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Financial Guaranty Insurance Losses (Tables)
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9 Months Ended |
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Sep. 30, 2013
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| Financial Guaranty Insurance Losses [Abstract] |
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| Loss and LAE Reserve, Net of Reinsurance and Salvage and Subrogation Recoverable |
The following table provides balance sheet information on loss and loss adjustment expense ("LAE") reserves, net of reinsurance and salvage and subrogation recoverable.
Loss and LAE Reserve (Recovery) and Salvage and Subrogation Recoverable Net of Reinsurance Insurance Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 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 | 105 |
| | 52 |
| | 53 |
| | 93 |
| | — |
| | 93 |
| Option ARM | 33 |
| | 38 |
| | (5 | ) | | 52 |
| | 216 |
| | (164 | ) | Subprime | 131 |
| | 1 |
| | 130 |
| | 82 |
| | 0 |
| | 82 |
| Total first lien | 272 |
| | 91 |
| | 181 |
| | 230 |
| | 216 |
| | 14 |
| Second lien: | |
| | |
| | |
| | |
| | |
| | |
| Closed-end second lien | 5 |
| | 47 |
| | (42 | ) | | 5 |
| | 72 |
| | (67 | ) | HELOC | 6 |
| | 141 |
| | (135 | ) | | 37 |
| | 196 |
| | (159 | ) | Total second lien | 11 |
| | 188 |
| | (177 | ) | | 42 |
| | 268 |
| | (226 | ) | Total U.S. RMBS | 283 |
| | 279 |
| | 4 |
| | 272 |
| | 484 |
| | (212 | ) | TruPS | 2 |
| | — |
| | 2 |
| | 1 |
| | — |
| | 1 |
| Other structured finance | 143 |
| | 5 |
| | 138 |
| | 197 |
| | 4 |
| | 193 |
| U.S. public finance | 177 |
| | 48 |
| | 129 |
| | 104 |
| | 134 |
| | (30 | ) | Non-U.S. public finance | 31 |
| | — |
| | 31 |
| | 31 |
| | — |
| | 31 |
| Total financial guaranty | 636 |
| | 332 |
| | 304 |
| | 605 |
| | 622 |
| | (17 | ) | Other | 2 |
| | 5 |
| | (3 | ) | | 2 |
| | 5 |
| | (3 | ) | Subtotal | 638 |
| | 337 |
| | 301 |
| | 607 |
| | 627 |
| | (20 | ) | Effect of consolidating FG VIEs | (96 | ) | | (88 | ) | | (8 | ) | | (64 | ) | | (217 | ) | | 153 |
| Total (1) | $ | 542 |
| | $ | 249 |
| | $ | 293 |
| | $ | 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. |
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| Components of Net Reserves (Salvage) |
The following table reconciles the loss and LAE reserve and salvage and subrogation components on the consolidated balance sheet to the financial guaranty net reserves (salvage) in the financial guaranty BIG transaction loss summary tables. Components of Net Reserves (Salvage) Insurance Contracts | | | | | | | | | | As of
September 30, 2013 | | As of
December 31, 2012 | | (in millions) | Loss and LAE reserve | $ | 601 |
| | $ | 601 |
| Reinsurance recoverable on unpaid losses | (59 | ) | | (58 | ) | Loss and LAE reserve, net | 542 |
| | 543 |
| Salvage and subrogation recoverable | (275 | ) | | (456 | ) | Salvage and subrogation payable(1) | 26 |
| | 46 |
| Salvage and subrogation recoverable, net | (249 | ) | | (410 | ) | Other recoveries(2) | (23 | ) | | (30 | ) | Subtotal | (272 | ) | | (440 | ) | Total | 270 |
| | 103 |
| Less: other (non-financial guaranty business) | (3 | ) | | (3 | ) | Financial guaranty net reserves (salvage) | $ | 273 |
| | $ | 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. |
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| Balance Sheet Classification of R&W benefits, Net of Reinsurance |
Balance Sheet Classification of Net Expected Recoveries for Breaches of R&W Insurance Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 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 | $ | 203 |
| | $ | (57 | ) | | $ | 146 |
| | $ | 449 |
| | $ | (169 | ) | | $ | 280 |
| Loss and LAE reserve | 412 |
| | (29 | ) | | 383 |
| | 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. |
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| Reconciliation of Net Expected Loss to be Paid and Net Expected Loss to be Expensed |
Reconciliation of Net Expected Loss to be Paid and Net Expected Loss to be Expensed Financial Guaranty Insurance Contracts | | | | | | As of
September 30, 2013 | | (in millions) | Net expected loss to be paid | $ | 604 |
| Less: net expected loss to be paid for FG VIEs | 52 |
| Total | 552 |
| Contra-paid, net | 94 |
| Salvage and subrogation recoverable, net of reinsurance | 244 |
| Loss and LAE reserve, net of reinsurance | (540 | ) | Other recoveries (1) | 23 |
| Net expected loss to be expensed (2) | $ | 373 |
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____________________ | | (1) | R&W recoveries recorded in other assets on the consolidated balance sheet. |
| | (2) | Excludes $109 million as of September 30, 2013, related to consolidated FG VIEs. |
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| Net Expected Loss to be Expensed Insurance Contracts |
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 refundings, accelerations, commutations, changes in expected lives and updates to loss estimates. A loss and LAE reserve is only recorded for the amount by which expected loss to be expensed exceeds deferred premium revenue determined on a contract-by-contract basis. This table excludes amounts related to consolidated FG VIEs, which are eliminated in consolidation. Net Expected Loss to be Expensed Insurance Contracts | | | | | | As of September 30, 2013 | | (in millions) | 2013 (October 1–December 31) | $ | 12 |
| 2014 | 43 |
| 2015 | 40 |
| 2016 | 34 |
| 2017 | 29 |
| 2018 - 2022 | 103 |
| 2023 - 2027 | 54 |
| 2028 - 2032 | 30 |
| After 2032 | 28 |
| Total present value basis(1) | 373 |
| Discount | 421 |
| Total future value | $ | 794 |
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____________________ | | (1) | Consolidation of FG VIEs resulted in reductions of $109 million in net expected loss to be expensed. |
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| Loss and LAE Reported on the Consolidated Statements of Operations |
The following table presents the loss and LAE recorded in the consolidated statements of operations by sector for non-derivative contracts. Amounts presented are net of reinsurance.
Loss and LAE Reported on the Consolidated Statements of Operations | | | | | | | | | | | | | | | | | | Third Quarter | | Nine Months | | 2013 | | 2012 | | 2013 | | 2012 | | (in millions) | U.S. RMBS: | | | | | | | | First lien: | | | | | | | | Prime first lien | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 2 |
| Alt-A first lien | (7 | ) | | 9 |
| | (7 | ) | | 37 |
| Option ARM | 22 |
| | 25 |
| | (39 | ) | | 94 |
| Subprime | 31 |
| | 9 |
| | 65 |
| | 33 |
| Total first lien | 47 |
| | 44 |
| | 20 |
| | 166 |
| Second lien: | | | | | | | | Closed end second lien | — |
| | (1 | ) | | 19 |
| | 1 |
| HELOC | (28 | ) | | 2 |
| | (44 | ) | | 21 |
| Total second lien | (28 | ) | | 1 |
| | (25 | ) | | 22 |
| Total U.S. RMBS | 19 |
| | 45 |
| | (5 | ) | | 188 |
| TruPS | — |
| | 2 |
| | (1 | ) | | (4 | ) | Other structured finance | (12 | ) | | 1 |
| | (33 | ) | | 2 |
| U.S. public finance | 47 |
| | 2 |
| | 121 |
| | 47 |
| Non-U.S. public finance | 12 |
| | 38 |
| | 13 |
| | 233 |
| Subtotal | 66 |
| | 88 |
| | 95 |
| | 466 |
| Other | — |
| | — |
| | — |
| | (6 | ) | Total insurance contracts before FG VIE consolidation | 66 |
| | 88 |
| | 95 |
| | 460 |
| Effect of consolidating FG VIEs | (11 | ) | | (2 | ) | | (26 | ) | | (14 | ) | Total loss and LAE | $ | 55 |
| | $ | 86 |
| | $ | 69 |
| | $ | 446 |
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| Financial Guaranty Insurance BIG Transaction Loss Summary |
The following table provides information on non-derivative financial guaranty insurance contracts categorized as BIG. Previously, the Company had included securities purchased for loss mitigation purposes in its descriptions of its invested assets and its financial guaranty insured portfolio. Beginning with Third Quarter 2013, the Company will be excluding such loss mitigation securities from its disclosure about its financial guaranty insured portfolio (unless otherwise indicated); it has taken this approach as of both September 30, 2013 and December 31, 2012. Financial Guaranty Insurance BIG Transaction Loss Summary September 30, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BIG Categories (1) | | 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(2) | 154 |
| | (52 | ) | | 76 |
| | (24 | ) | | 136 |
| | (40 | ) | | 366 |
| | — |
| | 366 |
| Remaining weighted-average contract period (in years) | 9.8 |
| | 7.2 |
| | 8.5 |
| | 9.5 |
| | 10.7 |
| | 7.8 |
| | 10.1 |
| | — |
| | 10.1 |
| Outstanding exposure: | |
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| | |
| | |
| | |
| | |
| | |
| | |
| Principal | $ | 8,795 |
| | $ | (1,342 | ) | | $ | 2,772 |
| | $ | (235 | ) | | $ | 3,884 |
| | $ | (296 | ) | | $ | 13,578 |
| | $ | — |
| | $ | 13,578 |
| Interest | 4,432 |
| | (499 | ) | | 1,350 |
| | (142 | ) | | 1,531 |
| | (93 | ) | | 6,579 |
| | — |
| | 6,579 |
| Total(3) | $ | 13,227 |
| | $ | (1,841 | ) | | $ | 4,122 |
| | $ | (377 | ) | | $ | 5,415 |
| | $ | (389 | ) | | $ | 20,157 |
| | $ | — |
| | $ | 20,157 |
| Expected cash outflows (inflows) | $ | 1,593 |
| | $ | (508 | ) | | $ | 806 |
| | $ | (93 | ) | | $ | 2,686 |
| | $ | (123 | ) | | $ | 4,361 |
| | $ | (703 | ) | | $ | 3,658 |
| Potential recoveries(4) | (1,759 | ) | | 512 |
| | (395 | ) | | 25 |
| | (1,766 | ) | | 97 |
| | (3,286 | ) | | 601 |
| | (2,685 | ) | Subtotal | (166 | ) | | 4 |
| | 411 |
| | (68 | ) | | 920 |
| | (26 | ) | | 1,075 |
| | (102 | ) | | 973 |
| Discount | 23 |
