Fair Value Measurement (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Information by Credit Spread Type

Information by Credit Spread Type

	As of March 31, 2013		As of December 31, 2012
Based on actual collateral specific spreads	6	%	6	%
Based on market indices	88	%	88	%
Provided by the CDS counterparty	6	%	6	%
Total	100	%	100	%

Schedule of example effects of change in gross spreads, company's own credit spread and cost to buy protection on the on the Company affect the amount of premium the company can demand for credit protection

Following is an example of how changes in gross spreads, the Company’s own credit spread and the cost to buy protection on the Company affect the amount of premium the Company can demand for its credit protection. The assumptions used in these examples are hypothetical amounts. Scenario 1 represents the market conditions in effect on the transaction date and Scenario 2 represents market conditions at a subsequent reporting date.

	Scenario 1			Scenario 2
	bps	% of Total		bps	% of Total
Original gross spread/cash bond price (in bps)	185			500
Bank profit (in bps)	115	62	%	50	10	%
Hedge cost (in bps)	30	16	%	440	88	%
The Company premium received per annum (in bps)	40	22	%	10	2	%

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of March 31, 2013

			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	$	877	$	—	$	877	$	—
Obligations of state and political subdivisions	5,602		—		5,567		35
Corporate securities	1,040		—		1,040		—
Mortgage-backed securities:
RMBS	1,196		—		975		221
Commercial mortgage-backed securities ("CMBS")	505		—		505		—
Asset-backed securities	495		—		209		286
Foreign government securities	270		—		270		—
Total fixed maturity securities	9,985		—		9,443		542
Short-term investments	729		562		167		—
Other invested assets(1)	80		—		73		7
Credit derivative assets	125		—		—		125
FG VIEs’ assets, at fair value	2,813		—		—		2,813
Other assets(2)	58		27		5		26
Total assets carried at fair value	$	13,790	$	589	$	9,688	$	3,513
Liabilities:
Credit derivative liabilities	$	2,518	$	—	$	—	$	2,518
FG VIEs’ liabilities with recourse, at fair value	2,071		—		—		2,071
FG VIEs’ liabilities without recourse, at fair value	1,107		—		—		1,107
Total liabilities carried at fair value	$	5,696	$	—	$	—	$	5,696

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of December 31, 2012

			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	$	794	$	—	$	794	$	—
Obligations of state and political subdivisions	5,631		—		5,596		35
Corporate securities	1,010		—		1,010		—
Mortgage-backed securities:
RMBS	1,266		—		1,047		219
CMBS	520		—		520		—
Asset-backed securities	531		—		225		306
Foreign government securities	304		—		304		—
Total fixed maturity securities (3)	10,056		—		9,496		560
Short-term investments	817		446		371		—
Other invested assets(1)	120		—		112		8
Credit derivative assets	141		—		—		141
FG VIEs’ assets, at fair value	2,688		—		—		2,688
Other assets(2)	65		24		5		36
Total assets carried at fair value	$	13,887	$	470	$	9,984	$	3,433
Liabilities:
Credit derivative liabilities	$	1,934	$	—	$	—	$	1,934
FG VIEs’ liabilities with recourse, at fair value	2,090		—		—		2,090
FG VIEs’ liabilities without recourse, at fair value	1,051		—		—		1,051
Total liabilities carried at fair value	$	5,075	$	—	$	—	$	5,075

 ____________________

(1) Includes mortgage loans that are recorded at fair value on a non-recurring basis. At March 31, 2013 and December 31, 2012, such investments were carried at their market value of $6 million and $7 million, respectively.

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

(3)    See Note 10, Investments and Cash.

Fair Value Level 3 Roll Forward

The table below presents a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during First Quarter 2013 and 2012.

