Short-term investments, which are those investments with a maturity of less than one year at time of purchase, are carried at fair value and include amounts deposited in money market funds. All the Company's fixed maturity securities were classified as available-for-sale at the time of purchase, and therefore carried at fair value with change in fair value recorded in OCI, unless other than temporarily impaired. Changes in fair value for other than temporarily impaired securities are bifurcated between credit losses and non-credit changes in fair value. Credit losses on OTTI securities are recorded in the statement of operations and the non-credit component of OTTI securities are recorded in OCI. OTTI credit losses adjust the amortized cost of impaired securities. That new amortized cost basis is not adjusted for subsequent recoveries in fair value. However, the amortized cost basis is adjusted for accretion and amortization using the effective interest method and recorded in net investment income.

Prior to April 1, 2009, if a security was deemed to be OTTI, the entire difference between fair value and the amortized cost of a debt security at the measurement date was recorded in the consolidated statement of operations as a realized loss. The previous amortized cost basis less the OTTI recognized in earnings was the new amortized cost basis of the investment. That new amortized cost basis was not adjusted for subsequent recoveries in fair value. However, if, based on cash flow estimates on the date of impairment, the recoverable value of the investment was greater than the new cost basis (i.e., the fair value on the date of impairment) of the investment, the difference was accreted into net investment income in future periods based upon the amount and timing of expected future cash flows of the security.

Realized gains and losses on sales of investments are determined using the specific identification method. Realized loss includes amounts recorded for other than temporary impairments on debt securities.

For mortgage-backed securities, and any other holdings for which there is prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any necessary adjustments required due to the resulting change in effective yields and maturities are recognized in current income.

Other invested assets includes assets acquired in refinancing transactions which are primarily comprised of franchise loans which are evaluated for impairment by assessing the probability of collecting expected cash flows. Any impairment is recorded in the consolidated statement of operations and any subsequent increases in expected cash flow are recorded as an increase in yield over the remaining life of the loans. Other invested assets also include equity securities, a 50% equity investment acquired in a restructuring of an insured CDS and other investments. Equity securities are carried at fair value with changes recorded in OCI. The Company's 50% equity investment is carried at its proportionate share of the underlying entity's equity value (See "Investment in Portfolio Funding Company LLC I" below).

Since April 1, 2009, if an OTTI has occurred, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date.

If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI is separated into (1) the amount representing the credit loss and (2) the amount related to all other factors.

The cumulative effect of the adoption of the OTTI standard on April 1, 2009 was a $62.2 million reclassification of losses from retained earnings to accumulated OCI ("AOCI").

The Company has a formal review process for all securities in its investment portfolio, including a review for impairment losses. Factors considered when assessing impairment include:

For all debt securities in unrealized loss positions where the Company (1) does not have the intent to sell the debt security or (2) it is more likely than not the Company will not be required to sell the debt security before its anticipated recovery, the Company analyzes the ability to recover the amortized cost by comparing the net present value of projected future cash flows with the amortized cost of the security. If the net present value is less than the amortized cost of the investment, an OTTI loss is recorded. The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the effective interest rate implicit in the debt security prior to impairment. The Company's estimates of projected future cash flows are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default. The Company develops these estimates using information based on historical experience, credit analysis of an investment, as mentioned above, and market observable data, such as industry analyst reports and forecasts, sector credit ratings and other data relevant to the collectability of the security. For mortgage-backed and asset backed securities, cash flow estimates also include prepayment assumptions and other assumptions regarding the underlying collateral including default rates, recoveries and changes in value. The determination of the assumptions used in these projections requires the use of significant management judgment.

The Company's assessment of a decline in value included management's current assessment of the factors noted above. The Company also seeks advice from its outside investment managers. If that assessment changes in the future, the Company may ultimately record a loss after having originally concluded that the decline in value was temporary.

As of the Acquisition Date, the fixed and short term maturity securities included assets acquired in the AGMH Acquisition with a fair value of $5.8 billion, which was the Company's cost basis. The difference between fair value at the Acquisition Date and par value is being amortized through net investment income over the estimated lives of each security. For the year ended December 31, 2010 net investment income included approximately $22.8 million in amortization of premium on the investment portfolio acquired as part of the AGMH Acquisition.

		Year Ended December 31,

		2010			2009			2008
		(in millions)
Income from fixed maturity securities		$	359.7		$	262.4		$	154.5
Income from short-term investments			3.5			3.2			11.5

	Gross investment income		363.2			265.6			166.0
Investment expenses			(8.5	)		(6.4	)		(3.4	)

	Net investment income(1)	$	354.7		$	259.2		$	162.6

The increases in net investment income in 2010 compared to 2009 and 2009 compared to 2008 were primarily due to increased average invested assets as a result of the acquisition of AGMH's $5.8 billion in invested assets on July 1, 2009. Accrued investment income was $97.9 million and $99.0 million as of December 31, 2010 and 2009, respectively.

			Year Ended December 31,

			2010			2009			2008
			(in millions)
Realized gains on investment portfolio			$	31.1		$	28.3		$	5.7
Realized losses on investment portfolio				(5.7	)		(15.2	)		(4.2	)
OTTI:
	Intent to sell			(4.0	)		(13.4	)		(4.1	)
	Credit component of OTTI securities			(23.4	)		(32.4	)		(67.2	)

		OTTI(1)		(27.4	)		(45.8	)		(71.3	)

Net realized investment gains (losses)			$	(2.0	)	$	(32.7	)	$	(69.8	)

The following table presents the roll-forward of the credit losses of fixed maturity securities for which the Company has recognized OTTI and where the portion of the fair value adjustment related to other factors was recognized in OCI.

		Year Ended December 31,

		2010		2009
		(in millions)
Balance, beginning of period		$	19.9	$	0.6
Additions for credit losses on securities for which an OTTI was not previously recognized			7.3		13.6
Reductions for securities sold during the period			—		(0.1	)
Additions for credit losses on securities for which an OTTI was previously recognized			0.1		6.1
Reductions for credit losses now recognized in earnings due to intention to sell the security			—		(0.3	)

	Balance, end of period	$	27.3	$	19.9

		As of December 31, 2010 (restated)

Investments Category		Percent of Total(1)			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		AOCI Gain (Loss) on Securities with OTTI			Weighted Average Credit Quality(2)
		(dollars in millions)
Fixed maturity securities:
U.S. government and agencies			10	%	$	1,000.3	$	48.3	$	(0.4	)	$	1,048.2	$	—		AAA
Obligations of state and political subdivisions			48			4,922.0		99.9		(62.0	)		4,959.9		(1.4	)	AA
Corporate securities			9			980.1		25.2		(12.8	)		992.5		0.2		AA-
Mortgage-backed securities(3):
	RMBS		11			1,158.9		56.5		(44.3	)		1,171.1		(8.6	)	AA
	CMBS		4			365.7		14.8		(1.4	)		379.1		2.5		AAA
Asset-backed securities			5			498.2		9.9		(5.2	)		502.9		(4.1	)	BBB+
Foreign government securities			3			349.5		5.3		(6.2	)		348.6		—		AA+

	Total fixed maturity securities		90			9,274.7		259.9		(132.3	)		9,402.3		(11.4	)	AA
Short-term investments			10			1,055.3		0.3		—			1,055.6		—		AAA

	Total investment portfolio		100	%	$	10,330.0	$	260.2	$	(132.3	)	$	10,457.9	$	(11.4	)	AA

		As of December 31, 2009

Investments Category		Percent of Total(1)			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		AOCI Gain (Loss) on Securities with OTTI			Weighted Average Credit Quality(2)
		(dollars in millions)
Fixed maturity securities:
U.S. government and agencies			9	%	$	1,014.2	$	26.1	$	(2.7	)	$	1,037.6	$	—		AAA
Obligations of state and political subdivisions			46			4,881.6		164.7		(6.8	)		5,039.5		—		AA
Corporate securities			6			617.1		12.8		(4.4	)		625.5		—		AA-
Mortgage-backed securities(3):
	RMBS		14			1,449.4		39.5		(24.3	)		1,464.6		(9.8	)	AA+
	CMBS		2			229.9		3.4		(6.1	)		227.2		(2.4	)	AA+
Asset-backed securities			4			395.3		1.5		(7.9	)		388.9		—		BIG
Foreign government securities			3			356.4		3.6		(3.4	)		356.6		—		AA+

	Total fixed maturity securities		84			8,943.9		251.6		(55.6	)		9,139.9		(12.2	)	AA
Short-term investments			16			1,668.3		0.7		(0.7	)		1,668.3		—		AAA

	Total investment portfolio		100	%	$	10,612.2	$	252.3	$	(56.3	)	$	10,808.2	$	(12.2	)	AA

(1): Based on amortized cost.
(2): Ratings in the table above represent the lower of the Moody's and S&P classifications except for bonds purchased for loss mitigation or risk management strategies which use internal ratings classifications. The Company's portfolio is comprised primarily of high-quality, liquid instruments.
(3): As of December 31, 2010 and December 31, 2009, respectively, approximately 64% and 80% of the Company's total mortgage backed securities were government agency obligations.

The Company continues to receive sufficient information to value its investments and has not had to modify its valuation approach due to the current market conditions. As of December 31, 2010, amounts, net of tax, in AOCI included a net unrealized loss of $5.6 million for securities for which the Company had recognized OTTI and a net unrealized gain of $115.3 million for securities for which the Company had not recognized OTTI. As of December 31, 2009, amounts, net of tax, in AOCI included an unrealized loss of $11.4 million for securities for which the Company had recognized OTTI and an unrealized gain of $150.4 million for securities for which the Company had not recognized OTTI.

The following tables summarize, for all securities in an unrealized loss position as of December 31, 2010 and December 31, 2009, the aggregate fair value and gross unrealized loss by length of time the amounts have continuously been in an unrealized loss position.

		As of December 31, 2010 (restated)

		Less than 12 months					12 months or more					Total
		Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
		(dollars in millions)
U.S. government and agencies		$	20.5	$	(0.4	)	$	—	$	—		$	20.5	$	(0.4	)
Obligations of state and political subdivisions			1,694.5		(58.9	)		23.5		(3.1	)		1,718.0		(62.0	)
Corporate securities			403.6		(12.8	)		—		—			403.6		(12.8	)
Mortgage-backed securities:
	RMBS		143.4		(32.1	)		37.3		(12.2	)		180.7		(44.3	)
	CMBS		92.6		(1.4	)		—		—			92.6		(1.4	)
Asset-backed securities			228.3		(5.1	)		2.3		(0.1	)		230.6		(5.2	)
Foreign government securities			245.3		(6.2	)		—		—			245.3		(6.2	)

	Total	$	2,828.2	$	(116.9	)	$	63.1	$	(15.4	)	$	2,891.3	$	(132.3	)

	Number of securities				405					18					423

	Number of securities with OTTI				10					3					13

		As of December 31, 2009

		Less than 12 months					12 months or more					Total
		Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
		(dollars in millions)
U.S. government and agencies		$	292.5	$	(2.7	)	$	—	$	—		$	292.5	$	(2.7	)
Obligations of state and political subdivisions			407.4		(4.1	)		56.9		(2.7	)		464.3		(6.8	)
Corporate securities			287.0		(3.9	)		8.2		(0.5	)		295.2		(4.4	)
Mortgage-backed securities:
	RMBS		361.4		(21.6	)		20.5		(2.7	)		381.9		(24.3	)
	CMBS		49.5		(2.4	)		56.4		(3.7	)		105.9		(6.1	)
Asset-backed securities			126.1		(7.8	)		2.0		(0.1	)		128.1		(7.9	)
Foreign government securities			270.4		(3.4	)		—		—			270.4		(3.4	)

	Total	$	1,794.3	$	(45.9	)	$	144.0	$	(9.7	)	$	1,938.3	$	(55.6	)

	Number of securities				259					33					292

	Number of securities with OTTI				13					2					15

The increase in gross unrealized losses was primarily due to the increase of unrealized losses attributable to municipal securities of $55.2 million, and to a lesser extent, $20.0 million attributable to RMBS transactions and $8.4 million of unrealized losses attributable to corporate bonds. The increase in gross unrealized losses during 2010 was due to the increase in U.S. Treasury yields during the fourth quarter of 2010. Of the securities in an unrealized loss position for 12 months or more as of December 31, 2010, seven securities had unrealized losses greater than 10% of book value. The total unrealized loss for these securities as of December 31, 2010 was $12.9 million. The Company has determined that these securities were not impaired as of December 31, 2010.

The amortized cost and estimated fair value of available-for-sale fixed maturity securities by contractual maturity as of December 31, 2010 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		As of December 31, 2010

		Amortized Cost		Estimated Fair Value
		(in millions)
		(restated)		(restated)
Due within one year		$	64.9	$	65.8
Due after one year through five years			1,807.1		1,847.1
Due after five years through ten years			2,244.7		2,295.2
Due after ten years			3,633.4		3,644.0
Mortgage-backed securities:
	RMBS		1,158.9		1,171.1
	CMBS		365.7		379.1

Total		$	9,274.7	$	9,402.3

Under agreements with its cedants and in accordance with statutory requirements, the Company maintains fixed maturity securities in trust accounts for the benefit of reinsured companies, $365.3 million and $325.1 million as of December 31, 2010 and 2009, respectively. In addition, to fulfill state licensing requirements the Company has placed on deposit eligible securities of $19.2 million and $20.6 million as of December 31, 2010 and December 31, 2009, respectively, for the protection of the policyholders.

Under certain derivative contracts, the Company is required to post eligible securities as collateral. The need to post collateral under these transactions is generally based on mark-to-market valuations in excess of contractual thresholds. The fair market value of the Company's pledged securities totaled $765.9 million and $649.6 million as of December 31, 2010 and December 31, 2009, respectively.

The Company is not exposed to significant concentrations of credit risk within its investment portfolio.

No material investments of the Company were non-income producing for the years ended December 31, 2010, 2009 and 2008, respectively.

The Company may purchase securities that it has insured, and for which it has expected losses, in order to economically mitigate insured losses. These securities are purchased at a discount. As of December 31, 2010, securities purchased for loss mitigation purposes had a fair value of $142.9 million representing $496.9 million of gross par outstanding. Under the terms of certain credit derivative contracts, the Company has obtained the obligations referenced in the transactions and recorded such assets in fixed maturity securities in the consolidated balance sheets. Such amounts totaled $166.2 million, representing $251.8 million in gross par outstanding.

The Company has rights under certain of its financial guaranty insurance policies and indentures that allow it to accelerate the insured notes and pay claims under its insurance policies upon the occurrence of predefined events of default. To mitigate financial guaranty insurance losses, the Company may elect to purchase the outstanding insured obligation or its underlying collateral. Generally, refinancing vehicles reimburse AGM in whole for its claims payments in exchange for assignments of certain of AGM's rights against the trusts. The refinancing vehicles obtained their funds from the proceeds of AGM-insured GICs issued in the ordinary course of business by the Financial Products Companies. The refinancing vehicles are consolidated with the Company. The carrying value of assets acquired in refinancing transactions was $129.4 million and $152.4 million as of December 31, 2010 and 2009, respectively and are primarily comprised of franchise loans. As of December 31, 2010 and 2009, assets acquired in refinancing transactions primarily consisted of securitized loans. The accretable yield on the securitized loans was $137.1 million and $141.1 million at December 31, 2010 and 2009, respectively.

Income on assets acquired in refinancing transactions recorded in "other income" and was $6.7 million and $3.2 million for years ended December 31, 2010 and 2009, respectively.

In the third quarter of 2010, as part of loss mitigation efforts under a CDS contract insured by the Company, the Company acquired a 50% interest in Portfolio Funding Company LLC I ("PFC"). PFC owns the distribution rights of a motion picture film library. The Company accounts for its interest in PFC as an equity investment. The value of the Company's investment in PFC as of December 31, 2010 was $9.6 million. The Company's equity earnings in PFC are included in net change in fair value of credit derivatives, as these proceeds are used to offset the Company's payments under its CDS contract.