Expected Losses to be Paid (Tables)

9 Months Ended

Sep. 30, 2013

Net Expected Loss to be Paid After Net Expected Recoveries for Breaches of R&W Rollforward

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward

Third Quarter 2013



	Net Expected Loss to be Paid as of June 30, 2013			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of September 30, 2013(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	18		$	3		$	—		$	21
Alt-A first lien	288			(85		)	3			206
Option ARM	(20		)	25			2			7
Subprime	274			38			(9		)	303
Total first lien	560			(19		)	(4		)	537
Second lien:
Closed-end second lien	(14		)	—			1			(13		)
HELOCs	(97		)	(42		)	10			(129		)
Total second lien	(111		)	(42		)	11			(142		)
Total U.S. RMBS	449			(61		)	7			395
TruPS	33			9			8			50
Other structured finance	158			(13		)	(17		)	128
U.S. public finance	71			44			68			183
Non-U.S public finance	66			(1		)	(12		)	53
Other	(3		)	—			—			(3		)
Total	$	774		$	(22	)	$	54		$	806

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward

Third Quarter 2012



	Net Expected Loss to be Paid as of June 30, 2012			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of September 30, 2012
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4		$	1		$	—		$	5
Alt-A first lien	321			14			(24		)	311
Option ARM	3			3			(96		)	(90		)
Subprime	236			13			(10		)	239
Total first lien	564			31			(130		)	465
Second lien:
Closed-end second lien	(29		)	4			—			(25		)
HELOCs	(64		)	(13		)	(30		)	(107		)
Total second lien	(93		)	(9		)	(30		)	(132		)
Total U.S. RMBS	471			22			(160		)	333
TruPS	50			5			(2		)	53
Other structured finance	320			(3		)	(2		)	315
U.S. public finance	59			7			(56		)	10
Non-U.S public finance	302			33			(289		)	46
Other	(4		)	—			—			(4		)
Total	$	1,198		$	64		$	(509	)	$	753

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward

Nine Months 2013



	Net Expected Loss to be Paid as of December 31, 2012 (2)			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of September 30, 2013(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	6		$	16		$	(1	)	$	21
Alt-A first lien	315			(83		)	(26		)	206
Option ARM	(131		)	(92		)	230			7
Subprime	242			86			(25		)	303
Total first lien	432			(73		)	178			537
Second lien:
Closed-end second lien	(39		)	7			19			(13		)
HELOCs	(111		)	(76		)	58			(129		)
Total second lien	(150		)	(69		)	77			(142		)
Total U.S. RMBS	282			(142		)	255			395
TruPS	27			7			16			50
Other structured finance	312			(39		)	(145		)	128
U.S. public finance	7			138			38			183
Non-U.S public finance	52			13			(12		)	53
Other	(3		)	(10		)	10			(3		)
Total	$	677		$	(33	)	$	162		$	806

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward

Nine Months 2012



	Net Expected Loss to be Paid as of December 31, 2011			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of September 30, 2012 (2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	2		$	3		$	—		$	5
Alt-A first lien	295			27			(11		)	311
Option ARM	210			12			(312		)	(90		)
Subprime	241			39			(41		)	239
Total first lien	748			81			(364		)	465
Second lien:
Closed-end second lien	(86		)	—			61			(25		)
HELOCs	(31		)	9			(85		)	(107		)
Total second lien	(117		)	9			(24		)	(132		)
Total U.S. RMBS	631			90			(388		)	333
TruPS	64			(6		)	(5		)	53
Other structured finance	342			7			(34		)	315
U.S. public finance	16			65			(71		)	10
Non-U.S public finance	51			215			(220		)	46
Other	2			(6		)	—			(4		)
Total	$	1,106		$	365		$	(718	)	$	753

____________________


(1)	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.


(2)	Includes net expected loss adjustment expenses ("LAE") to be paid for mitigating claim liabilities of $34 million as of September 30, 2013 and $39 million as of December 31, 2012. The Company paid $12 million and $14 million in LAE for Third Quarter 2013 and 2012, respectively, and $41 million and $33 million in LAE for Nine Months 2013 and 2012, respectively.

