Fair Value Measurement (Tables)

6 Months Ended

Jun. 30, 2011

Fair Value Measurement

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

						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.

Fair Value Level 3 Roll Forward

		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						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						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						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						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.

Fair Value of Financial Instruments

		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

(1)

Carrying amount includes the balance sheet amounts related to financial guaranty insurance contract premiums and losses, net of reinsurance. Fair value measurement is Level 3 in the fair value hierarchy

(2)

Carrying amount represented principal less accumulated discount or plus accumulated premium. Fair value measurement is Level 2 and Level 3 in the fair value hierarchy.