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Fair Value Measurement (Tables)
9 Months Ended
Sep. 30, 2011
Fair Value Measurement 
Fair Value Hierarchy of Financial Instruments Carried at Fair Value

 

 

 

 

 

Fair Value Hierarchy

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

 

 

(in millions)

 

Assets:

 

 

 

 

 

 

 

 

 

Investment portfolio, available-for-sale:

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

936.4

 

$

—

 

$

936.4

 

$

—

 

Obligations of state and political subdivisions

 

5,368.4

 

—

 

5,368.4

 

—

 

Corporate securities

 

1,110.7

 

—

 

1,110.7

 

—

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

RMBS

 

1,329.6

 

—

 

1,237.7

 

91.9

 

Commercial Mortgage-Backed Securities (“CMBS”)

 

508.4

 

—

 

508.4

 

—

 

Asset-backed securities

 

501.1

 

—

 

250.6

 

250.5

 

Foreign government securities

 

336.6

 

—

 

336.6

 

—

 

Total fixed maturity securities

 

10,091.2

 

—

 

9,748.8

 

342.4

 

Short-term investments

 

873.3

 

151.7

 

721.6

 

—

 

Other invested assets(1)

 

106.0

 

0.2

 

95.2

 

10.6

 

Credit derivative assets

 

467.2

 

—

 

—

 

467.2

 

FG VIEs’ assets, at fair value

 

3,005.4

 

—

 

—

 

3,005.4

 

Other assets(2)

 

47.7

 

25.5

 

—

 

22.2

 

Total assets carried at fair value

 

$

14,590.8

 

$

177.4

 

$

10,565.6

 

$

3,847.8

 

Liabilities:

 

 

 

 

 

 

 

 

 

Credit derivative liabilities

 

$

1,495.3

 

$

—

 

$

—

 

$

1,495.3

 

FG VIEs’ liabilities with recourse, at fair value

 

2,575.6

 

—

 

—

 

2,575.6

 

FG VIEs’ liabilities without recourse, at fair value

 

1,133.0

 

—

 

—

 

1,133.0

 

Total liabilities carried at fair value

 

$

5,203.9

 

$

—

 

$

—

 

$

5,203.9

 

 

 

 

 

 

Fair Value Hierarchy

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

 

 

(in millions)

 

 

 

(restated)

 

(restated)

 

 

 

(restated)

 

Assets:

 

 

 

 

 

 

 

 

 

Investment portfolio, available-for-sale:

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

1,048.2

 

$

—

 

$

1,048.2

 

$

—

 

Obligations of state and political subdivisions

 

4,959.9

 

—

 

4,959.9

 

—

 

Corporate securities

 

992.5

 

—

 

992.5

 

—

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

RMBS

 

1,171.1

 

—

 

1,071.7

 

99.4

 

CMBS

 

379.1

 

—

 

379.1

 

—

 

Asset-backed securities

 

502.9

 

—

 

292.7

 

210.2

 

Foreign government securities

 

348.6

 

—

 

348.6

 

—

 

Total fixed maturity securities

 

9,402.3

 

—

 

9,092.7

 

309.6

 

Short-term investments

 

1,055.6

 

277.4

 

778.2

 

—

 

Other invested assets(1)

 

33.3

 

0.2

 

21.4

 

11.7

 

Credit derivative assets

 

592.9

 

—

 

—

 

592.9

 

FG VIEs’ assets, at fair value

 

3,657.5

 

—

 

—

 

3,657.5

 

Other assets(2)

 

44.4

 

25.7

 

18.7

 

—

 

Total assets carried at fair value

 

$

14,786.0

 

$

303.3

 

$

9,911.0

 

$

4,571.7

 

Liabilities:

 

 

 

 

 

 

 

 

 

Credit derivative liabilities

 

$

2,462.8

 

$

—

 

$

—

 

$

2,462.8

 

FG VIEs’ liabilities with recourse, at fair value

 

3,030.9

 

—

 

—

 

3,030.9

 

FG VIEs’ liabilities without recourse, at fair value

 

