NOTE 18. FAIR VALUE MEASUREMENTS

RECURRING FAIR VALUE MEASUREMENTS

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



ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS

(In millions)	Level 1(a)		Level 2(a)		Level 3(b)		Netting adjustment			Net balance(c)
December 31, 2017
Assets
Investment securities	$	158	$	34,126	$	4,413	$	—		$	38,696
Derivatives	—		3,343		21		(2,986		)	378
Total	$	158	$	37,469	$	4,433	$	(2,986	)	$	39,074

Liabilities
Derivatives	$	—	$	2,354	$	7	$	(2,034	)	$	327
Other(d)	—		999		—		—			999
Total	$	—	$	3,353	$	7	$	(2,034	)	$	1,325

December 31, 2016
Assets
Investment securities	$	188	$	39,719	$	4,406	$	—		$	44,313
Derivatives	—		5,444		23		(5,121		)	345
Total	$	188	$	45,163	$	4,429	$	(5,121	)	$	44,658
Liabilities
Derivatives	$	—	$	4,880	$	2	$	(4,449	)	$	434
Other(d)	—		1,143		—		—			1,143
Total	$	—	$	6,024	$	2	$	(4,449	)	$	1,577


(a)	There were no significant transfers between Level 1 and Level 2 for the years ended December 31, 2017 and 2016.


(b)	Included debt securities classified within Level 3 of $3,629 million of U.S. corporate and $614 million of Government and agencies securities at December 31, 2017, and $3,399 million of U.S. corporate and $688 million of Non-U.S. corporate securities at December 31, 2016.


(c)	See Notes 3 and 19 for further information on the composition of our investment securities and derivative portfolios.


(d)	Primarily represents the liabilities 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.



(In millions)	Balance at January 1		Net realized/ unrealized gains (losses included in earnings(a)			Net realized/ unrealized gains (losses included in in AOCI			Purchase(b)		Sales			Settlements			Transfers into Level 3		Transfers out of Level 3			Balance at December 31
2017
Investment securities	$	4,406	$	54		$	66		$	1,108	$	(38	)	$	(641	)	$	32	$	(575	)	$	4,413
Derivatives	21		(2		)	(1		)	—		—			(9		)	4		1			14
Total	$	4,427	$	51		$	65		$	1,108	$	(38	)	$	(650	)	$	37	$	(574	)	$	4,427
2016
Investment securities	$	3,695	$	11		$	51		$	973	$	(152	)	$	(166	)	$	34	$	(39	)	$	4,406
Derivatives	88		(18		)	—			1		—			(59		)	—		8			21
Other	259		—			—			—		—			—			—		(259		)	—
Total	$	4,042	$	(7	)	$	51		$	974	$	(152	)	$	(226	)	$	35	$	(290	)	$	4,427


(a)	Earnings effects are primarily included in the “GE Capital revenues from services” and “Interest and other financial charges” captions in the Statement of Earnings (Loss).


(b)	Included $675 million and $468 million of U.S. corporate debt securities for the years ended December 31, 2017 and 2016.

The following table represents nonrecurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a nonrecurring basis during the fiscal year and still held at December 31, 2017 and 2016.



	Remeasured during the years ended December 31
	2017				2016
(In millions)	Level 2		Level 3		Level 2		Level 3

Financing receivables and financing receivables held for sale	$	—	$	1,541	$	—	$	30
Cost and equity method investments	—		2,076		—		103
Long-lived assets	177		591		17		1,055
Goodwill	—		—		—		—
Total	$	177	$	4,208	$	17	$	1,189

The following table represents the fair value adjustments to assets measured at fair value on a nonrecurring basis and still held at December 31, 2017 and 2016.



December 31 (In millions)	2017			2016

Financing receivables and financing receivables held for sale	$	(207	)	$	(14	)
Cost and equity method investments	(891		)	(44		)
Long-lived assets	(819		)	(196		)
Goodwill	(2,564		)	—
Total	$	(4,482	)	$	(254	)



LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS

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

December 31, 2017
Recurring fair value measurements
Investment securities(b)	$	903	Income approach	Discount rate(a)	3.0%-12.6% (6.2%)

Nonrecurring fair value measurements
Financing receivables	$	1,532	Income approach	Discount rate(a)	3.2%-16.5% (10.0%)

Cost and equity method investments	2,037		Income approach	Discount rate(a)	5.0%-50.00% (7.7%)

Long-lived assets	554		Income approach	Discount rate(a)	2.7%-18.0% (7.3%)


December 31, 2016
Recurring fair value measurements
Investment securities(b)	$	830	Income approach	Discount rate(a)	1.4%-17.4% (7.9%)


Nonrecurring fair value measurements
Financing receivables	$	30	Income approach	Discount rate(a)	2.5%-30.0% (20.3%)

Cost and equity method investments	94		Income approach,	Discount rate(a)	9.0%-30.0% (11.8%)

Long-lived assets	683		Income approach	Discount rate(a)	2.5%-20.0% (10.4%)


(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.


(b)	Comprises substantially all of U.S. corporate securities

At December 31, 2017 and December 31, 2016, other Level 3 recurring fair value measurements of $3,517 million and $3,598 million, respectively, and nonrecurring measurements of $83 million and $379 million, respectively, are valued using non-binding broker quotes or other third-party sources. Other recurring and nonrecurring fair value measurements were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.