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Investments | 3 Months Ended
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Mar. 31, 2019
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 held-to-maturity (“HTM”). T h e f o l l o w i n g t a b l e s p r e s en t t h e a m o r t i z e d c o st, f a i r v a l u e, corresponding gross unrealized gains and losses and OTTI for AFS and HTM investments in the Company’s c o n s o l i d a te d i n v es t m en t p o r tf o l i o a s o f March 31, 2019 a nd December 31, 2018:
|  |  |  |  |  | March 31, 2019
|  |  |  |  |  |  |  |  | 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 |  | $ | 927 |  | $ | 33 |  | $ | (5) |  | $ | 955 |  | $ | -
| State and municipal bonds |  |  | 509 |  |  | 77 |  |  | (4) |  |  | 582 |  |  | 54
| Foreign governments |  |  | 13 |  |  | - |  |  | - |  |  | 13 |  |  | -
| Corporate obligations |  |  | 1,673 |  |  | 14 |  |  | (63) |  |  | 1,624 |  |  | (41)
| Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Residential mortgage-backed agency |  |  | 223 |  |  | 1 |  |  | (3) |  |  | 221 |  |  | -
|  | Residential mortgage-backed non-agency |  |  | 29 |  |  | 1 |  |  | (5) |  |  | 25 |  |  | -
|  | Commercial mortgage-backed |  |  | 54 |  |  | - |  |  | (1) |  |  | 53 |  |  | -
| Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Collateralized debt obligations |  |  | 113 |  |  | - |  |  | (3) |  |  | 110 |  |  | -
|  | Other asset-backed |  |  | 193 |  |  | - |  |  | - |  |  | 193 |  |  | -
Total AFS investments |  | $ | 3,734 |  | $ | 126 |  | $ | (84) |  | $ | 3,776 |  | $ | 13
HTM Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets of consolidated VIEs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate obligations |  | $ | 890 |  | $ | 58 |  | $ | - |  | $ | 948 |  | $ | -
Total HTM investments |  | $ | 890 |  | $ | 58 |  | $ | - |  | $ | 948 |  | $ | -
_______________ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(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, 2018
|  |  |  |  |  |  |  |  | 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 |  | $ | 1,093 |  | $ | 26 |  | $ | (10) |  | $ | 1,109 |  | $ | -
| State and municipal bonds |  |  | 641 |  |  | 97 |  |  | (11) |  |  | 727 |  |  | 42
| Foreign governments |  |  | 9 |  |  | - |  |  | - |  |  | 9 |  |  | -
| Corporate obligations |  |  | 1,473 |  |  | 6 |  |  | (131) |  |  | 1,348 |  |  | (68)
| Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Residential mortgage-backed agency |  |  | 218 |  |  | 1 |  |  | (5) |  |  | 214 |  |  | -
|  | Residential mortgage-backed non-agency |  |  | 30 |  |  | 1 |  |  | (4) |  |  | 27 |  |  | -
|  | Commercial mortgage-backed |  |  | 53 |  |  | - |  |  | (2) |  |  | 51 |  |  | -
| Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Collateralized debt obligations |  |  | 122 |  |  | - |  |  | (3) |  |  | 119 |  |  | -
|  | Other asset-backed |  |  | 178 |  |  | - |  |  | (1) |  |  | 177 |  |  | -
Total AFS investments |  | $ | 3,817 |  | $ | 131 |  | $ | (167) |  | $ | 3,781 |  | $ | (26)
HTM Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets of consolidated VIEs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate obligations |  | $ | 890 |  | $ | 35 |  | $ | - |  | $ | 925 |  | $ | -
Total HTM investments |  | $ | 890 |  | $ | 35 |  | $ | - |  | $ | 925 |  | $ | -
_______________ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(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.
T h e f ol l owin g t abl e p r e s en t s t h e di s t r i bu t io n b y c on t r a c t u a l m a t u r i t y o f AFS and HTM f i x ed-m a t u r i t y securities at a m o r t i z e d c o st a n d f ai r v alu e a s o f March 31, 2019. Con t r a c t ua l m a t u r i t y m a y d i f f e r f r o m e x pe c t e d m a t u r i t y a s bo rr ow e r s m a y h a v e t h e r igh t t o c a l l o r p r e p a y ob l iga t ion s.
|  | AFS Securities |  | HTM Securities
|  |  |  |  |  |  |  | Consolidated VIEs
|  | Amortized |  |  |  |  | Amortized |  |  |
In millions |  | Cost |  | Fair Value |  | Cost |  | Fair Value
Due in one year or less |  | $ | 846 |  | $ | 863 |  | $ | - |  | $ | -
Due after one year through five years |  |  | 631 |  |  | 669 |  |  | - |  |  | -
Due after five years through ten years |  |  | 658 |  |  | 623 |  |  | - |  |  | -
Due after ten years |  |  | 987 |  |  | 1,019 |  |  | 890 |  |  | 948
Mortgage-backed and asset-backed |  |  | 612 |  |  | 602 |  |  | - |  |  | -
Total fixed-maturity investments |  | $ | 3,734 |  | $ | 3,776 |  | $ | 890 |  | $ | 948
Deposited and Pledged Securities T h e f ai r v alu e o f s e c u r i t ie s o n depo s i t wi t h v a r io u s r egu l a t o r y au t ho r i t ie s a s o f March 31, 2019 and December 31, 2018 wa s $11 million. T h e se d epo s i t s a re r equi r e d t o c o m p l y wi t h s t a t e in s u r an ce law s. 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. I n v e s t m en t ag r ee m en t obligations r equ i re t h e Co m pan y t o ple d g e s e c u r i t i e s a s c o lla t e r al. Securities pledged in connection with investment agreement s may not be repled ged by the investment agreement counterparty. As o f March 31, 2019 a nd December 31, 2018, t h e f ai r v a l u e o f s e c u r i t ie s p ledge d a s c olla t e r a l for these in v e s t m en t ag r e e m e n t s app r o x i m a t e d $327 m i llio n an d $314 m i l lion, r e s p e c t i v e l y. T h e Co m pan y’s c olla t e r a l a s o f March 31, 2019 c on s i s t e d p r i n c ipal l y o f U.S. T r ea s u ry a n d go v e r n m en t ag e n cy and corporate obligations, and wa s p r i m a r il y hel d wi t h m a j o r U.S. ban ks. Refer to “Note 8: Derivative Instruments” for information about securities posted to derivative counterparties. Impaired Investments The following tables present the gross unrealized losses related to AFS and HTM investments as of March 31, 2019 and December 31, 2018:
|  |  |  |  |  | March 31, 2019
|  |  |  |  |  | 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 |  | $ | 71 |  | $ | - |  | $ | 319 |  | $ | (5) |  | $ | 390 |  | $ | (5)
| State and municipal bonds |  |  | 4 |  |  | - |  |  | 149 |  |  | (4) |  |  | 153 |  |  | (4)
| Foreign governments |  |  | 5 |  |  | - |  |  | 2 |  |  | - |  |  | 7 |  |  | -
| Corporate obligations |  |  | 280 |  |  | (2) |  |  | 776 |  |  | (61) |  |  | 1,056 |  |  | (63)
| Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Residential mortgage-backed agency |  |  | - |  |  | - |  |  | 142 |  |  | (3) |  |  | 142 |  |  | (3)
|  | Residential mortgage-backed non-agency |  |  | - |  |  | - |  |  | 12 |  |  | (5) |  |  | 12 |  |  | (5)
|  | Commercial mortgage-backed |  |  | 15 |  |  | - |  |  | 27 |  |  | (1) |  |  | 42 |  |  | (1)
| Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Collateralized debt obligations |  |  | 88 |  |  | (2) |  |  | 9 |  |  | (1) |  |  | 97 |  |  | (3)
|  | Other asset-backed |  |  | 38 |  |  | - |  |  | 84 |  |  | - |  |  | 122 |  |  | -
Total AFS investments |  | $ | 501 |  | $ | (4) |  | $ | 1,520 |  | $ | (80) |  | $ | 2,021 |  | $ | (84)
|  |  |  |  |  | December 31, 2018
|  |  |  |  |  | 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 |  | $ | 231 |  | $ | (1) |  | $ | 278 |  | $ | (9) |  | $ | 509 |  | $ | (10)
| State and municipal bonds |  |  | 60 |  |  | (1) |  |  | 135 |  |  | (10) |  |  | 195 |  |  | (11)
| Foreign governments |  |  | 5 |  |  | - |  |  | 2 |  |  | - |  |  | 7 |  |  | -
| Corporate obligations |  |  | 900 |  |  | (41) |  |  | 335 |  |  | (90) |  |  | 1,235 |  |  | (131)
| Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Residential mortgage-backed agency |  |  | 29 |  |  | (1) |  |  | 118 |  |  | (4) |  |  | 147 |  |  | (5)
|  | Residential mortgage-backed non-agency |  |  | 2 |  |  | - |  |  | 13 |  |  | (4) |  |  | 15 |  |  | (4)
|  | Commercial mortgage-backed |  |  | 24 |  |  | - |  |  | 21 |  |  | (2) |  |  | 45 |  |  | (2)
| Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Collateralized debt obligations |  |  | 98 |  |  | (3) |  |  | 7 |  |  | - |  |  | 105 |  |  | (3)
