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Related Party Transactions

12 Months Ended

Dec. 31, 2010

14. Related Party Transactions

The following table presents the ownership of each of the parties with whom the Company had related party transactions for the periods presented.

Related Parties' Equity Ownership

		December 31, 2010					December 31, 2009

		Number of Shares		% of Ownership			Number of Shares		% of Ownership
	Dexia(1)		—		—	%		21,848,934		11.9	%
	WLR Funds(2)		16,023,984		8.7			16,016,396		8.7
	ACE(1)		—		—			13,020,382		7.1
	Wellington Management Company, LLP		18,181,544		9.9			—		—

Total			34,205,528		18.6	%		50,885,712		27.7	%

(1)

Previously related parties of the Company for the periods prior to March 31, 2010.

(2)

The WLR Funds are funds affiliated with Wilbur L. Ross, Jr., a director of AGL.

ACE had been the parent company of certain of the Company's subsidiaries prior to the IPO of the Company in 2004 and received AGL common shares in connection with the IPO transactions. During 2009, as a result of AGL's equity offerings in June and December, AGL's issuance of common shares to Dexia for the AGMH Acquisition and sale by ACE of some of its AGL common shares, ACE's ownership of AGL was reduced to 7.1% as of December 31, 2009, and 3.1% as of January 31, 2010, according to a Schedule 13G amendment it filed with the Securities and Exchange Commission. Dexia received approximately 22.3 million AGL common shares as part of the purchase price for the AGMH Acquisition. On March 16, 2010, Dexia sold all of such AGL common shares in a secondary public offering. As a result of these transactions, ACE and Dexia are not considered related parties of the Company as of March 31, 2010.

Dexia

The primary related party transactions between the Company and Dexia were as follows:

•

Dexia acts as intermediary in certain CDS transactions. The Company also issued secondary financial guaranty insurance policies to Dexia. The premiums earned and fair-value adjustments related to those contracts are recorded in the consolidated statements of operations.

•

The Company has notes issued to Dexia and records related interest expense in the consolidated statements of operations and accrued interest expense on the balance sheet.

•

The Company maintains certain lines of credit with Dexia affiliates. See Note 16. In addition, the Company has entered into a number of agreements with Dexia in order to transfer to Dexia the credit and liquidity risks associated with AGMH's former Financial Products Business.

•

The Company provided administrative services to Dexia Financial Products Services LLC, an affiliate of Dexia that administers AGMH's former financial products business.

ACE

The primary related party transactions with ACE are:

•

In 2004 the Company entered into reinsurance transactions with ACE subsidiaries as part of the IPO. The business ceded was part of the Company's other segment, and is no longer written. The related party amounts relate primarily to these legacy reinsurance transactions.

•

During 2009 and 2008, ACE provided certain general and administrative services.

•

ACE and the Company are party to a tax allocation agreement. See Note 12.

WLR Funds

The primary related party transactions with WL Ross are:

•

In November 2010, AGM and AGC entered into a special servicing agreement with American Home Mortgage Servicing, Inc. ("AHMSI"). Substantially all of the stock of AHMSI is owned by several private equity funds that are ultimately controlled by WL Ross & Co. LLC. AGM and AGC have issued financial guaranty insurance policies on a number of residential mortgage-backed securities as to which AHMSI services the mortgage loans underlying the securitization transactions. AGM, AGC and AHMSI determined to place seven of these transactions under the special servicing agreement in order to provide incentives to AHMSI for achieving better performance with respect to the relatively risky mortgage loans in those transactions. The special servicing agreement also provides us with extensive oversight and enhanced information rights, and obligates AHMSI to cooperate with us, including working with us to create and implement our preferred loss mitigation strategies. Pursuant to the incentive fee schedule under the special servicing agreement, which is based on prevailing market rates, we estimate that AHMSI will receive approximately $4.1 million during the term of the special servicing agreement.

•

In October 2009, AG Analytics Inc., a subsidiary of the Company, entered into a consulting agreement with Invesco Advisors, Inc., an affiliate of WL Ross & Co. LLC. Wilbur L. Ross, Jr. is the Chairman and Chief Executive Officer of WL Ross & Co. LLC.

•

Pursuant to pre-emptive rights, WLR Funds purchased 3,850,000 AGL common shares in AGL's June 2009 equity offering at $11.00 per share, the public offering price.

•

Pursuant to an investment agreement dated as of February 28, 2008 with funds that are affiliated with Wilbur L. Ross, Jr., a director of AGL, which are referred to as the WLR Funds, the WLR Funds purchased 10,651,896 common shares of AGL at $23.47 per share on April 8, 2008. As required pursuant to the terms of the investment agreement, AGL has filed a shelf registration statement under the Securities Act covering the resale of the common shares sold to the WLR Funds pursuant to the investment agreement.

•

In 2008, the Company had paid $10.8 million to WL Ross for a commitment fee and paid an additional $5.1 million in 2009.

Wellington Management Company, LLP ("Wellington")

The primary related party transactions with Wellington were:

•

Since late 2009, Wellington has acted as one of the Company's investment managers and is compensated based upon a fixed percentage of the market value of the Company's portfolio.

The following table summarizes the affiliated components of each balance sheet item, where applicable:

		As of December 31, 2009

		(in millions)
Assets:
Ceded unearned premium reserve
	ACE	$	—
Reinsurance recoverable on unpaid losses
	ACE		3.1
Other assets
	ACE		0.1
Liabilities:
Unearned premium reserves
	ACE		1.4
	Dexia		35.5
Loss and LAE reserve
	ACE		4.6
Net credit derivative liabilities
	Dexia		333.0
Notes payable(1)
	Dexia		149.1
Other liabilities
	ACE		9.0
	Dexia		0.3
Other information:
Exposure
Gross par outstanding
	Dexia(2)		24,090

(1)

Recorded within long-term debt on the consolidated balance sheets.

(2)

Includes $10.3 billion of net par outstanding related to AGM'S financial guaranties of GICs issued by AGMH's former financial products companies. This exposure is guaranteed by Dexia and by the French and Belgium governments.

The following table summarizes the affiliated components of each statement of operations item, where applicable:

		Year Ended December 31,

		2010			2009			2008
		(in millions)
Revenues:
Net earned premiums
	ACE	$	—		$	1.2		$	(3.5	)
	Dexia		0.6			3.2			—
Net investment income (expense)
	Wellington		(1.8	)		—			—
Net change in fair value of credit derivatives
	Dexia		(76.4	)		17.6			—
Expenses:
Loss and LAE (recoveries)
	ACE		—			1.3			4.0
Interest expense from long-term debt
	Dexia		1.9			4.4			—
General and administrative services
	ACE		—			0.1			0.1
	Dexia		(0.5	)		(0.9	)		—

- Definition

This element may be used for the entire related party transactions disclosure as a single block of text. Disclosure may include: the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

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