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, 2018
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	156	$	1,892	$	—	$	2,048
Available-for-Sale securities:
Corporate debt securities	—		13,212		1,040		14,252
Residential mortgage backed securities	—		5,866		120		5,986
Commercial mortgage backed securities	—		4,532		52		4,584
Asset backed securities	—		1,544		31		1,575
State and municipal obligations	—		2,370		—		2,370
U.S. government and agency obligations	1,424		—		—		1,424
Foreign government bonds and obligations	—		268		—		268
Total Available-for-Sale securities	1,424		27,792		1,243		30,459
Equity securities	1		1		—		2
Equity securities at net asset value (“NAV”)							6		⁽¹⁾
Trading securities	38		48		—		86
Separate account assets at NAV							85,258		⁽¹⁾
Investments segregated for regulatory purposes	399		—		—		399
Other assets:
Interest rate derivative contracts	—		716		—		716
Equity derivative contracts	62		2,139		—		2,201
Credit derivative contracts	—		4		—		4
Foreign exchange derivative contracts	12		35		—		47
Other derivative contracts	—		—		2		2
Total other assets	74		2,894		2		2,970
Total assets at fair value	$	2,092	$	32,627	$	1,245	$	121,228



Liabilities
Policyholder account balances, future policy benefits and claims:
Indexed annuity embedded derivatives	$	—	$	4	$	8		$	12
IUL embedded derivatives	—		—		620			620
GMWB and GMAB embedded derivatives	—		—		(425		)	(425		)	⁽²⁾
Total policyholder account balances, future policy benefits and claims	—		4		203			207			⁽³⁾
Customer deposits	—		10		—			10
Other liabilities:
Interest rate derivative contracts	—		544		—			544
Equity derivative contracts	24		2,680		—			2,704
Foreign exchange derivative contracts	6		25		—			31
Other	17		9		29			55
Total other liabilities	47		3,258		29			3,334
Total liabilities at fair value	$	47	$	3,272	$	232		$	3,551



	December 31, 2017
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	147	$	2,025	$	—	$	2,172
Available-for-Sale securities:
Corporate debt securities	—		13,936		1,139		15,075
Residential mortgage backed securities	—		6,456		155		6,611
Commercial mortgage backed securities	—		4,374		—		4,374
Asset backed securities	—		1,573		7		1,580
State and municipal obligations	—		2,463		—		2,463
U.S. government and agencies obligations	503		—		—		503
Foreign government bonds and obligations	—		314		—		314
Common stocks	1		—		—		1
Common stocks at NAV							6		⁽¹⁾
Total Available-for-Sale securities	504		29,116		1,301		30,927
Trading securities	10		34		—		44
Separate account assets at NAV							87,368		⁽¹⁾
Investments segregated for regulatory purposes	623		—		—		623
Other assets:
Interest rate derivative contracts	—		1,104		—		1,104
Equity derivative contracts	63		2,360		—		2,423
Foreign exchange derivative contracts	2		34		—		36
Total other assets	65		3,498		—		3,563
Total assets at fair value	$	1,349	$	34,673	$	1,301	$	124,697



Liabilities
Policyholder account balances, future policy benefits and claims:
Indexed annuity embedded derivatives	$	—	$	5	$	—		$	5
IUL embedded derivatives	—		—		601			601
GMWB and GMAB embedded derivatives	—		—		(49		)	(49		)	⁽⁴⁾
Total policyholder account balances, future policy benefits and claims	—		5		552			557			⁽⁵⁾
Customer deposits	—		10		—			10
Other liabilities:
Interest rate derivative contracts	1		415		—			416
Equity derivative contracts	7		2,876		—			2,883
Credit derivative contracts	—		2		—			2
Foreign exchange derivative contracts	4		23		—			27
Other	9		6		28			43
Total other liabilities	21		3,322		28			3,371
Total liabilities at fair value	$	21	$	3,337	$	580		$	3,938

⁽¹⁾ Amounts are comprised of certain financial instruments 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 $265 million of individual contracts in a liability position and $690 million of individual contracts in an asset position as of June 30, 2018.


⁽³⁾	The Company’s adjustment for nonperformance risk resulted in a $(444) million cumulative increase (decrease) to the embedded derivatives as of June 30, 2018.


