Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Fair Value Measurement

The Company categorizes its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique, pursuant to ASU 2011-04, "Fair Value Measurements (ASC Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP" ("ASU 2011-04"). The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

When available, the estimated fair value of financial instruments is based on quoted prices in active markets that are readily and regularly obtainable. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flow methodologies, matrix pricing or other similar techniques.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of June 30, 2017:



	Level 1		Level 2			Level 3		Total
Assets:
Fixed maturities, including securities pledged:
U.S. Treasuries	$	656.0	$	59.7		$	—	$	715.7
U.S. Government agencies and authorities	—		3.6			—		3.6
State, municipalities and political subdivisions	—		858.0			—		858.0
U.S. corporate public securities	—		9,512.7			26.5		9,539.2
U.S. corporate private securities	—		2,700.1			595.1		3,295.2
Foreign corporate public securities and foreign governments⁽¹⁾	—		2,816.7			0.1		2,816.8
Foreign corporate private securities ⁽¹⁾	—		2,885.0			128.4		3,013.4
Residential mortgage-backed securities	—		2,663.3			36.8		2,700.1
Commercial mortgage-backed securities	—		1,296.1			6.2		1,302.3
Other asset-backed securities	—		518.7			35.9		554.6
Total fixed maturities, including securities pledged	656.0		23,313.9			829.0		24,798.9
Equity securities, available-for-sale	34.9		—			50.3		85.2
Derivatives:
Interest rate contracts	0.6		148.1			—		148.7
Foreign exchange contracts	—		6.8			—		6.8
Equity contracts	—		3.9			—		3.9
Credit contracts	—		8.8			—		8.8
Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements	721.6		4.3			—		725.9
Assets held in separate accounts	63,804.5		4,565.7			3.1		68,373.3
Total assets	$	65,217.6	$	28,051.5		$	882.4	$	94,151.5
Liabilities:
Derivatives:
Guaranteed benefit derivatives:
FIA	$	—	$	—		$	23.0	$	23.0
Stabilizer and MCGs	—		—			141.2		141.2
Other derivatives:
Interest rate contracts	—		24.7			—		24.7
Foreign exchange contracts	—		19.3			—		19.3
Equity contracts	—		1.5			—		1.5
Credit contracts	—		6.4			—		6.4
Embedded derivative on reinsurance	—		(27.6		)	—		(27.6		)
Total liabilities	$	—	$	24.3		$	164.2	$	188.5

⁽¹⁾Primarily U.S. dollar denominated.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:



	Level 1		Level 2			Level 3		Total
Assets:
Fixed maturities, including securities pledged:
U.S. Treasuries	$	729.3	$	57.7		$	—	$	787.0
U.S. Government agencies and authorities	—		3.8			—		3.8
State, municipalities and political subdivisions	—		795.4			—		795.4
U.S. corporate public securities	—		9,964.9			7.5		9,972.4
U.S. corporate private securities	—		2,435.9			524.7		2,960.6
Foreign corporate public securities and foreign governments⁽¹⁾	—		2,884.3			0.1		2,884.4
Foreign corporate private securities ⁽¹⁾	—		2,756.0			154.0		2,910.0
Residential mortgage-backed securities	—		2,766.8			21.2		2,788.0
Commercial mortgage-backed securities	—		1,307.9			9.8		1,317.7
Other asset-backed securities	—		449.0			26.7		475.7
Total fixed maturities, including securities pledged	729.3		23,421.7			744.0		24,895.0
Equity securities, available-for-sale	34.4		—			47.9		82.3
Derivatives:
Interest rate contracts	—		437.5			—		437.5
Foreign exchange contracts	—		25.4			—		25.4
Equity contracts	—		2.3			—		2.3
Credit contracts	—		5.6			—		5.6
Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements	939.8		32.9			—		972.7
Assets held in separate accounts	57,192.4		4,782.9			5.4		61,980.7
Total assets	$	58,895.9	$	28,708.3		$	797.3	$	88,401.5
Liabilities:
Derivatives:
Guaranteed benefit derivatives:
FIA	$	—	$	—		$	23.3	$	23.3
Stabilizer and MCGs	—		—			150.5		150.5
Other derivatives:
Interest rate contracts	0.6		153.8			—		154.4
Foreign exchange contracts	—		18.3			—		18.3
Equity contracts	—		—			—		—
Credit contracts	—		0.2			—		0.2
Embedded derivative on reinsurance	—		(43.5		)	—		(43.5		)
Total liabilities	$	0.6	$	128.8		$	173.8	$	303.2

⁽¹⁾Primarily U.S. dollar denominated.

