The Company provides financial guaranties with respect to debt obligations of special purpose entities, including VIEs. AGC and AGM do not sponsor any VIEs when underwriting third party financial guaranty insurance or credit derivative transactions, nor has either of them acted as the servicer or collateral manager for any VIE obligations that it insures. The transaction structure generally provides certain financial protections to the Company. This financial protection can take several forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread. In the case of overcollateralization (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 experienced by 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 overcollateralization), or distributed to equity or other investors in the transaction.

AGC and AGM are not primarily liable for the debt obligations issued by the VIEs they insure 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. AGL's and its Subsidiaries' creditors do not have any rights with regard to the assets of the VIEs. Proceeds from sales, maturities, prepayments and interest from VIE assets may only be used to pay debt service on VIE liabilities. Net fair value gains and losses on FG VIEs are expected to reverse to zero at maturity of the VIE debt, except for claim payments paid by AGC or AGM under the financial guaranty insurance contract. The Company's estimate of expected loss to be paid for FG VIEs is included in Note 5, Financial Guaranty Insurance Contracts.

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 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. 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 guaranty 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. The Company is deemed to be the control party for financial reporting purposes, typically when its protective rights give it the power to both terminate and replace the deal servicer, which are characteristics specific to the Company's financial guaranty contracts.

The FG VIEs' liabilities that are insured by the Company are considered to be with recourse, because the Company guarantees the payment of principal and interest regardless of the performance of the related FG VIEs' assets. FG VIEs' liabilities that are not insured by the Company are considered to be without recourse, because the payment of principal and interest of these liabilities is wholly dependent on the performance of the FG VIEs' assets.

The trustee reports of the consolidated FG 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 FG VIEs are consolidated on a lag; however, the Company adjusts the financial statements for the effects of material events occurring from the lag period until the balance sheet date. The Company has elected the fair value option for assets and liabilities classified as FG VIEs' assets and liabilities. Upon consolidation of FG VIEs, the Company elected the fair value option because the carrying amount transition method was not practical.

This change in accounting was recognized as a cumulative effect adjustment to retained earnings on January 1, 2010. The cumulative effect was a $206.5 million after-tax decrease to the opening retained earnings balance representing the consolidation of 21 VIEs at fair value.

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

	(in millions)
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 effect of this deconsolidation is included in the "Transition Adjustment" amounts above.

During 2011, 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, eight additional VIEs required consolidation. This resulted in a net loss on consolidation of $95.3 million, which was included in "net change in fair value of FG VIEs" in the consolidated statement of operations. In addition, debt on four FG VIEs was fully paid down during 2011. As a result, there were a total of 33 consolidated VIEs at December 31, 2011, compared to 29 VIEs at December 31, 2010.

The total unpaid principal balance for the FG VIEs' assets that were over 90 days or more past due was approximately $900.7 million. The change in the instrument-specific credit risk of the FG VIEs' assets for the year ended December 31, 2011 was a loss of approximately $600.4 million. The difference between the aggregate unpaid principal and aggregate fair value of the FG VIEs' liabilities was approximately $2,710.9 million at December 31, 2011.

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

	As of December 31, 2011						As of December 31, 2010

	Number of VIEs		Assets		Liabilities		Number of VIEs		Assets		Liabilities
	(dollars in millions)
HELOCs		8	$	616.0	$	951.0		8	$	857.1	$	1,126.1
First liens:
Alt-A first lien		3		146.6		134.8		—		—		—
Option ARM		2		524.4		719.3		2		626.6		909.4
Subprime		5		414.5		500.4		5		528.7		616.5
Closed-end second lien		10		600.2		635.5		5		747.4		818.4
Automobile loans		4		227.6		227.6		7		486.8		486.8
Life insurance		1		289.8		289.8		1		304.8		304.8
Credit card loans		—		—		—		1		106.1		106.1

Total		33	$	2,819.1	$	3,458.4		29	$	3,657.5	$	4,368.1

Contractual Maturity	As of December 31, 2011

	(in millions)
2012	$	—
2013	$	15.7
2014		138.9
2015		—
2016		—
Thereafter		3,641.8

Total	$	3,796.4

	Year Ended December 31,

	2011			2010			2009
	(in millions)
Net earned premiums	$	(74.7	)	$	(47.6	)	$	—
Net investment income		(8.3	)		—			—
Net realized investment gains (losses)		11.9			—			—
Net change in fair value of FG VIEs		(132.0	)		(273.6	)		(1.2	)
Loss and LAE		92.7			65.9			—

Total pretax effect on net income		(110.4	)		(255.3	)		(1.2	)
Less: tax provision (benefit)		(38.7	)		(89.4	)		—

Total effect on net income	$	(71.7	)	$	(165.9	)	$	(1.2	)

To date, the Company's analyses have indicated that it does not have a controlling financial interest in any other VIEs and, as a result, they are not consolidated in the 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 4, Outstanding Exposure.