⁽⁴⁾	The fair value of the GMWB and GMAB embedded derivatives included $443 million of individual contracts in a liability position and $492 million of individual contracts in an asset position as of December 31, 2017.


⁽⁵⁾	The Company’s adjustment for nonperformance risk resulted in a $(399) million cumulative increase (decrease) to the embedded derivatives as of December 31, 2017.

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														Other Derivatives
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities		Asset Backed Securities			Total			Other Derivatives
	(in millions)
Balance, April 1, 2018	$	1,095		$	146		$	—	$	17		$	1,258		$	—
Total gains (losses) included in:
Net income	—			—			—		—			—			(1		)	⁽¹⁾
Other comprehensive income (loss)	(12		)	3			—		—			(9		)	—
Purchases	15			—			52		22			89			3
Settlements	(58		)	(12		)	—		—			(70		)	—
Transfers into Level 3	—			—			—		2			2			—
Transfers out of Level 3	—			(17		)	—		(10		)	(27		)	—
Balance, June 30, 2018	$	1,040		$	120		$	52	$	31		$	1,243		$	2

Changes in unrealized gains (losses) relating to assets held at June 30, 2018	$	—		$	—		$	—	$	—		$	—		$	(1	)	⁽¹⁾



	Policyholder Account Balances, Future Policy Benefits and Claims													Other Liabilities
	Indexed Annuity Embedded Derivatives		IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total			Other Liabilities
	(in millions)
Balance, April 1, 2018	$	3	$	585			$	(329	)		$	259		$	28
Total (gains) losses included in:
Net income	—		26			⁽²⁾	(175		)	⁽¹⁾	(149		)	1		⁽³⁾
Issues	5		21				84				110			—
Settlements	—		(12		)		(5		)		(17		)	—
Balance, June 30, 2018	$	8	$	620			$	(425	)		$	203		$	29

Changes in unrealized (gains) losses relating to liabilities held at June 30, 2018	$	—	$	26		⁽²⁾	$	(173	)	⁽¹⁾	$	(147	)	$	—



	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 (losses) 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 gains (losses) relating to assets held at June 30, 2017	$	—		$	—		$	(1	)	$	—		(1		)	⁽⁴⁾



	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 (gains) losses included in:
Net income	21			⁽²⁾	10			⁽¹⁾	31			1		⁽³⁾
Issues	22				77				99			—
Settlements	(9		)		(3		)		(12		)	—
Balance, June 30, 2017	$	527			$	272			$	799		$	14

Changes in unrealized (gains) losses relating to liabilities held at June 30, 2017	$	21		⁽²⁾	$	20		⁽¹⁾	$	41		$	—



	Available-for-Sale Securities															Other Derivatives
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities		Asset Backed Securities			Total				Other Derivatives
	(in millions)
Balance, January 1, 2018	$	1,139		$	155		$	—	$	7		$	1,301			$	—
Total gains (losses) included in:
Net income	(1		)	—			—		—			(1		)	⁽⁴⁾	(1		)	⁽¹⁾
Other comprehensive income (loss)	(26		)	1			—		—			(25		)		—
Purchases	15			—			52		32			99				3
Settlements	(87		)	(19		)	—		—			(106		)		—
Transfers into Level 3	—			—			—		2			2				—
Transfers out of Level 3	—			(17		)	—		(10		)	(27		)		—
Balance, June 30, 2018	$	1,040		$	120		$	52	$	31		$	1,243			$	2

Changes in unrealized gains (losses) relating to assets held at June 30, 2018	$	(1	)	$	—		$	—	$	—		$	(1	)	⁽⁴⁾	$	(1	)	⁽¹⁾



	Policyholder Account Balances, Future Policy Benefits and Claims													Other Liabilities
	Indexed Annuity Embedded Derivatives		IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total			Other Liabilities
	(in millions)
Balance, January 1, 2018	$	—	$	601			$	(49	)		$	552		$	28
Total (gains) losses included in:
Net income	—		1			⁽²⁾	(531		)	⁽¹⁾	(530		)	1		⁽³⁾
Issues	8		41				167				216			—
Settlements	—		(23		)		(12		)		(35		)	—
Balance, June 30, 2018	$	8	$	620			$	(425	)		$	203		$	29

