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Note 3 - Derivative Instruments (Notes)
 9 Months Ended
Sep. 30, 2012
Derivative Instruments [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
Derivative Instruments
In the past, we provided credit protection in the form of CDS within our financial guaranty segment whereby we had guaranteed the holder of a financial obligation the full and timely payment of principal and interest when due, or in excess of specified levels of losses. These derivatives have various maturity dates, but the majority of the underlying CDS mature within five years.
The following table sets forth our gross unrealized gains and gross unrealized losses on derivative assets and liabilities as of the dates indicated. Certain contracts are in an asset position because the net present value of the contractual premium we receive exceeds the net present value of our estimate of the expected future premiums that a financial guarantor of similar credit quality to us would charge to provide the same credit protection, assuming a transfer of our obligation to such financial guarantor as of the measurement date.
 
(In millions)
September 30,
2012
 
December 31,
2011
Balance Sheets
 
 
 
Derivative assets:
 
 
 
Financial Guaranty credit derivative assets
$
13.0

 
$
15.4

NIMS related and other
1.8

 
1.8

Total derivative assets
14.8

 
17.2

Derivative liabilities:
 
 
 
Financial Guaranty credit derivative liabilities
196.2

 
106.5

Financial Guaranty VIE derivative liabilities
71.1

(1)
19.5

Total derivative liabilities
267.3

 
126.0

Total derivative liabilities, net
$
252.5

 
$
108.8


________________
(1)
As a result of the Commutation Transactions described in Note 1, we established a VIE. See Note 5 for further details.
The notional value of our derivative contracts at September 30, 2012 and December 31, 2011, was $24.0 billion and $36.5 billion, respectively.
The components of the (losses) gains included in change in fair value of derivative instruments are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2012
 
2011
 
2012
 
2011
Statements of Operations
 
 
 
 
 
 
 
Net premiums earned—derivatives
$
7.1

 
$
10.3

 
$
23.0

 
$
31.7

Financial Guaranty credit derivatives
(51.8
)
 
120.1

 
(171.2
)
 
536.6

Financial Guaranty VIE derivatives
3.7

 
(4.5
)
 
1.3

 
(9.4
)
NIMS related and other
—

 
0.1

 
—

 
(0.3
)
Change in fair value of derivative instruments
$
(41.0
)
 
$
126.0

 
$
(146.9
)
 
$
558.6


The valuation of derivative instruments may result in significant volatility from period to period in gains and losses as reported on our consolidated statements of operations. Generally, these gains and losses result, in part, from changes in corporate credit or asset-backed spreads and changes in the creditworthiness of underlying corporate entities or the credit performance of the assets underlying ABS. Additionally, when determining the fair value of our liabilities, we are required to incorporate into the fair value of those liabilities an adjustment that reflects our own non-performance risk and consequently, changes in the market’s perception of our non-performance risk also result in gains and losses on our derivative instruments. Any incurred gains or losses (which include any claim payments) on our financial guaranty contracts that are accounted for as derivatives are recognized as a change in fair value of derivative instruments. Because our fair value determinations for derivative and other financial instruments in our mortgage insurance and financial guaranty businesses are based on assumptions and estimates that are inherently subject to risk and uncertainty, our fair value amounts could vary significantly from period to period. See Note 4 for information on our fair value of financial instruments.
The following table shows selected information about our derivative contracts:
($ in millions)
September 30, 2012
Number of
Contracts
 
Par/
Notional
Exposure
 
Total Net Asset/
(Liability)
Product
 
 
 
 
 
NIMS related and other (1)
—

 
$
—

 
$
1.8

Corporate CDOs
47

 
18,391.4

 
1.1

Non-Corporate CDOs and other derivative transactions:
 
 
 
 
 
TruPs
13

 
1,122.6

 
(11.3
)
CDOs of commercial mortgage-backed securities (“CMBS”)
4

 
1,831.0

 
(79.9
)
Other:
 
 
 
 
 
Structured finance
8

 
709.0

 
(40.3
)
Public finance
23

 
1,457.6

 
(38.8
)
Total Non-Corporate CDOs and other derivative transactions
48

 
5,120.2

 
(170.3
)
Assumed financial guaranty credit derivatives:
 
 
 
 
 
Structured finance
35

 
249.3

 
(12.9
)
Public finance
8

 
129.3

 
(1.1
)
Total Assumed
43

 
378.6

 
(14.0
)
Financial Guaranty VIE derivative liabilities (2)
1

 
75.9

 
(71.1
)
Grand Total
139

 
$
23,966.1

 
$
(252.5
)
 ________________
(1)
Represents NIMS derivative assets related to consolidated NIMS VIEs. Also includes common stock warrants. Because none of these investments represent financial guaranty contracts that we issued, they cannot become liabilities, and therefore, do not represent additional par exposure.
(2)
Represents the fair value of a CDS included in a VIE which we consolidate relating to the Terminated TruPs CDOs. The assets in the VIE represent the only funds available to pay the CDS Counterparty for amounts due under the contract; therefore, the notional exposure presented for the CDS is limited to the current trust assets. See Notes 1 and 5 for information on the underlying reference securities and on our maximum exposure to loss from this consolidated financial guaranty transaction.