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Contracts Accounted for as Credit Derivatives (Tables)

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Credit Derivatives Subordination and Ratings and Net Par Outstanding by Internal Rating

The components of the Company’s credit derivative net par outstanding are presented in the table below. The estimated remaining weighted average life of credit derivatives was 11.3 years and 11.5 years as of September 30, 2020 and December 31, 2019, respectively.

Credit Derivatives (1)


	As of September 30, 2020				As of December 31, 2019
	Net Par Outstanding		Net Fair Value Asset (Liability)		Net Par Outstanding		Net Fair Value Asset (Liability)
	(in millions)
U.S. public finance	$	2,075	$	(66)	$	1,942	$	(83)
Non-U.S. public finance	2,409		(31)		2,676		(39)
U.S. structured finance	1,045		(58)		1,206		(58)
Non-U.S. structured finance	129		(4)		132		(5)
Total	$	5,658	$	(159)	$	5,956	$	(185)

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(1) Expected recoveries were $13 million as of September 30, 2020 and $4 million as of December 31, 2019.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating


	As of September 30, 2020				As of December 31, 2019
Ratings	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total
	(dollars in millions)
AAA	$	1,613	28.5	%	$	1,730	29.0	%
AA	1,699		30.0		1,695		28.5
A	767		13.5		1,110		18.6
BBB	1,457		25.8		1,292		21.7
BIG (1)	122		2.2		129		2.2
Credit derivative net par outstanding	$	5,658	100.0	%	$	5,956	100.0	%

____________________

(1) All BIG credit derivatives are U.S. RMBS transactions.

Net Change in Fair Value of Credit Derivatives

Net Change in Fair Value of Credit Derivative Gains (Losses)


	Third Quarter				Nine Months
	2020		2019		2020		2019
	(in millions)
Realized gains on credit derivatives	$	1	$	2	$	4	$	6
Net credit derivative losses (paid and payable) recovered and recoverable and other settlements	(6)		(5)		(9)		(30)
Realized gains (losses) and other settlements	(5)		(3)		(5)		(24)
Net unrealized gains (losses)	2		8		25		(1)
Net change in fair value of credit derivatives	$	(3)	$	5	$	20	$	(25)

CDS Spread on AGC and AGM

CDS Spread on AGC (in bps)


	As of September 30, 2020	As of June 30, 2020	As of December 31, 2019	As of September 30, 2019	As of June 30, 2019	As of December 31, 2018
Five-year CDS spread	140	159	41	56	56	110
One-year CDS spread	27	32	9	14	13	22

Fair Value of Credit Derivatives and Effect of AGC and AGM Credit Spreads

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC

Credit Spread


	As of
	September 30, 2020		December 31, 2019
	(in millions)
Fair value of credit derivatives before effect of AGC credit spread	$	(356)	$	(261)
Plus: Effect of AGC credit spread	197		76
Net fair value of credit derivatives	$	(159)	$	(185)

- Definition

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

+ References + Details