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Contracts Accounted for as Insurance
 3 Months Ended
Mar. 31, 2018
Insurance [Abstract]  
Contracts Accounted for as Insurance
Contracts Accounted for as Insurance

Premiums

The portfolio of outstanding exposures discussed in Note 4, Outstanding Exposure, includes contracts that meet the definition of insurance contracts, contracts that meet the definition of a derivative, and contracts that are accounted for as consolidated FG VIEs. Amounts presented in this note relate to insurance contracts. See Note 8, Contracts Accounted for as Credit Derivatives for amounts that relate to CDS and Note 9, Consolidated Variable Interest Entities for amounts that relate to FG VIEs.

Net Earned Premiums
 
 
First Quarter
 
2018
 
2017
 
(in millions)
Scheduled net earned premiums
$
88

 
$
103

Accelerations:
 
 
 
Refundings
46

 
56

Terminations
6

 
2

Total Accelerations
52

 
58

Accretion of discount on net premiums receivable
4

 
3

  Financial guaranty insurance net earned premiums
144

 
164

Non-financial guaranty net earned premiums
1

 
0

  Net earned premiums (1)
$
145

 
$
164

 ___________________
(1)
Excluded $3 million and $4 million for First Quarter 2018 and 2017, respectively, related to consolidated FG VIEs.

Gross Premium Receivable,
Net of Commissions on Assumed Business
Roll Forward 

 
First Quarter
 
2018
 
2017
 
(in millions)
December 31,
$
915

 
$
576

Less: Non-financial guaranty insurance premium receivable
1

 
0

FG insurance premiums receivable
914

 
576

Premiums receivable from acquisitions (see Note 2)
—

 
270

Gross written premiums on new business, net of commissions (2)
75

 
110

Gross premiums received, net of commissions
(63
)
 
(92
)
Adjustments:
 
 
 
Changes in the expected term
(3
)
 
(1
)
Accretion of discount, net of commissions on assumed business
(4
)
 
4

Foreign exchange translation
24

 
9

FG insurance premium receivable (1)
943

 
876

Non-financial guaranty insurance premium receivable
1

 
0

March 31,
$
944


$
876

____________________
(1)
Excludes $9 million and $11 million as of March 31, 2018 and March 31, 2017, respectively, related to consolidated FG VIEs.

(2)
For transactions where the Company replaces a previous Assured Guaranty financial guaranty contract, gross premiums written represents only the incremental gross premium written in excess of the original gross premiums written.


Foreign exchange translation relates to installment premiums receivable denominated in currencies other than the U.S. dollar. Approximately 74%, 72% and 68% of installment premiums at March 31, 2018, December 31, 2017 and March 31, 2017, respectively, are denominated in currencies other than the U.S. dollar, primarily the euro and pound sterling.
 
The timing and cumulative amount of actual collections may differ from expected collections in the tables below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations and changes in expected lives.

 Expected Collections of
Financial Guaranty Insurance Gross Premiums Receivable,
Net of Commissions on Assumed Business
(Undiscounted)

 
As of
March 31, 2018
 
(in millions)
2018 (April 1 - June 30)
$
39

2018 (July 1 - September 30)
27

2018 (October 1 - December 31)
18

2019
86

2020
98

2021
80

2022
72

2023-2027
296

2028-2032
198

2033-2037
109

After 2037
108

Total(1)
$
1,131

 ____________________
(1)
Excluded expected cash collections on FG VIEs of $12 million.


Scheduled Financial Guaranty Insurance Net Earned Premiums

 
As of
March 31, 2018
 
(in millions)
2018 (April 1 - June 30)
$
87

2018 (July 1 - September 30)
84

2018 (October 1 - December 31)
81

Subtotal 2018
252

2019
292

2020
268

2021
244

2022
222

2023-2027
864

2028-2032
569

2033-2037
330

After 2037
286

Net deferred premium revenue(1)
3,327

Future accretion
181

Total future net earned premiums
$
3,508

 ____________________
(1)
Excluded scheduled net earned premiums on consolidated FG VIEs of $73 million and non-financial guaranty business net earned premium of $8 million.

Selected Information for Financial Guaranty Insurance
Policies Paid in Installments

 
As of
March 31, 2018
 
As of
December 31, 2017
 
(dollars in millions)
Premiums receivable, net of commission payable
$
943

 
$
914

Gross deferred premium revenue
1,188

 
1,205

Weighted-average risk-free rate used to discount premiums
2.2
%
 
2.3
%
Weighted-average period of premiums receivable (in years)
9.2

 
9.2




Financial Guaranty Insurance Losses

Insurance Contracts' Loss Information

The following table provides information on net reserve (salvage), comprised of loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance. The Company used risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 0.0% to 3.11% with a weighted average of 2.82% as of March 31, 2018 and 0.0% to 2.78% with a weighted average of 2.39% as of December 31, 2017.

