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Note 10 - Financial Guaranty Insurance Contracts (Notes) | 6 Months Ended
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Jun. 30, 2014
Financial Guaranty Insurance Contracts [Abstract] |
Financial Guarantee Insurance Contracts | Financial Guaranty Insurance Contracts The following table includes information as of June 30, 2014 regarding our financial guaranty claim liabilities on non-derivative transactions, segregated by the surveillance categories that we use in monitoring the risks related to these contracts:
| Surveillance Categories
($ in thousands) | Performing |  | Special Mention |  | Intensified Surveillance |  | Case Reserve |  | Total
Number of policies | 5 |  |  | 173 |  |  | 97 |  |  | 79 |  |  | 354 |
Remaining weighted-average contract period (in years) | 21 |  |  | 16 |  |  | 19 |  |  | 18 |  |  | 17 |
Insured contractual payments outstanding: |  |  |  |  |  |  |  |  |
Principal | $ | 1,443 |  |  | $ | 1,018,341 |  |  | $ | 681,284 |  |  | $ | 93,356 |  |  | $ | 1,794,424 |
Interest | 159 |  |  | 536,743 |  |  | 384,351 |  |  | 25,376 |  |  | 946,629 |
Total | $ | 1,602 |  |  | $ | 1,555,084 |  |  | $ | 1,065,635 |  |  | $ | 118,732 |  |  | $ | 2,741,053 |
Gross claim liability | $ | 1 |  |  | $ | 16,543 |  |  | $ | 246,341 |  |  | $ | 32,031 |  |  | $ | 294,916 |
Less: |  |  |  |  |  |  |  |  |
Gross potential recoveries | — |  |  | 1,442 |  |  | 309,894 |  |  | 54,512 |  |  | 365,848 |
Discount, net | — |  |  | 2,414 |  |  | (120,205 | ) |  | (612 | ) |  | (118,403 | )
Net claim liability (asset) (prior to reduction for unearned premium) | $ | 1 |  |  | $ | 12,687 |  |  | $ | 56,652 |  |  | $ | (21,869 | ) |  | $ | 47,471 |
Unearned premium revenue | $ | 6 |  |  | $ | 16,125 |  |  | $ | 10,673 |  |  | $ | — |  |  | $ | 26,804 |
Net claim liability (asset) reported in the balance sheet | $ | — |  |  | $ | 5,212 |  |  | $ | 49,516 |  |  | $ | (21,869 | ) |  | $ | 32,859 |
Reinsurance recoverables | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
A net claim liability is established for a performing credit if there is evidence that credit deterioration has occurred and the expected loss on the credit exceeds the unearned premium revenue for the contract based on the present value of the expected net cash inflows and outflows. Included in accounts and notes receivable and unearned premiums on our condensed consolidated balance sheets are the present values 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 were $24.4 million and $25.5 million, respectively, as of June 30, 2014, and $25.2 million and $27.0 million, respectively, as of December 31, 2013. 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. There was an immaterial amount of accretion recorded in policy acquisition costs and premiums earned for the three and six months ended June 30, 2014 and 2013. 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 June 30, 2014, was $30.6 million and is expected to decrease over time as the portfolio runs off. The activity related to the net present value of premiums receivable during the three and six months ended June 30, 2014 and 2013 was not material. The weighted-average risk-free rate used to discount the premiums receivable and premiums to be collected was 2.6% at June 30, 2014. Premiums earned were affected by the following for the periods indicated:
| Three Months Ended June 30, |  | Six Months Ended June 30,
(In thousands) | 2014 |  | 2013 |  | 2014 |  | 2013
Refundings | $ | 6,073 |  |  | $ | 10,288 |  |  | $ | 8,190 |  |  | $ | 15,041 |
Recaptures/Commutations | — |  |  | — |  |  | — |  |  | (2,447 | )
Adjustments to installment premiums, gross of commissions | 22 |  |  | (10 | ) |  | 161 |  |  | 2,682 |
Unearned premium acceleration upon establishment of case reserves | 62 |  |  | 4 |  |  | 62 |  |  | 69 |
Foreign exchange revaluation, gross of commissions | 6 |  |  | (319 | ) |  | 320 |  |  | (1,087 | )
Total adjustment to premiums earned | $ | 6,163 |  |  | $ | 9,963 |  |  | $ | 8,733 |  |  | $ | 14,258 |
The following table shows the expected contractual premium revenue from our existing financial guaranty portfolio, assuming no refundings of any financial guaranty obligations, as of June 30, 2014:
(In thousands) | Ending Net Unearned Premiums |  | Unearned Premium Amortization |  | Accretion |  | Total Premium Revenue
3 rd quarter 2014 | $ | 163,413 |  |  | $ | 7,959 |  |  | $ | 193 |  |  | $ | 8,152 |
4 th quarter 2014 | 158,908 |  |  | 4,505 |  |  | 191 |  |  | 4,696 |
2014 | 158,908 |  |  | 12,464 |  |  | 384 |  |  | 12,848 |
2015 | 143,082 |  |  | 15,826 |  |  | 719 |  |  | 16,545 |
2016 | 129,579 |  |  | 13,503 |  |  | 657 |  |  | 14,160 |
2017 | 117,700 |  |  | 11,878 |  |  | 617 |  |  | 12,495 |
2018 | 106,535 |  |  | 11,166 |  |  | 562 |  |  | 11,728 |
2014 - 2018 | 106,535 |  |  | 64,837 |  |  | 2,939 |  |  | 67,776 |
2019 - 2023 | 60,317 |  |  | 46,218 |  |  | 2,148 |  |  | 48,366 |
2024 - 2028 | 29,858 |  |  | 30,459 |  |  | 1,368 |  |  | 31,827 |
2029 - 2033 | 12,701 |  |  | 17,157 |  |  | 872 |  |  | 18,029 |
After 2033 | — |  |  | 12,701 |  |  | 1,009 |  |  | 13,710 |
Total | $ | — |  |  | $ | 171,372 |  |  | $ | 8,336 |  |  | $ | 179,708 |
The following table shows the significant components of changes in our financial guaranty claim liability for the three and six months ended June 30, 2014 and 2013, excluding reserves related to our trade credit reinsurance and surety business of $1.9 million and $2.0 million, respectively, which are excluded from the accounting standard regarding accounting for financial guaranty insurance contracts by insurance enterprises.
| Three Months Ended June 30, |  | Six Months Ended June 30,
(In thousands) | 2014 |  | 2013 |  | 2014 |  | 2013
Claim liability at beginning of period | $ | 27,815 |  |  | $ | 22,469 |  |  | $ | 19,458 |  |  | $ | 64,291 |
Incurred losses and LAE: |  |  |  |  |  |  |
Increase (decrease) in gross claim liability | 18,979 |  |  | (36,381 | ) |  | 27,119 |  |  | (27,991 | )
Decrease in gross potential recoveries | 13,188 |  |  | 30,389 |  |  | 46,146 |  |  | 26,443 |
(Increase) decrease in discount | (28,002 | ) |  | 9,688 |  |  | (59,759 | ) |  | 6,133 |
Decrease (increase) in unearned premiums | 839 |  |  | 84 |  |  | (3,271 | ) |  | (713 | )
Incurred losses and LAE | 5,004 |  |  | 3,780 |  |  | 10,235 |  |  | 3,872 |
Paid losses and LAE: |  |  |  |  |  |  |
Current year | (23 | ) |  | (34 | ) |  | (23 | ) |  | (33 | )
Prior years | 63 |  |  | (2,604 | ) |  | 3,189 |  |  | (44,519 | )
Paid losses and LAE | 40 |  |  | (2,638 | ) |  | 3,166 |  |  | (44,552 | )
Claim liability at June 30 | $ | 32,859 |  |  | $ | 23,611 |  |  | $ | 32,859 |  |  | $ | 23,611 |
Components of incurred losses and LAE: |  |  |  |  |  |  |
Claim liability established in current period | $ | 11,103 |  |  | $ | 279 |  |  | $ | 12,143 |  |  | $ | 383 |
Changes in existing claim liabilities | (6,099 | ) |  | 3,501 |  |  | (1,908 | ) |  | 3,489 |
Total incurred losses and LAE | $ | 5,004 |  |  | $ | 3,780 |  |  | $ | 10,235 |  |  | $ | 3,872 |
Components of increase in discount: |  |  |  |  |  |  |
Increase in discount related to claim liabilities established in current period | $ | (3,566 | ) |  | $ | (37 | ) |  | $ | (4,057 | ) |  | $ | (165 | )
(Increase) decrease in discount related to existing claim liabilities | (24,436 | ) |  | 9,725 |  |  | (55,702 | ) |  | 6,298 |
Total (increase) decrease in discount | $ | (28,002 | ) |  | $ | 9,688 |  |  | $ | (59,759 | ) |  | $ | 6,133 |
Paid losses during the first half of 2013 include $41.6 million related to a January 2013 commutation with a primary insurer. 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 on our financial guaranty contracts were as follows, as of the dates indicated:
June 30, 2014 | 2.63 | %
December 31, 2013 | 2.95 | %
June 30, 2013 | 2.29 | %
December 31, 2012 | 2.00 | %

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- Definition The entire disclosure for financial guarantee insurance contracts (as defined) issued by the entity. Such disclosure is intended to enable users of the financial information to understand the factors affecting the present and future recognition and measurement of the entity's financial guarantee insurance contracts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 605 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6933581&loc=SL5749298-161291 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6933314&loc=SL5749324-161292 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 310 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6933075&loc=SL5748726-161290 + Details
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