Fair Value Measurement (Tables)
|
6 Months Ended |
Jun. 30, 2013
|
Fair Value Disclosures [Abstract] |
|
Information by Credit Spread Type |
Information by Credit Spread Type (1) | | | | | | | | As of June 30, 2013 | | As of December 31, 2012 | Based on actual collateral specific spreads | 6 | % | | 6 | % | Based on market indices | 87 | % | | 88 | % | Provided by the CDS counterparty | 7 | % | | 6 | % | Total | 100 | % | | 100 | % |
____________________ (1) Based on par. |
Schedule of example effects of change in gross spreads, company's own credit spread and cost to buy protection on the on the Company affect the amount of premium the company can demand for credit protection |
Following is an example of how changes in gross spreads, the Company’s own credit spread and the cost to buy protection on the Company affect the amount of premium the Company can demand for its credit protection. The assumptions used in these examples are hypothetical amounts. Scenario 1 represents the market conditions in effect on the transaction date and Scenario 2 represents market conditions at a subsequent reporting date. | | | | | | | | | | | | | | Scenario 1 | | Scenario 2 | | bps | | % of Total | | bps | | % of Total | Original gross spread/cash bond price (in bps) | 185 |
| | |
| | 500 |
| | |
| Bank profit (in bps) | 115 |
| | 62 | % | | 50 |
| | 10 | % | Hedge cost (in bps) | 30 |
| | 16 | % | | 440 |
| | 88 | % | The Company premium received per annum (in bps) | 40 |
| | 22 | % | | 10 |
| | 2 | % |
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Fair Value Hierarchy of Financial Instruments Carried at Fair Value |
Fair Value Hierarchy of Financial Instruments Carried at Fair Value As of June 30, 2013 | | | | | | | | | | | | | | | | | | | | Fair Value Hierarchy | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | (in millions) | Assets: | |
| | |
| | |
| | |
| Investment portfolio, available-for-sale: | |
| | |
| | |
| | |
| Fixed maturity securities | |
| | |
| | |
| | |
| U.S. government and agencies | $ | 741 |
| | $ | — |
| | $ | 741 |
| | $ | — |
| Obligations of state and political subdivisions | 5,334 |
| | — |
| | 5,298 |
| | 36 |
| Corporate securities | 1,083 |
| | — |
| | 1,083 |
| | — |
| Mortgage-backed securities: | |
| | | | | | | RMBS | 1,127 |
| | — |
| | 851 |
| | 276 |
| Commercial mortgage-backed securities ("CMBS") | 502 |
| | — |
| | 502 |
| | — |
| Asset-backed securities | 483 |
| | — |
| | 183 |
| | 300 |
| Foreign government securities | 294 |
| | — |
| | 294 |
| | — |
| Total fixed maturity securities | 9,564 |
|
| — |
| | 8,952 |
| | 612 |
| Short-term investments | 943 |
| | 766 |
| | 177 |
| | — |
| Other invested assets (1) | 69 |
| | — |
| | 61 |
| | 8 |
| Credit derivative assets | 101 |
| | — |
| | — |
| | 101 |
| FG VIEs’ assets, at fair value | 2,674 |
| | — |
| | — |
| | 2,674 |
| Other assets(2) | 56 |
| | 23 |
| | 10 |
| | 23 |
| Total assets carried at fair value | $ | 13,407 |
| | $ | 789 |
| | $ | 9,200 |
| | $ | 3,418 |
| Liabilities: | |
| | |
| | |
| | |
| Credit derivative liabilities | $ | 2,349 |
| | $ | — |
| | $ | — |
| | $ | 2,349 |
| FG VIEs’ liabilities with recourse, at fair value | 1,940 |
| | — |
| | — |
| | 1,940 |
| FG VIEs’ liabilities without recourse, at fair value | 1,134 |
| | — |
| | — |
| | 1,134 |
| Total liabilities carried at fair value | $ | 5,423 |
| | $ | — |
| | $ | — |
| | $ | 5,423 |
|
Fair Value Hierarchy of Financial Instruments Carried at Fair Value As of December 31, 2012 | | | | | | | | | | | | | | | | | | | | Fair Value Hierarchy | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | (in millions) | Assets: | |
