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Investments and Cash (Tables)
 9 Months Ended
Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Net Investment Income
Net Investment Income
 
 
Third Quarter
 
Nine Months
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Income from fixed-maturity securities managed by third parties
$
75

 
$
74

 
$
224

 
$
224

Income from internally managed securities (1)
25

 
28

 
81

 
105

Gross investment income
100

 
102

 
305

 
329

Investment expenses
(2
)
 
(3
)
 
(7
)
 
(7
)
Net investment income
$
98

 
$
99

 
$
298

 
$
322


____________________
(1)
Nine Months 2017 included accretion on Zohar II Notes used as consideration for the MBIA UK Acquisition. See Note 2, Assumption of Insured Portfolio and Business Combinations.
Net Realized Investment Gains (Losses)
Net Realized Investment Gains (Losses)
 
 
Third Quarter
 
Nine Months
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Gross realized gains on available-for-sale securities (1)
$
5

 
$
23

 
$
16

 
$
92

Gross realized losses on available-for-sale securities
(3
)
 
(3
)
 
(9
)
 
(9
)
Net realized gains (losses) on other invested assets
0

 
0

 
(1
)
 
0

Other-than-temporary impairment (OTTI) (2)
(9
)
 
(13
)
 
(20
)
 
(29
)
Net realized investment gains (losses)
$
(7
)
 
$
7

 
$
(14
)
 
$
54


____________________
(1)
Nine Months 2017 included a gain on Zohar II Notes used as consideration for the MBIA UK Acquisition. See Note 2, Assumption of Insured Portfolio and Business Combinations.

(2)
OTTI was primarily a result of a decline in expected cash flows on loss mitigation securities. See Note 10, Investments and Cash, in Part II, Item 8. “Financial Statements and Supplementary Data” of AGL’s Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of the Company's policy for determining OTTI.
Roll Forward of Credit Losses in the Investment Portfolio
The following table presents the roll-forward of the credit losses on fixed-maturity securities for which the Company has recognized an OTTI and for which unrealized loss was recognized in OCI.
 
Roll Forward of Credit Losses
in the Investment Portfolio

 
Third Quarter
 
Nine Months
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Balance, beginning of period
$
170

 
$
145

 
$
162

 
$
134

Additions for credit losses on securities for which an OTTI was not previously recognized
0

 
3

 
0

 
6

Reductions for securities sold and other settlements
0

 
0

 
0

 
(4
)
Additions for credit losses on securities for which an OTTI was previously recognized
2

 
5

 
10

 
17

Balance, end of period
$
172

 
$
153

 
$
172

 
$
153
Fixed Maturity Securities and Short Term Investments by Security Type
Fixed-Maturity Securities and Short-Term Investments
by Security Type 
As of September 30, 2018

Investment Category
 
Percent
of
Total (1)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
AOCI (2)
Gain
(Loss) on
Securities
with
OTTI
 
Weighted
Average
Credit
Rating
 (3)
 
 
(dollars in millions)
Fixed-maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Obligations of state and political subdivisions
 
45
%
 
$
4,885

 
$
141

 
$
(38
)
 
$
4,988

 
$
39

 
AA-
U.S. government and agencies
 
2

 
235

 
8

 
(1
)
 
242

 
—

 
AA+
Corporate securities
 
21

 
2,187

 
15

 
(55
)
 
2,147

 
(12
)
 
A
Mortgage-backed securities (4):
 
0

 
 
 
 
 
 

 
 
 
 

 
 
RMBS
 
9

 
967

 
16

 
(35
)
 
948

 
(10
)
 
A-
CMBS
 
5

 
537

 
2

 
(11
)
 
528

 
0

 
AAA
Asset-backed securities
 
8

 
893

 
164

 
(2
)
 
1,055

 
128

 
BB-
Non-U.S. government securities
 
3

 
302

 
3

 
(21
)
 
284

 
—

 
AA
Total fixed-maturity securities
 
93

 
10,006

 
349

 
(163
)
 
10,192

 
145

 
A+
Short-term investments
 
7

 
738

 
0

 
0

 
738

 
—

 
AAA
Total investment portfolio
 
100
%
 
$
10,744

 
$
349

 
$
(163
)
 
$
10,930

 
$
145

 
A+


Fixed-Maturity Securities and Short-Term Investments
by Security Type 
As of December 31, 2017 

Investment Category
 
Percent
of
Total (1)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
AOCI
Gain
(Loss) on
Securities
with
OTTI
 
Weighted
Average
Credit
Rating
 (3)
 
 
(dollars in millions)
Fixed-maturity securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Obligations of state and political subdivisions
 
51
%
 
$
5,504

 
$
267

 
$
(11
)
 
$
5,760

 
$
23

 
AA
U.S. government and agencies
 
2

 
272

 
14

 
(1
)
 
285

 
—

 
AA+
Corporate securities
 
18

 
1,973

 
63

 
(18
)
 
2,018

 
(6
)
 
A
Mortgage-backed securities (4):
 
 

 
 

 
 

 
 

 
 

 
 

 
 
RMBS
 
8

 
852

 
26

 
(17
)
 
861

 
(1
)
 
BBB+
CMBS
 
5

 
540

 
12

 
(3
)
 
549

 
—

 
AAA
Asset-backed securities
 
7

 
730

 
166

 
0

 
896

 
136

 
B
Non-U.S. government securities
 
3

 
316

 
6

 
(17
)
 
305

 
0

 
AA
Total fixed-maturity securities
 
94

 
10,187

 
554

 
(67
)
 
10,674

 
152

 
A+
Short-term investments
 
6

 
627

 
0

 
0

 
627

 
—

 
AAA
Total investment portfolio
 
100
%
 
$
10,814

 
$
554

 
$
(67
)
 
$
11,301

 
$
152

 
A+
____________________
(1)
Based on amortized cost.
 
(2)
See Note 17, Shareholders' Equity.

(3)
Ratings in the tables above represent the lower of the Moody’s and S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P) classifications except for bonds purchased for loss mitigation or risk management strategies, which use internal ratings classifications. The Company’s portfolio consists primarily of high-quality, liquid instruments.
 
(4)
U.S. government-agency obligations were approximately 47% of mortgage backed securities as of September 30, 2018 and 39% as of December 31, 2017 based on fair value.

Fixed Maturity Securities Gross Unrealized Loss by Length of Time
The following tables summarize, for all fixed-maturity securities in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time the amounts have continuously been in an unrealized loss position.

Fixed-Maturity Securities
Gross Unrealized Loss by Length of Time
As of September 30, 2018
 
 
Less than 12 months
 
12 months or more
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(dollars in millions)
Obligations of state and political subdivisions
$
1,305

 
$
(25
)
 
$
273

 
$
(13
)
 
$
1,578

 
$
(38
)
U.S. government and agencies
20

 
0

 
25

 
(1
)
 
45

 
(1
)
Corporate securities
1,144

 
(26
)
 
260

 
(29
)
 
1,404

 
(55
)
Mortgage-backed securities:
 
 
 
 
 
 
 

 


 


RMBS
386

 
(8
)
 
331

 
(27
)
 
717

 
(35
)
CMBS
229

 
(5
)
 
80

 
(6
)
 
309

 
(11
)
Asset-backed securities
280

 
(1
)
 
11

 
(1
)
 
291

 
(2
)
Non-U.S. government securities
86

 
(4
)
 
101

 
(17
)
 
187

 
(21
)
Total
$
3,450

 
$
(69
)
 
$
1,081

 
$
(94
)
 
$
4,531

 
$
(163
)
Number of securities (1)
 

 
1,003

 
 

 
311

 
 

 
1,283

Number of securities with OTTI
 

 
23

 
 

 
16

 
 

 
39

 

Fixed-Maturity Securities
Gross Unrealized Loss by Length of Time
As of December 31, 2017

 
Less than 12 months
 
12 months or more
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(dollars in millions)
Obligations of state and political subdivisions
$
166

 
$
(4
)
 
$
281

 
$
(7
)
 
$
447

 
$
(11
)
U.S. government and agencies
151

 
0

 
18

 
(1
)
 
169

 
(1
)
Corporate securities
201

 
(1
)
 
240

 
(17
)
 
441

 
(18
)
Mortgage-backed securities:
 

 
 

 
 

 
 

 


 


RMBS
191

 
(5
)
 
213

 
(12
)
 
404

 
(17
)
CMBS
29

 
0

 
80

 
(3
)
 
109

 
(3
)
Asset-backed securities
48

 
0

 
3

 
0

 
51

 
0

Non-U.S. government securities
20

 
0

 
140

 
(17
)
 
160

 
(17
)
Total
$
806

 
$
(10
)
 
$
975

 
$
(57
)
 
$
1,781

 
$
(67
)
Number of securities (1)
 

 
244

 
 

 
264

 
 

 
499

Number of securities with OTTI (1)
 

 
17

 
 

 
15

 
 

 
31


___________________
(1)
The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.

Distribution of Fixed Maturity Securities by Contractual Maturity
The amortized cost and estimated fair value of available-for-sale fixed maturity securities by contractual maturity as of September 30, 2018 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Distribution of Fixed-Maturity Securities
by Contractual Maturity
As of September 30, 2018
 
 
Amortized
Cost
 
Estimated
Fair Value
 
(in millions)
Due within one year
$
229

 
$
229

Due after one year through five years
1,499

 
1,492

Due after five years through 10 years
2,426

 
2,411

Due after 10 years
4,348

 
4,584

Mortgage-backed securities:
 

 
 

RMBS
967

 
948

CMBS
537

 
528

Total
$
10,006

 
$
10,192
Internally Managed Investment Portfolio
Internally Managed Portfolio
Carrying Value

 
As of
September 30, 2018
 
As of
December 31, 2017
 
(in millions)
Assets purchased for loss mitigation and other risk management purposes:
 
 
 
Fixed-maturity securities, at fair value
$
1,184

 
$
1,231

Other invested assets (1)
13

 
20

Alternative investments
78

 
69

Other
4

 
5

Total
$
1,279

 
$
1,325


____________________
(1)
The Company recognized a $31 million fair value gain in other income related to the Company's minority interest in the parent company of TMC Bonds LLC, which it sold in Third Quarter 2018.
Cash and Restricted Cash
The following table provides a reconciliation of the cash reported on the condensed consolidated balance sheets and the cash and restricted cash reported in the statements of cash flows.

Cash and Restricted Cash

 
As of
September 30, 2018
 
As of
December 31, 2017
 
As of
September 30, 2017
 
As of
December 31, 2016
 
(in millions)
Cash
$
82

 
$
144

 
$
72

 
$
118

Restricted cash (1)
0

 
0

 
0

 
9

Total cash and restricted cash
$
82

 
$
144

 
$
72

 
$
127

____________________
(1)
Amounts primarily relate to cash held in trust accounts and are reported in other assets in the condensed consolidated balance sheets. See Note 13, Reinsurance and Other Monoline Exposures, for more information.