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Outstanding Exposure | 6 Months Ended
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Jun. 30, 2024
Outstanding Exposure Disclosure [Abstract] |
Outstanding Exposure | Outstanding Exposure The Company sells credit protection primarily in financial guaranty insurance form. The Company may also sell credit protection by issuing policies that guarantee payment obligations under credit default swaps (CDS). The Company’s guaranties of CDS are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts. The Company seeks to limit its exposure to losses by underwriting obligations that it views to be investment grade at inception, although on occasion it may underwrite new issuances that it views to be below-investment-grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures. The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies, providing reinsurance on, or novating, a portfolio of insurance; in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction. The Company diversifies its insured portfolio across sector and geography and, in the structured finance portfolio, generally requires subordination or collateral to protect it from loss. Reinsurance may be used in order to reduce net exposure to certain insured transactions. Public finance obligations insured by the Company primarily consist of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, healthcare facilities and government office buildings as well as obligations issued by U.S. and non-U.S. sovereign and sub-sovereign issuers and governmental authorities. Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. Some of these VIEs are consolidated as described in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on these VIEs whether or not they are consolidated. The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form. Surveillance Categories The Company segregates its insured portfolio into investment grade and BIG surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review of each exposure. BIG exposures include all exposures with internal credit ratings below BBB-. The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and generally reflect an approach similar to that employed by the rating agencies, except that the Company’s internal credit ratings focus on future performance rather than lifetime performance. The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector. Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled. For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating. Exposures identified as BIG are subjected to further review to determine the probability of a loss. See Note 4, Expected Loss to be Paid (Recovered). Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid. The Company uses the pre-tax book yield of the relevant subsidiary’s investment portfolio to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction. For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss. More extensive monitoring and intervention are employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will in the future pay claims on that transaction that will not be fully reimbursed. The three BIG surveillance categories are: •BIG 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected. •BIG 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year) have yet been paid. •BIG 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid. Financial Guaranty Exposure The Company measures its financial guaranty exposure in terms of (i) gross and net par outstanding and (ii) gross and net debt service. The Company typically guarantees the payment of debt service when due. Since most of these payments are due in the future, the Company generally uses gross and net par outstanding as a proxy for its financial guaranty exposure. Gross par outstanding generally represents the principal amount of the insured obligation at a point in time. Net par outstanding equals gross par outstanding net of any reinsurance. The Company includes in its par outstanding calculation the impact of any consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date. Non-U.S. dollar