20. Fair Value of Financial Instruments

The carrying values and estimated fair values of our financial instruments (in millions) were as follows:



	As of December 31, 2015						As of December 31, 2014
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Assets
AFS securities:
Fixed maturity securities	$	84,964		$	84,964		$	86,240		$	86,240
VIEs’ fixed maturity securities		598			598			598			598
Equity securities		237			237			231			231
Trading securities		1,854			1,854			2,065			2,065
Mortgage loans on real estate		8,678			8,936			7,574			8,038
Derivative investments (1)		1,537			1,537			1,860			1,860
Other investments		1,778			1,778			1,709			1,709
Cash and invested cash		3,146			3,146			3,919			3,919
Other assets – reinsurance recoverable		268			268			154			154
Separate account assets		123,619			123,619			125,265			125,265

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(1,100	)		(1,100	)		(1,170	)		(1,170	)
Other contract holder funds:
Remaining guaranteed interest and similar contracts		(687	)		(687	)		(699	)		(699	)
Account values of certain investment contracts		(30,392	)		(34,618	)		(29,156	)		(33,079	)
Short-term debt (2)		-			-			(250	)		(253	)
Long-term debt		(5,582	)		(5,505	)		(5,270	)		(5,707	)
Reinsurance related embedded derivatives		(87	)		(87	)		(150	)		(150	)
VIEs’ liabilities – derivative instruments		(4	)		(4	)		(13	)		(13	)
Other liabilities:
Credit default swaps		(9	)		(9	)		(3	)		(3	)
Derivative liabilities (1)		(69	)		(69	)		(77	)		(77	)
GLB reserves embedded derivatives (3)		(953	)		(953	)		(174	)		(174	)

Benefit Plans’ Assets (4)		1,486			1,486			1,570			1,570

⁽¹⁾

We have master netting agreements with each of our derivative counterparties, which allow for the netting of our derivative asset and liability positions by counterparty.

⁽²⁾

The difference between the carrying value and fair value of short-term debt as of December 31, 2014, related to current maturities of long-term debt.

⁽³⁾

Portions of our GLB reserves embedded derivatives are ceded to third-party reinsurance counterparties. Refer to Note 6 for additional detail.

⁽⁴⁾

Included in the funded statuses of the benefit plans, which is reported in other liabilities on our Consolidated Balance Sheets. Refer to Note 17 for information regarding our benefit plans.

Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value

The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value on our Consolidated Balance Sheets. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments.

Mortgage Loans on Real Estate

The fair value of mortgage loans on real estate is established using a discounted cash flow method based on credit rating, maturity and future income. The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt-service coverage, loan-to-value, quality of tenancy, borrower and payment record. The fair value for impaired mortgage loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price or the fair value of the collateral if the loan is collateral dependent. The inputs used to measure the fair value of our mortgage loans on real estate are classified as Level 2 within the fair value hierarchy.

Other Investments

The carrying value of our assets classified as other investments approximates fair value. Other investments includes primarily LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs. The inputs used to measure the fair value of our LPs and other privately held investments are classified as Level 3 within the fair value hierarchy. Other investments also includes securities that are not LPs or other privately held investments and the inputs used to measure the fair value of these securities are classified as Level 1 within the fair value hierarchy.

Other Contract Holder Funds

Other contract holder funds include remaining guaranteed interest and similar contracts and account values of certain investment contracts. The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of the balance sheet date. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. As of December 31, 2015 and 2014, the remaining guaranteed interest and similar contracts carrying value approximated fair value. The fair value of the account values of certain investment contracts is based on their approximate surrender value as of the balance sheet date. The inputs used to measure the fair value of our other contract holder funds are classified as Level 3 within the fair value hierarchy.

Short-Term and Long-Term Debt

The fair value of short-term and long-term debt is based on quoted market prices. The inputs used to measure the fair value of our short-term and long-term debt are classified as Level 2 within the fair value hierarchy.

Financial Instruments Carried at Fair Value

We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2015 or 2014, and we noted no changes in our valuation methodologies between these periods.

The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels described above:



		As of December 31, 2015
		Quoted
		Prices
		in Active
	Markets for			Significant				Significant
		Identical		Observable				Unobservable				Total
		Assets			Inputs				Inputs			Fair
		(Level 1)			(Level 2)				(Level 3)			Value
Assets
Investments:
Fixed maturity AFS securities:
Corporate bonds		$	60		$	70,878			$	1,993		$	72,931
ABS			-			1,056				45			1,101
U.S. government bonds			412			17				-			429
Foreign government bonds			-			413				111			524
RMBS			-			3,727				1			3,728
CMBS			-			366				10			376
CLOs			-			38				551			589
State and municipal bonds			-			4,480				-			4,480
Hybrid and redeemable preferred securities			48			664				94			806
VIEs’ fixed maturity securities			-			598				-			598
Equity AFS securities			8			65				164			237
Trading securities			160			1,621				73			1,854
Other investments			148			-				-			148
Derivative investments (1)			-			1,459				853			2,312
Cash and invested cash			-			3,146				-			3,146
Other assets – reinsurance recoverable			-			-				268			268
Separate account assets			1,053			122,566				-			123,619
Total assets		$	1,889		$	211,094			$	4,163		$	217,146

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(1,100	)	$	(1,100	)
Long-term debt			-			(1,203	)			-			(1,203	)
Reinsurance related embedded derivatives			-			(87	)			-			(87	)
VIEs’ liabilities – derivative instruments			-			-				(4	)		(4	)
Other liabilities:
Credit default swaps			-			-				(9	)		(9	)
Derivative liabilities (1)			-			(546	)			(298	)		(844	)
GLB reserves embedded derivatives			-			-				(953	)		(953	)
Total liabilities		$	-		$	(1,836	)		$	(2,364	)	$	(4,200	)

Benefit Plans’ Assets		$	156		$	1,330			$	-		$	1,486



		As of December 31, 2014
		Quoted
		Prices
		in Active
	Markets for			Significant				Significant
		Identical		Observable				Unobservable				Total
		Assets			Inputs				Inputs			Fair
		(Level 1)			(Level 2)				(Level 3)			Value
Assets
Investments:
Fixed maturity AFS securities:
Corporate bonds		$	63		$	71,400			$	1,953		$	73,416
ABS			-			1,097				33			1,130
U.S. government bonds			399			36				-			435
Foreign government bonds			-			432				109			541
RMBS			-			4,225				1			4,226
CMBS			-			555				15			570
CLOs			-			7				368			375
State and municipal bonds			-			4,593				-			4,593
Hybrid and redeemable preferred securities			45			854				55			954
VIEs’ fixed maturity securities			-			598				-			598
Equity AFS securities			7			67				157			231
Trading securities			-			1,992				73			2,065
Other investments			150			-				-			150
Derivative investments (1)			-			1,356				1,231			2,587
Cash and invested cash			-			3,919				-			3,919
Other assets – reinsurance recoverable			-			-				154			154
Separate account assets			1,539			123,726				-			125,265
Total assets		$	2,203		$	214,857			$	4,149		$	221,209

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(1,170	)	$	(1,170	)
Long-term debt			-			(1,203	)			-			(1,203	)
Reinsurance related embedded derivatives			-			(150	)			-			(150	)
VIEs’ liabilities – derivative instruments			-			-				(13	)		(13	)
Other liabilities:
Credit default swaps			-			-				(3	)		(3	)
Derivative liabilities (1)			-			(562	)			(242	)		(804	)
GLB reserves embedded derivatives			-			-				(174	)		(174	)
Total liabilities		$	-		$	(1,915	)		$	(1,602	)	$	(3,517	)

Benefit Plans’ Assets		$	116		$	1,454			$	-		$	1,570

⁽¹⁾

Derivative investment assets and liabilities presented within the fair value hierarchy are presented on a gross basis by derivative type and not on a master netting basis by counterparty.

The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy. This summary excludes any effect of amortization of DAC, VOBA, DSI and DFEL. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.



	For the Year Ended December 31, 2015
									Purchases,
							Gains		Issuances,				Transfers
				Items			(Losses)		Sales,				Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other (1)			Net			Net (2)			Value
Investments: (4)
Fixed maturity AFS securities:
Corporate bonds	$	1,953		$	4		$	(140	)	$	118		$	58		$	1,993
ABS		33			-			-			12			-			45
Foreign government bonds		109			-			2			-			-			111
RMBS		1			4			-			(4	)		-			1
CMBS		15			2			8			(15	)		-			10
CLOs		368			-			1			194			(12	)		551
Hybrid and redeemable
preferred securities		55			(1	)		(3	)		-			43			94
Equity AFS securities		157			2			3			3			(1	)		164
Trading securities		73			3			(3	)		-			-			73
Derivative investments		989			(90	)		(41	)		(303	)		-			555
Other assets – reinsurance recoverable (5)		154			114			-			-			-			268
Future contract benefits – indexed annuity
and universal life contracts embedded
derivatives (5)		(1,170	)		(57	)		-			127			-			(1,100	)
VIEs’ liabilities – derivative instruments (6)		(13	)		9			-			-			-			(4	)
Other liabilities:
Credit default swaps (7)		(3	)		(6	)		-			-			-			(9	)
GLB reserves embedded derivatives (5)		(174	)		(779	)		-			-			-			(953	)
Total, net	$	2,547		$	(795	)	$	(173	)	$	132		$	88		$	1,799



	For the Year Ended December 31, 2014
									Purchases,
							Gains		Issuances,				Transfers
				Items			(Losses)		Sales,				Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other (1)			Net			Net (2)(3)			Value
Investments: (4)
Fixed maturity AFS securities:
Corporate bonds	$	1,701		$	9		$	27		$	197		$	19		$	1,953
ABS		10			-			1			-			22			33
Foreign government bonds		79			-			5			-			25			109
RMBS		1			-			-			-			-			1
CMBS		20			-			2			(13	)		6			15
CLOs		179			(3	)		7			136			49			368
State and municipal bonds		28			-			1			-			(29	)		-
Hybrid and redeemable
preferred securities		66			-			(1	)		(5	)		(5	)		55
Equity AFS securities		161			4			(3	)		(5	)		-			157
Trading securities		52			4			8			10			(1	)		73
Derivative investments		1,266			72			356			(279	)		(426	)		989
Other assets – reinsurance recoverable: (5)		27			127			-			-			-			154
Future contract benefits: (5)
Indexed annuity and IUL
contracts embedded derivatives		(1,048	)		(210	)		-			88			-			(1,170	)
GLB reserves embedded derivatives		1,244			-			-			-			(1,244	)		-
VIEs’ liabilities – derivative instruments (6)		(27	)		14			-			-			-			(13	)
Other liabilities:
Credit default swaps (7)		(2	)		(1	)		-			-			-			(3	)
GLB reserves embedded derivatives (5)		(27	)		(1,391	)		-			-			1,244			(174	)
Total, net	$	3,730		$	(1,375	)	$	403		$	129		$	(340	)	$	2,547



