The Company carries a significant 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 information, models also incorporate transaction details, such as maturity of the instrument and contractual features designed to reduce the Company’s credit exposure, such as collateral rights as applicable.

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 Six Months 2020, 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 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

The fair value of fixed-maturity securities 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 as 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 June 30, 2020, the Company used models to price 159 securities, including securities that were purchased or obtained for loss mitigation or other risk management purposes, with a Level 3 fair value of $1,094 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.

The fair value of CCS, which is recorded in other assets on the condensed consolidated balance sheets, represents the difference between the present value of remaining expected put option premium payments under AGC's 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 fair value gains (losses) on committed capital securities in the condensed consolidated statements of operations. The estimated current cost of the Company’s CCS is based on several factors, including AGC and AGM 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 Company classifies the fair value measurement included in the Company's various supplemental executive retirement plans as either Level 1 or Level 2. The fair value of these assets is valued based on the observable published daily values of the underlying mutual fund included in the plans (Level 1) or based upon the net asset value (NAV) of the funds if a published daily value is not available (Level 2). The NAVs are based on observable information. Change in fair value of these 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 require fair value measurement with changes recorded in the statement of operations. The Company did not enter into CDS contracts 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. 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 and the estimated present value of premiums that a financial guarantor of comparable credit-worthiness would hypothetically charge 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 June 30, 2020 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. 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 market conditions and the Company’s own credit spreads, de minimis amounts, based on fair value, of the Company's CDS contracts were fair valued using this minimum premium as of June 30, 2020 and December 31, 2019. 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 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

The Company elected the fair value option for 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 condensed 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 other comprehensive income (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 typically 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.

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 insured 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.

Due to the fact that BlueMountain manages and the insurance companies have an investment in certain Assured Investment Management funds, the Company consolidated several Assured Investment Management investment vehicles listed below (collectively, the consolidated investment vehicles). All consolidated investment vehicles are accounted for at fair value. See Note 11, Variable Interest Entities.

CLO XXVI and CLO XXIX, which are CLOs managed by Assured Investment Management (collectively, the consolidated CLOs), are collateralized financing entities (CFE) under Accounting Standards Codification (ASC) 810, Consolidation, and have elected to measure assets and liabilities using the fair value of their respective assets, which are more observable. The financial assets of consolidated CLOs are all Level 2 assets, and therefore more observable than the fair value of the financial liabilities of consolidated CLOs, which are all Level 3 liabilities. As a result, the financial assets of consolidated CLOs are measured at fair value and the financial liabilities of consolidated CLOs are measured as: (1) the sum of the fair value of the financial assets, and the carrying value of any nonfinancial assets held temporarily, less (2) the sum of the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services), and the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by the Company). CLOWH is not a CFE. The assets and liabilities of CLOWH are recorded at fair value under the fair value option.

Investments of consolidated investment vehicles which are not listed or quoted on an exchange, but are traded over-the-counter, or are listed on an exchange which have no reported sales, are valued at their fair value as determined by the Company, after giving consideration to third party data generally at the average between the offer and bid prices. These fair values are generally based on dealer quotes, indications of value or pricing models that consider the time value of money, the current market, contractual prices and potential volatilities of the underlying financial instruments. Inputs are used in applying the various valuation techniques and broadly refer to the current assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include dealer price quotations, yield curves, credit curves, forward/CDS/index spreads, prepayments rates, strike and expiry dates, volatility statistics and other factors.

Assets in consolidated Assured Investment Management funds that are carried at fair value primarily consist of corporate loans, CLOs, asset backed securities, municipal bonds, short-term and other investments. Assets supporting consolidated CLOs and certain assets of the consolidated funds are Level 2. Short-term investments are classified as Level 1. The remainder of the invested assets of consolidated funds are Level 3. Liabilities include various tranches of CLO debt, which are classified as Level 3 and securities sold short, which are classified as Level 2 in the fair value hierarchy. Significant changes to any of the inputs described above could have a material effect on the fair value of the consolidated assets and liabilities.



