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 variable interest entities ("VIEs"). Some of these VIEs are consolidated as described in Note 10, 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.

The Company has issued financial guaranty insurance policies on public finance obligations and structured finance obligations. Public finance obligations insured by the Company consist primarily of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company also includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, health care facilities and government office buildings. Structured finance obligations insured by the Company are generally issued by special purpose entities and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations.

Significant Risk Management Activities

The Portfolio Risk Management Committee, which includes members of senior management and senior credit and surveillance officers, sets specific risk policies and limits and is responsible for enterprise risk management, establishing the Company's risk appetite, credit underwriting of new business, surveillance and work-out.

Surveillance personnel are responsible for monitoring and reporting on all transactions in the insured portfolio. The primary objective of the surveillance process is to monitor trends and changes in transaction credit quality, detect any deterioration in credit quality, and recommend to management such remedial actions as may be necessary or appropriate. All transactions in the insured portfolio are assigned internal credit ratings, and surveillance personnel are responsible for recommending adjustments to those ratings to reflect changes in transaction credit quality.

Work-out personnel are responsible for managing work-out and loss mitigation situations, working with surveillance and legal personnel (as well as outside vendors) as appropriate. They develop strategies for the Company to enforce its contractual rights and remedies and to mitigate its losses, engage in negotiation discussions with transaction participants and, when necessary, manage (along with legal personnel) the Company's litigation proceedings.

During the third quarter of 2013, the Company changed the manner in which it presents par outstanding and Debt Service in two ways. First, the Company had included securities purchased for loss mitigation purposes both in its invested assets portfolio and its financial guaranty insured portfolio. Beginning with the third quarter of 2013, the Company excluded such loss mitigation securities from its disclosure about its financial guaranty insured portfolio (unless otherwise indicated) because it manages such securities as investments and not insurance exposure. Second, the Company refined its approach to its internal credit ratings and surveillance categories. Please refer to "Refinement of Approach to Internal Credit Ratings and Surveillance Categories" below for additional information.

Surveillance Categories

The Company segregates its insured portfolio into investment grade and below-investment-grade ("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, except that, beginning third quarter, the Company's internal credit ratings focus on future performance, rather than lifetime performance. See "Refinement of Approach to Internal Credit Ratings and Surveillance Categories" below.

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 the performance of many of its structured finance transactions as part of its periodic internal credit rating review of them. The Company models most assumed residential mortgage-backed security ("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 6, Expected Loss to be Paid). Surveillance personnel then assign each BIG transaction to the appropriate BIG surveillance category based upon whether a future loss is expected and whether a claim has been paid. The Company expects “future 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 future of that transaction than it 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 calculating the expected loss for financial statement purposes.)

More extensive monitoring and intervention is employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. In 2013, the Company refined the definitions of its BIG surveillance categories to be consistent with its new approach to assigning internal credit ratings. See "Refinement of Approach to Internal Credit Ratings and Surveillance Categories". The three BIG categories are:


•	BIG Category 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected.


•	BIG Category 2: Below-investment-grade transactions for which future 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 future losses are expected and on which claims (other than liquidity claims) have been paid.

Refinement of Approach to Internal Credit Ratings and Surveillance Categories

Typically, when an issuer of a debt security has defaulted on a payment and has not made up that missed payment, the debt security is considered by the rating agencies to be below-investment-grade regardless of its current credit condition. Similarly, the Company had previously considered those securities on which it has made an insurance claim payment that had not been reimbursed to be BIG regardless of their current credit condition.

Structured finance transactions often include mechanisms for reimbursing the Company for its insurance claim payments from assets underlying the transactions to the extent permitted by asset performance. With improvements beginning to occur in the performance of the assets underlying some of the structured finance securities the Company has insured, the Company is receiving reimbursements on some transactions on which it had paid claims in the past. As a result of these improvements, it now projects receiving reimbursements (rather than making claims) in the future on some of those transactions. Under the old approach, a transaction with a projected lifetime loss, no matter how strong on a prospective basis, was required to be rated BIG. During the third quarter of 2013, the Company revised its approach to internal credit ratings. Under its revised approach, a transaction may be rated investment grade if it (a) has turned generally cash-flow positive and (b) is projected to have net future reimbursements with sufficient cushion to warrant an investment grade rating, even if it is projected to have ending lifetime unreimbursed insurance claim payments. The new approach resulted in the upgrade to investment grade of one RMBS transaction with a net par of $25 million at December 31, 2012.

The Company also applied its change in approach to internal credit ratings to the Surveillance BIG Category definitions. Previously the BIG Category definitions were based in large part on whether lifetime losses were projected. Under the new approach, the BIG Category definitions are based on whether future losses are projected. In addition to the upgrade out of BIG described above, the change in approach resulted in the migration of a number of risks within BIG Categories.

Effect of Refinement in Approach to

Internal Credit Ratings and Surveillance Categories

on Net Par Outstanding

As of December 31, 2012



	Previous Approach		New Approach		Difference
	(in millions)
BIG 1	$	9,254	$	10,820	$	1,566
BIG 2	4,617		4,617		—
BIG 3	8,451		6,860		(1,591		)
Total	$	22,322	$	22,297	$	(25	)

Components of Outstanding Exposure

Debt Service Outstanding



	Gross Debt Service Outstanding				Net Debt Service Outstanding
	December 31, 2013		December 31, 2012		December 31, 2013		December 31, 2012
	(in millions)
Public finance	$	650,924	$	722,478	$	610,011	$	677,285
Structured finance	86,456		110,620		80,524		103,071
Total financial guaranty	$	737,380	$	833,098	$	690,535	$	780,356

Unless otherwise noted, ratings disclosed herein on Assured Guaranty's insured portfolio reflect Assured Guaranty's internal ratings. The Company classifies those portions of risks benefiting from reimbursement obligations collateralized by eligible assets held in trust in acceptable reimbursement structures as the higher of 'AA' or their current internal rating.

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2013



	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category (1)	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	4,998	1.4	%	$	1,016	3.0	%	$	32,317	54.9	%	$	9,684	69.1	%	$	48,015	10.5	%
AA	107,503		30.5		422		1.2		9,431		16.0		577		4.1		117,933		25.7
A	192,841		54.8		9,453		27.9		2,580		4.4		742		5.3		205,616		44.8
BBB	37,745		10.7		21,499		63.2		3,815		6.4		1,946		13.9		65,005		14.1
BIG	9,094		2.6		1,608		4.7		10,764		18.3		1,072		7.6		22,538		4.9
Total net par outstanding (excluding loss mitigation bonds)	$	352,181	100.0	%	$	33,998	100.0	%	$	58,907	100.0	%	$	14,021	100.0	%	$	459,107	100.0	%
Loss Mitigation Bonds	32				—				1,163				—				1,195
Total net par outstanding (including loss mitigation bonds)	$	352,213			$	33,998			$	60,070			$	14,021			$	460,302

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 (1)	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	4,502	1.2	%	$	1,706	4.5	%	$	42,187	56.6	%	$	13,169	70.2	%	$	61,564	11.9	%
AA	124,525		32.1		875		2.3		9,543		12.8		722		3.9		135,665		26.1
A	210,124		54.1		9,781		26.1		4,670		6.3		1,409		7.5		225,984		43.6
BBB	44,213		11.4		22,885		61.0		3,737		5.0		2,427		12.9		73,262		14.1
BIG	4,565		1.2		2,293		6.1		14,398		19.3		1,041		5.5		22,297		4.3
Total net par outstanding (excluding loss mitigation bonds)	$	387,929	100.0	%	$	37,540	100.0	%	$	74,535	100.0	%	$	18,768	100.0	%	$	518,772	100.0	%
Loss Mitigation Bonds	38				—				1,083				—				1,121
Total net par outstanding (including loss mitigation bonds)	$	387,967			$	37,540			$	75,618			$	18,768			$	519,893

____________________


(1)	In the third quarter of 2013, the Company adjusted its approach to assigning internal ratings. See "Refinement of Approach to Internal Credit Ratings and Surveillance Categories" above. This approach is reflected in the "Financial Guaranty Portfolio by Internal Rating" tables as of both December 31, 2013 and December 31, 2012.

Financial Guaranty Portfolio

by Sector



	Gross Par Outstanding				Ceded Par Outstanding				Net Par Outstanding
Sector	As of December 31, 2013		As of December 31, 2012		As of December 31, 2013		As of December 31, 2012		As of December 31, 2013		As of December 31, 2012
	(dollars in millions)
Public finance:
U.S.:
General obligation	$	160,751	$	175,932	$	5,474	$	5,947	$	155,277	$	169,985
Tax backed	70,552		77,894		3,728		4,145		66,824		73,749
Municipal utilities	57,893		63,933		1,569		1,817		56,324		62,116
Transportation	32,514		35,624		1,684		1,825		30,830		33,799
Healthcare	17,663		19,507		1,531		1,669		16,132		17,838
Higher education	14,470		16,244		399		474		14,071		15,770
Infrastructure finance	5,014		5,100		900		890		4,114		4,210
Housing	3,518		4,792		132		159		3,386		4,633
Investor-owned utilities	992		1,070		1		1		991		1,069
Other public finance—U.S.	4,249		4,784		17		24		4,232		4,760
Total public finance—U.S.	367,616		404,880		15,435		16,951		352,181		387,929
Non-U.S.:
Infrastructure finance	17,373		18,716		2,670		2,904		14,703		15,812
Regulated utilities	15,502		16,861		4,297		4,367		11,205		12,494
Pooled infrastructure	2,754		3,430		234		230		2,520		3,200
Other public finance—non-U.S.	6,645		7,297		1,075		1,263		5,570		6,034
Total public finance—non-U.S.	42,274		46,304		8,276		8,764		33,998		37,540
Total public finance	409,890		451,184		23,711		25,715		386,179		425,469
Structured finance:
U.S.:
Pooled corporate obligations	32,955		44,120		1,630		2,234		31,325		41,886
RMBS	14,542		18,114		821		1,079		13,721		17,035
Commercial mortgage-backed securities ("CMBS") and other commercial real estate related exposures	3,990		4,293		38		46		3,952		4,247
Insurance securitizations	3,082		2,991		47		48		3,035		2,943
Financial product	2,709		3,653		—		—		2,709		3,653
Consumer receivables	2,257		2,429		59		60		2,198		2,369
Commercial receivables	918		1,033		7		8		911		1,025
Structured credit	71		249		2		51		69		198
Other structured finance—U.S.	2,067		2,307		1,080		1,128		987		1,179
Total structured finance—U.S.	62,591		79,189		3,684		4,654		58,907		74,535
Non-U.S.:
Pooled corporate obligations	12,232		16,288		1,174		1,475		11,058		14,813
Commercial receivables	1,286		1,489		23		26		1,263		1,463
RMBS	1,296		1,586		150		162		1,146		1,424
Structured credit	197		669		21		78		176		591
CMBS and other commercial real estate related exposures	—		100		—		—		—		100
Other structured finance—non-U.S.	403		402		25		25		378		377
Total structured finance—non-U.S.	15,414		20,534		1,393		1,766		14,021		18,768
Total structured finance	78,005		99,723		5,077		6,420		72,928		93,303
Total net par outstanding	$	487,895	$	550,907	$	28,788	$	32,135	$	459,107	$	518,772

In addition to the amounts shown in the table above, the Company’s net mortgage guaranty insurance in force was approximately $152 million as of December 31, 2013. The net mortgage guaranty insurance in force is assumed excess of loss business and comprises $144 million covering loans originated in Ireland and $8 million covering loans originated in the U.K.

In accordance with the terms of certain credit derivative contracts, the referenced obligations in such contracts have been delivered to the Company, and they therefore are included in the investment portfolio. Such amounts are still included in the financial guaranty insured portfolio, and totaled $195 million and $220 million in gross par outstanding as of December 31, 2013 and December 31, 2012, respectively.

Actual maturities of insured obligations could differ from contractual maturities because borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties. The expected maturities of structured finance obligations are, in general, considerably shorter than the contractual maturities for such obligations.

Expected Amortization of

Net Par Outstanding

As of December 31, 2013



	Public Finance		Structured Finance		Total
	(in millions)
0 to 5 years	$	104,223	$	56,783	$	161,006
5 to 10 years	81,176		7,261		88,437
10 to 15 years	74,775		2,965		77,740
15 to 20 years	56,734		2,017		58,751
20 years and above	69,271		3,902		73,173
Total net par outstanding	$	386,179	$	72,928	$	459,107

In addition to amounts shown in the tables above, the Company had outstanding commitments to provide guaranties of $419 million for structured finance and $355 million for public finance obligations at December 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 January 1, 2014 and February 25, 2017, with $231 million expiring prior to December 31, 2014. 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.

Components of BIG Portfolio

Components of BIG Net Par Outstanding

(Insurance and Credit Derivative Form)

As of December 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	$	52	$	321	$	30	$	403	$	541	0.1	%
Alt-A first lien	656		1,137		935		2,728		3,590		0.6
Option ARM	71		60		467		598		937		0.1
Subprime	297		908		740		1,945		6,130		0.4
Second lien U.S. RMBS:
Closed end second lien	8		20		118		146		244		0.0
Home equity lines of credit (“HELOCs”)	1,499		20		378		1,897		2,279		0.4
Total U.S. RMBS	2,583		2,466		2,668		7,717		13,721		1.6
Trust preferred securities (“TruPS”)	1,587		135		—		1,722		4,970		0.4
Other structured finance	1,367		309		721		2,397		54,237		0.5
U.S. public finance	8,205		440		449		9,094		352,181		2.0
Non-U.S. public finance	1,009		599		—		1,608		33,998		0.4
Total	$	14,751	$	3,949	$	3,838	$	22,538	$	459,107	4.9	%

Components of BIG Net Par Outstanding

(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	753		1,962		739		3,454		4,469		0.7
Option ARM	333		392		317		1,042		1,450		0.2
Subprime (including net interest margin securities)	152		988		921		2,061		7,048		0.4
Second lien U.S. RMBS:
Closed end second lien	97		76		58		231		348		0.0
HELOCs	644		—		1,932		2,576		3,079		0.5
Total U.S. RMBS	2,007		3,854		3,978		9,839		17,035		1.9
TruPS	1,920		—		953		2,873		5,694		0.6
Other structured finance	1,310		263		1,154		2,727		70,574		0.5
U.S. public finance	3,290		500		775		4,565		387,929		0.9
Non-U.S. public finance	2,293		—		—		2,293		37,540		0.4
Total	$	10,820	$	4,617	$	6,860	$	22,297	$	518,772	4.3	%

BIG Net Par Outstanding

and Number of Risks

As of December 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	$	12,391	$	2,360	$	14,751	185	25	210
Category 2	2,323		1,626		3,949		80	21	101
Category 3	3,031		807		3,838		119	27	146
Total BIG	$	17,745	$	4,793	$	22,538	384	73	457

BIG Net Par Outstanding

and Number of Risks

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	$	7,929	$	2,891	$	10,820	163	33	196
Category 2	2,116		2,501		4,617		76	27	103
Category 3	5,543		1,317		6,860		131	29	160
Total BIG	$	15,588	$	6,709	$	22,297	370	89	459

_____________________

(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.

Geographic Distribution of Net Par Outstanding

The Company seeks to maintain a diversified portfolio of insured obligations designed to spread its risk across a number of geographic areas.

Geographic Distribution of

Net Par Outstanding

As of December 31, 2013



	Number of Risks	Net Par Outstanding		Percent of Total Net Par Outstanding
	(dollars in millions)
U.S.:
U.S. Public Finance:
California	1,492	$	52,704	11.5	%
New York	1,035	28,582		6.2
Pennsylvania	1,059	28,475		6.2
Texas	1,269	27,249		5.9
Illinois	881	24,138		5.3
Florida	422	21,773		4.7
New Jersey	656	14,462		3.2
Michigan	713	14,250		3.1
Georgia	204	9,364		2.0
Ohio	554	8,763		1.9
Other states and U.S. territories	4,517	122,421		26.7
Total U.S. public finance	12,802	352,181		76.7
U.S. Structured finance (multiple states)	963	58,907		12.8
Total U.S.	13,765	411,088		89.5
Non-U.S.:
United Kingdom	115	21,405		4.7
Australia	29	5,598		1.2
Canada	10	3,851		0.8
France	21	3,614		0.8
Italy	10	1,808		0.4
Other	100	11,743		2.6
Total non-U.S.	285	48,019		10.5
Total	14,050	$	459,107	100.0	%

Direct 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: 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 Direct Economic Exposure to Selected European Countries(1)

As of December 31, 2013



	Hungary (2)		Ireland		Italy		Portugal (2)		Spain (2)		Total
	(in millions)
Sovereign and sub-sovereign exposure:
Non-infrastructure public finance	$	—	$	—	$	1,024	$	98	$	275	$	1,397
Infrastructure finance	384		—		18		12		155		569
Sub-total	384		—		1,042		110		430		1,966
Non-sovereign exposure:
Regulated utilities	—		—		234		—		—		234
RMBS	224		144		315		—		—		683
Sub-total	224		144		549		—		—		917
Total	$	608	$	144	$	1,591	$	110	$	430	$	2,883
Total BIG	$	608	$	—	$	—	$	110	$	430	$	1,148

____________________

(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 $144 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 6, 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 excluded in the exposure tables above its indirect economic exposure to the Selected European Countries through policies 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. 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 calculated total net indirect exposure to Selected European Counties in non-sovereign pooled corporate and non-sovereign commercial receivables to be $781 million and $86 million, respectively, based on the proportion of the insured par equal to the proportion of obligors identified as being domiciled in a Selected European Country.

The Company no longer guarantees any sovereign bonds of the Selected European Countries. The exposure shown in the “Non-infrastructure 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. In 2012, the Company paid claims under its guarantees of €218 million in net exposure to the sovereign debt of Greece, paying off in full its liabilities with respect to the Greek sovereign bonds.

Exposure to Puerto Rico

The Company insures general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $5.4 billion net par. The Company rates $5.2 billion net par of that amount BIG.

The following table shows estimated amortization of the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations insured and rated BIG by the Company. The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. The column labeled “Estimated BIG Net Debt Service Amortization” shows the total amount of principal and interest due in the period indicated and represents the maximum net amount the Company would be required to pay on BIG Puerto Rico exposures in a given period assuming the obligors paid nothing on all of those obligations in that period.

Amortization Schedule of BIG Net Par Outstanding

and BIG Net Debt Service Outstanding of Puerto Rico

As of December 31, 2013



	Estimated BIG Net Par Amortization		Estimated BIG Net Debt Service Amortization
	(in millions)
2014	$	242	$	501
2015	364		608
2016	289		515
2017	208		421
2018	160		363
2019-2023	921		1,780
2024-2028	979		1,622
2029-2033	706		1,141
After 2033	1,302		1,596
Total	$	5,171	$	8,547

Recent announcements and actions by the Governor and his administration indicate officials of the Commonwealth are focused on measures to help Puerto Rico operate within its financial resources and maintain its access to the capital markets. All Puerto Rico credits insured by the Company are current on their debt service payments, and we expect them to continue to make their debt service payments. Neither Puerto Rico nor its related authorities and public corporations are eligible debtors under Chapter 9 of the U.S. Bankruptcy Code. However, Puerto Rico faces high debt levels, a declining population and an economy that has been in recession since 2006. Puerto Rico has been operating with a structural budget deficit in recent years, and its two largest pension funds are significantly underfunded.

In January 2014 the Company downgraded most of its insured Puerto Rico credits to BIG, reflecting the economic and financial challenges facing the Commonwealth and due to concerns that the rating agencies would downgrade Puerto Rico and limit its access to credit. Subsequently, in February 2014, S&P, Moody's and Fitch Ratings downgraded much of the debt of Puerto Rico and its related authorities and public corporations to BIG, citing various factors including limited liquidity and market access risk.