Financial Guaranty Insurance Losses (Tables)

3 Months Ended

Mar. 31, 2014

Financial Guaranty Insurance Losses [Abstract]

Loss and LAE Reserve, Net of Reinsurance and Salvage and Subrogation Recoverable

The following table provides balance sheet information on loss and LAE reserves and salvage and subrogation recoverable, net of reinsurance.

Loss and LAE Reserve and Salvage and Subrogation Recoverable

Net of Reinsurance

Insurance Contracts

	As of March 31, 2014									As of December 31, 2013
	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	112			—			112			108			—			108
Option ARM	19			57			(38		)	22			47			(25		)
Subprime	135			1			134			143			2			141
First lien	269			58			211			276			49			227
Second lien:
Closed-end second lien	5			43			(38		)	5			45			(40		)
HELOC	6			117			(111		)	5			127			(122		)
Second lien	11			160			(149		)	10			172			(162		)
Total U.S. RMBS	280			218			62			286			221			65
TruPS	1			—			1			2			—			2
Other structured finance	159			5			154			145			6			139
U.S. public finance	212			8			204			189			8			181
Non-U.S. public finance	36			—			36			35			—			35
Financial guaranty	688			231			457			657			235			422
Other	1			5			(4		)	2			5			(3		)
Subtotal	689			236			453			659			240			419
Effect of consolidating FG VIEs	(90		)	(17		)	(73		)	(103		)	(85		)	(18		)
Total (1)	$	599		$	219		$	380		$	556		$	155		$	401

____________________

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

Components of Net Reserves (Salvage)

The following table reconciles the reported gross and ceded reserve and salvage and subrogation amount to the financial guaranty net reserves (salvage) in the financial guaranty BIG transaction loss summary tables.

Components of Net Reserves (Salvage)

Insurance Contracts

	As of March 31, 2014			As of December 31, 2013
	(in millions)
Loss and LAE reserve	$	636		$	592
Reinsurance recoverable on unpaid losses	(37		)	(36		)
Loss and LAE reserve, net	599			556
Salvage and subrogation recoverable	(241		)	(174		)
Salvage and subrogation payable(1)	22			19
Salvage and subrogation recoverable, net	(219		)	(155		)
Subtotal	380			401
Other recoverables(2)	(17		)	(15		)
Net reserves (salvage)	363			386
Less: other (non-financial guaranty business)	(4		)	(3		)
Net reserves (salvage)	$	367		$	389

____________________

(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 R&W benefits, Net of Reinsurance

Balance Sheet Classification of

Net Expected Recoveries for Breaches of R&W

Insurance Contracts

	As of March 31, 2014							As of December 31, 2013
	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	$	126	$	—		$	126	$	122	$	(49	)	$	73
Loss and LAE reserve, net	378		(14		)	364		363		(24		)	339

____________________

(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

Reconciliation of Net Expected Loss to be Paid and

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts

	As of March 31, 2014
	(in millions)
Net expected loss to be paid	$	816
Less: net expected loss to be paid for FG VIEs	108
Total	708
Contra-paid, net	50
Salvage and subrogation recoverable, net of reinsurance	214
Loss and LAE reserve, net of reinsurance	(598		)
Other recoveries (1)	17
Net expected loss to be expensed (2)	$	391

____________________

(1) R&W recoverables recorded in other assets on the consolidated balance sheet.

(2) Excludes $84 million as of March 31, 2014, related to consolidated FG VIEs.

Net Expected Loss to be Expensed Insurance Contracts

The following table provides a schedule of the expected timing of net expected losses to be expensed. The amount and timing of actual loss and LAE may differ from the estimates shown below due to factors such as refundings, accelerations, commutations, changes in expected lives and updates to loss estimates. This table excludes amounts related to FG VIEs, which are eliminated in consolidation.

Net Expected Loss to be Expensed

Insurance Contracts

	As of March 31, 2014
	(in millions)
2014 (April 1– June 30)	$	12
2014 (July 1– September 30)	11
2014 (October 1–December 31)	10
2015	42
2016	38
2017	31
2018	28
2019 - 2023	98
2024 - 2028	57
2029 - 2033	37
After 2033	27
Net expected loss to be expensed(1)	391
Discount	419
Total future value	$	810

____________________

(1) Consolidation of FG VIEs resulted in reductions of $84 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

The following table presents the loss and LAE recorded in the consolidated statements of operations by sector for insurance contracts. Amounts presented are net of reinsurance.

Loss and LAE

Reported on the

Consolidated Statements of Operations

	First Quarter
	2014			2013
Structured Finance:	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	0		$	—
Alt-A first lien	7			9
Option ARM	(8		)	(83		)
Subprime	(8		)	11
First lien	(9		)	(63		)
Second lien:
Closed-end second lien	—			20
HELOC	8			3
Second lien	8			23
Total U.S. RMBS	(1		)	(40		)
TruPS	(1		)	—
Other structured finance	16			(12		)
Structured finance	14			(52		)
Public Finance:
U.S. public finance	26			(4		)
Non-U.S. public finance	1			1
Public finance	27			(3		)
Subtotal	41			(55		)
Other	(1		)	—
Loss and LAE insurance contracts before FG VIE consolidation	40			(55		)
Effect of consolidating FG VIEs	1			7
Loss and LAE	$	41		$	(48	)

Financial Guaranty Insurance BIG Transaction Loss Summary

The following table provides information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of March 31, 2014

	BIG  Categories
	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(1)	193			(74		)	80			(23		)	109			(32		)	382			—			382
Remaining weighted-average contract period (in years)	10.2			7.9			8.3			5.6			10.0			8.5			10.4			—			10.4
Outstanding exposure:
Principal	$	14,981		$	(2,739	)	$	2,412		$	(159	)	$	2,980		$	(108	)	$	17,367		$	—		$	17,367
Interest	7,836			(1,107		)	1,139			(52		)	1,197			(40		)	8,973			—			8,973
Total(2)	$	22,817		$	(3,846	)	$	3,551		$	(211	)	$	4,177		$	(148	)	$	26,340		$	—		$	26,340
Expected cash outflows (inflows)	$	1,901		$	(528	)	$	727		$	(33	)	$	1,695		$	(59	)	$	3,703		$	(358	)	$	3,345
Potential recoveries
Undiscounted R&W	(174		)	10			(108		)	4			(374		)	14			(628		)	15			(613		)
Other(3)	(1,780		)	506			(255		)	17			(302		)	18			(1,796		)	191			(1,605		)
Total potential recoveries	(1,954		)	516			(363		)	21			(676		)	32			(2,424		)	206			(2,218		)
Subtotal	(53		)	(12		)	364			(12		)	1,019			(27		)	1,279			(152		)	1,127
Discount	13			1			(120		)	3			(366		)	6			(463		)	44			(419		)
Present value of expected cash flows	$	(40	)	$	(11	)	$	244		$	(9	)	$	653		$	(21	)	$	816		$	(108	)	$	708
Deferred premium revenue	$	521		$	(93	)	$	148		$	(7	)	$	262		$	(17	)	$	814		$	(128	)	$	686
Reserves (salvage)(4)	$	(137	)	$	5		$	133		$	(5	)	$	458		$	(14	)	$	440		$	(73	)	$	367

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2013

	BIG Categories
	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(1)	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(2)	$	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
Undiscounted R&W	(105		)	1			(201		)	8			(356		)	13			(640		)	72			(568		)
Other(3)	(1,774		)	513			(470		)	19			(351		)	19			(2,044		)	507			(1,537		)
Total potential recoveries	(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)(4)	$	(114	)	$	1		$	117		$	(4	)	$	420		$	(13	)	$	407		$	(18	)	$	389

 ____________________

(1) 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.

(3) Includes excess spread and draws on HELOCs.

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