10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition Period from              to               

Commission File No. 001-32141 

ASSURED GUARANTY LTD.

(Exact name of registrant as specified in its charter) 

Bermuda	98-0429991
(State or other jurisdiction	(I.R.S. employer
of incorporation)	identification no.)

 

30 Woodbourne Avenue

Hamilton HM 08, Bermuda

(Address of principal executive offices)

(441) 279-5700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Trading Symbol(s)	Name of exchange on which registered
Common Shares	$0.01 per share	AGO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No  ☐

The number of registrant’s Common Shares ($0.01 par value) outstanding as of August 5, 2019 was 98,708,604 (includes 56,028 unvested restricted shares).

ASSURED GUARANTY LTD.

INDEX TO FORM 10-Q

		Page
PART I	Financial Information	1
Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018	2
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018	3
	Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2019 and 2018	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
	1. Business and Basis of Presentation	7
	2. Ratings	9
	3. Outstanding Exposure	10
	4. Expected Loss to be Paid	23
	5. Contracts Accounted for as Insurance	34
	6. Fair Value Measurement	41
	7. Investments and Cash	55
	8. Contracts Accounted for as Credit Derivatives	61
	9. Variable Interest Entities	64
	10. Income Taxes	67
	11. Reinsurance	69
	12. Commitments and Contingencies	72
	13. Earnings Per Share	75
	14. Shareholders' Equity	76
	15. Subsidiary Information	80
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	88
	Forward Looking Statements	88
	Available Information	89
	Executive Summary	90
	Results of Operations	99
	Non-GAAP Financial Measures	110
	Insured Portfolio	115
	Liquidity and Capital Resources	121
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	133
Item 4.	Controls and Procedures	133
PART II	Other Information	134
Item 1.	Legal Proceedings	134
Item 1A.	Risk Factors	134
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	136
Item 5.	Other Information	136
Item 6.	Exhibits	137

 

PART I.    FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Assured Guaranty Ltd.

Condensed Consolidated Balance Sheets (unaudited)

(dollars in millions except per share and share amounts) 

	As of June 30, 2019		As of December 31, 2018
Assets
Investment portfolio:
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $9,137 and $9,884)	$	9,574	$	10,089
Short-term investments, at fair value	1,159		729
Other invested assets	60		55
Total investment portfolio	10,793		10,873
Cash	190		104
Premiums receivable, net of commissions payable	866		904
Deferred acquisition costs	106		105
Salvage and subrogation recoverable	580		490
Financial guaranty variable interest entities’ assets, at fair value	526		569
Other assets	520		558
Total assets	$	13,581	$	13,603
Liabilities and shareholders’ equity
Unearned premium reserve	$	3,387	$	3,512
Loss and loss adjustment expense reserve	1,102		1,177
Long-term debt	1,233		1,233
Credit derivative liabilities	224		209
Financial guaranty variable interest entities’ liabilities with recourse, at fair value	446		517
Financial guaranty variable interest entities’ liabilities without recourse, at fair value	105		102
Other liabilities	362		298
Total liabilities	6,859		7,048
Commitments and contingencies (see Note 12)
Common stock ($0.01 par value, 500,000,000 shares authorized; 99,801,012 and 103,672,592 shares issued and outstanding)	1		1
Additional paid-in capital	—		86
Retained earnings	6,425		6,374
Accumulated other comprehensive income, net of tax of $71 and $38	295		93
Deferred equity compensation	1		1
Total shareholders’ equity	6,722		6,555
Total liabilities and shareholders’ equity	$	13,581	$	13,603

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

Assured Guaranty Ltd.

Condensed Consolidated Statements of Operations (unaudited)

(dollars in millions except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues
Net earned premiums	$	112		$	136		$	230		$	281
Net investment income	110			98			208			198
Net realized investment gains (losses)	8			(2		)	(4		)	(7		)
Net change in fair value of credit derivatives	(8		)	48			(30		)	82
Fair value gains (losses) on financial guaranty variable interest entities	33			2			38			6
Foreign exchange gain (loss) on remeasurement	(14		)	(36		)	(3		)	(14		)
Other income (loss)	25			(26		)	22			(33		)
Total revenues	266			220			461			513
Expenses
Loss and loss adjustment expenses	(1		)	44			45			26
Amortization of deferred acquisition costs	4			4			10			9
Interest expense	22			24			45			48
Other operating expenses	60			62			124			127
Total expenses	85			134			224			210
Income (loss) before income taxes and equity in net earnings of investees	181			86			237			303
Equity in net earnings of investees	1			1			3			1
Income (loss) before income taxes	182			87			240			304
Provision (benefit) for income taxes	40			12			44			32
Net income (loss)	$	142		$	75		$	196		$	272
Earnings per share:
Basic	$	1.40		$	0.67		$	1.92		$	2.39
Diluted	$	1.39		$	0.67		$	1.90		$	2.37

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Assured Guaranty Ltd.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in millions)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	142		$	75		$	196		$	272
Change in net unrealized gains (losses) on:
Investments with no other-than-temporary impairment, net of tax provision (benefit) of $19, $(2), $44 and $(31)	79			(63		)	242			(191		)
Investments with other-than-temporary impairment, net of tax provision (benefit) of $(12), $1, $(12) and $0	(48		)	6			(43		)	4
Change in net unrealized gains (losses) on investments	31			(57		)	199			(187		)
Change in net unrealized gains (losses) on financial guaranty variable interest entities' liabilities with recourse resulting from a change in the instrument-specific credit risk, net of tax	4			4			4			2
Other, net of tax provision (benefit)	(1		)	(9		)	(1		)	(3		)
Other comprehensive income (loss)	34			(62		)	202			(188		)
Comprehensive income (loss)	$	176		$	13		$	398		$	84

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Assured Guaranty Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (unaudited)

(dollars in millions, except share data)

For the Three Months Ended June 30, 2019

	Common Shares Outstanding		Common  Stock Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income		Deferred Equity Compensation		Total Shareholders’ Equity
Balance at March 31, 2019	102,270,409		$	1	$	—		$	6,406		$	261	$	1	$	6,669
Net income	—		—		—			142			—		—		142
Dividends ($0.18 per share)	—		—		—			(19		)	—		—		(19		)
Common stock repurchases	(2,519,130	)	—		(7		)	(104		)	—		—		(111		)
Share-based compensation and other	49,733		—		7			—			—		—		7
Other comprehensive income	—		—		—			—			34		—		34
Balance at June 30, 2019	99,801,012		$	1	$	—		$	6,425		$	295	$	1	$	6,722

For the Three Months Ended June 30, 2018

	Common Shares Outstanding		Common  Stock Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Deferred Equity Compensation		Total Shareholders’ Equity
Balance at March 31, 2018	113,709,322		$	1	$	466		$	6,102		$	214		$	1	$	6,784
Net income	—		—		—			75			—			—		75
Dividends ($0.16 per share)	—		—		—			(18		)	—			—		(18		)
Common stock repurchases	(4,163,190	)	—		(152		)	—			—			—		(152		)
Share-based compensation and other	68,082		—		7			—			—			—		7
Other comprehensive loss	—		—		—			—			(62		)	—		(62		)
Balance at June 30, 2018	109,614,214		$	1	$	321		$	6,159		$	152		$	1	$	6,634

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Assured Guaranty Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (unaudited) (continued)

(dollars in millions, except share data)

For the Six Months Ended June 30, 2019

	Common Shares Outstanding		Common  Stock Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income		Deferred Equity Compensation		Total Shareholders’ Equity
Balance at December 31, 2018	103,672,592		$	1	$	86		$	6,374		$	93	$	1	$	6,555
Net income	—		—		—			196			—		—		196
Dividends ($0.36 per share)	—		—		—			(38		)	—		—		(38		)
Common stock repurchases	(4,427,735	)	—		(83		)	(107		)	—		—		(190		)
Share-based compensation and other	556,155		—		(3		)	—			—		—		(3		)
Other comprehensive income	—		—		—			—			202		—		202
Balance at June 30, 2019	99,801,012		$	1	$	—		$	6,425		$	295	$	1	$	6,722

For the Six Months Ended June 30, 2018

	Common Shares Outstanding		Common  Stock Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Deferred Equity Compensation		Total Shareholders’ Equity
Balance at December 31, 2017	116,020,852		$	1	$	573		$	5,892		$	372		$	1	$	6,839
Net income	—		—		—			272			—			—		272
Dividends ($0.32 per share)	—		—		—			(37		)	—			—		(37		)
Common stock repurchases	(6,951,126	)	—		(250		)	—			—			—		(250		)
Share-based compensation and other	544,488		—		(2		)	—			—			—		(2		)
Other comprehensive loss	—		—		—			—			(188		)	—		(188		)
Effect of adoption of ASU 2016-01 (see Note 14)	—		—		—			32			(32		)	—		—
Balance at June 30, 2018	109,614,214		$	1	$	321		$	6,159		$	152		$	1	$	6,634

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Assured Guaranty Ltd.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in millions)

 

	Six Months Ended June 30,
	2019			2018
Net cash flows provided by (used in) operating activities	$	(198	)	$	444
Investing activities
Fixed-maturity securities:
Purchases	(503		)	(879		)
Sales	914			592
Maturities and paydowns	506			533
Short-term investments with original maturities of over three months:
Purchases	(209		)	(121		)
Sales	2			1
Maturities and paydowns	174			104
Net sales (purchases) of short-term investments with original maturities of less than three months	(389		)	(288		)
Net proceeds from paydowns on financial guaranty variable interest entities’ assets	50			60
Net proceeds from sales of financial guaranty variable interest entities’ assets	51			—
Other	35			(16		)
Net cash flows provided by (used in) investing activities	631			(14		)
Financing activities
Dividends paid	(39		)	(37		)
Repurchases of common stock	(190		)	(250		)
Repurchases of common stock to pay withholding taxes	(16		)	(13		)
Net paydowns of financial guaranty variable interest entities’ liabilities	(95		)	(61		)
Paydown of long-term debt	(4		)	(24		)
Proceeds from option exercises	1			1
Net cash flows provided by (used in) financing activities	(343		)	(384		)
Effect of foreign exchange rate changes	—			(1		)
Increase (decrease) in cash and restricted cash	90			45
Cash and restricted cash at beginning of period (see Note 7)	104			144
Cash and restricted cash at end of period (see Note 7)	$	194		$	189
Supplemental cash flow information
Cash paid (received) during the period for:
Income taxes	$	(3	)	$	39
Interest on long-term debt	$	42		$	57

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2019

1. Business and Basis of Presentation

Business

Assured Guaranty Ltd. (AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the United States (U.S.) and international public finance (including infrastructure) and structured finance markets. The Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. If an obligor defaults on a scheduled payment due on an obligation, including a scheduled principal or interest payment (debt service), the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The Company guarantees obligations issued principally in the U.S. and the United Kingdom (U.K.), and also guarantees obligations issued in other countries and regions, including Western Europe, Canada and Australia. The Company also provides non-financial guaranty insurance and reinsurance on transactions with similar risk profiles to its structured finance exposures written in financial guaranty form.

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In management's opinion, all material adjustments necessary for a fair statement of the financial condition, results of operations and cash flows of the Company and its consolidated variable interest entities (VIEs) are reflected in the periods presented and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited interim condensed consolidated financial statements are as of June 30, 2019 and cover the three-month period ended June 30, 2019 (Second Quarter 2019), the three-month period ended June 30, 2018 (Second Quarter 2018), the six-month period ended June 30, 2019 (Six Months 2019) and the six-month period ended June 30, 2018 (Six Months 2018). Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The presentation of cash flow amounts related to short-term investments was changed during the fourth quarter of 2018 to reflect cash flows on a gross, rather than a net, basis. The presentation of equity in net earnings of investees was changed in 2019 to reflect amounts previously reported in net investment income and other income to a separate line item on the condensed consolidated statements of operations. Certain prior year balances have been reclassified to conform to the current year's presentation.

The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries and its consolidated VIEs. Intercompany accounts and transactions between and among all consolidated entities have been eliminated.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in AGL’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (SEC).

7

The Company's principal insurance company subsidiaries are:

• Assured Guaranty Municipal Corp. (AGM), domiciled in New York;

• Municipal Assurance Corp. (MAC), domiciled in New York;

• Assured Guaranty Corp. (AGC), domiciled in Maryland;

• Assured Guaranty (Europe) plc (AGE), organized in the U.K.;

• Assured Guaranty Re Ltd. (AG Re), domiciled in Bermuda; and

• Assured Guaranty Re Overseas Ltd. (AGRO), domiciled in Bermuda.

The Company’s organizational structure includes various holding companies, two of which - Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH) - have public debt outstanding. See Note 15, Subsidiary Information.

Acquisition of BlueMountain

On August 7, 2019, AGUS and AGL entered into a purchase agreement (Purchase Agreement) pursuant to which AGUS will purchase all of the outstanding equity interests in BlueMountain Capital Management, LLC (BlueMountain) and its associated entities, for a purchase price of approximately $160 million, subject to certain pre- and post-closing adjustments (BlueMountain Acquisition). BlueMountain manages $19.3 billion in assets across collateralized loan obligations (CLOs); long-duration opportunity funds that build on the firm’s corporate credit, asset-backed finance, infrastructure and healthcare experience; and hedge funds employing relative value approaches. Completion of the BlueMountain Acquisition is subject to certain customary closing conditions, including the receipt of certain consents and regulatory approvals.

Not less than $114.8 million of the purchase price will be payable in cash. The remainder of the purchase price will be payable, at AGUS' election, in cash, in AGL common shares, in a one-year promissory note or in a combination of the foregoing. In addition, AGUS will contribute $60 million of cash to BlueMountain at closing and intends to contribute an additional $30 million in cash within a year from closing. AGUS intends to fund the cash portion of the purchase price and the cash contributions to BlueMountain with available cash and, subject to regulatory approval, intercompany borrowings from AGM, AGC, MAC or a combination of them.

Adopted Accounting Standards

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The Company adopted Topic 842 on January 1, 2019 using the optional transition method that allows the Company to initially apply the new requirements at the effective date, with no revision to prior periods. See Note 12, Commitments and Contingencies, for additional information.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Topic 310-20) - Premium Amortization on Purchased Callable Debt Securities.  This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date.  This ASU was adopted on January 1, 2019, with no effect on the Company's condensed consolidated financial statements.

Future Application of Accounting Standards

Credit Losses on Financial Instruments

                In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The ASU provides a new current expected credit loss model to account for credit losses on certain financial assets (e.g., reinsurance recoverables, premium receivables, and held-to-maturity debt securities) and off-balance sheet exposures (e.g., loan commitments). That model requires an entity to estimate lifetime credit losses related to certain financial assets, based on relevant historical information, adjusted for current conditions and reasonable and supportable forecasts that could affect the collectability of the reported amount. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities, which includes requiring the recognition of an allowance rather than a direct write-down of the investment. The allowance may be reversed in the event that the credit of an issuer improves. In addition, the ASU eliminates the existing guidance for purchased credit impaired assets and introduces a new model for

8

purchased financial assets with credit deterioration, such as the Company's loss mitigation securities, which requires the recognition of an initial allowance for credit losses. Under the new guidance, the amortized cost would be the purchase price plus the allowance.

                The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For reinsurance recoverables, premiums receivable and debt instruments such as loans and held to maturity securities, entities will be required to record a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is adopted. The changes to the impairment model for available-for-sale securities and purchased financial assets with credit deterioration are to be applied prospectively. Early adoption of the amendments is permitted; however, the Company does not plan to adopt this ASU until January 1, 2020. The Company does not expect the adoption of ASU 2016-13 to have a material effect on shareholders' equity.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.  The amendments in this ASU:

• improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows,

• simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,

• simplify the amortization of deferred acquisition costs, and

• improve the effectiveness of the required disclosures.

This ASU does not affect the Company’s financial guaranty insurance contracts, but may affect its accounting for certain non-financial guaranty contracts. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not plan to adopt this ASU early, and does not expect this ASU to have a material effect on its condensed consolidated financial statements.

2.    Ratings

The financial strength ratings (or similar ratings) for AGL’s insurance subsidiaries, along with the date of the most recent rating action (or confirmation) by the rating agency, are shown in the table below. Ratings are subject to continuous rating agency review and revision or withdrawal at any time. In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment may request that a rating agency add or drop a rating from certain of its companies.

	S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC	Kroll Bond Rating Agency	Moody’s Investors Service, Inc.	A.M. Best Company, Inc.
AGM	AA (stable) (6/27/19)	AA+ (stable) (12/21/18)	A2 (stable) (5/7/18)	—
AGC	AA (stable) (6/27/19)	AA (stable) (11/30/18)	(1)	—
MAC	AA (stable) (6/27/19)	AA+ (stable) (7/12/19)	—	—
AG Re	AA (stable) (6/27/19)	—	—	—
AGRO	AA (stable) (6/27/19)	—	—	A+ (stable) (7/12/19)
AGE	AA (stable) (6/27/19)	AA+ (stable) (12/21/18)	A2 (stable) (5/7/18)	—

____________________

(1) AGC requested that Moody’s Investors Service, Inc. (Moody’s) withdraw its financial strength ratings of AGC in January 2017, but Moody's denied that request. Moody’s continues to rate AGC A3 (stable).

There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL's insurance subsidiaries in the future or cease to rate one or more of AGL's insurance subsidiaries, either voluntarily or at the request of that subsidiary.

For a discussion of the effects of rating actions on the Company, see Note 5, Contracts Accounted for as Insurance, and Note 11, Reinsurance.

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3. Outstanding Exposure

The Company primarily sells credit protection contracts in financial guaranty insurance form. Until 2009, the Company also sold credit protection by issuing policies that guaranteed payment obligations under credit derivatives, primarily credit default swaps (CDS). The Company's contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts. The Company has not entered into any new CDS in order to sell credit protection in the U.S. since the beginning of 2009, when regulatory guidelines were issued that limited the terms under which such protection could be sold. The capital and margin requirements applicable under the Dodd-Frank Wall Street Reform and Consumer Protection Act also contributed to the Company not entering into such new CDS in the U.S. since 2009. The Company has, however, acquired or reinsured portfolios both before and after 2009 that include financial guaranty contracts in credit derivative form.

The Company also writes non-financial guaranty insurance that is consistent with its risk profile and benefits from its underwriting experience.

The Company seeks to limit its exposure to losses by underwriting obligations that it views as investment grade at inception, although on occasion it may underwrite new issuances that it views as below-investment-grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures. The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies, providing reinsurance on a portfolio of insurance or reassuming a portfolio of reinsurance it had previously ceded; in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction. The Company diversifies its insured portfolio across asset classes and, in the structured finance portfolio, typically requires subordination or collateral to protect it from loss. Reinsurance may be used in order to reduce net exposure to certain insured transactions.

     Public finance obligations insured by the Company primarily consist of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company also includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, health care facilities and government office buildings. The Company also includes within public finance similar obligations issued by territorial and non-U.S. sovereign and sub-sovereign issuers and governmental authorities.

Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. Some of these VIEs are consolidated as described in Note 9, Variable Interest Entities. Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on VIEs whether or not they are consolidated. The Company also provides non-financial guaranty insurance and reinsurance on transactions without special purpose entities but with similar risk profiles to its structured finance exposures written in financial guaranty form.

Second-to-pay insured par outstanding represents transactions the Company has insured that are already insured by another financial guaranty insurer and where the Company's obligation to pay under its insurance of such transactions arises only if both the obligor on the underlying insured obligation and the primary financial guaranty insurer default. The Company underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary financial guarantor. The second-to-pay insured par outstanding as of June 30, 2019 and December 31, 2018 was $6.6 billion and $6.7 billion, respectively. The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction are both BIG and/or not rated was $107 million and $111 million as of June 30, 2019 and December 31, 2018, respectively.

10

Surveillance Categories

The Company segregates its insured portfolio into investment grade and BIG surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review for each exposure. BIG exposures include all exposures with internal credit ratings below BBB-. The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and are generally reflective of an approach similar to that employed by the rating agencies, except that the Company's internal credit ratings focus on future performance rather than lifetime performance.

The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector. Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting the credit when a ratings review is not scheduled. For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating.

Exposures identified as BIG are subjected to further review to determine the probability of a loss. See Note 4, Expected Loss to be Paid, for additional information. Surveillance personnel then assign each BIG transaction to the appropriate BIG surveillance category based upon whether a future loss is expected and whether a claim has been paid. The Company uses a tax-equivalent yield, which reflects long-term trends in interest rates, to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction. For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss.

More extensive monitoring and intervention is employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will pay more claims on that transaction in the future than it will have reimbursed. The three BIG categories are:

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

• BIG Category 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year) have yet been paid.

• BIG Category 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid.

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

Financial Guaranty Exposure

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

mitigate the economic effect of insured losses (loss mitigation securities). The Company excludes amounts attributable to loss mitigation securities from par and debt service outstanding, which amounts are included in the investment portfolio, because it manages such securities as investments and not insurance exposure. As of June 30, 2019 and December 31, 2018, the Company excluded $1.5 billion and $1.9 billion, respectively, of net par attributable to loss mitigation securities (which are mostly BIG).

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Financial Guaranty

Debt Service Outstanding

	Gross Debt Service Outstanding				Net Debt Service Outstanding
	As of June 30, 2019		As of December 31, 2018		As of June 30, 2019		As of December 31, 2018
	(in millions)
Public finance	$	350,977	$	361,511	$	349,779	$	358,438
Structured finance	12,734		13,569		12,220		13,148
Total financial guaranty	$	363,711	$	375,080	$	361,999	$	371,586

Financial Guaranty Portfolio by Internal Rating

As of June 30, 2019

	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	385	0.2	%	$	2,460	5.5	%	$	1,428	15.0	%	$	181	22.8	%	$	4,454	1.9	%
AA	21,289		11.8		1,880		4.2		3,617		37.9		39		4.9		26,825		11.4
A	100,156		55.5		13,067		29.4		1,079		11.3		183		23.1		114,485		48.6
BBB	52,682		29.2		26,197		58.9		1,512		15.8		349		44.0		80,740		34.3
BIG	6,025		3.3		884		2.0		1,913		20.0		41		5.2		8,863		3.8
Total net par outstanding	$	180,537	100.0	%	$	44,488	100.0	%	$	9,549	100.0	%	$	793	100.0	%	$	235,367	100.0	%

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2018 

	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	413	0.2	%	$	2,399	5.4	%	$	1,533	15.4	%	$	273	22.9	%	$	4,618	1.9	%
AA	21,646		11.6		1,711		3.9		3,599		36.2		65		5.4		27,021		11.2
A	105,180		56.4		13,013		29.5		1,016		10.2		206		17.3		119,415		49.4
BBB	52,935		28.4		25,939		58.8		1,164		11.7		550		46.1		80,588		33.3
BIG	6,388		3.4		1,041		2.4		2,632		26.5		99		8.3		10,160		4.2
Total net par outstanding	$	186,562	100.0	%	$	44,103	100.0	%	$	9,944	100.0	%	$	1,193	100.0	%	$	241,802	100.0	%

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $295 million of gross par as of June 30, 2019. The commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts.

12

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of June 30, 2019

	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	1,679	$	398	$	3,948	$	6,025	$	180,537
Non-U.S. public finance	884		—		—		884		44,488
Public finance	2,563		398		3,948		6,909		225,025
Structured finance:
U.S. residential mortgage-backed securities (RMBS)	151		58		1,514		1,723		3,835
Life insurance transactions	—		—		40		40		1,228
Other structured finance	67		72		52		191		5,279
Structured finance	218		130		1,606		1,954		10,342
Total	$	2,781	$	528	$	5,554	$	8,863	$	235,367

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of December 31, 2018

	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	1,767	$	399	$	4,222	$	6,388	$	186,562
Non-U.S. public finance	796		245		—		1,041		44,103
Public finance	2,563		644		4,222		7,429		230,665
Structured finance:
U.S. RMBS	368		214		1,805		2,387		4,270
Life insurance transactions	—		—		85		85		1,184
Other structured finance	127		79		53		259		5,683
Structured finance	495		293		1,943		2,731		11,137
Total	$	3,058	$	937	$	6,165	$	10,160	$	241,802

13

Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of June 30, 2019

	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivative		Total		Financial Guaranty Insurance (1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	2,705	$	76	$	2,781	116	6	122
Category 2	524		4		528		27	1	28
Category 3	5,486		68		5,554		135	8	143
Total BIG	$	8,715	$	148	$	8,863	278	15	293

 Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of December 31, 2018

	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivative		Total		Financial Guaranty Insurance (1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	2,981	$	77	$	3,058	128	6	134
Category 2	932		5		937		39	1	40
Category 3	6,090		75		6,165		145	8	153
Total BIG	$	10,003	$	157	$	10,160	312	15	327

_____________________

(1)    Includes VIEs.

(2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.   

Exposure to Puerto Rico

The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $4.5 billion net par as of June 30, 2019, all of which was rated BIG. Beginning on January 1, 2016, a number of Puerto Rico exposures have defaulted on bond payments, and the Company has now paid claims on all of its Puerto Rico exposures except for Puerto Rico Aqueduct and Sewer Authority (PRASA), Municipal Finance Agency (MFA) and University of Puerto Rico (U of PR).

On November 30, 2015 and December 8, 2015, the then governor of Puerto Rico (Former Governor) issued executive orders (Clawback Orders) directing the Puerto Rico Department of Treasury and the Puerto Rico Tourism Company to "claw back" certain taxes pledged to secure the payment of bonds issued by the Puerto Rico Highways and Transportation Authority (PRHTA), Puerto Rico Infrastructure Financing Authority (PRIFA), and Puerto Rico Convention Center District Authority (PRCCDA). The Puerto Rico exposures insured by the Company subject to clawback are shown in the table “Puerto Rico Net Par Outstanding.”

14

On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. PROMESA established a seven-member financial oversight board (Oversight Board) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico.

On July 24, 2019, and effective August 2, 2019, the then governor of the Commonwealth resigned as governor under intense political and public pressure related to corruption within his administration and the public disclosure of a series of inappropriate electronic messages. Before resigning, he appointed another individual secretary of state, the next in line of succession for governor, and that individual was sworn in as governor on August 2. While the Commonwealth's House of Representatives ratified that individual's appointment as secretary of state on August 2 (after he was sworn in), the Commonwealth's Senate did not do so. On August 7 the Puerto Rico Supreme Court held that his swearing-in as governor was unconstitutional. The impact of these developments on obligations insured by the Company is uncertain.

The Company believes that a number of the actions taken by the Commonwealth, the Oversight Board and others with respect to obligations the Company insures are illegal or unconstitutional or both, and has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to these matters. In addition, the Commonwealth, the Oversight Board and others have taken legal action naming the Company as party. See “Puerto Rico Litigation” below.

The Company also participates in mediation and negotiations relating to its Puerto Rico exposure.

The final form and timing of responses to Puerto Rico’s financial distress and the devastation of Hurricane Maria eventually taken by the federal government or implemented under the auspices of PROMESA and the Oversight Board or otherwise, and the final impact, after resolution of legal challenges, of any such responses on obligations insured by the Company, are uncertain.

The Company groups its Puerto Rico exposure into three categories:

• Constitutionally Guaranteed. The Company includes in this category public debt benefiting from Article VI of the Constitution of the Commonwealth, which expressly provides that interest and principal payments on the public debt are to be paid before other disbursements are made.

• Public Corporations – Certain Revenues Potentially Subject to Clawback. The Company includes in this category the debt of public corporations for which applicable law permits the Commonwealth to claw back, subject to certain conditions and for the payment of public debt, at least a portion of the revenues supporting the bonds the Company insures. As a constitutional condition to clawback, available Commonwealth revenues for any fiscal year must be insufficient to pay Commonwealth debt service before the payment of any appropriations for that year. The Company believes that this condition has not been satisfied to date, and accordingly that the Commonwealth has not to date been entitled to claw back revenues supporting debt insured by the Company.

• Other Public Corporations. The Company includes in this category the debt of public corporations that are supported by revenues it does not believe are subject to clawback.

Constitutionally Guaranteed

General Obligation. As of June 30, 2019, the Company had $1,340 million insured net par outstanding of the general obligations of Puerto Rico, which are supported by the good faith, credit and taxing power of the Commonwealth. Despite the requirements of Article VI of its Constitution, the Commonwealth defaulted on the debt service payment due on July 1, 2016, and the Company has been making claim payments on these bonds since that date. The Oversight Board has filed a petition under Title III of PROMESA with respect to the Commonwealth.

On May 9, 2019, the Oversight Board certified a revised fiscal plan for the Commonwealth. The revised certified Commonwealth fiscal plan indicates an expected primary budget surplus, if fiscal plan reforms are enacted, of $13.7 billion that would be available for debt service over the six-year forecast period ending 2024. The Company believes the available surplus set forth in the Oversight Board's revised certified fiscal plan (which assumes certain fiscal reforms are implemented by the Commonwealth) should be sufficient to cover contractual debt service of Commonwealth general obligation issuances and of authorities and public corporations directly implicated by the Commonwealth’s general fund during the forecast period. However, the revised certified Commonwealth fiscal plan indicates a net cumulative primary budget deficit through 2049, and there can be no assurance that the fiscal reforms will be enacted or, if they are, that the forecasted primary budget surplus will occur or, if it does, that such funds will be used to cover contractual debt service.

15

On June 16, 2019, the Oversight Board announced it had entered into a general obligation Plan Support Agreement (GO PSA) with certain general obligation and Puerto Rico Public Buildings Authority (PBA) bondholders representing approximately $3 billion of claims. The GO PSA purports to provide a framework to address approximately $35 billion of claims against the Commonwealth. The Company is not a party to that agreement and does not support it. 

The GO PSA provides for different recoveries for bonds issued before 2012 (Vintage) and bonds issued in 2012 and 2014 (New) based on the Oversight Board’s attempt to invalidate the New general obligation and PBA bonds (see “Puerto Rico Litigation” below), and the proposed recovery varies depending on the outcome of that litigation.  Under the GO PSA:

• Vintage general obligation bondholders generally would receive newly issued Commonwealth bonds and cash equal to 64.3% of their outstanding claims, plus up to approximately 25.1% of their outstanding claims to a cap of 89.4% from settlement and litigation savings from the invalidation lawsuit, as well as a share of excess revenues if the Commonwealth outperforms its fiscal plan in the near term.

• If the Oversight Board loses its invalidation lawsuit, holders of New general obligation bonds generally would receive the same treatment as the holders of Vintage general obligation bonds but would not share in the upside if the Commonwealth outperforms its fiscal plan.

• If the Oversight Board wins its invalidation lawsuit, holders of New general obligation bonds would not receive any recovery.  

• In all cases, holders of general obligation bonds supporting the GO PSA are also entitled to certain fees.

PBA. As of June 30, 2019, the Company had $142 million insured net par outstanding of PBA bonds, which are supported by a pledge of the rents due under leases of government facilities to departments, agencies, instrumentalities and municipalities of the Commonwealth, and that benefit from a Commonwealth guaranty supported by a pledge of the Commonwealth’s good faith, credit and taxing power. Despite the requirements of Article VI of its Constitution, the PBA defaulted on most of the debt service payment due on July 1, 2016, and the Company has been making claim payments on these bonds since then.

            Under the GO PSA (which does not include the Company as a party and which the Company does not support):

• Holders of Vintage PBA bonds generally would receive newly issued Commonwealth bonds and cash equal to 72.6% of their outstanding claims, plus up to approximately 16.8% of their outstanding claims to a cap of 89.4% from settlement and litigation savings from the invalidation lawsuit, as well as a share of excess revenues if the Commonwealth outperforms its fiscal plan in the near term.

• If the Oversight Board loses its invalidation lawsuit, holders of New PBA bonds generally would receive the same treatment as the holders of Vintage PBA bonds but would not share in the upside if the Commonwealth outperforms its fiscal plan.

• If the Oversight Board wins its invalidation lawsuit, holders of New PBA bonds would not receive any recovery.  

• In all cases, holders of PBA bonds supporting the GO PSA are also entitled to certain fees.

Public Corporations - Certain Revenues Potentially Subject to Clawback

PRHTA. As of June 30, 2019, the Company had $844 million insured net par outstanding of PRHTA (transportation revenue) bonds and $475 million insured net par outstanding of PRHTA (highways revenue) bonds. The transportation revenue bonds are secured by a subordinate gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls, plus a first lien on up to $120 million annually of taxes on crude oil, unfinished oil and derivative products. The highways revenue bonds are secured by a gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls. The non-toll revenues consisting of excise taxes and fees collected by the Commonwealth on behalf of PRHTA and its bondholders that are statutorily allocated to PRHTA and its bondholders are potentially subject to clawback. Despite the presence of funds in relevant debt service reserve accounts that the Company believes should have been employed to fund debt service, PRHTA defaulted on the full July 1, 2017 insured debt service payment, and the Company has been making claim payments on these bonds since that date. The Oversight Board has filed a petition under Title III of PROMESA with respect to PRHTA.

16

On June 5, 2019, the Oversight Board certified a revised fiscal plan for PRHTA. The revised certified PRHTA fiscal plan projects very limited capacity to pay debt service over the six-year forecast period.

PRCCDA. As of June 30, 2019, the Company had $152 million insured net par outstanding of PRCCDA bonds, which are secured by certain hotel tax revenues. These revenues are sensitive to the level of economic activity in the area and are potentially subject to clawback. There were sufficient funds in the PRCCDA bond accounts to make only partial payments on the July 1, 2017 PRCCDA bond payments guaranteed by the Company, and the Company has been making claim payments on these bonds since that date.

PRIFA. As of June 30, 2019, the Company had $16 million insured net par outstanding of PRIFA bonds, which are secured primarily by the return to PRIFA and its bondholders of a portion of federal excise taxes paid on rum. These revenues are potentially subject to the clawback. The Company has been making claim payments on the PRIFA bonds since January 2016.

Other Public Corporations

Puerto Rico Electric Power Authority (PREPA). As of June 30, 2019, the Company had $848 million insured net par outstanding of PREPA obligations, which are secured by a lien on the revenues of the electric system. The Company has been making claim payments on these bonds since July 1, 2017. On July 2, 2017, the Oversight Board commenced proceedings for PREPA under Title III of PROMESA. On June 27, 2019, the Oversight Board certified a revised fiscal plan for PREPA.

On May 3, 2019, AGM and AGC entered into a restructuring support agreement with PREPA (PREPA RSA) and other stakeholders, including a group of uninsured PREPA bondholders, the Commonwealth of Puerto Rico, and the Oversight Board, that is intended to, among other things, provide a framework for the consensual resolution of the treatment of the Company’s insured PREPA revenue bonds in PREPA's recovery plan. Upon consummation of the restructuring transaction, PREPA’s revenue bonds will be exchanged into new securitization bonds issued by a special purpose corporation and secured by a segregated transition charge assessed on electricity bills. The revised fiscal plan of PREPA certified by the Oversight Board on June 27, 2019 reflects the relevant terms of the PREPA RSA.

The closing of the restructuring transaction is subject to a number of conditions, including approval by the Title III Court of the PREPA RSA and settlement described therein, a minimum of 67% support of voting bondholders for a plan of adjustment that includes this proposed treatment of PREPA revenue bonds and confirmation of such plan by the Title III court, and execution of acceptable documentation and legal opinions. Under the PREPA RSA, the Company has the option to guarantee its allocated share of the securitization exchange bonds, which may then be offered and sold in the capital markets. The Company believes that the additive value created by attaching its guarantee to the securitization exchange bonds would materially improve its overall recovery under the transaction, as well as generate new insurance premiums; and therefore that its economic results could differ from those reflected in the PREPA RSA.

PRASA. As of June 30, 2019, the Company had $373 million of insured net par outstanding of PRASA bonds, which are secured by a lien on the gross revenues of the water and sewer system. On September 15, 2015, PRASA entered into a settlement with the U.S. Department of Justice and the U.S. Environmental Protection Agency that requires it to spend $1.6 billion to upgrade and improve its sewer system island-wide. The PRASA bond accounts contained sufficient funds to make the PRASA bond payments due through the date of this filing that were guaranteed by the Company, and those payments were made in full. On June 29, 2019, the Oversight Board certified a revised fiscal plan for PRASA.

MFA. As of June 30, 2019, the Company had $303 million net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues. The MFA bond accounts contained sufficient funds to make the MFA bond payments due through the date of this filing that were guaranteed by the Company, and those payments were made in full.

U of PR. As of June 30, 2019, the Company had $1 million insured net par outstanding of U of PR bonds, which are general obligations of the university and are secured by a subordinate lien on the proceeds, profits and other income of the university, subject to a senior pledge and lien for the benefit of outstanding university system revenue bonds. As of the date of this filing, all debt service payments on U of PR bonds insured by the Company have been made.

17

Resolved Commonwealth Credit

Puerto Rico Sales Tax Financing Corporation (COFINA). On February 12, 2019, pursuant to a plan of adjustment approved by the PROMESA Title III Court on February 4, 2019 (COFINA Plan of Adjustment), the Company paid off in full its $273 million net par outstanding of insured COFINA bonds, plus accrued and unpaid interest. Pursuant to the COFINA Plan of Adjustment, the Company received $152 million in initial par of closed lien senior bonds of COFINA validated by the PROMESA Title III Court (COFINA Exchange Senior Bonds), along with cash. The total par recovery (cash and COFINA Exchange Senior Bonds) represented 60% of the Company’s official Title III claim, which related to amounts owed as of the date COFINA entered Title III proceedings. The Company may in the future retain, sell, or insure and then sell, all or any portion of its $152 million of COFINA Exchange Senior Bonds it received pursuant to the COFINA Plan of Adjustment. The COFINA Exchange Senior Bonds consist of both current interest bonds ($115 million) and capital appreciation bonds ($37 million). The fair value of the COFINA Exchange Senior Bonds, excluding accrued interest, was $139 million at February 12, 2019, and was recorded as salvage received. This was recorded as a non-cash purchase of fixed-maturity securities, and as a result is not shown as an investing cash flow on the condensed consolidated statements of cash flows.

Puerto Rico Litigation

The Company believes that a number of the actions taken by the Commonwealth, the Oversight Board and others with respect to obligations it insures are illegal or unconstitutional or both, and has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to these matters. In addition, the Commonwealth, the Oversight Board and others have taken legal action naming the Company as party.

Currently there are numerous legal actions relating to the default by the Commonwealth and certain of its entities on debt service payments, and related matters, and the Company is a party to a number of them. On July 24, 2019, Judge Laura Taylor Swain of the United States District Court for the District of Puerto Rico (Federal District Court for Puerto Rico) held an omnibus hearing on litigation matters relating to the Commonwealth. At that hearing, she imposed a stay through November 30, 2019, on a series of adversary proceedings and contested matters amongst the stakeholders and imposed mandatory mediation on all parties through that date. Among the goals of the mediation is to reach an agreed-upon schedule for addressing the resolution of numerous issues, including, among others: (a) issues related to the validity, secured status and priority regarding bonds issued by the Commonwealth and certain of its entities; (b) the validity and impact of the Clawback Orders and other diversion of collateral securing certain bonds; (c) classification of claims; (d) constitutional issues; and (e) identification of essential services. The Company believes a number of the legal actions in which it is involved are covered by the stay and mandatory mediation order.

On January 7, 2016, AGM, AGC and Ambac Assurance Corporation commenced an action for declaratory judgment and injunctive relief in the Federal District Court for Puerto Rico to invalidate the executive orders issued by the Former Governor on November 30, 2015 and December 8, 2015 directing that the Secretary of the Treasury of the Commonwealth of Puerto Rico and the Puerto Rico Tourism Company claw back certain taxes and revenues pledged to secure the payment of bonds issued by the PRHTA, the PRCCDA and PRIFA. The Commonwealth defendants filed a motion to dismiss the action for lack of subject matter jurisdiction, which the court denied on October 4, 2016. On October 14, 2016, the Commonwealth defendants filed a notice of PROMESA automatic stay. While the PROMESA automatic stay expired on May 1, 2017, on May 17, 2017, the court stayed the action under Title III of PROMESA.

On June 3, 2017, AGC and AGM filed an adversary complaint in the Federal District Court for Puerto Rico seeking (i) a judgment declaring that the application of pledged special revenues to the payment of the PRHTA bonds is not subject to the PROMESA Title III automatic stay and that the Commonwealth has violated the special revenue protections provided to the PRHTA bonds under the United States Bankruptcy Code (Bankruptcy Code); (ii) an injunction enjoining the Commonwealth from taking or causing to be taken any action that would further violate the special revenue protections provided to the PRHTA bonds under the Bankruptcy Code; and (iii) an injunction ordering the Commonwealth to remit the pledged special revenues securing the PRHTA bonds in accordance with the terms of the special revenue provisions set forth in the Bankruptcy Code. On January 30, 2018, the court rendered an opinion dismissing the complaint and holding, among other things, that (x) even though the special revenue provisions of the Bankruptcy Code protect a lien on pledged special revenues, those provisions do not mandate the turnover of pledged special revenues to the payment of bonds and (y) actions to enforce liens on pledged special revenues remain stayed. A hearing on AGM and AGC’s appeal of the trial court’s decision to the United States Court of Appeals for the First Circuit (First Circuit) was held on November 5, 2018. On March 26, 2019, the First Circuit issued its opinion affirming the trial court’s decision and held that Sections 928(a) and 922(d) of the Bankruptcy Code permit, but do not require, continued payments during the pendency of the Title III proceedings. The First Circuit agreed with the trial court that (i) Section 928(a) of the Bankruptcy Code does not mandate the turnover of special revenues or require continuity of payments to

18

the PRHTA bonds during the pendency of the Title III proceedings, and (ii) Section 922(d) of the Bankruptcy Code is not an exception to the automatic stay that would compel PRHTA, or third parties holding special revenues, to apply special revenues to outstanding obligations. On April 9, 2019, AGM, AGC and other petitioners filed a petition with the First Circuit seeking a rehearing by the full court; the petition was denied by the First Circuit on July 31, 2019.

On June 26, 2017, AGM and AGC filed a complaint in the Federal District Court for Puerto Rico seeking (i) a declaratory judgment that the PREPA restructuring support agreement executed in December 2015 (2015 PREPA RSA) is a “Preexisting Voluntary Agreement” under Section 104 of PROMESA and the Oversight Board’s failure to certify the 2015 PREPA RSA is an unlawful application of Section 601 of PROMESA; (ii) an injunction enjoining the Oversight Board from unlawfully applying Section 601 of PROMESA and ordering it to certify the 2015 PREPA RSA; and (iii) a writ of mandamus requiring the Oversight Board to comply with its duties under PROMESA and certify the 2015 PREPA RSA. On July 21, 2017, in light of its PREPA Title III petition on July 2, 2017, the Oversight Board filed a notice of stay under PROMESA.

On July 18, 2017, AGM and AGC filed in the Federal District Court for Puerto Rico a motion for relief from the automatic stay in the PREPA Title III bankruptcy proceeding and a form of complaint seeking the appointment of a receiver for PREPA. The court denied the motion on September 14, 2017, but on August 8, 2018, the First Circuit vacated and remanded the court's decision. On October 3, 2018, AGM and AGC, together with other bond insurers, filed a motion with the court to lift the automatic stay to commence an action against PREPA for the appointment of a receiver, and a hearing was scheduled for May 2019. Under the PREPA RSA, AGM and AGC have agreed to withdraw from the lift stay motion upon the Title III Court’s approval of the settlement of claims embodied in the PREPA RSA.

On May 23, 2018, AGM and AGC filed an adversary complaint in the Federal District Court for Puerto Rico seeking a judgment declaring that (i) the Oversight Board lacked authority to develop or approve the new fiscal plan for Puerto Rico which it certified on April 19, 2018 (Revised Fiscal Plan); (ii) the Revised Fiscal Plan and the Fiscal Plan Compliance Law (Compliance Law) enacted by the Commonwealth to implement the original Commonwealth Fiscal Plan violate various sections of PROMESA; (iii) the Revised Fiscal Plan, the Compliance Law and various moratorium laws and executive orders enacted by the Commonwealth to prevent the payment of debt service (a) are unconstitutional and void because they violate the Contracts, Takings and Due Process Clauses of the U.S. Constitution and (b) are preempted by various sections of PROMESA; and (iv) no Title III plan of adjustment based on the Revised Fiscal Plan can be confirmed under PROMESA. On August 13, 2018, the court-appointed magistrate judge granted the Commonwealth's and the Oversight Board's motion to stay this adversary proceeding pending a decision by the First Circuit in an appeal by Ambac Assurance Corporation of an unrelated adversary proceeding decision, which the First Circuit rendered on June 24, 2019. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which likely includes this proceeding, through November 30, 2019, with a mandatory mediation element.

On July 23, 2018, AGC and AGM filed an adversary complaint in the Federal District Court for Puerto Rico seeking a judgment (i) declaring the members of the Oversight Board are officers of the U.S. whose appointments were unlawful under the Appointments Clause of the U.S. Constitution; (ii) declaring void from the beginning the unlawful actions taken by the Oversight Board to date, including (x) development of the Commonwealth's Fiscal Plan, (y) development of PRHTA's Fiscal Plan, and (z) filing of the Title III cases on behalf of the Commonwealth and PRHTA; and (iii) enjoining the Oversight Board from taking any further action until the Oversight Board members have been lawfully appointed in conformity with the Appointments Clause of the U.S. Constitution. The Title III court dismissed a similar lawsuit filed by another party in the Commonwealth’s Title III case in July 2018. On August 3, 2018, a stipulated judgment was entered against AGM and AGC at their request based upon the court's July decision in the other Appointments Clause lawsuit and, on the same date, AGM and AGC appealed the stipulated judgment to the First Circuit. On August 15, 2018, the court consolidated, for purposes of briefing and oral argument, AGM and AGC's appeal with the other Appointments Clause lawsuit. The First Circuit consolidated AGM and AGC's appeal with a third Appointments Clause lawsuit on September 7, 2018 and held a hearing on December 3, 2018. On February 15, 2019, the First Circuit issued its ruling on the appeal and held that members of the Oversight Board were not appointed in compliance with the Appointments Clause of the U.S. Constitution but declined to dismiss the Title III petitions citing the (i) de facto officer doctrine and (ii) negative consequences to the many innocent third parties who relied on the Oversight Board’s actions to date, as well as the further delay which would result from a dismissal of the Title III petitions. The case was remanded back to the Federal District Court for Puerto Rico for the appellants’ requested declaratory relief that the appointment of the board members of the Oversight Board is unconstitutional. The First Circuit delayed the effectiveness of its ruling for 90 days so as to allow the President and the Senate to validate the currently defective appointments or reconstitute the Oversight Board in accordance with the Appointments Clause. On April 23, 2019, the Oversight Board filed a petition for a review by the U.S. Supreme Court of the First Circuit's holding that its members were not appointed in compliance with the Appointments Clause and on the following day filed a motion in the First Circuit to further stay the effectiveness of the First Circuit’s February 15, 2019 ruling pending final disposition by the U.S. Supreme Court. On May 24, 2019, AGC and AGM filed a petition for a review by the U.S. Supreme Court of the First Circuit’s holding that the de facto officer doctrine allows

19

courts to deny meaningful relief to successful challengers suffering ongoing injury at the hands of unconstitutionally appointed officers. On June 20, 2019, the U.S. Supreme Court agreed to review the First Circuit’s holdings in this case. On July 2, 2019, the First Circuit granted the Oversight Board’s motion to stay the effectiveness of the First Circuit’s February 15, 2019 ruling pending final disposition by the U.S. Supreme Court.

On December 21, 2018, the Oversight Board and the Official Committee of Unsecured Creditors of all Title III Debtors (other than COFINA) filed an adversary complaint in the Federal District Court for Puerto Rico seeking a judgment declaring that (i) the leases to public occupants entered into by the PBA are not “true leases” for purposes of Section 365(d)(3) of the Bankruptcy Code and therefore the Commonwealth has no obligation to make payments to the PBA under the leases or Section 365(d)(3) of the Bankruptcy Code, (ii) the PBA is not entitled to a priority administrative expense claim under the leases pursuant to Sections 503(b)(1) and 507(a)(2) of the Bankruptcy Code, and (iii) any such claims filed or asserted against the Commonwealth are disallowed. On January 28, 2019, the PBA filed an answer to the complaint. On March 12, 2019, the Federal District Court for Puerto Rico granted, with certain limitations, AGM’s and AGC’s motion to intervene. On March 21, 2019, AGM and AGC, together with certain other intervenors, filed a motion for judgment on the pleadings. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On January 14, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an omnibus objection in the Title III Court to claims filed by holders of approximately $6 billion of Commonwealth general obligation bonds issued in 2012 and 2014, asserting among other things that such bonds were issued in violation of the Puerto Rico constitutional debt service limit, such bonds are null and void, and the holders have no equitable remedy against the Commonwealth. On April 10, 2019, AGM filed a notice of participation in these proceedings. As of June 30, 2019, $369 million of the Company’s insured net par outstanding of the general obligation bonds of Puerto Rico were issued on or after March 2012. On May 21, 2019, the Official Committee of Unsecured Creditors filed a claim objection to certain Commonwealth general obligation bonds issued in 2011, approximately $220 million of which are insured by the Company as of June 30, 2019, on substantially the same bases as the January 14, 2019 filing, and which the plaintiffs propose to be subject to the proceedings relating to the 2012 and 2014 bonds. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On May 2, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against various Commonwealth general obligation bondholders and bond insurers, including AGC and AGM, that had asserted in their proofs of claim that their bonds are secured. The complaint seeks a judgment declaring that defendants do not hold consensual or statutory liens and are unsecured claimholders to the extent they hold allowed claims. The complaint also asserts that even if Commonwealth law granted statutory liens, such liens are avoidable under Section 545 of the Bankruptcy Code. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On May 20, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against the fiscal agent and holders and/or insurers, including AGC and AGM, that have asserted their PRHTA bond claims are entitled to secured status in PRHTA’s Title III case. Plaintiffs are seeking to avoid the PRHTA bondholders’ liens and contend that (i) the scope of any lien only applies to revenues that have been both received by PRHTA and deposited in certain accounts held by the fiscal agent and does not include PRHTA’s right to receive such revenues; (ii) any lien on revenues was not perfected because the fiscal agent does not have “control” of all accounts holding such revenues; (iii) any lien on the excise tax revenues is no longer enforceable because any rights PRHTA had to receive such revenues is preempted by PROMESA; and (iv) even if PRHTA held perfected liens on PRHTA’s revenues and the right to receive such revenues, such liens were terminated by Section 552(a) of the Bankruptcy Code as of the petition date. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

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Puerto Rico Par and Debt Service Schedules

All Puerto Rico exposures are internally rated BIG. The following tables show the Company’s insured exposure to general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.

Puerto Rico

Gross Par and Gross Debt Service Outstanding

	Gross Par Outstanding				Gross Debt Service Outstanding
	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
	(in millions)
Exposure to Puerto Rico	$	4,698	$	4,971	$	7,316	$	8,035

Puerto Rico

Net Par Outstanding

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Commonwealth Constitutionally Guaranteed
Commonwealth of Puerto Rico - General Obligation Bonds (1)	$	1,340	$	1,340
PBA	142		142
Public Corporations - Certain Revenues Potentially Subject to Clawback
PRHTA (Transportation revenue) (1)	844		844
PRHTA (Highways revenue) (1)	475		475
PRCCDA	152		152
PRIFA	16		16
Other Public Corporations
PREPA (1)	848		848
PRASA	373		373
MFA	303		303
COFINA (2)	—		273
U of PR	1		1
Total net exposure to Puerto Rico	$	4,494	$	4,767

____________________

(1) As of the date of this filing, the Oversight Board has certified a filing under Title III of PROMESA for these exposures.

(2) While the Company no longer has any insured exposure to COFINA, it does have $152 million initial par of COFINA Exchange Senior Bonds in its investment portfolio.

The following table shows the scheduled amortization of the insured general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations. The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the principal and interest due in any given period and the amount paid by the obligors.

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Amortization Schedule of Puerto Rico Net Par Outstanding

and Net Debt Service Outstanding

As of June 30, 2019

	Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization
	(in millions)
2019 (July 1 - September 30)	$	224	$	335
2019 (October 1 - December 31)	—		3
Subtotal 2019	224		338
2020	286		503
2021	149		351
2022	139		332
2023	205		392
2024-2028	1,213		1,978
2029-2033	884		1,392
2034-2038	957		1,184
2039-2043	176		259
2044-2047	261		300
Total	$	4,494	$	7,029

Exposure to the U.S. Virgin Islands

As of June 30, 2019, the Company had $495 million insured net par outstanding to the U.S. Virgin Islands and its related authorities (USVI), of which it rated $221 million BIG. The $274 million USVI net par the Company rated investment grade primarily consisted of bonds secured by a lien on matching fund revenues related to excise taxes on products produced in the USVI and exported to the U.S., primarily rum. The $221 million BIG USVI net par consisted of (a) Public Finance Authority bonds secured by a gross receipts tax and the general obligation, full faith and credit pledge of the USVI and (b) bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system.

Hurricane Irma caused significant damage in St. John and St. Thomas, while Hurricane Maria made landfall on St. Croix as a Category 4 hurricane on the Saffir-Simpson scale, causing loss of life and substantial damage to St. Croix’s businesses and infrastructure, including the power grid. The USVI is benefiting from the federal response to the 2017 hurricanes and has made its debt service payments to date.

Non-Financial Guaranty Exposure

The Company also provides non-financial guaranty insurance and reinsurance on transactions with similar risk profiles to its structured finance exposures written in financial guaranty form. All non-financial guaranty exposures shown in the table below are rated investment grade internally.

Non-Financial Guaranty Exposure

	Gross Exposure				Net Exposure
	As of June 30, 2019		As of December 31, 2018		As of June 30, 2019		As of December 31, 2018
	(in millions)
Life insurance transactions (1)	$	908	$	880	$	784	$	763
Aircraft residual value insurance policies	360		340		239		218

____________________

(1) The life insurance transactions net exposure is expected to increase to approximately $949 million prior to September 30, 2036.

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4. Expected Loss to be Paid

This note provides information regarding expected claim payments to be made under all contracts in the insured portfolio, regardless of the accounting model (insurance, derivative or VIE). The expected loss to be paid is equal to the present value of expected future cash outflows for claim and LAE payments, net of inflows for expected salvage and subrogation (e.g., future payments by obligors pursuant to restructuring agreements, settlements or litigation judgments, excess spread on underlying collateral, and other estimated recoveries, including those from restructuring bonds and for breaches of representations and warranties (R&W)), using current risk-free rates.

Loss Estimation Process

The Company’s loss reserve committees estimate expected loss to be paid for all contracts by reviewing analyses that consider various scenarios with corresponding probabilities assigned to them. Depending upon the nature of the risk, the Company’s view of the potential size of any loss and the information available to the Company, that analysis may be based upon individually developed cash flow models, internal credit rating assessments, sector-driven loss severity assumptions and/or judgmental assessments. In the case of its assumed business, the Company may conduct its own analysis as just described or, depending on the Company’s view of the potential size of any loss and the information available to the Company, the Company may use loss estimates provided by ceding insurers. The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the quarter and their view of future performance.

The financial guaranties issued by the Company insure the credit performance of the guaranteed obligations over an extended period of time, in some cases over 30 years, and in most circumstances the Company has no right to cancel such financial guaranties. As a result, the Company's estimate of ultimate loss on a policy is subject to significant uncertainty over the life of the insured transaction. Credit performance can be adversely affected by economic, fiscal and financial market variability over the life of most contracts.

The Company does not use traditional actuarial approaches to determine its estimates of expected losses. The determination of expected loss to be paid is an inherently subjective process involving numerous estimates, assumptions and judgments by management, using both internal and external data sources with regard to frequency, severity of loss, economic projections, governmental actions, negotiations and other factors that affect credit performance. These estimates, assumptions and judgments, and the factors on which they are based, may change materially over a reporting period, and as a result the Company’s loss estimates may change materially over that same period.

In some instances, the terms of the Company's policy gives it the option to pay principal losses that have been recognized in the transaction but which it is not yet required to pay, thereby reducing the amount of guaranteed interest due in the future. The Company has sometimes exercised this option, which uses cash but reduces projected future losses.

The following tables present a roll forward of net expected loss to be paid for all contracts. The Company used risk-free rates for U.S. dollar denominated obligations that ranged from 0.00% to 2.63% with a weighted average of 2.10% as of June 30, 2019 and 0.00% to 3.06% with a weighted average of 2.74% as of December 31, 2018. Expected losses to be paid for transactions denominated in currencies other than the U.S. dollar represented approximately 2.3% and 2.7% of the total as of June 30, 2019 and December 31, 2018, respectively.

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Net Expected Loss to be Paid

Roll Forward

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Net expected loss to be paid, beginning of period	$	963		$	1,298		$	1,183		$	1,303
Net expected loss to be paid on the Syncora Guarantee Inc. (SGI) portfolio as of June 1, 2018 (see Note 11)	—			131			—			131
Economic loss development (benefit) due to:
Accretion of discount	6			9			14			17
Changes in discount rates	(1		)	—			(5		)	(6		)
Changes in timing and assumptions	(42		)	10			(48		)	(16		)
Total economic loss development (benefit)	(37		)	19			(39		)	(5		)
Net (paid) recovered losses	34			(16		)	(184		)	3
Net expected loss to be paid, end of period	$	960		$	1,432		$	960		$	1,432

Net Expected Loss to be Paid

Roll Forward by Sector

Second Quarter 2019

	Net Expected Loss to be Paid (Recovered) as of March 31, 2019		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	666	$	92		$	(9	)	$	749
Non-U.S. public finance	31		(8		)	—			23
Public finance	697		84			(9		)	772
Structured finance:
U.S. RMBS	237		(118		)	43			162
Other structured finance	29		(3		)	—			26
Structured finance	266		(121		)	43			188
Total	$	963	$	(37	)	$	34		$	960

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Net Expected Loss to be Paid

Roll Forward by Sector

Second Quarter 2018

	Net Expected Loss to be Paid (Recovered) as of March 31, 2018		Net Expected Loss to be Paid on SGI Portfolio as of June 1, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2018
	(in millions)
Public finance:
U.S. public finance	$	1,007	—		$	56		$	(22	)	$	1,041
Non-U.S. public finance	43		1		(3		)	—			41
Public finance	1,050		1		53			(22		)	1,082
Structured finance:
U.S. RMBS	219		130		(28		)	5			326
Other structured finance	29		—		(6		)	1			24
Structured finance	248		130		(34		)	6			350
Total	$	1,298	$	131	$	19		$	(16	)	$	1,432

Net Expected Loss to be Paid

Roll Forward by Sector

Six Months 2019

	Net Expected Loss to be Paid (Recovered) as of December 31, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	832	$	154		$	(237	)	$	749
Non-U.S. public finance	32		(9		)	—			23
Public finance	864		145			(237		)	772
Structured finance:
U.S. RMBS	293		(183		)	52			162
Other structured finance	26		(1		)	1			26
Structured finance	319		(184		)	53			188
Total	$	1,183	$	(39	)	$	(184	)	$	960

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Net Expected Loss to be Paid

Roll Forward by Sector

Six Months 2018

	Net Expected Loss to be Paid (Recovered) as of December 31, 2017		Net Expected Loss to be Paid on SGI Portfolio as of June 1, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2018
	(in millions)
Public finance:
U.S. public finance	$	1,157	—		$	17		$	(133	)	$	1,041
Non-U.S. public finance	46		1		(6		)	—			41
Public finance	1,203		1		11			(133		)	1,082
Structured finance:
U.S. RMBS	73		130		(12		)	135			326
Other structured finance	27		—		(4		)	1			24
Structured finance	100		130		(16		)	136			350
Total	$	1,303	$	131	$	(5	)	$	3		$	1,432

____________________

(1) Net of ceded paid losses, whether or not such amounts have been settled with reinsurers. Ceded paid losses are typically settled 45 days after the end of the reporting period. Such amounts are recorded as reinsurance recoverable on paid losses in other assets. The amounts for Six Months 2019 are net of the COFINA Exchange Senior Bonds and cash that were received pursuant to the COFINA Plan of Adjustment. See Note 3, Outstanding Exposure, for additional information.

The tables above include (1) loss adjustment expenses (LAE) paid of $9 million and $6 million for Second Quarter 2019 and 2018, respectively, and $16 million and $11 million for Six Months 2019 and 2018, respectively, and (2) expected LAE to be paid of $21 million as of June 30, 2019 and $31 million as of December 31, 2018.

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

By Accounting Model

	Net Expected Loss to be Paid (Recovered)						Net Economic Loss Development  (Benefit)
	As of						Second Quarter						Six Months
	June 30, 2019			December 31, 2018			2019			2018			2019			2018
	(in millions)
Insurance	$	907		$	1,110		(22		)	23			$	(12	)	$	(10	)
Financial guaranty VIEs (FG VIEs) (See Note 9)	64			75			(14		)	(6		)	(24		)	(4		)
Credit derivatives (See Note 8)	(11		)	(2		)	(1		)	2			(3		)	9
Total	$	960		$	1,183		$	(37	)	$	19		$	(39	)	$	(5	)

Selected U.S. Public Finance Transactions

The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $4.5 billion net par as of June 30, 2019, all of which was BIG. For additional information regarding the Company's Puerto Rico exposure, see "Exposure to Puerto Rico" in Note 3, Outstanding Exposure.

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The Company had approximately $17 million of net par exposure as of June 30, 2019 to bonds issued by Parkway East Public Improvement District (District), which is located in Madison County, Mississippi (the County). The bonds, which are rated BIG, are payable from special assessments on properties within the District, as well as amounts paid under a contribution agreement with the County in which the County covenants that it will provide funds in the event special assessments are not sufficient to make a debt service payment. The special assessments have not been sufficient to pay debt service in full.

On February 25, 2015, a plan of adjustment resolving the bankruptcy filing of the City of Stockton, California under chapter 9 of the Bankruptcy Code became effective. As of June 30, 2019, the Company’s net par subject to the plan consisted of $110 million of pension obligation bonds. As part of the plan of adjustment, the City will repay any claims paid on the pension obligation bonds from certain fixed payments and certain variable payments contingent on the City’s revenue growth. 

The Company projects its total net expected loss across its troubled U.S. public finance exposures as of June 30, 2019, including those mentioned above, to be $749 million, compared with a net expected loss of $832 million as of December 31, 2018. The total net expected loss for troubled U.S. public finance exposures is net of a credit for estimated future recoveries of claims already paid. At June 30, 2019 that credit was $657 million compared with $586 million at December 31, 2018. The Company’s net expected losses incorporate management’s probability weighted estimates of possible scenarios. Each quarter, the Company revises its scenarios, updates assumptions and/or shifts probability weightings of its scenarios based on public information as well as nonpublic information obtained through its surveillance and loss mitigation activities. Management assesses the possible implications of such information on each insured obligation, considering the unique characteristics of each transaction.

The economic loss development for U.S. public finance transactions was $92 million during Second Quarter 2019 and $154 million during Six Months 2019, which was primarily attributable to Puerto Rico exposures. The loss development attributable to the Company’s Puerto Rico exposures reflects adjustments the Company made to the assumptions and weightings it uses in its scenarios based on the public information summarized under "Exposure to Puerto Rico" in Note 3, Outstanding Exposure as well as nonpublic information related to its loss mitigation activities during the quarter.

Selected Non - U.S. Public Finance Transactions

Expected loss to be paid for non-U.S. public finance transactions was $23 million as of June 30, 2019, compared with $32 million as of December 31, 2018, primarily consisting of: (i) transactions with sub-sovereign exposure to various Spanish and Portuguese issuers where a Spanish and Portuguese sovereign default may cause the sub-sovereigns also to default, and (ii) an obligation backed by the availability and toll revenues of a major arterial road into a city in the U.K., which has been underperforming due to higher costs compared with expectations at underwriting.

The economic benefit for non U.S. public finance transactions, including those mentioned above was approximately $8 million during Second Quarter 2019 and $9 million during Six Months 2019, which was mainly attributable to the improved internal outlook of certain Spanish sovereigns and sub-sovereigns.

U.S. RMBS Loss Projections

The Company projects losses on its insured U.S. RMBS on a transaction-by-transaction basis by projecting the performance of the underlying pool of mortgages over time and then applying the structural features (i.e., payment priorities and tranching) of the RMBS and any expected R&W recoveries/payables to the projected performance of the collateral over time. The resulting projected claim payments or reimbursements are then discounted using risk-free rates.

As of June 30, 2019, the Company had a net R&W payable of $34 million to R&W counterparties, compared with a net R&W receivable of $5 million as of December 31, 2018. The Company’s agreements with providers of R&W generally provide for reimbursement to the Company as claim payments are made and, to the extent the Company later receives reimbursements of such claims from excess spread or other sources, for the Company to provide reimbursement to the R&W providers. When the Company projects receiving more reimbursements in the future than it projects to pay in claims on transactions covered by R&W settlement agreements, the Company will have a net R&W payable.

The Company's RMBS loss projection methodology assumes that the housing and mortgage markets will continue improving. Each period the Company makes a judgment as to whether to change the assumptions it uses to make RMBS loss projections based on its observation during the period of the performance of its insured transactions (including early-stage delinquencies, late-stage delinquencies and loss severity) as well as the residential property market and economy in general,

27

and, to the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a trend. The assumptions that the Company uses to project RMBS losses are shown in the sections below.

Net Economic Loss Development (Benefit)

U.S. RMBS

	Second Quarter					Six Months
	2019			2018		2019			2018
	(in millions)
First lien U.S. RMBS	$	(19	)	(7	)	$	(50	)	$	17
Second lien U.S. RMBS	(99		)	(21	)	(133		)	(29		)

U.S. First Lien RMBS Loss Projections: Alt-A First Lien, Option ARM, Subprime and Prime

     The majority of projected losses in first lien RMBS transactions are expected to come from non-performing mortgage loans (those that are or in the past twelve months have been two or more payments behind, have been modified, are in foreclosure, or have been foreclosed upon). Changes in the amount of non-performing loans from the amount projected in the previous period are one of the primary drivers of loss development in this portfolio. In order to determine the number of defaults resulting from these delinquent and foreclosed loans, the Company applies a liquidation rate assumption to loans in each of various non-performing categories. The Company arrived at its liquidation rates based on data purchased from a third party provider and assumptions about how delays in the foreclosure process and loan modifications may ultimately affect the rate at which loans are liquidated. Each quarter the Company reviews the most recent twelve months of this data and (if necessary) adjusts its liquidation rates based on its observations. The following table shows liquidation assumptions for various non-performing categories.

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First Lien Liquidation Rates

	As of June 30, 2019	As of March 31, 2019	As of December 31, 2018
Delinquent/Modified in the Previous 12 Months
Alt-A and Prime	20%	20%	20%
Option ARM	20	20	20
Subprime	20	20	20
30 – 59 Days Delinquent
Alt-A and Prime	30	30	30
Option ARM	35	35	35
Subprime	40	40	40
60 – 89 Days Delinquent
Alt-A and Prime	40	40	40
Option ARM	45	45	45
Subprime	45	45	45
90+ Days Delinquent
Alt-A and Prime	50	50	50
Option ARM	55	55	55
Subprime	55	50	50
Bankruptcy
Alt-A and Prime	45	45	45
Option ARM	50	50	50
Subprime	40	40	40
Foreclosure
Alt-A and Prime	60	60	60
Option ARM	65	65	65
Subprime	60	60	60
Real Estate Owned
All	100	100	100

While the Company uses liquidation rates as described above to project defaults of non-performing loans (including current loans modified or delinquent within the last 12 months), it projects defaults on presently current loans by applying a conditional default rate (CDR) trend. The start of that CDR trend is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans. The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, would be sufficient to produce approximately the amount of defaults that were calculated to emerge from the various delinquency categories. The CDR thus calculated individually on the delinquent collateral pool for each RMBS is then used as the starting point for the CDR curve used to project defaults of the presently performing loans.

In the most heavily weighted scenario (the base case), after the initial 36-month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to an intermediate CDR (calculated as 20% of its CDR plateau); that intermediate CDR is held constant for 36 months and then trails off in steps to a final CDR of 5% of the CDR plateau. In the base case, the Company assumes the final CDR will be reached 4.0 years after the initial 36-month CDR plateau period. Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were modified or delinquent in the last 12 months or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36-month period represent defaults attributable to borrowers that are currently performing or are projected to reperform.

     Another important driver of loss projections is loss severity, which is the amount of loss the transaction incurs on a loan after the application of net proceeds from the disposal of the underlying property. Loss severities experienced in first lien

29

transactions had reached historically high levels, and the Company is assuming in the base case that the still elevated levels generally will continue for another 18 months. The Company determines its initial loss severity based on actual recent experience. Each quarter the Company reviews available data and (if necessary) adjusts its severities based on its observations. The Company then assumes that loss severities begin returning to levels consistent with underwriting assumptions beginning after the initial 18-month period, declining to 40% in the base case over 2.5 years.

The following table shows the range as well as the average, weighted by outstanding net insured par, for key assumptions used in the calculation of expected loss to be paid for individual transactions for vintage 2004 - 2008 first lien U.S. RMBS.

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS

	As of June 30, 2019					As of March 31, 2019					As of December 31, 2018
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Alt-A First Lien
Plateau CDR	0.0	%	-	9.5%	4.0%	1.0	%	-	10.7%	4.3%	1.2	%	-	11.4%	4.6%
Final CDR	0.0	%	-	0.5%	0.2%	0.0	%	-	0.5%	0.2%	0.1	%	-	0.6%	0.2%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	70%					70%					70%
2007+	70%					70%					70%
Option ARM
Plateau CDR	2.4	%	-	7.9%	5.5%	2.1	%	-	9.3%	5.9%	1.8	%	-	8.3%	5.6%
Final CDR	0.1	%	-	0.4%	0.3%	0.1	%	-	0.5%	0.3%	0.1	%	-	0.4%	0.3%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	60%					60%					60%
2007+	70%					70%					70%
Subprime
Plateau CDR	2.5	%	-	22.8%	6.0%	2.4	%	-	24.1%	6.2%	1.8	%	-	23.2%	6.2%
Final CDR	0.1	%	-	1.1%	0.3%	0.1	%	-	1.2%	0.3%	0.1	%	-	1.2%	0.3%
Initial loss severity:
2005 and prior	80%					80%					80%
2006	75%					75%					75%
2007+	95%					95%					95%

The rate at which the principal amount of loans is voluntarily prepaid may impact both the amount of losses projected (since that amount is a function of the CDR, the loss severity and the loan balance over time) as well as the amount of excess spread (the amount by which the interest paid by the borrowers on the underlying loan exceeds the amount of interest owed on the insured obligations). The assumption for the voluntary conditional prepayment rate (CPR) follows a similar pattern to that of the CDR. The current level of voluntary prepayments is assumed to continue for the plateau period before gradually increasing over 12 months to the final CPR, which is assumed to be 15% in the base case. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. These CPR assumptions are the same as those the Company used for March 31, 2019 and December 31, 2018.

In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien transactions by varying its assumptions of how fast a recovery is expected to occur. One of the variables used to model sensitivities was how quickly the CDR returned to its modeled equilibrium, which was defined as 5% of the initial CDR. The Company also

30

stressed CPR and the speed of recovery of loss severity rates. The Company probability weighted a total of five scenarios as of June 30, 2019 and December 31, 2018.

Total expected loss to be paid on all first lien U.S. RMBS was $193 million and $243 million as of June 30, 2019 and December 31, 2018, respectively. The $19 million economic benefit in Second Quarter 2019 and $50 million economic benefit in Six Months 2019 for first lien U.S. RMBS was primarily attributable to higher excess spread on certain transactions supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) and with insured floating rate debt linked to London Interbank Offered Rate (LIBOR), which decreased in Second Quarter 2019 and Six Months 2019. The Company used a similar approach to establish its pessimistic and optimistic scenarios as of June 30, 2019 as it used as of December 31, 2018, increasing and decreasing the periods of stress from those used in the base case. LIBOR may be discontinued, and it is not yet clear how this will impact the calculation of the various interest rates in this portfolio referencing LIBOR.

In the Company's most stressful scenario where loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 15 months, expected loss to be paid would increase from current projections by approximately $54 million for all first lien U.S. RMBS transactions.

In the Company's least stressful scenario where the CDR plateau was six months shorter (30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over nine months), expected loss to be paid would decrease from current projections by approximately $41 million for all first lien U.S. RMBS transactions.

U.S. Second Lien RMBS Loss Projections

Second lien RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages. The Company believes the primary variable affecting its expected losses in second lien RMBS transactions is the amount and timing of future losses in the collateral pool supporting the transactions. Expected losses are also a function of the structure of the transaction, the CPR of the collateral, the interest rate environment and assumptions about loss severity.

In second lien transactions, the projection of near-term defaults from currently delinquent loans is relatively straightforward because loans in second lien transactions are generally “charged off” (treated as defaulted) by the securitization’s servicer once the loan is 180 days past due. The Company estimates the amount of loans that will default over the next six months by calculating current representative liquidation rates. Similar to first liens, the Company then calculates a CDR for six months, which is the period over which the currently delinquent collateral is expected to be liquidated. That CDR is then used as the basis for the plateau CDR period that follows the embedded plateau losses.

For the base case scenario, the CDR (the plateau CDR) was held constant for six months. Once the plateau period has ended, the CDR is assumed to gradually trend down in uniform increments to its final long-term steady state CDR. (The long-term steady state CDR is calculated as the constant CDR that would have yielded the amount of losses originally expected at underwriting.) In the base case scenario, the time over which the CDR trends down to its final CDR is 28 months. Therefore, the total stress period for second lien transactions is 34 months, representing six months of delinquent loan liquidations, followed by 28 months of decrease to the steady state CDR, the same as of December 31, 2018.

HELOC loans generally permit the borrower to pay only interest for an initial period (often ten years) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment. This causes the borrower's total monthly payment to increase, sometimes substantially, at the end of the initial interest-only period. In prior periods, as the HELOC loans underlying the Company's insured HELOC transactions reached their principal amortization period, the Company incorporated an assumption that a percentage of loans reaching their principal amortization periods would default around the time of the payment increase.

The HELOC loans underlying the Company's insured HELOC transactions are now past their original interest-only reset date, although a significant number of HELOC loans were modified to extend the original interest-only period for another five years. As a result, the Company does not apply a CDR increase when such loans reach their principal amortization period. In addition, based on the average performance history, the Company applies a CDR floor of 2.5% for the future steady state CDR on all its HELOC transactions.

When a second lien loan defaults, there is generally a low recovery. The Company assumed, as of June 30, 2019 and December 31, 2018, that it will generally recover 2% of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time. A second lien on the borrower’s home may be retained in

31

the Company's second lien transactions after the loan is charged off and the loss applied to the transaction, particularly in cases where the holder of the first lien has not foreclosed. If the second lien is retained and the value of the home increases, the servicer may be able to use the second lien to increase recoveries, either by arranging for the borrower to resume payments or by realizing value upon the sale of the underlying real estate. The Company evaluates its assumptions periodically based on actual recoveries of charged-off loans observed from period to period. In instances where the Company is able to obtain information on the lien status of charged-off loans, it assumes there will a certain level of future recoveries of the balance of the charged-off loans where the second lien is still intact. The Company projected future recoveries of 20% as of June 30, 2019 and 10% as of December 31, 2018, with such recoveries to be received evenly over the next five years. The increase in recovery assumptions is attributable to the higher actual recovery rates observed in certain transactions during the period. Increasing the recovery rate to 30% would result in an economic benefit of $64 million, while decreasing the recovery rate back to 10% would result in an economic loss of $64 million. 

The rate at which the principal amount of loans is prepaid may impact both the amount of losses projected as well as the amount of excess spread. In the base case, an average CPR (based on experience of the past year) is assumed to continue until the end of the plateau before gradually increasing to the final CPR over the same period the CDR decreases. The final CPR is assumed to be 15% for second lien transactions (in the base case), which is lower than the historical average but reflects the Company’s continued uncertainty about the projected performance of the borrowers in these transactions. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. This pattern is consistent with how the Company modeled the CPR as of March 31, 2019 and December 31, 2018. To the extent that prepayments differ from projected levels it could materially change the Company’s projected excess spread and losses.

In estimating expected losses, the Company modeled and probability weighted five scenarios, each with a different CDR curve applicable to the period preceding the return to the long-term steady state CDR. The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers behind the amount of losses the collateral will likely suffer.

The Company continues to evaluate the assumptions affecting its modeling results. The Company believes the most important driver of its projected second lien RMBS losses is the performance of its HELOC transactions. Total expected recovery on all second lien U.S. RMBS was $31 million as of June 30, 2019 and the expected loss to be paid was $50 million as of December 31, 2018. The $99 million economic benefit in Second Quarter 2019 and $133 million economic benefit in Six Months 2019 for second lien U.S. RMBS was primarily attributable to higher projected recoveries for previously charged-off loans, improved performance, and loss mitigation efforts.

32

The following table shows the range as well as the average, weighted by net par outstanding, for key assumptions used in the calculation of expected loss to be paid for individual transactions for vintage 2004 - 2008 HELOCs.

Key Assumptions in Base Case Expected Loss Estimates

HELOCs

	As of June 30, 2019					As of March 31, 2019					As of December 31, 2018
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Plateau CDR	4.6	%	-	23.5%	9.2%	5.5	%	-	25.6%	9.5%	4.6	%	-	26.8%	10.1%
Final CDR trended down to	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%
Liquidation rates:
Delinquent/Modified in the Previous 12 Months	20%					20%					20%
30 – 59 Days Delinquent	30					30					35
60 – 89 Days Delinquent	45					45					50
90+ Days Delinquent	65					65					70
Bankruptcy	55					55					55
Foreclosure	60					60					65
Real Estate Owned	100					100					100
Loss severity (1)	98%					98%					98%

___________________

(1)    Loss severities on future defaults.

The Company’s base case assumed a six month CDR plateau and a 28 month ramp-down (for a total stress period of 34 months). The Company also modeled a scenario with a longer period of elevated defaults and another with a shorter period of elevated defaults. In the Company's most stressful scenario, increasing the CDR plateau to eight months and increasing the ramp-down by three months to 31 months (for a total stress period of 39 months) would increase the expected loss by approximately $7 million for HELOC transactions. On the other hand, in the Company's least stressful scenario, reducing the CDR plateau to four months and decreasing the length of the CDR ramp-down to 25 months (for a total stress period of 29 months), and lowering the ultimate prepayment rate to 10% would decrease the expected loss by approximately $7 million for HELOC transactions.

Other Structured Finance

The Company projected that its total net expected loss across its troubled non-U.S. RMBS structured finance exposures as of June 30, 2019 was $26 million and is primarily attributable to $92 million in BIG net par of student loan securitizations issued by private issuers that are classified as structured finance. In general, the projected losses of these transactions are due to: (i) the poor credit performance of private student loan collateral and high loss severities, or (ii) high interest rates on auction rate securities with respect to which the auctions have failed.

The Company also had exposure to troubled life insurance transactions. As of June 30, 2019, the Company's BIG net par in these transactions was $40 million, which was lower than the $85 million as of December 31, 2018 because of the settlement of a transaction.

The economic benefit during Second Quarter 2019 and Six Months 2019 was $3 million and $1 million.

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Recovery Litigation

In the ordinary course of their respective businesses, certain of AGL's subsidiaries assert claims in legal proceedings against third parties to recover losses paid in prior periods or prevent losses in the future.

Public Finance Transactions

The Company has asserted claims in a number of legal proceedings in connection with its exposure to Puerto Rico. See Note 3, Outstanding Exposure, for a discussion of the Company's exposure to Puerto Rico and related recovery litigation being pursued by the Company.

RMBS Transactions

On November 26, 2012, CIFG Assurance North America Inc. (CIFGNA) filed a complaint in the Supreme Court of the State of New York against JP Morgan Securities LLC (JP Morgan) for material misrepresentation in the inducement of insurance and common law fraud, alleging that JP Morgan fraudulently induced CIFGNA to insure $400 million of securities issued by ACA ABS CDO 2006-2 Ltd. and $325 million of securities issued by Libertas Preferred Funding II, Ltd. On June 26, 2015, the court dismissed with prejudice CIFGNA’s material misrepresentation in the inducement of insurance claim and dismissed without prejudice CIFGNA’s common law fraud claim. On September 24, 2015, the court denied CIFGNA’s motion to amend but allowed CIFGNA to re-plead a cause of action for common law fraud. On November 20, 2015, CIFGNA filed a motion for leave to amend its complaint to re-plead common law fraud. On April 29, 2016, CIFGNA filed an appeal to reverse the court’s decision dismissing CIFGNA’s material misrepresentation in the inducement of insurance claim. On November 29, 2016, the Appellate Division of the Supreme Court of the State of New York ruled that the court’s decision dismissing with prejudice CIFGNA’s material misrepresentation in the inducement of insurance claim should be modified to grant CIFGNA leave to re-plead such claim. On February 27, 2017, AGC (as successor to CIFGNA) filed an amended complaint which includes a claim for material misrepresentation in the inducement of insurance. On July 31, 2019, the parties entered into a confidential settlement.

5. Contracts Accounted for as Insurance

Premiums

The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid, includes contracts that are accounted for as insurance contracts, derivatives, or consolidated FG VIEs. Amounts presented in this note relate only to contracts accounted for as insurance. See Note 8, Contracts Accounted for as Credit Derivatives for amounts that relate to CDS and Note 9, Variable Interest Entities for amounts that are accounted for as consolidated FG VIEs.

Net Earned Premiums

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions)
Financial guaranty:
Scheduled net earned premiums	$	85	$	92	$	172	$	180
Accelerations from refundings and terminations	20		39		46		91
Accretion of discount on net premiums receivable	5		4		9		8
Financial guaranty insurance net earned premiums	110		135		227		279
Non-financial guaranty net earned premiums	2		1		3		2
Net earned premiums (1)	$	112	$	136	$	230	$	281

 ___________________

(1) Excludes $11 million and $3 million for Second Quarter 2019 and 2018, respectively, and $14 million and $6 million for Six Months 2019 and 2018, respectively, related to consolidated FG VIEs.

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Gross Premium Receivable,

Net of Commissions on Assumed Business

Roll Forward 

	Six Months
	2019			2018
	(in millions)
Beginning of year	$	904		$	915
Less: Non-financial guaranty insurance premium receivable	1			1
Financial guaranty insurance premiums receivable	903			914
Gross written premiums on new business, net of commissions (1)	98			459
Gross premiums received, net of commissions	(127		)	(415		)
Adjustments:
Changes in the expected term	(10		)	(3		)
Accretion of discount, net of commissions on assumed business	4			—
Foreign exchange translation and remeasurement (2)	(3		)	(14		)
Cancellation of assumed reinsurance	—			(10		)
Financial guaranty insurance premium receivable (3)	865			931
Non-financial guaranty insurance premium receivable	1			1
June 30,	$	866		$	932

____________________

(1) For transactions where one of the Company's financial guaranty contracts is replaced by another of the Company's insurance subsidiary's contracts, gross written premium in this table represents only the incremental amount in excess of the original gross written premiums. Six Months 2018 included $330 million of gross written premiums assumed from SGI on June 1, 2018, when the Company closed a reinsurance transaction with SGI (SGI Transaction). See Note 11, Reinsurance.

(2) Includes foreign exchange loss on remeasurement recorded in the condensed consolidated statements of operations of $3 million in Six Months 2019 and $13 million in Six Months 2018. The remaining foreign exchange translation in Six Months 2018 was recorded in other comprehensive income (OCI) prior to the combination of the European subsidiaries.

(3) Excludes $8 million and $9 million as of June 30, 2019 and June 30, 2018, respectively, related to consolidated FG VIEs.

Approximately 73% and 72% of installment premiums at June 30, 2019 and December 31, 2018, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro.

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

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Expected Collections of

Financial Guaranty Insurance Gross Premiums Receivable,

Net of Commissions on Assumed Business

(Undiscounted)

	As of June 30, 2019
	(in millions)
2019 (July 1 - September 30)	31
2019 (October 1 - December 31)	26
2020	98
2021	78
2022	78
2023	65
2024-2028	278
2029-2033	184
2034-2038	97
After 2038	100
Total (1)	$	1,035

 ____________________

(1) Excludes expected cash collections on consolidated FG VIEs of $10 million.

The timing and cumulative amount of actual net earned premiums may differ from those of expected net earned premiums in the table below due to factors such as accelerations, commutations, changes in expected lives and new business.

Scheduled Financial Guaranty Insurance Net Earned Premiums

	As of June 30, 2019
	(in millions)
2019 (July 1 - September 30)	82
2019 (October 1 - December 31)	80
Subtotal 2019	162
2020	304
2021	277
2022	251
2023	230
2024-2028	905
2029-2033	615
2034-2038	348
After 2038	300
Net deferred premium revenue (1)	3,392
Future accretion	170
Total future net earned premiums	$	3,562

 ____________________

(1) Excludes net earned premiums on consolidated FG VIEs of $51 million.

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Selected Information for Financial Guaranty Insurance

Policies with Premiums Paid in Installments

	As of June 30, 2019			As of December 31, 2018
	(dollars in millions)
Premiums receivable, net of commission payable	$	865		$	903
Gross deferred premium revenue	1,251			1,313
Weighted-average risk-free rate used to discount premiums	2.3		%	2.3		%
Weighted-average period of premiums receivable (in years)	9.1			9.1

Financial Guaranty Insurance Losses

The following table provides information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance. To discount loss reserves, the Company used risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 0.00% to 2.63% with a weighted average of 2.11% as of June 30, 2019 and 0.00% to 3.06% with a weighted average of 2.74% as of December 31, 2018.

Net Reserve (Salvage) 

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Public finance:
U.S. public finance	$	539		$	612
Non-U.S. public finance	5			14
Public finance	544			626
Structured finance:
U.S. RMBS (1)	(79		)	21
Other structured finance	39			30
Structured finance	(40		)	51
Subtotal	504			677
Other payable (recoverable)	(1		)	(3		)
Total	$	503		$	674

____________________

(1) Excludes net reserves of $39 million and $47 million as of June 30, 2019 and December 31, 2018, respectively, related to consolidated FG VIEs.

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Components of Net Reserves (Salvage)

 

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Loss and LAE reserve	$	1,102		$	1,177
Reinsurance recoverable on unpaid losses (1)	(41		)	(34		)
Loss and LAE reserve, net	1,061			1,143
Salvage and subrogation recoverable	(580		)	(490		)
Salvage and subrogation reinsurance payable (2)	23			24
Other payable (recoverable) (1)	(1		)	(3		)
Salvage and subrogation recoverable, net, and other recoverable	(558		)	(469		)
Net reserves (salvage)	$	503		$	674

____________________

(1) Recorded as a component of other assets in the condensed consolidated balance sheets.

(2) Recorded as a component of other liabilities in the condensed consolidated balance sheets.

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: (i) the contra-paid which represent the claim payments made and recoveries received that have not yet been recognized in the statement of operations, (ii) 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 (and therefore recognized in income but not yet received), and (iii) 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 June 30, 2019
	(in millions)
Net expected loss to be paid - financial guaranty insurance	$	906
Contra-paid, net	56
Salvage and subrogation recoverable, net, and other recoverable	558
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(1,060		)
Net expected loss to be expensed (present value) (1)	$	460

____________________

(1)    Excludes $33 million as of June 30, 2019, related to consolidated FG VIEs.

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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 June 30, 2019
	(in millions)
2019 (July 1 - September 30)	8
2019 (October 1 - December 31)	9
Subtotal 2019	17
2020	38
2021	35
2022	34
2023	35
2024-2028	148
2029-2033	99
2034-2038	45
After 2038	9
Net expected loss to be expensed	460
Future accretion	30
Total expected future loss and LAE	$	490

 

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

Loss and LAE

Reported on the

Condensed Consolidated Statements of Operations

  

	Loss (Benefit)
	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Public finance:
U.S. public finance	94			62			$	164		$	34
Non-U.S. public finance	(8		)	(1		)	(8		)	(2		)
Public finance	86			61			156			32
Structured finance:
U.S. RMBS (1)	(88		)	(12		)	(115		)	4
Other structured finance	1			(5		)	4			(10		)
Structured finance	(87		)	(17		)	(111		)	(6		)
Loss and LAE	$	(1	)	$	44		$	45		$	26

____________________

(1) Excludes a benefit of $14 million and $3 million for Second Quarter 2019 and 2018, respectively, and a benefit of $15 million and a loss of $3 million for Six Months 2019 and 2018 respectively, related to consolidated FG VIEs.

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The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of June 30, 2019

	BIG  Categories
	BIG 1						BIG 2					BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded		Gross			Ceded
	(dollars in millions)
Number of risks (1)	116			7			27			—		135			6			278			—			278
Remaining weighted-average contract period (in years)	7.8			4.7			17.6			—		9.6			8.4			9.6			—			9.6
Outstanding exposure:
Principal	$	2,771		$	(66	)	$	524		$	—	$	5,650		$	(164	)	$	8,715		$	—		$	8,715
Interest	1,215			(16		)	470			—		2,670			(68		)	4,271			—			4,271
Total (2)	$	3,986		$	(82	)	$	994		$	—	$	8,320		$	(232	)	$	12,986		$	—		$	12,986
Expected cash outflows (inflows)	$	108		$	(4	)	$	131		$	—	$	3,871		$	(122	)	$	3,984		$	(273	)	$	3,711
Potential recoveries (3)	(552		)	21			(51		)	—		(2,479		)	95			(2,966		)	191			(2,775		)
Subtotal	(444		)	17			80			—		1,392			(27		)	1,018			(82		)	936
Discount	79			(4		)	(18		)	—		(97		)	(8		)	(48		)	18			(30		)
Present value of expected cash flows	$	(365	)	$	13		$	62		$	—	$	1,295		$	(35	)	$	970		$	(64	)	$	906
Deferred premium revenue	$	172		$	(3	)	$	24		$	—	$	517		$	(2	)	$	708		$	(50	)	$	658
Reserves (salvage)	$	(400	)	$	15		$	43		$	—	$	916		$	(33	)	$	541		$	(39	)	$	502

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Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2018

	BIG Categories
	BIG 1						BIG 2						BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded			Gross			Ceded
	(dollars in millions)
Number of risks (1)	128			(8		)	39			(1		)	145			(7		)	312			—			312
Remaining weighted-average contract period (in years)	7.9			6.5			13.2			2.1			10.1			9.1			9.8			—			9.8
Outstanding exposure:
Principal	$	3,052		$	(71	)	$	938		$	(6	)	$	6,249		$	(159	)	$	10,003		$	—		$	10,003
Interest	1,319			(29		)	592			(1		)	3,140			(72		)	4,949			—			4,949
Total (2)	$	4,371		$	(100	)	$	1,530		$	(7	)	$	9,389		$	(231	)	$	14,952		$	—		$	14,952
Expected cash outflows (inflows)	$	98		$	(5	)	$	264		$	(1	)	$	4,029		$	(80	)	$	4,305		$	(290	)	$	4,015
Potential recoveries (3)	(465		)	23			(81		)	—			(2,542		)	55			(3,010		)	192			(2,818		)
Subtotal	(367		)	18			183			(1		)	1,487			(25		)	1,295			(98		)	1,197
Discount	83			(5		)	(53		)	—			(134		)	(2		)	(111		)	23			(88		)
Present value of expected cash flows	$	(284	)	$	13		$	130		$	(1	)	$	1,353		$	(27	)	$	1,184		$	(75	)	$	1,109
Deferred premium revenue	$	125		$	(4	)	$	151		$	—		$	518		$	(2	)	$	788		$	(64	)	$	724
Reserves (salvage)	$	(311	)	$	15		$	48		$	(1	)	$	993		$	(24	)	$	720		$	(47	)	$	673

____________________

(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) Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlement or litigation judgments, excess spread on any underlying collateral and other estimated recoveries.

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 counterparties exercise contractual rights triggered by the downgrade against insured obligors, and the insured obligors are unable to pay. See Part II, Item 8, Financial Statements and Supplementary Data, Note 6, Contracts Accounted for as Insurance, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

6. Fair Value Measurement

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 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.

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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 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 1—Quoted prices for identical instruments in active markets. The Company generally defines an active market as a market in which trading occurs at significant volumes. Active markets generally are more liquid and have a lower bid-ask spread than an inactive market.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and observable inputs other than quoted prices, such as interest rates or yield curves and other inputs derived from or corroborated by observable market inputs.

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.

There was a transfer of a fixed-maturity security from Level 2 into Level 3 during Second Quarter 2019 and Six Months 2019. There were no other transfers into or from Level 3 during the periods presented.

Carried at Fair Value

Fixed-Maturity Securities and Short-Term Investments

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 June 30, 2019, the Company used models to price 132 securities, including securities that were purchased or obtained for loss mitigation or other risk management purposes, with a Level 3 fair value of $1,152 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

42

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.

Other Assets

Committed Capital Securities (CCS)

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 gains on CCS recorded in other income were $19 million and $10 million in Second Quarter 2019 and Six Months 2019, respectively, and fair value losses were $1 million and $2 million in Second Quarter 2018 and Six 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.

Supplemental Executive Retirement Plan (SERP)

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 (NAV) of the funds if a published daily value is not available (Level 2). The NAV'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.

Contracts Accounted for as Credit Derivatives

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.

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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 June 30, 2019 were such that market prices of the Company’s CDS contracts were not available.

Assumptions and Inputs

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.

• Actual collateral specific credit spreads (if up-to-date and reliable market-based spreads are available).

• Transactions priced or closed during a specific quarter within a specific asset class and specific rating.

• Credit spreads interpolated based upon market indices adjusted to reflect the non-standard terms of the Company's CDS contracts.

• Credit spreads extrapolated based upon transactions of similar asset classes, similar ratings, and similar time to maturity.

The rates used to discount future expected premium cash flows ranged from 1.75% to 2.37% at June 30, 2019 and 2.47% to 2.89% at December 31, 2018.

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 or AGM. For credit spreads on the Company’s name the Company obtains the quoted price of CDS contracts traded on AGC and AGM from market data sources published by third parties. The cost to acquire CDS protection referencing AGC or AGM 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 or AGM increases, the amount of premium the Company retains on a transaction generally decreases. Due to the relatively low volume and characteristics of CDS contracts

44

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 June 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 and AGM hedged by its counterparties, with independent third parties periodically. The implied credit risk of AGC and AGM, indicated by the trading level of AGC’s and AGM’s own credit spread, is a significant factor in the amount of exposure to AGC and AGM that a bank or transaction hedges. When AGC's or AGM's credit spreads widen, the hedging cost of a bank or originator increases. Higher hedging costs reduce the amount of contractual cash flows AGC and AGM can capture as premium for selling its protection, while lower hedging costs increase the amount of contractual cash flows AGC and AGM 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.

Strengths and Weaknesses of Model

The Company’s credit derivative valuation model, like any financial model, has certain strengths and weaknesses.

The primary strengths of the Company’s CDS modeling techniques are:

• The model takes into account the transaction structure and the key drivers of market value.

• The model maximizes the use of market-driven inputs whenever they are available.

• The model is a consistent approach to valuing positions.

The primary weaknesses of the Company’s CDS modeling techniques are:

• There is no exit market or any actual exit transactions; therefore, the Company’s exit market is a hypothetical one based on the Company’s entry market.

• There is a very limited market in which to validate the reasonableness of the fair values developed by the Company’s model.

• The markets for the inputs to the model are highly illiquid, which impacts their reliability.

• Due to the non-standard terms under which the Company enters into derivative contracts, the fair value of its credit derivatives may not reflect the same prices observed in an actively traded market of credit derivatives that do not contain terms and conditions similar to those observed in the financial guaranty market.

45

Fair Value Option on FG VIEs’ Assets and Liabilities

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.

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Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of June 30, 2019

			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	$	4,683	$	—	$	4,578	$	105
U.S. government and agencies	165		—		165		—
Corporate securities	2,267		—		2,219		48
Mortgage-backed securities:
RMBS	938		—		613		325
Commercial mortgage-backed securities (CMBS)	495		—		495		—
Asset-backed securities	779		—		105		674
Non-U.S. government securities	247		—		247		—
Total fixed-maturity securities	9,574		—		8,422		1,152
Short-term investments	1,159		893		266		—
Other invested assets (1)	6		—		—		6
FG VIEs’ assets, at fair value	526		—		—		526
Other assets	166		32		42		92
Total assets carried at fair value	$	11,431	$	925	$	8,730	$	1,776
Liabilities:
Credit derivative liabilities	$	224	$	—	$	—	$	224
FG VIEs’ liabilities with recourse, at fair value	446		—		—		446
FG VIEs’ liabilities without recourse, at fair value	105		—		—		105
Total liabilities carried at fair value	$	775	$	—	$	—	$	775

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Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of December 31, 2018

			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

____________________

(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.

48

Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during Second Quarter 2019 and 2018 and Six Months 2019 and 2018.

Fair Value Level 3 Rollforward

Recurring Basis

Second Quarter 2019

	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 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		)	(5	)	(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	)	(5	)	$	(20	)	(2	)	$	(12	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2019	$	—			$	(1	)			$	15				$	8									$	—								$	5

49

Fair Value Level 3 Rollforward

Recurring Basis

Second Quarter 2018

	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 March 31, 2018	$	83			$	62			$	314				$	809				$	651				$	62				$	(236	)			$	(598	)			$	(110	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1	)	1		(1	)	6			(1	)	14			(1	)	3			(2	)	(1		)	(3	)	48			(5	)	(4		)	(2	)	1			(2	)
Other comprehensive income (loss)	8				—				(3		)			6					—					—					—					4					—
Purchases	—				—				9					91					—					—					—					—					—
Issuances	—				—				—					—					—					—					(68		)	(7	)	—					—
Settlements	—				—				(15		)			(23		)			(27		)			—					(1		)			27					1
Fair value as of June 30, 2018	$	92			$	63			$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018	$	8			$	—			$	(2	)			$	6				$	6		(2	)	$	(1	)	(3	)	$	46		(5	)	$	2		(2	)	$	1		(2	)

Fair Value Level 3 Rollforward

Recurring Basis

Six Months 2019

	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)	2			(1	)	(10		)	(1	)	11			(1	)	44			(1	)	64			(2	)	10		(3	)	(30		)	(5	)	(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	)	(5	)	$	(31	)	(2	)	$	(15	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2019	$	5				$	2				$	20				$	11									$	—								$	5

50

Fair Value Level 3 Rollforward

Recurring Basis

Six Months 2018

	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)	2			(1	)	(4		)	(1	)	13			(1	)	29			(1	)	4			(2	)	(2		)	(3	)	82			(5	)	(4		)	(2	)	2			(2	)
Other comprehensive income (loss)	11					—					(10		)			9					—					—					—					2					—
Purchases	4					—					9					100					—					—					—					—					—
Issuances	—					—					—					—					—					—					(68		)	(7	)	—					—
Settlements	(1		)			—					(35		)			(28		)			(60		)			(1		)			(2		)			57					4
FG VIE deconsolidations	—					—					—					—					(17		)			—					—					1					16
Fair value as of June 30, 2018	$	92				$	63				$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018	$	11				$	—				$	(8	)			$	10				$	10		(2	)	$	(2	)	(3	)	$	73		(5	)	$	(1	)	(2	)	$	1		(2	)

 ____________________

(1) Included in net realized investment gains (losses) and net investment income.

(2) Included in fair value gains (losses) on FG VIEs.

(3) Recorded in net investment income and other income.

(4) Represents the net position of credit derivatives. Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheet based on net exposure by counterparty.

(5) Reported in net change in fair value of credit derivatives.

(6) Includes CCS and other invested assets.

(7) Relates to SGI Transaction. See Note 11, Reinsurance.

51

Level 3 Fair Value Disclosures

Quantitative Information About Level 3 Fair Value Inputs

At June 30, 2019

Financial Instrument Description (1)	Fair Value at June 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	$	105		Yield	4.5	%	-	33.0%	7.1%
Corporate securities	48			Yield	30.9%
RMBS	325			CPR	1.5	%	-	18.2%	5.9%
				CDR	1.5	%	-	6.9%	4.9%
				Loss severity	40.0	%	-	125.0%	85.5%
				Yield	3.8	%	-	6.2%	4.5%
Asset-backed securities:
Life insurance transactions	337			Yield	5.6%
Collateralized loan obligations (CLOs) /Trust preferred securities (TruPS)	280			Yield	2.8	%	-	5.1%	3.8%
Others	57			Yield	10.4%
FG VIEs’ assets, at fair value	526			CPR	0.9	%	-	18.3%	8.9%
				CDR	1.3	%	-	24.2%	4.6%
				Loss severity	60.0	%	-	100.0%	78.4%
				Yield	3.6	%	-	8.5%	5.3%
Other assets	84			Implied Yield	6.7	%	-	7.3%	7.0%
				Term (years)	10 years
Credit derivative liabilities, net	(216		)	Year 1 loss estimates	0.0	%	-	80.0%	1.8%
				Hedge cost (in basis points (bps))	7.0		-	42.0	15.0
				Bank profit (in bps)	38.0		-	215.0	88.0
				Internal floor (in bps)	30.0
				Internal credit rating	AAA		-	CCC	A+
FG VIEs’ liabilities, at fair value	(551		)	CPR	0.9	%	-	18.3%	8.9%
				CDR	1.3	%	-	24.2%	4.6%
				Loss severity	60.0	%	-	100.0%	78.4%
				Yield	3.5	%	-	8.5%	4.3%

___________________

(1) Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2) Excludes several investments recorded in other invested assets with fair value of $6 million.

52

Quantitative Information About Level 3 Fair Value Inputs

At December 31, 2018

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%
				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%

____________________

(1) Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2) Excludes several investments recorded in other invested assets with fair value of $7 million.

53

Not Carried at Fair Value

Financial Guaranty Insurance Contracts

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

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.

The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.

Fair Value of Financial Instruments Not Carried at Fair Value

	As of June 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)	(2,995		)	(5,870		)	(3,240		)	(5,932		)
Long-term debt	(1,233		)	(1,545		)	(1,233		)	(1,496		)
Other liabilities (1)	(22		)	(22		)	(12		)	(12		)

____________________

(1) The Company's other assets and other liabilities consist predominantly of accrued interest, receivables for securities sold and payables for securities purchased, for which the carrying value approximates fair value.

(2) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance. 

54

7.    Investments and Cash

Net Investment Income and Realized Gains (Losses)

Net investment income is a function of the yield that the Company earns on invested assets and the size of the portfolio. The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the invested assets. Accrued investment income, which is recorded in other assets, was $86 million and $91 million as of June 30, 2019 and December 31, 2018, respectively.

Net Investment Income

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Income from fixed-maturity securities managed by third parties	$	69		$	74		$	141		$	149
Income from internally managed securities	43			27			71			54
Gross investment income	112			101			212			203
Investment expenses	(2		)	(3		)	(4		)	(5		)
Net investment income	$	110		$	98		$	208		$	198

The table below presents the components of net realized investment gains (losses). Realized gains and losses on sales of investments are determined using the specific identification method.

Net Realized Investment Gains (Losses)

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Gross realized gains on available-for-sale securities	$	13		$	2		$	19		$	11
Gross realized losses on available-for-sale securities	(1		)	(1		)	(3		)	(6		)
Net realized gains (losses) on other invested assets	—			—			—			(1		)
Other-than-temporary impairment (OTTI):
Total OTTI	(4		)	(4		)	(17		)	(15		)
Less: portion of OTTI recognized in OCI	—			(1		)	3			(4		)
Net OTTI recognized in net income (loss) (1)	(4		)	(3		)	(20		)	(11		)
Net realized investment gains (losses)	$	8		$	(2	)	$	(4	)	$	(7	)

____________________

(1) Net OTTI recognized in net income was mainly attributable to change in foreign exchange rates in Second Quarter 2019. OTTI for all other periods presented was primarily attributable to securities purchased for loss mitigation and other risk management purposes.

The proceeds from sales of fixed-maturity securities available-for-sale were $443 million in Second Quarter 2019, $183 million in Second Quarter 2018, $914 million in Six Months 2019 and $592 million in Six Months 2018.

55

The following table presents the roll-forward of the credit losses on fixed-maturity securities for which the Company has recognized an OTTI and for which unrealized loss was recognized in OCI.

Roll Forward of Credit Losses

in the Investment Portfolio

	Second Quarter					Six Months
	2019			2018		2019			2018
	(in millions)
Balance, beginning of period	$	197		$	169	$	185		$	162
Additions for credit losses on securities for which an OTTI was previously recognized	—			1		12			8
Reductions for securities sold and other settlements	(6		)	—		(6		)	—
Balance, end of period	$	191		$	170	$	191		$	170

See Part II, Item 8, Financial Statements and Supplementary Data, Note 10, Investments and Cash, of the Company's 2018 Annual Report on Form 10-K for a discussion of the accounting policy for evaluating investments for OTTI.

Investment Portfolio

As of June 30, 2019, the majority of the investment portfolio is managed by seven outside managers (including Wasmer, Schroeder & Company LLC, in which the Company has a minority interest). The Company has established detailed guidelines regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector. The Company's investment guidelines generally permit its outside managers to purchase only a small amount of securities rated lower than BBB- by S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P) or Baa3 by Moody’s, and then only those securities rated no lower than B by S&P or B2 by Moody’s and subject to certain other specific requirements. Additionally, the managed portfolio must maintain a minimum average rating of A+ by S&P or A1 by Moody's.

The investment portfolio tables shown below include assets managed both externally and internally. The internally managed portfolio primarily consists of the Company's investments in securities for (i) loss mitigation purposes, (ii) other risk management purposes and (iii) other alternative investments that the Company believes present an attractive investment opportunity.

One of the Company's strategies for mitigating losses has been to purchase loss mitigation securities at discounted prices. The Company also holds other invested assets that were obtained or purchased as part of negotiated settlements with insured counterparties or under the terms of the financial guaranties (other risk management assets).

Alternative investments include investing in both equity and debt securities as well as investments in investment managers. In February 2017 the Company agreed to purchase up to $100 million of limited partnership interests in a fund that invests in the equity of private equity managers of which $85 million of the commitment was not funded as of June 30, 2019.

56

Investment Portfolio

Carrying Value

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Fixed-maturity securities (1):
Externally managed	$	8,499	$	8,909
Internally managed	1,075		1,180
Short-term investments	1,159		729
Other invested assets:
Internally managed
Alternative investments	44		39
Other	16		16
Total	$	10,793	$	10,873

____________________

(1) 8.3% and 10.8% of fixed-maturity securities are rated BIG as of June 30, 2019 and December 31, 2018, respectively.

Fixed-Maturity Securities and Short-Term Investments

by Security Type 

As of June 30, 2019

Security Type	Percent of Total (1)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		AOCI (2) Pre-tax Gain (Loss) on Securities with OTTI			Weighted Average Credit Rating  (3)
	(dollars in millions)
Fixed-maturity securities:
Obligations of state and political subdivisions	42	%	$	4,370	$	313	$	—		$	4,683	$	46		AA-
U.S. government and agencies	1		154		11		—			165		—			AA+
Corporate securities	22		2,212		71		(16		)	2,267		(1		)	A
Mortgage-backed securities (4):	0
RMBS	9		914		37		(13		)	938		4			A-
CMBS	5		478		18		(1		)	495		—			AAA
Asset-backed securities	7		746		36		(3		)	779		14			BBB-
Non-U.S. government securities	3		263		2		(18		)	247		—			AA
Total fixed-maturity securities	89		9,137		488		(51		)	9,574		63			A+
Short-term investments	11		1,159		—		—			1,159		—			AAA
Total investment portfolio	100	%	$	10,296	$	488	$	(51	)	$	10,733	$	63		A+

57

Fixed-Maturity Securities and Short-Term Investments

by Security Type 

As of December 31, 2018 

Security Type	Percent of Total (1)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		AOCI Pre-tax Gain (Loss) on Securities with OTTI			Weighted Average Credit Rating  (3)
	(dollars in millions)
Fixed-maturity securities:
Obligations of state and political subdivisions	45	%	$	4,761	$	168	$	(18	)	$	4,911	$	40		AA-
U.S. government and agencies	2		167		9		(1		)	175		—			AA+
Corporate securities	20		2,175		13		(52		)	2,136		(4		)	A
Mortgage-backed securities (4):
RMBS	9		999		17		(34		)	982		(15		)	A-
CMBS	5		542		4		(7		)	539		—			AAA
Asset-backed securities	9		942		131		(5		)	1,068		97			BB
Non-U.S. government securities	3		298		2		(22		)	278		—			AA
Total fixed-maturity securities	93		9,884		344		(139		)	10,089		118			A+
Short-term investments	7		729		—		—			729		—			AAA
Total investment portfolio	100	%	$	10,613	$	344	$	(139	)	$	10,818	$	118		A+

____________________

(1) Based on amortized cost.

(2) Accumulated OCI (AOCI).

(3) Ratings represent the lower of the Moody’s and S&P classifications, except for bonds purchased for loss mitigation or risk management strategies, which use internal ratings classifications. The Company’s portfolio primarily consists of high-quality, liquid instruments.

(4) U.S. government-agency obligations were approximately 45% of mortgage backed securities as of June 30, 2019 and 48% as of December 31, 2018 based on fair value.

The following tables summarize, for all fixed-maturity securities in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time the amounts have continuously been in an unrealized loss position.

58

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time

As of June 30, 2019

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	7	$	—		$	17	$	—		$	24	$	—
U.S. government and agencies	10		—			21		—			31		—
Corporate securities	229		(2		)	204		(14		)	433		(16		)
Mortgage-backed securities:
RMBS	7		—			283		(13		)	290		(13		)
CMBS	—		—			51		(1		)	51		(1		)
Asset-backed securities	226		(2		)	76		(1		)	302		(3		)
Non-U.S. government securities	45		(1		)	113		(17		)	158		(18		)
Total	$	524	$	(5	)	$	765	$	(46	)	$	1,289	$	(51	)
Number of securities (1)			112					186					291
Number of securities with OTTI			6					11					17

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time

As of December 31, 2018

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	195	$	(4	)	$	658	$	(14	)	$	853	$	(18	)
U.S. government and agencies	11		—			24		(1		)	35		(1		)
Corporate securities	836		(19		)	522		(33		)	1,358		(52		)
Mortgage-backed securities:
RMBS	85		(2		)	447		(32		)	532		(34		)
CMBS	111		(1		)	164		(6		)	275		(7		)
Asset-backed securities	322		(4		)	38		(1		)	360		(5		)
Non-U.S. government securities	83		(4		)	99		(18		)	182		(22		)
Total	$	1,643	$	(34	)	$	1,952	$	(105	)	$	3,595	$	(139	)
Number of securities (1)			417					608					997
Number of securities with OTTI (1)			22					22					42

___________________

(1) The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.

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Of the securities in an unrealized loss position for 12 months or more as of June 30, 2019 and December 31, 2018, 27 and 38 securities, respectively, had unrealized losses greater than 10% of book value. The total unrealized loss for these securities was $29 million as of June 30, 2019 and $43 million as of December 31, 2018. The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company has determined that the unrealized losses recorded as of June 30, 2019 and December 31, 2018 were yield-related and not the result of OTTI.

The amortized cost and estimated fair value of available-for-sale fixed maturity securities by contractual maturity as of June 30, 2019 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Fixed-Maturity Securities

by Contractual Maturity

As of June 30, 2019

	Amortized Cost		Estimated Fair Value
	(in millions)
Due within one year	$	223	$	216
Due after one year through five years	1,637		1,665
Due after five years through 10 years	2,101		2,196
Due after 10 years	3,784		4,064
Mortgage-backed securities:
RMBS	914		938
CMBS	478		495
Total	$	9,137	$	9,574

Based on fair value, investments and restricted cash that are either held in trust for the benefit of third party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted totaled $279 million and $266 million, as of June 30, 2019 and December 31, 2018, respectively. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,653 million and $1,855 million, based on fair value as of June 30, 2019 and December 31, 2018, respectively.

Cash and Restricted Cash

The following table provides a reconciliation of the cash reported on the condensed consolidated balance sheets and the cash and restricted cash reported in the statements of cash flows.

Cash and Restricted Cash

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Cash	$	190	$	104
Restricted cash	4		—
Total cash and restricted cash	$	194	$	104

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8. Contracts Accounted for as Credit Derivatives

The Company has a portfolio of financial guaranty contracts that meet the definition of a derivative in accordance with GAAP (primarily CDS). The credit derivative portfolio also includes interest rate swaps.

