Expected Loss to be Paid (Recovered) (Tables)

9 Months Ended

Sep. 30, 2021

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 (recovered) for all contracts under all accounting models (insurance, derivative and FG VIE). The Company used risk-free rates for U.S. dollar denominated obligations that ranged from 0.00% to 2.13% with a weighted average of 0.78% as of September 30, 2021 and 0.00% to 1.72% with a weighted average of 0.60% as of December 31, 2020. Expected losses to be paid for U.S. dollar denominated transactions represented approximately 89.6% and 93.2% of the total as of September 30, 2021 and December 31, 2020, respectively.

Net Expected Loss to be Paid (Recovered)

Roll Forward

	Third Quarter				Nine Months
	2021		2020		2021		2020
	(in millions)
Net expected loss to be paid (recovered), beginning of period	$	466	$	735	$	529	$	737
Economic loss development (benefit) due to:
Accretion of discount	2		1		5		7
Changes in discount rates	(1)		(2)		(34)		30
Changes in timing and assumptions	(95)		71		(72)		64
Total economic loss development (benefit)	(94)		70		(101)		101
Net (paid) recovered losses	(173)		(334)		(229)		(367)
Net expected loss to be paid (recovered), end of period	$	199	$	471	$	199	$	471

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector

	Third Quarter 2021
Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2021		Economic Loss Development (Benefit)		(Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2021
	(in millions)
Public finance:
U.S. public finance	$	221	$	(29)	$	(201)	$	(9)
Non-U.S. public finance	22		(2)		(1)		19
Public finance	243		(31)		(202)		10
Structured finance:
U.S. RMBS	178		(65)		29		142
Other structured finance	45		2		—		47
Structured finance	223		(63)		29		189
Total	$	466	$	(94)	$	(173)	$	199

	Third Quarter 2020
Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2020		Economic Loss Development (Benefit)		(Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2020
	(in millions)
Public finance:
U.S. public finance	$	543	$	56	$	(336)	$	263
Non-U.S. public finance	29		4		—		33
Public finance	572		60		(336)		296
Structured finance:
U.S. RMBS	128		1		8		137
Other structured finance	35		9		(6)		38
Structured finance	163		10		2		175
Total	$	735	$	70	$	(334)	$	471

	Nine Months 2021
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2020		Economic Loss Development (Benefit)		(Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2021
	(in millions)
Public finance:
U.S. public finance	$	305	$	(13)	$	(301)	$	(9)
Non-U.S. public finance	36		(15)		(2)		19
Public finance	341		(28)		(303)		10
Structured finance:
U.S. RMBS	148		(82)		76		142
Other structured finance	40		9		(2)		47
Structured finance	188		(73)		74		189
Total	$	529	$	(101)	$	(229)	$	199

	Nine Months 2020
Sector	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 September 30, 2020
	(in millions)
Public finance:
U.S. public finance	$	531	$	142	$	(410)	$	263
Non-U.S. public finance	23		9		1		33
Public finance	554		151		(409)		296
Structured finance:
U.S. RMBS	146		(61)		52		137
Other structured finance	37		11		(10)		38
Structured finance	183		(50)		42		175
Total	$	737	$	101	$	(367)	$	471

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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 tables above include (1) LAE paid of $5 million and $11 million for Third Quarter 2021 and Third Quarter 2020 and $15 million and $20 million for Nine Months 2021 and Nine Months 2020, respectively, and (2) expected LAE to be paid of $27 million as of September 30, 2021 and $23 million as of December 31, 2020.

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
Accounting Model	September 30, 2021		December 31, 2020		2021		2020		2021		2020
	(in millions)
Insurance (see Notes 5 and 7)	$	150	$	471	$	(82)	$	65	$	(91)	$	96
FG VIEs (see Note 9)	43		59		(10)		(2)		(17)		5
Credit derivatives (see Note 6)	6		(1)		(2)		7		7		—
Total	$	199	$	529	$	(94)	$	70	$	(101)	$	101

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				Third Quarter				Nine Months
Accounting Model	September 30, 2021		December 31, 2020		2021		2020		2021		2020
	(in millions)
Insurance (see Notes 5 and 7)	$	150	$	471	$	(82)	$	65	$	(91)	$	96
FG VIEs (see Note 9)	43		59		(10)		(2)		(17)		5
Credit derivatives (see Note 6)	6		(1)		(2)		7		7		—
Total	$	199	$	529	$	(94)	$	70	$	(101)	$	101

The assumptions that the Company uses to project RMBS losses are shown in the sections below.

Net Economic Loss Development (Benefit)

U.S. RMBS

	Third Quarter				Nine Months
	2021		2020		2021		2020
	(in millions)
First lien U.S. RMBS	$	(10)	$	6	$	1	$	(49)
Second lien U.S. RMBS	(55)		(5)		(83)		(12)

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

The following table shows liquidation assumptions for various non-performing and re-performing categories.

First Lien Liquidation Rates

	As of
	September 30, 2021	June 30, 2021	December 31, 2020
Current but recently delinquent (1)
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	35	35
Option ARM	35	35	35
Subprime	30	30	30
60 – 89 Days Delinquent
Alt-A and Prime	40	40	40
Option ARM	45	45	45
Subprime	40	40	40
90+ Days Delinquent
Alt-A and Prime	55	55	55
Option ARM	60	60	60
Subprime	45	45	45
Bankruptcy
Alt-A and Prime	45	45	45
Option ARM	50	50	50
Subprime	40	40	40
Foreclosure
Alt-A and Prime	60	60	60
Option ARM	65	65	65
Subprime	55	55	55
Real Estate Owned
All	100	100	100

____________________

(1)    Prior to Third Quarter 2021, the Company included current loans that had missed one payment (30 + days delinquent) within the last 12 months in this category. The Company observed that during the COVID-19 pandemic: (1) loans that became 60+ days delinquent may have elevated future default risk for longer than a year; and (2) there may be an increased number of loans that missed only a single payment that should not be considered at elevated risk of default. Based on this view, in Third Quarter 2021, the Company includes only current loans that had been 60+ days delinquent within the last 24 months in this category, rather than current loans that had been 30+ days delinquent in the past 12 months.

The following table shows the range as well as the average, weighted by outstanding net insured par, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 first lien U.S. RMBS.

Key Assumptions in Base Case Expected Loss Estimates

First Lien U.S. RMBS

	As of September 30, 2021					As of June 30, 2021					As of December 31, 2020
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Alt-A and Prime:
Plateau CDR	1.0	%	-	11.1%	6.2%	0.8	%	-	9.6%	5.5%	0.0	%	-	9.7%	5.3%
Final CDR	0.0	%	-	0.6%	0.3%	0.0	%	-	0.5%	0.3%	0.0	%	-	0.5%	0.3%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	60%					70%					70%
2007+	60%					70%					70%
Option ARM:
Plateau CDR	1.9	%	-	11.9%	5.9%	1.7	%	-	11.4%	5.2%	2.3	%	-	11.9%	5.4%
Final CDR	0.1	%	-	0.6%	0.3%	0.1	%	-	0.6%	0.3%	0.1	%	-	0.6%	0.3%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	60%					60%					60%
2007+	60%					60%					60%
Subprime:
Plateau CDR	2.6	%	-	9.1%	6.0%	2.4	%	-	8.6%	5.3%	2.7	%	-	11.3%	5.6%
Final CDR	0.1	%	-	0.5%	0.3%	0.1	%	-	0.4%	0.3%	0.1	%	-	0.6%	0.3%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	60%					70%					70%
2007+	60%					70%					70%

Key Assumptions in Base Case Expected Loss Estimates Second Lien RMBS

The following table shows the range as well as the average, weighted by net par outstanding, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 HELOCs.

Key Assumptions in Base Case Expected Loss Estimates

HELOCs

	As of September 30, 2021				As of June 30, 2021					As of December 31, 2020
	Range			Weighted Average	Range				Weighted Average	Range				Weighted Average
Plateau CDR	7.0%	-	35.5%	16.7%	3.5	%	-	29.7%	13.1%	5.0	%	-	36.2%	12.9%
Final CDR trended down to	1.0%				2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%
Liquidation rates:
Current but recently delinquent (1)	20%				20%					20%
30 – 59 Days Delinquent	30				30					30
60 – 89 Days Delinquent	40				40					40
90+ Days Delinquent	60				60					60
Bankruptcy	55				55					55
Foreclosure	55				55					55
Real Estate Owned	100				100					100
Loss severity (2)	98%				98%					98%
Projected future recoveries on previously charged-off loans	30%				20%					20%

___________________

(1)    Prior to Third Quarter 2021, the Company included current loans that had missed one payment (30 + days delinquent) within the last 12 months in this category. The Company observed that during the COVID-19 pandemic: (1) loans that became 60+ days delinquent may have elevated future default risk for longer than a year; and (2) there may be an increased number of loans that missed only a single payment that should not be considered at elevated risk of default. Based on this view, in Third Quarter 2021, the Company includes only current loans that had been 60+ days delinquent within the last 24 months in this category, rather than current loans that had been 30+ days delinquent in the past 12 months.

(2)    Loss severities on future defaults.