The Company carries a portion of its assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). The price represents the price available in the principal market for the asset or liability. If there is no principal market, then the price is based on a hypothetical market that maximizes the value received for an asset or minimizes the amount paid for a liability (i.e., the most advantageous market).

Fair value is based on quoted market prices, where available. If listed prices or quotes are not available, fair value is based on either internally developed models that primarily use, as inputs, market-based or independently sourced market parameters, including but not limited to yield curves, interest rates and debt prices or with the assistance of an independent third party using a discounted cash flow approach and the third party’s proprietary pricing models. In addition to market

Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, the Company’s creditworthiness and constraints on liquidity. As markets and products develop and the pricing for certain products becomes more or less transparent, the Company may refine its methodologies and assumptions. During Nine Months 2019, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

The Company’s methods for calculating fair value produce a fair value that may not be indicative of net realizable value or reflective of future fair values. The use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The categorization within the fair value hierarchy is determined based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company estimates of market assumptions. The fair value hierarchy prioritizes model inputs into three broad levels as follows, with Level 1 being the highest and Level 3 the lowest. An asset's or liability’s categorization is based on the lowest level of significant input to its valuation.

Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

The fair value of bonds in the investment portfolio is generally based on prices received from third-party pricing services or alternative pricing sources with reasonable levels of price transparency. The pricing services prepare estimates of fair value using their pricing models, which take into account: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, industry and economic events, and sector groupings. Additional valuation factors that can be taken into account are nominal spreads and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news.

Benchmark yields have in many cases taken priority over reported trades for securities that trade less frequently or those that are distressed trades, and therefore may not be indicative of the market. The extent of the use of each input is dependent on the asset class and the market conditions. The valuation of fixed-maturity investments is more subjective when markets are less liquid due to the lack of market based inputs.

Short-term investments that are traded in active markets are classified within Level 1 in the fair value hierarchy and their value is based on quoted market prices. Securities such as discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

As of September 30, 2019, the Company used models to price 133 securities, including securities that were purchased or obtained for loss mitigation or other risk management purposes, with a Level 3 fair value of $1,135 million. Most Level 3 securities were priced with the assistance of an independent third party. The pricing is based on a discounted cash flow approach using the third party’s proprietary pricing models. The models use inputs such as projected prepayment speeds; severity assumptions; recovery lag assumptions; estimated default rates (determined on the basis of an analysis of collateral attributes, historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); home price appreciation/depreciation rates based on macroeconomic forecasts and recent trading activity. The yield used to discount the projected cash flows is determined by reviewing various attributes of the security including collateral type, weighted average life, sensitivity to losses, vintage, and convexity, in conjunction with market data on comparable securities. Significant changes to any of these inputs could have materially changed the expected timing of cash flows within these securities which is a significant factor in determining the fair value of the securities.

Each of AGC and AGM have entered into put agreements with four separate custodial trusts allowing each of AGC and AGM, respectively, to issue an aggregate of $200 million of non-cumulative redeemable perpetual preferred securities to the trusts in exchange for cash. Each custodial trust was created for the primary purpose of issuing $50 million face amount of CCS, investing the proceeds in high-quality assets and entering into put options with AGC or AGM, as applicable. Fair value losses on CCS recorded in other income were $14 million and $4 million in Third Quarter 2019 and Nine Months 2019, respectively, and fair value losses were $1 million and $3 million in Third Quarter 2018 and Nine Months 2018, respectively.

The fair value of CCS represents the difference between the present value of remaining expected put option premium payments under AGC CCS and AGM’s Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value that the Company would hypothetically have to pay currently for a comparable security. The change in fair value of the AGC CCS and AGM CPS are recorded in other income in the condensed consolidated statement of operations. The estimated current cost of the Company’s CCS is based on several factors, including AGM's and AGC's CDS spreads, LIBOR curve projections, the Company's publicly traded debt and the term the securities are estimated to remain outstanding. The AGC CCS and AGM CPS are classified as Level 3 in the fair value hierarchy.