| | |
| | |
| | |
| Investment portfolio, available-for-sale: | |
| | |
| | |
| | |
| Fixed maturity securities | |
| | |
| | |
| | |
| U.S. government and agencies | $ | 794 |
| | $ | — |
| | $ | 794 |
| | $ | — |
| Obligations of state and political subdivisions | 5,631 |
| | — |
| | 5,596 |
| | 35 |
| Corporate securities | 1,010 |
| | — |
| | 1,010 |
| | — |
| Mortgage-backed securities: | |
| | |
| | |
| | |
| RMBS | 1,266 |
| | — |
| | 1,047 |
| | 219 |
| CMBS | 520 |
| | — |
| | 520 |
| | — |
| Asset-backed securities | 531 |
| | — |
| | 225 |
| | 306 |
| Foreign government securities | 304 |
| | — |
| | 304 |
| | — |
| Total fixed maturity securities | 10,056 |
| | — |
| | 9,496 |
| | 560 |
| Short-term investments | 817 |
| | 446 |
| | 371 |
| | — |
| Other invested assets (1) | 120 |
| | — |
| | 112 |
| | 8 |
| Credit derivative assets | 141 |
| | — |
| | — |
| | 141 |
| FG VIEs’ assets, at fair value | 2,688 |
| | — |
| | — |
| | 2,688 |
| Other assets(2) | 65 |
| | 24 |
| | 5 |
| | 36 |
| Total assets carried at fair value | $ | 13,887 |
| | $ | 470 |
| | $ | 9,984 |
| | $ | 3,433 |
| Liabilities: | |
| | |
| | |
| | |
| Credit derivative liabilities | $ | 1,934 |
| | $ | — |
| | $ | — |
| | $ | 1,934 |
| FG VIEs’ liabilities with recourse, at fair value | 2,090 |
| | — |
| | — |
| | 2,090 |
| FG VIEs’ liabilities without recourse, at fair value | 1,051 |
| | — |
| | — |
| | 1,051 |
| Total liabilities carried at fair value | $ | 5,075 |
| | $ | — |
| | $ | — |
| | $ | 5,075 |
|
____________________ | | (1) | Includes mortgage loans that are recorded at fair value on a non-recurring basis. At June 30, 2013 and December 31, 2012, such investments were carried at their fair value of $6 million and $7 million, respectively. |
(2) Includes fair value of CCS and supplemental executive retirement plan assets.
|
Fair Value Level 3 Roll Forward |
The table below presents a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during Second Quarter 2013 and 2012 and Six Months 2013 and 2012.
Fair Value Level 3 Rollforward Recurring Basis Second Quarter 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed Maturity Securities | | | | | | | | | | | | | | | Obligations of State and Political Subdivisions | | RMBS | | Asset- Backed Securities | | Other Invested Assets | | FG VIEs’ Assets at Fair Value | | Other Assets | | Credit Derivative Asset (Liability), net(5) | | FG VIEs' Liabilities with Recourse, at Fair Value | | FG VIEs’ Liabilities without Recourse, at Fair Value | | | (in millions) | Fair value as of March 31, 2013 | $ | 35 |
| |
| $ | 221 |
| |
| $ | 286 |
| |
| $ | 1 |
| | $ | 2,813 |
| |
| $ | 26 |
| |
| $ | (2,393 | ) | | $ | (2,071 | ) | | $ | (1,107 | ) | | Total pretax realized and unrealized gains/(losses) recorded in:(1) | | |
| |
| |
| |
| |
| |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Net income (loss) | — |
| (2 | ) | 6 |
| (2 | ) | 5 |
| (2 | ) | (1 | ) | (7 | ) | 341 |
| (3 | ) | (3 | ) | (4 | ) | 74 |
| (6 | ) | (82 | ) | (3 | ) | (118 | ) | (3 | ) | Other comprehensive income (loss) | 1 |
| |
| (3 | ) | |
| — |
| |
| 2 |
| | — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | — |
| |
| 67 |
| |
| 11 |
| |
| — |
| | — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | — |
| | (15 | ) | | (2 | ) | | — |
| | (302 | ) | | — |
| |
| 71 |
| |
| 78 |
| |
| 44 |
| |
| FG VIE consolidations | — |
| |
| — |
| |
| — |
| |
| — |
| | — |
| |
| — |
| |
| — |
| |
| — |
| | — |
| |
| FG VIE deconsolidations | — |
| | — |
| | — |
| | — |
| | (178 | ) | | — |
