Loss and Loss Adjustment Expense Reserves

12 Months Ended

Dec. 31, 2018

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 the Company’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 the Company. 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. The Company typically requires the issuer, servicer (if applicable) and the trustee of insured obligations 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,the Company seekstoimprove itssecurityposition and to obtain concessionsfromthe issuerofthe insured obligation.Fromtimeto time,the issuerofan insured obligation by the Company may,withthe consentofthe Company,restructurethe insured obligation byextending the term,increasing ordecreasing thepar amountordecreasingthe related interestrate,with the Company insuringthe 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. 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 the Company 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, 2018. 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 Title 11 of the United States Code (the “Bankruptcy Code”), or have entered into state statutory proceedings established to assist municipalities in managing through periods of severe fiscal stress. In the case of Puerto Rico, certain credits that the Company insures have filed petitions for covered instrumentalities under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), which incorporates by reference provisions from the Bankruptcy Code. 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 filing for protection under the Bankruptcy Code or entering state statutory proceedings does not necessarily result in a default or indicate that an ultimate loss will occur. Refer to “Note 1: Business Development and Risk and Uncertainties”, for further information on the Company’s Puerto Rico exposures.

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 a policy insuring a credit derivative or on financial guarantee VIEs that are eliminated in consolidation. The policy insuring a credit derivative contract is accounted for as a derivative and is carried at fair value in the Company’s consolidated financial statements under GAAP. The fair value of an insured credit derivative contract is 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. 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, excluding those on consolidated VIEs. 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 31,2018 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. 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 addition, for second-lien RMBS backed by home equity lines of credit, the Company assumes a constant basis spread between Prime and LIBOR interest rates.

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.

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.

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 an insured securitization failed to comply with representations and warranties (“ineligible loans”).

Once a claim payment has been made, the claim liability has been satisfied and the Company’s right to recovery is no longer considered an offset to future expected claim payments, the right to recovery 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 recoveries reflect the elimination of claim liabilities and potential recoveries related to VIEs consolidated by the Company.

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 aggregate amount of excess spread depends on the future loss trends, which include future delinquency trends, average time to charge-off/liquidate delinquent loans, the future spread between Prime and the LIBOR interest rates, and borrower refinancing behavior (which may be affected by changes in the 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 also includes subsequent recoveries on previously charged-off loans associated with insured second-lien RMBS securitizations.

Second-lien Put-Back Claims Related to Ineligible Loans

The Company has settled the majority of the Company’s put-back claims relating to the inclusion of ineligible loans in securitizations it insured. Only its claims against Credit Suisse remain outstanding. 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. The Company’s settlement amounts on its prior put-back claims have been consistent with the put-back recoveries that had been included in the Company’s financial statements at the times preceding the settlements. Based on the Company’s assessment of the strength of its contractual put-back rights against Credit Suisse, 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. The Company is also entitled to collect interest on amounts paid; it believes that in the 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 relevant facts and circumstances in 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 put-back 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. Refer to “Note 20: Commitments and Contingencies” for further information about the Company’s litigation with Credit Suisse.

CDO Reserves and Recoveries

The Company also has loss and LAE reserves on certain transactions within its CDO portfolio, primarily its multi-sector CDO asset class that was 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).

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.

Zohar Recoveries

MBIA Corp. will seek to recover the payments it made (plus interest and expenses) with respect to Zohar I and Zohar II. MBIA Corp. anticipates that the primary source of the recoverieswill come from the monetization of the Zohar Assets as anticipated in the Zohar Bankruptcy Settlement. Since the second quarter of 2018, the Company no longer consolidates the Zohar funds as VIEs and estimated recoveries from Zohar I and Zohar II are included in “Insurance loss recoverable” on the Company’s consolidated balance sheets. As of December 31, 2017, the fair value of the assets of Zohar I and Zohar II are included in “Loans receivable and other instruments at fair value” under “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets. Refer to “Note 1: Business Developments and Risks and Uncertainties” for additional information about the estimated Zohar recoveries. Notwithstanding the procedures agreed to in the Zohar Bankruptcy Settlement, there can be no assurance that the value of the Zohar Assets will be sufficient to permit MBIA Corp. to recover all or substantially all of the payments it made on Zohar I and Zohar II.

Failure to recover a substantial amount of such payments could impede MBIA Corp.’s ability to make payments when due on other policies. MBIA Corp. believes that if the NYSDFS concludes at any time that MBIA Insurance Corporation will not be able to pay its policyholder claims, the NYSDFS would likely put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the NYIL and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA Insurance Corporation’s policyholders. The determination to commence such a proceeding or take other such actions is within the exclusive control of the NYSDFS.

