2,947
Other investments and assets	531		—		450		76		526

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	10,551	$	—	$	—	$	11,190	$	11,190
Investment certificate reserves	6,224		—		—		6,212		6,212
Brokerage customer deposits	3,978		3,978		—		—		3,978
Separate account liabilities measured at NAV	4,453								4,453		⁽¹⁾
Debt and other liabilities	3,383		181		3,201		149		3,531



	December 31, 2016
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,986	$	—	$	—	$	2,972	$	2,972
Policy and certificate loans	831		—		1		807		808
Receivables	1,396		127		1,270		3		1,400
Restricted and segregated cash	2,905		2,905		—		—		2,905
Other investments and assets	508		—		449		61		510

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	10,906	$	—	$	—	$	11,417	$	11,417
Investment certificate reserves	5,927		—		—		5,914		5,914
Brokerage customer deposits	4,112		4,112		—		—		4,112
Separate account liabilities measured at NAV	4,253								4,253		⁽¹⁾
Debt and other liabilities	3,371		146		3,176		169		3,491


⁽¹⁾	Amounts are comprised of certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.

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 LTV 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 price 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 using a market approach with observable inputs are classified as Level 2 and syndicated 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 FHLB 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 margin for adverse deviation from estimated early policy surrender behavior and the Company’s nonperformance risk specific to these liabilities. The fair value of non-life contingent fixed annuities in payout status, EIA 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 is used as a practical expedient for fair value and represents the exit price for the separate account liabilities. Separate account liabilities are excluded from classification in the fair value hierarchy.

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 and other real estate 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.