Valuation of Financial Assets and Liabilities at Fair Value

Certain assets and liabilities are measured at estimated fair value on the Company's Condensed Consolidated Balance Sheets. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The exit price and the transaction (or entry) price will be the same at initial recognition in many circumstances. However, in certain cases, the transaction price may not represent fair value. The fair value of a liability is based on the amount that would be paid to transfer a liability to a third-party with an equal credit standing. Fair value is required to be a market-based measurement that is determined based on a hypothetical transaction at the measurement date, from a market participant's perspective. The Company considers three broad valuation approaches when a quoted price is unavailable: (i) the market approach, (ii) the income approach and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given the instrument being measured and the availability of sufficient inputs. The Company prioritizes the inputs to fair valuation approaches and allows for the use of unobservable inputs to the extent that observable inputs are not available.

The Company utilizes a number of valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of exit price and the fair value hierarchy as prescribed in ASC Topic 820. Valuations are obtained from third-party commercial pricing services, brokers and industry-standard, vendor-provided software that models the value based on market observable inputs. The valuations obtained from third-party commercial pricing services are non-binding. The Company reviews the assumptions and inputs used by third-party commercial pricing services for each reporting period in order to determine an appropriate fair value hierarchy level. The documentation and analysis obtained from third-party commercial pricing services are reviewed by the Company, including in-depth validation procedures confirming the observability of inputs. The valuations are reviewed and validated monthly through the internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades or monitoring of trading volumes.

Fixed maturities: The fair values for actively traded marketable bonds are determined based upon the quoted market prices and are classified as Level 1 assets. Assets in this category primarily include certain U.S. Treasury securities.

For fixed maturities classified as Level 2 assets, fair values are determined using a matrix-based market approach, based on prices obtained from third-party commercial pricing services and the Company’s matrix and analytics-based pricing models, which in each case incorporate a variety of market observable information as valuation inputs. The market observable inputs used for these fair value measurements, by fixed maturity asset class, are as follows:

U.S. Treasuries: Fair value is determined using third-party commercial pricing services, with the primary inputs being stripped interest and principal U.S. Treasury yield curves that represent a U.S. Treasury zero-coupon curve.

U.S. government agencies and authorities, State, municipalities and political subdivisions: Fair value is determined using third-party commercial pricing services, with the primary inputs being U.S. Treasury yield curves, trades of comparable securities, credit spreads off benchmark yields and issuer ratings.

U.S. corporate public securities, Foreign corporate public securities and foreign governments: Fair value is determined using third-party commercial pricing services, with the primary inputs being benchmark yields, trades of comparable securities, issuer ratings, bids and credit spreads off benchmark yields.

U.S. corporate private securities and Foreign corporate private securities: Fair values are determined using a matrix and analytics-based pricing model. The model incorporates the current level of risk-free interest rates, current corporate credit spreads, credit quality of the issuer and cash flow characteristics of the security. The model also considers a liquidity spread, the value of any collateral, the capital structure of the issuer, the presence of guarantees, and prices and quotes for comparably rated publicly traded securities.

RMBS, CMBS and ABS: Fair value is determined using third-party commercial pricing services, with the primary inputs being credit spreads off benchmark yields, prepayment speed assumptions, current and forecasted loss severity, debt service coverage ratios, collateral type, payment priority within tranche and the vintage of the loans underlying the security.

Transfers in and out of Level 1 and 2

There were no securities transferred between Level 1 and Level 2 for the three and six months ended June 30, 2017 and 2016. The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.

