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Investments

3 Months Ended

Mar. 31, 2017

Text Block [Abstract]

Investments

Note 7: Investments

Investments, excluding those elected under the fair value option, include debt and equity securities classified as either AFS or HTM. Other AFS investments primarily comprise money market funds.

The following tables present the amortized cost, fair value, corresponding gross unrealized gains and losses and other-than-temporary impairments (“OTTI”) for AFS and HTM investments in the Company’s consolidated investment portfolio as of March 31, 2017 and December 31, 2016:

						March 31, 2017
									Gross			Gross						Other-Than-
						Amortized			Unrealized			Unrealized			Fair			Temporary
In millions						Cost			Gains			Losses			Value			Impairments(1)
AFS Investments
Fixed-maturity investments:
	U.S. Treasury and government agency					$	865		$	31		$	(8)		$	888		$	-
	State and municipal bonds						1,364			60			(20)			1,404			-
	Foreign governments						10			1			(1)			10			-
	Corporate obligations						1,495			20			(90)			1,425			(63)
	Mortgage-backed securities:
		Residential mortgage-backed agency					796			2			(13)			785			-
		Residential mortgage-backed non-agency					59			1			(6)			54			(2)
		Commercial mortgage-backed					38			-			-			38			-
	Asset-backed securities:
		Collateralized debt obligations					52			-			-			52			-
		Other asset-backed					257			2			(1)			258			1
			Total fixed-maturity investments				4,936			117			(139)			4,914			(64)
Money market securities							267			-			-			267			-
Perpetual debt and equity securities							3			1			-			4			-
Total AFS investments						$	5,206		$	118		$	(139)		$	5,185		$	(64)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations					$	890		$	-		$	(11)		$	879		$	-
Total HTM investments						$	890		$	-		$	(11)		$	879		$	-
_______________
(1) - Represents unrealized gains or losses on OTTI securities recognized in AOCI, which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities reported in AOCI.

						December 31, 2016
									Gross			Gross						Other-Than-
						Amortized			Unrealized			Unrealized			Fair			Temporary
In millions						Cost			Gains			Losses			Value			Impairments(1)
AFS Investments
Fixed-maturity investments:
	U.S. Treasury and government agency					$	909		$	30		$	(10)		$	929		$	-
	State and municipal bonds						1,382			72			(15)			1,439			-
	Foreign governments						8			-			-			8			-
	Corporate obligations						1,352			20			(102)			1,270			(73)
	Mortgage-backed securities:
		Residential mortgage-backed agency					871			3			(12)			862			-
		Residential mortgage-backed non-agency					50			1			(6)			45			(3)
		Commercial mortgage-backed					41			-			-			41			-
	Asset-backed securities:
		Collateralized debt obligations					22			-			-			22			-
		Other asset-backed					294			2			(3)			293			1
			Total fixed-maturity investments				4,929			128			(148)			4,909			(75)
Money market securities							517			-			-			517			-
Perpetual debt and equity securities							4			1			-			5			-
Total AFS investments						$	5,450		$	129		$	(148)		$	5,431		$	(75)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations					$	890		$	-		$	(14)		$	876		$	-
Total HTM investments						$	890		$	-		$	(14)		$	876		$	-
_______________
(1) - Represents unrealized gains or losses on OTTI securities recognized in AOCI, which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities reported in AOCI.

The following table presents the distribution by contractual maturity of AFS and HTM fixed-maturity securities at amortized cost and fair value as of March 31, 2017. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.

		AFS Securities						HTM Securities
								Consolidated VIEs
		Amortized						Amortized
In millions		Cost			Fair Value			Cost			Fair Value
Due in one year or less		$	400		$	399		$	-		$	-
Due after one year through five years			1,209			1,215			-			-
Due after five years through ten years			773			727			-			-
Due after ten years			1,352			1,386			890			879
Mortgage-backed and asset-backed			1,202			1,187			-			-
Total fixed-maturity investments		$	4,936		$	4,914		$	890		$	879

Deposited and Pledged Securities

The fair value of securities on deposit with various regulatory authorities as of March 31, 2017 and December 31, 2016 was $10 million and $11 million, respectively. These deposits are required to comply with state insurance laws.

Pursuant to the Company’s tax sharing agreement, securities held by MBIA Inc. in the Tax Escrow Account are included as “Investments pledged as collateral, at fair value” on the Company’s consolidated balance sheets.

Investment agreement obligations require the Company to pledge securities as collateral. Securities pledged in connection with investment agreements may not be repledged by the investment agreement counterparty. As of March 31, 2017 and December 31, 2016, the fair value of securities pledged as collateral for these investment agreements approximated $415 million and $416 million, respectively. The Company’s collateral as of March 31, 2017 consisted principally of U.S. Treasury and government agency and state and municipal bonds, and was primarily held with major U.S. banks. Additionally, the Company pledged cash and money market securities as collateral under investment agreements of $6 million as of December 31, 2016.

Impaired Investments

The following tables present the gross unrealized losses related to AFS and HTM investments as of March 31, 2017 and December 31, 2016:

						March 31, 2017
						Less than 12 Months						12 Months or Longer						Total
						Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
In millions						Value			Losses			Value			Losses			Value			Losses
AFS Investments
Fixed-maturity investments:
	U.S. Treasury and government agency					$	479		$	(8)		$	-		$	-		$	479		$	(8)
	State and municipal bonds						441			(20)			8			-			449			(20)
	Foreign governments						3			(1)			-			-			3			(1)
	Corporate obligations						549			(26)			68			(64)			617			(90)
	Mortgage-backed securities:
		Residential mortgage-backed agency					464			(10)			104			(3)			568			(13)
		Residential mortgage-backed non-agency					11			-			28			(6)			39			(6)
		Commercial mortgage-backed					12			-			12			-			24			-
	Asset-backed securities:
		Collateralized debt obligations					4			-			13			-			17			-
		Other asset-backed					125			(1)			2			-			127			(1)
Total AFS investments						$	2,088		$	(66)		$	235		$	(73)		$	2,323		$	(139)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations					$	-		$	-		$	879		$	(11)		$	879		$	(11)
Total HTM investments						$	-		$	-		$	879		$	(11)		$	879		$	(11)

						December 31, 2016
						Less than 12 Months						12 Months or Longer						Total
						Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
In millions						Value			Losses			Value			Losses			Value			Losses
AFS Investments
Fixed-maturity investments:
	U.S. Treasury and government agency					$	432		$	(10)		$	-		$	-		$	432		$	(10)
	State and municipal bonds						339			(13)			18			(2)			357			(15)
	Foreign governments						5			-			-			-			5			-
	Corporate obligations						534			(29)			52			(73)			586			(102)
	Mortgage-backed securities:
		Residential mortgage-backed agency					436			(9)			122			(3)			558			(12)
		Residential mortgage-backed non-agency					1			-			29			(6)			30			(6)
		Commercial mortgage-backed					6			-			15			-			21			-
	Asset-backed securities:
		Collateralized debt obligations					7			-			15			-			22			-
		Other asset-backed					112			(1)			49			(2)			161			(3)
Total AFS investments						$	1,872		$	(62)		$	300		$	(86)		$	2,172		$	(148)
HTM Investments
Assets of consolidated VIEs:
	Corporate obligations					$	-		$	-		$	876		$	(14)		$	876		$	(14)
Total HTM investments						$	-		$	-		$	876		$	(14)		$	876		$	(14)

With the weighting applied on the fair value of each security relative to the total fair value, the weighted average contractual maturity of securities in an unrealized loss position as of March 31, 2017 and December 31, 2016 was 21 and 22 years, respectively. As of March 31, 2017 and December 31, 2016, there were 37 and 46 securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 13 and 12 securities, respectively, were below book value by more than 5%.

