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Financial Guaranty Insurance Losses (Tables)
 12 Months Ended
Dec. 31, 2013
Financial Guaranty Insurance Losses [Abstract]  
Loss and LAE Reserve and Salvage and Subrogation Recoverable Net of Reinsurance Insurance Contracts
Loss and LAE Reserve and Salvage and Subrogation Recoverable
Net of Reinsurance
Insurance Contracts
 
 
As of December 31, 2013
 
As of December 31, 2012
 
Loss and
LAE
Reserve, net
 
Salvage and
Subrogation
Recoverable, net 
 
Net Reserve (Recoverable)
 
Loss and
LAE
Reserve, net
 
Salvage and
Subrogation
Recoverable, net 
 
Net Reserve (Recoverable)
 
(in millions)
U.S. RMBS:
 

 
 

 
 

 
 

 
 

 
 

First lien:
 

 
 

 
 

 
 

 
 

 
 

Prime first lien
$
3

 
$
—

 
$
3

 
$
3

 
$
—

 
$
3

Alt-A first lien
108

 
—

 
108

 
93

 
—

 
93

Option ARM
22

 
47

 
(25
)
 
52

 
216

 
(164
)
Subprime
143

 
2

 
141

 
82

 
0

 
82

First lien
276

 
49

 
227

 
230

 
216

 
14

Second lien:
 

 
 

 
 

 
 

 
 

 
 

Closed-end second lien
5

 
45

 
(40
)
 
5

 
72

 
(67
)
HELOC
5

 
127

 
(122
)
 
37

 
196

 
(159
)
Second lien
10

 
172

 
(162
)
 
42

 
268

 
(226
)
Total U.S. RMBS
286

 
221

 
65

 
272

 
484

 
(212
)
TruPS
2

 
—

 
2

 
1

 
—

 
1

Other structured finance
145

 
6

 
139

 
197

 
4

 
193

U.S. public finance
189

 
8

 
181

 
104

 
134

 
(30
)
Non-U.S. public finance
35

 
—

 
35

 
31

 
—

 
31

Financial guaranty
657

 
235

 
422

 
605

 
622

 
(17
)
Other
2

 
5

 
(3
)
 
2

 
5

 
(3
)
Subtotal
659

 
240

 
419

 
607

 
627

 
(20
)
Effect of consolidating FG VIEs
(103
)
 
(85
)
 
(18
)
 
(64
)
 
(217
)
 
153

Total (1)
$
556

 
$
155

 
$
401

 
$
543

 
$
410

 
$
133

____________________
(1)                                 See “Components of Net Reserves (Salvage)” table for loss and LAE reserve and salvage and subrogation recoverable components.
Components of Net Reserves (Salvage) Insurance Contracts
Components of Net Reserves (Salvage)
Insurance Contracts
 
 
As of
December 31, 2013
 
As of
December 31, 2012
 
(in millions)
Loss and LAE reserve
$
592

 
$
601

Reinsurance recoverable on unpaid losses
(36
)
 
(58
)
Loss and LAE reserve, net
556

 
543

Salvage and subrogation recoverable
(174
)
 
(456
)
Salvage and subrogation payable(1)
19

 
46

Salvage and subrogation recoverable, net
(155
)
 
(410
)
Other recoverables(2)
(15
)
 
(30
)
Net reserves (salvage)
386

 
103

Less: other (non-financial guaranty business)
(3
)
 
(3
)
Net reserves (salvage)
$
389

 
$
106

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

(2)     R&W recoverables recorded in other assets on the consolidated balance sheet.
Balance Sheet Classification of Net Expected Recoveries for Breaches of R&W Insurance Contracts
Balance Sheet Classification of
Net Expected Recoveries for Breaches of R&W
Insurance Contracts
 
 
As of December 31, 2013
 
As of December 31, 2012
 
For all
Financial
Guaranty
Insurance
Contracts
 
Effect of
Consolidating
FG VIEs
 
Reported on
Balance Sheet(1)
 
For all
Financial
Guaranty
Insurance
Contracts
 
Effect of
Consolidating
FG VIEs
 
Reported on
Balance Sheet(1)
 
(in millions)
Salvage and subrogation recoverable, net
$
122

 
$
(49
)
 
$
73

 
$
449

 
$
(169
)
 
$
280

Loss and LAE reserve, net
363

 
(24
)
 
