Financial Guaranty Insurance Contracts (Tables)

3 Months Ended

Mar. 31, 2012

Financial Guaranty Insurance Contracts

Schedule of Effect of Retrospective Application of New Deferred Acquisition Cost Guidance On Consolidated Statements of Operations

	As ReportedFirst Quarter 2011		RetroactiveApplication Adjustment			As RevisedFirst Quarter 2011
	(in millions except per share amounts)
Amortization of deferred acquisition costs	$	7.4	$	(3.7	)	$	3.7
Other operating expenses	56.8		6.0			62.8
Total expenses	63.5		2.3			65.8
Income (loss) before income taxes	215.5		(2.3		)	213.2
Total provision (benefit) for income taxes	74.9		(1.0		)	73.9
Net income (loss)	140.6		(1.3		)	139.3
Earnings per share:
Basic	$	0.76	$	—		$	0.76
Diluted	0.75		(0.01		)	0.74

Net Earned Premiums

	First Quarter
	2012		2011
	(in millions)
Scheduled net earned premiums	$	152.0	$	214.9
Acceleration of premium earnings	36.6		29.6
Accretion of discount on net premiums receivable	4.7		9.0
Total financial guaranty	193.3		253.5
Other	0.4		0.5
Total net earned premiums(1)	$	193.7	$	254.0

(1)Excludes $17.0 million and $19.1 million in First Quarter 2012 and 2011, respectively, related to consolidated FG VIEs.

Gross Premium Receivable, Net of Ceding Commissions Roll Forward

	First Quarter
	2012			2011
	(in millions)
Gross premium receivable, net of ceding commissions payable:
Balance beginning of period	$	1,002.9		$	1,167.6
Premium written, net	56.3			48.0
Premium payments received, net	(86.1		)	(72.8		)
Adjustments to the premium receivable:
Changes in the expected term of financial guaranty insurance contracts	32.7			(51.1		)
Accretion of discount	6.1			9.2
Foreign exchange translation	12.2			15.9
Consolidation of FG VIEs	(5.4		)	—
Other adjustments	—			1.2
Balance, end of period (1)	$	1,018.7		$	1,118.0

(1)Excludes $32.6 million and $19.8 million as of March 31, 2012 and 2011, respectively, related to consolidated FG VIEs.

Expected Collections of Gross Premiums Receivable, Net of Ceding Commissions (Undiscounted)

	March 31, 2012
	(in millions)
2012 (April 1 – June 30)	$	56.6
2012 (July 1 – September 30)	30.8
2012 (October 1 – December 31)	44.6
2013	109.5
2014	95.9
2015	85.7
2016	79.8
2017-2021	315.9
2022-2026	214.6
2027-2031	158.7
After 2031	194.4
Total(1)	$	1,386.5

(1)Excludes expected cash collections on FG VIEs of $38.9 million.

Components of Unearned Premium Reserve

	As of March 31, 2012									As of December 31, 2011
	Gross			Ceded			Net(1)			Gross			Ceded			Net(1)
	(in millions)
Deferred premium revenue	$	5,918.8		$	647.8		$	5,271.0		$	6,046.3		$	727.4		$	5,318.9
Contra-paid	(87.9		)	(16.7		)	(71.2		)	(92.2		)	(18.8		)	(73.4		)
Total financial guaranty	5,830.9			631.1			5,199.8			5,954.1			708.6			5,245.5
Other	8.3			0.3			8.0			8.7			0.3			8.4
Total	$	5,839.2		$	631.4		$	5,207.8		$	5,962.8		$	708.9		$	5,253.9

(1)Total net unearned premium reserve excludes $249.7 million and $274.2 million related to FG VIE’s as of March 31, 2012 and December 31, 2011, respectively.

