Investments

9 Months Ended

Sep. 30, 2016

Text Block [Abstract]

Investments

Note 7: Investments

Investments, excluding those elected under the fair value option, include debt and equity securities classified as either AFS or HTM. Other AFS investments primarily comprise money market funds.

Thefollowingtablespresenttheamortizedcost,fairvalue, corresponding gross unrealized gains and losses and OTTIfor AFS and HTM investments in the Company’s consolidatedinvestmentportfolioasofSeptember 30,2016andDecember 31,2015:

				September 30, 2016
						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			$	1,109	$	63	$	(1)	$	1,171	$	-
	State and municipal bonds				1,474		117		(3)		1,588		-
	Foreign governments				165		3		(1)		167		-
	Corporate obligations				1,707		63		(81)		1,689		(78)
	Mortgage-backed securities:
		Residential mortgage-backed agency			906		12		(1)		917		-
		Residential mortgage-backed non-agency			49		1		(6)		44		(3)
		Commercial mortgage-backed			41		-		-		41		-
	Asset-backed securities:
		Collateralized debt obligations			24		-		-		24		-
		Other asset-backed			402		1		(7)		396		-
			Total fixed-maturity investments		5,877		260		(100)		6,037		(81)
Money market securities					187		-		-		187		-
Perpetual debt and equity securities					6		1		-		7		-
Total AFS investments				$	6,070	$	261	$	(100)	$	6,231	$	(81)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	890	$	-	$	(317)	$	573	$	-
Total HTM investments				$	890	$	-	$	(317)	$	573	$	-
_______________
(1) - Represents unrealized gains or losses on OTTI 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, 2015
						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			$	947	$	32	$	(3)	$	976	$	-
	State and municipal bonds				1,674		65		(14)		1,725		-
	Foreign governments				197		3		(2)		198		-
	Corporate obligations				1,516		21		(103)		1,434		(85)
	Mortgage-backed securities:
		Residential mortgage-backed agency			995		7		(9)		993		-
		Residential mortgage-backed non-agency			55		2		(6)		51		(4)
		Commercial mortgage-backed			31		-		-		31		-
	Asset-backed securities:
		Collateralized debt obligations			51		-		(18)		33		-
		Other asset-backed			331		1		(17)		315		-
			Total fixed-maturity investments		5,797		131		(172)		5,756		(89)
Money market securities					351		-		-		351		-
Perpetual debt and equity securities					12		1		-		13		-
Total AFS investments				$	6,160	$	132	$	(172)	$	6,120	$	(89)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	2,689	$	24	$	(312)	$	2,401	$	-
Total HTM investments				$	2,689	$	24	$	(312)	$	2,401	$	-
_______________
(1) - Represents unrealized gains or losses on OTTI 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.

Thefollowing table presentsthe distribution bycontractual maturityofAFS and HTM fixed-maturitysecurities at amortizedcostand fairvalue asofSeptember 30,2016.Contractual maturitymaydifferfromexpected maturityasborrowers mayhave the rightto call orprepayobligations.

	AFS Securities				HTM Securities
					Consolidated VIEs
	Amortized				Amortized
In millions	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	499	$	499	$	-	$	-
Due after one year through five years		1,685		1,720		-		-
Due after five years through ten years		960		934		-		-
Due after ten years		1,311		1,462		890		573
Mortgage-backed and asset-backed		1,422		1,422		-		-
Total fixed-maturity investments	$	5,877	$	6,037	$	890	$	573

Deposited and Pledged Securities

Thefairvalue ofsecuritieson depositwith variousregulatoryauthoritiesasofSeptember 30,2016 and December 31,2015was$11million and $10 million, respectively.Thesedepositsare required to complywith state insurance laws.

Pursuant to the Company’s tax sharing agreement, securities held by MBIA Inc. in the Tax Escrow Account are included as “Investments pledged as collateral, at fair value” on the Company’s consolidated balance sheets.

Investmentagreement obligations requirethe Companyto pledge securitiesascollateral. Securities pledged in connection with investment agreements may not be repledged by the investment agreement counterparty. AsofSeptember 30,2016and December 31,2015,the fairvalue ofsecuritiespledged ascollateral for these investmentagreementsapproximated$413million and $457million,respectively.The Company’scollateral asofSeptember 30,2016consistedprincipallyofU.S.Treasuryand governmentagency and state and municipal bonds,and wasprimarilyheld with majorU.S.banks.Additionally,the Companypledgedcash and moneymarketsecuritiesas collateral underinvestmentagreementsin theamountof$19 million and $12 million asofSeptember 30,2016and December 31,2015,respectively.