The fair value of the Company's various SERP assets are based on either (i) the observable published daily values of the underlying mutual fund included in the plans (Level 1) or (ii) the net asset value of the funds if a published daily value is not available (Level 2). The net asset value's are based on observable information. Change in fair value of SERP assets is recorded in other operating expenses in the condensed consolidated statement of operations.

The Company’s credit derivatives primarily consist of insured CDS contracts, and also include interest rate swaps that qualify as derivatives under GAAP, which requires fair value measurement with changes recorded in the statement of operations. The Company did not enter into CDS with the intent to trade these contracts and the Company may not unilaterally terminate a CDS contract absent an event of default or termination event that entitles the Company to terminate such contracts; however, the Company has mutually agreed with various counterparties to terminate certain CDS transactions. In transactions where the counterparty does not have the right to terminate, such transactions are generally terminated for an amount that approximates the present value of future premiums or for a negotiated amount, rather than at fair value.

The terms of the Company’s CDS contracts differ from more standardized credit derivative contracts sold by companies outside the financial guaranty industry. The non-standard terms generally include the absence of collateral support agreements or immediate settlement provisions. In addition, the Company employs relatively high attachment points and does not exit derivatives it sells, except under specific circumstances such as mutual agreements with counterparties. Management considers the non-standard terms of the Company's credit derivative contracts in determining the fair value of these contracts.

Due to the lack of quoted prices and other observable inputs for its instruments or for similar instruments, the Company determines the fair value of its credit derivative contracts primarily through internally developed, proprietary models that use both observable and unobservable market data inputs. There is no established market where financial guaranty insured credit derivatives are actively traded; therefore, management has determined that the exit market for the Company’s credit derivatives is a hypothetical one based on its entry market. Management has tracked the historical pricing of the Company’s

transactions to establish historical price points in the hypothetical market that are used in the fair value calculation. These contracts are classified as Level 3 in the fair value hierarchy as there are multiple unobservable inputs deemed significant to the valuation model, most importantly the Company’s estimate of the value of the non-standard terms and conditions of its credit derivative contracts and how the Company’s own credit spread affects the pricing of its transactions.

The fair value of the Company’s credit derivative contracts represents the difference between the present value of remaining premiums the Company expects to receive or pay and the estimated present value of premiums that a financial guarantor of comparable credit-worthiness would hypothetically charge or pay at the reporting date for the same protection. The fair value of the Company’s credit derivatives depends on a number of factors, including notional amount of the contract, expected term, credit spreads, changes in interest rates, the credit ratings of referenced entities, the Company’s own credit risk and remaining contractual cash flows. The expected remaining contractual premium cash flows are the most readily observable inputs since they are based on the CDS contractual terms. Credit spreads capture the effect of recovery rates and performance of underlying assets of these contracts, among other factors. Consistent with previous years, market conditions at September 30, 2019 were such that market prices of the Company’s CDS contracts were not available.

The various inputs and assumptions that are key to the establishment of the Company’s fair value for CDS contracts are as follows: the gross spread, the allocation of gross spread among the bank profit, net spread and hedge cost, and the weighted average life which is based on debt service schedules. The Company obtains gross spreads on its outstanding contracts from market data sources published by third parties (e.g., dealer spread tables for the collateral similar to assets within the Company’s transactions), as well as collateral-specific spreads provided or obtained from market sources. The bank profit represents the profit the originator, usually an investment bank, realizes for structuring and funding the transaction; the net spread represents the premiums paid to the Company for the Company’s credit protection provided; and the hedge cost represents the cost of CDS protection purchased by the originator to hedge its counterparty credit risk exposure to the Company.

With respect to CDS transactions for which there is an expected claim payment within the next twelve months, the allocation of gross spread reflects a higher allocation to the cost of credit rather than the bank profit component. It is assumed that a bank would be willing to accept a lower profit on distressed transactions in order to remove these transactions from its financial statements.

