v3.23.1
Fair Value Of Financial Instruments
 3 Months Ended
Mar. 31, 2023
Text Block [Abstract]  
Fair Value Of Financial Instruments
Note 6: Fair Value of Financial Instruments
Fair Value Measurement
Financial Assets and Liabilities
Financial assets held by the Company primarily consist of investments in debt and equity securities and loans receivables at fair value held by consolidated VIEs. Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of debt issued for general corporate purposes within its corporate segment, MTNs, investment agreements, and debt issued by consolidated VIEs. The Company’s derivative liabilities are primarily interest rate swaps.
Valuation Techniques
Valuation techniques for financial instruments measured at fair value are described below.
Fixed-Maturity Securities Held as Available-For-Sale, Investments Carried at Fair Value, Investments Pledged as Collateral and Short-term Investments
These investments include investments in U.S. Treasury and government agencies, state and municipal bonds, foreign governments, corporate obligations, MBS, ABS, money market securities, and equity investments.
 

 
Substantially all of these investments are valued based on recently executed transaction prices or quoted market prices by independent third parties, including pricing services and brokers. 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, credit default swap (“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, the value of any credit enhancement and for certain equity investments, EBITDA multiples, discount rates, hard asset values and type certificate values.
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, money market securities and equity investments. 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
The carrying amounts of cash and cash equivalents approximate fair value due to the short-term nature and credit worthiness of these instruments and are categorized in Level 1 of the fair value hierarchy.
Loans Receivable at Fair Value
Loans receivable at fair value are assets held by consolidated VIEs consisting of residential mortgage loans and are categorized in Level 3 of the fair value hierarchy. Fair values of residential mortgage loans are determined using quoted prices for similar securities or internal cash flow models, adjusted for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. The fair values of the financial guarantees consider expected claim payments, net of recoveries, under MBIA Corp.’s policies.
Other Assets
Other assets include receivables representing the right to receive reimbursement payments on claim payments expected to be made on certain insured VIE liabilities due to risk mitigating transactions with third parties executed to effectively defease, or, in-substance commute the Company’s exposure on its financial guarantee policies. The right to receive reimbursement payments is based on the value of the Company’s financial guarantee determined using a cash flow model. The fair value of the financial guarantee primarily contains unobservable inputs and is categorized in Level 3 of the fair value hierarchy.
Medium-term Notes at Fair Value
The Company has elected to measure certain medium-term notes (“MTNs”) at fair value on a recurring basis. 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. MTNs are categorized in Level 3 of the fair value hierarchy and do not include accrued interest.
Variable Interest Entity Debt
The fair values of VIE debt 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 or internal cash flow models. Fair values based on quoted prices of similar securities and internal cash flow models may be adjusted for factors unique to the securities, including any credit enhancement. Observable inputs include interest rate yield curves, bond spreads of similar securities and MBIA Corp.’s CDS spreads. Unobservable inputs include the value of any credit enhancement. VIE debt are categorized in 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 of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.
 
 
A VIE consolidated by the Company entered into a derivative instrument consisting of a cross currency swap. The cross currency swap was entered into to manage the variability in cash flows resulting from fluctuations in foreign currency rates. The fair value of the VIE derivative was determined based on the valuation provided by an independent third party, which is included in “Liabilities of consolidated variable interest entities – Derivative liabilities” on the Company’s consolidated balance sheets. As the significant inputs are unobservable, the derivative contract is categorized in Level 3 of the fair value hierarchy.
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 March 31, 2023 and December 31, 2022:
 
                                                             
In millions
   
Fair Value as of
March 31,

2023
   
Valuation Techniques
   
Unobservable Input
   
Range

(Weighted Average)
Assets:
                            
Equity Investments
   
$
115
 
   
Discounted cash
flow
   
EBITDA multiples
(1)
         
                  
Discount rate
(1)
         
             
Sum of the parts
   
Hard asset values
(1)
         
                  
Type certificate values
(1)
         
Assets of consolidated VIEs:
                            
Loans receivable at fair value
   
 
83
 
   
Market prices of
similar liabilities or
internal cash flow
models adjusted
for financial
guarantees
provided to VIE
obligations
   
Impact of financial guarantee
   
 
13% - 98%
(58%)
(2)
 
Liabilities of consolidated VIEs:
                            
Variable interest entity notes
   
 
154
 
   
Market prices of
VIE assets
adjusted for
financial
guarantees
provided or
market prices of
similar liabilities
   
Impact of financial guarantee
   
 
44% - 72%
(68%)
(2)
 
 
(1) -
  Range for EBITDA multiples, discount rate, hard asset values and type certificate values reflects their potential variability.
 
(2) -
  Weighted average represents the total MBIA guarantees as a percentage of total instrument fair value.
          
          
          
          
          
          
          
          
In millions
  
Fair Value as of
December 31,

2022
  
Valuation Techniques
  
Unobservable Input
  
Range

(Weighted Average)
Assets:
  
  
  
  
Equity Investments
  
$
115
 
  
Discounted cash flow
  
EBITDA multiples
(1)
  
  
  
  
Discount rate
(1)
  
  
  
Sum of the parts
  
Hard asset values
(1)
  
  
  
  
Type certificate values
(1)
  
Assets of consolidated VIEs:
  
  
  
  
Loans receivable at fair value
  
 
78
 
  
Market prices of similar liabilities or internal cash flow models adjusted for financial guarantees provided to VIE obligations
  
Impact of financial guarantee
  
 
12% - 88%
(52%)
(2)
 
Liabilities of consolidated VIEs:
  
  
  
  
Variable interest entity notes
  
 
172
 
  
Market prices of VIE assets adjusted for financial guarantees provided or market prices of similar liabilities
  
Impact of financial guarantee
  
 
34% - 82%
(68%)
(2)
 
 
(1) -
  Range for EBITDA multiples, discount rate, hard asset values and type certificate values reflects their potential variability.
 
(2) -
  Weighted average represents the total MBIA guarantees as a percentage of total instrument fair value.
Sensitivity of Significant Unobservable Inputs
The significant unobservable inputs used in the fair value measurement of the Company’s equity investments at fair value are EBITDA multiples, the discount rate, hard asset values and type certificate values. The fair value of equity investments is determined by taking a weighted average of valuation scenarios. If there had been lower or higher EBITDA multiples, hard asset values or type certificate values, the value of equity investments would have been lower or higher, respectively. If there had been a lower or higher discount rate, the value of equity investments would have been higher or lower, respectively.

 
 
The significant unobservable input used in the fair value measurement of the Company’s residential loans receivable at fair value of consolidated VIEs is the impact of the financial guarantee. The fair value of residential loans receivable is calculated by subtracting the value of the financial guarantee from the market value of similar instruments to that of the VIE liabilities or the market value derived from internal cash flow models. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments, net of recoveries, under the policy. If there had been a lower expected cash flow on the underlying loans receivable of the VIE, the value of the financial guarantee provided by the Company under the insurance policy would have been higher. This would have resulted in a lower fair value of the residential loans receivable in relation to the obligations of the VIE.
The significant unobservable input used in the fair value measurement of the Company’s 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. When the VIE note is backed by RMBS, the fair value of the VIE liability is calculated by applying the market value of similar instruments to that of the VIE liabilities or internal cash flow models. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments under the policy. If the value of the guarantee provided by the Company to the obligations issued by the VIE had increased, the credit support would have added value to the
liabilities
of the VIE. This would have
resulted
in
an
increased fair value of the liabilities of the VIE.
 
 
Fair Value Measurements
The following tables present the fair value of the Company’s assets (including short-term investments) and liabilities measured and reported at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:
 
                                                                     
    
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)
   
Balance as of
March 31,
2023
Assets:
                                    
Fixed-maturity investments:
                                    
U.S. Treasury and government agency
   
$
494
 
   
$
56
 
   
$
-
 
   
$
550
 
State and municipal bonds
   
 
-
 
   
 
131
 
   
 
-
 
   
 
131
 
Foreign governments
   
 
-
 
   
 
24
 
   
 
-
 
   
 
24
 
Corporate obligations
   
 
-
 
   
 
967
 
   
 
1
 
   
 
968
 
Mortgage-backed securities:
                                    
Residential mortgage-backed agency
   
 
-
 
   
 
231
 
   
 
-
 
   
 
231
 
Residential mortgage-backed
non-agency
   
 
-
 
   
 
104
 
   
 
-
 
   
 
104
 
Commercial mortgage-backed
   
 
-
 
   
 
27
 
   
 
-
 
   
 
27
 
Asset-backed securities:
                                    
Collateralized debt obligations
   
 
-
 
   
 
160
 
   
 
-
 
   
 
160
 
Other asset-backed
   
 
-
 
   
 
106
 
   
 
-
 
   
 
106
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total fixed-maturity investments
   
 
494
 
   
 
1,806
 
   
 
1
 
   
 
2,301
 
Money market securities
   
 
208
 
   
 
-
 
   
 
-
 
   
 
208
 
Equity investments
   
 
37
 
   
 
19
 
   
 
115
 
   
 
171
 
Cash and cash equivalents
   
 
67
 
   
 
-
 
   
 
-
 
   
 
67
 
Assets of consolidated VIEs:
                                    
Mortgage-backed securities:
                                    
Residential mortgage-backed
non-agency
   
 
-
 
   
 
11
 
   
 
-
 
   
 
11
 
Commercial mortgage-backed
   
 
-
 
   
 
9
 
   
 
-
 
   
 
9
 
Asset-backed securities:
                                    
Collateralized debt obligations
   
 
-
 
   
 
1
 
   
 
-
 
   
 
1
 
Other asset-backed
   
 
-
 
   
 
1
 
   
 
-
 
   
 
1
 
Cash
   
 
16
 
   
 
-
 
   
 
-
 
   
 
16
 
Loans receivable at fair value:
                                    
Residential loans receivable
   
 
-
 
   
 
-
 
   
 
83
 
   
 
83
 
Other assets:
                                    
Other
   
 
-
 
   
 
-
 
   
 
9
 
   
 
9
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total assets
   
$
822
 
   
$
1,847
 
   
$
208
 
   
$
2,877
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Liabilities:
                                    
Medium-term notes
   
$
-
 
   
$
-
 
   
$
42
 
   
$
42
 
Derivative liabilities:
                                    
Non-insured
interest rate derivatives
   
 
-
 
   
 
57
 
   
 
-
 
   
 
57
 
Liabilities of consolidated VIEs:
                                    
Variable interest entity notes
   
 
-
 
   
 
-
 
   
 
154
 
   
 
154
 
Currency derivatives
   
 
-
 
   
 
-
 
   
 
11
 
   
 
11
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total liabilities
   
$
-
 
   
$
57
 
   
$
207
 
   
$
264
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
 
 
          
          
          
          
 
  
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)
  
Balance as of
December 31,
2022
Assets:
                                    
Fixed-maturity investments:
                                    
U.S. Treasury and government agency
   
$
463
 
   
$
54
 
   
$
-
 
   
$
517
 
State and municipal bonds
   
 
-
 
   
 
323
 
   
 
-
 
   
 
323
 
Foreign governments
   
 
-
 
   
 
21
 
   
 
-
 
   
 
21
 
Corporate obligations
   
 
-
 
   
 
797
 
   
 
-
 
   
 
797
 
Mortgage-backed securities:
                                    
Residential mortgage-backed agency
   
 
-
 
   
 
207
 
   
 
-
 
   
 
207
 
Residential mortgage-backed
non-agency
   
 
-
 
   
 
95
 
   
 
-
 
   
 
95
 
Commercial mortgage-backed
   
 
-
 
   
 
24
 
   
 
-
 
   
 
24
 
Asset-backed securities:
                                    
Collateralized debt obligations
   
 
-
 
   
 
159
 
   
 
-
 
   
 
159
 
Other asset-backed
   
 
-
 
   
 
127
 
   
 
-
 
   
 
127
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total fixed-maturity investments
   
 
463
 
   
 
1,807
 
   
 
-
 
   
 
2,270
 
Money market securities
   
 
234
 
   
 
-
 
   
 
-
 
   
 
234
 
Equity investments
   
 
38
 
   
 
19
 
   
 
115
 
   
 
172
 
Cash and cash equivalents
   
 
50
 
   
 
-
 
   
 
-
 
   
 
50
 
Assets of consolidated VIEs:
                                    
Corporate obligations
   
 
-
 
   
 
4
 
   
 
-
 
   
 
4
 
Mortgage-backed securities:
                                    
Residential mortgage-backed
non-agency
   
 
-
 
   
 
22
 
   
 
-
 
   
 
22
 
Commercial mortgage-backed
   
 
-
 
   
 
9
 
   
 
-
 
   
 
9
 
Asset-backed securities:
                                    
Collateralized debt obligations
   
 
-
 
   
 
5
 
   
 
-
 
   
 
5
 
Other asset-backed
   
 
-
 
   
 
7
 
   
 
-
 
   
 
7
 
Cash
   
 
16
 
   
 
-
 
   
 
-
 
   
 
16
 
Loans receivable at fair value:
                                    
Residential loans receivable
   
 
-
 
   
 
-
 
   
 
78
 
   
 
78
 
Other assets:
                                    
Other
   
 
-
 
   
 
-
 
   
 
23
 
   
 
23
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total assets
   
$
801
 
   
$
1,873
 
   
$
216
 
   
$
2,890
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Liabilities:
                                    
Medium-term notes
   
$
-
 
   
$
-
 
   
$
41
 
   
$
41
 
Derivative liabilities:
                                    
Non-insured
interest rate derivatives
   
 
-
 
   
 
49
 
   
 
-
 
   
 
49
 
Liabilities of consolidated VIEs:
                                    
Variable interest entity notes
   
 
-
 
   
 
-
 
   
 
172
 
   
 
172
 
Currency derivatives
   
 
-
 
   
 
-
 
   
 
6
 
   
 
6
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total liabilities
   
$
-
 
   
$
49
 
   
$
219
 
   
$
268
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Level 3 assets at fair value as of March 31, 2023 and December 31, 2022 represented approximately 7% of total assets measured at fair value. Level 3 liabilities at fair value as of March 31, 2023 and December 31, 2022 represented approximately 78% and 82%, respectively, of total liabilities measured at fair value.
 
 
The following tables present the fair values and carrying values of the Company’s assets and liabilities that are disclosed at fair value but not reported at fair value on the Company’s consolidated balance sheets as of March 31, 2023 and December 31, 2022. The majority of the financial assets and liabilities that the Company requires fair value reporting or disclosures are valued based on the Company’s or a third-party’s estimate of discounted cash flow model estimates, or quoted market values for identical or similar products.
 
          
          
          
          
          
 
  
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
March 31,
2023
  
Carry Value
Balance as of
March 31,
2023
Liabilities:
                                             
Long-term debt
   
$
-
 
   
$
296
 
   
$
-
 
   
$
296
 
   
$
2,467
 
Medium-term notes
   
 
-
 
   
 
-
 
   
 
309
 
   
 
309
 
   
 
462
 
Investment agreements
   
 
-
 
   
 
-
 
   
 
259
 
   
 
259
 
   
 
233
 
Liabilities of consolidated VIEs:
                                             
Variable interest entity loans
payable
 
 
-
 
 
 
-
 
 
 
2
 
 
 
2
 
 
 
2
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total liabilities
   
$
-
 
   
$
296
 
   
$
570
 
   
$
866
 
   
$
3,164
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Financial Guarantees:
                                             
Gross liability (recoverable)
   
$
-
 
   
$
-
 
   
$
876
 
   
$
876
 
   
$
541
 
Ceded recoverable (liability)
   
 
-
 
   
 
-
 
   
 
22
 
   
 
22
 
   
 
8
 
 
                                                                                      
    
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,
2022
   
Carry Value
Balance as of
December 31,
2022
Liabilities:
                                             
Long-term debt
   
$
-
 
   
$
330
 
   
$
-
 
   
$
330
 
   
$
2,428
 
Medium-term notes
   
 
-
 
   
 
-
 
   
 
310
 
   
 
310
 
   
 
458
 
Investment agreements
   
 
-
 
   
 
-
 
   
 
257
 
   
 
257
 
   
 
233
 
Liabilities of consolidated VIEs:
                                             
Variable interest entity loans payable
   
 
-
 
   
 
-
 
   
 
2
 
   
 
2
 
   
 
2
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total liabilities
   
$
-
 
   
$
330
 
   
$
569
 
   
$
899
 
   
$
3,121
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Financial Guarantees:
                                             
Gross liability (recoverable)
   
$
-
 
   
$
-
 
   
$
864
 
   
$
864
 
   
$
568
 
Ceded recoverable (liability)
   
 
-
 
   
 
-
 
   
 
21
 
   
 
21
 
   
 
15
 
 
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 March 31, 2023 and 2022:
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2023
 
                                                                                                                                                                                                             
In millions
   
Balance,

Beginning

of Period
   
Total

Gains /

(Losses)

Included

in

Earnings
   
Unrealized

Gains /

(Losses)

Included

in OCI
(1)
   
Purchases
   
Issuances
   
Settlements
  
Sales
  
Transfers

into

Level 3
   
Transfers

out of

Level 3
   
Ending

Balance
   
Change in

Unrealized

Gains

(Losses) for

the Period

Included in

Earnings

for Assets

still held

as of

March 31,

2023
   
Change in

Unrealized

Gains

(Losses) for

the Period

Included in

OCI

for Assets

still held

as of

March 31,

2023
(1)
Assets:
                                                                                                          
Corporate obligations
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
  
$
-
 
  
$
1
 
   
$
-
 
   
$
1
 
   
$
-
 
   
$
-
 
Equity investments
   
 
115
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
-
 
  
 
-
 
   
 
-
 
   
 
115
 
   
 
-
 
   
 
-
 
Assets of consolidated VIEs:
                                                                                                          
Loans receivable - residential
   
 
78
 
   
 
7
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
(2
) 
  
 
-
 
  
 
-
 
   
 
-
 
   
 
83
 
   
 
5
 
   
 
-
 
Other
   
 
23
 
   
 
2
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
(16
) 
  
 
-
 
   
 
-
 
   
 
9
 
   
 
1
 
   
 
-
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total assets
   
$
216
 
   
$
9
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
(2
) 
  
$
(16
) 
  
$
1
 
   
$
-
 
   
$
208
 
   
$
6
 
   
$
-
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
 
                                                                                                                                                                                                             
In millions
   
Balance,

Beginning

of Period
   
Total

(Gains) /

Losses

Included

in

Earnings
   
Unrealized
(Gains) /
Losses
Included
in in OCI
(2)
  
Purchases
   
Issuances
   
Settlements
  
Sales
  
Transfers

into

Level 3
   
Transfers

out of

Level 3
   
Ending

Balance
   
Change in

Unrealized

(Gains)

Losses for

the Period

Included in

Earnings for

Liabilities

still held

as of

March 31,

2023
   
Change in

Unrealized

(Gains)

Losses for

the Period

Included in

OCI for

Liabilities

still held

as of

March 31,

2023
(2)
Liabilities:
                                                                                                         
Medium-term notes
   
$
41
 
   
$
3
 
   
$
(2
) 
  
$
-
 
   
$
-
 
   
$
-
 
  
$
-
 
  
$
-
 
   
$
-
 
   
$
42
 
   
$
3
 
   
$
(2
) 
Liabilities of consolidated VIEs:
                                                                                                         
VIE notes
   
 
172
 
   
 
15
 
   
 
(14
) 
  
 
-
 
   
 
-
 
   
 
(1
) 
  
 
(18
) 
  
 
-
 
   
 
-
 
   
 
154
 
   
 
1
 
   
 
-
 
Currency
 
derivatives
   
 
6
 
   
 
5
 
   
 
-
 
  
 
-
 
   
 
-
 
   
 
-
 
  
 
-
 
  
 
-
 
   
 
-
 
   
 
11
 
   
 
5
 
   
 
-
 
    
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total liabilities
   
$
219
 
   
$
23
 
   
$
(16
) 
  
$
-
 
   
$
-
 
   
$
(1
) 
  
$
(18
) 
  
$
-
 
   
$
-
 
   
$
207
 
   
$
9
 
   
$
(2
) 
    
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
 
(1) -
  Reported within the “Unrealized gains (losses) on available-for-sale securities” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.
 
(2) -
  Reported within the “Instrument-specific credit risk of liabilities measured at fair value” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2022

          
          
          
          
          
          
          
          
          
          
          
          
In millions
  
Balance,
Beginning
of Period
  
Total
Gains /
(Losses)
Included
in
Earnings
  
Unrealized
Gains /
(Losses)
Included
in OCI
(1)
  
Purchases
  
Issuances
  
Settlements
 
Sales
  
Transfers
into
Level 3
  
Transfers
out of
Level 3
  
Ending
Balance
  
Change in
Unrealized
Gains
(Losses) for
the Period
Included in
Earnings for
Assets

still held

as of
March 31,
2022
 
Change in
Unrealized
Gains
(Losses) for
the Period
Included in
OCI for
Assets

still held

as of
March 31,
2022
(1)
Assets:
                                                                                                          
Residential mortgage-
backed non-agency
   
$
-
 
   
$
-
 
   
$
-
 
   
$
38
 
   
$
-
 
   
$
-
 
  
$
-
 
   
$
-
 
   
$
-
 
   
$
38
 
   
$
-
 
  
$
-
 
Assets of consolidated VIEs:
                                                                                                          
Collateralized debt obligations
   
 
4
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
(4
) 
  
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
-
 
Loans receivable- residential
   
 
77
 
   
 
1
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
(2
) 
  
 
-
 
   
 
-
 
   
 
-
 
   
 
76
 
   
 
(1
) 
  
 
-
 
Currency derivatives
   
 
9
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
-
 
   
 
-
 
   
 
-
 
   
 
9
 
   
 
-
 
  
 
-
 
Other
   
 
14
 
   
 
1
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
-
 
   
 
-
 
   
 
-
 
   
 
15
 
   
 
1
 
  
 
-
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
Total assets
   
$
104
 
   
$
2
 
   
$
-
 
   
$
38
 
   
$
-
 
   
$
(6
) 
  
$
-
 
   
$
-
 
   
$
-
 
   
$
138
 
   
$
-
 
  
$
-
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
 
          
          
          
          
          
          
          
          
          
          
          
          
In millions
  
Balance,
Beginning
of Period
  
Total
(Gains) /
Losses
Included
in
Earnings
 
Unrealized
(Gains) /
Losses
Included
in OCI
(2)
  
Purchases
  
Issuances
  
Settlements
 
Sales
  
Transfers
into
Level 3
  
Transfers
out of
Level 3
  
Ending
Balance
  
Change in
Unrealized
(Gains)
Losses for
the Period
Included in
Earnings for
Liabilities
still held

as of
March 31,
2022
 
Change in
Unrealized
(Gains)
Losses for
the Period
Included in
OCI for
Liabilities
still held
as of
March 31,
2022
(2)
Liabilities:
                                                                                                
Medium-term notes
  
$
98
 
  
$
(8
) 
  
$
9
 
  
$
-
 
  
$
-
 
  
$
-
 
  
$
-
 
  
$
-
 
  
$
-
 
  
$
99
 
  
$
(8
) 
  
$
9
 
Liabilities of consolidated VIEs:
                                                                                                
VIE notes
  
 
291
 
  
 
4
 
  
 
1
 
  
 
-
 
  
 
-
 
  
 
(11
) 
  
 
-
 
  
 
-
 
  
 
-
 
  
 
285
 
  
 
(3
) 
  
 
4
 
   
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total liabilities
  
$
389
 
  
$
(4
) 
  
$
10
 
  
$
-
 
  
$
-
 
  
$
(11
) 
  
$
-
 
  
$
-
 
  
$
-
 
  
$
384
 
  
$
(11
) 
  
$
13
 
   
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
(1) -
  Reported within the “Unrealized gains (losses) on available-for-sale securities” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.
 
(2) -
  Reported within the “Instrument-specific credit risk of liabilities measured at fair value” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.
For the three months ended March 31, 2023, sales included the impact of the
deconsolidation
of VIEs. Refer to “Note 4: Variable Interest Entities” for additional information about the deconsolidation of VIEs.
For the three months ended March 31, 2023, transfers into Level 3 and out of Level 2 were related to corporate obligations, 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 out of Level 3.
For the three months ended March 31, 2022, there were no transfers into or out of
Level
3.
Gains and losses (realized and unrealized) included in earnings related to Level 3 assets and liabilities for the three months ended March 31, 2023 and 2022 are reported on the Company’s consolidated statements of operations as follows:
 
                                                                     
    
Three Months Ended March 31, 2023
   
Three Months Ended March 31, 2022
In millions
   
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 March 31, 2023
   
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 March 31,
2022
Revenues:
                                    
Net gains (losses) on financial instruments at fair value and foreign exchange
   
$
(3
) 
   
$
(3
) 
   
$
8
 
   
$
8
 
Revenues of consolidated VIEs:
                                    
Net gains (losses) on financial instruments at fair value and foreign exchange
   
 
3
 
   
 
-
 
   
 
(2
) 
   
 
3
 
Other net realized gains (losses)
   
 
(14
 )
 
   
 
-
 
   
 
-
 
   
 
-
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total
   
$
(14
) 
   
$
(3
) 
   
$
6
 
   
$
11
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Fair Value Option
The Company elected to record at fair value certain financial instruments, including certain equity investments and financial instruments that are consolidated in connection with the adoption of the accounting guidance for consolidation of VIEs.
 
The following table presents the gains and (losses) included in the Company’s consolidated statements of operations for the three months ended March 31, 2023 and 2022 for financial instruments for which the fair value option was elected:
 
          
          
 
  
Three Months Ended
March 31,
In millions
  
2023
 
2022
Investments carried at fair value
(1)
   
$
3
 
  
$
(8
) 
Fixed-maturity securities held at fair
value-VIE
(3)
   
 
(4
) 
  
 
(1
) 
Loans receivable at fair value:
                 
Residential mortgage loans
(2)
   
 
7
 
  
 
1
 
Other
assets-VIE
(3)
   
 
2
 
  
 
1
 
Medium-term notes
(1)
   
 
(3
) 
  
 
8
 
Variable interest entity notes
(3)
   
 
(15
) 
  
 
(5
) 

(1) - Reported within “Net gains (losses) of financial instruments at fair value and foreign exchange” on MBIA’s consolidated statements of operations.
(2) - Reported within “Net gains (losses) of financial instruments at fair value and foreign
exchange-VIE”
on MBIA’s consolidated statements of operations.
(3) - Reported within “Net gains (losses) of financial instruments at fair value and foreign
exchange-VIE”
and “Other net realized gains
(losses)-VIE”
on MBIA’s consolidated statements of operations.
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of March 31, 2023 and December 31, 2022 for loans and notes for which the fair value option was elected: 
 
          
          
          
          
          
          
 
  
As of March 31, 2023
  
As of December 31, 2022
In millions
  
Contractual
Outstanding
Principal
  
Fair
Value
  
Difference
  
Contractual
Outstanding
Principal
  
Fair
Value
  
Difference
Loans receivable at fair value:
                                                      
Residential mortgage loans - current
   
$
42
 
   
$
42
 
   
$
-
 
   
$
39
 
   
$
39
 
   
$
-
 
Residential mortgage loans (90 days or more past due)
   
 
161
 
   
 
41
 
   
 
120
 
   
 
149
 
   
 
39
 
   
 
110
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total loans receivable and other instruments at fair value
   
$
203
 
   
$
83
 
   
$
120
 
   
$
188
 
   
$
78
 
   
$
110
 
Variable interest entity notes
   
$
610
 
   
$
154
 
   
$
456
 
   
$
780
 
   
$
172
 
   
$
608
 
Medium-term notes
   
$
54
 
   
$
42
 
   
$
12
 
   
$
53
 
   
$
41
 
   
$
12
 
The differences between the contractual outstanding principal and the fair values on loans receivable, VIE notes and MTNs in the preceding table are primarily attributable to credit risk. This is due to the high rate of defaults on loans (90 days or more past due), the collateral supporting the VIE notes and the nonperformance risk of the Company on its MTNs, all of which resulted in depressed pricing of the financial instruments.
Instrument-Specific Credit Risk of Liabilities Elected Under the Fair Value Option
As of March 31, 2023 and December 31, 2022, the cumulative changes in instrument-specific credit risk of liabilities elected under the fair value option were losses of $30 million and $45 million, respectively, reported in “Accumulated other comprehensive income” on the Company’s consolidated balance sheets. Changes in value attributable to instrument-specific credit risk were derived principally from changes in the Company’s credit spread. For liabilities of VIEs, additional adjustments to instrument-specific credit risk are required, which is determined by an analysis of deal specific performance of collateral that support these liabilities. During the three months ended March 31, 2023 and 2022, the portions of instrument-specific credit risk included in AOCI that were recognized in earnings due to settlement of liabilities were losses of $14 million and $3 million, respectively.