Investments, excluding those elected under the fair value option, include debt and equity securities classified as either AFS or HTM. Other invested assets designated as AFS are primarily comprised of money market funds.

The following tables present the amortized cost, fair value, corresponding gross unrealized gains and losses and other-than-temporary impairments (“OTTI”) for AFS and HTM investments in the Company's consolidated investment portfolio as of June 30, 2014 and December 31, 2013:

				June 30, 2014
						Gross		Gross				Other-Than-
				Amortized		Unrealized		Unrealized		Fair		Temporary
In millions				Cost		Gains		Losses		Value		Impairments⁽¹⁾
AFS Investments
Fixed-maturity investments:
	U.S. Treasury and government agency			$	556	$	29	$	(4)	$	581	$	0
	State and municipal bonds				1,687		67		(16)		1,738		0
	Foreign governments				308		6		(1)		313		0
	Corporate obligations				2,235		40		(21)		2,254		0
	Mortgage-backed securities:
		Residential mortgage-backed agency			1,157		16		(12)		1,161		0
		Residential mortgage-backed non-agency			57		3		(4)		56		(4)
		Commercial mortgage-backed			28		1		0		29		0
	Asset-backed securities:
		Collateralized debt obligations			123		0		(23)		100		0
		Other asset-backed			236		4		(9)		231		0
			Total fixed-maturity investments		6,387		166		(90)		6,463		(4)
Money market securities					385		0		0		385		0
Perpetual debt and equity securities					11		1		0		12		0
Total AFS investments				$	6,783	$	167	$	(90)	$	6,860	$	(4)

HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	2,787	$	123	$	(130)	$	2,780	$	0
Total HTM investments				$	2,787	$	123	$	(130)	$	2,780	$	0
_______________
(1) - Represents unrealized gains or losses on other than temporarily impaired securities recognized in AOCI, which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities reported in AOCI.

				December 31, 2013
						Gross		Gross				Other-Than-
				Amortized		Unrealized		Unrealized		Fair		Temporary
In millions				Cost		Gains		Losses		Value		Impairments⁽¹⁾
AFS Investments
Fixed-maturity investments:
	U.S. Treasury and government agency			$	528	$	16	$	(9)	$	535	$	0
	State and municipal bonds				1,831		22		(73)		1,780		0
	Foreign governments				184		5		0		189		0
	Corporate obligations				1,682		24		(38)		1,668		0
	Mortgage-backed securities:
		Residential mortgage-backed agency			1,167		10		(31)		1,146		0
		Residential mortgage-backed non-agency			79		13		(5)		87		4
		Commercial mortgage-backed			34		1		(1)		34		0
	Asset-backed securities:
		Collateralized debt obligations			205		3		(57)		151		(14)
		Other asset-backed			187		2		(15)		174		0
			Total fixed-maturity investments		5,897		96		(229)		5,764		(10)
Money market securities					781		0		0		781		0
Perpetual debt and equity securities					10		1		0		11		0
Assets of consolidated VIEs:
	Money market securities				136		0		0		136		0
Total AFS investments				$	6,824	$	97	$	(229)	$	6,692	$	(10)

HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	2,801	$	31	$	(181)	$	2,651	$	0
Total HTM investments				$	2,801	$	31	$	(181)	$	2,651	$	0
_______________
(1) - Represents unrealized gains or losses on other than temporarily impaired securities recognized in AOCI, which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities reported in AOCI.

The following table presents the distribution by contractual maturity of AFS and HTM fixed-maturity securities at amortized cost and fair value as of June 30, 2014. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.

	AFS Securities				HTM Securities
					Consolidated VIEs
	Amortized				Amortized
In millions	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	875	$	875	$	0	$	0
Due after one year through five years		1,387		1,410		0		0
Due after five years through ten years		1,000		1,019		0		0
Due after ten years		1,524		1,582		2,787		2,780
Mortgage-backed and asset-backed		1,601		1,577		0		0
Total fixed-maturity investments	$	6,387	$	6,463	$	2,787	$	2,780

The fair value of securities on deposit with various regulatory authorities as of June 30, 2014 and December 31, 2013 was $10 million for both periods. These deposits are required to comply with state insurance laws.

The Company enters into securities borrowing and lending contracts in connection with MBIA's collateralized investment agreement activities. Such contracts are only transacted with high-quality dealer firms. It is the Company's policy to take possession of securities borrowed under these contracts. The Company minimizes credit risk from counterparties that might be unable to fulfill their contractual obligations by monitoring customer credit exposure and collateral values and requiring additional collateral to be deposited with the Company when deemed necessary.

Substantially all of the obligations under investment agreements require the Company to pledge securities as collateral. Securities pledged in connection with investment agreements may not be repledged by the investment agreement. As of June 30, 2014 and December 31, 2013, the fair value of securities pledged as collateral for these investment agreements approximated $660 million and $693 million, respectively. The Company's collateral as of June 30, 2014 consisted principally of RMBS and U.S. Treasury and government agency bonds, and was primarily held with major U.S. banks. Additionally, the Company pledged cash and money market securities as collateral under investment agreements in the amount of $15 million and $22 million as of June 30, 2014 and December 31, 2013, respectively.

The following tables present the gross unrealized losses related to AFS and HTM investments as of June 30, 2014 and December 31, 2013:

				June 30, 2014
				Less than 12 Months				12 Months or Longer				Total
				Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
In millions				Value		Losses		Value		Losses		Value		Losses
AFS Investments
Fixed-maturity investments:
	U.S. Treasury and government agency			$	98	$	0	$	176	$	(4)	$	274	$	(4)
	State and municipal bonds				29		0		477		(16)		506		(16)
	Foreign governments				150		(1)		0		0		150		(1)
	Corporate obligations				341		(12)		293		(9)		634		(21)
	Mortgage-backed securities:
		Residential mortgage-backed agency			18		0		440		(12)		458		(12)
		Residential mortgage-backed non-agency			2		0		21		(4)		23		(4)
		Commercial mortgage-backed			8		0		7		0		15		0
	Asset-backed securities:
		Collateralized debt obligations			2		0		89		(23)		91		(23)
		Other asset-backed			25		0		48		(9)		73		(9)
			Total fixed-maturity investments		673		(13)		1,551		(77)		2,224		(90)
Total AFS investments				$	673	$	(13)	$	1,551	$	(77)	$	2,224	$	(90)

HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	0	$	0	$	445	$	(130)	$	445	$	(130)
Total HTM investments				$	0	$	0	$	445	$	(130)	$	445	$	(130)

				December 31, 2013
				Less than 12 Months				12 Months or Longer				Total
				Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
In millions				Value		Losses		Value		Losses		Value		Losses
AFS Investments
Fixed-maturity investments:
	U.S. Treasury and government agency			$	269	$	(9)	$	1	$	0	$	270	$	(9)
	State and municipal bonds				1,112		(65)		49		(8)		1,161		(73)
	Foreign governments				36		0		0		0		36		0
	Corporate obligations				788		(30)		82		(8)		870		(38)
	Mortgage-backed securities:
		Residential mortgage-backed agency			713		(23)		144		(8)		857		(31)
		Residential mortgage-backed non-agency			17		0		22		(5)		39		(5)
		Commercial mortgage-backed			11		(1)		0		0		11		(1)
	Asset-backed securities:
		Collateralized debt obligations			6		0		124		(57)		130		(57)
		Other asset-backed			21		0		57		(15)		78		(15)
			Total fixed-maturity investments		2,973		(128)		479		(101)		3,452		(229)
Perpetual debt and equity securities					5		0		0		0		5		0
Total AFS investments				$	2,978	$	(128)	$	479	$	(101)	$	3,457	$	(229)

HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	0	$	0	$	1,244	$	(181)	$	1,244	$	(181)
Total HTM investments				$	0	$	0	$	1,244	$	(181)	$	1,244	$	(181)

Gross unrealized losses on AFS securities decreased as of June 30, 2014 compared with December 31, 2013 primarily due to market price appreciation caused by declining interest rates and to security sales. Gross unrealized losses on HTM securities decreased as of June 30, 2014 compared with December 31, 2013 primarily due to market price appreciation caused by the narrowing of credit spreads.

With the weighting applied on the fair value of each security relative to the total fair value, the weighted average contractual maturity of securities in an unrealized loss position as of June 30, 2014 and December 31, 2013 was 16 and 18 years, respectively. As of June 30, 2014 and December 31, 2013, there were 229 and 77 securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which the fair values of 37 and 50 securities, respectively, were below book value by more than 5%.

The following table presents the distribution of securities in an unrealized loss position for a continuous twelve-month period or longer by percentage of fair value below book value by more than 5% as of June 30, 2014:

	AFS Securities					HTM Securities
Percentage of Fair Value	Number of	Book Value		Fair Value		Number of	Book Value		Fair Value
Below Book Value	Securities	(in millions)		(in millions)		Securities	(in millions)		(in millions)
> 5% to 15%	26	$	220	$	206	-	$	0	$	0
> 15% to 25%	7		90		73	1		575		445
> 25% to 50%	-		0		0	-		0		0
> 50%	3		20		3	-		0		0
Total	36	$	330	$	282	1	$	575	$	445

The following table presents the fair values and gross unrealized losses by credit rating category of ABS, MBS and corporate obligations included in the Company's consolidated AFS investment portfolio as of June 30, 2014 for which fair value was less than amortized cost. The credit ratings are based on ratings from Moody's as of June 30, 2014 or an alternate ratings source, such as S&P, when a security is not rated by Moody's. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer's rating or the underlying bond's rating.

																		Below
In millions		Aaa				Aa				A				Baa				Investment Grade				Not Rated				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Asset Type		Value		Loss		Value		Loss		Value		Loss		Value		Loss		Value		Loss		Value		Loss		Value		Loss
ABS		$	27	$	0	$	62	$	(3)	$	1	$	0	$	1	$	0	$	73	$	(29)	$	0	$	0	$	164	$	(32)
MBS			459		(12)		8		0		2		0		4		0		8		0		15		(4)		496		(16)
Corporate obligations			68		0		194		(3)		220		(4)		41		(2)		1		0		110		(12)		634		(21)
	Total	$	554	$	(12)	$	264	$	(6)	$	223	$	(4)	$	46	$	(2)	$	82	$	(29)	$	125	$	(16)	$	1,294	$	(69)

The total ABS, MBS and corporate obligations reported in the preceding table include those which are guaranteed by financial guarantors. In addition, the following table presents information on ABS, MBS and corporate obligations guaranteed by the Company and third-party financial guarantors.

			Insured Securities Rated Below
			Investment Grade without the
			Effect of Guarantee
	Average Credit Rating with the	Average Credit Rating without the	(in millions)
Asset Type	Effect of Guarantee	Effect of Guarantee	Fair Value		Percentage
ABS	Baa	Below Investment Grade	$	70	55	%
MBS	Below Investment Grade	Below Investment Grade		6	100	%
Corporate obligations	Baa	Baa		0	0	%

Refer to the table in the “Determination of Credit Loss Guaranteed by the Company and Other Third-Party Guarantors” section within the OTTI section of this note for information on the insured securities included in the table above.

The Company concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not, that it would not have to sell these securities before recovery of their cost basis. In making this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of June 30, 2014 that would require the sale of impaired securities. Impaired securities that the Company intends to sell before the expected recovery of such securities' fair values have been written down to fair value.

The Company has an ongoing review process for all securities in its investment portfolio, including a quarterly assessment of OTTI. This evaluation includes both qualitative and quantitative considerations. In assessing whether a decline in value is related to a credit loss, the Company considers several factors, including but not limited to (i) the magnitude and duration of declines in fair value; (ii) the reasons for the declines in fair value, such as general credit spread movements in each asset-backed sector, transaction-specific changes in credit spreads, credit rating downgrades, modeled defaults, and principal and interest payment priorities within each investment structure; and (iii) any guarantees associated with a security such as those provided by financial guarantee insurance companies, including MBIA Corp. and National.

In calculating credit-related losses, the Company utilizes cash flow modeling based on the type of security. The Company's cash flow analysis considers all sources of cash, including credit enhancement, that support the payment of amounts owed by an issuer of a security. This includes the consideration of cash expected to be provided by financial guarantors, including MBIA Corp., resulting from an actual or potential insurance policy claim. In general, any change in the amount and/or timing of cash flows received or expected to be received, whether or not such cash flows are contractually defined, is reflected in the Company's cash flow analysis for purposes of assessing an OTTI loss on an impaired security.

Each quarter, an internal committee, comprising staff that is independent of the Company's evaluation process for determining OTTI of securities, reviews and approves the valuation of investments. Among other responsibilities, this committee ensures that the Company's process for identifying and calculating OTTI, including the use of models and assumptions, is reasonable and complies with the Company's internal policy.

Investments with unrealized losses that met the above criteria were tested for OTTI and principally related to ABS, MBS and corporate obligations.

ABS investments are evaluated for OTTI using historical collateral performance, deal waterfall and structural protections, credit ratings, and forward looking projections of collateral performance based on business and economic conditions specific to each collateral type and risk. The underlying collateral is evaluated to identify any specific performance concerns, and stress scenarios are considered in forecasting ultimate returns of principal. Based on this evaluation, if a principal default is projected for a security, estimated future cash flows are discounted at the security's interest rate used to recognize interest income on the security. For CDO investments, the Company utilizes the same tools as its RMBS investments discussed below, aggregating the bond level cash flows to the CDO investment level. If the present value of cash flows is less than the Company's amortized cost for the security, the difference is recorded as an OTTI loss.

