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Fair Value Measurement (Tables)
 6 Months Ended
Jun. 30, 2016
Fair Value Disclosures [Abstract]  
Information by Credit Spread Type
Information by Credit Spread Type (1)
 
 
As of
June 30, 2016
 
As of
December 31, 2015
Based on actual collateral specific spreads
13
%
 
13
%
Based on market indices
72
%
 
73
%
Provided by the CDS counterparty
15
%
 
14
%
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
 
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 June 30, 2016
 
 
 
 
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
$
5,603

 
$
—

 
$
5,562

 
$
41

U.S. government and agencies
326

 
—

 
326

 
—

Corporate securities
1,443

 
—

 
1,385

 
58

Mortgage-backed securities:
 

 
 
 
 
 
 
RMBS
1,062

 
—

 
713

 
349

Commercial mortgage-backed securities ("CMBS")
539

 
—

 
539

 
—

Asset-backed securities
730

 
—

 
166

 
564

Foreign government securities
257

 
—

 
257

 
—

Total fixed-maturity securities
9,960


—

 
8,948

 
1,012

Short-term investments
585

 
521

 
64

 
—

Other invested assets (1)
13

 
—

 
6

 
7

Credit derivative assets
36

 
—

 
—

 
36

FG VIEs’ assets, at fair value
814

 
—

 
—

 
814

Other assets
84

 
22

 
27

 
35

Total assets carried at fair value
$
11,492

 
$
543

 
$
9,045

 
$
1,904

Liabilities:
 

 
 

 
 

 
 

Credit derivative liabilities
$
432

 
$
—

 
$
—

 
$
432

FG VIEs’ liabilities with recourse, at fair value
790

 
—

 
—

 
790

FG VIEs’ liabilities without recourse, at fair value
115

 
—

 
—

 
115

Total liabilities carried at fair value
$
1,337

 
$
—

 
$
—

 
$
1,337

 
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of December 31, 2015
 
 
 
 
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
$
5,841

 
$
—

 
$
5,833

 
$
8

U.S. government and agencies
400

 
—

 
400

 
—

Corporate securities
1,520

 
—

 
1,449

 
71

Mortgage-backed securities:
 

 
 

 
 

 
 

RMBS
1,245

 
—

 
897

 
348

CMBS
513

 
—

 
513

 
—

Asset-backed securities
825

 
—

 
168

 
657

Foreign government securities
283

 
—

 
283

 
—

Total fixed-maturity securities
10,627

 
—

 
9,543

 
1,084

Short-term investments
396

 
305

 
31

 
60

Other invested assets (1)
12

 
—

 
5

 
7

Credit derivative assets
81

 
—

 
—

 
81

FG VIEs’ assets, at fair value
1,261

 
—

 
—

 
1,261

Other assets
106

 
23

 
21

 
62

Total assets carried at fair value
$
12,483

 
$
328

 
$
9,600

 
$
2,555

Liabilities:
 

 
 

 
 

 
 

Credit derivative liabilities
$
446

 
$
—

 
$
—

 
$
446

FG VIEs’ liabilities with recourse, at fair value
1,225

 
—

 
—

 
1,225

FG VIEs’ liabilities without recourse, at fair value
124

 
—

 
—

 
124

Total liabilities carried at fair value
$
1,795

 
$
—

 
$
—

 
$
1,795

____________________
(1)
Excluded from the table above are investments funds of $46 million and $45 million as of June 30, 2016 and December 31, 2015, respectively, measured using NAV per share. Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.
Fair Value Assets Measured on Recurring Basis

Fair Value Level 3 Rollforward
Recurring Basis
Second Quarter 2015
 
 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
Assets (8)
 
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, 2015
$
8

 
$
79

 
$
383

 
$
226

 
$
1,495

 

$
40

 

$
(782
)
 
$
(1,278
)
 
$
(145
)
 
Radian Asset Acquisition
—

 
—

 
4

 
—

 
122

 
2

 
(215
)
 
