Loss and Loss Adjustment Expense Reserves

12 Months Ended

Dec. 31, 2016

Text Block [Abstract]

Loss and Loss Adjustment Expense Reserves

Note 6: Loss and Loss Adjustment Expense Reserves

The Company’s insured portfolio management groups within its U.S. public finance insurance and international and structured finance insurance businesses (collectively, “IPM”) monitor MBIA’s outstanding insured obligations with the objective of minimizing losses. IPM meets this objective by identifying issuers that, because of deterioration in credit quality or changes in the economic, regulatory or political environment, are at a heightened risk of defaulting on debt service of obligations insured by MBIA. In such cases, IPM works with the issuer, trustee, bond counsel, servicer, underwriter and other interested parties in an attempt to alleviate or remedy the problem and avoid defaults on debt service payments. Once an obligation is insured, MBIA typically requires the issuer, servicer (if applicable) and the trustee to furnish periodic financial and asset-related information, including audited financial statements, to IPM for review. IPM also monitors publicly available information related to insured obligations. Potential problems uncovered through this review, such as poor financial results, low fund balances, covenant or trigger violations and trustee or servicer problems, or other events that could have an adverse impact on the insured obligation, could result in an immediate surveillance review and an evaluation of possible remedial actions. IPM also monitors and evaluates the impact on issuers of general economic conditions, current and proposed legislation and regulations, political developments, as well as sovereign, state and municipal finances and budget developments.

The frequency and extent of IPM’s monitoring is based on the criteria and categories described below. Insured obligations that are judged to merit more frequent and extensive monitoring or remediation activities due to a deterioration in the underlying credit quality of the insured obligation or the occurrence of adverse events related to the underlying credit of the issuer are assigned to a surveillance category (“Caution List—Low,” “Caution List—Medium,” “Caution List—High” or “Classified List”) depending on the extent of credit deterioration or the nature of the adverse events. IPM monitors insured obligations assigned to a surveillance category more frequently and, if needed, develops a remediation plan to address any credit deterioration.

Remediationactionsmayinvolve,among otherthings,waiversorrenegotiationsoffinancial covenantsortriggers, waiversofcontractualprovisions,the granting ofconsents,transferofservicing,consideration ofrestructuring plans, acceleration,securityorcollateral enforcement,actionsin bankruptcyorreceivership,litigation and similaractions.The typesofremedial actionspursuedare basedon the insured obligation’srisktypeandthe nature and scopeofthe event givingrise tothe remediation.Aspartofanysuch remedial actions,MBIAseekstoimprove itssecurityposition and to obtain concessionsfromthe issuerofthe insured obligation.Fromtimeto time,the issuerofan MBIA-insured obligation may,withthe consentofMBIA,restructurethe insured obligation byextending the term,increasing ordecreasing thepar amountordecreasingthe related interestrate,with MBIAinsuringthe restructured obligation.

The Company does not establish any case basis reserves for insured obligations that are assigned to “Caution List—Low,” “Caution List—Medium” or “Caution List—High.” In the event MBIA expects to pay a claim with respect to an insured transaction, it places the insured transaction on its “Classified List” and establishes a case basis reserve. When there are no remaining expected future claim payments, the insured transaction is removed from the “Classified List.” The following provides a description of each surveillance category:

“Caution List—Low” —Includes issuers where debt service protection is adequate under current and anticipated circumstances. However, debt service protection and other measures of credit support and stability may have declined since the transaction was underwritten and the issuer is less able to withstand further adverse events. Transactions in this category generally require more frequent monitoring than transactions that do not appear within a surveillance category. IPM subjects issuers in this category to heightened scrutiny.

“Caution List—Medium” —Includes issuers where debt service protection is adequate under current and anticipated circumstances, although adverse trends have developed and are more pronounced than for “Caution List – Low.” Issuers in this category may have breached one or more covenants or triggers. These issuers are more closely monitored by IPM but generally take remedial action on their own.

“Caution List—High” —Includes issuers where more proactive remedial action is needed but where no defaults on debt service payments are expected. Issuers in this category exhibit more significant weaknesses, such as low debt service coverage, reduced or insufficient collateral protection or inadequate liquidity, which could lead to debt service defaults in the future. Issuers in this category may have breached one or more covenants or triggers and have not taken conclusive remedial action. Therefore, IPM adopts a remediation plan and takes more proactive remedial actions.

