Insurance Premiums

12 Months Ended

Dec. 31, 2012

Insurance Premiums

Note 5: Insurance Premiums

The Company recognizes and measures premiums related to financial guarantee (non-derivative) insurance and reinsurance contracts in accordance with the accounting principles for financial guarantee insurance contracts.

As of December 31, 2012 and 2011, the Company reported premiums receivable of $1.2 billion and $1.4 billion, respectively, primarily related to installment policies for which premiums will be collected over the estimated term of the contracts. Premiums receivable for an installment policy is initially measured at the present value of premiums expected to be collected over the expected period or contract period of the policy using a risk-free discount rate. Premiums receivable for policies that use the expected period of risk due to expected prepayments are adjusted in subsequent measurement periods when prepayment assumptions change using the risk-free discount rate as of the remeasurement date. As of December 31, 2012 and 2011, the weighted average risk-free rate used to discount future installment premiums was 2.6% and 2.8%, respectively, and the weighted average expected collection term of the premiums receivable was 9.13 years as of December 31, 2012 and 2011.

The Company evaluates whether any premiums receivable are uncollectible at each balance sheet date. If the Company determines that premiums are uncollectible, it records a write-off of such amounts in current earnings. The majority of the Company’s premiums receivable consists of the present values of future installment premiums that are not yet billed or due primarily from structured finance transactions. Given that premiums due to MBIA typically have priority over most other payment obligations of structured finance transactions, the Company determined that the amount of uncollectible premiums as of December 31, 2012 and 2011 was insignificant.

As of December 31, 2012 and 2011, the Company reported reinsurance premiums payable of $59 million and $64 million, respectively, which represents the portion of the Company’s premiums receivable that is due to reinsurers. The reinsurance premiums payable is accreted and paid to reinsurers as premiums due to MBIA are accreted and collected.

The following tables present a roll forward of the Company’s premiums receivable for the years ended December 31, 2012 and 2011:

In millions						Adjustments
Premiums Receivable as of December 31, 2011		Premium Payments Received		Premiums from New Business Written		Changes in Expected Term of Policies		Accretion of Premiums Receivable Discount		Other (1)		Premiums Receivable as of December 31, 2012		Reinsurance Premiums Payable as of December 31, 2012
$	1,360	$	(182)	$	5	$	(57)	$	32	$	70	$	1,228	$	59

(1)—Primarily consists of unrealized gains (losses) due to foreign currency exchange rates.

In millions						Adjustments
Premiums Receivable as of December 31, 2010		Premium Payments     Received		Premiums from New Business     Written		Changes in Expected Term of     Policies		Accretion of Premiums Receivable     Discount		Other (1)		Premiums Receivable as of December 31, 2011		Reinsurance Premiums Payable as of December 31, 2011
$	1,589	$	(212)	$	—	$	(76)	$	40	$	19	$	1,360	$	64

(1)—Primarily consists of unrealized gains (losses) due to foreign currency exchange rates.

The following table presents the undiscounted future amount of premiums expected to be collected and the period in which those collections are expected to occur:

In millions	Expected Collection of Premiums
Three months ended:
March 31, 2013	$	30
June 30, 2013		43
September 30, 2013		30
December 31, 2013		36
Twelve months ended:
December 31, 2014		125
December 31, 2015		117
December 31, 2016		109
December 31, 2017		99
Five years ended:
December 31, 2022		378
December 31, 2027		264
December 31, 2032 and thereafter		303
Total	$	1,534

The following table presents the unearned premium revenue balance and future expected premium earnings as of and for the periods presented:

			Expected Future Premium Earnings
In millions	Unearned Premium Revenue		Upfront		Installments		Accretion		Total Expected Future Premium Earnings
December 31, 2012	$	2,938						.
Three months ended:
March 31, 2013		2,860	$	46	$	32	$	7	$	85
June 30, 2013		2,783		46		31		7		84
September 30, 2013		2,709		44		30		7		81
December 31, 2013		2,637		42		30		7		79
Twelve months ended:
December 31, 2014		2,368		159		110		27		296
December 31, 2015		2,123		143		102		25		270
December 31, 2016		1,898		130		95		23		248
December 31, 2017		1,693		120		85		21		226
Five years ended:
December 31, 2022		915		456		322		83		861
December 31, 2027		442		268		205		50		523
December 31, 2032 and thereafter		—		234		208		51		493
Total			$	1,688	$	1,250	$	308	$	3,246