Expected Losses to be Paid (Tables)

6 Months Ended

Jun. 30, 2013

Net Expected Loss to be Paid After Net Expected Recoveries for Breaches of R&W Rollforward

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward

Second Quarter 2013



	Net Expected Loss to be Paid as of March 31, 2013			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of June 30, 2013
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	11		$	7		$	—		$	18
Alt-A first lien	313			(7		)	(18		)	288
Option ARM	(327		)	21			286			(20		)
Subprime	263			23			(12		)	274
Total first lien	260			44			256			560
Second lien:
Closed-end second lien	(21		)	6			1			(14		)
HELOCs	(122		)	(31		)	56			(97		)
Total second lien	(143		)	(25		)	57			(111		)
Total U.S. RMBS	117			19			313			449
TruPS	23			1			9			33
Other structured finance	307			(24		)	(125		)	158
U.S. public finance	(9		)	87			(7		)	71
Non-U.S public finance	62			4			—			66
Other	(13		)	—			10			(3		)
Total	$	487		$	87		$	200		$	774

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward

Second Quarter 2012



	Net Expected Loss to be Paid as of March 31, 2012			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of June 30, 2012
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	2		$	2		$	—		$	4
Alt-A first lien	268			15			38			321
Option ARM	119			11			(127		)	3
Subprime	248			10			(22		)	236
Total first lien	637			38			(111		)	564
Second lien:
Closed-end second lien	(101		)	(1		)	73			(29		)
HELOCs	(43		)	14			(35		)	(64		)
Total second lien	(144		)	13			38			(93		)
Total U.S. RMBS	493			51			(73		)	471
TruPS	58			(7		)	(1		)	50
Other structured finance	296			32			(8		)	320
U.S. public finance	33			35			(9		)	59
Non-U.S public finance	303			(16		)	15			302
Other	2			(6		)	—			(4		)
Total	$	1,185		$	89		$	(76	)	$	1,198

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward

Six Months 2013



	Net Expected Loss to be Paid as of December 31, 2012			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of June 30, 2013
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	6		$	13		$	(1	)	$	18
Alt-A first lien	315			2			(29		)	288
Option ARM	(131		)	(117		)	228			(20		)
Subprime	242			48			(16		)	274
Total first lien	432			(54		)	182			560
Second lien:
Closed-end second lien	(39		)	7			18			(14		)
HELOCs	(111		)	(34		)	48			(97		)
Total second lien	(150		)	(27		)	66			(111		)
Total U.S. RMBS	282			(81		)	248			449
TruPS	27			(2		)	8			33
Other structured finance	312			(26		)	(128		)	158
U.S. public finance	7			94			(30		)	71
Non-U.S public finance	52			14			—			66
Other	(3		)	(10		)	10			(3		)
Total	$	677		$	(11	)	$	108		$	774

Net Expected Loss to be Paid

After Net Expected Recoveries for Breaches of R&W

Roll Forward

Six Months 2012



	Net Expected Loss to be Paid as of December 31, 2011			Economic Loss Development			(Paid) Recovered Losses(1)			Net Expected Loss to be Paid as of June 30, 2012
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	2		$	2		$	—		$	4
Alt-A first lien	295			13			13			321
Option ARM	210			9			(216		)	3
Subprime	241			26			(31		)	236
Total first lien	748			50			(234		)	564
Second lien:
Closed-end second lien	(86		)	(4		)	61			(29		)
HELOCs	(31		)	22			(55		)	(64		)
Total second lien	(117		)	18			6			(93		)
Total U.S. RMBS	631			68			(228		)	471
TruPS	64			(11		)	(3		)	50
Other structured finance	342			10			(32		)	320
U.S. public finance	16			58			(15		)	59
Non-U.S public finance	51			182			69			302
Other	2			(6		)	—			(4		)
Total	$	1,106		$	301		$	(209	)	$	1,198

____________________


(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 in reinsurance recoverable on paid losses included in other assets.

Net Expected Recoveries from Breaches of R&W Rollforward

Net Expected Recoveries from

Breaches of R&W Rollforward

Second Quarter 2013



	Future Net R&W Benefit as of March 31, 2013		R&W Development and Accretion of Discount During Second Quarter 2013			R&W Recovered During Second Quarter 2013(1)			Future Net R&W Benefit as of June 30, 2013(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4	$	—		$	—		$	4
Alt-A first lien	362		(5		)	(9		)	348
Option ARM	690		13			(410		)	293
Subprime	113		(5		)	—			108
Total first lien	1,169		3			(419		)	753
Second lien:
Closed end second lien	108		(3		)	(3		)	102
HELOC	161		51			(103		)	109
Total second lien	269		48			(106		)	211
Total	$	1,438	$	51		$	(525	)	$	964

Net Expected Recoveries from

Breaches of R&W Rollforward

Second Quarter 2012



	Future Net R&W Benefit as of March 31, 2012		R&W Development and Accretion of Discount During Second Quarter 2012			R&W Recovered During Second Quarter 2012(1)			Future Net R&W Benefit as of June 30, 2012 (2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4	$	—		$	—		$	4
Alt-A first lien	433		17			(63		)	387
Option ARM	735		34			(58		)	711
Subprime	96		(3		)	—			93
Total first lien	1,268		48			(121		)	1,195
Second lien:
Closed end second lien	222		—			(85		)	137
HELOC	141		(2		)	(17		)	122
Total second lien	363		(2		)	(102		)	259
Total	$	1,631	$	46		$	(223	)	$	1,454

____________________


(1)	Gross amounts recovered were $543 million and $234 million for Second Quarter 2013 and 2012, respectively.


(2)	Includes excess spread that the Company will receive as salvage as a result of a settlement agreement with an R&W provider.

Net Expected Recoveries from

Breaches of R&W Rollforward

Six Months 2013



	Future Net R&W Benefit as of December 31, 2012		R&W Development and Accretion of Discount During 2013			R&W Recovered During 2013(1)			Future Net R&W Benefit as of June 30, 2013(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4	$	—		$	—		$	4
Alt-A first lien	378		(13		)	(17		)	348
Option ARM	591		166			(464		)	293
Subprime	109		(1		)	—			108
Total first lien	1,082		152			(481		)	753
Second lien:
Closed end second lien	138		(12		)	(24		)	102
HELOC	150		68			(109		)	109
Total second lien	288		56			(133		)	211
Total	$	1,370	$	208		$	(614	)	$	964

Net Expected Recoveries from

Breaches of R&W Rollforward

Six Months 2012



	Future Net R&W Benefit as of December 31, 2011		R&W Development and Accretion of Discount During 2012			R&W Recovered During 2012(1)			Future Net R&W Benefit as of June 30, 2012(2)
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	3	$	1		$	—		$	4
Alt-A first lien	407		44			(64		)	387
Option ARM	725		62			(76		)	711
Subprime	101		(8		)	—			93
Total first lien	1,236		99			(140		)	1,195
Second lien:
Closed end second lien	224		(2		)	(85		)	137
HELOC	190		—			(68		)	122
Total second lien	414		(2		)	(153		)	259
Total	$	1,650	$	97		$	(293	)	$	1,454

____________________


(1)	Gross amounts recovered were $635 million and $311 million for Six Months 2013 and 2012, respectively.


(2)	Includes excess spread that the Company will receive as salvage as a result of a settlement agreement with an R&W provider.

Net Expected Loss to be Paid by Accounting Model

The following tables present the present value of net expected loss to be paid for all contracts by accounting model, by sector and after the benefit for estimated and contractual recoveries for breaches of R&W.

Net Expected Loss to be Paid

By Accounting Model

As of June 30, 2013



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	3		$	—		$	15		$	18
Alt-A first lien	138			26			124			288
Option ARM	(30		)	3			7			(20		)
Subprime	124			69			81			274
Total first lien	235			98			227			560
Second lien:
Closed-end second lien	(38		)	26			(2		)	(14		)
HELOCs	(4		)	(93		)	—			(97		)
Total second lien	(42		)	(67		)	(2		)	(111		)
Total U.S. RMBS	193			31			225			449
TruPS	3			—			30			33
Other structured finance	199			—			(41		)	158
U.S. public finance	71			—			—			71
Non-U.S. public finance	64			—			2			66
Subtotal	$	530		$	31		$	216		777
Other										(3		)
Total										$	774

Net Expected Loss to be Paid

By Accounting Model

As of December 31, 2012



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	4		$	—		$	2		$	6
Alt-A first lien	164			27			124			315
Option ARM	(114		)	(37		)	20			(131		)
Subprime	118			50			74			242
Total first lien	172			40			220			432
Second lien:
Closed-end second lien	(60		)	31			(10		)	(39		)
HELOCs	56			(167		)	—			(111		)
Total second lien	(4		)	(136		)	(10		)	(150		)
Total U.S. RMBS	168			(96		)	210			282
TruPS	1			—			26			27
Other structured finance	224			—			88			312
U.S. public finance	7			—			—			7
Non-U.S. public finance	51			—			1			52
Subtotal	$	451		$	(96	)	$	325		680
Other										(3		)
Total										$	677

___________________

(1) Refer to Note 9, Consolidation of Variable Interest Entities.

Net Economic Loss Development by Accounting Model

The following tables present the net economic loss development for all contracts by accounting model, by sector and after the benefit for estimated and contractual recoveries for breaches of R&W.

Net Economic Loss Development

By Accounting Model

Second Quarter 2013



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	(1	)	$	—		$	8		$	7
Alt-A first lien	(12		)	1			4			(7		)
Option ARM	15			4			2			21
Subprime	3			16			4			23
Total first lien	5			21			18			44
Second lien:
Closed-end second lien	(7		)	2			11			6
HELOCs	(10		)	(22		)	1			(31		)
Total second lien	(17		)	(20		)	12			(25		)
Total U.S. RMBS	(12		)	1			30			19
TruPS	0			—			1			1
Other structured finance	(9		)	—			(15		)	(24		)
U.S. public finance	87			—			—			87
Non-U.S. public finance	4			—			—			4
Subtotal	$	70		$	1		$	16		87
Other										—
Total										$	87

Net Economic Loss Development

By Accounting Model

Second Quarter 2012



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	—		$	—		$	2		$	2
Alt-A first lien	(4		)	27			(8		)	15
Option ARM	80			(79		)	10			11
Subprime	(6		)	17			(1		)	10
Total first lien	70			(35		)	3			38
Second lien:
Closed-end second lien	(62		)	59			2			(1		)
HELOCs	(71		)	85			—			14
Total second lien	(133		)	144			2			13
Total U.S. RMBS	(63		)	109			5			51
TruPS	(1		)	—			(6		)	(7		)
Other structured finance	31			—			1			32
U.S. public finance	35			—			—			35
Non-U.S. public finance	(15		)	—			(1		)	(16		)
Subtotal	$	(13	)	$	109		$	(1	)	95
Other										(6		)
Total										$	89

Net Economic Loss Development

By Accounting Model

Six Months 2013



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	(1	)	$	—		$	14		$	13
Alt-A first lien	(7		)	—			9			2
Option ARM	(78		)	(33		)	(6		)	(117		)
Subprime	15			20			13			48
Total first lien	(71		)	(13		)	30			(54		)
Second lien:
Closed-end second lien	(2		)	(1		)	10			7
HELOCs	(17		)	(18		)	1			(34		)
Total second lien	(19		)	(19		)	11			(27		)
Total U.S. RMBS	(90		)	(32		)	41			(81		)
TruPS	0			—			(2		)	(2		)
Other structured finance	(19		)	—			(7		)	(26		)
U.S. public finance	94			—			—			94
Non-U.S. public finance	13			—			1			14
Subtotal	$	(2	)	$	(32	)	$	33		(1		)
Other										(10		)
Total										$	(11	)

Net Economic Loss Development

By Accounting Model

Six Months 2012



	Financial Guaranty Insurance			FG VIEs(1)			Credit Derivatives(2)			Total
	(in millions)
U.S. RMBS:
First lien:
Prime first lien	$	1		$	—		$	1		$	2
Alt-A first lien	(8		)	22			(1		)	13
Option ARM	84			(85		)	10			9
Subprime	(3		)	25			4			26
Total first lien	74			(38		)	14			50
Second lien:
Closed-end second lien	(59		)	55			—			(4		)
HELOCs	(59		)	81			—			22
Total second lien	(118		)	136			—			18
Total U.S. RMBS	(44		)	98			14			68
TruPS	(6		)	—			(5		)	(11		)
Other structured finance	12			—			(2		)	10
U.S. public finance	58			—			—			58
Non-U.S. public finance	183			—			(1		)	182
Subtotal	$	203		$	98		$	6		307
Other										(6		)
Total										$	301

_________________

(1) Refer to Note 9, Consolidation of Variable Interest Entities.

(2) Refer to Note 8, Financial Guaranty Contracts Accounted for as Credit Derivatives.

Schedule of Estimated Expected Losses Assumptions Second Lien RMBS

Key Assumptions in Base Case Expected Loss Estimates

Second Lien RMBS(1)



HELOC key assumptions	As of June 30, 2013				As of March 31, 2013				As of December 31, 2012
Plateau conditional default rate ("CDR")	3.4	%	–	9.8%	5.0	%	–	17.2%	3.8	%	–	15.9%
Final CDR trended down to	0.4	%	–	3.2%	0.4	%	–	3.2%	0.4	%	–	3.2%
Expected period until final CDR	34 months				36 months				36 months
Initial CPR	2.1	%	–	20.1%	2.4	%	–	18.9%	2.9	%	–	15.4%
Final CPR	10%				10%				10%
Loss severity	98%				98%				98%
Initial draw rate	0.0	%	–	3.3%	0.0	%	–	3.3%	0.0	%	–	4.8%



Closed-end second lien key assumptions	As of June 30, 2013				As of March 31, 2013				As of December 31, 2012
Plateau CDR	7.3	%	–	15.8%	6.7	%	–	18.6%	7.3	%	–	20.7%
Final CDR trended down to	3.5	%	–	9.1%	3.5	%	–	9.1%	3.5	%	–	9.1%
Expected period until final CDR	34 months				36 months				36 months
Initial CPR	1.7	%	–	14.0%	2.7	%	–	13.4%	1.9	%	–	12.5%
Final CPR	10%				10%				10%
Loss severity	98%				98%				98%

____________________


(1)	Represents variables for most heavily weighted scenario (the “base case”).

Schedule of Estimated Expected Losses Assumptions First Lien RMBS

First Lien Liquidation Rates



	June 30, 2013	December 31, 2012
30 – 59 Days Delinquent
Alt A and Prime	35%	35%
Option ARM	50	50
Subprime	30	30
60 – 89 Days Delinquent
Alt A and Prime	55	55
Option ARM	65	65
Subprime	45	45
90+ Days Delinquent
Alt A and Prime	65	65
Option ARM	75	75
Subprime	60	60
Bankruptcy
Alt A and Prime	55	55
Option ARM	70	70
Subprime	50	50
Foreclosure
Alt A and Prime	85	85
Option ARM	85	85
Subprime	80	80
Real Estate Owned
All	100	100

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS(1)



	As of June 30, 2013				As of March 31, 2013				As of December 31, 2012
Alt-A First Lien
Plateau CDR	3.7	%	–	22.3%	3.7	%	–	22.6%	3.8	%	–	23.2%
Intermediate CDR	0.7	%	–	4.5%	0.7	%	–	4.5%	0.8	%	–	4.6%
Final CDR	0.2	%	–	1.1%	0.2	%	–	1.1%	0.2	%	–	1.2%
Initial loss severity	65%				65%				65%
Initial CPR	0.4	%	–	32.2%	0.1	%	–	39.6%	0.0	%	–	39.4%
Final CPR	15%				15%				15%
Option ARM
Plateau CDR	5.6	%	–	24.2%	6.4	%	–	25.2%	7.0	%	–	26.1%
Intermediate CDR	1.1	%	–	4.8%	1.3	%	–	5.0%	1.4	%	–	5.2%
Final CDR	0.3	%	–	1.2%	0.3	%	–	1.3%	0.4	%	–	1.3%
Initial loss severity	65%				65%				65%
Initial CPR	0.3	%	–	7.7%	0.3	%	–	10.6%	0.0	%	–	10.7%
Final CPR	15%				15%				15%
Subprime
Plateau CDR	6.7	%	–	24.7%	7.8	%	–	25.6%	7.3	%	–	26.2%
Intermediate CDR	1.3	%	–	4.9%	1.6	%	–	5.1%	1.5	%	–	5.2%
Final CDR	0.3	%	–	1.2%	0.4	%	–	1.3%	0.4	%	–	1.3%
Initial loss severity	90%				90%				90%
Initial CPR	0.0	%	–	14.8%	0.0	%	–	14.7%	0.0	%	–	17.6%
Final CPR	15%				15%				15%

____________________

(1) Represents variables for most heavily weighted scenario (the “base case”).

