Insurance Company Regulatory Requirements

12 Months Ended

Dec. 31, 2011

Insurance Company Regulatory Requirements

Insurance Company Regulatory Requirements

10. Insurance Company Regulatory Requirements

        Each of the Company's insurance companies' ability to pay dividends depends, among other things, upon their financial condition, results of operations, cash requirements and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their state of domicile and other states. Financial statements prepared in accordance with accounting practices prescribed or permitted by local insurance regulatory authorities differ in certain respects from GAAP.

        The Company's U.S. domiciled insurance companies prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the National Association of Insurance Commissioners ("NAIC") and their respective insurance departments. Prescribed statutory accounting practices are set forth in the NAIC Accounting Practices and Procedures Manual. The Company has no permitted accounting practices on a statutory basis.

        AG Re, a Bermuda regulated Class 3B insurer, prepares its statutory financial statements in conformity with the accounting principles set forth in the Insurance Act 1978, amendments thereto and related regulations.

        GAAP differs in certain significant respects from statutory accounting practices, applicable to U.S. insurance companies, that are prescribed or permitted by insurance regulatory authorities. The principal differences result from the following statutory accounting practices:

• •

  upfront premiums are earned when related principal and interest have expired rather than earned over the expected period of coverage;

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  acquisition costs are charged to operations as incurred rather than over the period that related premiums are earned;

  •

  a contingency reserve is computed based on the following statutory requirements:
  
  

  1)

  for all policies written prior to July 1, 1989, an amount equal to 50% of cumulative earned premiums less permitted reductions, plus
  
  

  2)

  for all policies written on or after July 1, 1989, an amount equal to the greater of 50% of premiums written for each category of insured obligation or a designated percentage of principal guaranteed for that category. These amounts are provided each quarter as either 1/60th or 1/80th of the total required for each category, less permitted reductions;

  •

  certain assets designated as "non-admitted assets" are charged directly to statutory surplus but are reflected as assets under GAAP;

  •

  deferred tax assets are generally admitted to the extent reversals of existing temporary differences in the subsequent year can be recovered through carryback or if greater, the amount of deferred tax asset expected to be realized within one year of the balance sheet date;

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  insured CDS are accounted for as insurance contracts rather than as derivative contracts recorded at fair value;

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  bonds are generally carried at amortized cost rather than fair value;

  •

  VIEs and refinancing vehicles are not consolidated;

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  surplus notes are recognized as surplus rather than as a liability unless approved for repayment;

  •

  push-down acquisition accounting is not applicable under statutory accounting practices;

  •

  present value of expected losses are discounted at 5% and recorded without consideration of the deferred premium revenue as opposed to discounted at the risk free rate at the end of each reporting period and only to the extent they exceed deferred premium revenue;

  •

  present value of installment premiums are not recorded on the balance sheets.

Insurance Regulatory Amounts Reported

	Policyholders' Surplus				Net Income (Loss)
	As of December 31,				Year Ended December 31,
	2011		2010		2011		2010			2009
	(in millions)
AGC(1)	$	1,021.5	$	854.1	$	229.9	$	(182.1	)	$	(243.1	)
AG Re		1,290.6		1,190.4		141.2		(26.4	)		8.5
AGM		1,227.2		992.7		632.2		401.8			(228.2	)

(1)

In 2009, AGC issued a $300.0 million surplus note to AGM. Under accounting practices prescribed or permitted by insurance regulatory authorities, these surplus notes are accounted for as contributed capital, as opposed to debt under GAAP.

Dividend Restrictions and Capital Requirements

        AGC is a Maryland domiciled insurance company. As of December 31, 2011, the amount available for distribution from AGC during 2012 with notice to, but without prior approval of, the Maryland Commissioner of Insurance under the Maryland insurance law is approximately $102.1 million. During the years ended December 31, 2011, 2010 and 2009, AGC declared and paid $30.0 million, $50.0 million and $16.8 million, respectively, in dividends to AGUS.

        AGM is a New York domiciled insurance company. Based on AGM's statutory statements for year ended December 31, 2011, the maximum amount available for payment of dividends by AGM without regulatory approval over the 12 months following December 31, 2011, was approximately $120.9 million. In connection with Assured Guaranty's acquisition of AGMH, Assured Guaranty agreed with Dexia to dividend limitations described in the "AGMH Acquisition" section of Note 2, Business Changes, Risks, Uncertainties and Accounting Developments that survive until July 1, 2012. Until this covenant is no longer in effect, it constitutes a limitation on AGM's ability to pay dividends that is more restrictive than the statutory limitation. Also in connection with the AGMH Acquisition, the Company committed to the New York Department of Financial Services that AGM would not pay any dividends for a period of two years from the Acquisition Date without written approval of the New York Department of Financial Services and therefore AGM did not pay any dividends in 2011 and 2010.

        AG Re is a Bermuda domiciled insurance company and its dividend distribution is governed by Bermuda law. The amount available at AG Re to pay dividends in 2012 in compliance with Bermuda law is approximately $845 million. However, any distribution that results in a reduction of 15% ($193.6 million as of December 31, 2011) or more of AG Re's total statutory capital, as set out in its previous year's financial statements, would require the prior approval of the Bermuda Monetary Authority. Dividends are limited by requirements that the subject company must at all times (i) maintain the minimum solvency margin required under the Insurance Act of 1978 and (ii) have relevant assets in an amount at least equal to 75% of relevant liabilities, both as defined under the Insurance Act of 1978. AG Re, as a Class 3B insurer, is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year's statutory balance sheet) unless it files (at least seven days before payment of such dividends) with the Authority an affidavit stating that it will continue to meet the required margins. AG Re declared and paid $86.0 million and $24.0 million during years ended December 31, 2011 and 2010, respectively, to its parent, AGL. During 2009, AG Re declared $26.6 million and paid $30.3 million in dividends to its parent, AGL.