Net Reserve (Salvage) 

 
As of
March 31, 2018
 
As of
December 31, 2017
 
(in millions)
Public finance:
 
 
 
U.S. public finance
$
771

 
$
901

Non-U.S. public finance
21

 
21

Public finance
792

 
922

Structured finance:
 
 
 
U.S. RMBS
81

 
(59
)
Other structured finance
35

 
40

Structured finance
116

 
(19
)
Subtotal
908

 
903

Other recoverable (payable)
(3
)
 
(4
)
Subtotal
905

 
899

Elimination of losses attributable to FG VIEs
(60
)
 
(55
)
Total
$
845

 
$
844



Components of Net Reserves (Salvage)
 
 
As of
March 31, 2018
 
As of
December 31, 2017
 
(in millions)
Loss and LAE reserve
$
1,299

 
$
1,444

Reinsurance recoverable on unpaid losses (1)
(38
)
 
(44
)
Loss and LAE reserve, net
1,261

 
1,400

Salvage and subrogation recoverable
(430
)
 
(572
)
Salvage and subrogation payable(2)
17

 
20

Other payable (recoverable) (1)
(3
)
 
(4
)
Salvage and subrogation recoverable, net, and other recoverable
(416
)
 
(556
)
Net reserves (salvage)
$
845

 
$
844

____________________
(1)
Recorded as a component of other assets in condensed consolidated balance sheets.

(2)
Recorded as a component of other liabilities in condensed consolidated balance sheets.
    

The table below provides a reconciliation of net expected loss to be paid to net expected loss to be expensed. Expected loss to be paid differs from expected loss to be expensed due to: (i) the contra-paid which represent the claim payments made and recoveries received that have not yet been recognized in the statement of operations, (ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid (and therefore recognized in income but not yet received), and (iii) loss reserves that have already been established (and therefore expensed but not yet paid).

Reconciliation of Net Expected Loss to be Paid and
Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts
 
 
As of
March 31, 2018
 
(in millions)
Net expected loss to be paid - financial guaranty insurance (1)
$
1,211

Contra-paid, net
60

Salvage and subrogation recoverable, net of reinsurance
413

Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance
(1,260
)
Other recoverable (payable)
3

Net expected loss to be expensed (present value) (2)
$
427

____________________
(1)
See "Net Expected Loss to be Paid (Recovered) by Accounting Model" table in Note 5, Expected Loss to be Paid.

(2)
Excluded $48 million as of March 31, 2018, related to consolidated FG VIEs.

    
    
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 accelerations, commutations, changes in expected lives and updates to loss estimates. This table excludes amounts related to FG VIEs, which are eliminated in consolidation.
 
Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts 

 
As of
March 31, 2018
 
(in millions)
2018 (April 1 – June 30)
$
9

2018 (July 1 – September 30)
10

2018 (October 1 – December 31)
10

Subtotal 2018
29

2019
42

2020
39

2021
35

2022
32

2023-2027
126

2028-2032
77

2033-2037
35

After 2037
12

Net expected loss to be expensed
427

Future accretion
86

Total expected future loss and LAE
$
513

 


The following table presents the loss and LAE recorded in the condensed consolidated statements of operations by sector for insurance contracts. Amounts presented are net of reinsurance.

Loss and LAE
Reported on the
Condensed Consolidated Statements of Operations
  
 
Loss (Benefit)
 
First Quarter
 
2018
 
2017
 
(in millions)
Public finance:
 
 
 
U.S. public finance
$
(28
)
 
$
112

Non-U.S. public finance
(1
)
 
(3
)
Public finance
(29
)
 
109

Structured finance:
 
 
 
U.S. RMBS
22

 
(9
)
Other structured finance
(5
)
 
(39
)
Structured finance
17

 
(48
)
Loss and LAE on insurance contracts before FG VIE consolidation
(12
)
 
61

Gain (loss) related to FG VIE consolidation
(6
)
 
(2
)
Loss and LAE
$
(18
)
 
$
59




The following table provides information on financial guaranty insurance contracts categorized as BIG.
 
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of March 31, 2018
 
 
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)
134

 
(11
)
 
43

 
(1
)
 
149

 
(7
)
 
326

 
—

 
326

Remaining weighted-average contract period (in years)
8.7

 
6.9

 
11.9

 
2.4

 
10.0

 
9.4

 
9.7

 
—

 
9.7

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
3,911

 
$
(89
)
 
$
1,030

 
$
(6
)
 
$
6,661

 
$
(166
)
 
$
11,341

 
$
—

 
$
11,341

Interest
1,865

 
(37
)
 
639

 
(1
)
 
3,349

 
(78
)
 
5,737

 
—

 
5,737

Total(2)
$
5,776

 
$
(126
)
 
$
1,669

 
$
(7
)
 
$
10,010

 
$
(244
)
 
$
17,078

 
$
—

 
$
17,078

Expected cash outflows (inflows)
$
101

 
$
(5
)
 
$
232

 
$
(1
)
 
$
3,961

 
$
(91
)
 
$
4,197

 
$
(308
)
 
$
3,889

Potential recoveries(3)
(434
)
 
19

 
(110
)
 
0

 
(2,320
)
 
62

 
(2,783
)
 
191

 
(2,592
)
Subtotal
(333
)
 
14

 
122

 
(1
)
 
1,641

 
(29
)
 
1,414

 
(117
)
 
1,297

Discount
85

 
(5
)
 
(28
)
 
0

 
(160
)
 
(3
)
 
(111
)
 
25

 
(86
)
Present value of expected cash flows
$
(248
)
 
$
9

 
$
94

 
$
(1
)
 
$
1,481

 
$
(32
)
 
$
1,303

 
$
(92
)
 
$
1,211

Deferred premium revenue
$
88

 
$
(5
)
 
$
117

 
$
0

 
$
530

 
$
(2
)
 
$
728

 
$
(71
)
 
$
657

Reserves (salvage)
$
(280
)
 
$
10

 
$
51

 
$
(1
)
 
$
1,154

 
$
(30
)
 
$
904

 
$
(60
)
 
$
844

 

Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 31, 2017
 
 
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)
139

 
(22
)
 
46

 
(3
)
 
150

 
(41
)
 
335

 
—

 
335

Remaining weighted-average contract period (in years)
8.9

 
7.3

 
14.0

 
2.9

 
9.6

 
9.3

 
9.9

 
—

 
9.9

Outstanding exposure:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal
$
4,397

 
$
(96
)
 
$
1,352

 
$
(8
)
 
$
6,445

 
$
(190
)
 
$
11,900

 
$
—

 
$
11,900

Interest
2,110

 
(42
)
 
1,002

 
(1
)
 
3,098

 
(86
)
 
6,081

 
—

 
6,081

Total(2)
$
6,507

 
$
(138
)
 
$
2,354

 
$
(9
)
 
$
9,543

 
$
(276
)
 
$
17,981

 
$
—

 
$
17,981

Expected cash outflows (inflows)
$
186

 
$
(5
)
 
$
492

 
$
(1
)
 
$
3,785

 
$
(104
)
 
$
4,353

 
$
(307
)
 
$
4,046

Potential recoveries(3)
(595
)
 
20

 
(145
)
 
0

 
(2,273
)
 
67

 
(2,926
)
 
194

 
(2,732
)
Subtotal
(409
)
 
15

 
347

 
(1
)
 
1,512

 
(37
)
 
1,427

 
(113
)
 
1,314

Discount
66

 
(4
)
 
(93
)
 
0

 
(78
)
 
(2
)
 
(111
)
 
23

 
(88
)
Present value of expected cash flows
$
(343
)
 
$
11

 
$
254

 
$
(1
)
 
$
1,434

 
$
(39
)
 
$
1,316

 
$
(90
)
 
$
1,226

Deferred premium revenue
$
112

 
$
(5
)
 
$
129

 
$
0

 
$
540

 
$
(6
)
 
$
770

 
$
(74
)
 
$
696

Reserves (salvage)
$
(380
)
 
$
11

 
$
202

 
$
(1
)
 
$
1,100

 
$
(34
)
 
$
898

 
$
(55
)
 
$
843

____________________
(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 R&W receivables and payables.


Ratings Impact on Financial Guaranty Business
 
A downgrade of one of AGL’s insurance subsidiaries may result in increased claims under financial guaranties issued by the Company if counterparties exercise contractual rights triggered by the downgrade against insured obligors, and the insured obligors are unable to pay.

Since the filing with the SEC of AGL’s Annual Report on Form 10-K for the year ended December 31, 2017, there have been no material changes to (i) the Company's potential termination payments under interest rate swaps, (ii) the variable rate demand obligations exposure, and (iii) the potential payment obligations under guaranteed investment contracts and availability of sufficient eligible and liquid assets to the AGMH's former subsidiary FSA Asset Management LLC to satisfy any expected withdrawal and collateral posting obligations. See Note 6, Contracts Accounted for as Insurance, in Part II, Item 8. “Financial Statements and Supplementary Data” of AGL’s Annual Report on Form 10-K for the year ended December 31, 2017 for additional information.