(114
)
 
(4
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

Net income (loss)
0

(2
)
(3
)
(2
)
8

(2
)
3

(2
)
19

(3
)
23

(4
)
90

(6
)
(5
)
(3
)
(25
)
(3
)
Other comprehensive income (loss)
(1
)
 
1

 
(9
)
 
8

 
—

 

(1
)
 

—

 

—

 

—

 

Purchases
—

 
—

 
1

 
—

 
—

 

—

 

—

 

—

 

—

 

Settlements
—

(7
)
—

 
(51
)
 
(1
)
 
(40
)
 
—

 

(19
)
 

36

 

3

 

FG VIE consolidations
—

 
—

 
(1
)
 
—

 
—

 

—

 

—

 

—

 
—

 

FG VIE deconsolidations
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
June 30, 2015
$
7

 
$
77

 
$
335

 
$
236

 
$
1,596

 
$
64

 
$
(926
)
 
$
(1,361
)
 
$
(171
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2015
$
0

 
$
1

 
$
(7
)
 
$
8

 
$
31

 
$
22

 
$
82

 
$
(6
)
 
$
(14
)
 


Fair Value Level 3 Rollforward
Recurring Basis
Six Months 2016

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
Short-Term Investments
 
FG VIEs’
Assets at
Fair
Value
 
Other
Assets (8)
 
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, 2015
$
8

 
$
71

 
$
348

 
$
657

 

$
60

 
$
1,261

 

$
65

 

$
(365
)
 
$
(1,225
)
 
$
(124
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 
 
 

 
 

 
 

 
 

 
 

Net income (loss)
0

(2
)
4

(2
)
2

(2
)
11

(2
)
0

(2
)
109

(3
)
(27
)
(4
)
3

(6
)
(91
)
(3
)
4

(3
)
Other comprehensive income (loss)
1

 
(17
)
 
(2
)
 
(10
)
 

0

 
—

 

0

 

—

 

—

 

—

 

Purchases
33

 
—

 
40

 
—

 

—

 
—

 

—

 

—

 

—

 

—

 

Settlements
(1
)
 
—

 
(39
)
 
(94
)
 
(60
)
 
(556
)
 
—

 

(34
)
 

526

 

5

 

FG VIE consolidations
—

 
—

 
—

 
—

 

—

 
—

 

—

 

—

 

—

 
—

 

FG VIE deconsolidations
—

 
—

 
0

 
—

 
—

 
0

 
—

 
—

 
0

 
—

 
Fair value as of
June 30, 2016
$
41

 
$
58

 
$
349

 
$
564

 

$
—

 
$
814

 

$
38

 

$
(396
)
 
$
(790
)
 
$
(115
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2016
$
1

 
$
(17
)
 
$
(3
)
 
$
(10
)
 
$
—

 
$
15

 
$
(27
)
 
$
(99
)
 
$
19

 
$
3

 

Fair Value Level 3 Rollforward
Recurring Basis
Six Months 2015

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
Assets (8)
 
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, 2014
$
38

 
$
79

 
$
425

 
$
228

 
$
1,398

 

$
37

 

$
(895
)
 
$
(1,277
)
 
$
(142
)
 
Radian Asset Acquisition
—

 
—

 
4

 
—

 
122

 
2

 
(215
)
 
(114
)
 
(4
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

Net income (loss)
3

(2
)
(1
)
(2
)
17

(2
)
1

(2
)
42

(3
)
25

(4
)
214

(6
)
88

(3
)
(30
)
(3
)
Other comprehensive income (loss)
(3
)
 
(1
)
 
(4
)
 
9

 
—

 

—

 

—

 

—

 

—

 

Purchases
—

 
—

 
10

 
—

 
—

 

—

 

—

 

—

 

—

 

Settlements
(31
)
(7
)
—

 
(116
)
 
(2
)
 
(70
)
 
0

 

(30
)
 

73

 

5

 

FG VIE consolidations
—

 
—

 
(1
)
 
—

 
104

 

—

 

—

 

(131
)
 
—

 

FG VIE deconsolidations
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
June 30, 2015
$
7

 
$
77

 
$
335

 
$
236

 
$
1,596

 
$
64

 
$
(926
)
 
$
(1,361
)
 
$
(171
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2015
$
0

 
$
(1
)
 
$
(1
)
 
$
9

 
$
65

 
$
25

 
$
186

 
$
(12
)
 
$
(19
)
 
 ____________________
(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, net investment income and other income.

(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)
Primarily non-cash transaction.

