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Investment Income And Gains And Losses | 9 Months Ended
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Sep. 30, 2011
Investment Income And Gains And Losses [Abstract] |
Investment Income And Gains And Losses | Note 8: Investment Income and Gains and Losses The following table includes total investment income from all operations:
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
In millions |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Net investment income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-maturity |  | $ | 87 |  |  | $ | 104 |  |  | $ | 279 |  |  | $ | 313 |
Held-to-maturity |  |  | 1 |  |  |  | 2 |  |  |  | 5 |  |  |  | 5 |
Short-term investments |  |  | 1 |  |  |  | 3 |  |  |  | 5 |  |  |  | 8 |
Other investments |  |  | 3 |  |  |  | 5 |  |  |  | 10 |  |  |  | 17 |
Consolidated VIEs |  |  | 17 |  |  |  | 21 |  |  |  | 53 |  |  |  | 51 |
Gross investment income |  |  | 109 |  |  |  | 135 |  |  |  | 352 |  |  |  | 394 |
Investment expenses |  |  | - |  |  |  | 2 |  |  |  | - |  |  |  | 4 |
Net investment income |  |  | 109 |  |  |  | 133 |  |  |  | 352 |  |  |  | 390 |
Realized gains and losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains |  |  | 46 | (1) |  |  | 55 |  |  |  | 117 | (1) |  |  | 90 |
Losses |  |  | (56 | ) |  |  | (5 | ) |  |  | (133 | ) |  |  | (84 | )
Net |  |  | (10 | ) |  |  | 50 |  |  |  | (16 | ) |  |  | 6 |
Other investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains |  |  | - |  |  |  | - |  |  |  | 9 |  |  |  | 1 |
Losses |  |  | (1 | ) |  |  | - |  |  |  | (1 | ) |  |  | (1 | )
Net |  |  | (1 | ) |  |  | - |  |  |  | 8 |  |  |  | - |
Total net realized gains (losses)(2) |  |  | (11 | ) |  |  | 50 |  |  |  | (8 | ) |  |  | 6 |
Total investment income |  | $ | 98 |  |  | $ | 183 |  |  | $ | 344 |  |  | $ | 396 |
(1) | - Includes net trading gains of $2 million and $5 million for the three and nine months ended September 30, 2011, respectively.
(2) | - Reported within the "Net gains (losses) on financial instruments at fair value and foreign exchange" and "Net investment losses related to other-than-temporary impairments" line items on MBIA's consolidated statements of operations.
Total investment income is generated as a result of the ongoing management of the Company's investment portfolios. For the three and nine months ended September 30, 2011, total investment income decreased from the same period of 2010 primarily due to higher losses related to fixed-maturity investment sales and lower asset bases. The portion of other-than-temporary impairment losses on fixed-maturity securities that does not represent credit losses is recognized in accumulated other comprehensive income (loss). The following table presents the amount of credit loss impairments recognized in earnings on fixed-maturity securities held by MBIA as of the dates indicated, for which a portion of the other-than-temporary impairment losses was recognized in accumulated other comprehensive income (loss), and the corresponding changes in such amounts.
In millions |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments |  | 2011 |  |  | 2010 |  |  | 2011 |  |  | 2010 |
Beginning balance |  | $ | 283 |  |  | $ | 265 |  |  | $ | 262 |  |  | $ | 389 |
Accounting transition adjustment(1) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (148 | )
Additions for credit loss impairments recognized in the current period on securities not previously impaired |  |  | 5 |  |  |  | - |  |  |  | 5 |  |  |  | 23 |
Additions for credit loss impairments recognized in the current period on securities previously impaired |  |  | 6 |  |  |  | - |  |  |  | 32 |  |  |  | 17 |
Reductions for credit loss impairments previously recognized on securities sold during the period |  |  | (5 | ) |  |  | (3 | ) |  |  | (10 | ) |  |  | (14 | )
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period(2) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4 | )
Reductions for increases in cash flows expected to be collected over the remaining life of the security |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1 | )
Ending balance |  | $ | 289 |  |  | $ | 262 |  |  | $ | 289 |  |  | $ | 262 |
(1) | - Reflects the adoption of the accounting principles for the consolidation of VIEs.