Changes in unrealized (gains) losses relating to liabilities held at June 30, 2018	$	—	$	1		⁽²⁾	$	(521	)	⁽¹⁾	$	(520	)	$	—



	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 (losses) 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 gains (losses) relating to assets held at June 30, 2017	$	—		$	—		$	(1	)	$	—		$	(1	)	⁽⁴⁾



	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		)	⁽¹⁾	(449		)	1		⁽³⁾
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	)	⁽¹⁾	$	(424	)	$	—

⁽¹⁾ Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

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

⁽³⁾ Included in general and administrative expense in the Consolidated Statements of Operations.

⁽⁴⁾Included in net investment income 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 $15 million and $(9) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the three months ended June 30, 2018 and 2017, respectively. The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $48 million and $(54) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the six months ended June 30, 2018 and 2017, 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, 2018
	Fair Value			Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,039		Discounted cash flow	Yield/spread to U.S. Treasuries	0.9	%	–	2.5%	1.3	%
Other derivative contracts	$	2		Option pricing model	Implied correlation ⁽¹⁾	33.3	%	–	40.1%	38.0	%
Asset backed securities	$	8		Discounted cash flow	Annual short-term default rate	2.3%
					Annual long-term default rate	2.5%		–	3.5%	3.1	%
					Discount rate	11.5%
					Constant prepayment rate	5.0	%	–	10.0%	10.0	%
					Loss recovery	36.4	%	–	63.6%	63.6	%
IUL embedded derivatives	$	620		Discounted cash flow	Nonperformance risk ⁽²⁾	93 bps
Indexed annuity embedded derivatives	$	8		Discounted cash flow	Surrender rate	0.0	%	–	50.0%
					Nonperformance risk ⁽²⁾	93 bps
GMWB and GMAB embedded derivatives	$	(425	)	Discounted cash flow	Utilization of guaranteed withdrawals ⁽³⁾	0.0	%	–	42.0%
					Surrender rate	0.1	%	–	74.7%
					Market volatility ⁽⁴⁾	3.8	%	–	15.8%
					Nonperformance risk ⁽²⁾	93 bps
Contingent consideration liabilities	$	29		Discounted cash flow	Discount rate	9.0%



	December 31, 2017
	Fair Value			Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,138		Discounted cash flow	Yield/spread to U.S. Treasuries	0.7	%	–	2.3%	1.1	%
Asset backed securities	$	7		Discounted cash flow	Annual short-term default rate	3.8%
					Annual long-term default rate	2.5%		–	3.0%	2.7	%
					Discount rate	10.5%
					Constant prepayment rate	5.0	%	–	10.0%	9.9	%
					Loss recovery	36.4	%	–	63.6%	63.2	%
IUL embedded derivatives	$	601		Discounted cash flow	Nonperformance risk ⁽²⁾	71 bps
GMWB and GMAB embedded derivatives	$	(49	)	Discounted cash flow	Utilization of guaranteed withdrawals ⁽³⁾	0.0	%	–	42.0%
					Surrender rate	0.1	%	–	74.7%
					Market volatility ⁽⁴⁾	3.7	%	–	16.1%
					Nonperformance risk ⁽²⁾	71 bps
Contingent consideration liabilities	$	28		Discounted cash flow	Discount rate	9.0%


⁽¹⁾	Represents the implied correlation between equity returns and interest rates used in the valuation of the derivative contract.


⁽²⁾	The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.


⁽³⁾	The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.


⁽⁴⁾	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 implied correlation used in the fair value measurement of Level 3 derivatives 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 nonperformance risk and surrender rate used in the fair value measurement of the indexed annuity embedded derivatives in isolation would result in a significantly lower (higher) liability value.

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 time deposits and other highly liquid investments with original or remaining maturities at the time of purchase 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, Equity 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 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. 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. The fair value of certain derivatives measured using pricing models which include significant unobservable inputs are classified as Level 3 within the fair value hierarchy. Other derivative contracts consist of the Company’s macro hedge derivatives that contain settlement provisions linked to both equity returns and interest rates. See Note 13 for further information on the macro hedge program. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of June 30, 2018 and December 31, 2017. See Note 12 and Note 13 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 indexed annuity and IUL products. Significant inputs to the equity indexed annuity calculation include observable interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The fair value of fixed index annuity and 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 fixed index annuity and 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 (“SMC”). 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. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial as of June 30, 2018 and December 31, 2017. See Note 12 and Note 13 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.