| | (1 | ) | | (135 | ) | | 26 |
| | (391 | ) | | 7 |
| | (471 | ) | | 50 |
| | (421 | ) | Present value of expected cash flows | $ | (143 | ) | | $ | 3 |
| | $ | 276 |
| | $ | (42 | ) | | $ | 529 |
| | $ | (19 | ) | | $ | 604 |
| | $ | (52 | ) | | $ | 552 |
| Deferred premium revenue | $ | 359 |
| | $ | (60 | ) | | $ | 163 |
| | $ | (23 | ) | | $ | 447 |
| | $ | (52 | ) | | $ | 834 |
| | $ | (190 | ) | | $ | 644 |
| Reserves (salvage)(5) | $ | (180 | ) | | $ | 8 |
| | $ | 142 |
| | $ | (32 | ) | | $ | 351 |
| | $ | (8 | ) | | $ | 281 |
| | $ | (8 | ) | | $ | 273 |
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Financial Guaranty Insurance BIG Transaction Loss Summary December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BIG Categories(1) | | 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(2) | 163 |
| | (66 | ) | | 76 |
| | (22 | ) | | 131 |
| | (41 | ) | | 370 |
| | — |
| | 370 |
| Remaining weighted-average contract period (in years) | 10.2 |
| | 9.2 |
| | 10.6 |
| | 15.1 |
| | 9.0 |
| | 6.0 |
| | 10.0 |
| | — |
| | 10.0 |
| Outstanding exposure: | |
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| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Principal | $ | 9,462 |
| | $ | (1,533 | ) | | $ | 2,248 |
| | $ | (132 | ) | | $ | 6,024 |
| | $ | (481 | ) | | $ | 15,588 |
| | $ | — |
| | $ | 15,588 |
| Interest | 4,475 |
| | (591 | ) | | 1,357 |
| | (127 | ) | | 1,881 |
| | (117 | ) | | 6,878 |
| | — |
| | 6,878 |
| Total(3) | $ | 13,937 |
| | $ | (2,124 | ) | | $ | 3,605 |
| | $ | (259 | ) | | $ | 7,905 |
| | $ | (598 | ) | | $ | 22,466 |
| | $ | — |
| | $ | 22,466 |
| Expected cash outflows (inflows) | $ | 1,914 |
| | $ | (687 | ) | | $ | 863 |
| | $ | (58 | ) | | $ | 2,720 |
| | $ | (146 | ) | | $ | 4,606 |
| | $ | (738 | ) | | $ | 3,868 |
| Potential recoveries(4) | (2,356 | ) | | 677 |
| | (509 | ) | | 18 |
| | (1,911 | ) | | 117 |
| | (3,964 | ) | | 798 |
| | (3,166 | ) | Subtotal | (442 | ) | | (10 | ) | | 354 |
| | (40 | ) | | 809 |
| | (29 | ) | | 642 |
| | 60 |
| | 702 |
| Discount | 12 |
| | 8 |
| | (107 | ) | | 14 |
| | (216 | ) | | 2 |
| | (287 | ) | | 36 |
| | (251 | ) | Present value of expected cash flows | $ | (430 | ) | | $ | (2 | ) | | $ | 247 |
| | $ | (26 | ) | | $ | 593 |
| | $ | (27 | ) | | $ | 355 |
| | $ | 96 |
| | $ | 451 |
| Deferred premium revenue | $ | 265 |
| | $ | (32 | ) | | $ | 227 |
| | $ | (15 | ) | | $ | 604 |
| | $ | (83 | ) | | $ | 966 |
| | $ | (251 | ) | | $ | 715 |
| Reserves (salvage)(5) | $ | (485 | ) | | $ | 10 |
| | $ | 102 |
| | $ | (18 | ) | | $ | 347 |
| | $ | (3 | ) | | $ | (47 | ) | | $ | 153 |
| | $ | 106 |
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____________________ | | (1) | In Third Quarter 2013, the Company adjusted its approach to assigning internal ratings. See "Refinement of Approach to Internal Credit Ratings and Surveillance Categories" in Note 3, Outstanding Exposure. This approach is reflected in the "Financial Guaranty Insurance BIG Transaction Loss Summary" tables as of both September 30, 2013 and December 31, 2012. |
| | (2) | 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. |
| | (3) | Includes BIG amounts related to FG VIEs. |
| | (4) | Includes estimated future recoveries for breaches of R&W as well as excess spread, and draws on HELOCs. |
| | (5) | See table “Components of net reserves (salvage).” |
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