	For the Year Ended December 31, 2013
									Purchases,
							Gains		Issuances,				Transfers
				Items			(Losses)		Sales,				Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other (1)			Net			Net (2)			Value
Investments: (4)
Fixed maturity AFS securities:
Corporate bonds	$	1,491		$	(18	)	$	(2	)	$	316		$	(86	)	$	1,701
ABS		14			-			1			29			(34	)		10
U.S. government bonds		1			-			-			(1	)		-			-
Foreign government bonds		46			-			-			33			-			79
RMBS		3			-			-			(2	)		-			1
CMBS		27			1			6			(6	)		(8	)		20
CLOs		154			(1	)		4			50			(28	)		179
State and municipal bonds		32			-			(4	)		-			-			28
Hybrid and redeemable
preferred securities		118			-			13			(35	)		(30	)		66
Equity AFS securities		87			(1	)		2			73			-			161
Trading securities		56			3			(7	)		(6	)		6			52
Derivative investments		2,026			(681	)		96			(175	)		-			1,266
Future contract benefits: (5)
Indexed annuity and IUL
contracts embedded derivatives		(732	)		(356	)		-			40			-			(1,048	)
GLB reserves embedded derivatives		(909	)		2,153			-			-			-			1,244
VIEs’ liabilities – derivative instruments (6)		(128	)		101			-			-			-			(27	)
Other liabilities – credit default swaps (7)		(11	)		9			-			-			-			(2	)
Total, net	$	2,275		$	1,210		$	109		$	316		$	(180	)	$	3,730

⁽¹⁾

The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 6).

⁽²⁾

Transfers into or out of Level 3 for AFS and trading securities are displayed at amortized cost as of the beginning-of-year. For AFS and trading securities, the difference between beginning-of-year amortized cost and beginning-of-year fair value was included in OCI and earnings, respectively, in prior years.

⁽³⁾

Transfers into or out of Level 3 for GLB reserves embedded derivatives between future contract benefits, other assets and other liabilities on our Consolidated Balance Sheets.

⁽⁴⁾

Amortization and accretion of premiums and discounts are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss). Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

⁽⁵⁾

Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

⁽⁶⁾

Gains (losses) from sales, maturities, settlements and calls are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).

⁽⁷⁾

The changes in fair value of the credit default swaps and contingency forwards are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

The following provides the components of the items included in issuances, sales, maturities, settlements and calls, net, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, (in millions) as reported above:



	For the Year Ended December 31, 2015
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	359		$	(38	)	$	(44	)	$	(119	)	$	(40	)	$	118
ABS		13			-			-			(1	)		-			12
RMBS		-			(4	)		-			-			-			(4	)
CMBS		-			-			-			(14	)		(1	)		(15	)
CLOs		217			-			-			(23	)		-			194
Equity AFS securities		43			(40	)		-			-			-			3
Derivative investments		179			(162	)		(320	)		-			-			(303	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(51	)		-			-			178			-			127
Total, net	$	760		$	(244	)	$	(364	)	$	21		$	(41	)	$	132



	For the Year Ended December 31, 2014
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	600		$	(75	)	$	(115	)	$	(51	)	$	(162	)	$	197
CMBS		-			-			-			(13	)		-			(13	)
CLOs		187			-			-			(46	)		(5	)		136
Hybrid and redeemable preferred
securities		-			(5	)		-			-			-			(5	)
Equity AFS securities		-			(5	)		-			-			-			(5	)
Trading securities		14			-			-			(4	)		-			10
Derivative investments		160			(87	)		(352	)		-			-			(279	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(69	)		-			-			157			-			88
Total, net	$	892		$	(172	)	$	(467	)	$	43		$	(167	)	$	129



	For the Year Ended December 31, 2013
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	533		$	(51	)	$	(47	)	$	(49	)	$	(70	)	$	316
ABS		30			-			-			(1	)		-			29
U.S. government bonds		-			-			-			(1	)		-			(1	)
Foreign government bonds		50			-			(17	)		-			-			33
RMBS		-			-			-			(2	)		-			(2	)
CMBS		-			-			-			(4	)		(2	)		(6	)
CLOs		74			-			-			(24	)		-			50
Hybrid and redeemable preferred
securities		-			(35	)		-			-			-			(35	)
Equity AFS securities		78			(5	)		-			-			-			73
Trading securities		-			(3	)		(1	)		(2	)		-			(6	)
Derivative investments		152			(23	)		(304	)		-			-			(175	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(68	)		-			-			108			-			40
Total, net	$	849		$	(117	)	$	(369	)	$	25		$	(72	)	$	316

