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Fair Value Measurement (Tables)
 6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Information by Credit Spread Type
Information by Credit Spread Type (1)
 
 
As of
June 30, 2018
 
As of
December 31, 2017
Based on actual collateral specific spreads
20
%
 
14
%
Based on market indices
34
%
 
48
%
Provided by the CDS counterparty
46
%
 
38
%
Total
100
%
 
100
%
 ____________________
(1)    Based on par.
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, 2018
 
 
 
 
Fair Value Hierarchy
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Assets:
 

 
 

 
 

 
 

Investment portfolio, available-for-sale(1):
 

 
 

 
 

 
 

Fixed-maturity securities
 

 
 

 
 

 
 

Obligations of state and political subdivisions
$
5,289

 
$
—

 
$
5,197

 
$
92

U.S. government and agencies
283

 
—

 
283

 
—

Corporate securities
1,983

 
—

 
1,920

 
63

Mortgage-backed securities:
 

 
 
 
 
 
 
RMBS
844

 
—

 
533

 
311

Commercial mortgage-backed securities (CMBS)
546

 
—

 
546

 
—

Asset-backed securities
968

 
—

 
71

 
897

Non-U.S. government securities
312

 
—

 
312

 
—

Total fixed-maturity securities
10,225


—

 
8,862

 
1,363

Short-term investments
911

 
549

 
362

 
—

Other invested assets (2)
7

 
—

 
0

 
7

FG VIEs’ assets, at fair value (3)
627

 
—

 
—

 
627

Other assets(3)
124

 
25

 
40

 
59

Total assets carried at fair value
$
11,894

 
$
574

 
$
9,264

 
$
2,056

Liabilities:
 

 
 
 
 
 
 
Credit derivative liabilities (3)
$
258

 
$
—

 
$
—

 
$
258

FG VIEs’ liabilities with recourse, at fair value (4)
571

 
—

 
—

 
571

FG VIEs’ liabilities without recourse, at fair value (3)
108

 
—

 
—

 
108

Total liabilities carried at fair value
$
937

 
$
—

 
$
—

 
$
937

 
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(1):
 

 
 

 
 

 
 

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

CMBS
549

 
—

 
549

 
—

Asset-backed securities
896

 
—

 
109

 
787

Non-U.S. government securities
305

 
—

 
305

 
—

Total fixed-maturity securities
10,674

 
—

 
9,410

 
1,264

Short-term investments
627

 
464

 
162

 
1

Other invested assets (2)
7

 
—

 
0

 
7

FG VIEs’ assets, at fair value (3)
700

 
—

 
—

 
700

Other assets(3)
123

 
25

 
36

 
62

Total assets carried at fair value
$
12,131

 
$
489

 
$
9,608

 
$
2,034

Liabilities:
 

 
 

 
 

 
 

Credit derivative liabilities (3)
$
271

 
$
—

 
$
—

 
$
271

FG VIEs’ liabilities with recourse, at fair value (3)
627

 
—

 
—

 
627

FG VIEs’ liabilities without recourse, at fair value (3)
130

 
—

 
—

 
130

Total liabilities carried at fair value
$
1,028

 
$
—

 
$
—

 
$
1,028

____________________
(1)    Change in fair value is included in OCI.

(2)
Excludes investments of $41 million and $45 million as of June 30, 2018 and December 31, 2017, respectively, measured using NAV per share with fair value recorded in the condensed consolidated statements of operations. Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.

(3)    Change in fair value is included in net income.

(4)
Change in fair value attributable to ISCR is recorded in OCI with the remainder of the change in fair value recorded in net income.
Fair Value Assets 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 Second Quarter 2018 and 2017 and Six Months 2018 and 2017. 

Fair Value Level 3 Rollforward
Recurring Basis
Second Quarter 2018

 
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
March 31, 2018
$
83

 
$
62

 
$
314

 
$
809

 
$
651

 
$
62

 
$
(236
)
 
$
(598
)
 
$
(110
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
1

(2
)
6

(2
)
14

(2
)
3

(3
)
(1
)
(4
)
48

(6
)
(4
)
(3
)
1

(3
)
Other comprehensive income (loss)
8

 
0

 
(3
)
 
6

 

—

 

0

 

—

 

4

 

—

 

Purchases
—

 
—

 
9

 
91

 

—

 

—

 

—

 

—

 

—

 

