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Contracts Accounted for as Insurance

6 Months Ended

Jun. 30, 2023

Contracts Accounted for as InsuranceThe portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives and consolidated FG VIEs. Amounts presented in this note relate only to contracts accounted for as insurance, unless otherwise specified. See Note 6, Contracts Accounted for as Credit Derivatives, for amounts related to CDS and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as consolidated FG VIEs.

Premiums

Net Earned Premiums


	Second Quarter				Six Months
	2023		2022		2023		2022
	(in millions)
Financial guaranty insurance:
Scheduled net earned premiums	$	70	$	70	$	139	$	149
Accelerations from refundings and terminations (1)	8		5		12		133
Accretion of discount on net premiums receivable	6		6		13		12
Financial guaranty insurance net earned premiums	84		81		164		294
Specialty net earned premiums	1		1		2		2
Net earned premiums	$	85	$	82	$	166	$	296

____________________

(1) Six months 2022 accelerations included $104 million related to PRCCDA, PRIFA and GO/PBA exposures. See Note 3, Outstanding Exposure.

Gross Premium Receivable,

Net of Commissions Payable on Assumed Business

Roll Forward


	Six Months
	2023		2022
	(in millions)
Beginning of year	$	1,298	$	1,372
Less: Specialty insurance premium receivable	1		1
Financial guaranty insurance premiums receivable	1,297		1,371
Gross written premiums on new business, net of commissions	171		137
Gross premiums received, net of commissions	(120)		(180)
Adjustments:
Changes in the expected term and debt service assumptions	9		(4)
Accretion of discount, net of commissions on assumed business	13		12
Foreign exchange gain (loss) on remeasurement	46		(102)
Financial guaranty insurance premium receivable (1)	1,416		1,234
Specialty insurance premium receivable	1		1
June 30,	$	1,417	$	1,235

Approximately 72% and 74% of gross premiums receivable, net of commissions payable, at June 30, 2023 and December 31, 2022, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro.

The timing and cumulative amount of actual collections and net earned premiums may differ from those of expected collections and of expected net earned premiums in the table below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations, restructurings, changes in the consumer price indices, changes in expected lives and new business.

Financial Guaranty Insurance

Expected Future Premium Collections and Earnings


	As of June 30, 2023
	Future Gross Premiums to be Collected (1)		Future Net Premiums to be Earned (2)
	(in millions)
2023 (July 1 - September 30)	$	51	$	73
2023 (October 1 - December 31)	30		72
Subtotal 2023	81		145
2024	121		276
2025	104		258
2026	101		241
2027	97		227
2028-2032	404		947
2033-2037	270		633
2038-2042	187		386
After 2042	374		536
Total	$	1,739	3,649
Future accretion			323
Total future net earned premiums			$	3,972

____________________

(1) Net of assumed commissions payable.

(2) Net of reinsurance.

Selected Information for Financial Guaranty Insurance Policies with Premiums Paid in Installments


	As of
	June 30, 2023		December 31, 2022
	(dollars in millions)
Premiums receivable, net of commissions payable	$	1,416	$	1,297
Deferred premium revenue	1,721		1,663
Weighted-average risk-free rate used to discount premiums	1.9%		1.8%
Weighted-average period of premiums receivable (in years)	12.4		12.9

Losses and Recoveries

Loss reserves and salvage are discounted at risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 3.73% to 5.37% with a weighted average of 4.36% as of June 30, 2023 and 3.82% to 4.69% with a weighted average of 4.15% as of December 31, 2022.

The following tables provide information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance.

Net Reserve (Salvage) by Sector


	As of
Sector	June 30, 2023		December 31, 2022
	(in millions)
Public finance:
U.S. public finance	$	105	$	71
Non-U.S. public finance	1		1
Public finance	106		72
Structured finance:
U.S. RMBS	(67)		(77)
Other structured finance	41		42
Structured finance	(26)		(35)
Total	$	80	$	37

The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed. Expected loss to be paid (recovered) for financial guaranty insurance contracts differs from expected loss to be expensed due to: (i) the contra-paid, which represents the claim payments made and recoveries received that have not yet been recognized in the statements of operations; (ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid (and therefore recognized in income but not yet received); and (iii) loss reserves that have already been established (and therefore expensed but not yet paid).