Level 3 Financial Instruments

The fair values of certain assets and liabilities are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (i.e., Level 3 as defined by ASC Topic 820), including but not limited to liquidity spreads for investments within markets deemed not currently active. These valuations, whether derived internally or obtained from a third-party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. In addition, the Company has determined, for certain financial instruments, an active market is such a significant input to determine fair value that the presence of an inactive market may lead to classification in Level 3. In light of the methodologies employed to obtain the fair values of financial assets and liabilities classified as Level 3, additional information is presented below.

The following tables summarize the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the periods indicated:



	Three Months Ended June 30, 2017
	Fair Value as of April 1			Total Realized/Unrealized Gains (Losses) Included in:					Purchases		Issuances			Sales			Settlements			Transfers into Level 3⁽³⁾		Transfers out of Level 3⁽³⁾			Fair Value as of June 30			Change In Unrealized Gains (Losses) Included in Earnings⁽⁴⁾
				Net Income			OCI
Fixed maturities, including securities pledged:
U.S. Corporate public securities	$	30.4		$	—		$	0.5	$	6.0	$	—		$	—		$	(0.3	)	$	—	$	(10.1	)	$	26.5		$	—
U.S. Corporate private securities	564.9			—			3.5		7.9		—			—			(0.4		)	28.8		(9.6		)	595.1			—
Foreign corporate public securities and foreign governments⁽¹⁾	0.1			—			—		—		—			—			—			—		—			0.1			—
Foreign corporate private securities⁽¹⁾	161.1			0.1			0.3		—		—			—			—			—		(33.1		)	128.4			0.1
Residential mortgage-backed securities	30.4			(2.1		)	0.2		17.4		—			—			—			0.8		(9.9		)	36.8			(2.1		)
Commercial mortgage-backed securities	6.0			—			—		2.0		—			—			(1.8		)	—		—			6.2			—
Other asset-backed securities	22.5			—			0.1		24.4		—			(0.3		)	(0.3		)	—		(10.5		)	35.9			—
Total fixed maturities, including securities pledged	815.4			(2.0		)	4.6		57.7		—			(0.3		)	(2.8		)	29.6		(73.2		)	829.0			(2.0		)
Equity securities, available-for-sale	49.9			—			0.4		—		—			—			—			—		—			50.3			—
Derivatives:
Guaranteed benefit derivatives:
Stabilizer and MCGs⁽²⁾	(131.1		)	(9.1		)	—		—		(1.0		)	—			—			—		—			(141.2		)	—
FIA⁽²⁾	(23.1		)	(0.2		)	—		—		(0.1		)	—			0.4			—		—			(23.0		)	—
Assets held in separate accounts⁽⁵⁾	12.3			—			—		1.1		—			(2.5		)	—			—		(7.8		)	3.1			—
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽³⁾ The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
⁽⁴⁾ For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽⁵⁾ The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.



