Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2024

Text Block [Abstract]

Fair Value of Financial Instruments

Note 6: Fair Value of Financial Instruments

Fair Value Measurement

Financial Assets and Liabilities

Financial assets held by the Company primarily consist of investments in debt and equity securities and loans receivables at fair value. Financial liabilities issued by the Company primarily consist of debt issued for general corporate purposes within its corporate segment, medium-term notes ("MTNs"), investment agreements, and debt issued by consolidated VIEs.

Valuation Techniques

Valuation techniques for financial instruments measured at fair value are described below.

Fixed-Maturity Securities Held as Available-For-Sale, Investments Carried at Fair Value and Short-term Investments

These investments include available-for-sale ("AFS") investments in U.S. Treasury and government agencies, state and municipal bonds, foreign governments, corporate obligations, mortgage-backed securities ("MBS"), asset-backed securities, money market securities, equity investments and loans carried at fair value.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Substantially all of these investments are valued based on recently executed transaction prices or quoted market prices by independent third parties, including pricing services and brokers. When quoted market prices are not available, fair value is generally determined using quoted prices of similar investments or a valuation model based on observable and unobservable inputs. Inputs vary depending on the type of investment. Observable inputs include contractual cash flows, interest rate yield curves, credit default swap (“CDS”) spreads, prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for structures similar to the financial instrument in terms of issuer, maturity and seniority. Unobservable inputs include cash flow projections, the value of any credit enhancement and currently for certain equity investments, a discount rate, EBITDA multiple, and EBITDA royalty share.

Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of the fair value hierarchy. Level 1 investments generally consist of U.S. Treasury and government agency, money market securities and equity investments. Quoted market prices of investments in less active markets, as well as investments which are valued based on other than quoted prices for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value hierarchy. Investments that contain significant inputs that are not observable are categorized as Level 3.

Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate fair value due to the short-term nature and credit worthiness of these instruments and are categorized in Level 1 of the fair value hierarchy.

Variable Interest Entity Loans Receivable at Fair Value

Loans receivable at fair value are assets held by a consolidated VIE consisting of residential mortgage loans and are categorized in Level 3 of the fair value hierarchy. Fair values of residential mortgage loans are determined using quoted prices for similar securities, adjusted for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. The fair values of the financial guarantees consider expected claim payments, net of recoveries, under MBIA Corp.’s policies.

Other Assets

As of December 31, 2023, other assets included receivables representing the right to receive reimbursement payments on claim payments expected to be made on certain insured VIE liabilities due to risk mitigating transactions with third parties executed to effectively defease, or, in-substance commute the Company’s exposure on its financial guarantee policies. The right to receive reimbursement payments was based on the value of the Company’s financial guarantee determined using a cash flow model. The fair value of the financial guarantee primarily contained unobservable inputs and is categorized in Level 3 of the fair value hierarchy.

Medium-term Notes at Fair Value

The Company has elected to measure certain MTNs at fair value on a recurring basis. The fair values of certain MTNs are based on quoted market prices provided by third-party sources, where available. When quoted market prices are not available, the Company applies a matrix pricing grid to determine fair value based on the quoted market prices received for similar instruments and considering the MTNs’ stated maturity and interest rate. Nonperformance risk is included in the quoted market prices and the matrix pricing grid. MTNs are categorized in Level 3 of the fair value hierarchy and do not include accrued interest.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Variable Interest Entity Debt

The fair values of VIE debt are determined based on recently executed transaction prices or quoted prices where observable. When position-specific quoted prices are not observable, fair values are based on quoted prices of similar securities. Fair values based on quoted prices of similar securities may be adjusted for factors unique to the securities, including any credit enhancement. Observable inputs include interest rate yield curves, bond spreads of similar securities and MBIA Corp.’s CDS spreads. Unobservable inputs include the value of any credit enhancement. VIE debt are categorized in Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.

Derivatives

A VIE consolidated by the Company entered into a derivative instrument consisting of a cross currency swap that as of September 30, 2024 and December 31, 2023 had outstanding notional amounts of $37 million and $39 million, respectively. The cross currency swap was entered into to manage the variability in cash flows resulting from fluctuations in foreign currency rates. The fair value of the VIE derivative was determined based on the valuation provided by an independent third-party, which is included in “Liabilities of consolidated variable interest entities – Derivative liabilities” on the Company’s consolidated balance sheets. As the significant inputs are unobservable, the derivative contract is categorized in Level 3 of the fair value hierarchy.