339

 
571

 
(33
)
 
538

____________________
(1)
The remaining benefit for R&W is either recorded at fair value in FG VIE assets, or not recorded on the balance sheet until the total loss, net of R&W, exceeds unearned premium reserve.
Reconciliation of Net Expected Loss to be Paid and Net Expected Loss to be Expensed Financial Guaranty Insurance Contracts
Reconciliation of Net Expected Loss to be Paid and
Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts
 
 
As of December 31, 2013
 
(in millions)
Net expected loss to be paid
$
801

Less: net expected loss to be paid for FG VIEs
60

Total
741

Contra-paid, net
39

Salvage and subrogation recoverable, net of reinsurance
150

Loss and LAE reserve, net of reinsurance
(554
)
Other recoveries (1)
15

Net expected loss to be expensed (2)
$
391

____________________
(1)
R&W recoverables recorded in other assets on the consolidated balance sheet.
 
(2)
Excludes $98 million as of December 31, 2013 related to consolidated FG VIEs.
Net Expected Loss to be Expensed Insurance Contracts
Net Expected Loss to be Expensed
Insurance Contracts
 
 
As of December 31, 2013
 
(in millions)
2014 (January 1 - March 31)
$
11

2014 (April 1 - June 30)
11

2014 (July 1 - September 30)
10

2014 (October 1–December 31)
10

Subtotal 2014
42

2015
41

2016
33

2017
30

2018
27

2019 - 2023
99

2024 - 2028
56

2029 - 2033
36

After 2033
27

Net expected loss to be expensed(1)
391

Discount
406

Total future value
$
797

 
____________________
(1)
Consolidation of FG VIEs resulted in reductions of $98 million in net expected loss to be expensed which is on a present value basis.
Loss and LAE Reported on the Consolidated Statements of Operations
Loss and LAE
Reported on the
Consolidated Statements of Operations
 
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(in millions)
Structured Finance:
 
 
 
 
 
U.S. RMBS:
 
 
 
 
 
First lien:
 
 
 
 
 
Prime first lien
$
1

 
$
2

 
$
—

Alt-A first lien
(2
)
 
51

 
53

Option ARM
(48
)
 
137

 
203

Subprime
80

 
38

 
(39
)
First lien
31

 
228

 
217

Second lien:
 
 
 
 
 
Closed end second lien
18

 
31

 
1

HELOC
(53
)
 
49

 
171

Second lien
(35
)
 
80

 
172

Total U.S. RMBS
(4
)
 
308

 
389

TruPS
(1
)
 
(10
)
 
11

Other structured finance
(34
)
 
3

 
107

Structured finance
(35
)
 
(7
)
 
118

Public Finance:
 
 
 
 
 
U.S. public finance
198

 
51

 
15

Non-U.S. public finance
16

 
234

 
33

Public finance
214

 
285

 
48

Subtotal
175

 
586

 
555

Other
—

 
(17
)
 
—

Loss and LAE insurance contracts before FG VIE consolidation
175

 
569

 
555

Effect of consolidating FG VIEs
(21
)
 
(65
)
 
(107
)
Loss and LAE
$
154

 
$
504

 
$
448
Financial Guaranty Insurance BIG Transaction Loss Summary
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 31, 2013
 
 
BIG Categories (1)
 
BIG 1
 
BIG 2
 
BIG 3
 
Total
BIG, Net
 
Effect of
Consolidating
FG VIEs
 
Total
 
Gross
 
Ceded
 
Gross
 
Ceded
 
Gross
 
Ceded
 
 
 
 
(dollars in millions)
Number of risks(2)
185

 
(72
)
 
80

 
(24
)
 
119

 
(34
)
 
384

 
—

 
384

Remaining weighted-average contract period (in years)
10.5

 
8.1

 
8.3

 
5.9

 
9.8

 
7.2

 
10.5

 
—

 
10.5

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
15,132

 
$
(2,741
)
 
$
2,483

 
$
(160
)
 
$
3,189

 
$
(158
)
 
$
17,745

 
$
—

 
$
17,745

Interest
8,114

 
(1,144
)
 
1,181

 
(53
)
 
1,244

 
(52
)
 
9,290

 
—

 
9,290

Total(3)
$
23,246

 
$
(3,885
)
 
$
3,664

 
$
(213
)
 
