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Fair Values of Assets and Liabilities | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair values of assets and liabilities [Text Block] | GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale. Valuation Hierarchy The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows: Level 1 Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date. Level 2 Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities. Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. The following tables present the balances of assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:
| September 30, 2020 |
Level 1 |  | Level 2 |  | Level 3 |  | Total
(in millions)
Assets |  |  |  |  |  |  |  |
Cash equivalents | $ | 3,171 |  |  | $ | 3,115 |  |  | $ | — |  |  | $ | 6,286 |  |
Available-for-Sale securities: |  |  |  |  |  |  |  |
Corporate debt securities | — |  |  | 12,280 |  |  | 742 |  |  | 13,022 |  |
Residential mortgage backed securities | — |  |  | 10,208 |  |  | 50 |  |  | 10,258 |  |
Commercial mortgage backed securities | — |  |  | 6,212 |  |  | — |  |  | 6,212 |  |
Asset backed securities | — |  |  | 3,058 |  |  | 30 |  |  | 3,088 |  |
State and municipal obligations | — |  |  | 1,380 |  |  | — |  |  | 1,380 |  |
U.S. government and agency obligations | 1,680 |  |  | — |  |  | — |  |  | 1,680 |  |
Foreign government bonds and obligations | — |  |  | 267 |  |  | — |  |  | 267 |  |
Other securities | — |  |  | 52 |  |  | — |  |  | 52 |  |
Total Available-for-Sale securities | 1,680 |  |  | 33,457 |  |  | 822 |  |  | 35,959 |  |
Investments at net asset value (“NAV”) |  |  |  |  |  |  | 7 |  | (1)
Trading and other securities | 10 |  |  | 25 |  |  | — |  |  | 35 |  |
Separate account assets at NAV |  |  |  |  |  |  | 86,128 |  | (1)
Other assets: |  |  |  |  |  |  |  |
Interest rate derivative contracts | — |  |  | 2,015 |  |  | — |  |  | 2,015 |  |
Equity derivative contracts | 442 |  |  | 2,990 |  |  | — |  |  | 3,432 |  |
Credit derivative contracts | — |  |  | 5 |  |  | — |  |  | 5 |  |
Foreign exchange derivative contracts | — |  |  | 36 |  |  | — |  |  | 36 |  |
Total other assets | 442 |  |  | 5,046 |  |  | — |  |  | 5,488 |  |
Total assets at fair value | $ | 5,303 |  |  | $ | 41,643 |  |  | $ | 822 |  |  | $ | 133,903 |  |
Liabilities |  |  |  |  |  |  |  |
Policyholder account balances, future policy benefits and claims: |  |  |  |  |  |  |  |
Fixed deferred indexed annuity embedded derivatives | $ | — |  |  | $ | 3 |  |  | $ | 44 |  |  | $ | 47 |  |
IUL embedded derivatives | — |  |  | — |  |  | 926 |  |  | 926 |  |
GMWB and GMAB embedded derivatives | — |  |  | — |  |  | 2,943 |  |  | 2,943 |  | (2)
Structured variable annuity embedded derivatives | — |  |  | — |  |  | 9 |  |  | 9 |  |
Total policyholder account balances, future policy benefits and claims | — |  |  | 3 |  |  | 3,922 |  |  | 3,925 |  | (3)
Customer deposits | — |  |  | 8 |  |  | — |  |  | 8 |  |
Other liabilities: |  |  |  |  |  |  |  |
Interest rate derivative contracts | — |  |  | 934 |  |  | — |  |  | 934 |  |
Equity derivative contracts | 168 |  |  | 2,840 |  |  | — |  |  | 3,008 |  |
Foreign exchange derivative contracts | 2 |  |  | 5 |  |  | — |  |  | 7 |  |
Other | 2 |  |  | 7 |  |  | 40 |  |  | 49 |  |
Total other liabilities | 172 |  |  | 3,786 |  |  | 40 |  |  | 3,998 |  |
Total liabilities at fair value | $ | 172 |  |  | $ | 3,797 |  |  | $ | 3,962 |  |  | $ | 7,931 |  |
| December 31, 2019 |
Level 1 |  | Level 2 |  | Level 3 |  | Total
(in millions)
Assets |  |  |  |  |  |  |  |
Cash equivalents | $ | 267 |  |  | $ | 2,924 |  |  | $ | — |  |  | $ | 3,191 |  |
Available-for-Sale securities: |  |  |  |  |  |  |  |
Corporate debt securities | — |  |  | 11,437 |  |  | 750 |  |  | 12,187 |  |
Residential mortgage backed securities | — |  |  | 10,012 |  |  | 17 |  |  | 10,029 |  |
Commercial mortgage backed securities | — |  |  | 5,563 |  |  | — |  |  | 5,563 |  |
Asset backed securities | — |  |  | 1,987 |  |  | 19 |  |  | 2,006 |  |
State and municipal obligations | — |  |  | 1,367 |  |  | — |  |  | 1,367 |  |
U.S. government and agency obligations | 1,680 |  |  | — |  |  | — |  |  | 1,680 |  |
Foreign government bonds and obligations | — |  |  | 271 |  |  | — |  |  | 271 |  |
