Notes to Consolidated Financial Statements (Unaudited)
Note 1: Business
Developments and Risks and Uncertainties
Summary
MBIA Inc., together with its consolidated subsidiaries, (collectively, MBIA or the Company) operates one of the largest financial guarantee insurance businesses in the industry. MBIA manages
three operating segments: 1) United States (U.S.) public finance insurance; 2) corporate; and 3) international and structured finance insurance. The Companys U.S. public finance insurance business is primarily operated through
National Public Finance Guarantee Corporation (National) and its international and structured finance insurance business is primarily operated through MBIA Insurance Corporation and its subsidiaries (MBIA Corp.). Unless
otherwise indicated or the context otherwise requires, references to MBIA Corp. are to MBIA Insurance Corporation, together with its subsidiaries, MBIA UK Insurance Limited (MBIA UK) and MBIA Mexico S.A. de C.V (MBIA
Mexico).
Effective on January 1, 2015, the Company exited its advisory services business through the sale of Cutwater Holdings, LLC and its
subsidiaries (Cutwater) to a subsidiary of The Bank of New York Mellon Corporation. Refer to Note 10: Business Segments for further information about the Companys operating segments.
Business Developments
National Ratings and New
Business Opportunities
Nationals ability to write new business and compete with other financial guarantors is largely dependent on the
financial strength ratings assigned to National by the rating agencies. During the second quarter of 2016, all of the rating agencies completed their annual reviews of National and affirmed the following ratings: AA+ with a stable outlook by Kroll
Bond Rating Agency; AA- with a stable outlook by Standard & Poors Financial Services LLC (S&P); and A3 with a negative outlook by Moodys Investors Service, Inc. (Moodys).
National seeks to generate shareholder value through appropriate risk adjusted pricing; however, current market conditions and the competitive landscape may limit
Nationals new business opportunities and its abilities to price and underwrite risk with attractive returns. Refer to Risks and Uncertainties below for a discussion of business risks related to Nationals insured
portfolio.
Risks and Uncertainties
The
Companys financial statements include estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The outcome of certain significant risks and uncertainties could cause the Company to revise its
estimates and assumptions or could cause actual results to differ from the Companys estimates. The discussion below highlights the significant risks and uncertainties that could have a material effect on the Companys financial statements
and business objectives in future periods.
U.S. Public Finance Market Conditions
Nationals insured portfolio continued to perform satisfactorily against a backdrop of strengthening domestic economic activity. While a stable or growing economy will generally benefit tax revenues and fees
charged for essential municipal services which secure Nationals insured bond portfolio, some state and local governments and territory obligors National insures remain under financial and budgetary stress. This could lead to an increase in
defaults by such entities on the payment of their obligations and losses or impairments on a greater number of the Companys insured transactions. The Company monitors and analyzes these situations and other stressed credits closely, and the
overall extent and duration of this stress is uncertain.
Puerto Rico is experiencing fiscal stress and constrained liquidity due to, among other
things, Puerto Ricos structural budget imbalance, limited access to the capital markets, a stagnating local economy, net migration of people out of Puerto Rico and a high debt burden. Although Puerto Rico has tried to address its significant
financial challenges through various fiscal policies, it continues to experience significant fiscal stress. On July 1, 2016, Puerto Rico defaulted on scheduled debt service for National insured bonds and National paid claims in aggregate of
$173 million as a result of these defaults. The Company continues to believe, based on its analysis of Puerto Ricos fiscal and structural circumstances, the details of its insured exposures, and its legal and contractual rights, that all of
Nationals insured Puerto Rico related debt, and any related claims, will ultimately be substantially repaid.
MBIA Corp. Insured Portfolio and
Recoveries
MBIA Corp.s primary objectives are to satisfy those claims of its policyholders, and to maximize future recoveries to its surplus
note holders and preferred stock holders. The Company is executing this strategy by reducing and mitigating potential losses on its insurance exposures and pursuing various actions focused on maximizing the collection of recoveries.
6
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Business Developments and Risks and Uncertainties (continued)
MBIA Corp.s insured portfolio could deteriorate and result in additional significant loss reserves and claim
payments. MBIA Corp.s ability to meet its obligations is limited by available liquidity and its ability to secure liquidity through financing and other transactions. There can be no assurance that MBIA Corp. will be successful in generating
sufficient cash to meet its obligations. At this time, MBIA Corp. is particularly focused on the policy it issued on a series of notes (the Zohar II Notes) issued by Zohar II 2005-1, Limited (Zohar II), a high yield corporate
collateralized debt obligation (CDO), which mature in January of 2017 and which, as of June 30, 2016, had $772 million of gross par outstanding. According to the sponsor and former collateral manager of Zohar II, the assets of Zohar
II include loans made to, and equity interests in, companies that the Zohar Sponsor purports to control. MBIA Corp. does not currently expect Zohar II to have sufficient cash flow to repay a substantial amount of the currently outstanding Zohar II
Notes at maturity in January of 2017. If cash flows generated by Zohar II are insufficient to pay the Zohar II Notes in full at maturity, MBIA Corp. expects that the trustee for the Zohar II Notes would make a claim under its policy to satisfy any
shortfall. MBIA Corp. does not currently have a sufficient amount of liquid assets to pay all or a substantial amount of the Zohar II Notes at maturity. While MBIA Corp. continues to pursue strategies to restructure the Zohar II Notes and to
increase its liquid assets, there is no assurance that MBIA Corp. will be successful in the execution of any such strategies.
If the New York State
Department of Financial Services (NYSDFS) at any time concludes that MBIA Insurance Corporation does not have, or will be unable to raise sufficient liquid assets to pay its expected claims in a timely manner, including a claim on the
Zohar II Notes, or will be unable to timely collect expected recoveries, it could, under Article 74 of the New York Insurance Law, put MBIA Insurance Corporation, exclusive of MBIA UK and MBIA Mexico, into a rehabilitation or liquidation proceeding,
or issue an order directing MBIA Insurance Corporation to not pay claims. The determination to commence such a proceeding or issue such an order is not within the control of the Company.
Given the separation of MBIA Inc. and MBIA Corp. as distinct legal entities, the absence of any material intercompany lending agreements or cross defaults between the entities, and the lack of reliance by MBIA Inc.
on MBIA Corp. for the receipt of dividends, the Company does not believe that a rehabilitation or liquidation proceeding with respect to MBIA Insurance Corporation would have any significant liquidity impact on MBIA Inc. or result in a liquidation
or similar proceeding of MBIA UK or MBIA Mexico. Such a proceeding could have material adverse consequences for MBIA Insurance Corporation, including the termination of insured credit default swap (CDS) contracts for which counterparties
may assert market-based claims, the acceleration of debt obligations issued by affiliates and insured by MBIA Insurance Corporation, the loss of control of MBIA Insurance Corporation to a rehabilitator or liquidator, and unplanned costs.
The amount and timing of projected collections from excess spread from second-lien residential mortgage-backed securities (RMBS) and the put-back
recoverable from Credit Suisse Securities (USA) LLC, DLJ Mortgage Capital, Inc., and Select Portfolio Servicing Inc. (collectively, Credit Suisse) are uncertain. Refer to Note 5: Loss and Loss Adjustment Expense Reserves for
information about MBIA Corp.s loss reserves and recoveries.
Corporate Liquidity
As of June 30, 2016 and December 31, 2015, the liquidity position of MBIA Inc. was $295 million and $416 million, respectively. The term liquidity position refers to cash and liquid assets
available for general liquidity purposes. During the six months ended June 30, 2016, $105 million was released to MBIA Inc. under the MBIA groups tax sharing agreement and related escrow agreement (the Tax Escrow Account).
Based on the Companys projections of Nationals dividends, payments into the Tax Escrow Account, and other cash inflows, the Company expects that MBIA Inc. will have sufficient cash to satisfy its debt service and general corporate needs.
However, MBIA Inc. continues to have liquidity risk which could be triggered by deterioration in the performance of invested assets, interruption of or reduction in dividends or tax payments received from operating subsidiaries, impaired access to
the capital markets, as well as other factors which cannot be anticipated at this time. Furthermore, failure by MBIA Inc. to settle liabilities that are also insured by MBIA Corp. could result in claims on MBIA Corp.
Note 2: Significant Accounting Policies
The Company has
disclosed its significant accounting policies in Note 2: Significant Accounting Policies in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31,
2015. The following significant accounting policies provide an update to those included in the Companys Annual Report on Form 10-K.
7
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 2: Significant Accounting Policies (continued)
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, do not include all of the
information and disclosures required by accounting principles generally accepted in the United States of America (GAAP) for annual periods. These statements should be read in conjunction with the consolidated financial statements and
notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2015. The accompanying consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with the
standards of the Public Company Accounting Oversight Board (U.S.), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the
Companys consolidated financial position and results of operations. All material intercompany balances and transactions have been eliminated.
The
preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and
reflected in operating results.
The results of operations for the three and six months ended June 30, 2016 may not be indicative of the results
that may be expected for the year ending December 31, 2016. The December 31, 2015 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP for annual periods. Certain
amounts have been reclassified in the prior years financial statements to conform to the current presentation. Such reclassifications did not materially impact total revenues, expenses, assets, liabilities, shareholders equity, operating
cash flows, investing cash flows, or financing cash flows for all periods presented.
Note 3: Recent Accounting Pronouncements
Recently Adopted Accounting Standards
Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved
after the Requisite Service Period (A Consensus of the FASB Emerging Issues Task Force) (ASU 2014-12)
In June of 2014, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period. ASU 2014-12 requires that a performance target that affects vesting of share-based payment awards and that could be achieved after an employees requisite service period be accounted
for as a performance condition. ASU 2014-12 was effective for interim and annual periods beginning January 1, 2016. The adoption of ASU 2014-12 did not affect the Companys consolidated financial statements.
Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (ASU 2014-13)
In August of 2014, the FASB issued ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a
Consolidated Collateralized Financing Entity. ASU 2014-13 applies to a consolidated collateralized financing entity defined as a consolidated variable interest entity (VIE) that holds financial assets and issues beneficial
interests in those financial assets that are classified as financial liabilities. The Company may elect to measure the financial assets and the financial liabilities of a consolidated collateralized financing entity using a measurement alternative
provided in ASU 2014-13. The measurement alternative requires both the financial assets and the financial liabilities of the consolidated collateralized financing entity to be measured using the more observable of the fair value of the financial
assets and the fair value of the financial liabilities with the changes in fair value recognized to earnings. Upon adoption, a reporting entity may apply the measurement alternative to existing consolidated collateralized financing entities. ASU
2014-13 was effective for interim and annual periods beginning January 1, 2016. The adoption of ASU 2014-13 did not affect the Companys consolidated financial statements.
Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03)
In April of 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires debt issuance costs related to
a debt liability measured at amortized cost to be reported in the balance sheet as a direct deduction from the face amount of the debt liability. ASU 2015-03 was effective for interim and annual periods beginning January 1, 2016. The adoption
of ASU 2015-03 was applied retrospectively and all previously reported amounts have been conformed to the current presentation. The adoption of ASU 2015-03 did not materially impact the Companys consolidated financial statements.
8
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 3: Recent Accounting Pronouncements (continued)
The Company has not adopted any other new accounting pronouncements that had a material impact on its consolidated
financial statements.
Recent Accounting Developments
Revenue from Contracts with Customers (Topic 606) (ASU 2014-09)
and
Deferral of the Effective Date (ASU 2015-14)
In May of 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the accounting guidance for recognizing revenue for the transfer of goods or services
from contracts with customers unless those contracts are within the scope of other accounting standards. ASU 2014-09 does not apply to financial guarantee insurance contracts within the scope of Topic 944, Financial Services
Insurance. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606)
Deferral of the Effective Date. ASU 2015-14 defers the effective date of ASU 2014-09 to interim and annual
periods beginning January 1, 2018, and is applied on a retrospective or modified retrospective basis. The adoption of ASU 2014-09 is not expected to materially impact the Companys consolidated financial statements.
Presentation of Financial StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going
Concern (ASU 2014-15)
In August of 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there are conditions or events that raise substantial doubt about the entitys ability to
continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. ASU 2014-15 is
effective for the annual period ending December 31, 2016 and for annual periods and interim periods thereafter with early adoption permitted. The adoption of ASU 2014-15 is not expected to materially impact the Companys consolidated
financial statements.
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
(ASU 2016-01)
In January of 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities. ASU 2016-01 requires certain equity investments other than those accounted for under the equity method of accounting or result in consolidation of the investee to be measured at fair value with
changes in fair value recognized in net income, and permits an entity to measure equity investments that do not have readily determinable fair values at cost less any impairment plus or minus adjustments for certain changes in observable prices. An
entity is also required to evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale (AFS) debt securities in combination with the entitys other deferred tax assets. ASU 2016-01 requires an
entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability that results from a change in the instrument-specific credit risk for financial liabilities that the entity has elected to
measure at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 is effective for interim and annual periods beginning January 1, 2018, and is applied on a modified retrospective basis. Early adoption is not
permitted with the exception of early application of the guidance that requires separate presentation in other comprehensive income of the change in the instrument-specific credit risk for financial liabilities measured at fair value in accordance
with the fair value option is permitted as of the beginning of the fiscal year of adoption of the standard. The Company is evaluating the impact of adopting ASU 2016-01.
Leases (Topic 842) (ASU 2016-02)
In February of 2016, the FASB issued ASU 2016-02, Leases (Topic
842) that amends the accounting guidance for leasing transactions. ASU 2016-02 requires a lessee to classify lease contracts as finance or operating leases, and to recognize assets and liabilities for the rights and obligations created by
leasing transactions with lease terms more than twelve months. ASU 2016-02 substantially retains the criteria for classifying leasing transactions as finance or operating leases. For finance leases, a lessee recognizes a right-of-use asset and a
lease liability initially measured at the present value of the lease payments, and recognizes interest expense on the lease liability separately from the amortization of the right-of-use asset. For operating leases, a lessee recognizes a
right-of-use asset and a lease liability initially measured at the present value of the lease payments, and recognizes lease expense on a straight-line basis. ASU 2016-02 is effective for interim and annual periods beginning January 1, 2019
with early adoption permitted, and is applied on a modified retrospective basis. The adoption of ASU 2016-02 is not expected to materially impact the Companys consolidated financial statements.
9
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 3: Recent Accounting Pronouncements (continued)
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU
2016-13)
In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. ASU 2016-13 requires financing receivables and other financial assets measured at amortized cost basis to be presented at the net amount expected to be collected by recording an allowance for credit losses with changes
in the allowance recorded as credit loss expense or reversal of credit loss expense based on managements current estimate of expected credit losses each period. ASU 2016-13 does not apply to credit losses on financial guarantee insurance
contracts within the scope of Topic 944, Financial Services-Insurance. ASU 2016-13 also requires impairment relating to credit losses on AFS debt securities to be presented through an allowance for credit losses with changes in the
allowance recorded in the period of the change as credit loss expense or reversal of credit loss expense. Any impairment amount not recorded through an allowance for credit losses on AFS debt securities is recorded through other comprehensive
income. ASU 2016-13 is effective for interim and annual periods beginning January 1, 2020 with early adoption permitted beginning January 1, 2019. ASU 2016-13 is applied on a modified retrospective basis except that prospective application
is applied to AFS debt securities with other-than-temporary impairments (OTTI) recognized before the date of adoption. The Company is evaluating the impact of adopting ASU 2016-13.
Note 4: Variable Interest Entities
Through MBIAs
international and structured finance insurance segment, the Company provides credit protection to issuers of obligations that may involve issuer-sponsored special purpose entities (SPEs). An SPE may be considered a VIE to the extent the
SPEs total equity at risk is not sufficient to permit the SPE to finance its activities without additional subordinated financial support or its equity investors lack any one of the following characteristics: (i) the power to direct the
activities of the SPE that most significantly impact the entitys economic performance or (ii) the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity. A holder of a
variable interest or interests in a VIE is required to assess whether it has a controlling financial interest, and thus is required to consolidate the entity as primary beneficiary. An assessment of a controlling financial interest identifies the
primary beneficiary as the variable interest holder that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entitys economic performance and (ii) the
obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. An ongoing reassessment of controlling financial
interest is required to be performed based on any substantive changes in facts and circumstances involving the VIE and its variable interests.
The
Company evaluates issuer-sponsored SPEs initially to determine if an entity is a VIE, and is required to reconsider its initial determination if certain events occur. For all entities determined to be VIEs, MBIA performs an ongoing reassessment to
determine whether its guarantee to provide credit protection on obligations issued by VIEs provides the Company with a controlling financial interest. Based on its ongoing reassessment of controlling financial interest, the Company determines
whether a VIE is required to be consolidated or deconsolidated.
The Company makes its determination for consolidation based on a qualitative assessment
of the purpose and design of a VIE, the terms and characteristics of variable interests of an entity, and the risks a VIE is designed to create and pass through to holders of variable interests. The Company generally provides credit protection on
obligations issued by VIEs, and holds certain contractual rights according to the purpose and design of a VIE. The Company may have the ability to direct certain activities of a VIE depending on facts and circumstances, including the occurrence of
certain contingent events, and these activities may be considered the activities of a VIE that most significantly impact the entitys economic performance. The Company generally considers its guarantee of principal and interest payments of
insured obligations, given nonperformance by a VIE, to be an obligation to absorb losses of the entity that could potentially be significant to the VIE. At the time the Company determines it has the ability to direct the activities of a VIE that
most significantly impact the economic performance of the entity based on facts and circumstances, MBIA is deemed to have a controlling financial interest in the VIE and is required to consolidate the entity as primary beneficiary. The Company
performs an ongoing reassessment of controlling financial interest that may result in consolidation or deconsolidation of any VIE.
Nonconsolidated VIEs
Insurance
The following tables present the total assets of nonconsolidated VIEs in which the Company holds a variable interest as of June 30, 2016 and December 31,
2015, through its insurance operations. The following tables also present the Companys maximum exposure to loss for nonconsolidated VIEs and carrying values of the assets and liabilities for its interests in these VIEs as of June 30, 2016
and December 31, 2015. The Company has aggregated nonconsolidated VIEs based on the underlying credit exposure of the insured obligation. The nature of the Companys variable interests in nonconsolidated VIEs is related to financial
guarantees, insured CDS contracts and any investments in obligations issued by nonconsolidated VIEs.
