Expected Loss to be Paid (Tables)

6 Months Ended

Jun. 30, 2020

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 1.47% with a weighted average of 0.57% as of June 30, 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 June 30, 2020 and December 31, 2019, respectively.

Net Expected Loss to be Paid

Roll Forward

	Second Quarter					Six Months
	2020		2019			2020			2019
	(in millions)
Net expected loss to be paid, beginning of period	$	660	$	963		$	737		$	1,183
Economic loss development (benefit) due to:
Accretion of discount	2		6			6			14
Changes in discount rates	1		(1		)	32			(5		)
Changes in timing and assumptions	31		(42		)	(7		)	(48		)
Total economic loss development (benefit)	34		(37		)	31			(39		)
Net (paid) recovered losses	41		34			(33		)	(184		)
Net expected loss to be paid, end of period	$	735	$	960		$	735		$	960

Net Expected Loss to be Paid

Roll Forward by Sector

	Second Quarter 2020
	Net Expected Loss to be Paid/(Recovered) as of March 31, 2020		Economic Loss Development/ (Benefit)		(Paid)/ Recovered Losses (1)			Net Expected Loss to be Paid/(Recovered) as of June 30, 2020
	(in millions)
Public finance:
U.S. public finance	$	493	$	30	$	20		$	543
Non-U.S. public finance	26		2		1			29
Public finance	519		32		21			572
Structured finance:
U.S. RMBS	104		1		23			128
Other structured finance	37		1		(3		)	35
Structured finance	141		2		20			163
Total	$	660	$	34	$	41		$	735

	Second Quarter 2019
	Net Expected Loss to be Paid (Recovered) as of March 31, 2019		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	666	$	92		$	(9	)	$	749
Non-U.S. public finance	31		(8		)	—			23
Public finance	697		84			(9		)	772
Structured finance:
U.S. RMBS	237		(118		)	43			162
Other structured finance	29		(3		)	—			26
Structured finance	266		(121		)	43			188
Total	$	963	$	(37	)	$	34		$	960

	Six Months 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 June 30, 2020
	(in millions)
Public finance:
U.S. public finance	$	531	$	86		$	(74	)	$	543
Non-U.S. public finance	23		5			1			29
Public finance	554		91			(73		)	572
Structured finance:
U.S. RMBS	146		(62		)	44			128
Other structured finance	37		2			(4		)	35
Structured finance	183		(60		)	40			163
Total	$	737	$	31		$	(33	)	$	735

	Six 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 June 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	832	$	154		$	(237	)	$	749
Non-U.S. public finance	32		(9		)	—			23
Public finance	864		145			(237		)	772
Structured finance:
U.S. RMBS	293		(183		)	52			162
Other structured finance	26		(1		)	1			26
Structured finance	319		(184		)	53			188
Total	$	1,183	$	(39	)	$	(184	)	$	960

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

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

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						Second Quarter					Six Months
	June 30, 2020			December 31, 2019			2020		2019			2020			2019
	(in millions)
Insurance	$	684		$	683		$	32	$	(22	)	$	31		$	(12	)
FG VIEs (See Note 11)	65			58			1		(14		)	7			(24		)
Credit derivatives (See Note 9)	(14		)	(4		)	1		(1		)	(7		)	(3		)
Total	$	735		$	737		$	34	$	(37	)	$	31		$	(39	)

Net Economic Loss Development (Benefit)

U.S. RMBS

	Second Quarter						Six Months
	2020			2019			2020			2019
	(in millions)
First lien U.S. RMBS	$	4		$	(19	)	$	(55	)	$	(50	)
Second lien U.S. RMBS	(3		)	(99		)	(7		)	(133		)

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						Second Quarter					Six Months
	June 30, 2020			December 31, 2019			2020		2019			2020			2019
	(in millions)
Insurance	$	684		$	683		$	32	$	(22	)	$	31		$	(12	)
FG VIEs (See Note 11)	65			58			1		(14		)	7			(24		)
Credit derivatives (See Note 9)	(14		)	(4		)	1		(1		)	(7		)	(3		)
Total	$	735		$	737		$	34	$	(37	)	$	31		$	(39	)

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

First Lien Liquidation Rates

	As of June 30, 2020	As of March 31, 2020	As of December 31, 2019
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	35	30	30
Option ARM	35	30	35
Subprime	30	35	35
60 – 89 Days Delinquent
Alt-A and Prime	40	40	40
Option ARM	45	45	45
Subprime	40	45	45
90+ Days Delinquent
Alt-A and Prime	55	55	55
Option ARM	60	55	55
Subprime	45	50	50
Bankruptcy
Alt-A and Prime	45	45	45
Option ARM	50	50	50
Subprime	40	40	40
Foreclosure
Alt-A and Prime	60	65	65
Option ARM	65	65	65
Subprime	55	55	60
Real Estate Owned
All	100	100	100

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS

	As of June 30, 2020					As of March 31, 2020							As of December 31, 2019
	Range				Weighted Average	Range					Weighted Average		Range				Weighted Average
Alt-A First Lien
Plateau CDR	1.6	%	-	9.4%	5.2%	0.0	%	-	8.3	%	4.0	%	0.3	%	-	8.4%	4.1%
Final CDR	0.1	%	-	0.5%	0.3%	0.0	%	-	0.4	%	0.2	%	0.0	%	-	0.4%	0.2%
Initial loss severity:
2005 and prior	60%					60%							60%
2006	70%					70%							70%
2007+	70%					70%							70%
Option ARM
Plateau CDR	2.4	%	-	10.4%	5.6%	1.7	%	-	7.7	%	5.0	%	1.8	%	-	8.4%	5.4%
Final CDR	0.1	%	-	0.5%	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	1.3	%	-	19.1%	5.5%	1.9	%	-	17.8	%	5.4	%	1.6	%	-	18.1%	5.6%
Final CDR	0.1	%	-	1.0%	0.3%	0.1	%	-	0.9	%	0.3	%	0.1	%	-	0.9%	0.3%
Initial loss severity:
2005 and prior	75%					75%							75%
2006	75%					75%							75%
2007+	75%					75%							75%

Key Assumptions in Base Case Expected Loss Estimates Second Lien RMBS

Key Assumptions in Base Case Expected Loss Estimates

HELOCs

	As of June 30, 2020					As of March 31, 2020					As of December 31, 2019
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Plateau CDR	6.3	%	-	29.8%	13.0%	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%	2.5	%	-	3.2%	2.5%
Liquidation rates:
Delinquent/Modified in the Previous 12 Months	20%					20%					20%
30 – 59 Days Delinquent	30					30					30
60 – 89 Days Delinquent	40					45					45
90+ Days Delinquent	60					65					65
Bankruptcy	55					55					55
Foreclosure	55					60					55
Real Estate Owned	100					100					100
Loss severity (1)	98%					98%					98%
Projected future recoveries on previously charged-off loans	20%					20%					20%

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(1)    Loss severities on future defaults.