Significant Unobservable Inputs

The following tables provide quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:

		Fair Value as of				Range
		September 30,				(Weighted
In millions		2024		Valuation Techniques	Unobservable Input	Average)
Assets:
	Equity Investments	$	45	Discounted cash flow	Discount rate (1)
					EBITDA multiple (1)
				Type certificate	Discount rate (1)
					EBITDA royalty share (1)
	Loans carried at fair value		13	Discounted cash flow	Discount rate (1)
Assets of consolidated VIEs:
	Loans receivable at fair value		30	Market prices of similar liabilities adjusted for financial guarantees provided to VIE obligations	Impact of financial guarantee	26% - 26% (26%) (2)

(1) - Ranges for discount rate, EBITDA multiple and EBITDA royalty share are not meaningful.

(2) - Weighted average represents the total MBIA guarantees as a percentage of total instrument fair value.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

		Fair Value as of				Range
		December 31,				(Weighted
In millions		2023		Valuation Techniques	Unobservable Input	Average)
Assets:
	Equity Investments	$	108	Discounted cash flow	EBITDA multiples (1)
					Discount rate (1)
					Weightings (1)
				Sum of the parts	Hard asset values (1)
					Type certificate values (1)
					Weightings (1)
Assets of consolidated VIEs:
	Loans receivable at fair value		35	Market prices of similar liabilities or internal cash flow models adjusted for financial guarantees provided to VIE obligations	Impact of financial guarantee	27% - 27% (27%) (2)
Liabilities of consolidated VIEs:
	Variable interest entity notes		78	Market prices of VIE assets adjusted for financial guarantees provided or market prices of similar liabilities	Impact of financial guarantee	74% - 74% (74%) (2)

(1) - Ranges for EBITDA multiples, discount rate, weightings, hard asset values and type certificate values are not meaningful.

(2) - Weighted average represents the total MBIA guarantees as a percentage of total instrument fair value.

Sensitivity of Significant Unobservable Inputs

The significant unobservable inputs used in the fair value measurement of the Company’s equity investments at fair value are the discount rate, EBITDA multiple and EBITDA royalty share. The fair value of equity investments is determined as the mid-point of a range of valuation scenarios. If there had been lower or higher EBITDA multiple or EBITDA royalty share, the value of equity investments would have been lower or higher, respectively. If there had been a lower or higher discount rate, the value of equity investments would have been higher or lower, respectively. Prior to the second quarter of 2024, the significant unobservable inputs used in the fair value measurement of the Company’s equity investments at fair value were the EBITDA multiples, discount rate, hard asset values and type certificate values. The fair value of equity investments was determined by taking a weighted average of valuation scenarios. If there had been lower or higher EBITDA multiples, hard asset values or type certificate values, the value of equity investments would have been lower or higher, respectively. If there had been a lower or higher discount rate, the value of equity investments would have been higher or lower, respectively.

The significant unobservable input used in the fair value measurement of the loans carried at fair value is the discount rate. The loans carried at fair value is determined by discounting cash flows. The discount rate includes the credit spread which primarily reflects the credit quality of the obligor. If there had been a lower or higher discount rate, the value of loans carried at fair value would have been higher or lower, respectively.

The significant unobservable input used in the fair value measurement of the Company’s residential loans receivable at fair value of consolidated VIEs is the impact of the financial guarantee. The fair value of residential loans receivable is calculated by subtracting the value of the financial guarantee from the market value of similar instruments to that of the VIE liabilities. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments, net of recoveries, under the policy. If there had been a lower expected cash flow on the underlying loans receivable of the VIE, the value of the financial guarantee provided by the Company under the insurance policy would have been higher. This would have resulted in a lower fair value of the residential loans receivable in relation to the obligations of the VIE.

As of December 31, 2023, the significant unobservable input used in the fair value measurement of the Company’s VIE notes of consolidated VIEs was the impact of the financial guarantee. The fair value of VIE notes was calculated by adding the value of the financial guarantee to the market value of VIE assets. When the VIE note is backed by RMBS, the fair value of the VIE liability is calculated by applying the market value of similar instruments to that of the VIE liabilities. The value of a financial guarantee was estimated by the Company as the present value of expected cash payments under the policy. If the value of the guarantee provided by the Company to the obligations issued by the VIE had increased, the credit support would have added value to the liabilities of the VIE. This would have resulted in an increased fair value of the liabilities of the VIE.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Fair Value Measurements

The following tables present the fair value of the Company’s assets (including short-term investments) and liabilities measured and reported at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant
				Active Markets		Other		Significant
				for Identical		Observable		Unobservable			Balance as of
				Assets		Inputs		Inputs			September 30,
In millions				(Level 1)		(Level 2)		(Level 3)			2024
Assets:
Fixed-maturity investments:
	U.S. Treasury and government agency			$	536	$	-	$	-		$	536
	State and municipal bonds				-		107		-			107
	Foreign governments				-		17		-			17
	Corporate obligations				-		459		14	(1)		473
	Mortgage-backed securities:
		Residential mortgage-backed agency			-		121		-			121
		Residential mortgage-backed non-agency			-		37		-			37
		Commercial mortgage-backed			-		11		-			11
	Asset-backed securities:
		Collateralized debt obligations			-		106		-			106
		Other asset-backed			-		55		-			55
			Total fixed-maturity investments		536		913		14			1,463
Money market securities					119		-		-			119
Equity investments					44		7		45			106	(2)
Cash and cash equivalents					72		-		-			72
Assets of consolidated VIEs:
	Cash				2		-		-			2
	Loans receivable at fair value:
		Residential loans receivable			-		-		30			30
Total assets				$	773	$	920	$	89		$	1,792
Liabilities:
Medium-term notes				$	-	$	-	$	36		$	36
Other liabilities:
	Insured credit derivatives				-		1		-			1
Liabilities of consolidated VIEs:
	Variable interest entity notes				-		-		32			32
	Currency derivatives				-		-		8			8
Total liabilities				$	-	$	1	$	76		$	77

(1) - Includes loans carried at fair value of $13 million.

(2) - Includes $10 million of an exchange-traded bond fund that seeks to track the investment results of an index composed of U.S. dollar-denominated, high yield corporate bonds. The fund is measured at fair value by applying the net asset value per share practical expedient, and is not required to be classified in the fair value hierarchy.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant
				Active Markets		Other		Significant
				for Identical		Observable		Unobservable		Balance as of
				Assets		Inputs		Inputs		December 31,
In millions				(Level 1)		(Level 2)		(Level 3)		2023
Assets:
Fixed-maturity investments:
	U.S. Treasury and government agency			$	705	$	7	$	-	$	712
	State and municipal bonds				-		123		-		123
	Foreign governments				-		18		-		18
	Corporate obligations				-		496		1		497
	Mortgage-backed securities:
		Residential mortgage-backed agency			-		149		-		149
		Residential mortgage-backed non-agency			-		34		-		34
		Commercial mortgage-backed			-		14		-		14
	Asset-backed securities:
		Collateralized debt obligations			-		146		-		146
		Other asset-backed			-		46		-		46
			Total fixed-maturity investments		705		1,033		1		1,739
Money market securities					34		-		-		34
Equity investments					39		8		108		155
Cash and cash equivalents					104		-		-		104
Assets of consolidated VIEs:
	Mortgage-backed securities:
		Residential mortgage-backed non-agency			-		10		-		10
		Commercial mortgage-backed			-		10		-		10
	Asset-backed securities:
		Collateralized debt obligations			-		1		-		1
		Other asset-backed			-		1		-		1
	Cash				3		-		-		3
	Loans receivable at fair value:
		Residential loans receivable			-		-		35		35
	Other assets				-		-		2		2
Total assets				$	885	$	1,063	$	146	$	2,094
Liabilities:
Medium-term notes				$	-	$	-	$	40	$	40
Other liabilities:
	Insured credit derivatives				-		1		-		1
	Non-insured interest rate derivatives				-		1		-		1
Liabilities of consolidated VIEs:
	Variable interest entity notes				-		-		78		78
	Currency derivatives				-		-		14		14
Total liabilities				$	-	$	2	$	132	$	134

Level 3 assets at fair value as of September 30, 2024 and December 31, 2023 represented approximately 5% and 7%, respectively, of total assets measured at fair value. Level 3 liabilities at fair value as of September 30, 2024 and December 31, 2023 represented approximately 99% of total liabilities measured at fair value.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following tables present the fair values and carrying values of the Company’s assets and liabilities that are disclosed at fair value but not reported at fair value on the Company’s consolidated balance sheets as of September 30, 2024 and December 31, 2023. The majority of the financial assets and liabilities that the Company requires fair value reporting or disclosures are valued based on the Company’s or a third-party’s estimate of discounted cash flow model estimates, or quoted market values for identical or similar products.

		Fair Value Measurements at Reporting Date Using
		Quoted Prices in		Significant		Significant		Fair Value		Carry Value
		Active Markets for		Other Observable		Unobservable		Balance as of		Balance as of
		Identical Assets		Inputs		Inputs		September 30,		September 30,
In millions		(Level 1)		(Level 2)		(Level 3)		2024		2024
Assets:
	Other investments	$	-	$	-	$	1	$	1	$	1
Total assets		$	-	$	-	$	1	$	1	$	1
Liabilities:
	Long-term debt	$	-	$	324	$	-	$	324	$	2,705
	Medium-term notes		-		-		215		215		403	(1)
	Investment agreements		-		-		221		221		202
Liabilities of consolidated VIEs:
	Variable interest entity loans payable		-		-		6		6		6
Total liabilities		$	-	$	324	$	442	$	766	$	3,316
Financial Guarantees:
	Gross liability (recoverable)	$	-	$	-	$	761	$	761	$	530
	Ceded recoverable (liability)		-		-		19		19		17

(1) - The carry value includes the complex interest calculations embedded derivatives in certain MTNs that are reported together with the host contract. As of September 30, 2024, the Company had no embedded derivative assets and had embedded derivative liabilities of $2 million.

		Fair Value Measurements at Reporting Date Using
		Quoted Prices in		Significant		Significant		Fair Value		Carry Value
		Active Markets for		Other Observable		Unobservable		Balance as of		Balance as of
		Identical Assets		Inputs		Inputs		December 31,		December 31,
In millions		(Level 1)		(Level 2)		(Level 3)		2023		2023
Assets:
	Other investments	$	-	$	-	$	3	$	3	$	3
Total assets		$	-	$	-	$	3	$	3	$	3
Liabilities:
	Long-term debt	$	-	$	287	$	-	$	287	$	2,585
	Medium-term notes		-		-		291		291		455	(1)
	Investment agreements		-		-		243		243		221
Liabilities of consolidated VIEs:
	Variable interest entity loans payable		-		-		3		3		3
Total liabilities		$	-	$	287	$	537	$	824	$	3,264
Financial Guarantees:
	Gross liability (recoverable)	$	-	$	-	$	837	$	837	$	522
	Ceded recoverable (liability)		-		-		20		20		16

(1) - The carry value includes the complex interest calculations embedded derivatives in certain MTNs that are reported together with the host contract. As of December 31, 2023, the Company had embedded derivative assets and liabilities of $1 million and $3 million, respectively.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2024 and 2023:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2024

																							Change in		Change in
																							Unrealized		Unrealized
																							Gains		Gains
																							(Losses) for		(Losses) for
																							the Period		the Period
																							Included in		Included in
			Total																				Earnings		OCI
			Gains /		Unrealized																		for Assets		for Assets
			(Losses)		Gains /																		still held		still held
	Balance,		Included		(Losses)											Transfers		Transfers					as of		as of
	Beginning		in		Included											into		out of		Ending			September 30,		September 30,
In millions	of Period		Earnings		in OCI(1)		Purchases		Issuances		Settlements			Sales		Level 3		Level 3		Balance			2024		2024(1)
Assets:
Corporate obligations	$	10	$	-	$	-	$	4	$	-	$	-		$	-	$	-	$	-	$	14	(3)	$	1	$	-
Equity investments		45		-		-		-		-		-			-		-		-		45			-		-
Assets of consolidated VIEs:
Loans receivable -   residential		31		-		-		-		-		(1	)		-		-		-		30			-		-
Total assets	$	86	$	-	$	-	$	4	$	-	$	(1	)	$	-	$	-	$	-	$	89		$	1	$	-

																							Change in			Change in
																							Unrealized			Unrealized
																							(Gains)			(Gains)
																							Losses for			Losses for
																							the Period			the Period
																							Included in			Included in
			Total			Unrealized																	Earnings for			OCI for
			(Gains) /			(Gains) /																	Liabilities			Liabilities
			Losses			Losses																	still held			still held
	Balance,		Included			Included											Transfers		Transfers				as of			as of
	Beginning		in			in											into		out of		Ending		September 30,			September 30,
In millions	of Period		Earnings			in OCI(2)			Purchases		Issuances		Settlements		Sales		Level 3		Level 3		Balance		2024			2024(2)
Liabilities:
Medium-term notes	$	36	$	6		$	(6	)	$	-	$	-	$	-	$	-	$	-	$	-	$	36	$	6		$	(6	)
Liabilities of consolidated VIEs:
VIE notes		31		1			-			-		-		-		-		-		-		32		1			-
Currency derivatives		9		(1	)		-			-		-		-		-		-		-		8		(1	)		-
Total liabilities	$	76	$	6		$	(6	)	$	-	$	-	$	-	$	-	$	-	$	-	$	76	$	6		$	(6	)

(1) - Reported within the "Unrealized gains (losses) on available-for-sale securities" on the Company's consolidated statements of comprehensive income (loss).

(2) - Reported within the "Instrument-specific credit risk of liabilities measured at fair value" on the Company's consolidated statements of comprehensive income (loss).

(3) - Includes loans carried at fair value of $13 million.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2023

																								Change in			Change in
																								Unrealized			Unrealized
																								Gains			Gains
																								(Losses) for			(Losses) for
																								the Period			the Period
																								Included in			Included in
			Total																					Earnings for			OCI for
			Gains /			Unrealized																		Assets			Assets
			(Losses)			Gains /																		still held			still held
	Balance,		Included			(Losses)												Transfers		Transfers				as of			as of
	Beginning		in			Included												into		out of		Ending		September 30,			September 30,
In millions	of Period		Earnings			in OCI(1)		Purchases		Issuances		Settlements			Sales			Level 3		Level 3		Balance		2023			2023(1)
Assets:
Corporate obligations	$	1	$	-		$	-	$	-	$	-	$	-		$	-		$	-	$	-	$	1	$	-		$	-
Equity investments		115		-			-		-		-		-			-			-		-		115		-			-
Assets of consolidated VIEs:
Loans receivable-   residential		70		(7	)		-		-		-		(2	)		(29	)		-		-		32		(8	)		-
Other		2		-			-		-		-		-			-			-		-		2		-			-
Total assets	$	188	$	(7	)	$	-	$	-	$	-	$	(2	)	$	(29	)	$	-	$	-	$	150	$	(8	)	$	-

																									Change in			Change in
																									Unrealized			Unrealized
																									(Gains)			(Gains)
																									Losses for			Losses for
																									the Period			the Period
																									Included in			Included in
			Total																						Earnings for			OCI for
			(Gains) /			Unrealized																			Liabilities			Liabilities
			Losses			(Gains) /																			still held			still held
	Balance,		Included			Losses													Transfers		Transfers				as of			as of
	Beginning		in			Included													into		out of		Ending		September 30,			September 30,
In millions	of Period		Earnings			in OCI(2)			Purchases		Issuances		Settlements			Sales			Level 3		Level 3		Balance		2023			2023(2)
Liabilities:
Medium-term notes	$	38	$	(3	)	$	2		$	-	$	-	$	-		$	-		$	-	$	-	$	37	$	(3	)	$	2
Liabilities of consolidated VIEs:
VIE notes		183		15			(14	)		-		-		(21	)		(85	)		-		-		78		2			-
Currency   derivatives		12		(1	)		-			-		-		-			-			-		-		11		(1	)		-
Total liabilities	$	233	$	11		$	(12	)	$	-	$	-	$	(21	)	$	(85	)	$	-	$	-	$	126	$	(2	)	$	2

(1) - Reported within the "Unrealized gains (losses) on available-for-sale securities" on the Company's consolidated statements of comprehensive income (loss).

(2) - Reported within the "Instrument-specific credit risk of liabilities measured at fair value" on the Company's consolidated statements of comprehensive income (loss).

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

For the three months ended September 30, 2024 and 2023, there were no transfers into or out of Level 3.

For the three months ended September 30, 2023, sales include the impact of the deconsolidation of VIEs. Refer to “Note 4: Variable Interest Entities” for additional information about the deconsolidation of VIEs.

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2024 and 2023:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2024

																									Change in			Change in
																									Unrealized			Unrealized
																									Gains			Gains
																									(Losses) for			(Losses) for
																									the Period			the Period
																									Included in			Included in
			Total																						Earnings for			OCI for
			Gains /			Unrealized																			Assets			Assets
			(Losses)			Gains /																			still held			still held
	Balance		Included			(Losses)												Transfers		Transfers					as of			as of
	Beginning		in			Included												into		out of		Ending			September 30,			September 30,
In millions	of Year		Earnings			in OCI(1)		Purchases		Issuances		Settlements			Sales			Level 3		Level 3		Balance			2024			2024(1)
Assets:
Corporate obligations	$	1	$	(2	)	$	-	$	15	$	-	$	-		$	-		$	-	$	-	$	14	(3)	$	-		$	-
Equity investments		108		(63	)		-		-		-		-			-			-		-		45			(63	)		-
Assets of consolidated VIEs:
Loans receivable -    residential		35		(2	)		-		-		-		(3	)		-			-		-		30			(4	)		-
Other		2		-			-		-		-		-			(2	)		-		-		-			-			-
Total assets	$	146	$	(67	)	$	-	$	15	$	-	$	(3	)	$	(2	)	$	-	$	-	$	89		$	(67	)	$	-

																									Change in			Change in
																									Unrealized			Unrealized
																									(Gains)			(Gains)
																									Losses for			Losses for
																									the Period			the Period
																									Included in			Included in
			Total			Unrealized																			Earnings for			OCI for
			(Gains) /			(Gains) /																			Liabilities			Liabilities
			Losses			Losses																			still held			still held
	Balance,		Included			Included in													Transfers		Transfers				as of			as of
	Beginning		in			Credit Risk													into		out of		Ending		September 30,			September 30,
In millions	of Year		Earnings			in OCI(2)			Purchases		Issuances		Settlements			Sales			Level 3		Level 3		Balance		2024			2024(2)
Liabilities:
Medium-term notes	$	40	$	-		$	(4	)	$	-	$	-	$	-		$	-		$	-	$	-	$	36	$	-		$	(4	)
Liabilities of consolidated VIEs:
VIE notes		78		40			(27	)		-		-		(39	)		(20	)		-		-		32		1			1
Currency derivatives		14		(6	)		-			-		-		-			-			-		-		8		(6	)		-
Total liabilities	$	132	$	34		$	(31	)	$	-	$	-	$	(39	)	$	(20	)	$	-	$	-	$	76	$	(5	)	$	(3	)

(1) - Reported within the "Unrealized gains (losses) on available-for-sale securities" on the Company's consolidated statements of comprehensive income (loss).

(2) - Reported within the "Instrument-specific credit risk of liabilities measured at fair value" on the Company's consolidated statements of comprehensive income (loss).

(3) - Includes loans carried at fair value of $13 million.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2023

																								Change in			Change in
																								Unrealized			Unrealized
																								Gains			Gains
																								(Losses) for			(Losses) for
																								the Period			the Period
																								Included in			Included in
			Total																					Earnings for			OCI for
			Gains /			Unrealized																		Assets			Assets
			(Losses)			Gains /																		still held			still held
	Balance,		Included			(Losses)												Transfers		Transfers				as of			as of
	Beginning		in			Included												into		out of		Ending		September 30,			September 30,
In millions	of Year		Earnings			in OCI(1)		Purchases		Issuances		Settlements			Sales			Level 3		Level 3		Balance		2023			2023(1)
Assets:
Corporate obligations	$	-	$	-		$	-	$	-	$	-	$	-		$	-		$	1	$	-	$	1	$	-		$	-
Equity securities		115		-			-		-		-		-			-			-		-		115		-			-
Assets of consolidated VIEs:
Loans receivable -   residential		78		(10	)		-		-		-		(7	)		(29	)		-		-		32		(3	)		-
Other		23		3			-		-		-		-			(24	)		-		-		2		(1	)		-
Total assets	$	216	$	(7	)	$	-	$	-	$	-	$	(7	)	$	(53	)	$	1	$	-	$	150	$	(4	)	$	-

																									Change in			Change in
																									Unrealized			Unrealized
																									(Gains)			(Gains)
																									Losses for			Losses for
																									the Period			the Period
																									Included in			Included in
			Total																						Earnings for			OCI for
			(Gains) /			Unrealized																			Liabilities			Liabilities
			Losses			(Gains) /																			still held			still held
	Balance,		Included			Losses													Transfers		Transfers				as of			as of
	Beginning		in			Included													into		out of		Ending		September 30,			September 30,
In millions	of Year		Earnings			in OCI(2)			Purchases		Issuances		Settlements			Sales			Level 3		Level 3		Balance		2023			2023(2)
Liabilities:
Medium-term notes	$	41	$	(2	)	$	(2	)	$	-	$	-	$	-		$	-		$	-	$	-	$	37	$	(2	)	$	(2	)
Liabilities of consolidated VIEs:
VIE notes		172		48			(39	)		-		62		(45	)		(120	)		-		-		78		3			1
Currency derivatives		6		5			-			-		-		-			-			-		-		11		5			-
Total liabilities	$	219	$	51		$	(41	)	$	-	$	62	$	(45	)	$	(120	)	$	-	$	-	$	126	$	6		$	(1	)

(1) - Reported within the "Unrealized gains (losses) on available-for-sale securities" on the Company's consolidated statements of comprehensive income (loss).

(2) - Reported within the "Instrument-specific credit risk of liabilities measured at fair value" on the Company's consolidated statements of comprehensive income (loss).

For the nine months ended September 30, 2024, there were no transfers into or out of Level 3.

For the nine months ended September 30, 2024 and 2023, sales include the impact of the deconsolidation of VIE's. Refer to “Note 4: Variable Interest Entities” for additional information about the deconsolidation of VIEs.

For the nine months ended September 30, 2023, transfers into Level 3 and out of Level 2 were related to corporate obligations, where inputs, which are significant to their valuation, became unobservable during the year. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers out of Level 3.

Gains and losses (realized and unrealized) included in earnings related to Level 3 assets and liabilities for the three and nine months ended September 30, 2024 and 2023 are reported on the Company’s consolidated statements of operations as follows:

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

		Three Months Ended September 30, 2024						Three Months Ended September 30, 2023
					Change in						Change in
					Unrealized						Unrealized
					Gains (Losses)						Gains (Losses)
					for the						for the
					Period Included						Period Included
					in Earnings						in Earnings
					for Assets						for Assets
					and						and
		Total Gains			Liabilities still			Total Gains			Liabilities still
		(Losses)			held as of			(Losses)			held as of
		Included			September 30,			Included			September 30,
In millions		in Earnings			2024			in Earnings			2023
Revenues:
	Net gains (losses) on financial instruments   at fair value and foreign exchange	$	(6	)	$	(5	)	$	3		$	3
	Revenues of consolidated VIEs (1)		-			-			(21	)		(9	)
Total		$	(6	)	$	(5	)	$	(18	)	$	(6	)

(1) - Reported within "Net gains (losses) on financial instruments at fair value and foreign exchange-VIE" and "Other net realized gains (losses)-VIE" on the Company's consolidated statements of operations.

		Nine Months Ended September 30, 2024						Nine Months Ended September 30, 2023
					Change in						Change in
					Unrealized						Unrealized
					Gains (Losses)						Gains (Losses)
					for the						for the
					Period Included						Period Included
					in Earnings						in Earnings
					for Assets						for Assets
					and						and
		Total Gains			Liabilities still			Total Gains			Liabilities still
		(Losses)			held as of			(Losses)			held as of
		Included			September 30,			Included			September 30,
In millions		in Earnings			2024			in Earnings			2023
Revenues:
	Net gains (losses) on financial instruments   at fair value and foreign exchange	$	(65	)	$	(63	)	$	2		$	2
	Revenues of consolidated VIEs (1)		(36	)		1			(60	)		(12	)
Total		$	(101	)	$	(62	)	$	(58	)	$	(10	)

(1) - Reported within "Net gains (losses) on financial instruments at fair value and foreign exchange-VIE" and "Other net realized gains (losses)-VIE" on the Company's consolidated statements of operations.

Derivative Instruments

The following tables present the effects of derivative instruments on the Company's consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:

In millions
Derivatives Not Designated		Three Months Ended September 30,
as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2024			2023
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(1	)	$	20
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		1			2
Total		$	-		$	22

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

In millions
Derivatives Not Designated		Nine Months Ended September 30,
as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2024				2023
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		$	(1	)		$	21
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE			6				(4	)
Total			$	5			$	17

Fair Value Option

The Company elected to record at fair value certain financial instruments, including certain equity investments and financial instruments that are consolidated in connection with the adoption of the accounting guidance for consolidation of VIEs.

The following table presents the gains and (losses) included in the Company's consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 for financial instruments for which the fair value option was elected:

		Three Months Ended September 30,						Nine Months Ended September 30,
In millions		2024			2023			2024			2023
Investments carried at fair value (1)		$	2		$	(2	)	$	(61	)	$	1
Fixed-maturity securities held at fair value-VIE (2)			-			-			(1	)		(4	)
Loans receivable at fair value:
	Residential mortgage loans (2)		-			(7	)		(2	)		(10	)
Other assets-VIE (2)			-			-			-			3
Medium-term notes (1)			(6	)		3			-			2
Variable interest entity notes (2)			(1	)		(15	)		(40	)		(48	)

(1) - Reported within "Net gains (losses) on financial instruments at fair value and foreign exchange" on the Company's consolidated statements of operations.

(2) - Reported within "Net gains (losses) on financial instruments at fair value and foreign exchange-VIE" and/or "Other net realized gains (losses)-VIE" on the Company's consolidated statements of operations.

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2024 and December 31, 2023 for loans and notes for which the fair value option was elected:

		As of September 30, 2024						As of December 31, 2023
		Contractual						Contractual
		Outstanding		Fair				Outstanding		Fair
In millions		Principal		Value		Difference		Principal		Value		Difference
Loans receivable at fair value:
	Residential mortgage loans - current	$	14	$	14	$	-	$	18	$	18	$	-
	Residential mortgage loans (90 days or more past due)		50		16		34		58		17		41
Total loans receivable and other instruments at fair value		$	64	$	30	$	34	$	76	$	35	$	41
Variable interest entity notes		$	46	$	32	$	14	$	328	$	78	$	250
Medium-term notes		$	56	$	36	$	20	$	55	$	40	$	15

The differences between the contractual outstanding principal and the fair values on loans receivable, VIE notes and MTNs in the preceding table are primarily attributable to credit risk. This is due to the high rate of defaults on loans (90 days or more past due), the collateral supporting the VIE notes and the nonperformance risk of the Company on its MTNs, all of which resulted in depressed pricing of the financial instruments.

Instrument-Specific Credit Risk of Liabilities Elected Under the Fair Value Option

As of September 30, 2024 and December 31, 2023, the cumulative changes in instrument-specific credit risk of liabilities elected under the fair value option were gains of $30 million and losses of $1 million, respectively, reported in AOCI on the Company’s consolidated balance sheets. Changes in value attributable to instrument-specific credit risk were derived principally from changes in the Company’s credit spread. For liabilities of VIEs, additional adjustments to instrument-specific credit risk are required, which is determined by an analysis of deal specific performance of collateral that support these liabilities. During the three months ended September 30, 2023, the portions of instrument-specific credit risk included in AOCI that were recognized in earnings due to settlement of liabilities were losses of $11 million. During the nine months ended September 30, 2024 and 2023, the portions of instrument-specific credit risk included in AOCI that were recognized in earnings due to settlement of liabilities were losses of $28 million and $45 million, respectively.