RMBS investments are evaluated for OTTI using several quantitative tools. Loan level data are obtained and analyzed in a model that produces prepayment, default, and severity vectors. The model utilizes macro inputs, including housing price assumptions and interest rates. The vector outputs are used as inputs to a third-party cash flow model, which considers deal waterfall dynamics and structural features, to generate cash flows for an RMBS investment. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income of the security to arrive at a present value amount. If the present value of the cash flows is less than the Company's amortized cost for the investment, the difference is recorded as an OTTI loss.

Corporate obligation investments are evaluated for OTTI using credit analysis techniques. The Company's analysis includes a detailed review of a number of quantitative and qualitative factors impacting the value of an individual security. These factors include the interest rate of the security (fixed or floating), the security's current market spread, any collateral supporting the security, the security's position in the issuer's capital structure, and credit rating upgrades or downgrades. Additionally, these factors include an assessment of various issuer-related credit metrics including market capitalization, earnings, cash flow, capitalization, interest coverage, leverage, liquidity, management and a third-party quantitative default probability model. The Company's analysis is augmented by comparing market prices for similar securities of other issuers in the same sector, as well as any recent corporate or government actions that may impact the ultimate return of principal. If the Company determines that, after considering these factors, a principal default is projected, a recovery analysis is performed using the above data. If the Company's estimated recovery value for the security is less than its amortized cost, the difference is recorded as an OTTI loss.

Determination of Credit Loss Guaranteed by the Company and Other Third-Party Guarantors

The Company does not record OTTI related to credit concerns about issuers of securities insured by MBIA Corp. and National since investors in these securities, including MBIA, are guaranteed payment of principal and interest when due by MBIA. Securities insured by the Company, whether or not owned by the Company, are evaluated for impairment as part of its insurance surveillance process and, therefore, losses on securities insured by the Company are recorded in accordance with its loss reserving policy. Refer to “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for information about the Company's loss reserving policy and “Note 5: Loss and Loss Adjustment Expense Reserves” for information about loss reserves.

In considering cash expected to be provided from other third-party financial guarantors, the Company assesses the financial guarantor's ability to make claim payments under a variety of scenarios that test the guarantor's ultimate claims paying ability. The weighted average outcome of these scenarios, combined with the cash flows provided by the insured security, are used to determine the recoverability of the Company's amortized cost.

The following table provides information about securities held by the Company as of June 30, 2014 that were in an unrealized loss position and insured by a financial guarantor, along with the amount of insurance loss reserves corresponding to the par amount owned by the Company:

					Unrealized		Insurance Loss
In millions			Fair Value		Loss		Reserve ⁽²⁾
Asset-backed:
	MBIA⁽¹⁾		$	120	$	(30)	$	15
	Other			8		(2)		0
		Total asset-backed		128		(32)		15
Mortgage-backed:
	MBIA⁽¹⁾			5		0		0
	Other			1		0		0
		Total mortgage-backed		6		0		0
Corporate obligations:
	Other			6		(1)		0
		Total corporate obligations		6		(1)		0
Other:
	MBIA⁽¹⁾			41		(5)		0
		Total other		41		(5)		0
Total			$	181	$	(38)	$	15
_______________
(1) - Includes investments insured by MBIA Corp. and National.
(2) - Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

The portion of certain OTTI losses on fixed-maturity securities that does not represent credit losses is recognized in accumulated other comprehensive income (“AOCI”). For these impairments, the net amount recognized in earnings represents the difference between the amortized cost of the security and the net present value of its projected future discounted cash flows prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. 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 OTTI losses was recognized in AOCI, and the corresponding changes in such amounts.

In millions		Three Months Ended June 30,				Six Months Ended June 30,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments		2014			2013	2014			2013
Beginning balance		$	173	$	195	$	175	$	197
Reductions for credit loss impairments previously recognized on securities sold during
	the period		(173)		(8)		(174)		(10)
Reductions for increases in cash flows expected to be collected over the remaining
	life of the security		0		(1)		(1)		(1)
Ending balance		$	0	$	186	$	0	$	186

Gross realized gains and losses are recorded within “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company's consolidated statements of operations. The proceeds and the gross realized gains and losses from sales of fixed-maturity securities held as AFS for the three and six months ended June 30, 2014 and 2013 are as follows: