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Financial Guaranty Insurance Losses (Tables)
 6 Months Ended
Jun. 30, 2015
Insurance [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 June 30, 2015
 
As of December 31, 2014
 
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)
Public Finance:
 
 
 
 
 
 
 
 
 
 
 
U.S. public finance
$
453

 
$
10

 
$
443

 
$
243

 
$
8

 
$
235

Non-U.S. public finance
30

 
—

 
30

 
30

 
—

 
30

Public Finance
483

 
10

 
473

 
273

 
8

 
265

Structured Finance:
 
 
 
 
 
 
 
 
 
 
 
U.S. RMBS:
 

 
 

 
 

 
 

 
 

 
 

First lien:
 

 
 

 
 

 
 

 
 

 
 

Prime first lien
2

 
—

 
2

 
2

 
—

 
2

Alt-A first lien
76

 
—

 
76

 
87

 
—

 
87

Option ARM
22

 
40

 
(18
)
 
28

 
40

 
(12
)
Subprime
152

 
12

 
140

 
166

 
8

 
158

First lien
252

 
52

 
200

 
283

 
48

 
235

Second lien:
 

 
 

 
 

 
 

 
 

 
 

Closed-end second lien
4

 
36

 
(32
)
 
4

 
39

 
(35
)
HELOCs
5

 
35

 
(30
)
 
3

 
39

 
(36
)
Second lien
9

 
71

 
(62
)
 
7

 
78

 
(71
)
Total U.S. RMBS
261

 
123

 
138

 
290

 
126

 
164

Triple-X life insurance transactions
140

 
—

 
140

 
140

 
—

 
140

TruPS
—

 
—

 
—

 
0

 
—

 
0

Student loans
55

 
—

 
55

 
64

 
—

 
64

Other structured finance
50

 
—

 
50

 
34

 
8

 
26

Structured Finance
506

 
123

 
383

 
528

 
134

 
394

Subtotal
989

 
133

 
856

 
801

 
142

 
659

Other recoverables
—

 
8

 
(8
)
 
—

 
13

 
(13
)
Subtotal
989

 
141

 
848

 
801

 
155

 
646

Effect of consolidating FG VIEs
(70
)
 
(1
)
 
(69
)
 
(80
)
 
(1
)
 
(79
)
Total (1)
$
919

 
$
140

 
$
779

 
$
721

 
$
154

 
$
567

____________________
(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)

 
 
As of
June 30, 2015
 
As of
December 31, 2014
 
(in millions)
Loss and LAE reserve
$
996

 
$
799

Reinsurance recoverable on unpaid losses
(77
)
 
(78
)
Loss and LAE reserve, net
919

 
721

Salvage and subrogation recoverable
(139
)
 
(151
)
Salvage and subrogation payable(1)
7

 
10

Other recoverables
(8
)
 
(13
)
Salvage and subrogation recoverable, net and other recoverable
(140
)
 
(154
)
Net reserves (salvage)
$
779

 
$
567

____________________
(1)
Recorded as a component of reinsurance balances payable.
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 June 30, 2015
 
As of December 31, 2014
 
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
$
(8
)
 
$
—

 
$
(8
)
 
$
20

 
$
—

 
$
20

Loss and LAE reserve, net
140

 
(8
)
 
132

 
185

 
(8
)
 
177

____________________
(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
June 30, 2015
 
(in millions)
Net expected loss to be paid
$
1,397

Less: net expected loss to be paid for FG VIEs and other
133

Total
1,264

Contra-paid, net
(83
)
Salvage and subrogation recoverable, net of reinsurance
132

Loss and LAE reserve, net of reinsurance
(900
)
Other recoveries
8

Net expected loss to be expensed (present value) (1)
$
421

____________________
(1)
Excludes $82 million as of June 30, 2015, related to consolidated FG VIEs.
Net Expected Loss to be Expensed Insurance Contracts
Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts 

 
As of
June 30, 2015
 
(in millions)
2015 (July 1 – September 30)
$
12

2015 (October 1 – December 31)
12

Subtotal 2015
24

2016
40

2017
33

2018
30

2019
29

2020-2024
106

2025-2029
77

2030-2034
55

After 2034
27

Net expected loss to be expensed
421

Discount
494

Total expected future loss and LAE
$
915

 
Loss and LAE Reported on the Consolidated Statements of Operations
Loss and LAE
Reported on the
Consolidated Statements of Operations
  
 
Second Quarter
 
Six Months
 
2015
 
2014
 
2015

2014
 
(in millions)
Public Finance:
 
 
 
 
 
 
 
U.S. public finance
$
196

 
$
83

 
$
209

 
$
109

Non-U.S. public finance
1

 
(1
)
 
6

 
0

Public finance
197

 
82

 
215

 
109

Structured Finance:
 
 
 
 
 
 
 
U.S. RMBS:
 
 
 
 
 
 
 
First lien:
 
 
 
 
 
 
 
Prime first lien
(1
)
 
0

 
(1
)
 
0

Alt-A first lien
(9
)
 
10

 
(11
)
 
17

Option ARM
0

 
(22
)
 
(1
)
 
(30
)
Subprime
1

 
10

 
1

 
2

First lien
(9
)
 
(2
)
 
(12
)
 
(11
)
Second lien:
 
 
 
 
 
 
 
Closed-end second lien
(2
)
 
(1
)
 
(1
)
 
(1
)
HELOCs
2

 
(18
)
 
11

 
(10
)
Second lien
0

 
(19
)
 
10

 
(11
)
Total U.S. RMBS
(9
)
 
(21
)
 
(2
)
 
(22
)
Triple-X life insurance transactions
1

 
2

 
7

 
15

TruPS
0

 
0

 
(1
)
 
(1
)
Student loans
1

 
3

 
(5
)
 
6

Other structured finance
0

 
(1
)
 
(1
)
 
(2
)
Structured finance
(7
)
 
(17
)
 
(2
)
 
(4
)
Loss and LAE on insurance contracts before FG VIE consolidation
190

 
65

 
213

 
105

Effect of consolidating FG VIEs
(2
)
 
(8
)
 
(7
)
 
(7
)
Loss and LAE
$
188

 
$
57

 
$
206

 
$
98
Financial Guaranty Insurance BIG Transaction Loss Summary
BIG Net Par Outstanding
and Number of Risks
As of June 30, 2015

 
 
Net Par Outstanding
 
Number of Risks(2)
Description
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
 
(dollars in millions)
BIG:
 
 

 
 

 
 

 
 

 
 

 
 

Category 1
 
$
10,504

 
$
2,218

 
$
12,722

 
266

 
22

 
288

Category 2
 
3,389

 
723

 
4,112

 
76

 
11

 
87

Category 3
 
3,011

 
559

 
3,570

 
126

 
24

 
150

Total BIG
 
$
16,904

 
$
3,500

 
$
20,404

 
468

 
57

 
525



 BIG Net Par Outstanding
and Number of Risks
As of December 31, 2014

 
 
Net Par Outstanding
 
Number of Risks(2)
Description
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
 
(dollars in millions)
BIG:
 
 

 
 

 
 

 
 

 
 

 
 

Category 1
 
$
10,195

 
$
1,670

 
$
11,865

 
164

 
18

 
182

Category 2
 
2,135

 
554

 
2,689

 
75

 
14

 
89

Category 3
 
2,892

 
801

 
3,693

 
119

 
24

 
143

Total BIG
 
$
15,222

 
$
3,025

 
$
18,247

 
358

 
56

 
414

_____________________
(1)    Includes net par outstanding for VIEs.
 
(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 following table provides information on financial guaranty insurance contracts categorized as BIG.
 
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of June 30, 2015
 
 
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)
266

 
(54
)
 
76

 
(14
)
 
126

 
(41
)
 
468

 
—

 
468

Remaining weighted-average contract period (in years)
9.7

 
6.5

 
10.3

 
8.1

 
9.2

 
6.7

 
10.1

 
—

 
10.1

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
12,125

 
$
(1,621
)
 
$
3,696

 
$
(307
)
 
$
3,147

 
$
(136
)
 
$
16,904

 
$
—

 
$
16,904

Interest
6,019

 
(542
)
 
2,005

 
(122
)
 
1,039

 
(37
)
 
8,362

 
—

 
8,362

Total(2)
$
18,144

 
$
(2,163
)
 
$
5,701

 
$
(429
)
 
$
4,186

 
$
(173
)
 
$
25,266

 
$
—

 
$
25,266

Expected cash outflows (inflows)
$
561

 
$
(28
)
 
$
1,012

 
$
(79
)
 
$
1,659

 
$
(49
)
 
$
3,076

 
$
(339
)
 
$
2,737

Potential recoveries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undiscounted R&W
17

 
(1
)
 
(49
)
 
1

 
(127
)
 
6

 
(153
)
 
9

 
(144
)
Other(3)
(446
)
 
14

 
(209
)
 
6

 
(399
)
 
19

 
(1,015
)
 
180

 
(835
)
Total potential recoveries
(429
)
 
13

 
(258
)
 
7

 
(526
)
 
25

 
(1,168
)
 
189

 
(979
)
Subtotal
132

 
(15
)
 
754

 
(72
)
 
1,133

 
(24
)
 
1,908

 
(150
)
 
1,758

Discount
10

 
(1
)
 
(190
)
 
13

 
(365
)
 
3

 
(530
)
 
36

 
(494
)
Present value of expected cash flows
$
142

 
$
(16
)
 
$
564

 
$
(59
)
 
$
768

 
$
(21
)
 
$
1,378

 
$
(114
)
 
$
1,264

Deferred premium revenue
$
631

 
$
(59
)
 
$
144

 
$
(4
)
 
$
296

 
$
(19
)
 
$
989

 
$
(107
)
 
$
882

Reserves (salvage)(4)
$
7

 
$
(8
)
 
$
459

 
$
(54
)
 
$
433

 
$
(8
)
 
$
829

 
$
(69
)
 
$
760

 
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 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)
164

 
(59
)
 
75

 
(15
)
 
119

 
(38
)
 
358

 
—

 
358

Remaining weighted-average contract period (in years)
9.9

 
7.4

 
10.1

 
8.9

 
9.6

 
6.9

 
10.3

 
—

 
10.3

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
12,358

 
$
(2,163
)
 
$
2,421

 
$
(286
)
 
$
3,067

 
$
(175
)
 
$
15,222

 
$
—

 
$
15,222

Interest
6,350

 
(838
)
 
1,274

 
(121
)
 
1,034

 
(48
)
 
7,651

 
—

 
7,651

Total(2)
$
18,708

 
$
(3,001
)
 
$
3,695

 
$
(407
)
 
$
4,101

 
$
(223
)
 
$
22,873

 
$
—

 
$
22,873

Expected cash outflows (inflows)
$
1,762

 
$
(626
)
 
$
763

 
$
(77
)
 
$
1,716

 
$
(75
)
 
$
3,463

 
$
(345
)
 
$
3,118

Potential recoveries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undiscounted R&W
(39
)
 
0

 
(48
)
 
2

 
(171
)
 
9

 
(247
)
 
8

 
(239
)
Other(3)
(1,687
)
 
608

 
(206
)
 
5

 
(404
)
 
30

 
(1,654
)
 
177

 
(1,477
)
Total potential recoveries
(1,726
)
 
608

 
(254
)
 
7

 
(575
)
 
39

 
(1,901
)
 
185

 
(1,716
)
Subtotal
36

 
(18
)
 
509

 
(70
)
 
1,141

 
(36
)
 
1,562

 
(160
)
 
1,402

Discount
3

 
0

 
(117
)
 
11

 
(353
)
 
9

 
(447
)
 
34

 
(413
)
Present value of expected cash flows
$
39

 
$
(18
)
 
$
392

 
$
(59
)
 
$
788

 
$
(27
)
 
$
1,115

 
$
(126
)
 
$
989

Deferred premium revenue
$
378

 
$
(70
)
 
$
119

 
$
(6
)
 
$
312

 
$
(33
)
 
$
700

 
$
(116
)
 
$
584

Reserves (salvage)(4)
$
(42
)
 
$
(5
)
 
$
278

 
$
(53
)
 
$
482

 
$
(10
)
 
$
650

 
$
(79
)
 
$
571

____________________
(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.

(3)
Includes excess spread and draws on HELOCs.

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