Summary of Loss and LAE Reserves and Recoveries

The Company’s loss and LAE reserves and recoveries before consolidated VIE eliminations, along with amounts that were eliminated as a result of consolidated VIEs, which are included in the Company’s consolidated balance sheets as of December 31,2018 and 2017 are presented in the following table:

			As of December 31, 2018				As of December 31, 2017
In millions			Balance Sheet Line Item				Balance Sheet Line Item
			Insurance loss recoverable		Loss and LAE reserves		Insurance loss recoverable		Loss and LAE reserves
U.S. Public Finance Insurance			$	571	$	551	$	333	$	512
International and Structured Finance Insurance:
	Before VIE eliminations(1)			1,430		637		1,478		710
	VIE eliminations(1)			(437)		(254)		(1,300)		(243)
		Total international and structured finance insurance		993		383		178		467
	Total		$	1,564	$	934	$	511	$	979
		_________________
		(1) - Includes loan repurchase commitments of $418 million and $407 million as of December 31, 2018 and 2017, respectively.

Changes in Loss and LAE Reserves

The following table presents changes in the Company’s loss and LAE reserves for the years endedDecember 31,2018 and 2017. 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 31,2018, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 2.79%. LAE reserves are generally expected to be settled within a one-year period and are not discounted. As of December 31,2018 and 2017, the Company’s gross loss and LAE reserves included $60 million and $66 million, respectively, related to LAE.

In millions

Changes in Loss and LAE Reserves for the Year Ended December 31, 2018

Gross Loss

Gross Loss

and LAE

Accretion

Changes in

and LAE

Reserves as of

of Claim

Changes in

Unearned

Changes in

Reserves as of

December 31,

Loss

Liability

Discount

Changes in

Premium

LAE

December 31,

2017

Payments

Discount

Rates

Assumptions

Revenue

Reserves

2018

$

979

$

(354)

$

26

$

13

$

261

$

15

$

(6)

$

934

In millions

Changes in Loss and LAE Reserves for the Year Ended December 31, 2017

Gross Loss

Gross Loss

and LAE

Accretion

Changes in

and LAE

Reserves as of

of Claim

Changes in

Unearned

Changes in

Reserves as of

December 31,

Loss

Liability

Discount

Changes in

Premium

LAE

December 31,

2016

Payments(1)

Discount

Rates

Assumptions

Revenue

Reserves

Other(2)

2017

$

541

$

(1,069)

$

12

$

15

$

661

$

(30)

$

6

$

843

$

979

____________

(1) - Includes payments made to satisfy the Zohar II Claim.

(2) - Primarily changes in the amount to satisfy the Zohar II Claim.

The decrease in the Company’s gross loss and LAE reserves during 2018 was primarily related to insured RMBS and other insured financial guarantee transactions, partially offset by additional net incurred losses on certain Puerto Rico exposures.

The increase in the Company’s gross loss and LAE reserves during 2017 was primarily related to increases due to changes in assumptions on certain Puerto Rico exposures.

Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses

CurrentperiodchangesintheCompany’sestimateofpotentialrecoveriesmay berecordedasaninsuranceloss recoverableasset,nettedagainstthegrosslossandLAEreserveliability,or both.The following table presents 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 31,2018 and 2017. 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.

			Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses
			for the Year Ended December 31, 2018
	Gross															Gross
	Reserve															Reserve
	as of				Accretion		Changes in					Changes in				as of
	December 31,		Collections		of		Discount		Changes in			LAE				December 31,
In millions	2017		for Cases		Recoveries		Rates		Assumptions			Recoveries		Other(1)		2018
Insurance loss recoverable	$	511	$	(56)	$	25	$	(13)	$	1,099	(2)	$	-	$	(2)	$	1,564
Recoveries on unpaid losses (3)		35		-		1		(1)		(8)			(8)		-		19
Total	$	546	$	(56)	$	26	$	(14)	$	1,091		$	(8)	$	(2)	$	1,583
____________
(1) - Primarily changes in amount and timing of collections.
(2) - Includes amounts which have been paid and are expected to be recovered in the future.
(3) - Excludes certain Puerto Rico recoveries which have been netted against reserves.

					Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses
					for the Year Ended December 31, 2017
		Gross														Gross
		Reserve														Reserve
		as of				Accretion		Changes in				Changes in				as of
		December 31,		Collections		of		Discount		Changes in		LAE				December 31,
In millions		2016		for Cases		Recoveries		Rates		Assumptions		Recoveries		Other(1)		2017
	Insurance loss recoverable	$	504	$	(124)	$	10	$	2	$	113	$	-	$	6	$	511
	Recoveries on unpaid losses (2)		79		-		1		1		(45)		(1)		-		35
Total		$	583	$	(124)	$	11	$	3	$	68	$	(1)	$	6	$	546
____________
(1) - Primarily changes in amount and timing of collections.
(2) - Excludes certain Puerto Rico recoveries which have been netted against reserves.

The increase in the Company’s insurance loss recoverable during 2018 was primarily due to the re-establishment of recoveries for Zohar I and Zohar II upon deconsolidation during 2018 and anticipated recoveries of claims paid on certain Puerto Rico credits.