“Classified List” —Includes all insured obligations where MBIA has paid a claim or where a claim payment is expected. It also includes insured obligations where a significant LAE payment has been made, or is expected to be made, to mitigate a claim payment. This may include property improvements, bond purchases and commutation payments. Generally, IPM is actively remediating these credits where possible, including restructurings through legal proceedings, usually with the assistance of specialist counsel and advisors.

In establishing case basis loss reserves, the Company calculates the present value of probability-weighted estimated loss payments, net of estimated recoveries, using a discount rate equal to the risk-free rate applicable to the currency and the weighted average remaining life of the insurance contract as required by accounting principles for financial guarantee contracts. Yields on U.S. Treasury offerings are used to discount loss reserves denominated in U.S. dollars, which represent the majority of the loss reserves. Similarly, yields on foreign government offerings are used to discount loss reserves denominated in currencies other than the U.S. dollar. If the Company were to apply different discount rates, its case basis reserves may have been higher or lower than those established as of December 31, 2016. For example, a higher discount rate applied to expected future payments would have decreased the amount of a case basis reserve established by the Company and a lower rate would have increased the amount of a reserve established by the Company. Similarly, a higher discount rate applied to the potential future recoveries would have decreased the amount of a loss recoverable established by the Company and a lower rate would have increased the amount of a loss recoverable established by the Company.

U.S. Public Finance Insurance

U.S. public finance insured transactions consist of municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. The Company estimates future losses by using probability-weighted cash flow scenarios that are customized to each insured transaction. Future loss estimates consider debt service due for each insured transaction, which includes par outstanding and interest due, as well as recoveries for such payments, if any. Gross par outstanding for capital appreciation bonds represents the par amount at the time of issuance of the insurance policy.

Certain local governments remain under financial and budgetary stress and a few have filed for protection under the United States Bankruptcy Code, or have entered into state statutory proceedings established to assist municipalities in managing through periods of severe fiscal stress. This could lead to an increase in defaults by such entities on the payment of their obligations and losses or impairments in greater amountson the Company’s insured transactions. The Company monitors and analyzes these situations closely, however, the overall extent and duration of such events are uncertain. Also, the filing for protection under the United States Bankruptcy Code or entering state statutory proceedings does not necessarily result in a default or indicate that an ultimate loss will occur.

International and Structured Finance Insurance

The international and structured finance insurance segment’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include estimates for policies insuring credit derivatives or on financial guarantee VIEs that are eliminated in consolidation. Policies insuring credit derivative contracts are accounted for as derivatives and are carried at fair value in the Company’s consolidated financial statements under GAAP. The fair values of insured credit derivative contracts are influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments under the Company’s insurance policies. In the absence of credit impairments on insured credit derivative contracts or the early termination of such contracts at a loss, the cumulative unrealized losses recorded from these contracts should reverse before or at the maturity of the contracts. As the Company’s insured credit derivatives have similar terms, conditions, risks, and economic profiles to its financial guarantee insurance policies, the Company evaluates them for impairment, under Statutory accounting, in the same way that it estimates loss and LAE for its financial guarantee policies. Refer to “Note 9: Derivative Instruments” for a further discussion of the Company’s use of derivatives and their impact on the Company’s consolidated financial statements.

RMBS Case Basis Reserves (Financial Guarantees)

The Company’s RMBS reserves and recoveries relate to financial guarantee insurance policies. The Company’s first-lien RMBS case basis reserves primarily relate to RMBS backed by alternative A-paper and subprime mortgage loans. The Company’s second-lien RMBS case basis reserves relate to RMBS backed by home equity lines of credit and closed-end second mortgages. The Company calculated RMBS case basis reserves as of December 31,2016 for both first and second-lien RMBS transactions using a process called the “Roll Rate Methodology.” The Roll Rate Methodology is a multi-step process using databases of loan level information, proprietary internal cash flow models, and commercially available models to estimate potential losses and recoveries on insured bonds. “Roll Rate” is defined as the probability that current loans become delinquent and subsequently default and loans in the delinquent pipeline are charged-off or liquidated. Generally, Roll Rates are calculated for the previous twelve months and averaged. The loss reserve estimates are based on a probability-weighted average of three scenarios of loan losses (base case, stress case, and an additional stress case). Additional data used for both second and first-liens include historic averages of deal specific voluntary prepayment rates, forward projections of the London Interbank Offered Rate (“LIBOR”) interest rates, and historic averages of deal-specific loss severities.

In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of second-lien loans that are expected to be charged-off (deemed uncollectible by servicers of the transactions) or first-lien loans liquidated in the future.

In addition, for second-lien RMBS backed by closed-end second mortgages, the Company considers pool mortgage insurance and for second-lien RMBS backed by home equity lines of credit, the Company assumes a constant basis spread between Prime and LIBOR interest rates.

For first-lien RMBS, the Company estimates the amount of loans that are expected to be liquidated through foreclosure or short sale. The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket.

For all transactions, cash flow models consider allocations and other structural aspects and claims against MBIA Corp.’s insurance policy consistent with such policy’s terms and conditions. The estimated net claims from the procedure above are then discounted using a risk-free rate to a net present value reflecting MBIA’s general obligation to pay claims over time and not on an accelerated basis.

The Company monitors portfolio performance on a monthly basis against projected performance, reviewing delinquencies, roll rates, and prepayment rates (including voluntary and involuntary). However, loan performance remains difficult to predict and losses may exceed expectations. In the event of a material deviation in actual performance from projected performance, the Company would increase or decrease the case basis reserves accordingly. If actual performance were to remain at the current levels for six additional months compared to the probability-weightedoutcome currently used by the Company, the addition to its second-lien case basis reserveswould be approximately $28 million.

RMBS Recoveries

The Company primarily records two types of recoveries related to insured RMBS exposures:excess spread that is generated from the trust structures in the insured transactions; and second-lien “put-back” claims related to those mortgage loans whose inclusion in insured securitizations failed to comply with representations and warranties (“ineligible loans”).

Excess Spread

Excess spread within insured RMBS securitizations is the difference between interest inflows on mortgage loan collateral and interest outflows on the insured RMBS notes. The amount of excess spread depends on the future loss trends (which include future delinquency trends, average time to charge-off/liquidate delinquent loans, and the availability of pool mortgage insurance), the future spread between Prime and LIBOR interest rates, and borrower refinancing behavior (which may be affected by a continued low interest rate environment) that results in voluntary prepayments. Minor deviations in loss trends and voluntary prepayments may substantially impact the amounts collected from excess spread. Excess spread may also include estimated recoverables from mortgage insurance contracts and subsequent recoveries on charged-off loans associated with the insured RMBS securitizations.

Second-lien Put-Back Claims Related to Ineligible Mortgage Loans

To date, MBIA has settled the majority of the Company’s put-back claims. Only its claims against Credit Suisse remain outstanding. To date, settlement amounts have been consistent with the put-back recoveries that had been included in the Company’s financial statements at the time preceding the settlement.

The contract claim remaining with Credit Suisse is related to the inclusion of ineligible mortgage loans in the 2007-2 Home Equity Mortgage Trust securitization. Credit Suisse has challenged the Company’s assessment of the ineligibility of individual mortgage loans and the dispute is the subject of litigation for which there is no assurance that the Company will prevail.

Based on the Company’s assessment of the strength of its contractual put-back rights against Credit Suisse, which it is pursuing through litigation claims, as well as on its prior settlements with other sellers/servicers and success of other monolines’ put-back settlements, the Company believes it will prevail in enforcing its contractual rights and that it is entitled to collect the full amount of its incurred losses, which totaled $435 million through December 31,2016. The Company is also entitled to collect interest on amounts paid; it believes that in context of its put-back litigation, the appropriate interest rate should be the New York State statutory rate. However, the Company currently calculates its put-back recoveries using the contractual interest rate, which is lower than the New York State statutory rate.