Expected Timing of Financial Guaranty Insurance Premium and Loss Recognition

	As of March 31, 2012
	Scheduled Net Earned Premium		Net Expected Loss to be Expensed		Net
	(in millions)
2012 (April 1–June 30)	$	144.3	$	17.8	$	126.5
2012 (July 1–September 30)	138.2		17.0		121.2
2012 (October 1–December 31)	131.6		15.5		116.1
Subtotal 2012	414.1		50.3		363.8
2013	474.1		58.4		415.7
2014	436.6		46.8		389.8
2015	387.1		41.2		345.9
2016	351.9		33.2		318.7
2017 - 2021	1,334.4		136.9		1,197.5
2022 - 2026	838.9		74.0		764.9
2027 - 2031	508.2		35.8		472.4
After 2031	525.7		27.2		498.5
Total present value basis(1)(2)	5,271.0		503.8		4,767.2
Discount	298.8		292.6		6.2
Total future value	$	5,569.8	$	796.4	$	4,773.4

(1)Balances represent discounted amounts.

(2)Consolidation of FG VIEs resulted in reductions of $396.2 million in future scheduled amortization of deferred premium revenue and $211.0 million in net present value of expected loss to be expensed.

Selected Information for Policies Paid in Installments

	As ofMarch 31, 2012		As ofDecember 31, 2011
	(dollars in millions)
Premiums receivable, net of ceding commission payable	$	1,018.7	$	1,002.9
Gross deferred premium revenue	2,125.6		2,192.6
Weighted-average risk-free rate used to discount premiums	3.7		3.4
Weighted-average period of premiums receivable (in years)	10.0		9.8

Financial Guaranty Insurance Present Value of Net Expected Loss to be Paid Roll Forward by Sector

	Net Expected Loss to be Paid as of December 31, 2011(4)			Economic Loss Development(2)			(Paid) Recovered Losses(3)			Net Expected Loss to be Paid as of March 31, 2012(4)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	1.8		$	0.4		$	—		$	2.2
Alt-A first lien	134.9			(8.6		)	(9.4		)	116.9
Option ARM	152.9			(1.7		)	(75.9		)	75.3
Subprime	140.3			11.3			(1.2		)	150.4
Total first lien	429.9			1.4			(86.5		)	344.8
Second lien:
Closed-end second lien	(79.6		)	(1.1		)	(9.0		)	(89.7		)
HELOCs	(31.1		)	7.6			(19.0		)	(42.5		)
Total second lien	(110.7		)	6.5			(28.0		)	(132.2		)
Total U.S. RMBS	319.2			7.9			(114.5		)	212.6
Other structured finance	252.8			(23.8		)	(23.7		)	205.3
Public finance(5)	66.0			220.7			47.8			334.5
Total	$	638.0		$	204.8		$	(90.4	)	$	752.4

	Net Expected Loss to be Paid as of December 31, 2010			Economic Loss Development(2)			(Paid) Recovered Losses(3)			Expected Loss to be Paid as of March 31, 2011(4)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	1.4		$	0.1		$	—		$	1.5
Alt-A first lien	184.4			6.5			(19.5		)	171.4
Option ARM	523.7			(114.7		)	(86.9		)	322.1
Subprime	200.4			(17.8		)	(15.1		)	167.5
Total first lien	909.9			(125.9		)	(121.5		)	662.5
Second lien:
Closed-end second lien	56.6			(106.4		)	(27.1		)	(76.9		)
HELOCs	(805.7		)	77.6			(64.6		)	(792.7		)
Total second lien	(749.1		)	(28.8		)	(91.7		)	(869.6		)
Total U.S. RMBS	160.8			(154.7		)	(213.2		)	(207.1		)
Other structured finance	159.1			16.3			(2.4		)	173.0
Public finance(5)	88.9			(13.6		)	(9.0		)	66.3
Total	$	408.8		$	(152.0	)	$	(224.6	)	$	32.2

(1)	Amounts include all expected payments whether or not the insured VIE is consolidated. Amounts exclude reserves for mortgage business of $1.9 million as of March 31, 2012 and December 31, 2011.
(2)	Economic loss development includes the effects of changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts.
(3)	Net of ceded paid losses, whether or not such amounts have been settled with reinsurers. Ceded paid losses are typically settled 45 days after the end of the reporting period. Such amounts are recorded in reinsurance recoverable on paid losses included in other assets.
(4)	Includes expected LAE to be paid for mitigating claim liabilities of $26.9 million as of March 31, 2012 and $35.5 million as of December 31, 2011.
(5)	Includes expected loss to be paid of $231.9 million as of March 31, 2012 and $42.6 million as of December 31, 2011 related to Greek sovereign debt.

Reconciliation of Present Value of Net Expected Loss to be Paid and Net Present Value of Net Expected Loss to be Expensed

	As ofMarch 31, 2012
	(in millions)
Net expected loss to be paid	$	752.4
Less: net expected loss to be paid for FG VIEs	(155.5		)
Total	907.9
Contra-paid, net	71.2
Salvage and subrogation recoverable	367.3
Ceded salvage and subrogation recoverable(1)	(42.9		)
Loss and LAE reserve	(951.3		)
Reinsurance recoverable on unpaid losses	151.6
Net expected loss to be expensed(2)	$	503.8

(1)Recorded in reinsurance balances payable on the consolidated balance sheet.

(2)Excludes $211.0 million related to consolidated FG VIEs.

Key Assumptions in Base Case Expected Loss Estimates Second Lien RMBS

HELOC Key Variables	As ofMarch 31, 2012	As ofDecember 31, 2011
Plateau conditional default rate	3.3 – 26.3%	4.0 – 27.4%
Final conditional default rate trended down to	0.4 – 3.2%	0.4 – 3.2%
Expected period until final conditional default rate	36 months	36 months
Initial conditional prepayment rate	2.6 – 15.1%	1.4 – 25.8%
Final conditional prepayment rate	10%	10%
Loss severity	98%	98%
Initial draw rate	0.0 – 7.8%	0.0 – 15.3%

Closed end second lien Key Variables	As of March 31, 2012	As of December 31, 2011
Plateau conditional default rate	5.4 – 24.9%	6.9 – 24.8%
Final conditional default rate trended down to	3.3 – 9.2%	3.5 – 9.2%
Expected period until final conditional default rate	36 months	36 months
Initial conditional prepayment rate	1.2 – 8.6%	0.9 – 14.7%
Final conditional prepayment rate	10%	10%
Loss severity	98%	98%

(1)Represents assumptions for most heavily weighted scenario (the “base case”).

First Lien Liquidation Rates

	As ofMarch 31, 2012		As ofDecember 31, 2011
30 – 59 Days Delinquent
Alt A and Prime	35	%	35	%
Option ARM	50		50
Subprime	30		30
60 – 89 Days Delinquent
Alt A and Prime	55		55
Option ARM	65		65
Subprime	45		45
90+ Days Delinquent
Alt A and Prime	65		65
Option ARM	75		75
Subprime	60		60
Bankruptcy
Alt A and Prime	55		55
Option ARM	70		70
Subprime	50		50
Foreclosure
Alt A and Prime	85		85
Option ARM	85		85
Subprime	80		80
Real Estate Owned (REO)
All	100		100

Key Assumptions in Base Case Expected Loss Estimates First Lien RMBS

	As of March 31, 2012	As of December 31, 2011
Alt-A First Lien
Plateau conditional default rate	2.7% – 33.9%	2.8% – 41.3%
Intermediate conditional default rate	0.5% – 6.8%	0.6% – 8.3%
Final conditional default rate	0.1% – 1.7%	0.1% – 2.1%
Initial loss severity	65%	65%
Initial conditional prepayment rate	0.0% – 34.1%	0.0% – 24.4%
Final conditional prepayment rate	15%	15%
Option ARM
Plateau conditional default rate	9.7% – 32.2%	11.7% –31.5%
Intermediate conditional default rate	1.9% – 6.4%	2.3% – 6.3%
Final conditional default rate	0.5% – 1.6%	0.6% – 1.6%
Initial loss severity	65%	65%
Initial conditional prepayment rate	0.1% – 5.3%	0.3% – 10.8%
Final conditional prepayment rate	15%	15%
Subprime
Plateau conditional default rate	8.3% – 30.0%	8.6% – 29.9%
Intermediate conditional default rate	1.7% – 6.0%	1.7% – 6.0%
Final conditional default rate	0.4% – 1.5%	0.4% – 1.5%
Initial loss severity	90%	90%
Initial conditional prepayment rate	0.0% – 8.8%	0.0% – 16.3%
Final conditional prepayment rate	15%	15%