denominated par outstanding is translated at the spot rate at the end of the reporting period. The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities). The Company excludes amounts attributable to Loss Mitigation Securities from par and debt service outstanding and instead reports Loss Mitigation Securities in the investment portfolio. The Company manages such securities as investments and not insurance exposure. As of both June 30, 2024 and December 31, 2023, the Company excluded net par outstanding of $1.2 billion attributable to Loss Mitigation Securities. Gross debt service outstanding represents the sum of all estimated future debt service payments on the insured obligations, on an undiscounted basis. Net debt service outstanding equals gross debt service outstanding net of any reinsurance. Future debt service payments include the estimated impact of any consumer price index inflator after the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion after the reporting date. The Company calculates its debt service outstanding as follows: •for insured obligations that are not supported by homogeneous pools of assets (which category includes most of the Company’s public finance transactions), as the total estimated contractual future debt service due through maturity, regardless of whether the obligations may be called and, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, the Company believes the obligations will be repaid prior to contractual maturity; and •for insured obligations that are supported by homogeneous pools of assets that are contractually permitted to prepay principal (which category includes, for example, residential mortgage-backed securities (RMBS)), as the total estimated expected future debt service due on insured obligations through their respective expected terms, which includes the Company’s expectations as to whether the obligations may be called and, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity. The calculation of debt service requires the use of estimates, which the Company updates periodically, including estimates and assumptions for the expected remaining term of insured obligations supported by homogeneous pools of assets, updated interest rates for floating and variable rate insured obligations, behavior of consumer price indices for obligations with consumer price index inflators, foreign exchange rates and other assumptions based on the characteristics of each insured obligation. Debt service is a measure of the estimated maximum potential exposure to insured obligations before considering the Company’s various legal rights to the underlying collateral and other remedies available to it under its financial guaranty contract. Actual debt service may differ from estimated debt service due to refundings, terminations, negotiated restructurings, prepayments, changes in interest rates on variable rate insured obligations, consumer price index behavior differing from that projected, changes in foreign exchange rates on non-U.S. dollar denominated insured obligations and other factors. Financial Guaranty Portfolio Debt Service and Par Outstanding
| As of June 30, 2024 |  | As of December 31, 2023
| Gross |  | Net |  | Gross |  | Net
| (in millions)
Debt Service |  |  |  |  |  |  |
Public finance | $ | 393,346 |  |  | $ | 393,272 |  |  | $ | 386,494 |  |  | $ | 386,419 |
Structured finance | 11,839 |  |  | 11,413 |  |  | 11,543 |  |  | 11,217 |
Total financial guaranty | $ | 405,185 |  |  | $ | 404,685 |  |  | $ | 398,037 |  |  | $ | 397,636 |
Par Outstanding |  |  |  |  |  |  |
Public finance | $ | 244,232 |  |  | $ | 244,176 |  |  | $ | 239,352 |  |  | $ | 239,296 |
Structured finance | 10,646 |  |  | 10,220 |  |  | 10,183 |  |  | 9,857 |
Total financial guaranty | $ | 254,878 |  |  | $ | 254,396 |  |  | $ | 249,535 |  |  | $ | 249,153 |
In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $1.1 billion of public finance gross par and $1.6 billion of structured finance gross par as of June 30, 2024. These commitments are contingent on the satisfaction of all conditions set forth in the guaranties and may expire unused or be canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts. Also, in connection with a potential transaction that would accelerate the run-off of the insured portfolio of Financial Guaranty Insurance Company (FGIC) (the Proposed Transaction) pursuant to the First Amended Plan of Rehabilitation for FGIC, dated June 4, 2013, the Company and FGIC are parties to a novation agreement dated as of February 8, 2024 (the Agreement) pursuant to which certain FGIC policies insuring approximately $353 million of public finance (including infrastructure) gross par and approximately $50 million of structured finance gross par as of December 31, 2023 may in the future be novated to the Company in accordance with the terms and conditions of the Agreement. The Proposed Transaction, including the novation of certain FGIC policies to the Company, is subject in all respects to review and approval by NYDFS, the reopening of FGIC’s rehabilitation proceeding, and ultimate approval by the Supreme Court of the State of New York. In the event the Proposed Transaction does not occur on or prior to September 30, 2025, either the Company or FGIC has the right to terminate the Agreement in accordance with its terms. Financial Guaranty Portfolio by Internal Rating As of June 30, 2024
|  | Public Finance U.S. |  | Public Finance Non-U.S. |  | Structured Finance U.S |  | Structured Finance Non-U.S |  | Total
Rating Category |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | %
|  | (dollars in millions)
AAA |  | $ | 27 |  |  | — | % |  | $ | 2,066 |  |  | 4.2 | % |  | $ | 682 |  |  | 7.8 | % |  | $ | 445 |  |  | 30.5 | % |  | $ | 3,220 |  |  | 1.2 | %
AA |  | 18,100 |  |  | 9.3 |  |  | 3,164 |  |  | 6.3 |  |  | 5,623 |  |  | 64.2 |  |  | 74 |  |  | 5.0 |  |  | 26,961 |  |  | 10.6 |
A |  | 106,415 |  |  | 54.7 |  |  | 13,437 |  |  | 27.1 |  |  | 902 |  |  | 10.3 |  |  | 853 |  |  | 58.4 |  |  | 121,607 |  |  | 47.8 |
BBB |  | 66,561 |  |  | 34.2 |  |  | 29,831 |  |  | 60.2 |  |  | 625 |  |  | 7.1 |  |  | 89 |  |  | 6.1 |  |  | 97,106 |  |  | 38.2 |
BIG |  | 3,490 |  |  | 1.8 |  |  | 1,085 |  |  | 2.2 |  |  | 927 |  |  | 10.6 |  |  | — |  |  | — |  |  | 5,502 |  |  | 2.2 |
Total net par outstanding |  | $ | 194,593 |  |  | 100.0 | % |  | $ | 49,583 |  |  | 100.0 | % |  | $ | 8,759 |  |  | 100.0 | % |  | $ | 1,461 |  |  | 100.0 | % |  | $ | 254,396 |  |  | 100.0 | %
Financial Guaranty Portfolio by Internal Rating As of December 31, 2023
|  | Public Finance U.S. |  | Public Finance Non-U.S. |  | Structured Finance U.S |  | Structured Finance Non-U.S |  | Total
Rating Category |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | %
|  | (dollars in millions)
AAA |  | $ | 110 |  |  | 0.1 | % |  | $ | 2,062 |  |  | 4.2 | % |  | $ | 867 |  |  | 10.0 | % |  | $ | 465 |  |  | 38.0 | % |  | $ | 3,504 |  |  | 1.4 | %
AA |  | 17,883 |  |  | 9.4 |  |  | 3,379 |  |  | 6.9 |  |  | 4,517 |  |  | 52.3 |  |  | 89 |  |  | 7.3 |  |  | 25,868 |  |  | 10.4 |
A |  | 102,945 |  |  | 54.1 |  |  | 12,968 |  |  | 26.5 |  |  | 1,639 |  |  | 19.0 |  |  | 571 |  |  | 46.6 |  |  | 118,123 |  |  | 47.4 |
BBB |  | 66,080 |  |  | 34.7 |  |  | 29,467 |  |  | 60.1 |  |  | 574 |  |  | 6.7 |  |  | 100 |  |  | 8.1 |  |  | 96,221 |  |  | 38.6 |
BIG |  | 3,271 |  |  | 1.7 |  |  | 1,131 |  |  | 2.3 |  |  | 1,035 |  |  | 12.0 |  |  | — |  |  | — |  |  | 5,437 |  |  | 2.2 |
Total net par outstanding |  | $ | 190,289 |  |  | 100.0 | % |  | $ | 49,007 |  |  | 100.0 | % |  | $ | 8,632 |  |  | 100.0 | % |  | $ | 1,225 |  |  | 100.0 | % |  | $ | 249,153 |  |  | 100.0 | %
Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of June 30, 2024
| BIG Net Par Outstanding |  | Net Par
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |  | Outstanding
|  |  |  |  | (in millions) |  |  |  |
Public finance: |  |  |  |  |  |  |  |  |
U.S. public finance | $ | 1,594 |  |  | $ | 952 |  |  | $ | 944 |  |  | $ | 3,490 |  |  | 194,593 |
Non-U.S. public finance | 560 |  |  | 525 |  |  | — |  |  | 1,085 |  |  | 49,583 |
Public finance | 2,154 |  |  | 1,477 |  |  | 944 |  |  | 4,575 |  |  | 244,176 |
Structured finance: |  |  |  |  |  |  |  |  |
U.S. RMBS | 16 |  |  | 29 |  |  | 800 |  |  | 845 |  |  | 1,585 |
Other structured finance | — |  |  | 23 |  |  | 59 |  |  | 82 |  |  | 8,635 |
Structured finance | 16 |  |  | 52 |  |  | 859 |  |  | 927 |  |  | 10,220 |
Total | $ | 2,170 |  |  | $ | 1,529 |  |  | $ | 1,803 |  |  | $ | 5,502 |  |  | $ | 254,396 |
Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of December 31, 2023
| BIG Net Par Outstanding |  | Net Par
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |  | Outstanding
|  |  |  |  | (in millions) |  |  |  |
Public finance: |  |  |  |  |  |  |  |  |
U.S. public finance | $ | 1,257 |  |  | $ | 926 |  |  | $ | 1,088 |  |  | $ | 3,271 |  |  | $ | 190,289 |
Non-U.S. public finance | 1,131 |  |  | — |  |  | — |  |  | 1,131 |  |  | 49,007 |
Public finance | 2,388 |  |  | 926 |  |  | 1,088 |  |  | 4,402 |  |  | 239,296 |
Structured finance: |  |  |  |  |  |  |  |  |
U.S. RMBS | 22 |  |  | 36 |  |  | 883 |  |  | 941 |  |  | 1,774 |
Other structured finance | — |  |  | 27 |  |  | 67 |  |  | 94 |  |  | 8,083 |
Structured finance | 22 |  |  | 63 |  |  | 950 |  |  | 1,035 |  |  | 9,857 |
Total | $ | 2,410 |  |  | $ | 989 |  |  | $ | 2,038 |  |  | $ | 5,437 |  |  | $ | 249,153 |
Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of June 30, 2024
|  | Net Par Outstanding |  | Number of Risks (2)
Description |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total
|  | (dollars in millions)
BIG 1 |  | $ | 2,159 |  |  | $ | 11 |  |  | $ | 2,170 |  |  | 90 |  |  | 1 |  |  | 91 |
BIG 2 |  | 1,526 |  |  | 3 |  |  | 1,529 |  |  | 14 |  |  | 1 |  |  | 15 |
BIG 3 |  | 1,783 |  |  | 20 |  |  | 1,803 |  |  | 108 |  |  | 5 |  |  | 113 |
Total BIG |  | $ | 5,468 |  |  | $ | 34 |  |  | $ | 5,502 |  |  | 212 |  |  | 7 |  |  | 219 |
Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of December 31, 2023
|  | Net Par Outstanding |  | Number of Risks (2)
Description |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total
|  | (dollars in millions)
BIG 1 |  | $ | 2,394 |  |  | $ | 16 |  |  | $ | 2,410 |  |  | 95 |  |  | 2 |  |  | 97 |
BIG 2 |  | 979 |  |  | 10 |  |  | 989 |  |  | 13 |  |  | 2 |  |  | 15 |
BIG 3 |  | 2,010 |  |  | 28 |  |  | 2,038 |  |  | 109 |  |  | 7 |  |  | 116 |
Total BIG |  | $ | 5,383 |  |  | $ | 54 |  |  | $ | 5,437 |  |  | 217 |  |  | 11 |  |  | 228 |
_____________________ (1) Includes FG VIEs. (2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments. Exposure to Puerto Rico All of the Company’s insured exposure to various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) is rated BIG. As of June 30, 2024, the Company’s only remaining outstanding insured Puerto Rico exposure subject to a payment default was the Puerto Rico Electric Power Authority (PREPA). Puerto Rico Par and Debt Service Schedules The following tables show the Company’s insured exposure to various authorities and public corporations of Puerto Rico. Puerto Rico Gross Par and Gross Debt Service Outstanding
| Gross Par Outstanding |  | Gross Debt Service Outstanding
| As of |  | As of
| June 30, 2024 |  | December 31, 2023 |  | June 30, 2024 |  | December 31, 2023
| (in millions)
Exposure to Puerto Rico | $ | 976 |  |  | $ | 1,120 |  |  | $ | 1,268 |  |  | $ | 1,526 |
Puerto Rico Net Par Outstanding
| As of
| June 30, 2024 |  | December 31, 2023
| (in millions)
Defaulted Puerto Rico Exposures |  |  |
PREPA | $ | 624 |  |  | $ | 624 |
Total Defaulted | 624 |  |  | 624 |
Resolved Puerto Rico Exposures (1) |  |  |
Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue) | 204 |  |  | 244 |
PRHTA (Highway revenue) | 24 |  |  | 128 |
Total Resolved | 228 |  |  | 372 |
Non-Defaulting Puerto Rico Exposures (2) |  |  |
Municipal Finance Agency (MFA) | 108 |  |  | 108 |
Puerto Rico Aqueduct and Sewer Authority (PRASA) and University of Puerto Rico (U of PR) | 1 |  |  | 1 |
Total Non-Defaulting | 109 |  |  | 109 |
Total net exposure to Puerto Rico | $ | 961 |  |  | $ | 1,105 |
____________________ (1) Resolved pursuant to the 2022 Puerto Rico Resolutions (as defined below). All of the Toll Bonds (as defined below) received from the PRHTA under the 2022 Puerto Rico Resolutions for the insured PRHTA bonds have been sold or redeemed; therefore, the remaining amounts owed for the insured PRHTA bonds are payable in full by the Company’s insurance subsidiaries under their financial guaranty policies and are no longer dependent on the credit of the PRHTA. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. (2) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company. The following table shows the scheduled amortization of the obligations of the Puerto Rico authorities and public corporations that the Company insures. The Company guarantees payment of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors. Amortization Schedule of Puerto Rico Net Par Outstanding and Net Debt Service Outstanding As of June 30, 2024
| Scheduled Net Par Amortization |  | Scheduled Net Debt Service Amortization
| (in millions)
2024 (July 1 - September 30) | $ | 110 |  |  | $ | 131 |
2024 (October 1 - December 31) | — |  |  | 3 |
Subtotal 2024 | 110 |  |  | 134 |
2025 | 84 |  |  | 124 |
2026 | 140 |  |  | 177 |
2027 | 120 |  |  | 151 |
2028 | 81 |  |  | 106 |
2029-2033 | 197 |  |  | 282 |
2034-2038 | 132 |  |  | 170 |
2039-2041 | 97 |  |  | 106 |
Total | $ | 961 |  |  | $ | 1,250 |
PREPA As of June 30, 2024 and December 31, 2023, the Company’s net par outstanding on insured PREPA obligations was $624 million. The PREPA bonds are secured by a lien on the net revenues of the electric system. The default of PREPA’s obligations has been the subject of restructuring negotiations, mediation and litigation since 2014. On April 8, 2022, the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) issued an order appointing three U.S. Bankruptcy Judges as members of a PREPA mediation team. The Federal District Court of Puerto Rico also entered a separate order establishing the terms and conditions of mediation. The Financial Oversight and Management Board (the FOMB) which was established under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) filed an initial plan of adjustment and disclosure statement for PREPA with the Federal District Court of Puerto Rico on December 16, 2022. On March 22, 2023, the Federal District Court of Puerto Rico held that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control but did not have a lien on future revenues until deposited in those funds. The Federal District Court of Puerto Rico also held, however, that PREPA bondholders do have recourse under the PREPA trust agreement in the form of an unsecured net revenue claim. At that time, the Federal District Court of Puerto Rico declined to value the unsecured net revenue claim or the method for its determination. The ultimate value of the claim, according to the Federal District Court of Puerto Rico, should be determined through a claim estimation proceeding. On June 26, 2023 the Federal District Court of Puerto Rico issued an opinion and order estimating the unsecured net revenue claim to be $2.4 billion as of July 3, 2017. Subject to their appeal of the Federal District Court of Puerto Rico’s ruling on the scope of lien, PREPA bondholders had sought an unsecured net revenue claim of approximately $8.5 billion. On November 17, 2023, the Federal District Court of Puerto Rico approved the supplemental disclosure statement (Supplemental Disclosure Statement) supporting the PREPA plan of adjustment filed by the FOMB (as amended or modified from time to time). On February 16, 2024, FOMB filed with the Federal District Court of Puerto Rico its most recent plan of adjustment for PREPA, the Modified Fourth Amended Title III Plan of Adjustment (FOMB PREPA Plan). The Supplemental Disclosure Statement and the FOMB PREPA Plan are based on the last revised PREPA fiscal plan certified by the FOMB on June 23, 2023. The confirmation hearing for the FOMB PREPA Plan occurred in March 2024. At the end of the hearing, the Federal District Court of Puerto Rico stated that it was taking the confirmation of the FOMB PREPA Plan under advisement and gave no indication of timing for an opinion or order. On November 28, 2023, the Federal District Court of Puerto Rico finally adjudicated all claims and counterclaims in the PREPA lien challenge adversary proceeding. On November 30, 2023, the Company filed a notice of appeal with the United States Court of Appeals for the First Circuit (First Circuit) for portions of the March 22, 2023 decision, including the lien scope ruling and the need for a claim estimation proceeding, as well as the June 26, 2023 claim estimation ruling. On January 29, 2024, the First Circuit heard oral arguments for the Company’s appeals. On June 12, 2024, the First Circuit issued its opinion on the appeal, holding that bondholders have a claim against PREPA for the full principal amount of the bonds, plus matured interest, that there was no need for a claim estimation proceeding because the PREPA bonds specify the amount that PREPA legally owes bondholders, and that the claim is secured by PREPA’s net revenues, including future net revenues. On July 10, 2024, the Federal District Court of Puerto Rico ordered FOMB and bondholders to resume mediation and instituted a 60-day stay of all FOMB PREPA Plan litigation. The Federal District Court of Puerto Rico most recently extended the term of mediation on July 30, 2024, extending the term to October 31, 2024. Resolved Puerto Rico Exposures In 2022, as a result of the resolution of the Company’s exposure to insured Puerto Rico credits experiencing payment default other than PREPA (2022 Puerto Rico Resolutions), the Company received cash, new general obligation bonds (New GO Bonds), new bonds backed by toll revenues (Toll Bonds, and together with New GO Bonds, New Recovery Bonds) and contingent value instruments (CVIs). The CVIs are intended to provide creditors with additional recoveries tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps. Cash, New Recovery Bonds and CVIs received pursuant to the 2022 Puerto Rico Resolutions are collectively referred to as Plan Consideration. As of June 30, 2024, all but $221 million in CVIs (at fair value) had been sold or redeemed. As of June 30, 2024, remaining CVIs are reported in fixed-maturity securities, trading. See Note 7, Investments. The Company may sell in the future any CVIs it continues to hold. As of June 30, 2024, the Company had $228 million of insured net par outstanding of legacy PRHTA bonds. This net par outstanding primarily represents the Company’s exposure in respect of legacy insured PRHTA bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus Plan Consideration, as described below. The remaining amounts owed for insured PRHTA bonds are payable in full by the Company’s insurance subsidiaries under their financial guaranty policies and are no longer dependent on the credit of PRHTA. The Company consolidates the trusts in which the PRHTA obligations are reported. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Certain insured bondholders elected to receive custody receipts representing an interest in custodial trusts that hold the legacy insurance policy plus Plan Consideration that were reported in FG VIEs’ assets at the time of the receipt. The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates. Non-Defaulting Puerto Rico Exposures As of June 30, 2024 and December 31, 2023, the Company had $109 million of remaining non-defaulting Puerto Rico net par outstanding related primarily to the MFA. The MFA exposures are secured by a lien on local tax revenues and remain current on debt service payments. Puerto Rico Litigation Currently, there are numerous legal actions relating to the default by the Commonwealth of Puerto Rico and certain of its instrumentalities on debt service payments, and related matters, and the Company is a party to a number of them. The Company has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to the remaining Puerto Rico obligations it still insures. In addition, the Commonwealth, the FOMB and others have taken legal action naming the Company as party. Certain legal actions involving the Company and relating to the Commonwealth, Puerto