Notwithstanding the foregoing, uncertainty remains with respect to the ultimate outcome of the litigation with Credit Suisse, which is contemplated in the probability-weighted cash flow scenario based-modeling the Company uses. The Credit Suisse recovery scenarios are based on the amount of incurred losses measured against certain probabilities of ultimate resolution of the dispute with Credit Suisse. Most of the probability weight is assigned to partial recovery scenarios and are discounted using the current risk-free discount rates associated against the underlying transaction’s cash flows.

The Company continues to consider all relevant facts and circumstancesin developing its assumptions on expected cash inflows, probability of potential recoveries (including the outcome of litigation) and recovery period. The estimated amount and likelihood of potential recoveries are expected to be revised and supplemented to the extent there are developments in the pending litigation and/or changes to the financial condition of Credit Suisse. While the Company believes it will be successful in realizing its recoveries from its contract claims against Credit Suisse, the ultimate amount recovered may be materially different from that recorded by the Company given the inherent uncertainty of the manner of resolving the claims (i.e., litigation and/or negotiated out-of-court settlement) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks.

CDO Reserves

The Company also has loss and LAE reserves on certain transactions within its CDO portfolio, including its multi-sector CDO and highyield corporate CDO asset classes that were insured in the form of financial guarantee policies. MBIA’s insured multi-sector CDOs are transactions that include a variety of collateral ranging from corporate bonds to structured finance assets (which includes, but are not limited to, RMBS-related collateral, multi-sector and corporate CDOs). MBIA’s high yield corporate CDO portfolio comprises middle-market/special-opportunity corporate loan transactions.

The following discussion provides information about the Company’s process for estimating reserves and credit impairments on these policies, determined as the present value of the probability-weighted potential future losses, net of estimated recoveries, across multiple scenarios.

The Company considers several factors when developing the range of potential outcomes and their impact on MBIA. The following approaches require substantial judgments about the future performance of each transaction:

• Each transaction is evaluated for its commutation potential, which is customized by counterparty and considers historical commutation prices, the level of dialogue with the counterparty and the credit quality and payment profile of the underlying exposure.
• A range of loss scenarios is considered under different default and severity rates for each transaction’s collateral.

The loss severities projected by these approaches vary widely. Actual losses will be a function of commutations, defaults and the loss severities realized.

Summary of Loss and LAE Reserves and Recoveries

The Company’s loss and LAE reserves and recoveriesafter VIE eliminations included in the Company’s consolidated balance sheets, along with amounts that were eliminated as a result of consolidating VIEs, as of December 31,2016 and 2015 are presented in the following table:

			As of		As of
In millions			December 31, 2016		December 31, 2015
U.S. Public Finance Insurance Segment:
	Loss and LAE reserves		$	97	$	45
	Insurance loss recoverable			174		4
International and Structured Finance Insurance Segment:
	Second-lien RMBS:
		Loss and LAE reserves after VIE elimination		44		51
		Loss and LAE reserves VIE elimination		23		16
		Excess Spread after VIE elimination(1)		294		406
		Excess Spread VIE elimination(2)		53		93
		Put-Back Claims(3)		404		396
	First-lien RMBS:
		Loss and LAE reserves after VIE elimination		300		277
		Loss and LAE reserves VIE elimination		15		5
		Excess Spread after VIE elimination(4)		74		80
		Excess Spread VIE elimination(5)		18		8
	CDOs:
		Loss and LAE reserves after VIE elimination		87		133
		Loss and LAE reserves VIE elimination		155		190
		Insurance Loss Recoverable after VIE elimination		-		148
		Insurance Loss Recoverable VIE elimination		154		-
	Other:
		Loss and LAE reserves after VIE elimination		13		10
		Loss and LAE reserves VIE elimination		13		-
		Insurance Loss Recoverable		5		9
________________
(1) -As of December 31, 2016 and 2015, $280 million and $382 million were included in “Insurance loss recoverable” and $14 million and $24 million were included in “Loss and loss adjustment expense reserves” on the Company’s consolidated balance sheets, respectively.
(2) -As of December 31, 2016 and 2015, $53 million and $87 million were eliminated from "Insurance loss recoverable”. As of December 31, 2015, $6 million was eliminated from “Loss and loss adjustment expense reserves” on the Company’s consolidated balance sheets, respectively.
(3) - Reflected in “Loan repurchase commitments” presented under the heading “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets.
(4) -As of December 31, 2016 and 2015, $45 million and $34 million were included in “Insurance loss recoverable” and $29 million and $46 million were included in “Loss and loss adjustment expense reserves” on the Company’s consolidated balance sheets, respectively.
(5) -As of December 31, 2016 and 2015, $14 million and $8 million were eliminated from “Insurance loss recoverable.” As of December 31, 2016, $4 million was eliminated from “Loss and loss adjustment expense reserves” on the Company’s consolidated balance sheets.