Contingent consideration liabilities consist of earn-outs and/or deferred payments related to the Company’s acquisitions. Contingent consideration liabilities are recorded at fair value using a discounted cash flow model under multiple scenarios and an unobservable input (discount rate). Given the use of a significant unobservable input, the fair value of contingent consideration liabilities is classified as Level 3 within the fair value hierarchy.

Fair Value on a Nonrecurring Basis

The Company assesses its investment in affordable housing partnerships for other-than-temporary impairment. The investments that are determined to be other-than-temporarily impaired are written down to their fair value. The Company uses a discounted cash flow model to measure the fair value of these investments. Inputs to the discounted cash flow model are estimates of future net operating losses and tax credits available to the Company and discount rates based on market condition and the financial strength of the syndicator (general partner). The balance of affordable housing partnerships measured at fair value on a nonrecurring basis was $121 million and $166 million as of June 30, 2018 and December 31, 2017, respectively, and is classified as Level 3 in the fair value hierarchy.

Asset and Liabilities Not Reported at Fair Value

The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value:



	June 30, 2018
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,689	$	—	$	—	$	2,652	$	2,652
Policy and certificate loans	851		—		—		805		805
Receivables	1,685		190		1,007		477		1,674
Restricted and segregated cash	2,192		2,192		—		—		2,192
Other investments and assets	592		—		522		70		592

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	9,920	$	—	$	—	$	10,005	$	10,005
Investment certificate reserves	6,909		—		—		6,878		6,878
Brokerage customer deposits	3,521		3,521		—		—		3,521
Separate account liabilities at NAV	5,221								5,221		⁽¹⁾
Debt and other liabilities	3,322		186		3,072		84		3,342



	December 31, 2017
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,756	$	—	$	—	$	2,752	$	2,752
Policy and certificate loans	845		—		—		801		801
Receivables	1,537		103		946		487		1,536
Restricted and segregated cash	2,524		2,524		—		—		2,524
Other investments and assets ⁽²⁾	725		—		677		49		726

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	10,246	$	—	$	—	$	10,755	$	10,755
Investment certificate reserves	6,390		—		—		6,374		6,374
Brokerage customer deposits	3,915		3,915		—		—		3,915
Separate account liabilities at NAV	5,177								5,177		⁽¹⁾
Debt and other liabilities	3,290		118		3,180		119		3,417

⁽²⁾ Amounts have been corrected to include certificates of deposit with original or remaining maturities at the time of purchase of more than 90 days but less than 12 months of $205 million as of December 31, 2017. The certificates of deposit are classified as Level 2 and recorded at cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.

See Note 6 for additional information on mortgage loans, policy loans and certificate loans. Receivables include brokerage margin loans, securities borrowed and loans to financial advisors. Restricted and segregated cash includes cash segregated under federal and other regulations held in special reserve bank accounts for the exclusive benefit of the Company’s brokerage customers. Other investments and assets primarily include syndicated loans, certificate of deposits with original or remaining maturities at the time of purchase of more than 90 days but less than 12 months, the Company’s membership in the FHLB and investments related to the Community Reinvestment Act. See Note 6 for additional information on syndicated loans.

Policyholder account balances, future policy benefit and claims includes fixed annuities in deferral status, non-life contingent fixed annuities in payout status, indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts. See Note 8 for additional information on these liabilities. Investment certificate reserves represent customer deposits for fixed rate certificates and stock market certificates. Brokerage customer deposits are amounts payable to brokerage customers related to free credit balances, funds deposited by customers and funds accruing to customers as a result of trades or contracts. Separate account liabilities primarily relate to investment contracts in pooled pension funds offered by Threadneedle. Debt and other liabilities include the Company’s long-term debt, short-term borrowings, securities loaned and future funding commitments to affordable housing partnerships and other real estate partnerships. See Note 10 for further information on the Company’s long-term debt and short-term borrowings.