The following table presents the distribution of securities in an unrealized loss position for a continuous twelve-month period or longer where fair value was below book value by more than 5% as of March 31, 2017:

			AFS Securities								HTM Securities
	Percentage of Fair Value		Number of		Book Value			Fair Value			Number of		Book Value			Fair Value
	Below Book Value		Securities		(in millions)			(in millions)			Securities		(in millions)			(in millions)
	> 5% to 15%		7		$	15		$	14		-		$	-		$	-
	> 15% to 25%		4			31			25		-			-			-
	> 25% to 50%		1			1			-		-			-			-
	> 50%		1			101			38		-			-			-
	Total		13		$	148		$	77		-		$	-		$	-

The Company concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not, that it would not have to sell these securities before recovery of their cost basis. In making this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of March 31, 2017 that would require the sale of impaired securities. Impaired securities that the Company intends to sell before the expected recovery of such securities’ fair values have been written down to fair value.

Other-Than-Temporary Impairments

The Company’s fixed-maturity securities for which fair value is less than amortized cost are reviewed quarterly in order to determine whether a credit loss exists. The portion of certain OTTI losses on fixed-maturity securities that does not represent credit losses is recognized in accumulated other comprehensive income (loss) (“AOCI”). Refer to “Note 8: Investments” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of the Company’s policy for OTTI and its determination of credit 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 OTTI losses was recognized in AOCI, and the corresponding changes in such amounts. The additional credit loss impairment for the three months ended March 31, 2017 was primarily related to one impaired security for which a loss was recognized as the difference between its amortized cost and the net present value of its projected cash flows. This OTTI resulted from liquidity concerns and other adverse financial conditions of the issuer.

In millions			Three Months Ended March 31,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments			2017				2016
Beginning balance			$	29		$	26
Additions for credit loss impairments recognized in the current period on securities
	previously impaired			2			-
Ending balance			$	31		$	26
(1) - 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.

The Company does not recognize OTTI on securities insured by MBIA Corp. and National since those securities, whether or not owned by the Company, are evaluated for impairments in accordance with its loss reserving policy. The following table provides information about securities held by the Company as of March 31, 2017 that were in an unrealized loss position and insured by a financial guarantor, along with the amount of insurance loss reserves corresponding to the par amount owned by the Company:

								Unrealized			Insurance Loss
	In millions				Fair Value			Loss			Reserve (2)
	Asset-backed:
		MBIA(1)			$	13		$	-		$	-
	Mortgage-backed:
		MBIA(1)				16			(3)			16
	Corporate obligations:
		MBIA(1)				41			(2)			-
	Other:
		MBIA(1)				6			-			-
		Other				2			-			-
	Total				$	78		$	(5)		$	16
	_______________
	(1) - Includes investments insured by MBIA Corp. and National.
	(2) - Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

Sales of Available-for-Sale Investments

Gross realized gains and losses are recorded within “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations. The proceeds and the gross realized gains and losses from sales of fixed-maturity securities held as AFS for the three months ended March 31, 2017 and 2016 are as follows:

				Three Months Ended March 31,
	In millions			2017			2016
	Proceeds from sales			$	271		$	281
	Gross realized gains				4			10
	Gross realized losses				(1)			(4)

X

- Definition

Tabular disclosure of marketable securities. This may consist of investments in certain debt and equity securities, short-term investments and other assets.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 320
-SubTopic 10
-Section 45
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=66010992&loc=d3e26626-111562

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 210
-Section S99
-Paragraph 1
-Subparagraph (SX 210.9-03.4)
-URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 320
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-Section 50
-Paragraph 5
-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=73527792&loc=d3e27232-111563

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 320
-SubTopic 10
-Section 45
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=66010992&loc=d3e26610-111562

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 320
-SubTopic 10
-Section 50
-Paragraph 2
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=73527792&loc=d3e27161-111563

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.2,12)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

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