			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	$	4,113	$	—	$	4,016	$	97
U.S. government and agencies	174		—		174		—
Corporate securities	2,389		—		2,360		29
Mortgage-backed securities:
RMBS	635		—		381		254
Commercial mortgage-backed securities (CMBS)	411		—		411		—
Asset-backed securities	768		—		54		714
Non-U.S. government securities	140		—		140		—
Total fixed-maturity securities	8,630		—		7,536		1,094
Short-term investments	821		754		67		—
Other invested assets (1)	15		9		—		6
FG VIEs’ assets, at fair value	318		—		—		318
Assets of consolidated investment vehicles:
Fund investments
Debt securities	63		—		3		60
Equity securities and warrants	54		—		1		53
Structured products	43		—		37		6
Obligations of state and political subdivisions	39		—		39		—
CLO investments
Debt securities	850		—		850		—
Short-term investments	403		403		—		—
Total assets of consolidated investment vehicles	1,452		403		930		119
Other assets	160		41		42		77
Total assets carried at fair value	$	11,396	$	1,207	$	8,575	$	1,614
Liabilities:
Credit derivative liabilities	$	163	$	—	$	—	$	163
FG VIEs’ liabilities with recourse, at fair value	332		—		—		332
FG VIEs’ liabilities without recourse, at fair value	20		—		—		20
Liabilities of consolidated investment vehicles:
CLO obligations of CFE	806		—		—		806
Securities sold short	30		—		30		—
Total liabilities of consolidated investment vehicles	836		—		30		806
Total liabilities carried at fair value	$	1,351	$	—	$	30	$	1,321



			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	$	4,340	$	—	$	4,233	$	107
U.S. government and agencies	147		—		147		—
Corporate securities	2,221		—		2,180		41
Mortgage-backed securities:
RMBS	775		—		467		308
CMBS	419		—		419		—
Asset-backed securities	720		—		62		658
Non-U.S. government securities	232		—		232		—
Total fixed-maturity securities	8,854		—		7,740		1,114
Short-term investments	1,268		1,061		207		—
Other invested assets (1)	6		—		—		6
FG VIEs’ assets, at fair value	442		—		—		442
Assets of consolidated investment vehicles:
Fund investments
Debt securities	47		—		—		47
Equity securities and warrants	17		—		—		17
CLO investments
Debt securities	494		—		494		—
Total assets of consolidated investment vehicles	558		—		494		64
Other assets	135		32		45		58
Total assets carried at fair value	$	11,263	$	1,093	$	8,486	$	1,684
Liabilities:
Credit derivative liabilities	$	191	$	—	$	—	$	191
FG VIEs’ liabilities with recourse, at fair value	367		—		—		367
FG VIEs’ liabilities without recourse, at fair value	102		—		—		102
Liabilities of consolidated investment vehicles
CLO obligations of CFE	481		—		—		481
Total liabilities carried at fair value	$	1,141	$	—	$	—	$	1,141



	Fixed-Maturity Securities																							Assets of Consolidated Investment Vehicles
	Obligations of State and Political Subdivisions				Corporate Securities				RMBS					Asset- Backed Securities					FG VIEs’ Assets at Fair Value					Debt Securities				Equity Securities and Warrants					Structured Products					Other (7)
	(in millions)
Fair value as of March 31, 2020	$	86			$	26			$	253				$	596				$	368				$	52			$	32				$	12				$	103
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1	)	1		(1	)	2			(1	)	7			(1	)	(50		)	(2	)	3		(4	)	7			(4	)	3			(4	)	(25		)	(3	)
Other comprehensive income (loss)	10				2				12					17					—					—				—					—					—
Purchases	—				—				—					118					—					5				17					5					—
Sales	—				—				—					(21		)			—					—				(3		)			(14		)			—
Settlements	—				—				(13		)			(3		)			(18		)			—				—					—					—
VIE consolidations	—				—				—					—					18					—				—					—					—
Fair value as of June 30, 2020	$	97			$	29			$	254				$	714				$	318				$	60			$	53				$	6				$	78
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of June 30, 2020																			$	25		(2	)	$	3	(4	)	$	7		(4	)	$	1		(4	)	$	(25	)	(3	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2020	$	10			$	2			$	11				$	16																							$	—



