Financial Guaranty Contracts Accounted for as Credit Derivatives (Tables)

6 Months Ended

Jun. 30, 2011

Financial Guaranty Contracts Accounted for as Credit Derivatives

Credit Derivatives Net Par Outstanding

		As of June 30, 2011									As of December 31, 2010
Asset Type		Net Par Outstanding		Original Subordination(1)			Current Subordination(1)			Weighted Average Credit Rating	Net Par Outstanding		Original Subordination(1)			Current Subordination(1)			Weighted Average Credit Rating
		(dollars in millions)
Pooled corporate obligations:
	Collateralized loan obligations/Collateralized bond obligations	$	41,006		32.5	%		31.7	%	AAA	$	45,953		32.2	%		30.4	%	AAA
	Synthetic investment grade pooled corporate		14,496		19.4			17.8		AAA		14,905		19.2			17.6		AAA
	Synthetic high-yield pooled corporate		7,534		34.7			30.3		AA-		8,249		39.4			34.6		AA+
	Trust preferred securities collateralized debt obligations		4,784		46.6			31.6		BB+		5,757		46.8			32.0		BB+
	Market value collateralized debt obligations of corporate obligations		4,659		33.8			40.8		AAA		5,069		36.0			42.9		AAA
Total pooled corporate obligations			72,479		31.1			29.3		AAA		79,933		31.7			29.3		AAA
U.S. RMBS:
	Option ARM and Alt-A first lien		4,419		19.6			15.1		B+		4,767		19.7			17.0		B+
	Subprime first lien (including net interest margin)		4,230		30.0			53.9		A+		4,460		27.9			50.4		A+
	Prime first lien		429		10.9			9.5		B		468		10.9			10.3		B
	Closed-end second lien and HELOCs(2)		69		—			—		B		81		—			—		B
Total U.S. RMBS			9,147		23.9			32.6		BBB-		9,776		23.1			32.4		BBB-
CMBS			4,517		33.8			39.4		AAA		6,751		29.8			31.3		AAA
Other			11,862		—			—		A		13,311		—			—		A+
Total		$	98,005							AA+	$	109,771							AA+

(1)

Represents the sum of subordinate tranches and overcollateralization and does not include any benefit from excess interest collections that may be used to absorb losses.

(2)

Many of the closed-end second lien transactions insured by the Company have unique structures whereby the collateral may be written down for losses without a corresponding write-down of the obligations insured by the Company. Many of these transactions are currently undercollateralized, with the principal amount of collateral being less than the principal amount of the obligation insured by the Company. The Company is not required to pay principal shortfalls until legal maturity (rather than making timely principal payments), and takes the undercollateralization into account when estimating expected losses for these transactions.

Distribution of Credit Derivative Net Par Outstanding by Rating

		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.

U.S. Residential Mortgage-Backed Securities

		June 30, 2011
											Net Change in Unrealized Gain (Loss)
										Weighted Average Credit Internal Rating
Vintage		Net Par Outstanding (in millions)		Original Subordination(1)			Current Subordination(1)				Second Quarter 2011			Six Months 2011
											(in millions)
2004 and Prior		$	155		6.2	%		19.3	%	A-	$	0.3		$	(3.0	)
2005			2,709		30.3			64.0		AA		1.9			(17.2	)
2006			1,693		29.1			35.4		BBB+		(60.3	)		(101.0	)
2007			4,590		18.6			12.7		B		12.4			(214.8	)
	Total	$	9,147		23.9	%		32.6	%	BBB-	$	(45.7	)	$	(336.0	)

(1)

Represents the sum of subordinate tranches and overcollateralization and does not include any benefit from excess interest collections that may be used to absorb losses.

Commercial Mortgage Backed Securities

		June 30, 2011
											Net Change in Unrealized Gain (Loss)
										Weighted Average Credit Internal Rating
Vintage		Net Par Outstanding (in millions)		Original Subordination(1)			Current Subordination(1)				Second Quarter 2011			Six Months 2011
											(in millions)
2004 and Prior		$	241		29.6	%		56.8	%	AAA	$	(0.1	)	$	(0.2	)
2005			677		17.8			26.4		AAA		—			—
2006			2,184		33.5			38.7		AAA		10.3			10.9
2007			1,415		42.6			43.6		AAA		(0.4	)		(0.2	)
	Total	$	4,517		33.8	%		39.4	%	AAA	$	9.8		$	10.5

(1)

Represents the sum of subordinate tranches and overcollateralization and does not include any benefit from excess interest collections that may be used to absorb losses.

Net Change in Fair Value of Credit Derivatives

		Second Quarter						Six Months
		2011			2010			2011			2010
		(in millions)
Net credit derivative premiums received and receivable		$	47.6		$	50.7		$	107.2		$	104.4
Net ceding commissions (paid and payable) received and receivable			0.8			1.1			2.2			2.1
	Realized gains on credit derivatives		48.4			51.8			109.4			106.5
	Termination losses		(22.5	)		—			(22.5	)		—
	Net credit derivative losses (paid and payable) recovered and recoverable		(36.7	)		(13.4	)		(62.3	)		(41.4	)
Total realized gains and other settlements on credit derivatives			(10.8	)		38.4			24.6			65.1
Net unrealized gains (losses) on credit derivatives			(48.6	)		35.1			(319.7	)		287.2
	Net change in fair value of credit derivatives	$	(59.4	)	$	73.5		$	(295.1	)	$	352.3

Net Change in Unrealized Gains (Losses) on Credit Derivatives By Sector

		Second Quarter						Six Months
Asset Type		2011			2010			2011			2010
		(in millions)
Pooled corporate obligations:
	CLOs/Collateralized bond obligations	$	(3.6	)	$	1.8		$	(1.6	)	$	3.3
	Synthetic investment grade pooled corporate		(0.8	)		3.6			9.7			(4.0	)
	Synthetic high-yield pooled corporate		3.5			(5.9	)		0.7			14.5
	TruPS CDOs		(15.5	)		35.5			(36.3	)		65.2
	Market value CDOs of corporate obligations		(5.2	)		(0.1	)		(5.3	)		0.3
Total pooled corporate obligations			(21.6	)		34.9			(32.8	)		79.3
U.S. RMBS:
	Option ARM and Alt-A first lien		33.5			9.6			(233.6	)		160.5
	Subprime first lien (including net interest margin)		(67.2	)		0.3			(91.3	)		0.9
	Prime first lien		(12.8	)		5.2			(12.2	)		19.4
	Closed-end second lien and HELOCs		0.8			(14.3	)		1.1			(5.9	)
Total U.S. RMBS			(45.7	)		0.8			(336.0	)		174.9
CMBS			9.8			0.3			10.5			9.8
Other(1)			8.9			(0.9	)		38.6			23.2
Total		$	(48.6	)	$	35.1		$	(319.7	)	$	287.2

(1)

"Other" includes all other U.S. and international asset classes, such as commercial receivables, international infrastructure, international RMBS securities and pooled infrastructure securities.

Components of Credit Derivative Assets (Liabilities)

		As of June 30, 2011			As of December 31, 2010
		(in millions)
Credit derivative assets		$	603.9		$	592.9
Credit derivative liabilities			(2,788.2	)		(2,465.5	)
	Net fair value of credit derivatives	$	(2,184.3	)	$	(1,872.6	)

Net Fair Value and Expected Losses of Credit Derivatives by Sector

Asset Type		Credit Derivative Asset (Liability), net			Present Value of Expected Claim (Payments) Recoveries(2)
		(in millions)
Pooled corporate obligations:
	CLOs/ Collateralized bond obligations	$	(12.0	)	$	—
	Synthetic investment grade pooled corporate		(29.8	)		—
	Synthetic high-yield pooled corporate		(14.3	)		(5.5	)
	TruPS CDOs		(62.1	)		(56.7	)
	Market value CDOs of corporate obligations		(1.9	)		—
Total pooled corporate obligations			(120.1	)		(62.2	)
U.S. RMBS:
	Option ARM and Alt-A first lien		(1,158.8	)		(263.5	)
	Subprime first lien (including net interest margin)		(111.6	)		(124.5	)
	Prime first lien		(103.4	)		—
	Closed-end second lien and HELOCs		(24.3	)		4.6
Total U.S. RMBS			(1,398.1	)		(383.4	)
CMBS			(4.5	)		—
Other(1)			(661.6	)		(91.6	)
Total		$	(2,184.3	)	$	(537.2	)

(1)

"Other" includes all other U.S. and international asset classes, such as commercial receivables, international infrastructure, international RMBS securities and pooled infrastructure securities.

(2)

Represents amount in excess of the present value of future installment fees to be received of $63.8 million.

Effect of the Company's Credit Spread on Credit Derivatives Fair Value

		As of June 30, 2011			As of March 31, 2011			As of December 31, 2010			As of June 30, 2010			As of March 31, 2010			As of December 31, 2009
		(dollars in millions)
Quoted price of CDS contract (in basis points):
	AGC		634			724			804			1,010			734			634
	AGM		472			660			650			802			468			541
Fair value of asset/ (liability) of credit derivatives:
	Before considering implication of the Company's credit spreads	$	(5,425.1	)	$	(5,581.4	)	$	(5,543.9	)	$	(5,636.3	)	$	(5,253.5	)	$	(5,830.8	)
	After considering implication of the Company's credit spreads	$	(2,184.3	)	$	(2,142.2	)	$	(1,872.6	)	$	(1,274.9	)	$	(1,284.9	)	$	(1,542.1	)