Note 9: Derivative Instruments

The Company has primarily entered into derivative instruments consisting of interest rate swaps to manage the risks associated with fluctuations in interest rates affecting the value of certain assets in the corporate segment. Additionally, the Company has insured interest rate swaps and inflation-linked swaps related to its insured debt issuances in the U.S. public finance insurance and the international and structured finance insurance segments. These derivatives do not qualify for the financial guarantee scope exception and are accounted for as derivative instruments. The Company’s international and structured finance insurance segment consolidated a VIE which is party to a cross currency swap, entered into to manage the variability in cash flows resulting from fluctuations in foreign currency rates.

Credit Derivatives Sold

The following tables present information about credit derivatives sold by the Company’s insurance operations that were outstanding as of December 31, 2022 and 2021. Credit ratings represent the lower of underlying ratings assigned to the collateral by Moody’s Investor Services (“Moody’s”), Standard & Poor’s Financial Services, LLC (“S&P”) or MBIA.


$ in millions	As of December 31, 2022
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured swaps		13.7 Years	$	—	$	50	$	1,013	$	227	$	60	$	1,350	$	—

Total fair value			$	—	$	—	$	—	$	—	$	—			$	—


$ in millions	As of December 31, 2021
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)

Insured swaps		14.1 Years	$	—	$	61	$	1,136	$	292	$	—	$	1,489	$	(1)

Total fair value			$	—	$	—	$	(1)	$	—	$	—			$	(1)

Internal credit ratings assigned by MBIA on the underlying credit exposures are assigned 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. The maximum potential amount of future payments (undiscounted) on insured swaps that are primarily insured interest rate swaps is estimated as the net interest settlements plus principal payments where applicable, on amortizing swaps.

MBIA may hold recourse provisions through subrogation rights of the swap counterparty, whereby if MBIA makes a claim payment, it may be entitled to receive net swap settlements from the issuer under the swap agreement.

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 December 31, 2022 and 2021, the Company did not hold or post cash collateral to derivative counterparties.

As of December 31, 2022 and 2021, the Company had securities with a fair value of $73 million and $159 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 December 31, 2022 and 2021, the fair value

one

Credit Support Annex

(“CSA”) was a liability of

million and an asset of
$1 million, respectively. 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 December 31, 2022 and 2021, the counterparty was rated Aa3 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 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 tables present 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, 2022 and 2021:


	December 31, 2022
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 swaps	$	1,350		Other assets	$	—		Derivative liabilities	$	—
Interest rate swaps		380		Other assets		—		Derivative liabilities		(49)
Interest rate swaps-embedded		194		Medium-term notes		1		Medium-term notes		(2)
Currency swaps-VIE		36		Other assets-VIE		—		Derivative liabilities-VIE		(6)

Total non-designated derivatives	$	1,960			$	1			$	(57)

(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.


	December 31, 2021
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 swaps	$	1,489		Other assets	$	—		Derivative liabilities	$	(1)
Interest rate swaps		399		Other assets		1		Derivative liabilities		(130)
Interest rate swaps-embedded		206		Medium-term notes		—		Medium-term notes		(9)
Currency swaps-VIE		50		Other assets-VIE		9		Derivative liabilities-VIE		—

Total non-designated derivatives	$	2,144			$	10			$	(140)

The following table presents the effect of derivative instruments on the consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020:


In millions		Years Ended December 31,
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Years Ended December 31,
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2022		2021		2020
Insured credit default swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	—	$	—	$	6
Insured swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		1		—		—
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		79		18		(42)
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(15)		3		(2)
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		—		—		(15)

Total		$	65	$	21	$	(53)