Fair Value Measurement (Tables)
|
6 Months Ended |
Jun. 30, 2017 |
|---|
| Fair Value Disclosures [Abstract] |
|
| Information by Credit Spread Type |
Information by Credit Spread Type (1) | | | | | | | | As of
June 30, 2017 | | As of
December 31, 2016 | Based on actual collateral specific spreads | 8 | % | | 7 | % | Based on market indices | 66 | % | | 77 | % | Provided by the CDS counterparty | 26 | % | | 16 | % | 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 |
The 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 premium the Company receives per annum (in bps) | 40 |
| | 22 | % | | 10 |
| | 2 | % |
|
| Fair Value Hierarchy of Financial Instruments Carried at Fair Value |
Amounts recorded at fair value in the Company’s financial statements are presented in the tables below. Fair Value Hierarchy of Financial Instruments Carried at Fair Value As of June 30, 2017 | | | | | | | | | | | | | | | | | | | | 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 | $ | 5,709 |
| | $ | — |
| | $ | 5,618 |
| | $ | 91 |
| U.S. government and agencies | 289 |
| | — |
| | 289 |
| | — |
| Corporate securities | 2,041 |
| | — |
| | 1,978 |
| | 63 |
| Mortgage-backed securities: | |
| | | | | | | RMBS | 894 |
| | — |
| | 537 |
| | 357 |
| Commercial mortgage-backed securities (CMBS) | 567 |
| | — |
| | 567 |
| | — |
| Asset-backed securities | 722 |
| | — |
| | 66 |
| | 656 |
| Foreign government securities | 283 |
| | — |
| | 283 |
| | — |
| Total fixed-maturity securities | 10,505 |
|
| — |
| | 9,338 |
| | 1,167 |
| Short-term investments | 678 |
| | 415 |
| | 263 |
| | — |
| Other invested assets (1) | 8 |
| | — |
| | 0 |
| | 8 |
| Credit derivative assets | 6 |
| | — |
| | — |
| | 6 |
| FG VIEs’ assets, at fair value | 757 |
| | — |
| | — |
| | 757 |
| Other assets | 118 |
| | 22 |
| | 34 |
| | 62 |
| Total assets carried at fair value | $ | 12,072 |
| | $ | 437 |
| | $ | 9,635 |
| | $ | 2,000 |
| Liabilities: | |
| | | | | | | Credit derivative liabilities | $ | 367 |
| | $ | — |
| | $ | — |
| | $ | 367 |
| FG VIEs’ liabilities with recourse, at fair value | 689 |
| | — |
| | — |
| | 689 |
| FG VIEs’ liabilities without recourse, at fair value | 131 |
| | — |
| | — |
| | 131 |
| Total liabilities carried at fair value | $ | 1,187 |
| | $ | — |
| | $ | — |
| | $ | 1,187 |
|
Fair Value Hierarchy of Financial Instruments Carried at Fair Value As of December 31, 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 | $ | 5,432 |
| | $ | — |
| | $ | 5,393 |
| | $ | 39 |
| U.S. government and agencies | 440 |
| | — |
| | 440 |
| | — |
| Corporate securities | 1,613 |
| | — |
| | 1,553 |
| | 60 |
| Mortgage-backed securities: | |
| | |
| | |
| | |
| RMBS | 987 |
| | — |
| | 622 |
| | 365 |
| CMBS | 583 |
| | — |
| | 583 |
| | — |
| Asset-backed securities | 945 |
| | — |
| | 140 |
| | 805 |
| Foreign government securities | 233 |
| | — |
| | 233 |
| | — |
| Total fixed-maturity securities | 10,233 |
| | — |
| | 8,964 |
| | 1,269 |
| Short-term investments | 590 |
| | 319 |
| | 271 |
| | — |
| Other invested assets (1) | 8 |
| | — |
| | 0 |
| | 8 |
| Credit derivative assets | 13 |
| | — |
| | — |
| | 13 |
| FG VIEs’ assets, at fair value | 876 |
| | — |
| | — |
| | 876 |
| Other assets | 114 |
| | 24 |
| | 28 |
| | 62 |
| Total assets carried at fair value | $ | 11,834 |
| | $ | 343 |
| | $ | 9,263 |
| | $ | 2,228 |
| Liabilities: | |
| | |
| | |
| | |
| Credit derivative liabilities | $ | 402 |
| | $ | — |
| | $ | — |
| | $ | 402 |
| FG VIEs’ liabilities with recourse, at fair value | 807 |
| | — |
| | — |
| | 807 |
| FG VIEs’ liabilities without recourse, at fair value | 151 |
| | — |
| | — |
| | 151 |
| Total liabilities carried at fair value | $ | 1,360 |
| | $ | — |
| | $ | — |
| | $ | 1,360 |
|
____________________ | | (1) | Excluded from the table above are investment funds of $49 million and $48 million as of June 30, 2017 and December 31, 2016, 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 |
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 2017 and 2016 and Six Months 2017 and 2016.
Fair Value Level 3 Rollforward Recurring Basis Second Quarter 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed-Maturity Securities | | | | | | | | | | | | | Obligations
of State and
Political
Subdivisions | | Corporate Securities | | RMBS | | Asset-
Backed
Securities | | FG VIEs’
Assets at
Fair
Value | | Other
Assets (7) | | 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, 2017 | $ | 42 |
| | $ | 62 |
| | $ | 402 |
| | $ | 602 |
| |
| $ | 781 |
| |
| $ | 63 |
| |
| $ | (350 | ) | | $ | (721 | ) | | $ | (134 | ) | | Total pretax realized and unrealized gains/(losses) recorded in: (1) | | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| Net income (loss) | 1 |
| (2 | ) | 1 |
| (2 | ) | 20 |
| (2 | ) | 11 |
| (2 | ) | 11 |
| (3 | ) | 2 |
| (4 | ) | (6 | ) | (6 | ) | (2 | ) | (3 | ) | (1 | ) | (3 | ) | Other comprehensive income (loss) | (7 | ) | | 0 |
| | (1 | ) | | 51 |
| |
| — |
| |
| 0 |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | — |
| | — |
| | 2 |
| | 4 |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | — |
| | — |
| | (66 | ) | | (7 | ) | | (35 | ) | | — |
| |
| (5 | ) | |
| 34 |
| |
| 4 |
| |
| Transfers into Level 3 | 55 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Transfers out of Level 3 | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | Fair value as of June 30, 2017 | $ | 91 |
| | $ | 63 |
| | $ | 357 |
| | $ | 656 |
| |
| $ | 757 |
| |
| $ | 65 |
| |
| $ | (361 | ) | | $ | (689 | ) | | $ | (131 | ) | | Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2017 | $ | 9 |
| | $ | 0 |
| | $ | 13 |
| | $ | 51 |
| | $ | 19 |
| | $ | 2 |
| | $ | (13 | ) | | $ | (2 | ) | | $ | (1 | ) | |
Fair Value Level 3 Rollforward Recurring Basis Second Quarter 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed-Maturity Securities | | | | | | | | | | | | | Obligations
of State and
Political
Subdivisions | | Corporate Securities | | RMBS | | Asset-
Backed
Securities | | FG VIEs’
Assets at
Fair
Value | | Other
Assets (7) | | 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, 2016 | $ | 7 |
| | $ | 74 |
| | $ | 360 |
| | $ | 639 |
| | $ | 1,191 |
| |
| $ | 49 |
| |
| $ | (434 | ) | | $ | (1,165 | ) | | $ | (119 | ) | | Total pretax realized and unrealized gains/(losses) recorded in: (1) | | | | | | | | | | |
| | |
| | |
| | |
| | |
| Net income (loss) | 0 |
| (2 | ) | 2 |
| (2 | ) | 4 |
| (2 | ) | 10 |
| (2 | ) | 113 |
| (3 | ) | (11 | ) | (4 | ) | 63 |
| (6 | ) | (112 | ) | (3 | ) | 2 |
| (3 | ) | Other comprehensive income (loss) | 1 |
| | (18 | ) | | 3 |
| | (5 | ) | | — |
| |
| 0 |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | 33 |
| | — |
| | 6 |
| | — |
| | — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | — |
| | — |
| | (24 | ) | | (80 | ) | | (490 | ) | | — |
| |
| (25 | ) | |
| 487 |
| |
| 2 |
| |
| 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 |
| | $ | (18 | ) | | $ | 2 |
| | $ | (4 | ) | | $ | 11 |
| | $ | (11 | ) | | $ | (20 | ) | | $ | (2 | ) | | $ | 2 |
| |
Fair Value Level 3 Rollforward Recurring Basis Six Months 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed-Maturity Securities | | | | | | | | | | | | | Obligations
of State and
Political
Subdivisions | | Corporate Securities | | RMBS | | Asset-
Backed
Securities | | FG VIEs’
Assets at
Fair
Value | | Other
Assets (7) | | 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, 2016 | $ | 39 |
| | $ | 60 |
| | $ | 365 |
| | $ | 805 |
| | $ | 876 |
| | $ | 65 |
| | $ | (389 | ) | | $ | (807 | ) | | $ | (151 | ) | | MBIA UK Acquisition | — |
| | — |
| | — |
| | 7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Total pretax realized and unrealized gains/(losses) recorded in: (1) | | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| Net income (loss) | 2 |
| (2 | ) | 3 |
| (2 | ) | 18 |
| (2 | ) | 85 |
| (2 | ) | 28 |
| (3 | ) | 0 |
| (4 | ) | 48 |
| (6 | ) | (11 | ) | (3 | ) | (3 | ) | (3 | ) | Other comprehensive income (loss) | (3 | ) | | 0 |
| | 26 |
| | 58 |
| |
| — |
| |
| 0 |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | — |
| | — |
| | 29 |
| | 56 |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | (2 | ) | | — |
| | (81 | ) | | (355 | ) | | (81 | ) | | — |
| |
| (20 | ) | |
| 78 |
| |
| 8 |
| |
| FG VIE consolidations | — |
| | — |
| | — |
| | — |
| |
| 21 |
| |
| — |
| |
| — |
| |
| — |
| | (21 | ) | |
| FG VIE deconsolidations | — |
| | — |
| | — |
| | — |
| | (87 | ) | | — |
| | — |
| | 51 |
| | 36 |
| | Transfers into Level 3 | 55 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Fair value as of June 30, 2017 | $ | 91 |
| | $ | 63 |
| | $ | 357 |
| | $ | 656 |
| |
| $ | 757 |
| |
| $ | 65 |
| |
| $ | (361 | ) | | $ | (689 | ) | | $ | (131 | ) | | Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2017 | $ | 13 |
| | $ | 0 |
| | $ | 26 |
| | $ | 124 |
| | $ | 40 |
| | $ | 0 |
| | $ | 12 |
| | $ | (9 | ) | | $ | (3 | ) | |
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 (7) | | 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 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 |
| |
____________________ | | (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 realized investment gains (losses), 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 and other income. |
| | (7) | Includes CCS and other invested assets. |
|
| Fair Value, Liabilities Measured on Recurring Basis |
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 2017 and 2016 and Six Months 2017 and 2016.
Fair Value Level 3 Rollforward Recurring Basis Second Quarter 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed-Maturity Securities | | | | | | | | | | | | | Obligations
of State and
Political
Subdivisions | | Corporate Securities | | RMBS | | Asset-
Backed
Securities | | FG VIEs’
Assets at
Fair
Value | | Other
Assets (7) | | 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, 2017 | $ | 42 |
| | $ | 62 |
| | $ | 402 |
| | $ | 602 |
| |
| $ | 781 |
| |
| $ | 63 |
| |
| $ | (350 | ) | | $ | (721 | ) | | $ | (134 | ) | | Total pretax realized and unrealized gains/(losses) recorded in: (1) | | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| Net income (loss) | 1 |
| (2 | ) | 1 |
| (2 | ) | 20 |
| (2 | ) | 11 |
| (2 | ) | 11 |
| (3 | ) | 2 |
| (4 | ) | (6 | ) | (6 | ) | (2 | ) | (3 | ) | (1 | ) | (3 | ) | Other comprehensive income (loss) | (7 | ) | | 0 |
| | (1 | ) | | 51 |
| |
| — |
| |
| 0 |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | — |
| | — |
| | 2 |
| | 4 |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | — |
| | — |
| | (66 | ) | | (7 | ) | | (35 | ) | | — |
| |
| (5 | ) | |
| 34 |
| |
| 4 |
| |
| Transfers into Level 3 | 55 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Transfers out of Level 3 | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | Fair value as of June 30, 2017 | $ | 91 |
| | $ | 63 |
| | $ | 357 |
| | $ | 656 |
| |
| $ | 757 |
| |
| $ | 65 |
| |
| $ | (361 | ) | | $ | (689 | ) | | $ | (131 | ) | | Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2017 | $ | 9 |
| | $ | 0 |
| | $ | 13 |
| | $ | 51 |
| | $ | 19 |
| | $ | 2 |
| | $ | (13 | ) | | $ | (2 | ) | | $ | (1 | ) | |
Fair Value Level 3 Rollforward Recurring Basis Second Quarter 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed-Maturity Securities | | | | | | | | | | | | | Obligations
of State and
Political
Subdivisions | | Corporate Securities | | RMBS | | Asset-
Backed
Securities | | FG VIEs’
Assets at
Fair
Value | | Other
Assets (7) | | 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, 2016 | $ | 7 |
| | $ | 74 |
| | $ | 360 |
| | $ | 639 |
| | $ | 1,191 |
| |
| $ | 49 |
| |
| $ | (434 | ) | | $ | (1,165 | ) | | $ | (119 | ) | | Total pretax realized and unrealized gains/(losses) recorded in: (1) | | | | | | | | | | |
| | |
| | |
| | |
| | |
| Net income (loss) | 0 |
| (2 | ) | 2 |
| (2 | ) | 4 |
| (2 | ) | 10 |
| (2 | ) | 113 |
| (3 | ) | (11 | ) | (4 | ) | 63 |
| (6 | ) | (112 | ) | (3 | ) | 2 |
| (3 | ) | Other comprehensive income (loss) | 1 |
| | (18 | ) | | 3 |
| | (5 | ) | | — |
| |
| 0 |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | 33 |
| | — |
| | 6 |
| | — |
| | — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | — |
| | — |
| | (24 | ) | | (80 | ) | | (490 | ) | | — |
| |
| (25 | ) | |
| 487 |
| |
| 2 |
| |
| 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 |
| | $ | (18 | ) | | $ | 2 |
| | $ | (4 | ) | | $ | 11 |
| | $ | (11 | ) | | $ | (20 | ) | | $ | (2 | ) | | $ | 2 |
| |
Fair Value Level 3 Rollforward Recurring Basis Six Months 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed-Maturity Securities | | | | | | | | | | | | | Obligations
of State and
Political
Subdivisions | | Corporate Securities | | RMBS | | Asset-
Backed
Securities | | FG VIEs’
Assets at
Fair
Value | | Other
Assets (7) | | 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, 2016 | $ | 39 |
| | $ | 60 |
| | $ | 365 |
| | $ | 805 |
| | $ | 876 |
| | $ | 65 |
| | $ | (389 | ) | | $ | (807 | ) | | $ | (151 | ) | | MBIA UK Acquisition | — |
| | — |
| | — |
| | 7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Total pretax realized and unrealized gains/(losses) recorded in: (1) | | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| Net income (loss) | 2 |
| (2 | ) | 3 |
| (2 | ) | 18 |
| (2 | ) | 85 |
| (2 | ) | 28 |
| (3 | ) | 0 |
| (4 | ) | 48 |
| (6 | ) | (11 | ) | (3 | ) | (3 | ) | (3 | ) | Other comprehensive income (loss) | (3 | ) | | 0 |
| | 26 |
| | 58 |
| |
| — |
| |
| 0 |
| |
| — |
| |
| — |
| |
| — |
| |
| Purchases | — |
| | — |
| | 29 |
| | 56 |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| — |
| |
| Settlements | (2 | ) | | — |
| | (81 | ) | | (355 | ) | | (81 | ) | | — |
| |
| (20 | ) | |
| 78 |
| |
| 8 |
| |
| FG VIE consolidations | — |
| | — |
| | — |
| | — |
| |
| 21 |
| |
| — |
| |
| — |
| |
| — |
| | (21 | ) | |
| FG VIE deconsolidations | — |
| | — |
| | — |
| | — |
| | (87 | ) | | — |
| | — |
| | 51 |
| | 36 |
| | Transfers into Level 3 | 55 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Fair value as of June 30, 2017 | $ | 91 |
| | $ | 63 |
| | $ | 357 |
| | $ | 656 |
| |
| $ | 757 |
| |
| $ | 65 |
| |
| $ | (361 | ) | | $ | (689 | ) | | $ | (131 | ) | | Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2017 | $ | 13 |
| | $ | 0 |
| | $ | 26 |
| | $ | 124 |
| | $ | 40 |
| | $ | 0 |
| | $ | 12 |
| | $ | (9 | ) | | $ | (3 | ) | |
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 (7) | | 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 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 |
| |
____________________ | | (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 realized investment gains (losses), 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 and other income. |
| | (7) | 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, 2017
| | | | | | | | | | | | | | | Financial Instrument Description (1) | | Fair Value at June 30, 2017 (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 | | $ | 91 |
| | Yield | | 4.3 | % | - | 37.2% | | 11.8% | | | | | | | | | | | | Corporate securities | | 63 |
| | Yield | | 20.1% | | | | | | | | | | | | | | RMBS | | 357 |
| | CPR | | 1.4 | % | - | 17.4% | | 5.6% | | | CDR | | 2.0 | % | - | 8.1% | | 6.3% | | | Loss severity | | 40.0 | % | - | 100.0% | | 78.2% | | | Yield | | 3.8 | % | - | 9.0% | | 5.7% | Asset-backed securities: | | | | | | | | | | | Triple-X life insurance transactions | | 564 |
| | Yield | | 6.1 | % | - | 6.4% | | 6.3% | | | | | | | | | | | | Collateralized loan obligations (CLO) /TruPS | | 33 |
| | Yield | | 2.5 | % | - | 4.5% | | 3.1% | | | | | | | | | | | | Others | | 59 |
| | Yield | | 10.9% | | | | | | | | | | | | | | FG VIEs’ assets, at fair value | | 757 |
| | CPR | | 3.5 | % | - | 13.6% | | 9.0% | | | CDR | | 2.5 | % | - | 21.9% | | 5.6% | | | Loss severity | | 55.0 | % | - | 100.0% | | 78.2% | | | Yield | | 2.9 | % | - | 14.7% | | 6.4% | | | | | | | | | | | | Other assets | | 62 |
| | Implied Yield | | 4.9 | % | - | 5.5% | | 5.2% | | | Term (years) | | 10 years | | | Liabilities: | | |
| | | | | | | | | Credit derivative liabilities, net | | (361 | ) | | Year 1 loss estimates | | 0.0 | % | - | 56.0% | | 2.4% | | | Hedge cost (in bps) | | 3.8 |
| - | 105.0 | | 26.8 | | | Bank profit (in bps) | | 3.8 |
| - | 825.0 | | 73.5 | | | Internal floor (in bps) | | 7.0 |
| - | 100.0 | | 21.2 | | | Internal credit rating | | AAA |
| - | CCC | | AA | | | | | | | | | | | | FG VIEs’ liabilities, at fair value | | (820 | ) | | CPR | | 3.5 | % | - | 13.6% | | 9.0% | | | CDR | | 2.5 | % | - | 21.9% | | 5.6% | | | Loss severity | | 55.0 | % | - | 100.0% | | 78.2% | | | Yield | | 2.4 | % | - | 14.7% | | 4.9% |
___________________ | | (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 $8 million. |
Quantitative Information About Level 3 Fair Value Inputs At December 31, 2016
| | | | | | | | | | | | | | | Financial Instrument Description (1) | | Fair Value at
December 31, 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 | | $ | 39 |
| | Yield | | 4.3 | % | - | 22.8% | | 11.1% | | | | | | | | | | | | Corporate securities | | 60 |
| | Yield | | 20.1% | | | | | | | | | | | | | | RMBS | | 365 |
| | CPR | | 1.6 | % | - | 17.0% | | 4.6% | | | CDR | | 1.5 | % | - | 10.1% | | 6.7% | | | Loss severity | | 30.0 | % | - | 100.0% | | 77.8% | | | Yield | | 3.3 | % | - | 9.7% | | 6.0% | Asset-backed securities: | | | | | | | | | | | Triple-X life insurance transactions | | 425 |
| | Yield | | 5.7 | % | - | 6.0% | | 5.8% | | | | | | | | | | | | Collateralized debt obligations (CDO) | | 332 |
| | Yield | | 10.0% | | | | | | | | | | | | | | CLO/TruPS | | 19 |
| | Yield | | 1.5 | % | - | 4.8% | | 3.1% | | | | | | | | | | | | Others | | 29 |
| | Yield | | 7.2% | | | | | | | | | | | | | | FG VIEs’ assets, at fair value | | 876 |
| | CPR | | 3.5 | % | - | 12.0% | | 7.8% | | | CDR | | 2.5 | % | - | 21.6% | | 5.7% | | | Loss severity | | 35.0 | % | - | 100.0% | | 78.6% | | | Yield | | 2.9 | % | - | 20.0% | | 6.5% | | | | | | | | | | | | Other assets | | 62 |
| | Implied Yield | | 4.5 | % | - | 5.1% | | 4.8% | | | Term (years) | | 10 years | | | Liabilities: | | |
| | | | | | | | | Credit derivative liabilities, net | | (389 | ) | | Year 1 loss estimates | | 0.0 | % | - | 38.0% | | 1.3% | | | Hedge cost (in bps) | | 7.2 |
| - | 118.1 | | 24.5 | | | Bank profit (in bps) | | 3.8 |
| - | 825.0 | | 61.8 | | | Internal floor (in bps) | | 7.0 |
| - | 100.0 | | 13.9 | | | Internal credit rating | | AAA |
| - | CCC | | AA+ | | | | | | | | | | | | FG VIEs’ liabilities, at fair value | | (958 | ) | | CPR | | 3.5 | % | - | 12.0% | | 7.8% | | | CDR | | 2.5 | % | - | 21.6% | | 5.7% | | | Loss severity | | 35.0 | % | - | 100.0% | | 78.6% | | | Yield | | 2.4 | % | - | 20.0% | | 5.0% |
____________________ | | (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 $8 million. |
|
| Schedule of Quantitative Information About Level 3 Liabilities, Fair Value Measurements |
Quantitative Information About Level 3 Fair Value Inputs At June 30, 2017
| | | | | | | | | | | | | | | Financial Instrument Description (1) | | Fair Value at June 30, 2017 (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 | | $ | 91 |
| | Yield | | 4.3 | % | - | 37.2% | | 11.8% | | | | | | | | | | | | Corporate securities | | 63 |
| | Yield | | 20.1% | | | | | | | | | | | | | | RMBS | | 357 |
| | CPR | | 1.4 | % | - | 17.4% | | 5.6% | | | CDR | | 2.0 | % | - | 8.1% | | 6.3% | | | Loss severity | | 40.0 | % | - | 100.0% | | 78.2% | | | Yield | | 3.8 | % | - | 9.0% | | 5.7% | Asset-backed securities: | | | | | | | | | | | Triple-X life insurance transactions | | 564 |
| | Yield | | 6.1 | % | - | 6.4% | | 6.3% | | | | | | | | | | | | Collateralized loan obligations (CLO) /TruPS | | 33 |
| | Yield | | 2.5 | % | - | 4.5% | | 3.1% | | | | | | | | | | | | Others | | 59 |
| | Yield | | 10.9% | | | | | | | | | | | | | | FG VIEs’ assets, at fair value | | 757 |
| | CPR | | 3.5 | % | - | 13.6% | | 9.0% | | | CDR | | 2.5 | % | - | 21.9% | | 5.6% | | | Loss severity | | 55.0 | % | - | 100.0% | | 78.2% | | | Yield | | 2.9 | % | - | 14.7% | | 6.4% | | | | | | | | | | | | Other assets | | 62 |
| | Implied Yield | | 4.9 | % | - | 5.5% | | 5.2% | | | Term (years) | | 10 years | | | Liabilities: | | |
| | | | | | | | | Credit derivative liabilities, net | | (361 | ) | | Year 1 loss estimates | | 0.0 | % | - | 56.0% | | 2.4% | | | Hedge cost (in bps) | | 3.8 |
| - | 105.0 | | 26.8 | | | Bank profit (in bps) | | 3.8 |
| - | 825.0 | | 73.5 | | | Internal floor (in bps) | | 7.0 |
| - | 100.0 | | 21.2 | | | Internal credit rating | | AAA |
| - | CCC | | AA | | | | | | | | | | | | FG VIEs’ liabilities, at fair value | | (820 | ) | | CPR | | 3.5 | % | - | 13.6% | | 9.0% | | | CDR | | 2.5 | % | - | 21.9% | | 5.6% | | | Loss severity | | 55.0 | % | - | 100.0% | | 78.2% | | | Yield | | 2.4 | % | - | 14.7% | | 4.9% |
___________________ | | (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 $8 million. |
Quantitative Information About Level 3 Fair Value Inputs At December 31, 2016
| | | | | | | | | | | | | | | Financial Instrument Description (1) | | Fair Value at
December 31, 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 | | $ | 39 |
| | Yield | | 4.3 | % | - | 22.8% | | 11.1% | | | | | | | | | | | | Corporate securities | | 60 |
| | Yield | | 20.1% | | | | | | | | | | | | | | RMBS | | 365 |
| | CPR | | 1.6 | % | - | 17.0% | | 4.6% | | | CDR | | 1.5 | % | - | 10.1% | | 6.7% | | | Loss severity | | 30.0 | % | - | 100.0% | | 77.8% | | | Yield | | 3.3 | % | - | 9.7% | | 6.0% | Asset-backed securities: | | | | | | | | | | | Triple-X life insurance transactions | | 425 |
| | Yield | | 5.7 | % | - | 6.0% | | 5.8% | | | | | | | | | | | | Collateralized debt obligations (CDO) | | 332 |
| | Yield | | 10.0% | | | | | | | | | | | | | | CLO/TruPS | | 19 |
| | Yield | | 1.5 | % | - | 4.8% | | 3.1% | | | | | | | | | | | | Others | | 29 |
| | Yield | | 7.2% | | | | | | | | | | | | | | FG VIEs’ assets, at fair value | | 876 |
| | CPR | | 3.5 | % | - | 12.0% | | 7.8% | | | CDR | | 2.5 | % | - | 21.6% | | 5.7% | | | Loss severity | | 35.0 | % | - | 100.0% | | 78.6% | | | Yield | | 2.9 | % | - | 20.0% | | 6.5% | | | | | | | | | | | | Other assets | | 62 |
| | Implied Yield | | 4.5 | % | - | 5.1% | | 4.8% | | | Term (years) | | 10 years | | | Liabilities: | | |
| | | | | | | | | Credit derivative liabilities, net | | (389 | ) | | Year 1 loss estimates | | 0.0 | % | - | 38.0% | | 1.3% | | | Hedge cost (in bps) | | 7.2 |
| - | 118.1 | | 24.5 | | | Bank profit (in bps) | | 3.8 |
| - | 825.0 | | 61.8 | | | Internal floor (in bps) | | 7.0 |
| - | 100.0 | | 13.9 | | | Internal credit rating | | AAA |
| - | CCC | | AA+ | | | | | | | | | | | | FG VIEs’ liabilities, at fair value | | (958 | ) | | CPR | | 3.5 | % | - | 12.0% | | 7.8% | | | CDR | | 2.5 | % | - | 21.6% | | 5.7% | | | Loss severity | | 35.0 | % | - | 100.0% | | 78.6% | | | Yield | | 2.4 | % | - | 20.0% | | 5.0% |
____________________ | | (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 $8 million. |
|
| 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, 2017 | | As of
December 31, 2016 | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | (in millions) | Assets: | |
| | |
| | |
| | |
| Fixed-maturity securities | $ | 10,505 |
| | $ | 10,505 |
| | $ | 10,233 |
| | $ | 10,233 |
| Short-term investments | 678 |
| | 678 |
| | 590 |
| | 590 |
| Other invested assets | 65 |
| | 66 |
| | 146 |
| | 147 |
| Credit derivative assets | 6 |
| | 6 |
| | 13 |
| | 13 |
| FG VIEs’ assets, at fair value | 757 |
| | 757 |
| | 876 |
| | 876 |
| Other assets | 245 |
| | 245 |
| | 205 |
| | 205 |
| Liabilities: | |
| | |
| | |
| | |
| Financial guaranty insurance contracts (1) | 3,498 |
| | 8,228 |
| | 3,483 |
| | 8,738 |
| Long-term debt | 1,294 |
| | 1,619 |
| | 1,306 |
| | 1,546 |
| Credit derivative liabilities | 367 |
| | 367 |
| | 402 |
| | 402 |
| FG VIEs’ liabilities with recourse, at fair value | 689 |
| | 689 |
| | 807 |
| | 807 |
| FG VIEs’ liabilities without recourse, at fair value | 131 |
| | 131 |
| | 151 |
| | 151 |
| Other liabilities | 62 |
| | 62 |
| | 12 |
| | 12 |
|
____________________ | | (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. |
|