GAAP AGO-03-31-2015-10Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-Q
ý
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2015
Or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition Period from              to               
Commission File No. 001-32141 
ASSURED GUARANTY LTD.
(Exact name of registrant as specified in its charter) 
Bermuda
 
98-0429991
(State or other jurisdiction
 
(I.R.S. employer
of incorporation)
 
identification no.)
 
30 Woodbourne Avenue
Hamilton HM 08
Bermuda
(Address of principal executive offices)
(441) 279-5700
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x
The number of registrant’s Common Shares ($0.01 par value) outstanding as of May 7, 2015 was 150,902,096 (includes 47,517 unvested restricted shares).
 

Table of Contents


ASSURED GUARANTY LTD.

INDEX TO FORM 10-Q
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Table of Contents

PART I.
FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
Assured Guaranty Ltd.

Consolidated Balance Sheets (unaudited)
 
(dollars in millions except per share and share amounts)
 
 
As of
March 31, 2015
 
As of
December 31, 2014
Assets
 

 
 

Investment portfolio:
 

 
 

Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $9,310 and $9,972)
$
9,833

 
$
10,491

Short-term investments, at fair value
349

 
767

Other invested assets
132

 
126

Total investment portfolio
10,314

 
11,384

Cash
885

 
75

Premiums receivable, net of commissions payable
700

 
729

Ceded unearned premium reserve
365

 
381

Deferred acquisition costs
120

 
121

Reinsurance recoverable on unpaid losses
77

 
78

Salvage and subrogation recoverable
128

 
151

Credit derivative assets
77

 
68

Deferred tax asset, net
218

 
260

Financial guaranty variable interest entities’ assets, at fair value
1,499

 
1,402

Other assets
294

 
276

Total assets
$
14,677

 
$
14,925

Liabilities and shareholders’ equity
 

 
 

Unearned premium reserve
$
4,127

 
$
4,261

Loss and loss adjustment expense reserve
787

 
799

Reinsurance balances payable, net
74

 
107

Long-term debt
1,304

 
1,303

Credit derivative liabilities
859

 
963

Current income tax payable
—

 
5

Financial guaranty variable interest entities’ liabilities with recourse, at fair value
1,278

 
1,277

Financial guaranty variable interest entities’ liabilities without recourse, at fair value
145

 
142

Other liabilities
317

 
310

Total liabilities
8,891

 
9,167

Commitments and contingencies (See Note 14)

 

Common stock ($0.01 par value, 500,000,000 shares authorized; 152,835,331 and 158,306,661 shares issued and outstanding)
2

 
2

Additional paid-in capital
1,733

 
1,887

Retained earnings
3,676

 
3,494

Accumulated other comprehensive income, net of tax of $149 and $159
370

 
370

Deferred equity compensation (320,193 and 320,193 shares)
5

 
5

Total shareholders’ equity
5,786

 
5,758

Total liabilities and shareholders’ equity
$
14,677

 
$
14,925

 
The accompanying notes are an integral part of these consolidated financial statements.


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Assured Guaranty Ltd.

Consolidated Statements of Operations (unaudited)
 
(dollars in millions except per share amounts)

 
Three Months Ended March 31,
 
2015
 
2014
Revenues
 
 
 
Net earned premiums
$
142

 
$
132

Net investment income
101

 
103

Net realized investment gains (losses):
 
 
 
Other-than-temporary impairment losses
(5
)
 
(3
)
Less: portion of other-than-temporary impairment loss
recognized in other comprehensive income
2

 
2

Net impairment loss
(7
)
 
(5
)
Other net realized investment gains (losses)
23

 
7

Net realized investment gains (losses)
16

 
2

Net change in fair value of credit derivatives:
 
 
 
Realized gains (losses) and other settlements
21

 
19

Net unrealized gains (losses)
103

 
(230
)
Net change in fair value of credit derivatives
124

 
(211
)
Fair value gains (losses) on committed capital securities
2

 
(9
)
Fair value gains (losses) on financial guaranty variable interest entities
(7
)
 
157

Other income (loss)
(9
)
 
21

Total revenues
369

 
195

Expenses
 
 
 
Loss and loss adjustment expenses
18

 
41

Amortization of deferred acquisition costs
4

 
5

Interest expense
25

 
20

Other operating expenses
56

 
60

Total expenses
103

 
126

Income (loss) before income taxes
266

 
69

Provision (benefit) for income taxes
 
 
 
Current
13

 
21

Deferred
52

 
6

Total provision (benefit) for income taxes
65

 
27

Net income (loss)
$
201

 
$
42

 
 
 
 
Earnings per share:
 
 
 
Basic
$
1.29

 
$
0.23

Diluted
$
1.28

 
$
0.23

Dividends per share
$
0.12

 
$
0.11

 
The accompanying notes are an integral part of these consolidated financial statements.

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Assured Guaranty Ltd.

Consolidated Statements of Comprehensive Income (unaudited)
 
(in millions)
 
 
Three Months Ended March 31,
 
2015
 
2014
Net income (loss)
$
201

 
$
42

Unrealized holding gains (losses) arising during the period on:
 
 
 
Investments with no other-than-temporary impairment, net of tax provision (benefit) of $1 and $41
18

 
94

Investments with other-than-temporary impairment, net of tax provision (benefit) of $(2) and $3
(2
)
 
8

Unrealized holding gains (losses) arising during the period, net of tax
16

 
102

Less: reclassification adjustment for gains (losses) included in net income (loss), net of tax provision (benefit) of $6 and $(1)
10

 
(2
)
Change in net unrealized gains on investments
6

 
104

Other, net of tax provision
(6
)
 
0

Other comprehensive income (loss)
$
0

 
$
104

Comprehensive income (loss)
$
201

 
$
146

 
The accompanying notes are an integral part of these consolidated financial statements.

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Assured Guaranty Ltd.

