4. FAIR VALUE MEASUREMENTS

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The level in the fair value hierarchy within which the fair value measurement is reported is based on the lowest level input that is significant to the measurement in its entirety. The three levels of the hierarchy are as follows:

· Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

· Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

· Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.

Valuation of Investments Reported at Fair Value in Financial Statements

The Company utilized a pricing service to estimate fair value measurements for approximately 98% of its fixed maturities at both June 30, 2016 and December 31, 2015.

While the vast majority of the Company’s fixed maturities are included in Level 2, the Company holds a number of municipal bonds and corporate bonds which are not valued by the pricing service and estimates the fair value of these bonds using an internal pricing matrix with some unobservable inputs that are significant to the valuation. Due to the limited amount of observable market information, the Company includes the fair value estimates for these particular bonds in Level 3. The fair value of the fixed maturities for which the Company used an internal pricing matrix was $96 million and $101 million at June 30, 2016 and December 31, 2015, respectively. Additionally, the Company holds a small amount of other fixed maturity investments that have characteristics that make them unsuitable for matrix pricing. For these fixed maturities, the Company obtains a quote from a broker (primarily the market maker). The fair value of the fixed maturities for which the Company received a broker quote was $87 million and $117 million at June 30, 2016 and December 31, 2015, respectively. Due to the disclaimers on the quotes that indicate that the price is indicative only, the Company includes these fair value estimates in Level 3.

For more information regarding the valuation of the Company’s fixed maturities, equity securities and other investments, see note 4 of notes to the consolidated financial statements in the Company’s 2015 Annual Report.

Fair Value Hierarchy

The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis at June 30, 2016 and December 31, 2015. An investment transferred between levels during a period is transferred at its fair value as of the beginning of that period.

(at June 30, 2016, in millions)	Total		Level 1		Level 2		Level 3

Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,073	$	2,073	$	—	$	—
Obligations of states, municipalities and political subdivisions	33,632		11		33,608		13
Debt securities issued by foreign governments	1,801		—		1,801		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,833		—		1,833		—
All other corporate bonds	23,868		3		23,702		163
Redeemable preferred stock	104		3		94		7
Total fixed maturities	63,311		2,090		61,038		183

Equity securities
Public common stock	597		597		—		—
Non-redeemable preferred stock	155		66		89		—
Total equity securities	752		663		89		—

Other investments	61		17		—		44
Total	$	64,124	$	2,770	$	61,127	$	227

(at December 31, 2015, in millions)	Total		Level 1		Level 2		Level 3

Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,194	$	2,194	$	—	$	—
Obligations of states, municipalities and political subdivisions	31,411		—		31,398		13
Debt securities issued by foreign governments	1,873		—		1,873		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,981		—		1,957		24
All other corporate bonds	23,089		—		22,915		174
Redeemable preferred stock	110		3		100		7
Total fixed maturities	60,658		2,197		58,243		218

Equity securities
Public common stock	543		543		—		—
Non-redeemable preferred stock	162		55		107		—
Total equity securities	705		598		107		—

Other investments	56		18		—		38
Total	$	61,419	$	2,813	$	58,350	$	256

During the six months ended June 30, 2016 and the year ended December 31, 2015, the Company’s transfers between Level 1 and Level 2 were not significant.

There was no significant activity in Level 3 of the hierarchy during the six months ended June 30, 2016 or the year ended December 31, 2015.

Financial Instruments Disclosed, But Not Carried, At Fair Value

The following tables present the carrying value and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value, and the level within the fair value hierarchy at which such assets and liabilities are categorized.

(at June 30, 2016, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Short-term securities	$	3,988	$	3,988	$	792	$	3,151	$	45

Financial liabilities:
Debt	$	6,336	$	7,743	$	—	$	7,743	$	—
Commercial paper	$	100	$	100	$	—	$	100	$	—

(at December 31, 2015, in millions)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Short-term securities	$	4,671	$	4,671	$	1,685	$	2,958	$	28

Financial liabilities:
Debt	$	6,244	$	7,180	$	—	$	7,180	$	—
Commercial paper	$	100	$	100	$	—	$	100	$	—

The Company utilized a pricing service to estimate fair value for approximately 99% of short-term securities at both June 30, 2016 and December 31, 2015. For a description of the process and inputs used by the pricing service to estimate fair value, see the “Fixed Maturities” section in note 4 of notes to the consolidated financial statements in the Company’s 2015 Annual Report.

The Company utilized a pricing service to estimate fair value for 100% of its debt, including commercial paper, at June 30, 2016 and December 31, 2015.

The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the six months ended June 30, 2016 or twelve months ended December 31, 2015.