Other securities | — |  |  | 26 |  |  | — |  |  | 26 |  |
Total Available-for-Sale securities | 1,680 |  |  | 30,663 |  |  | 786 |  |  | 33,129 |  |
Equity securities | 1 |  |  | — |  |  | — |  |  | 1 |  |
Investments at NAV |  |  |  |  |  |  | 6 |  | (1)
Trading and other securities | 12 |  |  | 26 |  |  | — |  |  | 38 |  |
Separate account assets at NAV |  |  |  |  |  |  | 87,488 |  | (1)
Investments and cash equivalents segregated for regulatory purposes | 14 |  |  | — |  |  | — |  |  | 14 |  |
Other assets: |  |  |  |  |  |  |  |
Interest rate derivative contracts | — |  |  | 1,455 |  |  | — |  |  | 1,455 |  |
Equity derivative contracts | 162 |  |  | 2,722 |  |  | — |  |  | 2,884 |  |
Credit derivative contracts | — |  |  | 4 |  |  | — |  |  | 4 |  |
Foreign exchange derivative contracts | 1 |  |  | 17 |  |  | — |  |  | 18 |  |
Total other assets | 163 |  |  | 4,198 |  |  | — |  |  | 4,361 |  |
Total assets at fair value | $ | 2,137 |  |  | $ | 37,811 |  |  | $ | 786 |  |  | $ | 128,228 |  |
Liabilities |  |  |  |  |  |  |  |
Policyholder account balances, future policy benefits and claims: |  |  |  |  |  |  |  |
Fixed deferred indexed annuity embedded derivatives | $ | — |  |  | $ | 3 |  |  | $ | 43 |  |  | $ | 46 |  |
IUL embedded derivatives | — |  |  | — |  |  | 881 |  |  | 881 |  |
GMWB and GMAB embedded derivatives | — |  |  | — |  |  | 763 |  |  | 763 |  | (4)
Total policyholder account balances, future policy benefits and claims | — |  |  | 3 |  |  | 1,687 |  |  | 1,690 |  | (5)
Customer deposits | — |  |  | 14 |  |  | — |  |  | 14 |  |
Other liabilities: |  |  |  |  |  |  |  |
Interest rate derivative contracts | — |  |  | 418 |  |  | — |  |  | 418 |  |
Equity derivative contracts | 36 |  |  | 3,062 |  |  | — |  |  | 3,098 |  |
Foreign exchange derivative contracts | 1 |  |  | 8 |  |  | — |  |  | 9 |  |
Other | 6 |  |  | 4 |  |  | 44 |  |  | 54 |  |
Total other liabilities | 43 |  |  | 3,492 |  |  | 44 |  |  | 3,579 |  |
Total liabilities at fair value | $ | 43 |  |  | $ | 3,509 |  |  | $ | 1,731 |  |  | $ | 5,283 |  |
(1) Amounts are comprised of certain financial instruments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy. (2) The fair value of the GMWB and GMAB embedded derivatives included $3.0 billion of individual contracts in a liability position and $36 million of individual contracts in an asset position as of September 30, 2020. (3) The Company’s adjustment for nonperformance risk resulted in a $(1.0) billion cumulative increase (decrease) to the embedded derivatives as of September 30, 2020. (4) The fair value of the GMWB and GMAB embedded derivatives included $981 million of individual contracts in a liability position and $218 million of individual contracts in an asset position as of December 31, 2019. (5) The Company’s adjustment for nonperformance risk resulted in a $(502) million cumulative increase (decrease) to the embedded derivatives as of December 31, 2019. The following tables provide a summary of changes in Level 3 assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:
| Available-for-Sale Securities |  |
| Corporate Debt Securities |  | Residential Mortgage Backed Securities |  |  |  | Asset Backed Securities |  |  |  | Total |  |
| (in millions)
Balance, July 1, 2020 | $ | 744 |  |  | $ | 205 |  |  |  |  | $ | 15 |  |  |  |  | $ | 964 |  |  |
Total gains (losses) included in: |  |  |  |  |  |  |  |  |  |  |  |  |
Other comprehensive income (loss) | 5 |  |  | — |  |  |  |  | 1 |  |  |  |  | 6 |  |  |
Purchases | 7 |  |  | 33 |  |  |  |  | — |  |  |  |  | 40 |  |  |
Settlements | (14) |  |  | — |  |  |  |  | 1 |  |  |  |  | (13) |  |  |
Transfers into Level 3 | — |  |  | — |  |  |  |  | 13 |  |  |  |  | 13 |  |  |
Transfers out of Level 3 | — |  |  | (188) |  |  |  |  | — |  |  |  |  | (188) |  |  |
Balance, September 30, 2020 | $ | 742 |  |  | $ | 50 |  |  |  |  | $ | 30 |  |  |  |  | $ | 822 |  |  |
Changes in unrealized gains (losses) in net income relating to assets held at September 30, 2020 | $ | — |  |  | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | — |  |  |
Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at September 30, 2020 | $ | 5 |  |  | $ | — |  |  |  |  | $ | 1 |  |  |  |  | $ | 6 |  |  |
