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Loss and Loss Adjustment Expense Reserves | 3 Months Ended
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Mar. 31, 2018
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Loss and Loss Adjustment Expense Reserves | Note 5: Loss and Loss Adjustment Expense Reserves U.S. Public Finance Insurance U.S. public finance insured 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 cash flow scenarios 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 well as recoveries for such payments, if any. Gross par outstanding for capital appreciation bonds represents the par amount at the time of issuance of the insurance policy. Certain local governments remain under financial and budgetary stress and a few have filed for protection under title 11, United States Code (the “Bankruptcy Code”), or have entered into state statutory proceedings established to assist municipalities in managing through periods of severe fiscal stress. In the case of Puerto Rico, certain credits that the Company insures have filed petitions for covered instrumentalities under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), which incorporates by reference provisions from the Bankruptcy Code. This could lead to an increase in defaults by such entities on the payment of their obligations and losses or impairments in greater amounts on the Company’s insured transactions. The filing for protection under the Bankruptcy Code or entering state statutory proceedings does not necessarily result in a default or indicate that an ultimate loss will occur. On September 20, 2017, Hurricane Maria made landfall in Puerto Rico as a Category 4 hurricane resulting in catastrophic damage to much of the island’s basic infrastructure, including its electrical transmission and distribution grid, telecommunications network, housing, roads, bridges and water and sewer systems. On September 21, 2017, the President of the United States approved a Major Disaster Declaration for Puerto Rico and FEMA made federal disaster assistance available to Puerto Rico to supplement its recovery efforts. Hurricane Maria’s impact on Puerto Rico will likely also impact its ability to both repay its legacy indebtedness and participate in ongoing debt restructuring negotiations. The physical damage and resultant lost economic activity may exceed the collective aid Puerto Rico receives from private insurance, relief from FEMA and other federal agencies and programs. Economic activity in Puerto Rico may not return to pre-hurricane levels and Puerto Rico’s recovery could be more shallow and protracted than that experienced by other similarly affected governments, given Puerto Rico’s prior constrained liquidity and economic activity. While the federal government has made aid available to Puerto Rico, there can be no assurance that such aid will continue in the amounts necessary to offset the adverse impacts from Hurricane Maria in their entirety. In addition, the necessary and greater involvement of the federal government, through its actions to deliver disaster relief and other support services, in addition to the evolving role of the Oversight Board and the role of Puerto Rico in its own recovery, heightens political risk in connection with the restructuring of legacy debt. This risk could lead the Oversight Board, Puerto Rico or the federal government to seek to extract greater concessions from creditors based on the uncertainty of Puerto Rico’s long term recovery prospects. In this event, losses at National on select Puerto Rico exposures could increase materially. The Company monitors and analyzes these situations closely, however, the overall extent and duration of such events are uncertain. International and Structured Finance Insurance The international and structured finance insurance segment’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include estimates for a policy insuring a credit derivative or on financial guarantee VIEs that are eliminated in consolidation. The policy insuring a credit derivative contract is accounted for as a derivative and is carried at fair value in the Company’s consolidated financial statements under GAAP. The fair value of an insured credit derivative contract is influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments under the Company’s insurance policies. In the absence of credit impairments on an insured credit derivative contract or the early termination of such contract at a loss, the cumulative unrealized losses recorded from this contract should reverse before or at the maturity of the contract. As the