10
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 4: Variable Interest Entities (continued)
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
June 30, 2016
|
|
|
VIE
Assets
|
|
|
Maximum
Exposure
to Loss
|
|
|
Carrying Value of Assets
|
|
|
Carrying Value of Liabilities
|
|
|
|
|
Investments
(1)
|
|
|
Premiums
Receivable
(2)
|
|
|
Insurance
Loss
Recoverable
(3)
|
|
|
Unearned
Premium
Revenue
(4)
|
|
|
Loss and Loss
Adjustment
Expense
Reserves
(5)
|
|
|
Derivative
Liabilities
(6)
|
|
Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global structured finance:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
$
|
3,806
|
|
|
$
|
2,319
|
|
|
$
|
52
|
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
85
|
|
|
$
|
3
|
|
Mortgage-backed residential
|
|
|
10,476
|
|
|
|
5,468
|
|
|
|
21
|
|
|
|
30
|
|
|
|
356
|
|
|
|
28
|
|
|
|
356
|
|
|
|
-
|
|
Mortgage-backed commercial
|
|
|
280
|
|
|
|
172
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer asset-backed
|
|
|
5,210
|
|
|
|
1,458
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
7
|
|
|
|
8
|
|
|
|
-
|
|
Corporate asset-backed
|
|
|
4,056
|
|
|
|
3,024
|
|
|
|
5
|
|
|
|
22
|
|
|
|
2
|
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total global structured finance
|
|
|
23,828
|
|
|
|
12,441
|
|
|
|
78
|
|
|
|
65
|
|
|
|
358
|
|
|
|
63
|
|
|
|
449
|
|
|
|
3
|
|
Global public finance
|
|
|
45,221
|
|
|
|
13,331
|
|
|
|
-
|
|
|
|
145
|
|
|
|
-
|
|
|
|
168
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
$
|
69,049
|
|
|
$
|
25,772
|
|
|
$
|
78
|
|
|
$
|
210
|
|
|
$
|
358
|
|
|
$
|
231
|
|
|
$
|
449
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Reported within Investments on MBIAs consolidated balance sheets.
|
(2) -
|
Reported within Premiums receivable on MBIAs consolidated balance sheets.
|
(3) -
|
Reported within Insurance loss recoverable on MBIAs consolidated balance sheets.
|
(4) -
|
Reported within Unearned premium revenue on MBIAs consolidated balance sheets.
|
(5) -
|
Reported within Loss and loss adjustment expense reserves on MBIAs consolidated balance sheets.
|
(6) -
|
Reported within Derivative liabilities on MBIAs consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
December 31, 2015
|
|
|
VIE
Assets
|
|
|
Maximum
Exposure
to Loss
|
|
|
Carrying Value of Assets
|
|
|
Carrying Value of Liabilities
|
|
|
|
|
Investments
(1)
|
|
|
Premiums
Receivable
(2)
|
|
|
Insurance
Loss
Recoverable
(3)
|
|
|
Unearned
Premium
Revenue
(4)
|
|
|
Loss and Loss
Adjustment
Expense
Reserves
(5)
|
|
|
Derivative
Liabilities
(6)
|
|
Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global structured finance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
$
|
5,712
|
|
|
$
|
3,046
|
|
|
$
|
51
|
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
6
|
|
|
$
|
108
|
|
|
$
|
6
|
|
Mortgage-backed residential
|
|
|
11,524
|
|
|
|
6,072
|
|
|
|
23
|
|
|
|
31
|
|
|
|
416
|
|
|
|
30
|
|
|
|
306
|
|
|
|
-
|
|
Mortgage-backed commercial
|
|
|
319
|
|
|
|
219
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
Consumer asset-backed
|
|
|
5,538
|
|
|
|
1,712
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
11
|
|
|
|
4
|
|
|
|
-
|
|
Corporate asset-backed
|
|
|
5,218
|
|
|
|
3,446
|
|
|
|
-
|
|
|
|
26
|
|
|
|
2
|
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total global structured finance
|
|
|
28,311
|
|
|
|
14,495
|
|
|
|
74
|
|
|
|
80
|
|
|
|
418
|
|
|
|
78
|
|
|
|
418
|
|
|
|
6
|
|
Global public finance
|
|
|
44,162
|
|
|
|
14,579
|
|
|
|
-
|
|
|
|
160
|
|
|
|
-
|
|
|
|
186
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
$
|
72,473
|
|
|
$
|
29,074
|
|
|
$
|
74
|
|
|
$
|
240
|
|
|
$
|
418
|
|
|
$
|
264
|
|
|
$
|
418
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Reported within Investments on MBIAs consolidated balance sheets.
|
(2) -
|
Reported within Premiums receivable on MBIAs consolidated balance sheets.
|
(3) -
|
Reported within Insurance loss recoverable on MBIAs consolidated balance sheets.
|
(4) -
|
Reported within Unearned premium revenue on MBIAs consolidated balance sheets.
|
(5) -
|
Reported within Loss and loss adjustment expense reserves on MBIAs consolidated balance sheets.
|
(6) -
|
Reported within Derivative liabilities on MBIAs consolidated balance sheets.
|
The maximum exposure to loss as a result of MBIAs variable interests in VIEs is represented by insurance in force. Insurance in force is the maximum future payments of principal and interest which may be
required under commitments to make payments on insured obligations issued by nonconsolidated VIEs.
Consolidated VIEs
The carrying amounts of assets and liabilities of consolidated VIEs were $2.8 billion and $2.4 billion, respectively, as of June 30, 2016, and $5.4 billion and
$5.1 billion, respectively, as of December 31, 2015. The carrying amounts of assets and liabilities are presented separately in Assets of consolidated variable interest entities and Liabilities of consolidated variable
interest entities on the Companys consolidated balance sheets. VIEs are consolidated or deconsolidated based on an ongoing reassessment of controlling financial interest, when events occur or circumstances arise, and whether the ability
to exercise rights that constitute power to direct activities of any VIEs are present according to the design and characteristics of these entities. One additional VIE was consolidated during the six months ended June 30, 2016 and one
additional VIE was consolidated during the six months ended June 30, 2015.
11
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 4: Variable Interest Entities (continued)
Holders of insured obligations of issuer-sponsored VIEs related to the Companys international and structured
finance insurance segment do not have recourse to the general assets of MBIA. In the event of nonpayment of an insured obligation issued by a consolidated VIE, the Company is obligated to pay principal and interest, when due, on the respective
insured obligation only. The Companys exposure to consolidated VIEs is limited to the credit protection provided on insured obligations and any additional variable interests held by MBIA.
Note 5: Loss and Loss Adjustment Expense Reserves
Loss and Loss Adjustment Expense Process
U.S. Public Finance Insurance
U.S. public finance
insured transactions consist of municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, student loan issuers, housing
authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. The Company estimates future losses by using probability-weighted cash flow scenarios that are
customized to each insured transaction. Future loss estimates consider debt service due for each insured transaction, which includes par outstanding and interest due and includes recoveries for such payments, if any.
As of June 30, 2016 and December 31, 2015, the Companys U.S. public finance loss and loss adjustment expense (LAE) reserves were $58
million and $45 million, respectively. As of June 30, 2016 and December 31, 2015, the Companys insurance loss recoverable related to U.S. public finance issues was $2 million and $4 million, respectively.
Certain local governments remain under financial and budgetary stress and a few have filed for protection under the United States Bankruptcy Code, or have entered
into state statutory proceedings established to assist municipalities in managing through periods of severe fiscal stress. This could lead to an increase in defaults by such entities on the payment of their obligations and losses or impairments in
greater amounts on the Companys insured transactions. The Company monitors and analyzes these situations closely, however, the overall extent and duration of such events are uncertain. Also, the filing for protection under the United States
Bankruptcy Code or entering state statutory proceedings does not necessarily result in a default or indicate that an ultimate loss will occur. As of June 30, 2016 and December 31, 2015, the Company had $59.9 billion and $70.0 billion,
respectively, of gross par outstanding on general obligations, of which $1.1 billion and $79 million, respectively, were reflected on the Companys Classified List. Capital appreciation bonds are reported at the par amount at the
time of issuance of the insurance policy.
International and Structured Finance Insurance
The international and structured finance insurance segments case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include
estimates for policies insuring credit derivatives or on financial guarantee VIEs that are eliminated in consolidation. Policies insuring credit derivative contracts are accounted for as derivatives and are carried at fair value in the
Companys consolidated financial statements under GAAP. The fair values of insured credit derivative contracts are influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments under
the Companys insurance policies. In the absence of credit impairments on insured credit derivative contracts or the early termination of such contracts at a loss, the cumulative unrealized losses recorded from these contracts should reverse
before or at the maturity of the contracts. As the Companys insured credit derivatives have similar terms, conditions, risks, and economic profiles to its financial guarantee insurance policies, the Company evaluates them for impairment, under
Statutory accounting, in the same way that it estimates loss and LAE for its financial guarantee policies. Refer to Note 8: Derivative Instruments for a further discussion of the Companys use of derivatives and their impact on the
Companys consolidated financial statements.
RMBS Case Basis Reserves and Recoveries (Financial Guarantees)
The Companys RMBS reserves and recoveries relate to financial guarantee insurance policies. The Company calculated RMBS case basis reserves as of
June 30, 2016 for both second and first-lien RMBS transactions using a process called the Roll Rate Methodology. The Roll Rate Methodology is a multi-step process using databases of loan level information, proprietary internal cash
flow models, and commercially available models to estimate potential losses and recoveries on insured bonds. Roll Rate is defined as the probability that current loans become delinquent and that various percentages of delinquent loans
are eventually charged-off (deemed uncollectible by servicers of the transactions) or liquidated. Generally, Roll Rates are calculated for the previous three months and averaged. The loss reserve estimates are based on a probability-weighted average
of three scenarios of loan losses (base case, stress case, and an additional stress case). Additional data used for both second and first-lien RMBS includes historic average of deal specific voluntary prepayment rates and loss severities and forward
projections of the London Interbank Offered Rate (LIBOR) interest rates. Prospective loss severity assumptions are reduced over time to account for reductions in the amount of foreclosure inventory, anticipated future increases in home
prices, principal amortizations of the loans and modification programs.
12
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of second-lien mortgage loans
that are expected to be charged-off or first-lien loans liquidated in the future. Refer to Note 6: Loss and Loss Adjustment Expense Reserves in the Notes to Consolidated Financial Statements included in the Companys Annual Report
on Form 10-K for the year ended December 31, 2015, for additional information on the Companys second and first-lien mortgage loan Roll Rate Methodology.
Second-lien RMBS Reserves
The Companys second-lien RMBS case basis reserves as of June 30, 2016
relate to RMBS backed by home equity lines of credit and closed-end second mortgages. As of June 30, 2016 and December 31, 2015, the Company established loss and LAE reserves totaling $47 million and $51 million, respectively, related to
second-lien RMBS issues after the elimination of $16 million, as a result of consolidated VIEs.
The Company monitors portfolio performance on a monthly
basis against projected performance, reviewing delinquencies, roll rates, and prepayment rates (including voluntary and involuntary). However, loan performance remains difficult to predict and losses may exceed expectations. In the event of a
material deviation in actual performance from projected performance, the Company would increase or decrease the case basis reserves accordingly. If actual performance were to remain at the current levels for six additional months compared to the
probability-weighted outcome currently used by the Company, the addition to the case basis reserves would be approximately $26 million.
Second-lien
RMBS Recoveries
The Company primarily records two types of recoveries related to insured second-lien RMBS exposures: excess spread that is generated
from the trust structures in the insured transactions; and put-back claims related to those mortgage loans whose inclusion in insured securitizations failed to comply with representations and warranties (ineligible loans).
Excess Spread
As of June 30, 2016 and
December 31, 2015, the Company estimated recoveries of $408 million and $499 million, respectively, for the reimbursement of past and future expected claims through excess spread in insured second-lien RMBS transactions, of which $76 million
and $93 million, respectively, are eliminated as a result of consolidated VIEs. As of June 30, 2016, $319 million and $13 million were included in Insurance loss recoverable and Loss and loss adjustment expense reserves
on the Companys consolidated balance sheets, respectively, after the elimination of $75 million and $1 million, respectively, as a result of consolidated VIEs. As of December 31, 2015, $382 million and $24 million were included in
Insurance loss recoverable and Loss and loss adjustment expense reserves on the Companys consolidated balance sheets, respectively, after the elimination of $87 million and $6 million, respectively, as a result of
consolidated VIEs.
Excess spread is generated by performing loans within insured second-lien RMBS securitizations and is the difference between
interest inflows on mortgage loan collateral and interest outflows on the insured RMBS notes. The amount of excess spread depends on the future loss trends (which include future delinquency trends, average time to charge-off delinquent loans, and
the availability of pool mortgage insurance), the future spread between Prime and LIBOR interest rates, and borrower refinancing behavior which results in voluntary prepayments. Minor deviations in loss trends and voluntary prepayments may
substantially impact the amounts collected from excess spread. Excess spread may also include estimated recoverables from mortgage insurance contracts and subsequent recoveries on charged-off loans associated with the insured RMBS securitizations.
Put-Back Claims Related to Ineligible Mortgage Loans
To date, MBIA has settled the majority of the Companys put-back claims. Only its claims against Credit Suisse remain outstanding. To date, settlement amounts have been consistent with the put-back recoveries
that had been included in the Companys financial statements at the time preceding the settlement.
The contract claim remaining with Credit Suisse
is related to the inclusion of ineligible mortgage loans in the 2007-2 Home Equity Mortgage Trust securitization. Credit Suisse has challenged the Companys assessment of the ineligibility of individual mortgage loans and the dispute is the
subject of litigation for which there is no assurance that the Company will prevail.
As of June 30, 2016 and December 31, 2015, the Company
recorded estimated recoveries of $401 million and $396 million, respectively, related to its Credit Suisse put-back claims, reflected in Loan repurchase commitments presented under the heading Assets of consolidated variable
interest entities on the Companys consolidated balance sheets.
13
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
Based on the Companys assessment of the strength of its contractual put-back rights against Credit Suisse,
which it is pursuing through litigation claims, as well as on its prior settlements with other sellers/servicers and success of other monolines put-back settlements, the Company believes it will prevail in enforcing its contractual rights and
that it is entitled to collect the full amount of its incurred losses, which totaled $430 million through June 30, 2016. The Company is also entitled to collect interest on amounts paid; it believes that in context of its put-back litigation,
the appropriate interest rate should be the New York State statutory rate. However, the Company currently calculates its put-back recoveries using the contractual interest rate, which is lower than the New York State statutory rate.
Notwithstanding the foregoing, uncertainty remains with respect to the ultimate outcome of the litigation with Credit Suisse, which is contemplated in the
probability-weighted cash flow scenario based-modeling the Company uses. The Credit Suisse recovery scenarios are based on the amount of incurred losses measured against certain probabilities of ultimate resolution of the dispute with Credit Suisse.
Most of the probability weight is assigned to partial recovery scenarios and are discounted using the current risk-free discount rates associated against the underlying transactions cash flows.
The Company continues to consider all relevant facts and circumstances in developing its assumptions on expected cash inflows, probability of potential recoveries
(including the outcome of litigation) and recovery period. The estimated amount and likelihood of potential recoveries are expected to be revised and supplemented to the extent there are developments in the pending litigation and/or changes to the
financial condition of Credit Suisse. While the Company believes it will be successful in realizing its recoveries from its contract claims against Credit Suisse, the ultimate amounts recovered may be materially different from those recorded by the
Company given the inherent uncertainty of the manner of resolving the claims (i.e., litigation and/or negotiated out-of-court settlement) and the assumptions used in the required estimation process for accounting purposes which are based, in part,
on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks.
First-lien RMBS Reserves
The Companys first-lien RMBS case basis reserves as of June 30, 2016, which primarily relate to RMBS backed by alternative A-paper and
subprime mortgage loans, were determined using the Roll Rate Methodology. As of June 30, 2016 and December 31, 2015, the Companys loss and LAE reserves were $327 million and $277 million, respectively, related to first-lien RMBS
issues after the elimination of $18 million and $5 million, respectively, as a result of consolidated VIEs.
CDO Reserves
The Company also has loss and LAE reserves on certain transactions within its CDO portfolio, including its multi-sector CDO and high yield corporate CDO asset
classes that were insured in the form of financial guarantee policies. MBIAs insured multi-sector CDOs are transactions that include a variety of collateral ranging from corporate bonds to structured finance assets (which includes, but are not
limited to, RMBS-related collateral, multi-sector and corporate CDOs). MBIAs high yield corporate CDO portfolio comprises middle-market/special-opportunity corporate loan transactions.
As of June 30, 2016 and December 31, 2015, the Companys loss and LAE reserves were $104 million and $133 million, respectively, related to the total CDO financial guarantee insurance portfolio after
the elimination of $206 million and $190 million, respectively, as a result of consolidated VIEs. For the three and six months ended June 30, 2016, the Company incurred $9 million and had a benefit of $22 million in losses and LAE,
respectively, recorded in earnings related to the total CDO financial guarantee insurance portfolio after the elimination of $8 million and $20 million, respectively, as a result of consolidated VIEs. In the event of further deteriorating
performance of the collateral referenced or held in the total CDO portfolio, the amount of losses estimated by the Company could increase substantially.
Refer to Note 6: Loss and Loss Adjustment Expense Reserves in the Notes to Consolidated Financial Statements included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2015, for additional information on the Companys process for estimating reserves on these policies. The methods and assumptions for estimating reserves require substantial judgement of
the future performance of each transaction. Actual losses will be a function of the proportion of collateral in the pools that default and the loss severities associated with those defaults.
14
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
Loss and LAE Activity
Financial Guarantee Insurance Losses (Excluding Insured Credit Derivative and Consolidated VIEs)
The
Companys financial guarantee insurance losses and LAE, net of reinsurance for the three and six months ended June 30, 2016 and 2015 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
U.S. Public Finance Insurance Segment
|
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
18
|
|
|
$
|
2
|
|
International and Structured Finance Insurance Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-lien RMBS
|
|
|
21
|
|
|
|
36
|
|
|
|
34
|
|
|
|
29
|
|
First-lien RMBS
|
|
|
35
|
|
|
|
(26)
|
|
|
|
61
|
|
|
|
(16)
|
|
Other
(1)
|
|
|
12
|
|
|
|
28
|
|
|
|
(14)
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and LAE expense (benefit)
|
|
$
|
77
|
|
|
$
|
46
|
|
|
$
|
99
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Includes CDOs, non-U.S. public finance and other issues.
|
For
the three and six months ended June 30, 2016, losses and LAE primarily related to increases in expected payments on insured first-lien RMBS transactions and decreases in projected collections from excess spread within insured second-lien RMBS
securitizations.
For the three and six months ended June 30, 2015, losses and LAE primarily related to decreases in projected collections from
excess spread within insured second-lien RMBS securitizations and increases in expected payments on CDOs, partially offset by decreases in expected payments on first-lien RMBS transactions.
Costs associated with remediating insured obligations assigned to the Companys surveillance categories are recorded as LAE and included in Losses and loss adjustment expenses on the Companys
consolidated statements of operations. For the three months ended June 30, 2016 and 2015, gross LAE related to remediating insured obligations were $20 million and $7 million, respectively. For the six months ended June 30, 2016 and 2015,
gross LAE related to remediating insured obligations were $28 million and $5 million, respectively.
The following table provides information about the
financial guarantees and related claim liability included in each of MBIAs surveillance categories as of June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surveillance Categories
|
|
$ in millions
|
|
Caution
List
Low
|
|
|
Caution
List
Medium
|
|
|
Caution
List
High
|
|
|
Classified
List
|
|
|
Total
|
|
Number of policies
|
|
|
56
|
|
|
|
7
|
|
|
|
5
|
|
|
|
344
|
|
|
|
412
|
|
Number of
issues
(1)
|
|
|
13
|
|
|
|
4
|
|
|
|
3
|
|
|
|
125
|
|
|
|
145
|
|
Remaining weighted average contract period (in years)
|
|
|
8.1
|
|
|
|
5.5
|
|
|
|
7.4
|
|
|
|
7.1
|
|
|
|
7.3
|
|
Gross insured contractual payments outstanding:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
2,440
|
|
|
$
|
55
|
|
|
$
|
352
|
|
|
$
|
7,795
|
|
|
$
|
10,642
|
|
Interest
|
|
|
2,679
|
|
|
|
16
|
|
|
|
121
|
|
|
|
3,173
|
|
|
|
5,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,119
|
|
|
$
|
71
|
|
|
$
|
473
|
|
|
$
|
10,968
|
|
|
$
|
16,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Claim Liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
738
|
|
|
$
|
738
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Potential Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
499
|
|
|
|
499
|
|
Discount,
net
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net claim liability (recoverable)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
164
|
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned premium revenue
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
75
|
|
|
$
|
92
|
|
(1) -
|
An issue represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.
|
(2) -
|
Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
|
(3) -
|
Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
|
15
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
The following table provides information about the financial guarantees and related claim liability included in
each of MBIAs surveillance categories as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surveillance Categories
|
|
$ in millions
|
|
Caution
List
Low
|
|
|
Caution
List
Medium
|
|
|
Caution
List
High
|
|
|
Classified
List
|
|
|
Total
|
|
Number of policies
|
|
|
57
|
|
|
|
18
|
|
|
|
171
|
|
|
|
165
|
|
|
|
411
|
|
Number of
issues
(1)
|
|
|
12
|
|
|
|
6
|
|
|
|
5
|
|
|
|
117
|
|
|
|
140
|
|
Remaining weighted average contract period (in years)
|
|
|
7.6
|
|
|
|
6.7
|
|
|
|
9.6
|
|
|
|
6.7
|
|
|
|
7.4
|
|
Gross insured contractual payments outstanding:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
2,591
|
|
|
$
|
147
|
|
|
$
|
1,996
|
|
|
$
|
6,426
|
|
|
$
|
11,160
|
|
Interest
|
|
|
2,733
|
|
|
|
57
|
|
|
|
1,038
|
|
|
|
2,419
|
|
|
|
6,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,324
|
|
|
$
|
204
|
|
|
$
|
3,034
|
|
|
$
|
8,845
|
|
|
$
|
17,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Claim Liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
797
|
|
|
$
|
797
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Potential Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
752
|
|
|
|
752
|
|
Discount,
net
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net claim liability (recoverable)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(71)
|
|
|
$
|
(71)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned premium revenue
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
33
|
|
|
$
|
55
|
|
|
$
|
98
|
|
(1) -
|
An issue represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.
|
(2) -
|
Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
|
(3) -
|
Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
|
The increase in the Companys number of policies on the classified list reflected in the preceding tables was primarily related to certain Puerto Rico policies. The gross claim liabilities in the preceding
tables represent the Companys estimate of undiscounted probability-weighted estimated future claim payments. As of June 30, 2016 and December 31, 2015, the gross claim liability primarily related to insured first-lien RMBS
transactions.
