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Financial Guaranty Insurance Losses (Tables)
 12 Months Ended
Dec. 31, 2014
Insurance [Abstract]  
Loss and LAE Reserve and Salvage and Subrogation Recoverable Net of Reinsurance Insurance Contracts
Loss and LAE Reserve and Salvage and Subrogation Recoverable
Net of Reinsurance
Insurance Contracts
 
 
As of December 31, 2014
 
As of December 31, 2013
 
Loss and
LAE
Reserve, net
 
Salvage and
Subrogation
Recoverable, net 
 
Net Reserve (Recoverable)
 
Loss and
LAE
Reserve, net
 
Salvage and
Subrogation
Recoverable, net 
 
Net Reserve (Recoverable)
 
(in millions)
U.S. RMBS:
 

 
 

 
 

 
 

 
 

 
 

First lien:
 

 
 

 
 

 
 

 
 

 
 

Prime first lien
$
2

 
$
—

 
$
2

 
$
3

 
$
—

 
$
3

Alt-A first lien
87

 
—

 
87

 
108

 
—

 
108

Option ARM
28

 
40

 
(12
)
 
22

 
47

 
(25
)
Subprime
166

 
8

 
158

 
143

 
2

 
141

First lien
283

 
48

 
235

 
276

 
49

 
227

Second lien:
 

 
 

 
 

 
 

 
 

 
 

Closed-end second lien
4

 
39

 
(35
)
 
5

 
45

 
(40
)
HELOC
3

 
39

 
(36
)
 
5

 
127

 
(122
)
Second lien
7

 
78

 
(71
)
 
10

 
172

 
(162
)
Total U.S. RMBS
290

 
126

 
164

 
286

 
221

 
65

TruPS
0

 
—

 
0

 
2

 
—

 
2

Other structured finance
236

 
2

 
234

 
145

 
6

 
139

U.S. public finance
243

 
8

 
235

 
189

 
8

 
181

Non-U.S. public finance
30

 
—

 
30

 
35

 
—

 
35

Financial guaranty
799

 
136

 
663

 
657

 
235

 
422

Other recoverables
—

 
13

 
(13
)
 
—

 
15

 
(15
)
Subtotal
799

 
149

 
650

 
657

 
250

 
407

Effect of consolidating FG VIEs
(80
)
 
(1
)
 
(79
)
 
(103
)
 
(85
)
 
(18
)
Subtotal
719

 
148

 
571

 
554

 
165

 
389

Other
2

 
6

 
(4
)
 
2

 
5

 
(3
)
Total (1)
$
721

 
$
154

 
$
567

 
$
556

 
$
170

 
$
386

____________________
(1)                                 See “Components of Net Reserves (Salvage)” table for loss and LAE reserve and salvage and subrogation recoverable components.
Components of Net Reserves (Salvage) Insurance Contracts
Components of Net Reserves (Salvage)
Insurance Contracts
 
 
As of
December 31, 2014
 
As of
December 31, 2013
 
(in millions)
Loss and LAE reserve
$
799

 
$
592

Reinsurance recoverable on unpaid losses
(78
)
 
(36
)
Loss and LAE reserve, net
721

 
556

Salvage and subrogation recoverable
(151
)
 
(174
)
Salvage and subrogation payable(1)
10

 
19

Other recoverables(2)
(13
)
 
(15
)
Salvage and subrogation recoverable, net and other recoverable
(154
)
 
(170
)
Subtotal
567

 
386

Less: other (non-financial guaranty business)
(4
)
 
(3
)
Net reserves (salvage) - financial guaranty
$
571

 
$
389

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

(2)     R&W recoverables recorded in other assets on the consolidated balance sheet.
Balance Sheet Classification of Net Expected Recoveries for Breaches of R&W Insurance Contracts
Balance Sheet Classification of
Net Expected Recoveries for Breaches of R&W
Insurance Contracts
 
 
As of December 31, 2014
 
As of December 31, 2013
 
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, net
$
20

 
$
—

 
$
20

 
$
122

 
$
(49
)
 
$
73

Loss and LAE reserve, net
185

 
(8
)
 
177

 
363

 
(24
)
 
339

____________________
(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 total loss, net of R&W, exceeds unearned premium reserve.
Reconciliation of Net Expected Loss to be Paid and Net Expected Loss to be Expensed Financial Guaranty Insurance Contracts
Reconciliation of Net Expected Loss to be Paid and
Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts
 
