
	December 31, 2021
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	$	782	$	—	$	54	$	(2)	$	834
State and municipal bonds		140		—		27		—		167
Foreign governments		13		—		1		—		14
Corporate obligations		905		—		53		(5)		953
Mortgage-backed securities:
Residential mortgage-backed agency		190		—		3		(1)		192
Residential mortgage-backed non-agency		80		—		12		—		92
Commercial mortgage-backed		10		—		—		—		10
Asset-backed securities:
Collateralized debt obligations		101		—		—		—		101
Other asset-backed		95		—		—		(1)		94

Total AFS investments	$	2,316	$	—	$	150	$	(9)	$	2,457

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 December 31, 2022. 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	$	199	$	197
Due after one year through five years		280		270
Due after five years through ten years		332		288
Due after ten years		788		652
Mortgage-backed and asset-backed		564		524

Total fixed-maturity investments	$	2,163	$	1,931

Deposited and Pledged Securities

The fair value of securities on deposit with various regulatory authorities as of December 31, 2022 and 2021 was $10 million and $11 million, respectively. These deposits are required to comply with state insurance laws.

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 December 31, 2022 and 2021, the fair value of securities pledged as collateral for these investment agreements approximated $251 million and $280 million, respectively. The Company’s collateral as of December 31, 2022 consisted principally of U.S. Treasury and government agency and corporate obligations, and was primarily held with major U.S. banks.

Refer to “Note 9: 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 December 31, 2022 and 2021:


	December 31, 2022
	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	$	266	$	(34)	$	29	$	(4)	$	295	$	(38)
State and municipal bonds		92		(10)		1		(1)		93		(11)
Foreign governments		9		(3)		—		—		9		(3)
Corporate obligations		508		(106)		141		(42)		649		(148)
Mortgage-backed securities:
Residential mortgage-backed agency		112		(9)		65		(13)		177		(22)
Residential mortgage-backed non-agency		65		(10)		2		(1)		67		(11)
Commercial mortgage-backed		18		(1)		1		—		19		(1)
Asset-backed securities:
Collateralized debt obligations		51		(1)		60		(4)		111		(5)
Other asset-backed		44		(3)		24		(1)		68		(4)

Total AFS investments	$	1,165	$	(177)	$	323	$	(66)	$	1,488	$	(243)


	December 31, 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	$	161	$	(1)	$	16	$	(1)	$	177	$	(2)
State and municipal bonds		11		—		—		—		11		—
Foreign governments		3		—		—		—		3		—
Corporate obligations		270		(5)		8		—		278		(5)
Mortgage-backed securities:
Residential mortgage-backed agency		94		(1)		1		—		95		(1)
Residential mortgage-backed non-agency		3		—		1		—		4		—
Commercial mortgage-backed		2		—		—		—		2		—
Asset-backed securities:
Collateralized debt obligations		60		—		29		—		89		—
Other asset-backed		72		(1)		—		—		72		(1)

Total AFS investments	$	676	$	(8)	$	55	$	(1)	$	731	$	(9)

Gross unrealized losses on AFS investments increased as of December 31, 2022 compared with December 31, 2021 primarily due to higher interest rates and 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, 2022 and 2021 was 14 and 11 years, respectively. As of December 31, 2022 and 2021, there were 210 and 36 securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 190 and 7 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, 2022:


	AFS Securities
Percentage of Fair Value Below Book Value	Number of Securities		Book Value (in millions)		Fair Value (in millions)
> 5% to 15%		72	$	129	$	117
> 15% to 25%		63		117		93
> 25% to 50%		53		84		56
> 50%		2		—		—

Total		190	$	330	$	266

As of December 31, 2022, 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, 2022 that 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. For the year ended December 31, 2022, impairment loss due to intent to sell securities in an unrealized loss position was $21 million and reported in “Other net realized gains (losses)” on the Company’s consolidated results of operation.

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.

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, 2022 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, 2022.


In millions	Fair Value		Unrealized Loss		Insurance Loss Reserve (1)
Mortgage-backed	$	58	$	(9)	$	71
Corporate obligations		71		(35)		—

Total	$	129	$	(44)	$	71

(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 for AFS

The Company did not purchase any credit-deteriorated assets during 2022.

The following table presents the rollforward of allowance for credit losses on AFS investments for the year ended December 31, 2022. The additions to the allowance for credit losses for the year ended December 31, 2022 were related to concerns on an issuer’s credit deterioration as a result of the Ukraine and Russia conflict. Such allowance for credit losses was reversed in the same year due to the Company’s intent to sell these securities. The Company did not establish an allowance for credit losses for AFS securities during 2021.


	Years Ended December 31, 2022
In millions	Balance as of December 31, 2021		Additions not previously recorded		Additions arising from PCD Assets		Reductions from Securities Sold		Reductions- Intent to sell or MLTN		Change in Allowance Previously Recorded		Write Offs		Recoveries		Balance as of December 31, 2022
AFS Investments
Fixed-maturity investments:

Corporate obligations	$	—	$	3	$	—	$	—	$	(3)	$	—	$	—	$	—	$	—

Total Allowance on AFS investments	$	—	$	3	$	—	$	—	$	(3)	$	—	$	—	$	—	$	—

Sales of Available-for-Sale Investments

Gross realized gains and losses from sales of AFS investments are recorded within “Net realized investment gains (losses)” 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, 2022, 2021 and 2020 are as

follows:


	Years Ended December 31,
In millions	2022		2021		2020
Proceeds from sales	$	1,100	$	597	$	1,095
Gross realized gains	$	5	$	12	$	59
Gross realized losses	$	(47)	$	(9)	$	(15)

Equity and Trading Investments

Equity and trading investments are included within “Investments carried at fair value” on the Company’s consolidated balance sheets. Unrealized gains and losses recognized on equity and trading investments held as of the end of each period for the years ended December 31, 2022, 2021 and 2020 are as follows:


	Years Ended December 31,
In millions	2022		2021		2020

Net gains and (losses) recognized during the period on equity securities	$	(21)	$	6	$	3
Less:
Net gains and (losses) recognized during the period on equity securities sold during the period		(6)		1		(1)

Unrealized gains and (losses) recognized during the period on equity securities still held at the reporting date	$	(15)	$	5	$	4