Consolidated Statement of Shareholders’ Equity (unaudited)
 
For the Three Months Ended March 31, 2015
 
(dollars in millions, except share data)

 
Common Shares Outstanding
 
 
Common Stock Par Value
 
Additional
Paid-in
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive Income
 
Deferred
Equity Compensation
 
Total
Shareholders’ Equity
Balance at December 31, 2014
158,306,661

 
 
$
2

 
$
1,887

 
$
3,494

 
$
370

 
$
5

 
$
5,758

Net income
—

 
 
—

 
—

 
201

 
—

 
—

 
201

Dividends ($0.12 per share)
—

 
 
—

 
—

 
(19
)
 
—

 
—

 
(19
)
Common stock repurchases
(5,860,291
)
 
 
0

 
(152
)
 
—

 
—

 
—

 
(152
)
Share-based compensation and other
388,961

 
 
0

 
(2
)
 
—

 
—

 
—

 
(2
)
Other comprehensive income
—

 
 
—

 
—

 
—

 
0

 
—

 
0

Balance at March 31, 2015
152,835,331

 
 
$
2

 
$
1,733

 
$
3,676

 
$
370

 
$
5

 
$
5,786

 
The accompanying notes are an integral part of these consolidated financial statements.

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Assured Guaranty Ltd.

Consolidated Statements of Cash Flows (unaudited)
 
(in millions)
 
 
Three Months Ended March 31,
 
2015
 
2014
Net cash flows provided by (used in) operating activities
$
23

 
$
101

Investing activities
 

 
 

Fixed-maturity securities:
 

 
 

Purchases
(448
)
 
(517
)
Sales
841

 
155

Maturities
155

 
148

Net sales (purchases) of short-term investments
420

 
184

Net proceeds from paydowns on financial guaranty variable interest entities’ assets
30

 
286

Other
3

 
19

Net cash flows provided by (used in) investing activities
1,001

 
275

Financing activities
 

 
 

Dividends paid
(19
)
 
(20
)
Repurchases of common stock
(152
)
 
(35
)
Share activity under option and incentive plans
(5
)
 
0

Net paydowns of financial guaranty variable interest entities’ liabilities
(39
)
 
(281
)
Repayment of long-term debt
(1
)
 
(6
)
Other
4

 
—

Net cash flows provided by (used in) financing activities
(212
)
 
(342
)
Effect of foreign exchange rate changes
(2
)
 
1

Increase (decrease) in cash
810

 
35

Cash at beginning of period
75

 
184

Cash at end of period
$
885

 
$
219

Supplemental cash flow information
 

 
 

Cash paid (received) during the period for:
 

 
 

Income taxes
$
17

 
$
37

Interest
$
7

 
$
8

The accompanying notes are an integral part of these consolidated financial statements.

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Assured Guaranty Ltd.

Notes to Consolidated Financial Statements (unaudited)
 
March 31, 2015

1.
Business and Basis of Presentation
 
Business
 
Assured Guaranty Ltd. (“AGL” and, together with its subsidiaries, “Assured Guaranty” or the “Company”) is a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the United States (“U.S.”) and international public finance (including infrastructure) and structured finance markets. The Company applies its credit underwriting judgment, risk management skills and capital markets experience to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. If an obligor defaults on a scheduled payment due on an obligation, including a scheduled principal or interest payment (“Debt Service”), the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The Company guarantees obligations issued principally in the U.S. and the United Kingdom ("U.K."), and also guarantees obligations issued in other countries and regions, including Australia and Western Europe.

In the past, the Company sold credit protection by issuing policies that guaranteed payment obligations under credit derivatives, primarily credit default swaps ("CDS"). Financial guaranty contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for financial guaranty insurance contracts. The Company’s credit derivative transactions are governed by International Swaps and Derivative Association, Inc. (“ISDA”) documentation. The Company has not entered into any new CDS in order to sell credit protection since the beginning of 2009, when regulatory guidelines were issued that limited the terms under which such protection could be sold. The capital and margin requirements applicable under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) also contributed to the Company not entering into such new CDS since 2009. The Company actively pursues opportunities to terminate existing CDS, which have the effect of reducing future fair value volatility in income and/or reducing rating agency capital charges.

Basis of Presentation
 
The unaudited interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and, in the opinion of management, reflect all adjustments that are of a normal recurring nature, necessary for a fair statement of the financial condition, results of operations and cash flows of the Company and its consolidated financial guaranty variable interest entities (“FG VIEs”) for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited interim consolidated financial statements are as of March 31, 2015 and cover the three-month period ended March 31, 2015 ("First Quarter 2015") and the three-month period ended March 31, 2014 ("First Quarter 2014"). Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted. The year-end balance sheet data was derived from audited financial statements.
 
The unaudited interim consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries (collectively, the “Subsidiaries”), and its consolidated FG VIEs. Intercompany accounts and transactions between and among all consolidated entities have been eliminated.
 
These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in AGL’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the U.S. Securities and Exchange Commission (the “SEC”).

The Company's principal insurance company subsidiaries are:

•
Assured Guaranty Municipal Corp. ("AGM"), domiciled in New York;

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•
Municipal Assurance Corp. ("MAC"), domiciled in New York;
•
Assured Guaranty Corp. ("AGC"), domiciled in Maryland;
•
Assured Guaranty (Europe) Ltd. ("AGE"), organized in the United Kingdom; and
•
Assured Guaranty Re Ltd. (“AG Re”), domiciled in Bermuda.

On April 1, 2015, AGC completed the acquisition of all of the issued and outstanding capital stock of financial guaranty insurer Radian Asset Assurance Inc. (“Radian Asset”) in return for a payment to Radian Guaranty Inc. of $804.5 million made from AGC's available funds. Radian Asset was merged with and into AGC, with AGC as the surviving company of the merger. As of March 31, 2015, Radian Asset had approximately $1.3 billion of qualified statutory capital. The Radian Asset acquisition added $13.6 billion to net par outstanding on April 1, 2015, and is consistent with one of the Company's key business strategies of building a book of business through acquisitions. The Company is in the process of allocating the purchase price to the assets acquired and liabilities assumed and conforming accounting policies but has not yet completed the acquisition date balance sheet and pro forma financial statements. The Company intends to include this information in its Second Quarter 2015 Form 10-Q.
 
The Company’s organizational structure includes various holding companies, two of which - Assured Guaranty US Holdings Inc. (“AGUS”) and Assured Guaranty Municipal Holdings Inc. (“AGMH”) - have public debt outstanding. See Note 15, Long-Term Debt and Credit Facilities.