| | — |
| | 135 |
| | 47 |
| | Fair value as of June 30, 2013 | $ | 36 |
| |
| $ | 276 |
| |
| $ | 300 |
| |
| $ | 2 |
| | $ | 2,674 |
| |
| $ | 23 |
| |
| $ | (2,248 | ) | | $ | (1,940 | ) | | $ | (1,134 | ) | | Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2013 | $ | 1 |
| | $ | (3 | ) | | $ | 1 |
| | $ | 2 |
| | $ | 231 |
| | $ | (3 | ) | | $ | 294 |
| | $ | (82 | ) | | $ | (132 | ) | |
Fair Value Level 3 Rollforward Recurring Basis Second Quarter 2012
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed Maturity Securities | |
|
| | | | | |
| | | | | | | | Obligations of state and political subdivisions | | RMBS | | Asset Backed Securities | | Other Invested Assets | | FG VIEs’ Assets at Fair Value | | Other Assets | | Credit Derivative Asset (Liability), net(5) | | FG VIEs’ Liabilities with Recourse, at Fair Value | | FG VIEs’ Liabilities without Recourse, at Fair Value | | | (in millions) | Fair value as of March 31, 2012 | $ | 9 |
| | $ | 136 |
| |
| $ | 258 |
| |
| $ | 2 |
| | $ | 2,828 |
| |
| $ | 40 |
| | $ | (1,953 | ) | |
| $ | (2,365 | ) | | (1,086 | ) | | Total pretax realized and unrealized gains/(losses) recorded in:(1) | | | |
| |
| | |
| | | | |
| | | | |
| | |
| | |
| Net income (loss) | 0 |
| | 4 |
| (2 | ) | 8 |
| (2 | ) | — |
| | 43 |
| (3 | ) | 4 |
| (4 | ) | 261 |
| (6 | ) | (13 | ) | (3 | ) | (13 | ) | (3 | ) | Other comprehensive income (loss) | 1 |
| | (17 | ) | |
| (12 | ) | |
| (1 | ) | | — |
| |
| — |
| | — |
| |
| — |
| |
| — |
| |
| Purchases | — |
| | 55 |
| |
| 22 |
| |
| — |
| | — |
| |
| — |
| | — |
| |
| — |
| |
| — |
| |
| Settlements | — |
| | (11 | ) | | (2 | ) | | — |
| | (145 | ) | | — |
| | 26 |
| |
| 139 |
| |
| 57 |
| |
| FG VIE consolidations | — |
| | — |
| |
| — |
| |
| — |
| | — |
| |
| — |
| | — |
| |
| — |
| | — |
| |
| Fair value as of June 30, 2012 | $ | 10 |
| | $ | 167 |
| |
| $ | 274 |
| |
| $ | 1 |
| | $ | 2,726 |
| |
| $ | 44 |
| | $ | (1,666 | ) | |
| $ | (2,239 | ) | | (1,042 | ) | | Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2012 | $ | 1 |
| | $ | (17 | ) | | $ | (12 | ) | | $ | (1 | ) | | $ | 72 |
| | $ | 4 |
| | $ | 283 |
| | $ | (18 | ) | | (37 | ) | |
Fair Value Level 3 Rollforward Recurring Basis Six Months 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed Maturity Securities | | | | | | | | | | | | | | | Obligations of State and Political Subdivisions | | RMBS | | Asset- Backed Securities | | Other Invested Assets | | FG VIEs’ Assets at Fair Value | | Other Assets | | Credit Derivative Asset (Liability), net(5) | | FG VIEs' Liabilities with Recourse, at Fair Value | | FG VIEs’ Liabilities without Recourse, at Fair Value | | | (in millions) | Fair value as of December 31, 2012 | $ | 35 |
| |
| $ | 219 |
| |
| $ | 306 |
| |
| $ | 1 |
| | $ | 2,688 |
| |
| $ | 36 |
| |
| $ | (1,793 | ) | | $ | (2,090 | ) | | $ | (1,051 | ) | | Total pretax realized and unrealized gains/(losses) recorded in:(1) |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
| Net income (loss) | 1 |
| (2 | ) | 11 |
| (2 | ) | 9 |
| (2 | ) | (1 | ) | (7 | ) | 556 |
| (3 | ) | (13 | ) | (4 | ) | (518 | ) | (6 | ) | (163 | ) | (3 | ) | (192 | ) | (3 | ) | Other comprehensive income (loss) | 1 |
| |
| 4 |
| |
| (22 | ) | |
| 2 |
| |
|
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | — |
| |
| 70 |
| |
| 11 |
| |
| — |
| | — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | (1 | ) | | (28 | ) | | (4 | ) | | — |
| | (440 | ) | | — |
| |
| 63 |
| |
| 190 |
| |
| 99 |
| |
| FG VIE consolidations | — |
| |
| — |
| |
| — |
| |
| — |
| | 48 |
| |
| — |
| |
| — |
| |