Market sources determine credit spreads by reviewing new issuance pricing for specific asset classes and receiving price quotes from their trading desks for the specific asset in question. Management validates these quotes by cross-referencing quotes received from one market source against quotes received from another market source to ensure reasonableness. In addition, the Company compares the relative change in price quotes received from one quarter to another, with the relative change experienced by published market indices for a specific asset class. Collateral specific spreads obtained from third-party, independent market sources are un-published spread quotes from market participants or market traders who are not trustees. Management obtains this information as the result of direct communication with these sources as part of the valuation process. The following spread hierarchy is utilized in determining which source of gross spread to use.

The premium the Company receives is referred to as the “net spread.” The Company’s pricing model takes into account not only how credit spreads on risks that it assumes affect pricing, but also how the Company’s own credit spread affects the pricing of its transactions. The Company’s own credit risk is factored into the determination of net spread based on the impact of changes in the quoted market price for credit protection bought on the Company, as reflected by quoted market prices on CDS referencing AGC. For credit spreads on the Company’s name the Company obtains the quoted price of CDS

contracts traded on AGC from market data sources published by third parties. The cost to acquire CDS protection referencing AGC affects the amount of spread on CDS transactions that the Company retains and, hence, their fair value. As the cost to acquire CDS protection referencing AGC increases, the amount of premium the Company retains on a transaction generally decreases. Due to the relatively low volume and characteristics of CDS contracts remaining in AGM's portfolio, changes in AGM's credit spreads do not significantly affect the fair value of these CDS contracts.

In the Company’s valuation model, the premium the Company captures is not permitted to go below the minimum rate that the Company would currently charge to assume similar risks. This assumption can have the effect of mitigating the amount of unrealized gains that are recognized on certain CDS contracts. Given the current market conditions and the Company’s own credit spreads, approximately 17%, based on fair value, of the Company's CDS contracts were fair valued using this minimum premium as of December 31, 2018. As of September 30, 2019, the corresponding number was de minimis. The percentage of transactions that price using the minimum premiums fluctuates due to changes in AGC's credit spreads. In general, when AGC's credit spreads narrow, the cost to hedge AGC's name declines and more transactions price above previously established floor levels. Meanwhile, when AGC's credit spreads widen, the cost to hedge AGC's name increases causing more transactions to price at previously established floor levels. The Company corroborates the assumptions in its fair value model, including the portion of exposure to AGC hedged by its counterparties, with independent third parties periodically. The implied credit risk of AGC, indicated by the trading level of AGC’s own credit spread, is a significant factor in the amount of exposure to AGC that a bank or transaction hedges. When AGC's credit spreads widen, the hedging cost of a bank or originator increases. Higher hedging costs reduce the amount of contractual cash flows AGC can capture as premium for selling its protection, while lower hedging costs increase the amount of contractual cash flows AGC can capture.

The amount of premium a financial guaranty insurance market participant can demand is inversely related to the cost of credit protection on the insurance company as measured by market credit spreads assuming all other assumptions remain constant. This is because the buyers of credit protection typically hedge a portion of their risk to the financial guarantor, due to the fact that the contractual terms of the Company's contracts typically do not require the posting of collateral by the guarantor. The extent of the hedge depends on the types of instruments insured and the current market conditions.

A credit derivative liability on protection sold is the result of contractual cash inflows on in-force transactions that are less than what a hypothetical financial guarantor could receive if it sold protection on the same risk as of the reporting date. If the Company were able to freely exchange these contracts (i.e., assuming its contracts did not contain proscriptions on transfer and there was a viable exchange market), it would realize a loss representing the difference between the lower contractual premiums to which it is entitled and the current market premiums for a similar contract. The Company determines the fair value of its CDS contracts by applying the difference between the current net spread and the contractual net spread for the remaining duration of each contract to the notional value of its CDS contracts and taking the present value of such amounts discounted at the LIBOR corresponding to the weighted average remaining life of the contract.

