Financial Guaranty Insurance

Financial Guaranty Insurance Premiums

The portfolio of outstanding exposures discussed in Note 4, Outstanding Exposure, includes financial guaranty contracts that meet the definition of insurance contracts as well as those that meet the definition of a derivative under GAAP. Amounts presented in this note relate to financial guaranty insurance contracts, unless otherwise noted. See Note 8, Financial Guaranty Contracts Accounted for as Credit Derivatives for amounts that relate to CDS and Note 9, Consolidated Variable Interest Entities for amounts that relate to FG VIEs.

Accounting Policies

Accounting for financial guaranty contracts that meet the scope exception under derivative accounting guidance are subject to industry specific guidance for financial guaranty insurance. The accounting for contracts that fall under the financial guaranty insurance definition are consistent whether the contract was written on a direct basis, assumed from another financial guarantor under a reinsurance treaty, ceded to another insurer under a reinsurance treaty, or acquired in a business combination.

Premium receivables comprise the present value of contractual or expected future premium collections discounted using the risk-free rate. Unearned premium reserve represents deferred premium revenue, less claim payments and recoveries received that have not yet been recognized in the statement of operations (“contra-paid”). The following discussion relates to the deferred premium revenue component of the unearned premium reserve, while the contra-paid is discussed below under "Financial Guaranty Insurance Losses."

The amount of deferred premium revenue at contract inception is determined as follows:


•	For premiums received upfront on financial guaranty insurance contracts that were originally underwritten by the Company, deferred premium revenue is equal to the amount of cash received. Upfront premiums typically relate to public finance transactions.

•

For premiums received in installments on financial guaranty insurance contracts that were originally underwritten by the Company, deferred premium revenue is the present value of either (1) contractual premiums due or (2) in cases where the underlying collateral is comprised of homogeneous pools of assets, the expected premiums to be collected over the life of the contract. To be considered a homogeneous pool of assets, prepayments must be contractually prepayable, the amount of prepayments must be probable, and the timing and amount of prepayments must be reasonably estimable. When the Company adjusts prepayment assumptions or expected premium collections, an adjustment is recorded to the deferred premium revenue, with a corresponding adjustment to the premium receivable, and prospective changes are recognized in premium revenues. Premiums receivable are discounted at the risk-free rate at inception and such discount rate is updated only when changes to prepayment assumptions are made that change the expected date of final maturity. Installment premiums typically relate to structured finance transactions, where the insurance premium rate is determined at the inception of the contract but the insured par is subject to prepayment throughout the life of the transaction.

•

For financial guaranty insurance contracts acquired in a business combination, deferred premium revenue is equal to the fair value of the Company's stand-ready obligation portion of the insurance contract at the date of acquisition based on what a hypothetical similarly rated financial guaranty insurer would have charged for the contract at that date and not the actual cash flows under the insurance contract. The amount of deferred premium revenue may differ significantly from cash collections due primarily to fair value adjustments recorded in connection with a business combination.

The Company recognizes deferred premium revenue as earned premium over the contractual period or expected period of the contract in proportion to the amount of insurance protection provided. As premium revenue is recognized, a corresponding decrease to the deferred premium revenue is recorded. The amount of insurance protection provided is a function of the insured principal amount outstanding. Accordingly, the proportionate share of premium revenue recognized in a given reporting period is a constant rate calculated based on the relationship between the insured principal amounts outstanding in the reporting period compared with the sum of each of the insured principal amounts outstanding for all periods. When an insured financial obligation is retired before its maturity, the financial guaranty insurance contract is extinguished. Any nonrefundable deferred premium revenue related to that contract is accelerated and recognized as premium revenue. When a premium receivable balance is deemed uncollectible, it is written off to bad debt expense.

For reinsurance assumed contracts, earned premiums reported in the Company's consolidated statements of operations are calculated based upon data received from ceding companies, however, some ceding companies report premium data between 30 and 90 days after the end of the reporting period. The Company estimates earned premiums for the lag period. Differences between such estimates and actual amounts are recorded in the period in which the actual amounts are determined. When installment premiums are related to reinsurance assumed contracts, the Company assesses the credit quality and liquidity of the ceding companies and the impact of any potential regulatory constraints to determine the collectability of such amounts.