Rico Convention Center District Authority, Puerto Rico Infrastructure Financing Authority or PRHTA, were resolved on March 15, 2022, and all remaining legal actions involving the Company and relating to PRHTA were resolved on December 6, 2022, in connection with the 2022 Puerto Rico Resolutions. There remains one active proceeding related to PREPA, while there are a number of unresolved proceedings involving the Company and relating to the default by the Commonwealth or its instrumentalities that remain stayed pending the Federal District Court of Puerto Rico’s determination on the PREPA plan of adjustment. See Outstanding Exposure, Exposure to Puerto Rico, for a description of the PREPA proceeding. The unresolved proceedings initiated in the Federal District Court of Puerto Rico involving the Company and relating to the default by the Commonwealth or its instrumentalities that remain stayed pending the Federal District Court of Puerto Rico’s determination on the FOMB PREPA Plan are: •U.S. Insurance Subsidiaries motion to compel the FOMB to certify the PREPA restructuring support agreement executed in May 2019 (PREPA RSA) for implementation under Title VI of PROMESA. •U.S. Insurance Subsidiaries motion to dismiss PREPA’s Title III Bankruptcy proceeding or, in the alternative, to lift the PROMESA automatic stay to allow for the appointment of a receiver. •Adversary complaint by certain fuel line lenders of PREPA against the U.S. Insurance Subsidiaries, among other parties, including various PREPA bondholders and bond insurers, seeking, among other things, declarations that there is no valid lien securing the PREPA bonds unless and until such lenders are paid in full, as well as orders subordinating the PREPA bondholders’ lien and claims to such lenders’ claims, and declaring the PREPA RSA null and void. •U.S. Insurance Subsidiaries motion to intervene in lawsuit by the retirement system for PREPA employees against, among others, the FOMB, PREPA, the Commonwealth, and the trustee for PREPA bondholders seeking, among other things, declarations that there is no valid lien securing the PREPA bonds other than on amounts in the sinking funds, and order subordinating the PREPA bondholders’ lien and claim to the PREPA employees’ claims. Specialty Business The Company also guarantees specialty business with risk profiles similar to those of its structured finance exposures written in financial guaranty form. Specialty Business
|  | As of June 30, 2024 |  | As of December 31, 2023
|  | Gross Exposure |  | Net Exposure |  | Gross Exposure |  | Net Exposure
|  | (in millions)
Insurance securitizations (1) |  | $ | 1,430 |  |  | $ | 1,099 |  |  | $ | 1,370 |  |  | $ | 1,043 |
Diversified real estate (2) |  | 1,498 |  |  | 1,498 |  |  | 1,569 |  |  | 1,569 |
Pooled corporate obligations |  | 796 |  |  | 796 |  |  | 488 |  |  | 488 |
Aircraft residual value insurance |  | 308 |  |  | 177 |  |  | 355 |  |  | 200 |
____________________ (1) Insurance securitizations exposure is projected to reach $1.6 billion gross in 2026 and $1.3 billion net in 2027. (2) Excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties with an internal rating of AA that matures in 2042. This guaranty is accounted for in accordance with Accounting Standards Codification (ASC) 460, Guarantees. All exposures in the table above are rated investment-grade, except gross exposure of $144 million and net exposure of $84 million of aircraft residual value insurance as of both June 30, 2024 and December 31, 2023.

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- Definition The entity's insurance policies and credit derivative contracts guarantee the scheduled payments of principal and interest ("Debt Service") on public finance and structured finance obligations. Outstanding Exposure includes outstanding par and/or debt service amounts, including outstanding exposures on VIE's whether or not they are consolidated under US GAAP, on credits that are guaranteed by the entity. + References No definition available. + Details
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