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Financial Guaranty Insurance Losses (Tables)
 9 Months Ended
Sep. 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 September 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
$
525

 
$
11

 
$
514

 
$
243

 
$
8

 
$
235

Non-U.S. public finance
30

 
—

 
30

 
30

 
—

 
30

Public Finance
555

 
11

 
544

 
273

 
8

 
265

Structured Finance:
 
 
 
 
 
 
 
 
 
 
 
U.S. RMBS:
 

 
 

 
 

 
 

 
 

 
 

First lien:
 

 
 

 
 

 
 

 
 

 
 

Prime first lien
2

 
—

 
2

 
2

 
—

 
2

Alt-A first lien
43

 
—

 
43

 
87

 
—

 
87

Option ARM
18

 
34

 
(16
)
 
28

 
40

 
(12
)
Subprime
176

 
22

 
154

 
166

 
8

 
158

First lien
239

 
56

 
183

 
283

 
48

 
235

Second lien:
 

 
 

 
 

 
 

 
 

 
 

Closed-end second lien
4

 
35

 
(31
)
 
4

 
39

 
(35
)
HELOCs
13

 
30

 
(17
)
 
3

 
39

 
(36
)
Second lien
17

 
65

 
(48
)
 
7

 
78

 
(71
)
Total U.S. RMBS
256

 
121

 
135

 
290

 
126

 
164

Triple-X life insurance transactions
80

 
—

 
80

 
140

 
—

 
140

TruPS
—

 
—

 
—

 
0

 
—

 
0

Student loans
53

 
—

 
53

 
64

 
—

 
64

Other structured finance
47

 
—

 
47

 
34

 
8

 
26

Structured Finance
436

 
121

 
315

 
528

 
134

 
394

Subtotal
991

 
132

 
859

 
801

 
142

 
659

Other recoverables
—

 
5

 
(5
)
 
—

 
13

 
(13
)
Subtotal
991

 
137

 
854

 
801

 
155

 
646

Effect of consolidating FG VIEs
(73
)
 
(1
)
 
(72
)
 
(80
)
 
(1
)
 
(79
)
Total (1)
$
918

 
$
136

 
$
782

 
$
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
September 30, 2015
 
As of
December 31, 2014
 
(in millions)
Loss and LAE reserve
$
1,007

 
$
799

Reinsurance recoverable on unpaid losses
(89
)
 
(78
)
Loss and LAE reserve, net
918

 
721

Salvage and subrogation recoverable
(135
)
 
(151
)
Salvage and subrogation payable(1)
4

 
10

Other recoverables
(5
)
 
(13
)
Salvage and subrogation recoverable, net and other recoverable
(136
)
 
(154
)
Net reserves (salvage)
$
782

 
$
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 September 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
$
(19
)
 
$
—

 
$
(19
)
 
$
20

 
$
—

 
$
20

Loss and LAE reserve, net
119

 
(7
)
 
112

 
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
September 30, 2015
 
(in millions)
Net expected loss to be paid
$
1,280

Less: net expected loss to be paid for FG VIEs and other
135

Total
1,145

Contra-paid, net
6

Salvage and subrogation recoverable, net of reinsurance
131

Loss and LAE reserve, net of reinsurance
(899
)
Other recoveries
4

Net expected loss to be expensed (present value) (1)
$
387

____________________
(1)
Excludes $79 million as of September 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
September 30, 2015
 
(in millions)
2015 (October 1 – December 31)
$
7

Subtotal 2015
7

2016
38

2017
31

2018
29

2019
28

2020-2024
104

2025-2029
75

2030-2034
51

After 2034
24

Net expected loss to be expensed
387

Discount
406

Total expected future loss and LAE
$
793

 
Loss and LAE Reported on the Consolidated Statements of Operations
Loss and LAE
Reported on the
Consolidated Statements of Operations
  
 
Third Quarter
 
Nine Months
 
2015
 
2014
 
2015

2014
 
(in millions)
Public Finance:
 
 
 
 
 
 
 
U.S. public finance
$
89

 
$
3

 
$
298

 
$
112

Non-U.S. public finance
(2
)
 
(1
)
 
4

 
(1
)
Public finance
87

 
2

 
302

 
111

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

 
0

 
(1
)
 
0

Alt-A first lien
(15
)
 
4

 
(26
)
 
21

Option ARM
(4
)
 
9

 
(5
)
 
(21
)
Subprime
31

 
(7
)
 
32

 
(5
)
First lien
12

 
6

 
0

 
(5
)
Second lien:
 
 
 
 
 
 
 
Closed-end second lien
1

 
1

 
0

 
0

HELOCs
18

 
(45
)
 
29

 
(55
)
Second lien
19

 
(44
)
 
29

 
(55
)
Total U.S. RMBS
31

 
(38
)
 
29

 
(60
)
Triple-X life insurance transactions
7

 
3

 
14

 
20

TruPS
—

 
0

 
(1
)
 
(1
)
Student loans
(2
)
 
6

 
(7
)
 
12

Other structured finance
(1
)
 
(3
)
 
(2
)
 
(7
)
Structured finance
35

 
(32
)
 
33

 
(36
)
Loss and LAE on insurance contracts before FG VIE consolidation
122

 
(30
)
 
335

 
75

Effect of consolidating FG VIEs
(10
)
 
(14
)
 
(17
)
 
(21
)
Loss and LAE
$
112

 
$
(44
)
 
$
318

 
$
54
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 September 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)
239

 
(50
)
 
87

 
(13
)
 
125

 
(41
)
 
451

 
—

 
451

Remaining weighted-average contract period (in years)
9.9

 
6.8

 
11.0

 
9.2

 
8.0

 
6.2

 
10.2

 
—

 
10.2

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
11,001

 
$
(1,449
)
 
$
3,673

 
$
(263
)
 
$
2,780

 
$
(160
)
 
$
15,582

 
$
—

 
$
15,582

Interest
5,676

 
(509
)
 
2,102

 
(118
)
 
926

 
(34
)
 
8,043

 
—

 
8,043

Total(2)
$
16,677

 
$
(1,958
)
 
$
5,775

 
$
(381
)
 
$
3,706

 
$
(194
)
 
$
23,625

 
$
—

 
$
23,625

Expected cash outflows (inflows)
$
1,809

 
$
(566
)
 
$
1,110

 
$
(67
)
 
$
1,402

 
$
(44
)
 
$
3,644

 
$
(333
)
 
$
3,311

Potential recoveries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undiscounted R&W
42

 
(1
)
 
(49
)
 
1

 
(94
)
 
5

 
(96
)
 
8

 
(88
)
Other(3)
(1,663
)
 
514

 
(258
)
 
11

 
(467
)
 
18

 
(1,845
)
 
173

 
(1,672
)
Total potential recoveries
(1,621
)
 
513

 
(307
)
 
12

 
(561
)
 
23

 
(1,941
)
 
181

 
(1,760
)
Subtotal
188

 
(53
)
 
803

 
(55
)
 
841

 
(21
)
 
1,703

 
(152
)
 
1,551

Discount
(21
)
 
8

 
(194
)
 
10

 
(158
)
 
(86
)
 
(441
)
 
35

 
(406
)
Present value of expected cash flows
$
167

 
$
(45
)
 
$
609

 
$
(45
)
 
$
683

 
$
(107
)
 
$
1,262

 
$
(117
)
 
$
1,145

Deferred premium revenue
$
510

 
$
(47
)
 
$
144

 
$
(4
)
 
$
333

 
$
(26
)
 
$
910

 
$
(103
)
 
$
807

Reserves (salvage)
$
30

 
$
(36
)
 
$
502

 
$
(42
)
 
$
389

 
$
(7
)
 
$
836

 
$
(72
)
 
$
764

 
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)
$
(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.