Fair Value Measurement (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Information by Credit Spread Type

Information by Credit Spread Type (1)

	As of March 31, 2014		As of December 31, 2013
Based on actual collateral specific spreads	6	%	6	%
Based on market indices	88	%	88	%
Provided by the CDS counterparty	6	%	6	%
Total	100	%	100	%

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(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

	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 premium the Company receives per annum (in bps)	40	22	%	10	2	%

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of March 31, 2014

			Fair Value Hierarchy
	Fair Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Investment portfolio, available-for-sale:
Fixed-maturity securities
Obligations of state and political subdivisions	$	5,249	$	—	$	5,211	$	38
U.S. government and agencies	701		—		701		—
Corporate securities	1,427		—		1,289		138
Mortgage-backed securities:
RMBS	1,171		—		812		359
Commercial mortgage-backed securities ("CMBS")	670		—		670		—
Asset-backed securities	554		—		302		252
Foreign government securities	322		—		322		—
Total fixed-maturity securities	10,094		—		9,307		787
Short-term investments	720		438		282		—
Other invested assets (1)	94		—		40		54
Credit derivative assets	78		—		—		78
FG VIEs’ assets, at fair value	1,257		—		—		1,257
Other assets	77		29		11		37
Total assets carried at fair value	$	12,320	$	467	$	9,640	$	2,213
Liabilities:
Credit derivative liabilities	$	2,001	$	—	$	—	$	2,001
FG VIEs’ liabilities with recourse, at fair value	1,346		—		—		1,346
FG VIEs’ liabilities without recourse, at fair value	101		—		—		101
Total liabilities carried at fair value	$	3,448	$	—	$	—	$	3,448

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of December 31, 2013

			Fair Value Hierarchy
	Fair Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Investment portfolio, available-for-sale:
Fixed-maturity securities
Obligations of state and political subdivisions	$	5,079	$	—	$	5,043	$	36
U.S. government and agencies	700		—		700		—
Corporate securities	1,340		—		1,204		136
Mortgage-backed securities:
RMBS	1,122		—		832		290
CMBS	549		—		549		—
Asset-backed securities	608		—		340		268
Foreign government securities	313		—		313		—
Total fixed-maturity securities	9,711		—		8,981		730
Short-term investments	904		506		398		—
Other invested assets (1)	127		—		119		8
Credit derivative assets	94		—		—		94
FG VIEs’ assets, at fair value	2,565		—		—		2,565
Other assets	84		27		11		46
Total assets carried at fair value	$	13,485	$	533	$	9,509	$	3,443
Liabilities:
Credit derivative liabilities	$	1,787	$	—	$	—	$	1,787
FG VIEs’ liabilities with recourse, at fair value	1,790		—		—		1,790
FG VIEs’ liabilities without recourse, at fair value	1,081		—		—		1,081
Total liabilities carried at fair value	$	4,658	$	—	$	—	$	4,658

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(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.

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 First Quarter 2014 and 2013.

Fair Value Level 3 Rollforward

Recurring Basis

First Quarter2014

	Fixed-Maturity Securities
	Obligations of State and Political Subdivisions				Corporate Securities					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, 2013	$	36			$	136				$	290				$	268				$	2			$	2,565				$	46				$	(1,693	)			$	(1,790	)			$	(1,081	)
Total pretax realized and unrealized gains/(losses) recorded in:(1)
Net income (loss)	1		(2	)	3			(2	)	4			(2	)	7			(2	)	—				82			(3	)	(9		)	(4	)	(211		)	(6	)	(72		)	(3	)	(9		)	(3	)
Other comprehensive income (loss)	1				4					14					8					1				—					—					—					—					—
Purchases	—				—					53					—					45		(8	)	—					—					—					—					—
Settlements	—				(5		)			(15		)			(31		)			0				(286		)			—					(19		)			269					12
FG VIE consolidations	—				—					—					—					—				—					—					—					—					—
FG VIE deconsolidations	—				—					13					—					—				(1,104		)			—					—					247					977
Fair value as of March 31, 2014	$	38			$	138				$	359				$	252				$	48			$	1,257				$	37				$	(1,923	)			$	(1,346	)			$	(101	)
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2014	$	1			$	4				$	15				$	7				$	1			$	25				$	(9	)			$	(232	)			$	(28	)			$	(10	)

Fair Value Level 3 Rollforward

Recurring Basis

First Quarter2013

	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	)	5			(2	)	4			(2	)	0		(7	)	215			(3	)	(10		)	(4	)	(592		)	(6	)	(81		)	(3	)	(74		)	(3	)
Other comprehensive income (loss)	0					7					(22		)			0				—					—					—					—					—
Purchases	—					3					—					—				—					—					—					—					—
Settlements	(1		)			(11		)			(2		)			—				(138		)			—					(8		)			112					55
FG VIE consolidations	—					(2		)			—					—				48					—					—					(12		)			(37		)
Fair value as of March 31, 2013	$	35				$	221				$	286				$	1			$	2,813				$	26				$	(2,393	)			$	(2,071	)			$	(1,107	)
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2013	$	0				$	9				$	(22	)			$	0			$	199				$	(10	)			$	(611	)			$	(83	)			$	(94	)

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(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. 

(8)    Non cash transaction.

