Expected Losses to be Paid (Tables)

3 Months Ended

Mar. 31, 2014

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 by Sector

First Quarter 2014



	Net Expected Loss to be Paid as of December 31, 2013(2)			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of March 31, 2014(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	21		$	(3	)	$	—		$	18
Alt-A first lien	304			8			(4		)	308
Option ARM	(9		)	(15		)	(4		)	(28		)
Subprime	304			(7		)	(2		)	295
Total first lien	620			(17		)	(10		)	593
Second lien:
Closed-end second lien	(11		)	5			2			(4		)
HELOCs	(116		)	2			5			(109		)
Total second lien	(127		)	7			7			(113		)
Total U.S. RMBS	493			(10		)	(3		)	480
TruPS	51			(19		)	—			32
Other structured finance	120			19			(1		)	138
U.S. public finance	264			23			(6		)	281
Non-U.S public finance	57			—			—			57
Other insurance	(3		)	(1		)	—			(4		)
Total	$	982		$	12		$	(10	)	$	984

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward by Sector

First Quarter 2013



	Net Expected Loss to be Paid as of December 31, 2012			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of March 31, 2013
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	6		$	6		$	(1	)	$	11
Alt-A first lien	315			9			(11		)	313
Option ARM	(131		)	(138		)	(58		)	(327		)
Subprime	242			25			(4		)	263
Total first lien	432			(98		)	(74		)	260
Second lien:
Closed-end second lien	(39		)	1			17			(21		)
HELOCs	(111		)	(3		)	(8		)	(122		)
Total second lien	(150		)	(2		)	9			(143		)
Total U.S. RMBS	282			(100		)	(65		)	117
TruPS	27			(3		)	(1		)	23
Other structured finance	312			(2		)	(3		)	307
U.S. public finance	7			7			(23		)	(9		)
Non-U.S public finance	52			10			—			62
Other insurance	(3		)	(10		)	—			(13		)
Total	$	677		$	(98	)	$	(92	)	$	487

____________________


(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 expected loss adjustment expenses ("LAE") to be paid for mitigating claim liabilities of $29 million as of March 31, 2014 and $34 million as of December 31, 2013. The Company paid $6 million and $13 million in LAE for First Quarter 2014 and 2013, respectively.

Net Expected Recoveries from Breaches of R&W Rollforward

Net Expected Recoveries from

Breaches of R&W Rollforward

First Quarter 2014



	Future Net R&W Benefit as of December 31, 2013		R&W Development and Accretion of Discount During First Quarter 2014			R&W Recovered During First Quarter 2014(1)			Future Net R&W Benefit as of March 31, 2014
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4	$	(1	)	$	—		$	3
Alt-A first lien	274		3			(8		)	269
Option ARM	173		9			(30		)	152
Subprime	118		28			—			146
Total first lien	569		39			(38		)	570
Second lien:
Closed-end second lien	98		(3		)	—			95
HELOC	45		12			(1		)	56
Total second lien	143		9			(1		)	151
Total	$	712	$	48		$	(39	)	$	721

Net Expected Recoveries from

Breaches of R&W Rollforward

First Quarter 2013



	Future Net R&W Benefit as of December 31, 2012		R&W Development and Accretion of Discount During First Quarter 2013			R&W Recovered During First Quarter 2013(1)			Future Net R&W Benefit as of March 31, 2013
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4	$	—		$	—		$	4
Alt-A first lien	378		(8		)	(8		)	362
Option ARM	591		153			(54		)	690
Subprime	109		4			—			113
Total first lien	1,082		149			(62		)	1,169
Second lien:
Closed-end second lien	138		(9		)	(21		)	108
HELOC	150		17			(6		)	161
Total second lien	288		8			(27		)	269
Total	$	1,370	$	157		$	(89	)	$	1,438

____________________


(1)	Gross amounts recovered were $41 million and $92 million for First Quarter 2014 and 2013, respectively.

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 March 31, 2014



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	3		$	—		$	15		$	18
Alt-A first lien	212			19			77			308
Option ARM	(38		)	—			10			(28		)
Subprime	140			80			75			295
Total first lien	317			99			177			593
Second lien:
Closed-end second lien	(32		)	26			2			(4		)
HELOCs	(92		)	(17		)	—			(109		)
Total second lien	(124		)	9			2			(113		)
Total U.S. RMBS	193			108			179			480
TruPS	2			—			30			32
Other structured finance	176			—			(38		)	138
U.S. public finance	281			—			—			281
Non-U.S. public finance	56			—			1			57
Subtotal	$	708		$	108		$	172		988
Other										(4		)
Total										$	984

Net Expected Loss to be Paid

By Accounting Model

As of December 31, 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	199			31			74			304
Option ARM	(18		)	(2		)	11			(9		)
Subprime	149			81			74			304
Total first lien	333			110			177			620
Second Lien:
Closed-end second lien	(34		)	25			(2		)	(11		)
HELOCs	(41		)	(75		)	—			(116		)
Total second lien	(75		)	(50		)	(2		)	(127		)
Total U.S. RMBS	258			60			175			493
TruPS	3			—			48			51
Other structured finance	161			—			(41		)	120
U.S. public finance	264			—			—			264
Non-U.S. public finance	55			—			2			57
Subtotal	$	741		$	60		$	184		985
Other										(3		)
Total										$	982

___________________

(1) Refer to Note 9, Consolidated 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

First Quarter 2014



	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	19			(12		)	1			8
Option ARM	(16		)	1			—			(15		)
Subprime	(8		)	(2		)	3			(7		)
Total first lien	(5		)	(13		)	1			(17		)
Second lien:
Closed-end second lien	(1		)	2			4			5
HELOCs	(56		)	58			—			2
Total second lien	(57		)	60			4			7
Total U.S. RMBS	(62		)	47			5			(10		)
TruPS	(1		)	—			(18		)	(19		)
Other structured finance	17			—			2			19
U.S. public finance	23			—			—			23
Non-U.S. public finance	—			—			—			—
Subtotal	$	(23	)	$	47		$	(11	)	13
Other										(1		)
Total										$	12

Net Economic Loss Development

By Accounting Model

First Quarter 2013



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	—		$	—		$	6		$	6
Alt-A first lien	5			(1		)	5			9
Option ARM	(93		)	(37		)	(8		)	(138		)
Subprime	12			4			9			25
Total first lien	(76		)	(34		)	12			(98		)
Second lien:
Closed-end second lien	5			(3		)	(1		)	1
HELOCs	(7		)	4			—			(3		)
Total second lien	(2		)	1			(1		)	(2		)
Total U.S. RMBS	(78		)	(33		)	11			(100		)
TruPS	0			—			(3		)	(3		)
Other structured finance	(10		)	—			8			(2		)
U.S. public finance	7			—			—			7
Non-U.S. public finance	9			—			1			10
Subtotal	$	(72	)	$	(33	)	$	17		(88		)
Other										(10		)
Total										$	(98	)

_________________

(1) Refer to Note 9, Consolidated 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

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS(1)



	As of March 31, 2014				As of December 31, 2013
Alt-A First Lien
Plateau CDR	2.3	%	–	18.4%	2.8	%	–	18.4%
Intermediate CDR	0.5	%	–	3.7%	0.6	%	–	3.7%
Period until intermediate CDR	48 months				48 months
Final CDR	0.1	%	–	0.9%	0.1	%	–	0.9%
Initial loss severity	65%				65%
Initial conditional prepayment rate ("CPR")	0.9	%	–	33.9%	0.0	%	–	34.2%
Final CPR	15%				15%
Option ARM
Plateau CDR	3.8	%	–	16.8%	4.9	%	–	16.8%
Intermediate CDR	0.8	%	–	3.4%	1.0	%	–	3.4%
Period until intermediate CDR	48 months				48 months
Final CDR	0.2	%	–	0.8%	0.2	%	–	0.8%
Initial loss severity	65%				65%
Initial CPR	0.8	%	–	12.2%	0.4	%	–	13.1%
Final CPR	15%				15%
Subprime
Plateau CDR	5.9	%	–	16.3%	5.6	%	–	16.2%
Intermediate CDR	1.2	%	–	3.3%	1.1	%	–	3.2%
Period until intermediate CDR	48 months				48 months
Final CDR	0.3	%	–	0.8%	0.3	%	–	0.8%
Initial loss severity	90%				90%
Initial CPR	0.0	%	–	11.6%	0.0	%	–	15.7%
Final CPR	15%				15%

____________________

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

First Lien Liquidation Rates



	March 31, 2014	December 31, 2013
Current Loans Modified in Previous 12 Months
Alt A and Prime	35%	35%
Option ARM	35	35
Subprime	35	35
30 – 59 Days Delinquent
Alt A and Prime	50	50
Option ARM	50	50
Subprime	45	45
60 – 89 Days Delinquent
Alt A and Prime	60	60
Option ARM	65	65
Subprime	50	50
90+ Days Delinquent
Alt A and Prime	75	75
Option ARM	70	70
Subprime	60	60
Bankruptcy
Alt A and Prime	60	60
Option ARM	60	60
Subprime	55	55
Foreclosure
Alt A and Prime	85	85
Option ARM	80	80
Subprime	70	70
Real Estate Owned
All	100	100

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 March 31, 2014				As of December 31, 2013
Plateau CDR	1.9	%	–	7.3%	2.3	%	–	7.7%
Final CDR trended down to	0.4	%	–	3.2%	0.4	%	–	3.2%
Period until final CDR	34 months				34 months
Initial CPR	2.3	%	–	21.0%	2.7	%	–	21.5%
Final CPR	10%				10%
Loss severity	98%				98%



Closed-end second lien key assumptions	As of March 31, 2014				As of December 31, 2013
Plateau CDR	6.7	%	–	15.5%	7.3	%	–	15.1%
Final CDR trended down to	3.5	%	–	9.1%	3.5	%	–	9.1%
Period until final CDR	34 months				34 months
Initial CPR	2.9	%	–	12.8%	3.1	%	–	12.0%
Final CPR	10%				10%
Loss severity	98%				98%

____________________


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

Schedule of Representation and Warranty Reinsurance Agreement Amounts



	(in millions)
Agreement amounts already received	$	2,716
Agreement amounts projected to be received in the future	402
Repurchase amounts paid into the relevant RMBS prior to settlement (1)	579
Total R&W payments, gross of reinsurance	$	3,697

____________________

(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 March 31, 2014 (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	$	1,023	$	490	$	195	$	585
Bank of America - Second Lien	April 2011	1,335		968		NA		NA
Deutsche Bank	May 2012 and October 2013	1,649		235		100		142
UBS	May 2013	778		410		33		147
Others	Various	1,019		394		56		NA
Total		$	5,804	$	2,497	$	384	$	874

____________________

(1)

This table relates to past and projected future recoveries under R&W and related agreements. Excluded from this table is the $337 million of future net recoveries the Company projects receiving from R&W counterparties in transactions with $1,379 million of net par outstanding as of March 31, 2014 not covered by current agreements. Also excluded from this table is $773 million of net par partially 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
	March 31, 2014	December 31, 2013	March 31, 2014		December 31, 2013
			(dollars in millions)
Prime first lien	1	1	$	36	$	38
Alt-A first lien	20	19	2,791		2,856
Option ARM	10	9	589		641
Subprime	5	5	985		998
Closed-end second lien	4	4	155		158
HELOC	5	4	141		320
Total	45	42	$	4,697	$	5,011

____________________

(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.

Components of R&W Development



	First Quarter
	2014		2013
	(in millions)
Change in recovery assumptions as the result of additional file review and recovery success	$	10	$	11
Estimated increase (decrease) in defaults that will result in additional (lower) breaches	0		1
Settlements and anticipated settlements	35		142
Accretion of discount on balance	3		3
Total	$	48	$	157