Investments

6 Months Ended

Jun. 30, 2017

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 OTTI for AFS and HTM investments in the Company’s consolidatedinvestmentportfolioasofJune 30,2017andDecember 31,2016:

				June 30, 2017
						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			$	991	$	35	$	(5)	$	1,021	$	-
	State and municipal bonds				1,159		54		(51)		1,162		(43)
	Foreign governments				10		1		-		11		-
	Corporate obligations				1,399		27		(78)		1,348		(65)
	Mortgage-backed securities:
		Residential mortgage-backed agency			735		2		(10)		727		-
		Residential mortgage-backed non-agency			55		2		(6)		51		(2)
		Commercial mortgage-backed			30		-		-		30		-
	Asset-backed securities:
		Collateralized debt obligations			48		-		-		48		-
		Other asset-backed			269		1		(1)		269		1
			Total fixed-maturity investments		4,696		122		(151)		4,667		(109)
Money market securities					391		-		-		391		-
Perpetual debt and equity securities					3		-		-		3		-
Total AFS investments				$	5,090	$	122	$	(151)	$	5,061	$	(109)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	890	$	4	$	-	$	894	$	-
Total HTM investments				$	890	$	4	$	-	$	894	$	-
_______________
(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, 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			$	909	$	30	$	(10)	$	929	$	-
	State and municipal bonds				1,382		72		(15)		1,439		-
	Foreign governments				8		-		-		8		-
	Corporate obligations				1,352		20		(102)		1,270		(73)
	Mortgage-backed securities:
		Residential mortgage-backed agency			871		3		(12)		862		-
		Residential mortgage-backed non-agency			50		1		(6)		45		(3)
		Commercial mortgage-backed			41		-		-		41		-
	Asset-backed securities:
		Collateralized debt obligations			22		-		-		22		-
		Other asset-backed			294		2		(3)		293		1
			Total fixed-maturity investments		4,929		128		(148)		4,909		(75)
Money market securities					517		-		-		517		-
Perpetual debt and equity securities					4		1		-		5		-
Total AFS investments				$	5,450	$	129	$	(148)	$	5,431	$	(75)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations			$	890	$	-	$	(14)	$	876	$	-
Total HTM investments				$	890	$	-	$	(14)	$	876	$	-
_______________
(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 asofJune 30,2017.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	$	627	$	613	$	-	$	-
Due after one year through five years		1,060		1,043		-		-
Due after five years through ten years		666		619		-		-
Due after ten years		1,206		1,267		890		894
Mortgage-backed and asset-backed		1,137		1,125		-		-
Total fixed-maturity investments	$	4,696	$	4,667	$	890	$	894

Deposited and Pledged Securities

Thefairvalue ofsecuritieson depositwith variousregulatoryauthoritiesasofJune 30,2017 and December 31,2016was$10 million and $11 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. AsofJune 30,2017and December 31,2016,the fairvalue ofsecuritiespledged ascollateral for these investmentagreementsapproximated$387million and $416million,respectively.The Company’scollateral asofJune 30,2017consistedprincipallyofU.S.Treasuryand governmentagency and state and municipal bonds,and wasprimarilyheld with majorU.S.banks.Additionally,the Companypledgedcash and moneymarketsecuritiesas collateral underinvestmentagreementsof $6 million asofDecember 31,2016.

Impaired Investments

The following tables present the gross unrealized losses related to AFS and HTM investments as of June 30,2017 andDecember 31,2016:

			June 30, 2017
			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		$	396	$	(5)	$	-	$	-	$	396	$	(5)
	State and municipal bonds			334		(51)		8		-		342		(51)
	Foreign governments			2		-		-		-		2		-
	Corporate obligations			392		(13)		53		(65)		445		(78)
	Mortgage-backed securities:
		Residential mortgage-backed agency		435		(7)		100		(3)		535		(10)
		Residential mortgage-backed non-agency		1		-		27		(6)		28		(6)
		Commercial mortgage-backed		2		-		9		-		11		-
	Asset-backed securities:													-
		Collateralized debt obligations		5		-		-		-		5		-
		Other asset-backed		153		(1)		2		-		155		(1)
Total AFS investments			$	1,720	$	(77)	$	199	$	(74)	$	1,919	$	(151)