Fair Value Level 3 Rollforward

Recurring Basis

First Quarter2013

	Fixed Maturity Securities
	Obligations of State and Political Subdivisions					RMBS					Asset- Backed Securities					Other Invested Assets		FG VIEs’ Assets at Fair Value					Other Assets					Credit Derivative Asset (Liability), net(5)					FG VIEs' Liabilities with Recourse, at Fair Value					FG VIEs’ Liabilities without Recourse, at Fair Value
	(in millions)
Fair value as of December 31, 2012	$	35				$	219				$	306				$	1	$	2,688				$	36				$	(1,793	)			$	(2,090	)			$	(1,051	)
Total pretax realized and unrealized gains/(losses) recorded in:(1)
Net income (loss)	1			(2	)	5			(2	)	4			(2	)	0		215			(3	)	(10		)	(4	)	(592		)	(6	)	(81		)	(3	)	(74		)	(3	)
Other comprehensive income (loss)	0					7					(22		)			0		—					—					—					—					—
Purchases	—					3					—					—		—					—					—					—					—
Settlements	(1		)			(11		)			(2		)			—		(138		)			—					(8		)			112					55
FG VIE consolidations	—					(2		)			—					—		48					—					—					(12		)			(37		)
Fair value as of March 31, 2013	$	35				$	221				$	286				$	1	$	2,813				$	26				$	(2,393	)			$	(2,071	)			$	(1,107	)
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2013	$	0				$	9				$	(22	)			$	0	$	199				$	(10	)			$	(611	)			$	(83	)			$	(94	)

Fair Value Level 3 Rollforward

Recurring Basis

First Quarter 2012

	Fixed Maturity Securities
	Obligations of state and political subdivisions			RMBS					Asset Backed Securities					Other Invested Assets		FG VIEs’ Assets at Fair Value					Other Assets					Credit Derivative Asset (Liability), net(5)					FG VIEs’ Liabilities with Recourse, at Fair Value					FG VIEs’ Liabilities without Recourse, at Fair Value
	(in millions)
Fair value as of December 31, 2011	$	10		$	134				$	235				$	2	$	2,819				$	54				$	(1,304	)			$	(2,397	)			(1,061	)
Total pretax realized and unrealized gains/(losses) recorded in:(1)
Net income (loss)	0			1			(2	)	6			(2	)	—		132			(3	)	(14		)	(4	)	(691		)	(6	)	(86		)	(3	)	(80	)	(3	)
Other comprehensive income (loss)	0			10					0					0		—					—					—					—					—
Purchases	—			—					18					—		—					—					—					—					—
Settlements	(1		)	(9		)			(1		)			—		(138		)			—					42					138					55
FG VIE consolidations	—			—					—					—		15					—					—					(20		)
Fair value as of March 31, 2012	$	9		$	136				$	258				$	2	$	2,828				$	40				$	(1,953	)			$	(2,365	)			(1,086	)
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2012	$	0		$	10				$	0				$	0	$	231				$	(14	)			$	(635	)			$	(107	)			(118	)

 ___________________

(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 fair value gains (losses) on FG VIEs.

(4) Recorded in fair value gains (losses) 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.

Schedule of Quantitative Information About Level 3 Fair Value Measurements

Quantitative Information About Level 3 Fair Value Inputs

At March 31, 2013

Financial Instrument Description	Fair Value at March 31, 2013 (in millions)		Valuation Technique	Significant Unobservable Inputs	Range
Assets:
Fixed maturity securities:
Obligations of state and political subdivisions	$	35	Discounted	Rate of inflation	1.0		%	-	3.0%
			cash flow	Cash flow receipts	4.9		%	-	85.8%
				Yield	4.3		%		9.0%
				Collateral recovery period	1 month			-	43 years
RMBS	221		Discounted	CPR	0.8		%	-	7.5%
			cash flow	CDR	4.4		%	-	25.8%
				Severity	47.9		%	-	102.8%
				Yield	3.0		%	-	9.6%
Asset-backed securities:
Whole business securitization	63		Discounted cash flow	Annual gross revenue projections (in millions)		$54		-	$96
				Value of primary financial guaranty policy	43.8%
				Liquidity discount	5.0		%	-	20.0%
Investor owned utility	162		Discounted cash flow	Liquidation value (in millions)		$217		-	$242
				Years to liquidation	0 years			-	3 years
				Collateral recovery period	9 months			-	6 years
				Discount factor	15.3%
XXX life insurance transactions	61		Discounted	Yield	12.0%
			cash flow
Other invested assets	7		Discounted cash flow	Discount for lack of liquidity	10.0		%	-	20.0%
				Recovery on delinquent loans	20.0		%	-	60.0%
				Default rates	1.0		%	-	12.0%
				Loss severity	40.0		%	-	90.0%
				Prepayment speeds	6.0		%	-	15.0%
FG VIEs’ assets, at fair value	2,813		Discounted	CPR	0.4		%	-	11.0%
			cash flow	CDR	1.8		%	-	28.6%
				Loss severity	37.5		%	-	106.4%
				Yield	3.0		%	-	20.0%