	Six Months Ended June 30, 2017
	Fair Value as of January 1			Total Realized/Unrealized Gains (Losses) Included in:						Purchases		Issuances			Sales			Settlements			Transfers into Level 3⁽³⁾		Transfers out of Level 3⁽³⁾			Fair Value as of June 30			Change in Unrealized Gains (Losses) Included in Earnings⁽⁴⁾
				Net Income			OCI
Fixed maturities, including securities pledged:
U.S. Corporate public securities	$	7.5		$	—		$	0.4		$	10.9	$	—		$	—		$	(0.9	)	$	8.6	$	—		$	26.5		$	—
U.S. Corporate private securities	524.7			—			4.3			44.6		—			—			(0.9		)	32.0		(9.6		)	595.1			—
Foreign corporate public securities and foreign governments⁽¹⁾	0.1			—			—			—		—			—			—			—		—			0.1			—
Foreign corporate private securities⁽¹⁾	154.0			0.1			(1.1		)	18.1		—			—			(9.9		)	—		(32.8		)	128.4			0.1
Residential mortgage-backed securities	21.2			(3.7		)	(0.1		)	17.4		—			—			—			2.0		—			36.8			(3.7		)
Commercial mortgage-backed securities	9.8			—			—			2.0		—			—			(3.0		)	—		(2.6		)	6.2			—
Other asset-backed securities	26.7			—			0.5			24.4		—			—			(0.7		)	—		(15.0		)	35.9			—
Total fixed maturities, including securities pledged	744.0			(3.6		)	4.0			117.4		—			—			(15.4		)	42.6		(60.0		)	829.0			(3.6		)
Equity securities, available-for-sale	47.9			—			0.7			1.7		—			—			—			—		—			50.3			—
Derivatives:
Guaranteed benefit derivatives:
Stabilizer and MCGs⁽²⁾	(150.5		)	11.6			—			—		(2.3		)	—			—			—		—			(141.2		)	—
FIA⁽²⁾	(23.3		)	(0.6		)	—			—		(0.2		)	—			1.1			—		—			(23.0		)	—
Assets held in separate accounts⁽⁵⁾	5.4			—			—			6.1		—			(2.7		)	—			2.1		(7.8		)	3.1			—
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽³⁾ The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
⁽⁴⁾ For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽⁵⁾ The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.

The following tables summarize the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the periods indicated:



	Three Months Ended June 30, 2016
	Fair Value as of April 1			Total Realized/Unrealized Gains (Losses) Included in:					Purchases		Issuances			Sales			Settlements			Transfers into Level 3⁽³⁾		Transfers out of Level 3⁽³⁾			Fair Value as of June 30			Change In Unrealized Gains (Losses) Included in Earnings⁽⁴⁾
				Net Income			OCI
Fixed maturities, including securities pledged:
U.S. Corporate public securities	$	1.7		$	(0.1	)	$	0.4	$	—	$	—		$	(0.7	)	$	—		$	19.4	$	—		$	20.7		$	—
U.S. Corporate private securities	393.5			(0.1		)	5.9		37.0		—			—			(20.8		)	6.0		—			421.5			—
Foreign corporate public securities and foreign governments⁽¹⁾	0.5			(0.4		)	—		—		—			—			—			—		—			0.1			(0.4		)
Foreign corporate private securities⁽¹⁾	179.6			(1.7		)	5.9		—		—			(14.6		)	(4.1		)	2.8		—			167.9			(0.1		)
Residential mortgage-backed securities	26.9			(1.5		)	—		—		—			—			—			—		—			25.4			(1.5		)
Commercial mortgage-backed securities	0.1			—			0.1		—		—			—			(1.1		)	10.2		(0.1		)	9.2			—
Other asset-backed securities	12.6			—			0.2		26.9		—			—			(0.3		)	—		—			39.4			—
Total fixed maturities, including securities pledged	614.9			(3.8		)	12.5		63.9		—			(15.3		)	(26.3		)	38.4		(0.1		)	684.2			(2.0		)
Equity securities, available-for-sale	48.2			—			0.6		—		—			—			—			—		—			48.8			—
Derivatives:
Guaranteed benefit derivatives:
Stabilizer and MCGs⁽²⁾	(226.0		)	(44.8		)	—		—		(1.2		)	—			—			—		—			(272.0		)	—
FIA⁽²⁾	(21.7		)	(0.3		)	—		—		0.1			—			0.7			—		—			(21.2		)	—
Assets held in separate accounts⁽⁵⁾	1.2			—			—		—		—			—			—			3.4		(1.2		)	3.4			—
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽³⁾ The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
⁽⁴⁾ For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽⁵⁾ The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.