The following summarizes changes in unrealized gains (losses) included in net income, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):



	For the Years Ended December 31,
	2015			2014			2013
Derivative investments (1)	$	(102	)	$	(15	)	$	(752	)
Embedded derivatives: (1)
Indexed annuity and IUL contracts		(84	)		(37	)		(44	)
GLB reserves		(244	)		(678	)		2,444
VIEs’ liabilities – derivative instruments (2)		9			14			101
Credit default swaps (1)		(6	)		(1	)		9
Total, net	$	(427	)	$	(717	)	$	1,758

⁽¹⁾

Included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

⁽²⁾

Included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).

The following provides the components of the transfers into and out of Level 3 (in millions) as reported above:



	For the Year Ended December 31, 2015
	Transfers		Transfers
	Into		Out of
	Level 3		Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	224	$	(166	)	$	58
Foreign government bonds		4		(4	)		-
CLOs		4		(16	)		(12	)
Hybrid and redeemable preferred
securities		48		(5	)		43
Equity AFS securities		-		(1	)		(1	)
Trading securities		4		(4	)		-
Total, net	$	284	$	(196	)	$	88



	For the Year Ended December 31, 2014
	Transfers		Transfers
	Into		Out of
	Level 3		Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	475	$	(456	)	$	19
ABS		26		(4	)		22
Foreign government bonds		25		-			25
CMBS		6		-			6
CLOs		53		(4	)		49
State and municipal bonds		-		(29	)		(29	)
Hybrid and redeemable preferred securities		17		(22	)		(5	)
Trading securities		10		(11	)		(1	)
Derivative investments		-		(426	)		(426	)
Future contract benefits – GLB reserves
embedded derivatives		-		(1,244	)		(1,244	)
Other liabilities – GLB reserves embedded
derivatives		1,244		-			1,244
Total, net	$	1,856	$	(2,196	)	$	(340	)



	For the Year Ended December 31, 2013
	Transfers		Transfers
	Into		Out of
	Level 3		Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	373	$	(459	)	$	(86	)
ABS		-		(34	)		(34	)
CMBS		-		(8	)		(8	)
CLOs		-		(28	)		(28	)
Hybrid and redeemable preferred securities		20		(50	)		(30	)
Trading securities		8		(2	)		6
Total, net	$	401	$	(581	)	$	(180	)

Transfers into and out of Level 3 are generally the result of observable market information on a security no longer being available or becoming available to our pricing vendors. For the years ended December 31, 2015, 2014 and 2013 transfers in and out were attributable primarily to the securities’ observable market information no longer being available or becoming available. Transfers in and out for GLB reserves embedded derivatives represent reclassifications between future contract benefits and other assets or other liabilities. Transfers into and out of Levels 1 and 2 are generally the result of a change in the type of input used to measure the fair value of an asset or liability at the end of the reporting period. When quoted prices in active markets become available, transfers from Level 2 to Level 1 will result. When quoted prices in active markets become unavailable, but we are able to employ a valuation methodology using significant observable inputs, transfers from Level 1 to Level 2 will result. For the year ended December 31, 2015, the transfers from Level 2 to Level 1 of the fair value hierarchy were $172 million for our financial instruments carried at fair value which was attributable to quoted market prices becoming available. For the years ended December 31, 2014 and 2013 the transfers between Levels 1 and 2 of the fair value hierarchy were less than $1 million for our financial instruments carried at fair value.

The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of December 31, 2015:



	Fair			Valuation	Significant	Assumption or
	Value			Technique	Unobservable Inputs	Input Ranges
Assets
Investments:
Fixed maturity AFS and trading
securities:
Corporate bonds	$	1,314		Discounted cash flow	Liquidity/duration adjustment (1)	0.1	%	-	11.7	%
ABS		25		Discounted cash flow	Liquidity/duration adjustment (1)	3.3	%	-	3.3	%
Foreign government bonds		77		Discounted cash flow	Liquidity/duration adjustment (1)	1.9	%	-	4.4	%
Hybrid and redeemable
preferred securities		20		Discounted cash flow	Liquidity/duration adjustment (1)	2.1	%	-	2.1	%
Equity AFS and trading securities		27		Discounted cash flow	Liquidity/duration adjustment (1)	4.3	%	-	8.8	%
Other assets – reinsurance
recoverable		268		Discounted cash flow	Long-term lapse rate (2)	1	%	-	30	%
					Utilization of guaranteed withdrawals (3)	90	%	-	100	%
					Claims utilization factor (4)	60	%	-	100	%
					Premiums utilization factor (4)	70	%	-	120	%
					NPR (5)	0.02	%	-	0.38	%
					Mortality rate (6)				(8)
					Volatility (7)	1	%	-	29	%
Liabilities
Future contract benefits – indexed
annuity and IUL contracts
embedded derivatives		(1,100	)	Discounted cash flow	Lapse rate (2)	1	%	-	15	%
					Mortality rate (6)				(8)
Other liabilities – GLB reserves
embedded derivatives		(953	)	Discounted cash flow	Long-term lapse rate (2)	1	%	-	30	%
					Utilization of guaranteed withdrawals (3)	90	%	-	100	%
					Claims utilization factor (4)	60	%	-	100	%
					Premiums utilization factor (4)	70	%	-	120	%
					NPR (5)	0.02	%	-	0.38	%
					Mortality rate (6)				(8)
					Volatility (7)	1	%	-	29	%

⁽¹⁾

The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and credit quality that would be applied to the market observable information of an investment.

⁽²⁾

The lapse rate input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits. The range for indexed annuity and IUL contracts represents the lapse rates during the surrender charge period.

⁽³⁾

The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.

⁽⁴⁾

The utilization factors are applied to the present value of claims or premiums, as appropriate, in the GLB reserve calculation to estimate the impact of inefficient withdrawal behavior, including taking less than or more than the maximum guaranteed withdrawal.

⁽⁵⁾

The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract.

⁽⁶⁾

The mortality rate input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as gender, will die.

⁽⁷⁾

The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed-income assets. Fair value of the variable annuity GLB embedded derivatives would increase if higher volatilities were used for valuation.

⁽⁸⁾

The mortality rate is based on a combination of company and industry experience, adjusted for improvement factors.

From the table above, we have excluded Level 3 fair value measurements obtained from independent, third-party pricing sources. We do not develop the significant inputs used to measure the fair value of these assets and liabilities, and the information regarding the significant inputs is not readily available to us. Independent broker-quoted fair values are non-binding quotes developed by market makers or broker-dealers obtained from third-party sources recognized as market participants. The fair value of a broker-quoted asset or liability is based solely on the receipt of an updated quote from a single market maker or a broker-dealer recognized as a market participant as we do not adjust broker quotes when used as the fair value measurement for an asset or liability. Significant increases or decreases in any of the quotes received from a third-party broker-dealer may result in a significantly higher or lower fair value measurement.

Changes in any of the significant inputs presented in the table above may result in a significant change in the fair value measurement of the asset or liability as follows:

Investments – An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement.

Indexed annuity and IUL contracts embedded derivatives – An increase in the lapse rate or mortality rate inputs would result in a decrease in the fair value measurement.

GLB reserves embedded derivatives – Assuming our GLB reserves embedded derivatives are in a liability position: an increase in our lapse rate, NPR or mortality rate inputs would result in a decrease in the fair value measurement; and an increase in the utilization of guarantee withdrawal or volatility inputs would result in an increase in the fair value measurement.

For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input will not affect the other inputs.

As part of our ongoing valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary. For more information, see “Summary of Significant Accounting Policies” above.