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Fair Value Measurement (Tables)
 12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Information by Credit Spread Type
nformation by Credit Spread Type (1)
 
 
As of
December 31, 2018
 
As of
December 31, 2017
Based on actual collateral specific spreads
20
%
 
14
%
Based on market indices
33
%
 
48
%
Provided by the CDS counterparty
47
%
 
38
%
Total
100
%
 
100
%
 ____________________
(1)    Based on par.
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
air Value Hierarchy of Financial Instruments Carried at Fair Value
As of December 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
$
4,911

 
$
—

 
$
4,812

 
$
99

U.S. government and agencies
175

 
—

 
175

 
—

Corporate securities
2,136

 
—

 
2,080

 
56

Mortgage-backed securities:
 

 
 
 
 
 
 
RMBS
982

 
—

 
673

 
309

Commercial mortgage-backed securities (CMBS)
539

 
—

 
539

 
—

Asset-backed securities
1,068

 
—

 
121

 
947

Non-U.S. government securities
278

 
—

 
278

 
—

Total fixed-maturity securities
10,089


—

 
8,678

 
1,411

Short-term investments
729

 
429

 
300

 
—

Other invested assets (2)
7

 
—

 
—

 
7

FG VIEs’ assets, at fair value (3)
569

 
—

 
—

 
569

Other assets (3) (4)
139

 
25

 
38

 
76

Total assets carried at fair value
$
11,533

 
$
454

 
$
9,016

 
$
2,063

Liabilities:
 

 
 

 
 

 
 

Credit derivative liabilities (3)
$
209

 
$
—

 
$
—

 
$
209

FG VIEs’ liabilities with recourse, at fair value (5)
517

 
—

 
—

 
517

FG VIEs’ liabilities without recourse, at fair value (3)
102

 
—

 
—

 
102

Total liabilities carried at fair value
$
828

 
$
—

 
$
—

 
$
828

 
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

 
—

 
—

 
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 $45 million as of December 31, 2017, measured using NAV per share with the change in fair value recorded in the consolidated statements of operations, which were sold in 2018. 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 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 consolidated statements of operations.


 
Fair Value Assets Measured on Recurring Basis
he tables below present 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, 2018 and 2017.

Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 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
)
(14
)
(2
)
21

(2
)
57

(2
)
2

(3
)
14

(4
)
112

(6
)
(1
)
(3
)
4

(3
)
Other comprehensive income (loss)
18

 
3

 
(17
)
 
(40
)
 

—

 

—

 

—

 

2

 

—

 
Purchases
4

 
—

 
35

 
189

 

—

 

—

 

—

 

—

 

—

 
Issuances
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
(8
)
—

 
—

 
Settlements
(2
)
 
—

 
(64
)
 
(46
)
 
(116
)
 
(1
)
 

18

 

108

 

8

 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
1

 
16

 
Fair value as of
December 31, 2018
$
99

 
$
56

 
$
309

 
$
947

 

$
569

 

$
77

 

$
(207
)
 
$
(517
)
 
$
(102
)
 
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of
December 31, 2018
 
 
 
 
 
 
 
 
$
13

(3
)
$
14

(4
)
$
122

(6
)
$
1

(3
)
$
3

(3
)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of
December 31, 2018
$
18

 
$
3

 
$
(14
)
 
$
(38
)
 
 
 
$
—

 
 
 
$
2

 
 
 



Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 2017

 
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, 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)
(13
)
(2
)
6

(2
)
27

(2
)
113

(2
)
37

(3
)
(2
)
(4
)
107

(6
)
(16
)
(3
)
(6
)
(3
)
Other comprehensive income (loss)
(2
)
 
1

 
23

 
56

 
—

 

—

 
—

 

—

 

—

 
Purchases
—

 
—

 
42

 
173

 
—

 

1

 
—

 

—

 

—

 
Settlements
(2
)
 
—

 
(123
)
 
(367
)
 
(147
)
 
—

 
13

 

145

 

12

 
FG VIE consolidations
—

 
—

 
—

 
—

 
39

 

—

 
—

 

—

 
(39
)
 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
51

 
54

 
Transfers into Level 3
54

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
December 31, 2017
$
76

 
$
67

 
$
334

 
$
787

 
$
700

 

$
64

 
$
(269
)
 

$
(627
)
 
$
(130
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2017
$
(2
)
 
$
1

 
$
23

 
$
123

 
$
59

(3
)
$
(2
)
(4
)
$
96

(6
)
$
(11
)
(3
)
$
(6
)
(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 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)    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 the years ended December 31, 2018 and 2017.

Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 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
)
(14
)
(2
)
21

(2
)
57

(2
)
2

(3
)
14

(4
)
112

(6
)
(1
)
(3
)
4

(3
)
Other comprehensive income (loss)
18

 
3

 
(17
)
 
(40
)
 

—

 

—

 

—

 

2

 

—

 
Purchases
4

 
—

 
35

 
189

 

—

 

—

 

—

 

—

 

—

 
Issuances
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
(8
)
—

 
—

 
Settlements
(2
)
 
—

 
(64
)
 
(46
)
 
(116
)
 
(1
)
 

18

 

108

 

8

 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
1

 
16

 
Fair value as of
December 31, 2018
$
99

 
$
56

 
$
309

 
$
947

 

$
569

 

$
77

 

$
(207
)
 
$
(517
)
 
$
(102
)
 
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of
December 31, 2018
 
 
 
 
 
 
 
 
$
13

(3
)
$
14

(4
)
$
122

(6
)
$
1

(3
)
$
3

(3
)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of
December 31, 2018
$
18

 
$
3

 
$
(14
)
 
$
(38
)
 
 
 
$
—

 
 
 
$
2

 
 
 



Fair Value Level 3 Rollforward
Recurring Basis
Year Ended December 31, 2017

 
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, 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)
(13
)
(2
)
6

(2
)
27

(2
)
113

(2
)
37

(3
)
(2
)
(4
)
107

(6
)
(16
)
(3
)
(6
)
(3
)
Other comprehensive income (loss)
(2
)
 
1

 
23

 
56

 
—

 

—

 
—

 

—

 

—

 
Purchases
—

 
—

 
42

 
173

 
—

 

1

 
—

 

—

 

—

 
Settlements
(2
)
 
—

 
(123
)
 
(367
)
 
(147
)
 
—

 
13

 

145

 

12

 
FG VIE consolidations
—

 
—

 
—

 
—

 
39

 

—

 
—

 

—

 
(39
)
 
FG VIE deconsolidations
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
51

 
54

 
Transfers into Level 3
54

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Fair value as of
December 31, 2017
$
76

 
$
67

 
$
334

 
$
787

 
$
700

 

$
64

 
$
(269
)
 

$
(627
)
 
$
(130
)
 
Change in unrealized gains/(losses) related to financial instruments held as of December 31, 2017
$
(2
)
 
$
1

 
$
23

 
$
123

 
$
59

(3
)
$
(2
)
(4
)
$
96

(6
)
$
(11
)
(3
)
$
(6
)
(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 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)    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 December 31, 2018 

Financial Instrument Description(1)
 
Fair Value at
December 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
 
$
99

 
Yield
 
4.5
%
-
32.7%
 
12.0%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
56

 
Yield
 
29.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
309

 
CPR
 
3.4
%
-
19.4%
 
6.2%
 
 
CDR
 
1.5
%
-
6.9%
 
5.2%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.7%
 
 
Yield
 
5.3
%
-
8.1%
 
6.3%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
620

 
Yield
 
6.5
%
-
7.1%
 
6.8%
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations (CLOs)/TruPS
 
274

 
Yield
 
3.8
%
-
4.7%
 
4.3%
 
 
 
 
 
 
 
 
 
 
 
