Derivative Instruments

9 Months Ended

Sep. 30, 2023

Note 8: Derivative Instruments

The Company has primarily entered into derivative instruments consisting of interest rate swaps to manage the risks associated with fluctuations in interest rates affecting the value of certain assets in the corporate segment. Additionally, the Company has insured interest rate swaps and inflation-linked swaps related to its insured debt issuances in the U.S. public finance insurance and the international and structured finance insurance segments. These derivatives do not qualify for the financial guarantee scope exception and are accounted for as derivative instruments. The Company’s international and structured finance insurance segment consolidated a VIE which is party to a cross currency swap, entered into to manage the variability in cash flows resulting from fluctuations in foreign currency rates.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Derivative Instruments (continued)

Credit Derivatives Sold

The following tables present information about credit derivatives sold by the Company’s insurance operations that were outstanding as of September 30, 2023 and December 31, 2022. Credit ratings represent the lower of underlying ratings assigned to the collateral by Moody’s Investor Services (“Moody’s”), Standard& Poor’s Financial Services, LLC (“S&P”) or MBIA.


$ in millions	As of September 30, 2023
		Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity	AAA		AA		A		BBB		Below Investment Grade			Total Notional		Fair Value Asset (Liability)
Insured swaps	13.5 Years	$	-	$	43	$	970	$	210	$	60		$	1,283	$	(1	)
Total fair value		$	-	$	-	$	-	$	-	$	(1	)			$	(1	)


$ in millions	As of December 31, 2022
		Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity	AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured swaps	13.7 Years	$	-	$	50	$	1,013	$	227	$	60	$	1,350	$	-
Total fair value		$	-	$	-	$	-	$	-	$	-			$	-

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Derivative Instruments (continued)

Internal credit ratings assigned by MBIA on the underlying credit exposures are assigned by the Company’s surveillance group. In assigning an internal rating, current status reports from issuers and trustees, as well as publicly available transaction-specific information, are reviewed. The maximum potential amount of future payments (undiscounted) on insured swaps that are primarily insured interest rate swaps is estimated as the net interest settlements plus principal payments where applicable, on amortizing swaps.

MBIA may hold recourse provisions through subrogation rights of the swap counterparty, whereby if MBIA makes a claim payment, it may be entitled to receive net swap settlements from the issuer under the swap agreement.

Counterparty Credit Risk

The Company manages counterparty credit risk on an individual counterparty basis through master netting agreements covering derivative instruments in the corporate segment. These agreements allow the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination in the event either MBIA or the counterparty is downgraded below a specified credit rating.

Under these agreements, the Company may receive or provide cash, U.S. Treasury or other highly rated securities to secure counterparties’ exposure to the Company or its exposure to counterparties, respectively. Such collateral is available to the holder to pay for replacing the counterparty in the event that the counterparty defaults. As of September 30, 2023 and December 31, 2022, the Company did not hold or post cash collateral to derivative counterparties.

As of September 30, 2023 and December 31, 2022, the Company had securities with a fair value of $40 million and $73 million, respectively, posted to derivative counterparties, and these amounts are included within “Fixed-maturity securities held as available-for-sale, at fair value” on the Company’s consolidated balance sheets.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Derivative Instruments (continued)

As of September 30, 2023 and December 31, 2022, the fair value on one Credit Support Annex (“CSA”) was a liability of $1 million. This CSA governs collateral posting requirements between MBIA and its derivative counterparties. The Company did not receive collateral due to the Company’s credit rating, which was below the CSA minimum credit ratings level for holding counterparty collateral. As of September 30, 2023 and December 31, 2022, the counterparty was rated Aa3 by Moody’s and A+ by S&P.

Financial Statement Presentation

The fair value of amounts recognized for eligible derivative contracts executed with the same counterparty under a master netting agreement, including any cash collateral that may have been received or posted by the Company, is presented on a net basis in accordance with accounting guidance for the offsetting of fair value amounts related to derivative instruments. Insured swaps are not subject to master netting agreements. VIE derivative assets and liabilities are not presented net of any master netting agreements. Counterparty netting of derivative assets and liabilities offsets balances in “Interest rate swaps”, when applicable.

The following tables present the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting, as of September 30, 2023 and December 31, 2022:


		September 30, 2023
In millions				Derivative Assets (1)			Derivative Liabilities (1)
		Notional
		Amount			Fair			Fair
Derivative Instruments		Outstanding		Balance Sheet Location	Value		Balance Sheet Location	Value
Not designated as hedging instruments:
	Insured swaps	$	1,283	Other assets	$	-	Derivative liabilities	$	(1	)
	Interest rate swaps		323	Other assets		-	Derivative liabilities		(22	)
	Interest rate swaps-embedded		193	Medium-term notes		1	Medium-term notes		-
	Currency swaps-VIE		13	Other assets-VIE		-	Derivative liabilities-VIE		(11	)
Total non-designated derivatives		$	1,812		$	1		$	(34	)

(1) - In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.


		December 31, 2022
In millions				Derivative Assets (1)			Derivative Liabilities (1)
		Notional
		Amount			Fair			Fair
Derivative Instruments		Outstanding		Balance Sheet Location	Value		Balance Sheet Location	Value
Not designated as hedging instruments:
	Insured swaps	$	1,350	Other assets	$	-	Derivative liabilities	$	-
	Interest rate swaps		380	Other assets		-	Derivative liabilities		(49	)
	Interest rate swaps-embedded		194	Medium-term notes		1	Medium-term notes		(2	)
	Currency swaps-VIE		36	Other assets-VIE		-	Derivative liabilities-VIE		(6	)
Total non-designated derivatives		$	1,960		$	1		$	(57	)

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Derivative Instruments (continued)

The following table presents the effect of derivative instruments on the consolidated statements of operations for the three months ended September 30, 2023 and 2022:


In millions
Derivatives Not Designated		Three Months Ended September 30,
as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2023		2022
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	20	$	23
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		2		(14	)
Total		$	22	$	9

The following table presents the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2023 and 2022:


In millions
Derivatives Not Designated		Nine Months Ended September 30,
as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2023			2022
Insured swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	-		$	1
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		21			79
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(4	)		(14	)
Total		$	17		$	66