			December 31, 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		$	432	$	(10)	$	-	$	-	$	432	$	(10)
	State and municipal bonds			339		(13)		18		(2)		357		(15)
	Foreign governments			5		-		-		-		5		-
	Corporate obligations			534		(29)		52		(73)		586		(102)
	Mortgage-backed securities:
		Residential mortgage-backed agency		436		(9)		122		(3)		558		(12)
		Residential mortgage-backed non-agency		1		-		29		(6)		30		(6)
		Commercial mortgage-backed		6		-		15		-		21		-
	Asset-backed securities:
		Collateralized debt obligations		7		-		15		-		22		-
		Other asset-backed		112		(1)		49		(2)		161		(3)
Total AFS investments			$	1,872	$	(62)	$	300	$	(86)	$	2,172	$	(148)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations		$	-	$	-	$	876	$	(14)	$	876	$	(14)
Total HTM investments			$	-	$	-	$	876	$	(14)	$	876	$	(14)

Gross unrealized losses on AFS investments increased as of June 30,2017compared with December 31,2016primarily due to unrealized losses on municipalbonds partially offset by a decrease in unrealized losses on corporate obligations due to tightening credit spreads and lower long-term interest rates. Gross unrealized losses on HTM investments decreased as of June 30,2017compared with December 31,2016primarily due to tightening credit spreads and lower long-term 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 June 30,2017and December 31,2016 was 15 and 22 years, respectively. As of June 30,2017and December 31,2016, there were 35 and 46 securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 11and 12securities, 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 June 30,2017:

	AFS Securities
Percentage of Fair Value	Number of	Book Value		Fair Value
Below Book Value	Securities	(in millions)		(in millions)
> 5% to 15%	3	$	3	$	2
> 15% to 25%	4		30		24
> 25% to 50%	1		1		-
> 50%	3		102		37
Total	11	$	136	$	63

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 30,2017that 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-maturitysecurities for which fair value is less than amortized cost are reviewed quarterly in order to determine whether a credit loss exists. The portion ofcertain OTTI losses on fixed-maturitysecurities that does not represent credit losses is recognized in AOCI. Refer to “Note 8:Investments” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-Kfor the year ended December 31,2016 for a discussionof 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-maturitysecurities 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. The additional credit loss impairment for the three and six months ended June 30,2017 was primarily related to municipal bonds for which a loss was recognized as the difference between their amortized cost and their estimated recovery values. This OTTI resulted from liquidity concerns, recent credit rating downgrades and other adverse financial conditions of the issuer.

In millions		Three Months Ended June 30,				Six Months Ended June 30,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments		2017			2016	2017			2016
Beginning balance		$	31	$	26	$	29	$	26
Additions for credit loss impairments recognized in the current period on securities
	not previously impaired		11		-		11		-
Additions for credit loss impairments recognized in the current period on securities
	previously impaired		-		-		2		-
Ending balance		$	42	$	26	$	42	$	26

The Company does not recognize OTTI on securities insured by MBIA Corp. and National since those securities, whether or not owned by the Company, are evaluated for impairments in accordance with its loss reserving policy. The following table provides information about securities held by the Company as of June 30,2017thatwere in an unrealized loss position and insured by a financial guarantor, along with the amount of insurance lossreserves corresponding to the par amount owned by the Company:

				Unrealized		Insurance Loss
In millions		Fair Value		Loss		Reserve (2)
Mortgage-backed:
	MBIA(1)	$	15	$	(4)	$	16
Corporate obligations:
	MBIA(1)		9		-		-
Other:
	MBIA(1)		7		-		-
	Other		2		-		-
Total		$	33	$	(4)	$	16
_______________
(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 proceeds and the gross realized gains and losses from sales of fixed-maturity securities held as AFS for the three and six months endedJune 30,2017 and 2016are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2017		2016		2017		2016
Proceeds from sales	$	716	$	656	$	987	$	937
Gross realized gains	$	15	$	26	$	19	$	37
Gross realized losses	$	(3)	$	(13)	$	(4)	$	(18)