The structured finance and international insurance segment had an adjusted pre-tax loss of $556 million for the third quarter of 2011 compared with an adjusted pre-tax loss of $6 million for the third quarter of 2010. Premiums earned, net investment income, fees and reimbursements, and premiums and fees on insured derivatives totaled $151 million in the third quarter of 2011. Losses, credit impairments (a non-GAAP measure defined in the attached Explanation of Non-GAAP Financial Measures) and loss-related expenses on insured exposures totaled $631 million in the third quarter of 2011 while all other line items in the aggregate had a net $76 million negative impact on the adjusted pre-tax loss.
The following is a summary of all insured portfolio economic loss activity in the third quarter. Economic losses for a reporting period represent the change in the Company’s estimate of the present value of expected net future claims payments without regard to the manner in which they are presented in the Company’s financial statements.
|3Q 2011 Economic Loss (Benefit)|
|($ in millions)||RMBS||ABS CDOs||CMBS||Other*||Total|
|Change in Expected Payments||$||134||($22)||$||497||$||118||$||727|
|Change in Expected Salvage||(90)||0||0||(6)||(96)|
|Total Economic Losses (Benefit)||$||44||($22)||$||497||$||112||$||631|
*includes first-lien RMBS
In the third quarter, the Company increased its expectations of future payments on second-lien RMBS exposures by $134 million, reflecting higher anticipated delinquencies within these transactions. However, the increase in expected future claims payments was partially offset by additional expected recoveries of $90 million primarily from contractual claims related to ineligible mortgage loans improperly included in the insured securitizations. The Company’s estimates for expected recoveries related to “putbacks” of ineligible mortgage loans totaled $2.8 billion as of September 30, 2011. However, based on its assessment of the strength of its contract claims, the Company continues to believe it is entitled to collect the full amount of its cumulative incurred losses, which totaled $4.6 billion as of September 30, 2011, from those securitization sponsors against whom it is pursuing litigation.