 
As of December 31, 2014
 
(in millions)
Net expected loss to be paid
$
1,115

Less: net expected loss to be paid for FG VIEs
126

Total
989

Contra-paid, net
(100
)
Salvage and subrogation recoverable, net of reinsurance
135

Loss and LAE reserve, net of reinsurance
(719
)
Other recoveries (1)
13

Net expected loss to be expensed (present value)(2)
$
318

____________________
(1)
R&W recoverables recorded in other assets on the consolidated balance sheet.
 
(2)
Excludes $89 million as of December 31, 2014 related to consolidated FG VIEs.
Net Expected Loss to be Expensed Insurance Contracts
Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts
 
 
As of December 31, 2014
 
(in millions)
2015 (January 1 – March 31)
$
8

2015 (April 1 – June 30)
8

2015 (July 1 – September 30)
8

2015 (October 1 – December 31)
9

Subtotal 2015
33

2016
34

2017
27

2018
24

2019
22

2020-2024
79

2025-2029
46

2030-2034
32

After 2034
21

Net expected loss to be expensed
318

Discount
413

Total future value
$
731

 
Loss and LAE Reported on the Consolidated Statements of Operations
Loss and LAE
Reported on the
Consolidated Statements of Operations
 
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
(in millions)
Structured Finance:
 
 
 
 
 
U.S. RMBS:
 
 
 
 
 
First lien:
 
 
 
 
 
Prime first lien
$
(1
)
 
$
1

 
$
2

Alt-A first lien
(66
)
 
(2
)
 
51

Option ARM
(37
)
 
(48
)
 
137

Subprime
8

 
80

 
38

First lien
(96
)
 
31

 
228

Second lien:
 
 
 
 
 
Closed-end second lien
(2
)
 
18

 
31

HELOC
(31
)
 
(53
)
 
49

Second lien
(33
)
 
(35
)
 
80

Total U.S. RMBS
(129
)
 
(4
)
 
308

TruPS
(1
)
 
(1
)
 
(10
)
Other structured finance
96

 
(34
)
 
3

Structured finance
(34
)
 
(39
)
 
301

Public Finance:
 
 
 
 
 
U.S. public finance
192

 
198

 
51

Non-U.S. public finance
(1
)
 
16

 
234

Public finance
191

 
214

 
285

Subtotal
157

 
175

 
586

Other
(1
)
 
—

 
(17
)
Loss and LAE on insurance contracts before FG VIE consolidation
156

 
175

 
569

Effect of consolidating FG VIEs
(30
)
 
(21
)
 
(65
)
Loss and LAE
$
126

 
$
154

 
$
504
Financial Guaranty Insurance BIG Transaction Loss Summary
BIG Net Par Outstanding
and Number of Risks
As of December 31, 2014

 
 
Net Par Outstanding
 
Number of Risks(2)
Description
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
 
(dollars in millions)
BIG:
 
 

 
 

 
 

 
 

 
 

 
 

Category 1
 
$
10,195

 
$
1,670

 
$
11,865

 
164

 
18

 
182

Category 2
 
2,135

 
554

 
2,689

 
75

 
14

 
89

Category 3
 
2,892

 
801

 
3,693

 
119

 
24

 
143

Total BIG
 
$
15,222

 
$
3,025

 
$
18,247

 
358

 
56

 
414




BIG Net Par Outstanding
and Number of Risks
As of December 31, 2013

 
 
Net Par Outstanding
 
Number of Risks(2)
Description
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
 
(dollars in millions)
BIG:
 
 

 
 

 
 

 
 

 
 

 
 

Category 1
 
$
12,391

 
$
2,360

 
$
14,751

 
185

 
25

 
210

Category 2
 
2,323

 
1,626

 
3,949

 
80

 
21

 
101

Category 3
 
3,031

 
807

 
3,838

 
119

 
27

 
146

Total BIG
 
$
17,745

 
$
4,793

 
$
22,538

 
384

 
73

 
457

_____________________
(1)    Includes net par outstanding for FG VIEs.
 
(2)
A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making Debt Service payments.
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 31, 2014
 
 
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)
164

 
(59
)
 
75

 
(15
)
 
119

 
(38
)
 
358

 
—

 
358

Remaining weighted-average contract period (in years)
9.9

 
7.4

 
10.1

 
8.9

 
9.6

 
6.9

 
10.3

 
—

 
10.3

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
12,358

 
$
(2,163
)
 
$
2,421

 
$
(286
)
 
