Freddie Mac 2015 Annual Report Download - page 300

Financial Statements Notes to the Consolidated Financial Statements | Note 13
Freddie Mac 2015 Form 10-K 298
BOND INSURERS
Bond insurance is a credit enhancement covering certain of the non-agency mortgage-related securities
we hold. Some policies were acquired by the securitization trust that issued the securities we purchase,
while others were acquired by us. At December 31, 2015, the maximum principal exposure to credit
losses related to such policies was $5.7 billion. At December 31, 2015, our top four bond insurers, Ambac
Assurance Corporation (Ambac), National Public Finance Guarantee Corp., Financial Guaranty Insurance
Company (FGIC), and MBIA Insurance Corp., each accounted for more than 10% of our overall bond
insurance coverage and collectively represented approximately 94% of our coverage.
In 2012, a rehabilitation order was signed granting the Superintendent of Financial Services of the State
of New York the authority to take possession and/or control of FGIC’s property and assets and to conduct
FGIC’s business. In 2013, FGIC’s plan of rehabilitation was approved, under which permitted claims are
paid 17% in cash and the remainder in deferred payment obligations.
In 2010, Ambac established a segregated account for certain Ambac-insured securities, including some of
those held by Freddie Mac. Upon the request of the Wisconsin Office of the Commissioner of Insurance,
the Wisconsin circuit court put the segregated account into rehabilitation (i.e., a state insolvency
proceeding). The Office of the Commissioner of Insurance subsequently filed a plan of rehabilitation with
the court. In 2012, Ambac began making partial cash payments of 25% of the permitted amount of each
policy claim. In 2013, Ambac began making supplemental payments, equal to all or a portion of the
permitted policy claim, with respect to certain specified securities. In 2014, an amended plan was
approved by the court. The amended plan provided for Ambac to increase the amount of cash payments
to 45% of the permitted amount of each policy claim, with the remainder to be paid in deferred payment
obligations. Ambac made a one-time cash payment to us for claims that were previously settled for 25%
in cash.
We expect to receive substantially less than full payment of our claims from Ambac and FGIC as these
companies are either insolvent or in rehabilitation. We believe that we will also likely receive substantially
less than full payment of our claims from some of our other bond insurers, because we believe they also
lack sufficient ability to fully meet all of their expected lifetime claims-paying obligations to us as such
claims emerge. We evaluate the expected recovery from bond insurance policies as part of our
impairment analysis for our investments in securities. See Note 6 for further information on our
investments in securities covered by bond insurance.
CASH AND OTHER INVESTMENT COUNTERPARTIES
We are exposed to institutional credit risk relating to the potential insolvency of, or the non-performance
by, counterparties relating to cash and other investments (including non-mortgage-related investments
and cash equivalents) transactions, including those entered into on behalf of our securitization trusts. Our
policies require that the issuer be rated as investment grade at the time the financial instrument is
purchased. We base the permitted term and dollar limits for each of these transactions on the
counterparty's financial strength in order to further mitigate our risk.
Our cash and other investments (including non-mortgage-related investments and cash equivalents)
counterparties are primarily major financial institutions, Treasury, and the Federal Reserve Bank of New
York. As of December 31, 2015 and 2014, including amounts related to our consolidated VIEs, there were