The Company has not originated any VIEs nor acted as the servicer or collateral manager for any VIE deals that it insures. The Company provides financial guaranties with respect to debt obligations of special purpose entities, including VIEs. The transaction structure generally provides certain financial protections to the Company. This financial protection can take several forms, the most common of which are over-collateralization, first loss protection (or subordination) and excess spread. In the case of over-collateralization (i.e., the principal amount of the securitized assets exceeds the principal amount of the structured finance obligations guaranteed by the Company), the structure allows defaults of the securitized assets before a default is experienced on the structured finance obligation guaranteed by the Company. In the case of first loss, the financial guaranty insurance policy only covers a senior layer of losses of multiple obligations issued by special purpose entities, including VIEs. The first loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors. In the case of excess spread, the financial assets contributed to special purpose entities, including VIEs, generate cash flows that are in excess of the interest payments on the debt issued by the special purpose entity. Such excess spread is typically distributed through the transaction's cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the special purpose entities, including VIEs (thereby, creating additional over-collateralization), or distributed to equity or other investors in the transaction.

For all years presented, the Company has evaluated whether it was the primary beneficiary or control party of its VIEs. If the Company concludes that it is the primary beneficiary it is required to consolidate the entire VIE in the Company's financial statements. The accounting rules governing the criteria for determining the primary beneficiary or control party of VIEs changed effective January 1, 2010.

Prior to January 1, 2010, the Company determined whether it was the primary beneficiary of a VIE by first performing a qualitative analysis of the VIE that included, among other factors, its capital structure, contractual terms, which variable interests create or absorb variability, related party relationships and the design of the VIE. The Company performed a quantitative analysis when qualitative analysis was not conclusive.

Effective January 1, 2010, accounting standards now require the Company to perform an analysis to determine whether its variable interests give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both 1) the power to direct the activities of a VIE that most significantly impact the entity's economic performance; and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Additionally, this guidance requires an ongoing reassessment of whether the Company is the primary beneficiary of a VIE.

As part of the terms of its financial guarantee contracts, the Company obtains certain protective rights with respect to the VIE that are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager's financial condition. At deal inception, the Company typically is not deemed to control a VIE; however, once a trigger event occurs, the Company's control of the VIE typically increases. The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the Company and, accordingly, where the Company is obligated to absorb VIE losses that could potentially be significant to the VIE. The Company obtains protective rights under its insurance contracts that give the Company additional controls over a VIE if there is either deterioration of deal performance or in the financial health of the deal servicer. Under GAAP, the Company is deemed to be the control party typically when its protective rights give it the power to both terminate and replace the deal servicer.

VIEs' liabilities insured by the Company are considered to be with recourse, since the Company guarantees the payment of principal and interest regardless of the performance of the related VIEs' assets. VIEs' liabilities not insured by the Company are considered to be non-recourse, since the payment of principal and interest of these liabilities is wholly dependent on the performance of the VIEs' assets.

The new accounting mandated the accounting changes prescribed by the statement to be recognized by the Company as a cumulative effect adjustment to retained earnings on January 1, 2010. This cumulative effect was a $206.5 million after-tax decrease to the opening retained earnings balance due to the consolidation of 21 VIEs at fair value. The impact of adopting the new accounting guidance on the Company's balance sheet was as follows:

		As of December 31, 2009			Transition Adjustment			As of January 1, 2010

		(in millions)
		(restated)			(restated)			(restated)
Assets:
	Premiums receivable, net of ceding commissions payable	$	1,418.2		$	(19.1	)	$	1,399.1
	Deferred tax asset, net		1,163.0			111.2			1,274.2
	Financial guaranty variable interest entities' assets		762.3			1,163.0			1,925.3
	Total assets		16,779.4			1,255.1			18,034.5
Liabilities and shareholders' equity:
	Unearned premium reserve		8,381.0			(113.0	)		8,268.0
	Financial guaranty variable interest entities' liabilities with recourse		762.7			1,348.2			2,110.9
	Financial guaranty variable interest entities' liabilities without recourse		—			226.0			226.0
	Total liabilities		13,270.5			1,461.2			14,731.7
	Retained earnings		778.7			(206.5	)		572.2
	Total shareholders' equity attributable to Assured Guaranty Ltd.		3,509.3			(206.5	)		3,302.8
	Noncontrolling interest of financial guaranty variable interest entities		(0.4	)		0.4			—
	Total shareholders' equity		3,508.9			(206.1	)		3,302.8
	Total liabilities and shareholders' equity		16,779.4			1,255.1			18,034.5

At December 31, 2009, the Company consolidated four VIEs that had issued debt obligations insured by the Company. Under the new accounting standard effective January 1, 2010, consolidation was no longer required and, accordingly, the four VIEs were deconsolidated at fair value, which was approximately $791.9 million in VIEs' assets and $788.7 million in VIEs' liabilities. The impact of this deconsolidation is included in the "Transition Adjustment" amounts above.

The Company is not primarily liable for the debt obligations issued by the VIEs it insures and would only be required to make payments on these debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due. The Company's creditors do not have any rights with regard to the assets of the VIEs.

During the year ended December 31, 2010, the Company determined that based on the assessment of its control rights over servicer or collateral manager replacement, given that servicing/managing collateral were deemed to be the VIEs' most significant activities, ten additional VIEs required consolidated and two VIEs were required to be deconsolidated, bringing the total consolidated VIEs to 29 at December 31, 2010. This resulted in an increase in financial guaranty variable interest entities' assets net of $1,929.8 million, an increase in financial guaranty variable interest entities' liabilities of $2,297.4 million and a net loss on consolidation of $241.9 million, which was included in "net change in financial guaranty variable interest entities" in the consolidated statement of operations.

The financial reports of the consolidated VIEs are prepared by outside parties and are not available within the time constraints that the Company requires to ensure the financial accuracy of the operating results. As such, the financial results of the VIEs are consolidated on a one quarter lag; however, the Company does adjust the financial statements for the effects of material events occurring from the lag period until the balance sheet date. Effective January 1, 2010, the Company has elected the fair value option for assets and liabilities classified as financial guaranty variable interest entities' assets and liabilities. Upon consolidation of financial guaranty VIEs on January 1, 2010, the Company elected the fair value option because the carrying amount transition method was not practical.

The table below shows the carrying value of the consolidated VIEs' assets and liabilities in the Company's consolidated financial statements, segregated by the types of assets held by VIEs that collateralize their respective debt obligations:

		As of December 31, 2010				As of December 31, 2009

		Assets		Liabilities		Assets		Liabilities
		(in millions)
		(restated)		(restated)
HELOCs		$	857.1	$	1,126.1	$	—	$	—
First liens:
	Subprime		528.7		616.5		—		—
	Option ARMs		626.6		909.4		—		—
Alt-A second liens			747.4		818.4		—		—
Automobile loans			486.8		486.8		—		—
Life insurance			304.8		304.8		—		—
Credit card loans			106.1		106.1		233.4		233.1
Health care receivables			—		—		211.8		212.5
Consumer loans			—		—		199.2		199.2
Gas pipeline tariffs			—		—		117.9		117.9

	Total	$	3,657.5	$	4,368.1	$	762.3	$	762.7

		Year Ended December 31,

		2010			2009
		(in millions)
		(restated)
Interest income		$	212.7		$	7.8
Interest expense			(81.8	)		(7.6	)
Net realized and unrealized gains (losses) on assets			(288.1	)		—
Net realized and unrealized gains (losses) on liabilities with recourse			(49.0	)		—
Net realized and unrealized gains (losses) on liabilities without recourse			5.6			—
Other income			4.3			0.8
Other expenses			(77.3	)		(2.2	)

	Net change in financial guaranty variable interest entities	$	(273.6	)	$	(1.2	)

Effect of Consolidating Financial Guaranty VIEs on Net Income
and Shareholders' Equity attributable to AGL

		Year Ended December 31, 2010

		(in millions)
		(restated)
Net earned premiums		$	(47.6	)
Net change in financial guaranty VIEs			(273.6	)
Loss and LAE			65.9

	Total pre-tax impact on GAAP net income		(255.3	)
Less: tax provision (benefit)			(89.4	)

	Total impact on GAAP net income	$	(165.9	)

		(restated)
		(in millions)
		As of December 31, 2010
	Total impact on GAAP shareholders' equity attributable to AGL	$	(371.4	)

In 2009, there was no VIE impact to net income attributable to AGL or shareholders' equity attributable to AGL.

To date, the results of qualitative and quantitative analyses have indicated that the Company does not have a majority of the variability in any other VIEs and, as a result, are not consolidated in the Company's consolidated financial statements. The Company's exposure provided through its financial guaranties with respect to debt obligations of special purpose entities is included within net par outstanding in Note 5.