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Fair Value Measurement (Tables)

3 Months Ended

Mar. 31, 2021

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 March 31, 2021


			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	$	3,916	$	—	$	3,813	$	103
U.S. government and agencies	144		—		144		—
Corporate securities	2,572		—		2,544		28
Mortgage-backed securities:
RMBS	530		—		284		246
CMBS	374		—		374		—
Asset-backed securities	981		—		40		941
Non-U.S. government securities	170		—		170		—
Total fixed-maturity securities	8,687		—		7,369		1,318
Short-term investments	701		695		6		—
Other invested assets (1)	13		6		—		7
FG VIEs’ assets	281		—		—		281
Assets of CIVs (2):
Fund investments
Equity securities	1		—		—		1
Structured products	50		—		50		—
Obligations of state and political subdivisions	94		—		94		—
Other	1		—		1		—
CLOs and CLO warehouse assets
Loans	2,303		—		2,303		—
Short-term investments	136		136		—		—
Total assets of CIVs	2,585		136		2,448		1
Other assets	134		47		50		37
Total assets carried at fair value	$	12,401	$	884	$	9,873	$	1,644
Liabilities:
Credit derivative liabilities	$	124	$	—	$	—	$	124
FG VIEs’ liabilities with recourse	301		—		—		301
FG VIEs’ liabilities without recourse	17		—		—		17
Liabilities of CIVs:
CLO obligations of CFE	1,973		—		—		1,973
Warehouse financing debt	68		—		68		—
Securities sold short	55		—		55		—
Total liabilities of CIVs	2,096		—		123		1,973
Total liabilities carried at fair value	$	2,538	$	—	$	123	$	2,415

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of December 31, 2020


			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	$	3,991	$	—	$	3,890	$	101
U.S. government and agencies	162		—		162		—
Corporate securities	2,513		—		2,483		30
Mortgage-backed securities:
RMBS	566		—		311		255
CMBS	387		—		387		—
Asset-backed securities	981		—		41		940
Non-U.S. government securities	173		—		173		—
Total fixed-maturity securities	8,773		—		7,447		1,326
Short-term investments	851		786		65		—
Other invested assets (1)	15		10		—		5
FG VIEs’ assets	296		—		—		296
Assets of CIVs (2):
Fund investments
Corporate securities	9		—		9		—
Equity securities and warrants	10		—		8		2
Structured products	39		—		39		—
Obligations of state and political subdivisions	61		—		61		—
CLOs and CLO warehouse assets
Loans	1,461		—		1,461		—
Short-term investments	139		139		—		—
Total assets of CIVs	1,719		139		1,578		2
Other assets	145		42		48		55
Total assets carried at fair value	$	11,799	$	977	$	9,138	$	1,684
Liabilities:
Credit derivative liabilities	$	103	$	—	$	—	$	103
FG VIEs’ liabilities with recourse	316		—		—		316
FG VIEs’ liabilities without recourse	17		—		—		17
Liabilities of CIVs
CLO obligations of CFE	1,227		—		—		1,227
Warehouse financing debt	25		—		25		—
Securities sold short	47		—		47		—
Total liabilities of CIVs	1,299		—		72		1,227
Other liabilities	1		—		1		—
Total liabilities carried at fair value	$	1,736	$	—	$	73	$	1,663

____________________

(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis. Excludes $79 million and $91 million of equity method investments measured at NAV as a practical expedient as of March 31, 2021 and December 31, 2020, respectively.

(2) Excludes $9 million and $8 million of equity investments measured at NAV as of March 31, 2021 and December 31, 2020, respectively.

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 First Quarter 2021 and First Quarter 2020.

Rollforward of Level 3 Assets

At Fair Value on a Recurring Basis

First Quarter 2021


	Fixed-Maturity Securities
	Obligations of State and Political Subdivisions			Corporate Securities			RMBS			Asset- Backed Securities			FG VIEs’ Assets			Assets of CIVs - Equity Securities			Other (7)
	(in millions)
Fair value as of December 31, 2020	$	101		$	30		$	255		$	940		$	296		$	2		$	54
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1)	2		(1)	2		(1)	6		(1)	(1)		(2)	2		(4)	(18)		(3)
Other comprehensive income (loss)	2			(4)			—			5			—			—			1
Purchases	—			—			—			94			—			8			—
Sales	—			—			—			(42)			—			(11)			—
Settlements	(1)			—			(11)			(62)			(14)			—			—
Fair value as of March 31, 2021	$	103		$	28		$	246		$	941		$	281		$	1		$	37
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2021													$	—		$	3	(4)	$	(19)	(3)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of March 31, 2021	$	2		$	(4)		$	—		$	5								1

Rollforward of Level 3 Liabilities

At Fair Value on a Recurring Basis

First Quarter 2021


				FG VIEs’ Liabilities
	Credit Derivative Asset (Liability), net (5)			With Recourse			Without Recourse			Liabilities of CIVs
	(in millions)
Fair value as of December 31, 2020	$	(100)		$	(316)		$	(17)		$	(1,227)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	(19)		(6)	4		(2)	(1)		(2)	6		(4)
Other comprehensive income (loss)	—			(1)			—			—
Issuances	—			—			—			(752)
Settlements	(1)			12			1			—
Fair value as of March 31, 2021	$	(120)		$	(301)		$	(17)		$	(1,973)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2021	$	(20)	(6)	$	5	(2)	$	—		$	6	(4)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of March 31, 2021				$	(1)

Rollforward of Level 3 Assets and Liabilities

At Fair Value on a Recurring Basis

First Quarter 2020


	Fixed-Maturity Securities															Assets of CIVs
	Obligations of State and Political Subdivisions			Corporate Securities			RMBS			Asset- Backed Securities			FG VIEs’ Assets			Corporate Securities			Equity Securities and Warrants			Structured Products		Other (7)
	(in millions)
Fair value as of December 31, 2019	$	107		$	41		$	308		$	658		$	442		$	47		$	17		$	—	$	55
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1)	(7)		(1)	3		(1)	7		(1)	(37)		(2)	5		(4)	(4)		(4)	—		48		(3)
Other comprehensive income (loss)	(21)			(8)			(47)			(59)			—			—			—			—		—
Purchases	—			—			—			—			—			—			33			12		—
Sales	—			—			—			(2)			—			—			—			—		—
Settlements	(1)			—			(11)			(7)			(37)			—			(14)			—		—
Transfers out of Level 3	—			—			—			(1)			—			—			—			—		—
Fair value as of March 31, 2020	$	86		$	26		$	253		$	596		$	368		$	52		$	32		$	12	$	103
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2020													$	(35)	(2)	$	5	(4)	$	(4)	(4)	$	—	$	48	(3)
Change in unrealized gains/(losses) included in OCI related to financial instruments held at March 31, 2020	$	(21)		$	(8)		$	(46)		$	(58)

Rollforward of Level 3 Liabilities

At Fair Value on a Recurring Basis

First Quarter 2020


				FG VIEs’ Liabilities
	Credit Derivative Asset (Liability), net (5)			With Recourse			Without Recourse			Liabilities of CIVs
	(in millions)
Fair value as of December 31, 2019	$	(185)		$	(367)		$	(102)		$	(481)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	(77)		(6)	16		(2)	11		(2)	55		(4)
Other comprehensive income (loss)	—			13			—			—
Settlements	—			26			9			—
Fair value as of March 31, 2020	$	(262)		$	(312)		$	(82)		$	(426)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2020	$	(73)	(6)	$	15	(2)	$	11	(2)	$	55	(4)
Change in unrealized gains/(losses) included in OCI related to financial instruments held at March 31, 2020				$	13

____________________

(1)Included in net realized investment gains (losses) and net investment income.

(2)Included in fair value gains (losses) on FG VIEs.

(3)Recorded in fair value gains (losses) on CCS, net investment income and other income.

(4)Recorded in fair value gains (losses) on consolidated investment vehicles.

(5)Represents the net position of credit derivatives. Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheet based on net exposure by transaction.

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

(7)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 First Quarter 2021 and First Quarter 2020.

Rollforward of Level 3 Assets

At Fair Value on a Recurring Basis

First Quarter 2021


	Fixed-Maturity Securities
	Obligations of State and Political Subdivisions			Corporate Securities			RMBS			Asset- Backed Securities			FG VIEs’ Assets			Assets of CIVs - Equity Securities			Other (7)
	(in millions)
Fair value as of December 31, 2020	$	101		$	30		$	255		$	940		$	296		$	2		$	54
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1)	2		(1)	2		(1)	6		(1)	(1)		(2)	2		(4)	(18)		(3)
Other comprehensive income (loss)	2			(4)			—			5			—			—			1
Purchases	—			—			—			94			—			8			—
Sales	—			—			—			(42)			—			(11)			—
Settlements	(1)			—			(11)			(62)			(14)			—			—
Fair value as of March 31, 2021	$	103		$	28		$	246		$	941		$	281		$	1		$	37
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2021													$	—		$	3	(4)	$	(19)	(3)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of March 31, 2021	$	2		$	(4)		$	—		$	5								1

Rollforward of Level 3 Liabilities

At Fair Value on a Recurring Basis

First Quarter 2021


				FG VIEs’ Liabilities
	Credit Derivative Asset (Liability), net (5)			With Recourse			Without Recourse			Liabilities of CIVs
	(in millions)
Fair value as of December 31, 2020	$	(100)		$	(316)		$	(17)		$	(1,227)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	(19)		(6)	4		(2)	(1)		(2)	6		(4)
Other comprehensive income (loss)	—			(1)			—			—
Issuances	—			—			—			(752)
Settlements	(1)			12			1			—
Fair value as of March 31, 2021	$	(120)		$	(301)		$	(17)		$	(1,973)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2021	$	(20)	(6)	$	5	(2)	$	—		$	6	(4)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of March 31, 2021				$	(1)

Rollforward of Level 3 Assets and Liabilities

At Fair Value on a Recurring Basis

First Quarter 2020


	Fixed-Maturity Securities															Assets of CIVs
	Obligations of State and Political Subdivisions			Corporate Securities			RMBS			Asset- Backed Securities			FG VIEs’ Assets			Corporate Securities			Equity Securities and Warrants			Structured Products		Other (7)
	(in millions)
Fair value as of December 31, 2019	$	107		$	41		$	308		$	658		$	442		$	47		$	17		$	—	$	55
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1)	(7)		(1)	3		(1)	7		(1)	(37)		(2)	5		(4)	(4)		(4)	—		48		(3)
Other comprehensive income (loss)	(21)			(8)			(47)			(59)			—			—			—			—		—
Purchases	—			—			—			—			—			—			33			12		—
Sales	—			—			—			(2)			—			—			—			—		—
Settlements	(1)			—			(11)			(7)			(37)			—			(14)			—		—
Transfers out of Level 3	—			—			—			(1)			—			—			—			—		—
Fair value as of March 31, 2020	$	86		$	26		$	253		$	596		$	368		$	52		$	32		$	12	$	103
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2020													$	(35)	(2)	$	5	(4)	$	(4)	(4)	$	—	$	48	(3)
Change in unrealized gains/(losses) included in OCI related to financial instruments held at March 31, 2020	$	(21)		$	(8)		$	(46)		$	(58)

Rollforward of Level 3 Liabilities

At Fair Value on a Recurring Basis

First Quarter 2020


				FG VIEs’ Liabilities
	Credit Derivative Asset (Liability), net (5)			With Recourse			Without Recourse			Liabilities of CIVs
	(in millions)
Fair value as of December 31, 2019	$	(185)		$	(367)		$	(102)		$	(481)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	(77)		(6)	16		(2)	11		(2)	55		(4)
Other comprehensive income (loss)	—			13			—			—
Settlements	—			26			9			—
Fair value as of March 31, 2020	$	(262)		$	(312)		$	(82)		$	(426)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2020	$	(73)	(6)	$	15	(2)	$	11	(2)	$	55	(4)
Change in unrealized gains/(losses) included in OCI related to financial instruments held at March 31, 2020				$	13

____________________

(1)Included in net realized investment gains (losses) and net investment income.

(2)Included in fair value gains (losses) on FG VIEs.

(3)Recorded in fair value gains (losses) on CCS, net investment income and other income.

(4)Recorded in fair value gains (losses) on consolidated investment vehicles.

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

(7)Includes CCS and other invested assets.

Schedule of Quantitative Information About Level 3 Liabilities, Fair Value Measurements

Quantitative Information About Level 3 Fair Value Inputs

At March 31, 2021


Financial Instrument Description	Fair Value at March 31, 2021 (in millions)		Significant Unobservable Inputs	Range				Weighted Average (4)
Assets (2):
Fixed-maturity securities (1):
Obligations of state and political subdivisions	$	103	Yield	4.4	%	-	35.6%	6.9%

Corporate security	28		Yield	32.2%

RMBS	246		CPR	0.0	%	-	30.0%	7.4%
			CDR	1.5	%	-	8.9%	5.6%
			Loss severity	50.0	%	-	125.0%	83.8%
			Yield	3.5	%	-	6.4%	5.0%
Asset-backed securities:
Life insurance transactions	373		Yield	5.4%

CLOs	525		Discount Margin	0.7	%	-	3.0%	1.8%

Others	43		Yield	3.1	%	-	8.3%	8.2%

FG VIEs’ assets (1)	281		CPR	0.9	%	-	19.2%	10.3%
			CDR	1.2	%	-	28.1%	6.1%
			Loss severity	45.0	%	-	100.0%	81.6%
			Yield	1.6	%	-	6.7%	5.3%

Assets of CIVs (3):
Equity securities	1		Yield	14.4%

Other assets (1)	33		Implied Yield	3.0	%	-	3.6%	3.3%
			Term (years)	10 years


Financial Instrument Description (1)	Fair Value at March 31, 2021 (in millions)		Significant Unobservable Inputs	Range				Weighted Average (4)
Liabilities:

Credit derivative liabilities, net	$	(120)	Year 1 loss estimates	0.0	%	-	79.1%	1.5%
			Hedge cost (in bps)	13.5		-	72.6	22.7
			Bank profit (in bps)	0.0		-	291.7	83.6
			Internal floor (in bps)	8.8
			Internal credit rating	AAA		-	CCC	AA-

FG VIEs’ liabilities	(318)		CPR	0.9	%	-	19.2%	10.3%
			CDR	1.2	%	-	28.1%	6.1%
			Loss severity	45.0	%	-	100.0%	81.6%
			Yield	1.6	%	-	5.9%	4.1%

Liabilities of CIVs:
CLO obligations of CFE (5)	(1,973)		Yield	1.6	%	-	16.3%	2.3%

___________________

(1) Discounted cash flow is used as the primary valuation technique.

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

(3) The primary inputs to the valuation are recent market transaction prices, supported by yield/discount rates.

(4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, where it is calculated as a percentage of fair value.

(5) See CFE fair value methodology described above for consolidated CLOs.

Quantitative Information About Level 3 Fair Value Inputs

At December 31, 2020


Financial Instrument Description	Fair Value at December 31, 2020 (in millions)		Significant Unobservable Inputs	Range				Weighted Average (4)
Assets (2):
Fixed-maturity securities (1):
Obligations of state and political subdivisions	$	101	Yield	6.4	%	-	33.4%	12.8%

Corporate security	30		Yield	42.0%

RMBS	255		CPR	0.4	%	-	30.0%	7.1%
			CDR	1.5	%	-	9.9%	6.0%
			Loss severity	45.0	%	-	125.0%	83.6%
			Yield	3.7	%	-	5.9%	4.5%
Asset-backed securities:
Life insurance transactions	367		Yield	5.2%

CLOs	532		Discount Margin	0.1	%	-	3.1%	1.9%

Others	41		Yield	2.6	%	-	9.0%	9.0%

FG VIEs’ assets (1)	296		CPR	0.9	%	-	19.0%	9.4%
			CDR	1.9	%	-	26.6%	6.0%
			Loss severity	45.0	%	-	100.0%	81.5%
			Yield	1.9	%	-	6.0%	4.8%

Assets of CIVs (3):
Equity securities and warrants	2		Yield	9.7%

Other assets (1)	52		Implied Yield	3.4	%	-	4.2%	3.8%
			Term (years)	10 years


Financial Instrument Description (1)	Fair Value at December 31, 2020 (in millions)		Significant Unobservable Inputs	Range				Weighted Average (4)
Liabilities:

Credit derivative liabilities, net	$	(100)	Year 1 loss estimates	0.0	%	-	85.0%	1.9%
			Hedge cost (in bps)	19.0		-	99.0	32.0
			Bank profit (in bps)	47.0		-	329.0	93.0
			Internal floor (in bps)	15.0		-	30.0	21.0
			Internal credit rating	AAA		-	CCC	AA-

FG VIEs’ liabilities	(333)		CPR	0.9	%	-	19.0%	9.4%
			CDR	1.9	%	-	26.6%	6.0%
			Loss severity	45.0	%	-	100.0%	81.5%
			Yield	1.9	%	-	6.2%	3.8%

Liabilities of CIVs:
CLO obligations of CFE (5)	(1,227)		Yield	2.2	%	-	15.2%	2.5%

____________________

(1) Discounted cash flow is used as the primary valuation technique.

(2) Excludes several investments recorded in other invested assets with a fair value of $5 million.

(3) The primary inputs to the valuation are recent market transaction prices, supported by market multiples and yield/discount rates.

(4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, where it is calculated as a percentage of fair value.

(5) See CFE fair value methodology described above for consolidated CLOs.

Fair Value Disclosure of Asset and Liability Not Measured at Fair Value

Fair Value of Financial Instruments Not Carried at Fair Value


	As of March 31, 2021				As of December 31, 2020
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in millions)
Assets (liabilities):
Other invested assets	$	—	$	—	$	1	$	3
Other assets (1)	87		87		83		83
Financial guaranty insurance contracts (2)	(2,427)		(2,567)		(2,464)		(3,882)
Long-term debt	(1,225)		(1,539)		(1,224)		(1,561)
Other liabilities (1)	(69)		(69)		(27)		(27)
Assets (liabilities) of CIVs:
Due from brokers and counterparties	112		112		52		52
Due to brokers and counterparties	(477)		(477)		(290)		(290)

____________________

(1) The Company's other assets and other liabilities consist of: accrued interest, repurchase agreement liability, management fees receivables, promissory note receivable, receivables for securities sold and payables for securities purchased, for which the carrying value approximates fair value. Includes a $19 million repurchase agreement liability entered into during First Quarter 2021.

(2) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

+ References + Details