Future Application of Accounting Standards

Consolidation

In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve certain areas of consolidation guidance for legal entities such as limited partnerships, limited liability companies, and securitization structures. The ASU will be effective on January 1, 2016. Early adoption is permitted, including adoption in an interim period. The Company does not expect that ASU 2015-02 will have any material effect on its Consolidated Financial Statements.

Interest

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Topic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU will be effective on January 1, 2016 and should be applied retrospectively. The adoption of this ASU will require the Company to reclassify its debt issuance costs from other assets to long-term debt on the Consolidated Balance Sheet. As of March 31, 2015, the debt issuance costs were approximately $6 million.

2.
Rating Actions
 
 Rating Actions
 
When a rating agency assigns a public rating to a financial obligation guaranteed by one of AGL’s insurance company subsidiaries, it generally awards that obligation the same rating it has assigned to the financial strength of the AGL subsidiary that provides the guaranty. Investors in products insured by AGL’s insurance company subsidiaries frequently rely on ratings published by the rating agencies because such ratings influence the trading value of securities and form the basis for many institutions’ investment guidelines as well as individuals’ bond purchase decisions. Therefore, the Company manages its business with the goal of achieving strong financial strength ratings. However, the methodologies and models used by rating agencies differ, presenting conflicting goals that may make it inefficient or impractical to reach the highest rating level. The methodologies and models are not fully transparent, contain subjective elements and data (such as assumptions about future market demand for the Company’s products) and change frequently. Ratings are subject to continuous review and revision or withdrawal at any time. If the financial strength ratings of one (or more) of the Company’s insurance subsidiaries were reduced below current levels, the Company expects it could have adverse effects on the impacted subsidiary's future business opportunities as well as the premiums the impacted subsidiary could charge for its insurance policies.     

In the last several years, Standard & Poor's Ratings Services ("S&P") and Moody's Investors Service, Inc. ("Moody's") have changed, multiple times, their financial strength ratings of AGL's insurance subsidiaries, or changed the outlook on such ratings. More recently, Kroll Bond Rating Agency ("KBRA") and A.M. Best Company, Inc. have assigned financial strength

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ratings to some of AGL's insurance subsidiaries. The rating agencies' most recent actions and proposals related to AGL's insurance subsidiaries are:

•
On March 18, 2014, S&P upgraded the financial strength ratings of all of AGL's insurance subsidiaries to AA (stable outlook) from AA- (stable outlook); it affirmed such ratings in a credit analysis issued on July 2, 2014.

•
On July 2, 2014, Moody's affirmed the ratings of AGL and its subsidiaries, but changed to negative the outlook of the financial strength ratings of AGC and its subsidiary Assured Guaranty (UK) Ltd. ("AGUK").     

•
On August 4, 2014, KBRA affirmed MAC's AA+ (stable outlook) financial strength rating.

•
On November 13, 2014, KBRA assigned a financial strength rating of AA+ (stable outlook) to AGM.

•
On January 20, 2015, Moody's adopted changes to its credit methodology for financial guaranty insurance companies, and on February 18, 2015 Moody's published a credit opinion maintaining its existing ratings of AGL and its subsidiaries under that new methodology.

•
Effective April 8, 2015, at the Company's request, Moody’s withdrew the financial strength ratings it had assigned to Assured Guaranty Re Ltd. (AG Re) and Assured Guaranty Re Overseas Ltd. ("AGRO").

•
On May 5, 2015, A.M. Best Company, Inc. assigned a financial strength rating of A+ (Stable) to AGRO.

There can be no assurance that any of the rating agencies will not take negative action on their financial strength ratings of AGL's insurance subsidiaries in the future.

For a discussion of the effects of rating actions on the Company, see the following:

•
Note 6, Financial Guaranty Insurance Losses
•
Note 8, Financial Guaranty Contracts Accounted for as Credit Derivatives
•
Note 13, Reinsurance and Other Monoline Exposures
•
Note 15, Long-Term Debt and Credit Facilities

3.
Outstanding Exposure
 
The Company’s financial guaranty contracts are written in either insurance or credit derivative form, but collectively are considered financial guaranty contracts. The Company seeks to limit its exposure to losses by underwriting obligations that are investment grade at inception, or in the case of restructurings of troubled credits, the Company may underwrite new issuances that one or more of the rating agencies may rate below-investment-grade ("BIG") as part of its loss mitigation strategy. The Company diversifies its insured portfolio across asset classes and, in the structured finance portfolio, requires rigorous subordination or collateralization requirements. Reinsurance is utilized in order to reduce net exposure to certain insured transactions.

     Public finance obligations insured by the Company consist primarily of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company also includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, health care facilities and government office buildings.

Structured finance obligations insured by the Company are generally issued by special purpose entities, including variable interest entities ("VIEs"), and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. Some of these VIEs are consolidated as described in Note 9, Consolidated Variable Interest Entities. Unless otherwise specified, the outstanding par and Debt Service amounts presented in this note include outstanding exposures on VIEs whether or not they are consolidated.


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Surveillance Categories
 
The Company segregates its insured portfolio into investment grade and BIG surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review for each exposure. BIG exposures include all exposures with internal credit ratings below BBB-. The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and are generally reflective of an approach similar to that employed by the rating agencies, except that the Company's internal credit ratings focus on future performance, rather than lifetime performance.
 
The Company monitors its investment grade credits to determine whether any need to be internally downgraded to BIG and refreshes its internal credit ratings on individual credits in quarterly, semi-annual or annual cycles based on the Company’s view of the credit’s quality, loss potential, volatility and sector. Ratings on credits in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter. The Company’s credit ratings on assumed credits are based on the Company’s reviews of low-rated credits or credits in volatile sectors, unless such information is not available, in which case, the ceding company’s credit rating of the transactions are used. The Company models the performance of many of its structured finance transactions as part of its periodic internal credit rating review of them.
 
Credits identified as BIG are subjected to further review to determine the probability of a loss. See Note 5, Expected Loss to be Paid, for additional information. Surveillance personnel then assign each BIG transaction to the appropriate BIG surveillance category based upon whether a future loss is expected and whether a claim has been paid. For surveillance purposes, the Company calculates present value using a constant discount rate of 4.5% or 5% depending on the insurance subsidiary. (Risk-free rates are used for calculating the expected loss for financial statement measurement purposes.)
 
More extensive monitoring and intervention is employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. The Company expects “future losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will pay more claims in the future of that transaction than it will have reimbursed. The three BIG categories are:
 
•
BIG Category 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected.
 
•
BIG Category 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims which is a claim that the Company expects to be reimbursed within one year) have yet been paid.
 
•
BIG Category 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid.

Components of Outstanding Exposure

Unless otherwise noted, ratings disclosed herein on the Company's insured portfolio reflect its internal ratings. The Company classifies those portions of risks benefiting from reimbursement obligations collateralized by eligible assets held in trust in acceptable reimbursement structures as the higher of 'AA' or their current internal rating.

The Company purchases securities that it has insured, and for which it has expected losses to be paid, in order to
mitigate the economic effect of insured losses ("loss mitigation securities"). The Company excludes amounts attributable to loss mitigation securities (unless otherwise indicated) from par and Debt Service outstanding, because it manages such securities as investments and not insurance exposure.

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Financial Guaranty
Debt Service Outstanding

 
Gross Debt Service
Outstanding
 
Net Debt Service
Outstanding
 
March 31,
2015
 
December 31,
2014
 
March 31,
2015
 
December 31,
2014
 
(in millions)
Public finance
$
565,386

 
$
587,245

 
$
533,359

 
$
553,612

Structured finance
54,546

 
59,477

 
51,300

 
56,010

Total financial guaranty
$
619,932

 
$
646,722

 
$
584,659

 
$
609,622

 
In addition to the amounts shown in the table above, the Company’s net mortgage guaranty insurance debt service was approximately $113 million as of March 31, 2015 and $127 million as of December 31, 2014, related to loans originated in Ireland.

Financial Guaranty Portfolio by Internal Rating
As of March 31, 2015

 
 
Public Finance
U.S.
 
Public Finance
Non-U.S.
 
Structured Finance
U.S
 
Structured Finance
Non-U.S
 
Total
Rating
Category
 
Net Par
Outstanding
 
%
 
Net Par
Outstanding
 
%
 
Net Par
Outstanding
 
%
 
Net Par
Outstanding
 
%
 
Net Par
Outstanding
 
%
 
 
(dollars in millions)
AAA
 
$
3,563

 
1.1
%
 
$
613

 
2.1
%
 
$
18,176

 
47.3
%
 
$
4,397

 
57.8
%
 
$
26,749

 
6.9
%
AA
 
86,521

 
27.6

 
2,650

 
9.0

 
8,360

 
21.7

 
377

 
5.0

 
97,908

 
25.2

A
 
171,308

 
54.7

 
7,091

 
23.9

 
2,228

 
5.8

 
365

 
4.7

 
180,992

 
46.4

BBB
 
44,110

 
14.1

 
17,891

 
60.4

 
1,843

 
4.8

 
1,746

 
23.0

 
65,590

 
16.9

BIG
 
7,942

 
2.5

 
1,374

 
4.6

 
7,823

 
20.4

 
721

 
9.5

 
17,860

 
4.6

Total net par outstanding (1)
 
$
313,444

 
100.0
%
 
$
29,619

 
100.0
%
 
$
38,430

 
100.0
%
 
$
7,606

 
100.0
%
 
$
389,099

 
100.0
%
_____________________
(1)
Excludes $1.3 billion of loss mitigation securities insured and held by the Company as of March 31, 2015, which are primarily in the BIG category.


Financial Guaranty Portfolio by Internal Rating
As of December 31, 2014 

 
 
Public Finance
U.S.
 
Public Finance
Non-U.S.
 
Structured Finance
U.S
 
Structured Finance
Non-U.S
 
Total
Rating
Category
 
Net Par
Outstanding
 
%
 
Net Par
Outstanding
 
%
 
Net Par
Outstanding
 
%
 
Net Par
Outstanding
 
%
 
Net Par
Outstanding
 
%
 
 
(dollars in millions)
AAA
 
$
4,082

 
1.3
%
 
$
615

 
2.0
%
 
$
20,037

 
48.7
%
 
$
5,409

 
59.6
%
 
$
30,143

 
7.5
%
AA
 
90,464

 
28.1

 
2,785

 
8.9

 
8,213

 
19.9

 
503

 
5.5

 
101,965

 
25.3

A
 
176,298

 
54.7

 
7,192

 
22.9

 
2,940

 
7.1

 
445

 
4.9

 
186,875

 
46.3

BBB
 
43,429

 
13.5

 
19,363

 
61.7

 
1,795

 
4.4

 
1,912

 
21.1

 
66,499

 
16.4

BIG
 
7,850

 
2.4

 
1,404

 
4.5

 
8,186

 
19.9

 
807

 
8.9

 
18,247

 
4.5

Total net par outstanding (1)
 
$
322,123

 
100.0
%
 
$
31,359

 
100.0
%
 
$
41,171

 
100.0
%
 
$
9,076

 
100.0
%
 
$
403,729

 
100.0
%
_____________________
(1)
Excludes $1.3 billion of loss mitigation securities insured and held by the Company as of December 31, 2014, which are primarily in the BIG category.


10
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In addition to amounts shown in the tables above, the Company had outstanding commitments to provide guaranties of $38 million for structured finance and $410 million for public finance obligations as of March 31, 2015. The structured finance commitments include the unfunded component of pooled corporate and other transactions. The expiration dates for the public finance commitments range between April 9, 2015 and February 25, 2017, with $210 million expiring prior to the date of this filing and an additional $75 million expiring prior to December 31, 2015. The commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts.

Components of BIG Portfolio

Components of BIG Net Par Outstanding
(Insurance and Credit Derivative Form)
As of March 31, 2015

 
BIG Net Par Outstanding
 
Net Par
 
BIG 1
 
BIG 2
 
BIG 3
 
Total BIG
 
Outstanding
 
 
 
 
 
(in millions)
 
 
 
 
U.S. public finance
$
6,669

 
$
1,156

 
$
117

 
$
7,942

 
$
313,444

Non-U.S. public finance
863

 
511

 
—

 
1,374

 
29,619

First lien U.S. residential mortgage-backed securities ("RMBS"):
 

 
 

 
 

 
 

 
 

Prime first lien
49

 
59

 
241

 
349

 
454

Alt-A first lien
579

 
436

 
763

 
1,778

 
2,449

Option ARM
9

 
53

 
108

 
170

 
374

Subprime
179

 
529

 
831

 
1,539

 
3,935

Second lien U.S. RMBS:
 

 
 

 
 

 
 

 
 

Closed-end second lien
—

 
19

 
113

 
132

 
212

Home equity lines of credit (“HELOCs”)
1,235

 
29

 
240

 
1,504

 
1,654

Total U.S. RMBS
2,051

 
1,125

 
2,296

 
5,472

 
9,078

Triple-X life insurance transactions
—

 
—

 
598

 
598

 
3,133

Trust preferred securities (“TruPS”)
828

 
—

 
327

 
1,155

 
4,075

Other structured finance
927

 
237

 
155

 
1,319

 
29,750

Total
$
11,338

 
$
3,029

 
$
3,493

 
$
17,860

 
$
389,099



11
Table of Contents

Components of BIG Net Par Outstanding
(Insurance and Credit Derivative Form)
As of December 31, 2014

 
BIG Net Par Outstanding
 
Net Par
 
BIG 1
 
BIG 2
 
BIG 3
 
Total BIG
 
Outstanding
 
 
 
 
 
(in millions)
 
 
 
 
U.S. public finance
$
6,577

 
$
1,156

 
$
117

 
$
7,850

 
$
322,123

Non-U.S. public finance
1,402

 
2

 
—

 
1,404

 
31,359

First lien U.S. RMBS:
 

 
 

 
 

 
 

 
 

Prime first lien
68

 
33

 
252

 
353

 
471

Alt-A first lien
585

 
531

 
725

 
1,841

 
2,532

Option ARM
47

 
18

 
118

 
183

 
407

Subprime
156

 
654

 
765

 
1,575

 
4,051

Second lien U.S. RMBS:
 

 
 

 
 

 
 

 
 

Closed-end second lien
—

 
19

 
115

 
134

 
218

HELOCs
1,012

 
36

 
509

 
1,557

 
1,738

Total U.S. RMBS
1,868

 
1,291

 
2,484

 
5,643

 
9,417

Triple-X life insurance transactions
—

 
—

 
598

 
598

 
3,133

TruPS
997

 
—

 
336

 
1,333

 
4,326

Other structured finance
1,021

 
240

 
158

 
1,419

 
33,371

Total
$
11,865

 
$
2,689

 
$
3,693

 
$
18,247

 
$
403,729



BIG Net Par Outstanding
and Number of Risks
As of March 31, 2015

 
 
Net Par Outstanding
 
Number of Risks(2)
Description
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
 
(dollars in millions)
BIG:
 
 

 
 

 
 

 
 

 
 

 
 

Category 1
 
$
9,887

 
$
1,451

 
$
11,338

 
164

 
18

 
182

Category 2
 
2,345

 
684

 
3,029

 
73

 
12

 
85

Category 3
 
2,705

 
788

 
3,493

 
119

 
25

 
144

Total BIG
 
$
14,937

 
$
2,923

 
$
17,860

 
356

 
55

 
411




12
Table of Contents

 BIG Net Par Outstanding
and Number of Risks
As of December 31, 2014

 
 
Net Par Outstanding
 
Number of Risks(2)
Description
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
Financial
Guaranty
Insurance(1)
 
Credit
Derivative
 
Total
 
 
(dollars in millions)
BIG:
 
 

 
 

 
 

 
 

 
 

 
 

Category 1
 
$
10,195

 
$
1,670

 
$
11,865

 
164

 
18

 
182

Category 2
 
2,135

 
554

 
2,689

 
75

 
14

 
89

Category 3
 
2,892

 
801

 
3,693

 
119

 
24

 
143

Total BIG
 
$
15,222

 
$
3,025

 
$
18,247

 
358

 
56

 
414

_____________________
(1)    Includes net par outstanding for FG VIEs.
 
(2)
A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making Debt Service payments.
 
Exposure to Puerto Rico
         
The Company insures general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $4.9 billion net par as of March 31, 2015. The Company rates $4.7 billion net par of that amount BIG; included in that amount are the obligations of Puerto Rico Highway and Transportation Authority (“PRHTA”) and PREPA.

Puerto Rico has experienced significant general fund budget deficits in recent years. These deficits have been covered primarily with the net proceeds of bond issuances, interim financings provided by Government Development Bank for Puerto Rico (“GDB”) and, in some cases, one-time revenue measures or expense adjustment measures. In addition to high debt levels, Puerto Rico faces a challenging economic environment.

In June 2014, the Puerto Rico legislature passed the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the "Recovery Act") in order to provide a legislative framework for certain public corporations experiencing severe financial stress to restructure their debt, including PRHTA and PREPA. Subsequently, the Commonwealth stated PREPA might need to seek relief under the Recovery Act due to liquidity constraints.

In August 2014, PREPA entered into forbearance agreements with the GDB, its bank lenders, and bondholders and financial guaranty insurers (including AGM and AGC) that hold or guarantee more than 60% of PREPA's outstanding bonds, in order to address its near-term liquidity issues. Creditors, including AGM and AGC, agreed not to exercise available rights and remedies until March 31, 2015, and the bank lenders agreed to extend the maturity of two revolving lines of credit to the same date. PREPA agreed it would continue to make principal and interest payments on its outstanding bonds, and interest payments on its lines of credit. It also agreed it would develop a five year business plan and a recovery program in respect of its operations; a preliminary business plan was released in December 2014. Subsequently, the parties have extended these forbearance agreements through June 4, 2015. Creditors, including AGM and AGC, are in discussions among themselves and with PREPA regarding potentially extending the forbearance agreements beyond June 4, 2015, but there can be no assurance that such discussions will result in such an extension. PREPA, during the pendency of the Forbearance Agreement, has suspended deposits into the Debt Service Fund and has utilized amounts on deposit in the Debt Service Reserve Fund to pay debt service due on its bonds and other obligations through May 8, 2015.

Investors in bonds issued by PREPA filed suit in the United States District Court for the District of Puerto Rico asserting the Recovery Act violates the U.S. Constitution. On February 6, 2015, the U.S. District Court for the District of Puerto Rico ruled the Recovery Act is preempted by the U.S. Bankruptcy Code and is therefore void; on February 19, 2015, the Commonwealth appealed the ruling to the U.S. Court of Appeals for the First Circuit. In addition, the Commonwealth's Resident Commissioner has introduced a bill to the U.S. Congress that, if passed, would enable the Commonwealth to authorize one or more of its public corporations to restructure their debts under chapter 9 of the U.S Bankruptcy Code if they were to become insolvent. The passage of the Recovery Act, its subsequent invalidation, and the introduction of legislation that would

13
Table of Contents

enable the Commonwealth to authorize chapter 9 protection for its public corporations have resulted in uncertainty among investors about the rights of creditors of the Commonwealth and its related authorities and public corporations.

Following the enactment of the Recovery Act, S&P, Moody’s and Fitch Ratings lowered the credit rating of the Commonwealth’s bonds and the ratings on certain of its public corporations. In February, March and April 2015, Moody's, Fitch Ratings and S&P, respectively, each again lowered the credit rating of the Commonwealth's bonds and the ratings on certain of its public corporations. The Commonwealth has disclosed its liquidity has been adversely affected by rating agency downgrades and by the limited market access for its debt, and also noted it has relied on short-term financings and interim loans from the GDB and other private lenders, which reliance has constrained its liquidity and increased its near-term refinancing risk.

In early 2015, Puerto Rico enacted legislation designed to stabilize PRHTA and improve the liquidity of the GDB. The legislation provides for certain tax revenues that would support PRHTA and require the transfer of certain liabilities and revenues from PHRTA to another authority, as well as allowing the transfer of the operations of poorly performing transit facilities to a new authority.

The following tables show the Company’s exposure to general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.

Puerto Rico
Gross Par and Gross Debt Service Outstanding

 
Gross Par Outstanding
 
Gross Debt Service Outstanding
 
March 31,
2015
 
December 31,
2014
 
March 31,
2015
 
December 31,
2014
 
(in millions)
Previously Subject to the Voided Recovery Act (1)
$
3,059

 
$
3,058

 
$
5,252

 
$
5,326

Not Previously Subject to the Voided Recovery Act
2,977

 
2,977

 
4,675

 
4,748

   Total
$
6,036

 
$
6,035

 
$
9,927

 
$
10,074

____________________
(1)
On February 6, 2015, the U.S. District Court for the District of Puerto Rico ruled that the Recovery Act is preempted by the Federal Bankruptcy Code and is therefore void. On February 19, 2015, the Commonwealth appealed the ruling to the U.S. Court of Appeals for the First Circuit.


14
Table of Contents

Puerto Rico
Net Par Outstanding

 
 
As of
March 31, 2015
 
As of
December 31, 2014
 
 
Total
 
Internal Rating
 
Total
 
Internal Rating
 
 
(in millions)
Exposures Previously Subject to the Voided Recovery Act:
 
 
 
 
 
 
 
 
PRHTA (Transportation revenue)
 
$
844

 
BB-
 
$
844

 
BB-
PREPA
 
773

 
B-
 
772

 
B-
Puerto Rico Aqueduct and Sewer Authority
 
384

 
BB-
 
384

 
BB-
PRHTA (Highway revenue)
 
273

 
BB
 
273

 
BB
Puerto Rico Convention Center District Authority
 
174

 
BB-
 
174

 
BB-
Total
 
2,448

 
 
 
2,447

 
 
 
 
 
 
 
 
 
 
 
Exposures Not Previously Subject to the Voided Recovery Act:
 
 
 
 
 
 
 
 
Commonwealth of Puerto Rico - General Obligation Bonds
 
1,672

 
BB
 
1,672

 
BB
Puerto Rico Municipal Finance Agency
 
399

 
BB-
 
399

 
BB-
Puerto Rico Sales Tax Financing Corporation
 
269

 
BBB
 
269

 
BBB
Puerto Rico Public Buildings Authority
 
100

 
BB
 
100

 
BB
GDB
 
33

 
BB
 
33

 
BB
Puerto Rico Infrastructure Finance Authority
 
18

 
BB-
 
18

 
BB-
University of Puerto Rico
 
1

 
BB-
 
1

 
BB-
Total
 
2,492

 
 
 
2,492

 
 
Total net exposure to Puerto Rico
 
$
4,940

 
 
 
$
4,939

 
 



15
Table of Contents

The following table shows the scheduled amortization of the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations insured and rated BIG by the Company. The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the principal and interest due in any given period and the amount paid by the obligors.
     
Amortization Schedule of Puerto Rico BIG Net Par Outstanding
and BIG Net Debt Service Outstanding
As of March 31, 2015

 
Scheduled BIG Net Par Amortization
 
Scheduled BIG Net Debt Service Amortization
 
 
Previously Subject to the Voided Recovery Act
 
Not Previously Subject to the Voided Recovery Act
 
Total
 
Previously Subject to the Voided Recovery Act
 
Not Previously Subject to the Voided Recovery Act
 
Total
 
 
(in millions)
 
2015 (April 1 - June 30)
$
0

 
$
0

 
$
0

 
$
2

 
$
1

 
$
3

 
2015 (July 1 - September 30)
126

 
171

 
297

 
186

 
227

 
413

 
2015 (October 1 - December 31)
0

 
33

 
33

 
2

 
35

 
37

 
2016
84

 
183

 
267

 
200

 
287

 
487

 
2017
41

 
166

 
207

 
153

 
262

 
415

 
2018
48

 
109

 
157

 
158

 
195

 
353

 
2019
61

 
126

 
187

 
168

 
207

 
375

 
2020
73

 
182

 
255

 
176

 
258

 
434

 
2021
51

 
58

 
109

 
151

 
123

 
274

 
2022
43

 
67

 
110

 
140

 
129

 
269

 
2023
102

 
39

 
141

 
198

 
99

 
297

 
2024
82

 
78

 
160

 
173

 
136

 
309

 
2025-2029
576

 
340

 
916

 
951

 
566

 
1,517

 
2030-2034
440

 
387

 
827

 
696

 
542

 
1,238

 
2035 -2039
397

 
272

 
669

 
525

 
304

 
829

 
2040 -2044
78

 
12

 
90

 
146

 
13

 
159

 
2045 -2047
246

 
—

 
246

 
272

 
—

 
272

 
Total
$
2,448

 
$
2,223

 
$
4,671

 
$
4,297

 
$
3,384

 
$
7,681

 

Exposure to the Selected European Countries

Several European countries continue to experience significant economic, fiscal and/or political strains such that the likelihood of default on obligations with a nexus to those countries may be higher than the Company anticipated when such factors did not exist. The European countries where the Company has exposure and believes heightened uncertainties exist are: Hungary, Italy, Portugal and Spain (collectively, the “Selected European Countries”). The Company is closely monitoring its exposures in the Selected European Countries where it believes heightened uncertainties exist. The Company’s direct economic exposure to the Selected European Countries (based on par for financial guaranty contracts and notional amount for financial guaranty contracts accounted for as derivatives) is shown in the following table, net of ceded reinsurance.

16
Table of Contents

Net Direct Economic Exposure to Selected European Countries(1)
As of March 31, 2015

 
Hungary
 
Italy
 
Portugal
 
Spain
 
Total
 
(in millions)
Sovereign and sub-sovereign exposure:
 

 
 

 
 

 
 

 
 

Non-infrastructure public finance (2)
$
—

 
$
779

 
$
91

 
$
211

 
$
1,081

Infrastructure finance
265

 
11

 
11

 
120

 
407

Total sovereign and sub-sovereign exposure
265

 
790

 
102

 
331

 
1,488

Non-sovereign exposure:
 

 
 

 
 

 
 

 
 

Regulated utilities
—

 
210

 
—

 
—

 
210

RMBS
174

 
234

 
—

 
—

 
408

Total non-sovereign exposure
174

 
444

 
—

 
—

 
618

Total
$
439

 
$
1,234

 
$
102

 
$
331

 
$
2,106

Total BIG (See Note 5)
$
370

 
$
—

 
$
102

 
$
331

 
$
803

____________________
(1)
While the Company’s exposures are shown in U.S. dollars, the obligations the Company insures are in various currencies, primarily Euros. One of the residential mortgage-backed securities included in the table above includes residential mortgages in both Italy and Germany, and only the portion of the transaction equal to the portion of the original mortgage pool in Italian mortgages is shown in the table.

(2)
The exposure shown in the “Non-infrastructure public finance” category is from transactions backed by receivable payments from sub-sovereigns in Italy, Spain and Portugal. Sub-sovereign debt is debt issued by a governmental entity or government backed entity, or supported by such an entity, that is other than direct sovereign debt of the ultimate governing body of the country.
 
When the Company directly insures an obligation, it assigns the obligation to a geographic location or locations based on its view of the geographic location of the risk. The Company may also have direct exposures to the Selected European Countries in business assumed from unaffiliated monoline insurance companies, in which case the Company depends upon geographic information provided by the primary insurer.

The Company has excluded from the exposure tables above its indirect economic exposure to the Selected European Countries through policies it provides on pooled corporate and commercial receivables transactions. The Company calculates indirect exposure to a country by multiplying the par amount of a transaction insured by the Company times the percent of the relevant collateral pool reported as having a nexus to the country. On that basis, the Company has calculated exposure of $355 million to Selected European Countries (plus Greece) in transactions with $10.0 billion of net par outstanding. The indirect exposure to credits with a nexus to Greece is $11 million across several highly rated pooled corporate obligations with net par outstanding of $483 million.

4.
Financial Guaranty Insurance Premiums

The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, includes financial guaranty contracts that meet the definition of insurance contracts as well as those that meet the definition of a derivative under GAAP. Amounts presented in this note relate only to financial guaranty insurance contracts, unless otherwise noted. See Note 8, Financial Guaranty Contracts Accounted for as Credit Derivatives for amounts that relate to CDS.


17
Table of Contents

Net Earned Premiums
 
 
First Quarter
 
2015
 
2014
 
(in millions)
Scheduled net earned premiums
$
96

 
$
107

Acceleration of net earned premiums
41

 
19

Accretion of discount on net premiums receivable
4

 
6

Financial guaranty insurance net earned premiums
141

 
132

Other
1

 
—

 Net earned premiums(1)
$
142

 
$
132

 ___________________
(1)
Excludes $5 million and $17 million for First Quarter 2015 and 2014, respectively, related to consolidated FG VIEs.


Components of Unearned Premium Reserve
 
 
As of March 31, 2015
 
As of December 31, 2014
 
Gross
 
Ceded
 
Net(1)
 
Gross
 
Ceded
 
Net(1)
 
(in millions)
Deferred premium revenue:
 
 
 
 
 
 
 
 
 
 
 
   Financial guaranty insurance
$
4,038

 
$
370

 
$
3,668

 
$
4,167

 
$
387

 
$
3,780

   Other
1

 
—

 
1

 
0

 
—

 
0

Deferred premium revenue
$
4,039

 
$
370

 
$
3,669

 
$
4,167

 
$
387

 
$
3,780

Contra-paid (2)
88

 
(5
)
 
93

 
94

 
(6
)
 
100

Unearned premium reserve
$
4,127

 
$
365

 
$
3,762

 
$
4,261

 
$
381

 
$
3,880

 ____________________
(1)
Excludes $125 million and $125 million of deferred premium revenue, and $41 million and $42 million of contra-paid related to FG VIEs as of March 31, 2015 and December 31, 2014, respectively.

(2)
See Note 6, "Financial Guaranty Insurance Losses– Insurance Contracts' Loss Information" for an explanation of "contra-paid".
 

18
Table of Contents

Gross Premium Receivable,
Net of Commissions on Assumed Business
Roll Forward
 
 
First Quarter
 
2015

2014
 
(in millions)
Beginning of period, December 31
$
729

 
$
876

Gross premium written, net of commissions on assumed business
36

 
33

Gross premiums received, net of commissions on assumed business
(36
)
 
(53
)
Adjustments:
 
 
 
Changes in the expected term
(6
)
 
(3
)
Accretion of discount, net of commissions on assumed business
5

 
7

Foreign exchange translation
(25
)
 
2

Consolidation/deconsolidation of FG VIEs
(4
)
 
1

Other adjustments
0

 
—

End of period, March 31 (1)
$
699

 
$
863

____________________
(1)
Excludes $22 million and $18 million as of March 31, 2015 and March 31, 2014, respectively, related to consolidated FG VIEs. Excludes $1 million related to non-financial guaranty line of business as of March 31, 2015.

Foreign exchange translation relates to installment premium receivables denominated in currencies other than the U.S. dollar. Approximately 49% and 51% of installment premiums at March 31, 2015 and December 31, 2014 respectively, are denominated in currencies other than the U.S. dollar, primarily the Euro and British Pound Sterling.
 
The timing and cumulative amount of actual collections may differ from expected collections in the tables below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations and changes in expected lives.
 
Expected Collections of
Financial Guaranty Gross Premiums Receivable,
Net of Commissions on Assumed Business
(Undiscounted)
 
 
As of March 31, 2015
 
(in millions)
2015 (April 1 – June 30)
$
23

2015 (July 1 – September 30)
24

2015 (October 1 – December 31)
19

2016
74

2017
67

2018
61

2019
57

2020-2024
238

2025-2029
154

2030-2034
108

After 2034
98

Total(1)
$
923

 ____________________
(1)
Excludes expected cash collections on FG VIEs of $28 million.


19
Table of Contents

Scheduled Financial Guaranty Net Earned Premiums

 
As of March 31, 2015
 
(in millions)
2015 (April 1 – June 30)
$
91

2015 (July 1 – September 30)
89

2015 (October 1 – December 31)
86

2016
334

2017
294

2018
267

2019
244

2020-2024
955

2025-2029
610

2030-2034
373

After 2034
325

Net deferred premium revenue(1)
3,668

Future accretion
198

Total future net earned premiums
$
3,866

 ____________________
(1)
Excludes scheduled net earned premiums on consolidated FG VIEs of $125 million.


Selected Information for Financial Guaranty Policies Paid in Installments

 
As of
March 31, 2015
 
As of
December 31, 2014
 
(dollars in millions)
Premiums receivable, net of commission payable
$
699

 
$
729

Gross deferred premium revenue
1,334

 
1,370

Weighted-average risk-free rate used to discount premiums
3.4
%
 
3.5
%
Weighted-average period of premiums receivable (in years)
9.4

 
9.4


5.
Expected Loss to be Paid
 
The following tables present a roll forward of the present value of net expected loss to be paid for all contracts, whether accounted for as insurance, credit derivatives or FG VIEs, by sector, after the benefit for net expected recoveries for contractual breaches of representations and warranties ("R&W"). The Company used weighted average risk-free rates for U.S. dollar denominated obligations that ranged from 0.0% to 2.89% as of March 31, 2015 and 0.0% to 2.95% as of December 31, 2014.

20
Table of Contents

Net Expected Loss to be Paid
After Net Expected Recoveries for Breaches of R&W
Roll Forward by Sector
First Quarter 2015

 
Net Expected
Loss to be
Paid (Recovered)
as of
December 31, 2014 (2)
 
Economic Loss
Development
 
(Paid)
Recovered
Losses (1)
 
Net Expected
Loss to be
Paid (Recovered)
as of
March 31,2015 (2)
 
(in millions)
Public Finance:
 
 
 
 
 
 
 
U.S. public finance
$
303

 
$
9

 
$
(2
)
 
$
310

Non-U.S public finance
45

 
(3
)
 
—

 
42

Public Finance
348

 
6

 
(2
)
 
352

Structured Finance:
 
 
 
 
 
 
 
U.S. RMBS:
 

 
 

 
 

 
 

First lien:
 

 
 

 
 

 
 

Prime first lien
4

 
0

 
(1
)
 
3

Alt-A first lien
304

 
(5
)
 
(10
)
 
289

Option ARM
(16
)
 
4

 
(4
)
 
(16
)
Subprime
303

 
(1
)
 
(9
)
 
293

Total first lien
595

 
(2
)
 
(24
)
 
569

Second lien:
 

 
 

 
 

 
 

Closed-end second lien
8

 
1

 
2

 
11

HELOCs
(19
)
 
5

 
4

 
(10
)
Total second lien
(11
)
 
6

 
6

 
1

Total U.S. RMBS
584

 
4

 
(18
)
 
570

Triple-X life insurance transactions
161

 
5

 
(1
)
 
165

TruPS
23

 
(9
)
 
—

 
14

Other structured finance
57

 
(8
)
 
3

 
52

Structured Finance
825

 
(8
)
 
(16
)
 
801

Subtotal
1,173

 
(2
)
 
(18
)
 
1,153

Other insurance
(4
)
 
(1
)
 
6

 
1

Total
$
1,169

 
$
(3
)
 
$
(12
)
 
$
1,154



21
Table of Contents

Net Expected Loss to be Paid
After Net Expected Recoveries for Breaches of R&W
Roll Forward by Sector
First Quarter 2014

 
Net Expected
Loss to be
Paid (Recovered)
as of
December 31, 2013
 
Economic Loss
Development
 
(Paid)
Recovered
Losses (1)
 
Net Expected
Loss to be
Paid (Recovered)
as of
March 31,2014
 
(in millions)
Public Finance:
 
 
 
 
 
 
 
U.S. public finance
$
264

 
$
23

 
$
(6
)
 
$
281

Non-U.S public finance
57

 
—

 
—

 
57

Public Finance
321

 
23

 
(6
)
 
338

Structured Finance:
 

 
 

 
 

 
 

U.S. RMBS:
 

 
 

 
 

 
 

First lien:
 
 
 
 
 
 
 
Prime first lien
21

 
(3
)
 
—

 
18

Alt-A first lien
304

 
8

 
(4
)
 
308

Option ARM
(9
)
 
(15
)
 
(4
)
 
(28
)
Subprime
304