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Outstanding Insurance Exposure (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of Insured Financial Obligations [Line Items]

Actual debt service may differ from estimated debt service due to refundings, terminations, negotiated restructurings, prepayments, changes in interest rates on variable rate insured obligations, consumer price index behavior differing from that projected, changes in foreign exchange rates on non-U.S. dollar denominated insured obligations and other factors.

Financial Guaranty Portfolio

Debt Service Outstanding


	Gross Debt Service Outstanding				Net Debt Service Outstanding
	As of				As of
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(in millions)
Public finance	$	354,548	$	363,497	$	354,122	$	362,361
Structured finance	10,887		12,279		10,385		11,769
Total financial guaranty	$	365,435	$	375,776	$	364,507	$	374,130

Financial Guaranty Portfolio by Internal Rating

Financial Guaranty Portfolio

by Internal Rating

As of September 30, 2020


	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	360	0.2	%	$	2,529	4.9	%	$	1,068	12.4	%	$	151	22.1	%	$	4,108	1.8	%
AA	17,046		9.9		5,053		9.9		3,887		45.3		35		5.1		26,021		11.2
A	91,769		53.2		10,628		20.7		1,001		11.7		177		26.0		103,575		44.4
BBB	58,044		33.6		32,172		62.8		910		10.6		278		40.8		91,404		39.2
BIG	5,351		3.1		860		1.7		1,715		20.0		41		6.0		7,967		3.4
Total net par outstanding	$	172,570	100.0	%	$	51,242	100.0	%	$	8,581	100.0	%	$	682	100.0	%	$	233,075	100.0	%

Financial Guaranty Portfolio

by Internal Rating

As of December 31, 2019


	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	381	0.2	%	$	2,541	5.0	%	$	1,258	13.5	%	$	181	23.8	%	$	4,361	1.8	%
AA	19,847		11.3		5,142		10.0		4,010		43.1		38		5.0		29,037		12.3
A	94,488		53.9		15,627		30.4		1,030		11.1		184		24.2		111,329		47.0
BBB	55,000		31.3		27,051		52.8		1,206		13.0		317		41.6		83,574		35.3
BIG	5,771		3.3		898		1.8		1,796		19.3		41		5.4		8,506		3.6
Total net par outstanding	$	175,487	100.0	%	$	51,259	100.0	%	$	9,300	100.0	%	$	761	100.0	%	$	236,807	100.0	%

Schedule of BIG Net Par Outstanding and Number of Risks

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of September 30, 2020


	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	1,318	$	429	$	3,604	$	5,351	$	172,570
Non-U.S. public finance	812		—		48		860		51,242
Public finance	2,130		429		3,652		6,211		223,812
Structured finance:
U.S. RMBS	196		45		1,283		1,524		3,132
Other structured finance	94		54		84		232		6,131
Structured finance	290		99		1,367		1,756		9,263
Total	$	2,420	$	528	$	5,019	$	7,967	$	233,075

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of December 31, 2019


	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	1,582	$	430	$	3,759	$	5,771	$	175,487
Non-U.S. public finance	854		—		44		898		51,259
Public finance	2,436		430		3,803		6,669		226,746
Structured finance:
U.S. RMBS	162		74		1,382		1,618		3,546
Other structured finance	69		62		88		219		6,515
Structured finance	231		136		1,470		1,837		10,061
Total	$	2,667	$	566	$	5,273	$	8,506	$	236,807

Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of September 30, 2020


	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivative		Total		Financial Guaranty Insurance (1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	2,347	$	73	$	2,420	112	7	119
Category 2	524		4		528		19	1	20
Category 3	4,974		45		5,019		126	6	132
Total BIG	$	7,845	$	122	$	7,967	257	14	271

Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of December 31, 2019


	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivative		Total		Financial Guaranty Insurance (1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	2,600	$	67	$	2,667	121	6	127
Category 2	561		5		566		24	1	25
Category 3	5,216		57		5,273		131	7	138
Total BIG	$	8,377	$	129	$	8,506	276	14	290

_____________________

(1) Includes VIEs.

(2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.

BIG Net Par Outstanding and Number of Risks

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of September 30, 2020


	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)	112		(1)		19		—		126		(4)		257		—		257
Remaining weighted-average period (in years)	7.3		5.2		16.7		—		9.6		6.3		9.4		—		9.4
Outstanding exposure:
Par	$	2,356	$	(9)	$	524	$	—	$	5,039	$	(65)	$	7,845	$	—	$	7,845
Interest	896		(3)		424		—		2,185		(16)		3,486		—		3,486
Total (2)	$	3,252	$	(12)	$	948	$	—	$	7,224	$	(81)	$	11,331	$	—	$	11,331
Expected cash outflows (inflows)	$	180	$	(1)	$	73	$	—	$	3,769	$	(50)	$	3,971	$	(262)	$	3,709
Potential recoveries (3)	(733)		20		(4)		—		(2,758)		55		(3,420)		190		(3,230)
Subtotal	(553)		19		69		—		1,011		5		551		(72)		479
Discount	19		—		(10)		—		(78)		(1)		(70)		9		(61)
Present value of expected cash flows	$	(534)	$	19	$	59	$	—	$	933	$	4	$	481	$	(63)	$	418
Deferred premium revenue	$	125	$	—	$	24	$	—	$	440	$	(3)	$	586	$	(44)	$	542
Reserves (salvage)	$	(567)	$	20	$	40	$	—	$	580	$	6	$	79	$	(35)	$	44

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2019


	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)	121		(6)		24		—		131		(7)		276		—		276
Remaining weighted-average period (in years)	8.0		5.2		17.0		—		9.7		8.3		9.7		—		9.7
Outstanding exposure:
Par	$	2,654	$	(54)	$	561	$	—	$	5,386	$	(170)	$	8,377	$	—	$	8,377
Interest	1,149		(15)		481		—		2,507		(73)		4,049		—		4,049
Total (2)	$	3,803	$	(69)	$	1,042	$	—	$	7,893	$	(243)	$	12,426	$	—	$	12,426
Expected cash outflows (inflows)	$	135	$	(3)	$	84	$	—	$	4,185	$	(132)	$	4,269	$	(264)	$	4,005
Potential recoveries (3)	(598)		21		(10)		—		(2,926)		107		(3,406)		189		(3,217)
Subtotal	(463)		18		74		—		1,259		(25)		863		(75)		788
Discount	54		(1)		(21)		—		(151)		(3)		(122)		17		(105)
Present value of expected cash flows	$	(409)	$	17	$	53	$	—	$	1,108	$	(28)	$	741	$	(58)	$	683
Deferred premium revenue	$	142	$	(1)	$	34	$	—	$	480	$	(4)	$	651	$	(48)	$	603
Reserves (salvage)	$	(441)	$	17	$	35	$	—	$	742	$	(25)	$	328	$	(33)	$	295

____________________

(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 amounts related to FG VIEs.

(3)Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlements or litigation judgments, excess spread on any underlying collateral and other estimated recoveries. Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past.

Schedule of Non-Financial Guaranty Exposure

The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form. All specialty insurance and reinsurance exposures shown in the table below were rated investment grade internally as of December 31, 2019. As of September 30, 2020, $30 million of aircraft residual value insurance exposure was rated BIG.

Specialty Insurance and Reinsurance

Exposure


	Gross Exposure				Net Exposure
	As of				As of
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(in millions)
Life insurance transactions (1)	$	1,025	$	1,046	$	883	$	898
Aircraft residual value insurance policies	380		398		225		243
Total	$	1,405	$	1,444	$	1,108	$	1,141

____________________

(1) The life insurance transactions net exposure is projected to increase to approximately $0.9 billion by September 30, 2026.

Puerto Rico

Schedule of Insured Financial Obligations [Line Items]

Gross Par and Gross Debt Service Outstanding

Puerto Rico

Gross Par and Gross Debt Service Outstanding


	Gross Par Outstanding				Gross Debt Service Outstanding
	As of				As of
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(in millions)
Exposure to Puerto Rico	$	4,161	$	4,458	$	6,435	$	6,956

Schedule of Geographic Exposure of Net Par Outstanding

All Puerto Rico exposures are internally rated BIG. The following tables show the Company’s insured exposure to general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.

Puerto Rico

Gross Par and Gross Debt Service Outstanding


	Gross Par Outstanding				Gross Debt Service Outstanding
	As of				As of
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(in millions)
Exposure to Puerto Rico	$	4,161	$	4,458	$	6,435	$	6,956

Puerto Rico

Net Par Outstanding


	As of
	September 30, 2020 (1)		December 31, 2019
	(in millions)
Commonwealth Constitutionally Guaranteed
Commonwealth of Puerto Rico - General Obligation Bonds (2)	$	1,112	$	1,253
PBA (2)	134		140
Public Corporations - Certain Revenues Potentially Subject to Clawback
PRHTA (Transportation revenue) (2)	817		811
PRHTA (Highway revenue) (2)	493		454
PRCCDA	152		152
PRIFA	16		16
Other Public Corporations
PREPA (2)	775		822
PRASA	373		373
MFA	223		248
U of PR	1		1
Total net exposure to Puerto Rico	$	4,096	$	4,270

____________________

(1) In the second quarter of 2020, the Company reassumed $118 million in net par of Puerto Rico exposures from its largest remaining legacy financial guaranty reinsurer.

(2) As of the date of this filing, the Oversight Board has certified a filing under Title III of PROMESA for these exposures.

BIG Net Par Outstanding and Number of Risks

The following table shows the scheduled amortization of the insured general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations. The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the principal and interest due in any given period and the amount paid by the obligors.

Amortization Schedule of Puerto Rico Net Par Outstanding

and Net Debt Service Outstanding

As of September 30, 2020


	Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization
	(in millions)
2020 (October 1 - December 31)	$	—	$	3

2021 (January 1 - March 31)	—		101
2021 (April 1 - June 30)	—		3
2021 (July 1 - September 30)	153		254
2021 (October 1 - December 31)	—		3
Subtotal 2021	153		361
2022	176		375
2023	206		396
2024	223		403
2025-2029	1,173		1,894
2030-2034	1,052		1,527
2035-2039	763		942
2040-2044	104		179
2045-2047	246		272
Total	$	4,096	$	6,352