	Six Months Ended June 30, 2016
	Fair Value as of January 1			Total Realized/Unrealized Gains (Losses) Included in:					Purchases		Issuances			Sales			Settlements			Transfers into Level 3⁽³⁾		Transfers out of Level 3⁽³⁾			Fair Value as of June 30			Change in Unrealized Gains (Losses) Included in Earnings⁽⁴⁾
				Net Income			OCI
Fixed maturities, including securities pledged:
U.S. Corporate public securities	$	2.3		$	(0.1	)	$	0.9	$	—	$	—		$	(0.7	)	$	(0.5	)	$	18.8	$	—		$	20.7		$	—
U.S. Corporate private securities	396.4			(0.1		)	14.2		43.1		—			(17.5		)	(52.2		)	44.2		(6.6		)	421.5			(0.1		)
Foreign corporate public securities and foreign governments⁽¹⁾	0.5			(0.4		)	—		—		—			—			—			—		—			0.1			(0.4		)
Foreign corporate private securities⁽¹⁾	158.1			—			6.9		—		—			(0.1		)	(13.9		)	19.6		(2.7		)	167.9			—
Residential mortgage-backed securities	28.2			(2.8		)	—		—		—			—			—			—		—			25.4			(2.8		)
Commercial mortgage-backed securities	12.6			—			0.1		—		—			—			(2.5		)	—		(1.0		)	9.2			—
Other asset-backed securities	13.1			—			—		26.9		—			—			(0.6		)	—		—			39.4			—
Total fixed maturities, including securities pledged	611.2			(3.4		)	22.1		70.0		—			(18.3		)	(69.7		)	82.6		(10.3		)	684.2			(3.3		)
Equity securities, available-for-sale	47.5			—			1.3		—		—			—			—			—		—			48.8			—
Derivatives:
Guaranteed benefit derivatives:
Stabilizer and MCGs⁽²⁾	(161.3		)	(108.4		)	—		—		(2.3		)	—			—			—		—			(272.0		)	—
FIA⁽²⁾	(23.1		)	0.5			—		—		0.2			—			1.2			—		—			(21.2		)	—
Assets held in separate accounts⁽⁵⁾	4.0			—			—		—		—			—			—			3.4		(4.0		)	3.4			—
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽³⁾ The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
⁽⁴⁾ For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽⁵⁾ The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.

For the three and six months ended June 30, 2017 and 2016, the transfers in and out of Level 3 for fixed maturities and separate accounts were due to the variation in inputs relied upon for valuation each quarter. Securities that are primarily valued using independent broker quotes when prices are not available from one of the commercial pricing services are reflected as transfers into Level 3. When securities are valued using more widely available information, the securities are transferred out of Level 3 and into Level 1 or 2, as appropriate.

Significant Unobservable Inputs

The Company's Level 3 fair value measurements of its fixed maturities, equity securities available-for-sale and equity and credit derivative contracts are primarily based on broker quotes for which the quantitative detail of the unobservable inputs is neither provided nor reasonably corroborated, thus negating the ability to perform a sensitivity analysis. The Company performs a review of broker quotes by performing a monthly price variance comparison and back tests broker quotes to recent trade prices.

Quantitative information about the significant unobservable inputs used in the Company's Level 3 fair value measurements of its guaranteed benefit derivatives is presented in the following sections and table.

Significant unobservable inputs used in the fair value measurements of FIAs include nonperformance risk and policyholder behavior assumptions, such as lapses and partial withdrawals. Such inputs are monitored quarterly.

The significant unobservable inputs used in the fair value measurement of the Stabilizer embedded derivatives and MCG derivative are interest rate implied volatility, nonperformance risk, lapses and policyholder deposits. Such inputs are monitored quarterly.

Following is a description of selected inputs:

Interest Rate Volatility: A term-structure model is used to approximate implied volatility for the swap rates for the Stabilizer and MCG fair value measurements. Where no implied volatility is readily available in the market, an alternative approach is applied based on historical volatility.

Nonperformance Risk: For the estimate of the fair value of embedded derivatives associated with the Company's product guarantees, the Company uses a blend of observable, similarly rated peer company credit default swap spreads, adjusted to reflect the credit quality of the Company and the priority of policyholder claims.

Actuarial Assumptions: Management regularly reviews actuarial assumptions, which are based on the Company's experience and periodically reviewed against industry standards. Industry standards and Company experience may be limited on certain products.

