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Fair Value Of Assets And Liabilities
 3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
FAIR VALUE OF ASSETS AND LIABILITIES
FAIR VALUE OF ASSETS AND LIABILITIES
The carrying value and fair value of financial instruments are presented in the below summary table. The fair value of financial instruments held by CIP is presented in Note 12, "Consolidated Investment Products."
 
 
 
March 31, 2017
 
December 31, 2016
$ in millions
Footnote Reference
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
 
 
1,397.0

 
1,397.0

 
1,328.0

 
1,328.0

Available-for-sale investments
3
 
121.5

 
121.5

 
154.0

 
154.0

Trading investments
3
 
242.2

 
242.2

 
329.6

 
329.6

Foreign time deposits *
3
 
28.5

 
28.5

 
26.9

 
26.9

Assets held for policyholders
 
 
9,230.5

 
9,230.5

 
8,224.2

 
8,224.2

Policyholder payables *
 
 
(9,230.5
)
 
(9,230.5
)
 
(8,224.2
)
 
(8,224.2
)
Put option contracts

 
9.6

 
9.6

 
21.8

 
21.8

UIT-related financial instruments sold, not yet purchased
 
 
(2.7
)
 
(2.7
)
 
(6.0
)
 
(6.0
)
Contingent consideration liability
 
 
(74.1
)
 
(74.1
)
 
(78.2
)
 
(78.2
)
Long-term debt *
4
 
(2,093.6
)
 
(2,222.6
)
 
(2,102.4
)
 
(2,206.5
)
____________
*
These financial instruments are not measured at fair value on a recurring basis. See the indicated footnotes or most recently filed Form 10-K for additional information about the carrying and fair values of these financial instruments. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value, and are accordingly classified as Level 2 securities.
A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs into the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
•
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
An asset or liability's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
There are three types of valuation approaches: a market approach, which uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities; an income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount; and a cost approach, which is based on the amount that currently would be required to replace the service capacity of an asset.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Cash equivalents
Cash investments in money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the net asset value of the underlying funds, and are classified within level 1 of the valuation hierarchy.
Available-for-sale investments
Seed money is valued under the market approach through the use of quoted market prices available in an active market and is classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments. At March 31, 2017 and December 31, 2016, investments in collateralized loan obligations (CLOs) were valued using pricing information obtained by an independent third-party pricing source. Other debt securities are valued using a cost valuation technique due to the lack of available cash flow and market data and are accordingly classified within level 3 of the valuation hierarchy.
Trading investments
•Investments related to deferred compensation plans
Investments related to deferred compensation plans are valued under the market approach through the use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy.
•Seed money
Seed money is valued under the market approach through the use of quoted market prices available in an active market and is classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments.
•Other equity securities
Other equity securities consist of investments in publicly-traded equity securities. These securities are valued under the market approach through the use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
•UIT-related equity and debt securities
The company invests in Unit Investment Trust (UIT)-related equity and debt securities consisting of investments in corporate equities, UITs, and municipal securities. Each is discussed more fully below.
Corporate equities
The company temporarily holds investments in corporate equities for purposes of creating a UIT. Corporate equities are valued under the market approach through use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
UITs
The company may hold units of its sponsored UITs at period-end for sale in the primary market or secondary market. Equity UITs are valued under the market approach through use of quoted prices on an exchange. Fixed income UITs are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.
Put option contracts
The company has purchased put option contracts to hedge economically foreign currency risk on the translation of a portion of its
Pound Sterling-denominated earnings and Euro-denominated earnings into U.S. Dollars (purchases of $4.2 million and $7.0 million in the three months ended March 31, 2017 and March 31, 2016, respectively). These were the only contracts entered into during the period to hedge economically foreign currency risk on the translation of a portion of the Pound Sterling-denominated earnings and provide coverage through June 29, 2018. The contracts entered into during 2016 to hedge economically foreign currency risk on the translation of a portion of the Euro-denominated earnings provide coverage through December 27, 2017.

The economic hedge is predominantly triggered upon the impact of a significant decline in the respective Pound Sterling/U.S. Dollar foreign exchange rate or Euro/U.S. Dollar foreign exchange rate. Open put option contracts are marked-to-market through earnings, which are recorded in the company's Condensed Consolidated Statements of Income in other gains and losses, net. These derivative contracts are valued using option valuation models and are included in other assets in the company's Condensed Consolidated Balance Sheets. The significant inputs in these models (volatility, forward points and swap curves) are readily available in public markets or can be derived from observable market transactions for substantially the full terms of the contracts and are classified within level 2 of the valuation hierarchy. The company recognized a $8.2 million net loss in the three months ended March 31, 2017 (three months ended March 31, 2016: $2.5 million net gain) related to the change in market value of these put option contracts.

