The Company carries the majority of its assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). The price represents the price available in the principal market for the asset or liability. If there is no principal market, then the price is based on the market that maximizes the value received for an asset or minimizes the amount paid for a liability (i.e., the most advantageous market).

Fair value is based on quoted market prices, where available. If listed prices or quotes are not available, fair value is based on either internally developed models that primarily use, as inputs, market-based or independently sourced market parameters, including but not limited to yield curves, interest rates and debt prices or with the assistance of an independent third party using a discounted cash flow approach and the third party's proprietary pricing models. In addition to market information, models also incorporate transaction details, such as maturity of the instrument and contractual features designed to reduce the Company's credit exposure such as collateral rights.

Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, the Company's creditworthiness, constraints on liquidity and unobservable parameters. As markets and products develop and the pricing for certain products becomes more or less transparent, the Company continues to refine its methodologies. During Second Quarter 2011, no changes were made to the Company's valuation models that had or are expected to have a material impact on the Company's consolidated balance sheets or statements of operations and comprehensive income.

The Company's methods for calculating fair value produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. The use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The fair value hierarchy is determined based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company estimates of market assumptions. The fair value hierarchy prioritizes model inputs into three broad levels as follows, with level 1 being the highest and level 3 the lowest. An asset or liability's categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. All three hierarchies require the use of observable market data when available.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and observable inputs other than quoted prices, such as interest rates or yield curves and other inputs derived from or corroborated by observable market inputs.

Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

Transfers between levels 1, 2 and 3 are recognized at the beginning of the period when the transfer occurs. The Company reviews quarterly the classification between levels 1, 2 and 3 to determine, based on the definitions provided, whether a transfer is necessary.

In May 2011, the FASB issued ASU 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS")" (Topic 820: Fair Value Measurement). ASU 2011-04 develops common requirements for measuring fair value and for disclosing information about fair value measurements to improve the comparability of financial statements prepared in accordance with U.S. GAAP and IFRSs. ASU 2011-04 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011, which corresponds to the Company's first quarter of fiscal year 2012. Early application by public entities is not permitted. Accordingly, the Company has not yet adopted this guidance and is evaluating the impact of this pronouncement.

Amounts recorded at fair value in the Company's financial statements are included in the tables below.

Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of June 30, 2011

						Fair Value Hierarchy

				Fair Value		Level 1		Level 2		Level 3
				(in millions)
Assets:
Investment portfolio, available-for-sale:
	Fixed maturity securities
		U.S. government and agencies		$	975.3	$	—	$	975.3	$	—
		Obligations of state and political subdivisions			5,184.2		—		5,184.2		—
		Corporate securities			1,065.5		—		1,065.5		—
		Mortgage-backed securities:
			RMBS		1,217.5		—		1,129.5		88.0
			Commercial Mortgage-Backed Securities ("CMBS")		516.1		—		516.1		—
		Asset-backed securities			560.9		—		287.0		273.9
		Foreign government securities			344.7		—		344.7		—

			Total fixed maturity securities		9,864.2		—		9,502.3		361.9
	Short-term investments				1,070.4		129.6		940.8		—
	Other invested assets(1)				37.9		0.4		25.5		12.0
	Credit derivative assets				603.9		—		—		603.9
	FG VIEs' assets, at fair value				3,492.2		—		—		3,492.2
	Other assets				49.3		29.5		19.8		—

		Total assets carried at fair value		$	15,117.9	$	159.5	$	10,488.4	$	4,470.0

Liabilities:
	Credit derivative liabilities			$	2,788.2	$	—	$	—	$	2,788.2
	FG VIEs' liabilities with recourse, at fair value				2,755.1		—		—		2,755.1
	FG VIEs' liabilities without recourse, at fair value				1,282.5		—		—		1,282.5

		Total liabilities carried at fair value		$	6,825.8	$	—	$	—	$	6,825.8

Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of December 31, 2010

						Fair Value Hierarchy

				Fair Value		Level 1		Level 2		Level 3
				(in millions)
Assets:
Investment portfolio, available-for-sale:
	Fixed maturity securities
		U.S. government and agencies		$	1,048.2	$	—	$	1,048.2	$	—
		Obligations of state and political subdivisions			4,959.9		—		4,959.9		—
		Corporate securities			992.5		—		992.5		—
		Mortgage-backed securities:
			RMBS		1,184.1		—		1,071.7		112.4
			CMBS		379.1		—		379.1		—
		Asset-backed securities			502.9		—		292.7		210.2
		Foreign government securities			348.6		—		348.6		—

			Total fixed maturity securities		9,415.3		—		9,092.7		322.6
	Short-term investments				1,031.6		253.4		778.2		—
	Other invested assets(1)				33.3		0.2		21.4		11.7
	Credit derivative assets				592.9		—		—		592.9
	FG VIEs' assets, at fair value				3,657.5		—		—		3,657.5
	Other assets				44.4		25.7		18.7		—

		Total assets carried at fair value		$	14,775.0	$	279.3	$	9,911.0	$	4,584.7

Liabilities:
	Credit derivative liabilities			$	2,465.5	$	—	$	—	$	2,465.5
	FG VIEs' liabilities with recourse, at fair value				2,927.0		—		—		2,927.0
	FG VIEs' liabilities without recourse, at fair value				1,337.2		—		—		1,337.2
	Other liabilities				0.1		—		0.1		—

		Total liabilities carried at fair value		$	6,729.8	$	—	$	0.1	$	6,729.7

(1): Includes mortgage loans that are recorded at fair value on a non-recurring basis. At June 30, 2011 and December 31, 2010, such investments were carried at their market value of $10.0 million and $9.4 million, respectively. The mortgage loans are classified as Level 3 of the fair value hierarchy as there are significant unobservable inputs used in the valuation of such loans. An indicative dealer quote is used to price the non-performing portion of these mortgage loans. The performing loans are valued using management's determination of future cash flows arising from these loans, discounted at the rate of return that would be required by a market participant. This rate of return is based on indicative dealer quotes.

The table below presents a roll forward of financial instruments whose fair value included significant unobservable inputs (Level 3).

		Second Quarter 2011

		Fixed Maturity Securities												Credit Derivative Asset (Liability), net(5)
		RMBS			Asset- Backed Securities			Other Invested Assets			FG VIEs' Assets at Fair Value			Credit Derivative Asset (Liability), net(5)			FG VIEs' Liabilities with Recourse, at Fair Value			FG VIEs' Liabilities without Recourse, at Fair Value
		(in millions)
Fair value at March 31, 2011		$	222.4		$	232.1		$	2.2		$	3,679.0		$	(2,142.2	)	$	(2,757.8	)	$	(1,373.0	)
Total pretax realized and unrealized gains/(losses) recorded in(1)
	Net income (loss)		(35.8	)(2)		2.1	(2)		—			(211.6	)(3)		(59.4	)(6)		(5.4	)(3)		86.5	(3)
	Other comprehensive income (loss)		(15.6	)		(7.3	)		(0.2	)		—			—			—			—
Purchases			1.7			47.1			—			—			—			—			—
Issuances			—			—			—			—			—			—			—
Sales			(8.7	)		(0.1	)		—			—			—			—			—
Settlements			—			—			—			(257.6	)		17.3			280.5			67.1
FG VIE consolidations			(76.0	)		—			—			282.4			—			(272.4	)		(63.1	)

Fair value at June 30, 2011			88.0		$	273.9		$	2.0		$	3,492.2		$	(2,184.3	)	$	(2,755.1	)	$	(1,282.5	)

Change in unrealized gains/(losses) related to financial instruments held at June 30, 2011		$	(15.6	)	$	(7.3	)	$	(0.2	)	$	(84.7	)	$	(23.5	)	$	(7.1	)	$	52.9

		Second Quarter 2010

		Fixed Maturity Securities												Credit Derivative Asset (Liability), net(5)
		RMBS			Asset- Backed Securities			Other Invested Assets			FG VIEs' Assets at Fair Value			Credit Derivative Asset (Liability), net(5)			FG VIEs' Liabilities with Recourse, at Fair Value			FG VIEs' Liabilities without Recourse, at Fair Value
		(in millions)
Fair value at March 31, 2010		$	79.3		$	222.7		$	4.4		$	1,868.6		$	(1,284.9	)	$	(2,067.2	)	$	(205.7	)
Total pretax realized and unrealized gains/(losses) recorded in(1)
	Net income (loss)		5.2	(2)		(14.6	)(2)		(0.1	)(4)		(19.1	)(3)		73.5	(6)		21.9	(3)		(2.4	)(3)
	Other comprehensive income (loss)		(41.4	)		8.5			(0.2	)		—			—			—			—
Purchases, issuances, sales, settlements, net			51.1			13.7			(1.5	)		(53.6	)		(63.5	)		67.5			23.2
Consolidations, Deconsolidations, net			—			—			—			48.8			—			(71.5	)		—
Transfers in and/or out of Level 3(7)			8.7			—			—			—			—			—			—

Fair value at June 30, 2010		$	102.9		$	230.3		$	2.6		$	1,844.7		$	(1,274.9	)	$	(2,049.3	)	$	(184.9	)

Change in unrealized gains/(losses) related to financial instruments held at June 30, 2010		$	(41.4	)	$	8.5		$	—		$	36.1		$	36.7		$	(131.0	)	$	5.3

		Six Months 2011

		Fixed Maturity Securities												Credit Derivative Asset (Liability), net(5)
		RMBS			Asset- Backed Securities			Other Invested Assets			FG VIEs' Assets at Fair Value			Credit Derivative Asset (Liability), net(5)			FG VIEs' Liabilities with Recourse, at Fair Value			FG VIEs' Liabilities without Recourse, at Fair Value
		(in millions)
Fair value at December 31, 2010		$	112.4		$	210.2		$	2.3		$	3,657.5		$	(1,872.6	)	$	(2,927.0	)	$	(1,337.2	)
Total pretax realized and unrealized gains/(losses) recorded in(1):
	Net income (loss)		(31.6	)(2)		3.7	(2)		—			22.8	(3)		(295.1	)(6)		(41.3	)(3)		(49.0	)(3)
	Other comprehensive income (loss)		(46.5	)		13.0			(0.3	)		—			—			—			—
Purchases			152.2			47.1			—			—			—			—			—
Sales			(22.2	)		(0.1	)		—			—			—			—			—
Settlements			—			—			—			(470.5	)		(16.6	)		485.6			166.8
FG VIE Consolidations			(76.3	)		—			—			282.4			—			(272.4	)		(63.1	)

Fair value at June 30, 2011		$	88.0		$	273.9		$	2.0		$	3,492.2			(2,184.3	)	$	(2,755.1	)	$	(1,282.5	)

Change in unrealized gains/(losses) related to financial instruments held at June 30, 2011		$	(46.5	)	$	13.0		$	(0.3	)	$	263.6		$	(305.8	)	$	(43.0	)	$	(119.1	)

		Six Months 2010

		Fixed Maturity Securities												Credit Derivative Asset (Liability), net(5)
		RMBS			Asset- Backed Securities			Other Invested Assets			FG VIEs' Assets at Fair Value			Credit Derivative Asset (Liability), net(5)			FG VIEs' Liabilities with Recourse, at Fair Value			FG VIEs' Liabilities without Recourse, at Fair Value
		(in millions)
Fair value at December 31, 2009		$	—		$	203.9		$	0.2		$	—		$	(1,542.1	)	$	—		$	—
Adoption of new accounting standard			—			—			—			1,925.3			—			(2,110.9	)		(226.0	)

Fair value at January 1, 2010			—			203.9			0.2			1,925.3			(1,542.1	)		(2,110.9	)		(226.0	)
Total pretax realized and unrealized gains/(losses) recorded in(1):
	Net income (loss)		5.6	(2)		(15.2	)(2)		—			(14.9	)(3)		352.3	(6)		12.3	(3)		(7.5	)(3)
	Other comprehensive income (loss)		(59.6	)		9.1			(0.2	)		—			—			—			—
Purchases, issuances, sales, settlements, net			93.1			13.7			2.6			(114.5	)		(85.1	)		120.8			48.6
Consolidations, Deconsolidations, net			—			—			—			48.8			—			(71.5	)		—
Transfers in and/or out of Level 3(7)			63.8			18.8			—			—			—			—			—

Fair value at June 30, 2010		$	102.9		$	230.3		$	2.6		$	1,844.7		$	(1,274.9	)	$	(2,049.3	)	$	(184.9	)

Change in unrealized gains/(losses) related to financial instruments held at June 30, 2010		$	(59.6	)	$	9.1		$	—		$	96.5		$	294.6		$	(185.8	)	$	1.9

(1): Realized and unrealized gains (losses) from changes in values of Level 3 financial instruments represent gains (losses) from changes in values of those financial instruments only for the periods in which the instruments were classified as Level 3.
(2): Included in net realized investment gains (losses) and net investment income.
(3): Included in net change in fair value of FG VIEs.
(4): Recorded in other income.
(5): Represents net position of credit derivatives. The consolidated balance sheet presents gross assets and liabilities based on net counterparty exposure.
(6): Reported in net change in fair value of credit derivatives.
(7): After analyzing prices provided by a third party pricing service, the Company determined it was necessary to reduce the pricing on one security based on the Company's own cash flow analysis which was deemed a level 3.

The carrying amount and estimated fair value of financial instruments are presented in the following table:

		As of June 30, 2011				As of December 31, 2010

		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
		(in millions)
Assets:
	Fixed maturity securities	$	9,864.2	$	9,864.2	$	9,415.3	$	9,415.3
	Short-term investments		1,070.4		1,070.4		1,031.6		1,031.6
	Other invested assets		252.8		263.6		259.8		269.7
	Credit derivative assets		603.9		603.9		592.9		592.9
	FG VIE's assets, at fair value		3,492.2		3,492.2		3,657.5		3,657.5
	Other assets		49.3		49.3		44.4		44.4
Liabilities:
	Financial guaranty insurance contracts(1)		4,843.4		4,027.0		4,766.3		5,595.8
	Long-term debt(2)		1,046.4		1,163.9		1,052.9		1,074.5
	Credit derivative liabilities		2,788.2		2,788.2		2,465.5		2,465.5
	FG VIEs' liabilities with recourse, at fair value		2,755.1		2,755.1		2,927.0		2,927.0
	FG VIEs' liabilities without recourse, at fair value		1,282.5		1,282.5		1,337.2		1,337.2

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 30
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

+ Details