Changes in Loss and LAE Reserves

The following tables present changes in the Company’s loss and LAE reserves for the years endedDecember 31,2016 and 2015. Changes in loss reserves attributable to the accretion of the claim liability discount, changes in discount rates, changes in amount and timingof estimated claim payments and recoveries, changes in assumptions and changes in LAE reserves are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations. As of December 31,2016 and 2015, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 2.07% and 1.82%, respectively. LAE reserves are generally expected to be settled within a one-year period and are not discounted. As of December 31,2016 and 2015, the Company’s gross loss and LAE reserves included $60 million and $46 million, respectively, related to LAE.

In millions

Changes in Loss and LAE Reserves for the Year Ended December 31, 2016

Gross Loss

Loss

Gross Loss

and LAE

Payments

Accretion

Changes in

and LAE

Reserves as of

for Cases

of Claim

Changes in

Unearned

Changes in

Reserves as of

December 31,

with

Liability

Discount

Changes in

Premium

LAE

December 31,

2015

Reserves

Discount

Rates

Assumptions

Revenue

Reserves

Other(1)

2016

$

516

$

(128)

$

8

$

5

$

78

$

(15)

$

14

$

63

$

541

____________

(1) - Primarily changes in the amount and timing of payments.

In millions

Changes in Loss and LAE Reserves for the Year Ended December 31, 2015

Gross Loss

Loss

Gross Loss

and LAE

Payments

Accretion

Changes in

and LAE

Reserves as of

for Cases

of Claim

Changes in

Unearned

Changes in

Reserves as of

December 31,

with

Liability

Discount

Changes in

Premium

LAE

December 31,

2014

Reserves

Discount

Rates

Assumptions

Revenue

Reserves

Other(1)

2015

$

506

$

(200)

$

8

$

(41)

$

88

$

14

$

4

$

137

$

516

____________

(1) - Primarily changes in amount of actual loss payments on a high yield corporate CDO.

The increase in the Company’s gross loss and LAE reserves during 2016 were primarily related to increases due to changes in assumptions on insured first and second-lien RMBS transactions and U.S. public finance transactions. These were partially offset by decreases in changes in assumptions on CDOs.

The increase in the Company’s gross loss and LAE reserves during 2015 were primarily related to changes in amount of net payments on CDOs, partially offset by actual loss payments associated with CDOs.

Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses

CurrentperiodchangesintheCompany’sestimateofpotentialrecoveriesmay berecordedasaninsuranceloss recoverableasset,nettedagainstthegrosslossandLAEreserveliability,or both.The following tables present changes in the Company’s insurance loss recoverable and changes in recoveries on unpaid losses reported within the Company’s claim liability for the years endedDecember 31,2016 and 2015. Changes in insurance loss recoverable attributable to the accretion of the discount on the recoverable, changes in discount rates, changes in amount and timing of estimated collections, changes in assumptions and changes in LAE recoveries are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations. As of December 31,2015, the Company’s insurance loss recoverable included $6 million related to LAE.

					Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses
					for the Year Ended December 31, 2016
		Gross														Gross
		Reserve		Collections												Reserve
		as of		for Cases		Accretion		Changes in				Changes in				as of
		December 31,		with		of		Discount		Changes in		LAE				December 31,
In millions		2015		Recoveries		Recoveries		Rates		Assumptions		Recoveries		Other(1)		2016
Insurance loss
	recoverable	$	577	$	(69)	$	5	$	(17)	$	86	$	(6)	$	(72)	$	504
Recoveries on unpaid
	losses (2)		100		-		1		3		(34)		9		-		79
Total		$	677	$	(69)	$	6	$	(14)	$	52	$	3	$	(72)	$	583
____________
(1) - Primarily changes in amount and timing of collections.
(2) - Excludes Puerto Rico and Zohar II recoveries, which have been netted against reserves.

					Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses
					for the Year Ended December 31, 2015
		Gross														Gross
		Reserve		Collections												Reserve
		as of		for Cases		Accretion		Changes in				Changes in				as of
		December 31,		with		of		Discount		Changes in		LAE				December 31,
In millions		2014		Recoveries		Recoveries		Rates		Assumptions		Recoveries		Other(1)		2015
Insurance loss
	recoverable	$	533	$	(74)	$	8	$	1	$	140	$	6	$	(37)	$	577
Recoveries on unpaid
	losses (2)		147		-		2		(2)		(46)		(1)		-		100
Total		$	680	$	(74)	$	10	$	(1)	$	94	$	5	$	(37)	$	677
____________
(1) - Primarily changes in amount and timing of collections.
(2) - Excludes Puerto Rico and Zohar II recoveries, which have been netted against reserves.

The decrease in the Company’s insurance loss recoverable and recoveries on unpaid losses during 2016 was primarily due to a decrease in expected future recoveries on CDOs as the result of the consolidation of a VIE and related elimination of a VIE and a decrease in changes inthe amount of expected collections on first and second-lien RMBS issues, partially offset by an increase related to changes in assumptions on certain Puerto Rico exposures.

The decrease in theCompany’sinsuranceloss recoverable and recoveries on unpaid losses during2015was primarily duetoactual collections,changes inthe amount of expected collections and changes in assumptions on first and second-lien RMBS issues and changes in assumptions on an international road transaction. These were partially offset by the effectsof changes in assumptions on CDOs.

Loss and LAE Activity

The Company’s financial guarantee insurance losses and LAE (excluding insured credit derivative and consolidated VIEs), net of reinsurance for the years ended December 31, 2016, 2015 and 2014 are presented in the following table:

		Years Ended December 31,
In millions		2016		2015		2014
U.S. Public Finance Insurance Segment		$	74	$	5	$	(10)
International and Structured Finance Insurance Segment:
	Second-lien RMBS		121		63		70
	First-lien RMBS		41		34		65
	CDOs		(32)		29		33
	Other(1)		16		(8)		(25)
Losses and LAE		$	220	$	123	$	133
________________
(1) - Includes non-U.S. public finance and other issues.

For 2016, losses and LAE primarily related to increases in actual and expected payments on certain Puerto Rico exposures and insured first and second-lien RMBS transactions and decreases in projected collections from excess spread within insured second-lien RMBS securitizations. These were partially offset by increases in recoveries of actual and expected payments on certain Puerto Rico exposures and decreases in actual and expected payments on CDOs.

For 2015, losses and LAE primarily related to increases in expected payments on CDOs and insured first-lien RMBS transactions and decreases in projected collections from excess spread within insured second-lien RMBS securitizations. These were partially offset by increases in recoveries of expected payments related to CDOs and increases in projected collections from excess spread within insured second-lien RMBS securitizations due to an anticipated sale of loans within certain securitizations that had previously been charged off by the servicer.

For 2014, losses and LAE primarily related to increases in expected payments on insured first-lien RMBS transactions and CDOs, decreases in projected collections from excess spread within insured second-lien RMBS securitizations and expected recoveries on an international road transaction. These were partially offset by decreases in expected payments on an international road transaction and increases in recoveries of expected payments related to insured first-lien RMBS transactions.

Costs associated with remediating insured obligations assigned to the Company’s surveillance categories are recorded as LAE and included in “Losses and loss adjustment” expenses on the Company’s consolidated statements of operations. For 2016, 2015 and 2014, gross LAE related to remediating insured obligations were $48 million, $26 million and $36 million, respectively.

Surveillance Categories

Thefollowing table providesinformationaboutthe financial guaranteesand related claimliabilityincluded in each of MBIA’ssurveillance categoriesasofDecember 31,2016:

				Surveillance Categories
				Caution		Caution		Caution
				List		List		List		Classified
$ in millions				Low		Medium		High		List		Total
Number of policies					90		6		3		331		430
Number of issues (1)					17		4		2		126		149
Remaining weighted average contract
	period (in years)				7.5		3.4		7.2		7.0		7.1
Gross insured contractual payments
	outstanding: (2)
		Principal		$	2,917	$	17	$	320	$	7,031	$	10,285
		Interest			2,795		4		107		2,777		5,683
			Total	$	5,712	$	21	$	427	$	9,808	$	15,968
Gross Claim Liability (3)				$	-	$	-	$	-	$	718	$	718
Less:
	Gross Potential Recoveries				-		-		-		770		770
	Discount, net (4)				-		-		-		(75)		(75)
Net claim liability (recoverable)				$	-	$	-	$	-	$	23	$	23
Unearned premium revenue				$	9	$	-	$	8	$	68	$	85
__________
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.
(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3) - The gross claim liability with respect to Puerto Rico and Zohar II exposures are net of expected recoveries.
(4) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.

Thefollowing table providesinformationaboutthe financial guaranteesand related claimliabilityincluded in each of MBIA’ssurveillance categoriesasofDecember 31,2015:

				Surveillance Categories
				Caution		Caution		Caution
				List		List		List		Classified
$ in millions				Low		Medium		High		List		Total
Number of policies					57		18		171		165		411
Number of issues (1)					12		6		5		117		140
Remaining weighted average contract
	period (in years)				7.6		6.7		9.6		6.7		7.4
Gross insured contractual payments
	outstanding: (2)
		Principal		$	2,591	$	147	$	1,996	$	6,426	$	11,160
		Interest			2,733		57		1,038		2,419		6,247
			Total	$	5,324	$	204	$	3,034	$	8,845	$	17,407
Gross Claim Liability (3)				$	-	$	-	$	-	$	797	$	797
Less:
	Gross Potential Recoveries				-		-		-		752		752
	Discount, net (4)				-		-		-		116		116
Net claim liability (recoverable)				$	-	$	-	$	-	$	(71)	$	(71)
Unearned premium revenue				$	8	$	2	$	33	$	55	$	98
__________
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.
(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3) - The gross claim liability with respect to Puerto Rico and Zohar II exposures are net of expected recoveries.
(4) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.

The increase during 2016 in the Company’s number of policies on the classified list reflected in the preceding tables was primarily related to certain Puerto Rico policies. The gross claim liabilities in the preceding tables represent the Company’s estimate of undiscounted probability-weighted estimated future claim payments. The gross claim liability with respect to Puerto Rico and Zohar II exposures are net of expected recoveries.As of December 31,2016 and 2015, the gross claim liability primarily related to insured first-lien RMBS transactions.

The gross potential recoveries represent the Company’s estimate of undiscounted probability-weighted recoveries of actual claim payments and recoveries of estimated future claim payments. Gross potential recoveries exclude amounts related to Puerto Rico and Zohar II exposures that have been netted against the claim liability. As of December 31,2016, the gross potential recoveries principally related to U.S. public finance transactions and insured second-lien RMBS transactions. As of December 31,2015, the gross potential recoveries principally related to insured second-lien RMBS transactions. The Company’s recoveries have been, and remain based on either salvage rights, the rights conferred to MBIA through the transactional documents (inclusive of the insurance agreement), or subrogation rights embedded within financial guarantee insurance policies. Expected salvage and subrogation recoveries, as well as recoveries from other remediation efforts, reduce the Company’s claim liability. Once a claim payment has been made, the claim liability has been satisfied and MBIA’s right to recovery is no longer considered an offset to future expected claim payments, it is recorded as a salvage asset. The amount of recoveries recorded by the Company is limited to paid claims plus the present value of projected estimated future claim payments. As claim payments are made, the recorded amount of potential recoveries may exceed the remaining amount of the claim liability for a given policy. The gross claim liability and gross potential recoveriesreflect the elimination of claim liabilities and potential recoveries related to VIEs consolidated by the Company.As of December 31,2016 and 2015, reinsurance recoverable on paid and unpaid losses was $6 million and were included in “Other assets” on the Company’s consolidated balance sheets.