						FG VIEs’ Liabilities, at Fair Value
	Credit Derivative Asset (Liability), net (5)					With Recourse					Without Recourse					Liabilities of Consolidated Investment Vehicles
	(in millions)
Fair value as of March 31, 2020	$	(262	)			$	(312	)			$	(82	)			$	(426	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	100			(6	)	(12		)	(2	)	63			(2	)	(18		)	(4	)
Other comprehensive income (loss)	—					(7		)			—					—
Issuances	—					—					—					(362		)
Settlements	1					15					2					—
VIE consolidations	—					(16		)			(3		)			—
Fair value as of June 30, 2020	$	(161	)			$	(332	)			$	(20	)			$	(806	)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of June 30, 2020	$	100		(6	)	$	(11	)	(2	)	$	(11	)	(2	)	$	(18	)	(4	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2020						$	(7	)



	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 (7)				Credit Derivative Asset (Liability), net (5)					With Recourse					Without Recourse
	(in millions)
Fair value as of March 31, 2019	$	104			$	48				$	318				$	958				$	560				$	68			$	(228	)			$	(505	)			$	(104	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1	)	1			(1	)	5			(1	)	30			(1	)	47			(2	)	19		(3	)	(8		)	(6	)	(20		)	(2	)	(3		)	(2	)
Other comprehensive income (loss)	—				(1		)			15					(85		)			—					—				—					5					—
Purchases	—				—					—					8					—					—				—					—					—
Settlements	—				—					(13		)			(238		)			(75		)			—				20					69					1
FG VIE deconsolidation	—				—					—					—					(6		)			—				—					5					1
Transfers into Level 3	—				—					—					1					—					—				—					—					—
Fair value as of June 30, 2019	$	105			$	48				$	325				$	674				$	526				$	87			$	(216	)			$	(446	)			$	(105	)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of June 30, 2019																				$	52		(2	)	$	19	(3	)	$	(7	)	(6	)	$	(20	)	(2	)	$	(12	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held at June 30, 2019	$	—			$	(1	)			$	15				$	8									$	—								$	5



	Fixed-Maturity Securities																									Assets of Consolidated Investment Vehicles
	Obligations of State and Political Subdivisions					Corporate Securities					RMBS					Asset- Backed Securities					FG VIEs’ Assets at Fair Value					Debt Securities				Equity Securities and Warrants					Structured Products					Other (7)
	(in millions)
Fair value as of December 31, 2019	$	107				$	41				$	308				$	658				$	442				$	47			$	17				$	—				$	55
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	2			(1	)	(6		)	(1	)	5			(1	)	14			(1	)	(87		)	(2	)	8		(4	)	3			(4	)	3			(4	)	23		(3	)
Other comprehensive income (loss)	(11		)			(6		)			(35		)			(42		)			—					—				—					—					—
Purchases	—					—					—					118					—					5				50					17					—
Sales	—					—					—					(23		)			—					—				(17		)			(14		)			—
Settlements	(1		)			—					(24		)			(10		)			(55		)			—				—					—					—
VIE consolidations	—					—					—					—					18					—				—					—					—
Transfers out of Level 3	—					—					—					(1		)			—					—				—					—					—
Fair value as of June 30, 2020	$	97				$	29				$	254				$	714				$	318				$	60			$	53				$	6				$	78
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of June 30, 2020																					$	(11	)	(2	)	$	8	(4	)	$	3		(4	)	$	1		(4	)	$	23	(3	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2020	$	(11	)			$	(6	)			$	(34	)			$	(41	)																						$	—



						FG VIEs’ Liabilities, at Fair Value
	Credit Derivative Asset (Liability), net (5)					With Recourse					Without Recourse					Liabilities of Consolidated Investment Vehicles
	(in millions)
Fair value as of December 31, 2019	$	(185	)			$	(367	)			$	(102	)			$	(481	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	23			(6	)	4			(2	)	74			(2	)	37			(4	)
Other comprehensive income (loss)	—					6					—					—
Issuances	—					—					—					(362		)
Settlements	1					41					11					—
VIE consolidations	—					(16		)			(3		)			—
Fair value as of June 30, 2020	$	(161	)			$	(332	)			$	(20	)			$	(806	)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of June 30, 2020	$	27		(6	)	$	4		(2	)	$	(1	)	(2	)	$	37		(4	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2020						$	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 (7)				Credit Derivative Asset (Liability), net (5)					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)	2			(1	)	(10		)	(1	)	11			(1	)	44			(1	)	64			(2	)	10		(3	)	(30		)	(6	)	(31		)	(2	)	(7		)	(2	)
Other comprehensive income (loss)	5					2					20					(94		)			—					—				—					5					—
Purchases	—					—					11					18					—					—				—					—					—
Settlements	(1		)			—					(26		)			(242		)			(101		)			—				21					92					3
FG VIE deconsolidation	—					—					—					—					(6		)			—				—					5					1
Transfers into Level 3	—					—					—					1					—					—				—					—					—
Fair value as of June 30, 2019	$	105				$	48				$	325				$	674				$	526				$	87			$	(216	)			$	(446	)			$	(105	)
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of June 30, 2019																					$	72		(2	)	$	10	(3	)	$	(28	)	(6	)	$	(31	)	(2	)	$	(15	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held at June 30. 2019	$	5				$	2				$	20				$	11									$	—								$	5



Financial Instrument Description	Fair Value at June 30, 2020 (in millions)		Significant Unobservable Inputs	Range				Weighted Average (5)
Assets (2):
Fixed-maturity securities (1):
Obligations of state and political subdivisions	$	97	Yield	5.3	%	-	35.3%	10.9%

Corporate securities	29		Yield	45.3%

RMBS	254		CPR	2.7	%	-	15.0%	6.5%
			CDR	1.5	%	-	7.5%	5.4%
			Loss severity	45.0	%	-	125.0%	83.4%
			Yield	4.5	%	-	7.2%	5.5%
Asset-backed securities:
Life insurance transactions	335		Yield	5.5%

CLOs /Trust preferred securities (TruPS)	342		Yield	1.5	%	-	4.2%	2.4%

Others	37		Yield	13.3%

FG VIEs’ assets, at fair value (1)	318		CPR	0.4	%	-	18.8%	8.6%
			CDR	1.2	%	-	26.5%	5.3%
			Loss severity	45.0	%	-	100.0%	79.7%
			Yield	2.9	%	-	8.7%	5.9%

Assets of consolidated investment vehicles (3):
Debt securities	60		Discount rate	14.9	%	-	23.4%	18.5%
			Market multiple - enterprise/revenue value	0.66x
			Market multiple - enterprise/EBITDA (4)	10.0x

Equity securities and warrants	53		Discount rate	14.9	%	-	26.9%	25.6%
			Market multiple - enterprise/revenue value	0.66x
			Market multiple - enterprise/EBITDA	8.1x		-	10.0x
			Yield	10.1%

Structured products	6		Yield	4.8	%	-	11.6%	7.4%

Other assets (1)	75		Implied Yield	4.0	%	-	4.8%	4.4%
Other assets (1)	75		Term (years)	10 years



Financial Instrument Description (1)	Fair Value at June 30, 2020 (in millions)			Significant Unobservable Inputs	Range				Weighted Average (5)
Liabilities:

Credit derivative liabilities, net	$	(161	)	Year 1 loss estimates	0.0	%	-	83.0%	2.1%
				Hedge cost (in basis points (bps))	21.0		-	119.0	44.0
				Bank profit (in bps)	44.0		-	289.0	107.0
				Internal floor (in bps)	9.0		-	30.0	9.0
				Internal credit rating	AAA		-	CCC	AA-

FG VIEs’ liabilities, at fair value	(352		)	CPR	0.4	%	-	18.8%	8.6%
				CDR	1.2	%	-	26.5%	5.3%
				Loss severity	45.0	%	-	100.0%	79.7%
				Yield	1.9	%	-	8.3%	4.6%