Net Expected Recoveries from Breaches of R&W Rollforward

Net Expected Recoveries from

Breaches of R&W Rollforward

Third Quarter 2013



	Future Net R&W Benefit as of June 30, 2013(2)		R&W Development and Accretion of Discount During Third Quarter 2013			R&W Recovered During Third Quarter 2013(1)			Future Net R&W Benefit as of September 30, 2013(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4	$	(1	)	$	—		$	3
Alt-A first lien	348		37			(16		)	369
Option ARM	293		40			(80		)	253
Subprime	108		7			—			115
Total first lien	753		83			(96		)	740
Second lien:
Closed end second lien	102		1			(3		)	100
HELOC	109		2			(56		)	55
Total second lien	211		3			(59		)	155
Total	$	964	$	86		$	(155	)	$	895

Net Expected Recoveries from

Breaches of R&W Rollforward

Third Quarter 2012



	Future Net R&W Benefit as of June 30, 2012(2)		R&W Development and Accretion of Discount During Third Quarter 2012			R&W Recovered During Third Quarter 2012(1)			Future Net R&W Benefit as of September 30, 2012 (2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4	$	—		$	—		$	4
Alt-A first lien	387		—			(3		)	384
Option ARM	711		(7		)	(81		)	623
Subprime	93		11			—			104
Total first lien	1,195		4			(84		)	1,115
Second lien:
Closed end second lien	137		2			(3		)	136
HELOC	122		6			(8		)	120
Total second lien	259		8			(11		)	256
Total	$	1,454	$	12		$	(95	)	$	1,371

____________________


(1)	Gross amounts recovered were $159 million and $99 million for Third Quarter 2013 and 2012, respectively.


(2)	Includes excess spread that the Company will receive as salvage as a result of a settlement agreement with an R&W provider.

Net Expected Recoveries from

Breaches of R&W Rollforward

Nine Months 2013



	Future Net R&W Benefit as of December 31, 2012		R&W Development and Accretion of Discount During 2013			R&W Recovered During 2013(1)			Future Net R&W Benefit as of September 30, 2013(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4	$	(1	)	$	—		$	3
Alt-A first lien	378		24			(33		)	369
Option ARM	591		206			(544		)	253
Subprime	109		6			—			115
Total first lien	1,082		235			(577		)	740
Second lien:
Closed end second lien	138		(11		)	(27		)	100
HELOC	150		70			(165		)	55
Total second lien	288		59			(192		)	155
Total	$	1,370	$	294		$	(769	)	$	895

Net Expected Recoveries from

Breaches of R&W Rollforward

Nine Months 2012



	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 September 30, 2012(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	3	$	1	$	—		$	4
Alt-A first lien	407		44		(67		)	384
Option ARM	725		55		(157		)	623
Subprime	101		3		—			104
Total first lien	1,236		103		(224		)	1,115
Second lien:
Closed end second lien	224		—		(88		)	136
HELOC	190		6		(76		)	120
Total second lien	414		6		(164		)	256
Total	$	1,650	$	109	$	(388	)	$	1,371

____________________


(1)	Gross amounts recovered were $794 million and $410 million for Nine Months 2013 and 2012, respectively.


(2)	Includes excess spread that the Company will receive as salvage as a result of a settlement agreement with an R&W provider.

Net Expected Loss to be Paid by Accounting Model

The following tables present the present value of net expected loss to be paid for all contracts by accounting model, by sector and after the benefit for estimated and contractual recoveries for breaches of R&W.