Financial Instrument Description	Fair Value at March 31, 2013 (in millions)		Valuation Technique	Significant Unobservable Inputs	Range
Other assets	26		Discounted cash flow	Quotes from third party pricing	$51		-	$55
				Term (years)	3 years
Liabilities:
Credit derivative liabilities, net	(2,393	)	Discounted	Year 1 loss estimates	0.0	%	-	68.0%
			cash flow	Hedge cost (in bps)	14.8		-	397.5
				Bank profit (in bps)	1.0		-	1,336.5
				Internal floor (in bps)	7.0		-	100.0
				Internal credit rating	AAA		-	BIG
FG VIEs’ liabilities, at fair value	(3,178	)	Discounted	CPR	0.4	%	-	11.0%
			cash flow	CDR	1.8	%	-	28.6%
				Loss severity	37.5	%	-	106.4%
				Yield	3.0	%	-	20.0%

Quantitative Information About Level 3 Fair Value Inputs

At December 31, 2012

Financial Instrument Description	Fair Value at December 31, 2012 (in millions)		Valuation Technique	Significant Unobservable Inputs	Range
Assets:
Fixed maturity securities:
Obligations of state and political subdivisions	$	35	Discounted	Rate of inflation	1.0		%	-	3.0%
			cash flow	Cash flow receipts	4.9		%	-	85.8%
				Discount rates	4.3		%		9.0%
				Collateral recovery period	1 month			-	43 years
RMBS	219		Discounted	CPR	0.8		%	-	7.5%
			cash flow	CDR	4.4		%	-	28.6%
				Severity	48.1		%	-	102.8%
				Yield	3.5		%	-	12.8%
Asset-backed securities:
Whole business securitization	63		Discounted cash flow	Annual gross revenue projections (in millions)		$54		-	$96
				Value of primary financial guaranty policy	43.8%
				Liquidity discount	5.0		%	-	20.0%
Investor owned utility	186		Discounted cash flow	Liquidation value (in millions)		$212		-	$242
				Years to liquidation	0 years			-	3 years
				Discount factor	15.3%
XXX life insurance transactions	57		Discounted	Yield	12.5%
			cash flow
Other invested assets	8		Discounted cash flow	Discount for lack of liquidity	10.0		%	-	20.0%
				Recovery on delinquent loans	20.0		%	-	60.0%
				Default rates	1.0		%	-	12.0%
				Loss severity	40.0		%	-	90.0%
				Prepayment speeds	6.0		%	-	15.0%
FG VIEs’ assets, at fair value	2,688		Discounted	CPR	0.5		%	-	10.9%
			cash flow	CDR	3.0		%	-	28.6%
				Loss severity	37.5		%	-	103.8%
				Yield	4.5		%	-	20.0%

Financial Instrument Description	Fair Value at December 31, 2012 (in millions)		Valuation Technique	Significant Unobservable Inputs	Range
Other assets	36		Discounted cash flow	Quotes from third party pricing	$38		-	$51
				Term (years)	3 years
Liabilities:
Credit derivative liabilities, net	(1,793	)	Discounted	Year 1 loss estimates	0.0	%	-	58.7%
			cash flow	Hedge cost (in bps)	64.2		-	678.4
				Bank profit (in bps)	1.0		-	1,312.9
				Internal floor (in bps)	7.0		-	60.0
				Internal credit rating	AAA		-	BIG
FG VIEs’ liabilities, at fair value	(3,141	)	Discounted	CPR	0.5	%	-	10.9%
			cash flow	CDR	3.0	%	-	28.6%
				Loss severity	37.5	%	-	103.8%
				Yield	4.5	%	-	20.0%

The

Fair Value of Financial Instruments

The carrying amount and estimated fair value of the Company’s financial instruments are presented in the following table.

Fair Value of Financial Instruments

	As of March 31, 2013				As of December 31, 2012
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in millions)
Assets:
Fixed maturity securities	$	9,985	$	9,985	$	10,056	$	10,056
Short-term investments	729		729		817		817
Other invested assets	119		122		177		182
Credit derivative assets	125		125		141		141
FG VIEs’ assets, at fair value	2,813		2,813		2,688		2,688
Other assets	210		210		166		166
Liabilities:
Financial guaranty insurance contracts(1)	3,591		5,955		3,918		6,537
Long-term debt	832		1,131		836		1,091
Credit derivative liabilities	2,518		2,518		1,934		1,934
FG VIEs’ liabilities with recourse, at fair value	2,071		2,071		2,090		2,090
FG VIEs’ liabilities without recourse, at fair value	1,107		1,107		1,051		1,051
Other liabilities	88		88		47		47

____________________

(1) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.