165 credit spread, expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and  actuarial assumptions. The most significant unobservable factor is credit spread. The expected returns are based on risk-free rates. Aegon added a premium to reflect the credit spread as required. The credit spread is  set by using the Credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including Aegon), adjusted to  reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company  level (who have priority in payments to other creditors). Aegon’s assumptions are set by region to reflect differences in the valuation of  the guarantee embedded in the insurance contracts. In 2013, Aegon updated the way it extrapolates yield curves beyond market observable maturities. The discount rates converge  linearly in 10 years to an Ultimate Forward Rate of 4.25% from the last liquid point. The uniform last liquid point for all Aegon’s major  currencies (USD, GBP and EUR) is set at 30 years. Additionally, Aegon updated the manner in which it estimates guarantees embedded  within individual life contracts in the Netherlands. The impact on income before tax of these updates was EUR 27 million negative. Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability  included in future policy benefits has been reflected within Level III of the fair value hierarchy. Refer to note 48 for more details about  Aegon’s guarantees . Real estate Valuations of both investments in real estate and real estate held for own use are conducted in full by independent external appraisers  at least every three to five years and reviewed at least once a year by qualified internal appraisers to ensure the value correctly reflects  the fair value at the balance sheet date. Appraisals are different for each specific local market, but are based on market guidelines  such as International Valuation Standards, Uniform Standards of Professional Appraisal Practice or guidelines issued by the Investment  Property Databank. Valuations are mostly based on active market prices, adjusted for any difference in the nature, location or  condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that  the property’s net earning power will support, the value indicated by recent sales of comparable properties and the current cost of  reproducing or replacing the property. Discount rates used in the valuation of real estate reflect the risk embedded in the projected  cash flows for the asset being valued. Capitalization rates represent the income rate for a real estate property that reflects  the relationship between a single year’s net operating income expectancy and the total property price or value. For property held for  own use, appraisers consider the present value of the future rental income cash flows that could be achieved had the real estate been  let out. Investment contracts issued by Aegon are either carried at fair value (if they are designated as financial liabilities at fair value through  profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). These contracts  are not quoted in active markets and their fair values are determined by using valuation techniques, such as discounted cash flow  methods and stochastic modeling or in relation to the unit price of the underlying assets. All models are validated and calibrated.  A variety of factors are considered, including time value, volatility, policyholder behavior, servicing costs and fair values of similar  instruments. Similar to embedded derivatives in insurance contracts, certain investment products are not quoted in active markets and their fair  values are determined by using valuation techniques. Because of the dynamic and complex nature of these cash flows, stochastic or  similar techniques under a variety of market return scenarios are often used. A variety of factors are considered, including expected  market rates of return, market volatility, correlations of market returns, discount rates and actuarial assumptions. The expected returns are based on risk-free rates, such as the current London Inter-Bank Offered Rate (LIBOR) swap rates and  associated forward rates or the current rates on local government bonds. Market volatility assumptions for each underlying index are  based on observed market implied volatility data and/or observed market performance. Correlations of market returns for various  underlying indices are based on observed market returns and their inter-relationships over a number of years preceding the valuation  date. Current risk-free spot rates are used to determine the present value of expected future cash flows produced in the stochastic  projection process. Assumptions on customer behavior, such as lapses, included in the models are derived in the same way as the assumptions used to  measure insurance liabilities. Investment contracts