| (12 | ) | | (37 | ) | |
| FG VIE deconsolidations | — |
| | — |
| | — |
| | — |
| | (178 | ) | | — |
| | — |
| | 135 |
| | 47 |
| | Fair value as of June 30, 2013 | $ | 36 |
| |
| $ | 276 |
| |
| $ | 300 |
| |
| $ | 2 |
| | $ | 2,674 |
| |
| $ | 23 |
| |
| $ | (2,248 | ) | | $ | (1,940 | ) | | $ | (1,134 | ) | | Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2013 | $ | 1 |
| | $ | 5 |
| | $ | (21 | ) | | $ | 2 |
| | $ | 430 |
| | $ | (13 | ) | | $ | (317 | ) | | $ | (165 | ) | | $ | (226 | ) | |
Fair Value Level 3 Rollforward Recurring Basis Six Months 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed Maturity Securities | | | | | | | | | | | | | | | Obligations of State and Political Subdivisions | | RMBS | | Asset- Backed Securities | | Other Invested Assets | | FG VIEs’ Assets at Fair Value | | Other Assets | | Credit Derivative Asset (Liability), net(5) | | FG VIEs' Liabilities with Recourse, at Fair Value | | FG VIEs’ Liabilities without Recourse, at Fair Value | | | (in millions) | Fair value as of December 31, 2011 | $ | 10 |
| |
| $ | 134 |
| |
| $ | 235 |
| |
| $ | 2 |
| | $ | 2,819 |
| |
| $ | 54 |
| |
| $ | (1,304 | ) | | $ | (2,397 | ) | | $ | (1,061 | ) | | Total pretax realized and unrealized gains/(losses) recorded in:(1) | | |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
| Net income (loss) | 0 |
| (2 | ) | 5 |
| (2 | ) | 14 |
| (2 | ) | 0 |
| | 175 |
| (3 | ) | (10 | ) | (4 | ) | (430 | ) | (6 | ) | (99 | ) | (3 | ) | (93 | ) | (3 | ) | Other comprehensive income (loss) | 1 |
| |
| (7 | ) | |
| (12 | ) | |
| (1 | ) | | — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | — |
| |
| 55 |
| |
| 40 |
| |
| — |
| | — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | (1 | ) | | (20 | ) | | (3 | ) | | — |
| | (283 | ) | | — |
| |
| 68 |
| |
| 277 |
| |
| 112 |
| |
| FG VIE consolidations | — |
| |
| — |
| |
| — |
| |
| — |
| | 15 |
| |
| — |
| |
| — |
| |
| (20 | ) | | — |
| |
| Fair value as of June 30, 2012 | $ | 10 |
| |
| $ | 167 |
| | $ | 274 |
| | $ | 1 |
| | $ | 2,726 |
| | $ | 44 |
| | $ | (1,666 | ) | | $ | (2,239 | ) | | $ | (1,042 | ) | | Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2012 | $ | 1 |
| | $ | (7 | ) | | $ | (12 | ) | | $ | (1 | ) | | $ | 303 |
| | $ | (10 | ) | | $ | (352 | ) | | $ | (125 | ) | | $ | (155 | ) | |
______________ | | (1) | Realized and unrealized gains (losses) from changes in values of Level 3 financial instruments represent gains (losses) from changes in values of those financial instruments only for the periods in which the instruments were classified as Level 3. |
| | (2) | Included in net realized investment gains (losses) and net investment income. |
| | (3) | Included in fair value gains (losses) on FG VIEs. |
| | (4) | Recorded in fair value gains (losses) on CCS. |
| | (5) | Represents net position of credit derivatives. The consolidated balance sheet presents gross assets and liabilities based on net counterparty exposure. |
| | (6) | Reported in net change in fair value of credit derivatives. |
| | (7) | Reported in other income. |
|
Schedule of Quantitative Information About Level 3 Fair Value Measurements |
Quantitative Information About Level 3 Fair Value Inputs At June 30, 2013 | | | | | | | | | | | | | | | | Financial Instrument Description | | Fair Value at June 30, 2013 (in millions) | | Valuation Technique | | Significant Unobservable Inputs | | Range | Assets: | | |
| | | | | | | | | Fixed maturity securities: | | |
| | | | | | | | | Obligations of state and political subdivisions | | $ | 36 |