Issuances
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
(9
)
—

 
—

 
Settlements
—

 
—

 
(15
)
 
(23
)
 
(27
)
 
—

 

(1
)
 

27

 

1

 

Fair value as of
June 30, 2018
$
92

 
$
63

 
$
311

 
$
897

 

$
627

 

$
61

 

$
(257
)
 
$
(571
)
 
$
(108
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018
$
8

 
$
0

 
$
(2
)
 
$
6

 
$
6

(3
)
$
(1
)
(4
)
$
46

(6
)
$
2

(3
)
$
1

(3
)

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
(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, 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

(3
)
$
2

(4
)
$
(13
)
(6
)
$
(2
)
(3
)
$
(1
)
(3
)

Fair Value Level 3 Rollforward
Recurring Basis
Six Months 2018

 
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, 2017
$
76

 
$
67

 
$
334

 
$
787

 
$
700

 
$
64

 
$
(269
)
 
$
(627
)
 
$
(130
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
2

(2
)
(4
)
(2
)
13

(2
)
29

(2
)
4

(3
)
(2
)
(4
)
82

(6
)
(4
)
(3
)
2

(3
)
Other comprehensive income (loss)
11

 
0

 
(10
)
 
9

 

—

 

0

 

—

 

2

 

—

 

Purchases
4

 
—

 
9

 
100

 

—

 

—

 

—

 

—

 

—

 

Issuances
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
(9
)
—

 
—

 
Settlements
(1
)
 
—

 
(35
)
 
(28
)
 
(60
)
 
(1
)
 

(2
)
 

57

 

4

 

FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
1

 
16

 
Fair value as of
June 30, 2018
92

 
63

 
311

 
897

 
627

 
61

 
(257
)
 
(571
)
 
(108
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018
11

 
0

 
(8
)
 
10

 
10

(3
)
(2
)
(4
)
73

(6
)
(1
)
(3
)
1

(3
)
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
(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, 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

(3
)
$
0

(4
)
$
12

(6
)
$
(9
)
(3
)
$
(3
)
(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 net investment income and other income.

(5)
Represents net position of credit derivatives. The condensed consolidated balance sheet presents gross assets, included in other assets, and liabilities based on net counterparty exposure.

(6)
Reported in net change in fair value of credit derivatives.

(7)
Included short-term investments, CCS and other invested assets.

(8)
Included CCS and other invested assets.

(9)
Relates to SGI Transaction. See Note 2, Assumption of Insured Portfolio and Business Combinations.
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 Second Quarter 2018 and 2017 and Six Months 2018 and 2017. 

Fair Value Level 3 Rollforward
Recurring Basis
Second Quarter 2018

 
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
March 31, 2018
$
83

 
$
62

 
$
314

 
$
809

 
$
651

 
$
62

 
$
(236
)
 
$
(598
)
 
$
(110
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
1

(2
)
6

(2
)
14

(2
)
3

(3
)
(1
)
(4
)
48

(6
)
(4
)
(3
)
1

(3
)
Other comprehensive income (loss)
8

 
0

 
(3
)
 
6

 

—

 

0

 

—

 

4

 

—

 

Purchases
—

 
—

 
9

 
91

 

—

 

—

 

—

 

—

 

—

 

Issuances
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
(9
)
—

 
—

 
Settlements
—

 
—

 
(15
)
 
(23
)
 
(27
)
 
—

 

(1
)
 

27

 

1

 

Fair value as of
June 30, 2018
$
92

 
$
63

 
$
311

 
$
897

 

$
627

 

$
61

 

$
(257
)
 
$
(571
)
 
$
(108
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018
$
8

 
$
0

 
$
(2
)
 
$
6

 
$
6

(3
)
$
(1
)
(4
)
$
46

(6
)
$
2

(3
)
$
1

(3
)

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
(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, 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

(3
)
$
2

(4
)
$
(13
)
(6
)
$
(2
)
(3
)
$
(1
)
(3
)

Fair Value Level 3 Rollforward
Recurring Basis
Six Months 2018

 
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, 2017
$
76

 
$
67

 
$
334

 
$
787

 
$
700

 
$
64

 
$
(269
)
 
$
(627
)
 
$
(130
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
2

(2
)
(4
)
(2
)
13

(2
)
29

(2
)
4

(3
)
(2
)
(4
)
82

(6
)
(4
)
(3
)
2

(3
)
Other comprehensive income (loss)
11

 
0

 
(10
)
 
9

 

—

 

0

 

—

 

2

 

—

 

Purchases
4

 
—

 
9

 
100

 

—

 

—

 

—

 

—

 

—

 

Issuances
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
(9
)
—

 
—

 
Settlements
(1
)
 
—

 
(35
)
 
(28
)
 
(60
)
 
(1
)
 

(2
)
 

57

 

4

 

FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
1

 
16

 
Fair value as of
June 30, 2018
92

 
63

 
311

 
897

 
627

 
61

 
(257
)
 
(571
)
 
(108
)
 
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018
11

 
0

 
(8
)
 
10

 
10

(3
)
(2
)
(4
)
73

(6
)
(1
)
(3
)
1

(3
)
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
(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, 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

(3
)
$
0

(4
)
$
12

(6
)
$
(9
)
(3
)
$
(3
)
(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 net investment income and other income.

(5)
Represents net position of credit derivatives. The condensed consolidated balance sheet presents gross assets, included in other assets, and liabilities based on net counterparty exposure.

(6)
Reported in net change in fair value of credit derivatives.

(7)
Included short-term investments, CCS and other invested assets.

(8)
Included CCS and other invested assets.

(9)
Relates to SGI Transaction. See Note 2, Assumption of Insured Portfolio and Business Combinations.
Schedule of Quantitative Information About Level 3 Liabilities, Fair Value Measurements
 
Quantitative Information About Level 3 Fair Value Inputs
At June 30, 2018

Financial Instrument Description (1)
 
Fair Value at
June 30, 2018
(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
 
$
92

 
Yield
 
4.5
%
-
42.6%
 
11.8%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
63

 
Yield
 
25.2%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
311

 
CPR
 
2.1
%
-
17.8%
 
6.4%
 
 
CDR
 
1.5
%
-
7.1%
 
5.4%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.3%
 
 
Yield
 
5.1
%
-
7.9%
 
6.0%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
643

 
Yield
 
6.5
%
-
6.6%
 
6.6%
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations (CLO) /TruPS
 
199

 
Yield
 
3.2
%
-
4.9%
 
4.0%
 
 
 
 
 
 
 
 
 
 
 
Others
 
55

 
Yield
 
11.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
627

 
CPR
 
1.3
%
-
17.8%
 
9.4%
 
 
CDR
 
1.3
%
-
23.2%
 
5.7%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.8%
 
 
Yield
 
4.1
%
-
10.1%
 
6.7%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
58

 
Implied Yield
 
5.7
%
-
6.3%
 
6.0%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(257
)
 
Year 1 loss estimates
 
0.0
%
-
43.0%
 
2.0%
 
 
Hedge cost (in bps)
 
5.3

-
78.8
 
22.2
 
 
Bank profit (in bps)
 
8.3

-
495.0
 
75.7
 
 
Internal floor (in bps)
 
8.8

-
30.0
 
10.1
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(679
)
 
CPR
 
1.3
%
-
17.8%
 
9.4%
 
 
CDR
 
1.3
%
-
23.2%
 
5.7%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.8%
 
 
Yield
 
3.8
%
-
10.1%
 
5.4%
___________________
(1)
Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2)
Excluded several investments recorded in other invested assets with fair value of $7 million.
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 the primary valuation technique for all financial instruments listed in this table.

(2)
Excluded short-term investments with fair value of $1 million and several investments recorded in other invested assets with fair value of $7 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, 2018
 
As of
December 31, 2017
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(in millions)
Assets:
 

 
 

 
 

 
 

Fixed-maturity securities
$
10,225

 
$
10,225

 
$
10,674

 
$
10,674

Short-term investments
911

 
911

 
627

 
627

Other invested assets
53

 
54

 
60

 
61

FG VIEs’ assets, at fair value
627

 
627

 
700

 
700

Other assets
246

 
246

 
220

 
220

Liabilities:
 

 
 

 
 

 
 

Financial guaranty insurance contracts (1)
3,533

 
6,836

 
3,330

 
7,104

Long-term debt
1,264

 
1,570

 
1,292

 
1,627

Credit derivative liabilities
258

 
258

 
271

 
271

FG VIEs’ liabilities with recourse, at fair value
571

 
571

 
627

 
627

FG VIEs’ liabilities without recourse, at fair value
108

 
108

 
130

 
130

Other liabilities
83

 
83

 
55

 
55

____________________
(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.