|  | Other asset-backed |  |  | 127 |  |  | - |  |  | 35 |  |  | (1) |  |  | 162 |  |  | (1)
Total AFS investments |  | $ | 1,476 |  | $ | (47) |  | $ | 944 |  | $ | (120) |  | $ | 2,420 |  | $ | (167)
Gross unrealized losses on AFS investments de creased as of March 31, 2019 compared with December 31, 2018 primarily due to lower interest rates and tightening credit spreads. 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, 2019 and December 31, 2018 was 10 and 11 years, respectively. As of March 31, 2019 and December 31, 2018, there were 291 and 182 securities, respectively, that were in an unrealized loss position for a conti nuous twelve-month period or longer, of which, fair value s of 51 and 64 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, 2019:
|  |  | AFS Securities
| Percentage of Fair Value |  | Number of |  | Book Value |  | Fair Value
| Below Book Value |  | Securities |  | (in millions) |  | (in millions)
| > 5% to 15% |  | 41 |  | $ | 212 |  | $ | 195
| > 15% to 25% |  | 5 |  |  | 2 |  |  | 2
| > 25% to 50% |  | 2 |  |  | 14 |  |  | 10
| > 50% |  | 3 |  |  | 71 |  |  | 30
| Total |  | 51 |  | $ | 299 |  | $ | 237
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 w ould 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, 2019 that would require the sale of impaired securities. Impaired securities tha t 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 determin e whether a credit loss exists. The portion of certain OTTI losses on fixed-maturity securities that does not represent credit losses is recognized in AOCI. Refer to “Note 8: Investments” in the Notes to Con solidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for a disc ussion of the Company’s policy for OTTI and its determination of credit loss. The following table presents the amount of credi t loss impairments recognized in earnings on fixed-maturity securities held by MBIA as of the dates indica ted, for which a portion of the OTTI losses was recognized in AOCI, and the corresponding changes in such amounts. The additional credit loss impairments for the three months ended March 31, 2019 and 2018 were primarily related to an impaired security for which a loss was r ecognized as the difference between the amortized cost and net present value of projected cash flows. The OTTI for the three months ended March 31, 2019 resulted from updated 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 |  | 2019 |  |  | 2018 |
Beginning balance |  | $ | 37 |  | $ | 32 |
Additions for credit loss impairments recognized in the current period on securities |  |  |  |  |  |  |
| previously impaired |  |  | 28 |  |  | 1 |
Ending balance |  | $ | 65 |  | $ | 33 |
(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, 2019 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) |
| Mortgage-backed: |  |  |  |  |  |  |  |  |  |
|  | MBIA(1) |  | $ | 12 |  | $ | (5) |  | $ | 16 |
| Corporate obligations: |  |  |  |  |  |  |  |  |  |
|  | MBIA(1) |  |  | 53 |  |  | (3) |  |  | - |
| Total |  | $ | 65 |  | $ | (8) |  | $ | 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 r eali z e d ga i n s and l o s s e s 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, 2019 and 2018 are as follows:
|  |  |  | Three Months Ended March 31,
| In millions |  | 2019 |  | 2018
| Proceeds from sales |  | $ | 683 |  | $ | 651
| Gross realized gains |  | $ | 5 |  | $ | 2
| Gross realized losses |  | $ | (1) |  | $ | (6)
Equity Investments Unrealized gains and losses recognized on equity investments held as of the end of each period for the three months ended March 31, 2019 and 2018 are as follows:
|  |  | Three Months Ended March 31,
In millions |  | 2019 |  | 2018
Net gains and (losses) recognized during the period on equity securities | $ | 5 |  | $ | -
Less: |  |  |  |  |  |
Net gains and (losses) recognized during the period on equity securities sold during the period |  | 1 |  |  | -
Unrealized gains and (losses) recognized during the period on equity securities still held at the reporting date | $ | 4 |  | $ | -

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