The Company elected the fair value option for all the FG VIEs’ assets and liabilities and classifies them as Level 3 in the fair value hierarchy. The prices are generally determined with the assistance of an independent third party, based on a discounted cash flow approach. The net change in the fair value of consolidated FG VIEs’ assets and liabilities is recorded in "fair value gains (losses) on FG VIEs" in the consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in instrument-specific credit risk (ISCR) which is separately presented in OCI. Interest income and interest expense are derived from the trustee reports and also included in "fair value gains (losses) on FG VIEs." The FG VIEs issued securities collateralized by first lien and second lien RMBS as well as loans and receivables.

The fair value of the Company’s FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds; estimated default rates (determined on the basis of an analysis of collateral attributes such as: historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); yields implied by market prices for similar securities; and house price depreciation/appreciation rates based on macroeconomic forecasts. Significant changes to some of these inputs could have materially changed the market value of the FG VIEs’ assets and the implied collateral losses within the transaction. In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically could lead to a decrease in the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets.

The third party utilizes an internal model to determine an appropriate yield at which to discount the cash flows of the security, by factoring in collateral types, weighted-average lives, and other structural attributes specific to the security being priced. The expected yield is further calibrated by utilizing algorithms designed to aggregate market color, received by the independent third party, on comparable bonds.

The models to price the FG VIEs’ liabilities used, where appropriate, the same inputs used in determining fair value of FG VIEs’ assets and, for those liabilities insured by the Company, the benefit of the Company's insurance policy guaranteeing the timely payment of principal and interest, taking into account the Company's own credit risk.

Significant changes to any of the inputs described above could have materially changed the timing of expected losses within the insured transaction which is a significant factor in determining the implied benefit of the Company’s insurance policy guaranteeing the timely payment of principal and interest for the tranches of debt issued by the FG VIEs. In general, extending the timing of expected loss payments by the Company into the future typically could lead to a decrease in the value of the Company’s insurance and a decrease in the fair value of the Company’s FG VIEs’ liabilities with recourse, while a shortening of the timing of expected loss payments by the Company typically could lead to an increase in the value of the Company’s insurance and an increase in the fair value of the Company’s FG VIEs’ liabilities with recourse.



			Fair Value Hierarchy
	Fair Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Investment portfolio, available-for-sale:
Fixed-maturity securities
Obligations of state and political subdivisions	$	4,463	$	—	$	4,354	$	109
U.S. government and agencies	155		—		155		—
Corporate securities	2,339		—		2,293		46
Mortgage-backed securities:
RMBS	877		—		561		316
Commercial mortgage-backed securities (CMBS)	469		—		469		—
Asset-backed securities	775		—		111		664
Non-U.S. government securities	199		—		199		—
Total fixed-maturity securities	9,277		—		8,142		1,135
Short-term investments	1,142		888		254		—
Other invested assets (1)	6		—		—		6
FG VIEs’ assets, at fair value	469		—		—		469
Other assets	148		30		42		76
Total assets carried at fair value	$	11,042	$	918	$	8,438	$	1,686
Liabilities:
Credit derivative liabilities	$	214	$	—	$	—	$	214
FG VIEs’ liabilities with recourse, at fair value	388		—		—		388
FG VIEs’ liabilities without recourse, at fair value	105		—		—		105
Total liabilities carried at fair value	$	707	$	—	$	—	$	707