| Policyholder Account Balances, Future Policy Benefits and Claims |  | Other Liabilities |
Fixed Deferred Indexed Annuity Embedded Derivatives |  | IUL Embedded Derivatives |  | GMWB and GMAB Embedded Derivatives |  | Structured Variable Annuity Embedded Derivatives |  | Total
(in millions) |
Balance, July 1, 2020 | $ | 41 |  |  | $ | 882 |  |  | $ | 3,129 |  |  | $ | 9 |  |  | $ | 4,061 |  |  | $ | 48 |  |
Total (gains) losses included in: |  |  |  |  |  |  |  |  |  |  |  |
Net income | 3 |  | (1) | 50 |  | (1) | (296) |  | (2) | 3 |  | (2) | (240) |  |  | (11) |  | (3)
Issues | — |  |  | 15 |  |  | 93 |  |  | (3) |  |  | 105 |  |  | 5 |  |
Settlements | — |  |  | (21) |  |  | 17 |  |  | — |  |  | (4) |  |  | (2) |  |
Balance, September 30, 2020 | $ | 44 |  |  | $ | 926 |  |  | $ | 2,943 |  |  | $ | 9 |  |  | $ | 3,922 |  |  | $ | 40 |  |
Changes in unrealized (gains) losses in net income relating to liabilities held at September 30, 2020 | $ | — |  |  | $ | 50 |  | (1) | $ | (283) |  | (2) | $ | — |  |  | $ | (233) |  |  | $ | — |  |
| Available-for-Sale Securities |  |
| Corporate Debt Securities |  | Residential Mortgage Backed Securities |  |  |  | Asset Backed Securities |  |  |  | Total |  |
| (in millions)
Balance, July 1, 2019 | $ | 809 |  |  | $ | 448 |  |  |  |  | $ | 24 |  |  |  |  | $ | 1,281 |  |  |
Total gains (losses) included in: |  |  |  |  |  |  |  |  |  |  |  |
Net income | (1) |  |  | — |  |  |  |  | — |  |  |  |  | (1) |  | (4) |
Other comprehensive income (loss) | 4 |  |  | — |  |  |  |  | — |  |  |  |  | 4 |  |  |
Purchases | 21 |  |  | 60 |  |  |  |  | — |  |  |  |  | 81 |  |  |
Settlements | (39) |  |  | (6) |  |  |  |  | — |  |  |  |  | (45) |  |  |
Transfers into Level 3 | — |  |  | — |  |  |  |  | 14 |  |  |  |  | 14 |  |  |
Transfers out of Level 3 | — |  |  | (348) |  |  |  |  | (18) |  |  |  |  | (366) |  |  |
Balance, September 30, 2019 | $ | 794 |  |  | $ | 154 |  |  |  |  | $ | 20 |  |  |  |  | $ | 968 |  |  |
Changes in unrealized gains (losses) in net income relating to assets held at September 30, 2019 | $ | — |  |  | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | — |  |  |
| Policyholder Account Balances, Future Policy Benefits and Claims |  | Other Liabilities |
Fixed Deferred Indexed Annuity Embedded Derivatives |  | IUL Embedded Derivatives |  | GMWB and GMAB Embedded Derivatives |  |  |  | Total
(in millions) |
Balance, July 1, 2019 | $ | 31 |  |  | $ | 819 |  |  | $ | 696 |  |  |  |  | $ | 1,546 |  |  | $ | 31 |  |
Total (gains) losses included in: |  |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | (5) |  | (1) | 663 |  | (2) |  |  | 658 |  |  | (5) |  | (3)
Issues | 6 |  |  | 25 |  |  | 96 |  |  |  |  | 127 |  |  | — |  |
Settlements | — |  |  | (17) |  |  | (3) |  |  |  |  | (20) |  |  | — |  |
Balance, September 30, 2019 | $ | 37 |  |  | $ | 822 |  |  | $ | 1,452 |  |  |  |  | $ | 2,311 |  |  | $ | 26 |  |
Changes in unrealized (gains) losses in net income relating to liabilities held at September 30, 2019 | $ | — |  |  | $ | (5) |  | (1) | $ | 660 |  | (2) |  |  | $ | 655 |  |  | $ | — |  |
| Available-for-Sale Securities |  |
Corporate Debt Securities |  | Residential Mortgage Backed Securities |  |  |  | Asset Backed Securities |  |  |  | Total |
| (in millions) |  |
Balance, January 1, 2020 | $ | 750 |  |  | $ | 17 |  |  |  |  | $ | 19 |  |  |  |  | $ | 786 |  |  |
Total gains (losses) included in: |  |  |  |  |  |  |  |  |  |  |  |
Net income | (1) |  |  | — |  |  |  |  | (1) |  |  |  |  | (2) |  | (4) |
Other comprehensive income (loss) | 13 |  |  | 1 |  |  |  |  | (1) |  |  |  |  | 13 |  |  |
Purchases | 12 |  |  | 220 |  |  |  |  | — |  |  |  |  | 232 |  |  |
Settlements | (32) |  |  | — |  |  |  |  | — |  |  |  |  | (32) |  |  |
Transfers into Level 3 | — |  |  | — |  |  |  |  | 13 |  |  |  |  | 13 |  |  |
Transfers out of Level 3 | — |  |  | (188) |  |  |  |  | — |  |  |  |  | (188) |  |  |
Balance, September 30, 2020 | $ | 742 |  |  | $ | 50 |  |  |  |  | $ | 30 |  |  |  |  | $ | 822 |  |  |
Changes in unrealized gains (losses) in net income relating to assets held at September 30, 2020 | $ | (1) |  |  | $ | — |  |  |  |  | $ | (1) |  |  |  |  | $ | (2) |  | (4) |
Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at September 30, 2020 | $ | 13 |  |  | $ | 1 |  |  |  |  | $ | (1) |  |  |  |  | $ | 13 |  |  |
| Policyholder Account Balances, Future Policy Benefits and Claims |  | Other Liabilities |
Fixed Deferred Indexed Annuity Embedded Derivatives |  | IUL Embedded Derivatives |  | GMWB and GMAB Embedded Derivatives |  | Structured Annuity Embedded Derivatives |  | Total
(in millions) |
Balance, January 1, 2020 | $ | 43 |  |  | $ | 881 |  |  | $ | 763 |  |  | $ | — |  |  | $ | 1,687 |  |  | $ | 44 |  |
Total gains (losses) included in: |  |  |  |  |  |  |  |  |  |  |  |
Net income | (2) |  | (1) | 53 |  | (1) | 1,900 |  | (2) | 16 |  | (2) | 1,967 |  |  | (12) |  | (3)
Issues | 3 |  |  | 53 |  |  | 267 |  |  | (7) |  |  | 316 |  |  | 15 |  |
Settlements | — |  |  | (61) |  |  | 13 |  |  | — |  |  | (48) |  |  | (7) |  |
Balance, September 30, 2020 | $ | 44 |  |  | $ | 926 |  |  | $ | 2,943 |  |  | $ | 9 |  |  | $ | 3,922 |  |  | $ | 40 |  |
Changes in unrealized gains (losses) in net income relating to liabilities held at September 30, 2020 | $ | — |  |  | $ | 53 |  | (1) | $ | 1,936 |  | (2) | $ | — |  |  | $ | 1,989 |  |  | $ | — |  |
| Available-for-Sale Securities |  |
Corporate Debt Securities |  | Residential Mortgage Backed Securities |  | Commercial Mortgage Backed Securities |  | Asset Backed Securities |  |  |  | Total |
| (in millions) |  |
Balance, January 1, 2019 | $ | 913 |  |  | $ | 136 |  |  | $ | 20 |  |  | $ | 6 |  |  |  |  | $ | 1,075 |  |  |
Total gains (losses) included in: |  |  |  |  |  |  |  |  |  |  |  |
Net income | (1) |  |  | — |  |  | — |  |  | — |  |  |  |  | (1) |  | (4) |
Other comprehensive income (loss) | 32 |  |  | — |  |  | — |  |  | — |  |  |  |  | 32 |  |  |
Purchases | 35 |  |  | 477 |  |  | — |  |  | 18 |  |  |  |  | 530 |  |  |
Settlements | (185) |  |  | (12) |  |  | — |  |  | — |  |  |  |  | (197) |  |  |
Transfers into Level 3 | — |  |  | — |  |  | — |  |  | 14 |  |  |  |  | 14 |  |  |
Transfers out of Level 3 | — |  |  | (447) |  |  | (20) |  |  | (18) |  |  |  |  | (485) |  |  |
Balance, September 30, 2019 | $ | 794 |  |  | $ | 154 |  |  | $ | — |  |  | $ | 20 |  |  |  |  | $ | 968 |  |  |
Changes in unrealized gains (losses) in net income relating to assets held at September 30, 2019 | $ | (1) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | (1) |  | (4) |
| Policyholder Account Balances, Future Policy Benefits and Claims |  | Other Liabilities |
Fixed Deferred Indexed Annuity Embedded Derivatives |  | IUL Embedded Derivatives |  | GMWB and GMAB Embedded Derivatives |  |  |  | Total
(in millions) |
Balance, January 1, 2019 | $ | 14 |  |  | $ | 628 |  |  | $ | 328 |  |  |  |  | $ | 970 |  |  | $ | 30 |  |
Total gains (losses) included in: |  |  |  |  |  |  |  |  |  |  |  |
Net income | 3 |  | (1) | 153 |  | (1) | 866 |  | (2) |  |  | 1,022 |  |  | (4) |  | (3)
Issues | 20 |  |  | 92 |  |  | 266 |  |  |  |  | 378 |  |  | — |  |
Settlements | — |  |  | (51) |  |  | (8) |  |  |  |  | (59) |  |  | — |  |
Balance, September 30, 2019 | $ | 37 |  |  | $ | 822 |  |  | $ | 1,452 |  |  |  |  | $ | 2,311 |  |  | $ | 26 |  |
Changes in unrealized gains (losses) in net income relating to liabilities held at September 30, 2019 | $ | — |  |  | $ | 153 |  | (1) | $ | 859 |  | (2) |  |  | $ | 1,012 |  |  | $ | — |  |
(1) Included in interest credited to fixed accounts in the Consolidated Statements of Operations. (2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations. (3) Included in general and administrative expense in the Consolidated Statements of Operations. (4) Included in net investment income in the Consolidated Statements of Operations. The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(123) million and $85 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the three months ended September 30, 2020 and 2019, respectively. The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $446 million and $(29) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the nine months ended September 30, 2020 and 2019, respectively. Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third-party pricing service with observable inputs. The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:
| September 30, 2020
| Fair Value | Valuation Technique | Unobservable Input |  | Range | Weighted Average
| (in millions)
