Fair Values of Assets and Liabilities

6 Months Ended

Jun. 30, 2012

Fair Values of Assets and Liabilities

Fair Values of Assets and Liabilities

10.  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, 2012
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	17	$	2,335	$	—	$	2,352
Available-for-Sale securities:
Corporate debt securities	—		16,940		1,485		18,425
Residential mortgage backed securities	—		7,012		222		7,234
Commercial mortgage backed securities	—		4,373		69		4,442
Asset backed securities	—		1,814		201		2,015
State and municipal obligations	—		2,172		—		2,172
U.S. government and agencies obligations	22		46		—		68
Foreign government bonds and obligations	—		216		—		216
Common stocks	2		3		5		10
Other debt obligations	—		8		—		8
Total Available-for-Sale securities	24		32,584		1,982		34,590
Trading securities	1		22		—		23
Separate account assets	—		69,303		—		69,303
Investments segregated for regulatory purposes	—		75		—		75
Other assets:
Interest rate derivative contracts	—		2,417		—		2,417
Equity derivative contracts	387		1,207		—		1,594
Foreign currency derivative contracts	—		2		—		2
Commodity derivative contracts	—		1		—		1
Total other assets	387		3,627		—		4,014
Total assets at fair value	$	429	$	107,946	$	1,982	$	110,357
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	2	$	—	$	2
IUL embedded derivatives	—		22		—		22
GMWB and GMAB embedded derivatives	—		—		1,406		1,406
Total future policy benefits and claims	—		24		1,406		1,430		(1)
Customer deposits	—		8		—		8
Other liabilities:
Interest rate derivative contracts	—		1,589		—		1,589
Equity derivative contracts	286		1,330		—		1,616
Foreign currency derivative contracts	4		3		—		7
Other	—		9		—		9
Total other liabilities	290		2,931		—		3,221
Total liabilities at fair value	$	290	$	2,963	$	1,406	$	4,659

(1)The Company’s adjustment for nonperformance risk resulted in a $506 million cumulative decrease to the embedded derivative liability.

	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	20	$	2,287	$	—	$	2,307
Available-for-Sale securities:
Corporate debt securities	—		16,685		1,355		18,040
Residential mortgage backed securities	—		7,198		198		7,396
Commercial mortgage backed securities	—		4,669		50		4,719
Asset backed securities	—		1,779		206		1,985
State and municipal obligations	—		2,130		—		2,130
U.S. government and agencies obligations	22		49		—		71
Foreign government bonds and obligations	—		144		—		144
Common stocks	2		2		5		9
Other debt obligations	—		11		—		11
Total Available-for-Sale securities	24		32,667		1,814		34,505
Trading securities	1		30		—		31
Separate account assets	—		66,780		—		66,780
Investments segregated for regulatory purposes	—		293		—		293
Other assets:
Interest rate derivative contracts	—		1,958		—		1,958
Equity derivative contracts	274		1,077		—		1,351
Credit derivative contracts	—		1		—		1
Foreign currency derivative contracts	—		7		—		7
Commodity derivative contracts	—		2		—		2
Total other assets	274		3,045		—		3,319
Total assets at fair value	$	319	$	105,102	$	1,814	$	107,235
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	2	$	—	$	2
IUL embedded derivatives	—		3		—		3
GMWB and GMAB embedded derivatives	—		—		1,585		1,585
Total future policy benefits and claims	—		5		1,585		1,590		(1)
Customer deposits	—		6		—		6
Other liabilities:
Interest rate derivative contracts	—		1,209		—		1,209
Equity derivative contracts	297		764		—		1,061
Foreign currency derivative contracts	3		10		—		13
Other	—		2		—		2
Total other liabilities	300		1,985		—		2,285
Total liabilities at fair value	$	300	$	1,996	$	1,585	$	3,881

(1)The Company’s adjustment for nonperformance risk resulted in a $506 million cumulative decrease to the embedded derivative liability.

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:

																			Future Policy
	Available-for-Sale Securities																		Benefits and
				Residential			Commercial												Claims: GMWB
	Corporate			Mortgage			Mortgage			Asset									and GMAB
	Debt			Backed			Backed			Backed			Common						Embedded
	Securities			Securities			Securities			Securities			Stocks			Total			Derivatives
	(in millions)
Balance, April 1, 2012	$	1,422		$	224		$	89		$	208		$	6		$	1,949		$	(840	)
Total gains (losses) included in:
Net income	—			(8		)	—			—			—			(8		)(1)	(528		)(2)
Other comprehensive income	1			11			—			1			—			13			—
Purchases	95			22			7			—			—			124			—
Sales	—			—			—			—			—			—			—
Issues	—			—			—			—			—			—			(43		)
Settlements	(43		)	(15		)	—			(8		)	—			(66		)	5
Transfers into Level 3	10			16			—			—			—			26			—
Transfers out of Level 3	—			(28		)	(27		)	—			(1		)	(56		)	—
Balance, June 30, 2012	$	1,485		$	222		$	69		$	201		$	5		$	1,982		$	(1,406	)
Changes in unrealized losses relating to assets and liabilities held at June 30, 2012 included in:
Net investment income	$	—		$	(8	)	$	—		$	—		$	—		$	(8	)	$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—			(535		)

(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.

																		Future Policy
	Available-for-Sale Securities																	Benefits and
				Residential			Commercial						Common					Claims: GMWB
	Corporate			Mortgage			Mortgage			Asset			and					and GMAB
	Debt			Backed			Backed			Backed			Preferred					Embedded
	Securities			Securities			Securities			Securities			Stocks		Total			Derivatives
	(in millions)
Balance, April 1, 2011	$	1,315		$	4,093		$	26		$	488		$	5	$	5,927		$	(190	)
Total gains (losses) included in:
Net income	7			—			—			1			—		8		(1)	(88		)(2)
Other comprehensive income	11			(11		)	—			(4		)	—		(4		)	—
Purchases	36			349			74			41			—		500			—
Sales	—			—			—			—			—		—			—
Issues	—			—			—			—			—		—			(36		)
Settlements	(93		)	(278		)	—			(28		)	—		(399		)	(2		)
Transfers into Level 3	—			—			—			—			—		—			—
Transfers out of Level 3	(2		)	(56		)	(36		)	—			—		(94		)	—
Balance, June 30, 2011	$	1,274		$	4,097		$	64		$	498		$	5	$	5,938		$	(316	)
Changes in unrealized gains (losses) relating to assets and liabilities held at June 30, 2011 included in:
Net investment income	$	—		$	(1	)	$	—		$	2		$	—	$	1		$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—			(90		)

(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.

																			Future Policy
	Available-for-Sale Securities																		Benefits and
				Residential			Commercial												Claims: GMWB
	Corporate			Mortgage			Mortgage			Asset									and GMAB
	Debt			Backed			Backed			Backed			Common						Embedded
	Securities			Securities			Securities			Securities			Stocks			Total			Derivatives
	(in millions)
Balance, January 1, 2012	$	1,355		$	198		$	50		$	206		$	5		$	1,814		$	(1,585	)
Total gains (losses) included in:
Net income	—			(13		)	—			—			—			(13		)(1)	256		(2)
Other comprehensive income	5			26			2			2			—			35			—
Purchases	210			45			9			—			1			265			—
Sales	—			—			—			—			—			—			—
Issues	—			—			—			—			—			—			(82		)
Settlements	(95		)	(28		)	(2		)	(14		)	—			(139		)	5
Transfers into Level 3	10			22			37			7			—			76			—
Transfers out of Level 3	—			(28		)	(27		)	—			(1		)	(56		)	—
Balance, June 30, 2012	$	1,485		$	222		$	69		$	201		$	5		$	1,982		$	(1,406	)
Changes in unrealized gains (losses) relating to assets and liabilities held at June 30, 2012 included in:
Net investment income	$	—		$	(13	)	$	—		$	—		$	—		$	(13	)	$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—			234

(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.

																		Future Policy
	Available-for-Sale Securities																	Benefits and
				Residential			Commercial						Common					Claims: GMWB
	Corporate			Mortgage			Mortgage			Asset			and					and GMAB
	Debt			Backed			Backed			Backed			Preferred					Embedded
	Securities			Securities			Securities			Securities			Stocks		Total			Derivatives
	(in millions)
Balance, January 1, 2011	$	1,325		$	4,247		$	51		$	476		$	5	$	6,104		$	(421	)
Total gains included in:
Net income	7			7			—			3			—		17		(1)	175		(2)
Other comprehensive income	12			2			—			1			—		15			—
Purchases	73			499			89			70			—		731			—
Sales	—			(3		)	—			—			—		(3		)	—
Issues	—			—			—			—			—		—			(68		)
Settlements	(131		)	(599		)	(1		)	(52		)	—		(783		)	(2		)
Transfers into Level 3	—			—			2			—			—		2			—
Transfers out of Level 3	(12		)	(56		)	(77		)	—			—		(145		)	—
Balance, June 30, 2011	$	1,274		$	4,097		$	64		$	498		$	5	$	5,938		$	(316	)
Changes in unrealized gains relating to assets and liabilities held at June 30, 2011 included in:
Net investment income	$	—		$	17		$	—		$	4		$	—	$	21		$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—			167

(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 GMWB and GMAB embedded derivatives was an increase of $115 million and $24 million, net of DAC and DSIC amortization, for the three months ended June 30, 2012 and 2011, respectively. The impact to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its GMWB and GMAB embedded derivatives was nil and an increase of $1 million, net of DAC and DSIC amortization, for the six months ended June 30, 2012 and 2011, respectively.

Securities transferred from Level 3 to Level 2 represent securities with fair values that are now obtained from a third party pricing service with observable inputs. Securities transferred from Level 2 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 period that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.