| | Discounted | | Rate of inflation | | 1.0 | % | - | 3.0% | | | cash flow | | Cash flow receipts | 4.8 | % | - | 90.0% | | | | | Yield | 5.2 | % | | 9.0% | | | | | Collateral recovery period | 1 month |
| - | 42 years | | | | | | | | | | | | RMBS | | 276 |
| | Discounted | | CPR | | 1.0 | % | - | 7.5% | | | cash flow | | CDR | | 4.4 | % | - | 27.8% | | | | | Severity | | 47.9 | % | - | 102.8% | | | | | Yield | | 4.1 | % | - | 10.8% | Asset-backed securities: | | | | | | | | | | | Whole business securitization | | 62 |
| | Discounted cash flow | | Annual gross revenue projections (in millions) | |
| $54 |
| - | $96 | | | | Value of primary financial guaranty policy | | 43.8% | | | | Liquidity discount | | 5.0 | % | - | 20.0% | | | | | | | | | | | | Investor owned utility | | 164 |
| | Discounted cash flow | | Liquidation value (in millions) | |
| $216 |
| - | $217 | | | | Years to liquidation | | 0 years |
| - | 2.5 years | | | | Collateral recovery period | | 6 months |
| - | 6 years | | | | Discount factor | | 15.3% | | | | | | | | | | | | XXX life insurance transactions | | 74 |
| | Discounted | | Yield | | 10.5% | | | cash flow | | | | | | | | | | | | | | | | Other invested assets | | 8 |
| | Discounted cash flow | | Discount for lack of liquidity | | 10.0 | % | - | 20.0% | | | | Recovery on delinquent loans | | 20.0 | % | - | 60.0% | | | | Default rates | | 1.0 | % | - | 11.0% | | | | Loss severity | | 40.0 | % | - | 90.0% | | | | Prepayment speeds | | 6.0 | % | - | 15.0% | | | | | | | | | | | | FG VIEs’ assets, at fair value | | 2,674 |
| | Discounted | | CPR | | 0.6 | % | - | 11.8% | | | cash flow | | CDR | | 2.8 | % | - | 27.8% | | | | | Loss severity | | 38.1 | % | - | 106.4% | | | | | Yield | | 2.8 | % | - | 10.6% |
| | | | | | | | | | | | | | Financial Instrument Description | | Fair Value at June 30, 2013 (in millions) | | Valuation Technique | | Significant Unobservable Inputs | | Range | Other assets | | 23 |
| | Discounted cash flow | | Quotes from third party pricing | | $56 | - | $57 | | | | | Term (years) | | 3 years | | | | | | | | | | | | Liabilities: | | |
| | | | | | | | | Credit derivative liabilities, net | | (2,248 | ) | | Discounted | | Year 1 loss estimates | | 0.0 | % | - | 61.0% | | | | cash flow | | Hedge cost (in bps) | | 14.2 |
| - | 343.3 | | | | | | Bank profit (in bps) | | 1.0 |
| - | 1,364.0 | | | | | | Internal floor (in bps) | | 7.0 |
| - | 100.0 | | | | | | Internal credit rating | | AAA |
| - | BIG | | | | | | | | | | | | FG VIEs’ liabilities, at fair value | | (3,074 | ) | | Discounted | | CPR | | 0.6 | % | - | 11.8% | | | cash flow | | CDR | | 2.8 | % | - | 27.8% | | | | | Loss severity | | 38.1 | % | - | 106.4% | | | | | Yield | | 2.8 | % | - | 10.6% |
Quantitative Information About Level 3 Fair Value Inputs At December 31, 2012 | | | | | | | | | | | | | | | | Financial Instrument Description | | Fair Value at December 31, 2012 (in millions) | | Valuation Technique | | Significant Unobservable Inputs | | Range | Assets: | | |
| | | | | | | | | Fixed maturity securities: | | |
| | | | | | | | | Obligations of state and political subdivisions | | $ | 35 |
| | Discounted | | Rate of inflation | | 1.0 | % | - | 3.0% | | | cash flow | | Cash flow receipts | 4.9 | % | - | 85.8% | | | | | Discount rates | 4.3 | % | | 9.0% | | | | | Collateral recovery period | 1 month |
| - | 43 years | | | | | | | | | | | | RMBS | | 219 |
| | Discounted | | CPR | | 0.8 | % | - | 7.5% | | | cash flow | | CDR | | 4.4 | % | - | 28.6% | | | | | Severity | | 48.1 | % | - | 102.8% | | | | | Yield | | 3.5 | % | - | 12.8% | Asset-backed securities: | | | | | | | | | | | Whole business securitization | | 63 |
