In the third quarter of 2012, the Company estimated $123 million of incremental economic losses on certain insured transactions backed by pools of CMBS. The increase reflects additional deterioration within some insured transactions.
Third quarter economic losses on multi-sector ABS CDOs totaled $26 million, driven primarily by higher than expected loan loss severities in first-lien mortgage loan securitizations backing these transactions due to recoveries of advances by the servicers of the underlying loans. Included in the $45 million of “Other” economic loss activity were approximately $47 million of losses on insured first-lien mortgage loan securitizations where loan loss severities were also impacted by recoveries of servicer advances.
There were no material commutations of insured exposure during the third quarter.
Portions of the $252 million of total economic losses are on policies subject to insurance accounting while other amounts relate to losses on insured VIEs or insured credit derivatives for which GAAP specifies different accounting. The following is a summary of third quarter economic losses based on those categories:
3Q 2012 Economic Losses (Benefit)
|$ in millions|
Change in Expected Payments
|Change in Insurance Recoveries||(18||)|
|Loss & LAE Expense on Policies Subject to Insurance Accounting||$||167|
|Credit Impairments on Insured VIEs||$||18|
|Credit Impairments on Insured Credit Derivatives||$||66|
|LAE on Insured Credit Derivatives||1|
|Credit Impairments and LAE on Insured Credit Derivatives||$||67|
|Total Economic Losses (Benefit)||$||252|
|$ in millions||Q3 2011||Q4 2011||Q1 2012||Q2 2012||Q3 2012|
|Collections on Paid Claims||(9||)||(93||)||(7||)||(6||)||(6||)|
|Paid LAE (net of collections)||37||43||14||35||29|