The following table provides 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 at June 30, 2012:

	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in millions)
Corporate debt securities	$	1,455	Discounted cash flow	Yield/spread to U.S. Treasuries	1.0% - 9.5% (2.5%)
(private placements)
Residential mortgage	$	200	Discounted cash flow	Constant prepayment rate	0.5% - 12.0% (2.9%)
backed securities				Annual default rate	1.2% - 19.7% (11.9%)
				Loss severity	34.0% - 75.0% (58.0%)
				Yield/spread to U.S. Treasuries	6.3% - 20.0% (8.8%)
Asset backed securities	$	16	Discounted cash flow	Constant prepayment rate	2.3% - 7.7% (3.0%)
(sub-prime residential				Annual default rate	3.2% - 12.5% (7.5%)
mortgage backed				Loss severity	65.0% - 100.0% (74.0%)
securities)				Yield/spread to U.S. Treasuries	6.6% - 12.9% (11.0%)
GMWB and GMAB	$	1,406	Discounted cash flow	Utilization of guaranteed	0% - 90%
embedded derivatives				withdrawals
				Surrender rate	0% - 56.3%
				Market volatility (1)	6.1% - 23.9%
				Nonperformance risk (2)	114 bps

(1)Market volatility is implied volatility of fund of funds.

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

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

Except for prepayment inputs, significant increases (decreases) in the unobservable inputs used in the fair value measurement of Level 3 corporate debt, residential mortgage backed and asset backed securities in isolation could result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the constant prepayment rate in isolation could result in a significantly higher (lower) fair value measurement. Generally, a change in the assumption used for the annual default rate is accompanied by a directionally similar change in the assumptions used for loss severity and yield/spread to U.S. Treasuries and a directionally opposite change in the assumption used for prepayment rates.

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) fair value measurement. Significant increases (decreases) in surrender rate and nonperformance risk used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly lower (higher) fair value measurement. 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 residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal and corporate 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 non-agency residential mortgage backed securities, asset backed securities, commercial mortgage backed securities and corporate bonds. The fair value of corporate bonds, 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 fair value of certain asset backed securities and non-agency residential mortgage backed securities classified as Level 3 is obtained from third party pricing services who use significant unobservable inputs to estimate the fair value.

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.

Investments Segregated for Regulatory Purposes

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 2 securities include agency mortgage backed securities, asset backed securities, municipal and corporate bonds, and U.S. agency and foreign government securities.

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 June 30, 2012 and December 31, 2011. See Note 11 for further information on the credit risk of derivative instruments and related collateral.

Liabilities

Future Policy Benefits and Claims

The Company values the embedded derivative liability 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 and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value of these embedded derivatives also reflects a current estimate of the Company’s nonperformance risk specific to these liabilities. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivative liability attributable to these provisions is recorded in future policy benefits and claims.

The Company’s Corporate Actuarial Department calculates the fair value of the GMWB and GMAB 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.

The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its equity indexed annuity and indexed universal life products. 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.

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 June 30, 2012 and December 31, 2011. See Note 11 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 table provides 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.

	June 30, 2012										December 31, 2011
	Carrying		Fair Value								Carrying
	Value		Level 1		Level 2		Level 3		Total		Value		Fair Value
	(in millions)
Financial Assets
Commercial mortgage loans, net	$	2,551	$	—	$	—	$	2,758	$	2,758	$	2,589	$	2,772
Policy and certificate loans	750		—		2		723		725		742		715
Receivables	2,423		140		921		1,044		2,105		2,444		2,148
Restricted and segregated cash	1,688		1,688		—		—		1,688		1,500		1,500
Other investments and assets	376		—		341		37		378		390		388
Financial Liabilities
Future policy benefits and claims	$	14,960	$	—	$	—	$	16,100	$	16,100	$	15,064	$	16,116
Investment certificate reserves	2,715		—		—		2,712		2,712		2,766		2,752
Banking and brokerage customer deposits	7,356		2,273		5,085		—		7,358		7,078		7,091
Separate account liabilities	3,399		—		3,399		—		3,399		3,966		3,966
Debt and other liabilities	3,097		148		3,061		206		3,415		3,180		3,412

Commercial 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 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 this valuation, these measurements are classified as Level 3.

Policy and Certificate Loans

The fair value of policy loans and certificate loans is determined using discounted cash flows. Policy loans on insurance contracts are classified as Level 3 as the discount rate used may be adjusted for the underlying performance of individual policies. The fair value of certificate loans is classified as Level 2 as the discount rate used to determine fair value is based on market interest rates.

Receivables

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

Loans held for sale are measured at the lower of cost or market and fair value is based on what secondary markets are currently offering for loans with similar characteristics and are classified as Level 2.

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.

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.

Banking and Brokerage Customer Deposits

Banking and brokerage customer deposits excluding certificates of deposit 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. Certificates of deposit are valued based on discounted cash flows using market rates for similar certificates of deposit issued by other banks. The fair value of certificates of deposit is classified as Level 2.

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 is classified as Level 3 as the discount rate is adjusted.

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.