Assets held for policyholders
Assets held for policyholders are measured at fair value under the market approach based on the quoted prices of the underlying funds in an active market and are classified within level 1 of the valuation hierarchy. The policyholder payables are indexed to the value of the assets held for policyholders and are therefore not included in the tables below.
Contingent Consideration Liability
During 2015, the company acquired certain investment management contracts from Deutsche Bank. Indefinite-lived intangible assets were valued at $119.3 million. This transaction was a non-cash investing activity during that period. The purchase price was comprised solely of contingent consideration payable in future periods, and is linked to future revenues generated from the contracts.  The contingent consideration liability was recorded at fair value as of the date of acquisition using a discounted cash flow model, and is categorized within level 3 of the valuation hierarchy. Anticipated future cash flows were determined using forecasted assets under management (AUM) levels and discounted back to the valuation date. The company reassesses significant unobservable inputs during each reporting period. At March 31, 2017 inputs used in the model included assumed growth rates in AUM ranging from 0.69% to 4.4% (weighted average growth rate of 2.48%) and a discount rate of 3.88%. Changes in fair value are recorded in other gains and losses, net in the Condensed Consolidated Statements of Income in the period incurred. An increase in AUM levels and a decrease in the discount rate would increase the fair value of the contingent consideration liability while a decrease in forecasted AUM and an increase in the discount rate would decrease the liability.
The following table presents, for each of the hierarchy levels described above, the carrying value of the company's assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the company's Condensed Consolidated Balance Sheet as of March 31, 2017:
 
As of March 31, 2017
$ in millions
Fair Value Measurements
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
478.4

 
478.4

 
—

 
—

Investments:*
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Seed money
97.8

 
97.8

 
—

 
—

CLOs
10.8

 
—

 
10.8

 
—

Other debt securities
12.9

 
—

 
—

 
12.9

Trading investments:
 
 
 
 
 
 
 
Investments related to deferred compensation plans
81.8

 
81.8

 
—

 
—

Seed money
123.2

 
123.2

 
—

 
—

Other equity securities
33.3

 
33.3

 
—

 
—

UIT-related equity and debt securities:
 
 
 
 
 
 
 
Corporate equities
1.1

 
1.1

 
—

 
—

UITs
2.8

 
2.8

 
—

 
—

Assets held for policyholders
9,230.5

 
9,230.5

 
—

 
—

Put option contracts
9.6

 
—

 
9.6

 
—

Total
10,082.2

 
10,048.9

 
20.4

 
12.9

Liabilities:
 
 
 
 
 
 
 
UIT-related financial instruments sold, not yet purchased:
 
 
 
 
 
 
 
Exchange traded funds
(2.7
)
 
(2.7
)
 
—

 
—

Contingent consideration liability
(74.1
)
 
—

 
—

 
(74.1
)
Total
(76.8
)
 
(2.7
)
 
—

 
(74.1
)
____________
*
Foreign time deposits of $28.5 million are excluded from this table. Equity method and other investments of $291.4 million and $5.7 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.
The following table presents, for each of the hierarchy levels described above, the carrying value of the company's assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the company's Condensed Consolidated Balance Sheet as of December 31, 2016:
 
As of December 31, 2016
$ in millions
Fair Value Measurements
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
476.2

 
476.2

 
—

 
—

Investments:*
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Seed money
127.9

 
127.9

 
—

 
—

CLOs
12.9

 
—

 
—

 
12.9

Other debt securities
13.2

 
—

 
—

 
13.2

Trading investments:
 
 
 
 
 
 
 
Investments related to deferred compensation plans
170.5

 
170.5

 
—

 
—

Seed Money
121.9

 
121.9

 
—

 
—

Other equity securities
30.4

 
30.4

 
—

 
—

UIT-related equity and debt securities:
 
 
 
 
 
 
 
Corporate equities
1.2

 
1.2

 
—

 
—

UITs
5.6

 
5.6

 
—

 
—

Assets held for policyholders
8,224.2

 
8,224.2

 
—

 
—

Put option contracts
21.8

 
—

 
21.8

 
—

Total
9,205.8

 
9,157.9

 
21.8

 
26.1

Liabilities:
 
 
 
 
 
 
 
UIT-related financial instruments sold, not yet purchased:
 
 
 
 
 
 
 
Exchange traded funds
(5.2
)
 
(5.2
)
 
—

 
—

US treasury securities
(0.8
)
 
(0.8
)
 
—

 
—

Contingent consideration liability
(78.2
)
 
—

 
—

 
(78.2
)
Total
(84.2
)
 
(6.0
)
 
—

 
(78.2
)
____________
*
Foreign time deposits of $26.9 million are excluded from this table. Equity method and other investments of $279.0 million and $5.8 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.
The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the three months ended March 31, 2017 and March 31, 2016, which are valued using significant unobservable inputs:
 
Three months ended March 31, 2017
$ in millions
Contingent Consideration Liability
 
CLOs
 
Other Debt Securities
Beginning balance
(78.2
)
 
12.9

 
13.2

Purchases/acquisitions
—

 
—

 
7.3

Returns of capital
—

 
—

 
—

Net unrealized gains and losses included in other gains and losses, net*
0.5

 
—

 
—

Net unrealized gains and losses included in accumulated other comprehensive income/(loss)*
—

 
—

 
—

Disposition/settlements
3.6

 
—

 
(7.6
)
Transfer from level 3 to level 2
—

 
(12.9
)
 
—

Ending balance
(74.1
)
 
—

 
12.9


 
Three months ended March 31, 2016
$ in millions
Contingent Consideration Liability
 
CLOs
 
Other Debt Securities
Beginning balance
(83.9
)
 
1.4

 
5.9

Adjustment for adoption of ASU 2015-02
—

 
11.5

 
—

Beginning balance, as adjusted
(83.9
)
 
12.9

 
5.9

Returns of capital
—

 
(0.5
)
 
(1.6
)
Net unrealized gains and losses included in other gains and losses*
3.5

 
—

 
—

Net unrealized gains and losses included in accumulated other comprehensive income/(loss)*
—

 
(0.6
)
 
—

Disposition/settlements
3.2

 
—

 
—

Ending balance
(77.2
)
 
11.8

 
4.3

_______________
*
These unrealized gains and losses are attributable to balances still held at the respective period ends.