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Expected Loss to be Paid (Tables)

3 Months Ended

Mar. 31, 2020

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 1.39% with a weighted average of 0.64% as of March 31, 2020 and 0.00% to 2.45% with a weighted average of 1.94% as of December 31, 2019. Expected losses to be paid for transactions denominated in currencies other than the U.S. dollar represented approximately 3.9% and 3.2% of the total as of March 31, 2020 and December 31, 2019, respectively.

Net Expected Loss to be Paid

Roll Forward



	First Quarter
	2020			2019
	(in millions)
Net expected loss to be paid, beginning of period	$	737		$	1,183
Economic loss development (benefit) due to:
Accretion of discount	4			8
Changes in discount rates	31			(4		)
Changes in timing and assumptions	(38		)	(6		)
Total economic loss development (benefit)	(3		)	(2		)
Net (paid) recovered losses	(74		)	(218		)
Net expected loss to be paid, end of period	$	660		$	963

Net Expected Loss to be Paid

Roll Forward by Sector



	First Quarter 2020
	Net Expected Loss to be Paid/(Recovered) as of December 31, 2019		Economic Loss Development/ (Benefit)			(Paid)/ Recovered Losses (1)			Net Expected Loss to be Paid/(Recovered) as of March 31, 2020
	(in millions)
Public finance:
U.S. public finance	$	531	$	56		$	(94	)	$	493
Non-U.S. public finance	23		3			—			26
Public finance	554		59			(94		)	519
Structured finance:
U.S. RMBS	146		(63		)	21			104
Other structured finance	37		1			(1		)	37
Structured finance	183		(62		)	20			141
Total	$	737	$	(3	)	$	(74	)	$	660



	First Quarter 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 March 31, 2019
	(in millions)
Public finance:
U.S. public finance	$	832	$	62		$	(228	)	$	666
Non-U.S. public finance	32		(1		)	—			31
Public finance	864		61			(228		)	697
Structured finance:
U.S. RMBS	293		(65		)	9			237
Other structured finance	26		2			1			29
Structured finance	319		(63		)	10			266
Total	$	1,183	$	(2	)	$	(218	)	$	963

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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 First Quarter 2019 are net of the COFINA Exchange Senior Bonds and cash that were received pursuant to the COFINA Plan of Adjustment.

The tables above include (1) LAE paid of $3 million and $7 million for First Quarter 2020 and 2019, respectively, and (2) expected LAE to be paid of $30 million as of March 31, 2020 and $33 million as of December 31, 2019.

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

Net Economic Loss Development (Benefit)

U.S. RMBS



	First Quarter
	2020			2019
	(in millions)
First lien U.S. RMBS	$	(59	)	$	(31	)
Second lien U.S. RMBS	(4		)	(34		)

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 March 31, 2020			As of December 31, 2019			First Quarter 2020			First Quarter 2019
	(in millions)
Insurance	$	609		$	683		$	(1	)	$	10
FG VIEs (See Note 12)	64			58			6			(10		)
Credit derivatives (See Note 10)	(13		)	(4		)	(8		)	(2		)
Total	$	660		$	737		$	(3	)	$	(2	)

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 March 31, 2020			As of December 31, 2019			First Quarter 2020			First Quarter 2019
	(in millions)
Insurance	$	609		$	683		$	(1	)	$	10
FG VIEs (See Note 12)	64			58			6			(10		)
Credit derivatives (See Note 10)	(13		)	(4		)	(8		)	(2		)
Total	$	660		$	737		$	(3	)	$	(2	)

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

First Lien Liquidation Rates



	As of March 31, 2020	As of December 31, 2019
Delinquent/Modified in the Previous 12 Months
Alt-A and Prime	20%	20%
Option ARM	20	20
Subprime	20	20
30 – 59 Days Delinquent
Alt-A and Prime	30	30
Option ARM	30	35
Subprime	35	35
60 – 89 Days Delinquent
Alt-A and Prime	40	40
Option ARM	45	45
Subprime	45	45
90+ Days Delinquent
Alt-A and Prime	55	55
Option ARM	55	55
Subprime	50	50
Bankruptcy
Alt-A and Prime	45	45
Option ARM	50	50
Subprime	40	40
Foreclosure
Alt-A and Prime	65	65
Option ARM	65	65
Subprime	55	60
Real Estate Owned
All	100	100

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS



	As of March 31, 2020					As of December 31, 2019
	Range				Weighted Average	Range				Weighted Average
Alt-A First Lien
Plateau CDR	0.0	%	-	8.3%	4.0%	0.3	%	-	8.4%	4.1%
Final CDR	0.0	%	-	0.4%	0.2%	0.0	%	-	0.4%	0.2%
Initial loss severity:
2005 and prior	60%					60%
2006	70%					70%
2007+	70%					70%
Option ARM
Plateau CDR	1.7	%	-	7.7%	5.0%	1.8	%	-	8.4%	5.4%
Final CDR	0.1	%	-	0.4%	0.3%	0.1	%	-	0.4%	0.3%
Initial loss severity:
2005 and prior	60%					60%
2006	60%					60%
2007+	70%					70%
Subprime
Plateau CDR	1.9	%	-	17.8%	5.4%	1.6	%	-	18.1%	5.6%
Final CDR	0.1	%	-	0.9%	0.3%	0.1	%	-	0.9%	0.3%
Initial loss severity:
2005 and prior	75%					75%
2006	75%					75%
2007+	75%					75%

Key Assumptions in Base Case Expected Loss Estimates Second Lien RMBS

Key Assumptions in Base Case Expected Loss Estimates

HELOCs



	As of March 31, 2020					As of December 31, 2019
	Range				Weighted Average	Range				Weighted Average
Plateau CDR	4.1	%	-	23.3%	9.6%	5.9	%	-	24.6%	9.5%
Final CDR trended down to	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%
Liquidation rates:
Delinquent/Modified in the Previous 12 Months	20%					20%
30 – 59 Days Delinquent	30					30
60 – 89 Days Delinquent	45					45
90+ Days Delinquent	65					65
Bankruptcy	55					55
Foreclosure	55					55
Real Estate Owned	100					100
Loss severity (1)	98%					98%
Projected future recoveries on previously charged-off loans	20%					20%

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(1) Loss severities on future defaults.