Company’s insured credit derivative has similar terms, conditions, risks, and economic profiles to its financial guarantee insurance policies, the Company evaluates it for impairment, under statutory accounting principles, in the same way that it estimates loss and loss adjustment expense (“LAE”) for its financial guarantee policies. Refer to “Note 8: Derivative Instruments” for a further discussion of the Company’s use of derivatives and their impact on the Company’s consolidated financial statements. RMBS Case Basis Reserves (Financial Guarantees) The Company’s RMBS reserves and recoveries relate to financial guarantee insurance policies, excluding those on consolidated VIEs. The Company’s first-lien RMBS case basis reserves primarily relate to RMBS backed by alternative A-paper and subprime mortgage loans. The Company’s second-lien RMBS case basis reserves relate to RMBS backed by home equity lines of credit and closed-end second mortgages. The Company calculated RMBS case basis reserves as of March 31, 2018 for both first and second-lien RMBS transactions using a process called the “Roll Rate Methodology.” The Roll Rate Methodology is a multi-step process using databases of loan level information, proprietary internal cash flow models, and commercially available models to estimate potential losses and recoveries on insured bonds. Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, for additional information the Company’s Roll Rate Methodology for its RMBS case basis reserves. 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. RMBS Recoveries The Company primarily records two types of recoveries related to insured RMBS exposures: excess spread that is generated from the trust structures in the insured transactions; and second-lien “put-back” claims related to those mortgage loans whose inclusion in an insured securitization failed to comply with representations and warranties (“ineligible loans”). Excess Spread Excess spread within insured RMBS securitizations is the difference between interest inflows on mortgage loan collateral and interest outflows on the insured RMBS notes. The aggregate amount of excess spread depends on the future loss trends, which include future delinquency trends, average time to charge-off/liquidate delinquent loans, the future spread between Prime and the LIBOR interest rates, and borrower refinancing behavior (which may be affected by changes in the interest rate environment) that results in voluntary prepayments. Minor deviations in loss trends and voluntary prepayments may substantially impact the amounts collected from excess spread. Excess spread also includes subsequent recoveries on previously charged-off loans associated with the insured second-lien RMBS securitizations. Second-lien Put-Back Claims Related to Ineligible Loans The Company has settled the majority of the Company’s put-back claims. Only its claims against Credit Suisse remain outstanding. The Company’s settlement amounts have been consistent with the put-back recoveries that had been included in the Company’s financial statements at the times preceding the settlements. The put-back contract claim remaining with Credit Suisse is related to the inclusion of ineligible loans in the 2007-2 Home Equity Mortgage Trust securitization. Credit Suisse has challenged the Company’s assessment 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. Based on the Company’s assessment of the strength of its contractual put-back rights against Credit Suisse, as well as on its prior settlements with other sellers/servicers and success of other monolines’ put-back settlements, 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 $436 million through March 31, 2018. The Company is also entitled to collect interest on amounts paid; it believes that in the context of its put-back litigation, the appropriate interest rate should be the New York State statutory rate. However, the Company currently calculates its put-back recoveries using the contractual interest rate, which is lower than the New York State statutory rate. Notwithstanding the foregoing, uncertainty remains with respect to the ultimate outcome of the litigation with Credit Suisse, which is contemplated in the probability-weighted cash flow scenario 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 to partial recovery scenarios and are discounted using the current risk-free discount rates associated against the underlying transaction’s cash flows. The Company continues to consider relevant facts and circumstances in developing its assumptions on expected 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 put-back contract claims against Credit Suisse, the ultimate amount recovered may be materially different from that recorded by the Company given the inherent uncertainty of the manner of resolving the claims (i.e., litigation and/or negotiated out-of-court settlement) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks. Refer to “Note 13: Commitments and Contingencies” for further information about the Company’s litigation with Credit Suisse. CDO Reserves and Recoveries The Company also has loss and LAE reserves on certain transactions within its collateralized debt obligations (“CDO”) portfolio, primarily its multi-sector CDO asset class that was insured in the form of financial guarantee policies. 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, RMBS-related collateral, multi-sector and corporate CDOs). Zohar Recoveries MBIA Corp. will seek to recover the payments it made (plus interest and expenses) with respect to Zohar I and Zohar II. MBIA Corp. anticipates that the primary source of the recoveries will come from the monetization of the Zohar Assets. As of March 31, 2018, the recoveries of Zohar I and Zohar II are included in “Loans receivable at fair value” which are presented in “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets. On March 11, 2018, the director of Zohar I and Zohar II commenced the Zohar Funds Bankruptcy Cases. On April 30, 2018, the debtor funds in the Zohar Funds Bankruptcy Cases filed the Zohar Bankruptcy Settlement Motion, which, if granted, would establish a process by which the debtor funds, through an independent director and a chief restructuring officer, would work with the original sponsor of the funds to monetize the Zohar Assets and repay creditors, including MBIA Corp. There can be no assurance, however, that the value of the Zohar Assets will be sufficient to permit MBIA Corp. to recover all or substantially all of the payments it made on Zohar I and Zohar II. Failure to recover a substantial amount of such payments could impede its ability to make payments when due on other policies. MBIA Corp. believes that if the NYSDFS concludes at any time that MBIA Insurance Corporation will not be able to pay its policyholder claims, the NYSDFS would likely put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the New York Insurance Law and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA Insurance Corporation’s policyholders. The determination to commence such a proceeding or take other such actions is within the exclusive control of the NYSDFS. Summary of Loss and LAE Reserves and Recoveries The Company’s loss and LAE reserves and recoveries before consolidated VIE eliminations, along with amounts that were eliminated as a result of consolidated VIEs, which are included in the Company’s consolidated balance sheets as of March 31, 2018 and December 31, 2017 are presented in the following table:
|  |  |  | As of March 31, 2018 |  |  | As of December 31, 2017 |
In millions |  | Balance Sheet Line Item |  |  | Balance Sheet Line Item |
|  |  |  | Insurance loss recoverable |  |  | Loan repurchase commitments |  | Loss and LAE reserves |  |  | Insurance loss recoverable |  |  | Loan repurchase commitments |  | Loss and LAE reserves |
U.S. Public Finance Insurance |  | $ | 364 |  |  | $ | - |  | $ | 553 |  |  | $ | 333 |  |  | $ | - |  | $ | 512 |
International and Structured Finance Insurance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Before VIE eliminations |  |  | 1,466 |  |  |  | 407 |  |  | 694 |  |  |  | 1,478 |  |  |  | 407 |  |  | 710 |
| VIE eliminations |  |  | (1,300) |  |  |  | - |  |  | (241) |  |  |  | (1,300) |  |  |  | - |  |  | (243) |
|  | Total international and structured finance insurance |  |  | 166 |  |  |  | 407 |  |  | 453 |  |  |  | 178 |  |  |  | 407 |  |  | 467 |
| Total |  | $ | 530 |  |  | $ | 407 |  | $ | 1,006 |  |  | $ | 511 |  |  | $ | 407 |  | $ | 979 |
Changes in Loss and LAE Reserves The following table presents changes in the Company’s loss and LAE reserves for the three months ended March 31, 2018. Changes in loss reserves attributable to the accretion of the claim liability discount, changes in discount rates, changes in amount and timing of estimated claim 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 March 31, 2018, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 2.67%. LAE reserves are generally expected to be settled within a one-year period and are not discounted. As of March 31, 2018 and December 31, 2017, the Company’s gross loss and LAE reserves included $74 million and $66 million, respectively, related to LAE.
In millions |  | Changes in Loss and LAE Reserves for the Three Months Ended March 31, 2018 |  |  |
Gross Loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Gross Loss
and LAE |  |  |  | Accretion |  |  |  |  |  |  |  | Changes in |  |  |  |  |  |  |  | and LAE
Reserves as of |  |  |  | of Claim |  | Changes in |  |  |  | Unearned |  | Changes in |  |  |  | Reserves as of
December 31, |  | Loss |  | Liability |  | Discount |  | Changes in |  | Premium |  | LAE |  |  |  | March 31,
2017 |  | Payments |  | Discount |  | Rates |  | Assumptions |  | Revenue |  | Reserves |  | Other |  | 2018
$ | 979 |  | $ | (81) |  | $ | 5 |  | $ | 11 |  | $ | 79 |  | $ | 2 |  | $ | 8 |  | $ | 3 |  | $ | 1,006
The increase in the Company’s gross loss and LAE reserves during the three months ended March 31, 2018 was primarily related to changes in assumptions on certain Puerto Rico exposures partially offset by actual loss payments on certain Puerto Rico exposures and RMBS transactions. Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses Current period changes in the Company’s estimate of potential recoveries may be recorded as an insurance loss recoverable asset, netted against the gross loss and LAE reserve liability, or both. The following table presents changes in the Company’s insurance loss recoverable and changes in recoveries on unpaid losses reported within the Company’s claim liability for the three months ended March 31, 2018. 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 recorded 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 Three Months Ended March 31, 2018 |  |  |
|  |  | Gross |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Gross
|  |  | Reserve |  |  |  |  |  |  |  |  |  |  |  |  | Reserve
|  |  | as of |  |  |  | Accretion |  | Changes in |  |  |  |  |  | Changes in |  |  |  | as of
|  |  | December 31, |  | Collections |  | of |  | Discount |  | Changes in |  |  | LAE |  |  |  | March 31,
In millions |  | 2017 |  | for Cases |  | Recoveries |  | Rates |  | Assumptions |  |  | Recoveries |  | Other(1) |  | 2018
Insurance loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| recoverable |  | $ | 511 |  | $ | (14) |  | $ | 3 |  | $ | (15) |  | $ | 44 | (2) |  | $ | - |  | $ | 1 |  | $ | 530
Recoveries on unpaid |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| losses (3) |  |  | 35 |  |  | - |  |  | - |  |  | (1) |  |  | - |  |  |  | 1 |  |  | - |  |  | 35
Total |  | $ | 546 |  | $ | (14) |  | $ | 3 |  | $ | (16) |  | $ | 44 |  |  | $ | 1 |  | $ | 1 |  | $ | 565
____________
(1) - Primarily changes in amount and timing of collections.
(2) - Includes amounts which have been paid and are expected to be recovered in the future.
(3) - As of March 31, 2018 and December 31, 2017, excludes Puerto Rico recoveries which have been netted against reserves.
The increase in the Company’s insurance loss recoverable reflected in the preceding table was primarily due to actual loss payments on certain Puerto Rico credits partially offset by excess spread collections on certain RMBS transactions. Loss and LAE Activity The Company’s financial guarantee insurance losses and LAE (excluding insured credit derivatives and consolidated VIEs), net of reinsurance for the three months ended March 31, 2018 and 2017 are presented in the following table:
|  |  | Three Months Ended March 31, |
| In millions |  | 2018 |  | 2017 |
| U.S. Public Finance Insurance Segment |  | $ | 77 |  | $ | 11 |
| International and Structured Finance Insurance Segment: |  |  |  |  |  |  |
|  | Second-lien RMBS |  |  | 2 |  |  | 23 |
|  | First-lien RMBS |  |  | (12) |  |  | 57 |
|  | CDOs |  |  | 5 |  |  | 2 |
|  | Other(1) |  |  | - |  |  | 1 |
| Losses and LAE expense (benefit) |  | $ | 72 |  | $ | 94 |
| ________________ |  |  |  |
| (1) - Includes non-U.S. public finance and other issues. |  |  |  |
For three months ended March 31, 2018, losses and LAE primarily related to increases in actual and expected payments on Puerto Rico exposures. For three months ended March 31, 2017, losses and LAE primarily related to increases in expected payments on insured RMBS transactions and decreases in projected collections from excess spread within insured RMBS securitizations. 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 three months ended March 31, 2018 and 2017, gross LAE related to remediating insured obligations were $13 million and $12 million, respectively. Surveillance Categories The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of March 31, 2018:
|  |  |  |  | Surveillance Categories
|  |  |  |  | Caution |  | Caution |  | Caution |  |  |  |  |  |
|  |  |  |  | List |  | List |  | List |  | Classified |  |  |
$ in millions |  | Low |  | Medium |  | High |  | List |  | Total
Number of policies |  |  | 72 |  |  | 19 |  |  | 1 |  |  | 275 |  |  | 367
Number of issues (1) |  |  | 18 |  |  | 5 |  |  | 1 |  |  | 115 |  |  | 139
Remaining weighted average contract |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| period (in years) |  |  | 7.0 |  |  | 8.5 |  |  | 8.4 |  |  | 9.6 |  |  | 8.8
Gross insured contractual payments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| outstanding: (2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Principal |  | $ | 2,371 |  | $ | 159 |  | $ | 104 |  | $ | 5,983 |  | $ | 8,617
|  | Interest |  |  | 2,451 |  |  | 93 |  |  | 46 |  |  | 5,658 |  |  | 8,248
|  |  | Total |  | $ | 4,822 |  | $ | 252 |  | $ | 150 |  | $ | 11,641 |  | $ | 16,865
Gross Claim Liability (3) |  | $ | - |  | $ | - |  | $ | - |  | $ | 1,107 |  | $ | 1,107
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Gross Potential Recoveries (4) |  |  | - |  |  | - |  |  | - |  |  | 878 |  |  | 878
| Discount, net (5) |  |  | - |  |  | - |  |  | - |  |  | (248) |  |  | (248)
Net claim liability (recoverable) |  | $ | - |  | $ | - |  | $ | - |  | $ | 477 |  | $ | 477
Unearned premium revenue |  | $ | 7 |  | $ | 1 |  | $ | 3 |  | $ | 75 |  | $ | 86
__________ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments on the insured debt.
(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3) - The gross claim liability with respect to Puerto Rico exposures are net of expected recoveries for policies in a net payable position.
(4) - Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable position.
(5) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of December 31, 2017:
|  |  |  |  | Surveillance Categories
|  |  |  |  | Caution |  | Caution |  | Caution |  |  |  |  |  |
|  |  |  |  | List |  | List |  | List |  | Classified |  |  |
$ in millions |  | Low |  | Medium |  | High |  | List |  | Total
Number of policies |  |  | 89 |  |  | 5 |  |  | 1 |  |  | 280 |  |  | 375
Number of issues (1) |  |  | 20 |  |  | 4 |  |  | 1 |  |  | 119 |  |  | 144
Remaining weighted average contract |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| period (in years) |  |  | 7.4 |  |  | 4.3 |  |  | 8.7 |  |  | 9.7 |  |  | 8.9
Gross insured contractual payments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| outstanding: (2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Principal |  | $ | 2,764 |  | $ | 13 |  | $ | 104 |  | $ | 6,083 |  | $ | 8,964
|  | Interest |  |  | 2,676 |  |  | 3 |  |  | 46 |  |  | 5,756 |  |  | 8,481
|  |  | Total |  | $ | 5,440 |  | $ | 16 |  | $ | 150 |  | $ | 11,839 |  | $ | 17,445
Gross Claim Liability (3) |  | $ | - |  | $ | - |  | $ | - |  | $ | 1,082 |  | $ | 1,082
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Gross Potential Recoveries (4) |  |  | - |  |  | - |  |  | - |  |  | 782 |  |  | 782
| Discount, net (5) |  |  | - |  |  | - |  |  | - |  |  | (178) |  |  | (178)
Net claim liability (recoverable) |  | $ | - |  | $ | - |  | $ | - |  | $ | 478 |  | $ | 478
Unearned premium revenue |  | $ | 9 |  | $ | - |  | $ | 4 |  | $ | 77 |  | $ | 90
__________
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments on the insured debt.
(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3) - The gross claim liability with respect to Puerto Rico exposures are net of expected recoveries for policies in a net payable position.
(4) - Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable position.
(5) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
As of March 31, 2018 and December 31, 2017, the gross claim liability and gross potential recoveries primarily related to insured RMBS transactions as well as certain Puerto Rico exposures. As of March 31, 2018 and December 31, 2017, these potential recoveries exclude the recoveries of Zohar I and Zohar II that are included in “Loans receivable at fair value” which are presented in “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets. 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 insurance 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 claims plus the present value of projected estimated 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 potential recoveries reflect the elimination of claim liabilities and potential recoveries related to VIEs consolidated by the Company. As of March 31, 2018 and December 31, 2017, reinsurance recoverable on paid and unpaid losses was $20 million and $17 million, respectively, and was included in “Other assets” on the Company’s consolidated balance sheets.

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