			Fair Value Hierarchy
	Fair Value		Level 1		Level 2		Level 3
	(in millions)
Assets:
Investment portfolio, available-for-sale:
Fixed-maturity securities
Obligations of state and political subdivisions	$	4,911	$	—	$	4,812	$	99
U.S. government and agencies	175		—		175		—
Corporate securities	2,136		—		2,080		56
Mortgage-backed securities:
RMBS	982		—		673		309
CMBS	539		—		539		—
Asset-backed securities	1,068		—		121		947
Non-U.S. government securities	278		—		278		—
Total fixed-maturity securities	10,089		—		8,678		1,411
Short-term investments	729		429		300		—
Other invested assets (1)	7		—		—		7
FG VIEs’ assets, at fair value	569		—		—		569
Other assets	139		25		38		76
Total assets carried at fair value	$	11,533	$	454	$	9,016	$	2,063
Liabilities:
Credit derivative liabilities	$	209	$	—	$	—	$	209
FG VIEs’ liabilities with recourse, at fair value	517		—		—		517
FG VIEs’ liabilities without recourse, at fair value	102		—		—		102
Total liabilities carried at fair value	$	828	$	—	$	—	$	828



	Fixed-Maturity Securities																																			FG VIEs’ Liabilities, at Fair Value
	Obligations of State and Political Subdivisions					Corporate Securities					RMBS					Asset- Backed Securities					FG VIEs’ Assets at Fair Value					Other (6)					Credit Derivative Asset (Liability), net (4)					With Recourse					Without Recourse
	(in millions)
Fair value as of June 30, 2019	$	105				$	48				$	325				$	674				$	526				$	87				$	(216	)			$	(446	)			$	(105	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	3			(1	)	1			(1	)	5			(1	)	7			(1	)	6			(2	)	(14		)	(3	)	5			(5	)	(2		)	(2	)	(2		)	(2	)
Other comprehensive income (loss)	(4		)			(3		)			1					(3		)			—					—					—					1					—
Purchases	6					—					—					1					—					—					—					—					—
Settlements	(1		)			—					(15		)			(15		)			(69		)			—					3					64					3
FG VIE consolidation	—					—					—					—					6					—					—					(5		)			(1		)
Fair value as of September 30, 2019	$	109				$	46				$	316				$	664				$	469				$	73				$	(208	)			$	(388	)			$	(105	)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of September 30, 2019																					$	6		(2	)	$	(14	)	(3	)	$	8		(5	)	$	(2	)	(2	)	$	(1	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of September 30, 2019	$	(4	)			$	(3	)			$	1				$	(2	)								$	—									$	1



	Fixed-Maturity Securities																																		FG VIEs’ Liabilities, at Fair Value
	Obligations of State and Political Subdivisions				Corporate Securities					RMBS					Asset- Backed Securities					FG VIEs’ Assets at Fair Value					Other (6)					Credit Derivative Asset (Liability), net (4)					With Recourse					Without Recourse
	(in millions)
Fair value as of June 30, 2018	$	92			$	63				$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1	)	2			(1	)	3			(1	)	14			(1	)	(1		)	(2	)	(1		)	(3	)	21			(5	)	3			(2	)	1			(2	)
Other comprehensive income (loss)	6				(5		)			—					(12		)			—					—					—					(3		)			—
Purchases	—				—					—					64					—					—					—					—					—
Settlements	—				—					(15		)			(10		)			(30		)			—					(1		)			26					3
Fair value as of September 30, 2018	$	99			$	60				$	299				$	953				$	596				$	60				$	(237	)			$	(545	)			$	(104	)
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2018	$	6			$	(5	)			$	1				$	(11	)			$	2		(2	)	$	(1	)	(3	)	$	20		(5	)	$	(1	)	(2	)	$	1		(2	)



	Fixed-Maturity Securities																																			FG VIEs’ Liabilities, at Fair Value
	Obligations of State and Political Subdivisions					Corporate Securities					RMBS					Asset- Backed Securities					FG VIEs’ Assets at Fair Value					Other (6)					Credit Derivative Asset (Liability), net (4)					With Recourse					Without Recourse
	(in millions)
Fair value as of December 31, 2018	$	99				$	56				$	309				$	947				$	569				$	77				$	(207	)			$	(517	)			$	(102	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	5			(1	)	(9		)	(1	)	16			(1	)	51			(1	)	70			(2	)	(4		)	(3	)	(25		)	(5	)	(33		)	(2	)	(9		)	(2	)
Other comprehensive income (loss)	1					(1		)			21					(97		)			—					—					—					6					—
Purchases	6					—					11					19					—					—					—					—					—
Settlements	(2		)			—					(41		)			(257		)			(170		)			—					24					156					6
FG VIE consolidation	—					—					—					—					6					—					—					(5		)			(1		)
FG VIE deconsolidations	—					—					—					—					(6		)			—					—					5					1
Transfers into Level 3	—					—					—					1					—					—					—					—					—
Fair value as of September 30, 2019	$	109				$	46				$	316				$	664				$	469				$	73				$	(208	)			$	(388	)			$	(105	)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of September 30, 2019																					$	78		(2	)	$	(4	)	(3	)	$	(19	)	(5	)	$	(32	)	(2	)	$	(16	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of September 30, 2019	$	1				$	(1	)			$	21				$	8									$	—									$	6



	Fixed-Maturity Securities																																			FG VIEs’ Liabilities, at Fair Value
	Obligations of State and Political Subdivisions					Corporate Securities					RMBS					Asset- Backed Securities					FG VIEs’ Assets at Fair Value					Other (6)					Credit Derivative Asset (Liability), net (4)					With Recourse					Without Recourse
	(in millions)
Fair value as of December 31, 2017	$	76				$	67				$	334				$	787				$	700				$	64				$	(269	)			$	(627	)			$	(130	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	3			(1	)	(2		)	(1	)	16			(1	)	43			(1	)	3			(2	)	(3		)	(3	)	103			(5	)	(1		)	(2	)	3			(2	)
Other comprehensive income (loss)	17					(5		)			(10		)			(3		)			—					—					—					(1		)			—
Purchases	4					—					9					164					—					—					—					—					—
Issuances	—					—					—					—					—					—					(68		)	(7	)	—					—
Settlements	(1		)			—					(50		)			(38		)			(90		)			(1		)			(3		)			83					7
FG VIE deconsolidations	—					—					—					—					(17		)			—					—					1					16
Fair value as of September 30, 2018	$	99				$	60				$	299				$	953				$	596				$	60				$	(237	)			$	(545	)			$	(104	)
Change in unrealized gains/(losses) related to financial instruments held as of September 30, 2018	$	17				$	(5	)			$	(7	)			$	(1	)			$	13		(2	)	$	(3	)	(3	)	$	93		(5	)	$	(2	)	(2	)	$	2		(2	)



Financial Instrument Description (1)	Fair Value at September 30, 2019 (in millions)			Significant Unobservable Inputs	Range				Weighted Average as a Percentage of Current Par Outstanding
Assets (liabilities) (2):
Fixed-maturity securities:
Obligations of state and political subdivisions	$	109		Yield	4.5	%	-	32.3%	8.4%

Corporate securities	46			Yield	35.8%

RMBS	316			CPR	1.4	%	-	16.9%	6.0%
				CDR	1.5	%	-	6.9%	4.9%
				Loss severity	40.0	%	-	125.0%	85.7%
				Yield	3.5	%	-	6.1%	4.2%
Asset-backed securities:
Life insurance transactions	339			Yield	5.5%

CLOs /Trust preferred securities (TruPS)	274			Yield	2.5	%	-	5.1%	3.6%

Others	51			Yield	9.9%

FG VIEs’ assets, at fair value	469			CPR	0.7	%	-	18.4%	8.8%
				CDR	1.2	%	-	25.7%	4.7%
				Loss severity	60.0	%	-	100.0%	77.6%
				Yield	3.3	%	-	8.3%	5.0%

Other assets	70			Implied Yield	5.8	%	-	6.5%	6.2%
Other assets	70			Term (years)	10 years