Net Expected Loss to be Paid

By Accounting Model

As of September 30, 2013



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	3		$	—		$	18		$	21
Alt-A first lien	90			29			87			206
Option ARM	(14		)	11			10			7
Subprime	144			73			86			303
Total first lien	223			113			201			537
Second lien:
Closed-end second lien	(36		)	25			(2		)	(13		)
HELOCs	(43		)	(86		)	—			(129		)
Total second lien	(79		)	(61		)	(2		)	(142		)
Total U.S. RMBS	144			52			199			395
TruPS	4			—			46			50
Other structured finance	170			—			(42		)	128
U.S. public finance	183			—			—			183
Non-U.S. public finance	51			—			2			53
Subtotal	$	552		$	52		$	205		809
Other										(3		)
Total										$	806

Net Expected Loss to be Paid

By Accounting Model

As of December 31, 2012



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4		$	—		$	2		$	6
Alt-A first lien	164			27			124			315
Option ARM	(114		)	(37		)	20			(131		)
Subprime	118			50			74			242
Total first lien	172			40			220			432
Second lien:
Closed-end second lien	(60		)	31			(10		)	(39		)
HELOCs	56			(167		)	—			(111		)
Total second lien	(4		)	(136		)	(10		)	(150		)
Total U.S. RMBS	168			(96		)	210			282
TruPS	1			—			26			27
Other structured finance	224			—			88			312
U.S. public finance	7			—			—			7
Non-U.S. public finance	51			—			1			52
Subtotal	$	451		$	(96	)	$	325		680
Other										(3		)
Total										$	677

___________________

(1) Refer to Note 9, Consolidation of Variable Interest Entities.

Net Economic Loss Development by Accounting Model

The following tables present the net economic loss development for all contracts by accounting model, by sector and after the benefit for estimated and contractual recoveries for breaches of R&W.

Net Economic Loss Development

By Accounting Model

Third Quarter 2013



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	—		$	—		$	3		$	3
Alt-A first lien	(53		)	3			(35		)	(85		)
Option ARM	20			1			4			25
Subprime	25			5			8			38
Total first lien	(8		)	9			(20		)	(19		)
Second lien:
Closed-end second lien	2			(3		)	1			—
HELOCs	(49		)	8			(1		)	(42		)
Total second lien	(47		)	5			—			(42		)
Total U.S. RMBS	(55		)	14			(20		)	(61		)
TruPS	1			—			8			9
Other structured finance	(13		)	—			—			(13		)
U.S. public finance	43			—			1			44
Non-U.S. public finance	(1		)	—			—			(1		)
Subtotal	$	(25	)	$	14		$	(11	)	(22		)
Other										—
Total										$	(22	)

Net Economic Loss Development

By Accounting Model

Third Quarter 2012



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	1		$	—		$	—		$	1
Alt-A first lien	38			(34		)	10			14
Option ARM	(69		)	76			(4		)	3
Subprime	32			(21		)	2			13
Total first lien	2			21			8			31
Second lien:
Closed-end second lien	63			(64		)	5			4
HELOCs	62			(75		)	—			(13		)
Total second lien	125			(139		)	5			(9		)
Total U.S. RMBS	127			(118		)	13			22
TruPS	3			—			2			5
Other structured finance	—			—			(3		)	(3		)
U.S. public finance	8			—			(1		)	7
Non-U.S. public finance	33			—			—			33
Subtotal	$	171		$	(118	)	$	11		64
Other										—
Total										$	64

Net Economic Loss Development

By Accounting Model

Nine Months 2013



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	(1	)	$	—		$	17		$	16
Alt-A first lien	(60		)	3			(26		)	(83		)
Option ARM	(58		)	(32		)	(2		)	(92		)
Subprime	40			25			21			86
Total first lien	(79		)	(4		)	10			(73		)
Second lien:
Closed-end second lien	—			(4		)	11			7
HELOCs	(66		)	(10		)	—			(76		)
Total second lien	(66		)	(14		)	11			(69		)
Total U.S. RMBS	(145		)	(18		)	21			(142		)
TruPS	1			—			6			7
Other structured finance	(32		)	—			(7		)	(39		)
U.S. public finance	137			—			1			138
Non-U.S. public finance	12			—			1			13
Subtotal	$	(27	)	$	(18	)	$	22		(23		)
Other										(10		)
Total										$	(33	)

Net Economic Loss Development

By Accounting Model

Nine Months 2012



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	2		$	—		$	1		$	3
Alt-A first lien	30			(12		)	9			27
Option ARM	15			(9		)	6			12
Subprime	29			4			6			39
Total first lien	76			(17		)	22			81
Second lien:
Closed-end second lien	4			(9		)	5			—
HELOCs	3			6			—			9
Total second lien	7			(3		)	5			9
Total U.S. RMBS	83			(20		)	27			90
TruPS	(3		)	—			(3		)	(6		)
Other structured finance	12			—			(5		)	7
U.S. public finance	66			—			(1		)	65
Non-U.S. public finance	216			—			(1		)	215
Subtotal	$	374		$	(20	)	$	17		371
Other										(6		)
Total										$	365

_________________

(1) Refer to Note 9, Consolidation of Variable Interest Entities.

