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Note 9 - Financial Guaranty Insurance Contracts Level 1 (Notes)
9 Months Ended
Sep. 30, 2011
Financial Guaranty Insurance Contracts [Abstract] 
Financial Guarantee Insurance Contracts [Text Block]
Financial Guaranty Insurance Contracts
The following table includes information as of September 30, 2011, regarding our financial guaranty claim liabilities, segregated by the surveillance categories that we use in monitoring the risks related to these contracts:
 
 
Surveillance Categories
($ in millions)
Performing
 
Special
Mention
 
Intensified
Surveillance
 
Case
Reserve
 
Total
Number of policies
15

 
133

 
60

 
101

 
309

Remaining weighted-average contract period (in years)
23

 
18

 
22

 
27

 
21

Insured contractual payments outstanding:
 
 
 
 
 
 
 
 
 
Principal
$
60.5

 
$
995.6

 
$
383.3

 
$
364.8

 
$
1,804.2

Interest
13.2

 
521.9

 
212.4

 
180.8

 
928.3

Total
$
73.7

 
$
1,517.5

 
$
595.7

 
$
545.6

 
$
2,732.5

Gross claim liability
$
0.4

 
$
15.3

 
$
122.9

 
$
91.5

 
$
230.1

Less:
 
 
 
 
 
 
 
 
 
Gross potential recoveries
—

 
0.5

 
69.2

 
83.5

 
153.2

Discount, net
0.1

 
3.7

 
15.6

 
2.1

 
21.5

Net claim liability
$
0.3

 
$
11.1

 
$
38.1

 
$
5.9

 
$
55.4

Unearned premium revenue
$
0.2

 
$
24.9

 
$
7.9

 
$
—

 
$
33.0

Claim liability reported in the balance sheet
$
0.2

 
$
3.3

 
$
32.1

 
$
5.9

 
$
41.5

Reinsurance recoverables
$
—

 
$
—

 
$
—

 
$
—

 
$
—


A claim liability is established for a performing credit if the expected loss on the credit exceeds the unearned premium revenue for the contract based on the present value of the expected net cash outflows. Included in accounts and notes receivable and unearned premiums on our condensed consolidated balance sheets are the present value of premiums receivable and unearned premiums that are received on an installment basis. The premiums receivable is net of commissions on assumed reinsurance business. The present values of premiums receivable and unearned premiums that are received on an installment basis are $35.7 million and $41.2 million, respectively, as of September 30, 2011, and $44.0 million and $60.5 million, respectively, as of December 31, 2010.

The accretion of these balances is included either in premiums written and premiums earned (for premiums receivable) or policy acquisition costs (for commissions) on our condensed consolidated statements of operations. The accretion included in premiums earned for the three and nine months ended September 30, 2011, was $0.3 million and $0.9 million, respectively, compared to $0.4 million and $1.2 million, respectively, for the comparable periods of 2010. There was an immaterial amount of accretion recorded in policy acquisition costs for the three and nine months ended September 30, 2011 and 2010.
The nominal (non-discounted) premiums, net of commissions that are expected to be collected on financial guaranty contracts with installment premiums, included in premiums receivable as of September 30, 2011, was $45.1 million and is expected to be collected on a declining basis due to no new business being written. The activity related to the net present value of premiums receivable during the three and nine months ended September 30, 2011 and 2010, was not material. The weighted-average risk-free rate used to discount the premiums receivable and premiums to be collected was 2.6% at September 30, 2011.
 
Premiums earned have been accelerated as a result of refundings, which were $4.6 million and $18.7 million, respectively, for the three and nine month periods ending September 30, 2011, compared to $8.6 million and $28.3 million, respectively, for the corresponding periods of 2010. The following table shows the expected contractual premium revenue from our existing financial guaranty portfolio, assuming no prepayments or refundings of any financial guaranty obligations, as of September 30, 2011:
 
(In millions)
Ending Net
Unearned
Premiums
 
Unearned
Premium
Amortization
 
Accretion
 
Total
Premium
Revenue
Fourth Quarter 2011
$
411.5

 
$
10.4

 
$
0.3

 
$
10.7

2011
411.5

 
10.4

 
0.3

 
10.7

2012
375.9

 
35.6

 
1.1

 
36.7

2013
341.1

 
34.8

 
1.0

 
35.8

2014
307.9

 
33.2

 
0.9

 
34.1

2015
278.2

 
29.7

 
0.8

 
30.5

2011 – 2015
278.2

 
143.7

 
4.1

 
147.8

2016 – 2020
159.7

 
118.5

 
3.3

 
121.8

2021 – 2025
79.3

 
80.4

 
2.1

 
82.5

2026 – 2030
33.1

 
46.2

 
1.3

 
47.5

After 2030
—

 
33.1

 
1.6

 
34.7

Total
$
—

 
$
421.9

 
$
12.4

 
$
434.3


The following table shows the significant components of the change in our financial guaranty claim liability for the periods indicated: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2011
 
2010
 
2011
 
2010
Claim liability at beginning of period
$
70.8

 
$
119.3

 
$
67.4

 
$
121.8

Incurred losses and LAE:
 
 
 
 
 
 
 
Increase in gross claim liability
15.0

 
1.7

 
56.7

 
75.6

Increase in gross potential recoveries
(50.7
)
 
(7.3
)
 
(83.9
)
 
(53.2
)
Decrease/(increase) in discount
8.4

 
4.8

 
2.6

 
(2.3
)
Decrease/(increase) in unearned premiums
0.3

 
(2.7
)
 
4.3

 
(0.7
)
Incurred losses and LAE
(27.0
)
 
(3.5
)
 
(20.3
)
 
19.4

Paid losses and LAE
(2.3
)
 
(31.5
)
 
(5.6
)
 
(56.9
)
Claim liability at end of period
$
41.5

 
$
84.3

 
$
41.5

 
$
84.3

Components of incurred losses and LAE:

 
 
 
 
 
 
Claim liability established in current period
$
1.0

 
$
1.1

 
$
1.0

 
$
2.3

Changes in existing claim liabilities
(28.0
)
 
(4.6
)
 
(21.3
)
 
17.1

Total incurred losses and LAE
$
(27.0
)
 
$
(3.5
)
 
$
(20.3
)
 
$
19.4

Components of decrease/(increase) in discount:
 
 
 
 
 
 
 
Decrease/(increase) in discount related to claim liabilities established in current period
$
1.2

 
$
(2.1
)
 
$
1.1

 
$
(4.4
)
Decrease in discount related to existing claim liabilities
7.2

 
6.9

 
1.5

 
2.1

Total decrease/(increase) in discount
$
8.4

 
$
4.8

 
$
2.6

 
$
(2.3
)

Our financial guaranty loss reserve estimate involves significant judgment surrounding the estimated probability of the likelihood, magnitude and timing of each potential loss based upon different loss scenarios. The probabilities, assumptions and estimates we use to establish our financial guaranty loss reserves are subject to uncertainties, particularly given the current economic and credit environments, including uncertainties regarding our public finance municipal exposures and international sovereign risk exposures. We continue to monitor the uncertainties surrounding our portfolio, and it is possible that the actual losses paid could differ materially from our present estimates.
The weighted-average risk-free rates used to discount the gross claim liability and gross potential recoveries were as follows as of the dates indicated:
 
December 31, 2009
4.34
%
June 30, 2010
3.88
%
September 30, 2010
3.16
%
December 31, 2010
3.69
%
June 30, 2011
3.97
%
September 30, 2011
3.28
%