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Fair Value Measurement (Tables)
 3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Information by Credit Spread Type
Information by Credit Spread Type (1)
 
 
As of
March 31, 2018
 
As of
December 31, 2017
Based on actual collateral specific spreads
13
%
 
14
%
Based on market indices
50
%
 
48
%
Provided by the CDS counterparty
37
%
 
38
%
Total
100
%
 
100
%
 ____________________
(1)    Based on par.
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
 
Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.
 
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of March 31, 2018
 
 
 
 
Fair Value Hierarchy
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Assets:
 

 
 

 
 

 
 

Investment portfolio, available-for-sale(1):
 

 
 

 
 

 
 

Fixed-maturity securities
 

 
 

 
 

 
 

Obligations of state and political subdivisions
$
5,474

 
$
—

 
$
5,391

 
$
83

U.S. government and agencies
275

 
—

 
275

 
—

Corporate securities
1,924

 
—

 
1,862

 
62

Mortgage-backed securities:
 

 
 
 
 
 
 
RMBS
849

 
—

 
535

 
314

Commercial mortgage-backed securities (CMBS)
559

 
—

 
559

 
—

Asset-backed securities
889

 
—

 
80

 
809

Non-U.S. government securities
327

 
—

 
327

 
—

Total fixed-maturity securities
10,297


—

 
9,029

 
1,268

Short-term investments
751

 
267

 
484

 
—

Other invested assets (2)
7

 
—

 
0

 
7

FG VIEs’ assets, at fair value (3)
651

 
—

 
—

 
651

Other assets(3)
124

 
29

 
35

 
60

Total assets carried at fair value
$
11,830

 
$
296

 
$
9,548

 
$
1,986

Liabilities:
 

 
 
 
 
 
 
Credit derivative liabilities (3)
$
237

 
$
—

 
$
—

 
$
237

FG VIEs’ liabilities with recourse, at fair value (4)
598

 
—

 
—

 
598

FG VIEs’ liabilities without recourse, at fair value (3)
110

 
—

 
—

 
110

Total liabilities carried at fair value
$
945

 
$
—

 
$
—

 
$
945

 
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of December 31, 2017
 
 
 
 
Fair Value Hierarchy
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Assets:
 

 
 

 
 

 
 

Investment portfolio, available-for-sale(1):
 

 
 

 
 

 
 

Fixed-maturity securities
 

 
 

 
 

 
 

Obligations of state and political subdivisions
$
5,760

 
$
—

 
$
5,684

 
$
76

U.S. government and agencies
285

 
—

 
285

 
—

Corporate securities
2,018

 
—

 
1,951

 
67

Mortgage-backed securities:
 

 
 

 
 

 
 

RMBS
861

 
—

 
527

 
334

CMBS
549

 
—

 
549

 
—

Asset-backed securities
896

 
—

 
109

 
787

Non-U.S. government securities
305

 
—

 
305

 
—

Total fixed-maturity securities
10,674

 
—

 
9,410

 
1,264

Short-term investments
627

 
464

 
162

 
1

Other invested assets (2)
7

 
—

 
0

 
7

FG VIEs’ assets, at fair value (3)
700

 
—

 
—

 
700

Other assets(3)
123

 
25

 
36

 
62

Total assets carried at fair value
$
12,131

 
$
489

 
$
9,608

 
$
2,034

Liabilities:
 

 
 

 
 

 
 

Credit derivative liabilities (3)
$
271

 
$
—

 
$
—

 
$
271

FG VIEs’ liabilities with recourse, at fair value (3)
627

 
—

 
—

 
627

FG VIEs’ liabilities without recourse, at fair value (3)
130

 
—

 
—

 
130

Total liabilities carried at fair value
$
1,028

 
$
—

 
$
—

 
$
1,028

____________________
(1)    Change in fair value is included in OCI.

(2)
Excludes investments of $42 million and $45 million as of March 31, 2018 and December 31, 2017, respectively, measured using NAV per share with fair value recorded in the condensed consolidated statements of operations. Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.
Fair Value Assets Measured on Recurring Basis
 
The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during First Quarter 2018 and 2017. 

Fair Value Level 3 Rollforward
Recurring Basis
First Quarter 2018

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(7)
 
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, 2017
$
76

 
$
67

 
$
334

 
$
787

 
$
700

 
$
64

 
$
(269
)
 
$
(627
)
 
$
(130
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
(5
)
(2
)
7

(2
)
15

(2
)
1

(3
)
(1
)
(4
)
34

(6
)
0

(3
)
1

(3
)
Other comprehensive income (loss)
3

 
0

 
(7
)
 
3

 

—

 

0

 

—

 

(2
)
 

—

 

Purchases
4

 
—

 
—

 
9

 

—

 

—

 

—

 

—

 

—

 

Settlements
(1
)
 
—

 
(20
)
 
(5
)
 
(33
)
 
(1
)
 

(1
)
 

30

 

3

 

FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
1

 
16

 
Fair value as of
March 31, 2018
$
83

 
$
62

 
$
314

 
$
809

 

$
651

 

$
62

 

$
(236
)
 
$
(598
)
 
$
(110
)
 
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2018
$
3

 
$
0

 
$
(6
)
 
$
4

 
$
4

(3
)
$
(1
)
(4
)
$
28

(6
)
$
(3
)
(3
)
$
1

(3
)

Fair Value Level 3 Rollforward
Recurring Basis
First Quarter 2017

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(8)
 
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, 2016
$
39

 
$
60

 
$
365

 
$
805

 
$
876

 
$
65

 
$
(389
)
 
$
(807
)
 
$
(151
)
 
MBIA UK Acquisition
—

 
—

 
—

 
7

 
—

 
—

 
—

 
—

 
—

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

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
2

(2
)
(2
)
(2
)
74

(2
)
17

(3
)
(2
)
(4
)
54

(6
)
(9
)
(3
)
(2
)
(3
)
Other comprehensive income (loss)
4

 
0

 
27

 
7

 
—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
27

 
57

 
—

 

—

 

—

 

—

 

—

 

Settlements
(2
)
 
—

 
(15
)
 
(348
)
 
(46
)
 
—

 

(15
)
 

44

 

4

 

FG VIE consolidations
—

 
—

 
—

 
—

 
21

 
—

 
—

 
—

 
(21
)
 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(87
)
 
—

 
—

 
51

 
36

 
Fair value as of
March 31, 2017
$
42

 
$
62

 
$
402

 
$
602

 
$
781

 
$
63

 
$
(350
)
 
$
(721
)
 
$
(134
)
 
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2017
$
4

 
$
0

 
$
27

 
$
73

 
$
21

(3
)
$
(2
)
(4
)
$
25

(6
)
$
(7
)
(3
)
$
(2
)
(3
)
 ____________________
(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 net investment income and other income.

(5)
Represents net position of credit derivatives. The condensed consolidated balance sheet presents gross assets, included in other assets, and liabilities based on net counterparty exposure.

(6)
Reported in net change in fair value of credit derivatives.

(7)
Included short-term investments, CCS and other invested assets.

(8)
Included CCS and other invested assets.
Fair Value, Liabilities Measured on Recurring Basis
 
The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during First Quarter 2018 and 2017. 

Fair Value Level 3 Rollforward
Recurring Basis
First Quarter 2018

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(7)
 
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, 2017
$
76

 
$
67

 
$
334

 
$
787

 
$
700

 
$
64

 
$
(269
)
 
$
(627
)
 
$
(130
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
(5
)
(2
)
7

(2
)
15

(2
)
1

(3
)
(1
)
(4
)
34

(6
)
0

(3
)
1

(3
)
Other comprehensive income (loss)
3

 
0

 
(7
)
 
3

 

—

 

0

 

—

 

(2
)
 

—

 

Purchases
4

 
—

 
—

 
9

 

—

 

—

 

—

 

—

 

—

 

Settlements
(1
)
 
—

 
(20
)
 
(5
)
 
(33
)
 
(1
)
 

(1
)
 

30

 

3

 

FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
1

 
16

 
Fair value as of
March 31, 2018
$
83

 
$
62

 
$
314

 
$
809

 

$
651

 

$
62

 

$
(236
)
 
$
(598
)
 
$
(110
)
 
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2018
$
3

 
$
0

 
$
(6
)
 
$
4

 
$
4

(3
)
$
(1
)
(4
)
$
28

(6
)
$
(3
)
(3
)
$
1

(3
)

Fair Value Level 3 Rollforward
Recurring Basis
First Quarter 2017

 
Fixed-Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
Obligations
of State and
Political
Subdivisions
 
Corporate Securities
 
RMBS
 
Asset-
Backed
Securities
 
FG VIEs’
Assets at
Fair
Value
 
Other
(8)
 
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, 2016
$
39

 
$
60

 
$
365

 
$
805

 
$
876

 
$
65

 
$
(389
)
 
$
(807
)
 
$
(151
)
 
MBIA UK Acquisition
—

 
—

 
—

 
7

 
—

 
—

 
—

 
—

 
—

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

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
2

(2
)
(2
)
(2
)
74

(2
)
17

(3
)
(2
)
(4
)
54

(6
)
(9
)
(3
)
(2
)
(3
)
Other comprehensive income (loss)
4

 
0

 
27

 
7

 
—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
27

 
57

 
—

 

—

 

—

 

—

 

—

 

Settlements
(2
)
 
—

 
(15
)
 
(348
)
 
(46
)
 
—

 

(15
)
 

44

 

4

 

FG VIE consolidations
—

 
—

 
—

 
—

 
21

 
—

 
—

 
—

 
(21
)
 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(87
)
 
—

 
—

 
51

 
36

 
Fair value as of
March 31, 2017
$
42

 
$
62

 
$
402

 
$
602

 
$
781

 
$
63

 
$
(350
)
 
$
(721
)
 
$
(134
)
 
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2017
$
4

 
$
0

 
$
27

 
$
73

 
$
21

(3
)
$
(2
)
(4
)
$
25

(6
)
$
(7
)
(3
)
$
(2
)
(3
)
 ____________________
(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 net investment income and other income.

(5)
Represents net position of credit derivatives. The condensed consolidated balance sheet presents gross assets, included in other assets, and liabilities based on net counterparty exposure.

(6)
Reported in net change in fair value of credit derivatives.

(7)
Included short-term investments, CCS and other invested assets.

(8)
Included CCS and other invested assets.
Schedule of Quantitative Information About Level 3 Assets, Fair Value Measurements
 
Quantitative Information About Level 3 Fair Value Inputs
At March 31, 2018

Financial Instrument Description (1)
 
Fair Value at
March 31, 2018
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
 
 

 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
83

 
Yield
 
4.5
%
-
39.0%
 
9.6%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
62

 
Yield
 
22.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
314

 
CPR
 
1.4
%
-
15.0%
 
6.4%
 
 
CDR
 
1.5
%
-
8.6%
 
5.7%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.4%
 
 
Yield
 
4.7
%
-
7.8%
 
5.9%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
628

 
Yield
 
6.3
%
-
6.9%
 
6.6%
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations (CLO) /TruPS
 
124

 
Yield
 
3.0
%
-
4.8%
 
3.6%
 
 
 
 
 
 
 
 
 
 
 
Others
 
57

 
Yield
 
11.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
651

 
CPR
 
1.7
%
-
17.8%
 
9.2%
 
 
CDR
 
1.3
%
-
21.9%
 
5.2%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.7%
 
 
Yield
 
4.1
%
-
10.4%
 
6.6%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
59

 
Implied Yield
 
5.5
%
-
6.1%
 
5.8%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(236
)
 
Year 1 loss estimates
 
0.0
%
-
43.0%
 
3.3%
 
 
Hedge cost (in bps)
 
5.5

-
90.8
 
34.0
 
 
Bank profit (in bps)
 
8.3

-
515.9
 
111.1
 
 
Internal floor (in bps)
 
8.8

-
30.0
 
23.4
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(708
)
 
CPR
 
1.7
%
-
17.8%
 
9.2%
 
 
CDR
 
1.3
%
-
21.9%
 
5.2%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.7%
 
 
Yield
 
3.7
%
-
10.4%
 
5.2%
___________________
(1)
Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2)
Excluded several investments recorded in other invested assets with fair value of $7 million.
Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2017

Financial Instrument Description (1)
 
Fair Value at
December 31, 2017
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
 
 

 
 
 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
76

 
Yield
 
4.5
%
-
40.8%
 
12.5%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
67

 
Yield
 
22.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
334

 
CPR
 
1.3
%
-
17.4%
 
6.4%
 
 
CDR
 
1.5
%
-
9.2%
 
5.9%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.5%
 
 
Yield
 
4.0
%
-
7.5%
 
5.6%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
613

 
Yield
 
6.2
%
-
6.4%
 
6.3%
 
 
 
 
 
 
 
 
 
 
 
CLO/TruPS
 
116

 
Yield
 
2.6
%
-
4.6%
 
3.3%
 
 
 
 
 
 
 
 
 
 
 
Others
 
58

 
Yield
 
10.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
700

 
CPR
 
3.0
%
-
14.9%
 
9.5%
 
 
CDR
 
1.3
%
-
21.7%
 
5.4%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.6%
 
 
Yield
 
3.7
%
-
10.0%
 
6.2%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
60

 
Implied Yield
 
5.2
%
-
5.9%
 
5.5%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(269
)
 
Year 1 loss estimates
 
0.0
%
-
42.0%
 
3.3%
 
 
Hedge cost (in bps)
 
17.6

-
122.6
 
48.1
 
 
Bank profit (in bps)
 
6.0

-
852.5
 
107.5
 
 
Internal floor (in bps)
 
8.0

-
30.0
 
21.8
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(757
)
 
CPR
 
3.0
%
-
14.9%
 
9.5%
 
 
CDR
 
1.3
%
-
21.7%
 
5.4%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.6%
 
 
Yield
 
3.4
%
-
10.0%
 
4.9%

____________________
(1)
Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2)
Excluded short-term investments with fair value of $1 million and several investments recorded in other invested assets with fair value of $7 million
Schedule of Quantitative Information About Level 3 Liabilities, Fair Value Measurements
 
Quantitative Information About Level 3 Fair Value Inputs
At March 31, 2018

Financial Instrument Description (1)
 
Fair Value at
March 31, 2018
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
 
 

 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
83

 
Yield
 
4.5
%
-
39.0%
 
9.6%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
62

 
Yield
 
22.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
314

 
CPR
 
1.4
%
-
15.0%
 
6.4%
 
 
CDR
 
1.5
%
-
8.6%
 
5.7%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.4%
 
 
Yield
 
4.7
%
-
7.8%
 
5.9%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
628

 
Yield
 
6.3
%
-
6.9%
 
6.6%
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations (CLO) /TruPS
 
124

 
Yield
 
3.0
%
-
4.8%
 
3.6%
 
 
 
 
 
 
 
 
 
 
 
Others
 
57

 
Yield
 
11.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
651

 
CPR
 
1.7
%
-
17.8%
 
9.2%
 
 
CDR
 
1.3
%
-
21.9%
 
5.2%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.7%
 
 
Yield
 
4.1
%
-
10.4%
 
6.6%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
59

 
Implied Yield
 
5.5
%
-
6.1%
 
5.8%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(236
)
 
Year 1 loss estimates
 
0.0
%
-
43.0%
 
3.3%
 
 
Hedge cost (in bps)
 
5.5

-
90.8
 
34.0
 
 
Bank profit (in bps)
 
8.3

-
515.9
 
111.1
 
 
Internal floor (in bps)
 
8.8

-
30.0
 
23.4
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(708
)
 
CPR
 
1.7
%
-
17.8%
 
9.2%
 
 
CDR
 
1.3
%
-
21.9%
 
5.2%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.7%
 
 
Yield
 
3.7
%
-
10.4%
 
5.2%
___________________
(1)
Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2)
Excluded several investments recorded in other invested assets with fair value of $7 million.
Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2017

Financial Instrument Description (1)
 
Fair Value at
December 31, 2017
(in millions)
 
Significant Unobservable Inputs
 
Range
 
Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
 
 

 
 
 
 
 
 
 
 
Fixed-maturity securities:
 
 

 
 
 
 
 
 
 
 
Obligations of state and political subdivisions
 
$
76

 
Yield
 
4.5
%
-
40.8%
 
12.5%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
67

 
Yield
 
22.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
334

 
CPR
 
1.3
%
-
17.4%
 
6.4%
 
 
CDR
 
1.5
%
-
9.2%
 
5.9%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.5%
 
 
Yield
 
4.0
%
-
7.5%
 
5.6%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
613

 
Yield
 
6.2
%
-
6.4%
 
6.3%
 
 
 
 
 
 
 
 
 
 
 
CLO/TruPS
 
116

 
Yield
 
2.6
%
-
4.6%
 
3.3%
 
 
 
 
 
 
 
 
 
 
 
Others
 
58

 
Yield
 
10.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
700

 
CPR
 
3.0
%
-
14.9%
 
9.5%
 
 
CDR
 
1.3
%
-
21.7%
 
5.4%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.6%
 
 
Yield
 
3.7
%
-
10.0%
 
6.2%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
60

 
Implied Yield
 
5.2
%
-
5.9%
 
5.5%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(269
)
 
Year 1 loss estimates
 
0.0
%
-
42.0%
 
3.3%
 
 
Hedge cost (in bps)
 
17.6

-
122.6
 
48.1
 
 
Bank profit (in bps)
 
6.0

-
852.5
 
107.5
 
 
Internal floor (in bps)
 
8.0

-
30.0
 
21.8
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(757
)
 
CPR
 
3.0
%
-
14.9%
 
9.5%
 
 
CDR
 
1.3
%
-
21.7%
 
5.4%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.6%
 
 
Yield
 
3.4
%
-
10.0%
 
4.9%

____________________
(1)
Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2)
Excluded short-term investments with fair value of $1 million and several investments recorded in other invested assets with fair value of $7 million
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, 2018
 
As of
December 31, 2017
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(in millions)
Assets:
 

 
 

 
 

 
 

Fixed-maturity securities
$
10,297

 
$
10,297

 
$
10,674

 
$
10,674

Short-term investments
751

 
751

 
627

 
627

Other invested assets
55

 
57

 
60

 
61

FG VIEs’ assets, at fair value
651

 
651

 
700

 
700

Other assets
226

 
226

 
220

 
220

Liabilities:
 

 
 

 
 

 
 

Financial guaranty insurance contracts (1)
3,217

 
6,880

 
3,330

 
7,104

Long-term debt
1,281

 
1,618

 
1,292

 
1,627

Credit derivative liabilities
237

 
237

 
271

 
271

FG VIEs’ liabilities with recourse, at fair value
598

 
598

 
627

 
627

FG VIEs’ liabilities without recourse, at fair value
110

 
110

 
130

 
130

Other liabilities
58

 
58

 
55

 
55

____________________
(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.