Fair Value

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value

Fair Value

Certain assets and liabilities are measured at fair value in the financial statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by U.S. GAAP. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The fair value hierarchy is summarized as follows:

Level 1 — Quoted (unadjusted) prices for identical assets/liabilities in active markets.

Level 2 — Other observable inputs, either directly or indirectly, including:

• Quoted prices for similar assets/liabilities in active markets;

• Quoted prices for identical or similar assets in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);

• Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and

• Inputs that are derived principally from or corroborated by other observable market data.

Level 3 — Unobservable inputs that cannot be corroborated by observable market data.

The following table presents a summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis, excluding AARP related assets and liabilities:

(in millions)	Quoted Prices in Active Markets (Level 1)			Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)			Total Fair Value
December 31, 2011
Cash and cash equivalents	$	8,569		$	860		$	—		$	9,429
Debt securities - available-for-sale:
U.S. government and agency obligations	1,551			822			—			2,373
State and municipal obligations	—			6,750			15			6,765
Corporate obligations	16			5,805			186			6,007
U.S. agency mortgage-backed securities	—			2,353			—			2,353
Non-U.S. agency mortgage-backed securities	—			497			7			504
Total debt securities - available-for-sale	1,567			16,227			208			18,002
Equity securities - available-for-sale	333			2			209			544
Total assets at fair value	$	10,469		$	17,089		$	417		$	27,975
Percentage of total assets at fair value	37		%	61		%	2		%	100		%
December 31, 2010
Cash and cash equivalents	$	8,069		$	1,054		$	—		$	9,123
Debt securities - available-for-sale:
U.S. government and agency obligations	1,515			719			—			2,234
State and municipal obligations	—			6,148			—			6,148
Corporate obligations	31			5,146			133			5,310
U.S. agency mortgage-backed securities	—			1,903			—			1,903
Non-U.S. agency mortgage-backed securities	—			457			8			465
Total debt securities - available-for-sale	1,546			14,373			141			16,060
Equity securities - available-for-sale	306			2			208			516
Total cash, cash equivalents and investments at fair value	9,921			15,429			349			25,699
Interest rate swap assets	—			46			—			46
Total assets at fair value	$	9,921		$	15,475		$	349		$	25,745
Percentage of total assets at fair value	39		%	60		%	1		%	100		%
Interest rate swap liabilities	$	—		$	104		$	—		$	104

There were no transfers between Levels 1 and 2 during the years ended December 31, 2011 and 2010.

The Company elected to measure the entirety of the AARP Assets Under Management at fair value. The following table presents fair value information about the AARP Program-related financial assets and liabilities:

(in millions)	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total Fair Value
December 31, 2011
Cash and cash equivalents	$	257	$	10	$	—	$	267
Debt securities:
U.S. government and agency obligations	566		214		—		780
State and municipal obligations	—		25		—		25
Corporate obligations	—		1,048		—		1,048
U.S. agency mortgage-backed securities	—		436		—		436
Non-U.S. agency mortgage-backed securities	—		150		—		150
Total debt securities	566		1,873		—		2,439
Equity securities - available-for-sale	—		2		—		2
Total assets at fair value	$	823	$	1,885	$	—	$	2,708
Other liabilities	$	27	$	49	$	—	$	76
Total liabilities at fair value	$	27	$	49	$	—	$	76
December 31, 2010
Cash and cash equivalents	$	115	$	—	$	—	$	115
Debt securities:
U.S. government and agency obligations	515		244		—		759
State and municipal obligations	—		15		—		15
Corporate obligations	—		1,129		—		1,129
U.S. agency mortgage-backed securities	—		393		—		393
Non-U.S. agency mortgage-backed securities	—		137		—		137
Total debt securities	515		1,918		—		2,433
Equity securities - available-for-sale	—		2		—		2
Total assets at fair value	$	630	$	1,920	$	—	$	2,550
Other liabilities	$	—	$	—	$	59	$	59
Total liabilities at fair value	$	—	$	—	$	59	$	59

There were no transfers between Levels 1 and 2 during the years ended December 31, 2011 and 2010.

The table below includes fair values for certain financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:

	December 31, 2011				December 31, 2010
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Debt securities - available-for-sale	$	18,002	$	18,002	$	16,060	$	16,060
Equity securities - available-for-sale	544		544		516		516
Debt securities - held-to-maturity	197		204		203		208
AARP Program-related investments	2,441		2,441		2,435		2,435
Interest rate swap assets	—		—		46		46
Liabilities
Senior unsecured notes	11,638		13,149		10,212		10,903
Interest rate swap liabilities	—		—		104		104
AARP Program-related other liabilities	76		76		59		59

The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts and other current receivables, unearned revenues, commercial paper, accounts payable and accrued liabilities approximate fair value because of their short-term nature. These assets and liabilities are not listed in the table above.

The following methods and assumptions were used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument:

Cash and Cash Equivalents. The carrying value of cash and cash equivalents approximates fair value as maturities are less than three months. Fair values of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2.

Debt and Equity Securities. Fair values of available-for-sale debt and equity securities are based on quoted market prices, where available. The Company obtains one price for each security primarily from a third-party pricing service (pricing service), which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source, prices reported by its custodian, its investment consultant and third-party investment advisors. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.

Fair values of debt securities that do not trade on a regular basis in active markets but are priced using other observable inputs are classified as Level 2. The Company’s Level 3 debt securities consist mainly of low income housing investments that are unique and non-transferable.

Fair value estimates for Level 1 and Level 2 publicly traded equity securities are based on quoted market prices and/or other market data for the same or comparable instruments and transactions in establishing the prices. The fair values of Level 3 investments in venture capital portfolios are estimated using market modeling approaches that rely heavily on management assumptions and qualitative observations. These investments totaled $168 million and $166 million as of December 31, 2011 and 2010, respectively. The fair values of the Company’s various venture capital investments are computed using limited quantitative and qualitative observations of activity for similar companies in the current market. The key inputs utilized in the Company’s market modeling include, as applicable, transactions for comparable companies in similar industries and having similar revenue and growth characteristics; similar preferences in the capital structure; discounted cash flows; liquidation values and milestones established at initial funding; and the assumption that the values of the Company’s venture capital investments can be inferred from these inputs. The Company’s remaining Level 3 equity securities holdings of $41 million and $42 million as of December 31, 2011 and 2010, respectively, consist of preferred stock and other items for which there are no active markets.

Throughout the procedures discussed above in relation to the Company's processes for validating third party pricing information, the Company validates the understanding of assumptions and inputs used in security pricing and determines the proper classification in the hierarchy based on that understanding.

Interest Rate Swaps. Fair values of the Company’s interest rate swaps were estimated using the terms of the swaps and publicly available market yield curves. Because the swaps were unique and not actively traded, the fair values were classified as Level 2.

AARP Program-related Investments. AARP Program-related investments consist of debt and equity securities held to fund costs associated with the AARP Program and are priced and classified using the same methodologies as the Company’s other securities.

Senior Unsecured Notes. The fair values of the senior unsecured notes are estimated based on third-party quoted market prices for the same or similar issues.

AARP Program-related Other Liabilities. AARP Program-related other liabilities consist of liabilities that represent the amount of net investment gains and losses related to AARP Program-related investments that accrue to the benefit of the AARP policyholders.

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:

	December 31, 2011									December 31, 2010									December 31, 2009
(in millions)	Debt Securities			Equity Securities			Total			Debt Securities			Equity Securities			Total			Debt Securities			Equity Securities			Total
Balance at beginning of period	$	141		$	208		$	349		$	120		$	312		$	432		$	62		$	304		$	366
Purchases	92			35			127			43			45			88			76			25			101
Sales	—			(17		)	(17		)	(4		)	(167		)	(171		)	—			(3		)	(3		)
Settlements	(25		)	(7		)	(32		)	(20		)	—			(20		)	(12		)	—			(12		)
Net unrealized (losses) gains in accumulated other comprehensive income	—			(4		)	(4		)	—			9			9			—			7			7
Net realized (losses) gains in investment and other income	—			(6		)	(6		)	2			9			11			(6		)	(21		)	(27		)
Balance at end of period	$	208		$	209		$	417		$	141		$	208		$	349		$	120		$	312		$	432

Non-financial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment. There were no significant fair value adjustments for these assets and liabilities recorded during the years ended December 31, 2011, 2010 and 2009.