Goldman Sachs 2012 Annual Report Download - page 146

Notes to Consolidated Financial Statements
Resale and Repurchase Agreements and Securities
Borrowed and Loaned. The significant inputs to the
valuation of resale and repurchase agreements and
securities borrowed and loaned are collateral funding
spreads, the amount and timing of expected future cash
flows and interest rates. The ranges of significant
unobservable inputs used to value level 3 resale and
repurchase agreements as of December 2012 are as follows:
‰Yield: 1.7% to 5.4% (weighted average: 1.9%)
‰Duration: 0.4 to 4.5 years (weighted average: 4.1 years)
Generally, increases in yield or duration, in isolation, would
result in a lower fair value measurement. Due to the
distinctive nature of each of the firm’s level 3 resale and
repurchase agreements, the interrelationship of inputs is not
necessarily uniform across such agreements.
See Note 9 for further information about collateralized
agreements.
Other Secured Financings. The significant inputs to the
valuation of other secured financings at fair value are the
amount and timing of expected future cash flows, interest
rates, collateral funding spreads, the fair value of the
collateral delivered by the firm (which is determined using
the amount and timing of expected future cash flows,
market prices, market yields and recovery assumptions) and
the frequency of additional collateral calls. The ranges of
significant unobservable inputs used to value level 3 other
secured financings as of December 2012 are as follows:
‰Yield: 0.3% to 20.0% (weighted average: 4.2%)
‰Duration: 0.3 to 10.8 years (weighted average: 2.4 years)
Generally, increases in yield or duration, in isolation, would
result in a lower fair value measurement. Due to the
distinctive nature of each of the firm’s level 3 other secured
financings, the interrelationship of inputs is not necessarily
uniform across such financings.
See Note 9 for further information about collateralized
financings.
Unsecured Short-term and Long-term Borrowings.
The significant inputs to the valuation of unsecured short-
term and long-term borrowings at fair value are the amount
and timing of expected future cash flows, interest rates, the
credit spreads of the firm, as well as commodity prices in
the case of prepaid commodity transactions. The inputs
used to value the embedded derivative component of hybrid
financial instruments are consistent with the inputs used to
value the firm’s other derivative instruments. See Note 7 for
further information about derivatives. See Notes 15 and 16
for further information about unsecured short-term and
long-term borrowings, respectively.
Certain of the firm’s unsecured short-term and long-term
instruments are included in level 3, substantially all of
which are hybrid financial instruments. As the significant
unobservable inputs used to value hybrid financial
instruments primarily relate to the embedded derivative
component of these borrowings, these inputs are
incorporated in the firm’s derivative disclosures related to
unobservable inputs in Note 7.
Insurance and Reinsurance Contracts. Insurance and
reinsurance contracts at fair value are primarily included in
“Receivables from customers and counterparties” and
“Other liabilities and accrued expenses.” In addition, assets
related to the firm’s reinsurance business that were
classified as held for sale as of December 2012 are included
in “Other assets.” The insurance and reinsurance contracts
for which the firm has elected the fair value option are
contracts that can be settled only in cash and that qualify
for the fair value option because they are recognized
financial instruments. These contracts are valued using
market transactions and other market evidence where
possible, including market-based inputs to models,
calibration to market-clearing transactions or other
alternative pricing sources with reasonable levels of price
transparency. Significant inputs are interest rates, inflation
rates, volatilities, funding spreads, yield and duration,
which incorporates policy lapse and projected mortality
assumptions. When unobservable inputs to a valuation
model are significant to the fair value measurement of an
instrument, the instrument is classified in level 3. The range
of significant unobservable inputs used to value level 3
insurance and reinsurance contracts as of December 2012 is
as follows:
‰Funding spreads: 64 bps to 105 bps (weighted average:
85 bps)
‰Yield: 4.4% to 15.1% (weighted average: 6.2%)
‰Duration: 5.3 to 8.8 years (weighted average: 7.6 years)
Generally, increases in funding spreads, yield or duration, in
isolation, would result in a lower fair value measurement.
144 Goldman Sachs 2012 Annual Report