Credit derivative liabilities, net	(208		)	Year 1 loss estimates	0.0	%	-	50.0%	1.2%
				Hedge cost (in basis points (bps))	8.0		-	42.0	17.0
				Bank profit (in bps)	38.0		-	191.0	81.0
				Internal floor (in bps)	30.0
				Internal credit rating	AAA		-	CCC	A+

FG VIEs’ liabilities, at fair value	(493		)	CPR	0.7	%	-	18.4%	8.8%
				CDR	1.2	%	-	25.7%	4.7%
				Loss severity	60.0	%	-	100.0%	77.6%
				Yield	3.3	%	-	8.3%	4.2%



Financial Instrument Description (1)	Fair Value at December 31, 2018 (in millions)			Significant Unobservable Inputs	Range				Weighted Average as a Percentage of Current Par Outstanding
Assets (liabilities) (2):
Fixed-maturity securities:
Obligations of state and political subdivisions	$	99		Yield	4.5	%	-	32.7%	12.0%

Corporate securities	56			Yield	29.5%

RMBS	309			CPR	3.4	%	-	19.4%	6.2%
				CDR	1.5	%	-	6.9%	5.2%
				Loss severity	40.0	%	-	125.0%	82.7%
				Yield	5.3	%	-	8.1%	6.3%
Asset-backed securities:
Life insurance transactions	620			Yield	6.5	%	-	7.1%	6.8%

CLOs/TruPS	274			Yield	3.8	%	-	4.7%	4.3%

Others	53			Yield	11.5%

FG VIEs’ assets, at fair value	569			CPR	0.9	%	-	18.1%	9.3%
				CDR	1.3	%	-	23.7%	5.1%
				Loss severity	60.0	%	-	100.0%	79.8%
				Yield	5.0	%	-	10.2%	7.1%

Other assets	74			Implied Yield	6.6	%	-	7.2%	6.9%
Other assets	74			Term (years)	10 years

Credit derivative liabilities, net	(207		)	Year 1 loss estimates	0.0	%	-	66.0%	2.2%
				Hedge cost (in bps)	5.5		-	82.5	23.3
				Bank profit (in bps)	7.2		-	509.9	77.3
				Internal floor (in bps)	8.8		-	30.0	19.0
				Internal credit rating	AAA		-	CCC	AA-

FG VIEs’ liabilities, at fair value	(619		)	CPR	0.9	%	-	18.1%	9.3%
				CDR	1.3	%	-	23.7%	5.1%
				Loss severity	60.0	%	-	100.0%	79.8%
				Yield	5.0	%	-	10.2%	5.6%

Fair value is based on management’s estimate of what a similarly rated financial guaranty insurance company would demand to acquire the Company’s in-force book of financial guaranty insurance business. It is based on a variety of factors that may include pricing assumptions management has observed for portfolio transfers, commutations, and acquisitions that have occurred in the financial guaranty market, as well as prices observed in the credit derivative market with an adjustment for illiquidity so that the terms would be similar to a financial guaranty insurance contract, and also includes adjustments for stressed losses, ceding commissions and return on capital. The Company classified the fair value of financial guaranty insurance contracts as Level 3.

Long-term debt issued by AGUS and AGMH is valued by broker-dealers using third party independent pricing sources and standard market conventions and classified as Level 2 in the fair value hierarchy. The market conventions utilize market quotations, market transactions for the Company’s comparable instruments, and to a lesser extent, similar instruments in the broader insurance industry. The fair value of notes payable was determined by calculating the present value of the expected cash flows, and was classified as Level 3 in the fair value hierarchy.



	As of September 30, 2019						As of December 31, 2018
	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
	(in millions)
Assets (liabilities):
Other invested assets	$	1		$	2		$	1		$	2
Other assets (1)	91			91			130			130
Financial guaranty insurance contracts (2)	(2,731		)	(5,200		)	(3,240		)	(5,932		)
Long-term debt	(1,234		)	(1,549		)	(1,233		)	(1,496		)
Other liabilities (1)	(45		)	(45		)	(12		)	(12		)