$
4,433

 
$
(210
)
 
$
27,035

 
$
—

 
$
27,035

Expected cash outflows (inflows)
$
1,853

 
$
(528
)
 
$
1,038

 
$
(40
)
 
$
1,681

 
$
(62
)
 
$
3,942

 
$
(690
)
 
$
3,252

Potential recoveries(4)
(1,879
)
 
514

 
(671
)
 
27

 
(707
)
 
32

 
(2,684
)
 
579

 
(2,105
)
Subtotal
(26
)
 
(14
)
 
367

 
(13
)
 
974

 
(30
)
 
1,258

 
(111
)
 
1,147

Discount
13

 
—

 
(126
)
 
3

 
(352
)
 
5

 
(457
)
 
51

 
(406
)
Present value of expected cash flows
$
(13
)
 
$
(14
)
 
$
241

 
$
(10
)
 
$
622

 
$
(25
)
 
$
801

 
$
(60
)
 
$
741

Deferred premium revenue
$
517

 
$
(90
)
 
$
163

 
$
(7
)
 
$
303

 
$
(27
)
 
$
859

 
$
(178
)
 
$
681

Reserves (salvage)(5)
$
(114
)
 
$
1

 
$
117

 
$
(4
)
 
$
420

 
$
(13
)
 
$
407

 
$
(18
)
 
$
389

 
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 31, 2012
 
 
BIG Categories (1)
 
BIG 1
 
BIG 2
 
BIG 3
 
Total
BIG, Net
 
Effect of
Consolidating
FG VIEs
 
Total
 
Gross
 
Ceded
 
Gross
 
Ceded
 
Gross
 
Ceded
 
 
(dollars in millions)
Number of risks(2)
163

 
(66
)
 
76

 
(22
)
 
131

 
(41
)
 
370

 
—

 
370

Remaining weighted-average contract period (in years)
10.2

 
9.2

 
10.6

 
15.1

 
9.0

 
6.0

 
10.0

 
—

 
10.0

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
9,462

 
$
(1,533
)
 
$
2,248

 
$
(132
)
 
$
6,024

 
$
(481
)
 
$
15,588

 
$
—

 
$
15,588

Interest
4,475

 
(591
)
 
1,357

 
(127
)
 
1,881

 
(117
)
 
6,878

 
—

 
6,878

Total(3)
$
13,937

 
$
(2,124
)
 
$
3,605

 
$
(259
)
 
$
7,905

 
$
(598
)
 
$
22,466

 
$
—

 
$
22,466

Expected cash outflows (inflows)
$
1,914

 
$
(687
)
 
$
863

 
$
(58
)
 
$
2,720

 
$
(146
)
 
$
4,606

 
$
(738
)
 
$
3,868

Potential recoveries(4)
(2,356
)
 
677

 
(509
)
 
18

 
(1,911
)
 
117

 
(3,964
)
 
798

 
(3,166
)
Subtotal
(442
)
 
(10
)
 
354

 
(40
)
 
809

 
(29
)
 
642

 
60

 
702

Discount
12

 
8

 
(107
)
 
14

 
(216
)
 
2

 
(287
)
 
36

 
(251
)
Present value of expected cash flows
$
(430
)
 
$
(2
)
 
$
247

 
$
(26
)
 
$
593

 
$
(27
)
 
$
355

 
$
96

 
$
451

Deferred premium revenue
$
265

 
$
(32
)
 
$
227

 
$
(15
)
 
$
604

 
$
(83
)
 
$
966

 
$
(251
)
 
$
715

Reserves (salvage)(5)
$
(485
)
 
$
10

 
$
102

 
$
(18
)
 
$
347

 
$
(3
)
 
$
(47
)
 
$
153

 
$
106


____________________

(1)
In third quarter 2013, the Company adjusted its approach to assigning internal ratings. See "Refinement of Approach to Internal Credit Ratings and Surveillance Categories" in Note 3, Outstanding Exposure. This approach is reflected in the "Financial Guaranty Insurance BIG Transaction Loss Summary" tables as of both December 31, 2013 and December 31, 2012.

(2)
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.

(3)
Includes BIG amounts related to FG VIEs.

(4)
Includes estimated future recoveries for breaches of R&W as well as excess spread, and draws on HELOCs.

(5)
See table “Components of net reserves (salvage).”