Schedule of Quantitative Information About Level 3 Fair Value Measurements

Quantitative Information About Level 3 Fair Value Inputs

At March 31, 2014

Financial Instrument Description	Fair Value at March 31, 2014 (in millions)		Valuation Technique	Significant Unobservable Inputs	Range
Assets:
Fixed-maturity securities:
Obligations of state and political subdivisions	$	38	Discounted	Rate of inflation	1.0		%	-	3.0%
			cash flow	Cash flow receipts	0.5		%	-	62.3%
				Yield	4.6		%		9.0%
				Collateral recovery period	4 months			-	34 years
Corporate	138		Discounted	Yield	8.0%
			cash flow
RMBS	359		Discounted	CPR	0.3		%	-	15.8%
			cash flow	CDR	4.1		%	-	25.8%
				Severity	48.1		%	-	101.8%
				Yield	2.6		%	-	8.7%
Asset-backed securities:
Investor owned utility	119		Discounted cash flow	Liquidation value (in millions)		$177		-	$274
				Years to liquidation	0 years			-	3 years
				Collateral recovery period	9 months			-	5 years
				Discount factor	7.0%
XXX life insurance transactions	133		Discounted	Yield	12.5%
			cash flow
Other invested assets	54		Discounted cash flow	Discount for lack of liquidity	10.0		%	-	20.0%
				Recovery on delinquent loans	20.0		%	-	60.0%
				Default rates	0.0		%	-	10.0%
				Loss severity	40.0		%	-	90.0%
				Prepayment speeds	6.0		%	-	15.0%
				Net asset value (per share)	$	1,010			$1,020
FG VIEs’ assets, at fair value	1,257		Discounted	CPR	0.3		%	-	11.8%
			cash flow	CDR	3.0		%	-	25.8%
				Loss severity	38.1		%	-	102.0%
				Yield	3.5		%	-	12.0%

Financial Instrument Description	Fair Value at March 31, 2014 (in millions)		Valuation Technique	Significant Unobservable Inputs	Range
Other assets	37		Discounted cash flow	Quotes from third party pricing	$	53		-	$57
				Term (years)	5 years
Liabilities:
Credit derivative liabilities, net	(1,923	)	Discounted	Year 1 loss estimates	0.0		%	-	48.0%
			cash flow	Hedge cost (in bps)	13.8			-	305.0
				Bank profit (in bps)	1.0			-	1,435.5
				Internal floor (in bps)	7.0			-	100.0
				Internal credit rating	AAA			-	CCC
FG VIEs’ liabilities, at fair value	(1,447	)	Discounted	CPR	0.3		%	-	11.8%
			cash flow	CDR	3.0		%	-	25.8%
				Loss severity	38.1		%	-	102.0%
				Yield	3.5		%	-	12.0%

Quantitative Information About Level 3 Fair Value Inputs

At December 31, 2013

Financial Instrument Description	Fair Value at December 31, 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	0.5		%	-	60.9%
				Discount rates	4.6		%		9.0%
				Collateral recovery period	1 month			-	10 years
Corporate securities	136		Discounted	Yield	8.3%
			cash flow
RMBS	290		Discounted	CPR	1.0		%	-	15.8%
			cash flow	CDR	5.0		%	-	25.8%
				Severity	48.1		%	-	102.5%
				Yield	2.5		%	-	9.4%
Asset-backed securities:
Investor owned utility	141		Discounted cash flow	Liquidation value (in millions)		$195		-	$245
				Years to liquidation	0 years			-	3 years
				Collateral recovery period	12 months				6 years
				Discount factor	15.3%
XXX life insurance transactions	127		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		%	-	10.0%
				Loss severity	40.0		%	-	90.0%
				Prepayment speeds	6.0		%	-	15.0%
FG VIEs’ assets, at fair value	2,565		Discounted	CPR	0.3		%	-	11.8%
			cash flow	CDR	3.0		%	-	25.8%
				Loss severity	37.5		%	-	102.0%
				Yield	3.5		%	-	10.2%

Financial Instrument Description	Fair Value at December 31, 2013 (in millions)		Valuation Technique	Significant Unobservable Inputs	Range
Other assets	46		Discounted cash flow	Quotes from third party pricing	$47		-	$53
				Term (years)	5 years
Liabilities:
Credit derivative liabilities, net	(1,693	)	Discounted	Year 1 loss estimates	0.0	%	-	48.0%
			cash flow	Hedge cost (in bps)	46.3		-	525.0
				Bank profit (in bps)	1.0		-	1,418.5
				Internal floor (in bps)	7.0		-	100.0
				Internal credit rating	AAA		-	BIG
FG VIEs’ liabilities, at fair value	(2,871	)	Discounted	CPR	0.3	%	-	11.8%
			cash flow	CDR	3.0	%	-	25.8%
				Loss severity	37.5	%	-	102.0%
				Yield	3.5	%	-	10.2%

T

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 March 31, 2014				As of December 31, 2013
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in millions)
Assets:
Fixed-maturity securities	$	10,094	$	10,094	$	9,711	$	9,711
Short-term investments	720		720		904		904
Other invested assets	113		116		147		155
Credit derivative assets	78		78		94		94
FG VIEs’ assets, at fair value	1,257		1,257		2,565		2,565
Other assets	181		181		179		179
Liabilities:
Financial guaranty insurance contracts(1)	3,693		5,644		3,783		5,128
Long-term debt	812		1,050		816		970
Credit derivative liabilities	2,001		2,001		1,787		1,787
FG VIEs’ liabilities with recourse, at fair value	1,346		1,346		1,790		1,790
FG VIEs’ liabilities without recourse, at fair value	101		101		1,081		1,081
Other liabilities	62		62		36		36

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(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.