Others
 
53

 
Yield
 
11.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
569

 
CPR
 
0.9
%
-
18.1%
 
9.3%
 
 
CDR
 
1.3
%
-
23.7%
 
5.1%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.8%
 
 
Yield
 
5.0
%
-
10.2%
 
7.1%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
74

 
Implied Yield
 
6.6
%
-
7.2%
 
6.9%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(207
)
 
Year 1 loss estimates
 
0.0
%
-
66.0%
 
2.2%
 
 
Hedge cost (in basis points (bps))
 
5.5

-
82.5
 
23.3
 
 
Bank profit (in bps)
 
7.2

-
509.9
 
77.3
 
 
Internal floor (in bps)
 
8.8

-
30.0
 
19.0
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(619
)
 
CPR
 
0.9
%
-
18.1%
 
9.3%
 
 
CDR
 
1.3
%
-
23.7%
 
5.1%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.8%
 
 
Yield
 
5.0
%
-
10.2%
 
5.6%
____________________
(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.

Quantitative Information About Level 3 Fair Value Inputs
At December 31, 2018 

Financial Instrument Description(1)
 
Fair Value at
December 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
 
$
99

 
Yield
 
4.5
%
-
32.7%
 
12.0%
 
 
 
 
 
 
 
 
 
 
 
Corporate securities
 
56

 
Yield
 
29.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
309

 
CPR
 
3.4
%
-
19.4%
 
6.2%
 
 
CDR
 
1.5
%
-
6.9%
 
5.2%
 
 
Loss severity
 
40.0
%
-
125.0%
 
82.7%
 
 
Yield
 
5.3
%
-
8.1%
 
6.3%
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
Triple-X life insurance transactions
 
620

 
Yield
 
6.5
%
-
7.1%
 
6.8%
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations (CLOs)/TruPS
 
274

 
Yield
 
3.8
%
-
4.7%
 
4.3%
 
 
 
 
 
 
 
 
 
 
 
Others
 
53

 
Yield
 
11.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ assets, at fair value
 
569

 
CPR
 
0.9
%
-
18.1%
 
9.3%
 
 
CDR
 
1.3
%
-
23.7%
 
5.1%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.8%
 
 
Yield
 
5.0
%
-
10.2%
 
7.1%
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
74

 
Implied Yield
 
6.6
%
-
7.2%
 
6.9%
 
 
Term (years)
 
10 years
 
 
Liabilities:
 
 

 
 
 
 
 
 
 
 
Credit derivative liabilities, net
 
(207
)
 
Year 1 loss estimates
 
0.0
%
-
66.0%
 
2.2%
 
 
Hedge cost (in basis points (bps))
 
5.5

-
82.5
 
23.3
 
 
Bank profit (in bps)
 
7.2

-
509.9
 
77.3
 
 
Internal floor (in bps)
 
8.8

-
30.0
 
19.0
 
 
Internal credit rating
 
AAA

-
CCC
 
AA-
 
 
 
 
 
 
 
 
 
 
 
FG VIEs’ liabilities, at fair value
 
(619
)
 
CPR
 
0.9
%
-
18.1%
 
9.3%
 
 
CDR
 
1.3
%
-
23.7%
 
5.1%
 
 
Loss severity
 
60.0
%
-
100.0%
 
79.8%
 
 
Yield
 
5.0
%
-
10.2%
 
5.6%
____________________
(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
he carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.
 
Fair Value of Financial Instruments Not Carried at Fair Value
 
 
As of
December 31, 2018
 
As of
December 31, 2017
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(in millions)
Assets:
 

 
 

 
 

 
 

Other invested assets
$
1

 
$
2

 
$
8

 
$
9

Other assets (2)
130

 
130

 
97

 
97

Liabilities:
 

 
 

 
 

 
 

Financial guaranty insurance contracts (1)
3,240

 
5,932

 
3,330

 
7,104

Long-term debt
1,233

 
1,496

 
1,292

 
1,627

Other liabilities (2)
12

 
12

 
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.

(2)
The Company’s other assets and other liabilities consist predominantly of accrued interest, receivables for securities sold and payables for securities purchased, for which the carrying value approximates fair value.