Fair Value Measurements

3 Months Ended

Mar. 31, 2016

NOTE 14. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

Our assets and liabilities measured at fair value on a recurring basis include investment securities primarily supporting obligations to annuitants and policyholders in our run-off insurance operations

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS

									Netting
(In millions)	Level 1		(a)	Level 2		(a)	Level 3		adjustment		(b)	Net balance
March 31, 2016
Assets
Investment securities
Debt
U.S. corporate	$	-		$	19,947		$	3,143	$	-		$	23,090
State and municipal		-			4,397			31		-			4,428
Mortgage and asset-backed		-			3,133			23		-			3,156
Corporate – non-U.S.		-			586			295		-			881
Government – non-U.S.		-			435			-		-			435
U.S. government and federal agency		49			491			277		-			817
Equity		144			14			9		-			167
Derivatives(c)		-			8,761			97		(7,800)			1,058
Total	$	193		$	37,765		$	3,875	$	(7,800)		$	34,032

Liabilities
Derivatives	$	-		$	5,253		$	29	$	(4,365)		$	917
Other(e)		-			1,230			-		-			1,230
Total	$	-		$	6,483		$	29	$	(4,365)		$	2,147

December 31, 2015
Assets
Investment securities
Debt
U.S. corporate	$	-		$	19,351		$	3,006	$	-		$	22,358
State and municipal		-			4,215			30		-			4,245
Mortgage and asset-backed		-			3,084			32		-			3,116
Corporate – non-U.S.		12			544			290		-			847
Government – non-U.S.		5			410			-		-			415
U.S. government and federal agency		49			404			323		-			776
Equity		194			9			13		-			217
Derivatives(c)		-			7,312			79		(6,110)			1,281
Other(d)		-			-			259		-			259
Total	$	260		$	35,331		$	4,033	$	(6,110)		$	33,512
Liabilities
Derivatives	$	-		$	5,677		$	4	$	(4,968)		$	713
Other(e)		-			1,182			-		-			1,182
Total	$	-		$	6,860		$	4	$	(4,968)		$	1,895

(a) There were $12 million of Corporate – non-U.S. securities transferred from Level 1 to Level 2 in the three months ended March 31, 2016 primarily attributable to changes in market observable data. There were no securities transferred between Level 1 and Level 2 in December 31, 2015.

(b) The netting of derivative receivables and payables (including the effects of any collateral posted or received) is permitted when a legally enforceable master netting agreement exists.

(c) The fair value of derivatives includes an adjustment for non-performance risk. At March 31, 2016 and December 31, 2015, the cumulative adjustment for non-performance risk was $(14) million and insignificant, respectively. See Notes 15 and 18 for additional information on the composition of our derivative portfolio.

(d) Includes private equity investments.

(e) Primarily represented the liability associated with certain of our deferred incentive compensation plans

Level 3 Instruments

The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowners’ equity.

CHANGES IN LEVEL 3 INSTRUMENTS FOR THE THREE MONTHS ENDED
																			Net
																			change in
			Net			Net													unrealized
			realized/			realized/													gains
			unrealized		unrealized														(losses)
			gains			gains													relating to
			(losses)			(losses)							Transfers		Transfers				instruments
	Balance at		included in			included							into		out of		Balance at		still held at
(In millions)	January 1		earnings(a)			in AOCI	Purchases		Sales		Settlements		Level 3(b)		Level 3(b)		March 31		March 31(c)
2016
Investment securities
Debt
U.S. corporate	$	3,006	$	4	$	100	$	60	$	(5)	$	(8)	$	-	$	(15)	$	3,143	$	-
State and municipal		30		-		1		-		-		-		-		-		31		-
Mortgage and
asset-backed		32		(9)		-		-		-		-		-		-		23		-
Corporate – non-U.S.		290		-		4		-		-		-		-		-		295		-
U.S. government and
federal agency		323		-		(45)		-		-		(1)		-		-		277		-
Equity		13		(7)		2		-		-		-		-		-		9		-
Derivatives(d)(e)		88		4		-		-		-		1		(11)		(1)		82		4
Other		259		-		-		-		-		-		-		(259)		-		-
Total	$	4,042	$	(8)	$	63	$	60	$	(5)	$	(8)	$	(11)	$	(275)	$	3,859	$	4
2015
Investment securities
Debt
U.S. corporate	$	3,053	$	4	$	59	$	94	$	(11)	$	(36)	$	-	$	-	$	3,163	$	-
State and municipal		58		-		1		-		-		-		-		-		58		-
Mortgage and
asset-backed		145		5		(1)		-		(32)		(3)		-		-		114		-
Corporate – non-U.S.		337		-		3		-		(49)		-		-		-		290		-
Government – non-U.S.		2		-		-		-		-		-		-		-		2		-
U.S. government and
federal agency		266		-		26		-		-		(1)		-		-		291		-
Equity		9		2		(2)		-		-		(4)		-		-		6		-
Derivatives(d)(e)		29		6		-		1		-		(2)		-		-		33		6
Other		277		(38)		-		-		(14)		-		-		-		225		(38)
Total	$	4,175	$	(21)	$	86	$	95	$	(106)	$	(46)	$	-	$	-	$	4,183	$	(32)

