XML 24 R13.htm IDEA: XBRL DOCUMENT
v3.19.1

Loss and Loss Adjustment Expense Reserves | 3 Months Ended
--- | ---
Mar. 31, 2019
Text Block [Abstract] |
Loss and Loss Adjustment Expense Reserves | Note 5: Loss and Loss Adjustment Expense Reserves 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 cas h 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 outs tanding for c apital 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 of the 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 Pu erto Rico, certain credits that the Company insures have filed petitio ns for covered instrumentalities under Title III of PROMESA, which incorporates by reference provisions from the Bankruptcy Code. This could lead to an increase in defaults by such entiti es on the payment of their obligations and losses or impairments i n 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. In February of 2019, the COFINA Plan of Adjustment was confirmed by the District Court. Refer to “Note 1: Business Development and Risk and Uncertainties”, for further information on the Company’s Puerto Rico e xposures. 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 a polic y insuring a credi t derivative or on financial guarantee VIEs that are eliminated in consolidation. The p olic y 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. 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 Compa ny’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, 2019 for both first and second-lien RMBS transactions usin g 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 recoverie s 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, 2018, for additional information on 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, r oll r ates, 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 loan s 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 t he 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 amo unts collected from excess spread. Excess spread also includes subsequent recoveries on previously charged-off loans associated with insured second-lien RMBS securitizations. Second-lien Put-Back Claims Related to Ineligible Loans The Company has settled t he majority of the Company’s put-back claims relating to the inclusion of ineligible loans in securitizations it insured. Only its claims against Credit Suisse remain outstanding. Credit Suisse has challenged the Company’s assessment of the ineligibility o f individual mortgage loans and the dispute is the subject of litigation for which there is no assurance that the Company will prevail. The Company’s settlement amounts on its prior put-back claims have been consistent with the put-back recoveries that had been included in the Company’s financial statements at the times preceding the settlements. 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. The Company is also entitled to collect inte rest 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 ra te, 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 expect ed 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 ma terially 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 accountin g 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 f orm 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-se ctor and corporate CDOs). 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, 2018, for additional information o n the Company’s process for estimating reserves on these policies. Zohar Recoveries MBIA Corp. will seek to recover the payment s it made (plus interest and expenses) with respect to Zohar I and Zohar II. MBIA Corp. anticipates that the primary source of t he recover ies w ill come from the monetization of the Zohar A ssets as anticipated in the Zohar Bankruptcy Settlement. Refer to “Note 1: Business Developments and Risks and Uncertainties” for additional information about the estimated Zohar recoveries. Notwithstanding the procedures agreed to in the Zohar Bankruptcy Settlement, there can be no assurance 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 Zoh ar II. Failure to recover a substantial amount of such payments could impede MBIA Corp.’s 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 NYIL and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBI A 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 re coveries before consolidated VIE eliminations, along with amounts that were eliminated as a result of consolidat ed VIEs, which are included in the Company’s consolidated balance sheets as of March 31, 2019 and December 31, 2018 are presented in th e following table:
|  |  | As of March 31, 2019 |  |  | As of December 31, 2018 |
In millions | Balance Sheet Line Item |  |  | Balance Sheet Line Item |
|  |  | Insurance loss recoverable |  | Loss and LAE reserves |  |  | Insurance loss recoverable |  | Loss and LAE reserves |
U.S. Public Finance Insurance |  |  |  |  |  |  |  |  |  |  |  |  |
| Before VIE eliminations | $ | 630 |  | $ | 478 |  |  | $ | 571 |  | $ | 551 |
| VIE eliminations |  | - |  |  | (75) |  |  |  | - |  |  | - |
|  | Total U.S. public finance insurance |  | 630 |  |  | 403 |  |  |  | 571 |  |  | 551 |
International and Structured Finance Insurance: |  |  |  |  |  |  |  |  |  |  |
| Before VIE eliminations(1) |  | 1,389 |  |  | 668 |  |  |  | 1,430 |  |  | 637 |
| VIE eliminations(1) |  | (436) |  |  | (265) |  |  |  | (437) |  |  | (254) |
|  | Total international and structured finance insurance |  | 953 |  |  | 403 |  |  |  | 993 |  |  | 383 |
| Total | $ | 1,583 |  | $ | 806 |  |  | $ | 1,564 |  | $ | 934 |
|  | _________________ |  |  |  |  |  |  |  |  |  |  |  |  |
|  | (1) - Includes loan repurchase commitments of $420 million and $418 million as of March 31, 2019 and December 31, 2018, respectively. |
Changes in Loss and LAE Reserves The following table present s changes in the Company’s loss and LAE reserves for the three months ended March 31, 2019. 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, 2019, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 2.38%. LAE reserves are g enerally expected to be settled within a one-year period and are not discounted. As of March 31, 2019 and December 31, 2018, the Company’s gross loss and LAE reserves included $51 million and $60 million, respec tively, related to LAE.
In millions |  | Changes in Loss and LAE Reserves for the Three Months Ended March 31, 2019 |  |  |
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,
2018 |  | Payments |  | Discount |  | Rates |  | Assumptions |  | Revenue |  | Reserves |  | 2019
$ | 934 |  | $ | (84) |  | $ | 5 |  | $ | (27) |  | $ | (37) |  | $ | 24 |  | $ | (9) |  | $ | 806
The decrease in the Company’s loss reserves primarily relates to payments made on certain Puerto Rico credits and the consolidation of credits, with loss reserves, as VI Es, partially offset by an increase in reserves on RMBS transactions. Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses 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 present s 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, 2019. Changes in insurance loss r ecoverable 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, 2019 |  |  |
|  |  | 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 |  | 2018 |  | for Cases |  | Recoveries |  | Rates |  | Assumptions |  | Recoveries |  | Other(1) |  | 2019
Insurance loss recoverable |  | $ | 1,564 |  | $ | (58) |  | $ | 10 |  | $ | 28 |  | $ | 40 | (2) | $ | - |  | $ | (1) |  | $ | 1,583
Recoveries on unpaid losses (3) |  |  | 19 |  |  | - |  |  | - |  |  | 1 |  |  | (1) |  |  | - |  |  | - |  |  | 19
Total |  | $ | 1,583 |  | $ | (58) |  | $ | 10 |  | $ | 29 |  | $ | 39 |  | $ | - |  | $ | (1) |  | $ | 1,602
____________
(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) - Excludes certain Puerto Rico recoveries which have been netted against reserves.
The inc rease in the Company’s insurance loss recoverable reflected in the preceding table was primarily due to amounts related to the anticipated recovery of claims paid to certain Puerto Rico credits offset by collections on insured RMBS transactions. Loss and LAE Activity For the three months ended March 31, 2019, the benefit to losses and LAE primarily related to an increase in expected recoveries on Puerto Rico exposures partially offset by incurred losses related to first-lien RMBS transactions. For the three months ended March 31, 2018, losses and LAE related to increases in actual and expected payments on Puerto Rico exposures. Costs associated with remediating insured obligations assigned to the Company’s surveillance categori es are recorded as LAE and are included in “Losses and loss adjustment” expenses on the Company’s consolidated statements of operations. For the three months ended March 31, 2019 and 2018, gross LAE related to remediating insured obligations were $1 million and $13 million, respectively. Surveillance Categories 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 March 31, 2019:
|  |  |  |  | Surveillance Categories
|  |  |  |  | Caution |  | Caution |  | Caution |  |  |  |  |  |
|  |  |  |  | List |  | List |  | List |  | Classified |  |  |
$ in millions |  | Low |  | Medium |  | High |  | List |  | Total
Number of policies |  |  | 47 |  |  | 18 |  |  | - |  |  | 229 |  |  | 294
Number of issues (1) |  |  | 15 |  |  | 4 |  |  | - |  |  | 99 |  |  | 118
Remaining weighted average contract |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| period (in years) |  |  | 6.6 |  |  | 7.8 |  |  | - |  |  | 7.6 |  |  | 7.4
Gross insured contractual payments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| outstanding: (2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Principal |  | $ | 1,527 |  | $ | 249 |  | $ | - |  | $ | 4,267 |  | $ | 6,043
|  | Interest |  |  | 2,068 |  |  | 122 |  |  | - |  |  | 1,781 |  |  | 3,971
|  |  | Total |  | $ | 3,595 |  | $ | 371 |  | $ | - |  | $ | 6,048 |  | $ | 10,014
Gross Claim Liability (3) |  | $ | - |  | $ | - |  | $ | - |  | $ | 928 |  | $ | 928
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Gross Potential Recoveries (4) |  |  | - |  |  | - |  |  | - |  |  | 1,999 |  |  | 1,999
| Discount, net (5) |  |  | - |  |  | - |  |  | - |  |  | (300) |  |  | (300)
Net claim liability (recoverable) |  | $ | - |  | $ | - |  | $ | - |  | $ | (771) |  | $ | (771)
Unearned premium revenue |  | $ | 5 |  | $ | 4 |  | $ | - |  | $ | 41 |  | $ | 50
Reinsurance recoverable on paid and unpaid losses (6) |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 19
__________ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(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.
(6) - Included in "Other assets" on the Company's consolidated balance sheets.
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, 2018:
|  |  |  |  | Surveillance Categories
|  |  |  |  | Caution |  | Caution |  | Caution |  |  |  |  |  |
|  |  |  |  | List |  | List |  | List |  | Classified |  |  |
$ in millions |  | Low |  | Medium |  | High |  | List |  | Total
Number of policies |  |  | 50 |  |  | 18 |  |  | - |  |  | 233 |  |  | 301
Number of issues (1) |  |  | 16 |  |  | 4 |  |  | - |  |  | 102 |  |  | 122
Remaining weighted average contract |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| period (in years) |  |  | 6.7 |  |  | 8.0 |  |  | - |  |  | 9.7 |  |  | 8.9
Gross insured contractual payments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| outstanding: (2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Principal |  | $ | 1,604 |  | $ | 249 |  | $ | - |  | $ | 5,353 |  | $ | 7,206
|  | Interest |  |  | 2,118 |  |  | 123 |  |  | - |  |  | 5,414 |  |  | 7,655
|  |  | Total |  | $ | 3,722 |  | $ | 372 |  | $ | - |  | $ | 10,767 |  | $ | 14,861
Gross Claim Liability (3) |  | $ | - |  | $ | - |  | $ | - |  | $ | 977 |  | $ | 977
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Gross Potential Recoveries (4) |  |  | - |  |  | - |  |  | - |  |  | 2,255 |  |  | 2,255
| Discount, net (5) |  |  | - |  |  | - |  |  | - |  |  | (670) |  |  | (670)
Net claim liability (recoverable) |  | $ | - |  | $ | - |  | $ | - |  | $ | (608) |  | $ | (608)
Unearned premium revenue |  | $ | 5 |  | $ | 4 |  | $ | - |  | $ | 63 |  | $ | 72
Reinsurance recoverable on paid and unpaid losses (6) |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 21
__________
(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.
(6) - Included in "Other assets" on the Company's consolidated balance sheets.

X
- Definition The entire disclosure for liabilities related to future policy benefits and unpaid claims and claim adjustments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 40 -URI http://asc.fasb.org/subtopic&trid=2560295 + 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