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Fair Value Measurement (Tables)
 9 Months Ended
Sep. 30, 2017
Fair Value Disclosures [Abstract]  
Information by Credit Spread Type
Information by Credit Spread Type (1)
 
 
As of
September 30, 2017
 
As of
December 31, 2016
Based on actual collateral specific spreads
12
%
 
7
%
Based on market indices
53
%
 
77
%
Provided by the CDS counterparty
35
%
 
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 September 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
$
5,705

 
$
—

 
$
5,623

 
$
82

U.S. government and agencies
270

 
—

 
270

 
—

Corporate securities
1,976

 
—

 
1,910

 
66

Mortgage-backed securities:
 

 
 
 
 
 
 
RMBS
881

 
—

 
535

 
346

Commercial mortgage-backed securities (CMBS)
562

 
—

 
562

 
—

Asset-backed securities
852

 
—

 
80

 
772

Foreign government securities
300

 
—

 
300

 
—

Total fixed-maturity securities
10,546


—

 
9,280

 
1,266

Short-term investments
949

 
629

 
320

 
—

Other invested assets (1)
7

 
—

 
0

 
7

Credit derivative assets
3

 
—

 
—

 
3

FG VIEs’ assets, at fair value
707

 
—

 
—

 
707

Other assets
117

 
24

 
35

 
58

Total assets carried at fair value
$
12,329

 
$
653

 
$
9,635

 
$
2,041

Liabilities:
 

 
 
 
 
 
 
Credit derivative liabilities
$
305

 
$
—

 
$
—

 
$
305

FG VIEs’ liabilities with recourse, at fair value
657

 
—

 
—

 
657

FG VIEs’ liabilities without recourse, at fair value
111

 
—

 
—

 
111

Total liabilities carried at fair value
$
1,073

 
$
—

 
$
—

 
$
1,073

 
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 $47 million and $48 million as of September 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 Third Quarter 2017 and 2016 and Nine Months 2017 and 2016. 

Fair Value Level 3 Rollforward
Recurring Basis
Third Quarter 2017

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(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
June 30, 2017
$
91

 
$
63

 
$
357

 
$
656

 

$
757

 

$
65

 

$
(361
)
 
$
(689
)
 
$
(131
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
(8
)
(2
)
1

(2
)
5

(2
)
15

(2
)
4

(3
)
(4
)
(4
)
58

(6
)
(3
)
(3
)
(1
)
(3
)
Other comprehensive income (loss)
(1
)
 
2

 
(1
)
 
2

 

—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
13

 
106

 

—

 

—

 

—

 

—

 

—

 

Settlements
—

 
—

 
(28
)
 
(7
)
 
(36
)
 
—

 

1

 

35

 

3

 

FV VIE
   deconsolidations
—

 
—

 
—

 
—

 
(18
)
 
—

 
—

 
0

 
18

 
Transfers into Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2017
$
82

 
$
66

 
$
346

 
$
772

 

$
707

 

$
61

 

$
(302
)
 
$
(657
)
 
$
(111
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2017
$
(1
)
 
$
2

 
$
0

 
$
2

 
$
10

(3
)
$
(4
)
(4
)
$
51

(6
)
$
(3
)
(3
)
$
(1
)
(3
)


Fair Value Level 3 Rollforward
Recurring Basis
Third Quarter 2016
 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(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
June 30, 2016
$
41

 
$
58

 
$
349

 
$
564

 
$
814

 

$
38

 

$
(396
)
 
$
(790
)
 
$
(115
)
 
CIFG Acquisition
1

 
—

 
20

 
36

 
—

 
—

 
(67
)
 
—

 
—

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

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
0

(2
)
3

(2
)
9

(2
)
20

(3
)
(23
)
(4
)
21

(6
)
(21
)
(3
)
(18
)
(3
)
Other comprehensive income (loss)
0

 
0

 
2

 
47

 
—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
24

 
53

 
—

 

—

 

—

 

—

 

—

 

Settlements
0

 
—

 
(15
)
 
(40
)
 
(34
)
 
—

 

(39
)
 

33

 

3

 

FG VIE consolidations
—

 
—

 
—

 
—

 
97

 
—

 
—

 
(54
)
 
(43
)
 
FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(20
)
 
—

 
—

 
—

 
20

 
Transfers into Level 3
—

 
—

 
—

 
22

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2016
$
43

 
$
58

 
$
383

 
$
691

 
$
877

 
$
15

 
$
(481
)
 
