Financial Guaranty Insurance Losses (Tables)

3 Months Ended

Mar. 31, 2013

Financial Guaranty Insurance Losses [Abstract]

Schedule of Insured Financial Obligations with Credit Deterioration

Components of Net Reserves (Salvage)

Insurance Contracts

	As of March 31, 2013			As of December 31, 2012
	(in millions)
Loss and LAE reserve	$	532		$	601
Reinsurance recoverable on unpaid losses	(56		)	(58		)
Subtotal	476			543
Salvage and subrogation recoverable	(543		)	(456		)
Salvage and subrogation payable(1)	50			46
Subtotal	(493		)	(410		)
Other recoveries(2)	(27		)	(30		)
Subtotal	(520		)	(440		)
Total	(44		)	103
Less: other (non-financial guaranty business)	(3		)	(3		)
Financial guaranty net reserves (salvage)	$	(41	)	$	106

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(1) Recorded as a component of reinsurance balances payable.

(2) R&W recoveries recorded in other assets on the consolidated balance sheet.

Net Expected Loss to be Expensed

Insurance Contracts

	As of March 31, 2013
	(in millions)
2013 (April 1 - June 30)	$	18
2013 (July 1 - September 30)	16
2013 (October 1–December 31)	16
Subtotal 2013	50
2014	50
2015	43
2016	37
2017	34
2018 - 2022	122
2023 - 2027	60
2028 - 2032	28
After 2032	19
Total present value basis(1)	443
Discount	333
Total future value	$	776

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(1) Consolidation of FG VIEs resulted in reductions of $130 million in net expected loss to be expensed.

Loss and LAE Reserve (Recovery)

Net of Reinsurance and Salvage and Subrogation Recoverable

Insurance Contracts

	As of March 31, 2013									As of December 31, 2012
	Loss and LAE Reserve, net			Salvage and Subrogation Recoverable, net			Net			Loss and LAE Reserve, net			Salvage and Subrogation Recoverable, net			Net
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	3		$	—		$	3		$	3		$	—		$	3
Alt-A first lien	90			—			90			93			—			93
Option ARM	36			377			(341		)	52			216			(164		)
Subprime	92			0			92			82			0			82
Total first lien	221			377			(156		)	230			216			14
Second lien:
Closed-end second lien	5			51			(46		)	5			72			(67		)
HELOC	28			193			(165		)	37			196			(159		)
Total second lien	33			244			(211		)	42			268			(226		)
Total U.S. RMBS	254			621			(367		)	272			484			(212		)
TruPS	1			1			—			1			—			1
Other structured finance	184			4			180			197			4			193
U.S. public finance	71			124			(53		)	104			134			(30		)
Non-U.S. public finance	32			—			32			31			—			31
Total financial guaranty	542			750			(208		)	605			622			(17		)
Other	2			5			(3		)	2			5			(3		)
Subtotal	544			755			(211		)	607			627			(20		)
Effect of consolidating FG VIEs	(68		)	(262		)	194			(64		)	(217		)	153
Total (1)	$	476		$	493		$	(17	)	$	543		$	410		$	133

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(1) See “Components of Net Reserves (Salvage)” table for loss and LAE reserve and salvage and subrogation recoverable components.

Balance Sheet Classification of

Net Expected Recoveries for Breaches of R&W

	As of March 31, 2013							As of December 31, 2012
	For all Financial Guaranty Insurance Contracts		Effect of Consolidating FG VIEs			Reported on Balance Sheet(1)		For all Financial Guaranty Insurance Contracts		Effect of Consolidating FG VIEs			Reported on Balance Sheet(1)
	(in millions)
Salvage and subrogation recoverable	$	600	$	(236	)	$	364	$	449	$	(169	)	$	280
Loss and LAE reserve	522		(39		)	483		571		(33		)	538

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(1) The remaining benefit for R&W is either recorded at fair value in FG VIE assets, or not recorded on the balance sheet until the expected loss, net of R&W, exceeds unearned premium reserve.

Reconciliation of Net Expected Loss to be Paid and

Net Expected Loss to be Expensed

Insurance Contracts

	As of March 31, 2013
	(in millions)
Net expected loss to be paid	$	172
Less: net expected loss to be paid for FG VIEs	(138		)
Total	310
Contra-paid, net	92
Salvage and subrogation recoverable, net of reinsurance	488
Loss and LAE reserve, net of reinsurance	(474		)
Other recoveries (1)	27
Net expected loss to be expensed (2)	$	443

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(1) R&W recoveries recorded in other assets on the consolidated balance sheet.