Reconciliation of Net Expected Loss to be Paid (Recovered)

to Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts


	As of June 30, 2023
	(in millions)
Net expected loss to be paid (recovered) - financial guaranty insurance	$	259
Contra-paid, net	22
Salvage and subrogation recoverable, net	266
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(343)
Net expected loss to be expensed (present value)	$	204

The following table provides a schedule of the expected timing of net expected losses to be expensed. The amount and timing of actual loss and LAE may differ from the estimates shown below due to factors such as accelerations, commutations, changes in expected lives and updates to loss estimates. This table excludes amounts related to FG VIEs, which are eliminated in consolidation.

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts


	As of June 30, 2023
	(in millions)
2023 (July 1 - September 30)	$	4
2023 (October 1 - December 31)	3
Subtotal 2023	7
2024	14
2025	13
2026	17
2027	15
2028-2032	61
2033-2037	50
2038-2042	13
After 2042	14
Net expected loss to be expensed	204
Future accretion	30
Total expected future loss and LAE	$	234

The following table presents the loss and LAE (benefit) reported in the condensed consolidated statements of operations by sector for insurance contracts. Amounts presented are net of reinsurance.

Loss and LAE (Benefit) by Sector


	Second Quarter				Six Months
Sector	2023		2022		2023		2022
	(in millions)
Public finance:
U.S. public finance	$	56	$	11	$	52	$	66
Non-U.S. public finance	—		—		—		—
Public finance	56		11		52		66
Structured finance:
U.S. RMBS	(2)		(22)		$	4	$	(19)
Other structured finance	1		—		3		(1)
Structured finance	(1)		(22)		7		(20)
Loss and LAE (benefit)	$	55	$	(11)	$	59	$	46

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

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of June 30, 2023


	Gross								Net Total BIG
	BIG 1		BIG 2		BIG 3		Total BIG
	(dollars in millions)
Number of risks (1)	107		16		109		232		232
Remaining weighted-average period (in years)	9.2		16.3		7.2		9.6		9.7

Outstanding exposure:
Par	$	2,326	$	989	$	2,280	$	5,595	$	5,578
Interest	1,191		923		872		2,986		2,983
Total (2)	$	3,517	$	1,912	$	3,152	$	8,581	$	8,561

Expected cash outflows (inflows)	$	110	$	182	$	1,702	$	1,994	$	1,982
Potential recoveries (3)	(296)		(79)		(1,329)		(1,704)		(1,693)
Subtotal	(186)		103		373		290		289
Discount	49		(23)		(56)		(30)		(30)
Expected losses to be paid (recovered)	$	(137)	$	80	$	317	$	260	$	259

Deferred premium revenue	$	106	$	65	$	151	$	322	$	322
Reserves (salvage)	$	(163)	$	39	$	202	$	78	$	77

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2022


	Gross								Net Total BIG
	BIG 1		BIG 2		BIG 3		Total BIG
	(dollars in millions)
Number of risks (1)	122		14		111		247		247
Remaining weighted-average period (in years)	11.3		8.7		7.6		9.8		9.8

Outstanding exposure:
Par	$	3,363	$	171	$	2,318	$	5,852	$	5,835
Interest	2,177		77		894		3,148		3,144
Total (2)	$	5,540	$	248	$	3,212	$	9,000	$	8,979

Expected cash outflows (inflows)	$	128	$	121	$	1,771	$	2,020	$	2,008
Potential recoveries (3)	(294)		(79)		(1,364)		(1,737)		(1,725)
Subtotal	(166)		42		407		283		283
Discount	35		(13)		(104)		(82)		(82)
Expected losses to be paid (recovered)	$	(131)	$	29	$	303	$	201	$	201

Deferred premium revenue	$	170	$	15	$	160	$	345	$	345
Reserves (salvage)	$	(174)	$	21	$	186	$	33	$	33

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

(2)Includes amounts related to FG VIEs.

(3)Represents expected inflows from future payments by obligors pursuant to restructuring agreements, settlements, 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.