Earnings effects are primarily included in the “GE Capital revenues from services” and “Interest and other financial charges” captions in the Statement of Earnings.
Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 for the three months ended March 31, 2016 were primarily a result of the adoption of ASU 2015-02, Amendments to the Consolidation Analysis. See Note 1.
Represents the amount of unrealized gains or losses for the period included in earnings.
Represents derivative assets net of derivative liabilities and included cash accruals of $14 million and $10 million not reflected in the fair value hierarchy table for the three months ended March 31, 2016 and 2015, respectively.
Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Notes 15 and 18.

The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at March 31, 2016 and December 31, 2015.

	Remeasured during				Remeasured during
	the three months ended				the three months ended
	March 31, 2016				December 31, 2015
(In millions)	Level 2		Level 3		Level 2		Level 3

Financing receivables and financing receivables held for sale	$	-	$	119	$	-	$	154
Cost and equity method investments		-		375		1		436
Long-lived assets		-		62		2		882
Total	$	-	$	555	$	3	$	1,471

The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at March 31, 2016 and 2015.

	Three months ended March 31
(In millions)	2016		2015

Financing receivables and financing receivables held for sale	$	(23)	$	(4)
Cost and equity method investments		(115)		(31)
Long-lived assets		(58)		(38)
Total	$	(197)	$	(72)

LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS

					Range
(Dollars in millions)	Fair value		Valuation technique	Unobservable inputs	(weighted average)

March 31, 2016
Recurring fair value measurements
Investment securities – Debt
U.S. corporate	$	821	Income approach	Discount rate(a)	1.4%-22.9% (10.1%)
Mortgage and asset-backed		23	Income approach	Discount rate(a)	2.4%-15.5% (11.9%)
Corporate – non-U.S.		34	Income approach	Discount rate(a)	6.5%-6.5% (6.5%)

Non-recurring fair value measurements
Financing receivables and	$	116	Income approach	Discount rate(a)	9.0%-30.0% (14.2%)
financing receivables held for sale

Cost and equity method investments		122	Income approach	Discount rate(a)	9.0%-20.0% (13.7%)

Long-lived assets		15	Income approach	Discount rate(a)	1.8%-10.0% (6.2%)


December 31, 2015
Recurring fair value measurements
Investment securities – Debt
U.S. corporate	$	834	Income approach	Discount rate(a)	1.7%-14.1% (8.6%)
Mortgage and asset-backed		31	Income approach	Discount rate(a)	5.0%-12.0% (10.5%)
Corporate – non-U.S.		236	Income approach	Discount rate(a)	6.5%-14.0% (7.5%)
Other financial assets		259	Income approach,	EBITDA multiple	6.1X-15.0X (9.9X)
			Market comparables	Capitalization rate	7.8%-7.8% (7.8%)

Non-recurring fair value measurements
Financing receivables and	$	146	Income approach	Discount rate(a)	6.5%-30.0% (10.7%)
financing receivables held for sale

Cost and equity method investments		293	Income approach,	Discount rate(a)	9.5%-35.0% (14.4%)

Long-lived assets		830	Income approach	Discount rate(a)	1.8%-11.7% (10.5%)

(a) Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value.

At March 31, 2016 and December 31, 2015, other Level 3 recurring fair value measurements of $2,953 million and $2,637 million, respectively, and non-recurring measurements of $156 million and $122 million, respectively, are valued using non-binding broker quotes or other third-party sources. At March 31, 2016 and December 31, 2015, other recurring fair value measurements of $15 million and $32 million, respectively, and non-recurring fair value measurements of $146 million and $80 million, respectively, were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.

- 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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