$
(832
)
 
$
(153
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2016
$
0

 
$
0

 
$
1

 
$
47

 
$
29

(3
)
$
(23
)
(4
)
$
(5
)
(6
)
$
(18
)
(3
)
$
(17
)
(3
)


Fair Value Level 3 Rollforward
Recurring Basis
Nine Months 2017

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(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)
(6
)
(2
)
4

(2
)
23

(2
)
100

(2
)
32

(3
)
(4
)
(4
)
106

(6
)
(14
)
(3
)
(4
)
(3
)
Other comprehensive income (loss)
(4
)
 
2

 
25

 
60

 

—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
42

 
162

 

—

 

—

 

—

 

—

 

—

 

Settlements
(2
)
 
—

 
(109
)
 
(362
)
 
(117
)
 
—

 

(19
)
 

113

 

11

 

FG VIE consolidations
—

 
—

 
—

 
—

 

21

 

—

 

—

 

0

 
(21
)
 

FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
51

 
54

 
Transfers into Level 3
55

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2017
$
82

 
$
66

 
$
346

 
$
772

 

$
707

 

$
61

 

$
(302
)
 
$
(657
)
 
$
(111
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2017
$
(4
)
 
$
2

 
$
25

 
$
126

 
$
50

(3
)
$
(4
)
(4
)
$
63

(6
)
$
(12
)
(3
)
$
(4
)
(3
)

Fair Value Level 3 Rollforward
Recurring Basis
Nine 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
(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
)
 
CIFG Acquisition
1

 
—

 
20

 
36

 
0

 
—

 
—

 
(67
)
 
—

 
—

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

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
4

(2
)
5

(2
)
20

(2
)
0

(2
)
129

(3
)
(50
)
(4
)
24

(6
)
(112
)
(3
)
(14
)
(3
)
Other comprehensive income (loss)
1

 
(17
)
 
0

 
37

 
0

 
—

 

0

 

—

 

—

 

—

 

Purchases
33

 
—

 
64

 
53

 
—

 
—

 

—

 

—

 

—

 

—

 

Settlements
(1
)
 
—

 
(54
)
 
(134
)
 
(60
)
 
(590
)
 
—

 

(73
)
 

559

 

8

 

FG VIE consolidations
—

 
—

 
—

 
—

 
—

 
97

 
—

 
—

 
(54
)
 
(43
)
 
FG VIE deconsolidations
—

 
—

 
0

 
—

 
—

 
(20
)
 
—

 
—

 
—

 
20

 
Transfers into Level 3
—

 
—

 
—

 
22

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2016
$
43

 
$
58

 
$
383

 
$
691

 
$
0

 
$
877

 
$
15

 
$
(481
)
 
$
(832
)
 
$
(153
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2016
$
1

 
$
(17
)
 
$
(1
)
 
$
37

 
$
0

 
$
44

(3
)
$
(50
)
(4
)
$
(104
)
(6
)
$
1

(3
)
$
(14
)
(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 Third Quarter 2017 and 2016 and Nine Months 2017 and 2016. 

Fair Value Level 3 Rollforward
Recurring Basis
Third Quarter 2017

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(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
June 30, 2017
$
91

 
$
63

 
$
357

 
$
656

 

$
757

 

$
65

 

$
(361
)
 
$
(689
)
 
$
(131
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
(8
)
(2
)
1

(2
)
5

(2
)
15

(2
)
4

(3
)
(4
)
(4
)
58

(6
)
(3
)
(3
)
(1
)
(3
)
Other comprehensive income (loss)
(1
)
 
2

 
(1
)
 
2

 

—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
13

 
106

 

—

 

—

 

—

 

—

 

—

 

Settlements
—

 
—

 
(28
)
 
(7
)
 
(36
)
 
—

 

1

 

35

 

3

 

FV VIE
   deconsolidations
—

 
—

 
—

 
—

 
(18
)
 
—

 
—

 
0

 
18

 
Transfers into Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2017
$
82

 
$
66

 
$
346

 
$
772

 

$
707

 

$
61

 

$
(302
)
 
$
(657
)
 
$
(111
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2017
$
(1
)
 
$
2

 
$
0

 
$
2

 
$
10

(3
)
$
(4
)
(4
)
$
51

(6
)
$
(3
)
(3
)
$
(1
)
(3
)


Fair Value Level 3 Rollforward
Recurring Basis
Third Quarter 2016
 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(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
June 30, 2016
$
41

 
$
58

 
$
349

 
$
564

 
$
814

 

$
38

 

$
(396
)
 
$
(790
)
 
$
(115
)
 
CIFG Acquisition
1

 
—

 
20

 
36

 
—

 
—

 
(67
)
 
—

 
—

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

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
0

(2
)
3

(2
)
9

(2
)
20

(3
)
(23
)
(4
)
21

(6
)
(21
)
(3
)
(18
)
(3
)
Other comprehensive income (loss)
0

 
0

 
2

 
47

 
—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
24

 
53

 
—

 

—

 

—

 

—

 

—

 

Settlements
0

 
—

 
(15
)
 
(40
)
 
(34
)
 
—

 

(39
)
 

33

 

3

 

FG VIE consolidations
—

 
—

 
—

 
—

 
97

 
—

 
—

 
(54
)
 
(43
)
 
FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(20
)
 
—

 
—

 
—

 
20

 
Transfers into Level 3
—

 
—

 
—

 
22

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2016
$
43

 
$
58

 
$
383

 
$
691

 
$
877

 
$
15

 
$
(481
)
 
$
(832
)
 
$
(153
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2016
$
0

 
$
0

 
$
1

 
$
47

 
$
29

(3
)
$
(23
)
(4
)
$
(5
)
(6
)
$
(18
)
(3
)
$
(17
)
(3
)


Fair Value Level 3 Rollforward
Recurring Basis
Nine Months 2017

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(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)
(6
)
(2
)
4

(2
)
23

(2
)
100

(2
)
32

(3
)
(4
)
(4
)
106

(6
)
(14
)
(3
)
(4
)
(3
)
Other comprehensive income (loss)
(4
)
 
2

 
25

 
60

 

—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
42

 
162

 

—

 

—

 

—

 

—

 

—

 

Settlements
(2
)
 
—

 
(109
)
 
(362
)
 
(117
)
 
—

 

(19
)
 

113

 

11

 

FG VIE consolidations
—

 
—

 
—

 
—

 

21

 

—

 

—

 

0

 
(21
)
 

FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
51

 
54

 
Transfers into Level 3
55

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2017
$
82

 
$
66

 
$
346

 
$
772

 

$
707

 

$
61

 

$
(302
)
 
$
(657
)
 
$
(111
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2017
$
(4
)
 
$
2

 
$
25

 
$
126

 
$
50

(3
)
$
(4
)
(4
)
$
63

(6
)
$
(12
)
(3
)
$
(4
)
(3
)

Fair Value Level 3 Rollforward
Recurring Basis
Nine 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
(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
)
 
CIFG Acquisition
1

 
—

 
20

 
36

 
0

 
—

 
—

 
(67
)
 
—

 
—

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

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
4

(2
)
5

(2
)
20

(2
)
0

(2
)
129

(3
)
(50
)
(4
)
24

(6
)
(112
)
(3
)
(14
)
(3
)
Other comprehensive income (loss)
1

 
(17
)
 
0

 
37

 
0

 
—

 

0

 

—

 

—

 

—

 

Purchases
33

 
—

 
64

 
53

 
—

 
—

 

—

 

—

 

—

 

—

 

Settlements
(1
)
 
—

 
(54
)
 
(134
)
 
(60
)
 
(590
)
 
—

 

(73
)
 

559

 

8

 

FG VIE consolidations
—

 
—

 
—

 
—

 
—

 
97

 
—

 
—

 
(54
)
 
(43
)
 
FG VIE deconsolidations
—

 
—

 
0

 
—

 
—

 
(20
)
 
—

 
—

 
—

 
20

 
Transfers into Level 3
—

 
—

 
—

 
22

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2016
$
43

 
$
58

 
$
383

 
$
691

 
$
0

 
$
877

 
$
15

 
$
(481
)
 
$
(832
)
 
$
(153
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2016
$
1

 
$
(17
)
 
$
(1
)
 
$
37

 
$
0

 
$
44

(3
)
$
(50
)
(4
)
$
(104
)
(6
)
$
1

(3
)
$
(14
)
(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 September 30, 2017

Financial Instrument Description (1)
 
Fair Value at
September 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
 
$
82

 
Yield
 
4.3
%
-
39.0%
 
15.9%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
66

 
Yield
 
20.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
346

 
CPR
 
1.2
%
-
17.4%
 
6.0%
 
 
CDR
 
2.0
%
-
8.5%
 
6.1%
 
 
Loss severity
 
40.0
%
-
100.0%
 
78.5%
 
 
Yield
 
3.8
%
-
9.0%
 
5.7%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
609

 
Yield
 
6.1
%
-
6.4%
 
6.3%
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations (CLO) /TruPS
 
104

 
Yield
 
2.5
%
-
4.5%
 
3.3%
 
 
 
 
 
 
 
 
 
 
 
Others
 
59

 
Yield
 
10.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
707

 
CPR
 
3.5
%
-
13.0%
 
9.3%
 
 
CDR
 
1.6
%
-
22.2%
 
4.3%
 
 
Loss severity
 
55.0
%
-
100.0%
 
78.4%
 
 
Yield
 
3.6
%
-
14.9%
 
6.5%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
58

 
Implied Yield
 
4.8
%
-
5.5%
 
5.1%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(302
)
 
Year 1 loss estimates
 
0.0
%
-
59.0%
 
3.4%
 
 
Hedge cost (in bps)
 
20.3

-
142.5
 
54.0
 
 
Bank profit (in bps)
 
3.8

-
825.0
 
102.9
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
24.9
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(768
)
 
CPR
 
3.5
%
-
13.0%
 
9.3%
 
 
CDR
 
1.6
%
-
22.2%
 
4.3%
 
 
Loss severity
 
55.0
%
-
100.0%
 
78.4%
 
 
Yield
 
3.1
%
-
14.9%
 
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 $7 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 September 30, 2017

Financial Instrument Description (1)
 
Fair Value at
September 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
 
$
82

 
Yield
 
4.3
%
-
39.0%
 
15.9%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
66

 
Yield
 
20.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
346

 
CPR
 
1.2
%
-
17.4%
 
6.0%
 
 
CDR
 
2.0
%
-
8.5%
 
6.1%
 
 
Loss severity
 
40.0
%
-
100.0%
 
78.5%
 
 
Yield
 
3.8
%
-
9.0%
 
5.7%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
609

 
Yield
 
6.1
%
-
6.4%
 
6.3%
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations (CLO) /TruPS
 
104

 
Yield
 
2.5
%
-
4.5%
 
3.3%
 
 
 
 
 
 
 
 
 
 
 
Others
 
59

 
Yield
 
10.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
707

 
CPR
 
3.5
%
-
13.0%
 
9.3%
 
 
CDR
 
1.6
%
-
22.2%
 
4.3%
 
 
Loss severity
 
55.0
%
-
100.0%
 
78.4%
 
 
Yield
 
3.6
%
-
14.9%
 
6.5%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
58

 
Implied Yield
 
4.8
%
-
5.5%
 
5.1%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(302
)
 
Year 1 loss estimates
 
0.0
%
-
59.0%
 
3.4%
 
 
Hedge cost (in bps)
 
20.3

-
142.5
 
54.0
 
 
Bank profit (in bps)
 
3.8

-
825.0
 
102.9
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
24.9
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(768
)
 
CPR
 
3.5
%
-
13.0%
 
9.3%
 
 
CDR
 
1.6
%
-
22.2%
 
4.3%
 
 
Loss severity
 
55.0
%
-
100.0%
 
78.4%
 
 
Yield
 
3.1
%
-
14.9%
 
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 $7 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
September 30, 2017
 
As of
December 31, 2016
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(in millions)
Assets:
 

 
 

 
 

 
 

Fixed-maturity securities
$
10,546

 
$
10,546

 
$
10,233

 
$
10,233

Short-term investments
949

 
949

 
590

 
590

Other invested assets
62

 
64

 
146

 
147

Credit derivative assets
3

 
3

 
13

 
13

FG VIEs’ assets, at fair value
707

 
707

 
876

 
876

Other assets
291

 
291

 
205

 
205

Liabilities:
 

 
 

 
 

 
 

Financial guaranty insurance contracts (1)
3,402

 
8,311

 
3,483

 
8,738

Long-term debt
1,292

 
1,636

 
1,306

 
1,546

Credit derivative liabilities
305

 
305

 
402

 
402

FG VIEs’ liabilities with recourse, at fair value
657

 
657

 
807

 
807

FG VIEs’ liabilities without recourse, at fair value
111

 
111

 
151

 
151

Other liabilities
220

 
220

 
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.