XML 30 R15.htm IDEA: XBRL DOCUMENT
v3.3.1.900

Loss and Loss Adjustment Expense Reserves | 12 Months Ended
--- | ---
Dec. 31, 2015
Text Block [Abstract] |
Loss and Loss Adjustment Expense Reserves | Note 6: Loss and Loss Adjustment Expense Reserves Loss and Loss Adj ustment Expense Process The Company’s insured portfolio management groups within its U.S. public finance insurance and international and structured finance insurance businesses (collectively, “IPM”) monitor MBIA’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 MBIA. 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 de bt service payments. Once an obligation is insured, MBIA typically requires the issuer, servicer (if applicable) and the trustee to furnish periodic financial and asset-related information, including audited financial statements, to IPM for review. IPM als o 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 obligati ons 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 issu er 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. Re m ed i a t i o n a c t io n s m a y i n v o l v e, a m on g o t he r t hi n g s, wai v e rs o r r en e go t i a t i on s o f f i nan c ia l c o v ena n t s o r t r igge rs, wai v e rs o f c on t r a c t u a l p r o v i s ion s, t h e g r an t in g o f c on s en t s, t r a n s f e r o f s e rv i c ing, c o n s i de r a t io n o f r e s t r u c t u r in g p l an s, a cc ele r a t io n, s e c u r i t y o r c o l la t e r a l en f o r c e m e n t, a c t io n s i n ban kr up t cy o r r e c ei v e rs hip, li t iga t io n an d s i m ila r a c t ion s. T he t y p e s o f r e m e d ia l a c t i on s p u r s u e d a r e b a s e d o n t h e in s u r e d obl i ga t ion’s r i sk t y p e a n d t h e na t u re an d s c o p e o f t h e e v e n t gi v i n g r i s e t o t h e r e m edia t ion. A s pa rt o f a n y s u ch r e m edia l a c t ion s, MB I A s e e ks t o i m p r o ve i t s s e c u r i t y p o s i t i o n an d t o ob t ai n c on c e ss ion s f r o m t h e i ss ue r o f t h e in s u r e d obl i ga t ion. F r o m t i me t o t i m e, t h e i ss ue r o f a n M B I A-in s u r e d obl i ga t i on m a y, wi t h t h e c on s en t o f M B I A, r e s t r u c t u re t h e in s u r e d ob l iga t io n b y e x t en d in g t h e t e r m, in cr ea s in g o r de cr ea s in g t h e p a r a m oun t o r de cr ea s i n g t h e r ela t e d in t e r e st r a t e, wi t h M B I A in s u r i n g t h e r e s t r u c t u r e d obl i ga t i on. 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. When there are no remaining expected future claim payments, the insured transaction is removed from the “Classified List.” 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 transact ions 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 ad verse 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 MBIA 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 le gal 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 disco unt 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, 2015. 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 insur ed 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 sce narios 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 of December 31, 2015 and 2014, the Company established loss and LAE reser ves totaling $45 million, related to U.S. public finance issues. As of December 31, 2015 and 2014, the Company had an insurance loss recoverable of $4 million related to U.S. public finance issues. Certain local governments remain un der financial and budgetary stress and a few have filed for protection under the United States Bankruptcy Code, or have entered into state statutory proceedings established to assist municipalities in managing through periods of severe fiscal stress. This could lead to an increase in defaults by such entities on the payment of their obligations and losses or impairments on a greater number of the Company’s insured transactions. The Company monitor s and analyze s these situations closely, however, the overall extent and duration of such events are uncertain and the filing for protection under the United States Bankruptcy Code or entering state statutory proceedings does not necessarily result in a default or indicate that an ultimate loss will occur. As of December 31, 2015 and 2014, the Company had $70.0 billion and $98.9 billion, respectively, of gross par outstanding on general obligations, of which $79 million and $152 million, respectively, were reflected on the Company’s “Classified List.” Capital appreciation bonds are reported at the par amount at the time of issuance of the insurance policy. International and Structured Finance Insurance T he international and structured finance insurance segment’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include estimates for policies insuring credit derivatives or losses and recoveries on financial guarantee VIEs that are eliminated in consolidation. Policies insuri ng credit derivative contracts are accounted for as derivatives and are carried at fair value in the Company’s consolidated financial statements under GAAP. The fair values of insured derivative contracts are influenced by a variety of market and transacti on-specific factors that may be unrelated to potential future claim payments under the Company’s insurance policies. In the absence of credit impairments on insured derivative contracts or the early termination of such contracts at a loss, the cumulative u nrealized losses recorded from these contracts should reverse before or at the maturity of the contracts. Since the Company’s insured credit derivatives have similar terms, conditions, risks, and economic profiles to its financial guarantee insurance polic ies, the Company evaluates them for impairment in the same way that it estimates loss and LAE for its financial guarantee 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 c onsolidated financial statements. RMBS Case Basis Reserves and Recoveries (Financial Guarantees) The Company’s RMBS reserves and recoveries relate to financial guarantee insurance policies. The Company calculated RMBS case basis reserves as of December 31, 2015 for both second and first-lien RMBS transactions using a process called the “Roll Rate Methodology.” The Roll Rate Methodology is a multi-step process using a database of loan level information, a proprietary internal cash flow model, and a comme rcially available model to estimate potential losses and recoveries on insured bonds. “Roll Rate” is defined as the probability that current loans become delinquent and that loans in the delinquent pipeline are charged-off or liquidated. Generally, Roll Ra tes are calculated for the previous three months and averaged. The loss reserve estimates are based on a probability-weighted average of three scenarios of loan losses (base case, stress case, and an additional stress case). Additional data used for both s econd and first-liens includes historic average of deal specific voluntary prepayment rates, forward projections of the London Interbank Offered Rate (“LIBOR”) interest rates, and historic average of deal-specific loss severities. Loss severities are reduced over time to account for reduction in the amount of foreclosure inventory, anticipated future increases in home prices, principal amortization of the loan and government foreclosure moratoriums. In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of second-l ien loans that are expected to be charged-off (deemed uncollectible by servicers of the transactions) or first-lien loans liquidated in the future. In addition, for second-lien RMBS, the Company considers pool mortgage insurance and assumes a constant ba sis spread between Prime and LIBOR interest rates. 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. Second-lien RMBS Reserves The Company’s second-lien RMBS case basis reserves as of December 31, 2015 relate to RMBS backed by home e quity lines of credit and closed-end second mortgages. As of December 31, 2015 and 2014, the Company established loss and LAE reserves totaling $51 million and $70 million, respectively, related to second-lien RMBS issues after the elimination of $16 million and $21 million, respectively, as a result of consolidating VIEs. 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. If actual performance were to remain at the current levels for six a dditional month s compared to the pro bability-weighted outcome currently used by the Company, t he addition to the case basis reserves would be approximately $28 million. Second-lien RMBS Recoveries The Company primarily records two types of r ecoveries related to insured second-lien RMBS exposures: excess spread that is generated from performing loans in the insured transactions; and “put-back” claims related to those mortgage loans whose inclusion in insured securitizations failed to comply wi th representations and warranties (“ineligible loans”). Excess Spread As of December 31, 2015 and 2014, the Company estimated recoveries of $499 million and $660 million, respectively, for the reimbursement of past and future exp ected claims through excess spread in insured second-lien RMBS transactions, of which $93 million and $137 million, respectively, are eliminated as a result of consolidating VIEs. As of December 31, 2015, $382 million and $24 million were included in “Insurance loss recoverable” and “Loss and loss adjustment expense reserves” on the Company’s consolidated balance sheets, respectively, after the elimination of $87 million and $6 million, respectively, as a result of consolidati ng VIEs. As of December 31, 2014, $496 million and $27 million were included in “Insurance loss recoverable” and “Loss and loss adjustment expense reserves” on the Company’s consolidated balance sheets, respectively, after the elimination of $132 millio n and $5 million, respectively, as a result of consolidating VIEs. Excess spread is generated by performing loans within insured