Balance Sheet Classification of R&W benefits, Net of Reinsurance

	As of March 31, 2012							As of December 31, 2011
	For all Financial Guaranty Insurance Contracts		Effect of Consolidating FG VIEs			Reported on Balance Sheet		For all Financial Guaranty Insurance Contracts		Effect of Consolidating FG VIEs			Reported on Balance Sheet
	(dollars in millions)
Salvage and subrogation recoverable	$	389.1	$	(216.4	)	$	172.7	$	401.8	$	(197.3	)	$	204.5
Loss and LAE reserve	818.5		(74.5		)	744.0		857.5		(74.6		)	782.9
Unearned premium reserve	190.0		(56.2		)	133.8		175.5		(49.9		)	125.6
Total	$	1,397.6	$	(347.1	)	$	1,050.5	$	1,434.8	$	(321.8	)	$	1,113.0

Roll Forward of Estimated Benefit from Recoveries from Representation and Warranty Breaches, Net of Reinsurance

	Future Net R&W Benefit as of December 31, 2011		R&W Development and Accretion of Discount During 2012			R&W Recovered During 2012(1)			Future Net R&W Benefit as of March 31, 2012(2)
	(in millions)
Prime first lien	$	3.0	$	0.6		$	—		$	3.6
Alt-A first lien	202.7		9.4			(1.0		)	211.1
Option ARM	713.9		27.5			(17.6		)	723.8
Subprime	101.5		(5.1		)	—			96.4
Closed end second lien	223.8		(2.2		)	—			221.6
HELOC	189.9		2.2			(51.0		)	141.1
Total	$	1,434.8	$	32.4		$	(69.6	)	$	1,397.6

	Future Net R&W Benefit as of December 31, 2010		R&W Development and Accretion of Discount During 2011		R&W Recovered During 2011(1)			Future Net R&W Benefit as of March 31, 2011(2)
	(in millions)
Prime first lien	$	1.1	$	1.2	$	—		$	2.3
Alt-A first lien	81.0		39.7		—			120.7
Option ARM	309.3		335.3		(25.6		)	619.0
Subprime	26.8		54.3		—			81.1
Closed end second lien	178.2		95.0		—			273.2
HELOC	1,004.1		154.5		(33.9		)	1,124.7
Total	$	1,600.5	$	680.0	$	(59.5	)	$	2,221.0

(1)Gross amounts recovered were $77.2 million and $64.2 million in First Quarter 2012 and 2011, respectively.

(2)Includes R&W benefit of $482.1 million as of March 31, 2012 and $1,324.3 million as of March 31, 2011 attributable to transactions covered by the Bank of America Agreement.

Financial Guaranty Insurance U.S. RMBS Risks with R&W Benefit

	Number of Risks (1) as of		Debt Service as of
	March 31,2012	December 31, 2011	March 31,2012		December 31, 2011
	(dollars in millions)
Prime first lien	1	1	$	40.5	$	41.9
Alt-A first lien	21	22	1,670.0		1,732.6
Option ARM	11	12	1,337.6		1,459.7
Subprime	5	5	825.7		905.8
Closed-end second lien	4	4	262.8		361.4
HELOC (2)	7	15	731.2		2,978.5
Total	49	59	$	4,867.8	$	7,479.9

(1)A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.

(2)The decline in number of HELOC risks and debt service relates to the final payment from Bank of America for covered HELOC transactions.

Breakdown of the development and accretion amount in the rollforward of estimated recoveries associated with alleged breaches of R&W

	First Quarter
	2012			2011
	(in millions)
Inclusion of new deals with breaches of R&W during period	$	—		$	107.1
Change in recovery assumptions as the result of additional file review and recovery success	79.7			198.4
Estimated increase (decrease) in defaults that will result in additional (lower) breaches	(51.3		)	39.8
Results of settlements	—			334.1
Accretion of discount on balance	4.0			0.6
Total	$	32.4		$	680.0

Loss and LAE Reserve (Recovery), Net of Reinsurance and Salvage and Subrogation Recoverable

	As of March 31, 2012									As of December 31, 2011
	Loss and LAE Reserve			Salvage and Subrogation Recoverable			Net			Loss and LAE Reserve			Salvage and Subrogation Recoverable			Net
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	1.6		$	—		$	1.6		$	1.2		$	—		$	1.2
Alt-A first lien	59.9			57.1			2.8			69.8			55.4			14.4
Option ARM	139.0			147.6			(8.6		)	141.7			140.3			1.4
Subprime	59.7			0.2			59.5			51.4			0.3			51.1
Total first lien	260.2			204.9			55.3			264.1			196.0			68.1
Second lien:
Closed-end second lien	9.3			139.8			(130.5		)	11.2			136.2			(125.0		)
HELOC	54.8			186.5			(131.7		)	61.1			177.2			(116.1		)
Total second lien	64.1			326.3			(262.2		)	72.3			313.4			(241.1		)
Total U.S. RMBS	324.3			531.2			(206.9		)	336.4			509.4			(173.0		)
Other structured finance	176.2			9.8			166.4			233.0			5.9			227.1
Public finance (1)	362.3			75.6			286.7			100.0			69.9			30.1
Total financial guaranty	862.8			616.6			246.2			669.4			585.2			84.2
Other	1.9			—			1.9			1.9			—			1.9
Subtotal	864.7			616.6			248.1			671.3			585.2			86.1
Effect of consolidating FG VIEs	(63.1		)	(292.2		)	229.1			(61.6		)	(258.1		)	196.5
Total (2)	$	801.6		$	324.4		$	477.2		$	609.7		$	327.1		$	282.6

(1)Includes $275.5 million of net loss reserves as of March 31, 2012 and $32.6 million of net loss reserves as of December 31, 2011 related to sovereign debt of Greece.

(2)See “Components of Net Reserves (Salvage)” table for loss and LAE reserve and salvage and subrogation recoverable components.

Components of Net Reserves (Salvage)

	As of March 31, 2012			As of December 31, 2011
	(in millions)
Loss and LAE reserve	$	954.5		$	679.0
Reinsurance recoverable on unpaid losses	(152.9		)	(69.3		)
Subtotal	801.6			609.7
Salvage and subrogation recoverable	(367.3		)	(367.7		)
Salvage and subrogation payable(1)	42.9			40.6
Subtotal	(324.4		)	(327.1		)
Total	477.2			282.6
Less: other	1.9			1.9
Financial guaranty net reserves (salvage)	$	475.3		$	280.7

(1)Recorded as a component of reinsurance balances payable.

Loss and LAE Reported on the Consolidated Statements of Operations

	First Quarter
	2012			2011
	(in millions)
Financial Guaranty:
U.S. RMBS:
First lien:
Prime first lien	$	0.4		$	(0.1	)
Alt-A first lien	(1.3		)	8.2
Option ARM	52.5			(29.1		)
Subprime	7.8			(9.4		)
Total first lien	59.4			(30.4		)
Second lien:
Closed end second lien	(0.8		)	(9.9		)
HELOC	15.1			61.0
Total second lien	14.3			51.1
Total U.S. RMBS	73.7			20.7
Other structured finance	(32.4		)	20.3
Public finance(1)	208.7			(15.8		)
Total	250.0			25.2
Effect of consolidating FG VIEs	(3.2		)	(50.7		)
Total loss and LAE	$	246.8		$	(25.5	)

(1) Includes $189.3 million related to sovereign debt of Greece for First Quarter 2012.

