Reinsurance

9 Months Ended

Sep. 30, 2021

The Company assumes exposure (Assumed Business) from third-party insurers, primarily other monoline financial guaranty companies that currently are in runoff and no longer actively writing new business (Legacy Monoline Insurers), and may cede portions of exposure it has insured (Ceded Business) in exchange for premiums, net of any ceding commissions. The Company, if required, secures its reinsurance obligations to these Legacy Monoline Insurers, typically by depositing in trust assets with a market value equal to its assumed liabilities calculated on a U.S. statutory basis.

Substantially all of the Company’s Assumed Business and Ceded Business relates to financial guaranty business, except for a modest amount that relates to AGRO’s specialty business. The Company historically entered into, and with respect

to new business originated by AGRO continues to enter into, ceded reinsurance contracts in order to obtain greater business diversification and reduce the net potential loss from large risks.

The Company has ceded financial guaranty business to non-affiliated companies to limit its exposure to risk. The Company remains primarily liable for all risks it directly underwrites and is required to pay all gross claims. It then seeks reimbursement from the reinsurer for its proportionate share of claims. The Company may be exposed to risk for this exposure if it were required to pay the gross claims and not be able to collect ceded claims from an assuming company experiencing financial distress. The Company’s ceded contracts generally allow the Company to recapture ceded financial guaranty business after certain triggering events, such as reinsurer downgrades.

Effect of Reinsurance

The following table presents the components of premiums and losses reported in the condensed consolidated statements of operations and the contribution of the Company’s Assumed and Ceded Businesses (both financial guaranty and specialty).

Effect of Reinsurance on Condensed Consolidated Statements of Operations


	Third Quarter				Nine Months
	2021		2020		2021		2020
	(in millions)
Premiums Written:
Direct	$	97	$	122	$	256	$	334
Assumed	9		(1)		21		—
Ceded (1)	—		1		—		3
Net	$	106	$	122	$	277	$	337
Premiums Earned:
Direct	$	97	$	100	$	287	$	307
Assumed	6		8		22		28
Ceded	(1)		(1)		(2)		(4)
Net	$	102	$	107	$	307	$	331
Loss and LAE:
Direct	$	(70)	$	72	$	(37)	$	118
Assumed	4		4		2		15
Ceded	(2)		(3)		(19)		(3)
Net	$	(68)	$	73	$	(54)	$	130

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(1) Positive ceded premiums written were due to commutations and changes in expected debt service schedules.

Ceded Reinsurance (1)


	As of September 30, 2021		As of December 31, 2020
	(in millions)
Ceded premium payable, net of commissions	$	4	$	4
Ceded expected loss to be recovered (paid)	(12)		(23)
Financial guaranty ceded par outstanding (2)	378		418
Specialty ceded exposure (see Note 3)	539		556

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(1) The total collateral posted by all non-affiliated reinsurers required to post, or that had agreed to post, collateral as of both September 30, 2021 and December 31, 2020 was approximately $18 million. Such collateral is posted (i) in the case of certain reinsurers not authorized or “accredited” in the U.S., in order for the Company to receive credit for the liabilities ceded to such reinsurers in statutory financial statements, and (ii) in the case of certain reinsurers authorized in the U.S., on terms negotiated with the Company.

(2) Of the total par ceded to BIG rated reinsurers, $66 million and $74 million was rated BIG as of September 30, 2021 and December 31, 2020, respectively.

Commutations of Previously Ceded Business

In Nine Months 2020, the Company reassumed $336 million in par, including $118 million in net par of Puerto Rico exposures, from its largest remaining legacy third-party financial guaranty reinsurer. This commutation resulted in an increase of unearned premium reserve of $5 million and a commutation gain of $38 million in Nine Months 2020.