Outstanding Exposure

The Company’s financial guaranty contracts are written in either insurance or credit derivative form, but collectively are considered financial guaranty contracts. The Company seeks to limit its exposure to losses by underwriting obligations that are investment grade at inception, diversifying its insured portfolio and maintaining rigorous subordination or collateralization requirements on structured finance obligations. The Company also has utilized reinsurance by ceding business to third-party reinsurers. The Company provides financial guaranties with respect to debt obligations of special purpose entities, including VIEs. Some of these VIEs are consolidated as described in Note 9, Consolidation of Variable Interest Entities. The outstanding par and Debt Service amounts presented below include outstanding exposures on VIEs whether or not they are consolidated.

Debt Service Outstanding



	Gross Debt Service Outstanding				Net Debt Service Outstanding
	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
	(in millions)
Public finance	$	696,771	$	722,562	$	654,113	$	677,369
Structured finance	104,976		112,388		97,628		104,811
Total financial guaranty	$	801,747	$	834,950	$	751,741	$	782,180

In addition to the amounts shown in the table above, the Company’s net mortgage guaranty insurance in force was approximately $149 million as of March 31, 2013. The net mortgage guaranty insurance in force is assumed excess of loss business written between 2004 and 2006 and comprises $135 million covering loans originated in Ireland and $14 million covering loans originated in the United Kingdom ("U.K.").

Unless otherwise noted, ratings disclosed herein on Assured Guaranty’s insured portfolio reflect Assured Guaranty’s internal ratings. Assured Guaranty’s ratings scale is similar to that used by the NRSROs; however, the ratings in these financial statements may not be the same as those assigned by any such rating agency. For example, the super senior category, which is not generally used by rating agencies, is used by Assured Guaranty in instances where Assured Guaranty’s AAA-rated exposure on its internal rating scale (which does not take into account Assured Guaranty’s financial guaranty) has additional credit enhancement due to either (1) the existence of another security rated AAA that is subordinated to Assured Guaranty’s exposure or (2) Assured Guaranty’s exposure benefiting from a different form of credit enhancement that would pay any claims first in the event that any of the exposures incurs a loss, and such credit enhancement, in management’s opinion, causes Assured Guaranty’s attachment point to be materially above the AAA attachment point.

Financial Guaranty Portfolio by Internal Rating

As of March 31, 2013



	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
Super senior	$	—	—	%	$	1,071	3.1	%	$	13,259	18.9	%	$	4,522	25.1	%	$	18,852	3.8	%
AAA	4,053		1.1		580		1.7		26,628		37.9		7,504		41.7		38,765		7.7
AA	120,812		31.9		661		1.9		10,041		14.2		687		3.8		132,201		26.3
A	206,112		54.5		9,158		26.1		3,149		4.5		958		5.3		219,377		43.7
BBB	42,890		11.3		21,590		61.5		3,351		4.8		2,437		13.5		70,268		14.0
Below-investment-grade (“BIG”)	4,589		1.2		2,007		5.7		13,852		19.7		1,906		10.6		22,354		4.5
Total net par outstanding	$	378,456	100.0	%	$	35,067	100.0	%	$	70,280	100.0	%	$	18,014	100.0	%	$	501,817	100.0	%

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2012



	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
Super senior	$	—	—	%	$	1,130	3.0	%	$	13,572	18.2	%	$	4,874	24.7	%	$	19,576	3.8	%
AAA	4,502		1.2		576		1.5		28,615		38.3		8,295		42.1		41,988		8.1
AA	124,525		32.1		875		2.3		9,589		12.8		722		3.7		135,711		26.1
A	210,124		54.1		9,781		26.1		4,670		6.2		1,409		7.2		225,984		43.4
BBB	44,213		11.4		22,885		61.0		3,717		5.0		2,427		12.3		73,242		14.1
BIG	4,603		1.2		2,293		6.1		14,532		19.5		1,964		10.0		23,392		4.5
Total net par outstanding	$	387,967	100.0	%	$	37,540	100.0	%	$	74,695	100.0	%	$	19,691	100.0	%	$	519,893	100.0	%

The Company classifies those portions of risks benefiting from reimbursement obligations collateralized, or expected to be collateralized, by eligible assets held in trust in acceptable reimbursement structures as the higher of 'AA' or their current internal rating.

Securities purchased for loss mitigation purposes, which are generally rated BIG, represented $1,119 million and $1,133 million of gross par outstanding as of March 31, 2013 and December 31, 2012, respectively. In addition, under the terms of certain credit derivative contracts, the Company has been delivered the obligations referenced in such contracts and recorded them in invested assets in the consolidated balance sheets. Such amounts totaled $219 million and $220 million in gross par outstanding as of March 31, 2013 and December 31, 2012, respectively.

In addition to amounts shown in the tables above, the Company had outstanding commitments to provide guaranties of $1.8 billion for structured finance and $0.7 billion for public finance obligations at March 31, 2013. The structured finance commitments include the unfunded component of pooled corporate and other transactions. Public finance commitments typically relate to primary and secondary public finance debt issuances. The expiration dates for the public finance commitments range between April 15, 2013 and February 25, 2017, with $0.6 billion expiring prior to December 31, 2013. The commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts.

Economic Exposure to the Selected European Countries

Several European countries continue to experience significant economic, fiscal and/or political strains such that the likelihood of default on obligations with a nexus to those countries may be higher than the Company anticipated when such factors did not exist. The European countries where it believes heightened uncertainties exist are: Greece, Hungary, Ireland, Italy, Portugal and Spain (the “Selected European Countries”). The Company is closely monitoring its exposures in Selected European Countries where it believes heightened uncertainties exist. Published reports have identified countries that may be experiencing reduced demand for their sovereign debt in the current environment. The Company selected these European countries based on these reports and its view that their credit fundamentals are deteriorating. The Company’s economic exposure to the Selected European Countries (based on par for financial guaranty contracts and notional amount for financial guaranty contracts accounted for as derivatives) is shown in the following table net of ceded reinsurance.

Net Economic Exposure to Selected European Countries(1)

March 31, 2013



	Greece		Hungary (2)		Ireland		Italy		Portugal		Spain (2)		Total
	(in millions)
Sovereign and sub-sovereign exposure:
Public finance	$	—	$	—	$	—	$	978	$	105	$	258	$	1,341
Infrastructure finance	—		408		23		83		96		164		774
Sub-total	—		408		23		1,061		201		422		2,115
Non-sovereign exposure:
Regulated utilities	—		—		—		215		—		8		223
RMBS	—		205		135		476		—		—		816
Commercial receivables	—		2		13		61		14		2		92
Pooled corporate	22		—		177		226		15		498		938
Sub-total	22		207		325		978		29		508		2,069
Total	$	22	$	615	$	348	$	2,039	$	230	$	930	$	4,184
Total BIG	$	—	$	576	$	7	$	2	$	121	$	406	$	1,112

____________________

(1) While the Company’s exposures are shown in U.S. dollars, the obligations the Company insures are in various currencies, including U.S. dollars, Euros and British pounds sterling. Included in the table above is $135 million of reinsurance assumed on a 2004 - 2006 pool of Irish residential mortgages that is part of the Company’s remaining legacy mortgage reinsurance business. One of the residential mortgage-backed securities included in the table above includes residential mortgages in both Italy and Germany, and only the portion of the transaction equal to the portion of the original mortgage pool in Italian mortgages is shown in the table.


(2)	See Note 5, Expected Loss to be Paid.

When the Company directly insures an obligation, it assigns the obligation to a geographic location or locations based on its view of the geographic location of the risk. For direct exposure this can be a relatively straight-forward determination as, for example, a debt issue supported by availability payments for a toll road in a particular country. The Company may also assign portions of a risk to more than one geographic location. The Company may also have direct exposures to the Selected European Countries in business assumed from unaffiliated monoline insurance companies. In the case of assumed business for direct exposures, the Company depends upon geographic information provided by the primary insurer.

The Company has included in the exposure tables above its indirect economic exposure to the Selected European Countries through exposure it provides on (a) pooled corporate and (b) commercial receivables transactions. The Company considers economic exposure to a selected European Country to be indirect when the exposure relates to only a small portion of an insured transaction that otherwise is not related to a Selected European Country. In most instances, the trustees and/or servicers for such transactions provide reports that identify the domicile of the underlying obligors in the pool, although occasionally such information is not available to the Company. The Company has reviewed transactions through which it believes it may have indirect exposure to the Selected European Countries that is material to the transaction and included in the tables above the proportion of the insured par equal to the proportion of obligors so identified as being domiciled in a Selected European Country. The Company may also have indirect exposures to Selected European Countries in business assumed from unaffiliated monoline insurance companies. However, in the case of assumed business for indirect exposures, unaffiliated primary insurers generally do not provide such information to the Company.

The Company no longer guarantees any sovereign bonds of the Selected European Countries. The exposure shown in the “Public Finance Category” is from transactions backed by receivable payments from sub-sovereigns in Italy, Spain and Portugal. Sub-sovereign debt is debt issued by a governmental entity or government backed entity, or supported by such an entity, that is other than direct sovereign debt of the ultimate governing body of the country.

The Company understands that Moody's recently had undertaken a review of redenomination risk in selected countries in the Eurozone, including some of the Selected European Countries. No redenomination from the Euro to another currency has yet occurred and it may never occur. Therefore, it is not possible to be certain at this point how a redenomination of an issuer’s obligations might be implemented in the future and, in particular, whether any redenomination would extend to the Company's obligations under a related financial guarantee.

Surveillance Categories

The Company segregates its insured portfolio into investment grade and BIG surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review for each exposure. BIG exposures include all exposures with internal credit ratings below BBB-. The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and are generally reflective of an approach similar to that employed by the rating agencies.

The Company monitors its investment grade credits to determine whether any new credits need to be internally downgraded to BIG. The Company refreshes its internal credit ratings on individual credits in quarterly, semi-annual or annual cycles based on the Company’s view of the credit’s quality, loss potential, volatility and sector. Ratings on credits in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter. The Company’s insured credit ratings on assumed credits are based on the Company’s reviews of low-rated credits or credits in volatile sectors, unless such information is not available, in which case, the ceding company’s credit rating of the transactions are used. The Company models most assumed RMBS credits with par above $1 million, as well as certain RMBS credits below that amount.

Credits identified as BIG are subjected to further review to determine the probability of a loss (see Note 5, Expected Loss to be Paid). Surveillance personnel then assign each BIG transaction to the appropriate BIG surveillance category based upon whether a lifetime loss is expected and whether a claim has been paid. The Company expects “lifetime losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will pay more claims over the life of that transaction than it ultimately will have reimbursed. For surveillance purposes, the Company calculates present value using a constant discount rate of 5%. (A risk-free rate is used for recording of reserves for financial statement purposes.)

More extensive monitoring and intervention is employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. The three BIG categories are:


•	BIG Category 1: Below-investment-grade transactions showing sufficient deterioration to make lifetime losses possible, but for which none are currently expected. Transactions on which claims have been paid but are expected to be fully reimbursed (other than investment grade transactions on which only liquidity claims have been paid) are in this category.


•	BIG Category 2: Below-investment-grade transactions for which lifetime losses are expected but for which no claims (other than liquidity claims which is a claim that the Company expects to be reimbursed within one year) have yet been paid.


•	BIG Category 3: Below-investment-grade transactions for which lifetime losses are expected and on which claims (other than liquidity claims) have been paid. Transactions remain in this category when claims have been paid and only a recoverable remains.

Financial Guaranty Exposures

(Insurance and Credit Derivative Form)

As of March 31, 2013



	BIG Net Par Outstanding								Net Par		BIG Net Par as a % of Total Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding		Outstanding
					(in millions)
First lien U.S. RMBS:
Prime first lien	$	27	$	422	$	10	$	459	$	619	0.1	%
Alt-A first lien	98		1,937		1,430		3,465		4,439		0.7
Option ARM	65		339		362		766		1,387		0.2
Subprime	162		1,219		1,006		2,387		7,130		0.5
Second lien U.S. RMBS:
Closed end second lien	—		61		279		340		452		0.1
Home equity lines of credit (“HELOCs”)	72		12		2,526		2,610		3,059		0.5
Total U.S. RMBS	424		3,990		5,613		10,027		17,086		2.1
Trust preferred securities (“TruPS”)	1,873		—		941		2,814		5,496		0.5
Other structured finance	1,240		379		1,298		2,917		65,712		0.6
U.S. public finance	3,359		520		710		4,589		378,456		0.9
Non-U.S. public finance	983		1,024		—		2,007		35,067		0.4
Total	$	7,879	$	5,913	$	8,562	$	22,354	$	501,817	4.5	%

Financial Guaranty Exposures

(Insurance and Credit Derivative Form)

As of December 31, 2012



	BIG Net Par Outstanding								Net Par		BIG Net Par as a % of Total Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding		Outstanding
					(in millions)
First lien U.S. RMBS:
Prime first lien	$	28	$	436	$	11	$	475	$	641	0.1	%
Alt-A first lien	109		1,987		1,479		3,575		4,589		0.7
Option ARM	61		392		643		1,096		1,550		0.2
Subprime (including net interest margin securities)	152		1,161		1,024		2,337		7,330		0.4
Second lien U.S. RMBS:
Closed end second lien	—		247		157		404		521		0.1
HELOCs	91		—		2,627		2,718		3,196		0.5
Total U.S. RMBS	441		4,223		5,941		10,605		17,827		2.0
TruPS	1,920		—		952		2,872		5,693		0.6
Other structured finance	1,310		384		1,325		3,019		70,866		0.6
U.S. public finance	3,290		500		813		4,603		387,967		0.9
Non-U.S. public finance	2,293		—		—		2,293		37,540		0.4
Total	$	9,254	$	5,107	$	9,031	$	23,392	$	519,893	4.5	%

Below-Investment-Grade Credits

By Category

As of March 31, 2013



	Net Par Outstanding						Number of Risks(2)
Description	Financial Guaranty Insurance(1)		Credit Derivative		Total		Financial Guaranty Insurance(1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	6,148	$	1,731	$	7,879	143	30	173
Category 2	3,289		2,624		5,913		82	26	108
Category 3	6,611		1,951		8,562		147	29	176
Total BIG	$	16,048	$	6,306	$	22,354	372	85	457

Below-Investment-Grade Credits

By Category

As of December 31, 2012



	Net Par Outstanding						Number of Risks(2)
Description	Financial Guaranty Insurance(1)		Credit Derivative		Total		Financial Guaranty Insurance(1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	7,049	$	2,205	$	9,254	153	30	183
Category 2	2,606		2,501		5,107		76	27	103
Category 3	7,028		2,003		9,031		142	32	174
Total BIG	$	16,683	$	6,709	$	23,392	371	89	460

_____________________

(1) Includes net par outstanding for FG VIEs.


(2)	A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making Debt Service payments.