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Contracts Accounted for as Credit Derivatives | 9 Months Ended
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Sep. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Contracts Accounted for as Credit Derivatives | Contracts Accounted for as Credit Derivatives The Company’s credit derivatives primarily consist of insured CDS contracts. The Company does not enter into CDS contracts with the intent to trade these contracts and may not unilaterally terminate a CDS contract absent an event or default or termination event that entitles the Company to terminate the contract. The Company and its counterparties have negotiated the termination of certain contracts from time to time. Transactions are generally terminated for an amount that approximates the present value of future premiums or a negotiated amount, rather than fair value. The terms of the Company’s CDS contracts differ from more standardized credit derivative contracts sold by companies outside the financial guaranty industry. The non-standard terms generally include the absence of collateral support agreements or immediate settlement provisions, and the Company’s insured exposure benefits from relatively high attachment points or other protections. The Company’s credit derivatives are generally governed by International Swaps and Derivatives Association, Inc. documentation and have certain characteristics that differ from financial guaranty insurance contracts. For example, the Company’s control rights with respect to a reference obligation under a CDS may be more limited than when the Company issues a financial guaranty insurance contract. In addition, there are more circumstances under which the Company may be obligated to make payments. Similar to a financial guaranty insurance contract, the Company would be obligated to pay if the obligor failed to make a scheduled payment of principal or interest in full. In certain credit derivative transactions, the Company also specifically agreed to pay if the obligor were to become bankrupt or if the reference obligation were restructured. Furthermore, in certain credit derivative transactions, the Company may be required to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the non-defaulting or the non-affected party, which may be either the Company or the counterparty, depending upon the circumstances, may decide to terminate a credit derivative prior to maturity. In that case, the Company may be required to make a termination payment to its swap counterparty upon such termination. Absent such an event of default or termination event, the Company may not unilaterally terminate a credit derivative contract; however, the Company on occasion has mutually agreed to terminate certain CDS with related counterparties. The components of the Company’s credit derivative net par outstanding by sector are presented in the table below. The estimated remaining weighted average life of credit derivatives was 8.9 years and 8.4 years as of September 30, 2025 and December 31, 2024, respectively. Credit Derivatives (1)
|  | As of September 30, 2025 |  | As of December 31, 2024
Sector |  | Net Par Outstanding |  | Net Fair Value Asset (Liability) |  | Net Par Outstanding |  | Net Fair Value Asset (Liability)
|  | (in millions)
U.S. public finance |  | $ | 997 |  |  | $ | (11) |  |  | $ | 1,025 |  |  | $ | (12) |
Non-U.S. public finance |  | 1,645 |  |  | (14) |  |  | 2,044 |  |  | (15) |
U.S. structured finance |  | 143 |  |  | (2) |  |  | 150 |  |  | (2) |
Non-U.S. structured finance |  | 974 |  |  | 1 |  |  | 993 |  |  | — |
Total |  | $ | 3,759 |  |  | $ | (26) |  |  | $ | 4,212 |  |  | $ | (29) |
____________________ (1) See Note 4, Expected Loss to be Paid (Recovered), for expected loss to be paid on credit derivatives. Fair Value Gains (Losses) on Credit Derivatives
| Third Quarter |  | Nine Months
| 2025 |  | 2024 |  | 2025 |  | 2024
| (in millions)
Realized gains (losses) and other settlements | $ | 2 |  |  | $ | 2 |  |  | $ | 107 |  |  | $ | 2 |
Net unrealized gains (losses) | 3 |  |  | 1 |  |  | 3 |  |  | 17 |
Fair value gains (losses) on credit derivatives | $ | 5 |  |  | $ | 3 |  |  | $ | 110 |  |  | $ | 19 |
On November 28, 2011, LBIE sued AG Financial Products Inc. (AGFP), a subsidiary of AGL which, in the past, had provided credit protection to counterparties under CDS. Following defaults by LBIE under transaction documents governing CDS between LBIE and AGFP, AGFP terminated the CDS in compliance with the transaction documents and properly calculated that LBIE owed AGFP approximately $25 million in connection with the termination, whereas LBIE asserted in its complaint filed in the Supreme Court of the State of New York (the Court) that AGFP owed LBIE a termination payment of approximately $1.4 billion. Following a bench trial, on March 8, 2023, the Court rendered its decision and found in favor of AGFP. Following the exhaustion of LBIE’s appeals, the Company recognized a realized gain on credit derivatives in the first quarter of 2025 of $103 million, which represents the full satisfaction of the judgment it was awarded and its claims for attorneys’ fees, expenses and interest in connection with this litigation. The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates and other market conditions at the time these fair values are determined. In addition, since each transaction has unique collateral and structural terms, the change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts generally also reflects the Company’s own credit cost based on the price to purchase credit protection on AG. The Company determines its own credit risk primarily based on quoted CDS prices traded on AG at each balance sheet date. CDS Spread on AG (in basis points)
| As of September 30, 2025 |  | As of December 31, 2024 |  | As of September 30, 2024 |  | As of December 31, 2023
Five-year CDS spread | 70 |  | 75 |  | 65 |  | 66
One-year CDS spread | 24 |  | 25 |  | 26 |  | 23
Fair Value of Credit Derivative Assets (Liabilities) and Effect of AG Credit Spread
| As of
| September 30, 2025 |  | December 31, 2024
| (in millions)
Fair value of credit derivatives before effect of AG credit spread | $ | (59) |  |  | $ | (64) |
Plus: Effect of AG credit spread | 33 |  |  | 35 |
Net fair value of credit derivatives | $ | (26) |  |  | $ | (29) |
The fair value of CDS contracts as of September 30, 2025, before considering the benefit applicable to AG’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions, sometimes related to downgrades, compared with those at the time of underwriting for certain underlying credits with longer tenor.

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