$
3,067

 
$
(175
)
 
$
15,222

 
$
—

 
$
15,222

Interest
6,350

 
(838
)
 
1,274

 
(121
)
 
1,034

 
(48
)
 
7,651

 
—

 
7,651

Total(2)
$
18,708

 
$
(3,001
)
 
$
3,695

 
$
(407
)
 
$
4,101

 
$
(223
)
 
$
22,873

 
$
—

 
$
22,873

Expected cash outflows (inflows)
$
1,762

 
$
(626
)
 
$
763

 
$
(77
)
 
$
1,716

 
$
(75
)
 
$
3,463

 
$
(345
)
 
$
3,118

Potential recoveries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undiscounted R&W
(39
)
 
0

 
(48
)
 
2

 
(171
)
 
9

 
(247
)
 
8

 
(239
)
Other(3)
(1,687
)
 
608

 
(206
)
 
5

 
(404
)
 
30

 
(1,654
)
 
177

 
(1,477
)
Total potential recoveries
(1,726
)
 
608

 
(254
)
 
7

 
(575
)
 
39

 
(1,901
)
 
185

 
(1,716
)
Subtotal
36

 
(18
)
 
509

 
(70
)
 
1,141

 
(36
)
 
1,562

 
(160
)
 
1,402

Discount
3

 
0

 
(117
)
 
11

 
(353
)
 
9

 
(447
)
 
34

 
(413
)
Present value of expected cash flows
$
39

 
$
(18
)
 
$
392

 
$
(59
)
 
$
788

 
$
(27
)
 
$
1,115

 
$
(126
)
 
$
989

Deferred premium revenue
$
378

 
$
(70
)
 
$
119

 
$
(6
)
 
$
312

 
$
(33
)
 
$
700

 
$
(116
)
 
$
584

Reserves (salvage)(4)
$
(42
)
 
$
(5
)
 
$
278

 
$
(53
)
 
$
482

 
$
(10
)
 
$
650

 
$
(79
)
 
$
571

 
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 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)
185

 
(72
)
 
80

 
(24
)
 
119

 
(34
)
 
384

 
—

 
384

Remaining weighted-average contract period (in years)
10.5

 
8.1

 
8.3

 
5.9

 
9.8

 
7.2

 
10.5

 
—

 
10.5

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
15,132

 
$
(2,741
)
 
$
2,483

 
$
(160
)
 
$
3,189

 
$
(158
)
 
$
17,745

 
$
—

 
$
17,745

Interest
8,114

 
(1,144
)
 
1,181

 
(53
)
 
1,244

 
(52
)
 
9,290

 
—

 
9,290

Total(2)
$
23,246

 
$
(3,885
)
 
$
3,664

 
$
(213
)
 
$
4,433

 
$
(210
)
 
$
27,035

 
$
—

 
$
27,035

Expected cash outflows (inflows)
$
1,853

 
$
(528
)
 
$
1,038

 
$
(40
)
 
$
1,681

 
$
(62
)
 
$
3,942

 
$
(690
)
 
$
3,252

Potential recoveries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undiscounted R&W
(105
)
 
1

 
(201
)
 
8

 
(356
)
 
13

 
(640
)
 
72

 
(568
)
Other(3)
(1,774
)
 
513

 
(470
)
 
19

 
(351
)
 
19

 
(2,044
)
 
507

 
(1,537
)
Total potential recoveries
(1,879
)
 
514

 
(671
)
 
27

 
(707
)
 
32

 
(2,684
)
 
579

 
(2,105
)
Subtotal
(26
)
 
(14
)
 
367

 
(13
)
 
974

 
(30
)
 
1,258

 
(111
)
 
1,147

Discount
13

 
—

 
(126
)
 
3

 
(352
)
 
5

 
(457
)
 
51

 
(406
)
Present value of expected cash flows
$
(13
)
 
$
(14
)
 
$
241

 
$
(10
)
 
$
622

 
$
(25
)
 
$
801

 
$
(60
)
 
$
741

Deferred premium revenue
$
517

 
$
(90
)
 
$
163

 
$
(7
)
 
$
303

 
$
(27
)
 
$
859

 
$
(178
)
 
$
681

Reserves (salvage)(4)
$
(114
)
 
$
1

 
$
117

 
$
(4
)
 
$
420

 
$
(13
)
 
$
407

 
$
(18
)
 
$
389

____________________
(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 excess spread and draws on HELOCs.

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