Derivative Instruments

12 Months Ended

Dec. 31, 2023

Note 9: Derivative Instruments

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.

In the fourth quarter of 2023, the Company terminated substantially all of the derivative interest rate swaps used to manage the risks associated with fluctuations in interest rates in the corporate segment.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 9: 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 December 31, 2023 and 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 December 31, 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	13.3 Years	$	-	$	42	$	962	$	205	$	60		$	1,269	$	(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		$	-	$	-	$	-	$	-	$	-			$	-

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

For the interest rate swaps the Company terminated in the corporate segment during the fourth quarter of 2023, the Company managed counterparty credit risk on an individual counterparty basis through master netting agreements. These agreements allowed the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occurred. The Company only executed swaps under master netting agreements, which typically contained mutual credit downgrade provisions that generally provided the ability to require assignment or termination in the event either MBIA or the counterparty was downgraded below a specified credit rating.

Under these agreements, the Company might 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 was available to the holder to pay for replacing the counterparty in the event that the counterparty defaults. As of December 31, 2022, the Company did not hold or post cash collateral to derivative counterparties.

As of December 31, 2022, the Company had securities with a fair value of $73 million posted to derivative counterparties, and the amount is 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

Note 9: Derivative Instruments (continued)

As of December 31, 2023 and 2022, the fair value on the one remaining interest rate swap, Credit Support Annex (“CSA”) was a liability of $1 million. This CSA governs collateral posting requirements between MBIA and its derivative counterparties. As of December 31, 2023 and 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 December 31, 2023 and 2022:


		December 31, 2023
In millions				Derivative Assets			Derivative Liabilities
		Notional
		Amount			Fair			Fair
Derivative Instruments		Outstanding		Balance Sheet Location	Value		Balance Sheet Location	Value
Not designated as hedging instruments:
	Insured swaps	$	1,269	Other assets	$	-	Derivative liabilities	$	(1	)
	Interest rate swaps		55	Other assets		-	Derivative liabilities		(1	)
	Currency swaps-VIE		39	Other assets-VIE		-	Derivative liabilities-VIE		(14	)
Total non-designated derivatives		$	1,363		$	-		$	(16	)


		December 31, 2022
In millions				Derivative Assets			Derivative Liabilities
		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	)
	Currency swaps-VIE		36	Other assets-VIE		-	Derivative liabilities-VIE		(6	)
Total non-designated derivatives		$	1,766		$	-		$	(55	)

The Company has elected to bifurcate the complex interest calculations embedded in certain MTNs into separate derivatives. The fair value of the bifurcate embedded derivatives is measured quarterly and 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, MTNs. The change in fair value of the Company's embedded derivatives is primarily driven by the redemption of their related MTNs. As of December 31, 2023 and 2022, the Company had embedded derivative assets of $1 million and embedded derivative liabilities of $3 million and $2 million, respectively.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 9: Derivative Instruments (continued)

The following table presents the effect of derivative instruments on the consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021:


In millions
Derivatives Not Designated		Years Ended December 31,
as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2023			2022			2021
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		13			79			18
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(7	)		(15	)		3
Total		$	6		$	65		$	21