XML 26 R15.htm IDEA: XBRL DOCUMENT v3.10.0.1
Contracts Accounted for as Insurance
 9 Months Ended
Sep. 30, 2018
Insurance [Abstract]  
Contracts Accounted for as Insurance
Contracts Accounted for as Insurance

Premiums

The portfolio of outstanding exposures discussed in Note 4, Outstanding Exposure, includes contracts that meet the definition of insurance contracts, contracts that meet the definition of a derivative, and contracts that are accounted for as consolidated FG VIEs. Amounts presented in this note relate only to insurance contracts. See Note 8, Contracts Accounted for as Credit Derivatives for amounts that relate to CDS and Note 9, Variable Interest Entities for amounts that relate to FG VIEs.

Net Earned Premiums
 
 
Third Quarter
 
Nine Months
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Scheduled net earned premiums
$
95

 
$
96

 
$
275

 
$
296

Accelerations from refundings and terminations
40

 
87

 
131

 
204

Accretion of discount on net premiums receivable
6

 
3

 
14

 
11

  Financial guaranty insurance net earned premiums
141

 
186

 
420

 
511

Non-financial guaranty net earned premiums
1

 
0

 
3

 
1

  Net earned premiums (1)
$
142

 
$
186

 
$
423

 
$
512

 ___________________
(1)
Excludes $3 million and $3 million for Third Quarter 2018 and 2017, respectively, and $9 million and $11 million for Nine Months 2018 and 2017, respectively, related to consolidated FG VIEs.

Gross Premium Receivable,
Net of Commissions on Assumed Business
Roll Forward 

 
Nine Months
 
2018
 
2017
 
(in millions)
Beginning of year
$
915

 
$
576

Less: Non-financial guaranty insurance premium receivable
1

 
0

FG insurance premiums receivable
914

 
576

Premiums receivable from acquisitions (see Note 2)
—

 
270

Gross written premiums on new business, net of commissions (1)
508

 
225

Gross premiums received, net of commissions (2)
(477
)
 
(216
)
Adjustments:
 
 
 
Changes in the expected term
(2
)
 
0

Accretion of discount, net of commissions on assumed business
5

 
13

Foreign exchange translation and remeasurement (3)
(23
)
 
54

Cancellation of assumed reinsurance
(10
)
 
—

FG insurance premium receivable (4)
915

 
922

Non-financial guaranty insurance premium receivable
1

 
0

September 30,
$
916


$
922

____________________
(1)
For transactions where the Company replaces a previous Assured Guaranty financial guaranty contract, gross written premiums in this table represents only the incremental amount in excess of the original gross written premiums. Nine Months 2018 includes $330 million of gross written premiums assumed from SGI on June 1, 2018. See Note 2, Assumption of Insured Portfolio and Business Combinations.

(2)
Nine Months 2018 includes $275 million of cash received from SGI on June 1, 2018.

(3)
Includes foreign exchange gain (loss) on remeasurement recorded in the condensed consolidated statements of operations of $(8) million in Third Quarter 2018, $19 million in Third Quarter 2017, $(21) million in Nine Months 2018 and $52 million in Nine Months 2017. The remaining foreign exchange translation is recorded in other comprehensive income.

(4)
Excludes $9 million and $10 million as of September 30, 2018 and September 30, 2017, respectively, related to consolidated FG VIEs.


Approximately 72%, 72% and 71% of installment premiums at September 30, 2018, December 31, 2017 and September 30, 2017, respectively, are denominated in currencies other than the U.S. dollar, primarily the euro and pound sterling.
 
The timing and cumulative amount of actual collections may differ from expected collections in the tables below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations and changes in expected lives.

 Expected Collections of
Financial Guaranty Insurance Gross Premiums Receivable,
Net of Commissions on Assumed Business
(Undiscounted)

 
As of
September 30, 2018
 
(in millions)
2018 (October 1 - December 31)
$
32

2019
93

2020
98

2021
80

2022
80

2023-2027
296

2028-2032
196

2033-2037
109

After 2037
111

Total (1)
$
1,095

 ____________________
(1)
Excludes expected cash collections on consolidated FG VIEs of $11 million.

Scheduled Financial Guaranty Insurance Net Earned Premiums

 
As of
September 30, 2018
 
(in millions)
2018 (October 1 - December 31)
$
91

2019
329

2020
299

2021
272

2022
247

2023-2027
963

2028-2032
639

2033-2037
378

After 2037
320

Net deferred premium revenue (1)
3,538

Future accretion
179

Total future net earned premiums
$
3,717

 ____________________
(1)
Excludes scheduled net earned premiums on consolidated FG VIEs of $68 million and non-financial guaranty business net earned premium of $12 million.

Selected Information for Financial Guaranty Insurance
Policies Paid in Installments

 
As of
September 30, 2018
 
As of
December 31, 2017
 
(dollars in millions)
Premiums receivable, net of commission payable
$
915

 
$
914

Gross deferred premium revenue
1,324

 
1,205

Weighted-average risk-free rate used to discount premiums
2.2
%
 
2.3
%
Weighted-average period of premiums receivable (in years)
9.1

 
9.2



Financial Guaranty Insurance Losses

Insurance Contracts' Loss Information

The following table provides information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance. To discount loss reserves, the Company used risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 0.0% to 3.20% with a weighted average of 3.04% as of September 30, 2018 and 0.0% to 2.78% with a weighted average of 2.39% as of December 31, 2017.

Net Reserve (Salvage) 

 
As of
September 30, 2018
 
As of
December 31, 2017
 
(in millions)
Public finance:
 
 
 
U.S. public finance
$
611

 
$
901

Non-U.S. public finance
16

 
21

Public finance
627

 
922

Structured finance:
 
 
 
U.S. RMBS (1)
15

 
(114
)
Other structured finance
22

 
40

Structured finance
37

 
(74
)
Subtotal
664

 
848

Other payable (recoverable)
(3
)
 
(4
)
Total
$
661

 
$
844

____________________
(1)
Excludes net reserves of $50 million and $55 million as of September 30, 2018 and December 31, 2017, respectively, related to consolidated FG VIEs.
 


Components of Net Reserves (Salvage)
 
 
As of
September 30, 2018
 
As of
December 31, 2017
 
(in millions)
Loss and LAE reserve
$
1,147

 
$
1,444

Reinsurance recoverable on unpaid losses (1)
(34
)
 
(44
)
Loss and LAE reserve, net
1,113

 
1,400

Salvage and subrogation recoverable
(471
)
 
(572
)
Salvage and subrogation payable (2)
22

 
20

Other payable (recoverable) (1)
(3
)
 
(4
)
Salvage and subrogation recoverable, net, and other recoverable
(452
)
 
(556
)
Net reserves (salvage)
$
661

 
$
844

____________________
(1)
Recorded as a component of other assets in condensed consolidated balance sheets.

(2)
Recorded as a component of other liabilities in condensed consolidated balance sheets.

The table below provides a reconciliation of net expected loss to be paid to net expected loss to be expensed. Expected loss to be paid differs from expected loss to be expensed due to: (i) the contra-paid which represent the claim payments made and recoveries received that have not yet been recognized in the statement of operations, (ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid (and therefore recognized in income but not yet received), and (iii) loss reserves that have already been established (and therefore expensed but not yet paid).

Reconciliation of Net Expected Loss to be Paid and
Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts
 
 
As of
September 30, 2018
 
(in millions)
Net expected loss to be paid - financial guaranty insurance (1)
$
1,112

Contra-paid, net
73

Salvage and subrogation recoverable, net of reinsurance
449

Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance
(1,112
)
Other recoverable (payable)
3

Net expected loss to be expensed (present value) (2)
$
525

____________________
(1)
See "Net Expected Loss to be Paid (Recovered) by Accounting Model" table in Note 5, Expected Loss to be Paid.

(2)
Excludes $45 million as of September 30, 2018, related to consolidated FG VIEs.

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 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
Financial Guaranty Insurance Contracts 

 
As of
September 30, 2018
 
(in millions)
2018 (October 1 – December 31)
$
9

2019
37

2020
38

2021
42

2022
42

2023-2027
171

2028-2032
112

2033-2037
61

After 2037
13

Net expected loss to be expensed
525

Future accretion
181

Total expected future loss and LAE
$
706

 


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

Loss and LAE
Reported on the
Condensed Consolidated Statements of Operations
  
 
Loss (Benefit)
 
Third Quarter
 
Nine Months
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Public finance:
 
 
 
 
 
 
 
U.S. public finance
$
42

 
$
233

 
$
76

 
$
424

Non-U.S. public finance
(3
)
 
0

 
(5
)
 
(3
)
Public finance
39

 
233

 
71

 
421

Structured finance:
 
 
 
 
 
 
 
U.S. RMBS (1)
(21
)
 
(5
)
 
(17
)
 
(19
)
Other structured finance
(1
)
 
(5
)
 
(11
)
 
(48
)
Structured finance
(22
)
 
(10
)
 
(28
)
 
(67
)
Loss and LAE
$
17

 
$
223

 
$
43

 
$
354


____________________
(1)
Excludes a benefit of $3 million and a loss of $1 million for Third Quarter 2018 and 2017, respectively, an losses of $0 million and $5 million for Nine Months 2018 and 2017, respectively, related to consolidated FG VIEs.


The following table provides information on financial guaranty insurance contracts categorized as BIG.
 
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of September 30, 2018
 
 
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)
130

 
(10
)
 
41

 
(1
)
 
146

 
(7
)
 
317

 
—

 
317

Remaining weighted-average contract period (in years)
8.2

 
6.7

 
13.2

 
2.2

 
10.1

 
9.3

 
9.9

 
—

 
9.9

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
2,819

 
$
(73
)
 
$
974

 
$
(6
)
 
$
6,495

 
$
(158
)
 
$
10,051

 
$
—

 
$
10,051

Interest
1,261

 
(31
)
 
622

 
(1
)
 
3,256

 
(74
)
 
5,033

 
—

 
5,033

Total (2)
$
4,080

 
$
(104
)
 
$
1,596

 
$
(7
)
 
$
9,751

 
$
(232
)
 
$
15,084

 
$
—

 
$
15,084

Expected cash outflows (inflows)
$
99

 
$
(5
)
 
$
284

 
$
(1
)
 
$
4,028

 
$
(79
)
 
$
4,326

 
$
(295
)
 
$
4,031

Potential recoveries (3)
(464
)
 
23

 
(107
)
 
0

 
(2,434
)
 
55

 
(2,927
)
 
189

 
(2,738
)
Subtotal
(365
)
 
18

 
177

 
(1
)
 
1,594

 
(24
)
 
1,399

 
(106
)
 
1,293

Discount
91

 
(5
)
 
(53
)
 
0

 
(236
)
 
(2
)
 
(205
)
 
24

 
(181
)
Present value of expected cash flows
$
(274
)
 
$
13

 
$
124

 
$
(1
)
 
$
1,358

 
$
(26
)
 
$
1,194

 
$
(82
)
 
$
1,112

Deferred premium revenue
$
110

 
$
(4
)
 
$
157

 
$
0

 
$
561

 
$
(2
)
 
$
822

 
$
(66
)
 
$
756

Reserves (salvage)
$
(302
)
 
$
13

 
$
42

 
$
(1
)
 
$
982

 
$
(24
)
 
$
710

 
$
(50
)
 
$
660

 
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 31, 2017
 
 
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)
139

 
(22
)
 
46

 
(3
)
 
150

 
(41
)
 
335

 
—

 
335

Remaining weighted-average contract period (in years)
8.9

 
7.3

 
14.0

 
2.9

 
9.6

 
9.3

 
9.9

 
—

 
9.9

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
4,397

 
$
(96
)
 
$
1,352

 
$
(8
)
 
$
6,445

 
$
(190
)
 
$
11,900

 
$
—

 
$
11,900

Interest
2,110

 
(42
)
 
1,002

 
(1
)
 
3,098

 
(86
)
 
6,081

 
—

 
6,081

Total (2)
$
6,507

 
$
(138
)
 
$
2,354

 
$
(9
)
 
$
9,543

 
$
(276
)
 
$
17,981

 
$
—

 
$
17,981

Expected cash outflows (inflows)
$
186

 
$
(5
)
 
$
492

 
$
(1
)
 
$
3,785

 
$
(104
)
 
$
4,353

 
$
(307
)
 
$
4,046

Potential recoveries (3)
(595
)
 
20

 
(145
)
 
0

 
(2,273
)
 
67

 
(2,926
)
 
194

 
(2,732
)
Subtotal
(409
)
 
15

 
347

 
(1
)
 
1,512

 
(37
)
 
1,427

 
(113
)
 
1,314

Discount
66

 
(4
)
 
(93
)
 
0

 
(78
)
 
(2
)
 
(111
)
 
23

 
(88
)
Present value of expected cash flows
$
(343
)
 
$
11

 
$
254

 
$
(1
)
 
$
1,434

 
$
(39
)
 
$
1,316

 
$
(90
)
 
$
1,226

Deferred premium revenue
$
112

 
$
(5
)
 
$
129

 
$
0

 
$
540

 
$
(6
)
 
$
770

 
$
(74
)
 
$
696

Reserves (salvage)
$
(380
)
 
$
11

 
$
202

 
$
(1
)
 
$
1,100

 
$
(34
)
 
$
898

 
$
(55
)
 
$
843

____________________
(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 R&W receivables and payables.


Ratings Impact on Financial Guaranty Business
 
A downgrade of one of AGL’s insurance subsidiaries may result in increased claims under financial guaranties issued by the Company if counterparties exercise contractual rights triggered by the downgrade against insured obligors, and the insured obligors are unable to pay.

See Note 6, Contracts Accounted for as Insurance, in Part II, Item 8. “Financial Statements and Supplementary Data” of AGL’s Annual Report on Form 10-K for the year ended December 31, 2017 for additional information on (i) the Company's potential termination payments under interest rate swaps, (ii) the variable rate demand obligations exposure, and (iii) the potential payment obligations under guaranteed investment contracts and availability of sufficient eligible and liquid assets to AGMH's former subsidiary, FSA Asset Management LLC, to satisfy any expected withdrawal and collateral posting obligations.