Expected Loss to be Paid (Tables)

9 Months Ended

Sep. 30, 2019

Expected Losses [Abstract]

Net Expected Loss to be Paid After Net Expected Recoveries for Breaches of R&W Roll Forward

The following tables present a roll forward of net expected loss to be paid for all contracts. The Company used risk-free rates for U.S. dollar denominated obligations that ranged from 0.00% to 2.20% with a weighted average of 1.79% as of September 30, 2019 and 0.00% to 3.06% with a weighted average of 2.74% as of December 31, 2018. Expected losses to be paid for transactions denominated in currencies other than the U.S. dollar represented approximately 4.0% and 2.7% of the total as of September 30, 2019 and December 31, 2018, respectively.

Net Expected Loss to be Paid

Roll Forward

	Third Quarter						Nine Months
	2019			2018			2019			2018
	(in millions)
Net expected loss to be paid, beginning of period	$	960		$	1,432		$	1,183		$	1,303
Net expected loss to be paid on the Syncora Guarantee Inc. (SGI) portfolio as of June 1, 2018 (see Note 11)	—			—			—			131
Economic loss development (benefit) due to:
Accretion of discount	5			10			19			27
Changes in discount rates	1			(9		)	(4		)	(15		)
Changes in timing and assumptions	19			(1		)	(29		)	(17		)
Total economic loss development (benefit)	25			—			(14		)	(5		)
Net (paid) recovered losses	(267		)	(241		)	(451		)	(238		)
Net expected loss to be paid, end of period	$	718		$	1,191		$	718		$	1,191

Net Expected Loss to be Paid

Roll Forward by Sector

Third Quarter 2019

	Net Expected Loss to be Paid (Recovered) as of June 30, 2019		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of September 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	749	$	50		$	(279	)	$	520
Non-U.S. public finance	23		5			—			28
Public finance	772		55			(279		)	548
Structured finance:
U.S. RMBS	162		(40		)	13			135
Other structured finance	26		10			(1		)	35
Structured finance	188		(30		)	12			170
Total	$	960	$	25		$	(267	)	$	718

Net Expected Loss to be Paid

Roll Forward by Sector

Third Quarter 2018

	Net Expected Loss to be Paid (Recovered) as of June 30, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of September 30, 2018
	(in millions)
Public finance:
U.S. public finance	$	1,041	$	42		$	(251	)	$	832
Non-U.S. public finance	41		(3		)	—			38
Public finance	1,082		39			(251		)	870
Structured finance:
U.S. RMBS	326		(40		)	17			303
Other structured finance	24		1			(7		)	18
Structured finance	350		(39		)	10			321
Total	$	1,432	$	—		$	(241	)	$	1,191

Net Expected Loss to be Paid

Roll Forward by Sector

Nine Months 2019

	Net Expected Loss to be Paid (Recovered) as of December 31, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of September 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	832	$	204		$	(516	)	$	520
Non-U.S. public finance	32		(4		)	—			28
Public finance	864		200			(516		)	548
Structured finance:
U.S. RMBS	293		(223		)	65			135
Other structured finance	26		9			—			35
Structured finance	319		(214		)	65			170
Total	$	1,183	$	(14	)	$	(451	)	$	718

Net Expected Loss to be Paid

Roll Forward by Sector

Nine Months 2018

	Net Expected Loss to be Paid (Recovered) as of December 31, 2017		Net Expected Loss to be Paid on SGI Portfolio as of June 1, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of September 30, 2018
	(in millions)
Public finance:
U.S. public finance	$	1,157	—		$	59		$	(384	)	$	832
Non-U.S. public finance	46		1		(9		)	—			38
Public finance	1,203		1		50			(384		)	870
Structured finance:
U.S. RMBS	73		130		(52		)	152			303
Other structured finance	27		—		(3		)	(6		)	18
Structured finance	100		130		(55		)	146			321
Total	$	1,303	$	131	$	(5	)	$	(238	)	$	1,191

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(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 as reinsurance recoverable on paid losses in other assets. The amounts for Nine Months 2019 are net of the COFINA Exchange Senior Bonds and cash that were received pursuant to the COFINA Plan of Adjustment. See Note 3, Outstanding Exposure, for additional information.

The tables above include (1) LAE paid of $7 million and $6 million for Third Quarter 2019 and 2018, respectively, and $23 million and $17 million for Nine Months 2019 and 2018, respectively, and (2) expected LAE to be paid of $34 million as of September 30, 2019 and $31 million as of December 31, 2018.

Schedule Of Net Expected Losses To Be Paid (Recovered) And Net Economic Development (Benefit) Loss

Net Economic Loss Development (Benefit)

U.S. RMBS

	Third Quarter					Nine Months
	2019			2018		2019			2018
	(in millions)
First lien U.S. RMBS	$	(27	)	(13	)	$	(77	)	$	4
Second lien U.S. RMBS	(13		)	(27	)	(146		)	(56		)

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

By Accounting Model

	Net Expected Loss to be Paid (Recovered)						Net Economic Loss Development  (Benefit)
	As of						Third Quarter						Nine Months
	September 30, 2019			December 31, 2018			2019			2018			2019			2018
	(in millions)
Insurance	$	662		$	1,110		17			1			$	5		$	(9	)
Financial guaranty VIEs (FG VIEs) (See Note 9)	61			75			(2		)	(3		)	(26		)	(7		)
Credit derivatives (See Note 8)	(5		)	(2		)	10			2			7			11
Total	$	718		$	1,183		$	25		$	—		$	(14	)	$	(5	)

Net Expected Loss to be Paid By Accounting Model

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

By Accounting Model

	Net Expected Loss to be Paid (Recovered)						Net Economic Loss Development  (Benefit)
	As of						Third Quarter						Nine Months
	September 30, 2019			December 31, 2018			2019			2018			2019			2018
	(in millions)
Insurance	$	662		$	1,110		17			1			$	5		$	(9	)
Financial guaranty VIEs (FG VIEs) (See Note 9)	61			75			(2		)	(3		)	(26		)	(7		)
Credit derivatives (See Note 8)	(5		)	(2		)	10			2			7			11
Total	$	718		$	1,183		$	25		$	—		$	(14	)	$	(5	)

Liquidation Rates and Key Assumptions in Base Case Expected Loss Estimates First Lien RMBS

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS

	As of September 30, 2019					As of June 30, 2019					As of December 31, 2018
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Alt-A First Lien
Plateau CDR	0.5	%	-	10.5%	4.1%	0.0	%	-	9.5%	4.0%	1.2	%	-	11.4%	4.6%
Final CDR	0.0	%	-	0.5%	0.2%	0.0	%	-	0.5%	0.2%	0.1	%	-	0.6%	0.2%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	70%					70%					70%
2007+	70%					70%					70%
Option ARM
Plateau CDR	2.0	%	-	8.4%	5.6%	2.4	%	-	7.9%	5.5%	1.8	%	-	8.3%	5.6%
Final CDR	0.1	%	-	0.4%	0.3%	0.1	%	-	0.4%	0.3%	0.1	%	-	0.4%	0.3%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	60%					60%					60%
2007+	70%					70%					70%
Subprime
Plateau CDR	1.5	%	-	20.2%	5.6%	2.5	%	-	22.8%	6.0%	1.8	%	-	23.2%	6.2%
Final CDR	0.1	%	-	1.0%	0.3%	0.1	%	-	1.1%	0.3%	0.1	%	-	1.2%	0.3%
Initial loss severity:
2005 and prior	80%					80%					80%
2006	75%					75%					75%
2007+	85%					95%					95%

First Lien Liquidation Rates

	As of September 30, 2019	As of June 30, 2019	As of December 31, 2018
Delinquent/Modified in the Previous 12 Months
Alt-A and Prime	20%	20%	20%
Option ARM	20	20	20
Subprime	20	20	20
30 – 59 Days Delinquent
Alt-A and Prime	30	30	30
Option ARM	35	35	35
Subprime	35	40	40
60 – 89 Days Delinquent
Alt-A and Prime	40	40	40
Option ARM	45	45	45
Subprime	45	45	45
90+ Days Delinquent
Alt-A and Prime	55	50	50
Option ARM	55	55	55
Subprime	50	55	50
Bankruptcy
Alt-A and Prime	45	45	45
Option ARM	50	50	50
Subprime	40	40	40
Foreclosure
Alt-A and Prime	65	60	60
Option ARM	65	65	65
Subprime	60	60	60
Real Estate Owned
All	100	100	100

Key Assumptions in Base Case Expected Loss Estimates Second Lien RMBS

Key Assumptions in Base Case Expected Loss Estimates

HELOCs

	As of September 30, 2019					As of June 30, 2019					As of December 31, 2018
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Plateau CDR	4.8	%	-	20.7%	9.1%	4.6	%	-	23.5%	9.2%	4.6	%	-	26.8%	10.1%
Final CDR trended down to	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%
Liquidation rates:
Delinquent/Modified in the Previous 12 Months	20%					20%					20%
30 – 59 Days Delinquent	35					30					35
60 – 89 Days Delinquent	45					45					50
90+ Days Delinquent	65					65					70
Bankruptcy	55					55					55
Foreclosure	55					60					65
Real Estate Owned	100					100					100
Loss severity (1)	98%					98%					98%

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(1)    Loss severities on future defaults.