PNC Bank 2012 Annual Report Download - page 249

Management believes our indemnification and repurchase
liabilities appropriately reflect the estimated probable losses
on indemnification and repurchase claims for all loans sold
and outstanding as of December 31, 2012 and 2011. In making
these estimates, we consider the losses that we expect to incur
over the life of the sold loans. While management seeks to
obtain all relevant information in estimating the
indemnification and repurchase liability, the estimation
process is inherently uncertain and imprecise, and,
accordingly, it is reasonably possible that future
indemnification and repurchase losses could be more or less
than our established liability. Factors that could affect our
estimate include the volume of valid claims driven by investor
strategies and behavior, our ability to successfully negotiate
claims with investors, housing prices, and other economic
conditions. At December 31, 2012, we estimate that it is
reasonably possible that we could incur additional losses in
excess of our accrued indemnification and repurchase liability
of up to approximately $332 million for our portfolio of
residential mortgage loans sold. At December 31, 2012, the
reasonably possible loss above our accrual for our portfolio of
home equity loans/lines sold was not material. This estimate
of potential additional losses in excess of our liability is based
on assumed higher repurchase claims and lower claim
rescissions than our current assumptions.
Reinsurance Agreements
We have two wholly-owned captive insurance subsidiaries
which provide reinsurance to third-party insurers related to
insurance sold to our customers. These subsidiaries enter into
various types of reinsurance agreements with third-party
insurers where the subsidiary assumes the risk of loss through
either an excess of loss or quota share agreement up to 100%
reinsurance. In excess of loss agreements, these subsidiaries
assume the risk of loss for an excess layer of coverage up to
specified limits, once a defined first loss percentage is met. In
quota share agreements, the subsidiaries and third-party
insurers share the responsibility for payment of all claims.
These subsidiaries provide reinsurance for accidental death &
dismemberment, credit life, accident & health, lender placed
hazard, and borrower and lender paid mortgage insurance with
an aggregate maximum exposure up to the specified limits for
all reinsurance contracts as follows:
Table 156: Reinsurance Agreements Exposure (a)
In millions
December 31
2012
December 31
2011
Accidental Death & Dismemberment $2,049 $2,255
Credit Life, Accident & Health 795 951
Lender Placed Hazard (b) 2,774 2,899
Borrower and Lender Paid Mortgage
Insurance 228 327
Maximum Exposure $5,846 $6,432
Percentage of reinsurance agreements:
Excess of Loss – Mortgage Insurance 3% 4%
Quota Share 97% 96%
Maximum Exposure to Quota Share
Agreements with 100% Reinsurance $ 794 $ 950
(a) Reinsurance agreements exposure balances represent estimates based on availability
of financial information from insurance carriers.
(b) Through the purchase of catastrophe reinsurance connected to the Lender Placed
Hazard Exposure, should a catastrophic event occur, PNC will benefit from this
reinsurance. No credit for the catastrophe reinsurance protection is applied to the
aggregate exposure figure.
A rollforward of the reinsurance reserves for probable losses
for 2012 and 2011 follows:
Table 157: Reinsurance Reserves – Rollforward
In millions 2012 2011
January 1 $ 82 $ 150
Paid Losses (66) (109)
Net Provision 45 41
December 31 $ 61 $ 82
There were no changes to the terms of existing agreements,
nor were any new relationships entered into or existing
relationships exited.
There is a reasonable possibility that losses could be more
than or less than the amount reserved due to ongoing
uncertainty in various economic, social and other factors that
could impact the frequency and severity of claims covered by
these reinsurance agreements. At December 31, 2012, the
reasonably possible loss above our accrual was not material.
Repurchase and Resale Agreements
We enter into repurchase and resale agreements where we
transfer investment securities to/from a third party with the
agreement to repurchase/resell those investment securities at a
future date for a specified price. These transactions are
accounted for as collateralized borrowings/financings.
230 The PNC Financial Services Group, Inc. – Form 10-K