(2) Excludes $130 million as of March 31, 2013, related to consolidated FG VIEs.

Loss and LAE

Reported on the

Consolidated Statements of Operations

	First Quarter
	2013			2012
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	—		$	—
Alt-A first lien	9			(1		)
Option ARM	(83		)	52
Subprime	11			8
Total first lien	(63		)	59
Second lien:
Closed end second lien	20			(1		)
HELOC	3			15
Total second lien	23			14
Total U.S. RMBS	(40		)	73
TruPS	—			(4		)
Other structured finance	(12		)	(28		)
U.S. public finance	(4		)	19
Non-U.S. public finance	1			190
Subtotal	(55		)	250
Other	—			—
Total insurance contracts before FG VIE consolidation	(55		)	250
Effect of consolidating FG VIEs	7			(8		)
Total loss and LAE	$	(48	)	$	242

Financial Guaranty Insurance BIG Transaction Loss Summary

March 31, 2013

	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)	143			(48		)	82			(26		)	147			(54		)	372			—			372
Remaining weighted-average contract period (in years)	11.1			8.0			10.6			13.7			8.7			6.6			10.3			—			10.3
Outstanding exposure:
Principal	$	7,320		$	(1,172	)	$	3,695		$	(406	)	$	7,148		$	(537	)	$	16,048		$	—		$	16,048
Interest	4,033			(483		)	1,873			(184		)	2,244			(157		)	7,326			—			7,326
Total(2)	$	11,353		$	(1,655	)	$	5,568		$	(590	)	$	9,392		$	(694	)	$	23,374		$	—		$	23,374
Expected cash outflows (inflows)	$	1,267		$	(445	)	$	1,111		$	(188	)	$	3,036		$	(155	)	$	4,626		$	(737	)	$	3,889
Potential recoveries(3)	(1,324		)	452			(771		)	125			(2,702		)	141			(4,079		)	833			(3,246		)
Subtotal	(57		)	7			340			(63		)	334			(14		)	547			96			643
Discount	(3		)	0			(87		)	19			(309		)	5			(375		)	42			(333		)
Present value of expected cash flows	$	(60	)	$	7		$	253		$	(44	)	$	25		$	(9	)	$	172		$	138		$	310
Deferred premium revenue	$	148		$	(38	)	$	226		$	(29	)	$	693		$	(85	)	$	915		$	(234	)	$	681
Reserves (salvage)(4)	$	(97	)	$	11		$	101		$	(28	)	$	(234	)	$	12		$	(235	)	$	194		$	(41	)

Financial Guaranty Insurance BIG Transaction Loss Summary

December 31, 2012

	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)	153			(57		)	76			(22		)	142			(51		)	371			—			371
Remaining weighted-average contract period (in years)	11.0			9.3			11.5			15.3			8.5			5.8			10.2			—			10.2
Outstanding exposure:
Principal	$	8,533		$	(1,484	)	$	2,741		$	(135	)	$	7,568		$	(540	)	$	16,683		$	—		$	16,683
Interest	4,357			(585		)	1,813			(131		)	2,269			(137		)	7,586			—			7,586
Total(2)	$	12,890		$	(2,069	)	$	4,554		$	(266	)	$	9,837		$	(677	)	$	24,269		$	—		$	24,269
Expected cash outflows (inflows)	$	1,582		$	(677	)	$	863		$	(58	)	$	3,052		$	(156	)	$	4,606		$	(738	)	$	3,868
Potential recoveries(3)	(1,629		)	653			(509		)	18			(2,639		)	142			(3,964		)	798			(3,166		)
Subtotal	(47		)	(24		)	354			(40		)	413			(14		)	642			60			702
Discount	(1		)	9			(107		)	14			(202		)	0			(287		)	36			(251		)
Present value of expected cash flows	$	(48	)	$	(15	)	$	247		$	(26	)	$	211		$	(14	)	$	355		$	96		$	451
Deferred premium revenue	$	111		$	(24	)	$	227		$	(15	)	$	757		$	(90	)	$	966		$	(251	)	$	715
Reserves (salvage)(4)	$	(103	)	$	(4	)	$	102		$	(18	)	$	(35	)	$	11		$	(47	)	$	153		$	106

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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. The ceded number of risks represents the number of risks for which the Company ceded a portion of its exposure.

(2) Includes BIG amounts related to FG VIEs.

(3) Includes estimated future recoveries for breaches of R&W as well as excess spread, and draws on HELOCs.

(4) See table “Components of net reserves (salvage).”