second-lien RMBS securitizations and is the difference between interest inflows on mortgage loan collateral and interest outfl ows on insured beneficial interests. The amount of excess spread depends on the future loss trends (which include future delinquency trends, average time to charge-off delinquent loans, and the availability of pool mortgage insurance), the future spread be tween Prime and L IBOR interest rates, and borrower refinancing behavior which results in voluntary prepayments. Minor deviations in loss trends and voluntary prepayments may substantially impact the amounts collected from excess spr ead. Ineligible Mortgage Loans To date, MBIA has settled the majority of the Company’s put-back claims. Only its claims against Credit Suisse remain outstanding. Settlement amounts have been consistent with the put-back recoveries previously included in t he Company’s financial statements. The contract claim remaining with Credit Suisse is related to the inclusion of ineligible mortgage loans in the 2007-2 Home Equity Mortgage Trust securitization. Credit Suisse has challenged the Company’s assess ment 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. As of December 31, 2015 and 2014, the Company recorded estimated recoveries of $396 m illion and $379 million, respectively, related to its Credit Suisse put-back claims, reflected in “Loan repurchase commitments” presented under the heading “Assets of consolidated variable interest entities” on the Company’s consolidated balan ce sheets. Based on the Company’s assessment of the strength of its contractual put-back rights against Credit Suisse, which it is pursuing through litigation claims, as well as on its prior settlements with other sellers/servicers and success of other mo nolines in litigation against other sellers/servicers, 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, which totaled $424 million through December 31, 2015. The Company is also entitled to collect interest on amounts paid; it believes that in context of its put-back litigation, the appropriate rate should be the New York State statutory rate. However, the Company currently calculates its put-back recoverie s using the contractual interest rate, which is lower than the New York State statutory rate. Notwithstanding the foregoing, u ncertainty remains with respect to the ultimate outcome of the litigation with Credit Suisse, which is contemplated in the scenari o 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 t o partial recovery scenarios and a re discounted using the current risk-free discount rates associated with the underlying transaction’s cash flows. The Company continues to consider all relevant facts and circumstances in developing its assumptions on ex pected 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 contract claims against Credit Suisse, the ultimate amounts recovered may be materi ally different from those recorded by the Company given the inherent uncertainty of the manner of resolving the claims (e.g., litigation) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgm ents and other information that are not easily corroborated by historical data or other relevant benchmarks. First-lien RMBS Reserves The Company’s first-lien RMBS case basis reserves as of December 31, 2015, which primarily relate to RMBS backed by alt ernative A-paper and subprime mortgage loans, were determined using the Roll Rate Methodology. As of December 31, 2015 and 2014, the Company’s loss and LAE reserves were $277 million and $263 million, respectively, related to first-lien RMBS issues after the elimination of $5 million, as of December 31, 2015, as a result of consolidating VIEs. CDO Reserves The Company also has loss and LAE reserves on certain transactions within its CDO portfolio, includ ing its multi-sector CDO and high yield corporate CDO asset classes. 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, R MBS-related collateral, multi-sector and corporate CDOs). These transactions were insured as either financial guarantee insurance policies or credit derivatives with the majority currently insured in the form of financial guarantees. MBIA’s high yield corp orate CDO portfolio comprises middle-market/special-opportunity corporate loan transactions. These transactions were insured as financial guarantee insurance policies. 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 transact ion’s collateral. The loss severities projected by these approaches vary widely. Actual losses will be a function of commutations, defaults and the loss severities realized. As of December 31, 2015 and 2014, the Company’s loss and LAE reserves were $1 33 million and $111 million, respectively, related to the total CDO financial guarantee insurance portfolio after the elimination of $190 million and $225 million, respectively, as a result of consolidating VIEs. For the year ended December 31, 2015, the Company incurred $29 million of losses and LAE recorded in earnings related to the total CDO financial guarantee insurance portfolio after the elimination of $35 million of benefit as a result of consolidating VIEs. In the event of further deterio rating performance of the collateral referenced or held in the total CDO portfolio, the amount of losses estimated by the Company could increase substantially. Loss and LAE Activity Financial Guarantee Insurance Losses (Excluding Derivative and Consolidat ed VIEs) The Company’s financial guarantee insurance losses and LAE, net of reinsurance for the years ended December 31, 2015, 2014 and 2013 are presented in the following table:
|  |  | Years Ended December 31, |
| In millions |  | 2015 |  | 2014 |  | 2013 |
| U.S. Public Finance Insurance Segment |  | $ | 5 |  | $ | (10) |  | $ | 105 |
| International and Structured Finance Insurance Segment: |  |  |  |  |  |  |  |  |  |
|  | Second-lien RMBS |  |  | 63 |  |  | 70 |  |  | (2) |
|  | First-lien RMBS |  |  | 34 |  |  | 65 |  |  | (70) |
|  | Other(1) |  |  | 21 |  |  | 8 |  |  | 84 |
| Losses and LAE |  | $ | 123 |  | $ | 133 |  | $ | 117 |
| ________________ |  |  |  |  |  |  |
| (1) - Includes CDOs, non-U.S. public finance and other issues. |  |  |  |  |  |  |
For 2015, losses and LAE primarily related to increases in expected payments on CDOs and insured first-lien RMBS transactions and decreases in projected collections from excess spread within insured second-lien RMBS securitizations. These were partially offset by increases in recoveries of expected payments related to CDOs and increases in projected collections from excess spread within insured second-lien RMBS securitizations due to an anticipated sale of loans within certain securitizations that had previously been charged off by the servicer. For 2014, losses and LAE primarily related to increases in expected payments on insured first-lien RMBS transactions and CDOs, decreases in projected collections from excess spread within insured second-lien RMBS securitizations and expected recoveries on an i nternational road transaction. These were partially offset by decreases in expected payments on an international road transaction and increases in recoveries of expected payments related to insured first-lien RMBS transactions. For 2013, losses and LAE primarily related to increases in expected payments on insured second-lien RMBS transactions, U.S. public finance transactions and an international road transaction, a reversal of recoveries related to CDOs and a decrease in projected collections from exc ess spread within insured second-lien RMBS securitizations. These were partially offset by an increase in recoveries of expected payments primarily resulting from ineligible mortgage loans included in insured exposures, decreases in expected payments relat ing to CDOs and insured first-lien RMBS transactions and an increase in recoveries related to an international road transaction. Costs associated with remediating insured obligations assigned to the Company’s surveillance categories are recorded as LAE and included in “Losses and loss adjustment” expenses on the Company’s consolidated statements of operations. For the years ended December 31, 2015, 2014 and 2013, gross LAE related to remediating insured obligations were $26 million, $36 million and $57 million, respectively. T h e f ol l owin g t abl e p r o v ide s in f o rm a t i o n a bou t t h e f i nan c ia l gu a r a n t e e s an d r el a t e d c la i m li a bili t y i n c lude d i n ea ch of M B I A’s s u rv e i llan ce c a t ego r ie s a s o f December 31, 2015:
|  |  |  |  | Surveillance Categories
|  |  |  |  | Caution |  | Caution |  | Caution |  |  |  |  |  |
|  |  |  |  | List |  | List |  | List |  | Classified |  |  |
$ in millions |  | Low |  | Medium |  | High |  | List |  | Total
Number of policies |  |  | 57 |  |  | 18 |  |  | 171 |  |  | 165 |  |  | 411
Number of issues(1) |  |  | 12 |  |  | 6 |  |  | 5 |  |  | 117 |  |  | 140
Remaining weighted average contract |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| period (in years) |  |  | 7.6 |  |  | 6.7 |  |  | 9.6 |  |  | 6.7 |  |  | 7.4
Gross insured contractual payments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| outstanding:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Principal |  | $ | 2,591 |  | $ | 147 |  | $ | 1,996 |  | $ | 6,426 |  | $ | 11,160
|  | Interest |  |  | 2,733 |  |  | 57 |  |  | 1,038 |  |  | 2,419 |  |  | 6,247
|  |  | Total |  | $ | 5,324 |  | $ | 204 |  | $ | 3,034 |  | $ | 8,845 |  | $ | 17,407
Gross Claim Liability |  | $ | - |  | $ | - |  | $ | - |  | $ | 797 |  | $ | 797
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Gross Potential Recoveries |  |  | - |  |  | - |  |  | - |  |  | 752 |  |  | 752
| Discount, net(3) |  |  | - |  |  | - |  |  | - |  |  | 116 |  |  | 116
Net claim liability (recoverable) |  | $ | - |  | $ | - |  | $ | - |  | $ | (71) |  | $ | (71)
Unearned premium revenue |  | $ | 8 |  | $ | 2 |  | $ | 33 |  | $ | 55 |  | $ | 98
__________ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.
(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
T h e f ol l owin g t abl e p r o v ide s in f o rm a t i o n a bou t t h e f i nan c ia l gu a r a n t e e s an d r el a t e d c la i m li a bili t y i n c lude d i n ea ch of M B I A’s s u rv e i llan ce c a t ego r ie s a s o f December 31, 2014:
|  |  |  |  | Surveillance Categories
|  |  |  |  | Caution |  | Caution |  | Caution |  |  |  |  |  |
|  |  |  |  | List |  | List |  | List |  | Classified |  |  |
$ in millions |  | Low |  | Medium |  | High |  | List |  | Total
Number of policies |  |  | 38 |  |  | 98 |  |  | 4 |  |  | 175 |  |  | 315
Number of issues(1) |  |  | 18 |  |  | 7 |  |  | 3 |  |  | 119 |  |  | 147
Remaining weighted average contract |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| period (in years) |  |  | 7.2 |  |  | 12.0 |  |  | 10.1 |  |  | 7.0 |  |  | 7.7
Gross insured contractual payments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| outstanding:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Principal |  | $ | 1,757 |  | $ | 1,372 |  | $ | 133 |  | $ | 8,001 |  | $ | 11,263
|  | Interest |  |  | 696 |  |  | 819 |  |  | 68 |  |  | 3,037 |  |  | 4,620
|  |  | Total |  | $ | 2,453 |  | $ | 2,191 |  | $ | 201 |  | $ | 11,038 |  | $ | 15,883
Gross Claim Liability |  | $ | - |  | $ | - |  | $ | - |  | $ | 850 |  | $ | 850
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Gross Potential Recoveries |  |  | - |  |  | - |  |  | - |  |  | 860 |  |  | 860
| Discount, net(3) |  |  | - |  |  | - |  |  | - |  |  | 14 |  |  | 14
Net claim liability (recoverable) |  | $ | - |  | $ | - |  | $ | - |  | $ | (24) |  | $ | (24)
Unearned premium revenue |  | $ | 63 |  | $ | 19 |  | $ | 5 |  | $ | 80 |  | $ | 167
__________
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.
(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
The gross claim liability in the preceding tables represents the Company’s estimate of undiscounted probability-weighted future claim payments. A s of December 31, 2015, the gross claim liability primarily related to insured first-lien RMBS issues. As of December 31, 2014, the gross claim liability primarily related to insured first and second-lien RMBS issues, CDOs and an international road transaction. The gross potential recoveries represent the Company’s estimate of undiscounted probabi lity-weighted recoveries of actual claim payments and recoveries of estimated future claim payments. As of December 31, 2015, the gross potential recoveries principally relate d to insured second-lien RMBS. As of December 31, 2014, the gross potential recoveries principally relate d to insured second-lien RMBS and U.S. public finance issues. The Company’s recoveries have been, and remain based on either salvage rights, the rights conferred to MBIA through the transactional documents (inclusive of the in surance agreement), or subrogation rights embedded within financial guarantee insurance policies. Expected salvage and subrogation recoveries, as well as recoveries from other remediation efforts, reduce the Company’s claim liability. Once a claim payment has been made, the claim liability has been satisfied and MBIA’s right to recovery is no longer considered an offset to future expected claim payments, it is recorded as a salvage asset. The amount of recoveries recorded by the Company is limited to paid c laims plus the present value of projected 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 potentia l recoveries reflect the elimination of claim liabilities and potential recoveries related to VIEs consolidated by the Company. The following table presents the components of the Company’s loss and LAE reserves and insurance loss recoverable as reported on the Company’s consolidated balance sheets as of December 31, 2015 and 2014 for insured obligations within MBIA’s “Classified List.” The loss reserves (claim liability) and insurance claim loss recoverable included in the following table represent th e present value of the probability-weighted future claim payments and recoveries reported in the preceding tables.
|  |  |  | As of |  | As of |
| In millions |  | December 31, 2015 |  | December 31, 2014 |
| Loss reserves (claim liability) |  | $ | 470 |  | $ | 464 |
| LAE reserves |  |  | 46 |  |  | 42 |
|  | Loss and LAE reserves |  | $ | 516 |  | $ | 506 |
| Insurance claim loss recoverable |  | $ | (571) |  | $ | (533) |
| LAE insurance loss recoverable |  |  | (6) |  |  | - |
|  | Insurance loss recoverable |  | $ | (577) |  | $ | (533) |
| Reinsurance recoverable on unpaid losses |  | $ | 6 |  | $ | 6 |
| Reinsurance recoverable on unpaid LAE reserves |  |  | - |  |  | 1 |
|  | Reinsurance recoverable on paid and unpaid losses |  | $ | 6 |  | $ | 7 |
As of December 31, 2015, loss and LAE reserves include $616 m illion of reserves for expected future payments, partially offset by expected recoveries of such future payments of $100 million. As of December 31, 2014, loss and LAE reserves include $653 m illion of reserves for expected future payments, partially offset by expected recoveries of such future payments of $147 million. As of December 31, 2015 and 2014, the insuran ce loss recoverable primarily related to expected future recoveries on second-lien RMBS transactions resulting from excess spread generated by performing loans in such transactions. The in crease in 2015 was primarily due to an increase in expected future recoveries on CDOs, partially offset by actual collections from excess spread within insured second-lien RMBS securitizations. The following table s present changes in the Company’s loss and LAE reserves for the years ended December 31, 2015 and 2014. Changes in the loss reserves attributable to the accretion of the claim liability discount, changes in discount rates, changes in the timing and amounts of estimated 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, 2015 and 2014, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 1.82% and 1.72%, respectively. LAE reserves are generally expected to be settled within a one-year period and are not d iscounted.
In millions |  | Changes in Loss and LAE Reserves for the Year Ended December 31, 2015 |  |  |
Gross Loss |  | Loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Gross Loss
and LAE |  | Payments |  | Accretion |  |  |  |  |  |  |  | Changes in |  |  |  |  |  |  |  | and LAE
Reserves as of |  | for Cases |  | of Claim |  | Changes in |  |  |  | Unearned |  | Changes in |  |  |  | Reserves as of
December 31, |  | with |  | Liability |  | Discount |  | Changes in |  | Premium |  | LAE |  |  |  | December 31,
2014 |  | Reserves |  | Discount |  | Rates |  | Assumptions |  | Revenue |  | Reserves |  | Other(1) |  | 2015
$ | 506 |  | $ | (200) |  | $ | 8 |  | $ | (41) |  | $ | 88 |  | $ | 14 |  | $ | 4 |  | $ | 137 |  | $ | 516
____________
(1) - Primarily changes in the amount of actual loss payments on a high yield corporate CDO.
The in crease in the Company’s gross loss and LAE reserves reflected in the preceding table was primarily related to changes in amount of net payments on CDOs, partially offset by actual loss payments associated with CDOs.
In millions |  | Changes in Loss and LAE Reserves for the Year Ended December 31, 2014 |  |  |
Gross Loss |  | Loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Gross Loss
and LAE |  | Payments |  | Accretion |  |  |  |  |  |  |  | Changes in |  |  |  |  |  |  | and LAE
Reserves as of |  | for Cases |  | of Claim |  | Changes in |  |  |  | Unearned |  | Changes in |  |  |  | Reserves as of
December 31, |  | with |  | Liability |  | Discount |  | Changes in |  | Premium |  | LAE |  |  |  | December 31,
2013 |  | Reserves |  | Discount |  | Rates |  | Assumptions |  | Revenue |  | Reserves |  | Other(1) |  | 2014
$ | 641 |  | $ | (157) |  | $ | 14 |  | $ | 79 |  | $ | (35) |  | $ | 14 |  | $ | (19) |  | $ | (31) |  | $ | 506
____________ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(1) - Primarily changes in amount and timing of payments.
The decrease in the Company’s gross loss and LAE reserves reflected in the preceding table was primarily related to actual loss payments and changes in assumptions on CDOs and an international road transaction. These were partially offset by increases in reserves du e to changes in discount rates, primarily on CDOs and insured first and second-lien RMBS issues. C u rr en t pe r io d ch a nge s i n th e C o m pan y’s est i mat e o f p o tent i a l r e c o v e r i e s ma y be r e c o r de d a s a n in s u r an c e l oss r e c ove r a bl e as s et, net t e d a g ain s t th e g r os s l o s s an d L A E r e se r v e l i abi l i t y, or bo t h. The following table s present 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 ended December 31, 2015 and 2014. 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 rec orded 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, 2015 |  |  |
|  |  | Gross |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Gross
|  |  | Reserve |  | Collections |  |  |  |  |  |  |  |  |  |  | Reserve
|  |  | as of |  | for Cases |  | Accretion |  | Changes in |  |  |  |  | Changes in |  |  |  | as of
|  |  | December 31, |  | with |  | of |  | Discount |  | Changes in |  | LAE |  |  |  | December 31,
In millions |  | 2014 |  | Recoveries |  | Recoveries |  | Rates |  | Assumptions |  | Recoveries |  | Other(1) |  | 2015
Insurance loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| recoverable |  | $ | 533 |  | $ | (74) |  | $ | 8 |  | $ | 1 |  | $ | 140 |  | $ | 6 |  | $ | (37) |  | $ | 577
Recoveries on unpaid |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| losses |  |  | 147 |  |  | - |  |  | 2 |  |  | (2) |  |  | (46) |  |  | (1) |  |  | - |  |  | 100
Total |  | $ | 680 |  | $ | (74) |  | $ | 10 |  | $ | (1) |  | $ | 94 |  | $ | 5 |  | $ | (37) |  | $ | 677
____________
(1) Primarily changes in amount and timing of collections.
Th e decrease in the C ompan y’s insurance loss recoverable and r e c overie s o n unpai d los s e s durin g 2015 was pr i mar ily du e to actual collections, changes in the amount of expected collections and changes in assumptions on first and second-lien RMBS issues and changes in assumptions on an international road transaction. These were partially offset by changes in assumptions on CDOs.
|  |  |  |  |  |  | Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses |  |  |
|  |  |  |  |  |  | for the Year Ended December 31, 2014 |  |  |
|  |  | Gross |  |  |  |  |  |  |  |  |  |  |  | Gross
|  |  | Reserve |  | Collections |  |  |  |  |  |  |  |  |  | Reserve
|  |  | as of |  | for Cases |  | Accretion |  | Changes in |  |  |  |  | Changes in |  |  |  | as of
|  |  | December 31, |  | with |  | of |  | Discount |  | Changes in |  | LAE |  |  |  | December 31,
In millions |  | 2013 |  | Recoveries |  | Recoveries |  | Rates |  | Assumptions |  | Recoveries |  | Other(1) |  | 2014
Insurance loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| recoverable |  | $ | 694 |  | $ | (108) |  | $ | 13 |  | $ | 18 |  | $ | (77) |  | $ | - |  | $ | (7) |  | $ | 533
Recoveries on unpaid |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| losses |  |  | 206 |  |  | - |  |  | 4 |  |  | 15 |  |  | (79) |  |  | 1 |  |  | - |  |  | 147
Total |  | $ | 900 |  | $ | (108) |  | $ | 17 |  | $ | 33 |  | $ | (156) |  | $ | 1 |  | $ | (7) |  | $ | 680
____________
(1) Primarily changes in amount and timing of collections. |  |  |
The decrease in t h e C ompan y’s i n s uran ce l o ss re c overabl e and recoveries on unpaid losses durin g 2014 was pr i mar ily du e to actual collections, c hange s i n a s sumption s due to lower LIBOR forward rates on second-lien RMBS issues and changes in assumptions on an international road transaction and U.S. public finance issues.

X
- Definition The entire disclosure for liabilities related to future policy benefits and unpaid claims and claim adjustments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6482852&loc=d3e14931-158439 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6482485&loc=d3e14754-158437 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.7-03.13(a)(1),(b)) -URI http://asc.fasb.org/extlink&oid=6879938&loc=d3e572229-122910 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6482485&loc=d3e14764-158437 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 13 -Article 7 + Details
Name: | us-gaap_LiabilityForFuturePolicyBenefitsAndUnpaidClaimsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_TextBlockAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration