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Fair Value Measurement (Tables)
 9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Information by Credit Spread Type
Information by Credit Spread Type (1)
 
 
As of
September 30, 2018
 
As of
December 31, 2017
Based on actual collateral specific spreads
21
%
 
14
%
Based on market indices
34
%
 
48
%
Provided by the CDS counterparty
45
%
 
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 September 30, 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
$
4,988

 
$
—

 
$
4,889

 
$
99

U.S. government and agencies
242

 
—

 
242

 
—

Corporate securities
2,147

 
—

 
2,087

 
60

Mortgage-backed securities:
 

 
 
 
 
 
 
RMBS
948

 
—

 
649

 
299

Commercial mortgage-backed securities (CMBS)
528

 
—

 
528

 
—

Asset-backed securities
1,055

 
—

 
102

 
953

Non-U.S. government securities
284

 
—

 
284

 
—

Total fixed-maturity securities
10,192


—

 
8,781

 
1,411

Short-term investments
738

 
460

 
278

 
—

Other invested assets (2)
7

 
—

 
0

 
7

FG VIEs’ assets, at fair value (3)
596

 
—

 
—

 
596

Other assets (3) (4)
127

 
26

 
42

 
59

Total assets carried at fair value
$
11,660

 
$
486

 
$
9,101

 
$
2,073

Liabilities:
 

 
 
 
 
 
 
Credit derivative liabilities (3)
$
239

 
$
—

 
$
—

 
$
239

FG VIEs’ liabilities with recourse, at fair value (5)
545

 
—

 
—

 
545

FG VIEs’ liabilities without recourse, at fair value (3)
104

 
—

 
—

 
104

Total liabilities carried at fair value
$
888

 
$
—

 
$
—

 
$
888

 
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) (4)
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 $41 million and $45 million as of September 30, 2018 and December 31, 2017, respectively, measured using NAV per share with the change in 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.

(3)    Change in fair value is included in the condensed consolidated statements of operations.

(4)    Includes credit derivative assets.

(5)
Change in fair value attributable to ISCR is recorded in OCI with the remainder of the change in fair value recorded in the condensed consolidated statements of operations.
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 Third Quarter 2018 and 2017 and Nine Months 2018 and 2017. 

Fair Value Level 3 Rollforward
Recurring Basis
Third Quarter 2018

 
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
June 30, 2018
$
92

 
$
63

 
$
311

 
$
897

 
$
627

 
$
61

 
$
(257
)
 
$
(571
)
 
$
(108
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
2

(2
)
3

(2
)
14

(2
)
(1
)
(3
)
(1
)
(4
)
21

(6
)
3

(3
)
1

(3
)
Other comprehensive income (loss)
6

 
(5
)
 
0

 
(12
)
 

—

 

0

 

—

 

(3
)
 

—

 

Purchases
—

 
—

 
—

 
64

 

—

 

—

 

—

 

—

 

—

 

Settlements
—

 
—

 
(15
)
 
(10
)
 
(30
)
 
—

 

(1
)
 

26

 

3

 

Fair value as of
September 30, 2018
$
99

 
$
60

 
$
299

 
$
953

 

$
596

 

$
60

 

$
(237
)
 
$
(545
)
 
$
(104
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2018
$
6

 
$
(5
)
 
$
1

 
$
(11
)
 
$
2

(3
)
$
(1
)
(4
)
$
20

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

(3
)

Fair Value Level 3 Rollforward
Recurring Basis
Third 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
June 30, 2017
$
91

 
$
63

 
$
357

 
$
656

 
$
757

 
$
65

 
$
(361
)
 
$
(689
)
 
$
(131
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

Net income (loss)
(8
)
(2
)
1

(2
)
5

(2
)
15

(2
)
4

(3
)
(4
)
(4
)
58

(6
)
(3
)
(3
)
(1
)
(3
)
Other comprehensive income (loss)
(1
)
 
2

 
(1
)
 
2

 
—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
13

 
106

 
—

 

—

 

—

 

—

 

—

 

Settlements
—

 
—

 
(28
)
 
(7
)
 
(36
)
 
—

 

1

 

35

 

3

 

FG VIE deconsolidations
—

 
—

 
—

 
—

 
(18
)
 
—

 
—

 
0

 
18

 
Fair value as of
September 30, 2017
$
82

 
$
66

 
$
346

 
$
772

 
$
707

 
$
61

 
$
(302
)
 
$
(657
)
 
$
(111
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2017
$
(1
)
 
$
2

 
$
0

 
$
2

 
$
10

(3
)
$
(4
)
(4
)
$
51

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

Fair Value Level 3 Rollforward
Recurring Basis
Nine Months 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)
3

(2
)
(2
)
(2
)
16

(2
)
43

(2
)
3

(3
)
(3
)
(4
)
103

(6
)
(1
)
(3
)
3

(3
)
Other comprehensive income (loss)
17

 
(5
)
 
(10
)
 
(3
)
 

—

 

0

 

—

 

(1
)
 

—

 

Purchases
4

 
—

 
9

 
164

 

—

 

—

 

—

 

—

 

—

 

Issuances
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
(9
)
—

 
—

 
Settlements
(1
)
 
—

 
(50
)
 
(38
)
 
(90
)
 
(1
)
 

(3
)
 

83

 

7

 

FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
1

 
16

 
Fair value as of
September 30, 2018
$
99

 
$
60

 
$
299

 
$
953

 
$
596

 
$
60

 
$
(237
)
 
$
(545
)
 
$
(104
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2018
$
17

 
$
(5
)
 
$
(7
)
 
$
(1
)
 
$
13

(3
)
$
(3
)
(4
)
$
93

(6
)
$
(2
)
(3
)
$
2

(3
)
Fair Value Level 3 Rollforward
Recurring Basis
Nine Months 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)
(6
)
(2
)
4

(2
)
23

(2
)
100

(2
)
32

(3
)
(4
)
(4
)
106

(6
)
(14
)
(3
)
(4
)
(3
)
Other comprehensive income (loss)
(4
)
 
2

 
25

 
60

 
—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
42

 
162

 
—

 

—

 

—

 

—

 

—

 

Settlements
(2
)
 
—

 
(109
)
 
(362
)
 
(117
)
 
—

 

(19
)
 

113

 

11

 

FG VIE consolidations
—

 
—

 
—

 
—

 
21

 
—

 
—

 
0

 
(21
)
 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
51

 
54

 
Transfers into Level 3
55

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2017
$
82

 
$
66

 
$
346

 
$
772

 
$
707

 
$
61

 
$
(302
)
 
$
(657
)
 
$
(111
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2017
$
(4
)
 
$
2

 
$
25

 
$
126

 
$
50

(3
)
$
(4
)
(4
)
$
63

(6
)
$
(12
)
(3
)
$
(4
)
(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 the net position of credit derivatives. Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown gross in the condensed consolidated balance sheet based on net exposure by counterparty.

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

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

(8)
Includes CCS and other invested assets.

(9)
Relates to SGI Transaction. See Note 2, Assumption of Insured Portfolio and Business Combinations.
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 Third Quarter 2018 and 2017 and Nine Months 2018 and 2017. 

Fair Value Level 3 Rollforward
Recurring Basis
Third Quarter 2018

 
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
June 30, 2018
$
92

 
$
63

 
$
311

 
$
897

 
$
627

 
$
61

 
$
(257
)
 
$
(571
)
 
$
(108
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)
1

(2
)
2

(2
)
3

(2
)
14

(2
)
(1
)
(3
)
(1
)
(4
)
21

(6
)
3

(3
)
1

(3
)
Other comprehensive income (loss)
6

 
(5
)
 
0

 
(12
)
 

—

 

0

 

—

 

(3
)
 

—

 

Purchases
—

 
—

 
—

 
64

 

—

 

—

 

—

 

—

 

—

 

Settlements
—

 
—

 
(15
)
 
(10
)
 
(30
)
 
—

 

(1
)
 

26

 

3

 

Fair value as of
September 30, 2018
$
99

 
$
60

 
$
299

 
$
953

 

$
596

 

$
60

 

$
(237
)
 
$
(545
)
 
$
(104
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2018
$
6

 
$
(5
)
 
$
1

 
$
(11
)
 
$
2

(3
)
$
(1
)
(4
)
$
20

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

(3
)

Fair Value Level 3 Rollforward
Recurring Basis
Third 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
June 30, 2017
$
91

 
$
63

 
$
357

 
$
656

 
$
757

 
$
65

 
$
(361
)
 
$
(689
)
 
$
(131
)
 
Total pretax realized and unrealized gains/(losses) recorded in: (1)
 
 
 
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

Net income (loss)
(8
)
(2
)
1

(2
)
5

(2
)
15

(2
)
4

(3
)
(4
)
(4
)
58

(6
)
(3
)
(3
)
(1
)
(3
)
Other comprehensive income (loss)
(1
)
 
2

 
(1
)
 
2

 
—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
13

 
106

 
—

 

—

 

—

 

—

 

—

 

Settlements
—

 
—

 
(28
)
 
(7
)
 
(36
)
 
—

 

1

 

35

 

3

 

FG VIE deconsolidations
—

 
—

 
—

 
—

 
(18
)
 
—

 
—

 
0

 
18

 
Fair value as of
September 30, 2017
$
82

 
$
66

 
$
346

 
$
772

 
$
707

 
$
61

 
$
(302
)
 
$
(657
)
 
$
(111
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2017
$
(1
)
 
$
2

 
$
0

 
$
2

 
$
10

(3
)
$
(4
)
(4
)
$
51

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

Fair Value Level 3 Rollforward
Recurring Basis
Nine Months 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)
3

(2
)
(2
)
(2
)
16

(2
)
43

(2
)
3

(3
)
(3
)
(4
)
103

(6
)
(1
)
(3
)
3

(3
)
Other comprehensive income (loss)
17

 
(5
)
 
(10
)
 
(3
)
 

—

 

0

 

—

 

(1
)
 

—

 

Purchases
4

 
—

 
9

 
164

 

—

 

—

 

—

 

—

 

—

 

Issuances
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
(9
)
—

 
—

 
Settlements
(1
)
 
—

 
(50
)
 
(38
)
 
(90
)
 
(1
)
 

(3
)
 

83

 

7

 

FG VIE
  deconsolidations
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
1

 
16

 
Fair value as of
September 30, 2018
$
99

 
$
60

 
$
299

 
$
953

 
$
596

 
$
60

 
$
(237
)
 
$
(545
)
 
$
(104
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2018
$
17

 
$
(5
)
 
$
(7
)
 
$
(1
)
 
$
13

(3
)
$
(3
)
(4
)
$
93

(6
)
$
(2
)
(3
)
$
2

(3
)
Fair Value Level 3 Rollforward
Recurring Basis
Nine Months 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)
(6
)
(2
)
4

(2
)
23

(2
)
100

(2
)
32

(3
)
(4
)
(4
)
106

(6
)
(14
)
(3
)
(4
)
(3
)
Other comprehensive income (loss)
(4
)
 
2

 
25

 
60

 
—

 

0

 

—

 

—

 

—

 

Purchases
—

 
—

 
42

 
162

 
—

 

—

 

—

 

—

 

—

 

Settlements
(2
)
 
—

 
(109
)
 
(362
)
 
(117
)
 
—

 

(19
)
 

113

 

11

 

FG VIE consolidations
—

 
—

 
—

 
—

 
21

 
—

 
—

 
0

 
(21
)
 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
51

 
54

 
Transfers into Level 3
55

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
September 30, 2017
$
82

 
$
66

 
$
346

 
$
772

 
$
707

 
$
61

 
$
(302
)
 
$
(657
)
 
$
(111
)
 
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2017
$
(4
)
 
$
2

 
$
25

 
$
126

 
$
50

(3
)
$
(4
)
(4
)
$
63

(6
)
$
(12
)
(3
)
$
(4
)
(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 the net position of credit derivatives. Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown gross in the condensed consolidated balance sheet based on net exposure by counterparty.

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

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

(8)
Includes CCS and other invested assets.

(9)
Relates to SGI Transaction. See Note 2, Assumption of Insured Portfolio and Business Combinations.
Schedule of Quantitative Information About Level 3 Liabilities, Fair Value Measurements
 
Quantitative Information About Level 3 Fair Value Inputs
At September 30, 2018

Financial Instrument Description (1)
 
Fair Value at
September 30, 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
 
$
99

 
Yield
 
4.5
%
-
29.7%
 
9.1%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
60

 
Yield
 
27.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
299

 
CPR
 
2.8
%
-
18.0%
 
6.3%
 
 
CDR
 
1.5
%
-
8.8%
 
5.4%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.2%
 
 
Yield
 
5.3
%
-
7.9%
 
6.2%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
642

 
Yield
 
6.6
%
-
6.7%
 
6.7%
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations (CLO) /TruPS
 
256

 
Yield
 
3.5
%
-
4.7%
 
4.2%
 
 
 
 
 
 
 
 
 
 
 
Others
 
55

 
Yield
 
11.2%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
596

 
CPR
 
0.9
%
-
17.5%
 
9.3%
 
 
CDR
 
1.3
%
-
23.5%
 
5.6%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.8%
 
 
Yield
 
4.5
%
-
10.3%
 
6.9%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
57

 
Implied Yield
 
5.9
%
-
6.5%
 
6.2%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(237
)
 
Year 1 loss estimates
 
0.0
%
-
64.0%
 
2.3%
 
 
Hedge cost (in bps)
 
3.8

-
57.8
 
17.2
 
 
Bank profit (in bps)
 
8.3

-
503.3
 
68.8
 
 
Internal floor (in bps)
 
8.8

-
30.0
 
10.1
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(649
)
 
CPR
 
0.9
%
-
17.5%
 
9.3%
 
 
CDR
 
1.3
%
-
23.5%
 
5.6%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.8%
 
 
Yield
 
4.2
%
-
10.3%
 
5.4%
___________________
(1)
Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2)
Excludes 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)
Excludes 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
September 30, 2018
 
As of
December 31, 2017
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(in millions)
Assets:
 

 
 

 
 

 
 

Fixed-maturity securities
$
10,192

 
$
10,192

 
$
10,674

 
$
10,674

Short-term investments
738

 
738

 
627

 
627

Other invested assets
49

 
51

 
60

 
61

FG VIEs’ assets, at fair value
596

 
596

 
700

 
700

Other assets
235

 
235

 
220

 
220

Liabilities:
 

 
 

 
 

 
 

Financial guaranty insurance contracts (1)
3,237

 
6,254

 
3,330

 
7,104

Long-term debt
1,249

 
1,520

 
1,292

 
1,627

Credit derivative liabilities
239

 
239

 
271

 
271

FG VIEs’ liabilities with recourse, at fair value
545

 
545

 
627

 
627

FG VIEs’ liabilities without recourse, at fair value
104

 
104

 
130

 
130

Other liabilities
72

 
72

 
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.