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Fair Value Measurement (Tables)
 12 Months Ended
Dec. 31, 2014
Fair Value Disclosures [Abstract]  
Information by Credit Spread Type
Information by Credit Spread Type (1)
 
 
As of
December 31, 2014
 
As of
December 31, 2013
Based on actual collateral specific spreads
9
%
 
6
%
Based on market indices
82
%
 
88
%
Provided by the CDS counterparty
9
%
 
6
%
Total
100
%
 
100
%

 ____________________
(1)    Based on par.
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 premium the Company receives 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 December 31, 2014
 
 
 
 
Fair Value Hierarchy
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Assets:
 

 
 

 
 

 
 

Investment portfolio, available-for-sale:
 

 
 

 
 

 
 

Fixed-maturity securities
 

 
 

 
 

 
 

Obligations of state and political subdivisions
$
5,795

 
$
—

 
$
5,757

 
$
38

U.S. government and agencies
665

 
—

 
665

 
—

Corporate securities
1,368

 
—

 
1,289

 
79

Mortgage-backed securities:
 

 
 
 
 
 
 
RMBS
1,285

 
—

 
860

 
425

CMBS
659

 
—

 
659

 
—

Asset-backed securities
417

 
—

 
189

 
228

Foreign government securities
302

 
—

 
302

 
—

Total fixed-maturity securities
10,491


—

 
9,721

 
770

Short-term investments
767

 
359

 
408

 
—

Other invested assets (1)
100

 
—

 
17

 
83

Credit derivative assets
68

 
—

 
—

 
68

FG VIEs’ assets, at fair value (2)
1,398

 
—

 
—

 
1,398

Other assets
78

 
26

 
17

 
35

Total assets carried at fair value
$
12,902

 
$
385

 
$
10,163

 
$
2,354

Liabilities:
 

 
 

 
 

 
 

Credit derivative liabilities
$
963

 
$
—

 
$
—

 
$
963

FG VIEs’ liabilities with recourse, at fair value
1,277

 
—

 
—

 
1,277

FG VIEs’ liabilities without recourse, at fair value
142

 
—

 
—

 
142

Total liabilities carried at fair value
$
2,382

 
$
—

 
$
—

 
$
2,382

 
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of December 31, 2013
 
 
 
 
Fair Value Hierarchy
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Assets:
 

 
 

 
 

 
 

Investment portfolio, available-for-sale:
 

 
 

 
 

 
 

Fixed-maturity securities
 

 
 

 
 

 
 

Obligations of state and political subdivisions
$
5,079

 
$
—

 
$
5,043

 
$
36

U.S. government and agencies
700

 
—

 
700

 
—

Corporate securities
1,340

 
—

 
1,204

 
136

Mortgage-backed securities:
 

 
 

 
 

 
 

RMBS
1,122

 
—

 
832

 
290

CMBS
549

 
—

 
549

 
—

Asset-backed securities
608

 
—

 
340

 
268

Foreign government securities
313

 
—

 
313

 
—

Total fixed-maturity securities
9,711

 
—

 
8,981

 
730

Short-term investments
904

 
506

 
398

 
—

Other invested assets(1)
127

 
—

 
119

 
8

Credit derivative assets
94

 
—

 
—

 
94

FG VIEs’ assets, at fair value
2,565

 
—

 
—

 
2,565

Other assets
84

 
27

 
11

 
46

Total assets carried at fair value
$
13,485

 
$
533

 
$
9,509

 
$
3,443

Liabilities:
 

 
 

 
 

 
 

Credit derivative liabilities
$
1,787

 
$
—

 
$
—

 
$
1,787

FG VIEs’ liabilities with recourse, at fair value
1,790

 
—

 
—

 
1,790

FG VIEs’ liabilities without recourse, at fair value
1,081

 
—

 
—

 
1,081

Total liabilities carried at fair value
$
4,658

 
$
—

 
$
—

 
$
4,658

 ____________________
(1)
Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.

(2)
Exclude restricted cash.
Fair Value Assets Measured on Recurring Basis
Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 2014
 
 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
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, 2013
$
36

 

$
136

 
$
290

 

$
268

 
$
2

 
$
2,565

 

$
46

 

$
(1,693
)
 
$
(1,790
)
 
$
(1,081
)
 
Total pretax realized and unrealized gains/(losses) recorded in:(1)
 
 



 
 

 

 

 
 

 
 

 

 

 

 

 

 

 

 

 

Net income (loss)
4

(2
)
(46
)
(2
)
21

(2
)
17

(2
)
—

 
164

(3
)
(11
)
(4
)
823

(6
)
94

(3
)
(43
)
(3
)
Other comprehensive income (loss)
(1
)
 

(6
)
 
24

 

5

 
6

 
—

 

—

 

—

 

—

 

—

 

Purchases
—

 

—

 
263

 

—

 
70

 
—

 

—

 

—

 

—

 

—

 

Settlements
(1
)
 
(5
)
 
(59
)
 
(62
)
 
0

 
(408
)
 
—

 

(25
)
 

374

 

22

 

FG VIE consolidations
—

 

—

 
(127
)
 

—

 
—

 
206

 

—

 

—

 

(189
)
 
(42
)
 

FG VIE deconsolidations
—

 
—

 
13

 
—

 
—

 
(1,129
)
 
—

 
—

 
234

 
1,002

 
Fair value as of December 31, 2014
$
38

 

$
79

 
$
425

 

$
228

 
$
78

 
$
1,398

 

$
35

 

$
(895
)
 
$
(1,277
)
 
$
(142
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2014
$
(1
)
 
$
(6
)
 
$
21

 
$
4

 
$
6

 
$
141

 
$
(11
)
 
$
254

 
$
(22
)
 
$
3

 

Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 2013

 
Fixed-Maturity Securities
 
 
 
 
 
 

 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
Corporate Securities
 
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)
(8
)
(2
)
4

(2
)
13

(2
)
67

(2
)
(1
)
(7
)
686

(3
)
10

(4
)
65

(6
)
(166
)
(3
)
(225
)
(3
)
Other comprehensive income (loss)
13

 
5

 
26

 

(43
)
 
2

 
—

 

—

 
—

 

—

 

—

 

Purchases
—

 
130

(8
)
86

 

80

 
2

(8
)
—

 

—

 
—

 

—

 

—

 

Settlements
(4
)
 
(3
)
 
(54
)
 
(142
)
 
(2
)
 
(663
)
 
—

 
35

 

343

 

168

 

FG VIE consolidations
—

 
—

 
—

 

—

 
—

 
48

 

—

 
—

 

(12
)
 
(37
)
 

FG VIE deconsolidations
—

 
—

 
—

 
—

 
—

 
(194
)
 
—

 
—

 
135

 
64

 
Fair value as of December 31, 2013
$
36

 
$
136

 
$
290

 

$
268

 
$
2

 
$
2,565

 

$
46

 
$
(1,693
)
 

$
(1,790
)
 
$
(1,081
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2013
$
14

 
$
5

 
$
27

 
$
(20
)
 
$
2

 
$
623

 
$
10

 
$
(139
)
 
$
(169
)
 
$
(326
)
 
 ___________________
(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 CCS.

(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)
Reported in other income.

(8)
Non-cash transaction.
Fair Value, Liabilities Measured on Recurring Basis
The table below presents a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during the years ended December 31, 2014 and 2013.

Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 2014
 
 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
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, 2013
$
36

 

$
136

 
$
290

 

$
268

 
$
2

 
$
2,565

 

$
46

 

$
(1,693
)
 
$
(1,790
)
 
$
(1,081
)
 
Total pretax realized and unrealized gains/(losses) recorded in:(1)
 
 



 
 

 

 

 
 

 
 

 

 

 

 

 

 

 

 

 

Net income (loss)
4

(2
)
(46
)
(2
)
21

(2
)
17

(2
)
—

 
164

(3
)
(11
)
(4
)
823

(6
)
94

(3
)
(43
)
(3
)
Other comprehensive income (loss)
(1
)
 

(6
)
 
24

 

5

 
6

 
—

 

—

 

—

 

—

 

—

 

Purchases
—

 

—

 
263

 

—

 
70

 
—

 

—

 

—

 

—

 

—

 

Settlements
(1
)
 
(5
)
 
(59
)
 
(62
)
 
0

 
(408
)
 
—

 

(25
)
 

374

 

22

 

FG VIE consolidations
—

 

—

 
(127
)
 

—

 
—

 
206

 

—

 

—

 

(189
)
 
(42
)
 

FG VIE deconsolidations
—

 
—

 
13

 
—

 
—

 
(1,129
)
 
—

 
—

 
234

 
1,002

 
Fair value as of December 31, 2014
$
38

 

$
79

 
$
425

 

$
228

 
$
78

 
$
1,398

 

$
35

 

$
(895
)
 
$
(1,277
)
 
$
(142
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2014
$
(1
)
 
$
(6
)
 
$
21

 
$
4

 
$
6

 
$
141

 
$
(11
)
 
$
254

 
$
(22
)
 
$
3

 

Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 2013

 
Fixed-Maturity Securities
 
 
 
 
 
 

 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
Corporate Securities
 
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)
(8
)
(2
)
4

(2
)
13

(2
)
67

(2
)
(1
)
(7
)
686

(3
)
10

(4
)
65

(6
)
(166
)
(3
)
(225
)
(3
)
Other comprehensive income (loss)
13

 
5

 
26

 

(43
)
 
2

 
—

 

—

 
—

 

—

 

—

 

Purchases
—

 
130

(8
)
86

 

80

 
2

(8
)
—

 

—

 
—

 

—

 

—

 

Settlements
(4
)
 
(3
)
 
(54
)
 
(142
)
 
(2
)
 
(663
)
 
—

 
35

 

343

 

168

 

FG VIE consolidations
—

 
—

 
—

 

—

 
—

 
48

 

—

 
—

 

(12
)
 
(37
)
 

FG VIE deconsolidations
—

 
—

 
—

 
—

 
—

 
(194
)
 
—

 
—

 
135

 
64

 
Fair value as of December 31, 2013
$
36

 
$
136

 
$
290

 

$
268

 
$
2

 
$
2,565

 

$
46

 
$
(1,693
)
 

$
(1,790
)
 
$
(1,081
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2013
$
14

 
$
5

 
$
27

 
$
(20
)
 
$
2

 
$
623

 
$
10

 
$
(139
)
 
$
(169
)
 
$
(326
)
 
 ___________________
(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 CCS.

(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)
Reported in other income.

(8)
Non-cash transaction.
Schedule of Quantitative Information About Level 3 Assets, Fair Value Measurements
Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2014
 
Financial Instrument Description(1)
 
Fair Value at December 31, 2014(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets:
 
 

 
 
 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
38

 
Rate of inflation
 
1.0
%
-
3.0%
 
2.0%
 
 
Cash flow receipts
0.5
%
-
74.3%
 
63.0%
 
 
Yield
4.6
%
 
8.0%
 
7.3%
 
 
Collateral recovery period
1 month

-
34 years
 
28 years
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
79

 
Yield
 
17.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
425

 
CPR
 
0.3
%
-
8.1%
 
3.3%
 
 
CDR
 
2.7
%
-
10.6%
 
5.3%
 
 
Loss severity
 
52.6
%
-
100.0%
 
75.2%
 
 
Yield
 
4.7
%
-
11.7%
 
6.4%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Investor owned utility
 
95

 
Cash flow receipts
 
100.0%
 
 
 
 
Collateral recovery period
 
4 years
 
 
 
 
Discount factor
 
7.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
XXX life insurance transactions
 
133

 
Yield
 
7.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other invested assets
 
83

 
Discount for lack of liquidity
 
20.0%
 
 
 
 
Recovery on delinquent loans
 
40.0%
 
 
 
 
Default rates
 
0.0
%
-
7.0%
 
5.8%
 
 
Loss severity
 
40.0
%
-
75.0%
 
68.3%
 
 
Prepayment speeds
 
5.0
%
-
15.0%
 
12.3%
 
 
Net asset value (per share)
 
$
965

-
$1,159
 
$1,082
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
1,398

 
CPR
 
0.3
%
-
11.0%
 
3.3%
 
 
CDR
 
1.6
%
-
11.8%
 
5.1%
 
 
Loss severity
 
40.0
%
-
100.0%
 
82.2%
 
 
Yield
 
2.7
%
-
17.7%
 
7.9%


 
Financial Instrument Description(1)
 
Fair Value at
December 31, 2014
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Other assets
 
35

 
Quotes from third party pricing
 
$52
-
$61
 
$57
 
 
Term (years)
 
5 years
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(895
)
 
Year 1 loss estimates
 
0.0
%
-
93.0%
 
2.1%
 
 
Hedge cost (in bps)
 
20.0

-
243.8
 
61.5
 
 
Bank profit (in bps)
 
1.0

-
994.4
 
127.0
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
15.9
 
 
Internal credit rating
 
AAA

-
CCC
 
AA+
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(1,419
)
 
CPR
 
0.3
%
-
11.0%
 
3.3%
 
 
CDR
 
1.6
%
-
11.8%
 
5.1%
 
 
Loss severity
 
40.0
%
-
100.0%
 
82.2%
 
 
Yield
 
2.7
%
-
17.7%
 
5.8%
____________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.

 Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2013 

Financial Instrument Description(1)
 
Fair Value at December 31, 2013(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets:
 
 

 
 
 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
36

 
Rate of inflation
 
1.0
%
-
3.0%
 
2.0%
 
 
Cash flow receipts
0.5
%
-
60.9%
 
51.1%
 
 
Discount rates
4.6
%
-
9.0%
 
8.0%
 
 
Collateral recovery period
1 month

-
10 years
 
3 years
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
136

 
Yield
 
8.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
290

 
CPR
 
1.0
%
-
15.8%
 
4.1%
 
 
CDR
 
5.0
%
-
25.8%
 
17.9%
 
 
Loss severity
 
48.1
%
-
102.5%
 
87.2%
 
 
Yield
 
2.5
%
-
9.4%
 
5.7%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Investor owned utility
 
141

 
Liquidation value (in millions)
 

$195

-
$245
 
$228
 
 
Years to liquidation
 
0 years

-
3 years
 
2 years
 
 
Collateral recovery period
 
12 months

-
6 years
 
3.5 years
 
 
Discount factor
 
15.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
XXX life insurance transactions
 
127

 
Yield
 
12.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other invested assets
 
8

 
Discount for lack of liquidity
 
10.0
%
-
20.0%
 
20.0%
 
 
Recovery on delinquent loans
 
20.0
%
-
60.0%
 
40.0%
 
 
Default rates
 
1.0
%
-
10.0%
 
3.2%
 
 
Loss severity
 
40.0
%
-
90.0%
 
73.5%
 
 
Prepayment speeds
 
6.0
%
-
15.0%
 
13.1%
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
2,565

 
CPR
 
0.3
%
-
11.8%
 
3.6%
 
 
CDR
 
3.0
%
-
25.8%
 
13.6%
 
 
Loss severity
 
37.5
%
-
102.0%
 
94.6%
 
 
Yield
 
3.5
%
-
10.2%
 
5.4%


 

Financial Instrument Description(1)
 
Fair Value at
December 31, 2013
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Other assets
 
46

 
Quotes from third party pricing
 
$47
-
$53
 
$50
 
 
 
Term (years)
 
5 years
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(1,693
)
 
Year 1 loss estimates
 
0.0
%
-
48.0%
 
1.9%
 
 
Hedge cost (in bps)
 
46.3

-
525.0
 
110.1
 
 
Bank profit (in bps)
 
1.0

-
1,418.5
 
250.4
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
15.6
 
 
Internal credit rating
 
AAA

-
CCC
 
AA+
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(2,871
)
 
CPR
 
0.3
%
-
11.8%
 
3.6%
 
 
CDR
 
3.0
%
-
25.8%
 
13.6%
 
 
Loss severity
 
37.5
%
-
102.0%
 
94.6%
 
 
Yield
 
3.5
%
-
10.2%
 
5.4%
____________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.
Schedule of Quantitative Information About Level 3 Liabilities, Fair Value Measurements
Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2014
 
Financial Instrument Description(1)
 
Fair Value at December 31, 2014(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets:
 
 

 
 
 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
38

 
Rate of inflation
 
1.0
%
-
3.0%
 
2.0%
 
 
Cash flow receipts
0.5
%
-
74.3%
 
63.0%
 
 
Yield
4.6
%
 
8.0%
 
7.3%
 
 
Collateral recovery period
1 month

-
34 years
 
28 years
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
79

 
Yield
 
17.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
425

 
CPR
 
0.3
%
-
8.1%
 
3.3%
 
 
CDR
 
2.7
%
-
10.6%
 
5.3%
 
 
Loss severity
 
52.6
%
-
100.0%
 
75.2%
 
 
Yield
 
4.7
%
-
11.7%
 
6.4%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Investor owned utility
 
95

 
Cash flow receipts
 
100.0%
 
 
 
 
Collateral recovery period
 
4 years
 
 
 
 
Discount factor
 
7.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
XXX life insurance transactions
 
133

 
Yield
 
7.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other invested assets
 
83

 
Discount for lack of liquidity
 
20.0%
 
 
 
 
Recovery on delinquent loans
 
40.0%
 
 
 
 
Default rates
 
0.0
%
-
7.0%
 
5.8%
 
 
Loss severity
 
40.0
%
-
75.0%
 
68.3%
 
 
Prepayment speeds
 
5.0
%
-
15.0%
 
12.3%
 
 
Net asset value (per share)
 
$
965

-
$1,159
 
$1,082
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
1,398

 
CPR
 
0.3
%
-
11.0%
 
3.3%
 
 
CDR
 
1.6
%
-
11.8%
 
5.1%
 
 
Loss severity
 
40.0
%
-
100.0%
 
82.2%
 
 
Yield
 
2.7
%
-
17.7%
 
7.9%


 
Financial Instrument Description(1)
 
Fair Value at
December 31, 2014
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Other assets
 
35

 
Quotes from third party pricing
 
$52
-
$61
 
$57
 
 
Term (years)
 
5 years
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(895
)
 
Year 1 loss estimates
 
0.0
%
-
93.0%
 
2.1%
 
 
Hedge cost (in bps)
 
20.0

-
243.8
 
61.5
 
 
Bank profit (in bps)
 
1.0

-
994.4
 
127.0
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
15.9
 
 
Internal credit rating
 
AAA

-
CCC
 
AA+
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(1,419
)
 
CPR
 
0.3
%
-
11.0%
 
3.3%
 
 
CDR
 
1.6
%
-
11.8%
 
5.1%
 
 
Loss severity
 
40.0
%
-
100.0%
 
82.2%
 
 
Yield
 
2.7
%
-
17.7%
 
5.8%
____________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.

 Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2013 

Financial Instrument Description(1)
 
Fair Value at December 31, 2013(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets:
 
 

 
 
 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
36

 
Rate of inflation
 
1.0
%
-
3.0%
 
2.0%
 
 
Cash flow receipts
0.5
%
-
60.9%
 
51.1%
 
 
Discount rates
4.6
%
-
9.0%
 
8.0%
 
 
Collateral recovery period
1 month

-
10 years
 
3 years
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
136

 
Yield
 
8.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
290

 
CPR
 
1.0
%
-
15.8%
 
4.1%
 
 
CDR
 
5.0
%
-
25.8%
 
17.9%
 
 
Loss severity
 
48.1
%
-
102.5%
 
87.2%
 
 
Yield
 
2.5
%
-
9.4%
 
5.7%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Investor owned utility
 
141

 
Liquidation value (in millions)
 

$195

-
$245
 
$228
 
 
Years to liquidation
 
0 years

-
3 years
 
2 years
 
 
Collateral recovery period
 
12 months

-
6 years
 
3.5 years
 
 
Discount factor
 
15.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
XXX life insurance transactions
 
127

 
Yield
 
12.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other invested assets
 
8

 
Discount for lack of liquidity
 
10.0
%
-
20.0%
 
20.0%
 
 
Recovery on delinquent loans
 
20.0
%
-
60.0%
 
40.0%
 
 
Default rates
 
1.0
%
-
10.0%
 
3.2%
 
 
Loss severity
 
40.0
%
-
90.0%
 
73.5%
 
 
Prepayment speeds
 
6.0
%
-
15.0%
 
13.1%
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
2,565

 
CPR
 
0.3
%
-
11.8%
 
3.6%
 
 
CDR
 
3.0
%
-
25.8%
 
13.6%
 
 
Loss severity
 
37.5
%
-
102.0%
 
94.6%
 
 
Yield
 
3.5
%
-
10.2%
 
5.4%


 

Financial Instrument Description(1)
 
Fair Value at
December 31, 2013
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Other assets
 
46

 
Quotes from third party pricing
 
$47
-
$53
 
$50
 
 
 
Term (years)
 
5 years
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(1,693
)
 
Year 1 loss estimates
 
0.0
%
-
48.0%
 
1.9%
 
 
Hedge cost (in bps)
 
46.3

-
525.0
 
110.1
 
 
Bank profit (in bps)
 
1.0

-
1,418.5
 
250.4
 
 
Internal floor (in bps)
 
7.0

-
100.0
 
15.6
 
 
Internal credit rating
 
AAA

-
CCC
 
AA+
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(2,871
)
 
CPR
 
0.3
%
-
11.8%
 
3.6%
 
 
CDR
 
3.0
%
-
25.8%
 
13.6%
 
 
Loss severity
 
37.5
%
-
102.0%
 
94.6%
 
 
Yield
 
3.5
%
-
10.2%
 
5.4%
____________________
(1)
Discounted cash flow is used as valuation technique for all financial instruments.
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
December 31, 2014
 
As of
December 31, 2013
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(in millions)
Assets:
 

 
 

 
 

 
 

Fixed-maturity securities
$
10,491

 
$
10,491

 
$
9,711

 
$
9,711

Short-term investments
767

 
767

 
904

 
904

Other invested assets
108

 
110

 
147

 
155

Credit derivative assets
68

 
68

 
94

 
94

FG VIEs’ assets, at fair value
1,398

 
1,398

 
2,565

 
2,565

Other assets
184

 
184

 
179

 
179

Liabilities:
 

 
 

 
 

 
 

Financial guaranty insurance contracts(1)
3,823

 
6,205

 
3,783

 
5,128

Long-term debt
1,303

 
1,603

 
816

 
970

Credit derivative liabilities
963

 
963

 
1,787

 
1,787

FG VIEs’ liabilities with recourse, at fair value
1,277

 
1,277

 
1,790

 
1,790

FG VIEs’ liabilities without recourse, at fair value
142

 
142

 
1,081

 
1,081

Other liabilities
27

 
27

 
36

 
36

____________________
(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.