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, or in the case of restructurings of troubled credits, the Company may underwrite new issuances that one or more of the rating agencies may rate below-investment-grade ("BIG") as part of its loss mitigation strategy. The Company diversifies its insured portfolio across asset classes and, in the structured finance portfolio, requires rigorous subordination or collateralization requirements. Reinsurance is utilized in order to reduce net exposure to certain insured transactions.

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, including variable interest entities ("VIEs"), and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. Some of these VIEs are consolidated as described in Note 9, Consolidated Variable Interest Entities. Unless otherwise specified, the outstanding par and Debt Service amounts presented in this note include outstanding exposures on VIEs whether or not they are consolidated.

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, except that the Company's internal credit ratings focus on future performance, rather than lifetime performance.

The Company monitors its investment grade credits to determine whether any need to be internally downgraded to BIG and 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 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.

Credits identified as BIG are subjected to further review to determine the probability of a loss. See Note 5, Expected Loss to be Paid, for additional information. 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. For surveillance purposes, the Company calculates present value using a constant discount rate of 4.5% or 5% depending on the insurance subsidiary. (Risk-free rates are used for calculating the expected loss for financial statement measurement purposes.)

More extensive monitoring and intervention is employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. 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 in the future of that transaction than it will have reimbursed. 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.

Components of Outstanding Exposure

Unless otherwise noted, ratings disclosed herein on the Company's insured portfolio reflect its 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.

The Company purchases securities that it has insured, and for which it has expected losses to be paid, in order to

mitigate the economic effect of insured losses ("loss mitigation securities"). The Company excludes amounts attributable to loss mitigation securities (unless otherwise indicated) from par and Debt Service outstanding, because it manages such securities as investments and not insurance exposure.

Financial Guaranty

Debt Service Outstanding



	Gross Debt Service Outstanding				Net Debt Service Outstanding
	March 31, 2015		December 31, 2014		March 31, 2015		December 31, 2014
	(in millions)
Public finance	$	565,386	$	587,245	$	533,359	$	553,612
Structured finance	54,546		59,477		51,300		56,010
Total financial guaranty	$	619,932	$	646,722	$	584,659	$	609,622

In addition to the amounts shown in the table above, the Company’s net mortgage guaranty insurance debt service was approximately $113 million as of March 31, 2015 and $127 million as of December 31, 2014, related to loans originated in Ireland.

Financial Guaranty Portfolio by Internal Rating

As of March 31, 2015



	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)
AAA	$	3,563	1.1	%	$	613	2.1	%	$	18,176	47.3	%	$	4,397	57.8	%	$	26,749	6.9	%
AA	86,521		27.6		2,650		9.0		8,360		21.7		377		5.0		97,908		25.2
A	171,308		54.7		7,091		23.9		2,228		5.8		365		4.7		180,992		46.4
BBB	44,110		14.1		17,891		60.4		1,843		4.8		1,746		23.0		65,590		16.9
BIG	7,942		2.5		1,374		4.6		7,823		20.4		721		9.5		17,860		4.6
Total net par outstanding (1)	$	313,444	100.0	%	$	29,619	100.0	%	$	38,430	100.0	%	$	7,606	100.0	%	$	389,099	100.0	%

_____________________


(1)	Excludes $1.3 billion of loss mitigation securities insured and held by the Company as of March 31, 2015, which are primarily in the BIG category.

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2014



	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)
AAA	$	4,082	1.3	%	$	615	2.0	%	$	20,037	48.7	%	$	5,409	59.6	%	$	30,143	7.5	%
AA	90,464		28.1		2,785		8.9		8,213		19.9		503		5.5		101,965		25.3
A	176,298		54.7		7,192		22.9		2,940		7.1		445		4.9		186,875		46.3
BBB	43,429		13.5		19,363		61.7		1,795		4.4		1,912		21.1		66,499		16.4
BIG	7,850		2.4		1,404		4.5		8,186		19.9		807		8.9		18,247		4.5
Total net par outstanding (1)	$	322,123	100.0	%	$	31,359	100.0	%	$	41,171	100.0	%	$	9,076	100.0	%	$	403,729	100.0	%

_____________________


(1)	Excludes $1.3 billion of loss mitigation securities insured and held by the Company as of December 31, 2014, which are primarily in the BIG category.

In addition to amounts shown in the tables above, the Company had outstanding commitments to provide guaranties of $38 million for structured finance and $410 million for public finance obligations as of March 31, 2015. The structured finance commitments include the unfunded component of pooled corporate and other transactions. The expiration dates for the public finance commitments range between April 9, 2015 and February 25, 2017, with $210 million expiring prior to the date of this filing and an additional $75 million expiring prior to December 31, 2015. 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 March 31, 2015



	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
U.S. public finance	$	6,669	$	1,156	$	117	$	7,942	$	313,444
Non-U.S. public finance	863		511		—		1,374		29,619
First lien U.S. residential mortgage-backed securities ("RMBS"):
Prime first lien	49		59		241		349		454
Alt-A first lien	579		436		763		1,778		2,449
Option ARM	9		53		108		170		374
Subprime	179		529		831		1,539		3,935
Second lien U.S. RMBS:
Closed-end second lien	—		19		113		132		212
Home equity lines of credit (“HELOCs”)	1,235		29		240		1,504		1,654
Total U.S. RMBS	2,051		1,125		2,296		5,472		9,078
Triple-X life insurance transactions	—		—		598		598		3,133
Trust preferred securities (“TruPS”)	828		—		327		1,155		4,075
Other structured finance	927		237		155		1,319		29,750
Total	$	11,338	$	3,029	$	3,493	$	17,860	$	389,099

Components of BIG Net Par Outstanding

(Insurance and Credit Derivative Form)

As of December 31, 2014



	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
U.S. public finance	$	6,577	$	1,156	$	117	$	7,850	$	322,123
Non-U.S. public finance	1,402		2		—		1,404		31,359
First lien U.S. RMBS:
Prime first lien	68		33		252		353		471
Alt-A first lien	585		531		725		1,841		2,532
Option ARM	47		18		118		183		407
Subprime	156		654		765		1,575		4,051
Second lien U.S. RMBS:
Closed-end second lien	—		19		115		134		218
HELOCs	1,012		36		509		1,557		1,738
Total U.S. RMBS	1,868		1,291		2,484		5,643		9,417
Triple-X life insurance transactions	—		—		598		598		3,133
TruPS	997		—		336		1,333		4,326
Other structured finance	1,021		240		158		1,419		33,371
Total	$	11,865	$	2,689	$	3,693	$	18,247	$	403,729

BIG Net Par Outstanding

and Number of Risks

As of March 31, 2015



	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	$	9,887	$	1,451	$	11,338	164	18	182
Category 2	2,345		684		3,029		73	12	85
Category 3	2,705		788		3,493		119	25	144
Total BIG	$	14,937	$	2,923	$	17,860	356	55	411

BIG Net Par Outstanding

and Number of Risks

As of December 31, 2014



	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	$	10,195	$	1,670	$	11,865	164	18	182
Category 2	2,135		554		2,689		75	14	89
Category 3	2,892		801		3,693		119	24	143
Total BIG	$	15,222	$	3,025	$	18,247	358	56	414

_____________________

(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.

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 $4.9 billion net par as of March 31, 2015. The Company rates $4.7 billion net par of that amount BIG; included in that amount are the obligations of Puerto Rico Highway and Transportation Authority (“PRHTA”) and PREPA.

Puerto Rico has experienced significant general fund budget deficits in recent years. These deficits have been covered primarily with the net proceeds of bond issuances, interim financings provided by Government Development Bank for Puerto Rico (“GDB”) and, in some cases, one-time revenue measures or expense adjustment measures. In addition to high debt levels, Puerto Rico faces a challenging economic environment.

In June 2014, the Puerto Rico legislature passed the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the "Recovery Act") in order to provide a legislative framework for certain public corporations experiencing severe financial stress to restructure their debt, including PRHTA and PREPA. Subsequently, the Commonwealth stated PREPA might need to seek relief under the Recovery Act due to liquidity constraints.

In August 2014, PREPA entered into forbearance agreements with the GDB, its bank lenders, and bondholders and financial guaranty insurers (including AGM and AGC) that hold or guarantee more than 60% of PREPA's outstanding bonds, in order to address its near-term liquidity issues. Creditors, including AGM and AGC, agreed not to exercise available rights and remedies until March 31, 2015, and the bank lenders agreed to extend the maturity of two revolving lines of credit to the same date. PREPA agreed it would continue to make principal and interest payments on its outstanding bonds, and interest payments on its lines of credit. It also agreed it would develop a five year business plan and a recovery program in respect of its operations; a preliminary business plan was released in December 2014. Subsequently, the parties have extended these forbearance agreements through June 4, 2015. Creditors, including AGM and AGC, are in discussions among themselves and with PREPA regarding potentially extending the forbearance agreements beyond June 4, 2015, but there can be no assurance that such discussions will result in such an extension. PREPA, during the pendency of the Forbearance Agreement, has suspended deposits into the Debt Service Fund and has utilized amounts on deposit in the Debt Service Reserve Fund to pay debt service due on its bonds and other obligations through May 8, 2015.

Investors in bonds issued by PREPA filed suit in the United States District Court for the District of Puerto Rico asserting the Recovery Act violates the U.S. Constitution. On February 6, 2015, the U.S. District Court for the District of Puerto Rico ruled the Recovery Act is preempted by the U.S. Bankruptcy Code and is therefore void; on February 19, 2015, the Commonwealth appealed the ruling to the U.S. Court of Appeals for the First Circuit. In addition, the Commonwealth's Resident Commissioner has introduced a bill to the U.S. Congress that, if passed, would enable the Commonwealth to authorize one or more of its public corporations to restructure their debts under chapter 9 of the U.S Bankruptcy Code if they were to become insolvent. The passage of the Recovery Act, its subsequent invalidation, and the introduction of legislation that would enable the Commonwealth to authorize chapter 9 protection for its public corporations have resulted in uncertainty among investors about the rights of creditors of the Commonwealth and its related authorities and public corporations.

Following the enactment of the Recovery Act, S&P, Moody’s and Fitch Ratings lowered the credit rating of the Commonwealth’s bonds and the ratings on certain of its public corporations. In February, March and April 2015, Moody's, Fitch Ratings and S&P, respectively, each again lowered the credit rating of the Commonwealth's bonds and the ratings on certain of its public corporations. The Commonwealth has disclosed its liquidity has been adversely affected by rating agency downgrades and by the limited market access for its debt, and also noted it has relied on short-term financings and interim loans from the GDB and other private lenders, which reliance has constrained its liquidity and increased its near-term refinancing risk.

In early 2015, Puerto Rico enacted legislation designed to stabilize PRHTA and improve the liquidity of the GDB. The legislation provides for certain tax revenues that would support PRHTA and require the transfer of certain liabilities and revenues from PHRTA to another authority, as well as allowing the transfer of the operations of poorly performing transit facilities to a new authority.

The following tables show the Company’s exposure to general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.

Puerto Rico

Gross Par and Gross Debt Service Outstanding



	Gross Par Outstanding				Gross Debt Service Outstanding
	March 31, 2015		December 31, 2014		March 31, 2015		December 31, 2014
	(in millions)
Previously Subject to the Voided Recovery Act (1)	$	3,059	$	3,058	$	5,252	$	5,326
Not Previously Subject to the Voided Recovery Act	2,977		2,977		4,675		4,748
Total	$	6,036	$	6,035	$	9,927	$	10,074

____________________


(1)	On February 6, 2015, the U.S. District Court for the District of Puerto Rico ruled that the Recovery Act is preempted by the Federal Bankruptcy Code and is therefore void. On February 19, 2015, the Commonwealth appealed the ruling to the U.S. Court of Appeals for the First Circuit.

Puerto Rico

Net Par Outstanding



	As of March 31, 2015			As of December 31, 2014
	Total		Internal Rating	Total		Internal Rating
	(in millions)
Exposures Previously Subject to the Voided Recovery Act:
PRHTA (Transportation revenue)	$	844	BB-	$	844	BB-
PREPA	773		B-	772		B-
Puerto Rico Aqueduct and Sewer Authority	384		BB-	384		BB-
PRHTA (Highway revenue)	273		BB	273		BB
Puerto Rico Convention Center District Authority	174		BB-	174		BB-
Total	2,448			2,447

Exposures Not Previously Subject to the Voided Recovery Act:
Commonwealth of Puerto Rico - General Obligation Bonds	1,672		BB	1,672		BB
Puerto Rico Municipal Finance Agency	399		BB-	399		BB-
Puerto Rico Sales Tax Financing Corporation	269		BBB	269		BBB
Puerto Rico Public Buildings Authority	100		BB	100		BB
GDB	33		BB	33		BB
Puerto Rico Infrastructure Finance Authority	18		BB-	18		BB-
University of Puerto Rico	1		BB-	1		BB-
Total	2,492			2,492
Total net exposure to Puerto Rico	$	4,940		$	4,939

The following table shows the scheduled 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. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the principal and interest due in any given period and the amount paid by the obligors.

Amortization Schedule of Puerto Rico BIG Net Par Outstanding

and BIG Net Debt Service Outstanding

As of March 31, 2015



	Scheduled BIG Net Par Amortization						Scheduled BIG Net Debt Service Amortization
	Previously Subject to the Voided Recovery Act		Not Previously Subject to the Voided Recovery Act		Total		Previously Subject to the Voided Recovery Act		Not Previously Subject to the Voided Recovery Act		Total
	(in millions)
2015 (April 1 - June 30)	$	0	$	0	$	0	$	2	$	1	$	3
2015 (July 1 - September 30)	126		171		297		186		227		413
2015 (October 1 - December 31)	0		33		33		2		35		37
2016	84		183		267		200		287		487
2017	41		166		207		153		262		415
2018	48		109		157		158		195		353
2019	61		126		187		168		207		375
2020	73		182		255		176		258		434
2021	51		58		109		151		123		274
2022	43		67		110		140		129		269
2023	102		39		141		198		99		297
2024	82		78		160		173		136		309
2025-2029	576		340		916		951		566		1,517
2030-2034	440		387		827		696		542		1,238
2035 -2039	397		272		669		525		304		829
2040 -2044	78		12		90		146		13		159
2045 -2047	246		—		246		272		—		272
Total	$	2,448	$	2,223	$	4,671	$	4,297	$	3,384	$	7,681

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 the Company has exposure and believes heightened uncertainties exist are: Hungary, Italy, Portugal and Spain (collectively, the “Selected European Countries”). The Company is closely monitoring its exposures in the Selected European Countries where it believes heightened uncertainties exist. The Company’s direct 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 March 31, 2015



	Hungary		Italy		Portugal		Spain		Total
	(in millions)
Sovereign and sub-sovereign exposure:
Non-infrastructure public finance (2)	$	—	$	779	$	91	$	211	$	1,081
Infrastructure finance	265		11		11		120		407
Total sovereign and sub-sovereign exposure	265		790		102		331		1,488
Non-sovereign exposure:
Regulated utilities	—		210		—		—		210
RMBS	174		234		—		—		408
Total non-sovereign exposure	174		444		—		—		618
Total	$	439	$	1,234	$	102	$	331	$	2,106
Total BIG (See Note 5)	$	370	$	—	$	102	$	331	$	803

____________________

(1)

While the Company’s exposures are shown in U.S. dollars, the obligations the Company insures are in various currencies, primarily Euros. 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)	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.

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. The Company may also have direct exposures to the Selected European Countries in business assumed from unaffiliated monoline insurance companies, in which case the Company depends upon geographic information provided by the primary insurer.

The Company has excluded from the exposure tables above its indirect economic exposure to the Selected European Countries through policies it provides on pooled corporate and commercial receivables transactions. The Company calculates indirect exposure to a country by multiplying the par amount of a transaction insured by the Company times the percent of the relevant collateral pool reported as having a nexus to the country. On that basis, the Company has calculated exposure of $355 million to Selected European Countries (plus Greece) in transactions with $10.0 billion of net par outstanding. The indirect exposure to credits with a nexus to Greece is $11 million across several highly rated pooled corporate obligations with net par outstanding of $483 million.