1,337.2

 

—

 

—

 

1,337.2

 

Other liabilities

 

0.1

 

—

 

0.1

 

—

 

Total liabilities carried at fair value

 

$

6,831.0

 

$

—

 

$

0.1

 

$

6,830.9

 

 

(1)                                 Includes mortgage loans that are recorded at fair value on a non-recurring basis. At September 30, 2011 and December 31, 2010, such investments were carried at their market value of $8.7 million and $9.4 million, respectively. The mortgage loans are classified as Level 3 of the fair value hierarchy as there are significant unobservable inputs used in the valuation of such loans. An indicative dealer quote is used to price the non-performing portion of these mortgage loans. The performing loans are valued using management’s determination of future cash flows arising from these loans, discounted at the rate of return that would be required by a market participant. This rate of return is based on indicative dealer quotes.

 

(2)                                 Includes fair value of CCS and supplemental executive retirement account assets.

Fair Value Level 3 Roll Forward

 

Third Quarter 2011

 

 

 

Fixed Maturity
Securities

 

 

 

FG VIEs’

 

 

 

Credit
Derivative

 

FG VIEs’
Liabilities

 

FG VIEs’
Liabilities

 

 

 

RMBS

 

Asset-
Backed
Securities

 

Other
Invested
Assets

 

Assets at
Fair
Value

 

Other Assets

 

Asset
(Liability),
net(5)

 

with
Recourse,
at Fair Value

 

without
Recourse, at
Fair Value

 

 

 

(in millions)

 

Fair value at June 30, 2011

 

$

88.0

 

$

273.9

 

$

2.0

 

$

3,492.2

 

$

—

 

$

(2,187.5

)

$

(2,848.9

)

$

(1,282.5

)

Total pretax realized and unrealized gains/(losses) recorded in(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

6.0

(2)

(7.4

)(2)

—

 

(312.5

)(3)

2.4

(4)

1,155.9

(6)

97.6

(3)

89.4

(3)

Other comprehensive income (loss)

 

(36.8

)

(15.1

)

(0.1

)

—

 

—

 

—

 

—

 

—

 

Purchases

 

42.8

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

Sales

 

(8.1

)

(0.9

)

—

 

—

 

—

 

—

 

—

 

—

 

Settlements

 

—

 

—

 

—

 

(174.3

)

—

 

3.5

 

175.7

 

60.1

 

FG VIE consolidations

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

Transfers into Level 3

 

—

 

—

 

—

 

—

 

19.8

 

—

 

—

 

—

 

Fair value at September 30, 2011

 

$

91.9

 

$

250.5

 

$

1.9

 

$

3,005.4

 

$

22.2

 

$

(1,028.1

)

$

(2,575.6

)

$

(1,133.0

)

Change in unrealized gains/(losses) related to financial instruments held at September 30, 2011

 

$

(36.8

)

$

(15.1

)

$

(0.1

)

$

(180.1

)

$

2.4

 

$

1,159.3

 

$

97.5

 

$

60.2

 

 

 

 

Third Quarter 2010
(restated)

 

 

 

Fixed Maturity
Securities

 

 

 

FG VIEs’

 

Credit
Derivative

 

FG VIEs’

 

FG VIEs’

 

 

 

RMBS

 

Asset-
Backed
Securities

 

Other
Invested
Assets

 

Assets at
Fair
Value

 

Asset
(Liability),
net(5)

 

Liabilities
with Recourse,
at Fair Value

 

Liabilities without
Recourse, at Fair
Value

 

 

 

(in millions)

 

Fair value at June 30, 2010

 

$

102.9

 

$

230.3

 

$

2.6

 

$

1,844.7

 

$

(1,274.9

)

$

(2,107.5

)

$

(184.9

)

Total pretax realized and unrealized gains/(losses) recorded in(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(4.9

)(2)

(0.2

)(2)

—

 

79.6

(3)

(224.0

)(6)

146.2

(3)

19.5

(3)

Other comprehensive income (loss)

 

22.1

 

(8.3

)

(0.2

)

—

 

—

 

—

 

—

 

Purchases, issuances, sales, settlements, net

 

(4.4

)

7.1

 

—

 

(49.7

)

(197.7

)

23.4

 

(16.0

)

FG VIE consolidations, deconsolidations, net

 

—

 

—

 

—

 

422.1

 

—

 

(383.0

)

(55.5

)

Transfers in and/or out of Level 3(7)

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

Fair value at September 30, 2010

 

$

115.7

 

$

228.9

 

$

2.4

 

$

2,296.7

 

$

(1,696.6

)

$

(2,320.9

)

$

(236.9

)

Change in unrealized gains/(losses) related to financial instruments held at September 30, 2010

 

$

22.1

 

$

(8.3

)

$

2.7

 

$

123.9

 

$

(277.1

)

$

131.0

 

$

60.2

 

 

 

 

Nine Months 2011

 

 

 

Fixed Maturity Securities

 

 

 

FG VIEs’

 

 

 

Credit
Derivative

 

FG VIEs’

 

FG VIEs’

 

 

 

RMBS

 

Asset-
Backed
Securities

 

Other
Invested
Assets

 

Assets
at Fair
Value

 

Other Assets

 

Asset
(Liability),
net(5)

 

Liabilities
with Recourse,
at Fair Value

 

Liabilities without
Recourse, at Fair
Value

 

 

 

(in millions)

 

Fair value at December 31, 2010

 

$

99.4

 

$

210.2

 

$

2.3

 

$

3,657.5

 

$

—

 

$

(1,869.9

)

$

(3,030.9

)

$

(1,337.2

)

Total pretax realized and unrealized gains/(losses) recorded in(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(25.3

)(2)

(3.7

)(2)

—

 

(289.7

)(3)

2.4

(4)

854.9

(6)

101.4

(3)

40.4

(3)

Other comprehensive income (loss)

 

(84.5

)

(2.1

)

(0.4

)

—

 

—

 

—

 

—

 

—

 

Purchases

 

195.0

 

47.1

 

—

 

—

 

—

 

—

 

—

 

—

 

Sales

 

(29.1

)

(1.0

)

—

 

—

 

—

 

—

 

—

 

—

 

Settlements

 

—

 

—

 

—

 

(644.8

)

—

 

(13.1

)

626.3

 

226.9

 

FG VIE Consolidations

 

(63.6

)

—

 

—

 

282.4

 

—

 

—

 

(272.4

)

(63.1

)

Transfers into Level 3

 

—

 

—

 

—

 

—

 

19.8

 

—

 

—

 

—

 

Fair value at September 30, 2011

 

$

91.9

 

$

250.5

 

$

1.9

 

$

3,005.4

 

$

22.2

 

$

(1,028.1

)

$

(2,575.6

)

$

(1,133.0

)

Change in unrealized gains/(losses) related to financial instruments held at September 30, 2011

 

$

(84.5

)

$

(2.1

)

$

(0.4

)

$

168.2

 

$

2.4

 

$

847.6

 

$

95.1

 

$

(111.8

)

 

 

 

Nine Months 2010
(restated)

 

 

 

Fixed Maturity Securities

 

 

 

 

 

Credit
Derivative

 

FG VIEs’
Liabilities

 

FG VIEs’
Liabilities

 

 

 

RMBS

 

Asset-
Backed
Securities

 

Other
Invested
Assets

 

FG VIEs’
Assets
at Fair Value

 

Asset
(Liability),
net(5)

 

with
Recourse,
at Fair Value

 

without
Recourse, at Fair
Value

 

 

 

(in millions)

 

Fair value at December 31, 2009

 

$

—

 

$

203.9

 

$

0.2

 

$

—

 

$

(1,542.1

)

$

—

 

$

—

 

Adoption of new accounting standard

 

 

 

 

 

 

 

1,925.3

 

—

 

(2,110.9

)

(226.0

)

Fair value at January 1, 2010

 

—

 

203.9

 

0.2

 

1,925.3

 

(1,542.1

)

(2,110.9

)

(226.0

)

Total pretax realized and unrealized gains/(losses) recorded in(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

0.7

(2)

(15.4

)(2)

—

 

62.6

(3)

128.3

(6)

158.5

(3)

27.0

(3)

Other comprehensive income (loss)

 

(37.5

)

0.8

 

(0.4

)

—

 

—

 

—

 

—

 

Purchases, issuances, sales, settlements, net

 

88.7

 

20.8

 

2.6

 

(164.2

)

(282.8

)

86.0

 

17.6

 

FG VIE consolidations, deconsolidations, net

 

—

 

—

 

—

 

473.0

 

—

 

(454.5

)

(55.5

)

Transfers in and/or out of Level 3(7)

 

 

63.8

 

 

18.8

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Fair value at September 30, 2010

 

$

115.7

 

$

228.9

 

$

2.4

 

$

2,296.7

 

$

(1,696.6

)

$

(2,320.9

)

$

(236.9

)

Change in unrealized gains/(losses) related to financial instruments held at September 30, 2010

 

$

(37.5

)

$

0.8

 

$

2.4

 

$

220.4

 

$

17.5

 

$

(119.9

)

$

1.5

 

 

(1)

 

Realized and unrealized gains (losses) from changes in values of Level 3 financial instruments represent gains (losses) from changes in values of those financial instruments only for the periods in which the instruments were classified as Level 3.

 

 

 

(2)

 

Included in net realized investment gains (losses) and net investment income.

 

 

 

(3)

 

Included in net change in fair value of FG VIEs.

 

 

 

(4)

 

Recorded in fair value gain (loss) on committed capital securities.

 

 

 

(5)

 

Represents net position of credit derivatives. The consolidated balance sheet presents gross assets and liabilities based on net counterparty exposure.

 

 

 

(6)

 

Reported in net change in fair value of credit derivatives.

 

 

 

(7)

 

After analyzing prices provided by a third party pricing service, the Company determined it was necessary to reduce the pricing on one security based on the Company’s own cash flow analysis which was deemed a level 3.

Fair Value of Financial Instruments

 

As of September 30,
2011

 

As of December 31,
2010

 

 

 

Carrying
Amount

 

Estimated
Fair Value

 

Carrying
Amount

 

Estimated
Fair Value

 

 

 

(in millions)

 

 

 

 

 

 

 

(restated)

 

(restated)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

10,091.2

 

$

10,091.2

 

$

9,402.3

 

$

9,402.3

 

Short-term investments

 

873.3

 

873.3

 

1,055.6

 

1,055.6

 

Other invested assets

 

238.6

 

248.3

 

259.8

 

269.7

 

Credit derivative assets

 

467.2

 

467.2

 

592.9

 

592.9

 

FG VIE’s assets, at fair value

 

3,005.4

 

3,005.4

 

3,657.5

 

3,657.5

 

Other assets

 

47.7

 

47.7

 

44.4

 

44.4

 

Liabilities:

 

 

 

 

 

 

 

 

 

Financial guaranty insurance contracts(1)

 

4,813.4

 

4,259.8

 

4,777.6

 

5,582.8

 

Long-term debt(2)

 

1,041.7

 

1,079.6

 

1,052.9

 

1,074.5

 

Credit derivative liabilities

 

1,495.3

 

1,495.3

 

2,462.8

 

2,462.8

 

FG VIEs’ liabilities with recourse, at fair value

 

2,575.6

 

2,575.6

 

3,030.9

 

3,030.9

 

FG VIEs’ liabilities without recourse, at fair value

 

1,133.0

 

1,133.0

 

1,337.2

 

1,337.2

 

 

(1)                                 Carrying amount includes the balance sheet amounts related to financial guaranty insurance contract premiums and losses, net of reinsurance. Fair value measurement is Level 3 in the fair value hierarchy.

 

(2)                                 Carrying amount represented principal less accumulated discount or plus accumulated premium. Fair value measurement is Level 2 and Level 3 in the fair value hierarchy.