The gross potential recoveries represent the Companys estimate of undiscounted probability-weighted recoveries of actual claim
payments and recoveries of estimated future claim payments. As of June 30, 2016 and December 31, 2015, the gross potential recoveries principally related to insured second-lien RMBS. The Companys recoveries have been, and remain
based on either salvage rights, the rights conferred to MBIA through the transactional documents (inclusive of the insurance agreement), or subrogation rights embedded within financial guarantee insurance policies. Expected salvage and subrogation
recoveries, as well as recoveries from other remediation efforts, reduce the Companys claim liability. Once a claim payment has been made, the claim liability has been satisfied and MBIAs right to recovery is no longer considered an
offset to future expected claim payments, it is recorded as a salvage asset. The amount of recoveries recorded by the Company is limited to paid claims plus the present value of projected estimated future claim payments. As claim payments are made,
the recorded amount of potential recoveries may exceed the remaining amount of the claim liability for a given policy. The gross claim liability and gross potential recoveries reflect the elimination of claim liabilities and potential recoveries
related to VIEs consolidated by the Company.
16
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
The following table presents the components of the Companys loss and LAE reserves and insurance loss
recoverable as reported on the Companys consolidated balance sheets as of June 30, 2016 and December 31, 2015 for insured obligations within MBIAs Classified List. The loss reserves (claim liability) and insurance
claim loss recoverable included in the following table represent the present value of the probability-weighted estimated future claim payments and recoveries reported in the preceding tables.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
In millions
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Loss reserves (claim liability)
|
|
$
|
486
|
|
|
$
|
470
|
|
LAE reserves
|
|
|
60
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Loss and LAE reserves
|
|
$
|
546
|
|
|
$
|
516
|
|
|
|
|
|
|
|
|
|
|
Insurance claim loss recoverable
|
|
$
|
(363)
|
|
|
$
|
(571)
|
|
LAE insurance loss recoverable
|
|
|
(2)
|
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
Insurance loss recoverable
|
|
$
|
(365)
|
|
|
$
|
(577)
|
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable on unpaid losses
|
|
$
|
6
|
|
|
$
|
6
|
|
Reinsurance recoverable on unpaid LAE reserves
|
|
|
1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable on paid and unpaid losses
|
|
$
|
7
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016, loss and LAE reserves include $637 million of reserves for expected future payments, partially offset by
$91 million of expected recoveries of such future payments. As of December 31, 2015, loss and LAE reserves include $616 million of reserves for expected future payments, partially offset by $100 million of expected recoveries of such future
payments.
As of June 30, 2016 and December 31, 2015, the insurance loss recoverable primarily related to expected future recoveries on
second-lien RMBS transactions resulting from excess spread generated by performing loans in such transactions. The decrease in 2016 was primarily due to a decrease in expected future recoveries on CDOs as the result of the consolidation and
elimination of a VIE.
The following table presents changes in the Companys loss and LAE reserves for the six months ended June 30, 2016.
Changes in loss and LAE reserves attributable to the accretion of the claim liability discount, changes in discount rates, changes in amount and timing of estimated claim payments and recoveries, changes in assumptions and changes in LAE reserves
are recorded in Losses and loss adjustment expenses in the Companys consolidated statements of operations. As of June 30, 2016, the weighted average risk-free rate used to discount the Companys loss reserves (claim
liability) was 1.18%. LAE reserves are generally expected to be settled within a one-year period and are not discounted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
Changes in Loss and LAE Reserves for the Six Months Ended June 30, 2016
|
|
|
|
|
Gross Loss
and LAE
Reserves as of
December 31,
2015
|
|
|
Loss
Payments
for Cases
with
Reserves
|
|
|
Accretion of
Claim
Liability
Discount
|
|
|
Changes in
Discount
Rates
|
|
|
Changes in
Assumptions
|
|
|
Changes in
Unearned
Premium
Revenue
|
|
|
Changes in
LAE
Reserves
|
|
|
Other
(1)
|
|
|
Gross Loss
and LAE
Reserves as of
June 30,
2016
|
|
$
|
516
|
|
|
$
|
(47)
|
|
|
$
|
5
|
|
|
$
|
32
|
|
|
$
|
35
|
|
|
$
|
(12)
|
|
|
$
|
14
|
|
|
$
|
3
|
|
|
$
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Primarily changes in the amount and timing of payments.
|
The
increase in the Companys gross loss and LAE reserves reflected in the preceding table was primarily related to changes in discount rates and changes in assumptions on insured first and second-lien RMBS transactions. These were partially offset
by changes in assumptions on CDOs.
17
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
Current period changes in the Companys estimate of potential recoveries may be recorded as an insurance loss
recoverable asset, netted against the gross loss and LAE reserve liability, or both. The following table presents changes in the Companys insurance loss recoverable and changes in recoveries on unpaid losses reported within the Companys
claim liability for the six months ended June 30, 2016. Changes in insurance loss recoverable attributable to the accretion of the discount on the recoverable, changes in discount rates, changes in amount and timing of estimated collections,
changes in assumptions and changes in LAE recoveries are recorded in Losses and loss adjustment expenses in the Companys consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses
for the Six Months Ended June 30, 2016
|
|
|
|
|
In millions
|
|
Gross
Reserve as of
December 31,
2015
|
|
|
Collections
for Cases
with
Recoveries
|
|
|
Accretion
of
Recoveries
|
|
|
Changes in
Discount
Rates
|
|
|
Changes in
Assumptions
|
|
|
Changes in
LAE
Recoveries
|
|
|
Other
(1)
|
|
|
Gross
Reserve
as of
June 30,
2016
|
|
Insurance loss recoverable
|
|
$
|
577
|
|
|
$
|
(50)
|
|
|
$
|
3
|
|
|
$
|
10
|
|
|
$
|
(126)
|
|
|
$
|
(4)
|
|
|
$
|
(45)
|
|
|
$
|
365
|
|
Recoveries on unpaid losses
|
|
|
100
|
|
|
|
-
|
|
|
|
1
|
|
|
|
9
|
|
|
|
(24)
|
|
|
|
5
|
|
|
|
-
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
677
|
|
|
$
|
(50)
|
|
|
$
|
4
|
|
|
$
|
19
|
|
|
$
|
(150)
|
|
|
$
|
1
|
|
|
$
|
(45)
|
|
|
$
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily changes in amount and timing of collections.
|
The
decrease in the Companys insurance loss recoverable and recoveries on unpaid losses during 2016 was primarily due to a decrease in expected future recoveries on CDOs as the result of the consolidation and elimination of a VIE.
Note 6: Fair Value of Financial Instruments
Fair
Value Measurement
Fair value is a market-based measurement considered from the perspective of a market participant. Therefore, even when market
assumptions are not readily available, the Companys own assumptions are set to reflect those which it believes market participants would use in pricing an asset or liability at the measurement date. The fair value measurement of financial
instruments held or issued by the Company are determined through the use of observable market data when available. Market data is obtained from a variety of third-party sources, including dealer quotes. If dealer quotes are not available for an
instrument that is infrequently traded, the Company uses alternate valuation methods, including either dealer quotes for similar instruments or modeling using market data inputs. The use of alternate valuation methods generally requires considerable
judgment in the application of estimates and assumptions and changes to such estimates and assumptions may produce materially different fair values.
The accounting guidance for fair value measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available and reliable. Observable inputs are those the Company believes that market participants would use in pricing an asset or liability based on
available market data. Unobservable inputs are those that reflect the Companys beliefs about the assumptions market participants would use in pricing an asset or liability based on available information. The fair value hierarchy is categorized
into three levels based on the observability and reliability of inputs, as follows:
|
|
|
Level 1Valuations based on quoted prices in active markets for identical assets or liabilities that the Company can access. Valuations are based on quoted
prices that are readily and regularly available in an active market, with significant trading volumes.
|
|
|
|
Level 2Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 2 assets include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, securities which are priced using observable inputs and derivative contracts whose values are determined using a pricing
model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
|
|
|
|
Level 3Valuations based on inputs that are unobservable and supported by little or no market activity and that are significant to the overall fair value
measurement. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques where significant inputs are unobservable, as well as instruments for
which the determination of fair value requires significant management judgment or estimation.
|
18
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
The availability of observable inputs can vary from financial instrument to financial instrument and period to
period and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the product. In certain cases, the
inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company assigns the level in the fair value hierarchy for which the fair value measurement in its entirety falls, based on the least
observable input that is significant to the fair value measurement.
Financial Assets (excluding derivative assets)
Financial assets, excluding derivative assets, held by the Company primarily consist of investments in debt securities. Substantially all of the Companys
investments are priced by independent third parties, including pricing services and brokers. Typically, the Company receives one pricing service value or broker quote for each instrument, which represents a non-binding indication of value. The
Company, along with its third-party portfolio manager, reviews the assumptions, inputs and methodologies used by pricing services and brokers to obtain reasonable assurance that the prices used in its valuations reflect fair value. When the Company
and its third-party portfolio manager believe a third-party quotation differs significantly from its internally developed expectation of fair value, whether higher or lower, the Company reviews its data or assumptions with the provider. This review
includes comparing significant assumptions such as prepayment speeds, default ratios, forward yield curves, credit spreads and other significant quantitative inputs to internal assumptions, and working with the price provider to reconcile the
differences. The price provider may subsequently provide an updated price. In the event that the price provider does not update its price, and the Company still does not agree with the price provided, its third-party portfolio manager will obtain a
price from another third-party provider or use an internally developed price which it believes represents the fair value of the investment. The fair values of investments for which internal prices were used were not significant to the aggregate fair
value of the Companys investment portfolio as of June 30, 2016 or December 31, 2015. All challenges to third-party prices are reviewed by staff of the Company as well as its third-party portfolio manager with relevant expertise to
ensure reasonableness of assumptions. A pricing analysis is reviewed and approved by the Companys Valuation Committee.
Financial
Liabilities (excluding derivative liabilities)
Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of
debt issued for general corporate purposes within its corporate segment, medium-term notes (MTNs), investment agreements, debt issued by consolidated VIEs and warrants. Investment agreements, MTNs, and corporate debt are typically
recorded at face value adjusted for premiums or discounts. The majority of the financial liabilities that the Company has elected to fair value or that require fair value reporting or disclosures are valued based on the estimated value of the
underlying collateral, the Companys or a third-partys estimate of discounted cash flow model estimates, or quoted market values for similar products. These valuations include adjustments for expected nonperformance risk of the Company.
Derivative Liabilities
The Companys
derivative liabilities are primarily interest rate swaps and insured credit derivatives. The Companys insured credit derivative contracts are non-traded structured credit derivative transactions. Since insured derivatives are highly customized
and there is generally no observable market for these derivatives, the Company estimates their fair values in a hypothetical market based on internal and third-party models simulating what a similar company would charge to assume the Companys
position in the transaction at the measurement date. This pricing would be based on the expected loss of the exposure. The Company reviews its valuation model results on a quarterly basis to assess the appropriateness of the assumptions and results
in light of current market activity and conditions. This review is performed by internal staff with relevant expertise. If live market spreads or securities prices are observable for similar transactions, those spreads are an integral part of the
analysis. New insured transactions that resemble existing (previously insured) transactions, if any, would be considered, as well as negotiated settlements of existing transactions.
Internal Review Process
All significant financial assets and liabilities are reviewed by a committee created
by the Company to ensure compliance with the Companys policies and risk procedures in the development of fair values of financial assets and liabilities. This valuation committee reviews, among other things, key assumptions used for internally
developed prices, significant changes in sources and uses of inputs, including changes in model approaches, and any adjustments from third-party inputs or prices to internally developed inputs or prices. The committee also reviews any significant
impairment or improvements in fair values of the financial instruments from prior periods. The committee is comprised of senior finance team members with relevant experience in the financial instruments their committee is responsible for. For each
quarter, the committee documents their agreement with the fair values developed by management of the Company as reported in the quarterly and annual financial statements.
Valuation Techniques
Valuation techniques for financial instruments measured at fair value or disclosed
at fair value are described below.
19
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Fixed-Maturity Securities (including short-term investments) Held as Available-For-Sale, Investments Carried at
Fair Value, Investments Pledged as Collateral, Investments Held-to-Maturity, and Other Investments
These investments include investments in U.S.
Treasury and government agencies, state and municipal bonds, foreign governments, corporate obligations, mortgage-backed securities (MBS), asset-backed securities (ABS), money market securities, and perpetual debt and equity
securities.
These investments are generally valued based on recently executed transaction prices or quoted market prices. When quoted market prices are
not available, fair value is generally determined using quoted prices of similar investments or a valuation model based on observable and unobservable inputs. Inputs vary depending on the type of investment. Observable inputs include contractual
cash flows, interest rate yield curves, CDS spreads, prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for structures similar to the financial instrument in terms of issuer, maturity and
seniority. Unobservable inputs include cash flow projections and the value of any credit enhancement.
The fair value of the held-to-maturity
(HTM) investments is determined using discounted cash flow models. Key inputs include unobservable cash flows projected over the expected term of the investment discounted using observable interest rate yield curves of similar
securities.
Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of the fair value hierarchy.
Level 1 investments generally consist of U.S. Treasury and government agency, foreign government, money market securities and perpetual debt and equity securities. Quoted market prices of investments in less active markets, as well as investments
which are valued based on other than quoted prices for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value hierarchy. Investments that contain significant inputs that are not observable
are categorized as Level 3.
Cash and Cash Equivalents, Receivable for Investments Sold, Securities Sold, Not Yet Purchased, Payable for Investments
Purchased, and Accrued Investment Income
The carrying amounts of cash and cash equivalents, receivable for investments sold, securities sold, not
yet purchased, payable for investments purchased, and accrued investment income approximate fair values due to the short-term nature and credit worthiness of these instruments. These items are categorized in Level 1 or Level 2 of the fair value
hierarchy.
Loans Receivable at Fair Value
Loans
receivable at fair value are comprised of loans held by consolidated VIEs consisting of residential mortgage, corporate and commercial loans. Fair values of residential mortgage loans are determined using quoted prices for MBS issued by the
respective VIE and adjusted for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. Fair values of corporate and commercial loans are either obtained from a pricing service and determined using actively quoted
prices obtained from multiple market participants, or based on discounted cash flow methodologies. Loans receivable at fair value are categorized in Level 3 of the fair value hierarchy based on the input that is significant to the fair value
measurement in its entirety.
Loan Repurchase Commitments
Loan repurchase commitments are obligations owed by the sellers/servicers of mortgage loans to MBIA as reimbursement of paid claims. Loan repurchase commitments are assets of the consolidated VIEs. This asset
represents the rights of MBIA against the sellers/servicers for breaches of representations and warranties that the securitized residential mortgage loans sold to the trust to comply with stated underwriting guidelines and for the sellers/servicers
to cure, replace, or repurchase mortgage loans. Fair value measurements of loan repurchase commitments represent the amounts owed by the sellers/servicers to MBIA as reimbursement of paid claims. Loan repurchase commitments are not securities and no
quoted prices or comparable market transaction information are observable or available. Fair values of loan repurchase commitments are determined using discounted cash flow techniques and are categorized in Level 3 of the fair value hierarchy.
Long-term Debt
Long-term debt consists of
notes, debentures, surplus notes and accrued interest on this debt. The fair value of long-term notes, debentures and surplus notes are estimated based on quoted prices for these or similar securities. The fair value of the accrued interest expense
on the surplus notes due in 2033 is determined based on the scheduled interest payments discounted by the markets perception of the credit risk related to the repayment of the surplus notes. The credit risk related to the repayment of the
surplus notes is based on recent trades of the surplus notes. The deferred interest payment will be due on the first business day on or after which MBIA Insurance Corporation obtains approval to make such payment.
20
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
The carrying amounts of accrued interest expense on all other long-term debt approximate fair value due to the
short-term nature of these instruments. Long-term debt is categorized as Level 2 of the fair value hierarchy.
Medium-Term Notes
The fair values of certain MTNs are based on quoted market prices provided by third-party sources, where available. When quoted market prices are not available, the
Company applies a matrix pricing grid based on the quoted market prices received and the MTNs stated maturity and interest rate to determine fair value. Nonperformance risk is included in the quoted market prices and the matrix pricing grid.
The Company has elected to record these MTNs at fair value as they contain embedded derivatives which cannot accurately be separated from the host debt instrument and fair valued separately, therefore, these MTNs are carried at fair value with
changes in fair value reflected in earnings. The remaining MTNs, which are not carried at fair value, do not contain embedded derivatives. As these MTNs are illiquid and the prices reflect significant unobservable inputs, they are categorized as
Level 3 of the fair value hierarchy.
Investment Agreements
The fair values of investment agreements are determined using discounted cash flow techniques based on contractual cash flows and observable interest rates currently being offered for similar agreements with
comparable maturity dates. Investment agreements contain collateralization and termination agreements that substantially mitigate the nonperformance risk of the Company. As the terms of the notes are private, and the timing and amount of contractual
cash flows are not observable, these investment agreements are categorized as Level 3 of the fair value hierarchy.
Variable Interest Entity Notes
The fair values of VIE notes are determined based on recently executed transaction prices or quoted prices where observable. When position-specific
quoted prices are not observable, fair values are based on quoted prices of similar securities. Fair values based on quoted prices of similar securities may be adjusted for factors unique to the securities, including any credit enhancement. When
observable quoted prices are not available, fair value is determined based on discounted cash flow techniques of the underlying collateral using observable and unobservable inputs. Observable inputs include interest rate yield curves and bond
spreads of similar securities. Unobservable inputs include the value of any credit enhancement. VIE notes are categorized in Level 2 or Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value
measurement in its entirety.
Variable Interest Entity Derivatives
The VIEs have entered into derivative transactions consisting of cross currency swaps, interest rate derivatives and interest rate caps. Fair values of over-the-counter (OTC) derivatives are determined
using valuation models based on observable and/or unobservable inputs. These observable and market-based inputs include interest rates and volatilities. These derivatives are categorized in Level 2 or Level 3 of the fair value hierarchy based on the
input that is significant to the fair value measurement in its entirety.
Derivatives
The corporate segment has entered into derivative transactions primarily consisting of interest rate swaps. Fair values of OTC derivatives are determined using valuation models based on observable inputs,
nonperformance risk of the Companys own credit and nonperformance risk of the counterparties. Observable and market-based inputs include interest rate yields, credit spreads and volatilities. These derivatives are categorized in Level 2 or
Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.
The Company has
policies and procedures in place regarding counterparties, including review and approval of the counterparty and the Companys exposure limit, collateral posting requirements, collateral monitoring and margin calls on collateral. The Company
manages counterparty credit risk on an individual counterparty basis through master netting agreements covering derivative transactions in the corporate segment. These agreements allow the Company to contractually net amounts due from a counterparty
with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to
require assignment or termination in the event either the Company or the counterparty is downgraded below a specified credit rating. The netting agreements minimize the potential for losses related to credit exposure and thus serve to mitigate the
Companys nonperformance risk under these derivatives.
21
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
In certain cases, the Company also manages credit risk through collateral agreements that give the Company the
right to hold or the obligation to provide collateral when the current market value of derivative contracts exceeds an exposure threshold. Under these agreements, the Company may provide U.S. Treasury and other highly rated securities or cash to
secure the derivative. The delivery of high-quality collateral can minimize credit exposure and mitigate the potential for nonperformance risk impacting the fair values of the derivatives.
DerivativesInsurance
The derivative contracts insured by the Company cannot be legally traded and
generally do not have observable market prices. The Company determines the fair values of insured credit derivatives using valuation models. The valuation models are consistently applied from period to period, with refinements to the fair value
estimation approach being applied as and when the information becomes available. Negotiated settlements are also considered when determining fair value to validate the fair value estimates determined by the valuation models and to determine the best
available estimate of fair value from the perspective of a market participant.
Approximately 89% of the balance sheet fair value of insured credit
derivatives as of June 30, 2016 was valued based on the Binomial Expansion Technique (BET) Model. Approximately 11% of the balance sheet fair value of insured credit derivatives as of June 30, 2016 was valued based on the
internally developed Direct Price Model and the Dual Default model. The valuation of insured derivatives includes the impact of its credit standing. All of these derivatives are categorized as Level 3 of the fair value hierarchy as their fair value
is derived using significant unobservable inputs.
Valuation Model Overview
The Company uses the BET Model to estimate what a bond insurer would charge to guarantee a transaction at the measurement date, based on the market-implied default risk of the underlying collateral and the
remaining structural protection in a deductible or subordination.
Inputs to the process of determining fair value for structured transactions using the
BET Model include estimates of collateral loss, allocation of loss to separate tranches of the capital structure, credit spreads, recovery rates and nonperformance risk.
As of June 30, 2016 and December 31, 2015, the Companys net insured CDS derivative liability was $104 million and $85 million, respectively, based on the results of the aforementioned models. A
significant driver of changes in fair value is MBIA Corp.s nonperformance risk. In aggregate, the nonperformance calculation resulted in a pre-tax net insured derivative liability that was $69 million and $99 million lower than the net
liability that would have been estimated if MBIA Corp. excluded nonperformance risk in its valuation as of June 30, 2016 and December 31, 2015, respectively. Nonperformance risk is a fair value concept and does not contradict MBIA
Corp.s internal view, based on fundamental credit analysis of MBIA Corp.s economic condition, that MBIA Corp. will be able to pay all claims when due.
The Company has also entered into a derivative contract as a result of a commutation. The fair value of the derivative is determined using a discounted cash flow model. Key inputs include unobservable cash flows
projected over the expected term of the derivative, discounted using observable discount rates and CDS spreads.
Warrants
Stock warrants issued by the Company are valued using the Black-Scholes model and are recorded at fair value. Inputs into the warrant valuation include the
Companys stock price, a volatility parameter, interest rates, and dividend data. As all significant inputs are market-based and observable, warrants are categorized as Level 2 of the fair value hierarchy.
Financial Guarantees
Gross Financial
Guarantees
The fair value of gross financial guarantees is determined using discounted cash flow techniques based on inputs that include (i) assumptions of expected losses on financial guarantee policies where loss reserves have not
been recognized, (ii) amount of losses expected on financial guarantee policies where loss reserves have been established, net of expected recoveries, (iii) the cost of capital reserves required to support the financial guarantee
liability, (iv) operating expenses, and (v) discount rates. The MBIA Corp. CDS spread and recovery rate are used as the discount rate for MBIA Corp., while the CDS spread and recovery rate of a similar municipal bond insurance company are
used as the discount rate for National, as National does not have a published CDS spread and recovery rate.
The carrying value of the Companys
gross financial guarantees consists of unearned premium revenue and loss and LAE reserves, net of the insurance loss recoverable as reported on MBIAs consolidated balance sheets.
22
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Ceded Financial Guarantees
The fair value of ceded financial guarantees is determined by applying the
percentage ceded to reinsurers to the related fair value of the gross financial guarantees. The carrying value of ceded financial guarantees consists of prepaid reinsurance premiums and reinsurance recoverable on paid and unpaid losses as reported
within Other assets on the Companys consolidated balance sheets.
Significant Unobservable Inputs
The following tables provide quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair
value on a recurring basis as of June 30, 2016 and December 31, 2015. These tables exclude inputs used to measure fair value that are not developed by the Company, such as broker prices and other third-party pricing service valuations.
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Fair Value as of
June 30, 2016
|
|
|
Valuation Techniques
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable at fair value
|
|
$
|
1,045
|
|
|
Market prices adjusted for financial guarantees provided to VIE obligations
|
|
Impact of financial guarantee
|
|
|
0% - 26% (2%)
|
|
|
|
|
|
|
|
Discounted cash flow
|
|
Multiples
(1)
|
|
|
|
|
Loan repurchase commitments
|
|
|
401
|
|
|
Discounted cash flow
|
|
Recovery
rates
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Breach
rates
(2)
|
|
|
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
523
|
|
|
Market prices of VIE assets adjusted for financial guarantees provided
|
|
Impact of financial guarantee
|
|
|
0% - 52% (23%)
|
|
Credit derivative liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
92
|
|
|
BET Model
|
|
Recovery rates
|
|
|
25% - 90% (57%)
|
|
|
|
|
|
|
|
|
|
Nonperformance risk
|
|
|
22% - 37% (37%)
|
|
|
|
|
|
|
|
|
|
Weighted average life (in years)
|
|
|
0.9 - 3.3 (1.7)
|
|
|
|
|
|
|
|
|
|
CMBS spreads
|
|
|
0% - 57% (28%)
|
|
Multi-sector CDO
|
|
|
4
|
|
|
Direct Price Model
|
|
Nonperformance risk
|
|
|
58% - 58% (58%)
|
|
Other
|
|
|
8
|
|
|
BET Model and Dual Default
|
|
Nonperformance risk
|
|
|
52% - 56% (55%)
|
|
|
|
|
|
|
|
|
|
Weighted average life (in years)
|
|
|
5.9 - 6.9 (6.3)
|
|
Other derivative liabilities
|
|
|
21
|
|
|
Discounted cash flow
|
|
Cash flows
|
|
|
$0 - $83 ($42)
(3)
|
|
(1) -
|
Unobservable inputs are not developed by the Company.
|
(2) -
|
Recovery rates and breach rates include estimates about potential variations in the outcome of litigation with a counterparty.
|
(3) -
|
Midpoint of cash flows are used for the weighted average.
|
23
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Fair Value as of
December 31, 2015
|
|
|
Valuation Techniques
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable at fair value
|
|
$
|
1,292
|
|
|
Market prices adjusted for financial guarantees provided to VIE obligations
|
|
Impact of financial guarantee
|
|
|
0% - 5% (1%)
|
|
Loan repurchase commitments
|
|
|
396
|
|
|
Discounted cash flow
|
|
Recovery
rates
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Breach
rates
(1)
|
|
|
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
1,267
|
|
|
Market prices of VIE assets adjusted for financial guarantees provided
|
|
Impact of financial guarantee
|
|
|
0% - 37% (14%)
|
|
Credit derivative liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
72
|
|
|
BET Model
|
|
Recovery rates
|
|
|
25% - 90% (66%)
|
|
|
|
|
|
|
|
|
|
Nonperformance risk
|
|
|
33% - 55% (54%)
|
|
|
|
|
|
|
|
|
|
Weighted average life (in years)
|
|
|
1.1 - 3.2 (1.6)
|
|
|
|
|
|
|
|
|
|
CMBS spreads
|
|
|
0% - 59% (19%)
|
|
Multi-sector CDO
|
|
|
3
|
|
|
Direct Price Model
|
|
Nonperformance risk
|
|
|
59% - 59% (59%)
|
|
Other
|
|
|
10
|
|
|
BET Model and Dual Default
|
|
Recovery rates
|
|
|
42% - 45% (43%)
|
|
|
|
|
|
|
|
|
|
Nonperformance risk
|
|
|
59% - 59% (59%)
|
|
|
|
|
|
|
|
|
|
Weighted average life (in years)
|
|
|
0.5 - 7.3 (1.9)
|
|
Other derivative liabilities
|
|
|
18
|
|
|
Discounted cash flow
|
|
Cash flows
|
|
|
$0 - $83 ($42)
(2)
|
|
(1) -
|
Recovery rates and breach rates include estimates about potential variations in the outcome of litigation with a counterparty.
|
(2) -
|
Midpoint of cash flows are used for the weighted average.
|
Sensitivity of Significant Unobservable Inputs
The
significant unobservable inputs used in the fair value measurement of the Companys loans receivable at fair value of consolidated VIEs are the impact of the financial guarantee and multiples. The fair value of loans receivable are calculated
by subtracting the value of the financial guarantee from the market value of VIE liabilities and by discounted cash flow methodologies. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments
under the policy. As expected cash payments provided by the Company under the insurance policy increase, there is a lower expected cash flow on the underlying loans receivable of the VIE. This results in a lower fair value of the loans receivable in
relation to the obligations of the VIE.
The significant unobservable inputs used in the fair value measurement of the Companys loan repurchase
commitments of consolidated VIEs are the recovery rates and breach rates. Recovery rates reflect the estimates of future cash flows reduced for litigation delays and risks and/or potential financial distress of the sellers/servicers. The estimated
recoveries of the loan repurchase commitments may differ from the actual recoveries that may be received in the future. Breach rates represent the rate at which mortgages fail to comply with stated representations and warranties of the
sellers/servicers. Significant increases or decreases in the recovery rates and the breach rates would result in significantly higher or lower fair values of the loan repurchase commitments, respectively. Additionally, changes in the legal
environment and the ability of the counterparties to pay would impact the recovery rate assumptions, which could significantly impact the fair value measurement. Any significant challenges by the counterparties to the Companys determination of
breaches of representations and warranties could significantly adversely impact the fair value measurement. Recovery rates and breach rates are determined independently. Changes in one input will not necessarily have any impact on the other input.
The significant unobservable input used in the fair value measurement of the Companys VIE notes of consolidated VIEs is the impact of the
financial guarantee. The fair value of VIE notes is calculated by adding the value of the financial guarantee to the market value of VIE assets. The value of a financial guarantee is estimated by the Company as the present value of expected cash
payments under the policy. As the value of the guarantee provided by the Company to the obligations issued by the VIE increases, the credit support adds value to the liabilities of the VIE. This results in an increase in the fair value of the
liabilities of the VIE.
24
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
The significant unobservable inputs used in the fair value measurement of MBIA Corp.s commercial
mortgage-backed securities (CMBS) credit derivatives, which are valued using the BET Model, are CMBS spreads, recovery rates, nonperformance risk and weighted average life. The CMBS spread is an indicator of credit risk of the collateral
securities. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of MBIA Corp.s own ability to pay and
whether MBIA Corp. will have the necessary resources to pay the obligations as they come due. Weighted average life is based on the Companys estimate of when the principal of the underlying collateral of the CMBS structure will be repaid. A
significant increase or decrease in CMBS spreads would result in an increase or decrease in the fair value of the derivative liability, respectively. A significant increase in weighted average life can result in an increase or decrease in the fair
value of the derivative liability, depending on the discount rate and the timing of significant losses. Any significant increase or decrease in recovery rates, or MBIA Corp.s nonperformance risk would result in a decrease or increase in the
fair value of the derivative liabilities, respectively. CMBS spreads, recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.
The significant unobservable input used in the fair value measurement of MBIA Corp.s multi-sector CDO credit derivatives, which are valued using
the Direct Price Model, is nonperformance risk. The nonperformance risk is an assumption of MBIA Corp.s own ability to pay and whether MBIA Corp. will have the necessary resources to pay the obligations as they come due. Any significant
increase or decrease in MBIA Corp.s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively.
The significant unobservable inputs used in the fair value measurement of MBIA Corp.s other credit derivatives, which are valued using the BET Model and Dual Default, are recovery rates, nonperformance risk
and weighted average life. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of MBIA Corp.s own
ability to pay and whether MBIA Corp. will have the necessary resources to pay the obligations as they come due. Weighted average life is based on MBIA Corp.s estimate of when the principal of the underlying collateral will be repaid. A
significant increase in weighted average life can result in an increase or decrease in the fair value of the derivative liability, depending on the discount rate and the timing of significant losses. Any significant increase or decrease in recovery
rates or MBIA Corp.s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. Recovery rates, nonperformance risk and weighted average lives are determined independently. Changes
in one input will not necessarily have any impact on the other inputs.
The significant unobservable input used in the fair value measurement of MBIA
Corp.s other derivatives, which are valued using a discounted cash flow model, is the estimates of future cash flows discounted using market rates and CDS spreads. Any significant increase or decrease in future cash flows would result in an
increase or decrease in the fair value of the derivative liability, respectively.
25
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Fair Value Measurements
The following tables present the fair value of the Companys assets (including short-term investments) and liabilities measured and reported at fair value on a recurring basis as of June 30, 2016 and
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
In millions
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Counterparty
and Cash
Collateral
Netting
|
|
|
Balance as of
June 30,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$
|
954
|
|
|
$
|
119
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,073
|
|
State and municipal bonds
|
|
|
-
|
|
|
|
1,615
|
|
|
|
124
|
(1)
|
|
|
-
|
|
|
|
1,739
|
|
Foreign governments
|
|
|
147
|
|
|
|
37
|
|
|
|
7
|
(1)
|
|
|
-
|
|
|
|
191
|
|
Corporate obligations
|
|
|
-
|
|
|
|
1,652
|
|
|
|
2
|
(1)
|
|
|
-
|
|
|
|
1,654
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
-
|
|
|
|
963
|
|
|
|
-
|
|
|
|
-
|
|
|
|
963
|
|
Residential mortgage-backed non-agency
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
37
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
-
|
|
|
|
8
|
|
|
|
20
|
(1)
|
|
|
-
|
|
|
|
28
|
|
Other asset-backed
|
|
|
-
|
|
|
|
362
|
|
|
|
41
|
(1)
|
|
|
-
|
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
1,101
|
|
|
|
4,838
|
|
|
|
194
|
|
|
|
-
|
|
|
|
6,133
|
|
Money market securities
|
|
|
82
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
Perpetual debt and equity securities
|
|
|
20
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
Cash and cash equivalents
|
|
|
568
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
568
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-insured derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
26
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
In millions
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Counterparty
and Cash
Collateral
Netting
|
|
|
Balance as of
June 30,
2016
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
-
|
|
|
|
34
|
|
|
|
3
|
(1)
|
|
|
-
|
|
|
|
37
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed non-agency
|
|
|
-
|
|
|
|
156
|
|
|
|
1
|
(1)
|
|
|
-
|
|
|
|
157
|
|
Commercial mortgage-backed
|
|
|
2
|
|
|
|
52
|
|
|
|
2
|
(1)
|
|
|
-
|
|
|
|
56
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
-
|
|
|
|
12
|
|
|
|
1
|
(1)
|
|
|
-
|
|
|
|
13
|
|
Other asset-backed
|
|
|
-
|
|
|
|
14
|
|
|
|
4
|
(1)
|
|
|
-
|
|
|
|
18
|
|
Cash
|
|
|
37
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37
|
|
Loans receivable at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
1,045
|
|
|
|
-
|
|
|
|
1,045
|
|
Other loans receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
(1)
|
|
|
-
|
|
|
|
147
|
|
Loan repurchase commitments
|
|
|
-
|
|
|
|
-
|
|
|
|
401
|
|
|
|
-
|
|
|
|
401
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
(1)
|
|
|
-
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,810
|
|
|
$
|
5,124
|
|
|
$
|
1,807
|
|
|
$
|
-
|
|
|
$
|
8,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
161
|
(1)
|
|
$
|
-
|
|
|
$
|
161
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit derivatives
|
|
|
-
|
|
|
|
2
|
|
|
|
104
|
|
|
|
-
|
|
|
|
106
|
|
Non-insured derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
-
|
|
|
|
304
|
|
|
|
-
|
|
|
|
(53)
|
|
|
|
251
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
|
|
21
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
-
|
|
|
|
980
|
|
|
|
523
|
|
|
|
-
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
1,299
|
|
|
$
|
809
|
|
|
$
|
(53)
|
|
|
$
|
2,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.
|
27
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
In millions
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Counterparty
and Cash
Collateral
Netting
|
|
|
Balance as of
December 31,
2015
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$
|
866
|
|
|
$
|
110
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
976
|
|
State and municipal bonds
|
|
|
-
|
|
|
|
1,685
|
|
|
|
41
|
(1)
|
|
|
-
|
|
|
|
1,726
|
|
Foreign governments
|
|
|
153
|
|
|
|
43
|
|
|
|
2
|
(1)
|
|
|
-
|
|
|
|
198
|
|
Corporate obligations
|
|
|
-
|
|
|
|
1,450
|
|
|
|
7
|
(1)
|
|
|
-
|
|
|
|
1,457
|
|
Mortgage-backed securities:
Residential mortgage-backed agency
|
|
|
-
|
|
|
|
993
|
|
|
|
-
|
|
|
|
-
|
|
|
|
993
|
|
Residential mortgage-backed non-agency
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
Asset-backed securities:
Collateralized debt obligations
|
|
|
-
|
|
|
|
5
|
|
|
|
29
|
(1)
|
|
|
-
|
|
|
|
34
|
|
Other asset-backed
|
|
|
-
|
|
|
|
281
|
|
|
|
38
|
(1)
|
|
|
-
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
1,019
|
|
|
|
4,649
|
|
|
|
117
|
|
|
|
-
|
|
|
|
5,785
|
|
Money market securities
|
|
|
354
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
354
|
|
Perpetual debt and equity securities
|
|
|
18
|
|
|
|
190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
208
|
|
Cash and cash equivalents
|
|
|
464
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
464
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-insured derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
3
|
|
28
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
In millions
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Counterparty
and Cash
Collateral
Netting
|
|
|
Balance as of
December 31,
2015
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
-
|
|
|
|
39
|
|
|
|
11
|
(1)
|
|
|
-
|
|
|
|
50
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed non-agency
|
|
|
-
|
|
|
|
172
|
|
|
|
-
|
|
|
|
-
|
|
|
|
172
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
672
|
|
|
|
-
|
|
|
|
-
|
|
|
|
672
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
-
|
|
|
|
13
|
|
|
|
1
|
(1)
|
|
|
-
|
|
|
|
14
|
|
Other asset-backed
|
|
|
-
|
|
|
|
18
|
|
|
|
6
|
(1)
|
|
|
-
|
|
|
|
24
|
|
Cash
|
|
|
58
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58
|
|
Loans receivable at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
1,185
|
|
|
|
-
|
|
|
|
1,185
|
|
Other loans receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
107
|
|
|
|
-
|
|
|
|
107
|
|
Loan repurchase commitments
|
|
|
-
|
|
|
|
-
|
|
|
|
396
|
|
|
|
-
|
|
|
|
396
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
(1)
|
|
|
-
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,913
|
|
|
$
|
5,757
|
|
|
$
|
1,834
|
|
|
$
|
(1)
|
|
|
$
|
9,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
161
|
(1)
|
|
$
|
-
|
|
|
$
|
161
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit derivatives
|
|
|
-
|
|
|
|
3
|
|
|
|
85
|
|
|
|
-
|
|
|
|
88
|
|
Non-insured derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
-
|
|
|
|
240
|
|
|
|
-
|
|
|
|
(32)
|
|
|
|
208
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
18
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
Securities sold, not yet purchased
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
-
|
|
|
|
1,095
|
|
|
|
1,267
|
|
|
|
-
|
|
|
|
2,362
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
18
|
|
|
$
|
1,401
|
|
|
$
|
1,531
|
|
|
$
|
(32)
|
|
|
$
|
2,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.
|
Level 3 assets at fair value as of June 30, 2016 and December 31, 2015 represented approximately 21% and 19%, respectively, of
total assets measured at fair value. Level 3 liabilities at fair value as of June 30, 2016 and December 31, 2015 represented approximately 39% and 52%, respectively, of total liabilities measured at fair value.
29
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
The following tables present the fair values and carrying values of the Companys assets and liabilities that
are disclosed at fair value but not reported at fair value on the Companys consolidated balance sheets as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
In millions
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Fair Value
Balance as of
June 30,
2016
|
|
|
Carry Value
Balance as of
June 30,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Accrued investment
income
(1)
|
|
|
-
|
|
|
|
39
|
|
|
|
-
|
|
|
|
39
|
|
|
|
39
|
|
Receivable for investments sold
(1)
|
|
|
-
|
|
|
|
110
|
|
|
|
-
|
|
|
|
110
|
|
|
|
110
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held-to-maturity
|
|
|
-
|
|
|
|
-
|
|
|
|
509
|
|
|
|
509
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
149
|
|
|
$
|
513
|
|
|
$
|
662
|
|
|
$
|
1,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
-
|
|
|
$
|
930
|
|
|
$
|
-
|
|
|
$
|
930
|
|
|
$
|
1,945
|
|
Medium-term notes
|
|
|
-
|
|
|
|
-
|
|
|
|
490
|
|
|
|
490
|
|
|
|
830
|
|
Investment agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
587
|
|
|
|
587
|
|
|
|
424
|
|
Payable for investments purchased
(2)
|
|
|
-
|
|
|
|
149
|
|
|
|
-
|
|
|
|
149
|
|
|
|
149
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
-
|
|
|
|
-
|
|
|
|
755
|
|
|
|
755
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
1,079
|
|
|
$
|
1,832
|
|
|
$
|
2,911
|
|
|
$
|
4,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,233
|
|
|
$
|
3,233
|
|
|
$
|
1,599
|
|
Ceded
|
|
|
-
|
|
|
|
-
|
|
|
|
108
|
|
|
|
108
|
|
|
|
53
|
|
(1) -
|
Reported within Other assets on MBIAs consolidated balance sheets.
|
(2) -
|
Reported within Other liabilities on MBIAs consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
In millions
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Fair Value
Balance as of
December 31,
2015
|
|
|
Carry Value
Balance as of
December 31,
2015
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Accrued investment
income
(1)
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
|
|
38
|
|
|
|
38
|
|
Receivable for investments sold
(1)
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
|
|
26
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held-to-maturity
|
|
|
-
|
|
|
|
-
|
|
|
|
2,401
|
|
|
|
2,401
|
|
|
|
2,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
64
|
|
|
$
|
2,404
|
|
|
$
|
2,468
|
|
|
$
|
2,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
-
|
|
|
$
|
762
|
|
|
$
|
-
|
|
|
$
|
762
|
|
|
$
|
1,889
|
|
Medium-term notes
|
|
|
-
|
|
|
|
-
|
|
|
|
534
|
|
|
|
534
|
|
|
|
855
|
|
Investment agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
595
|
|
|
|
595
|
|
|
|
462
|
|
Payable for investments purchased
(2)
|
|
|
-
|
|
|
|
36
|
|
|
|
-
|
|
|
|
36
|
|
|
|
36
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
-
|
|
|
|
-
|
|
|
|
2,596
|
|
|
|
2,596
|
|
|
|
2,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
798
|
|
|
$
|
3,725
|
|
|
$
|
4,523
|
|
|
$
|
5,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,093
|
|
|
$
|
3,093
|
|
|
$
|
1,530
|
|
Ceded
|
|
|
-
|
|
|
|
-
|
|
|
|
94
|
|
|
|
94
|
|
|
|
56
|
|
(1) -
|
Reported within Other assets on MBIAs consolidated balance sheets.
|
(2) -
|
Reported within Other liabilities on MBIAs consolidated balance sheets.
|
30
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
The following tables present information about changes in Level 3 assets (including short-term investments) and
liabilities measured at fair value on a recurring basis for the three months ended June 30, 2016 and 2015:
Changes in Level 3
Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Balance,
Beginning
of Period
|
|
|
Realized
Gains /
(Losses)
|
|
|
Unrealized
Gains /
(Losses)
Included
in
Earnings
|
|
|
Unrealized
Gains /
(Losses)
Included
in OCI
|
|
|
Foreign
Exchange
Recognized
in OCI or
Earnings
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Sales
|
|
|
Transfers
into
Level
3
(1)
|
|
|
Transfers
out of
Level
3
(1)
|
|
|
Ending
Balance
|
|
|
Change in
Unrealized
Gains
(Losses)
for
the
Period
Included in
Earnings
for Assets
still held
as
of
June 30,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign governments
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
Corporate obligations
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(23)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
Other asset-backed
|
|
|
39
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
-
|
|
State and municipal bonds
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124
|
|
|
|
-
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
Residential mortgage- backed non-agency
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Commercial mortgage-backed
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Other asset-backed
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
Loans receivable- residential
|
|
|
1,115
|
|
|
|
-
|
|
|
|
(16)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(54)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,045
|
|
|
|
(16)
|
|
Loans receivable- other
|
|
|
253
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(107)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
|
|
|
1
|
|
Loan repurchase commitments
|
|
|
399
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
401
|
|
|
|
2
|
|
Currency derivatives, net
|
|
|
5
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,850
|
|
|
$
|
-
|
|
|
$
|
(9)
|
|
|
$
|
19
|
|
|
$
|
-
|
|
|
$
|
127
|
|
|
$
|
-
|
|
|
$
|
(77)
|
|
|
$
|
(107)
|
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
1,807
|
|
|
$
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Balance,
Beginning
of Period
|
|
|
Realized
(Gains) /
Losses
|
|
|
Unrealized
(Gains) /
Losses
Included
in
Earnings
|
|
|
Unrealized
(Gains) /
Losses
Included
in OCI
|
|
|
Foreign
Exchange
Recognized
in OCI or
Earnings
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Sales
|
|
|
Transfers
into
Level
3
(1)
|
|
|
Transfers
out of
Level
3
(1)
|
|
|
Ending
Balance
|
|
|
Change in
Unrealized
(Gains)
Losses for
the Period
Included
in
Earnings
for
Liabilities
still held
as of
June 30,
2016
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
165
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(4)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
161
|
|
|
$
|
(4)
|
|
Credit derivatives, net
|
|
|
99
|
|
|
|
2
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104
|
|
|
|
5
|
|
Other derivatives
|
|
|
19
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
2
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE notes
|
|
|
1,176
|
|
|
|
-
|
|
|
|
(22)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(631)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
523
|
|
|
|
(22)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,459
|
|
|
$
|
2
|
|
|
$
|
(15)
|
|
|
$
|
-
|
|
|
$
|
(4)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2)
|
|
|
$
|
(631)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
809
|
|
|
$
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
Transferred in and out at the end of the period.
31
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the
Three Months Ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Balance,
Beginning
of Period
|
|
|
Realized
Gains /
(Losses)
|
|
|
Unrealized
Gains
/
(Losses)
Included
in
Earnings
|
|
|
Unrealized
Gains /
(Losses)
Included
in
OCI
|
|
|
Foreign
Exchange
Recognized
in OCI or
Earnings
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Sales
|
|
|
Transfers
into
Level
3
(1)
|
|
|
Transfers
out of
Level
3
(1)
|
|
|
Ending
Balance
|
|
|
Change
in
Unrealized
Gains
(Losses)
for
the Period
Included
in
Earnings
for Assets
still held
as of
June 30,
2015
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign governments
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
-
|
|
Corporate obligations
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
(10)
|
|
|
|
8
|
|
|
|
-
|
|
Commercial mortgage-backed
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
74
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9)
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
67
|
|
|
|
-
|
|
Other asset-backed
|
|
|
74
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
83
|
|
|
|
-
|
|
State and municipal bonds
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
53
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14)
|
|
|
|
35
|
|
|
|
-
|
|
Residential mortgage-backed
non-agency
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
Other asset-backed
|
|
|
21
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
(1)
|
|
Loans
receivable-residential
|
|
|
1,372
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(54)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,318
|
|
|
|
-
|
|
Loans receivable-other
|
|
|
108
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108
|
|
|
|
-
|
|
Loan repurchase commitments
|
|
|
385
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
388
|
|
|
|
3
|
|
Currency derivatives, net
|
|
|
5
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,122
|
|
|
$
|
-
|
|
|
$
|
(4)
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(76)
|
|
|
$
|
-
|
|
|
$
|
23
|
|
|
$
|
(24)
|
|
|
$
|
2,046
|
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Balance,
Beginning
of Period
|
|
|
Realized
(Gains) /
Losses
|
|
|
Unrealized
(Gains)
/
Losses
Included
in
Earnings
|
|
|
Unrealized
(Gains) /
Losses
Included
in OCI
|
|
|
Foreign
Exchange
Recognized
in OCI or
Earnings
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Sales
|
|
|
Transfers
into
Level
3
(1)
|
|
|
Transfers
out of
Level
3
(1)
|
|
|
Ending
Balance
|
|
|
Change in
Unrealized
(Gains)
Losses for
the
Period
Included in
Earnings
for Liabilities
still held
as of
June 30,
2015
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
180
|
|
|
$
|
-
|
|
|
$
|
(21)
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
166
|
|
|
$
|
(14)
|
|
Credit derivatives, net
|
|
|
207
|
|
|
|
3
|
|
|
|
(63)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
144
|
|
|
|
(53)
|
|
Other derivatives, net
|
|
|
21
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE notes
|
|
|
1,387
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,374
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,795
|
|
|
$
|
3
|
|
|
$
|
(71)
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(29)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,705
|
|
|
$
|
(54)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
Transferred in and out at the end of the period.
Transfers into Level 3 and out of Level 2 were $4 million for the three months ended June 30,
2016. Transfers into Level 3 were principally related to corporate obligations, other asset-backed and RMBS non-agency, where inputs, which are significant to their valuation, became unobservable during the quarter. These inputs included spreads,
prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1 for the three months ended June 30, 2016.
32
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Transfers into and out of Level 3 were $23 million and $24 million, respectively, for the three months ended
June 30, 2015. Transfers into and out of Level 2 were $24 million and $23 million, respectively, for the three months ended June 30, 2015. Transfers into Level 3 were principally related to other asset-backed and corporate obligations,
where inputs, which are significant to their valuation, became unobservable during the quarter. Corporate obligations comprised the majority of the instruments transferred out of Level 3 where inputs, which are significant to their valuation, became
observable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1
for the three months ended June 30, 2015.
All Level 1, 2 and 3 designations are made at the end of each accounting period.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Balance,
Beginning
of Year
|
|
|
Realized
Gains /
(Losses)
|
|
|
Unrealized
Gains /
(Losses)
Included
in
Earnings
|
|
|
Unrealized
Gains /
(Losses)
Included
in OCI
|
|
|
Foreign
Exchange
Recognized
in OCI or
Earnings
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Sales
|
|
|
Transfers
into
Level
3
(1)
|
|
|
Transfers
out of
Level
3
(1)
|
|
|
Ending
Balance
|
|
|
Change in
Unrealized
Gains
(Losses)
for
the
Period
Included in
Earnings
for Assets
still held
as
of
June 30,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign governments
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
Corporate obligations
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
2
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(27)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
Other asset-backed
|
|
|
38
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
(1)
|
|
State and municipal bonds
|
|
|
41
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121
|
|
|
|
-
|
|
|
|
(38)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124
|
|
|
|
-
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
11
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
(5)
|
|
|
|
3
|
|
|
|
-
|
|
Residential mortgage-backed non-agency
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Commercial
mortgage-backed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Other asset-backed
|
|
|
6
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
Loans
receivable-residential
|
|
|
1,185
|
|
|
|
-
|
|
|
|
(30)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(110)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,045
|
|
|
|
(30)
|
|
Loans receivable-other
|
|
|
107
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
146
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(107)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
|
|
|
1
|
|
Loan repurchase commitments
|
|
|
396
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
401
|
|
|
|
5
|
|
Currency derivatives net
|
|
|
11
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,834
|
|
|
$
|
(1)
|
|
|
$
|
(38)
|
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
272
|
|
|
$
|
-
|
|
|
$
|
(177)
|
|
|
$
|
(107)
|
|
|
$
|
9
|
|
|
$
|
(10)
|
|
|
$
|
1,807
|
|
|
$
|
(27)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Balance,
Beginning
of Year
|
|
|
Realized
(Gains) /
Losses
|
|
|
Unrealized
(Gains)
/
Losses
Included
in
Earnings
|
|
|
Unrealized
(Gains) /
Losses
Included
in OCI
|
|
|
Foreign
Exchange
Recognized
in OCI or
Earnings
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Sales
|
|
|
Transfers
into
Level
3
(1)
|
|
|
Transfers
out of
Level
3
(1)
|
|
|
Ending
Balance
|
|
|
Change in
Unrealized
(Gains)
Losses for
the
Period
Included in
Earnings
for Liabilities
still held
as of
June 30,
2016
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
161
|
|
|
$
|
-
|
|
|
$
|
(4)
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
161
|
|
|
$
|
-
|
|
Credit derivatives, net
|
|
|
85
|
|
|
|
16
|
|
|
|
19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104
|
|
|
|
22
|
|
Other derivatives, net
|
|
|
18
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
3
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE notes
|
|
|
1,267
|
|
|
|
-
|
|
|
|
(44)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
(78)
|
|
|
|
(631)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
523
|
|
|
|
(45)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,531
|
|
|
$
|
16
|
|
|
$
|
(26)
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
(94)
|
|
|
$
|
(631)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
809
|
|
|
$
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
Transferred in and out at the end of the period.
33
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the
Six Months Ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Balance,
Beginning
of Year
|
|
|
Realized
Gains /
(Losses)
|
|
|
Unrealized
Gains /
(Losses)
Included
in
Earnings
|
|
|
Unrealized
Gains /
(Losses)
Included
in OCI
|
|
|
Foreign
Exchange
Recognized
in OCI or
Earnings
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Sales
|
|
|
Transfers
into
Level
3
(1)
|
|
|
Transfers
out of
Level
3
(1)
|
|
|
Ending
Balance
|
|
|
Change
in
Unrealized
Gains
(Losses)
for
the Period
Included
in
Earnings
for Assets
still held
as of
June 30,
2015
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign governments
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
-
|
|
Corporate obligations
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
(10)
|
|
|
|
8
|
|
|
|
-
|
|
Commercial mortgage-backed
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
1
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
87
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14)
|
|
|
|
(8)
|
|
|
|
1
|
|
|
|
-
|
|
|
|
67
|
|
|
|
-
|
|
Other asset-backed
|
|
|
85
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
(7)
|
|
|
|
(8)
|
|
|
|
12
|
|
|
|
(2)
|
|
|
|
83
|
|
|
|
-
|
|
State and municipal bonds
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
5
|
|
|
|
-
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
55
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14)
|
|
|
|
35
|
|
|
|
-
|
|
Residential mortgage-backed non-agency
|
|
|
3
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
Other asset-backed
|
|
|
26
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7)
|
|
|
|
17
|
|
|
|
2
|
|
Loans
receivable-residential
|
|
|
1,431
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(110)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,318
|
|
|
|
(3)
|
|
Loans
receivable-other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108
|
|
|
|
-
|
|
Loan repurchase commitments
|
|
|
379
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
388
|
|
|
|
9
|
|
Currency derivatives, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,097
|
|
|
$
|
(2)
|
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
112
|
|
|
$
|
-
|
|
|
$
|
(144)
|
|
|
$
|
(16)
|
|
|
$
|
23
|
|
|
$
|
(36)
|
|
|
$
|
2,046
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Balance,
Beginning
of Year
|
|
|
Realized
(Gains) /
Losses
|
|
|
Unrealized
(Gains) /
Losses
Included
in
Earnings
|
|
|
Unrealized
(Gains) /
Losses
Included
in OCI
|
|
|
Foreign
Exchange
Recognized
in OCI
or
Earnings
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Sales
|
|
|
Transfers
into
Level 3
(1)
|
|
|
Transfers
out of
Level 3
(1)
|
|
|
Ending
Balance
|
|
|
Change in
Unrealized
(Gains)
Losses for
the
Period
Included in
Earnings
for Liabilities
still held
as of
June 30,
2015
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
197
|
|
|
$
|
-
|
|
|
$
|
(15)
|
|
|
$
|
-
|
|
|
$
|
(16)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
166
|
|
|
$
|
(31)
|
|
Credit derivatives, net
|
|
|
244
|
|
|
|
12
|
|
|
|
(100)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
144
|
|
|
|
(88)
|
|
Other derivatives, net
|
|
|
24
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
(3)
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE notes
|
|
|
735
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
|
|
-
|
|
|
|
695
|
|
|
|
-
|
|
|
|
(77)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,374
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,200
|
|
|
$
|
12
|
|
|
$
|
(97)
|
|
|
$
|
-
|
|
|
$
|
(16)
|
|
|
$
|
695
|
|
|
$
|
-
|
|
|
$
|
(89)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,705
|
|
|
$
|
(101)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
Transferred in and out at the end of the period.
Transfers into and out of Level 3 were $9 million and $10 million, respectively, for the six months
ended June 30, 2016. Transfers into and out of Level 2 were $10 million and $9 million, respectively, for the six months ended June 30, 2016. Transfers into Level 3 were principally related to other asset-backed, corporate obligations, and
CMBS, where inputs, which are significant to their valuation, became unobservable during the period. Corporate obligations comprised the majority of the instruments transferred out of Level 3 where inputs, which are significant to their valuation,
became observable during the period. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of
Level 1.
34
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Transfers into and out of Level 3 were $23 million and $36 million, respectively, for the six months ended
June 30, 2015. Transfers into and out of Level 2 were $36 million and $23 million, respectively, for the six months ended June 30, 2015. Transfers into Level 3 were principally related to other asset-backed, corporate obligations and RMBS
non-agency, where inputs, which are significant to their valuation, became unobservable during the period. Corporate obligations and other asset-backed comprised the majority of the instruments transferred out of Level 3 where inputs, which are
significant to their valuation, became observable during the period. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There
were no transfers into or out of Level 1.
All Level 1, 2 and 3 designations are made at the end of each accounting period.
Gains and losses (realized and unrealized) included in earnings related to Level 3 assets and liabilities for the three months ended June 30, 2016 and 2015
are reported on the Companys consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Three Months Ended June 30, 2016
|
|
|
Three Months Ended June 30, 2015
|
|
|
Total Gains
(Losses)
Included in
Earnings
|
|
|
Change in
Unrealized
Gains (Losses)
for the
Period Included
in Earnings
for
Assets
and
Liabilities still
held as of
June 30,
2016
|
|
|
Total Gains
(Losses)
Included
in
Earnings
|
|
|
Change in
Unrealized
Gains (Losses)
for the
Period Included
in Earnings
for Assets
and
Liabilities still
held
as of
June 30,
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on insured derivatives
|
|
$
|
(5)
|
|
|
$
|
(5)
|
|
|
$
|
63
|
|
|
$
|
53
|
|
Realized gains (losses) and other settlements on insured derivatives
|
|
|
(2)
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
2
|
|
|
|
2
|
|
|
|
14
|
|
|
|
14
|
|
Revenues of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
13
|
|
|
|
13
|
|
|
|
(15)
|
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
59
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the
six months ended June 30, 2016 and 2015 are reported on the Companys consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Six Months Ended June 30, 2016
|
|
|
Six Months Ended June 30, 2015
|
|
|
Total Gains
(Losses)
Included in
Earnings
|
|
|
Change in
Unrealized
Gains (Losses)
for the
Period Included
in Earnings
for
Assets
and
Liabilities still
held as of
June 30,
2016
|
|
|
Total Gains
(Losses)
Included
in
Earnings
|
|
|
Change in
Unrealized
Gains
(Losses)
for
the
Period
Included
in Earnings
for Assets
and
Liabilities still
held
as of
June 30,
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on insured derivatives
|
|
$
|
(19)
|
|
|
$
|
(22)
|
|
|
$
|
100
|
|
|
$
|
88
|
|
Realized gains (losses) and other settlements on insured derivatives
|
|
|
(16)
|
|
|
|
-
|
|
|
|
(12)
|
|
|
|
-
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(4)
|
|
|
|
(4)
|
|
|
|
32
|
|
|
|
34
|
|
Net investment losses related to other-than-temporary impairments
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Revenues of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
7
|
|
|
|
19
|
|
|
|
(11)
|
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(33)
|
|
|
$
|
(7)
|
|
|
$
|
109
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Option
The Company elected to record at fair value certain financial instruments that have been consolidated in connection with the adoption of the accounting guidance for
consolidation of VIEs, among others.
The following table presents the changes in fair value included in the Companys consolidated statements of
operations for the three and six months ended June 30, 2016 and 2015 for financial instruments for which the fair value option was elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Investments carried at fair value
(1)
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
6
|
|
|
$
|
1
|
|
Fixed-maturity securities held at fair value-VIE
(2)
|
|
|
(13)
|
|
|
|
(55)
|
|
|
|
(97)
|
|
|
|
(73)
|
|
Loans receivable at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
(2)
|
|
|
(70)
|
|
|
|
(54)
|
|
|
|
(140)
|
|
|
|
(113)
|
|
Loan repurchase commitments
(2)
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
|
|
9
|
|
Medium-term
notes
(1)
|
|
|
4
|
|
|
|
13
|
|
|
|
-
|
|
|
|
31
|
|
Variable interest entity notes
(2)
|
|
|
71
|
|
|
|
72
|
|
|
|
238
|
|
|
|
162
|
|
(1) -
|
Reported within Net gains (losses) on financial instruments at fair value and foreign exchange on MBIAs consolidated statements of operations.
|
(2) -
|
Reported within Net gains (losses) on financial instruments at fair value and foreign exchange-VIE on MBIAs consolidated statements of operations.
|
36
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
The following table reflects the difference between the aggregate fair value and the aggregate remaining
contractual principal balance outstanding as of June 30, 2016 and December 31, 2015 for loans and notes for which the fair value option was elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
As of June 30, 2016
|
|
|
As of December 31, 2015
|
|
|
Contractual
Outstanding
Principal
|
|
|
Fair
Value
|
|
|
Difference
|
|
|
Contractual
Outstanding
Principal
|
|
|
Fair
Value
|
|
|
Difference
|
|
Loans receivable at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
|
$
|
1,130
|
|
|
$
|
1,022
|
|
|
$
|
108
|
|
|
$
|
1,260
|
|
|
$
|
1,149
|
|
|
$
|
111
|
|
Residential mortgage loans (90 days or more past due)
|
|
|
159
|
|
|
|
23
|
|
|
|
136
|
|
|
|
177
|
|
|
|
36
|
|
|
|
141
|
|
Other loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107
|
|
|
|
107
|
|
|
|
-
|
|
Other loans (90 days or more past due)
|
|
|
147
|
|
|
|
147
|
|
|
|
-
|
|
|
|
75
|
|
|
|
-
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable at fair value
|
|
$
|
1,436
|
|
|
$
|
1,192
|
|
|
$
|
244
|
|
|
$
|
1,619
|
|
|
$
|
1,292
|
|
|
$
|
327
|
|
Variable interest entity notes
|
|
$
|
2,656
|
|
|
$
|
1,503
|
|
|
$
|
1,153
|
|
|
$
|
3,663
|
|
|
$
|
2,362
|
|
|
$
|
1,301
|
|
Medium-term notes
|
|
$
|
222
|
|
|
$
|
161
|
|
|
$
|
61
|
|
|
$
|
217
|
|
|
$
|
161
|
|
|
$
|
56
|
|
Substantially all gains and losses included in earnings during the three and six months ended June 30, 2016 and 2015 on loans
receivable and VIE notes reported in the preceding table are attributable to credit risk. This is primarily due to the high rate of defaults on loans and the collateral supporting the VIE notes, resulting in depressed pricing of the financial
instruments.
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 OTTI for AFS and HTM investments in the Companys consolidated investment portfolio as of
June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
In millions
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Other-Than-
Temporary
Impairments
(1)
|
|
AFS Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$
|
996
|
|
|
$
|
69
|
|
|
$
|
-
|
|
|
$
|
1,065
|
|
|
$
|
-
|
|
State and municipal bonds
|
|
|
1,607
|
|
|
|
134
|
|
|
|
(2)
|
|
|
|
1,739
|
|
|
|
-
|
|
Foreign governments
|
|
|
187
|
|
|
|
4
|
|
|
|
(1)
|
|
|
|
190
|
|
|
|
-
|
|
Corporate obligations
|
|
|
1,607
|
|
|
|
63
|
|
|
|
(79)
|
|
|
|
1,591
|
|
|
|
(77)
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
946
|
|
|
|
12
|
|
|
|
(1)
|
|
|
|
957
|
|
|
|
-
|
|
Residential mortgage-backed non-agency
|
|
|
51
|
|
|
|
1
|
|
|
|
(7)
|
|
|
|
45
|
|
|
|
(4)
|
|
Commercial mortgage-backed
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
|
|
-
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
Other asset-backed
|
|
|
405
|
|
|
|
1
|
|
|
|
(9)
|
|
|
|
397
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
5,859
|
|
|
|
284
|
|
|
|
(99)
|
|
|
|
6,044
|
|
|
|
(81)
|
|
Money market securities
|
|
|
82
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
|
|
-
|
|
Perpetual debt and equity securities
|
|
|
6
|
|
|
|
1
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS investments
|
|
$
|
5,947
|
|
|
$
|
285
|
|
|
$
|
(99)
|
|
|
$
|
6,133
|
|
|
$
|
(81)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
890
|
|
|
$
|
-
|
|
|
$
|
(381)
|
|
|
$
|
509
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HTM investments
|
|
$
|
890
|
|
|
$
|
-
|
|
|
$
|
(381)
|
|
|
$
|
509
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
37
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
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
|
|
$
|
947
|
|
|
$
|
32
|
|
|
$
|
(3)
|
|
|
$
|
976
|
|
|
$
|
-
|
|
State and municipal bonds
|
|
|
1,674
|
|
|
|
65
|
|
|
|
(14)
|
|
|
|
1,725
|
|
|
|
-
|
|
Foreign governments
|
|
|
197
|
|
|
|
3
|
|
|
|
(2)
|
|
|
|
198
|
|
|
|
-
|
|
Corporate obligations
|
|
|
1,516
|
|
|
|
21
|
|
|
|
(103)
|
|
|
|
1,434
|
|
|
|
(85)
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
995
|
|
|
|
7
|
|
|
|
(9)
|
|
|
|
993
|
|
|
|
-
|
|
Residential mortgage-backed non-agency
|
|
|
55
|
|
|
|
2
|
|
|
|
(6)
|
|
|
|
51
|
|
|
|
(4)
|
|
Commercial mortgage-backed
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
51
|
|
|
|
-
|
|
|
|
(18)
|
|
|
|
33
|
|
|
|
-
|
|
Other asset-backed
|
|
|
331
|
|
|
|
1
|
|
|
|
(17)
|
|
|
|
315
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
5,797
|
|
|
|
131
|
|
|
|
(172)
|
|
|
|
5,756
|
|
|
|
(89)
|
|
Money market securities
|
|
|
351
|
|
|
|
-
|
|
|
|
-
|
|
|
|
351
|
|
|
|
-
|
|
Perpetual debt and equity securities
|
|
|
12
|
|
|
|
1
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS investments
|
|
$
|
6,160
|
|
|
$
|
132
|
|
|
$
|
(172)
|
|
|
$
|
6,120
|
|
|
$
|
(89)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
2,689
|
|
|
$
|
24
|
|
|
$
|
(312)
|
|
|
$
|
2,401
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HTM investments
|
|
$
|
2,689
|
|
|
$
|
24
|
|
|
$
|
(312)
|
|
|
$
|
2,401
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 30, 2016. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities
|
|
|
HTM Securities
|
|
|
|
|
|
|
|
|
|
Consolidated VIEs
|
|
In millions
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
447
|
|
|
$
|
447
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due after one year through five years
|
|
|
1,642
|
|
|
|
1,677
|
|
|
|
-
|
|
|
|
-
|
|
Due after five years through ten years
|
|
|
844
|
|
|
|
903
|
|
|
|
-
|
|
|
|
-
|
|
Due after ten years
|
|
|
1,464
|
|
|
|
1,558
|
|
|
|
890
|
|
|
|
509
|
|
Mortgage-backed and asset-backed
|
|
|
1,462
|
|
|
|
1,459
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
$
|
5,859
|
|
|
$
|
6,044
|
|
|
$
|
890
|
|
|
$
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposited and Pledged Securities
The fair value of securities on deposit with various regulatory authorities as of June 30, 2016 and December 31, 2015 was $11 million and $10 million, respectively. These deposits are required to comply
with state insurance laws.
Pursuant to the Companys 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 Companys consolidated balance sheets.
38
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
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 June 30, 2016 and December 31, 2015, the fair value of securities pledged as collateral for these investment agreements approximated
$431 million and $457 million, respectively. The Companys collateral as of June 30, 2016 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 in the amount of $10 million and $12 million as of June 30, 2016 and December 31, 2015, respectively.
Impaired Investments
The following tables present
the gross unrealized losses related to AFS and HTM investments as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
27
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
27
|
|
|
$
|
-
|
|
State and municipal bonds
|
|
|
7
|
|
|
|
-
|
|
|
|
17
|
|
|
|
(2)
|
|
|
|
24
|
|
|
|
(2)
|
|
Foreign governments
|
|
|
3
|
|
|
|
-
|
|
|
|
2
|
|
|
|
(1)
|
|
|
|
5
|
|
|
|
(1)
|
|
Corporate obligations
|
|
|
152
|
|
|
|
-
|
|
|
|
62
|
|
|
|
(79)
|
|
|
|
214
|
|
|
|
(79)
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
61
|
|
|
|
-
|
|
|
|
144
|
|
|
|
(1)
|
|
|
|
205
|
|
|
|
(1)
|
|
Residential mortgage-backed non-agency
|
|
|
9
|
|
|
|
(1)
|
|
|
|
29
|
|
|
|
(6)
|
|
|
|
38
|
|
|
|
(7)
|
|
Commercial mortgage-backed
|
|
|
21
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
25
|
|
|
|
-
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
4
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
Other asset-backed
|
|
|
133
|
|
|
|
(1)
|
|
|
|
81
|
|
|
|
(8)
|
|
|
|
214
|
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
417
|
|
|
|
(2)
|
|
|
|
359
|
|
|
|
(97)
|
|
|
|
776
|
|
|
|
(99)
|
|
Perpetual debt and equity securities
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS investments
|
|
$
|
417
|
|
|
$
|
(2)
|
|
|
$
|
360
|
|
|
$
|
(97)
|
|
|
$
|
777
|
|
|
$
|
(99)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
297
|
|
|
$
|
(18)
|
|
|
$
|
212
|
|
|
$
|
(363)
|
|
|
$
|
509
|
|
|
$
|
(381)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HTM investments
|
|
$
|
297
|
|
|
$
|
(18)
|
|
|
$
|
212
|
|
|
$
|
(363)
|
|
|
$
|
509
|
|
|
$
|
(381)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
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
|
|
$
|
434
|
|
|
$
|
(2)
|
|
|
$
|
50
|
|
|
$
|
(1)
|
|
|
$
|
484
|
|
|
$
|
(3)
|
|
State and municipal bonds
|
|
|
536
|
|
|
|
(11)
|
|
|
|
42
|
|
|
|
(3)
|
|
|
|
578
|
|
|
|
(14)
|
|
Foreign governments
|
|
|
32
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32
|
|
|
|
(2)
|
|
Corporate obligations
|
|
|
693
|
|
|
|
(14)
|
|
|
|
78
|
|
|
|
(89)
|
|
|
|
771
|
|
|
|
(103)
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
399
|
|
|
|
(4)
|
|
|
|
159
|
|
|
|
(5)
|
|
|
|
558
|
|
|
|
(9)
|
|
Residential mortgage-backed non-agency
|
|
|
24
|
|
|
|
(2)
|
|
|
|
17
|
|
|
|
(4)
|
|
|
|
41
|
|
|
|
(6)
|
|
Commercial mortgage-backed
|
|
|
25
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
2
|
|
|
|
-
|
|
|
|
29
|
|
|
|
(18)
|
|
|
|
31
|
|
|
|
(18)
|
|
Other asset-backed
|
|
|
242
|
|
|
|
(1)
|
|
|
|
34
|
|
|
|
(16)
|
|
|
|
276
|
|
|
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
2,387
|
|
|
|
(36)
|
|
|
|
410
|
|
|
|
(136)
|
|
|
|
2,797
|
|
|
|
(172)
|
|
Perpetual debt and equity securities
|
|
|
2
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS investments
|
|
$
|
2,389
|
|
|
$
|
(36)
|
|
|
$
|
413
|
|
|
$
|
(136)
|
|
|
$
|
2,802
|
|
|
$
|
(172)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
1,093
|
|
|
$
|
(17)
|
|
|
$
|
280
|
|
|
$
|
(295)
|
|
|
$
|
1,373
|
|
|
$
|
(312)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HTM investments
|
|
$
|
1,093
|
|
|
$
|
(17)
|
|
|
$
|
280
|
|
|
$
|
(295)
|
|
|
$
|
1,373
|
|
|
$
|
(312)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized losses on AFS securities decreased as of June 30, 2016 compared with December 31, 2015 primarily due to
market price appreciation driven by lower interest rates. Gross unrealized losses on HTM securities increased as of June 30, 2016 compared with December 31, 2015 primarily due to widening credit spreads partially offset by lower interest
rates.
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 June 30, 2016 and December 31, 2015 was 21 and 17 years, respectively. As of June 30, 2016 and December 31, 2015, there were 87 and 65 securities, respectively, that were in an
unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 29 and 22 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 June 30,
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities
|
|
|
HTM Securities
|
|
|
|
Number of
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Number of
|
|
|
Book Value
|
|
|
Fair Value
|
|
Percentage of Fair Value Below Book Value
|
|
Securities
|
|
|
(in millions)
|
|
|
(in millions)
|
|
|
Securities
|
|
|
(in millions)
|
|
|
(in millions)
|
|
> 5% to 15%
|
|
|
13
|
|
|
$
|
12
|
|
|
$
|
11
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
> 15% to 25%
|
|
|
9
|
|
|
|
79
|
|
|
|
64
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
> 25% to 50%
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
> 50%
|
|
|
1
|
|
|
|
104
|
|
|
|
26
|
|
|
|
1
|
|
|
|
575
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28
|
|
|
$
|
198
|
|
|
$
|
103
|
|
|
|
1
|
|
|
$
|
575
|
|
|
$
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
The following table presents the fair value and gross unrealized loss by credit rating category of ABS, MBS and
corporate obligations included in the Companys consolidated AFS investment portfolio, as of June 30, 2016, for which fair value was less than amortized cost. The credit ratings are based on ratings from Moodys as of June 30,
2016 or an alternate ratings source, such as S&P, when a security is not rated by Moodys. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurers rating or the
underlying bonds rating.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Investment
Grade
|
|
|
Not Rated
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrea-
lized
|
|
|
Fair
|
|
|
Unrea-
lized
|
|
|
Fair
|
|
|
Unrea-
lized
|
|
|
Fair
|
|
|
Unrea-
lized
|
|
|
Fair
|
|
|
Unrea-
lized
|
|
|
Fair
|
|
|
Unrea-
lized
|
|
|
Fair
|
|
|
Unrea-
lized
|
|
Asset Type
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
ABS
|
|
$
|
126
|
|
|
$
|
(1)
|
|
|
$
|
73
|
|
|
$
|
(1)
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
32
|
|
|
$
|
(7)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
238
|
|
|
$
|
(9)
|
|
MBS
|
|
|
220
|
|
|
|
(1)
|
|
|
|
3
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
24
|
|
|
|
(3)
|
|
|
|
14
|
|
|
|
(4)
|
|
|
|
268
|
|
|
|
(8)
|
|
Corporate obligations
|
|
|
88
|
|
|
|
-
|
|
|
|
50
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
26
|
|
|
|
(1)
|
|
|
|
8
|
|
|
|
(1)
|
|
|
|
26
|
|
|
|
(77)
|
|
|
|
214
|
|
|
|
(79)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
434
|
|
|
$
|
(2)
|
|
|
$
|
126
|
|
|
$
|
(1)
|
|
|
$
|
20
|
|
|
$
|
-
|
|
|
$
|
36
|
|
|
$
|
(1)
|
|
|
$
|
64
|
|
|
$
|
(11)
|
|
|
$
|
40
|
|
|
$
|
(81)
|
|
|
$
|
720
|
|
|
$
|
(96)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total ABS, MBS and corporate obligations reported in the preceding table include those which are guaranteed by financial
guarantors. In addition, the following table presents information on ABS and MBS guaranteed by the Company and third-party financial guarantors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured Securities Rated Below
Investment Grade without the
Effect of Guarantee
|
|
|
|
Average Credit Rating with the
|
|
|
Average Credit Rating without the
|
|
|
(in millions)
|
|
|
|
|
Asset Type
|
|
Effect of Guarantee
|
|
|
Effect of Guarantee
|
|
|
Fair Value
|
|
|
Percentage
|
|
ABS
|
|
|
Below Investment Grade
|
|
|
|
Below Investment Grade
|
|
|
$
|
31
|
|
|
|
61%
|
|
MBS
|
|
|
Below Investment Grade
|
|
|
|
Below Investment Grade
|
|
|
$
|
17
|
|
|
|
100%
|
|
Refer to the table within the OTTI section of this note for information on the insured securities included in the table above.
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 June 30, 2016 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 Companys
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 Companys Annual Report on Form 10-K for the
year ended December 31, 2015 for a discussion of the Companys 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
Credit Losses Recognized in Earnings Related to Other-Than-Temporary
Impairments
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
26
|
|
|
$
|
16
|
|
|
$
|
26
|
|
|
$
|
16
|
|
Additions for credit loss impairments recognized in the current period on securities not previously impaired
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
26
|
|
|
$
|
22
|
|
|
$
|
26
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
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 impairment in accordance with its loss reserving policy. The following table provides information about securities held by the Company as of June 30, 2016 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Insurance
Loss
Reserve
(2)
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
MBIA
(1)
|
|
$
|
51
|
|
|
$
|
(7)
|
|
|
$
|
17
|
|
Mortgage-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
MBIA
(1)
|
|
|
17
|
|
|
|
(3)
|
|
|
|
4
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
MBIA
(1)
|
|
|
8
|
|
|
|
(1)
|
|
|
|
-
|
|
Other
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
|
|
|
10
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
78
|
|
|
$
|
(11)
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Companys consolidated statements of operations. The increase in proceeds and net gains on the sales
of investments for the three and six months ended June 30, 2016 when compared with the same periods of 2015 were primarily due to sales to generate liquidity for expected payments on certain Puerto Rico exposures. The proceeds and the gross
realized gains and losses from sales of fixed-maturity securities held as AFS for the three and six months ended June 30, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Proceeds from sales
|
|
$
|
656
|
|
|
$
|
187
|
|
|
$
|
937
|
|
|
$
|
379
|
|
Gross realized gains
|
|
$
|
26
|
|
|
$
|
3
|
|
|
$
|
37
|
|
|
$
|
8
|
|
Gross realized losses
|
|
$
|
(13)
|
|
|
$
|
(2)
|
|
|
$
|
(18)
|
|
|
$
|
(9)
|
|
Note 8: Derivative Instruments
Overview
MBIA has entered into derivative instruments through its financial guarantee of CDS and
certain other derivative contracts for purposes of managing risks associated with existing assets and liabilities. In certain instances, the Company purchased or issued securities that contain embedded derivatives that were separated from the host
contract and accounted for as derivative instruments. In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Companys embedded derivative instruments is determined by the
location of the related security. Derivative instruments are recorded at fair value on the Companys consolidated balance sheets with the changes in fair value recorded on the Companys consolidated statements of operations within
Unrealized gains (losses) on insured derivatives, for the insured derivatives, or Net gains (losses) on financial instruments at fair value and foreign exchange for the embedded derivatives. Refer to Note 6: Fair Value
of Financial Instruments for the method of determining the fair value of derivative instruments.
U.S. Public Finance Insurance
The Companys derivative exposure within its U.S. public finance insurance operations primarily consists of insured interest rate and inflation-linked swaps
related to insured U.S. public finance debt issues. These derivatives do not qualify for the financial guarantee scope exception and are accounted for as derivative instruments.
Corporate
The Company has entered into derivative instruments primarily consisting of interest rate swaps.
Interest rate swaps are entered into to manage the risks associated with fluctuations in interest rates or fair values of certain contracts.
Changes in
the fair value of these derivatives are recorded on the Companys consolidated statements of operations within Net gains (losses) on financial instruments at fair value and foreign exchange.
42
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 8: Derivative Instruments (continued)
International and Structured Finance Insurance
The Company has entered into derivative instruments that it viewed as an extension of its core financial guarantee business that do not qualify for the financial guarantee scope exception and, therefore, are
accounted for as derivative instruments. These insured CDS contracts, primarily referencing corporate obligations, ABS, RMBS, CMBS, commercial real estate loans and CDOs, are intended to be held for the entire term of the contract absent a
negotiated settlement with the counterparty. The Company no longer insures new CDS contracts. The Companys derivative exposure within its international and structured finance insurance segment also includes insured interest rate and
inflation-linked swaps related to insured debt issues.
Changes in the fair value of derivatives, excluding insured derivatives, are recorded each
period in current earnings within Net gains (losses) on financial instruments at fair value and foreign exchange. Changes in the fair value of insured derivatives are recorded each period in current earnings within Net change in
fair value of insured derivatives. The net change in the fair value of the Companys insured derivatives has two primary components: (i) realized gains (losses) and other settlements on insured derivatives and (ii) unrealized
gains (losses) on insured derivatives. Realized gains (losses) and other settlements on insured derivatives include (i) premiums received and receivable on sold CDS contracts, (ii) premiums paid and payable to reinsurers in
respect to CDS contracts, (iii) net amounts received or paid on reinsurance commutations, (iv) losses paid and payable to CDS contract counterparties due to the occurrence of a credit event or settlement agreement, (v) losses
recovered and recoverable on purchased CDS contracts due to the occurrence of a credit event or settlement agreement and (vi) fees relating to CDS contracts. Unrealized gains (losses) on insured derivatives includes all other
changes in fair value of the insured derivative contracts.
The Company has also entered into a derivative contract as a result of a commutation
occurring in 2014. Changes in the fair value of the Companys non-insured derivative are included in Net gains (losses) on financial instruments at fair value and foreign exchange on the Companys consolidated statements of
operations.
Variable Interest Entities
VIEs
consolidated by the Company have entered into derivative instruments consisting of interest rate swaps, interest rate caps and cross currency swaps. Interest rate swaps and interest rate caps are entered into to mitigate the risks associated with
fluctuations in interest rates or fair values of certain contracts. Cross currency swaps are entered into to manage the variability in cash flows resulting from fluctuations in foreign currency rates.
Credit Derivatives Sold
The following tables present
information about credit derivatives sold by the Companys insurance operations that were outstanding as of June 30, 2016 and December 31, 2015. Credit ratings represent the lower of underlying ratings assigned to the collateral by
Moodys, S&P or MBIA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions
|
|
As of June 30, 2016
|
|
|
|
Notional Value
|
|
|
|
|
Credit Derivatives Sold
|
|
Weighted
Average
Remaining
Expected
Maturity
|
|
|
AAA
|
|
|
AA
|
|
|
A
|
|
|
BBB
|
|
|
Below
Investment
Grade
|
|
|
Total
Notional
|
|
|
Fair Value
Asset
(Liability)
|
|
Insured credit default swaps
|
|
|
3.7 Years
|
|
|
$
|
353
|
|
|
$
|
-
|
|
|
$
|
165
|
|
|
$
|
-
|
|
|
$
|
646
|
|
|
$
|
1,164
|
|
|
$
|
(104)
|
|
Insured swaps
|
|
|
15.6 Years
|
|
|
|
-
|
|
|
|
147
|
|
|
|
2,402
|
|
|
|
1,078
|
|
|
|
21
|
|
|
|
3,648
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional
|
|
|
|
|
|
$
|
353
|
|
|
$
|
147
|
|
|
$
|
2,567
|
|
|
$
|
1,078
|
|
|
$
|
667
|
|
|
$
|
4,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2)
|
|
|
$
|
(1)
|
|
|
$
|
(103)
|
|
|
|
|
|
|
$
|
(106)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions
|
|
As of December 31, 2015
|
|
|
|
Notional Value
|
|
|
|
|
Credit Derivatives Sold
|
|
Weighted
Average
Remaining
Expected
Maturity
|
|
|
AAA
|
|
|
AA
|
|
|
A
|
|
|
BBB
|
|
|
Below
Investment
Grade
|
|
|
Total
Notional
|
|
|
Fair Value
Asset
(Liability)
|
|
Insured credit default swaps
|
|
|
2.1 Years
|
|
|
$
|
1,947
|
|
|
$
|
-
|
|
|
$
|
300
|
|
|
$
|
-
|
|
|
$
|
961
|
|
|
$
|
3,208
|
|
|
$
|
(85)
|
|
Insured swaps
|
|
|
16.5 Years
|
|
|
|
-
|
|
|
|
109
|
|
|
|
2,715
|
|
|
|
940
|
|
|
|
22
|
|
|
|
3,786
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional
|
|
|
|
|
|
$
|
1,947
|
|
|
$
|
109
|
|
|
$
|
3,015
|
|
|
$
|
940
|
|
|
$
|
983
|
|
|
$
|
6,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(4)
|
|
|
$
|
(2)
|
|
|
$
|
(82)
|
|
|
|
|
|
|
$
|
(88)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 8: Derivative Instruments (continued)
Internal credit ratings assigned by MBIA on the underlying collateral are derived by the Companys
surveillance group. In assigning an internal rating, current status reports from issuers and trustees, as well as publicly available transaction-specific information, are reviewed. Also, where appropriate, cash flow analyses and collateral
valuations are considered. The maximum potential amount of future payments (undiscounted) on CDS contracts are estimated as the notional value plus any additional debt service costs, such as interest or other amounts owing on CDS contracts. The
maximum amount of future debt service payments that MBIA may be required to make under these guarantees as of June 30, 2016 is $1.3 billion. The maximum potential amount of future payments (undiscounted) on insured swaps are estimated as the
notional value of such contracts.
MBIA may hold recourse provisions with third parties in derivative instruments through both reinsurance and
subrogation rights. MBIAs reinsurance arrangements provide that in the event MBIA pays a claim under a guarantee of a derivative contract, MBIA has the right to collect amounts from any reinsurers that have reinsured the guarantee on either a
proportional or non-proportional basis, depending upon the underlying reinsurance agreement. MBIA may also have recourse through subrogation rights whereby if MBIA makes a claim payment, it may be entitled to any rights of the insured counterparty,
including the right to any assets held as collateral.
Counterparty Credit Risk
The Company manages counterparty credit risk on an individual counterparty basis through master netting agreements covering derivative instruments in the corporate segment. These agreements allow the Company to
contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade
provisions that generally provide the ability to require assignment or termination in the event either MBIA or the counterparty is downgraded below a specified credit rating.
Under these agreements, the Company may receive or provide cash, U.S. Treasury or other highly rated securities to secure counterparties exposure to the Company or its exposure to counterparties,
respectively. Such collateral is available to the holder to pay for replacing the counterparty in the event that the counterparty defaults. As of June 30, 2016, the Company did not hold cash collateral to derivative counterparties but posted
cash collateral to derivative counterparties of $71 million. Of this amount, $53 million is netted within Derivative liabilities and $18 million is included within Other liabilities as cash collateral netted against accrued
interest on derivative liabilities. As of December 31, 2015, the Company did not hold cash collateral to derivative counterparties but posted cash collateral to derivative counterparties of $50 million. Of this amount, $31 million is netted
within Derivative liabilities and $19 million is included within Other liabilities as cash collateral netted against accrued interest on derivative liabilities. As of June 30, 2016 and December 31, 2015, the Company
had securities with a fair value of $311 million and $259 million, respectively, posted to derivative counterparties and these amounts are included within Fixed-maturity securities held as available-for-sale, at fair value on the
Companys consolidated balance sheets.
As of June 30, 2016 and December 31, 2015, the fair value on one Credit Support Annex
(CSA) was $3 million. This CSA governs collateral posting requirements between MBIA and its derivative counterparties. The Company did not receive collateral due to the Companys credit rating, which was below the CSA minimum credit
ratings level for holding counterparty collateral. As of June 30, 2016 and December 31, 2015, the counterparty was rated A2 by Moodys and A by S&P.
Financial Statement Presentation
The fair value of amounts recognized for eligible derivative contracts
executed with the same counterparty under a master netting agreement, including any cash collateral that may have been received or posted by the Company, is presented on a net basis in accordance with accounting guidance for the offsetting of fair
value amounts related to derivative instruments. Insured CDS and insured swaps are not subject to master netting agreements. VIE derivative assets and liabilities are not presented net of any master netting agreements. Counterparty netting of
derivative assets and liabilities offsets balances in Interest rate swaps as of June 30, 2016 and December 31, 2015.
As of
June 30, 2016, the total fair value of the Companys derivative assets was $16 million, of which $12 million was reported within Other assets and Other assets presented under Assets of consolidated variable
interest entities on the Companys consolidated balance sheets. Embedded derivatives of $4 million were reported within Medium-term notes on the Companys consolidated balance sheets.
As of June 30, 2016, the total fair value of the Companys derivative liabilities, after cash collateral posted by the Company of $53 million, was $398
million, of which $378 million was reported within Derivative liabilities on the Companys consolidated balance sheets. Embedded derivatives of $20 million were reported within Medium-term notes on the Companys
consolidated balance sheets.
44
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 8: Derivative Instruments (continued)
The following table presents the total fair value of the Companys derivative assets and liabilities by
instrument and balance sheet location, before counterparty netting and posting of cash collateral, as of June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
Derivative Assets
(1)
|
|
|
Derivative Liabilities
(1)
|
|
Derivative Instruments
|
|
Notional
Amount
Outstanding
|
|
|
Balance Sheet Location
|
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
|
Fair Value
|
|
Not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured credit default swaps
|
|
$
|
1,164
|
|
|
|
Other assets
|
|
|
$
|
-
|
|
|
|
Derivative liabilities
|
|
|
$
|
(104)
|
|
Insured swaps
|
|
|
3,648
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Derivative liabilities
|
|
|
|
(2)
|
|
Interest rate swaps
|
|
|
1,067
|
|
|
|
Other assets
|
|
|
|
3
|
|
|
|
Derivative liabilities
|
|
|
|
(304)
|
|
Interest rate swaps-embedded
|
|
|
408
|
|
|
|
Medium-term notes
|
|
|
|
4
|
|
|
|
Medium-term notes
|
|
|
|
(20)
|
|
Currency swaps-VIE
|
|
|
75
|
|
|
|
Other assets-VIE
|
|
|
|
9
|
|
|
|
Derivative liabilities-VIE
|
|
|
|
-
|
|
All other
|
|
|
83
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Derivative liabilities
|
|
|
|
(21)
|
|
All other-VIE
|
|
|
131
|
|
|
|
Other assets-VIE
|
|
|
|
-
|
|
|
|
Derivative liabilities-VIE
|
|
|
|
-
|
|
All other-embedded
|
|
|
5
|
|
|
|
Other investments
|
|
|
|
-
|
|
|
|
Other investments
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated derivatives
|
|
$
|
6,581
|
|
|
|
|
|
|
$
|
16
|
|
|
|
|
|
|
$
|
(451)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Companys embedded derivative instruments is
determined by the location of the related host contract.
|
As of December 31, 2015, the total fair value of the Companys
derivative assets, after counterparty netting of $1 million, was $19 million, of which $14 million was reported within Other assets and Other Assets presented under Assets of consolidated variable interest
entities on the Companys consolidated balance sheets. Embedded derivatives of $5 million were reported within Medium-term notes on the Companys consolidated balance sheets.
As of December 31, 2015, the total fair value of the Companys derivative liabilities, after counterparty netting of $1 million and cash collateral
posted by the Company of $31 million, was $374 million, of which $359 million was reported within Derivative liabilities and Derivative liabilities presented under Liabilities of consolidated variable interest
entities on the Companys consolidated balance sheets. Embedded derivatives of $15 million were reported within Medium-term notes on the Companys consolidated balance sheets.
The following table presents the total fair value of the Companys derivative assets and liabilities by instrument and balance sheet location, before
counterparty netting and posting of cash collateral, as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
Derivative Assets
(1)
|
|
|
Derivative Liabilities
(1)
|
|
Derivative Instruments
|
|
Notional
Amount
Outstanding
|
|
|
Balance Sheet Location
|
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
|
Fair Value
|
|
Not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured credit default swaps
|
|
$
|
3,208
|
|
|
|
Other assets
|
|
|
$
|
-
|
|
|
|
Derivative liabilities
|
|
|
$
|
(85)
|
|
Insured swaps
|
|
|
3,786
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Derivative liabilities
|
|
|
|
(3)
|
|
Interest rate swaps
|
|
|
1,153
|
|
|
|
Other assets
|
|
|
|
4
|
|
|
|
Derivative liabilities
|
|
|
|
(240)
|
|
Interest rate swaps-VIE
|
|
|
899
|
|
|
|
Other assets-VIE
|
|
|
|
-
|
|
|
|
Derivative liabilities-VIE
|
|
|
|
(45)
|
|
Interest rate swaps-embedded
|
|
|
396
|
|
|
|
Medium-term notes
|
|
|
|
5
|
|
|
|
Medium-term notes
|
|
|
|
(15)
|
|
Currency swaps-VIE
|
|
|
83
|
|
|
|
Other assets-VIE
|
|
|
|
11
|
|
|
|
Derivative liabilities-VIE
|
|
|
|
-
|
|
All other
|
|
|
83
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Derivative liabilities
|
|
|
|
(18)
|
|
All other-VIE
|
|
|
241
|
|
|
|
Other assets-VIE
|
|
|
|
-
|
|
|
|
Derivative liabilities-VIE
|
|
|
|
-
|
|
All other-embedded
|
|
|
10
|
|
|
|
Other investments
|
|
|
|
-
|
|
|
|
Other investments
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated derivatives
|
|
$
|
9,859
|
|
|
|
|
|
|
$
|
20
|
|
|
|
|
|
|
$
|
(406)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Companys embedded derivative instruments is
determined by the location of the related host contract.
|
45
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 8: Derivative Instruments (continued)
The following table presents the effect of derivative instruments on the consolidated statements of operations for
the three months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
|
|
|
|
Three Months Ended June 30,
|
|
Hedging Instruments
|
|
Location of Gain (Loss) Recognized in Income on Derivative
|
|
2016
|
|
|
2015
|
|
Insured credit default swaps
|
|
Unrealized gains (losses) on insured derivatives
|
|
$
|
(6)
|
|
|
$
|
63
|
|
Insured credit default swaps
|
|
Realized gains (losses) and other settlements on insured derivatives
|
|
|
(2)
|
|
|
|
(3)
|
|
Interest rate swaps
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(35)
|
|
|
|
39
|
|
Interest rate swaps-VIE
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange-VIE
|
|
|
-
|
|
|
|
10
|
|
Currency swaps-VIE
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange-VIE
|
|
|
3
|
|
|
|
(2)
|
|
All other
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(1)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(41)
|
|
|
$
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the effect of derivative instruments on the consolidated statements of operations for the six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
In millions
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
|
|
|
|
Six Months Ended June 30,
|
|
Hedging Instruments
|
|
Location of Gain (Loss) Recognized in Income on Derivative
|
|
2016
|
|
|
2015
|
|
Insured credit default swaps
|
|
Unrealized gains (losses) on insured derivatives
|
|
$
|
(20)
|
|
|
$
|
100
|
|
Insured credit default swaps
|
|
Realized gains (losses) and other settlements on insured derivatives
|
|
|
(16)
|
|
|
|
(12)
|
|
Interest rate swaps
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(85)
|
|
|
|
(68)
|
|
Interest rate swaps-VIE
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange-VIE
|
|
|
8
|
|
|
|
10
|
|
Currency swaps-VIE
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange-VIE
|
|
|
(1)
|
|
|
|
2
|
|
All other
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(3)
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(117)
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9: Income Taxes
The
Companys income taxes and the related effective tax rates for the three and six months ended June 30, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Income (loss) before income taxes
|
|
$
|
(55)
|
|
|
$
|
92
|
|
|
$
|
(156)
|
|
|
$
|
205
|
|
Provision (benefit) for income taxes
|
|
$
|
(28)
|
|
|
$
|
28
|
|
|
$
|
(51)
|
|
|
$
|
72
|
|
Effective tax rate
|
|
|
50.9%
|
|
|
|
30.4%
|
|
|
|
32.7%
|
|
|
|
35.1%
|
|
For the six months ended June 30, 2016, the Companys effective tax rate applied to its loss before income taxes is less
than the U.S. statutory tax rate primarily due to a foreign tax credit adjustment, partially offset by the fluctuation of the value of nontaxable warrants issued by the Company. For the six months ended June 30, 2015, the Companys
effective tax rate applied to its income before income taxes approximates the U.S. statutory tax rate.
The Companys 2015 provision for income
taxes for interim financial periods was not based on an estimated annual effective rate due to the variability in fair value of its derivative liabilities, which prevents the Company from projecting a reliable estimated annual effective tax rate.
Deferred Tax Asset, Net of Valuation Allowance
The Company came to the conclusion that it is more likely than not that its net deferred tax asset will be fully realized after weighing all positive and negative evidence available as required under GAAP. The
positive evidence that was considered included the cumulative operating income the Company has earned over the last three years, and the significant unearned premium income to be included in taxable income. The positive evidence outweighs any
negative evidence that exists. As such, the Company believes that no valuation allowance is necessary in connection with this deferred tax asset. The Company will continue to analyze the need for a valuation allowance on a quarterly basis.
46
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 9: Income Taxes (continued)
However, it is possible that some or all of the Companys foreign tax credits expected to offset U.S. taxes
on unremitted foreign earnings could ultimately expire unused, especially if a sale of the Companys UK operations occurs. Therefore, a valuation allowance to reduce the Companys U.S. deferred tax asset related to foreign tax credits may
be required if circumstances evolve that would accelerate the recognition of unremitted foreign earnings for U.S. tax purposes.
In accordance with
accounting guidance for income taxes, the netting of deferred taxes between different taxpaying jurisdictions is not permitted. As of June 30, 2016, there was also a non-U.S. deferred tax liability of $39 million included in Other
liabilities on the Companys consolidated balance sheet.
Tax Sharing Agreement
The Company has a tax sharing agreement among its members effective January 1, 1987. The agreement was amended and restated effective September 8, 2011 to
change the method of calculating each domestic insurers tax liability to the method permitted by paragraph 3(a) of Department Circular Letter #33 (1979). The agreement was submitted to the NYSDFS for review and non-disapproval pursuant to
Section 1505 of the New York Insurance Law. Refer to Note 2: Significant Accounting Policies in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2015, for further discussion on the Companys tax sharing agreement.
Accounting for Uncertainty in Income Taxes
The Companys policy is to record and disclose any change in unrecognized tax benefits (UTB) and related interest and/or
penalties to income tax in the consolidated statements of operations. The Company includes interest as a component of income tax expense. As of June 30, 2016 and December 31, 2015, the Company had no UTB.
MBIA and its U.S. subsidiaries file a U.S. consolidated federal income tax return. Federal income tax returns through 2011 have been examined or surveyed.
As of June 30, 2016, the Companys net operating loss (NOL) is approximately $2.7 billion. The NOL will expire between tax years
2029 through 2034. As of June 30, 2016, the Company has an alternative minimum tax credit carryforward of $23 million, which does not expire.
Note 10: Business Segments
As defined by segment reporting,
an operating segment is a component of a company (i) that engages in business activities from which it earns revenue and incurs expenses, (ii) whose operating results are regularly reviewed by the Chief Operating Decision Maker to assess
the performance of the segment and to make decisions about the allocation of resources to the segment and, (iii) for which discrete financial information is available.
The Company manages its businesses across three operating segments: 1) U.S. public finance insurance; 2) corporate; and 3) international and structured finance insurance. The Companys U.S. public finance
insurance business is operated through National and its international and structured finance insurance business is operated through MBIA Corp. Effective January 1, 2015, the Company exited its advisory services business with the completed sale
of Cutwater.
The following sections provide a description of each of the Companys reportable operating segments.
U.S. Public Finance Insurance
The Companys U.S.
public finance insurance segment is principally conducted through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, U.S.
public finance insured obligations when due. The obligations are not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National issues financial
guarantees for municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, student loan issuers, housing authorities and
other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by
taxes, assessments, fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams.
47
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 10: Business Segments (continued)
Corporate
The Companys corporate segment consists of general corporate activities, including providing general support services to MBIAs other operating
businesses and asset and capital management. General support services are provided by the Companys service company, MBIA Services Corporation (MBIA Services). MBIA Services provides various support services including, among others,
management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, on a fee-for-service basis. Capital management includes activities related to servicing obligations issued by MBIA Inc. and its subsidiaries, MBIA
Global Funding, LLC (GFL) and MBIA Investment Management Corp. (IMC). MBIA Inc. issued debt to finance the operations of the MBIA group. GFL raised funds through the issuance of MTNs with varying maturities, which were in
turn guaranteed by MBIA Corp. GFL lent the proceeds of these MTN issuances to MBIA Inc. IMC, along with MBIA Inc., provided customized investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes as
construction, loan origination, escrow and debt service or other reserve fund requirements. The company has ceased issuing these MTNs and investment agreements and the outstanding liability balances and corresponding asset balances have declined
over time as liabilities mature, terminate or are retired. All of the debt within the corporate segment is managed collectively and is serviced by available liquidity.
International and Structured Finance Insurance
The Companys international and structured finance
insurance segment is principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, non-U.S.
public finance and global structured finance insured obligations when due, or in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise. MBIA Corp. insures the investment contracts written
by MBIA Inc., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments. MBIA Corp. insures debt obligations of the following affiliates:
|
|
|
LaCrosse Financial Products, LLC, a wholly-owned affiliate, in which MBIA Insurance Corporation has written insurance policies guaranteeing the obligations under
CDS, including termination payments that may become due upon certain events including the insolvency or payment default of the financial guarantor or the CDS issuer.
|
MBIA Corp. insures non-U.S. public finance and global structured finance insured obligations, including asset-backed obligations. MBIA Corp. has insured sovereign-related and sub-sovereign bonds, utilities,
privately issued bonds used for the financing of projects that include toll roads, bridges, airports, public transportation facilities, and other types of infrastructure projects serving a substantial public purpose. Global structured finance and
asset-backed obligations typically are securities repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, trade and
export receivables, and leases for equipment, aircraft and real estate property. MBIA Corp. has also written policies guaranteeing obligations under certain other derivative contracts, including termination payments that may become due upon certain
insolvency or payment defaults of the financial guarantor or the issuer. The Company is no longer insuring new credit derivative contracts except for transactions related to the restructuring or reduction of existing derivative exposure. MBIA Corp.
has not written any meaningful amount of business since 2008.
48
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 10: Business Segments (continued)
Segments Results
The following tables provide the Companys segment results for the three months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
In millions
|
|
U.S. Public
Finance
Insurance
|
|
|
Corporate
|
|
|
International
and Structured
Finance
Insurance
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
(1)
|
|
$
|
82
|
|
|
$
|
6
|
|
|
$
|
23
|
|
|
$
|
-
|
|
|
$
|
111
|
|
Net change in fair value of insured derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
(8)
|
|
|
|
-
|
|
|
|
(8)
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
25
|
|
|
|
(19)
|
|
|
|
8
|
|
|
|
-
|
|
|
|
14
|
|
Net gains (losses) on extinguishment of debt
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Other net realized gains (losses)
|
|
|
-
|
|
|
|
(1)
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
Revenues of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
(2)
|
|
Inter-segment
revenues
(2)
|
|
|
4
|
|
|
|
12
|
|
|
|
11
|
|
|
|
(27)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
111
|
|
|
|
1
|
|
|
|
33
|
|
|
|
(27)
|
|
|
|
118
|
|
Losses and loss adjustment
|
|
|
9
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
|
77
|
|
Operating
|
|
|
11
|
|
|
|
14
|
|
|
|
15
|
|
|
|
-
|
|
|
|
40
|
|
Interest
|
|
|
-
|
|
|
|
24
|
|
|
|
25
|
|
|
|
-
|
|
|
|
49
|
|
Expenses of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
7
|
|
Inter-segment
expenses
(2)
|
|
|
16
|
|
|
|
1
|
|
|
|
11
|
|
|
|
(28)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
36
|
|
|
|
39
|
|
|
|
126
|
|
|
|
(28)
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
75
|
|
|
|
(38)
|
|
|
|
(93)
|
|
|
|
1
|
|
|
|
(55)
|
|
Provision (benefit) for income taxes
|
|
|
25
|
|
|
|
(18)
|
|
|
|
(32)
|
|
|
|
(3)
|
|
|
|
(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
50
|
|
|
$
|
(20)
|
|
|
$
|
(61)
|
|
|
$
|
4
|
|
|
$
|
(27)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
5,477
|
|
|
$
|
2,412
|
|
|
$
|
7,017
|
|
|
$
|
(2,842)
|
(3)
|
|
$
|
12,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.
|
(2) -
|
Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.
|
(3) -
|
Consists of intercompany deferred income taxes, reinsurance balances and repurchase agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
In millions
|
|
U.S. Public
Finance
Insurance
|
|
|
Corporate
|
|
|
International
and
Structured
Finance
Insurance
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
(1)
|
|
$
|
93
|
|
|
$
|
8
|
|
|
$
|
29
|
|
|
$
|
-
|
|
|
$
|
130
|
|
Net change in fair value of insured derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
|
|
-
|
|
|
|
60
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
-
|
|
|
|
48
|
|
|
|
(3)
|
|
|
|
-
|
|
|
|
45
|
|
Net investment losses related to other-than-temporary impairments
|
|
|
(6)
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7)
|
|
Net gains (losses) on extinguishment of debt
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
Other net realized gains (losses)
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
Revenues of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Inter-segment
revenues
(2)
|
|
|
8
|
|
|
|
21
|
|
|
|
15
|
|
|
|
(44)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
95
|
|
|
|
74
|
|
|
|
120
|
|
|
|
(44)
|
|
|
|
245
|
|
Losses and loss adjustment
|
|
|
8
|
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
|
|
46
|
|
Operating
|
|
|
8
|
|
|
|
19
|
|
|
|
18
|
|
|
|
-
|
|
|
|
45
|
|
Interest
|
|
|
-
|
|
|
|
24
|
|
|
|
26
|
|
|
|
-
|
|
|
|
50
|
|
Expenses of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
12
|
|
Inter-segment
expenses
(2)
|
|
|
22
|
|
|
|
1
|
|
|
|
15
|
|
|
|
(38)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
38
|
|
|
|
44
|
|
|
|
109
|
|
|
|
(38)
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
57
|
|
|
|
30
|
|
|
|
11
|
|
|
|
(6)
|
|
|
|
92
|
|
Provision (benefit) for income taxes
|
|
|
20
|
|
|
|
7
|
|
|
|
3
|
|
|
|
(2)
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
37
|
|
|
$
|
23
|
|
|
$
|
8
|
|
|
$
|
(4)
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
5,412
|
|
|
$
|
2,707
|
|
|
$
|
10,393
|
|
|
$
|
(3,002)
|
(3)
|
|
$
|
15,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.
|
(2) -
|
Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.
|
(3) -
|
Consists of intercompany reinsurance balances, repurchase agreements and deferred income taxes.
|
49
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 10: Business Segments (continued)
The following tables provide the Companys segment results for the six months ended June 30, 2016 and
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
In millions
|
|
U.S. Public
Finance
Insurance
|
|
|
Corporate
|
|
|
International
and Structured
Finance
Insurance
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
(1)
|
|
$
|
166
|
|
|
$
|
11
|
|
|
$
|
49
|
|
|
$
|
-
|
|
|
$
|
226
|
|
Net change in fair value of insured derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
(36)
|
|
|
|
-
|
|
|
|
(36)
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
34
|
|
|
|
(103)
|
|
|
|
14
|
|
|
|
-
|
|
|
|
(55)
|
|
Net investment losses related to other-than-temporary impairments
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
Net gains (losses) on extinguishment of debt
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
Other net realized gains (losses)
|
|
|
-
|
|
|
|
(2)
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(1)
|
|
Revenues of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
12
|
|
Inter-segment
revenues
(2)
|
|
|
10
|
|
|
|
28
|
|
|
|
23
|
|
|
|
(61)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
210
|
|
|
|
(62)
|
|
|
|
63
|
|
|
|
(61)
|
|
|
|
150
|
|
Losses and loss adjustment
|
|
|
18
|
|
|
|
-
|
|
|
|
81
|
|
|
|
-
|
|
|
|
99
|
|
Operating
|
|
|
20
|
|
|
|
36
|
|
|
|
29
|
|
|
|
-
|
|
|
|
85
|
|
Interest
|
|
|
-
|
|
|
|
47
|
|
|
|
52
|
|
|
|
-
|
|
|
|
99
|
|
Expenses of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
23
|
|
Inter-segment
expenses
(2)
|
|
|
34
|
|
|
|
1
|
|
|
|
25
|
|
|
|
(60)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
72
|
|
|
|
84
|
|
|
|
210
|
|
|
|
(60)
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
138
|
|
|
|
(146)
|
|
|
|
(147)
|
|
|
|
(1)
|
|
|
|
(156)
|
|
Provision (benefit) for income taxes
|
|
|
47
|
|
|
|
(42)
|
|
|
|
(55)
|
|
|
|
(1)
|
|
|
|
(51)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
91
|
|
|
$
|
(104)
|
|
|
$
|
(92)
|
|
|
$
|
-
|
|
|
$
|
(105)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
5,477
|
|
|
$
|
2,412
|
|
|
$
|
7,017
|
|
|
$
|
(2,842)
|
(3)
|
|
$
|
12,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.
|
(2) -
|
Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.
|
(3) -
|
Consists of intercompany deferred income taxes, reinsurance balances and repurchase agreements.
|
50
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 10: Business Segments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
In millions
|
|
U.S. Public
Finance
Insurance
|
|
|
Corporate
|
|
|
International
and Structured
Finance
Insurance
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
(1)
|
|
$
|
198
|
|
|
$
|
13
|
|
|
$
|
58
|
|
|
$
|
-
|
|
|
$
|
269
|
|
Net change in fair value of insured derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
-
|
|
|
|
88
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
3
|
|
|
|
80
|
|
|
|
(8)
|
|
|
|
-
|
|
|
|
75
|
|
Net investment losses related to other-than-temporary impairments
|
|
|
(6)
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7)
|
|
Net gains (losses) on extinguishment of debt
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
Other net realized gains (losses)
|
|
|
(4)
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
Revenues of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
|
|
21
|
|
Inter-segment
revenues
(2)
|
|
|
18
|
|
|
|
37
|
|
|
|
33
|
|
|
|
(88)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
209
|
|
|
|
151
|
|
|
|
192
|
|
|
|
(88)
|
|
|
|
464
|
|
Losses and loss adjustment
|
|
|
2
|
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
|
|
40
|
|
Operating
|
|
|
18
|
|
|
|
38
|
|
|
|
37
|
|
|
|
-
|
|
|
|
93
|
|
Interest
|
|
|
-
|
|
|
|
49
|
|
|
|
51
|
|
|
|
-
|
|
|
|
100
|
|
Expenses of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
Inter-segment
expenses
(2)
|
|
|
46
|
|
|
|
2
|
|
|
|
33
|
|
|
|
(81)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
66
|
|
|
|
89
|
|
|
|
185
|
|
|
|
(81)
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
143
|
|
|
|
62
|
|
|
|
7
|
|
|
|
(7)
|
|
|
|
205
|
|
Provision (benefit) for income taxes
|
|
|
49
|
|
|
|
25
|
|
|
|
1
|
|
|
|
(3)
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
94
|
|
|
$
|
37
|
|
|
$
|
6
|
|
|
$
|
(4)
|
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
5,412
|
|
|
$
|
2,707
|
|
|
$
|
10,393
|
|
|
$
|
(3,002)
|
(3)
|
|
$
|
15,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.
|
(2) -
|
Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.
|
(3) -
|
Consists of intercompany reinsurance balances, repurchase agreements and deferred income taxes.
|
Premiums on financial guarantees and insured derivatives reported within the Companys insurance segments are generated within and outside the U.S. The following table summarizes premiums earned on financial
guarantees and insured derivatives by geographic location of risk for the three and six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Total premiums earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
58
|
|
|
$
|
74
|
|
|
$
|
117
|
|
|
$
|
161
|
|
United Kingdom
|
|
|
7
|
|
|
|
8
|
|
|
|
14
|
|
|
|
15
|
|
Europe (excluding United Kingdom)
|
|
|
2
|
|
|
|
-
|
|
|
|
3
|
|
|
|
2
|
|
Internationally diversified
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
2
|
|
Other Americas
|
|
|
7
|
|
|
|
7
|
|
|
|
14
|
|
|
|
13
|
|
Asia
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
Other
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75
|
|
|
$
|
93
|
|
|
$
|
151
|
|
|
$
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11: Earnings Per Share
Earnings per share is calculated using the two-class method in which earnings are allocated to common stock and participating securities based on their rights to
receive nonforfeitable dividends or dividend equivalents. The Company grants restricted stock and restricted stock units to certain employees and non-employee directors in accordance with the Companys long-term incentive programs, which
entitle the participants to receive nonforfeitable dividends or dividend equivalents during the vesting period on the same basis as those dividends are paid to common shareholders. These unvested stock awards represent participating securities.
During periods of net income, the calculation of earnings per share exclude the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. During periods of net loss, no effect
is given to participating securities in the numerator and the denominator excludes the dilutive impact of these securities since they do not share in the losses of the Company.
51
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 11: Earnings Per Share (continued)
Basic earnings per share excludes dilution and is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the dilutive effect of all stock options, warrants and unvested restricted stock outstanding during the period that could potentially
result in the issuance of common stock. The dilution from stock options, warrants and unvested restricted stock are calculated by applying the two-class method and using the treasury stock method. The treasury stock method assumes the proceeds from
the exercise of stock options and warrants or the unrecognized compensation expense from unvested restricted stock will be used to purchase shares of the Companys common stock at the average market price during the period. For the three months
ended June 30, 2016 and 2015, there were 16,144,902 and 17,983,125, respectively, of stock options, warrants and unvested restricted stock outstanding that were antidilutive. For the six months ended June 30, 2016 and 2015, there were
16,099,818 and 17,970,329, respectively, of stock options, warrants and unvested restricted stock outstanding that were antidilutive.
The following
table presents the computation of basic and diluted earnings per share for the three and six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions except share and per share amounts
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(27)
|
|
|
$
|
64
|
|
|
$
|
(105)
|
|
|
$
|
133
|
|
Less: undistributed earnings allocated to participating securities
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
|
(27)
|
|
|
|
62
|
|
|
|
(105)
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
(1)
|
|
|
132,677,066
|
|
|
|
172,146,651
|
|
|
|
134,245,952
|
|
|
|
176,914,777
|
|
|
|
|
|
|
Net income (loss) per basic common share:
|
|
$
|
(0.20)
|
|
|
$
|
0.36
|
|
|
$
|
(0.78)
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(27)
|
|
|
|
64
|
|
|
|
(105)
|
|
|
|
133
|
|
Less: undistributed earnings allocated to participating securities
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
|
(27)
|
|
|
|
62
|
|
|
|
(105)
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
(1)
|
|
|
132,677,066
|
|
|
|
172,146,651
|
|
|
|
134,245,952
|
|
|
|
176,914,777
|
|
Effect of common stock equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
-
|
|
|
|
1,007,668
|
|
|
|
-
|
|
|
|
1,004,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
132,677,066
|
|
|
|
173,154,319
|
|
|
|
134,245,952
|
|
|
|
177,918,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted common share:
|
|
$
|
(0.20)
|
|
|
$
|
0.36
|
|
|
$
|
(0.78)
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Includes 932,355 and 581,102 of participating securities that met the service condition and were eligible to receive nonforfeitable dividends or dividend equivalents for the
three months ended June 30, 2016 and 2015, respectively. Includes 822,642 and 629,569 of participating securities that met the service condition and were eligible to receive nonforfeitable dividends or dividend equivalents for the six months
ended June 30, 2016 and 2015, respectively.
|
52
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 12: Accumulated Other Comprehensive Income
The following table presents the changes in the components of AOCI for the six months ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Unrealized
Gains (Losses)
on AFS
Securities,
Net
|
|
|
Foreign Currency
Translation, Net
|
|
|
Total
|
|
Balance, December 31, 2015
|
|
$
|
(22)
|
|
|
$
|
(39)
|
|
|
$
|
(61)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
150
|
|
|
|
(36)
|
|
|
|
114
|
|
Amounts reclassified from AOCI
|
|
|
5
|
|
|
|
-
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
155
|
|
|
|
(36)
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
$
|
133
|
|
|
$
|
(75)
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the details of the reclassifications from AOCI for the three and six months ended June 30, 2016
and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Amounts Reclassified from AOCI
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
Details about AOCI Components
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Affected Line Item on the Consolidated
Statements of Operations
|
Unrealized gains (losses) on AFS securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on sale of securities
|
|
$
|
(12)
|
|
|
$
|
3
|
|
|
$
|
(4)
|
|
|
$
|
(1)
|
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
Amortization on securities
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(4)
|
|
|
|
(3)
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13)
|
|
|
|
3
|
|
|
|
(8)
|
|
|
|
(4)
|
|
|
Income (loss) before income taxes
|
|
|
|
(5)
|
|
|
|
1
|
|
|
|
(3)
|
|
|
|
(2)
|
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(8)
|
|
|
$
|
2
|
|
|
$
|
(5)
|
|
|
$
|
(2)
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13: Commitments and Contingencies
The following commitments and contingencies provide an update of those discussed in Note 21: Commitments and Contingencies in the Notes to Consolidated Financial Statements included in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2015, and should be read in conjunction with the complete descriptions provided in the aforementioned Form 10-K.
Litigation
MBIA Insurance Corp. v. Credit Suisse
Securities (USA) LLC, et al.
; Index No. 603751/2009 (N.Y. Sup. Ct., N.Y. County)
Expert discovery concluded in March of 2016. The court
so-ordered a schedule for summary judgment briefing and argument in April of 2016. Initial briefs were filed on June 2, 2016; opposition briefs were filed on August 4, 2016; and reply briefs are due to be filed on September 22, 2016.
Argument is scheduled for November 15, 2016.
MBIA Insurance Corp. v. J.P. Morgan Securities LLC (f/k/a Bear, Stearns & Co. Inc.)
;
Index No. 64676/2012 (N.Y. Sup. Ct., County of Westchester)
On September 9, 2014, the court granted in part MBIA Corp.s motion
to file an amended complaint. MBIA filed its amended complaint on September 29, 2014. J.P. Morgan filed its answer to the amended complaint on October 10, 2014. The parties each cross-appealed the September 9, 2014 decision and those
appeals were fully submitted as of June 8, 2015. On June 6, 2016, the court denied J.P. Morgans motion for summary judgment. J.P. Morgan filed a notice of appeal of that ruling on July 6, 2016. The court has scheduled a trial to
begin on October 26, 2016.
Lynn Tilton and Patriarch Partners XV, LLC v. MBIA Inc. and MBIA Insurance Corp.;
Index No. 68880/2015
(N.Y. Sup. Ct., County of Westchester)
On November 2, 2015, Lynn Tilton and Patriarch Partners XV, LLC filed a complaint in New York State
Supreme Court, Westchester County, against MBIA Inc. and MBIA Corp., alleging fraudulent inducement and related claims arising from purported promises made by MBIA in connection with insurance policies issued by MBIA Corp. on certain collateralized
loan obligations managed by Ms. Tilton and her affiliated Patriarch entities, and seeking damages. The plaintiffs filed an amended complaint on January 15, 2016, and MBIA Corp. and MBIA Inc. filed their motion to dismiss the complaint on
February 19, 2016, which motion was fully briefed on April 11, 2016. On April 25, 2016, the court heard oral arguments on the motion and a decision is pending.
53
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 13: Commitments and Contingencies (continued)
Ambac Bond Insurance Coverage Cases,
Coordinated Proceeding Case No. JCCP 4555 (Super. Ct. of Cal., County
of San Francisco)
Following an appeal of the dismissal of the plaintiffs anti-trust claim under Californias Cartwright Act, the California
Court of Appeal reinstated those claims against the bond insurer defendants on February 18, 2016. On April 8, 2016, Judge Wiss recused and disqualified herself from further proceedings in the matter. On April 14, 2016, Judge Karnow
was assigned to sit as the Coordination Trial Judge. On June 24, 2016, the defendants, including the MBIA parties, filed their answers to the Complaints.
National Public Finance Guarantee Corporation v. Padilla, Civ. No. 16-cv-2101
(D.P.R. June 15, 2016) (Besosa, J.)
On June 15, 2016, National filed a complaint in federal court in Puerto Rico challenging the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act (Law 21-2016 or the Moratorium Act) as
unconstitutional under the United States Constitution. On June 22, 2016, National filed a motion for partial summary judgment on its claim that the Moratorium Act is preempted by the federal Bankruptcy Code. On July 7, 2016, the
Commonwealth defendants filed a motion to stay the case pursuant to the Puerto Rico Oversight, Management and Economic Stability Act. On July 8, 2016, the Court ruled that pending further briefing, he would not apply a stay to the case. The
Commonwealth defendants filed their response to Nationals motion for summary judgment on July 11, 2016. On July 18, 2016, National responded to the stay motion and also filed its reply brief in further support of its motion for
summary judgment. The motion for summary judgment is now fully briefed and a decision is pending. The defendants filed their answer to the Complaint on July 26, 2016.
The Company is defending against the aforementioned actions in which it is a defendant and expects ultimately to prevail on the merits. There is no assurance, however, that the Company will prevail in these
actions. Adverse rulings in these actions could have a material adverse effect on the Companys ability to implement its strategy and on its business, results of operations, cash flows and financial condition. At this stage of the litigation,
there has not been a determination as to the amount, if any, of damages. Accordingly, the Company is not able to estimate any amount of loss or range of loss.
There are no other material lawsuits pending or, to the knowledge of the Company, threatened, to which the Company or any of its subsidiaries is a party.
Lease Commitments
The Company has a lease agreement for its headquarters in Purchase, New York. The
initial lease term expires in 2030 with the option to terminate the lease in 2025 upon the payment of a termination amount. This lease agreement included an incentive amount to fund certain leasehold improvements, renewal options, escalation clauses
and a free rent period. The lease agreement has been classified as an operating lease, and operating rent expense has been recognized on a straight-line basis since the second quarter of 2014.
Note 14: Subsequent Events
Refer to Note 13:
Commitments and Contingencies for information about legal proceedings that occurred after June 30, 2016.
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