Corporate debt securities (private placements) | $ | 734 |  | Discounted cash flow | Yield/spread to U.S. Treasuries (1) | 1.2 | % | – | 4.5% | 1.9%
Asset backed securities | $ | 2 |  | Discounted cash flow | Annual short-term default rate | 8.5% | 8.5%
|  |  | Annual long-term default rate (2) | 3.5 | % | – | 4.0% | 3.6%
|  |  | Discount rate | 15.0% | 15.0%
|  |  | Constant prepayment rate | 10.0% | 10.0%
|  |  | Loss recovery | 63.6% | 63.6%
IUL embedded derivatives | $ | 926 |  | Discounted cash flow | Nonperformance risk (3) | 85 bps | 85 bps
Fixed deferred indexed annuity embedded derivatives | $ | 44 |  | Discounted cash flow | Surrender rate (4) | 0.0 | % | – | 50.0% | 1.2%
|  |  | Nonperformance risk (3) | 85 bps | 85 bps
GMWB and GMAB embedded derivatives | $ | 2,943 |  | Discounted cash flow | Utilization of guaranteed withdrawals (5) (6) | 0.0 | % | – | 48.0% | 10.5%
|  |  | Surrender rate (4) | 0.1 | % | – | 73.5% | 3.6%
|  |  | Market volatility (7) (8) | 4.6 | % | – | 17.9% | 11.8%
|  |  | Nonperformance risk (3) | 85 bps | 85 bps
Structured variable annuity embedded derivatives | $ | 9 |  | Discounted cash flow | Surrender rate (4) | 0.8 | % | – | 40.0% | 0.9%
|  |  | Nonperformance risk (3) | 85 bps | 85 bps
Contingent consideration liabilities | $ | 40 |  | Discounted cash flow | Discount rate (9) | 0.0 | % | – | 9.0 | % | 3.3%
| December 31, 2019
| Fair Value |  | Valuation Technique |  | Unobservable Input |  | Range | Weighted Average
| (in millions)
Corporate debt securities (private placements) | $ | 749 |  | Discounted cash flow | Yield/spread to U.S. Treasuries | 0.8 | % | – | 2.8% |  | 1.2%
Asset backed securities | $ | 5 |  | Discounted cash flow | Annual short-term default rate | 3.3% |
|  |  | Annual long-term default rate | 3.0% |
|  |  | Discount rate | 12.0% |
|  |  | Constant prepayment rate | 5.0 | % | – | 10.0% |  | 10.0%
|  |  | Loss recovery | 36.4 | % | – | 63.6% |  | 63.6%
IUL embedded derivatives | $ | 881 |  | Discounted cash flow | Nonperformance risk (3) | 65 bps |
Fixed deferred indexed annuity embedded derivatives | $ | 43 |  | Discounted cash flow | Surrender rate | 0.0 | % | – | 50.0% |  |
|  |  | Nonperformance risk (3) | 65 bps |
GMWB and GMAB embedded derivatives | $ | 763 |  | Discounted cash flow | Utilization of guaranteed withdrawals (5) | 0.0 | % | – | 36.0% |  |
|  |  | Surrender rate | 0.1 | % | – | 73.5% |  |
|  |  | Market volatility (7) | 3.7 | % | – | 15.9% |  |
|  |  | Nonperformance risk (3) | 65 bps |
Contingent consideration liabilities | $ | 44 |  | Discounted cash flow | Discount rate | 9.0% |
(1) The weighted average for the spread to U.S. Treasuries for corporate debt securities (private placements) is weighted based on the security’s market value as a percentage of the aggregate market value of the securities. (2) The weighted average annual long-term default rate of asset backed securities is weighted based on the security’s market value as a percentage of the aggregate market value of the securities. (3) The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives. (4) The weighted average surrender rate is weighted based on the benefit base of each contract and represents the average assumption in the current year including the effect of a dynamic surrender formula. (5) The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year. (6) The weighted average utilization rate represents the average assumption for the current year, weighting each policy evenly. The calculation excludes policies that have already started taking withdrawals. (7) Market volatility is implied volatility of fund of funds and managed volatility funds. (8) The weighted average market volatility represents the average volatility across all contracts, weighted by the size of the guaranteed benefit. (9) The weighted average discount rate represents the average discount rate across all contingent consideration liabilities, weighted based on the size of the contingent consideration liability. Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company. Uncertainty of Fair Value Measurements Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the annual default rate and discount rate used in the fair value measurement of Level 3 asset backed securities in isolation, generally, would have resulted in a significantly lower (higher) fair value measurement and significant increases (decreases) in loss recovery in isolation would have resulted in a significantly higher (lower) fair value measurement. Significant increases (decreases) in the constant prepayment rate in isolation would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurements of the fixed deferred indexed annuity embedded derivatives and structured variable annuity embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value. Significant increases (decreases) in utilization and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly higher (lower) liability value. Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution channel and whether the value of the guaranteed benefit exceeds the contract accumulation value. Significant increases (decreases) in the discount rate used in the fair value measurement of the contingent consideration liability in isolation would have resulted in a significantly lower (higher) fair value measurement. Determination of Fair Value The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy. Assets Cash Equivalents Cash equivalents include time deposits and other highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. U.S. Treasuries are also classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization. Investments (Available-for-Sale Securities, Equity Securities and Trading Securities) When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third-party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries. Level 2 securities primarily include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, state and municipal obligations and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third-party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. The fair value of certain asset backed securities is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about discount rates and default, prepayment and recovery rates of the underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the investment in certain asset backed securities is classified as Level 3. In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third-party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise. Separate Account Assets The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV is used as a practical expedient for fair value and represents the exit price for the separate account. Separate account assets are excluded from classification in the fair value hierarchy. Investments and Cash Equivalents Segregated for Regulatory Purposes Investments and cash equivalents segregated for regulatory purposes includes U.S. Treasuries that are classified as Level 1. Other Assets Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps, foreign currency forwards and the majority of options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of both September 30, 2020 and December 31, 2019. See Note 13 and Note 14 for further information on the credit risk of derivative instruments and related collateral. Liabilities Policyholder Account Balances, Future Policy Benefits and Claims There is no active market for the transfer of the Company’s embedded derivatives attributable to the provisions of certain variable annuity riders, fixed deferred indexed annuity, structured variable annuity and IUL products. The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value as the present value of future expected benefit payments less the present value of future expected rider fees attributable to the embedded derivative feature. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to implied volatility as well as contractholder behavior assumptions that include margins for risk, all of which the Company believes a market participant would incorporate into an exit price. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims. The Company uses a discounted cash flow model to determine the fair value of the embedded derivatives associated with the provisions of its equity index annuity product. The projected cash flows generated by this model are based on significant observable inputs related to interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The Company uses discounted cash flow models including Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its fixed deferred indexed annuity, structured variable annuity and IUL products. The structured variable annuity product is a limited flexible purchase payment annuity that offers 45 different indexed account options providing equity market exposure and a fixed account. Each indexed account includes a protection option (a buffer or a floor). If the index has a negative return, contractholder losses will be reduced by buffer or limited to a floor. The portion allocated to an indexed account is accounted for as an embedded derivative. The fair value of fixed deferred indexed annuity, structured variable annuity and IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and the significant unobservable estimate of the Company’s nonperformance risk. Given the significance of the nonperformance risk assumption to the fair value, the fixed deferred indexed annuity, structured variable annuity and IUL embedded derivatives are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims. Customer Deposits The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates (“SMC”). The inputs to these calculations are primarily market observable and include interest rates, volatilities and equity index levels. As a result, these measurements are classified as Level 2. Other Liabilities Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active OTC markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps, foreign currency forwards and the majority of options. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial as of both September 30, 2020 and December 31, 2019. See Note 13 and Note 14 for further information on the credit risk of derivative instruments and related collateral. Securities sold but not yet purchased represent obligations of the Company to deliver specified securities that it does not yet own, creating a liability to purchase the security in the market at prevailing prices. When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from nationally-recognized pricing services, or other model-based valuation techniques such as the present value of cash flows. Level 1 securities sold but not yet purchased primarily include U.S Treasuries traded in active markets. Level 2 securities sold but not yet purchased primarily include corporate bonds. Contingent consideration liabilities consist of earn-outs and/or deferred payments related to the Company’s acquisitions. Contingent consideration liabilities are recorded at fair value using a discounted cash flow model under multiple scenarios and an unobservable input (discount rate). Given the use of a significant unobservable input, the fair value of contingent consideration liabilities is classified as Level 3 within the fair value hierarchy. Fair Value on a Nonrecurring Basis The Company assesses its investment in affordable housing partnerships for impairment. The investments that are determined to be impaired are written down to their fair value. The Company uses a discounted cash flow model to measure the fair value of these investments. Inputs to the discounted cash flow model are estimates of future net operating losses and tax credits available to the Company and discount rates based on market condition and the financial strength of the syndicator (general partner). The balance of affordable housing partnerships measured at fair value on a nonrecurring basis was $99 million and $158 million as of September 30, 2020 and December 31, 2019, respectively, and is classified as Level 3 in the fair value hierarchy. Asset and Liabilities Not Reported at Fair Value The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value:
| September 30, 2020 |
| Carrying Value |  | Fair Value |
| Level 1 |  | Level 2 |  | Level 3 |  | Total |
| (in millions) |
Financial Assets |  |  |  |  |  |  |  |  |  |
Mortgage loans, net | $ | 2,770 |  |  | $ | — |  |  | $ | 22 |  |  | $ | 2,875 |  |  | $ | 2,897 |  |
Policy loans | 849 |  |  | — |  |  | 849 |  |  | — |  |  | 849 |  | (1)
Receivables | 3,175 |  |  | 57 |  |  | 972 |  |  | 2,360 |  |  | 3,389 |  |
Restricted and segregated cash | 2,551 |  |  | 2,551 |  |  | — |  |  | — |  |  | 2,551 |  |
Other investments and assets | 750 |  |  | — |  |  | 642 |  |  | 96 |  |  | 738 |  |
Financial Liabilities |  |  |  |  |  |  |  |  |  |
Policyholder account balances, future policy benefits and claims | $ | 9,600 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,300 |  |  | $ | 11,300 |  |
Investment certificate reserves | 7,156 |  |  | — |  |  | — |  |  | 6,350 |  |  | 6,350 |  |
Banking and brokerage deposits | 9,666 |  |  | 9,666 |  |  | — |  |  | — |  |  | 9,666 |  |
Separate account liabilities — investment contracts | 5,103 |  |  | — |  |  | 5,103 |  |  | — |  |  | 5,103 |  |
Debt and other liabilities | 3,115 |  |  | 103 |  |  | 3,257 |  |  | 15 |  |  | 3,375 |  |
| December 31, 2019 |
| Carrying Value |  | Fair Value |
| Level 1 |  | Level 2 |  | Level 3 |  | Total |
| (in millions) |
Financial Assets |  |  |  |  |  |  |  |  |  |
Mortgage loans, net | $ | 2,778 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,833 |  |  | $ | 2,833 |  |
Policy loans | 868 |  |  | — |  |  | 868 |  |  | — |  |  | 868 |  | (1)
Receivables | 3,168 |  |  | 102 |  |  | 934 |  |  | 2,229 |  |  | 3,265 |  |
Restricted and segregated cash | 2,372 |  |  | 2,372 |  |  | — |  |  | — |  |  | 2,372 |  |
Other investments and assets | 671 |  |  | — |  |  | 626 |  |  | 46 |  |  | 672 |  |
Financial Liabilities |  |  |  |  |  |  |  |  |  |
Policyholder account balances, future policy benefits and claims | $ | 9,110 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,061 |  |  | $ | 10,061 |  |
Investment certificate reserves | 7,508 |  |  | — |  |  | — |  |  | 7,497 |  |  | 7,497 |  |
Banking and brokerage deposits | 6,929 |  |  | 6,929 |  |  | — |  |  | — |  |  | 6,929 |  |
Separate account liabilities — investment contracts | 5,403 |  |  | — |  |  | 5,403 |  |  | — |  |  | 5,403 |  |
Debt and other liabilities | 3,374 |  |  | 104 |  |  | 3,372 |  |  | 21 |  |  | 3,497 |  |
(1) During the third quarter of 2020, management changed the fair value methodology for policy loans from estimating future expected cash flows and discounting the cash flows at a rate based on the U.S. Treasury curve to using the carrying value as an approximation of fair value as the policy loans are fully collateralized by the cash surrender value of the underlying policies. As a result, policy loans were reclassified from Level 3 to Level 2 in the valuation hierarchy. For comparability and consistency purposes, prior period amounts were revised to reflect the current methodology and classification. Receivables include the deposit receivable, brokerage margin loans, securities borrowed and loans to financial advisors. Restricted and segregated cash includes cash segregated under federal and other regulations held in special reserve bank accounts for the exclusive benefit of the Company’s brokerage customers. Other investments and assets primarily include syndicated loans, credit card receivables, certificate of deposits with original or remaining maturities at the time of purchase of more than 90 days, the Company’s membership in the FHLB and investments related to the Community Reinvestment Act. See Note 7 for additional information on mortgage loans, policy loans, syndicated loans, credit card receivables and the deposit receivable. Policyholder account balances, future policy benefits and claims include fixed annuities in deferral status, non-life contingent fixed annuities in payout status, indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts. See Note 9 for additional information on these liabilities. Investment certificate reserves represent customer deposits for fixed rate certificates and stock market certificates. Banking and brokerage deposits are amounts payable to customers related to free credit balances, funds deposited by customers and funds accruing to customers as a result of trades or contracts. Separate account liabilities are primarily investment contracts in pooled pension funds offered by Threadneedle. Debt and other liabilities include the Company’s long-term debt, short-term borrowings, securities loaned and future funding commitments to affordable housing partnerships and other real estate partnerships. See Note 11 for further information on the Company’s long-term debt and short-term borrowings.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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