Financial Guaranty Insurance BIG Transaction Loss Summary

March 31, 2012

	BIG Categories
	BIG 1						BIG 2						BIG 3									Effect of
	Gross			Ceded			Gross			Ceded			Gross			Ceded			Total BIG, Net			Consolidating FG VIEs			Total
	(dollars in millions)
Number of risks(1)	164			(58		)	79			(27		)	125			(48		)	368			—			368
Remaining weighted-average contract period (in years)	10.3			9.1			13.3			25.5			9.3			6.5			10.6			—			10.6
Net outstanding exposure:
Principal	$	9,048.8		$	(1,345.6	)	$	4,192.3		$	(289.5	)	$	7,512.5		$	(599.2	)	$	18,519.3		$	—		$	18,519.3
Interest	4,143.5			(464.5		)	3,206.1			(515.4		)	2,401.3			(163.8		)	8,607.2			—			8,607.2
Total(2)	$	13,192.3		$	(1,810.1	)	$	7,398.4		$	(804.9	)	$	9,913.8		$	(763.0	)	$	27,126.5		$	—		$	27,126.5
Expected cash outflows (inflows)	$	1,567.6		$	(646.0	)	$	2,203.4		$	(233.3	)	$	2,691.8		$	(123.6	)	$	5,459.9		$	(818.2	)	$	4,641.7
Potential recoveries(3)	(1,688.0		)	669.8			(1,049.2		)	50.0			(2,423.4		)	94.0			(4,346.8		)	905.6			(3,441.2		)
Subtotal	(120.4		)	23.8			1,154.2			(183.3		)	268.4			(29.6		)	1,113.1			87.4			1,200.5
Discount	9.9			(4.8		)	(279.1		)	23.1			(110.5		)	0.7			(360.7		)	68.1			(292.6		)
Present value of expected cash flows	$	(110.5	)	$	19.0		$	875.1		$	(160.2	)	$	157.9		$	(28.9	)	$	752.4		$	155.5		$	907.9
Deferred premium revenue	$	112.3		$	(13.6	)	$	311.5		$	(32.0	)	$	899.0		$	(107.5	)	$	1,169.7		$	(343.8	)	$	825.9
Reserves (salvage)(4)	$	(136.6	)	$	24.1		$	637.0		$	(141.7	)	$	(145.5	)	$	8.9		$	246.2		$	229.1		$	475.3

December 31, 2011

	BIG Categories
	BIG 1						BIG 2						BIG 3									Effect of
	Gross			Ceded			Gross			Ceded			Gross			Ceded			Total BIG, Net			Consolidating FG VIEs			Total
	(dollars in millions)
Number of risks(1)	171			(68		)	71			(26		)	126			(48		)	368			—			368
Remaining weighted-average contract period (in years)	10.0			9.2			13.7			20.5			9.2			6.4			10.4			—			10.4
Net outstanding exposure:
Principal	$	9,675.8		$	(1,378.0	)	$	3,731.6		$	(274.0	)	$	7,830.8		$	(627.7	)	$	18,958.5		$	—		$	18,958.5
Interest	4,307.9			(485.6		)	2,889.4			(404.8		)	2,486.4			(170.0		)	8,623.3			—			8,623.3
Total(2)	$	13,983.7		$	(1,863.6	)	$	6,621.0		$	(678.8	)	$	10,317.2		$	(797.7	)	$	27,581.8		$	—		$	27,581.8
Expected cash outflows (inflows)	$	1,730.6		$	(658.8	)	$	1,833.3		$	(120.3	)	$	2,423.0		$	(133.4	)	$	5,074.4		$	(998.4	)	$	4,076.0
Potential recoveries(3)	(1,798.0		)	664.0			(1,079.3		)	38.5			(2,040.5		)	100.3			(4,115.0		)	1,059.8			(3,055.2		)
Subtotal	(67.4		)	5.2			754.0			(81.8		)	382.5			(33.1		)	959.4			61.4			1,020.8
Discount	15.7			(4.6		)	(240.6		)	31.6			(125.1		)	1.6			(321.4		)	45.3			(276.1		)
Present value of expected cash flows	$	(51.7	)	$	0.6		$	513.4		$	(50.2	)	$	257.4		$	(31.5	)	$	638.0		$	106.7		$	744.7
Deferred premium revenue	$	260.8		$	(69.1	)	$	280.9		$	(12.3	)	$	991.8		$	(126.6	)	$	1,325.5		$	(390.7	)	$	934.8
Reserves (salvage)(4)	$	(96.6	)	$	6.9		$	319.5		$	(41.9	)	$	(110.2	)	$	6.5		$	84.2		$	196.5		$	280.7

(1)	A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments. The ceded number of risks represents the number of risks for which the Company ceded a portion of its exposure.
(2)	Includes BIG amounts related to FG VIEs which are not eliminated.
(3)	Includes estimated future recoveries for breaches of R&W as well as excess spread, and draws on HELOCs.

(4) See table “Components of net reserves (salvage).”