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Financial Guaranty Insurance Losses (Tables)
 3 Months Ended
Mar. 31, 2015
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 March 31, 2015
 
As of December 31, 2014
 
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)
Public Finance:
 
 
 
 
 
 
 
 
 
 
 
U.S. public finance
$
253

 
$
8

 
$
245

 
$
243

 
$
8

 
$
235

Non-U.S. public finance
28

 
—

 
28

 
30

 
—

 
30

Public Finance
281

 
8

 
273

 
273

 
8

 
265

Structured Finance:
 
 
 
 
 
 
 
 
 
 
 
U.S. RMBS:
 

 
 

 
 

 
 

 
 

 
 

First lien:
 

 
 

 
 

 
 

 
 

 
 

Prime first lien
2

 
—

 
2

 
2

 
—

 
2

Alt-A first lien
80

 
—

 
80

 
87

 
—

 
87

Option ARM
24

 
42

 
(18
)
 
28

 
40

 
(12
)
Subprime
159

 
6

 
153

 
166

 
8

 
158

First lien
265

 
48

 
217

 
283

 
48

 
235

Second lien:
 

 
 

 
 

 
 

 
 

 
 

Closed-end second lien
5

 
37

 
(32
)
 
4

 
39

 
(35
)
HELOCs
2

 
29

 
(27
)
 
3

 
39

 
(36
)
Second lien
7

 
66

 
(59
)
 
7

 
78

 
(71
)
Total U.S. RMBS
272

 
114

 
158

 
290

 
126

 
164

Triple-X life insurance transactions
144

 
—

 
144

 
140

 
—

 
140

TruPS
—

 
—

 
—

 
0

 
—

 
0

Other structured finance
90

 
—

 
90

 
96

 
2

 
94

Structured Finance
506

 
114

 
392

 
526

 
128

 
398

Financial guaranty
787

 
122

 
665

 
799

 
136

 
663

Other recoverables
—

 
7

 
(7
)
 
—

 
13

 
(13
)
Subtotal
787

 
129

 
658

 
799

 
149

 
650

Effect of consolidating FG VIEs
(78
)
 
(1
)
 
(77
)
 
(80
)
 
(1
)
 
(79
)
Subtotal
709

 
128

 
581

 
719

 
148

 
571

Other
1

 
—

 
1

 
2

 
6

 
(4
)
Total (1)
$
710

 
$
128

 
$
582

 
$
721

 
$
154

 
$
567

____________________
(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
March 31, 2015
 
As of
December 31, 2014
 
(in millions)
Loss and LAE reserve
$
787

 
$
799

Reinsurance recoverable on unpaid losses
(77
)
 
(78
)
Loss and LAE reserve, net
710

 
721

Salvage and subrogation recoverable
(128
)
 
(151
)
Salvage and subrogation payable(1)
7

 
10

Other recoverables
(7
)
 
(13
)
Salvage and subrogation recoverable, net and other recoverable
(128
)
 
(154
)
Subtotal
582

 
567

Less: other (non-financial guaranty business)
1

 
(4
)
Net reserves (salvage) - financial guaranty
$
581

 
$
571

____________________
(1)
Recorded as a component of reinsurance balances payable.
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 March 31, 2015
 
As of December 31, 2014
 
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
$
2

 
$
—

 
$
2

 
$
20

 
$
—

 
$
20

Loss and LAE reserve, net
146

 
(8
)
 
138

 
185

 
(8
)
 
177

____________________
(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
March 31, 2015
 
(in millions)
Net expected loss to be paid
$
1,111

Less: net expected loss to be paid for FG VIEs
122

Total
989

Contra-paid, net
(93
)
Salvage and subrogation recoverable, net of reinsurance
121

Loss and LAE reserve, net of reinsurance
(709
)
Other recoveries
7

Net expected loss to be expensed (present value) (1)
$
315

____________________
(1)
Excludes $86 million as of March 31, 2015, 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
March 31, 2015
 
(in millions)
2015 (April 1 – June 30)
$
7

2015 (July 1 – September 30)
9

2015 (October 1 – December 31)
11

Subtotal 2015
27

2016
36

2017
27

2018
25

2019
23

2020-2024
77

2025-2029
45

2030-2034
34

After 2034
21

Net expected loss to be expensed
315

Discount
389

Total expected future loss and LAE
$
704

 
Loss and LAE Reported on the Consolidated Statements of Operations
Loss and LAE
Reported on the
Consolidated Statements of Operations
  
 
First Quarter
 
2015

2014
 
(in millions)
Public Finance:
 
 
 
U.S. public finance
$
13

 
$
26

Non-U.S. public finance
5

 
1

Public finance
18

 
27

Structured Finance:
 
 
 
U.S. RMBS:
 
 
 
First lien:
 
 
 
Prime first lien
0

 
0

Alt-A first lien
(2
)
 
7

Option ARM
(1
)
 
(8
)
Subprime
0

 
(8
)
First lien
(3
)
 
(9
)
Second lien:
 
 
 
Closed-end second lien
1

 
—

HELOCs
9

 
8

Second lien
10

 
8

Total U.S. RMBS
7

 
(1
)
Triple-X life insurance transactions
6

 
13

TruPS
(1
)
 
(1
)
Other structured finance
(6
)
 
3

Structured finance
6

 
14

Subtotal
24

 
41

Other
(1
)
 
(1
)
Loss and LAE on insurance contracts before FG VIE consolidation
23

 
40

Effect of consolidating FG VIEs
(5
)
 
1

Loss and LAE
$
18

 
$
41
Financial Guaranty Insurance BIG Transaction Loss Summary
BIG Net Par Outstanding
and Number of Risks
As of March 31, 2015

 
 
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
 
$
9,887

 
$
1,451

 
$
11,338

 
164

 
18

 
182

Category 2
 
2,345

 
684

 
3,029

 
73

 
12

 
85

Category 3
 
2,705

 
788

 
3,493

 
119

 
25

 
144

Total BIG
 
$
14,937

 
$
2,923

 
$
17,860

 
356

 
55

 
411



 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

_____________________
(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.
The following table provides information on financial guaranty insurance contracts categorized as BIG.
 
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of March 31, 2015
 
 
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

 
(61
)
 
73

 
(15
)
 
119

 
(38
)
 
356

 
—

 
356

Remaining weighted-average contract period (in years)
9.8

 
7.2

 
8.7

 
7.2

 
9.9

 
7.3

 
10.1

 
—

 
10.1

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
11,993

 
$
(2,106
)
 
$
2,701

 
$
(356
)
 
$
2,847

 
$
(142
)
 
$
14,937

 
$
—

 
$
14,937

Interest
6,082

 
(792
)
 
1,262

 
(127
)
 
1,013

 
(45
)
 
7,393

 
—

 
7,393

Total(2)
$
18,075

 
$
(2,898
)
 
$
3,963

 
$
(483
)
 
$
3,860

 
$
(187
)
 
$
22,330

 
$
—

 
$
22,330

Expected cash outflows (inflows)
$
1,655

 
$
(616
)
 
$
759

 
$
(84
)
 
$
1,721

 
$
(91
)
 
$
3,344

 
$
(343
)
 
$
3,001

Potential recoveries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Undiscounted R&W
(1
)
 
(1
)
 
(47
)
 
2

 
(133
)
 
7

 
(173
)
 
8

 
(165
)
Other(3)
(1,583
)
 
600

 
(271
)
 
18

 
(449
)
 
47

 
(1,638
)
 
180

 
(1,458
)
Total potential recoveries
(1,584
)
 
599

 
(318
)
 
20

 
(582
)
 
54

 
(1,811
)
 
188

 
(1,623
)
Subtotal
71

 
(17
)
 
441

 
(64
)
 
1,139

 
(37
)
 
1,533

 
(155
)
 
1,378

Discount
(7
)
 
0

 
(96
)
 
10

 
(336
)
 
7

 
(422
)
 
33

 
(389
)
Present value of expected cash flows
$
64

 
$
(17
)
 
$
345

 
$
(54
)
 
$
803

 
$
(30
)
 
$
1,111

 
$
(122
)
 
$
989

Deferred premium revenue
$
402

 
$
(75
)
 
$
104

 
$
(6
)
 
$
268

 
$
(25
)
 
$
668

 
$
(111
)
 
$
557

Reserves (salvage)(4)
$
(10
)
 
$
(7
)
 
$
269

 
$
(52
)
 
$
468

 
$
(10
)
 
$
658

 
$
(77
)
 
$
581

 
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

____________________
(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).”