Impaired Investments

The following tables present the gross unrealized losses related to AFS and HTM investments as of September 30,2016 and December 31,2015:

			September 30, 2016
			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		$	180	$	(1)	$	-	$	-	$	180	$	(1)
	State and municipal bonds			88		(1)		17		(2)		105		(3)
	Foreign governments			6		-		1		(1)		7		(1)
	Corporate obligations			214		(2)		56		(79)		270		(81)
	Mortgage-backed securities:
		Residential mortgage-backed agency		81		-		134		(1)		215		(1)
		Residential mortgage-backed non-agency		1		-		31		(6)		32		(6)
		Commercial mortgage-backed		29		-		4		-		33		-
	Asset-backed securities:
		Collateralized debt obligations		-		-		17		-		17		-
		Other asset-backed		52		-		97		(7)		149		(7)
Total AFS investments			$	651	$	(4)	$	357	$	(96)	$	1,008	$	(100)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations		$	-	$	-	$	573	$	(317)	$	573	$	(317)
Total HTM investments			$	-	$	-	$	573	$	(317)	$	573	$	(317)

				December 31, 2015
				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			$	434	$	(2)	$	50	$	(1)	$	484	$	(3)
	State and municipal bonds				536		(11)		42		(3)		578		(14)
	Foreign governments				32		(2)		-		-		32		(2)
	Corporate obligations				693		(14)		78		(89)		771		(103)
	Mortgage-backed securities:
		Residential mortgage-backed agency			399		(4)		159		(5)		558		(9)
		Residential mortgage-backed non-agency			24		(2)		17		(4)		41		(6)
		Commercial mortgage-backed			25		-		1		-		26		-
	Asset-backed securities:
		Collateralized debt obligations			2		-		29		(18)		31		(18)
		Other asset-backed			242		(1)		34		(16)		276		(17)
			Total fixed-maturity investments		2,387		(36)		410		(136)		2,797		(172)
Perpetual debt and equity securities					2		-		3		-		5		-
Total AFS investments				$	2,389	$	(36)	$	413	$	(136)	$	2,802	$	(172)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	1,093	$	(17)	$	280	$	(295)	$	1,373	$	(312)
Total HTM investments				$	1,093	$	(17)	$	280	$	(295)	$	1,373	$	(312)

Gross unrealized losses on AFS securities decreased as of September 30,2016 compared with December 31,2015 primarily due to market price appreciation driven by lower interest rates.Gross unrealized losses on HTM securities increased as of September 30,2016 compared with December 31,2015 primarily due to widening credit spreads partially offset by lower interest rates.

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 September 30,2016and December 31,2015 was 22 and 17 years, respectively. As of September 30,2016and December 31,2015, there were 79 and 65 securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 17and 22securities, 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 where fair value was below book value by more than 5% as of September 30,2016:

	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%	6	$	6	$	5	-	$	-	$	-
> 15% to 25%	5		78		64	-		-		-
> 25% to 50%	3		3		2	-		-		-
> 50%	2		104		26	1		575		270
Total	16	$	191	$	97	1	$	575	$	270

The following table presents the fair value and gross unrealized loss by credit rating category of ABS, MBS and corporate obligations included in the Company’s consolidated AFS investment portfolio, as of September 30,2016,for which fair value was less than amortized cost. The credit ratings are based on ratings from Moody’s as of September 30,2016or 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		$	70	$	-	$	59	$	-	$	3	$	-	$	2	$	-	$	32	$	(7)	$	-	$	-	$	166	$	(7)
MBS			231		(1)		13		-		2		-		1		-		22		(3)		11		(3)		280		(7)
Corporate obligations			86		(1)		61		-		61		(1)		29		(1)		7		-		26		(78)		270		(81)
	Total	$	387	$	(2)	$	133	$	-	$	66	$	(1)	$	32	$	(1)	$	61	$	(10)	$	37	$	(81)	$	716	$	(95)

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 and MBS 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	Below Investment Grade	Below Investment Grade	$	32	65	%
MBS	Below Investment Grade	Below Investment Grade	$	18	100	%

Refer to the table 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 September 30,2016that 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.

Other-Than-Temporary Impairments

The Company’s fixed-maturity securities for which fair value is less than amortized cost are reviewed quarterly in order to determine whether a credit loss exists. The portion of certain OTTI losses on fixed-maturity securities that doesnotrepresentcredit losses isrecognized in accumulated other comprehensive income (loss) (“AOCI”).Refer to “Note 8: Investments” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of the Company’s policy for OTTI and its determination of credit 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 OTTI losses was recognized in AOCI, and the corresponding changes in such amounts.

In millions		Three Months Ended September 30,				Nine Months Ended September 30,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments		2016			2015	2016			2015
Beginning balance		$	26	$	22	$	26	$	16
Additions for credit loss impairments recognized in the current period on securities
	previously impaired		-		3		-		9
Ending balance		$	26	$	25	$	26	$	25

The Company does not recognize OTTIon securities insured by MBIA Corp. and National since those securities, whether or not owned by the Company, are evaluated for impairment in accordance with its loss reserving policy. The following table provides information about securities held by the Company as of September 30,2016 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)	$	49	$	(7)	$	3
Mortgage-backed:
	MBIA(1)		17		(3)		16
Other:
	MBIA(1)		8		(1)		-
Total		$	74	$	(11)	$	19
_______________
(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.

Sales of Available-for-Sale Investments

Gross realized gainsand 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 increase in proceeds and net gains on the sales of investments for the three months endedSeptember 30,2016compared with the same period of 2015was primarily due to sales as a result of favorable market conditions.The increase in proceeds and net gains on the sales of investments for the nine months endedSeptember 30,2016compared with the same period of 2015was primarily due to sales as a result of favorable market conditions and to generate liquidity for payments on certain Puerto Rico exposures.The proceeds and the gross realized gains and losses from sales of fixed-maturity securities held as AFS for the three and nine months endedSeptember 30,2016 and 2015 are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2016		2015		2016		2015
Proceeds from sales	$	848	$	251	$	1,785	$	630
Gross realized gains	$	33	$	6	$	70	$	14
Gross realized losses	$	-	$	(2)	$	(18)	$	(11)