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Expected Loss to be Paid (Recovered) (Tables)

9 Months Ended

Sep. 30, 2022

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, 2022		December 31, 2021		2022		2021		2022		2021
	(in millions)
Insurance (see Note 5)	$	695	$	364	$	(67)	$	(82)	$	(137)	$	(91)
FG VIEs (see Note 8)	28		42		(6)		(10)		(16)		(17)
Credit derivatives (see Note 6)	4		5		1		(2)		5		7
Total	$	727	$	411	$	(72)	$	(94)	$	(148)	$	(101)

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, which are accounted for under one of the following accounting models: insurance, derivative and FG VIE. The Company used risk-free rates for U.S. dollar denominated obligations that ranged from 2.98% to 4.18% with a weighted average of 3.97% as of September 30, 2022 and 0.00% to 1.98% with a weighted average of 1.02% as of December 31, 2021. Expected losses to be paid for U.S. dollar denominated transactions represented approximately 99.3% and 97.2% of the total as of September 30, 2022 and December 31, 2021, respectively.

Net Expected Loss to be Paid (Recovered)

Roll Forward


	Third Quarter				Nine Months
	2022		2021		2022		2021
	(in millions)
Net expected loss to be paid (recovered), beginning of period	$	442	$	466	$	411	$	529
Economic loss development (benefit) due to:
Accretion of discount	3		2		8		5
Changes in discount rates	(25)		(1)		(114)		(34)
Changes in timing and assumptions	(50)		(95)		(42)		(72)
Total economic loss development (benefit)	(72)		(94)		(148)		(101)
Net (paid) recovered losses (1)	357		(173)		464		(229)
Net expected loss to be paid (recovered), end of period	$	727	$	199	$	727	$	199

____________________

(1) In third quarter 2022, the Company received from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA, $147 million of cash and $672 million original notional of CVI.

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector


	Third Quarter 2022
Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2022		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
	(in millions)
Public finance:
U.S. public finance	$	210	$	24	$	392	$	626
Non-U.S. public finance	7		(2)		1		6
Public finance	217		22		393		632
Structured finance:
U.S. RMBS	179		(95)		(32)		52
Other structured finance	46		1		(4)		43
Structured finance	225		(94)		(36)		95
Total	$	442	$	(72)	$	357	$	727


	Third Quarter 2021
Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2021		Economic Loss Development (Benefit)		Net (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


	Nine Months 2022
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2021		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
	(in millions)
Public finance:
U.S. public finance	$	197	$	(16)	$	445	$	626
Non-U.S. public finance	12		(6)		—		6
Public finance	209		(22)		445		632
Structured finance:
U.S. RMBS	150		(127)		29		52
Other structured finance	52		1		(10)		43
Structured finance	202		(126)		19		95
Total	$	411	$	(148)	$	464	$	727


	Nine Months 2021
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2020		Economic Loss Development (Benefit)		Net (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

____________________

(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.

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

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
	2022		2021	2022		2021
	(in millions)
First lien U.S. RMBS	$	(38)	(10)	$	(34)	$	1
Second lien U.S. RMBS	(57)		(55)	(93)		(83)

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 U.S. RMBS Liquidation Rates


	As of
	September 30, 2022	December 31, 2021
Current but recently delinquent
Alt-A and Prime	20%	20%
Option ARM	20	20
Subprime	20	20
30 – 59 Days Delinquent
Alt-A and Prime	35	35
Option ARM	35	35
Subprime	30	30
60 – 89 Days Delinquent
Alt-A and Prime	40	40
Option ARM	45	45
Subprime	40	40
90+ Days Delinquent
Alt-A and Prime	55	55
Option ARM	60	60
Subprime	45	45
Bankruptcy
Alt-A and Prime	45	45
Option ARM	50	50
Subprime	40	40
Foreclosure
Alt-A and Prime	60	60
Option ARM	65	65
Subprime	55	55
Real Estate Owned
All	100	100

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 Scenario Expected Loss Estimates

First Lien U.S. RMBS


	As of September 30, 2022					As of December 31, 2021
	Range				Weighted Average	Range				Weighted Average
Alt-A and Prime:
Plateau CDR	1.3	%	-	12.1%	5.6%	0.9	%	-	11.6%	5.9%
Final CDR	0.1	%	-	0.6%	0.3%	0.0	%	-	0.6%	0.3%
Initial loss severity:
2005 and prior	50%					60%
2006	50%					60%
2007+	50%					60%
Option ARM:
Plateau CDR	1.8	%	-	9.5%	4.7%	1.8	%	-	11.9%	5.6%
Final CDR	0.1	%	-	0.5%	0.2%	0.1	%	-	0.6%	0.3%
Initial loss severity:
2005 and prior	50%					60%
2006	50%					60%
2007+	50%					60%
Subprime:
Plateau CDR	2.1	%	-	9.3%	5.8%	2.9	%	-	10.0%	6.0%
Final CDR	0.1	%	-	0.5%	0.3%	0.1	%	-	0.5%	0.3%
Initial loss severity:
2005 and prior	50%					60%
2006	50%					60%
2007+	50%					60%

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 Scenario Expected Loss Estimates

HELOCs


	As of September 30, 2022					As of December 31, 2021
	Range				Weighted Average	Range				Weighted Average
Plateau CDR	0.4	%	-	7.6%	3.7%	6.5	%	-	39.6%	16.4%
Final CDR trended down to	0.0	%	-	0.4%	0.2%	1.0%
Liquidation rates:
Current but recently delinquent	20%					20%
30 – 59 Days Delinquent	30					30
60 – 89 Days Delinquent	40					40
90+ Days Delinquent	60					60
Bankruptcy	55					55
Foreclosure	55					55
Real Estate Owned	100					100
Loss severity on future defaults	98%					98%
Projected future recoveries on previously charged-off loans	30%					30%