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Contracts Accounted for as Credit Derivatives (Tables)

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Credit Derivatives Subordination and Ratings and Net Par Outstanding by Internal Rating

The components of the Company’s credit derivative net par outstanding by sector are presented in the table below. The estimated remaining weighted average life of credit derivatives was 12.7 years and 11.9 years as of September 30, 2021 and December 31, 2020, respectively.

Credit Derivatives (1)


	As of September 30, 2021				As of December 31, 2020
Sector	Net Par Outstanding		Net Fair Value Asset (Liability)		Net Par Outstanding		Net Fair Value Asset (Liability)
	(in millions)
U.S. public finance	$	1,766	$	(60)	$	1,980	$	(38)
Non-U.S. public finance	1,953		(40)		2,257		(27)
U.S. structured finance	432		(32)		997		(30)
Non-U.S. structured finance	135		(2)		137		(5)
Total	$	4,286	$	(134)	$	5,371	$	(100)

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(1) Expected loss to be paid was $6 million as of September 30, 2021 and expected recoveries were $1 million as of December 31, 2020.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating


	As of September 30, 2021				As of December 31, 2020
Rating Category	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total
	(dollars in millions)
AAA	$	1,513	35.3	%	$	1,796	33.5	%
AA	1,323		30.9		1,541		28.7
A	544		12.7		758		14.1
BBB	844		19.7		1,156		21.5
BIG	62		1.4		120		2.2
Credit derivative net par outstanding	$	4,286	100.0	%	$	5,371	100.0	%

Net Change in Fair Value of Credit Derivatives

Fair Value Gains (Losses) on Credit Derivatives


	Third Quarter				Nine Months
	2021		2020		2021		2020
	(in millions)
Realized gains on credit derivatives	$	2	$	1	$	5	$	4
Net credit derivative losses (paid and payable) recovered and recoverable and other settlements	(1)		(6)		(1)		(9)
Realized gains (losses) and other settlements	1		(5)		4		(5)
Net unrealized gains (losses)	20		2		(35)		25
Fair value gains (losses) on credit derivatives	$	21	$	(3)	$	(31)	$	20

CDS Spread on AGC and AGM

CDS Spread on AGC (in basis points)


	As of September 30, 2021	As of June 30, 2021	As of December 31, 2020	As of September 30, 2020	As of June 30, 2020	As of December 31, 2019
Five-year CDS spread	61	62	132	140	159	41
One-year CDS spread	20	16	36	27	32	9

Fair Value of Credit Derivatives and Effect of AGC and AGM Credit Spreads

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC Credit Spread


	As of
	September 30, 2021		December 31, 2020
	(in millions)
Fair value of credit derivatives before effect of AGC credit spread	$	(224)	$	(313)
Plus: Effect of AGC credit spread	90		213
Net fair value of credit derivatives	$	(134)	$	(100)

- Definition

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

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