Schedule of Representation and Warranty Reinsurance Agreement Amounts

Using these strategies, through June 30, 2013 the Company has caused entities providing R&Ws to pay or agree to pay approximately $3.5 billion (gross of reinsurance) in respect of their R&W liabilities for transactions in which the Company has provided insurance.



	(in billions)
Agreement amounts already received	$	2.3
Agreement amounts projected to be received in the future	0.6
Repurchase amounts paid into the relevant RMBS prior to settlement (1)	0.6
Total R&W payments, gross of reinsurance	$	3.5

____________________


(1)	These amounts were paid into the relevant RMBS transactions prior to settlement and distributed in accordance with the priority of payments set out in the relevant transaction documents. Because the Company may insure only a portion of the capital structure of a transaction, such payments will not necessarily directly benefit the Company dollar-for-dollar, especially in first lien transactions.

Schedule of Representations and Warranties Agreements

Representations and Warranties Agreements (1)



	Agreement Date	Current Net Par Covered		Receipts to June 30, 2013 (net of reinsurance)		Estimated Future Receipts (net of reinsurance)		Eligible Assets Held in Trust (gross of reinsurance)
	(in millions)
Bank of America - First Lien	April 2011	$	1,246	$	406	$	263	$	665
Bank of America - Second Lien	April 2011	1,621		968		N/A		N/A
Deutsche Bank	May 2012	2,162		173		139		271
UBS	May 2013	979		347		93		227		(2)
Others	Various	585		172		119		N/A
Total		$	6,593	$	2,066	$	614	$	1,163

____________________

(1)

This table relates only to past and projected future recoveries under R&W and related agreements. Excluded is the $350 million of future net recoveries the Company projects receiving from R&W counterparties in transactions with $2,108 million of net par outstanding as of June 30, 2013 not covered by current agreements and $1,607 million of net par already covered by agreements but for which the Company projects receiving additional amounts.


(2)	Eligible assets were first placed in trust in July 2013 so that amount is shown here.

Schedule of Insured Financial Obligations with Credit Deterioration Estimated Benefit from Recoveries of Representation and Warranty Breaches Risks

U.S. RMBS Risks with R&W Benefit



	Number of Risks (1) as of		Debt Service as of
	June 30, 2013	December 31, 2012	June 30, 2013		December 31, 2012
			(dollars in millions)
Prime first lien	1	1	$	40	$	44
Alt-A first lien	28	26	3,904		4,173
Option ARM	10	10	915		1,183
Subprime	5	5	965		989
Closed-end second lien	4	4	175		260
HELOC	8	7	611		549
Total	56	53	$	6,610	$	7,198

____________________

(1) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making Debt Service payments. This table shows the full future Debt Service (not just the amount of Debt Service expected to be reimbursed) for risks with projected future R&W benefit, whether pursuant to an agreement or not.

Schedule of Insured Financial Obligations with Credit Deterioration, Estimated Benefit from Recoveries of Representation and Warranty Breaches Development and Accretion

The following table provides a breakdown of the development and accretion amount in the roll forward of estimated recoveries associated with alleged breaches of R&W.



	Second Quarter						Six Months
	2013			2012			2013			2012
	(in millions)
Inclusion or removal of deals with breaches of R&W during period	$	6		$	(5	)	$	6		$	(5	)
Change in recovery assumptions as the result of additional file review and recovery success	6			(10		)	17			70
Estimated increase (decrease) in defaults that will result in additional (lower) breaches	(4		)	58			(3		)	(24		)
Results of settlements	38			—			180			48
Accretion of discount on balance	5			3			8			8
Total	$	51		$	46		$	208		$	97