| | Discounted cash flow | | Annual gross revenue projections (in millions) | |
| $54 |
| - | $96 | | | | Value of primary financial guaranty policy | | 43.8% | | | | Liquidity discount | | 5.0 | % | - | 20.0% | | | | | | | | | | | | Investor owned utility | | 186 |
| | Discounted cash flow | | Liquidation value (in millions) | |
| $212 |
| - | $242 | | | | Years to liquidation | | 0 years |
| - | 3 years | | | | Discount factor | | 15.3% | | | | | | | | | | | | XXX life insurance transactions | | 57 |
| | Discounted | | Yield | | 12.5% | | | cash flow | | | | | | | | | | | | | | | | Other invested assets | | 8 |
| | Discounted cash flow | | Discount for lack of liquidity | | 10.0 | % | - | 20.0% | | | | Recovery on delinquent loans | | 20.0 | % | - | 60.0% | | | | Default rates | | 1.0 | % | - | 12.0% | | | | Loss severity | | 40.0 | % | - | 90.0% | | | | Prepayment speeds | | 6.0 | % | - | 15.0% | | | | | | | | | | | | FG VIEs’ assets, at fair value | | 2,688 |
| | Discounted | | CPR | | 0.5 | % | - | 10.9% | | | cash flow | | CDR | | 3.0 | % | - | 28.6% | | | | | Loss severity | | 37.5 | % | - | 103.8% | | | | | Yield | | 4.5 | % | - | 20.0% |
| | | | | | | | | | | | | | Financial Instrument Description | | Fair Value at December 31, 2012 (in millions) | | Valuation Technique | | Significant Unobservable Inputs | | Range | Other assets | | 36 |
| | Discounted cash flow | | Quotes from third party pricing | | $38 | - | $51 | | | | | Term (years) | | 3 years | | | | | | | | | | | | Liabilities: | | |
| | | | | | | | | Credit derivative liabilities, net | | (1,793 | ) | | Discounted | | Year 1 loss estimates | | 0.0 | % | - | 58.7% | | | | cash flow | | Hedge cost (in bps) | | 64.2 |
| - | 678.4 | | | | | | Bank profit (in bps) | | 1.0 |
| - | 1,312.9 | | | | | | Internal floor (in bps) | | 7.0 |
| - | 60.0 | | | | | | Internal credit rating | | AAA |
| - | BIG | | | | | | | | | | | | FG VIEs’ liabilities, at fair value | | (3,141 | ) | | Discounted | | CPR | | 0.5 | % | - | 10.9% | | | cash flow | | CDR | | 3.0 | % | - | 28.6% | | | | | Loss severity | | 37.5 | % | - | 103.8% | | | | | Yield | | 4.5 | % | - | 20.0% |
|
Fair Value of Financial Instruments |
The carrying amount and estimated fair value of the Company’s financial instruments are presented in the following table. Fair Value of Financial Instruments | | | | | | | | | | | | | | | | | | As of June 30, 2013 | | As of December 31, 2012 | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | (in millions) | Assets: | |
| | |
| | |
| | |
| Fixed maturity securities | $ | 9,564 |
| | $ | 9,564 |
| | $ | 10,056 |
| | $ | 10,056 |
| Short-term investments | 943 |
| | 943 |
| | 817 |
| | 817 |
| Other invested assets | 102 |
| | 110 |
| | 177 |
| | 182 |
| Credit derivative assets | 101 |
| | 101 |
| | 141 |
| | 141 |
| FG VIEs’ assets, at fair value | 2,674 |
| | 2,674 |
| | 2,688 |
| | 2,688 |
| Other assets | 177 |
| | 177 |
| | 166 |
| | 166 |
| Liabilities: | |
| | |
| | |
| | |
| Financial guaranty insurance contracts(1) | 3,725 |
| | 5,210 |
| | 3,918 |
| | 6,537 |
| Long-term debt | 827 |
| | 1,095 |
| | 836 |
| | 1,091 |
| Credit derivative liabilities | 2,349 |
| | 2,349 |
| | 1,934 |
| | 1,934 |
| FG VIEs’ liabilities with recourse, at fair value | 1,940 |
| | 1,940 |
| | 2,090 |
| | 2,090 |
| FG VIEs’ liabilities without recourse, at fair value | 1,134 |
| | 1,134 |
| | 1,051 |
| | 1,051 |
| Other liabilities | 74 |
| | 74 |
| | 47 |
| | 47 |
|
____________________ | | (1) | Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance. |
|