Liabilities of consolidated investment vehicles:
CLO obligations of CFE (6)	(806		)	Yield	2.6	%	-	13.4%	3.0%



Financial Instrument Description	Fair Value at December 31, 2019 (in millions)		Significant Unobservable Inputs	Range				Weighted Average as a Percentage of Current Par Outstanding
Assets (2):
Fixed-maturity securities (1):
Obligations of state and political subdivisions	$	107	Yield	4.5	%	-	31.1%	8.5%

Corporate securities	41		Yield	35.9%

RMBS	308		CPR	2.0	%	-	15.0%	6.3%
			CDR	1.5	%	-	7.0%	4.9%
			Loss severity	40.0	%	-	125.0%	78.8%
			Yield	3.7	%	-	6.1%	4.8%
Asset-backed securities:
Life insurance transactions	350		Yield	5.8%

CLOs/TruPS	256		Yield	2.5	%	-	4.1%	2.9%

Others	52		Yield	2.3	%	-	9.4%	9.3%

FG VIEs’ assets, at fair value (1)	442		CPR	0.1	%	-	18.6%	8.6%
			CDR	1.2	%	-	24.7%	4.9%
			Loss severity	40.0	%	-	100.0%	76.1%
			Yield	3.0	%	-	8.4%	5.2%

Assets of consolidated investment vehicles (3):
Debt securities	47		Discount rate	16.0	%	-	28.0%	21.5%
			Market multiple - enterprise/revenue value	0.5x
			Market multiple - enterprise/EBITDA	9.5x

Equity securities and warrants	17		Discount rate	16.0	%	-	28.0%	20.8%
			Market multiple - enterprise/revenue value	0.5x
			Market multiple - enterprise/EBITDA	9.5x
			Yield	12.5%

Other assets(1)	52		Implied Yield	5.1	%	-	5.8%	5.5%
			Term (years)	10 years



Financial Instrument Description (1)	Fair Value at December 31, 2019 (in millions)			Significant Unobservable Inputs	Range				Weighted Average as a Percentage of Current Par Outstanding
Liabilities:

Credit derivative liabilities, net	$	(185	)	Year 1 loss estimates	0.0	%	-	46.0%	1.3%
				Hedge cost (in bps)	5.0		-	31.0	11.0
				Bank profit (in bps)	51.0		-	212.0	76.0
				Internal floor (in bps)	30.0
				Internal credit rating	AAA		-	CCC	AA-

FG VIEs’ liabilities, at fair value	(469		)	CPR	0.1	%	-	18.6%	8.6%
				CDR	1.2	%	-	24.7%	4.9%
				Loss severity	40.0	%	-	100.0%	76.1%
				Yield	2.7	%	-	8.4%	4.2%

Liabilities of consolidated investment vehicles:
CLO obligations of CFE	(481		)	Yield	10.0%

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.

Due from/to brokers and counterparties primarily consists of cash, margin deposits, and cash collateral with the clearing brokers and various counterparties and the net amounts receivable/payable for securities transactions that had not settled at the balance sheet date. Due from/to brokers and counterparties represent balances on a net-by counterparty basis on the consolidated balance sheet where a contractual right of offset exists under an enforceable netting arrangement. The cash at brokers is partially related to collateral for securities sold short and derivative contracts; its use is therefore restricted until the



	As of June 30, 2020						As of December 31, 2019
	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
	(in millions)
Assets (liabilities):
Other invested assets	$	—		$	2		$	1		$	2
Other assets (1)	84			84			97			97
Financial guaranty insurance contracts (2)	(2,724		)	(4,568		)	(2,714		)	(4,013		)
Long-term debt	(1,222		)	(1,517		)	(1,235		)	(1,573		)
Other liabilities (1)	(36		)	(36		)	(14		)	(14		)
Assets (liabilities) of consolidated investment vehicles:
Due from brokers and counterparties	41			41			—			—
Due to brokers and counterparties	(400		)	(400		)	—			—