A large portion of the Company's investment portfolio and its derivative instruments are carried at fair value. Fair value is defined as the amount at which an asset or a liability could be bought or sold in a current transaction between willing parties. The fair value of substantially all of the Company's investment portfolio and derivative instruments used in hedging the interest rate risk of the asset management business is determined based upon quoted market prices. For derivative instruments where a quoted market price exists, the Company uses that price. If quoted market prices are not available (as is the case primarily with CDS referencing pools of assets and the determination of the fair value change of interest rate risk of a hedged asset or liability), then the determination of fair value is based upon internally developed estimates. Management applies judgment when developing estimates for CDS and considers factors such as current prices charged for similar agreements, performance of underlying assets, changes in internal shadow ratings, the level at which the deductible has been set and FSA's ability to obtain reinsurance for its insured obligations.
In international markets, FSA's asset-backed business continued to grow during 2001, led by European synthetic and funded CDOs and other structured finance transactions. The Asia Pacific group also closed a number of synthetic CDOs and consumer asset securitizations during the year. In addition, FSA made progress in global public infrastructure markets, where transactions generally have long lead times, and ended the year with mandates for a number of transactions scheduled to close in 2002. During 2001, FSA insured $21.1 billion of international par, compared with $13.2 billion in 2000, to generate gross PV premiums of $120.3 million, compared with $109.3 million in 2000.
FSA has a standby line of credit in the amount of $240.0 million with a group of international banks to provide loans to FSA after it has incurred, during the term of the facility, cumulative municipal losses (net of any recoveries) in excess of the greater of $240.0 million or the average annual debt service of the covered portfolio multiplied by 5.00%, which amounted to $704.6 million at December 31, 2002. The obligation to repay loans made under this agreement is a limited recourse obligation payable solely from, and collateralized by, a pledge of recoveries realized on defaulted insured obligations in the covered portfolio, including certain installment premiums and other collateral. This commitment has a term that will expire on April 30, 2009 and contains an annual renewal provision subject to approval by the banks. No amounts have been utilized under this commitment as of December 31, 2002.
into during that period. The Company will continue to analyze the effects of the standard, considering the timing of its release and the complexity of practical application to the Company's transactions.
The Company also maintains a non-specific general reserve, which is available to be applied against future additions or accretions to existing case basis reserves or to new case basis reserves to be established in the future. The general reserve is calculated by applying a loss factor to the total net par amount outstanding of the Company's insured obligations over the term of such insured obligations and discounting the result at the then current risk-free rates. The loss factor used for this purpose has been determined based upon an independent rating agency study of bond defaults and the Company's portfolio characteristics and history.
1)For all policies written prior to July 1, 1989, an amount equal to 50% of cumulative earned premiums less permitted reductions plus
•Insured CDS are not reported as a derivative contract that is recorded at fair value.
The principal amount ceded as of December 31, 2002 and 2001 and the terms to maturity are as follows (in millions):
Since the notes represent 100% of the debt capitalization of the Trusts and since FSA maintains all the risk of further asset decline and maintains control over key decisions regarding the Trusts (such as removal of the servicer, sale of the assets and liquidation of the entity), the Trusts were consolidated with FSA for accounting purposes.