
	December 31, 2020
In millions	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
AFS Investments
Fixed-maturity investments:
U.S. Treasury and government agency	$	775	$	-	$	75	$	(1	)	$	849
State and municipal bonds		162		-		32		-			194
Foreign governments		11		-		1		-			12
Corporate obligations		827		-		64		(1	)		890
Mortgage-backed securities:
Residential mortgage-backed agency		305		-		8		(1	)		312
Residential mortgage-backed non-agency		22		-		3		-			25
Commercial mortgage-backed		17		-		1		-			18
Asset-backed securities:				-
Collateralized debt obligations		120		-		-		(2	)		118
Other asset-backed		121		-		-		-			121

Total AFS investments	$	2,360	$	-	$	184	$	(5	)	$	2,539

The following table presents the distribution by contractual maturity of AFS fixed-maturity securities at amortized cost, net of allowance for credit losses, and fair value as of September 30, 2021. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.


	AFS Securities
In millions	Net Amortized Cost		Fair Value
Due in one year or less	$	462	$	462
Due after one year through five years		308		323
Due after five years through ten years		321		336
Due after ten years		691		773
Mortgage-backed and asset-backed		497		510

Total fixed-maturity investments	$	2,279	$	2,404

Deposited and Pledged Securities

The fair value of securities on deposit with various regulatory authorities as of September 30, 2021 and December 31, 2020 was $11 million. These deposits are required to comply with 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.

Investment agreement obligations require the Company to pledge securities as collateral. Securities pledged in connection with investment agreements may not be repledged by the investment agreement counterparty. As of September 30, 2021 and December 31, 2020, the fair value of securities pledged as collateral for these investment agreements approximated $282 million. The Company’s collateral as of September 30, 2021 consisted principally of U.S. Treasury and government agency and corporate obligations, and was primarily held with major U.S. banks.

Refer to “Note 8: Derivative Instruments” for information about securities posted to derivative counterparties.

Impaired Investments

The following tables present the

non-credit

related gross unrealized losses related to AFS investments as of September 30, 2021 and December 31, 2020:


	September 30, 2021
	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	$	60	$	(1	)	$	10	$	(1	)	$	70	$	(2	)
State and municipal bonds		1		-			-		-			1		-
Foreign governments		6		-			-		-			6		-
Corporate obligations		287		(5	)		7		-			294		(5	)
Mortgage-backed securities:
Residential mortgage-backed agency		83		(1	)		1		-			84		(1	)
Residential mortgage-backed non-agency		-		-			1		-			1		-
Commercial mortgage-backed		2		-			-		-			2		-
Asset-backed securities:
Collateralized debt obligations		44		-			43		(1	)		87		(1	)
Other asset-backed		56		-			-		-			56		-

Total AFS investments	$	539	$	(7	)	$	62	$	(2	)	$	601	$	(9	)


	December 31, 2020
	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	$	99	$	(1	)	$	-	$	-		$	99	$	(1	)
Foreign governments		2		-			-		-			2		-
Corporate obligations		103		(1	)		7		-			110		(1	)
Mortgage-backed securities:
Residential mortgage-backed agency		53		(1	)		-		-			53		(1	)
Residential mortgage-backed non-agency		2		-			1		-			3		-
Commercial mortgage-backed		-		-			5		-			5		-
Asset-backed securities:
Collateralized debt obligations		37		-			78		(2	)		115		(2	)
Other asset-backed		29		-			-		-			29		-

Total AFS investments	$	325	$	(3	)	$	91	$	(2	)	$	416	$	(5	)

Gross unrealized losses on AFS investments increased as of September 30, 2021 compared with December 31, 2020 primarily due to higher interest rates, partially offset by tightening 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 September 30, 2021 and December 31, 2020 was 11 and 9 years, respectively. As of September 30, 2021 and December 31, 2020, there were 37 and 42 securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 6 and 9 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 September 30, 2021:


	AFS Securities
Percentage of Fair Value Below Book Value	Number of Securities		Book Value (in millions)		Fair Value (in millions)
> 5% to 15%		2	$	-	$	-
> 15% to 25%		2		5		4
> 50%		2		-		-

Total		6	$	5	$	4

Impaired securities that the Company intends to sell before the expected recovery of such securities’ fair values have been written down to fair value. As of September 30, 2021, 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, 2021 that would require the sale of impaired securities.

Credit Losses on Investments

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. If the Company determines that the declines in the fair value are related to credit loss, the Company will establish an allowance for credit losses and recognize the credit component through earnings. 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, 2020 for a discussion of the Company’s policy for its determination of credit losses.

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. The following table provides information about securities held by the Company as of September 30, 2021 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 September 30, 2021.


In millions	Fair Value		Unrealized Loss		Insurance Loss Reserve (1)
Mortgage-backed	$	1	$	-	$	-
Corporate obligations		37		(2)		-

Total	$	38	$	(2)	$	-

(1) -

Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured and are discounted using a discount rate equal to the risk-free rate applicable to the currency and weighted average remaining life of the insurance contract and may differ from the fair value.

Allowance for Credit Losses Rollforward

The Company did not establish an allowance for credit losses for AFS securities as of September 30, 2021 or purchase any credit-deteriorated assets for the three or nine months ended September 30, 2021.

The following tables present the rollforward of the allowance for credit losses on HTM investments for the three and nine months ended September 30, 2020. As of September 30, 2020, the allowance for credit losses was reduced to zero as a result of the repayment of the assets, at par, subsequent to the third quarter of 2020.


			Three Months Ended September 30, 2020
In millions	Balance, Beginning of Period		Current period provision for expected credit losses			Initial allowance recognized for PCD assets		Write-Offs		Recoveries		Balance as of September 30, 2020
HTM Investments
Assets of consolidated VIEs:
Corporate obligations	$	23	$	(23	)	$	-	$	-	$	-	$	-

Total Allowance on HTM investments	$	23	$	(23	)	$	-	$	-	$	-	$	-


			Nine Months Ended September 30, 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 September 30, 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.

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 three and nine months ended September 30, 2021 and 2020 are as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
In millions	2021		2020			2021			2020
Proceeds from sales	$	73	$	293		$	469		$	862
Gross realized gains	$	1	$	22		$	7		$	53
Gross realized losses	$	-	$	(2	)	$	(8	)	$	(14	)

Equity Investments

Unrealized gains and losses recognized on equity investments held as of the end of each period for the three and nine months ended September 30, 2021 and 2020 are as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
In millions	2021			2020		2021		2020
Net gains (losses) recognized during the period on equity securities	$	-		$	4	$	5	$	(1	)
Less:
Net gains (losses) recognized during the period on equity securities sold during the period		1			-		1		-

Unrealized gains (losses) recognized during the period on equity securities still held at the reporting date	$	(1	)	$	4	$	4	$	(1	)