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Contracts Accounted for as Insurance

9 Months Ended

Sep. 30, 2023

Contracts Accounted for as InsuranceThe portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives and consolidated FG VIEs. Amounts presented in this note relate only to contracts accounted for as insurance, unless otherwise specified. See Note 6, Contracts Accounted for as Credit Derivatives, for amounts related to CDS and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as consolidated FG VIEs.

Premiums

Net Earned Premiums


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Financial guaranty insurance:
Scheduled net earned premiums	$	73	$	70	$	212	$	219
Accelerations from refundings and terminations (1)	14		12		26		145
Accretion of discount on net premiums receivable	7		6		20		18
Financial guaranty insurance net earned premiums	94		88		258		382
Specialty net earned premiums	1		1		3		3
Net earned premiums	$	95	$	89	$	261	$	385

____________________

(1) Nine months 2022 accelerations included $104 million related to PRCCDA, PRIFA and GO/PBA exposures. See Note 3, Outstanding Exposure.

Gross Premium Receivable,

Net of Commissions Payable on Assumed Business

Roll Forward


	Nine Months
	2023		2022
	(in millions)
Beginning of year	$	1,298	$	1,372
Less: Specialty insurance premium receivable	1		1
Financial guaranty insurance premiums receivable	1,297		1,371
Gross written premiums on new business, net of commissions	215		232
Gross premiums received, net of commissions	(170)		(258)
Adjustments:
Changes in the expected term and debt service assumptions	4		(5)
Accretion of discount, net of commissions on assumed business	20		18
Foreign exchange gain (loss) on remeasurement	9		(181)
Financial guaranty insurance premium receivable	1,375		1,177
Specialty insurance premium receivable	1		1
September 30,	$	1,376	$	1,178

Approximately 70% and 74% of gross premiums receivable, net of commissions payable, at September 30, 2023 and December 31, 2022, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro.

The timing and cumulative amount of actual collections and net earned premiums may differ from those of expected collections and of expected net earned premiums in the table below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations, restructurings, changes in the consumer price indices, changes in expected lives and new business.

Financial Guaranty Insurance

Expected Future Premium Collections and Earnings


	As of September 30, 2023
	Future Gross Premiums to be Collected (1)		Future Net Premiums to be Earned (2)
	(in millions)
2023 (October 1 - December 31)	$	45	$	72
2024	134		277
2025	104		259
2026	100		243
2027	97		230
2028-2032	402		958
2033-2037	264		635
2038-2042	182		390
After 2042	360		537
Total	$	1,688	3,601
Future accretion			313
Total future net earned premiums			$	3,914

____________________

(1) Net of assumed commissions payable.

(2) Net of reinsurance.

Selected Information for Financial Guaranty Insurance Policies with Premiums Paid in Installments


	As of
	September 30, 2023		December 31, 2022
	(dollars in millions)
Premiums receivable, net of commissions payable	$	1,375	$	1,297
Deferred premium revenue	1,702		1,663
Weighted-average risk-free rate used to discount premiums	1.9%		1.8%
Weighted-average period of premiums receivable (in years)	12.2		12.9

Losses and Recoveries

Loss reserves and salvage are discounted at risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 4.51% to 5.45% with a weighted average of 4.86% as of September 30, 2023 and 3.82% to 4.69% with a weighted average of 4.15% as of December 31, 2022.

The following tables provide information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance.

Net Reserve (Salvage) by Sector


	As of
Sector	September 30, 2023		December 31, 2022
	(in millions)
Public finance:
U.S. public finance	$	123	$	71
Non-U.S. public finance	1		1
Public finance	124		72
Structured finance:
U.S. RMBS	(89)		(77)
Other structured finance	42		42
Structured finance	(47)		(35)
Total	$	77	$	37

The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed. Expected loss to be paid (recovered) for financial guaranty insurance contracts differs from expected loss to be expensed due to: (i) the contra-paid, which represents the claim payments made and recoveries received that have not yet been recognized in the statements 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 (Recovered)

to Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts


	As of September 30, 2023
	(in millions)
Net expected loss to be paid (recovered) - financial guaranty insurance	$	249
Contra-paid, net	21
Salvage and subrogation recoverable, net	281
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(355)
Net expected loss to be expensed (present value)	$	196

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 September 30, 2023
	(in millions)
2023 (October 1 - December 31)	$	2
2024	13
2025	12
2026	15
2027	16
2028-2032	63
2033-2037	49
2038-2042	13
After 2042	13
Net expected loss to be expensed	196
Future accretion	39
Total expected future loss and LAE	$	235

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

Loss and LAE (Benefit) by Sector


	Third Quarter				Nine Months
Sector	2023		2022		2023		2022
	(in millions)
Public finance:
U.S. public finance	$	134	$	1	$	186	$	67
Non-U.S. public finance	—		—		—		—
Public finance	134		1		186		67
Structured finance:
U.S. RMBS	(35)		(78)		$	(31)	$	(97)
Other structured finance	1		2		4		1
Structured finance	(34)		(76)		(27)		(96)
Loss and LAE (benefit)	$	100	$	(75)	$	159	$	(29)

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of September 30, 2023


	Gross								Net Total BIG
	BIG 1		BIG 2		BIG 3		Total BIG
	(dollars in millions)
Number of risks (1)	102		13		109		224		224
Remaining weighted-average period (in years)	9.8		16.1		7.7		10.2		10.2

Outstanding exposure:
Par	$	2,121	$	980	$	2,033	$	5,134	$	5,119
Interest	1,125		922		824		2,871		2,867
Total (2)	$	3,246	$	1,902	$	2,857	$	8,005	$	7,986

Expected cash outflows (inflows)	$	113	$	180	$	1,621	$	1,914	$	1,903
Potential recoveries (3)	(324)		(78)		(1,223)		(1,625)		(1,615)
Subtotal	(211)		102		398		289		288
Discount	60		(25)		(74)		(39)		(39)
Expected losses to be paid (recovered)	$	(151)	$	77	$	324	$	250	$	249

Deferred premium revenue	$	96	$	64	$	146	$	306	$	306
Reserves (salvage)	$	(178)	$	37	$	215	$	74	$	74

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2022


	Gross								Net Total BIG
	BIG 1		BIG 2		BIG 3		Total BIG
	(dollars in millions)
Number of risks (1)	122		14		111		247		247
Remaining weighted-average period (in years)	11.3		8.7		7.6		9.8		9.8

Outstanding exposure:
Par	$	3,363	$	171	$	2,318	$	5,852	$	5,835
Interest	2,177		77		894		3,148		3,144
Total (2)	$	5,540	$	248	$	3,212	$	9,000	$	8,979

Expected cash outflows (inflows)	$	128	$	121	$	1,771	$	2,020	$	2,008
Potential recoveries (3)	(294)		(79)		(1,364)		(1,737)		(1,725)
Subtotal	(166)		42		407		283		283
Discount	35		(13)		(104)		(82)		(82)
Expected losses to be paid (recovered)	$	(131)	$	29	$	303	$	201	$	201

Deferred premium revenue	$	170	$	15	$	160	$	345	$	345
Reserves (salvage)	$	(174)	$	21	$	186	$	33	$	33

____________________

(1) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.

(2)Includes amounts related to FG VIEs.

(3)Represents expected inflows from future payments by obligors pursuant to restructuring agreements, settlements, excess spread on any underlying collateral and other estimated recoveries. Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past.