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.). Effective on January 10, 2017, MBIA Corp.s wholly-owned subsidiary, MBIA UK (Holdings) Limited (MBIA UK
Holdings), sold its operating subsidiary, MBIA UK Insurance Limited (MBIA UK), to Assured Guaranty Corp. (Assured), a subsidiary of Assured Guaranty Ltd. Refer below for a further discussion of the sale of MBIA UK.
Unless otherwise indicated or the context otherwise requires, references to MBIA Corp. are (i) for any references relating to the period ended January 10, 2017, to MBIA Insurance Corporation, together with its
subsidiaries, MBIA UK, and MBIA Mexico S.A. de C.V. (MBIA Mexico) and (ii) for any references relating to the period after January 10, 2017, to MBIA Insurance Corporation together with MBIA Mexico.
Refer to Note 11: Business Segments for further information about the Companys operating segments.
Business Developments
National Financial Strength
Ratings
On June 26, 2017, Standard & Poors Financial Services LLC (S&P) downgraded the financial strength rating
of National from
AA-
with a stable outlook to A with a stable outlook. Nationals ability to write new business and to compete with other financial guarantors is largely dependent on the financial
strength ratings assigned to National by major rating agencies. At the current S&P rating it is difficult for National to compete with higher-rated competitors, therefore, at this time, National has ceased its efforts to actively pursue writing
new financial guarantee business. National continues to surveil and remediate its existing insured portfolio and will proactively seek opportunities to enhance shareholder value using its strong financial resources, while protecting the interests of
all of its policyholders.
Full Valuation Allowance on the Companys Net Deferred Tax Asset
During the three months ended June 30, 2017, the Company established a full valuation allowance on its net deferred tax asset, which resulted in charge to
earnings of $1.1 billion. This charge was included in Provision (benefit) for income taxes on the Companys consolidated statement of operations. Refer to Note 10: Income Taxes for further information about this
valuation allowance on the Companys net deferred tax asset.
Sale of MBIA UK
On January 10, 2017, MBIA UK Holdings sold its operating subsidiary, MBIA UK, and made a cash payment of $23 million, to Assured in exchange for the receipt by MBIA UK Holdings of certain notes owned by
Assured that were issued by Zohar II
2005-1,
Limited (Zohar II) with an aggregate outstanding principal amount of $347 million as of January 10, 2017 (the Sale Transaction).
For the six months ended June 30, 2017, the Company recorded a gain of $5 million to adjust the carrying value of MBIA UK to its fair value less costs to sell as of the sale date. This gain was reflected in the results of the
Companys international and structured finance insurance segment and included in Other net realized gains (losses) on the Companys consolidated statement of operations.
6
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Business Developments and Risks and
Uncertainties (continued)
Held for Sale Classification
The assets and liabilities of MBIA UK were classified as held for sale as of December 31, 2016 and presented within Assets held for sale and Liabilities held for sale on the
Companys consolidated balance sheet. Income before income taxes for MBIA UK was $12 and $23 million, respectively, for the three and six months ended June 30, 2016. The following table summarizes the components of assets and
liabilities held for sale as of December 31, 2016:
|
|
|
|
|
|
|
As of
|
|
In millions
|
|
December 31, 2016
|
|
Assets
|
|
|
|
|
Investments
|
|
$
|
466
|
|
Cash and cash equivalents
|
|
|
73
|
|
Premiums receivable
|
|
|
267
|
|
Other assets
|
|
|
19
|
|
Valuation allowance
|
|
|
(270)
|
|
|
|
|
|
|
Total assets held for sale
|
|
$
|
555
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Unearned premium revenue
|
|
$
|
304
|
|
Other liabilities
|
|
|
42
|
|
|
|
|
|
|
Total liabilities held for sale
|
|
$
|
346
|
|
|
|
|
|
|
MBIA Corp. Financing Facility
On January 10, 2017, MBIA Corp. consummated a financing facility (the Facility) with affiliates of certain holders of 14%
Fixed-to-Floating
Rate Surplus Notes of MBIA Corp. (collectively, the Senior Lenders), and with MBIA Inc., pursuant to which the Senior Lenders have provided
$325 million of senior financing and MBIA Inc. has provided $38 million of subordinated financing to MZ Funding LLC (MZ Funding), a newly formed wholly-owned subsidiary of the Company, which in turn lent the proceeds of such
financing to MBIA Corp. MBIA Corp. issued financial guarantee insurance policies insuring MZ Fundings obligations to the Senior Lender and MBIA Inc. under the Facility. Refer to Note 9: Debt for further information about the
Facility.
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.
In particular, the Commonwealth of Puerto Rico and certain of its instrumentalities
(Puerto Rico) is experiencing significant 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 challenges through various fiscal policies, it continues to experience significant fiscal stress. On January 1, 2017 and July 1,
2017, Puerto Rico also defaulted on a scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $242 million as a result.
7
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Business Developments and Risks and
Uncertainties (continued)
MBIA Corp. Insured Portfolio
MBIA Corp.s primary objectives are to satisfy claims of its policyholders, and to maximize future recoveries, if any, for its Senior Lenders and surplus note holders and, thereafter, its preferred stock
holders. MBIA Corp. is executing this strategy by pursuing various actions focused on maximizing the collection of recoveries and by reducing potential losses on its insurance exposures. 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 additional 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.
On January 20, 2017, MBIA Corp. was
presented with and fully satisfied a claim of $770 million (the Zohar II Claim) on an insurance policy it had written insuring certain notes issued by Zohar II. MBIA Corp. was able to satisfy the Zohar II Claim as a result of having
completed the Sale Transaction and by borrowing from the Facility, as described above, together with using approximately $60 million from its own resources. Refer to Note 1: Business Developments and Risks and Uncertainties in the
Notes to Consolidated Financial Statements included in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016 for additional information about these transactions.
RMBS Recoveries
The amount and timing of projected
collections from excess spread from residential mortgage-backed securities (RMBS) and the
put-back
recoverable from Credit Suisse are uncertain.
Zohar Recoveries
Payment of a claim in November of 2015 on
MBIA Corp.s policy insuring the class
A-1
and
A-2
notes issued by Zohar CDO
2003-1,
Limited (Zohar I) and
satisfying the Zohar II Claim entitles MBIA Corp. to reimbursement of such amounts plus interest and expenses and/or to exercise certain rights and remedies to seek recovery of such amounts. There can be no assurance, however, that the value of the
Zohar assets will be sufficient to permit MBIA Corp. to recover all or substantially all of the payments it made on Zohar I and Zohar II.
Refer to
Note 5: Loss and Loss Adjustment Expense Reserves for information about MBIA Corp.s recoveries.
Corporate Liquidity
Based on the Companys projections of Nationals dividends, additional anticipated releases under its tax sharing agreement and related
tax escrow account (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, 2016. The following significant accounting policies provide an update to those included in the Companys Annual Report on Form
10-K.
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, 2016. 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.
8
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 2: Significant Accounting Policies (continued)
The results of operations for the three and six months ended June 30, 2017 may not be indicative of the
results that may be expected for the year ending December 31, 2017. The December 31, 2016 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. This includes a change in the presentation of cash paid when withholding shares for
tax-withholding
purposes in Purchases of treasury stock on the Companys consolidated statement of cash flows as required under Accounting Standards Update (ASU)
2016-09,
Compensation-Stock Compensation (Topic 718). The change in presentation effected Operating and employee related expenses paid, in operating cash flows and Purchases of treasury
stock, in financing cash flows, on the Companys consolidated statement of cash flows in prior periods. 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
The Company has not adopted any 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 Financial Accounting Standards Board (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. ASU
2014-09
applies to certain fees and reimbursements, and is not
expected to materially impact revenue recognition of these fees and reimbursements. 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.
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.
Based on fair values as of June 30, 2017 of equity investments, the cumulative-effect adjustment, net of tax, related to net unrealized gains of such investments was approximately $1 million, which
represents the amount that would have been reclassed from accumulated other comprehensive income (loss) (AOCI) to retained earnings had the Company adopted ASU
2016-01
on June 30, 2017. As of
June 30, 2017, the Company had a full valuation allowance against its deferred tax asset. Refer to Note 10: Income Taxes for further information about this valuation allowance on the Companys deferred tax asset. The Company is
continuing to assess the impact of adopting ASU
2016-01
on its financial liabilities measured at fair value in accordance with the fair value option. The amount previously disclosed in its Quarterly Report on
Form
10-Q
for the quarterly period ended March 31, 2017 may change materially based on its continued assessment, including as a result of the valuation allowance on its deferred tax assets recorded in the
second quarter of 2017. The Company plans to adopt ASU
2016-01
in its entirety on January 1, 2018 and does not expect there to be a material impact to the Companys consolidated financial statements.
9
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 3: Recent Accounting Pronouncements (continued)
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.
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 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 variable interest entity (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.
10
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 4: Variable Interest Entities (continued)
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
The following tables present the total assets of nonconsolidated VIEs in which the Company holds a variable interest as of June 30, 2017 and December 31,
2016, 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, 2017
and December 31, 2016. 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 credit default swap (CDS) contracts and any investments in obligations issued by nonconsolidated VIEs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
Carrying Value of Assets
|
|
|
Carrying Value of Liabilities
|
|
In millions
|
|
VIE
Assets
|
|
|
Maximum
Exposure
to Loss
|
|
|
Investments
(1)
|
|
|
Premiums
Receivable
(2)
|
|
|
Insurance
Loss
Recoverable
(3)
|
|
|
Unearned
Premium
Revenue
(4)
|
|
|
Loss and Loss
Adjustment
Expense
Reserves
(5)
|
|
Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global structured finance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
$
|
1,188
|
|
|
$
|
466
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Mortgage-backed residential
|
|
|
8,067
|
|
|
|
4,182
|
|
|
|
19
|
|
|
|
25
|
|
|
|
286
|
|
|
|
23
|
|
|
|
393
|
|
Mortgage-backed commercial
|
|
|
237
|
|
|
|
120
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer asset-backed
|
|
|
4,905
|
|
|
|
1,186
|
|
|
|
-
|
|
|
|
5
|
|
|
|
1
|
|
|
|
4
|
|
|
|
12
|
|
Corporate asset-backed
|
|
|
2,559
|
|
|
|
1,859
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total global structured finance
|
|
|
16,956
|
|
|
|
7,813
|
|
|
|
27
|
|
|
|
45
|
|
|
|
287
|
|
|
|
43
|
|
|
|
405
|
|
Global public finance
|
|
|
19,270
|
|
|
|
3,050
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
$
|
36,226
|
|
|
$
|
10,863
|
|
|
$
|
27
|
|
|
$
|
56
|
|
|
$
|
287
|
|
|
$
|
60
|
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
11
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 4: Variable Interest Entities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Carrying Value of Assets
|
|
|
Carrying Value of Liabilities
|
|
In millions
|
|
VIE
Assets
|
|
|
Maximum
Exposure
to Loss
|
|
|
Investments
(1)
|
|
|
Premiums
Receivable
(2)
|
|
|
Insurance
Loss
Recoverable
(3)
|
|
|
Unearned
Premium
Revenue
(4)
|
|
|
Loss and Loss
Adjustment
Expense
Reserves
(5)
|
|
Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global structured finance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
$
|
3,167
|
|
|
$
|
1,914
|
|
|
$
|
51
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
73
|
|
Mortgage-backed residential
|
|
|
9,146
|
|
|
|
4,796
|
|
|
|
20
|
|
|
|
28
|
|
|
|
304
|
|
|
|
27
|
|
|
|
325
|
|
Mortgage-backed commercial
|
|
|
257
|
|
|
|
145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer asset-backed
|
|
|
4,893
|
|
|
|
1,331
|
|
|
|
-
|
|
|
|
7
|
|
|
|
2
|
|
|
|
5
|
|
|
|
8
|
|
Corporate asset-backed
|
|
|
2,625
|
|
|
|
2,205
|
|
|
|
5
|
|
|
|
18
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total global structured finance
|
|
|
20,088
|
|
|
|
10,391
|
|
|
|
76
|
|
|
|
55
|
|
|
|
306
|
|
|
|
52
|
|
|
|
406
|
|
Global public finance
|
|
|
44,306
|
|
|
|
12,051
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
$
|
64,394
|
|
|
$
|
22,442
|
|
|
$
|
76
|
|
|
$
|
66
|
|
|
$
|
306
|
|
|
$
|
70
|
|
|
$
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Reported within Investments on MBIAs consolidated balance sheets.
|
(2) -
|
Reported within Premiums receivable on MBIAs consolidated balance sheets. Excludes $125 million that is included within Assets held for sale on
the Companys 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. Excludes $134 million that is included within Liabilities held for
sale on the Companys consolidated balance sheets.
|
(5) -
|
Reported within Loss and loss adjustment expense reserves 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 $3.3 billion and $2.5 billion, respectively, as of June 30, 2017, and $2.7 billion and $2.2 billion, respectively, as of December 31, 2016. 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. Two additional VIEs were consolidated during the six months ended June 30, 2017 and one additional VIE was consolidated during the six months ended June 30, 2016.
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
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, as well as recoveries for such payments, if any. Gross par outstanding for capital appreciation bonds represents the par amount at the time of issuance of the insurance policy.
12
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves
(continued)
Certain local governments remain under financial and budgetary stress and a few have filed for protection under
title 11, United States Code (the Bankruptcy Code), or have entered into state statutory proceedings established to assist municipalities in managing through periods of severe fiscal stress. In the case of Puerto Rico, certain credits
that the Company insures have filed petitions for covered instrumentalities under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), which incorporates by reference provisions from the Bankruptcy
Code. 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 Bankruptcy Code or entering state statutory proceedings does not necessarily result in a default or indicate that an ultimate
loss will occur.
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
loss adjustment expense (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 (Financial Guarantees)
The Companys RMBS reserves and recoveries relate to financial guarantee insurance policies, excluding those on consolidated VIEs. The Companys first-lien RMBS case basis reserves primarily relate to
RMBS backed by alternative
A-paper
and subprime mortgage loans. The Companys second-lien RMBS case basis reserves relate to RMBS backed by home equity lines of credit and
closed-end
second mortgages. The Company calculated RMBS case basis reserves as of June 30, 2017 for both first and second-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.
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, 2016, for additional information on the Companys Roll Rate Methodology for its RMBS case basis reserves.
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.
RMBS Recoveries
The Company primarily records two types of recoveries related to insured RMBS exposures:
excess spread that is generated from the trust structures in the insured transactions; and second-lien
put-back
claims related to those mortgage loans whose inclusion in an insured securitization
failed to comply with representations and warranties (ineligible loans).
Excess Spread
Excess spread within insured RMBS securitizations is the difference between interest inflows on mortgage loan collateral and interest outflows on the insured RMBS
notes. The aggregate amount of excess spread depends on the future loss trends (which include future delinquency trends, average time to
charge-off/liquidate
delinquent loans, and the availability of pool
mortgage insurance), the future spread between Prime and the London Interbank Offered Rate interest rates, and borrower refinancing behavior (which may be affected by changes in the interest rate environment) that 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.
13
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves
(continued)
Second-lien
Put-Back
Claims Related to Ineligible Loans
The Company has settled the majority of the Companys
put-back
claims. Only its claims against Credit Suisse remain
outstanding. The Companys settlement amounts have been consistent with the
put-back
recoveries that had been included in the Companys financial statements at the times preceding the settlements.
The
put-back
contract claim remaining with Credit Suisse is related to the inclusion of ineligible 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.
Based on the Companys assessment of the strength of its contractual
put-back
rights against Credit Suisse, 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 $437 million through June 30, 2017. The Company is also entitled to collect interest on
amounts paid; it believes that in the 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 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
put-back
contract claims against Credit Suisse, the ultimate amount recovered may be
materially different from that 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.
CDO Reserves
The Company also has loss and LAE reserves on certain transactions within its collateralized debt obligation (CDO) portfolio, including its multi-sector
CDO and high yield corporate CDO asset classes that were insured in the form of financial guarantee policies. The Companys 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). The Companys high yield corporate CDO portfolio consists of middle-market/special-opportunity corporate loan
transactions.
Zohar Recoveries
MBIA Corp. will
seek to recover the payments it made (plus interest and expenses) with respect to Zohar I and the Zohar II Claim. MBIA Corp. anticipates that the primary source of the recovery of the Zohar II Claim will come from the monetization of the assets of
Zohar II, which include, among other things, loans made to, and equity interests in, companies purportedly controlled by the sponsor and former collateral manager of Zohar I and Zohar II (the Zohar Sponsor) (all the assets of Zohar II,
the Zohar II Assets).
In connection with the exercise of its rights and remedies, MBIA Corp. directed the trustee for Zohar I to commence
an auction (the Auction) of all of the assets of Zohar I, which occurred in 2016. MBIA Corp. was the winning bidder in the Auction, and in connection therewith, acquired the beneficial ownership of the Zohar I assets, which include loans
made to, and equity interests in, companies purportedly controlled by the Zohar Sponsor (all the assets of Zohar I, the Zohar I Assets). Over time, MBIA Corp. expects to acquire the legal ownership of the Zohar I Assets and recover all
or substantially all of the payment it made (plus interest and expenses) with regards to the Zohar I claim. As of June 30, 2017, the recoveries of Zohar I and Zohar II are included in Loans receivable at fair value which are
presented in Assets of consolidated variable interest entities on the Companys consolidated balance sheets.
14
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves
(continued)
There can be no assurance, however, that the value of the Zohar II Assets and the Zohar I Assets will be
sufficient to permit MBIA Corp. to recover all or substantially all of the payments it made on the Zohar I and the Zohar II Claims. Failure to recover a substantial amount of such payments could impede its ability to make payments when due on other
policies. MBIA Corp. believes that if the New York State Department of Financial Services (NYSDFS) concludes at any time that MBIA Insurance Corporation will not be able to pay its policyholder claims, the NYSDFS would likely put MBIA
Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the New York Insurance Law and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA Insurance Corporations
policyholders. The determination to commence such a proceeding or take other such actions is within the exclusive control of the NYSDFS.
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,
2016, for additional information on the Companys loss reserving process including risk-management activities.
Summary of Loss and LAE
Reserves and Recoveries
The Companys loss and LAE reserves and recoveries before consolidated VIE eliminations, along with amounts that
were eliminated as a result of consolidated VIEs, which are included in the Companys consolidated balance sheets as of June 30, 2017 and December 31, 2016 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
As of December 31, 2016
|
|
In millions
|
|
Balance Sheet Line Item
|
|
|
Balance Sheet Line Item
|
|
|
|
Insurance
loss
recoverable
|
|
|
Loan
repurchase
commitments
|
|
|
Loss
and LAE
reserves
|
|
|
Insurance
loss
recoverable
|
|
|
Loan
repurchase
commitments
|
|
|
Loss and
LAE
reserves
|
|
U.S. Public Finance Insurance
|
|
$
|
191
|
|
|
$
|
-
|
|
|
$
|
255
|
|
|
$
|
174
|
|
|
$
|
-
|
|
|
$
|
97
|
|
|
|
|
|
|
|
International and Structured Finance Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before VIE eliminations
|
|
|
1,588
|
|
|
|
407
|
|
|
|
690
|
|
|
|
551
|
|
|
|
404
|
|
|
|
650
|
|
VIE eliminations
|
|
|
(1,296)
|
|
|
|
-
|
|
|
|
(231)
|
|
|
|
(221)
|
|
|
|
-
|
|
|
|
(206)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international and structured finance insurance
|
|
|
292
|
|
|
|
407
|
|
|
|
459
|
|
|
|
330
|
|
|
|
404
|
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
483
|
|
|
$
|
407
|
|
|
$
|
714
|
|
|
$
|
504
|
|
|
$
|
404
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Loss and LAE Reserves
The following table presents changes in the Companys loss and LAE reserves for the six months ended June 30, 2017. Changes in loss 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, 2017, the weighted average risk-free rate used to discount the Companys loss reserves (claim liability) was 2.07%. LAE reserves are generally expected to be settled within a
one-year
period and are not discounted. As of June 30, 2017 and December 31, 2016, the Companys gross loss and LAE reserves included $72 million and $60 million, respectively, related to
LAE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
Changes in Loss and LAE Reserves for the Six Months Ended June 30, 2017
|
|
|
|
|
Gross Loss
and
LAE
Reserves as of
December 31,
2016
|
|
|
Loss
Payments
for Cases
with
Reserves
(1)
|
|
|
Accretion
of
Claim
Liability
Discount
|
|
|
Changes in
Discount
Rates
|
|
|
Changes in
Assumptions
|
|
|
Changes in
Unearned
Premium
Revenue
|
|
|
Changes in
LAE
Reserves
|
|
|
Other
(2)
|
|
|
Gross Loss
and LAE
Reserves as of
June 30,
2017
|
|
$
|
541
|
|
|
$
|
(820)
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
269
|
|
|
$
|
(27)
|
|
|
$
|
12
|
|
|
$
|
733
|
|
|
$
|
714
|
|
(1) -
|
Includes payments made to satisfy the Zohar II Claim.
|
(2) -
|
Primarily changes in the amount to satisfy the Zohar II Claim.
|
The
increase in the Companys gross loss and LAE reserves reflected in the preceding table was primarily related to increases due to changes in assumptions on certain Puerto Rico exposures.
15
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves
(continued)
Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses
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, 2017. 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,
2017
|
|
|
|
|
In millions
|
|
Gross
Reserve as of
December 31,
2016
|
|
|
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,
2017
|
|
Insurance loss recoverable
|
|
$
|
504
|
|
|
$
|
(49)
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
(6)
|
|
|
$
|
-
|
|
|
$
|
20
|
|
|
$
|
483
|
|
Recoveries on unpaid losses
(2)
|
|
|
79
|
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(19)
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
583
|
|
|
$
|
(49)
|
|
|
$
|
6
|
|
|
$
|
10
|
|
|
$
|
(25)
|
|
|
$
|
(5)
|
|
|
$
|
20
|
|
|
$
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Primarily changes in amount and timing of collections.
|
(2) -
|
As of June 30, 2017 and December 31, 2016, excludes Puerto Rico recoveries, and as of December 31, 2016, the Zohar II recoveries, which have been netted against
reserves.
|
The decrease in the Companys insurance loss recoverable and recoveries on unpaid losses reflected in the preceding table
was primarily due to a decrease in changes in assumptions on insured RMBS transactions.
Loss and LAE Activity
The Companys financial guarantee insurance losses and LAE (excluding insured credit derivatives and consolidated VIEs), net of reinsurance for the three and
six months ended June 30, 2017 and 2016 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
U.S. Public Finance Insurance Segment
|
|
$
|
158
|
|
|
$
|
9
|
|
|
$
|
169
|
|
|
$
|
18
|
|
|
|
|
|
|
International and Structured Finance Insurance Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-lien RMBS
|
|
|
(18)
|
|
|
|
21
|
|
|
|
4
|
|
|
|
34
|
|
First-lien RMBS
|
|
|
18
|
|
|
|
35
|
|
|
|
75
|
|
|
|
61
|
|
CDOs
|
|
|
5
|
|
|
|
9
|
|
|
|
8
|
|
|
|
(22)
|
|
Other
(1)
|
|
|
7
|
|
|
|
3
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expense
|
|
$
|
170
|
|
|
$
|
77
|
|
|
$
|
264
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) - Includes non-U.S.
|
public finance and other issues.
|
For the three months ended
June 30, 2017, losses and LAE primarily related to increases in expected payments on certain Puerto Rico exposures.
For the six months ended
June 30, 2017, losses and LAE primarily related to increases in expected payments on certain Puerto Rico exposures and insured RMBS transactions.
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.
16
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves
(continued)
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, 2017 and 2016, gross LAE related to remediating insured obligations
were $15 million and $20 million, respectively. For the six months ended June 30, 2017 and 2016, gross LAE related to remediating insured obligations were $27 million and $28 million, respectively.
Surveillance Categories
The following table provides
information about the financial guarantees and related claim liability included in each of MBIAs surveillance categories as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surveillance Categories
|
|
$ in millions
|
|
Caution
List
Low
|
|
|
Caution
List
Medium
|
|
|
Caution
List
High
|
|
|
Classified
List
|
|
|
Total
|
|
Number of policies
|
|
|
95
|
|
|
|
5
|
|
|
|
1
|
|
|
|
325
|
|
|
|
426
|
|
Number of
issues
(1)
|
|
|
21
|
|
|
|
4
|
|
|
|
1
|
|
|
|
121
|
|
|
|
147
|
|
Remaining weighted average contract period (in years)
|
|
|
7.4
|
|
|
|
4.7
|
|
|
|
8.8
|
|
|
|
9.5
|
|
|
|
8.8
|
|
Gross insured contractual payments outstanding:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
3,005
|
|
|
$
|
14
|
|
|
$
|
108
|
|
|
$
|
6,505
|
|
|
$
|
9,632
|
|
Interest
|
|
|
2,793
|
|
|
|
4
|
|
|
|
49
|
|
|
|
5,945
|
|
|
|
8,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,798
|
|
|
$
|
18
|
|
|
$
|
157
|
|
|
$
|
12,450
|
|
|
$
|
18,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Claim
Liability
(3)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
922
|
|
|
$
|
922
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Potential Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
823
|
|
|
|
823
|
|
Discount,
net
(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(133)
|
|
|
|
(133)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net claim liability (recoverable)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
232
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned premium revenue
|
|
$
|
10
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
82
|
|
|
$
|
96
|
|
(1) -
|
An issue represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments on the insured debt.
|
(2) -
|
Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
|
(3) -
|
The gross claim liability with respect to Puerto Rico exposures are net of expected recoveries.
|
(4) -
|
Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
|
17
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, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surveillance Categories
|
|
$ in millions
|
|
Caution
List
Low
|
|
|
Caution
List
Medium
|
|
|
Caution
List
High
|
|
|
Classified
List
|
|
|
Total
|
|
Number of policies
|
|
|
90
|
|
|
|
6
|
|
|
|
3
|
|
|
|
331
|
|
|
|
430
|
|
Number of
issues
(1)
|
|
|
17
|
|
|
|
4
|
|
|
|
2
|
|
|
|
126
|
|
|
|
149
|
|
Remaining weighted average contract period (in years)
|
|
|
7.5
|
|
|
|
3.4
|
|
|
|
7.2
|
|
|
|
7.0
|
|
|
|
7.1
|
|
Gross insured contractual payments outstanding:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
2,917
|
|
|
$
|
17
|
|
|
$
|
320
|
|
|
$
|
7,031
|
|
|
$
|
10,285
|
|
Interest
|
|
|
2,795
|
|
|
|
4
|
|
|
|
107
|
|
|
|
2,777
|
|
|
|
5,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,712
|
|
|
$
|
21
|
|
|
$
|
427
|
|
|
$
|
9,808
|
|
|
$
|
15,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Claim
Liability
(3)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
718
|
|
|
$
|
718
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Potential Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
770
|
|
|
|
770
|
|
Discount,
net
(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(75)
|
|
|
|
(75)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net claim liability (recoverable)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
23
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned premium revenue
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
8
|
|
|
$
|
68
|
|
|
$
|
85
|
|
(1) -
|
An issue represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments on the insured debt.
|
(2) -
|
Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
|
(3) -
|
The gross claim liability with respect to Puerto Rico and Zohar II exposures are net of expected recoveries.
|
(4) -
|
Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
|
The gross claim liabilities in the preceding tables represent the Companys estimate of undiscounted probability-weighted estimated future claim payments. The gross claim liability with respect to Puerto Rico
exposure as of June 30, 2017 and December 31, 2016, and the Zohar II exposure as of December 31, 2016, is net of expected recoveries. As of June 30, 2017, the gross claim liability primarily related to insured first-lien RMBS
transactions as well as certain Puerto Rico exposures. As of December 31, 2016, 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. Gross potential
recoveries exclude certain amounts related to Puerto Rico exposure as of June 30, 2017 and December 31, 2016, and the Zohar II exposure as of December 31, 2016 that have been netted against the claim liability. As of June 30,
2017 and December 31, 2016, the gross potential recoveries principally related to certain Puerto Rico exposures and insured second-lien RMBS transactions. As of June 30, 2017, these potential recoveries exclude the recoveries of Zohar I
and Zohar II that are included in Loans receivable at fair value which are presented in Assets of consolidated variable interest entities on the Companys consolidated balance sheets. 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. As of June 30, 2017 and December 31, 2016, reinsurance recoverable on paid and unpaid losses was $8 million and $6 million, respectively, and was included in
Other assets on the Companys consolidated balance sheets.
18
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments
Fair Value Measurement
Financial Assets
Financial 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, 2017 or December 31, 2016. 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. 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 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. When market spreads or securities prices are observable for similar transactions, those spreads are an integral part of the analysis.
Internal Review Process
All significant financial assets
and liabilities are reviewed by the valuation committee to ensure compliance with the Companys policies and risk procedures in the development of fair values of financial assets and liabilities. The 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. The committee documents its agreement with the fair value measurements reported in the Companys consolidated financial statements.
Valuation Techniques
Valuation techniques for financial instruments measured at fair value or disclosed
at fair value are described below.
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.
19
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments
(continued)
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 investment in the
fixed-income fund was measured at fair value by applying the net asset value per share practical expedient. The investment in the fixed-income fund may be redeemed on a quarterly basis with prior redemption notification of ninety days subject
to withdrawal limitations. The investment is required to be held for a minimum of twelve months, and any subsequent quarterly redemption is limited to 25% of the investment or a complete redemption over four consecutive quarters in the amounts
of 25%, 33%, 50%, and 100% of the remaining investment balance as of the first, second, third and fourth consecutive quarters, respectively.
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, Payable for Investments Purchased, Accrued Investment Income and Interest Payable for Derivatives
The carrying amounts of cash and cash equivalents, receivable for investments sold, payable for investments purchased, accrued investment income and interest
payable for derivatives 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 and corporate 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 loans are based on discounted cash flow methodologies. Fair values of loans receivable at fair value are determined using market prices
adjusted for financial guarantees provided to VIE obligations and discounted cash flow techniques and are categorized in Level 3 of the fair value hierarchy.
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
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 carrying amounts of accrued interest expense on all other long-term debt approximate fair value due to the short-term nature of the interest payment. Long-term
debt is categorized in Level 2 of the fair value hierarchy.
20
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments
(continued)
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 to
determine fair value based on the quoted market prices received for similar instruments and considering the MTNs stated maturity and interest rate. Nonperformance risk is included in the quoted market prices and the matrix pricing grid. The
Company has elected to measure certain MTNs at fair value on a recurring basis with changes in fair value reflected in earnings. MTNs are categorized in 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 in 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.
Derivatives
The corporate segment
has entered into derivative transactions primarily consisting of interest rate swaps. Fair values of
over-the-counter
derivatives are determined using valuation models
based on observable inputs, nonperformance risk of the Company 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.
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 based on observable inputs and considering nonperformance risk of the Company. Negotiated settlements are
also considered to validate the valuation models and to reflect assumptions the Company believes market participants would use.
Valuation Model
Overview
For the six months ended June 30, 2017, the Company used an internally developed Direct Price Model to value insured CDS contracts
that incorporate market prices or estimated prices of similar securities that are obtained for all collateral within a transaction, the present value of the market-implied potential losses, and nonperformance risk. The valuation of insured
derivatives includes the impact of its credit standing. The insured credit derivatives are categorized in Level 3 of the fair value hierarchy based on unobservable inputs that are significant to the fair value measurement in its entirety.
Prior to 2017, the Company used the Binomial Expansion Technique (BET) Model and the Direct Price Model to value insured CDS contracts. The
BET Model estimates 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 and weighted average life.
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.
21
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments
(continued)
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 in Level 2 of the fair value hierarchy.
Held For Sale
As of December 31, 2016, the Company
estimated the fair value of the assets and liabilities of MBIA UK held for sale based on the fair value of the expected total consideration for the sale of MBIA UK. The fair value of the sale consideration is categorized in Level 2 of the
fair value hierarchy. Refer to Note 1: Business Developments and Risks and Uncertainties for additional information about the sale of MBIA UK.
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 which
reflect the expected nonperformance risk and recovery rates of the Company.
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 the Companys consolidated balance sheets.
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, net of gross salvage payable to reinsurers as reported within
Other liabilities 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, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Fair Value as of
June 30, 2017
|
|
|
Valuation Techniques
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable at fair value
|
|
$
|
1,690
|
|
|
Market prices adjusted for financial guarantees provided to VIE obligations
|
|
Impact of financial guarantee
|
|
|
0% - 40% (6%)
|
|
|
|
|
|
|
|
Discounted cash flow
|
|
Multiples
(1)
|
|
|
|
|
Loan repurchase commitments
|
|
|
407
|
|
|
Discounted cash flow
|
|
Recovery
rates
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Breach
rates
(2)
|
|
|
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
491
|
|
|
Market prices of VIE assets adjusted for financial guarantees provided
|
|
Impact of financial guarantee
|
|
|
0% - 61% (30%)
|
|
Credit derivative liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS and multi-sector CDO
|
|
|
80
|
|
|
Direct Price Model
|
|
Nonperformance risk
|
|
|
46% - 46% (46%)
|
|
Other derivative liabilities
|
|
|
4
|
|
|
Discounted cash flow
|
|
Cash flows
|
|
|
$0 - $49 ($25)
(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.
|
22
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, 2016
|
|
|
Valuation Techniques
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable at fair value
|
|
$
|
916
|
|
|
Market prices adjusted for financial guarantees provided to VIE obligations
|
|
Impact of financial guarantee
|
|
|
0% - 28% (3%)
|
|
|
|
|
|
|
|
Discounted cash flow
|
|
Multiples
(1)
|
|
|
|
|
Loan repurchase commitments
|
|
|
404
|
|
|
Discounted cash flow
|
|
Recovery
rates
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Breach
rates
(2)
|
|
|
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
476
|
|
|
Market prices of VIE assets adjusted for financial guarantees provided
|
|
Impact of financial guarantee
|
|
|
0% - 54% (24%)
|
|
Credit derivative liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
62
|
|
|
BET Model
|
|
Recovery rates
|
|
|
25% - 40% (33%)
|
|
|
|
|
|
|
|
|
|
Nonperformance risk
|
|
|
10% - 32% (32%)
|
|
|
|
|
|
|
|
|
|
Weighted average life (in years)
|
|
|
1.1 - 1.5 (1.3)
|
|
|
|
|
|
|
|
|
|
CMBS spreads
|
|
|
25% - 35% (30%)
|
|
Multi-sector CDO
|
|
|
2
|
|
|
Direct Price Model
|
|
Nonperformance risk
|
|
|
58% - 58% (58%)
|
|
Other derivative liabilities
|
|
|
20
|
|
|
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.
|
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. Multiples are external factors that are considered when determining the fair values of certain loans. Any increase or decrease in multiples would result in an increase or decrease in the fair value,
respectively.
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 have a material adverse impact on 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.
23
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments
(continued)
Effective in 2017, the Company used the Direct Price Model to value its commercial mortgage-backed securities
(CMBS) and multi-sector CDO credit derivatives. The significant unobservable input used in the fair value measurement was 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. Prior to 2017, the Company used the BET Model to value its CMBS credit derivatives. The significant unobservable inputs used in the fair value measurement of its CMBS credit derivatives were 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 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.
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, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$
|
916
|
|
|
$
|
111
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,027
|
|
State and municipal bonds
|
|
|
-
|
|
|
|
1,164
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,164
|
|
Foreign governments
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
Corporate obligations
|
|
|
88
|
|
|
|
1,326
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,414
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
-
|
|
|
|
733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
733
|
|
Residential mortgage-backed
non-agency
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
25
|
|
|
|
7
|
(1)
|
|
|
-
|
|
|
|
32
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
-
|
|
|
|
49
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49
|
|
Other asset-backed
|
|
|
-
|
|
|
|
273
|
|
|
|
5
|
(1)
|
|
|
-
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
1,004
|
|
|
|
3,743
|
|
|
|
12
|
|
|
|
-
|
|
|
|
4,759
|
|
Money market securities
|
|
|
394
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
394
|
|
Perpetual debt and equity securities
|
|
|
29
|
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38
|
|
Fixed-income fund
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
(2)
|
Cash and cash equivalents
|
|
|
143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-insured
derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
24
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,
2017
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
non-agency
|
|
|
-
|
|
|
|
145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
46
|
|
|
|
3
|
(1)
|
|
|
-
|
|
|
|
49
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
-
|
|
|
|
7
|
|
|
|
1
|
(1)
|
|
|
-
|
|
|
|
8
|
|
Other asset-backed
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
Cash
|
|
|
21
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
Loans receivable at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
815
|
|
|
|
-
|
|
|
|
815
|
|
Corporate loans receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
875
|
|
|
|
-
|
|
|
|
875
|
|
Loan repurchase commitments
|
|
|
-
|
|
|
|
-
|
|
|
|
407
|
|
|
|
-
|
|
|
|
407
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
(1)
|
|
|
-
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,591
|
|
|
$
|
3,992
|
|
|
$
|
2,122
|
|
|
$
|
-
|
|
|
$
|
7,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
123
|
(1)
|
|
$
|
-
|
|
|
$
|
123
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit derivatives
|
|
|
-
|
|
|
|
2
|
|
|
|
80
|
|
|
|
-
|
|
|
|
82
|
|
Non-insured
derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
-
|
|
|
|
207
|
|
|
|
-
|
|
|
|
-
|
|
|
|
207
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
-
|
|
|
|
770
|
|
|
|
491
|
|
|
|
-
|
|
|
|
1,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
996
|
|
|
$
|
698
|
|
|
$
|
-
|
|
|
$
|
1,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
(2) -
|
Investment that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be classified in the fair value hierarchy.
|
25
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,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$
|
825
|
|
|
$
|
112
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
937
|
|
State and municipal bonds
|
|
|
-
|
|
|
|
1,440
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,440
|
|
Foreign governments
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
Corporate obligations
|
|
|
-
|
|
|
|
1,332
|
|
|
|
2
|
(1)
|
|
|
-
|
|
|
|
1,334
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
-
|
|
|
|
868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
868
|
|
Residential mortgage-backed
non-agency
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
43
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
-
|
|
|
|
7
|
|
|
|
15
|
(1)
|
|
|
-
|
|
|
|
22
|
|
Other asset-backed
|
|
|
-
|
|
|
|
257
|
|
|
|
44
|
(1)
|
|
|
-
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
825
|
|
|
|
4,113
|
|
|
|
61
|
|
|
|
-
|
|
|
|
4,999
|
|
Money market securities
|
|
|
521
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
521
|
|
Perpetual debt and equity securities
|
|
|
26
|
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
Fixed-income fund
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75
|
(2)
|
Cash and cash equivalents
|
|
|
163
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163
|
|
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
December 31,
2016
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
non-agency
|
|
|
-
|
|
|
|
149
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
-
|
|
|
|
7
|
|
|
|
1
|
(1)
|
|
|
-
|
|
|
|
8
|
|
Other asset-backed
|
|
|
-
|
|
|
|
18
|
|
|
|
1
|
(1)
|
|
|
-
|
|
|
|
19
|
|
Cash
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
Loans receivable at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
916
|
|
|
|
-
|
|
|
|
916
|
|
Corporate loans receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
150
|
(1)
|
|
|
-
|
|
|
|
150
|
|
Loan repurchase commitments
|
|
|
-
|
|
|
|
-
|
|
|
|
404
|
|
|
|
-
|
|
|
|
404
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
(1)
|
|
|
-
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,559
|
|
|
$
|
4,378
|
|
|
$
|
1,552
|
|
|
$
|
-
|
|
|
$
|
7,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
101
|
(1)
|
|
$
|
-
|
|
|
$
|
101
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit derivatives
|
|
|
-
|
|
|
|
2
|
|
|
|
64
|
|
|
|
-
|
|
|
|
66
|
|
Non-insured
derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
-
|
|
|
|
213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
213
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
-
|
|
|
|
875
|
|
|
|
476
|
|
|
|
-
|
|
|
|
1,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
1,123
|
|
|
$
|
661
|
|
|
$
|
-
|
|
|
$
|
1,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
(2) -
|
Investment that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be classified in the fair value hierarchy.
|
Level 3 assets at fair value as of June 30, 2017 and December 31, 2016 represented approximately 27% and 21%,
respectively, of total assets measured at fair value. Level 3 liabilities at fair value as of June 30, 2017 and December 31, 2016 represented approximately 41% and 37%, respectively, of total liabilities measured at fair value.
27
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, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2017
|
|
|
Carry Value
Balance as of
June 30,
2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Accrued investment
income
(1)
|
|
|
-
|
|
|
|
37
|
|
|
|
-
|
|
|
|
37
|
|
|
|
37
|
|
Receivable for investments sold
(1)
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held-to-maturity
|
|
|
-
|
|
|
|
-
|
|
|
|
894
|
|
|
|
894
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
42
|
|
|
$
|
894
|
|
|
$
|
936
|
|
|
$
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
-
|
|
|
$
|
1,055
|
|
|
$
|
-
|
|
|
$
|
1,055
|
|
|
$
|
2,061
|
|
Medium-term notes
|
|
|
-
|
|
|
|
-
|
|
|
|
490
|
|
|
|
490
|
|
|
|
753
|
|
Investment agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
471
|
|
|
|
471
|
|
|
|
365
|
|
Payable for investments purchased
(2)
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
|
|
20
|
|
Interest payable for derivatives
(2)
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
18
|
|
|
|
18
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
-
|
|
|
|
329
|
|
|
|
894
|
|
|
|
1,223
|
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
1,422
|
|
|
$
|
1,855
|
|
|
$
|
3,277
|
|
|
$
|
4,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,376
|
|
|
$
|
2,376
|
|
|
$
|
1,092
|
|
Ceded
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
|
|
50
|
|
|
|
31
|
|
(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,
2016
|
|
|
Carry Value
Balance as of
December 31,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
3
|
|
Accrued investment
income
(1)
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
|
|
40
|
|
|
|
40
|
|
Assets held for sale
|
|
|
-
|
|
|
|
306
|
|
|
|
-
|
|
|
|
306
|
|
|
|
306
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held-to-maturity
|
|
|
-
|
|
|
|
-
|
|
|
|
876
|
|
|
|
876
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
348
|
|
|
$
|
876
|
|
|
$
|
1,224
|
|
|
$
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
-
|
|
|
$
|
1,030
|
|
|
$
|
-
|
|
|
$
|
1,030
|
|
|
$
|
1,986
|
|
Medium-term notes
|
|
|
-
|
|
|
|
-
|
|
|
|
478
|
|
|
|
478
|
|
|
|
794
|
|
Investment agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
508
|
|
|
|
508
|
|
|
|
399
|
|
Payable for investments purchased
(2)
|
|
|
-
|
|
|
|
32
|
|
|
|
-
|
|
|
|
32
|
|
|
|
32
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes
|
|
|
-
|
|
|
|
-
|
|
|
|
882
|
|
|
|
882
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
1,062
|
|
|
$
|
1,868
|
|
|
$
|
2,930
|
|
|
$
|
4,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,638
|
|
|
$
|
2,638
|
|
|
$
|
995
|
|
Ceded
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
18
|
|
|
|
43
|
|
(1) -
|
Reported within Other assets on MBIAs consolidated balance sheets.
|
(2) -
|
Reported within Other liabilities on MBIAs consolidated balance sheets.
|
28
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, 2017 and 2016:
Changes in
Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
Collateralized debt obligations
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8)
|
|
|
|
-
|
|
|
|
-
|
|
Other asset-backed
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
State and municipal bonds
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4)
|
|
|
|
-
|
|
|
|
-
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Other asset-backed
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
Loans receivable- residential
|
|
|
844
|
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
815
|
|
|
|
31
|
|
Loans receivable- corporate
|
|
|
872
|
|
|
|
-
|
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
875
|
|
|
|
29
|
|
Loan repurchase commitments
|
|
|
409
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
407
|
|
|
|
(2)
|
|
Currency derivatives, net
|
|
|
13
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,165
|
|
|
$
|
-
|
|
|
$
|
56
|
|
|
$
|
-
|
|
|
$
|
(2)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(93)
|
|
|
$
|
-
|
|
|
$
|
10
|
|
|
$
|
(14)
|
|
|
$
|
2,122
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2017
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
104
|
|
|
$
|
-
|
|
|
$
|
12
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
123
|
|
|
$
|
19
|
|
Credit derivatives, net
|
|
|
86
|
|
|
|
3
|
|
|
|
(6)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
|
|
(6)
|
|
Other derivatives
|
|
|
20
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
18
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE notes
|
|
|
491
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
491
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
701
|
|
|
$
|
3
|
|
|
$
|
42
|
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(55)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
698
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
Transferred in and out at the end of the period.
29
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, 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-corporate
|
|
|
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, net
|
|
|
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.
|
For the three
months ended June 30, 2017, transfers into Level 3 and out of Level 2 were related to CMBS, 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. CDOs and corporate obligations comprised the instruments transferred out of Level 3 where inputs, which are
significant to their valuation, became observable during the quarter. There were no transfers into or out of Level 1 for the three months ended June 30, 2017.
30
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments
(continued)
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.
All Level 1, 2 and 3 designations are made at the end of each accounting period.
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 six months ended June 30,
2017 and 2016.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8)
|
|
|
|
-
|
|
|
|
-
|
|
Other asset-backed
|
|
|
44
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
State and municipal bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
-
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
6
|
|
|
|
(4)
|
|
|
|
-
|
|
|
|
-
|
|
Commercial mortgage-backed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Other asset-backed
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
Loans receivable-residential
|
|
|
916
|
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(128)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
815
|
|
|
|
27
|
|
Loans receivable-corporate
|
|
|
150
|
|
|
|
-
|
|
|
|
32
|
|
|
|
-
|
|
|
|
-
|
|
|
|
719
|
|
|
|
-
|
|
|
|
(26)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
875
|
|
|
|
32
|
|
Loan repurchase commitments
|
|
|
404
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
407
|
|
|
|
3
|
|
Currency derivatives, net
|
|
|
19
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,552
|
|
|
$
|
-
|
|
|
$
|
57
|
|
|
$
|
2
|
|
|
$
|
(5)
|
|
|
$
|
719
|
|
|
$
|
-
|
|
|
$
|
(205)
|
|
|
$
|
-
|
|
|
$
|
18
|
|
|
$
|
(16)
|
|
|
$
|
2,122
|
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2017
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
|
$
|
101
|
|
|
$
|
-
|
|
|
$
|
13
|
|
|
$
|
-
|
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
123
|
|
|
$
|
22
|
|
Credit derivatives, net
|
|
|
64
|
|
|
|
34
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
|
|
16
|
|
Other derivatives, net
|
|
|
20
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
18
|
|
Liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE notes
|
|
|
476
|
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
491
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
661
|
|
|
$
|
34
|
|
|
$
|
99
|
|
|
$
|
-
|
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(105)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
698
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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-corporate
|
|
|
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.
|
For the six
months ended June 30, 2017, transfers into Level 3 and out of Level 2 were principally related to CMBS and corporate obligations, where inputs, which are significant to their valuation, became unobservable during the period. CDOs,
corporate obligations and other asset-backed securities 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.
32
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments
(continued)
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.
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, 2017 and 2016 are reported on the Companys consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Three Months Ended June 30, 2017
|
|
|
Three Months Ended 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,
2017
|
|
|
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
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on insured derivatives
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
(5)
|
|
|
$
|
(5)
|
|
Realized gains (losses) and other settlements on insured derivatives
|
|
|
(3)
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(37)
|
|
|
|
(37)
|
|
|
|
2
|
|
|
|
2
|
|
Revenues of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
36
|
|
|
|
36
|
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
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, 2017 and 2016 are reported on the Companys consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Six Months Ended June 30, 2017
|
|
|
Six Months Ended 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,
2017
|
|
|
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
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on insured derivatives
|
|
$
|
(16)
|
|
|
$
|
(16)
|
|
|
$
|
(19)
|
|
|
$
|
(22)
|
|
Realized gains (losses) and other settlements on insured derivatives
|
|
|
(34)
|
|
|
|
-
|
|
|
|
(16)
|
|
|
|
-
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(40)
|
|
|
|
(40)
|
|
|
|
(4)
|
|
|
|
(4)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(90)
|
|
|
$
|
(56)
|
|
|
$
|
(33)
|
|
|
$
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017 and 2016 for financial instruments for which the fair value option was elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Investments carried at fair value
(1)
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
6
|
|
Fixed-maturity securities held at fair
value-VIE
(2)
|
|
|
(5)
|
|
|
|
(13)
|
|
|
|
(14)
|
|
|
|
(97)
|
|
Loans receivable at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
(2)
|
|
|
(30)
|
|
|
|
(70)
|
|
|
|
(102)
|
|
|
|
(140)
|
|
Corporate
loans
(2)
|
|
|
4
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
Loan repurchase commitments
(2)
|
|
|
(2)
|
|
|
|
2
|
|
|
|
4
|
|
|
|
5
|
|
Medium-term
notes
(1)
|
|
|
(19)
|
|
|
|
4
|
|
|
|
(22)
|
|
|
|
-
|
|
Variable interest entity notes
(2)
|
|
|
(45)
|
|
|
|
71
|
|
|
|
(90)
|
|
|
|
238
|
|
(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.
|
34
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, 2017 and December 31, 2016 for loans and notes for which the fair value option was elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
As of December 31, 2016
|
|
In millions
|
|
Contractual
Outstanding
Principal
|
|
|
Fair
Value
|
|
|
Difference
|
|
|
Contractual
Outstanding
Principal
|
|
|
Fair
Value
|
|
|
Difference
|
|
Loans receivable at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
|
$
|
828
|
|
|
$
|
779
|
|
|
$
|
49
|
|
|
$
|
965
|
|
|
$
|
894
|
|
|
$
|
71
|
|
Residential mortgage loans (90 days or more past due)
|
|
|
162
|
|
|
|
36
|
|
|
|
126
|
|
|
|
143
|
|
|
|
22
|
|
|
|
121
|
|
Corporate loans (90 days or more past due)
|
|
|
875
|
|
|
|
875
|
|
|
|
-
|
|
|
|
150
|
|
|
|
150
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable at fair value
|
|
|
1,865
|
|
|
|
1,690
|
|
|
|
175
|
|
|
|
1,258
|
|
|
|
1,066
|
|
|
|
192
|
|
Variable interest entity notes
|
|
|
3,065
|
|
|
|
1,261
|
|
|
|
1,804
|
|
|
|
2,449
|
|
|
|
1,351
|
|
|
|
1,098
|
|
Medium-term notes
|
|
|
171
|
|
|
|
123
|
|
|
|
48
|
|
|
|
158
|
|
|
|
101
|
|
|
|
57
|
|
Substantially all gains and losses included in earnings during the six months ended June 30, 2017 and 2016 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, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
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
|
|
$
|
991
|
|
|
$
|
35
|
|
|
$
|
(5)
|
|
|
$
|
1,021
|
|
|
$
|
-
|
|
State and municipal bonds
|
|
|
1,159
|
|
|
|
54
|
|
|
|
(51)
|
|
|
|
1,162
|
|
|
|
(43)
|
|
Foreign governments
|
|
|
10
|
|
|
|
1
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
Corporate obligations
|
|
|
1,399
|
|
|
|
27
|
|
|
|
(78)
|
|
|
|
1,348
|
|
|
|
(65)
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
735
|
|
|
|
2
|
|
|
|
(10)
|
|
|
|
727
|
|
|
|
-
|
|
Residential mortgage-backed
non-agency
|
|
|
55
|
|
|
|
2
|
|
|
|
(6)
|
|
|
|
51
|
|
|
|
(2)
|
|
Commercial mortgage-backed
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
48
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
-
|
|
Other asset-backed
|
|
|
269
|
|
|
|
1
|
|
|
|
(1)
|
|
|
|
269
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
4,696
|
|
|
|
122
|
|
|
|
(151)
|
|
|
|
4,667
|
|
|
|
(109)
|
|
Money market securities
|
|
|
391
|
|
|
|
-
|
|
|
|
-
|
|
|
|
391
|
|
|
|
-
|
|
Perpetual debt and equity securities
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS investments
|
|
$
|
5,090
|
|
|
$
|
122
|
|
|
$
|
(151)
|
|
|
$
|
5,061
|
|
|
$
|
(109)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
890
|
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
894
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HTM investments
|
|
$
|
890
|
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
894
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
35
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
909
|
|
|
$
|
30
|
|
|
$
|
(10)
|
|
|
$
|
929
|
|
|
$
|
-
|
|
State and municipal bonds
|
|
|
1,382
|
|
|
|
72
|
|
|
|
(15)
|
|
|
|
1,439
|
|
|
|
-
|
|
Foreign governments
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
Corporate obligations
|
|
|
1,352
|
|
|
|
20
|
|
|
|
(102)
|
|
|
|
1,270
|
|
|
|
(73)
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
871
|
|
|
|
3
|
|
|
|
(12)
|
|
|
|
862
|
|
|
|
-
|
|
Residential mortgage-backed
non-agency
|
|
|
50
|
|
|
|
1
|
|
|
|
(6)
|
|
|
|
45
|
|
|
|
(3)
|
|
Commercial mortgage-backed
|
|
|
41
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
-
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
Other asset-backed
|
|
|
294
|
|
|
|
2
|
|
|
|
(3)
|
|
|
|
293
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
|
4,929
|
|
|
|
128
|
|
|
|
(148)
|
|
|
|
4,909
|
|
|
|
(75)
|
|
Money market securities
|
|
|
517
|
|
|
|
-
|
|
|
|
-
|
|
|
|
517
|
|
|
|
-
|
|
Perpetual debt and equity securities
|
|
|
4
|
|
|
|
1
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS investments
|
|
$
|
5,450
|
|
|
$
|
129
|
|
|
$
|
(148)
|
|
|
$
|
5,431
|
|
|
$
|
(75)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
890
|
|
|
$
|
-
|
|
|
$
|
(14)
|
|
|
$
|
876
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HTM investments
|
|
$
|
890
|
|
|
$
|
-
|
|
|
$
|
(14)
|
|
|
$
|
876
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Represents unrealized gains or losses on OTTI securities recognized in AOCI, which includes the
non-credit
component of impairments, as
well as all subsequent changes in fair value of such impaired securities reported in AOCI.
|
The following table presents the distribution
by contractual maturity of AFS and HTM fixed-maturity securities at amortized cost and fair value as of June 30, 2017. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities
|
|
|
HTM Securities
|
|
|
|
|
|
|
|
|
|
Consolidated VIEs
|
|
In millions
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
627
|
|
|
$
|
613
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due after one year through five years
|
|
|
1,060
|
|
|
|
1,043
|
|
|
|
-
|
|
|
|
-
|
|
Due after five years through ten years
|
|
|
666
|
|
|
|
619
|
|
|
|
-
|
|
|
|
-
|
|
Due after ten years
|
|
|
1,206
|
|
|
|
1,267
|
|
|
|
890
|
|
|
|
894
|
|
Mortgage-backed and asset-backed
|
|
|
1,137
|
|
|
|
1,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity investments
|
|
$
|
4,696
|
|
|
$
|
4,667
|
|
|
$
|
890
|
|
|
$
|
894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposited and Pledged Securities
The fair value of securities on deposit with various regulatory authorities as of June 30, 2017 and December 31, 2016 was $10 million and $11 million, respectively. These deposits are required
to comply with state insurance laws.
Pursuant to the 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.
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, 2017 and December 31, 2016, the
fair value of securities pledged as collateral for these investment agreements approximated $387 million and $416 million, respectively. The Companys collateral as of June 30, 2017 consisted principally of U.S. Treasury and
government agency and state and municipal bonds, and was primarily held with major U.S. banks. Additionally, the Company pledged cash and money market securities as collateral under investment agreements of $6 million as of December 31,
2016.
36
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
Impaired Investments
The following tables present the gross unrealized losses related to AFS and HTM investments as of June 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
In millions
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
AFS Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$
|
396
|
|
|
$
|
(5)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
396
|
|
|
$
|
(5)
|
|
State and municipal bonds
|
|
|
334
|
|
|
|
(51)
|
|
|
|
8
|
|
|
|
-
|
|
|
|
342
|
|
|
|
(51)
|
|
Foreign governments
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
Corporate obligations
|
|
|
392
|
|
|
|
(13)
|
|
|
|
53
|
|
|
|
(65)
|
|
|
|
445
|
|
|
|
(78)
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
435
|
|
|
|
(7)
|
|
|
|
100
|
|
|
|
(3)
|
|
|
|
535
|
|
|
|
(10)
|
|
Residential mortgage-backed
non-agency
|
|
|
1
|
|
|
|
-
|
|
|
|
27
|
|
|
|
(6)
|
|
|
|
28
|
|
|
|
(6)
|
|
Commercial mortgage-backed
|
|
|
2
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Collateralized debt obligations
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
Other asset-backed
|
|
|
153
|
|
|
|
(1)
|
|
|
|
2
|
|
|
|
-
|
|
|
|
155
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS investments
|
|
$
|
1,720
|
|
|
$
|
(77)
|
|
|
$
|
199
|
|
|
$
|
(74)
|
|
|
$
|
1,919
|
|
|
$
|
(151)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
In millions
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
AFS Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$
|
432
|
|
|
$
|
(10)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
432
|
|
|
$
|
(10)
|
|
State and municipal bonds
|
|
|
339
|
|
|
|
(13)
|
|
|
|
18
|
|
|
|
(2)
|
|
|
|
357
|
|
|
|
(15)
|
|
Foreign governments
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
Corporate obligations
|
|
|
534
|
|
|
|
(29)
|
|
|
|
52
|
|
|
|
(73)
|
|
|
|
586
|
|
|
|
(102)
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed agency
|
|
|
436
|
|
|
|
(9)
|
|
|
|
122
|
|
|
|
(3)
|
|
|
|
558
|
|
|
|
(12)
|
|
Residential mortgage-backed
non-agency
|
|
|
1
|
|
|
|
-
|
|
|
|
29
|
|
|
|
(6)
|
|
|
|
30
|
|
|
|
(6)
|
|
Commercial mortgage-backed
|
|
|
6
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations
|
|
|
7
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
Other asset-backed
|
|
|
112
|
|
|
|
(1)
|
|
|
|
49
|
|
|
|
(2)
|
|
|
|
161
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS investments
|
|
$
|
1,872
|
|
|
$
|
(62)
|
|
|
$
|
300
|
|
|
$
|
(86)
|
|
|
$
|
2,172
|
|
|
$
|
(148)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
876
|
|
|
$
|
(14)
|
|
|
$
|
876
|
|
|
$
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HTM investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
876
|
|
|
$
|
(14)
|
|
|
$
|
876
|
|
|
$
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized losses on AFS investments increased as of June 30, 2017 compared with December 31, 2016 primarily due to
unrealized losses on municipal bonds partially offset by a decrease in unrealized losses on corporate obligations due to tightening credit spreads and lower long-term interest rates. Gross unrealized losses on HTM investments decreased as of
June 30, 2017 compared with December 31, 2016 primarily due to tightening credit spreads and lower long-term 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, 2017 and December 31, 2016 was 15 and 22 years,
respectively. As of June 30, 2017 and December 31, 2016, there were 35 and 46 securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 11 and 12 securities,
respectively, were below book value by more than 5%.
37
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
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, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities
|
|
Percentage of Fair Value Below Book Value
|
|
Number of
Securities
|
|
|
Book Value
(in millions)
|
|
|
Fair Value
(in millions)
|
|
> 5% to 15%
|
|
|
3
|
|
|
$
|
3
|
|
|
$
|
2
|
|
> 15% to 25%
|
|
|
4
|
|
|
|
30
|
|
|
|
24
|
|
> 25% to 50%
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
> 50%
|
|
|
3
|
|
|
|
102
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11
|
|
|
$
|
136
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017 that would require the sale of impaired securities. Impaired
securities that the Company intends to sell before the expected recovery of such securities fair values have been written down to fair value.
Other-Than-Temporary Impairments
The 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 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, 2016 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. The additional credit loss impairment for the three and six months ended June 30, 2017 was primarily
related to municipal bonds for which a loss was recognized as the difference between their amortized cost and their estimated recovery values. This OTTI resulted from liquidity concerns, recent credit rating downgrades and other adverse financial
conditions of the issuer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
Credit Losses Recognized in Earnings Related to
Other-Than-Temporary
Impairments
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
31
|
|
|
$
|
26
|
|
|
$
|
29
|
|
|
$
|
26
|
|
Additions for credit loss impairments recognized in the current period on securities not previously impaired
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
Additions for credit loss impairments recognized in the current period on securities previously impaired
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
42
|
|
|
$
|
26
|
|
|
$
|
42
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company does not recognize OTTI on securities insured by MBIA Corp. and National since those securities, whether or not owned
by the Company, are evaluated for impairments in accordance with its loss reserving policy. The following table provides information about securities held by the Company as of June 30, 2017 that were in an unrealized loss position and insured
by a financial guarantor, along with the amount of insurance loss reserves corresponding to the par amount owned by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Insurance Loss
Reserve
(2)
|
|
Mortgage-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
MBIA
(1)
|
|
$
|
15
|
|
|
$
|
(4)
|
|
|
$
|
16
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
MBIA
(1)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
MBIA
(1)
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33
|
|
|
$
|
(4)
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Includes investments insured by MBIA Corp. and National.
|
|
(2) -
|
Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.
|
38
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
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 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, 2017 and 2016 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
In millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Proceeds from sales
|
|
$
|
716
|
|
|
$
|
656
|
|
|
$
|
987
|
|
|
$
|
937
|
|
Gross realized gains
|
|
$
|
15
|
|
|
$
|
26
|
|
|
$
|
19
|
|
|
$
|
37
|
|
Gross realized losses
|
|
$
|
(3)
|
|
|
$
|
(13)
|
|
|
$
|
(4)
|
|
|
$
|
(18)
|
|
Note 8: 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 to manage the risks associated with fluctuations in interest rates affecting the value of certain assets.
International and Structured Finance Insurance
The
Company has entered into derivative instruments to provide financial guarantee insurance to structured finance transactions that do not qualify for the financial guarantee scope exception and, therefore, are accounted for as derivatives. These
insured CDS contracts, primarily referencing CMBS, RMBS and ABS, are intended to be held for the entire term of the contract unless a settlement with the counterparty is negotiated. The Company no longer insures new CDS contracts except for
transactions related to the restructuring or reduction of existing derivative exposure. 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.
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 cross currency swaps. 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, 2017 and December 31, 2016. Credit ratings represent
the lower of underlying ratings assigned to the collateral by Moodys Investors Service, Inc. (Moodys), S&P or MBIA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions
|
|
As of June 30, 2017
|
|
|
|
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
|
|
|
2.6 Years
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
115
|
|
|
$
|
-
|
|
|
$
|
186
|
|
|
$
|
301
|
|
|
$
|
(80)
|
|
Insured swaps
|
|
|
15.5 Years
|
|
|
|
-
|
|
|
|
129
|
|
|
|
1,967
|
|
|
|
848
|
|
|
|
20
|
|
|
|
2,964
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional
|
|
|
|
|
|
$
|
-
|
|
|
$
|
129
|
|
|
$
|
2,082
|
|
|
$
|
848
|
|
|
$
|
206
|
|
|
$
|
3,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1)
|
|
|
$
|
(81)
|
|
|
|
|
|
|
$
|
(82)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 8: Derivative Instruments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions
|
|
As of December 31, 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
|
|
|
3.8 Years
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
115
|
|
|
$
|
-
|
|
|
$
|
473
|
|
|
$
|
588
|
|
|
$
|
(64)
|
|
Insured swaps
|
|
|
15.7 Years
|
|
|
|
-
|
|
|
|
137
|
|
|
|
2,146
|
|
|
|
732
|
|
|
|
20
|
|
|
|
3,035
|
|
|
|
(2)
|
|
Insured swaps held for sale
|
|
|
14.3 Years
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
420
|
|
|
|
-
|
|
|
|
420
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional
|
|
|
|
|
|
$
|
-
|
|
|
$
|
137
|
|
|
$
|
2,261
|
|
|
$
|
1,152
|
|
|
$
|
493
|
|
|
$
|
4,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1)
|
|
|
$
|
(1)
|
|
|
$
|
(64)
|
|
|
|
|
|
|
$
|
(66)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017 is $332 million. 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 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, 2017, the Company did not hold or post
cash collateral to derivative counterparties. As of December 31, 2016, the Company did not hold cash collateral to derivative counterparties but posted cash collateral to derivative counterparties of $1 million. All of the $1 million
is included within Other liabilities as cash collateral netted against accrued interest on derivative liabilities. As of June 30, 2017 and December 31, 2016, the Company had securities with a fair value of $262 million and
$276 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, 2017 and December 31, 2016, 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, 2017 and December 31, 2016, the counterparty was rated A1 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, when applicable.
40
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, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
301
|
|
|
|
Other assets
|
|
|
$
|
-
|
|
|
|
Derivative liabilities
|
|
|
$
|
(80)
|
|
Insured swaps
|
|
|
2,964
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Derivative liabilities
|
|
|
|
(2)
|
|
Interest rate swaps
|
|
|
747
|
|
|
|
Other assets
|
|
|
|
3
|
|
|
|
Derivative liabilities
|
|
|
|
(207)
|
|
Interest rate swaps-embedded
|
|
|
406
|
|
|
|
Medium-term notes
|
|
|
|
2
|
|
|
|
Medium-term notes
|
|
|
|
(15)
|
|
Currency
swaps-VIE
|
|
|
68
|
|
|
|
Other
assets-VIE
|
|
|
|
9
|
|
|
|
Derivative liabilities-VIE
|
|
|
|
-
|
|
All other
|
|
|
49
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Derivative liabilities
|
|
|
|
(4)
|
|
All other-embedded
|
|
|
1
|
|
|
|
Other investments
|
|
|
|
-
|
|
|
|
Other investments
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-designated
derivatives
|
|
$
|
4,536
|
|
|
|
|
|
|
$
|
14
|
|
|
|
|
|
|
$
|
(308)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
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, 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
|
|
$
|
588
|
|
|
|
Other assets
|
|
|
$
|
-
|
|
|
|
Derivative liabilities
|
|
|
$
|
(64)
|
|
Insured swaps
|
|
|
3,035
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Derivative liabilities
|
|
|
|
(2)
|
|
Insured swapsheld for sale
|
|
|
420
|
|
|
|
Assets held for sale
|
|
|
|
-
|
|
|
|
Liabilities held for sale
|
|
|
|
-
|
|
Interest rate swaps
|
|
|
1,062
|
|
|
|
Other assets
|
|
|
|
3
|
|
|
|
Derivative liabilities
|
|
|
|
(213)
|
|
Interest rate swaps-embedded
|
|
|
376
|
|
|
|
Medium-term notes
|
|
|
|
2
|
|
|
|
Medium-term notes
|
|
|
|
(17)
|
|
Currency
swaps-VIE
|
|
|
71
|
|
|
|
Other
assets-VIE
|
|
|
|
20
|
|
|
|
Derivative liabilities-VIE
|
|
|
|
-
|
|
All other
|
|
|
83
|
|
|
|
Other assets
|
|
|
|
-
|
|
|
|
Derivative liabilities
|
|
|
|
(20)
|
|
All
other-VIE
|
|
|
35
|
|
|
|
Other
assets-VIE
|
|
|
|
-
|
|
|
|
Derivative
liabilities-VIE
|
|
|
|
-
|
|
All other-embedded
|
|
|
5
|
|
|
|
Other investments
|
|
|
|
-
|
|
|
|
Other investments
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-designated
derivatives
|
|
$
|
5,675
|
|
|
|
|
|
|
$
|
25
|
|
|
|
|
|
|
$
|
(316)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
The following table presents the effect of derivative instruments on the
consolidated statements of operations for the three months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
|
|
|
|
Three Months Ended June 30,
|
|
Hedging Instruments
|
|
Location of Gain (Loss) Recognized in Income on
Derivative
|
|
2017
|
|
|
2016
|
|
Insured credit default swaps
|
|
Unrealized gains (losses) on insured derivatives
|
|
$
|
6
|
|
|
$
|
(6
|
)
|
Insured credit default swaps
|
|
Realized gains (losses) and other settlements on insured derivatives
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Interest rate swaps
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(9
|
)
|
|
|
(35
|
)
|
Currency
swaps-VIE
|
|
Net gains (losses) on financial instruments at fair value and foreign
exchange-VIE
|
|
|
(3
|
)
|
|
|
3
|
|
All other
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(18
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(27
|
)
|
|
$
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
41
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 six months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
|
|
|
|
Six Months Ended June 30,
|
|
Hedging Instruments
|
|
Location of Gain (Loss) Recognized in Income on
Derivative
|
|
2017
|
|
|
2016
|
|
Insured credit default swaps
|
|
Unrealized gains (losses) on insured derivatives
|
|
$
|
(16
|
)
|
|
$
|
(20
|
)
|
Insured credit default swaps
|
|
Realized gains (losses) and other settlements on insured derivatives
|
|
|
(34
|
)
|
|
|
(16
|
)
|
Interest rate swaps
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(5
|
)
|
|
|
(85
|
)
|
Interest rate
swaps-VIE
|
|
Net gains (losses) on financial instruments at fair value and foreign
exchange-VIE
|
|
|
-
|
|
|
|
8
|
|
Currency
swaps-VIE
|
|
Net gains (losses) on financial instruments at fair value and foreign
exchange-VIE
|
|
|
(10
|
)
|
|
|
(1
|
)
|
All other
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
(19
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(84
|
)
|
|
$
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note 9: Debt
The Company has disclosed its debt in Note 10: Debt in the Notes to the Consolidated Financial Statements included in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016. The following debt discussion is an update and should be read in conjunction with the Companys Annual Report on Form
10-K.
Other Borrowing Arrangements
MBIA Corp. Financing Facility
In connection with the Zohar II Claim in January of 2017, MBIA Corp. entered
into the Facility. The initial outstanding principal amount of the Facility was $366 million, of which, $38 million of subordinated financing was provided by MBIA Inc. and eliminated in consolidation. As of June 30, 2017, the
consolidated outstanding amount of the Facility was $315 million and included in Variable interest entity notes which is presented in Liabilities of consolidated variable interest entities on the Companys
consolidated balance sheets. Under the Facility, MBIA Inc. has agreed to provide an additional $50 million subordinated financing to MZ Funding, which MZ Funding would then lend to MBIA Corp., if needed by MBIA Insurance Corporation for
liquidity purposes. The Facility is secured by a first priority security interest in all of MBIA Corp.s right, title and interest in the recovery of its claims from the assets of Zohar I and Zohar II which include, among other things, loans
made to, and equity interests in, companies purportedly controlled by the Zohar Sponsor and any claims that the Company may have against the Zohar Sponsor. MBIA Corp. was obligated to pay a commitment fee of $10 million for this facility. The
Facility matures on January 20, 2020 and bears interest at 14% per annum. If funds received from MBIA Corp. under the Facility are insufficient to pay interest on interest payment dates, MZ Funding may elect to pay interest in kind, which
increases the outstanding principal amount.
Note 10: Income Taxes
The Companys income taxes and the related effective tax rates for the three and six months ended June 30, 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Income (loss) before income taxes
|
|
$
|
(210)
|
|
|
$
|
(55)
|
|
|
$
|
(330)
|
|
|
$
|
(156)
|
|
Provision (benefit) for income taxes
|
|
$
|
1,019
|
|
|
$
|
(28)
|
|
|
$
|
971
|
|
|
$
|
(51)
|
|
Effective tax rate
|
|
|
-485.2%
|
|
|
|
50.9%
|
|
|
|
-294.2%
|
|
|
|
32.7%
|
|
For the six months ended June 30, 2017, the Companys effective tax rate applied to its loss before income taxes is less
than the U.S. statutory tax rate primarily due to the establishment of a full valuation allowance against its net deferred tax asset. 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 effective 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.
42
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 10: Income Taxes (continued)
Deferred Tax Asset, Net of Valuation Allowance
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or
tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce deferred tax assets to the amount that more likely than
not will be realized.
The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of June 30, 2017 and
December 31, 2016 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
In millions
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unearned premium revenue
|
|
$
|
140
|
|
|
$
|
143
|
|
Deferral of cancellation of indebtedness income
|
|
|
34
|
|
|
|
46
|
|
Deferred acquisition costs
|
|
|
37
|
|
|
|
42
|
|
Net gains on financial instruments at fair value and foreign exchange
|
|
|
-
|
|
|
|
4
|
|
Partnership basis difference
|
|
|
29
|
|
|
|
36
|
|
Basis difference in foreign subsidiaries
|
|
|
2
|
|
|
|
64
|
|
Net deferred taxes on VIEs
|
|
|
14
|
|
|
|
-
|
|
Other
|
|
|
34
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
290
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Compensation and employee benefits
|
|
|
17
|
|
|
|
19
|
|
Accrued interest
|
|
|
198
|
|
|
|
177
|
|
Loss and loss adjustment expense reserves
|
|
|
104
|
|
|
|
142
|
|
Net operating loss
|
|
|
976
|
|
|
|
929
|
|
Foreign tax credits
|
|
|
62
|
|
|
|
7
|
|
Net unrealized losses on insured derivatives
|
|
|
29
|
|
|
|
29
|
|
Net losses on financial instruments at fair value and foreign exchange
|
|
|
23
|
|
|
|
-
|
|
Net unrealized losses in accumulated other comprehensive income
|
|
|
12
|
|
|
|
6
|
|
Alternative minimum tax credit carryforward
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
1,447
|
|
|
|
1,335
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
1,157
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
970
|
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2017, S&P downgraded the financial strength rating of National, which led the
Company to cease its efforts to actively pursue writing new financial guarantee business. In addition to Nationals cessation of new business activity, there was an increase in loss and LAE due to changes in assumptions on certain Puerto Rico
credits. As a result of the increase in loss and LAE, the Company has a three-year cumulative loss, which is considered significant negative evidence in the assessment of its ability to use its deferred tax assets. In addition, the Company
considered all available positive and negative evidence as required by GAAP, to estimate if sufficient taxable income will be generated to use its deferred tax assets. After considering all positive and negative evidence, including the
Companys inability to objectively identify and forecast future sources of taxable income, the Company concluded that, at this time, it does not have sufficient positive evidence to support its ability to use its deferred tax assets before they
expire. Accordingly, the Company recorded a full valuation allowance against its net deferred tax asset of $1.2 billion, of which $1.1 billion was recorded in the three months ended June 30, 2017. Also, the Company recorded
$55 million against its net deferred asset in the three months ended March 31, 2017, related to foreign tax credits that were generated as a result of the sale of MBIA UK. The Company will continue to analyze the valuation allowance on a
quarterly basis.
43
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 10: Income Taxes (continued)
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, 2017 and December 31, 2016, the Company had no UTB.
Federal
income tax returns through 2011 have been examined or surveyed.
As of June 30, 2017, the Companys net operating loss (NOL) is
approximately $2.8 billion. The NOL will expire between tax years 2030 through 2037. As of June 30, 2017, the Company has a foreign tax credit carryforward of $62 million, which will expire between tax years 2019 through 2027. As of
June 30, 2017, the Company has an alternative minimum tax credit carryforward of $26
million, which does not expire.
Note 11: 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.
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. Nationals guarantees insure 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.
On June 26, 2017,
S&P downgraded the financial strength rating of National from
AA-
with a stable outlook to A with a stable outlook. Refer to Note 1: Business Developments and Risks and Uncertainties for
further information about Nationals financial strength ratings downgrade.
Corporate
The Companys corporate segment consists of general corporate activities, including providing general support services to MBIA Inc.s subsidiaries as well
as asset and capital management. General support services are provided by the Companys service company, MBIA Services Corporation, and include, 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.
44
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 11: Business Segments (continued)
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. Certain policies cover payments potentially due under CDS, including termination payments that may become due in certain circumstances, including the occurrence of certain insolvency or payment defaults under the CDS or derivatives contracts by
the insured counterparty or by the guarantor.
|
MBIA Corp. insures
non-U.S.
public finance
and global structured finance 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.
Segments Results
The following tables provide the Companys segment results for the three months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
In millions
|
|
U.S. Public
Finance
Insurance
|
|
|
Corporate
|
|
|
International
and Structured
Finance
Insurance
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
(1)
|
|
$
|
62
|
|
|
$
|
8
|
|
|
$
|
17
|
|
|
$
|
-
|
|
|
$
|
87
|
|
Net change in fair value of insured derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
14
|
|
|
|
(55)
|
|
|
|
(20)
|
|
|
|
-
|
|
|
|
(61)
|
|
Net investment losses related to other-than-temporary impairments
|
|
|
(11)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11)
|
|
Other net realized gains (losses)
|
|
|
-
|
|
|
|
(1)
|
|
|
|
35
|
|
|
|
-
|
|
|
|
34
|
|
Revenues of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
Inter-segment
revenues
(2)
|
|
|
5
|
|
|
|
15
|
|
|
|
11
|
|
|
|
(31)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
70
|
|
|
|
(33)
|
|
|
|
66
|
|
|
|
(31)
|
|
|
|
72
|
|
Losses and loss adjustment
|
|
|
158
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
170
|
|
Operating
|
|
|
16
|
|
|
|
14
|
|
|
|
10
|
|
|
|
-
|
|
|
|
40
|
|
Interest
|
|
|
-
|
|
|
|
22
|
|
|
|
28
|
|
|
|
-
|
|
|
|
50
|
|
Expenses of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
22
|
|
Inter-segment
expenses
(2)
|
|
|
16
|
|
|
|
1
|
|
|
|
14
|
|
|
|
(31)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
190
|
|
|
|
37
|
|
|
|
86
|
|
|
|
(31)
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(120)
|
|
|
|
(70)
|
|
|
|
(20)
|
|
|
|
-
|
|
|
|
(210)
|
|
Provision (benefit) for income taxes
|
|
|
(43)
|
|
|
|
1,074
|
|
|
|
1,199
|
|
|
|
(1,211)
|
|
|
|
1,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(77)
|
|
|
$
|
(1,144)
|
|
|
$
|
(1,219)
|
|
|
$
|
1,211
|
|
|
$
|
(1,229)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
5,074
|
|
|
$
|
1,233
|
|
|
$
|
5,313
|
|
|
$
|
(1,853)
|
(3)
|
|
$
|
9,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 and repurchase agreements.
|
45
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 11: Business Segments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
The following tables provide the Companys segment results for the six months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
In millions
|
|
U.S. Public
Finance
Insurance
|
|
|
Corporate
|
|
|
International
and Structured
Finance
Insurance
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
(1)
|
|
$
|
130
|
|
|
$
|
16
|
|
|
$
|
44
|
|
|
$
|
-
|
|
|
$
|
190
|
|
Net change in fair value of insured derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
(50)
|
|
|
|
-
|
|
|
|
(50)
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
|
|
18
|
|
|
|
(39)
|
|
|
|
(23)
|
|
|
|
-
|
|
|
|
(44)
|
|
Net investment losses related to other-than-temporary impairments
|
|
|
(13)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13)
|
|
Net gains (losses) on extinguishment of debt
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
Other net realized gains (losses)
|
|
|
-
|
|
|
|
(2)
|
|
|
|
39
|
|
|
|
-
|
|
|
|
37
|
|
Revenues of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
|
|
21
|
|
Inter-segment
revenues
(2)
|
|
|
10
|
|
|
|
31
|
|
|
|
20
|
|
|
|
(61)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
145
|
|
|
|
14
|
|
|
|
51
|
|
|
|
(61)
|
|
|
|
149
|
|
Losses and loss adjustment
|
|
|
169
|
|
|
|
-
|
|
|
|
95
|
|
|
|
-
|
|
|
|
264
|
|
Operating
|
|
|
26
|
|
|
|
32
|
|
|
|
18
|
|
|
|
-
|
|
|
|
76
|
|
Interest
|
|
|
-
|
|
|
|
44
|
|
|
|
54
|
|
|
|
-
|
|
|
|
98
|
|
Expenses of consolidated VIEs
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
-
|
|
|
|
41
|
|
Inter-segment
expenses
(2)
|
|
|
31
|
|
|
|
2
|
|
|
|
28
|
|
|
|
(61)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
226
|
|
|
|
78
|
|
|
|
236
|
|
|
|
(61)
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(81)
|
|
|
|
(64)
|
|
|
|
(185)
|
|
|
|
-
|
|
|
|
(330)
|
|
Provision (benefit) for income taxes
|
|
|
(31)
|
|
|
|
1,070
|
|
|
|
1,142
|
|
|
|
(1,210)
|
|
|
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(50)
|
|
|
$
|
(1,134)
|
|
|
$
|
(1,327)
|
|
|
$
|
1,210
|
|
|
$
|
(1,301)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
5,074
|
|
|
$
|
1,233
|
|
|
$
|
5,313
|
|
|
$
|
(1,853)
|
(3)
|
|
$
|
9,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 and repurchase agreements.
|
46
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 11: Business Segments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
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, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Total premiums earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
35
|
|
|
$
|
58
|
|
|
$
|
76
|
|
|
$
|
117
|
|
United Kingdom
|
|
|
1
|
|
|
|
7
|
|
|
|
1
|
|
|
|
14
|
|
Europe (excluding United Kingdom)
|
|
|
-
|
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
Internationally diversified
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Other Americas
|
|
|
5
|
|
|
|
7
|
|
|
|
12
|
|
|
|
14
|
|
Asia
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43
|
|
|
$
|
75
|
|
|
$
|
93
|
|
|
$
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12: 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.
47
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 12: 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. During periods of net loss, stock options, warrants and unvested restricted stock are excluded from the calculation because they would have an antidilutive effect. Therefore, in periods of net loss, the calculation of basic and
diluted earnings per share would result in the same value.
The following table presents the computation of basic and diluted earnings per share for the
three and six months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
In millions except per share amounts
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
(1,229)
|
|
|
$
|
(27)
|
|
|
$
|
(1,301)
|
|
|
$
|
(105)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
(1)
|
|
|
125.7
|
|
|
|
132.7
|
|
|
|
128.5
|
|
|
|
134.2
|
|
Net income (loss) per basic common share:
|
|
$
|
(9.78)
|
|
|
$
|
(0.20)
|
|
|
$
|
(10.13)
|
|
|
$
|
(0.78)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
(1,229)
|
|
|
$
|
(27)
|
|
|
$
|
(1,301)
|
|
|
$
|
(105)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
125.7
|
|
|
|
132.7
|
|
|
|
128.5
|
|
|
|
134.2
|
|
Net income (loss) per diluted common share:
|
|
$
|
(9.78)
|
|
|
$
|
(0.20)
|
|
|
$
|
(10.13)
|
|
|
$
|
(0.78)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities excluded from the calculation of diluted EPS because of antidilutive affect
|
|
|
14.8
|
|
|
|
16.1
|
|
|
|
14.8
|
|
|
|
16.1
|
|
(1) -
|
Includes 0.3 million and 0.9 million 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, 2017 and 2016, respectively. Includes 0.3 million and 0.8 million 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, 2017 and 2016, respectively.
|
Note 13:
Accumulated Other Comprehensive Income
The following table presents the changes in the components of AOCI for the six months ended June 30,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Unrealized
Gains (Losses)
on AFS
Securities, Net
|
|
|
Foreign Currency
Translation, Net
|
|
|
Total
|
|
Balance, December 31, 2016
|
|
$
|
6
|
|
|
$
|
(134)
|
|
|
$
|
(128)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(30)
|
|
|
|
123
|
|
|
|
93
|
(1)
|
Amounts reclassified from AOCI
|
|
|
(4)
|
|
|
|
-
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
(34)
|
|
|
|
123
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2017
|
|
$
|
(28)
|
|
|
$
|
(11)
|
|
|
$
|
(39)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) -
|
Includes items included in the Companys loss calculation to adjust the carrying value of MBIA UK to its fair value less costs to sell for the year ended December 31,
2016. The sale was completed in January of 2017 and as such, these amounts included in AOCI were reversed and included in the Sale Transaction.
|
48
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 13: Accumulated Other Comprehensive Income
(continued)
The following table presents the details of the reclassifications from AOCI for the three and six months ended
June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
Amounts Reclassified from AOCI
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
Details about AOCI Components
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Affected Line Item on the Consolidated
Statements of Operations
|
Unrealized gains (losses) on AFS securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains(losses)on sale of securities
|
|
$
|
4
|
|
|
$
|
(12)
|
|
|
$
|
6
|
|
|
$
|
(4)
|
|
|
Net gains (losses) on financial instruments at fair value and foreign exchange
|
OTTI
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
Net investment losses related to OTTI
|
Amortization on securities
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
(4)
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(13)
|
|
|
|
3
|
|
|
|
(8)
|
|
|
Income (loss) before income taxes
|
|
|
|
(1)
|
|
|
|
(5)
|
|
|
|
(1)
|
|
|
|
(3)
|
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
4
|
|
|
$
|
(8)
|
|
|
$
|
4
|
|
|
$
|
(5)
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Net income (loss)
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Note 14: 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, 2016, 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. On March 31, 2017, the court granted in part and denied in part MBIAs summary judgment motion. The parties have each filed cross-appeals from the courts
March 31, 2017 decision and order. Argument is scheduled for the September term of the Appellate Division of the Supreme Court, First Judicial Department.
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 June 6, 2017, the parties filed a stipulation acknowledging that they had resolved the claims in the litigation and dismissing the action with prejudice.
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 Mary E. Wiss recused and disqualified herself from further proceedings in the matter. On April 14, 2016, Judge Curtis E. A. 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. A discovery deadline is set for July 16, 2018 and a trial scheduled for October 1,
2018.
Lynn Tilton and Patriarch Partners XV, LLC v. MBIA Inc. and MBIA Insurance Corp. v.
; 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 in connection with insurance policies issued by MBIA Corp. on certain collateralized loan obligations managed by Ms. Tilton
and affiliated Patriarch entities, and seeking damages. The plaintiffs filed an amended complaint on January 15, 2016. On December 27, 2016, Justice Alan D. Scheinkman granted in part and denied in part MBIAs motion to dismiss. On
January 17, 2017, MBIA filed its answer. A scheduling order was entered on January 6, 2017 setting a Trial Readiness Conference for October 19, 2017.
49
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 14: Commitments and Contingencies (continued)
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 Puerto Rico defendants filed a motion to stay the
case pursuant to PROMESA, which was granted by the Court in August of 2016. The defendants filed their answer to the complaint on July 26, 2016. On November 15, 2016, the District Court denied Nationals motion to lift the litigation
stay granted pursuant to PROMESA and on January 30, 2017, the District Court denied Nationals partial motion for a summary judgment without prejudice. On January 11, 2017, the U.S. Court of Appeals for the First Circuit affirmed the
denial of a separate plaintiffs motion to lift the PROMESA stay in a related action challenging the Moratorium Act. Accordingly, the case remained stayed through May 1, 2017, at which time the PROMESA stay expired. However, on
May 3, 2017, Puerto Rico filed a Title III petition under PROMESA, thereby staying this dispute under Section 405(e) of PROMESA.
Assured
Guaranty Corp. et al. v. Commonwealth of Puerto Rico et al., Case No.
3:17-cv-01578
(D.P.R. May 3, 2017) (Swain, J.)
On May 3, 2017, the Financial Oversight and Management Board filed a petition under Title III of PROMESA to adjust the debts of Puerto Rico. On the same
day, National, together with Assured Guaranty Corp. and Assured Guaranty Municipal Corp., filed an adversary complaint in the case commenced by the Title III filing, alleging that the Fiscal Plan and the Fiscal Plan Compliance Act, signed into law
by the Governor of Puerto Rico on April 29, 2017, violate PROMESA and the United States Constitution. On July 10, 2017, the defendants moved to dismiss the adversary complaint.
The Bank of New York Mellon v. Puerto Rico Sales Tax Financing Corporation, et al., Case No.
17-133-LTS
(D.P.R. May 16, 2017)
(Swain, J.)
On May 16, 2017, the Bank of New York Mellon, as trustee for The Puerto Rico Sales Tax Financing Corporation, filed an adversary
complaint seeking an interpleader and declaratory relief relating to conflicting directions from multiple stakeholders regarding alleged events of default. On May 23, 2017, National filed a Motion to Intervene as a defendant in the adversary
proceeding. On May 30, 2017, Judge Swain granted interpleader of the June 1, 2017 payment and stayed pending and future litigation against the Bank of New York Mellon related to the dispute. The case is now in discovery and motions for
summary judgment are to be filed on September 15, 2017.
Assured Guaranty Corp. et al. v. Commonwealth of Puerto Rico et al., Case No. 17
BK
3567-LTS
(D.P.R. June 3, 2017) (Swain, J.)
On May 22, 2017, the Financial Oversight and
Management Board filed a petition under Title III of PROMESA to adjust the debts for the Puerto Rico Highways & Transportation Authority (PRHTA). On June 3, 2017, National, together with Assured Guaranty Corp. and Assured
Guaranty Municipal Corp. and Financial Guaranty Insurance Company, filed an adversary complaint in the case commenced by the Title III filing, alleging that the Commonwealth and PRHTA are unlawfully diverting pledged special revenues from the
payment of certain PRHTA bonds to the Commonwealths General Fund.
National Public Finance Guarantee Corp. et al. v. The Financial Oversight
and Mgmt. Bd. et al., Case No.
3:17-cv-01882
(D.P.R. June 26, 2017) (Besosa, J.)
On June 26, 2017, National, together with Assured Guaranty Corp. and Assured Guaranty Municipal Corp., filed a complaint against the Financial Oversight and Management Board for Puerto Rico (the
Oversight Board), its chairman and certain of its members seeking declaratory, injunctive and mandamus relief requiring the Oversight Board to comply with certain of its obligations under PROMESA. On July 17, 2017, National, again
joined by Assured Guaranty Corp. and Assured Guaranty Municipal Corp., filed an amended complaint against the Oversight Board, its chairman, and certain of its members in their official and individual capacities, seeking declaratory relief under
PROMESA and asserting a claim for nominal damages against the individual defendants for tortious interference with the Puerto Rico Electric Power Authority (PREPA) Restructuring Support Agreement.
National Public Finance Guarantee Corp. et al. v. The Financial Oversight and Mgmt. Bd. et al., Case No. 17 BK-04780 (D.P.R. August 7, 2017)
On August 7, 2017, National, together with Assured Guaranty Corp. , Assured Guaranty Municipal Corp., f/k/a Financial Security Assurance Inc., National Public
Finance Guarantee Corporation, the Ad Hoc Group of PREPA Bondholders, and Syncora Guarantee Inc. filed an adversary complaint under Title III of PROMESA against PREPA, Financial Oversight and Management Board for Puerto Rico, Puerto Rico Fiscal
Agency and Financial Advisory Authority,
et al
to enforce Plaintiffs contractual interest and constitutional right to revenues that PREPA pledged to bondholders but has thus far refused to turn over. Plaintiffs seek a declaration
that Defendants have violated sections 922(d) and 928(a) of the Bankruptcy Code, and that efforts to compel Defendants to apply such revenues to pay for debt service on the Bonds are not stayed as provided under section 922(d) of the Bankruptcy
Code. Plaintiffs also seek a declaration that, pursuant to sections 922(d) and 928 of the Bankruptcy Code as incorporated into PROMESA, PREPA is only authorized to use Revenues to pay for current operating expenses in the current time period,
not for future expenses that may be deferred to or payable at a later date. In addition to declaratory relief, Plaintiffs also seek injunctive relief prohibiting Defendants from taking or causing to be taken any action that would further
violate sections 922(d) and 928(a) of the Bankruptcy Code and ordering Defendants to remit Revenues for the uninterrupted and timely payment of debt service on the Bonds in accordance with sections 922(d) and 928(a) of the Bankruptcy Code.
For those aforementioned actions in which it is a defendant, the Company is defending against those actions 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. The
Company similarly can provide no assurance that it will be successful in those actions in which it is a plaintiff.
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.
50
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 14: Commitments and Contingencies (continued)
Lease Commitments
The Company has a lease agreement for its headquarters in Purchase, New York as well as other immaterial leases for offices in New York, New York and San Francisco, California. The Purchase, New York 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. This 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. As of June 30, 2017, total future minimum lease payments
remaining on this lease were $37 million.
Note 15: Subsequent Events
Refer to Note 14: Commitments and Contingencies for information about legal proceedings that occurred after June 30, 2017.
51