
	December 31, 2019
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
AFS Investments
Fixed-maturity investments:
U.S. Treasury and government agency	$	148	$	(1)	$	79	$	(1)	$	227	$	(2)
State and municipal bonds		11		—		15		—		26		—
Corporate obligations		53		(1)		10		—		63		(1)
Mortgage-backed securities:
Residential mortgage-backed agency		62		—		7		—		69		—
Residential mortgage-backed non-agency		—		—		11		(5)		11		(5)
Commercial mortgage-backed		5		—		—		—		5		—
Asset-backed securities:
Collateralized debt obligations		44		—		77		(2)		121		(2)
Other asset-backed		48		(1)		7		—		55		(1)

Total AFS investments	$	371	$	(3)	$	206	$	(8)	$	577	$	(11)

Gross unrealized losses on AFS investments decreased as of December 31, 2020 compared with December 31, 2019 primarily due to lower interest rates, partially offset by widening 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 December 31, 2020 and 2019 was 9 and 10 years, respectively. As of December 31, 2020 and 2019, there were 42 and 63 securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 9 and 16 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 where fair value was below book value by more than 5% as of December 31, 2020:


	AFS Securities
Percentage of Fair Value Below Book Value	Number of Securities		Book Value (in millions)		Fair Value (in millions)
> 5% to 15%		6	$	3	$	3
> 15% to 25%		1		—		—
> 50%		2		—		—

Total		9	$	3	$	3

Impaired securities that the Company intends to sell before the expected recovery of such securities’ fair values have been written down to fair value. During the second quarter of 2020, the Company impaired intent to sell securities in an unrealized loss position to fair value. These securities were subsequently sold in the third quarter of 2020. As of December 31, 2020, 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 December 31, 2020 that would require the sale of impaired securities.

Credit Losses on Investments

In calculating credit-related losses, the Company uses cash flow modeling based on the type of security. The Company’s cash flow analysis considers all sources of cash that support the payment of amounts owed by an issuer of a security. For AFS investments, this includes the credit enhancement taking into the consideration of cash expected to be provided by financial guarantors, including MBIA Corp. and National, 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 a credit loss on an impaired security.

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

Determination of Credit Losses on ABS, MBS and Corporate Obligations

AFS ABS investments are evaluated for credit loss 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 effective interest rate used to recognize interest income on the security. For CDO

investments, the Company uses 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 a credit loss.

AFS RMBS investments are evaluated for credit losses using several quantitative tools. Loan level data is obtained and analyzed in a model that produces prepayment, default, and severity vectors. The model uses 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 a credit loss.

For AFS corporate obligation investments, credit losses are evaluated 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 and management. 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 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 a credit loss.

For HTM corporate obligation investments, credit losses are evaluated based on quarterly estimates of the probability-weighted amount of principal and interest cash flows expected to be collected over the estimated remaining lives of the security. Developing the Company’s probability-weighted expected future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions regarding the future performance. The Company’s considerations include, but are not limited to, (a) changes in the financial conditions of the security’s underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) changes in the financial condition, credit rating and near-term prospects of the issuer, (d) level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the security. Estimates of collectability require the use of significant management judgment and include the probability and timing of issuer’s default and loss severity estimates. In addition, cash flow projections may change when these factors are reviewed and updated as appropriate.

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

The Company does not recognize credit losses 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. Refer to “Note 2: Significant Accounting Policies” included herein for information about the Company’s loss reserving policy and “Note 6: Loss and Loss Adjustment Expense Reserves” for information about loss reserves.

The following table provides information about securities held by the Company as of December 31, 2020 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. The Company did not hold any securities in an unrealized loss position that were insured by a third-party financial guarantor as of December 31, 2020.


In millions	Fair Value		Unrealized Loss		Insurance Loss Reserve (1)
Mortgage-backed	$	3	$	—	$	1

Total	$	3	$	—	$	1

(1)—Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

Allowance for Credit Losses Rollforward

The Company did not establish an allowance for credit losses for AFS securities as of December 31, 2020 or purchase any credit-deteriorated assets for the year ended December 31, 2020.

The following table presents the rollforward of the allowance for credit losses on HTM investments for the year ended December 31, 2020. As of December 31, 2020, the allowance for credit losses was reduced to zero as a result of the repayment of the assets, at par, during the fourth quarter of 2020.


			Year Ended December 31, 2020
In millions	Balance as of January 1, 2020 (1)		Current period provision for expected credit losses		Initial allowance recognized for PCD assets		Write-Offs		Recoveries		Balance as of December 31, 2020
HTM Investments
Assets of consolidated VIEs:
Corporate obligations	$	37	$	(37)	$	—	$	—	$	—	$	—

Total Allowance on HTM investments	$	37	$	(37)	$	—	$	—	$	—	$	—

(1)—Represents

transition adjustment upon adoption of ASU

2016-13.

Credit Loss Rollforward for AFS

The portion of certain unrealized losses on fixed-maturity securities that does not represent credit losses is recognized in 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 non-credit related losses was recognized in AOCI, and the corresponding changes in such amounts. The additional credit loss impairments on securities previously impaired for the year ended December 31, 2018 primarily related to a corporate obligation that incurred liquidity concerns, ongoing credit risk and other adverse financial conditions. In 2019, due to the

Company’s intent to sell, this security was impaired to fair value with any incremental impairment recorded as a credit loss impairments in earnings, as well as a reduction of

inception-to-date

recognized credit loss impairments.


In millions	Years Ended December 31,
Credit Losses Recognized in Earnings Related to OTTI	2019		2018
Beginning balance	$	37	$	32
Additions for credit loss impairments recognized in the current period on securities previously impaired		67		5
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period		(104)		—

Ending balance	$	—	$	37

Sales of Available-for-Sale Investments

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 years ended December 31, 2020, 2019 and 2018 are as follows:


	Years Ended December 31,
In millions	2020		2019		2018
Proceeds from sales	$	1,095	$	2,195	$	2,117
Gross realized gains	$	59	$	103	$	6
Gross realized losses	$	(15)	$	(4)	$	(19)

Equity Investments

Unrealized gains and losses recognized on equity investments held as of the end of each period for the years ended December 31, 2020, 2019 and 2018 are as follows:


	Years Ended December 31,
In millions	2020		2019		2018
Net gains and (losses) recognized during the period on equity securities	$	3	$	11	$	(4)
Less:
Net gains and (losses) recognized during the period on equity securities sold during the period		(1)		1		1

Unrealized gains and (losses) recognized during the period on equity securities still held at the reporting date	$	4	$	10	$	(5)