(8)
Includes CCS and other invested assets.
Fair Value, Liabilities Measured on Recurring Basis

Fair Value Level 3 Rollforward
Recurring Basis
Second Quarter 2015
 
 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
Assets (8)
 
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, 2015
$
8

 
$
79

 
$
383

 
$
226

 
$
1,495

 

$
40

 

$
(782
)
 
$
(1,278
)
 
$
(145
)
 
Radian Asset Acquisition
—

 
—

 
4

 
—

 
122

 
2

 
(215
)
 
(114
)
 
(4
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

Net income (loss)
0

(2
)
(3
)
(2
)
8

(2
)
3

(2
)
19

(3
)
23

(4
)
90

(6
)
(5
)
(3
)
(25
)
(3
)
Other comprehensive income (loss)
(1
)
 
1

 
(9
)
 
8

 
—

 

(1
)
 

—

 

—

 

—

 

Purchases
—

 
—

 
1

 
—

 
—

 

—

 

—

 

—

 

—

 

Settlements
—

(7
)
—

 
(51
)
 
(1
)
 
(40
)
 
—

 

(19
)
 

36

 

3

 

FG VIE consolidations
—

 
—

 
(1
)
 
—

 
—

 

—

 

—

 

—

 
—

 

FG VIE deconsolidations
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
June 30, 2015
$
7

 
$
77

 
$
335

 
$
236

 
$
1,596

 
$
64

 
$
(926
)
 
$
(1,361
)
 
$
(171
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2015
$
0

 
$
1

 
$
(7
)
 
$
8

 
$
31

 
$
22

 
$
82

 
$
(6
)
 
$
(14
)
 


Fair Value Level 3 Rollforward
Recurring Basis
Six Months 2016

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
Short-Term Investments
 
FG VIEs’
Assets at
Fair
Value
 
Other
Assets (8)
 
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, 2015
$
8

 
$
71

 
$
348

 
$
657

 

$
60

 
$
1,261

 

$
65

 

$
(365
)
 
$
(1,225
)
 
$
(124
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 
 
 

 
 

 
 

 
 

 
 

Net income (loss)
0

(2
)
4

(2
)
2

(2
)
11

(2
)
0

(2
)
109

(3
)
(27
)
(4
)
3

(6
)
(91
)
(3
)
4

(3
)
Other comprehensive income (loss)
1

 
(17
)
 
(2
)
 
(10
)
 

0

 
—

 

0

 

—

 

—

 

—

 

Purchases
33

 
—

 
40

 
—

 

—

 
—

 

—

 

—

 

—

 

—

 

Settlements
(1
)
 
—

 
(39
)
 
(94
)
 
(60
)
 
(556
)
 
—

 

(34
)
 

526

 

5

 

FG VIE consolidations
—

 
—

 
—

 
—

 

—

 
—

 

—

 

—

 

—

 
—

 

FG VIE deconsolidations
—

 
—

 
0

 
—

 
—

 
0

 
—

 
—

 
0

 
—

 
Fair value as of
June 30, 2016
$
41

 
$
58

 
$
349

 
$
564

 

$
—

 
$
814

 

$
38

 

$
(396
)
 
$
(790
)
 
$
(115
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2016
$
1

 
$
(17
)
 
$
(3
)
 
$
(10
)
 
$
—

 
$
15

 
$
(27
)
 
$
(99
)
 
$
19

 
$
3

 

Fair Value Level 3 Rollforward
Recurring Basis
Six Months 2015

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
Assets (8)
 
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, 2014
$
38

 
$
79

 
$
425

 
$
228

 
$
1,398

 

$
37

 

$
(895
)
 
$
(1,277
)
 
$
(142
)
 
Radian Asset Acquisition
—

 
—

 
4

 
—

 
122

 
2

 
(215
)
 
(114
)
 
(4
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

Net income (loss)
3

(2
)
(1
)
(2
)
17

(2
)
1

(2
)
42

(3
)
25

(4
)
214

(6
)
88

(3
)
(30
)
(3
)
Other comprehensive income (loss)
(3
)
 
(1
)
 
(4
)
 
9

 
—

 

—

 

—

 

—

 

—

 

Purchases
—

 
—

 
10

 
—

 
—

 

—

 

—

 

—

 

—

 

Settlements
(31
)
(7
)
—

 
(116
)
 
(2
)
 
(70
)
 
0

 

(30
)
 

73

 

5

 

FG VIE consolidations
—

 
—

 
(1
)
 
—

 
104

 

—

 

—

 

(131
)
 
—

 

FG VIE deconsolidations
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
June 30, 2015
$
7

 
$
77

 
$
335

 
$
236

 
$
1,596

 
$
64

 
$
(926
)
 
$
(1,361
)
 
$
(171
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2015
$
0

 
$
(1
)
 
$
(1
)
 
$
9

 
$
65

 
$
25

 
$
186

 
$
(12
)
 
$
(19
)
 
 ____________________
(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, net investment income and other income.

(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)
Primarily non-cash transaction.

(8)
Includes CCS and other invested assets.
Schedule of Quantitative Information About Level 3 Assets, Fair Value Measurements
Quantitative Information About Level 3 Fair Value Inputs
At June 30, 2016

Financial Instrument Description (1)
 
Fair Value at
June 30, 2016 (in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
 
 

 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
41

 
Yield
 
4.3
%
-
18.4%
 
13.2%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
58

 
Yield
 
20.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
349

 
CPR
 
1.6
%
-
9.5%
 
3.3%
 
 
CDR
 
0.1
%
-
12.4%
 
9.4%
 
 
Loss severity
 
50.0
%
-
100.0%
 
75.2%
 
 
Yield
 
4.8
%
-
8.5%
 
6.0%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
321

 
Yield
 
4.3
%
-
6.8%
 
5.1%
 
 
 
 
 
 
 
 
 
 
 
Collateralized debt obligations ("CDO")
 
243

 
Yield
 
15.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
814

 
CPR
 
2.5
%
-
8.0%
 
5.1%
 
 
CDR
 
1.2
%
-
16.3%
 
5.8%
 
 
Loss severity
 
50.0
%
-
100.0%
 
85.4%
 
 
Yield
 
3.2
%
-
21.5%
 
7.0%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
35

 
Estimated pricing
 
$59
-
$61
 
$60
 
 
Term (years)
 
5 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(396
)
 
Year 1 loss estimates
 
0.0
%
-
37.0%
 
0.9%
 
 
Hedge cost (in bps)
 
11.3

-
198.8
 
39.1
 
 
Bank profit (in bps)
 
3.8

-
1,572.5
 
99.7
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
27.9
 
 
Internal credit rating
 
AAA

-
CCC
 
AA
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(905
)
 
CPR
 
2.5
%
-
8.0%
 
5.1%
 
 
CDR
 
1.2
%
-
16.3%
 
5.8%
 
 
Loss severity
 
50.0
%
-
100.0%
 
85.4%
 
 
Yield
 
3.2
%
-
21.5%
 
5.8%
___________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.

(2)
Excludes several investments recorded in other invested assets with fair value of $7 million.


Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2015

Financial Instrument Description (1)
 
Fair Value at
December 31, 2015
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
 
 

 
 
 
 
 
 
 
 
Fixed-maturity securities (3):
 
 

 
 
 
 
 
 
 
 
Corporate securities
 
$
71

 
Yield
 
21.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
348

 
CPR
 
0.3
%
-
9.0%
 
2.6%
 
 
CDR
 
2.7
%
-
9.3%
 
7.0%
 
 
Loss severity
 
60.0
%
-
100.0%
 
74.0%
 
 
Yield
 
4.7
%
-
8.2%
 
6.0%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Investor owned utility
 
69

 
Cash flow receipts
 
100.0%
 
 
 
 
Collateral recovery period
 
2.9 years
 
 
 
 
Discount factor
 
7.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
329

 
Yield
 
3.5
%
-
7.5%
 
5.0%
 
 
 
 
 
 
 
 
 
 
 
CDO
 
259

 
Yield
 
20.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term investments
 
60

 
Yield
 
17.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
1,261

 
CPR
 
0.3
%
-
9.2%
 
3.9%
 
 
CDR
 
1.2
%
-
16.0%
 
4.7%
 
 
Loss severity
 
40.0
%
-
100.0%
 
85.9%
 
 
Yield
 
1.9
%
-
20.0%
 
6.4%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
62

 
Quotes from third party pricing
 
$44
-
$46
 
$45
 
 
Term (years)
 
5 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(365
)
 
Year 1 loss estimates
 
0.0
%
-
41.0%
 
0.6%
 
 
Hedge cost (in bps)
 
32.8

-
282.0
 
66.3
 
 
Bank profit (in bps)
 
3.8

-
1,017.5
 
110.8
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
16.8
 
 
Internal credit rating
 
AAA

-
CCC
 
AA+
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(1,349
)
 
CPR
 
0.3
%
-
9.2%
 
3.9%
 
 
CDR
 
1.2
%
-
16.0%
 
4.7%
 
 
Loss severity
 
40.0
%
-
100.0%
 
85.9%
 
 
Yield
 
1.9
%
-
20.0%
 
5.6%

____________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.

(2)
Excludes several investments recorded in other invested assets with fair value of $7 million.

(3)
Excludes obligations of state and political subdivisions investments with fair value of $8 million.
Schedule of Quantitative Information About Level 3 Liabilities, Fair Value Measurements
Quantitative Information About Level 3 Fair Value Inputs
At June 30, 2016

Financial Instrument Description (1)
 
Fair Value at
June 30, 2016 (in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
 
 

 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
41

 
Yield
 
4.3
%
-
18.4%
 
13.2%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
58

 
Yield
 
20.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
349

 
CPR
 
1.6
%
-
9.5%
 
3.3%
 
 
CDR
 
0.1
%
-
12.4%
 
9.4%
 
 
Loss severity
 
50.0
%
-
100.0%
 
75.2%
 
 
Yield
 
4.8
%
-
8.5%
 
6.0%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
321

 
Yield
 
4.3
%
-
6.8%
 
5.1%
 
 
 
 
 
 
 
 
 
 
 
Collateralized debt obligations ("CDO")
 
243

 
Yield
 
15.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
814

 
CPR
 
2.5
%
-
8.0%
 
5.1%
 
 
CDR
 
1.2
%
-
16.3%
 
5.8%
 
 
Loss severity
 
50.0
%
-
100.0%
 
85.4%
 
 
Yield
 
3.2
%
-
21.5%
 
7.0%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
35

 
Estimated pricing
 
$59
-
$61
 
$60
 
 
Term (years)
 
5 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(396
)
 
Year 1 loss estimates
 
0.0
%
-
37.0%
 
0.9%
 
 
Hedge cost (in bps)
 
11.3

-
198.8
 
39.1
 
 
Bank profit (in bps)
 
3.8

-
1,572.5
 
99.7
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
27.9
 
 
Internal credit rating
 
AAA

-
CCC
 
AA
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(905
)
 
CPR
 
2.5
%
-
8.0%
 
5.1%
 
 
CDR
 
1.2
%
-
16.3%
 
5.8%
 
 
Loss severity
 
50.0
%
-
100.0%
 
85.4%
 
 
Yield
 
3.2
%
-
21.5%
 
5.8%
___________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.

(2)
Excludes several investments recorded in other invested assets with fair value of $7 million.


Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2015

Financial Instrument Description (1)
 
Fair Value at
December 31, 2015
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
 
 

 
 
 
 
 
 
 
 
Fixed-maturity securities (3):
 
 

 
 
 
 
 
 
 
 
Corporate securities
 
$
71

 
Yield
 
21.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
348

 
CPR
 
0.3
%
-
9.0%
 
2.6%
 
 
CDR
 
2.7
%
-
9.3%
 
7.0%
 
 
Loss severity
 
60.0
%
-
100.0%
 
74.0%
 
 
Yield
 
4.7
%
-
8.2%
 
6.0%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Investor owned utility
 
69

 
Cash flow receipts
 
100.0%
 
 
 
 
Collateral recovery period
 
2.9 years
 
 
 
 
Discount factor
 
7.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
329

 
Yield
 
3.5
%
-
7.5%
 
5.0%
 
 
 
 
 
 
 
 
 
 
 
CDO
 
259

 
Yield
 
20.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term investments
 
60

 
Yield
 
17.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
1,261

 
CPR
 
0.3
%
-
9.2%
 
3.9%
 
 
CDR
 
1.2
%
-
16.0%
 
4.7%
 
 
Loss severity
 
40.0
%
-
100.0%
 
85.9%
 
 
Yield
 
1.9
%
-
20.0%
 
6.4%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
62

 
Quotes from third party pricing
 
$44
-
$46
 
$45
 
 
Term (years)
 
5 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(365
)
 
Year 1 loss estimates
 
0.0
%
-
41.0%
 
0.6%
 
 
Hedge cost (in bps)
 
32.8

-
282.0
 
66.3
 
 
Bank profit (in bps)
 
3.8

-
1,017.5
 
110.8
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
16.8
 
 
Internal credit rating
 
AAA

-
CCC
 
AA+
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(1,349
)
 
CPR
 
0.3
%
-
9.2%
 
3.9%
 
 
CDR
 
1.2
%
-
16.0%
 
4.7%
 
 
Loss severity
 
40.0
%
-
100.0%
 
85.9%
 
 
Yield
 
1.9
%
-
20.0%
 
5.6%

____________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.

(2)
Excludes several investments recorded in other invested assets with fair value of $7 million.

(3)
Excludes obligations of state and political subdivisions investments with fair value of $8 million.
Fair Value of Financial Instruments
Fair Value of Financial Instruments
 
 
As of
June 30, 2016
 
As of
December 31, 2015
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(in millions)
Assets:
 

 
 

 
 

 
 

Fixed-maturity securities
$
9,960

 
$
9,960

 
$
10,627

 
$
10,627

Short-term investments
585

 
585

 
396

 
396

Other invested assets (1)
155

 
157

 
150

 
152

Credit derivative assets
36

 
36

 
81

 
81

FG VIEs’ assets, at fair value
814

 
814

 
1,261

 
1,261

Other assets
187

 
187

 
206

 
206

Liabilities:
 

 
 

 
 

 
 

Financial guaranty insurance contracts (2)
3,690

 
9,928

 
3,998

 
8,712

Long-term debt
1,303

 
1,527

 
1,300

 
1,512

Credit derivative liabilities
432

 
432

 
446

 
446

FG VIEs’ liabilities with recourse, at fair value
790

 
790

 
1,225

 
1,225

FG VIEs’ liabilities without recourse, at fair value
115

 
115

 
124

 
124

Other liabilities
7

 
7

 
9

 
9

____________________
(1)
Includes investments not carried at fair value with a carrying value of $96 million and $93 million as of June 30, 2016 and December 31, 2015, respectively. Excludes investments carried under the equity method.

(2)
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.