(2) | - Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security's amortized cost.
For ABS (e.g. RMBS and CDOs), the Company estimated expected future cash flows of each security by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordination interests owned by third parties, to the security. The expected future cash flows of the underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses (which consider current delinquencies and nonperforming assets, future expected default rates and collateral value by vintage and geographic region) and prepayments. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. The following table presents a summary of the significant inputs considered in determining the measurement of the credit loss component recognized in earnings for each significant class of ABS for the nine months ended September 30, 2011 and 2010.
|  | Nine Months Ended September 30, |
Asset-backed Securities |  | 2011 |  |  | 2010 |
Expected size of losses(1): |  |  |  |  |  |  |  |
Range(2) |  |  | 1.59% to 100% |  |  |  | 0.21% to 100% |
Weighted average(3) |  |  | 64.58% |  |  |  | 44.90% |
Current subordination levels(4): |  |  |  |  |  |  |  |
Range(2) |  |  | 0.00% to 29.46% |  |  |  | 0.00% to 42.16% |
Weighted average(3) |  |  | 0.00% |  |  |  | 5.18% |
Prepayment speed (annual CPR)(5): |  |  |  |  |  |  |  |
Range(2) |  |  | 0.00 to 100 |  |  |  | 0.00 to 38.13 |
Weighted average(3) |  |  | 15.62 |  |  |  | 9.08 |
(1) | - Represents future expected credit losses on impaired assets expressed as a percentage of total outstanding balance.
(2) - Represents the range of inputs/assumptions based upon the individual securities within each category. (3) - Calculated by weighting the relevant input/assumption for each individual security by the outstanding notional of the security. (4) - Represents current level of credit protection (subordination) for the securities, expressed as a percentage of the balance of the collateral group backing the bond. (5) - Values represent high and low points of lifetime vectors of constant prepayment rates. Net unrealized gains (losses), including the portion of other-than-temporary impairments included in accumulated other comprehensive income (loss), reported within shareholders' equity consisted of:
In millions |  | As of September 30, 2011 |  |  | As of December 31, 2010 |
Fixed-maturity: |  |  |  |  |  |  |  |
Gains |  | $ | 373 |  |  | $ | 208 |
Losses |  |  | (536 | ) |  |  | (782 | )
Foreign exchange |  |  | 9 |  |  |  | (14 | )
Net |  |  | (154 | ) |  |  | (588 | )
Other investments: |  |  |  |  |  |  |  |
Gains |  |  | 2 |  |  |  | 10 |
Losses |  |  | (31 | ) |  |  | (22 | )
Net |  |  | (29 | ) |  |  | (12 | )
Total |  |  | (183 | ) |  |  | (600 | )
Deferred income tax provision (benefit) |  |  | (76 | ) |  |  | (208 | )
Unrealized gains (losses), net |  | $ | (107 | ) |  | $ | (392 | )
The change in net unrealized gains (losses) presented in the table above consisted of:
In millions |  | As of September 30, 2011 |  |  | As of December 31, 2010 |
Fixed-maturity |  | $ | 434 |  |  | $ | 749 |
Other investments |  |  | (17 | ) |  |  | 47 |
Total |  |  | 417 |  |  |  | 796 |
Deferred income tax charged (credited) |  |  | 132 |  |  |  | 213 |
Change in unrealized gains (losses), net (1) |  | $ | 285 |  |  | $ | 583 |
| (1) | - The annual change as of December 31, 2010 included $266 million of net unrealized gains due to the transition adjustment for the adoption of the accounting principles for consolidation of VIEs.

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- Definition This item represents the disclosure for investment income derived from investments in debt and equity securities consisting of interest income earned from investments in debt securities and on cash and cash equivalents, dividend income from investments in equity securities, and income or expense derived from the amortization of investment related discounts or premiums, respectively. This item also includes realized or unrealized gains or losses on the sale or holding of investments in debt and equity securities required to be included in earnings for the period or for other than temporary losses related to investments in debt and equity securities which are included in realized losses in the period recognized. + Details
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