Note 9: Investment Income and Gains and Losses

The following table includes total investment income from all operations:


	Years ended December 31,
In millions	2011			2010			2009
Net investment income
Fixed-maturity	$	357		$	407		$	511
Held-to-maturity		6			7			9
Short-term investments		6			22			21
Other investments		19			22			32
Consolidated VIEs		69			73			89

Gross investment income		457			531			662
Investment expenses		4			1			6

Net investment income		453			530			656
Realized gains and losses
Fixed-maturity
Gains⁽¹⁾		252			112			160
Losses		(224	)		(112	)		(447	)

Net		28			—			(287	)
Other investments
Gains		12			—			28
Losses		(10	)		(1	)		(124	)

Net		2			(1	)		(96	)
Consolidated VIEs
Gains		—			—			12
Losses		—			—			(109	)

Net		—			—			(97	)

Total net realized gains (losses)⁽²⁾		30			(1	)		(480	)

Total investment income	$	483		$	529		$	176

(1)—Includes net trading gains of$9 million for the year ended December 31, 2011.

(2)—These balances are included in the "Net gains (losses) on financial instruments at fair value and foreign exchange" and "Net investment losses related to other-than-temporary impairments" line items on MBIA's consolidated statements of operations.

Total investment income is generated as a result of the ongoing management of the Company's investment portfolios. For the year ended December 31, 2011, total investment income increased compared to the same period of 2010 primarily due to an increase in total net realized gains, partially offset by decreases in net investment income. For the year ended December 31, 2010, total investment income increased compared to the same period of 2009 primarily due to a reduction in total net realized losses, partially offset by decreases in net investment income.

For the year ended December 31, 2011, net realized gains from fixed-maturity investments increased, compared to the same period of 2010, primarily due to net gains from the sale of investments. For the year ended December 31, 2010, net realized losses from fixed-maturity investments decreased, compared to the same period of 2009, due to lower other-than-temporary impairments primarily related to RMBS, ABS and perpetual preferred securities.

The portion of other-than-temporary impairment losses on fixed-maturity securities that does not represent credit losses is recognized in accumulated other comprehensive income (loss). The following table presents the amount of credit loss impairments recognized in earnings on fixed-maturity securities held by MBIA as of the dates indicated, for which a portion of the other-than-temporary impairment losses was recognized in accumulated other comprehensive income (loss), and the corresponding changes in such amounts.


In millions	Years ended December 31,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments	2011		2010		2009
Beginning Balance	$	262	$	389	$	—
Credit losses recognized in retained earnings related to the adoption of accounting principles effective April 1, 2009⁽¹⁾		—		—		226
Accounting transition adjustment⁽²⁾		—		(149)		—
Additions for credit loss impairments recognized in the current period on securities not previously impaired		63		24		241
Additions for credit loss impairments recognized in the current period on securities previously impaired		31		18		14
Additions for credit loss impairments recognized in prior periods for securities that were re-impaired with a non-credit component in the current period		—		1		13
Reductions for credit loss impairments previously recognized on securities sold during the period		(15)		(16)		(102)
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period⁽³⁾		—		(4)		—
Reductions for increases in cash flows expected to be collected over the remaining life of the security		—		(1)		(3)

Ending Balance	$	341	$	262	$	389

(1)—Reflects the adoption of the accounting principles for recognition of other-than-temporary impairments.

(2)—Reflects the adoption of the accounting principles for the consolidation of VIEs.

(3)—Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security's amortized cost.

For ABS (e.g., RMBS and CDOs), the Company estimated expected future cash flows of each security by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordination interests owned by third parties, to the security. The expected future cash flows of the underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses (which consider current delinquencies and nonperforming assets, future expected default rates and collateral value by vintage and geographic region) and prepayments. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. The following table presents a summary of the significant inputs considered in determining the measurement of the credit loss component recognized in earnings for each significant class of ABS for the years ended December 31, 2011, 2010 and 2009:

Years ended December 31,

Asset-backed Securities

2011

2010

2009

Expected size of losses⁽¹⁾:

Range⁽²⁾

2.48% to 100.00%

0.21% to 100.00%

0.00% to 100.00%

Weighted average⁽³⁾

55.40

52.20

38.44

Current subordination levels⁽⁴⁾:

Range⁽²⁾

0.00% to 35.46%

0.00% to 42.16%

0.00% to 48.68%

Weighted average⁽³⁾

1.53

4.50

9.75

Prepayment speed (annual CPR)⁽⁵⁾:

Range⁽²⁾

0.00 to 100.00

0.00 to 40.20

0.00 to 36.20

Weighted average⁽³⁾

12.67

9.45

6.98

(1)—Represents future expected credit losses on impaired assets expressed as a percentage of total outstanding balance.

(2)—Represents the range of inputs/assumptions based upon the individual securities within each category.

(3)—Calculated by weighting the relevant input/assumption for each individual security by the outstanding notional of the security.

(4)—Represents current level of credit protection (subordination) for the securities, expressed as a percentage of the balance of the collateral group backing the bond.

(5)—Values represent high and low points of lifetime vectors of constant prepayment rates.

Net unrealized gains (losses), including the portion of other-than-temporary impairments included in accumulated other comprehensive income (loss), reported within shareholders' equity consisted of:


	As of December 31,
In millions	2011			2010
Fixed-maturity:
Gains	$	262		$	208
Losses		(459	)		(782	)
Foreign exchange		(5	)		(14	)

Net		(202	)		(588	)
Other investments:
Gains		1			10
Losses		(19	)		(22	)

Net		(18	)		(12	)

Total		(220	)		(600	)
Deferred income tax provision (benefit)		(86	)		(208	)

Unrealized gains (losses), net	$	(134	)	$	(392	)

The change in net unrealized gains (losses), including the portion of other-than-temporary impairments, presented in the table above consisted of:


	As of December 31,
In millions	2011			2010
Fixed-maturity	$	386		$	749
Other investments		(6	)		47

Total		380			796
Deferred income tax charged (credited)		122			213

Change in unrealized gains (losses), net⁽¹⁾	$	258		$	583

(1)—The annual change as of December 31, 2010 included $266 million of net unrealized gains due to the transition adjustment for the adoption of the accounting principles for consolidation of VIEs.