Deferred premium revenue ceded to reinsurers (ceded unearned premium reserve) is recorded as an asset. Direct, assumed and ceded earned premium revenue are presented together as net earned premiums in the statement of operations. Net earned premiums comprise the following:

Net Earned Premiums



	Year Ended December 31,
	2015		2014		2013
	(in millions)
Scheduled net earned premiums	$	416	$	415	$	470
Acceleration of net earned premiums (1)	331		136		263
Accretion of discount on net premiums receivable	17		16		17
Financial guaranty insurance net earned premiums	764		567		750
Other	2		3		2
Net earned premiums (2)	$	766	$	570	$	752

___________________


(1)	Reflects the unscheduled refunding or termination of the insurance on an insured obligation as well as changes in scheduled earnings due to changes in the expected lives of the insured obligations.


(2)	Excludes $21 million, $32 million and $60 million for the year ended December 31, 2015, 2014 and 2013, respectively, related to consolidated FG VIEs.

Components of

Unearned Premium Reserve



	As of December 31, 2015									As of December 31, 2014
	Gross			Ceded			Net(1)			Gross		Ceded			Net(1)
	(in millions)
Deferred premium revenue	$	4,008		$	238		$	3,770		$	4,167	$	387		$	3,780
Contra-paid(2)	(12		)	(6		)	(6		)	94		(6		)	100
Unearned premium reserve	$	3,996		$	232		$	3,764		$	4,261	$	381		$	3,880

____________________


(1)	Excludes $110 million and $125 million of deferred premium revenue and $30 million and $42 million of contra-paid related to FG VIEs as of December 31, 2015 and December 31, 2014, respectively.


(2)	See "Financial Guaranty Insurance Losses – Insurance Contracts' Loss Information" below for an explanation of "contra-paid".

Gross Premium Receivable,

Net of Commissions on Assumed Business

Roll Forward



	Year Ended December 31,
	2015			2014			2013
	(in millions)
Beginning of period, December 31	$	729		$	876		$	1,005
Premiums receivable acquired in Radian Asset Acquisition on April 1, 2015	2			—			—
Gross premium written, net of commissions on assumed business	198			171			145
Gross premiums received, net of commissions on assumed business	(206		)	(230		)	(259		)
Adjustments:
Changes in the expected term	(19		)	(66		)	(28		)
Accretion of discount, net of commissions on assumed business	18			10			20
Foreign exchange translation	(25		)	(31		)	(1		)
Consolidation/deconsolidation of FG VIEs	(4		)	(1		)	—
Other adjustments	0			—			(6		)
End of period, December 31 (1)	$	693		$	729		$	876

____________________


(1)	Excludes $17 million, $19 million and $21 million as of December 31, 2015 , 2014 and 2013, respectively, related to consolidated FG VIEs.

Foreign exchange translation relates to installment premium receivables denominated in currencies other than the U.S. dollar. Approximately 52% and 51% of installment premiums at December 31, 2015 and 2014, respectively, are denominated in currencies other than the U.S. dollar, primarily the Euro and British Pound Sterling.

The timing and cumulative amount of actual collections may differ from expected collections in the tables below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations and changes in expected lives.

Expected Collections of

Financial Guaranty Gross Premiums Receivable,

Net of Commissions on Assumed Business

(Undiscounted)



	As of December 31, 2015
	(in millions)
2016 (January 1 – March 31)	$	34
2016 (April 1 – June 30)	23
2016 (July 1 – September 30)	18
2016 (October 1 – December 31)	17
2017	67
2018	61
2019	57
2020	56
2021-2025	226
2026-2030	147
2031-2035	103
After 2035	84
Total(1)	$	893

____________________


(1)	Excludes expected cash collections on FG VIEs of $22 million.

Scheduled Financial Guaranty Net Earned Premiums



	As of December 31, 2015
	(in millions)
2016 (January 1 – March 31)	$	100
2016 (April 1 – June 30)	97
2016 (July 1 – September 30)	93
2016 (October 1 – December 31)	91
Subtotal 2016	381
2017	332
2018	298
2019	272
2020	250
2021-2025	977
2026-2030	616
2031-2035	363
After 2035	281
Net deferred premium revenue(1)	3,770
Future accretion	186
Total future net earned premiums	$	3,956

____________________


(1)	Excludes scheduled net earned premiums on consolidated FG VIEs of $110 million.

Selected Information for Financial Guaranty Policies Paid in Installments



	As of December 31, 2015			As of December 31, 2014
	(dollars in millions)
Premiums receivable, net of commission payable	$	693		$	729
Gross deferred premium revenue	1,240			1,370
Weighted-average risk-free rate used to discount premiums	3.1		%	3.5		%
Weighted-average period of premiums receivable (in years)	9.4			9.4

Financial Guaranty Insurance Acquisition Costs

Accounting Policy

Policy acquisition costs that are directly related and essential to successful insurance contract acquisition and ceding commission income on ceded reinsurance contracts are deferred for contracts accounted for as insurance, and reported net. Amortization of deferred policy acquisition costs includes the accretion of discount on ceding commission income and expense.

Capitalized policy acquisition costs costs include expenses such as ceding commissions expense on assumed reinsurance contracts and the cost of underwriting personnel attributable to successful underwriting efforts. Ceding commission expense on assumed reinsurance contracts and ceding commission income on ceded reinsurance contracts that are associated with premiums received in installments are calculated at their contractually defined commission rates, discounted consistent with premiums receivable for all future periods, and included in deferred acquisition costs ("DAC"), with a corresponding offset to net premiums receivable or reinsurance balances payable. Management uses its judgment in determining the type and amount of costs to be deferred. The Company conducts an annual study to determine which operating costs qualify for deferral. Costs incurred for soliciting potential customers, market research, training, administration, unsuccessful acquisition efforts, and product development as well as all overhead type costs are charged to expense as incurred. DAC is amortized in proportion to net earned premiums. When an insured obligation is retired early, the remaining related DAC, net of ceding commission income is recognized at that time.

Expected losses, which include LAE, investment income, and the remaining costs of servicing the insured or reinsured business, are considered in determining the recoverability of DAC.

Rollforward of

Deferred Acquisition Costs



	Year Ended December 31,
	2015			2014			2013
	(in millions)
Beginning of period	$	121		$	124		$	116
DAC adjustments related to Radian Asset Acquisition on April 1, 2015	1			—			—
Costs deferred during the period:
Commissions on assumed and ceded business	(1		)	7			9
Premium taxes	2			3			4
Compensation and other acquisition costs	11			10			8
Total	12			20			21
Costs amortized during the period	(20		)	(23		)	(13		)
End of period	$	114		$	121		$	124

Financial Guaranty Insurance Losses

Accounting Policies

Loss and LAE Reserve

Loss and LAE reserve reported on the balance sheet relates only to direct and assumed reinsurance contracts that are accounted for as insurance, substantially all of which are financial guaranty insurance contracts. The corresponding reserve ceded to reinsurers is reported as reinsurance recoverable on unpaid losses. As discussed in Note 7, Fair Value Measurement, contracts that meet the definition of a derivative, as well as consolidated FG VIE assets and liabilities, are recorded separately at fair value. Any expected losses related to consolidated FG VIEs are eliminated upon consolidation. Any expected losses on credit derivatives are not recorded as loss and LAE reserve on the consolidated balance sheet.

Under financial guaranty insurance accounting, the sum of unearned premium reserve and loss and LAE reserve represents the Company's stand‑ready obligation. Unearned premium reserve is deferred premium revenue, less claim payments and recoveries received that have not yet been recognized in the statement of operations ("contra-paid"). At contract inception, the entire stand-ready obligation is represented by unearned premium reserve. A loss and LAE reserve for an insurance contract is recorded only to the extent, and for the amount, that expected loss to be paid net of contra-paid (“total losses”) exceed the deferred premium revenue, on a contract by contract basis. As a result, the Company has expected loss to be paid that has not yet been expensed. Such amounts will be recognized in future periods as deferred premium revenue amortizes into income.

When a claim or LAE payment is made on a contract, it first reduces any recorded loss and LAE reserve. To the extent there is no loss and LAE reserve on a contract, then such claim payment is recorded as “contra-paid,” which reduces the unearned premium reserve. The contra-paid is recognized in the line item “loss and LAE” in the consolidated statement of operations when and for the amount that total losses exceed the remaining deferred premium revenue on the insurance contract. Loss and LAE in the consolidated statement of operations is presented net of cessions to reinsurers.

Salvage and Subrogation Recoverable

When the Company becomes entitled to the cash flow from the underlying collateral of an insured credit under salvage and subrogation rights as a result of a claim payment or estimated future claim payment, it reduces the expected loss to be paid on the contract. Such reduction in expected loss to be paid can result in one of the following:


•	a reduction in the corresponding loss and LAE reserve with a benefit to the income statement,


•	no entry recorded, if “total loss” is not in excess of deferred premium revenue, or


•	the recording of a salvage asset with a benefit to the income statement if the transaction is in a net recovery position at the reporting date.

The Company recognizes the expected recovery of claim payments (including recoveries from settlement with R&W providers) made by an acquired subsidiary prior to the date of acquisition, consistent with its policy for recognizing recoveries on all financial guaranty insurance contracts. To the extent that the estimated amount of recoveries increases or decreases due to changes in facts and circumstances the Company would recognize a benefit or expense consistent with how changes in the expected recovery of all other claim payments are recorded. The ceded component of salvage and subrogation recoverable is recorded in the line item reinsurance balances payable.

Expected Loss to be Expensed

Expected loss to be expensed represents past or expected future net claim payments that have not yet been expensed. Such amounts will be expensed in future periods as deferred premium revenue amortizes into income on financial guaranty insurance policies. Expected loss to be expensed is the Company's projection of incurred losses that will be recognized in future periods, excluding accretion of discount.

Insurance Contracts' Loss Information

The following table provides information on loss and LAE reserves and salvage and subrogation recoverable, net of reinsurance. The Company used weighted average risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 0.0% to 3.25% as of December 31, 2015 and 0.0% to 2.95% as of December 31, 2014. Financial guaranty insurance expected LAE reserve was $10 million as of December 31, 2015 and $12 million as of December 31, 2014.

Loss and LAE Reserve and Salvage and Subrogation Recoverable

Net of Reinsurance

Insurance Contracts



	As of December 31, 2015								As of December 31, 2014
	Loss and LAE Reserve, net			Salvage and Subrogation Recoverable, net		Net Reserve (Recoverable)			Loss and LAE Reserve, net			Salvage and Subrogation Recoverable, net			Net Reserve (Recoverable)
	(in millions)
Public Finance:
U.S. public finance	$	604		$	7	$	597		$	243		$	8		$	235
Non-U.S. public finance	25			—		25			30			—			30
Public Finance	629			7		622			273			8			265
Structured Finance:
U.S. RMBS:
First lien:
Prime first lien	2			—		2			2			—			2
Alt-A first lien	46			—		46			87			—			87
Option ARM	13			42		(29		)	28			40			(12		)
Subprime	169			21		148			166			8			158
First lien	230			63		167			283			48			235
Second lien	32			53		(21		)	7			78			(71		)
Total U.S. RMBS	262			116		146			290			126			164
Triple-X life insurance transactions	82			—		82			140			—			140
TruPS	—			—		—			0			—			0
Student loans	51			—		51			64			—			64
Other structured finance	48			—		48			34			8			26
Structured Finance	443			116		327			528			134			394
Subtotal	1,072			123		949			801			142			659
Other recoverables	—			3		(3		)	—			13			(13		)
Subtotal	1,072			126		946			801			155			646
Effect of consolidating FG VIEs	(74		)	0		(74		)	(80		)	(1		)	(79		)
Total (1)	$	998		$	126	$	872		$	721		$	154		$	567

______________

(1) See “Components of Net Reserves (Salvage)” table for loss and LAE reserve and salvage and subrogation recoverable components.

Components of Net Reserves (Salvage)



	As of December 31, 2015			As of December 31, 2014
	(in millions)
Loss and LAE reserve	$	1,067		$	799
Reinsurance recoverable on unpaid losses	(69		)	(78		)
Loss and LAE reserve, net	998			721
Salvage and subrogation recoverable	(126		)	(151		)
Salvage and subrogation payable(1)	3			10
Other recoverables	(3		)	(13		)
Salvage and subrogation recoverable, net, and other recoverable	(126		)	(154		)
Net reserves (salvage)	$	872		$	567

____________________

(1) Recorded as a component of reinsurance balances payable.

The table below provides a reconciliation of net expected loss to be paid to net expected loss to be expensed. Expected loss to be paid differs from expected loss to be expensed due to: (1) the contra-paid which represent the claim payments made and recoveries received that have not yet been recognized in the statement of operations, (2) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid (having the effect of reducing net expected loss to be paid by the amount of the previously paid claim and the expected recovery), but will have no future income effect (because the previously paid claims and the corresponding recovery of those claims will offset in income in future periods), and (3) loss reserves that have already been established (and therefore expensed but not yet paid).

Reconciliation of Net Expected Loss to be Paid and

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts



	As of December 31, 2015
	(in millions)
Net expected loss to be paid	$	1,375
Less: net expected loss to be paid for FG VIEs and other	136
Total	1,239
Contra-paid, net	5
Salvage and subrogation recoverable, net of reinsurance	123
Loss and LAE reserve, net of reinsurance	(982		)
Other recoveries	2
Net expected loss to be expensed (present value)(1)	$	387

____________________


(1)	Excludes $77 million as of December 31, 2015 related to consolidated FG VIEs.

The following table provides a schedule of the expected timing of net expected losses to be expensed. The amount and timing of actual loss and LAE may differ from the estimates shown below due to factors such as accelerations, commutations, changes in expected lives and updates to loss estimates. This table excludes amounts related to FG VIEs, which are eliminated in consolidation.

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts



	As of December 31, 2015
	(in millions)
2016 (January 1 – March 31)	$	12
2016 (April 1 – June 30)	10
2016 (July 1 – September 30)	8
2016 (October 1 – December 31)	8
Subtotal 2016	38
2017	31
2018	30
2019	29
2020	27
2021-2025	102
2026-2030	70
2031-2035	41
After 2035	19
Net expected loss to be expensed	387
Discount	286
Total expected future loss and LAE	$	673

The following table presents the loss and LAE recorded in the consolidated statements of operations by sector for insurance contracts. Amounts presented are net of reinsurance.

Loss and LAE

Reported on the

Consolidated Statements of Operations



	Year Ended December 31,
	2015			2014			2013
	(in millions)
Public Finance:
U.S. public finance	$	392		$	192		$	198
Non-U.S. public finance	1			(1		)	16
Public finance	393			191			214
Structured Finance:
U.S. RMBS:
First lien:
Prime first lien	(1		)	(1		)	1
Alt-A first lien	(23		)	(66		)	(2		)
Option ARM	(15		)	(37		)	(48		)
Subprime	33			8			80
First lien	(6		)	(96		)	31
Second lien	60			(33		)	(35		)
Total U.S. RMBS	54			(129		)	(4		)
Triple-X life insurance transactions	16			85			(44		)
TruPS	(1		)	(1		)	(1		)
Student loans	(9		)	17			10
Other structured finance	(1		)	(7		)	0
Structured finance	59			(35		)	(39		)
Loss and LAE on insurance contracts before FG VIE consolidation	452			156			175
Effect of consolidating FG VIEs	(28		)	(30		)	(21		)
Loss and LAE	$	424		$	126		$	154

The following table provides information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2015



	BIG Categories
	BIG 1						BIG 2						BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded			Gross			Ceded			Total BIG, Net			Effect of Consolidating FG VIEs			Total
	(dollars in millions)
Number of risks(1)	202			(46		)	85			(13		)	132			(44		)	419			—			419
Remaining weighted-average contract period (in years)	10.0			8.7			13.8			9.5			7.7			5.9			10.7			—			10.7
Outstanding exposure:
Principal	$	7,751		$	(732	)	$	3,895		$	(240	)	$	3,087		$	(187	)	$	13,574		$	—		$	13,574
Interest	4,109			(354		)	2,805			(110		)	1,011			(42		)	7,419			—			7,419
Total(2)	$	11,860		$	(1,086	)	$	6,700		$	(350	)	$	4,098		$	(229	)	$	20,993		$	—		$	20,993
Expected cash outflows (inflows)	$	386		$	(42	)	$	1,158		$	(60	)	$	1,464		$	(53	)	$	2,853		$	(343	)	$	2,510
Potential recoveries
Undiscounted R&W	69			(2		)	(49		)	1			(85		)	5			(61		)	7			(54		)
Other(3)	(441		)	14			(118		)	7			(587		)	19			(1,106		)	175			(931		)
Total potential recoveries	(372		)	12			(167		)	8			(672		)	24			(1,167		)	182			(985		)
Subtotal	14			(30		)	991			(52		)	792			(29		)	1,686			(161		)	1,525
Discount	91			3			(286		)	12			(58		)	(89		)	(327		)	41			(286		)
Present value of expected cash flows	$	105		$	(27	)	$	705		$	(40	)	$	734		$	(118	)	$	1,359		$	(120	)	$	1,239
Deferred premium revenue	$	371		$	(37	)	$	150		$	(4	)	$	386		$	(32	)	$	834		$	(100	)	$	734
Reserves (salvage)	$	2		$	(19	)	$	591		$	(38	)	$	404		$	(9	)	$	931		$	(74	)	$	857

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2014



	BIG Categories
	BIG 1						BIG 2						BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded			Gross			Ceded			Total BIG, Net			Effect of Consolidating FG VIEs			Total
	(dollars in millions)
Number of risks(1)	164			(59		)	75			(15		)	119			(38		)	358			—			358
Remaining weighted-average contract period (in years)	9.9			7.4			10.1			8.9			9.6			6.9			10.3			—			10.3
Outstanding exposure:
Principal	$	12,358		$	(2,163	)	$	2,421		$	(286	)	$	3,067		$	(175	)	$	15,222		$	—		$	15,222
Interest	6,350			(838		)	1,274			(121		)	1,034			(48		)	7,651			—			7,651
Total(2)	$	18,708		$	(3,001	)	$	3,695		$	(407	)	$	4,101		$	(223	)	$	22,873		$	—		$	22,873
Expected cash outflows (inflows)	$	1,762		$	(626	)	$	763		$	(77	)	$	1,716		$	(75	)	$	3,463		$	(345	)	$	3,118
Potential recoveries
Undiscounted R&W	(39		)	0			(48		)	2			(171		)	9			(247		)	8			(239		)
Other(3)	(1,687		)	608			(206		)	5			(404		)	30			(1,654		)	177			(1,477		)
Total potential recoveries	(1,726		)	608			(254		)	7			(575		)	39			(1,901		)	185			(1,716		)
Subtotal	36			(18		)	509			(70		)	1,141			(36		)	1,562			(160		)	1,402
Discount	3			0			(117		)	11			(353		)	9			(447		)	34			(413		)
Present value of expected cash flows	$	39		$	(18	)	$	392		$	(59	)	$	788		$	(27	)	$	1,115		$	(126	)	$	989
Deferred premium revenue	$	378		$	(70	)	$	119		$	(6	)	$	312		$	(33	)	$	700		$	(116	)	$	584
Reserves (salvage)	$	(42	)	$	(5	)	$	278		$	(53	)	$	482		$	(10	)	$	650		$	(79	)	$	571

____________________


(1)	A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making Debt Service payments. The ceded number of risks represents the number of risks for which the Company ceded a portion of its exposure.


(2)	Includes BIG amounts related to FG VIEs.


(3)	Includes excess spread and draws on HELOCs.

Ratings Impact on Financial Guaranty Business

A downgrade of one of AGL’s insurance subsidiaries may result in increased claims under financial guaranties issued by the Company, if the insured obligors were unable to pay.

For example, AGM has issued financial guaranty insurance policies in respect of the obligations of municipal obligors under interest rate swaps. AGM insures periodic payments owed by the municipal obligors to the bank counterparties. In certain cases, AGM also insures termination payments that may be owed by the municipal obligors to the bank counterparties. If (i) AGM has been downgraded below the rating trigger set forth in a swap under which it has insured the termination payment, which rating trigger varies on a transaction by transaction basis; (ii) the municipal obligor has the right to cure by, but has failed in, posting collateral, replacing AGM or otherwise curing the downgrade of AGM; (iii) the transaction documents include as a condition that an event of default or termination event with respect to the municipal obligor has occurred, such as the rating of the municipal obligor being downgraded past a specified level, and such condition has been met; (iv) the bank counterparty has elected to terminate the swap; (v) a termination payment is payable by the municipal obligor; and (vi) the municipal obligor has failed to make the termination payment payable by it, then AGM would be required to pay the termination payment due by the municipal obligor, in an amount not to exceed the policy limit set forth in the financial guaranty insurance policy. At AGM's current financial strength ratings, if the conditions giving rise to the obligation of AGM to make a termination payment under the swap termination policies were all satisfied, then AGM could pay claims in an amount not exceeding approximately $150 million in respect of such termination payments. Taking into consideration whether the rating of the municipal obligor is below any applicable specified trigger, if the financial strength ratings of AGM were further downgraded below "A" by S&P or below "A2" by Moody's, and the conditions giving rise to the obligation of AGM to make a payment under the swap policies were all satisfied, then AGM could pay claims in an additional amount not exceeding approximately $377 million in respect of such termination payments.

As another example, with respect to variable rate demand obligations ("VRDOs") for which a bank has agreed to provide a liquidity facility, a downgrade of AGM or AGC may provide the bank with the right to give notice to bondholders that the bank will terminate the liquidity facility, causing the bondholders to tender their bonds to the bank. Bonds held by the bank accrue interest at a “bank bond rate” that is higher than the rate otherwise borne by the bond (typically the prime rate plus 2.00% — 3.00%, and capped at the lesser of 25% and the maximum legal limit). In the event the bank holds such bonds for longer than a specified period of time, usually 90-180 days, the bank has the right to demand accelerated repayment of bond principal, usually through payment of equal installments over a period of not less than five years. In the event that a municipal obligor is unable to pay interest accruing at the bank bond rate or to pay principal during the shortened amortization period, a claim could be submitted to AGM or AGC under its financial guaranty policy. As of December 31, 2015, AGM and AGC had insured approximately $5.7 billion net par of VRDOs, of which approximately $0.3 billion of net par constituted VRDOs issued by municipal obligors rated BBB- or lower pursuant to the Company’s internal rating. The specific terms relating to the rating levels that trigger the bank’s termination right, and whether it is triggered by a downgrade by one rating agency or a downgrade by all rating agencies then rating the insurer, vary depending on the transaction.

In addition, AGM may be required to pay claims in respect of AGMH’s former financial products business if Dexia SA and its affiliates, from which the Company had purchased AGMH and its subsidiaries, do not comply with their obligations following a downgrade of the financial strength rating of AGM. Most of the guaranteed investment contracts ("GICs") insured by AGM allow the GIC holder to terminate the GIC and withdraw the funds in the event of a downgrade of AGM below A3 or A-, with no right of the GIC issuer to avoid such withdrawal by posting collateral or otherwise enhancing its credit. Each GIC contract stipulates the thresholds below which the GIC issuer must post eligible collateral, along with the types of securities eligible for posting and the collateralization percentage applicable to each security type. These collateralization percentages range from 100% of the GIC balance for cash posted as collateral to, typically, 108% for asset-backed securities. If the entire aggregate accreted GIC balance of approximately $1.8 billion as of December 31, 2015 were terminated, the assets of the GIC issuers (which had an aggregate market value which exceed the liabilities by $0.8 billion) would be sufficient to fund the withdrawal of the GIC funds.