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Fair Value Measurement (Tables)
 12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
Information by Credit Spread Type
Information by Credit Spread Type (1)
 
 
As of
December 31, 2017
 
As of
December 31, 2016
Based on actual collateral specific spreads
14
%
 
7
%
Based on market indices
48
%
 
77
%
Provided by the CDS counterparty
38
%
 
16
%
Total
100
%
 
100
%
 ____________________
(1)    Based on par.
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of December 31, 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
$
5,760

 
$
—

 
$
5,684

 
$
76

U.S. government and agencies
285

 
—

 
285

 
—

Corporate securities
2,018

 
—

 
1,951

 
67

Mortgage-backed securities:
 

 
 
 
 
 
 
RMBS
861

 
—

 
527

 
334

Commercial mortgage-backed securities (CMBS)
549

 
—

 
549

 
—

Asset-backed securities
896

 
—

 
109

 
787

Foreign government securities
305

 
—

 
305

 
—

Total fixed-maturity securities
10,674


—

 
9,410

 
1,264

Short-term investments
627

 
464

 
162

 
1

Other invested assets (1)
7

 
—

 
0

 
7

Credit derivative assets
2

 
—

 
—

 
2

FG VIEs’ assets, at fair value
700

 
—

 
—

 
700

Other assets
121

 
25

 
36

 
60

Total assets carried at fair value
$
12,131

 
$
489

 
$
9,608

 
$
2,034

Liabilities:
 

 
 

 
 

 
 

Credit derivative liabilities
$
271

 
$
—

 
$
—

 
$
271

FG VIEs’ liabilities with recourse, at fair value
627

 
—

 
—

 
627

FG VIEs’ liabilities without recourse, at fair value
130

 
—

 
—

 
130

Total liabilities carried at fair value
$
1,028

 
$
—

 
$
—

 
$
1,028

 
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 investments of $45 million and $48 million as of December 31, 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

Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 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)
(13
)
(2
)
6

(2
)
27

(2
)
113

(2
)
37

(3
)
(2
)
(4
)
107

(6
)
(16
)
(3
)
(6
)
(3
)
Other comprehensive income (loss)
(2
)
 
1

 
23

 
56

 

—

 

0

 

—

 

—

 

—

 
Purchases
—

 
—

 
42

 
173

 

—

 

1

 

—

 

—

 

—

 
Settlements
(2
)
 
—

 
(123
)
 
(367
)
 
(147
)
 
—

 

13

 

145

 

12

 
FG VIE consolidations
—

 
—

 
—

 
—

 

39

 

—

 

—

 

0

 
(39
)
 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
51

 
54

 
Transfers into Level 3
54

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of December 31, 2017
$
76

 
$
67

 
$
334

 
$
787

 

$
700

 

$
64

 

$
(269
)
 
$
(627
)
 
$
(130
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2017
$
(2
)
 
$
1

 
$
23

 
$
123

 
$
59

(3
)
$
(2
)
(4
)
$
96

(6
)
$
(11
)
(3
)
$
(6
)
(3
)



Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 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
(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
)
 
CIFG Acquisition
1

 
—

 
20

 
36

 
0

 
—

 
—

 
(67
)
 
—

 
—

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

 
 
 
 

 
 

 
 
Net income (loss)
2

(2
)
(16
)
(2
)
10

(2
)
51

(2
)
0

(2
)
167

(3
)
0

(4
)
74

(6
)
(125
)
(3
)
(18
)
(3
)
Other comprehensive income (loss)
(4
)
 
5

 
(13
)
 
116

 
0

 
—

 

0

 
—

 

—

 

—

 
Purchases
33

 
—

 
70

 
76

 
—

 
—

 

—

 
—

 

—

 

—

 
Settlements
(1
)
 
—

 
(70
)
 
(139
)
 
(60
)
 
(629
)
 
—

 
(31
)
 

597

 

14

 
FG VIE consolidations
—

 
—

 
—

 
—

 
—

 
97

 

—

 
—

 

(54
)
 
(43
)
 
FG VIE deconsolidations
—

 
—

 
0

 
—

 
—

 
(20
)
 
—

 
—

 
—

 
20

 
Transfers into Level 3
—

 
—

 
—

 
8

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of December 31, 2016
$
39

 
$
60

 
$
365

 
$
805

 
$
—

 
$
876

 

$
65

 
$
(389
)
 

$
(807
)
 
$
(151
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2016
$
(4
)
 
$
5

 
$
(15
)
 
$
116

 
$
—

 
$
93

(3
)
$
0

(4
)
$
(33
)
(6
)
$
(12
)
(3
)
$
(17
)
(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 short-term investments, CCS and other invested assets.

(8)
Includes CCS and other invested assets.
Fair Value, Liabilities Measured on Recurring Basis
The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during the years ended December 31, 2017 and 2016.

Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 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)
(13
)
(2
)
6

(2
)
27

(2
)
113

(2
)
37

(3
)
(2
)
(4
)
107

(6
)
(16
)
(3
)
(6
)
(3
)
Other comprehensive income (loss)
(2
)
 
1

 
23

 
56

 

—

 

0

 

—

 

—

 

—

 
Purchases
—

 
—

 
42

 
173

 

—

 

1

 

—

 

—

 

—

 
Settlements
(2
)
 
—

 
(123
)
 
(367
)
 
(147
)
 
—

 

13

 

145

 

12

 
FG VIE consolidations
—

 
—

 
—

 
—

 

39

 

—

 

—

 

0

 
(39
)
 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
51

 
54

 
Transfers into Level 3
54

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of December 31, 2017
$
76

 
$
67

 
$
334

 
$
787

 

$
700

 

$
64

 

$
(269
)
 
$
(627
)
 
$
(130
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2017
$
(2
)
 
$
1

 
$
23

 
$
123

 
$
59

(3
)
$
(2
)
(4
)
$
96

(6
)
$
(11
)
(3
)
$
(6
)
(3
)



Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 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
(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
)
 
CIFG Acquisition
1

 
—

 
20

 
36

 
0

 
—

 
—

 
(67
)
 
—

 
—

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

 
 
 
 

 
 

 
 
Net income (loss)
2

(2
)
(16
)
(2
)
10

(2
)
51

(2
)
0

(2
)
167

(3
)
0

(4
)
74

(6
)
(125
)
(3
)
(18
)
(3
)
Other comprehensive income (loss)
(4
)
 
5

 
(13
)
 
116

 
0

 
—

 

0

 
—

 

—

 

—

 
Purchases
33

 
—

 
70

 
76

 
—

 
—

 

—

 
—

 

—

 

—

 
Settlements
(1
)
 
—

 
(70
)
 
(139
)
 
(60
)
 
(629
)
 
—

 
(31
)
 

597

 

14

 
FG VIE consolidations
—

 
—

 
—

 
—

 
—

 
97

 

—

 
—

 

(54
)
 
(43
)
 
FG VIE deconsolidations
—

 
—

 
0

 
—

 
—

 
(20
)
 
—

 
—

 
—

 
20

 
Transfers into Level 3
—

 
—

 
—

 
8

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of December 31, 2016
$
39

 
$
60

 
$
365

 
$
805

 
$
—

 
$
876

 

$
65

 
$
(389
)
 

$
(807
)
 
$
(151
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2016
$
(4
)
 
$
5

 
$
(15
)
 
$
116

 
$
—

 
$
93

(3
)
$
0

(4
)
$
(33
)
(6
)
$
(12
)
(3
)
$
(17
)
(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 short-term investments, CCS and other invested assets.

(8)
Includes CCS and other invested assets.
Schedule of Quantitative Information About Level 3 Assets, Fair Value Measurements
uantitative Information About Level 3 Fair Value Inputs
At December 31, 2017 

Financial Instrument Description(1)
 
Fair Value at
December 31, 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
 
$
76

 
Yield
 
4.5
%
-
40.8%
 
12.5%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
67

 
Yield
 
22.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
334

 
CPR
 
1.3
%
-
17.4%
 
6.4%
 
 
CDR
 
1.5
%
-
9.2%
 
5.9%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.5%
 
 
Yield
 
4.0
%
-
7.5%
 
5.6%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
613

 
Yield
 
6.2
%
-
6.4%
 
6.3%
 
 
 
 
 
 
 
 
 
 
 
CLO/TruPS
 
116

 
Yield
 
2.6
%
-
4.6%
 
3.3%
 
 
 
 
 
 
 
 
 
 
 
Others
 
58

 
Yield
 
10.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
700

 
CPR
 
3.0
%
-
14.9%
 
9.5%
 
 
CDR
 
1.3
%
-
21.7%
 
5.4%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.6%
 
 
Yield
 
3.7
%
-
10.0%
 
6.2%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
60

 
Implied Yield
 
5.2
%
-
5.9%
 
5.5%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(269
)
 
Year 1 loss estimates
 
0.0
%
-
42.0%
 
3.3%
 
 
Hedge cost (in bps)
 
17.6

-
122.6
 
48.1
 
 
Bank profit (in bps)
 
6.0

-
852.5
 
107.5
 
 
Internal floor (in bps)
 
8.0

-
30.0
 
21.8
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(757
)
 
CPR
 
3.0
%
-
14.9%
 
9.5%
 
 
CDR
 
1.3
%
-
21.7%
 
5.4%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.6%
 
 
Yield
 
3.4
%
-
10.0%
 
4.9%
____________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.

(2)
Excludes short-term investments with fair value of $1 million and 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 December 31, 2017 

Financial Instrument Description(1)
 
Fair Value at
December 31, 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
 
$
76

 
Yield
 
4.5
%
-
40.8%
 
12.5%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
67

 
Yield
 
22.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
334

 
CPR
 
1.3
%
-
17.4%
 
6.4%
 
 
CDR
 
1.5
%
-
9.2%
 
5.9%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.5%
 
 
Yield
 
4.0
%
-
7.5%
 
5.6%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
613

 
Yield
 
6.2
%
-
6.4%
 
6.3%
 
 
 
 
 
 
 
 
 
 
 
CLO/TruPS
 
116

 
Yield
 
2.6
%
-
4.6%
 
3.3%
 
 
 
 
 
 
 
 
 
 
 
Others
 
58

 
Yield
 
10.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
700

 
CPR
 
3.0
%
-
14.9%
 
9.5%
 
 
CDR
 
1.3
%
-
21.7%
 
5.4%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.6%
 
 
Yield
 
3.7
%
-
10.0%
 
6.2%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
60

 
Implied Yield
 
5.2
%
-
5.9%
 
5.5%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(269
)
 
Year 1 loss estimates
 
0.0
%
-
42.0%
 
3.3%
 
 
Hedge cost (in bps)
 
17.6

-
122.6
 
48.1
 
 
Bank profit (in bps)
 
6.0

-
852.5
 
107.5
 
 
Internal floor (in bps)
 
8.0

-
30.0
 
21.8
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(757
)
 
CPR
 
3.0
%
-
14.9%
 
9.5%
 
 
CDR
 
1.3
%
-
21.7%
 
5.4%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.6%
 
 
Yield
 
3.4
%
-
10.0%
 
4.9%
____________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.

(2)
Excludes short-term investments with fair value of $1 million and 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
December 31, 2017
 
As of
December 31, 2016
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(in millions)
Assets:
 

 
 

 
 

 
 

Fixed-maturity securities
$
10,674

 
$
10,674

 
$
10,233

 
$
10,233

Short-term investments
627

 
627

 
590

 
590

Other invested assets
60

 
61

 
146

 
147

Credit derivative assets
2

 
2

 
13

 
13

FG VIEs’ assets, at fair value
700

 
700

 
876

 
876

Other assets
218

 
218

 
205

 
205

Liabilities:
 

 
 

 
 

 
 

Financial guaranty insurance contracts (1)
3,330

 
7,104

 
3,483

 
8,738

Long-term debt
1,292

 
1,627

 
1,306

 
1,546

Credit derivative liabilities
271

 
271

 
402

 
402

FG VIEs’ liabilities with recourse, at fair value
627

 
627

 
807

 
807

FG VIEs’ liabilities without recourse, at fair value
130

 
130

 
151

 
151

Other liabilities
55

 
55

 
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.