The increase in theCompany’sinsuranceloss recoverableduring2017was primarily dueto losses paid on certain Puerto Rico credits offset by a decrease in insured RMBS transactions. The decrease in the RMBS insurance loss recoverable was primarily related to the collection of mortgage insurance from the settlement of litigation involving Old Republic Insurance Corporation and a decrease in expected recoveries from first-lien RMBS transactions. The decrease in the Company’s recoveries on unpaid losses is primarily related to insured RMBS transactions.

Loss and LAE Activity

For 2018, losses and LAE incurred primarily related to increases in expected payments on Puerto Rico exposures, partially offset by a decrease in expected payments on second-lien RMBS transactions and an increase in expected collections from CDOs.

For 2017, losses and LAE primarily related to increases in actual and expected payments on certain Puerto Rico exposures, insured first-lien RMBS transactions and a decrease in actual and projected collections from mortgage insurance included in the Company’s excess spread within its second-lien RMBS transactions from the settlement of litigation regarding insurance coverage involving Old Republic Insurance Corporation, Bank of America, N.A. and the Bank of New York Mellon.

For 2016,loss 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 transactions. 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.

Costs associated with remediating insured obligations assigned to the Company’s surveillance categories are recorded as LAE and are included in “Losses and loss adjustment” expenses on the Company’s consolidated statements of operations. For the years ended2018, 2017 and 2016, gross LAE related to remediating insured obligations were $23 million, $42 million and $48 million, respectively.

Surveillance Categories

Thefollowing table providesinformationaboutthe financial guaranteesand related claimliabilityincluded in each of MBIA’ssurveillance categoriesasofDecember 31,2018:

				Surveillance Categories
				Caution		Caution		Caution
				List		List		List		Classified
$ in millions				Low		Medium		High		List		Total
Number of policies					50		18		-		232		300
Number of issues (1)					16		4		-		101		121
Remaining weighted average contract
	period (in years)				6.7		8.0		-		9.7		8.9
Gross insured contractual payments
	outstanding: (2)
		Principal		$	1,604	$	249	$	-	$	5,353	$	7,206
		Interest			2,118		123		-		5,414		7,655
			Total	$	3,722	$	372	$	-	$	10,767	$	14,861
Gross Claim Liability (3)				$	-	$	-	$	-	$	977	$	977
Less:
	Gross Potential Recoveries (4)				-		-		-		2,255		2,255
	Discount, net (5)				-		-		-		(670)		(670)
Net claim liability (recoverable)				$	-	$	-	$	-	$	(608)	$	(608)
Unearned premium revenue				$	5	$	4	$	-	$	63	$	72
Reinsurance recoverable on paid and unpaid losses (6)												$	21
__________
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments on the insured debt.
(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 exposures are net of expected recoveries for policies in a net payable position.
(4) - Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable position.
(5) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
(6) - Included in "Other assets" on the Company's consolidated balance sheets.

Thefollowing table providesinformationaboutthe financial guaranteesand related claimliabilityincluded in each of MBIA’ssurveillance categoriesasofDecember 31,2017:

				Surveillance Categories
				Caution		Caution		Caution
				List		List		List		Classified
$ in millions				Low		Medium		High		List		Total
Number of policies					89		5		1		280		375
Number of issues (1)					20		4		1		119		144
Remaining weighted average contract
	period (in years)				7.4		4.3		8.7		9.7		8.9
Gross insured contractual payments
	outstanding: (2)
		Principal		$	2,764	$	13	$	104	$	6,083	$	8,964
		Interest			2,676		3		46		5,756		8,481
			Total	$	5,440	$	16	$	150	$	11,839	$	17,445
Gross Claim Liability (3)				$	-	$	-	$	-	$	1,082	$	1,082
Less:
	Gross Potential Recoveries (4)				-		-		-		782		782
	Discount, net (5)				-		-		-		(178)		(178)
Net claim liability (recoverable)				$	-	$	-	$	-	$	478	$	478
Unearned premium revenue				$	9	$	-	$	4	$	77	$	90
Reinsurance recoverable on paid and unpaid losses (6)												$	17
__________
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments on the insured debt.
(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 exposures are net of expected recoveries for policies in a net payable position.
(4) - Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable position.
(5) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
(6) - Included in "Other assets" on the Company's consolidated balance sheets.

The change from a net claim liability as of December 31,2017to a net claim recoverable as of December 31,2018 is due to the deconsolidation of the Zohar funds as VIEs and the recording of estimated recoveries from Zohar I and Zohar II in 2018 within “Insurance loss recoverable” on the Company’s consolidated balance sheet. As of December 31,2017, gross potential recoveries exclude the recoveries of Zohar I and Zohar II that are included in “Loans receivable and other instruments at fair value” which are presented in “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets.