
$ in millions	As of June 30, 2019
	Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		0.5 Years	$	-	$	-	$	-	$	-	$	52	$	52	$	(18)
Insured swaps		14.8 Years		-		68		1,419		460		-		1,947		(2)

Total notional			$	-	$	68	$	1,419	$	460	$	52	$	1,999

Total fair value			$	-	$	-	$	(1)	$	(1)	$	(18)			$	(20)


$ in millions	As of December 31, 2018
	Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		1.0 Years	$	-	$	-	$	-	$	-	$	70	$	70	$	(33)
Insured swaps		15.7 Years		-		74		1,463		896		-		2,433		(2)

Total notional			$	-	$	74	$	1,463	$	896	$	70	$	2,503

Total fair value			$	-	$	-	$	(1)	$	(1)	$	(33)			$	(35)

Internal credit ratings assigned by MBIA on the underlying collateral are derived by the Company’s surveillance group. In assigning an internal rating, current status reports from issuers and trustees, as well as publicly available transaction-specific information, are reviewed. Also, where appropriate, cash flow analyses and collateral valuations are considered. The maximum potential amount of future payments (undiscounted) on insured CDS and insured swaps is estimated as the notional value of such contracts.

MBIA may hold recourse provisions with third parties in derivative instruments through subrogation rights, whereby if MBIA makes a claim payment, it may be entitled to any rights of the insured counterparty, including the right to any assets held as collateral.

Counterparty Credit Risk

The Company manages counterparty credit risk on an individual counterparty basis through master netting agreements covering derivative instruments in the corporate segment. These agreements allow the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination in the event either MBIA or the counterparty is downgraded below a specified credit rating.

Under these agreements, the Company may receive or provide cash, U.S. Treasury or other highly rated securities to secure counterparties’ exposure to the Company or its exposure to counterparties, respectively. Such collateral is available to the holder to pay for replacing the counterparty in the event that the counterparty defaults. As of June 30, 2019, the Company did not hold cash collateral to derivative counterparties but posted $21 million cash collateral to derivative counterparties. As of December 31, 2018, the Company did

not

hold or post cash collateral to derivative counterparties.

As of June 30, 2019 and December 31, 2018, the Company had securities with a fair value of $231 million and $205 million, respectively, posted to derivative counterparties and these amounts are included within “Fixed-maturity securities held as

available-for-sale,

at fair value” on the Company’s consolidated balance sheets.

As of June 30, 2019 and December 31, 2018, the fair value on

one

Credit Support Annex (“CSA”) was $2 million. This CSA governs collateral posting requirements between MBIA and its derivative counterparties. The Company did not receive collateral due to the Company’s credit rating, which was below the CSA minimum credit ratings level for holding counterparty collateral. As of June 30, 2019 and December 31, 2018, the counterparty was rated A1 by Moody’s and A+ by S&P.

Financial Statement Presentation

The fair value of amounts recognized for eligible derivative contracts executed with the same counterparty under a master netting agreement, including any cash collateral that may have been received or posted by the Company, is presented on a net basis in accordance with accounting guidance for the offsetting of fair value amounts related to derivative instruments. Insured CDS and insured swaps are not subject to master netting agreements. VIE derivative assets and liabilities are not presented net of any master netting agreements. Counterparty netting of derivative assets and liabilities offsets balances in “Interest rate swaps”, when applicable.

The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting, as of June 30, 2019:


In millions			Derivative Assets (1)			Derivative Liabilities (1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Not designated as hedging instruments:
Insured credit default swaps	$	52	Other assets	$	-	Derivative liabilities	$	(18)
Insured swaps		1,947	Other assets		-	Derivative liabilities		(2)
Interest rate swaps		681	Other assets		2	Derivative liabilities		(199)
Interest rate swaps-embedded		235	Medium-term notes		-	Medium-term notes		(18)
Currency swaps-VIE		60	Other assets-VIE		11	Derivative liabilities-VIE		-
All other		49	Other assets		-	Derivative liabilities		(16)

Total non-designated derivatives	$	3,024		$	13		$	(253)

(1) -

In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.

The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting, as of December 31, 2018:


In millions			Derivative Assets (1)			Derivative Liabilities (1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Not designated as hedging instruments:
Insured credit default swaps	$	70	Other assets	$	-	Derivative liabilities	$	(33	)
Insured swaps		2,433	Other assets		-	Derivative liabilities		(2	)
Interest rate swaps		712	Other assets		2	Derivative liabilities		(157	)
Interest rate swaps-embedded		293	Medium-term notes		-	Medium-term notes		(13	)
Currency swaps-VIE		62	Other assets-VIE		16	Derivative liabilities-VIE		-
All other		49	Other assets		-	Derivative liabilities		(7	)

Total non-designated derivatives	$	3,619		$	18		$	(212	)

(1) -

The following table presents the effect of derivative instruments on the consolidated statements of operations for the three months ended June 30, 2019 and 2018:


In millions
Derivatives Not Designated as		Three Months Ended June 30,
Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2019			2018
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	1		$	18
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(1	)		(25	)
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(35	)		7
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2	)		-
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		(9	)		-
Total		$	(46	)	$	-

The following table presents the effect of derivative instruments on the consolidated statements of operations for the six months ended June 30, 2019 and 2018:


In millions
Derivatives Not Designated as		Six Months Ended June 30,
Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2019			2018
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	14		$	32
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(1	)		(44	)
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(55	)		25
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(5	)		(5	)
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		(9	)		-
Total		$	(56	)	$	8