The following table presents the unobservable inputs for Level 3 fair value measurements as of June 30, 2017:



	Range⁽¹⁾
Unobservable Input	FIA		Stabilizer / MCG
Interest rate implied volatility	—		0.1% to 6.7%
Nonperformance risk	0.45% to 1.2%		0.45% to 1.2%
Actuarial Assumptions:
Partial Withdrawals	0% to 7.0%		—
Lapses	0% to 42%	⁽²⁾	0% to 50%	⁽³⁾
Policyholder Deposits⁽⁴⁾	—		0% to 50%	⁽³⁾

⁽¹⁾ Represents the range of reasonable assumptions that management has used in its fair value calculations.

⁽²⁾ Lapse rates tend to be lower during the contractual surrender charge period and higher after the surrender charge period ends; the highest lapse rates occur in the year immediately after the end of the surrender charge period.

⁽³⁾ Stabilizer contracts with recordkeeping agreements have different range of lapse and policyholder deposit assumptions from Stabilizer (Investment only) and MCG contracts as shown below:



	Percentage of Plans		Overall Range of Lapse Rates	Range of Lapse Rates for 85% of Plans	Overall Range of Policyholder Deposits	Range of Policyholder Deposits for 85% of Plans
Stabilizer (Investment Only) and MCG Contracts	93	%	0- 25%	0-15%	0-30%	0-15%
Stabilizer with Recordkeeping Agreements	7	%	0-50%	0-30%	0-50%	0-25%
Aggregate of all plans	100	%	0-50%	0-30%	0-50%	0-25%

⁽⁴⁾ Measured as a percentage of assets under management or assets under administration.

The following table presents the unobservable inputs for Level 3 fair value measurements as of December 31, 2016:



	Range⁽¹⁾
Unobservable Input	FIA		Stabilizer / MCG
Interest rate implied volatility	—		0.1% to 7.5%
Nonperformance risk	0.25% to 1.6%		0.25% to 1.6%
Actuarial Assumptions:
Partial Withdrawals	0% to 7.0%		—
Lapses	0% to 42%	⁽²⁾	0% to 50%	⁽³⁾
Policyholder Deposits⁽⁴⁾	—		0% to 50%	⁽³⁾

⁽¹⁾ Represents the range of reasonable assumptions that management has used in its fair value calculations.

⁽³⁾ Stabilizer contracts with recordkeeping agreements have different range of lapse and policyholder deposit assumptions from Stabilizer (Investment only) and MCG contracts as shown below:



	Percentage of Plans		Overall Range of Lapse Rates	Range of Lapse Rates for 85% of Plans	Overall Range of Policyholder Deposits	Range of Policyholder Deposits for 85% of Plans
Stabilizer (Investment Only) and MCG Contracts	93	%	0-25%	0-15%	0-30%	0-15%
Stabilizer with Recordkeeping Agreements	7	%	0-50%	0-30%	0-50%	0-25%
Aggregate of all plans	100	%	0-50%	0-30%	0-50%	0-25%

⁽⁴⁾ Measured as a percentage of assets under management or assets under administration.

Generally, the following will cause an increase (decrease) in the FIA embedded derivative fair value liability:


•	A decrease (increase) in nonperformance risk


•	A decrease (increase) in lapses

Generally, the following will cause an increase (decrease) in the derivative and embedded derivative fair value liabilities related to Stabilizer and MCG contracts:


•	An increase (decrease) in interest rate implied volatility


•	A decrease (increase) in nonperformance risk


•	A decrease (increase) in lapses


•	A decrease (increase) in policyholder deposits

The Company notes the following interrelationships:


•	Generally, an increase (decrease) in interest rate volatility will increase (decrease) lapses of Stabilizer and MCG contracts due to dynamic participant behavior.

Other Financial Instruments

The carrying values and estimated fair values of the Company’s financial instruments as of the dates indicated:



	June 30, 2017						December 31, 2016
	Carrying Value			Fair Value			Carrying Value			Fair Value
Assets:
Fixed maturities, including securities pledged	$	24,798.9		$	24,798.9		$	24,895.0		$	24,895.0
Equity securities, available-for-sale	85.2			85.2			82.3			82.3
Mortgage loans on real estate	4,848.2			4,913.7			4,254.5			4,339.6
Policy loans	213.6			213.6			218.9			218.9
Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements	725.9			725.9			972.7			972.7
Derivatives	168.2			168.2			470.8			470.8
Notes receivable from affiliate	175.0			225.1			175.0			216.2
Assets held in separate accounts	68,373.3			68,373.3			61,980.7			61,980.7
Liabilities:
Investment contract liabilities:
Funding agreements without fixed maturities and deferred annuities⁽¹⁾	25,255.6			29,727.2			24,942.7			28,876.5
Supplementary contracts, immediate annuities and other	371.9			436.3			386.1			437.5
Deposit liabilities	158.4			214.8			172.0			245.8
Derivatives:
Guaranteed benefit derivatives:
FIA	23.0			23.0			23.3			23.3
Stabilizer and MCGs	141.2			141.2			150.5			150.5
Other derivatives	51.9			51.9			172.9			172.9
Long-term debt	4.9			4.9			4.9			4.9
Embedded derivatives on reinsurance	(27.6		)	(27.6		)	(43.5		)	(43.5		)

⁽¹⁾ Certain amounts included in Funding agreements without fixed maturities and deferred annuities are also reflected within the Guaranteed benefit derivatives section of the table above.

The following disclosures are made in accordance with the requirements of ASC Topic 825 which requires disclosure of fair value information about financial instruments, whether or not recognized at fair value on the Condensed Consolidated Balance Sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates, in many cases, could not be realized in immediate settlement of the instrument.

ASC Topic 825 excludes certain financial instruments, including insurance contracts and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following valuation methods and assumptions were used by the Company in estimating the fair value of the following financial instruments, which are not carried at fair value on the Condensed Consolidated Balance Sheets:

Mortgage loans on real estate: The fair values for mortgage loans on real estate are estimated on a monthly basis using discounted cash flow analyses and rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Mortgage loans on real estate are classified as Level 3.

Policy loans: The fair value of policy loans approximates the carrying value of the loans. Policy loans are collateralized by the cash surrender value of the associated insurance contracts and are classified as Level 2.

Notes receivable from affiliates: Estimated fair value of the Company’s notes receivable from affiliates is determined primarily using a matrix-based pricing. The model considers the current level of risk-free interest rates, credit quality of the issuer and cash flow characteristics of the security model and is classified as Level 2.

Investment contract liabilities:

Funding agreements without a fixed maturity and deferred annuities: Fair value is estimated as the mean present value of stochastically modeled cash flows associated with the contract liabilities taking into account assumptions about contract holder behavior. The stochastic valuation scenario set is consistent with current market parameters and discount is taken using stochastically evolving risk-free rates in the scenarios plus an adjustment for nonperformance risk. Margins for non-financial risks associated with the contract liabilities are also included. These liabilities are classified as Level 3.

Supplementary contracts and immediate annuities: Fair value is estimated as the mean present value of the single deterministically modeled cash flows associated with the contract liabilities discounted using stochastically evolving short risk-free rates in the scenarios plus an adjustment for nonperformance risk. The valuation is consistent with current market parameters. Margins for non-financial risks associated with the contract liabilities are also included. These liabilities are classified as Level 3.

Deposit liabilities: Fair value is estimated as the present value of expected cash flows associated with the deposit liability discounted using risk-free rates plus adjustments for nonperformance risk and uncertainty in the expected cash flows. These liabilities are classified as Level 3.

Long-term debt: Estimated fair value of the Company’s long-term debt is based upon discounted future cash flows using a discount rate approximating the current market rate, incorporating nonperformance risk. Long-term debt is classified as Level 2.

Fair value estimates are made at a specific point in time, based on available market information and judgments about various financial instruments, such as estimates of timing and amounts of future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized capital gains (losses). In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company’s management of interest rate, price and liquidity risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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