(2) Refer to Note 8, Financial Guaranty Contracts Accounted for as Credit Derivatives.

Schedule of Estimated Expected Losses Assumptions First Lien RMBS

The following table shows liquidation assumptions for various delinquency categories.

First Lien Liquidation Rates



	September 30, 2013	June 30, 2013	December 31, 2012
30 – 59 Days Delinquent
Alt A and Prime	35%	35%	35%
Option ARM	50	50	50
Subprime	30	30	30
60 – 89 Days Delinquent
Alt A and Prime	55	55	55
Option ARM	65	65	65
Subprime	45	45	45
90+ Days Delinquent
Alt A and Prime	65	65	65
Option ARM	75	75	75
Subprime	60	60	60
Bankruptcy
Alt A and Prime	55	55	55
Option ARM	70	70	70
Subprime	50	50	50
Foreclosure
Alt A and Prime	85	85	85
Option ARM	85	85	85
Subprime	80	80	80
Real Estate Owned
All	100	100	100

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS(1)



	As of September 30, 2013				As of June 30, 2013				As of December 31, 2012
Alt-A First Lien
Plateau CDR	3.4	%	–	22.1%	3.7	%	–	22.3%	3.8	%	–	23.2%
Intermediate CDR	0.7	%	–	4.4%	0.7	%	–	4.5%	0.8	%	–	4.6%
Final CDR	0.2	%	–	1.1%	0.2	%	–	1.1%	0.2	%	–	1.2%
Initial loss severity	65%				65%				65%
Initial conditional prepayment rate ("CPR")	0.0	%	–	39.5%	0.4	%	–	32.2%	0.0	%	–	39.4%
Final CPR	15%				15%				15%
Option ARM
Plateau CDR	6.4	%	–	24.7%	5.6	%	–	24.2%	7.0	%	–	26.1%
Intermediate CDR	1.3	%	–	4.9%	1.1	%	–	4.8%	1.4	%	–	5.2%
Final CDR	0.3	%	–	1.2%	0.3	%	–	1.2%	0.4	%	–	1.3%
Initial loss severity	65%				65%				65%
Initial CPR	0.2	%	–	10.9%	0.3	%	–	7.7%	0.0	%	–	10.7%
Final CPR	15%				15%				15%
Subprime
Plateau CDR	6.5	%	–	23.7%	6.7	%	–	24.7%	7.3	%	–	26.2%
Intermediate CDR	1.3	%	–	4.7%	1.3	%	–	4.9%	1.5	%	–	5.2%
Final CDR	0.3	%	–	1.2%	0.3	%	–	1.2%	0.4	%	–	1.3%
Initial loss severity	90%				90%				90%
Initial CPR	0.0	%	–	11.8%	0.0	%	–	14.8%	0.0	%	–	17.6%
Final CPR	15%				15%				15%

____________________

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

Schedule of Estimated Expected Losses Assumptions Second Lien RMBS

Key Assumptions in Base Case Expected Loss Estimates

Second Lien RMBS(1)



HELOC key assumptions	As of September 30, 2013				As of June 30, 2013				As of December 31, 2012
Plateau CDR	1.4	%	–	8.9%	3.4	%	–	9.8%	3.8	%	–	15.9%
Final CDR trended down to	0.4	%	–	3.2%	0.4	%	–	3.2%	0.4	%	–	3.2%
Expected period until final CDR	34 months				34 months				36 months
Initial CPR	4.5	%	–	20.0%	2.1	%	–	20.1%	2.9	%	–	15.4%
Final CPR	10%				10%				10%
Loss severity	98%				98%				98%



Closed-end second lien key assumptions	As of September 30, 2013				As of June 30, 2013				As of December 31, 2012
Plateau CDR	6.2	%	–	14.4%	7.3	%	–	15.8%	7.3	%	–	20.7%
Final CDR trended down to	3.5	%	–	9.1%	3.5	%	–	9.1%	3.5	%	–	9.1%
Expected period until final CDR	34 months				34 months				36 months
Initial CPR	3.0	%	–	13.0%	1.7	%	–	14.0%	1.9	%	–	12.5%
Final CPR	10%				10%				10%
Loss severity	98%				98%				98%

____________________


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

Schedule of Representation and Warranty Reinsurance Agreement Amounts

Using these strategies, through September 30, 2013 the Company has caused entities providing R&Ws to pay or agree to pay approximately $3.5 billion (gross of reinsurance) in respect of their R&W liabilities for transactions in which the Company has provided insurance.



	(in millions)
Agreement amounts already received	$	2,421
Agreement amounts projected to be received in the future	492
Repurchase amounts paid into the relevant RMBS prior to settlement (1)	574
Total R&W payments, gross of reinsurance	$	3,487

____________________

(1)

These amounts were paid into the relevant RMBS transactions (rather than to the Company as in most settlements) and distributed in accordance with the priority of payments set out in the relevant transaction documents. Because the Company may insure only a portion of the capital structure of a transaction, such payments will not necessarily directly benefit the Company dollar-for-dollar, especially in first lien transactions.

Schedule of Representations and Warranties Agreements

Representations and Warranties Agreements (1)



	Agreement Date	Current Net Par Covered		Receipts to September 30, 2013 (net of reinsurance)		Estimated Future Receipts (net of reinsurance)		Eligible Assets Held in Trust (gross of reinsurance)
	(in millions)
Bank of America - First Lien	April 2011	$	1,094	$	456	$	230	$	615
Bank of America - Second Lien	April 2011	1,426		968		N/A		N/A
Deutsche Bank	May 2012	2,071		176		105		240
UBS	May 2013	850		378		92		195
Others	Various	561		241		49		N/A
Total		$	6,002	$	2,219	$	476	$	1,050

____________________

(1)

This table relates to past and projected future recoveries under R&W and related agreements. Excluded is the $419 million of future net recoveries the Company projects receiving from R&W counterparties in transactions with $1,965 million of net par outstanding as of September 30, 2013 not covered by current agreements and $841 million of net par already covered by agreements but for which the Company projects receiving additional amounts.

Schedule of Insured Financial Obligations with Credit Deterioration Estimated Benefit from Recoveries of Representation and Warranty Breaches Risks

U.S. RMBS Risks with R&W Benefit



	Number of Risks (1) as of		Debt Service as of
	September 30, 2013	December 31, 2012	September 30, 2013		December 31, 2012
			(dollars in millions)
Prime first lien	1	1	$	38	$	44
Alt-A first lien	25	26	3,607		4,173
Option ARM	9	10	695		1,183
Subprime	5	5	991		989
Closed-end second lien	4	4	164		260
HELOC	6	7	436		549
Total	50	53	$	5,931	$	7,198

____________________

(1) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making Debt Service payments. This table shows the full future Debt Service (not just the amount of Debt Service expected to be reimbursed) for risks with projected future R&W benefit, whether pursuant to an agreement or not.

Schedule of Insured Financial Obligations with Credit Deterioration, Estimated Benefit from Recoveries of Representation and Warranty Breaches Development and Accretion

The following table provides a breakdown of the development and accretion amount in the roll forward of estimated recoveries associated with alleged breaches of R&W.



	Third Quarter				Nine Months
	2013		2012		2013		2012
	(in millions)
Inclusion (removal) of deals with breaches of R&W during period	$	—	$	—	$	6	$	(5	)
Change in recovery assumptions as the result of additional file review and recovery success	69		—		86		70
Estimated increase (decrease) in defaults that will result in additional (lower) breaches	13		10		10		(14		)
Results of settlements	—		—		180		48
Accretion of discount on balance	4		2		12		10
Total	$	86	$	12	$	294	$	109