Credit derivative transactions are governed by International Swaps and Derivative Association, Inc. documentation and have certain characteristics that differ from financial guaranty insurance contracts. For example, the Company’s control rights with respect to a reference obligation under a credit derivative may be more limited than when the Company issues a financial guaranty insurance contract. In addition, there are more circumstances under which the Company may be obligated to make payments. Similar to a financial guaranty insurance contract, the Company would be obligated to pay if the obligor failed to make a scheduled payment of principal or interest in full. However, the Company may also be required to pay if the obligor becomes bankrupt or if the reference obligation were restructured if, after negotiation, those credit events are specified in the documentation for the credit derivative transactions. Furthermore, the Company may be required to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the non-defaulting or the non-affected party, which may be either the Company or the counterparty, depending upon the circumstances, may decide to terminate a credit derivative prior to maturity. In that case, the Company may be required to make a termination payment to its swap counterparty upon such termination. Absent such an event of default or termination event, the Company may not unilaterally terminate a CDS contract; however, the Company on occasion has mutually agreed with various counterparties to terminate certain CDS transactions.

Credit Derivative Net Par Outstanding by Sector

The components of the Company’s credit derivative net par outstanding are presented in the table below. The estimated remaining weighted average life of credit derivatives was 11.4 years and 11.6 years as of June 30, 2019 and December 31, 2018 respectively.

Credit Derivatives (1)

	As of June 30, 2019					As of December 31, 2018
	Net Par Outstanding		Net Fair Value			Net Par Outstanding		Net Fair Value
	(in millions)
U.S. public finance	$	1,933	$	(105	)	$	1,783	$	(65	)
Non-U.S. public finance	2,798		(51		)	2,807		(51		)
U.S. structured finance	1,302		(52		)	1,465		(85		)
Non-U.S. structured finance	127		(8		)	127		(6		)
Total	$	6,160	$	(216	)	$	6,182	$	(207	)

____________________

(1)    Expected recoveries were $11 million as of June 30, 2019 and $2 million as of December 31, 2018.

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Distribution of Credit Derivative Net Par Outstanding by Internal Rating

	As of June 30, 2019				As of December 31, 2018
Ratings	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total
	(dollars in millions)
AAA	$	1,730	28.1	%	$	1,813	29.4	%
AA	1,700		27.6		1,690		27.3
A	1,229		19.9		1,171		18.9
BBB	1,353		22.0		1,351		21.9
BIG (1)	148		2.4		157		2.5
Credit derivative net par outstanding	$	6,160	100.0	%	$	6,182	100.0	%

____________________

(1) BIG relates to U.S. RMBS.

Fair Value of Credit Derivatives

Net Change in Fair Value of Credit Derivative Gain (Loss)

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Realized gains on credit derivatives	$	1		$	2		$	4		$	4
Net credit derivative losses (paid and payable) recovered and recoverable and other settlements	(21		)	(1		)	(25		)	(1		)
Realized gains (losses) and other settlements	(20		)	1			(21		)	3
Net unrealized gains (losses)	12			47			(9		)	79
Net change in fair value of credit derivatives	$	(8	)	$	48		$	(30	)	$	82

     Realized losses and other settlements for Second Quarter 2019 and Six Months 2019 were primarily due to a final maturity paydown of a U.S. structured finance transaction, for which there was an offsetting unrealized gain.

During Second Quarter 2019, unrealized fair value gains were generated primarily as a result of a final maturity paydown of a CDS contract and price improvements. These items were partially offset by wider implied net spreads driven by the decreased market cost to buy protection in AGC’s name during the period. For those CDS transactions that were pricing at or above their floor levels, when the cost of purchasing CDS protection on AGC, which management refers to as the CDS spread on AGC, decreased, the implied spreads that the Company would expect to receive on these transactions increased.

During Six Months 2019, unrealized fair value losses were generated primarily as a result of wider implied net spreads driven by the decreased market cost to buy protection in AGC’s name during the period. These losses were partially offset by the paydown of a CDS contract and price improvements.

During Second Quarter 2018, unrealized fair value gains were generated primarily as a result of price improvements on the underlying collateral of the Company’s CDS. This was the primary driver of the unrealized fair value gain in the U.S. structured finance sector. The unrealized fair value gains were partially offset by unrealized fair value losses related to the decreased cost to buy protection in AGC’s and AGM’s name as the market cost of AGC’s and AGM’s credit protection decreased during the period.

During Six Months 2018, unrealized fair value gains were generated primarily as a result of the increase in credit given to the primary insurer on one of the Company's second-to-pay CDS policies, CDS terminations, and price improvements on the underlying collateral of the Company’s CDS. The unrealized fair value gains were partially offset by unrealized fair value losses related to the decreased cost to buy protection in AGC’s and AGM’s name as the market cost of AGC’s and AGM’s credit protection decreased during the period.

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The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time these fair values are determined. In addition, since each transaction has unique collateral and structural terms, the underlying change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts also reflects the change in the Company’s own credit cost based on the price to purchase credit protection on AGC and AGM. The Company determines its own credit risk based on quoted CDS prices traded on the Company at each balance sheet date.

CDS Spread on AGC and AGM

Quoted price of CDS contract (in bps)

 

	As of June 30, 2019	As of March 31, 2019	As of December 31, 2018	As of June 30, 2018	As of March 31, 2018	As of December 31, 2017
Five-year CDS spread:
AGC	56	74	110	105	121	163
AGM	54	72	116	106	109	145
One-year CDS spread
AGC	13	20	22	22	25	70
AGM	13	13	24	21	22	28

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC and AGM

Credit Spreads

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Fair value of credit derivatives before effect of AGC and AGM credit spreads	$	(318	)	$	(407	)
Plus: Effect of AGC and AGM credit spreads	102			200
Net fair value of credit derivatives	$	(216	)	$	(207	)

The fair value of CDS contracts at June 30, 2019, before considering the benefit applicable to AGC’s credit spreads, is a direct result of the relatively wide credit spreads of certain underlying credits generally due to the long tenor of these credits.

Collateral Posting for Certain Credit Derivative Contracts

The transaction documentation with one counterparty for $209 million in CDS net par insured by AGC requires AGC to post collateral, subject to a $209 million cap, to secure its obligation to make payments under such contracts. Eligible collateral is generally cash or U.S. government or agency securities; eligible collateral other than cash is valued at a discount to the face amount. The table below summarizes AGC’s CDS collateral posting requirements as of June 30, 2019 and December 31, 2018.

AGC Insured CDS Collateral Posting Requirements

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Gross par of CDS with collateral posting requirement	$	209	$	250
Maximum posting requirement	209		250
Collateral posted	1		1

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9. Variable Interest Entities

The Company provides financial guaranties with respect to debt obligations of special purpose entities, including VIEs but does not act as the servicer or collateral manager for any VIE obligations guaranteed by its insurance subsidiaries. The transaction structure generally provides certain financial protections to the Company. This financial protection can take several forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread. In the case of overcollateralization (i.e., the principal amount of the securitized assets exceeds the principal amount of the structured finance obligations guaranteed by the Company), the structure allows defaults of the securitized assets before a default is experienced on the structured finance obligation guaranteed by the Company. In the case of first loss, the Company's financial guaranty insurance policy only covers a senior layer of losses experienced by multiple obligations issued by the VIE. The first loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors. In the case of excess spread, the financial assets contributed to VIEs generate interest income that are in excess of the interest payments on the debt issued by the VIE. Such excess spread is typically distributed through the transaction’s cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the VIE (thereby, creating additional overcollateralization), or distributed to equity or other investors in the transaction.

Assured Guaranty is not primarily liable for the debt obligations issued by the VIEs it insures and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall. AGL’s and its subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs. Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on FG VIEs’ liabilities. Net fair value gains and losses on FG VIEs are expected to reverse to zero at maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by Assured Guaranty under the financial guaranty insurance contract. The Company’s estimate of expected loss to be paid for FG VIEs is included in Note 4, Expected Loss to be Paid.

As part of the terms of its financial guaranty contracts, the Company, under its insurance contract, obtains certain protective rights with respect to the VIE that give the Company additional controls over a VIE. These protective rights are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager's financial condition. At deal inception, the Company typically is not deemed to control a VIE; however, once a trigger event occurs, the Company's control of the VIE typically increases. The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the Company and, accordingly, where the Company is obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE. The Company is deemed to be the control party for certain VIEs under GAAP, typically when its protective rights give it the power to both terminate and replace the deal servicer, which are characteristics specific to the Company's financial guaranty contracts. If the protective rights that could make the Company the control party have not been triggered, then the VIE is not consolidated. If the Company is deemed to no longer have those protective rights, the VIE is deconsolidated.

Consolidated FG VIEs

As of June 30, 2019 and December 31, 2018, the Company consolidated 29 and 31 FG VIEs, respectively. During Six Months 2019, two FG VIE were deconsolidated. During Six Months 2018, one FG VIE was deconsolidated. There were no new consolidations for the periods presented.

The change in the ISCR of the FG VIEs’ assets held as of the end of the reporting period that was recorded in the condensed consolidated statements of operations for Second Quarter 2019 and 2018 were gains of $29 million and $1 million, respectively, and $35 million and $3 million for Six Months 2019 and 2018, respectively. To calculate ISCR, the change in the fair value of the FG VIEs’ assets is allocated between changes that are due to ISCR and changes due to other factors, including interest rates. The ISCR amount is determined by using expected cash flows at the original date of consolidation discounted at the effective yield less current expected cash flows discounted at that same original effective yield.

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	As of June 30, 2019		As of December 31, 2018
	(in millions)
Excess of unpaid principal over fair value of:
FG VIEs' assets	$	286	$	350
FG VIEs' liabilities with recourse	22		48
FG VIEs' liabilities without recourse	20		28
Unpaid principal balance for the FG VIEs’ assets that were over 90 days or more past due	62		71
Unpaid principal for FG VIEs’ liabilities with recourse (1)	468		565

____________________

(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2019 to 2038.

The table below shows the carrying value of the consolidated FG VIEs’ assets and liabilities in the condensed consolidated financial statements, segregated by the types of assets that collateralize the respective debt obligations for FG VIEs’ liabilities with recourse.

Consolidated FG VIEs

By Type of Collateral

	As of June 30, 2019				As of December 31, 2018
	Assets		Liabilities		Assets		Liabilities
	(in millions)
With recourse:
U.S. RMBS first lien	$	291	$	316	$	299	$	326
U.S. RMBS second lien	81		80		115		137
Manufactured housing	49		50		53		54
Total with recourse	421		446		467		517
Without recourse	105		105		102		102
Total	$	526	$	551	$	569	$	619

The effect of consolidating FG VIEs includes (i) changes in fair value gains (losses) on FG VIEs’ assets and liabilities, (ii) the elimination of premiums and losses related to the AGC and AGM FG VIEs’ liabilities with recourse and (iii) the elimination of investment balances related to the Company’s purchase of AGC and AGM insured FG VIEs’ debt. Upon consolidation of a FG VIE, the related insurance and, if applicable, the related investment balances, are considered intercompany transactions and therefore eliminated. Such eliminations are included in the table below to present the full effect of consolidating FG VIEs.

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Effect of Consolidating FG VIEs 

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Net earned premiums	$	(11	)	$	(3	)	$	(14	)	$	(6	)
Net investment income	(1		)	(1		)	(2		)	(2		)
Fair value gains (losses) on FG VIEs (1)	33			2			38			6
Loss and LAE	(14		)	(3		)	(15		)	3
Effect on income before tax	7			(5		)	7			1
Less: Tax provision (benefit)	1			(1		)	1			—
Effect on net income (loss)	$	6		$	(4	)	$	6		$	1
Effect on OCI	$	(1	)	$	4		$	(2	)	$	2
Effect on cash flows from operating activities	$	(2	)	$	4		$	(1	)	$	6

 ____________________

(1) See condensed consolidated statements of comprehensive income and Note 14, Shareholders' Equity, for information on changes in fair value of the FG VIEs’ liabilities with recourse that are attributable to changes in the Company's own credit risk.

The consolidation of FG VIEs increased shareholders' equity by $4 million as of June 30, 2019 and $1 million as of December 31, 2018.

The primary driver of the gain during Second Quarter 2019 and Six Months 2019 was attributable to higher recoveries on second lien U.S. RMBS FG VIEs' assets. The primary driver of the gain during Second Quarter 2018 and Six Months 2018 was improvement in the underlying collateral of the FG VIEs' assets.

Other Consolidated VIEs

In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the original insured financial guaranty insurance or credit derivative contract, the Company classifies the assets and liabilities of those VIEs in the line items that most accurately reflect the nature of the items, as opposed to within the FG VIEs’ assets and FG VIEs’ liabilities. The largest of these VIEs had assets of $90 million and liabilities of $9 million as of June 30, 2019, and assets of $87 million and liabilities of $21 million as of December 31, 2018, primarily recorded in the investment portfolio and credit derivative liabilities on the condensed consolidated balance sheets.

Non-Consolidated VIEs

As described in Note 3, Outstanding Exposure, the Company monitors all policies in the insured portfolio. Of the approximately 18 thousand policies monitored as of June 30, 2019, approximately 16 thousand policies are not within the scope of Accounting Standards Codification (ASC) 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization. The majority of the remaining policies involve transactions where the Company is not deemed to currently have control over the FG VIEs’ most significant activities. As of June 30, 2019 and December 31, 2018, the Company identified 102 and 110 policies, respectively, that contain provisions and experienced events that may trigger consolidation. Based on management’s assessment of these potential triggers or events, the Company consolidated 29 and 31 FG VIEs as of June 30, 2019 and December 31, 2018, respectively. The Company’s exposure provided through its financial guaranties with respect to debt obligations of FG VIEs is included within net par outstanding in Note 3, Outstanding Exposure.

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10. Income Taxes

Overview

AGL and its Bermuda subsidiaries AG Re, AGRO, and Cedar Personnel Ltd. (Bermuda Subsidiaries) are not subject to any income, withholding or capital gains taxes under current Bermuda law. The Company has received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, AGL and its Bermuda Subsidiaries will be exempt from taxation in Bermuda until March 31, 2035. AGL's U.S. and U.K. subsidiaries are subject to income taxes imposed by U.S. and U.K. authorities, respectively, and file applicable tax returns. In addition, AGRO, a Bermuda domiciled company, has elected under Section 953(d) of the U.S. Internal Revenue Code to be taxed as a U.S. domestic corporation.

In November 2013, AGL became tax resident in the U.K. although it remains a Bermuda-based company and its administrative and head office functions continue to be carried on in Bermuda. As a U.K. tax resident company, AGL is required to file a corporation tax return with Her Majesty's Revenue & Customs. AGL is subject to U.K. corporation tax in respect of its worldwide profits (both income and capital gains), subject to any applicable exemptions. The corporation tax rate is at 19% for 2019. Assured Guaranty expects that the dividends AGL receives from its direct subsidiaries will be exempt from U.K. corporation tax due to the exemption in section 931D of the U.K. Corporation Tax Act 2009. In addition, any dividends paid by AGL to its shareholders should not be subject to any withholding tax in the U.K. Assured Guaranty does not expect any profits of non-U.K. resident members of the group to be taxed under the U.K. "controlled foreign companies" regime and has obtained a clearance from Her Majesty's Revenue & Customs confirming this on the basis of current facts.

AGUS files a consolidated federal income tax return with all of its U.S. subsidiaries.

Assured Guaranty Overseas US Holdings Inc. (AGOUS) and its subsidiaries AGRO and AG Intermediary Inc. file their own consolidated federal income tax return.

Provision for Income Taxes

The Company's provision for income taxes for interim financial periods is not based on an estimated annual effective rate due, for example, to the variability in loss reserves, fair value of its credit derivatives and VIEs, and foreign exchange gains and losses which prevents the Company from projecting a reliable estimated annual effective tax rate and pretax income for the full year 2019. A discrete calculation of the provision is calculated for each interim period.

The effective tax rates reflect the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19%, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S. tax by election. The Company’s overall effective tax rate fluctuates based on the distribution of income across jurisdictions.

A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below.

Effective Tax Rate Reconciliation

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Expected tax provision (benefit) at statutory rates in taxable jurisdictions	$	38		$	14		$	47		$	49
Tax-exempt interest	(5		)	(6		)	(10		)	(12		)
Change in liability for uncertain tax positions	—			1			—			(6		)
Foreign taxes	4			6			5			3
Taxes on reinsurance	3			(1		)	4			(1		)
Other	—			(2		)	(2		)	(1		)
Total provision (benefit) for income taxes	$	40		$	12		$	44		$	32
Effective tax rate	21.9		%	13.2		%	18.4		%	10.4		%

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The expected tax provision at statutory rates in taxable jurisdictions is calculated as the sum of pretax income in each jurisdiction multiplied by the statutory tax rate of the jurisdiction by which it will be taxed. Where there is a pretax loss in one jurisdiction and pretax income in another, the total combined expected tax rate may be higher or lower than any of the individual statutory rates.

 The following tables present pretax income and revenue by jurisdiction.

Pretax Income (Loss) by Tax Jurisdiction

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
U.S.	$	190		$	71		$	225		$	246
Bermuda	—			24			16			73
U.K. and other	(8		)	(8		)	(1		)	(15		)
Total	$	182		$	87		$	240		$	304

Revenue by Tax Jurisdiction

	Second Quarter						Six Months
	2019			2018			2019		2018
	(in millions)
U.S.	$	227		$	189		$	376	$	436
Bermuda	40			36			73		88
U.K. and other	(1		)	(5		)	12		(11		)
Total	$	266		$	220		$	461	$	513

Pretax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities) (1)

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Deferred tax assets (liabilities)	$	8	$	68
Current tax assets (liabilities)	3		22

____________________

(1) Included in other assets or other liabilities on the condensed consolidated balance sheets.

Valuation Allowance

The Company has $13 million of foreign tax credit (FTC) carryovers from previous acquisitions and $23 million of FTC due to the 2017 Tax Cuts and Jobs Act for use against regular tax in future years. FTCs will begin to expire in 2020 and will fully expire by 2027. In analyzing the future realizability of FTCs, the Company notes limitations on future foreign source income due to overall foreign losses as negative evidence. After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the FTC of $36 million will not be utilized, and therefore recorded a valuation allowance with respect to this tax attribute.

The Company came to the conclusion that it is more likely than not that the remaining net deferred tax asset will be fully realized after weighing all positive and negative evidence available as required under GAAP. The positive evidence that

68

was considered included the cumulative income the Company has earned over the last three years, and the significant unearned premium income to be included in taxable income. The positive evidence outweighs any negative evidence that exists. As such, the Company believes that no valuation allowance is necessary in connection with the remaining net deferred tax asset. The Company will continue to analyze the need for a valuation allowance on a quarterly basis.

Audits

As of June 30, 2019, AGUS had open tax years with the U.S. Internal Revenue Service (IRS) for 2015 to present and is currently under audit for the 2016 tax year. In December 2016, the IRS issued a Revenue Agent Report for the 2009 - 2012 audit period, which did not identify any material adjustments that were not already accounted for in prior periods. The 2013 and 2014 tax years closed in 2018. AGOUS has open tax years of 2015 forward but is not currently under audit with the IRS. The Company's U.K. subsidiaries are not currently under examination and have open tax years of 2016 forward. CIFGNA, which was acquired by AGC during 2016, is not currently under examination and has open tax years of 2015 to the date of acquisition.

Uncertain Tax Positions

The Company's policy is to recognize interest related to uncertain tax positions in income tax expense and has accrued $0.5 million for Six Months 2019 and $1 million for the full year 2018. As of both June 30, 2019 and December 31, 2018, the Company has accrued $2 million of interest.

The total amount of reserves for unrecognized tax positions, including accrued interest, as of both June 30, 2019 and December 31, 2018 that would affect the effective tax rate, if recognized, was $16 million.

11. Reinsurance

The Company assumes exposure (Assumed Business) from third party insurers, primarily other monoline financial guaranty companies that currently are in runoff and no longer actively writing new business (Legacy Monoline Insurers), and may cede portions of exposure it has insured (Ceded Business) in exchange for premiums, net of any ceding commissions. The Company, if required, secures its reinsurance obligations to these Legacy Monoline Insurers, typically by depositing in trust assets with a market value equal to its assumed liabilities calculated on a U.S. statutory basis.

Substantially all of the Company’s Assumed Business and Ceded Business relates to financial guaranty business, except for a modest amount that relates to AGRO's non-financial guaranty business. The Company historically entered into, and with respect to new business originated by AGRO continues to enter into, ceded reinsurance contracts in order to obtain greater business diversification and reduce the net potential loss from large risks.

Financial Guaranty Business

The Company’s facultative and treaty assumed agreements with the Legacy Monoline Insurers are generally subject to termination at the option of the ceding company:

• if the Company fails to meet certain financial and regulatory criteria;

• if the Company fails to maintain a specified minimum financial strength rating, or

• upon certain changes of control of the Company.

Upon termination due to one of the above events, the Company typically would be required to return to the ceding company unearned premiums (net of ceding commissions) and loss reserves, calculated on a U.S. statutory basis, attributable to the Assumed Business (plus in certain cases, an additional required amount), after which the Company would be released from liability with respect to such business.

As of June 30, 2019, if each third party company ceding business to AG Re and/or AGC had a right to recapture such business, and chose to exercise such right, the aggregate amounts that AG Re and AGC could be required to pay to all such companies would be approximately $40 million and $302 million, respectively.

The Company has ceded financial guaranty business to non-affiliated companies to limit its exposure to risk. The Company remains primarily liable for all risks it directly underwrites and is required to pay all gross claims. It then seeks

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reimbursement from the reinsurer for its proportionate share of claims. The Company may be exposed to risk for this exposure if it were required to pay the gross claims and not be able to collect ceded claims from an assuming company experiencing financial distress. The Company’s ceded contracts generally allow the Company to recapture ceded financial guaranty business after certain triggering events, such as reinsurer downgrades.

Non-Financial Guaranty Business

The Company, through AGRO, assumes non-financial guaranty business from third party insurers (Assumed Non-Financial Guaranty Business). It also cedes and retrocedes some of its non-financial guaranty business to third party reinsurers. A downgrade of AGRO’s financial strength rating by S&P below A would require AGRO to post, as of June 30, 2019, an estimated $1 million of collateral in respect of certain of its Assumed Non-Financial Guaranty Business. A further downgrade of AGRO’s S&P rating below A- would give the company ceding such business the right to recapture the business for AGRO’s collateral amount, and, if also accompanied by a downgrade of AGRO's financial strength rating by A.M. Best Company, Inc. below A-, would also require AGRO to post, as of June 30, 2019, an estimated $10 million of collateral in respect of a different portion of AGRO’s Assumed Non-Financial Guaranty Business. AGRO’s ceded/retroceded contracts generally have equivalent provisions requiring the assuming reinsurer to post collateral and/or allowing AGRO to recapture the ceded/retroceded business upon certain triggering events, such as reinsurer rating downgrades.

Effect of Reinsurance

The following table presents the components of premiums and losses reported in the condensed consolidated statements of operations and the contribution of the Company's Assumed and Ceded Businesses (both financial guaranty and non-financial guaranty).

Effect of Reinsurance on Statement of Operations

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Premiums Written:
Direct	$	50		$	62		$	89		$	135
Assumed	1			331			1			331
Ceded (1)	(2		)	24			13			13
Net	$	49		$	417		$	103		$	479
Premiums Earned:
Direct	$	99		$	130		$	204		$	273
Assumed	15			9			30			14
Ceded	(2		)	(3		)	(4		)	(6		)
Net	$	112		$	136		$	230		$	281
Loss and LAE:
Direct	$	—		$	49		$	54		$	35
Assumed	1			(5		)	2			(8		)
Ceded	(2		)	—			(11		)	(1		)
Net	$	(1	)	$	44		$	45		$	26

____________________

(1)    Positive ceded premiums written were due to terminations, commutations and changes in expected debt service schedules.

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Ceded Reinsurance (1)

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Ceded premium payable, net of commissions	$	20	$	26
Ceded expected loss to be recovered (paid)	22		14
Financial guaranty ceded par outstanding (2)	1,372		2,389
Non-financial guaranty ceded exposure (see Note 3)	245		239

____________________

(1) The total collateral posted by all non-affiliated reinsurers required to post, or that had agreed to post, collateral as of June 30, 2019 and December 31, 2018 was approximately $72 million and $80 million, respectively. Such collateral is posted (i) in the case of certain reinsurers not authorized or "accredited" in the U.S., in order for the Company to receive credit for the liabilities ceded to such reinsurers in statutory financial statements, and (ii) in the case of certain reinsurers authorized in the U.S., on terms negotiated with the Company.

(2) Of the total par ceded to unrated or BIG rated reinsurers, $229 million and $236 million is rated BIG as of June 30, 2019 and December 31, 2018, respectively.

Reinsurance of Syncora Guarantee Inc.’s Insured Portfolio

On June 1, 2018, the Company closed the SGI Transaction under which AGC assumed, generally on a 100% quota share basis, substantially all of SGI’s insured portfolio and AGM reassumed a book of business previously ceded to SGI by AGM. As of June 1, 2018, the net par value of exposures reinsured and commuted totaled approximately $12 billion (including credit derivative net par of approximately $1.5 billion). The reinsured portfolio consisted predominantly of public finance and infrastructure obligations that met AGC’s underwriting criteria and generated $330 million of gross written premiums. On June 1, 2018, as consideration, SGI paid $363 million and assigned to Assured Guaranty financial guaranty future insurance installment premiums of $45 million, and future credit derivative installments of approximately $17 million. The assumed portfolio from SGI included BIG contracts which had, as of June 1, 2018, expected losses to be paid of $131 million (present value basis using risk-free rates), which will be expensed over the expected terms of those contracts as unearned premium reserve amortizes. In connection with the SGI Transaction, the Company incurred and expensed $4 million in fees to professional advisors.

Additionally, beginning on June 1, 2018, on behalf of SGI, AGC began providing certain administrative services on the assumed portfolio, including surveillance, risk management, and claims processing.

Commutations

Commutations of Ceded Reinsurance Contracts

	Second Quarter					Six Months
	2019		2018			2019		2018
	(in millions)
Increase in net unearned premium reserve	$	15	$	56		$	15	$	60
Increase in net par outstanding	1,069		1,191			1,069		1,233
Commutation gains (losses)	1		(18		)	1		(17		)

Excess of Loss Reinsurance Facility

     Effective January 1, 2018, AGC, AGM and MAC entered into a $400 million aggregate excess of loss reinsurance facility of which $180 million was placed with an unaffiliated reinsurer. This facility covers losses occurring either from January 1, 2018 through December 31, 2024, or January 1, 2019 through December 31, 2025, at the option of AGC, AGM and MAC. It terminates on January 1, 2020, unless AGC, AGM and MAC choose to extend it. It covers certain U.S. public finance

71

exposures insured or reinsured by AGC, AGM and MAC as of September 30, 2017, excluding exposures that were rated below investment grade as of December 31, 2017 by Moody’s or S&P or internally by AGC, AGM or MAC and is subject to certain per credit limits. Among the exposures excluded are those associated with the Commonwealth of Puerto Rico and its related authorities and public corporations. The facility attaches when AGC’s, AGM’s and MAC’s net losses (net of AGC’s and AGM's reinsurance (including from affiliates) and net of recoveries) exceed $0.8 billion in the aggregate. The facility covers a portion of the next $400 million of losses, with the reinsurer assuming $180 million of the $400 million of losses and AGC, AGM and MAC jointly retaining the remaining $220 million. The reinsurer is required to be rated at least AA- or to post collateral sufficient to provide AGC, AGM and MAC with the same reinsurance credit as reinsurers rated AA-. AGC, AGM and MAC are each obligated to pay the reinsurer its share of recoveries relating to losses during the coverage period in the covered portfolio. AGC, AGM and MAC paid approximately $3.2 million of premiums in 2018 for the term January 1, 2018 through December 31, 2018 and approximately $3.2 million of premiums in 2019 for the term January 1, 2019 through December 31, 2019.

12.    Commitments and Contingencies

Leases

The Company is party to various non-cancelable lease agreements. The largest lease relates to approximately 103,500 square feet of office space in New York City, which expires in 2032. Subject to certain conditions, the Company has an option to renew this lease for an additional five years at a fair market rent. The Company also has leases for additional office and apartment space in several other locations which expire at various dates through 2029.

Effective January 1, 2019, the Company adopted Topic 842, which requires the establishment of a right-of-use (ROU) asset and a lease liability on the balance sheet for operating leases. All of the Company’s leases are classified as operating leases; however, the Company made an accounting policy election not to apply the recognition requirements of Topic 842 to short-term leases with an initial term of 12 months or less. At the inception of a lease the total payments under a lease agreement are discounted utilizing an incremental borrowing rate that represents the Company’s collateralized borrowing rate. The rate was determined based on the remaining lease term as of the date of adoption. The Company does not include its renewal options in calculating the lease liability.

Operating lease expense is recognized on a straight-line basis over the lease term. Actual costs incurred related to non-lease components (i.e., common area maintenance, real estate taxes, building insurance and other operating expenses) for all the Company’s office leases are recorded as a variable lease expense in the period incurred.

The Company elected the package of practical expedients, which permits organizations not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification of expired or existing leases and (iii) initial direct costs for existing leases. The Company also elected the practical expedient to account for all lease components and their associated non-lease components as a single lease component and has allocated all of the contract consideration across lease components.

Upon adoption, the Company recognized lease liabilities of approximately $95 million (recorded in other liabilities) and ROU assets of approximately $69 million (recorded in other assets), and derecognized existing deferred rent and lease incentive liabilities of approximately $26 million, resulting in no cumulative-effect adjustment to retained earnings.

As of June 30, 2019, the ROU assets were $66 million and the lease liabilities were $91 million.

Components of Lease Expense

	Second Quarter 2019		Six Months 2019
	(in millions)
Lease cost (1)	$	2	$	4
Cash paid for amounts included in the measurement of lease liabilities	2		4

 ____________________

(1) Variable and short-term lease costs are de minimis.

As of June 30, 2019, operating leases had a weighted average remaining lease term of 12.3 years and were discounted at a weighted average rate of 3.0%.

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Future Minimum Rental Payments

	As of June 30, 2019
Year	(in millions)
2019 (remaining six months)	$	4
2020	9
2021	8
2022	8
2023	9
Thereafter	72
Total lease payments (1)	110
Less: imputed interest	19
Total operating lease liabilities	$	91

 ____________________

(1) At December 31, 2018, future lease payments were $9 million, $9 million, $8 million, $8 million, and $9 million for 2019 through 2023, respectively, and $72 million in aggregate for all years thereafter.

Legal Proceedings

Lawsuits arise in the ordinary course of the Company’s business. It is the opinion of the Company’s management, based upon the information available, that the expected outcome of litigation against the Company, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position or liquidity, although an adverse resolution of litigation against the Company in a fiscal quarter or year could have a material adverse effect on the Company’s results of operations in a particular quarter or year.

In addition, in the ordinary course of their respective businesses, certain of AGL's subsidiaries assert claims in legal proceedings against third parties to recover losses paid in prior periods or prevent losses in the future. For example, the Company has commenced a number of legal actions in the Federal District Court for Puerto Rico to enforce its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations. See "Exposure to Puerto Rico" section of Note 3, Outstanding Exposure, for a description of such actions. See "Recovery Litigation" section of Note 4, Expected Loss to be Paid, for a description of recovery litigation unrelated to Puerto Rico. The amounts, if any, the Company will recover in these and other proceedings to recover losses are uncertain, and recoveries, or failure to obtain recoveries, in any one or more of these proceedings during any quarter or year could be material to the Company's results of operations in that particular quarter or year.

The Company also receives subpoenas duces tecum and interrogatories from regulators from time to time.

Litigation

On November 28, 2011, Lehman Brothers International (Europe) (in administration) (LBIE) sued AG Financial Products Inc. (AGFP), an affiliate of AGC which in the past had provided credit protection to counterparties under CDS. AGC acts as the credit support provider of AGFP under these CDS. LBIE’s complaint, which was filed in the Supreme Court of the State of New York, asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP's termination of 28 other credit derivative transactions between LBIE and AGFP and AGFP's calculation of the termination payment in connection with those 28 other credit derivative transactions. Following defaults by LBIE, AGFP properly terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly. AGFP calculated that LBIE owes AGFP approximately $4 million for the claims which were dismissed and $25 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $1.4 billion. AGFP filed a motion to dismiss the claims for breach of the implied covenant of good faith in LBIE's complaint, and on March 15, 2013, the court granted AGFP's motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE's claim with respect to the 28 other credit derivative transactions. LBIE's administrators disclosed in an April 10, 2015 report to LBIE’s unsecured creditors that LBIE's valuation expert has calculated LBIE's claim for damages in aggregate for the 28 transactions to range between a minimum of

73

approximately $200 million and a maximum of approximately $500 million, depending on what adjustment, if any, is made for AGFP's credit risk and excluding any applicable interest. AGFP filed a motion for summary judgment on the remaining causes of action asserted by LBIE and on AGFP's counterclaims, and on July 2, 2018, the court granted in part and denied in part AGFP’s motion. The court dismissed, in its entirety, LBIE’s remaining claim for breach of the implied covenant of good faith and fair dealing and also dismissed LBIE’s claim for breach of contract solely to the extent that it is based upon AGFP’s conduct in connection with the auction. With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith. On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the lower court's ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole remaining claim for breach of contract. On January 17, 2019, the Appellate Division affirmed the Supreme Court's decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

On May 2, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against various Commonwealth general obligation bondholders and bond insurers, including AGC and AGM, that had asserted in their proofs of claim that their bonds are secured. The complaint seeks a judgment declaring that defendants do not hold consensual or statutory liens and are unsecured claimholders to the extent they hold allowed claims. The complaint also asserts that even if Commonwealth law granted statutory liens, such liens are avoidable under Section 545 of the Bankruptcy Code. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On May 20, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against the fiscal agent and holders and/or insurers, including AGC and AGM, that have asserted their PRHTA bond claims are entitled to secured status in PRHTA’s Title III case. Plaintiffs are seeking to avoid the PRHTA bondholders’ liens and contend that (i) the scope of any lien only applies to revenues that have been both received by PRHTA and deposited in certain accounts held by the fiscal agent and does not include PRHTA’s right to receive such revenues; (ii) any lien on revenues was not perfected because the fiscal agent does not have “control” of all accounts holding such revenues; (iii) any lien on the excise tax revenues is no longer enforceable because any rights PRHTA had to receive such revenues is preempted by PROMESA; and (iv) even if PRHTA held perfected liens on PRHTA’s revenues and the right to receive such revenues, such liens were terminated by Section 552(a) of the Bankruptcy Code as of the petition date. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

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13.    Earnings Per Share

Computation of Earnings Per Share 

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions, except per share amounts)
Basic Earnings Per Share (EPS):
Net income (loss) attributable to AGL	$	142	$	75	$	196	$	272
Less: Distributed and undistributed income (loss) available to nonvested shareholders	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	142	$	75	$	196	$	272
Basic shares	101.2		111.7		102.1		113.4
Basic EPS	$	1.40	$	0.67	$	1.92	$	2.39
Diluted EPS:
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	142	$	75	$	196	$	272
Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	$	142	$	75	$	196	$	272
Basic shares	101.2		111.7		102.1		113.4
Dilutive securities:
Options and restricted stock awards	0.7		1.2		0.9		1.4
Diluted shares	101.9		112.9		103.0		114.8
Diluted EPS	$	1.39	$	0.67	$	1.90	$	2.37
Potentially dilutive securities excluded from computation of EPS because of antidilutive effect	0.1		0.1		—		0.2

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14. Shareholders' Equity

Other Comprehensive Income

The following tables present the changes in each component of AOCI and the effect of reclassifications out of AOCI on the respective line items in net income.

Changes in Accumulated Other Comprehensive Income by Component

Second Quarter 2019

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, March 31, 2019	$	222		$	99		$	(31	)	$	(37	)	$	8	261
Other comprehensive income (loss) before reclassifications	90			(40		)	(2		)	(1		)	—		47
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	11			(3		)	—			—			—		8
Net investment income	2			14			—			—			—		16
Fair value gains (losses) on FG VIEs	—			—			(8		)	—			—		(8		)
Total before tax	13			11			(8		)	—			—		16
Tax (provision) benefit	(2		)	(3		)	2			—			—		(3		)
Total amount reclassified from AOCI, net of tax	11			8			(6		)	—			—		13
Net current period other comprehensive income (loss)	79			(48		)	4			(1		)	—		34
Balance, June 30, 2019	$	301		$	51		$	(27	)	$	(38	)	$	8	$	295

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Changes in Accumulated Other Comprehensive Income by Component

Second Quarter 2018

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI		Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, March 31, 2018	$	146		$	118	$	(35	)	$	(23	)	$	8	$	214
Other comprehensive income (loss) before reclassifications	(64		)	6		3			(9		)	—		(64		)
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	1			—		—			—			—		1
Fair value gains (losses) on FG VIEs	—			—		1			—			—		1
Total before tax	1			—		1			—			—		2
Tax (provision) benefit	—			—		—			—			—		—
Total amount reclassified from AOCI, net of tax	1			—		1			—			—		2
Net current period other comprehensive income (loss)	(63		)	6		4			(9		)	—		(62		)
Balance, June 30, 2018	$	83		$	124	$	(31	)	$	(32	)	$	8	$	152

Changes in Accumulated Other Comprehensive Income by Component

Six Months 2019

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, December 31, 2018	$	59		$	94		$	(31	)	$	(37	)	$	8	$	93
Other comprehensive income (loss) before reclassifications	255			(47		)	(4		)	(1		)	—		203
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	14			(18		)	—			—			—		(4		)
Net investment income	2			14			—			—			—		16
Fair value gains (losses) on FG VIEs	—			—			(10		)	—			—		(10		)
Total before tax	16			(4		)	(10		)	—			—		2
Tax (provision) benefit	(3		)	—			2			—			—		(1		)
Total amount reclassified from AOCI, net of tax	13			(4		)	(8		)	—			—		1
Net current period other comprehensive income (loss)	242			(43		)	4			(1		)	—		202
Balance, June 30, 2019	$	301		$	51		$	(27	)	$	(38	)	$	8	$	295

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Changes in Accumulated Other Comprehensive Income by Component

Six Months 2018

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, December 31, 2017	$	273		$	120		$	—		$	(29	)	$	8	$	372
Effect of adoption of ASU 2016-01 (1)	1			—			(33		)	—			—		(32		)
Other comprehensive income (loss) before reclassifications	(186		)	(5		)	(1		)	(3		)	—		(195		)
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	(5		)	11			—			—			—		6
Fair value gains (losses) on FG VIEs	—			—			4			—			—		4
Total before tax	(5		)	11			4			—			—		10
Tax (provision) benefit	—			(2		)	(1		)	—			—		(3		)
Total amount reclassified from AOCI, net of tax	(5		)	9			3			—			—		7
Net current period other comprehensive income (loss)	(191		)	4			2			(3		)	—		(188		)
Balance, June 30, 2018	$	83		$	124		$	(31	)	$	(32	)	$	8	$	152

____________________

(1) On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, resulting in a cumulative-effect reclassification of a $32 million loss, net of tax, from retained earnings to AOCI.

Share Repurchases

On February 27, 2019, the Board of Directors authorized the repurchase of $300 million of common shares and on August 7, 2019 authorized the repurchase of another $300 million of common shares. As of August 7, 2019, after combining the remaining authorization and the new authorization, the Company was authorized to purchase $450 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company's capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board of Directors at any time. It does not have an expiration date.

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Share Repurchases

Period	Number of Shares Repurchased	Total Payments (in millions)		Average Price Paid Per Share
2018 (January 1 - March 31)	2,787,936	$	98	$	35.20
2018 (April 1 - June 30)	4,163,190	152		36.48
2018 (July 1 - September 30)	3,299,049	130		39.41
2018 (October 1 - December 31)	2,992,932	120		40.09
Total 2018	13,243,107	$	500	$	37.76
2019 (January 1 - March 31)	1,908,605	79		41.62
2019 (April 1 - June 30)	2,519,130	111		43.89
2019 (July 1 - August 7)	1,317,094	58		43.59
Total 2019	5,744,829	$	248	$	43.07
Cumulative repurchases since the beginning of 2013	100,300,786	$	2,964	$	29.55

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15. Subsidiary Information

The following tables present the condensed consolidating financial information for AGUS and AGMH, 100%-owned subsidiaries of AGL, which have issued publicly traded debt securities that are fully and unconditionally guaranteed by AGL. The information for AGL, AGUS and AGMH presents their subsidiaries on the equity method of accounting.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)		AGUS (Issuer) (1)		AGMH (Issuer)		Other Entities		Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Assets
Total investment portfolio and cash	$	27	$	397	$	17	$	10,972	$	(430	)	$	10,983
Investment in subsidiaries	6,620		5,937		4,196		199		(16,952		)	—
Premiums receivable, net of commissions payable	—		—		—		1,020		(154		)	866
Deferred acquisition costs	—		—		—		142		(36		)	106
Intercompany loan receivable	—		—		—		50		(50		)	—
FG VIEs’ assets, at fair value	—		—		—		526		—			526
Dividends receivable from affiliate	60		—		—		—		(60		)	—
Other	27		82		30		2,687		(1,726		)	1,100
Total assets	$	6,734	$	6,416	$	4,243	$	15,596	$	(19,408	)	$	13,581
Liabilities and shareholders' equity
Unearned premium reserves	$	—	$	—	$	—	$	4,290	$	(903	)	$	3,387
Loss and LAE reserve	—		—		—		1,363		(261		)	1,102
Long-term debt	—		844		472		5		(88		)	1,233
Intercompany loan payable	—		50		—		300		(350		)	—
Credit derivative liabilities	—		—		—		259		(35		)	224
FG VIEs’ liabilities, at fair value	—		—		—		551		—			551
Dividends payable to affiliate	—		60		—		—		(60		)	—
Other	12		66		68		918		(702		)	362
Total liabilities	12		1,020		540		7,686		(2,399		)	6,859
Total shareholders' equity attributable to Assured Guaranty Ltd.	6,722		5,396		3,703		7,711		(16,810		)	6,722
Noncontrolling interest	—		—		—		199		(199		)	—
Total shareholders' equity	6,722		5,396		3,703		7,910		(17,009		)	6,722
Total liabilities and shareholders' equity	$	6,734	$	6,416	$	4,243	$	15,596	$	(19,408	)	$	13,581

 ____________________

(1) The fair value of the AGMH debt purchased by AGUS, and recorded in the AGUS investment portfolio, was $129 million.

80

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)		AGUS (Issuer) (1)		AGMH (Issuer)		Other Entities		Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Assets
Total investment portfolio and cash	$	45	$	334	$	23	$	11,000	$	(425	)	$	10,977
Investment in subsidiaries	6,440		5,835		3,991		226		(16,492		)	—
Premiums receivable, net of commissions payable	—		—		—		1,071		(167		)	904
Deferred acquisition costs	—		—		—		143		(38		)	105
Deferred tax asset, net	—		—		—		162		(94		)	68
Intercompany loan receivable	—		—		—		50		(50		)	—
FG VIEs’ assets, at fair value	—		—		—		569		—			569
Dividends receivable from affiliate	60		—		—		—		(60		)	—
Other	29		66		24		2,437		(1,576		)	980
Total assets	$	6,574	$	6,235	$	4,038	$	15,658	$	(18,902	)	$	13,603
Liabilities and shareholders' equity
Unearned premium reserves	$	—	$	—	$	—	$	4,452	$	(940	)	$	3,512
Loss and LAE reserve	—		—		—		1,467		(290		)	1,177
Long-term debt	—		844		468		5		(84		)	1,233
Intercompany loan payable	—		50		—		300		(350		)	—
Credit derivative liabilities	—		—		—		236		(27		)	209
Deferred tax liabilities, net	—		49		50		—		(99		)	—
FG VIEs’ liabilities, at fair value	—		—		—		619		—			619
Dividends payable to affiliate	—		60		—		—		(60		)	—
Other	19		3		17		763		(504		)	298
Total liabilities	19		1,006		535		7,842		(2,354		)	7,048
Total shareholders' equity attributable to Assured Guaranty Ltd.	6,555		5,229		3,503		7,590		(16,322		)	6,555
Noncontrolling interest	—		—		—		226		(226		)	—
Total shareholders' equity	6,555		5,229		3,503		7,816		(16,548		)	6,555
Total liabilities and shareholders' equity	$	6,574	$	6,235	$	4,038	$	15,658	$	(18,902	)	$	13,603

 ____________________

(1) The fair value of the AGMH debt purchased by AGUS, and recorded in the AGUS investment portfolio, was $125 million.

81

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	114		$	(2	)	$	112
Net investment income	—			4			—			110			(4		)	110
Net realized investment gains (losses)	—			—			—			8			—			8
Net change in fair value of credit derivatives	—			—			—			(8		)	—			(8		)
Other	2			—			—			93			(51		)	44
Total revenues	2			4			—			317			(57		)	266
Expenses
Loss and LAE	—			—			—			5			(6		)	(1		)
Amortization of deferred acquisition costs	—			—			—			5			(1		)	4
Interest expense	—			13			14			1			(6		)	22
Other operating expenses	10			1			—			98			(49		)	60
Total expenses	10			14			14			109			(62		)	85
Equity in net earnings of investees	—			(1		)	—			2			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(8		)	(11		)	(14		)	210			5			182
Total (provision) benefit for income taxes	—			2			3			(44		)	(1		)	(40		)
Equity in net earnings of subsidiaries	150			154			95			5			(404		)	—
Net income (loss)	$	142		$	145		$	84		$	171		$	(400	)	$	142
Less: noncontrolling interest	—			—			—			5			(5		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	142		$	145		$	84		$	166		$	(395	)	$	142
Comprehensive income (loss)	$	176		$	145		$	109		$	206		$	(460	)	$	176

82

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	139		$	(3	)	$	136
Net investment income	—			2			—			99			(3		)	98
Net realized investment gains (losses)	—			—			—			(2		)	—			(2		)
Net change in fair value of credit derivatives	—			—			—			48			—			48
Other	3			—			—			(9		)	(54		)	(60		)
Total revenues	3			2			—			275			(60		)	220
Expenses
Loss and LAE	—			—			—			46			(2		)	44
Amortization of deferred acquisition costs	—			—			—			5			(1		)	4
Interest expense	—			12			14			2			(4		)	24
Other operating expenses	10			—			1			95			(44		)	62
Total expenses	10			12			15			148			(51		)	134
Equity in net earnings of investees	—			—			—			1			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(7		)	(10		)	(15		)	128			(9		)	87
Total (provision) benefit for income taxes	—			2			3			(20		)	3			(12		)
Equity in net earnings of subsidiaries	82			64			9			6			(161		)	—
Net income (loss)	$	75		$	56		$	(3	)	$	114		$	(167	)	$	75
Less: noncontrolling interest	—			—			—			6			(6		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	75		$	56		$	(3	)	$	108		$	(161	)	$	75
Comprehensive income (loss)	$	13		$	7		$	(53	)	$	52		$	(6	)	$	13

83

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	235		$	(5	)	$	230
Net investment income	—			6			—			211			(9		)	208
Net realized investment gains (losses)	—			—			—			(4		)	—			(4		)
Net change in fair value of credit derivatives	—			—			—			(30		)	—			(30		)
Other	4			—			—			159			(106		)	57
Total revenues	4			6			—			571			(120		)	461
Expenses
Loss and LAE	—			—			—			52			(7		)	45
Amortization of deferred acquisition costs	—			—			—			12			(2		)	10
Interest expense	—			25			27			5			(12		)	45
Other operating expenses	20			2			—			205			(103		)	124
Total expenses	20			27			27			274			(124		)	224
Equity in net earnings of investees	—			—			—			3			—			3
Income (loss) before income taxes and equity in net earnings of subsidiaries	(16		)	(21		)	(27		)	300			4			240
Total (provision) benefit for income taxes	—			4			6			(53		)	(1		)	(44		)
Equity in net earnings of subsidiaries	212			204			163			9			(588		)	—
Net income (loss)	$	196		$	187		$	142		$	256		$	(585	)	$	196
Less: noncontrolling interest	—			—			—			9			(9		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	196		$	187		$	142		$	247		$	(576	)	$	196
Comprehensive income (loss)	$	398		$	315		$	261		$	460		$	(1,036	)	$	398

84

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	288		$	(7	)	$	281
Net investment income	—			4			—			200			(6		)	198
Net realized investment gains (losses)	—			—			—			(7		)	—			(7		)
Net change in fair value of credit derivatives	—			—			—			82			—			82
Other	6			—			—			65			(112		)	(41		)
Total revenues	6			4			—			628			(125		)	513
Expenses
Loss and LAE	—			—			—			30			(4		)	26
Amortization of deferred acquisition costs	—			—			—			11			(2		)	9
Interest expense	—			24			27			5			(8		)	48
Other operating expenses	20			3			1			200			(97		)	127
Total expenses	20			27			28			246			(111		)	210
Equity in net earnings of investees	—			—			—			1			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(14		)	(23		)	(28		)	383			(14		)	304
Total (provision) benefit for income taxes	—			5			6			(45		)	2			(32		)
Equity in net earnings of subsidiaries	286			225			111			13			(635		)	—
Net income (loss)	$	272		$	207		$	89		$	351		$	(647	)	$	272
Less: noncontrolling interest	—			—			—			13			(13		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	272		$	207		$	89		$	338		$	(634	)	$	272
Comprehensive income (loss)	$	84		$	74		$	(7	)	$	163		$	(230	)	$	84

85

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Net cash flows provided by (used in) operating activities	$	226		$	110		$	56		$	(121	)	$	(469	)	$	(198	)
Cash flows from investing activities
Fixed-maturity securities:
Purchases	—			(3		)	—			(503		)	3			(503		)
Sales	—			—			—			914			—			914
Maturities and paydowns	—			—			2			504			—			506
Short-term investments with maturities of over three months:
Purchases	—			—			—			(209		)	—			(209		)
Sales	—			—			—			2			—			2
Maturities and paydowns	—			12			—			162			—			174
Net sales (purchases) of short-term investments with maturities of less than three months	18			(72		)	5			(340		)	—			(389		)
Net proceeds from paydowns on FG VIEs’ assets	—			—			—			50			—			50
Net proceeds from sales of FG VIEs’ assets	—			—			—			51			—			51
Proceeds from stock redemption and return of capital from subsidiaries	—			100			—			10			(110		)	—
Other	—			—			—			35			—			35
Net cash flows provided by (used in) investing activities	18			37			7			676			(107		)	631
Cash flows from financing activities
Return of capital	—			—			—			(10		)	10			—
Dividends paid	(39		)	(147		)	(62		)	(260		)	469			(39		)
Repurchases of common stock	(190		)	—			—			(100		)	100			(190		)
Repurchases of common stock to pay withholding taxes	(16		)	—			—			—			—			(16		)
Net paydowns of FG VIEs’ liabilities	—			—			—			(95		)	—			(95		)
Paydown of long-term debt	—			—			—			(1		)	(3		)	(4		)
Proceeds from options exercises	1			—			—			—			—			1
Net cash flows provided by (used in) financing activities	(244		)	(147		)	(62		)	(466		)	576			(343		)
Effect of exchange rate changes	—			—			—			—			—			—
Increase (decrease) in cash and restricted cash	—			—			1			89			—			90
Cash and restricted cash at beginning of period	—			1			—			103			—			104
Cash and restricted cash at end of period	$	—		$	1		$	1		$	192		$	—		$	194

86

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Net cash flows provided by (used in) operating activities	$	296		$	88		$	43		$	524		$	(507	)	$	444
Cash flows from investing activities
Fixed-maturity securities:
Purchases	—			(27		)	(12		)	(863		)	23			(879		)
Sales	—			11			2			579			—			592
Maturities and paydowns	—			10			—			523			—			533
Short-term investments with maturities of over three months:
Purchases	—			—			—			(121		)	—			(121		)
Sales	—			—			—			1			—			1
Maturities and paydowns	—			—			—			104			—			104
Net sales (purchases) of short-term investments with maturities of less than three months	3			(78		)	16			(229		)	—			(288		)
Net proceeds from paydowns on FG VIEs’ assets	—			—			—			60			—			60
Proceeds from stock redemption and return of capital from subsidiaries	—			200			—			—			(200		)	—
Other	—			(15		)	—			(1		)	—			(16		)
Net cash flows provided by (used in) investing activities	3			101			6			53			(177		)	(14		)
Cash flows from financing activities
Dividends paid	(37		)	(222		)	(50		)	(235		)	507			(37		)
Repurchases of common stock	(250		)	—			—			(200		)	200			(250		)
Repurchases of common stock to pay withholding taxes	(13		)	—			—			—			—			(13		)
Net paydowns of FG VIEs’ liabilities	—			—			—			(61		)	—			(61		)
Paydown of long-term debt	—			—			—			(1		)	(23		)	(24		)
Proceeds from options exercises	1			—			—			—			—			1
Net cash flows provided by (used in) financing activities	(299		)	(222		)	(50		)	(497		)	684			(384		)
Effect of exchange rate changes	—			—			—			(1		)	—			(1		)
Increase (decrease) in cash and restricted cash	—			(33		)	(1		)	79			—			45
Cash and restricted cash at beginning of period	—			33			2			109			—			144
Cash and restricted cash at end of period	$	—		$	—		$	1		$	188		$	—		$	189

87

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Form 10-Q contains information that includes or is based upon forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements give the expectations or forecasts of future events of Assured Guaranty Ltd. (AGL) and its subsidiaries (collectively with AGL, Assured Guaranty or the Company). These statements can be identified by the fact that they do not relate strictly to historical or current facts and relate to future operating or financial performance.

Any or all of Assured Guaranty’s forward looking statements herein are based on current expectations and the current economic environment and may turn out to be incorrect. Assured Guaranty’s actual results may vary materially. Among factors that could cause actual results to differ adversely are:

• reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty's insurance;

• rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL’s subsidiaries have insured;

• developments in the world’s financial and capital markets that adversely affect obligors’ payment rates or Assured Guaranty’s loss experience;

• the possibility that budget or pension shortfalls or other factors will result in credit losses or impairments on obligations of state, territorial and local governments and their related authorities and public corporations that Assured Guaranty insures or reinsures;

• the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates;

• increased competition, including from new entrants into the financial guaranty industry;

• rating agency action on obligors, including sovereign debtors, resulting in a reduction in the value of securities in Assured Guaranty's investment portfolio and in collateral posted by and to Assured Guaranty;

• the inability of Assured Guaranty to access external sources of capital on acceptable terms;

• changes in the world’s credit markets, segments thereof, interest rates or general economic conditions;

• the impact of market volatility on the mark-to-market of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, most of its contracts written in credit default swap (CDS) form, and variable interest entities (VIEs);

• changes in applicable accounting policies or practices;

• changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions;

• the impact of changes in the world’s economy and credit and currency markets and in applicable laws or regulations relating to the decision of the United Kingdom (U.K.) to exit the European Union (EU);

• the possibility that Assured Guaranty's planned acquisition (BlueMountain Acquisition) of all of the outstanding equity interests in BlueMountain Capital Management, LLC (BlueMountain) and its associated entities fails to close or is delayed due to the failure to fulfill or waive closing conditions, including the receipt of necessary regulatory approvals and client consents, or fails to close or is delayed for other reasons;

• the impact of the announcement of Assured Guaranty's planned BlueMountain Acquisition on the Company and its relationships with its investors, regulators, rating agencies, employees and the obligors it insures and on the business of BlueMountain and its relationships with its clients and employees;

88

• the possibility that regulators, clients of BlueMountain or others will impose conditions on their approvals or consents of the planned BlueMountain Acquisition or not provide approvals or consents Assured Guaranty anticipated receiving and receipt of which is not a condition to closing;

• the failure of Assured Guaranty to successfully integrate the business of BlueMountain after closing;

• the possibility that acquisitions or alternative investments made by Assured Guaranty, including its anticipated BlueMountain Acquisition, do not result in the benefits anticipated or subject Assured Guaranty to unanticipated consequences;

• difficulties with the execution of Assured Guaranty’s business strategy;

• loss of key personnel;

• the effects of mergers, acquisitions and divestitures;

• natural or man-made catastrophes;

• other risk factors identified in AGL’s filings with the United States (U.S.) Securities and Exchange Commission (the SEC);

• other risks and uncertainties that have not been identified at this time; and

• management’s response to these factors.

The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, as well as the risk factors included in AGL's 2018 Annual Report on Form 10-K. The Company undertakes no obligation to update publicly or review any forward looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Investors are advised, however, to consult any further disclosures the Company makes on related subjects in the Company’s reports filed with the SEC.

If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, actual results may vary materially from what the Company projected. Any forward looking statements in this Form 10-Q reflect the Company’s current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to its operations, results of operations, growth strategy and liquidity.

For these statements, the Company claims the protection of the safe harbor for forward looking statements contained in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).

Available Information

The Company maintains an Internet web site at www.assuredguaranty.com. The Company makes available, free of charge, on its web site (under www.assuredguaranty.com/sec-filings) the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC. The Company also makes available, free of charge, through its web site (under www.assuredguaranty.com/governance) links to the Company's Corporate Governance Guidelines, its Code of Conduct, AGL's Bye-Laws and the charters for its Board committees. In addition, the SEC maintains an Internet site (at www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

89

The Company routinely posts important information for investors on its web site (under www.assuredguaranty.com/company-statements and, more generally, under the Investor Information tab at www.assuredguaranty.com/investor-information and Businesses tab at www.assuredguaranty.com/businesses). The Company uses this web site as a means of disclosing material information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Company Statements, Investor Information and Businesses portions of the Company's web site, in addition to following the Company's press releases, SEC filings, public conference calls, presentations and webcasts.

The information contained on, or that may be accessed through, the Company's web site is not incorporated by reference into, and is not a part of, this report.

Executive Summary

This executive summary of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Quarterly Report. For a more detailed description of events, trends and uncertainties, as well as the capital, liquidity, credit, operational and market risks and the critical accounting policies and estimates affecting the Company, this Quarterly Report should be read in its entirety and in addition to AGL's 2018 Annual Report on Form 10-K.

Economic Environment

The positive economic momentum in the U.S. since the beginning of 2016 continued through June 30, 2019. According to the U.S. Bureau of Labor Statistics (BLS), after revisions, job gains averaged 171,000 per month over the three-month period ended June 30, 2019 (Second Quarter 2019). Employment growth has averaged 172,000 per month this year through June 30, compared with an average monthly gain of 223,000 in 2018. Additionally, the BLS estimated that, at the end of the quarter, the unemployment rate stood at 3.7%, remaining near a fifty-year low.

The Bureau of Economic Analysis (BEA) latest data showed that real gross domestic product (GDP) increased at an annual rate of 3.1% in the first quarter of 2019, and 2.1% in Second Quarter 2019.

The U.S. equity markets continued to perform positively in Second Quarter 2019. For the quarter, the S&P 500 Index, the Dow Jones Industrial Average (DJIA), and the NASDAQ Composite, along with other domestic indices such as the Russell 1000 Growth Index, finished higher.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.4% annual gain in May 2019, the latest data available, while the 20-City Composite posted a 2.4% year-over-year gain for the same period. The data released for May 2019 shows that the rate of home price increases across the U.S. has continued to slow. See Item 1, Financial Statements, Note 4, Expected Loss to be Paid, for a discussion of the residential market assumptions used in determining expected losses for U.S. residential mortgage-backed securities (RMBS).

At the July 30th-31st, 2019 Federal Open Market Committee (FOMC) meeting, the FOMC decided to lower the target range for the federal funds rate to 2.00% - 2.25%. In their press release, the FOMC cited as justification for the rate cut the following:

“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2.00% to 2.25%. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain.”

Municipal interest rates remain historically low. The 30-year AAA Municipal Market Data General Obligation (GO MMD) rate started the quarter at 2.60% and finished the quarter at 2.31%.  Credit spreads, represented by the differential between the AAA and the A GO MMD, tightened further from 43 basis points (bps) at the beginning of the quarter to 37 bps at quarter end, their tightest levels since the financial crisis, as compared to an average of 53 bps in 2018 and 2017.  See Key Business Strategies, New Business Production section below for the impact of the low interest rate environment and relatively tight U.S. municipal credit spreads on the demand for bond insurance.

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Financial Performance of Assured Guaranty

Financial Results

 

	Second Quarter					Six Months
	2019		2018			2019		2018
	(in millions, except per share amounts)
GAAP Highlights
Net income (loss)	$	142	$	75		$	196	$	272
Net income (loss) per diluted share	1.39		0.67			1.90		2.37
Weighted average diluted shares	101.9		112.9			103.0		114.8
Gross written premiums (GWP)	51		393			90		466
Non-GAAP Highlights(1)
Non-GAAP operating income(1)	141		74			227		229
Gain (loss) related to the effect of consolidating financial guaranty variable interest entities (FG VIE consolidation) included in non-GAAP operating income	6		(4		)	6		1
Non-GAAP operating income (1) per diluted share	1.38		0.66			2.20		1.99
Gain (loss) related to FG VIE consolidation included in non-GAAP operating income per diluted share	0.05		(0.03		)	0.06		0.01
Present value of new business production (PVP) (1)	54		454			96		515
Gross par written	4,183		14,571			6,890		16,773

	As of June 30, 2019						As of December 31, 2018
	Amount			Per Share			Amount			Per Share
	(in millions, except per share amounts)
Shareholders' equity	$	6,722		$	67.35		$	6,555		$	63.23
Non-GAAP operating shareholders' equity (1)	6,335			63.48			6,342			61.17
Non-GAAP adjusted book value (1)	8,849			88.67			8,922			86.06
Gain (loss) related to FG VIE consolidation included in non-GAAP operating shareholders' equity	12			0.12			3			0.03
Gain (loss) related to FG VIE consolidation included in non-GAAP adjusted book value	(2		)	(0.02		)	(15		)	(0.15		)
Common shares outstanding (2)	99.8						103.7

____________________

(1) See “—Non-GAAP Financial Measures” for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the United States of America (GAAP) and a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure, if available.

See “—Non-GAAP Financial Measures” for additional details.

(2) See "Key Business Strategies – Capital Management" below for information on common share repurchases.

Several primary drivers of volatility in net income or loss are not necessarily indicative of credit impairment or improvement, or ultimate economic gains or losses such as: changes in credit spreads of insured credit derivative obligations, changes in fair value of assets and liabilities of financial guaranty variable interest entities (FG VIEs) and committed capital securities (CCS), changes in fair value of credit derivatives related to the Company's own credit spreads, and changes in risk-free rates used to discount expected losses. Changes in the Company's and/or collateral credit spreads generally have the most significant effect on the fair value of credit derivatives and FG VIEs’ assets and liabilities.

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Other factors that drive volatility in net income include: changes in expected claims and recoveries, the amount and timing of the refunding and/or termination of insured obligations, realized gains and losses on the investment portfolio (including other-than-temporary impairments (OTTI)), changes in foreign exchange rates, the effects of large settlements, commutations, acquisitions, the effects of the Company's various loss mitigation strategies, and changes in laws and regulations, among others, may also have a significant effect on reported net income or loss in a given reporting period. 

Second Quarter 2019

Net income for Second Quarter 2019 increased to $142 million, from $75 million for the three-month period ended June 30, 2018 (Second Quarter 2018) mainly due to changes in loss and loss adjustment expenses (LAE), fair value changes of FG VIEs, foreign exchange rate changes and other income items, as described below.

• Loss and LAE was a benefit of $1 million in Second Quarter 2019 which consisted of a benefit for U.S. RMBS transactions, partially offset by an increase in public finance losses, compared with a loss of $44 million in Second Quarter 2018, primarily attributable to Puerto Rico exposures.

• FG VIEs gains were $33 million in Second Quarter 2019, primarily attributable to higher recoveries on second lien U.S. RMBS FG VIEs' assets, compared with gains of $2 million in Second Quarter 2018.

• Foreign exchange losses were $14 million in Second Quarter 2019, compared with losses of $36 million in Second Quarter 2018. Foreign exchange gains and losses relate primarily to remeasurement of premiums receivable and are mainly due to changes in the exchange rate of the British pound sterling relative to the U.S. dollar.

• Fair value gains on CCS recorded in other income were $19 million in Second Quarter 2019 and were primarily due to widening of spreads of comparable securities relative to changes in treasury yields during the quarter, compared with losses of $1 million in Second Quarter 2018.

• Other income also includes commutation gains of $1 million in Second Quarter 2019, compared with commutation losses of $18 million in Second Quarter 2018 related to the transaction (SGI Transaction) closed on June 1, 2018 with Syncora Guarantee Inc. (SGI).

These increases were offset in part by changes in fair value of credit derivatives, net earned premiums and higher effective tax rate as described below.

• Fair value losses on credit derivatives were $8 million in Second Quarter 2019 primarily due to changes in the Company's spreads, partially offset by price improvements on the underlying collateral, compared with gains of $48 million in Second Quarter 2018 which were primarily attributable to price improvements on the underlying collateral of the Company's insured CDS. Except for credit impairment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.

• Net earned premiums were $112 million in Second Quarter 2019, compared with $136 million in Second Quarter 2018; the decline was due to lower accelerations from refundings and terminations, which were $20 million in Second Quarter 2019, compared with $39 million in Second Quarter 2018.

• The effective tax rate in Second Quarter 2019 was 22% compared with 13% in Second Quarter 2018. The effective tax rate fluctuates from period to period based on the proportion of income in different tax jurisdictions.

Non-GAAP operating income was $141 million in Second Quarter 2019, compared with $74 million in Second Quarter 2018. Non-GAAP operating income increased mainly due to lower losses, higher FG VIEs gains, and higher net investment income in Second Quarter 2019 as well as higher commutation and debt extinguishment losses in Second Quarter 2018. This was offset in part by lower net earned premiums and a higher effective tax rate.

Six Months 2019

Net income for the six-month period ended June 30, 2019 (Six Months 2019) was $196 million compared with $272 million for the six-month period ended June 30, 2018 (Six Months 2018). Net income decreased mainly due to fair value losses on credit derivatives in Six Months 2019 compared with gains in Six Months 2018, lower net earned premiums, higher loss expense and a higher effective tax rate, as described below.

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• Fair value losses on credit derivatives were $30 million in Six Months 2019 and were primarily due to wider implied net spreads driven by the decreased market cost to buy protection in Assured Guaranty Corp.'s (AGC) name during the period. Fair value gains on credit derivatives were $82 million in Six Months 2018, primarily attributable to the increase in credit given to the primary insurer on one of the Company's second-to-pay CDS policies, CDS terminations, and price improvements on the underlying collateral of the Company’s CDS.

• Net earned premiums were $230 million in Six Months 2019, compared with $281 million in Six Months 2018; the decline was due to lower accelerations from refundings and terminations, which were $46 million in Six Months 2019, compared with $91 million in Six Months 2018.

• Loss and LAE was a loss of $45 million in Six Months 2019, mainly driven by higher losses on certain Puerto Rico exposures, partially offset by a benefit on U.S. RMBS exposures, compared with a loss of $26 million in Six Months 2018, mainly driven by higher losses on certain Puerto Rico exposures, partially offset by the reduction of loss reserves on the City of Hartford, Connecticut exposure and a benefit on U.S. RMBS exposures.

• The effective tax rate in Six Months 2019 was 18% compared with 10% in Six Months 2018. The effective tax rate fluctuates from period to period based on a proportion of income in different tax jurisdictions.

These decreases were offset in part by higher fair value gains on FG VIEs in Six Months 2019 and higher commutation and debt extinguishment losses in Six Months 2018 compared with Six Months 2019.

• FG VIEs gains were $38 million in Six Months 2019, primarily attributable to higher recoveries on second lien U.S. RMBS FG VIEs' assets, compared with gains of $6 million in Six Months 2018.

• Commutation gains recorded in other income were $1 million in Six Months 2019 compared with commutation losses of $17 million in Six Months 2018 related to the SGI Transaction.

• Loss on extinguishment of debt was $1 million in Six Months 2019, compared with $17 million in Six Months 2018. The loss on extinguishment of debt is related to Assured Guaranty US Holdings Inc. (AGUS) purchase of a portion of the principal amount of Assured Guaranty Municipal Holdings Inc.'s (AGMH) outstanding Junior Subordinated Debentures. In Six Months 2019 and Six Months 2018, AGUS purchased $3 million and $47 million, respectively, of par.

Non-GAAP operating income was $227 million in Six Months 2019, compared with $229 million in Six Months 2018. Non-GAAP operating income declined mainly due to lower net earned premiums, higher loss expense and a higher effective tax rate mostly offset by higher fair value gains on FG VIEs in Six Months 2019 and higher commutation and debt extinguishment losses in Six Months 2018.

Shareholders' equity increased since December 31, 2018 primarily due to unrealized gains on available for sale investment securities and net income, partially offset by share repurchases and dividends. Non-GAAP operating shareholders' equity decreased slightly in Six Months 2019 as non-GAAP operating income was offset mainly by share purchases and dividends. Non-GAAP adjusted book value decreased slightly in Six Months 2019 primarily due to share repurchases and dividends, partially offset by new direct business production.

Shareholders' equity per share, non-GAAP operating shareholders' equity per share and non-GAAP adjusted book value per share all increased in Six Months 2019, and benefited from the repurchase of an additional 4.4 million shares in Six Months 2019 under the share repurchase program that began in 2013. See "Accretive Effect of Cumulative Repurchases" table below.

Key Business Strategies

The Company continually evaluates its business strategies. Currently, the Company is pursuing the following business strategies, each described in more detail below:

• New business production

• Capital management

• Alternative strategies

• Loss mitigation

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New Business Production

The Company believes high-profile defaults by municipal obligors, such as Puerto Rico, Detroit, Michigan and Stockton, California have led to increased awareness of the value of bond insurance and stimulated demand for the product. The Company believes there will be continued demand for its insurance in this market because, for those exposures that the Company guarantees, it undertakes the tasks of credit selection, analysis, negotiation of terms, surveillance and, if necessary, loss mitigation. The Company believes that its insurance:

• encourages retail investors, who typically have fewer resources than the Company for analyzing municipal bonds, to purchase such bonds;

• enables institutional investors to operate more efficiently; and

• allows smaller, less well-known issuers to gain market access on a more cost-effective basis.

On the other hand, the persistently low interest rate environment and relatively tight U.S. municipal credit spreads have dampened demand for bond insurance, and provisions in legislation known as the 2017 Tax Cuts and Jobs Act, such as the termination of the tax-exempt status of advance refunding bonds and the reduction in corporate tax rates, have resulted in a reduction of supply and made municipal obligations less attractive to certain institutional investors.

U.S. Municipal Market Data and Bond Insurance Penetration Rates (1)

Based on Sale Date

 

	Six Months 2019			Six Months 2018			Year Ended December 31, 2018
	(dollars in billions, except number of issues and percent)
Par:
New municipal bonds issued	$	165.0		$	155.9		$	320.3
Total insured	$	9.7		$	9.1		$	18.9
Insured by Assured Guaranty	$	5.7		$	5.1		$	10.5
Number of issues:
New municipal bonds issued	4,637			4,302			8,555
Total insured	797			625			1,246
Insured by Assured Guaranty	423			283			596
Bond insurance market penetration based on:
Par	5.9		%	5.8		%	5.9		%
Number of issues	17.2		%	14.5		%	14.6		%
Single A par sold	22.9		%	19.2		%	17.8		%
Single A transactions sold	57.9		%	53.2		%	52.8		%
$25 million and under par sold	18.2		%	17.8		%	17.2		%
$25 million and under transactions sold	20.4		%	17.0		%	17.1		%

____________________

(1) Source: The amounts in the table are those reported by Thomson Reuters. In addition, the Company considers $500 million of taxable ProMedica Toledo Hospital bonds insured by Assured Guaranty in 2018 to be public finance business.

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Gross Written Premiums and

New Business Production

	Second Quarter					Six Months
	2019			2018		2019		2018
	(in millions)
GWP
Public Finance—U.S.	$	43		$	170	$	73	$	203
Public Finance—non-U.S.	12			55		14		94
Structured Finance—U.S.	(4		)	158		2		159
Structured Finance—non-U.S.	—			10		1		10
Total GWP	$	51		$	393	$	90	$	466
PVP (1):
Public Finance—U.S.	$	44		$	234	$	76	$	269
Public Finance—non-U.S.	7			53		11		79
Structured Finance—U.S.	3			158		8		158
Structured Finance—non-U.S. (2)	—			9		1		9
Total PVP	$	54		$	454	$	96	$	515
Gross Par Written (1):
Public Finance—U.S.	$	3,657		$	10,675	$	5,673	$	12,679
Public Finance—non-U.S.	299			3,345		475		3,532
Structured Finance—U.S.	227			393		721		404
Structured Finance—non-U.S. (2)	—			158		21		158
Total gross par written	$	4,183		$	14,571	$	6,890	$	16,773
Average rating on new business written	A-			A-		A-		A-

____________________

(1) PVP and Gross Par Written in the table above are based on "close date," when the transaction settles. See “– Non-GAAP Financial Measures – PVP or Present Value of New Business Production.”

(2)    Includes aircraft residual value insurance policies.

GWP relates to both financial guaranty insurance and non-financial guaranty insurance contracts. Credit derivatives are accounted for at fair value and therefore not included in GWP. Financial guaranty GWP includes amounts collected upfront on new business written, the present value of future premiums on new business written (discounted at risk-free rates), as well as the effects of changes in the estimated lives of transactions in the inforce book of business. Non-financial guaranty GWP is recorded as premiums are received. Non-GAAP PVP, on the other hand, includes upfront premiums and estimated future installments on new business at the time of issuance, discounted at 6% for all contracts whether in insurance or credit derivative form.

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Second Quarter 2019

In Second Quarter 2019, GWP was $51 million compared with $393 million in Second Quarter 2018, and PVP was $54 million compared with $454 million. GWP and PVP for Second Quarter 2018 included the assumption of substantially all of the insured portfolio of SGI which was the primary driver of the variance in GWP, PVP and gross par written between Second Quarter 2019 and Second Quarter 2018. The components of new business production generated by the SGI Transaction in Second Quarter 2018 are presented below.

Assumed SGI Insured Portfolio (1)

	GWP		PVP
	Financial Guaranty		Financial Guaranty		Credit Derivatives		Total		Gross Par Written
	(in millions)
Public Finance—U.S.	$	123	$	118	$	67	$	185	$	7,559
Public Finance—non-U.S.	50		38		12		50		3,345
Structured Finance—U.S.	157		156		—		156		349
Structured Finance—non-U.S.	—		—		—		—		19
Total	$	330	$	312	$	79	$	391	$	11,272

____________________

(1) On a GAAP basis, in Second Quarter 2018, the SGI Transaction included transactions with $131 million in expected losses (discounted at a risk-free rate). On a non-GAAP basis, SGI Transaction included transactions with expected losses of $83 million (discounted at 6%, consistent with the PVP discount rate).

In Second Quarter 2019, Assured Guaranty once again guaranteed the majority of the insured U.S. public finance par and number of transactions issued and had an average rating on new business of A-, based on par.

For the fifteenth consecutive quarter, the Company generated new non-U.S. GWP and PVP. In Second Quarter 2019, the Company guaranteed a debt refinancing of Spanish solar plants, the first wrapped issuance in Spain since prior to the 2008 financial crisis, as well as a Scottish housing association transaction.

The Company believes its financial guaranty product is competitive with other financing options in certain segments of the global infrastructure and structured finance markets. For example, certain investors may receive advantageous capital requirement treatment with the addition of the Company’s guaranty. The Company considers its involvement in both international infrastructure and structured finance transactions to be beneficial because such transactions diversify both the Company's business opportunities and its risk profile beyond U.S. public finance. Quarterly business activity in the international infrastructure and structured finance sectors is influenced by typically long lead times and therefore may vary from quarter to quarter.

Six Months 2019

In Six Months 2019, GWP was $90 million compared with $466 million in Six Months 2018, and PVP was $96 million compared with $515 million. GWP and PVP were higher in 2018 primarily due to the SGI Transaction in Six Months 2018. See "Assumed SGI Insured Portfolio" table above.

Non-U.S. public finance PVP for Six Months 2019 was lower compared to Six Months 2018, primarily due to several large 2018 refinancings that resulted in no additional par exposure.

Capital Management

The Company employs several strategies to manage capital within the Assured Guaranty group efficiently.

From 2013 through August 7, 2019, the Company has repurchased 100.3 million common shares for approximately $2,964 million, representing 52% of the total shares outstanding at the beginning of the repurchase program in 2013. On August 7, 2019, the Board of Directors authorized an additional $300 million of share repurchases. As of August 7, 2019, after combining the remaining authorization and the new authorization, the Company was authorized to purchase $450 million of its common shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions. The

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timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including free funds available at the parent company, other potential uses for such free funds, market conditions, the Company's capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board of Directors at any time and it does not have an expiration date. See Item 1, Financial Statements, Note 14, Shareholders' Equity, for additional information about the Company's repurchases of its common shares.

Summary of Share Repurchases

	Amount		Number of Shares	Average price per share
	(in millions, except per share data)
2013 - 2018	$	2,716	94.556	$	28.73
2019 (First Quarter)	79		1.909	41.62
2019 (Second Quarter)	111		2.519	43.89
2019 (July 1 - August 7)	58		1.317	43.59
Cumulative repurchases since the beginning of 2013	$	2,964	100.301	$	29.55

Accretive Effect of Cumulative Repurchases (1)

	Second Quarter 2019		Six Months 2019		As of June 30, 2019
	(per share)
Net income	$	0.59	$	0.70
Non-GAAP operating income	0.58		0.85
Shareholders' equity					$	18.72
Non-GAAP operating shareholders' equity					16.86
Non-GAAP adjusted book value					29.33

_________________

(1) Represents estimated accretive effect of cumulative share repurchases since the beginning of 2013.

In March 2019, Municipal Assurance Corp. (MAC) received approval from the New York State Department of Financial Services to dividend to Municipal Assurance Holdings Inc. (MAC Holdings) $100 million in 2019, an amount that exceeds the amount available to dividend without such approval in 2019 under applicable law. MAC distributed $100 million dividend to MAC Holdings during Second Quarter 2019.

In May 2019, the Maryland Insurance Administration approved and in June 2019 AGC implemented the repurchase of $100 million of its shares of common stock from AGUS.

The Company considers the appropriate mix of debt and equity in its capital structure, and may repurchase some of its debt from time to time. For example, in Six Months 2019, AGUS purchased $3 million of par of AGMH outstanding Junior Subordinated Debentures, which resulted in a loss on extinguishment of debt of $1 million in Six Months 2019. AGUS did not purchase AGMH's debt in Second Quarter 2019. The Company may choose to make additional purchases of this or other Company debt in the future.

Alternative Strategies

The Company considers alternative strategies to create long-term shareholder value, including acquisitions, investments and commutations. For example, the Company considers opportunities to acquire financial guaranty portfolios, whether by acquiring financial guarantors who are no longer actively writing new business or their insured portfolios, or by commuting previously ceded business. These transactions enable the Company to improve its future earnings and deploy excess capital.

Commutations. Commutations resulted in gains of $1 million in Second Quarter 2019 and Six Months 2019 and losses of $18 million and $17 million in Second Quarter 2018 and Six Months 2018, respectively. Commutations added net unearned premium reserve of $15 million in both Second Quarter 2019 and Six Months 2019, $56 million in Second Quarter

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2018 and $60 million in Six Months 2018. In the future, the Company may enter into new commutation agreements to reassume portions of its insured business ceded to other reinsurers, but such opportunities are expected to be limited given the the small amount of the insurance portfolio currently reinsured by unaffiliated reinsurers.

Alternative Investments. The alternative investments group has been investigating a number of new business opportunities that complement the Company's financial guaranty business, are consistent with its risk profile and benefit from its core competencies, including, among others, both controlling and non-controlling investments in investment managers.

On August 7, 2019, AGUS and AGL entered into a purchase agreement (Purchase Agreement) pursuant to which AGUS will purchase all of the outstanding equity interests in BlueMountain and its associated entities for a purchase price of approximately $160 million, subject to certain to pre- and post-closing adjustments. BlueMountain manages $19.3 billion in assets across collateralized loan obligations (CLOs); long-duration opportunity funds that build on the firm’s corporate credit, asset-backed finance, infrastructure and healthcare experience; and hedge funds employing relative value approaches. Completion of the BlueMountain Acquisition is subject to certain customary closing conditions, including the receipt of certain consents and regulatory approvals.

Not less than $114.8 million of the purchase price will be payable in cash. The remainder of the purchase price will be payable, at AGUS' election, in cash, in AGL common shares, in a one-year promissory note or in a combination of the foregoing. In addition, AGUS will contribute $60 million of cash to BlueMountain at closing and intends to contribute an additional $30 million in cash within a year from closing. AGUS intends to fund the cash portion of the purchase price and the cash contributions to BlueMountain with available cash and, subject to regulatory approval, intercompany borrowings from Assured Guaranty Municipal Corp. (AGM), AGC, MAC or a combination of them. In connection with the BlueMountain Acquisition, the Company expects to invest $500 million in BlueMountain-managed funds, CLOs and separately-managed accounts within three years of the closing.

While the Company acquired in September 2017 a minority interest in Wasmer, Schroeder & Company LLC, an independent investment advisory firm specializing in separately managed accounts (SMAs), the BlueMountain Acquisition would represent a significant increase in the Company's participation in the asset management business. The Company believes the asset management business is in line with its risk profile and benefits from its core competencies.

The Company also acquired a minority interest in the holding company of Rubicon Infrastructure Advisors, a full-service investment firm based in Dublin that provides investment banking services in the global infrastructure sector, in September 2018. In February 2017, the Company agreed to purchase up to $100 million of limited partnership interests in a fund that invests in the equity of private equity managers; as of June 30, 2019, $85 million of the commitment was not funded.

The Company continues to investigate additional opportunities in the asset management business and in other businesses in line with its risk profile and that would benefit from its core competencies, but there can be no assurance of whether or when the Company will find suitable opportunities on appropriate terms, whether the BlueMountain Acquisition will close, or whether the Company will realize the benefits it expects from the BlueMountain Acquisition, or the benefits of any of its past or future alternative investments.

Loss Mitigation

In an effort to avoid, reduce or recover losses and potential losses in its insurance portfolios, the Company employs a number of strategies.

In the public finance area, the Company believes its experience and the resources it is prepared to deploy, as well as its ability to provide bond insurance or other contributions as part of a solution, result in more favorable outcomes in distressed public finance situations than would be the case without its participation. This has been illustrated by the Company's role in the Detroit, Michigan; Stockton, California; and Jefferson County, Alabama financial crises. Currently the Company is actively working to mitigate potential losses in connection with the obligations it insures of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations and was an active participant in negotiating the Puerto Rico Electric Power Authority (PREPA) restructuring support agreement and the Puerto Rico Sales Tax Financing Corporation (COFINA) plan of adjustment. The Company will also, where appropriate, pursue litigation to enforce its rights, and it has initiated a number of legal actions to enforce its rights in Puerto Rico. For more information about developments in Puerto Rico and related litigation being pursued by the Company, see Item 1, Financial Statements, Note 3, Outstanding Exposure.

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The Company is currently working with the servicers of some of the RMBS it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS.

In some instances, the terms of the Company's policy give it the option to pay principal on an accelerated basis on an obligation on which it has paid a claim, thereby reducing the amount of guaranteed interest due in the future. The Company has at times exercised this option, which uses cash but reduces projected future losses. The Company may also facilitate the issuance of refunding bonds, by either providing insurance on the refunding bonds or purchasing refunding bonds, or both. Refunding bonds may provide the issuer with payment relief.

Other Events

The Company has evaluated the potential impact on its business of the U.K.’s decision on June 23, 2016 (pursuant to a referendum), and subsequent notice to the EU on March 29, 2017, of its desire to exit the EU, known as “Brexit”.  Negotiations are ongoing between the U.K. and the EU to determine the future terms of the U.K’s relationship with the EU, including the terms of trade between the U.K. and the EU. The Company believes that the negotiations are likely to last at least until fall 2019. Brexit may impact laws, rules and regulations applicable to the Company’s U.K. subsidiaries and operations and the transactions insured by its U.K. subsidiary. The Company cannot predict the direction Brexit-related developments will take, nor the impact of those developments on its European operations and the economies of the markets the Company serves, but the Company has established, and is in the process of finalizing the authorization for, a new subsidiary in France to facilitate its operations. The current intention of the Company's U.K. subsidiary is to transfer those of its existing policies that are affected by Brexit to the new subsidiary, in order for the new subsidiary to continue to administer them.

The U.S. Internal Revenue Service and Department of the Treasury issued proposed regulations on July 10, 2019 relating to the tax treatment of passive foreign investment companies (PFICs). The proposed regulations provide guidance on various PFIC rules, including changes resulting from the 2017 Tax Cuts and Jobs Act. As these regulations have only been recently issued, management is currently in the process of evaluating the impact to its shareholders and business operations.

Results of Operations

Estimates and Assumptions

The Company’s condensed consolidated financial statements include amounts that are determined using estimates and assumptions. It is possible that actual amounts realized could differ, possibly materially from the amounts currently recorded in the Company’s condensed consolidated financial statements. Management believes the most significant items requiring inherently subjective and complex estimates are expected losses, fair value estimates, OTTI, deferred income taxes, and premium revenue recognition. The following discussion of the results of operations includes information regarding the estimates and assumptions used for these items and should be read in conjunction with the notes to the Company’s condensed consolidated financial statements.

An understanding of the Company’s accounting policies is critical to understanding its condensed consolidated financial statements. See Part II, Item 8, Financial Statements and Supplementary Data, of the Company's 2018 Annual Report on Form 10-K for a discussion of significant accounting policies, the loss estimation process, and fair value methodologies.

The Company carries a portion of its assets and liabilities at fair value, the majority of which are measured at fair value on a recurring basis.  Level 3 assets, primarily consisting of loss mitigation securities and FG VIEs’ assets, represented approximately 16% and 18% of the total assets that are measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018, respectively. All of the Company's liabilities that are measured at fair value are Level 3. See Item 1, Financial Statements, Note 6, Fair Value Measurement, for additional information about assets and liabilities classified as Level 3.

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Condensed Consolidated Results of Operations

Condensed Consolidated Results of Operations

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in millions)
Revenues:
Net earned premiums	$	112		$	136		$	230		$	281
Net investment income	110			98			208			198
Net realized investment gains (losses)	8			(2		)	(4		)	(7		)
Net change in fair value of credit derivatives	(8		)	48			(30		)	82
Fair value gains (losses) on FG VIEs	33			2			38			6
Foreign exchange gain (loss) on remeasurement	(14		)	(36		)	(3		)	(14		)
Other income (loss)	25			(26		)	22			(33		)
Total revenues	266			220			461			513
Expenses:
Loss and LAE	(1		)	44			45			26
Amortization of deferred acquisition costs	4			4			10			9
Interest expense	22			24			45			48
Other operating expenses	60			62			124			127
Total expenses	85			134			224			210
Income (loss) before provision for income taxes and equity in net earnings of investees	181			86			237			303
Equity in net earnings of investees	1			1			3			1
Income (loss) before income taxes	182			87			240			304
Provision (benefit) for income taxes	40			12			44			32
Net income (loss)	$	142		$	75		$	196		$	272

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Net Earned Premiums

Premiums are earned over the contractual lives, or in the case of homogeneous pools of insured obligations, the remaining expected lives, of financial guaranty insurance contracts. The Company estimates remaining expected lives of its insured obligations and makes prospective adjustments for such changes in expected lives. Scheduled net earned premiums decrease each year unless replaced by a higher amount of new business, reassumptions of previously ceded business or books of business acquired in a business combination. See Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Financial Guaranty Insurance Premiums, for additional information.

Net Earned Premiums

 

	Second Quarter					Six Months
	2019			2018		2019			2018
	(in millions)
Financial guaranty insurance:
Public finance
Scheduled net earned premiums	$	72		$	76	$	143		$	148
Accelerations:
Refundings	22			35		49			81
Terminations	—			1		—			7
Total accelerations	22			36		49			88
Total public finance	94			112		192			236
Structured finance (1)
Scheduled net earned premiums	18			20		38			40
Terminations	(2		)	3		(3		)	3
Total structured finance	16			23		35			43
Non-financial guaranty	2			1		3			2
Total net earned premiums	$	112		$	136	$	230		$	281

____________________

(1) Excludes $11 million and $3 million for Second Quarter 2019 and Second Quarter 2018, respectively, and $14 million and $6 million for Six Months 2019 and 2018, respectively, related to consolidated FG VIEs.

Net earned premiums decreased in Second Quarter 2019 compared with Second Quarter 2018 and in Six Months 2019 compared with Six Months 2018, due primarily to a reduction in accelerations due to refundings and terminations and the scheduled decline in par outstanding. At June 30, 2019, $3.4 billion of net deferred premium revenue remained to be earned over the life of the insurance contracts.

Net earned premiums due to accelerations is attributable to changes in the expected lives of insured obligations driven by (a) refundings of insured obligations or (b) terminations of insured obligations either through negotiated agreements or the exercise of the Company's contractual rights to make claim payments on an accelerated basis.

Refundings occur in the public finance market and had been at historically high levels in recent years primarily due to the low interest rate environment, which has allowed many municipalities and other public finance issuers to refinance their debt obligations at lower rates. The premiums associated with the insured obligations of municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured. When such issuers pay down insured obligations prior to their originally scheduled maturities, the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the nonrefundable deferred premium revenue remaining. Provisions in the 2017 Tax Cuts and Jobs Act regarding the termination of the tax-exempt status of advance refunding bonds has resulted in fewer refundings.

Terminations are generally negotiated agreements with beneficiaries resulting in the extinguishment of the Company’s insurance obligation. Terminations are more common in the structured finance asset class, but may also occur in the public finance asset class. While each termination may have different terms, they all result in the expiration of the Company’s insurance risk, the acceleration of the recognition of the associated deferred premium revenue and the reduction of any remaining premiums receivable.

101

Net Investment Income

Net investment income is a function of the yield earned and the size of the investment portfolio. The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the invested assets.

Net Investment Income

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Income from fixed-maturity securities managed by third parties	$	69		$	74		$	141		$	149
Income from internally managed securities	43			27			71			54
Gross investment income	112			101			212			203
Investment expenses	(2		)	(3		)	(4		)	(5		)
Net investment income	$	110		$	98		$	208		$	198

Net investment income for Second Quarter 2019 and Six Months 2019 increased compared to Second Quarter 2018 and Six Months 2018, respectively, primarily due to the acceleration of income as a result of the settlement of an insured obligation in June 2019 that was held in the loss mitigation portfolio, offset partially by lower income due to a decrease in the average asset balances in the investment portfolio. The overall pre-tax book yield was 3.56% as of June 30, 2019 and 3.70% as of June 30, 2018. Excluding the internally managed portfolio, pre-tax book yield was 3.23% as of June 30, 2019 compared with 3.17% as of June 30, 2018.

Net Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses).

Net Realized Investment Gains (Losses)

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Gross realized gains on available-for-sale securities	$	13		$	2		$	19		$	11
Gross realized losses on available-for-sale securities	(1		)	(1		)	(3		)	(6		)
Net realized gains (losses) on other invested assets	—			—			—			(1		)
OTTI	(4		)	(3		)	(20		)	(11		)
Net realized investment gains (losses)	$	8		$	(2	)	$	(4	)	$	(7	)

OTTI in Second Quarter 2019 was mainly attributable to changes in foreign exchange rates. OTTI for all other periods presented were primarily attributable to securities purchased for loss mitigation and other risk management purposes.

Net Change in Fair Value of Credit Derivatives

Changes in the fair value of credit derivatives occur because of changes in the Company's own credit rating and credit spreads, collateral credit spreads, notional amounts, credit ratings of the referenced entities, expected terms, realized gains (losses) and other settlements, interest rates, and other market factors. Unrealized gains (losses) on credit derivatives may fluctuate significantly in future periods.

Except for net estimated credit impairments (i.e., net expected payments), the unrealized gains and losses on credit derivatives are expected to reduce to zero as the exposure approaches its maturity date. Changes in the fair value of the Company’s credit derivatives that do not reflect actual or expected claims or credit losses have no impact on the Company’s statutory claims-paying resources, rating agency capital or regulatory capital positions. Changes in expected losses in respect of

102

contracts accounted for as credit derivatives are included in the discussion of “Economic Loss Development” below. In addition, see Item 1, Financial Statements, Note 6, Fair Value Measurement for information on the valuation of the CDS and Note 8, Contracts Accounted for as Credit Derivatives, for information on the components of the change in fair value of CDS.

     Realized losses and other settlements for Second Quarter 2019 and Six Months 2019 were primarily due to a final maturity paydown of a U.S. structured finance transaction, for which there was an offsetting unrealized gain.

During Second Quarter 2019 unrealized fair value gains were generated primarily as a result of a final maturity paydown of a CDS contract and price improvements. These items were partially offset by wider implied net spreads driven by the decreased market cost to buy protection in AGC’s name during the period. For those CDS transactions that were pricing at or above their floor levels, when the cost of purchasing CDS protection on AGC, which management refers to as the CDS spread on AGC, decreased, the implied spreads that the Company would expect to receive on these transactions increased.

During Six Months 2019, unrealized fair value losses were generated primarily as a result of wider implied net spreads driven by the decreased market cost to buy protection in AGC’s name during the period. These losses were partially offset by the paydown of a CDS contract and price improvements.

During Second Quarter 2018, unrealized fair value gains were generated primarily as a result of price improvements on the underlying collateral of the Company’s CDS. This was the primary driver of the unrealized fair value gain in the U.S. structured finance sector. The unrealized fair value gains were partially offset by unrealized fair value losses related to the decreased cost to buy protection in AGC’s and AGM’s name as the market cost of AGC’s and AGM’s credit protection decreased during the period.

During Six Months 2018, unrealized fair value gains were generated primarily as a result of the increase in credit given to the primary insurer on one of the Company's second-to-pay CDS policies, CDS terminations, and price improvements on the underlying collateral of the Company’s CDS. The unrealized fair value gains were partially offset by unrealized fair value losses related to the decreased cost to buy protection in AGC’s and AGM’s name as the market cost of AGC’s and AGM’s credit protection decreased during the period.

Effect of Changes in the Company’s Credit Spread on

Net Unrealized Gains (Losses) on Credit Derivatives

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Change in unrealized gains (losses) on credit derivatives:
Before considering implication of the Company’s credit spreads	$	37		$	52		$	59		$	105
Resulting from change in the Company’s credit spreads	(25		)	(5		)	(68		)	(26		)
After considering implication of the Company’s credit spreads	$	12		$	47		$	(9	)	$	79

Management believes that the trading level of AGC and AGM credit spreads over the past several years has been due to the correlation between AGC’s and AGM’s risk profile and the current risk profile of the broader financial markets.

Sensitivity to Changes in Credit Spread

The following table summarizes the estimated change in fair values on the net balance of the Company’s credit derivative positions assuming an immediate shift in the net spreads assumed by the Company. The net spread is affected by the spread of the underlying collateral and the credit spreads on AGC.

103

Effect of Changes in Credit Spread

	As of June 30, 2019						As of December 31, 2018
Credit Spreads (1)	Estimated Net Fair Value (Pre-Tax)			Estimated Change in Gain/(Loss) (Pre-Tax)			Estimated Net Fair Value (Pre-Tax)			Estimated Change in Gain/(Loss) (Pre-Tax)
	(in millions)
Increase of 25 bps	$	(353	)	$	(137	)	$	(348	)	$	(141	)
Base Scenario	(216		)	—			(207		)	—
Decrease of 25 bps	(134		)	82			(143		)	64
All transactions priced at floor	(71		)	145			(101		)	106

 ____________________

(1) Includes the effects of changes in the net spreads assumed by the Company.

Financial Guaranty Variable Interest Entities

As of June 30, 2019 and December 31, 2018, the Company consolidated 29 and 31 FG VIEs, respectively. The effect of FG VIE consolidation on net income and shareholders' equity includes: changes in fair value gains (losses) on FG VIEs’ assets and liabilities except the change in fair value of FG VIEs’ liabilities with recourse attributable to instrument-specific credit risk which is recorded in other comprehensive income (OCI), and premiums and losses related to AGC's and AGM's insurance of FG VIEs’ liabilities with recourse and any investment balances related to the Company’s purchase of AGC and AGM insured FG VIEs’ debt, that are considered intercompany transactions and are therefore eliminated.

The primary driver of the gain during Second Quarter 2019 and Six Months 2019 was attributable to higher recoveries on second lien U.S. RMBS FG VIEs' assets. The primary driver of the gain during Second Quarter 2018 and Six Months 2018 was improvement in the underlying collateral of the FG VIEs' assets.

The effect of consolidation of FG VIEs (including the change in fair value and the effect of eliminating insurance and investment balances) was a gain of $6 million and a loss $4 million in net income in Second Quarter 2019 and Second Quarter 2018, respectively, and gains of $6 million and $1 million in Six Months 2019 and Six Months 2018, respectively. See Item 1, Financial Statements, Note 9, Variable Interest Entities, for additional information.

Foreign Exchange Gain (Loss) on Remeasurement

Foreign exchange losses primarily relate to remeasurement of premiums receivable and are mainly due to changes in the exchange rate of the British pound sterling relative to the U.S. dollar.

Other Income (Loss)

Other income (loss) consists of recurring items such as those listed in the table below as well as ancillary fees on financial guaranty policies for commitments and consents, and if applicable, other revenue items on financial guaranty insurance and reinsurance contracts such as loss mitigation recoveries, commutation gains and losses and other items.

104

Other Income (Loss)

	Second Quarter					Six Months
	2019		2018			2019			2018
	(in millions)
Commutation gains (losses)	$	1	$	(18	)	$	1		$	(17	)
Loss on extinguishment of debt (1)	—		(10		)	(1		)	(17		)
Fair value gains (losses) on CCS (2)	19		(1		)	10			(2		)
Other	5		3			12			3
Total other income (loss)	$	25	$	(26	)	$	22		$	(33	)

 ____________________

(1) The loss on extinguishment of debt is related to AGUS' purchase of a portion of the principal amount of AGMH's outstanding Junior Subordinated Debentures. The loss represents the difference between the amount paid to purchase AGMH's debt and the carrying value of the debt, which includes the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009. AGUS purchased $27 million in Second Quarter 2018, $3 million in Six Months 2019 and $47 million in Six Months 2018. There were no purchases in Second Quarter 2019.

(2) Fair value gains on CCS recorded in Second Quarter 2019 and Six Months 2019 were primarily due to widening of spreads of comparable securities relative to changes in treasury yields during the periods.

Economic Loss Development

The insured portfolio includes policies accounted for under three separate accounting models depending on the characteristics of the contract and the Company’s control rights. See Item 1, Financial Statements, Note 4, Expected Loss to be Paid, for a discussion of assumptions and methodologies used in calculating the expected loss to be paid for all contracts, the loss estimation process and the accounting policies for measurement and recognition under GAAP for each type of contract, see Part II, Item 8, Financial Statements and Supplementary Data, of the Company's 2018 Annual Report on Form 10-K:

• Note 5 for expected loss to be paid,

• Note 6 for contracts accounted for as insurance,

• Note 7 for fair value methodologies for credit derivatives and FG VIEs’ assets and liabilities,

• Note 8 for contracts accounted for as credit derivatives, and

• Note 9 for FG VIEs.

In order to efficiently evaluate and manage the economics of the entire insured portfolio, management compiles and analyzes expected loss information for all policies on a consistent basis. The discussion of losses that follows encompasses losses on all contracts in the insured portfolio regardless of accounting model, unless otherwise specified. Net expected loss to be paid primarily consists of the present value of future: expected claim and LAE payments, expected recoveries from issuers or excess spread, cessions to reinsurers, expected recoveries/payables for breaches of representations and warranties, and the effects of other loss mitigation strategies. Current risk-free rates are used to discount expected losses at the end of each reporting period and therefore changes in such rates from period to period affect the expected loss estimates reported. Assumptions used in the determination of the net expected loss to be paid such as delinquency, severity, and discount rates and expected time frames to recovery were consistent by sector regardless of the accounting model used. The primary drivers of economic loss development are discussed below. Changes in risk-free rates used to discount losses affect economic loss development, and loss and LAE; however, the effect of changes in discount rates are not indicative of actual credit impairment or improvement in the period.

105

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

By Accounting Model

	Net Expected Loss to be Paid (Recovered)						Net Economic Loss Development (Benefit)
	As of						Second Quarter						Six Months
	June 30, 2019			December 31, 2018			2019			2018			2019			2018
	(in millions)
Insurance	$	907		$	1,110		$	(22	)	$	23		$	(12	)	$	(10	)
FG VIEs	64			75			(14		)	(6		)	(24		)	(4		)
Credit derivatives	(11		)	(2		)	(1		)	2			(3		)	9
Total	$	960		$	1,183		$	(37	)	$	19		$	(39	)	$	(5	)

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

By Sector

	Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
	As of				Second Quarter						Six Months
	June 30, 2019		December 31, 2018		2019			2018			2019			2018
	(in millions)
Public finance	$	772	$	864	$	84		$	53		$	145		$	11
Structured finance
U.S. RMBS	162		293		(118		)	(28		)	(183		)	(12		)
Other structured finance	26		26		(3		)	(6		)	(1		)	(4		)
Structured finance	188		319		(121		)	(34		)	(184		)	(16		)
Total	$	960	$	1,183	$	(37	)	$	19		$	(39	)	$	(5	)

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Risk-Free Rates

	Risk-Free Rates used in Expected Loss for U.S. Dollar Denominated Obligations
	Range				Weighted Average
As of June 30, 2019	0.00	%	-	2.63%	2.10	%
As of March 31, 2019	0.00			2.87	2.46
As of December 31, 2018	0.00		-	3.06	2.74
As of June 30, 2018	0.00		-	3.03	2.85
As of March 31, 2018	0.00			3.11	2.82
As of December 31, 2017	0.00		-	2.78	2.38

	Effect of Changes in the Risk-Free Rates on Economic Loss Development (Benefit)
	(in millions)
Second Quarter 2019	$	(1	)
Second Quarter 2018	—
Six Months 2019	(5		)
Six Months 2018	(6		)

Second Quarter 2019 Net Economic Loss Development

Public Finance Economic Loss Development: Public finance expected loss to be paid primarily related to U.S. exposures, which had below-investment-grade (BIG) net par outstanding of $6.0 billion as of June 30, 2019 compared with $6.4 billion as of December 31, 2018. The Company projects that its total net expected loss across its troubled U.S. public finance exposures as of June 30, 2019 will be $749 million, compared with $832 million as of December 31, 2018. Economic loss development on U.S. exposures in Second Quarter 2019 was $92 million, which was primarily attributable to Puerto Rico exposures. The economic benefit was approximately $8 million for non-U.S. exposures during Second Quarter 2019, which was mainly attributable to the improved internal outlook of certain Spanish sovereigns and sub-sovereigns.

U.S. RMBS Economic Loss Development: The net benefit attributable to U.S. RMBS was $118 million and was mainly related to higher projected recoveries for previously charged-off loans for second lien U.S. RMBS, an increase in excess spread improved performance, and loss mitigation efforts.

See Item 1, Financial Statements, Note 4, Expected Loss to be Paid for additional information.

Second Quarter 2018 Net Economic Loss Development

Public Finance Economic Loss Development: Public finance expected loss to be paid primarily related to U.S. exposures, which had BIG net par outstanding of $6.3 billion as of June 30, 2018 compared with $6.6 billion as of March 31, 2018. The Company projected that its total net expected loss across its troubled U.S. public finance exposures as of June 30, 2018 would be $1,041 million, compared with $1,007 million as of March 31, 2018. Economic benefit on U.S. exposures in Second Quarter 2018 was $56 million, which was primarily attributable to Puerto Rico exposures.

U.S. RMBS Economic Loss Development: The net benefit attributable to U.S. RMBS was $28 million and was mainly related to improved performance in certain second lien transactions. As part of the SGI Transaction, the Company assumed $130 million in expected losses on U.S. RMBS transactions.

107

Six Months 2019 Net Economic Loss Development

The total economic benefit of $39 million in Six Months 2019 was generated mainly by the structured finance sector, partially offset by the economic loss development in the U.S. public finance sector. The economic benefit in the structured finance sector in Six Months 2019 was $184 million, which was primarily attributable to an increase in excess spread, higher projected recoveries for previously charged-off loans for second lien U.S. RMBS, improved performance, and loss mitigation efforts. This was partially offset by U.S. public finance economic loss development of $154 million, which was primarily attributable to Puerto Rico exposures. The effect of the change in the risk-free rates used to discount expected losses was a benefit of $5 million in Six Months 2019.

Six Months 2018 Net Economic Loss Development

The total economic benefit of $5 million in Six Months 2018 was generated mainly by the structured finance sector, partially offset by the economic loss development in the U.S. public finance sector. The economic benefit in the structured finance sector in Six Months 2018 was $16 million, which was primarily attributable to improved collateral performance. This was partially offset by U.S. public finance economic loss development of $17 million, which was primarily attributable to Puerto Rico exposures, partially offset by the State of Connecticut's agreement to pay the debt service costs of certain bonds of the City of Hartford, including the bonds insured by the Company. The effect of the change in the risk-free rates used to discount expected losses was a benefit of $6 million in Six Months 2018.

Loss and LAE (Financial Guaranty Insurance Contracts)

The primary differences between net economic loss development and the amount reported as loss and LAE in the condensed consolidated statements of operations are that loss and LAE: (1) considers deferred premium revenue in the calculation of loss reserves and loss and LAE for financial guaranty insurance contracts, (2) eliminates loss and LAE related to consolidated FG VIEs and (3) does not include estimated losses on credit derivatives.     

Loss and LAE reported in non-GAAP operating income (i.e., operating loss and LAE) includes losses on financial guaranty insurance contracts (other than those eliminated due to consolidation of FG VIEs), and credit derivatives.

For financial guaranty insurance contracts each transaction’s expected loss to be expensed is compared with the deferred premium revenue of that transaction. When the expected loss to be expensed exceeds the deferred premium revenue, a loss is recognized in the condensed consolidated statements of operations for the amount of such excess. Therefore, the timing of loss recognition in income does not necessarily coincide with the timing of the actual credit impairment or improvement reported in net economic loss development. Transactions (particularly BIG transactions) acquired in a business combination or seasoned portfolios assumed from legacy financial guaranty insurers generally have the largest deferred premium revenue balances. Therefore the largest differences between net economic loss development and loss and LAE on financial guaranty insurance contracts generally relate to those policies.

The amount of loss and LAE recognized in the condensed consolidated statements of operations for financial guaranty contracts accounted for as insurance is a function of the amount of economic loss development discussed above and the deferred premium revenue amortization in a given period, on a contract-by-contract basis.

While expected loss to be paid is an important liquidity measure that provides the present value of amounts that the Company expects to pay or recover in future periods on all contracts, expected loss to be expensed is important because it presents the Company’s projection of loss and LAE that will be recognized in future periods as deferred premium revenue amortizes into income for financial guaranty insurance policies.

108

The following table presents the loss and LAE recorded in the condensed consolidated statements of operations. Amounts presented are net of reinsurance.

Loss and LAE Reported

on the Condensed Consolidated Statements of Operations

	Loss (Benefit)
	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Public finance	$	86		$	61		$	156		$	32
Structured finance
U.S. RMBS (1)	(88		)	(12		)	(115		)	4
Other structured finance	1			(5		)	4			(10		)
Structured finance	(87		)	(17		)	(111		)	(6		)
Total loss and LAE	$	(1	)	$	44		$	45		$	26

____________________

(1) Excludes a benefit of $14 million and $3 million for Second Quarter 2019 and 2018, respectively, and a benefit of $15 million and a loss of $3 million for Six Months 2019 and 2018, respectively, related to consolidated FG VIEs.

Loss and LAE in Second Quarter 2019 was a benefit, which was mainly driven by U.S. RMBS exposures, partially offset by higher losses on certain Puerto Rico exposures. Loss and LAE in Second Quarter 2018 was mainly driven by higher losses on certain Puerto Rico exposures, partially offset by a benefit on U.S. RMBS exposures.

Loss and LAE in Six Months 2019 was mainly driven by higher losses on certain Puerto Rico exposures, partially offset by a benefit on U.S. RMBS exposures. Loss and LAE in Six Months 2018 was mainly driven by higher losses on certain Puerto Rico exposures, partially offset by the reduction of loss reserves on the City of Hartford, CT exposure and a benefit related to certain assumed student loan transactions.

For additional information on the expected timing of net expected losses to be expensed see Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Financial Guaranty Insurance Losses.

Other Operating Expenses and Amortization of Deferred Acquisition Costs (DAC)

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Employee compensation and benefits	$	42		$	39		$	87		$	83
Deferred costs	(3		)	(3		)	(7		)	(7		)
Total employee compensation and benefits net of deferred costs	39			36			80			76
Professional fees	5			6			10			11
Premises and equipment	4			5			9			10
SGI Transaction	—			4			—			4
Other	12			11			25			26
Other operating expenses	60			62			124			127
Amortization of DAC	4			4			10			9
Total other operating expenses and amortization of DAC	$	64		$	66		$	134		$	136

109

Provision for Income Tax

The Company’s effective tax rate reflects the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries generally taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19% unless taxed as a U.S. controlled foreign corporation, and no taxes for the Company’s Bermuda subsidiaries, which consist of Assured Guaranty Re Ltd. (AG Re), Assured Guaranty Re Overseas Ltd. (AGRO), and Cedar Personnel Ltd., unless subject to U.S. tax by election or as a U.S. controlled foreign corporation. See Item 1, Financial Statements, Note 10, Income Taxes.

Provision for Income Taxes and Effective Tax Rates

	Second Quarter						Six Months
	2019			2018			2019			2018
	(dollars in millions)
Total provision (benefit) for income taxes	$	40		$	12		$	44		$	32
Effective tax rate	21.9		%	13.2		%	18.4		%	10.4		%

Non-GAAP Financial Measures

To reflect the key financial measures that management analyzes in evaluating the Company’s operations and progress towards long-term goals, the Company discloses both financial measures determined in accordance with GAAP and financial measures not determined in accordance with GAAP (non-GAAP financial measures).

Financial measures identified as non-GAAP should not be considered substitutes for GAAP financial measures. The primary limitation of non-GAAP financial measures is the potential lack of comparability to financial measures of other companies, whose definitions of non-GAAP financial measures may differ from those of the Company.

By disclosing non-GAAP financial measures, the Company gives investors, analysts and financial news reporters access to information that management and the Board of Directors review internally. The Company believes its presentation of non-GAAP financial measures, along with the effect of FG VIE consolidation, provides information that is necessary for analysts to calculate their estimates of Assured Guaranty’s financial results in their research reports on Assured Guaranty and for investors, analysts and the financial news media to evaluate Assured Guaranty’s financial results.

GAAP requires the Company to consolidate certain VIEs that have issued debt obligations insured by the Company. However, the Company does not own such VIEs and its exposure is limited to its obligation under its financial guaranty insurance contract. Management and the Board of Directors use non-GAAP financial measures adjusted to remove FG VIE consolidation (which the Company refers to as its core financial measures), as well as GAAP financial measures and other factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals. The Company uses these core financial measures in its decision making process and in its calculation of certain components of management compensation. Wherever possible, the Company has separately disclosed the effect of FG VIE consolidation.

Many investors, analysts and financial news reporters use non-GAAP operating shareholders’ equity, adjusted to remove the effect of FG VIE consolidation, as the principal financial measure for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares. Many of the Company’s fixed income investors also use this measure to evaluate the Company’s capital adequacy.

Many investors, analysts and financial news reporters also use non-GAAP adjusted book value, adjusted to remove the effect of FG VIE consolidation, to evaluate AGL’s share price and as the basis of their decision to recommend, buy or sell the AGL common shares. Non-GAAP operating income adjusted for the effect of FG VIE consolidation enables investors and analysts to evaluate the Company’s financial results in comparison with the consensus analyst estimates distributed publicly by financial databases.

The core financial measures that the Company uses to help determine compensation are: (1) non-GAAP operating income, adjusted to remove the effect of FG VIE consolidation, (2) non-GAAP operating shareholders' equity, adjusted to remove the effect of FG VIE consolidation, (3) growth in non-GAAP adjusted book value per share, adjusted to remove the effect of FG VIE consolidation, and (4) PVP.

110

The following paragraphs define each non-GAAP financial measure disclosed by the Company and describe why it is useful. To the extent there is a directly comparable GAAP financial measure, a reconciliation of the non-GAAP financial measure and the most directly comparable GAAP financial measure is presented below.

Non-GAAP Operating Income

Management believes that non-GAAP operating income is a useful measure because it clarifies the understanding of the underwriting results and financial condition of the Company and presents the results of operations of the Company excluding the fair value adjustments on credit derivatives and CCS that are not expected to result in economic gain or loss, as well as other adjustments described below. Management adjusts non-GAAP operating income further by removing FG VIE consolidation to arrive at its core operating income measure. Non-GAAP operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following:

1) Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading. The timing of realized gains and losses, which depends largely on market credit cycles, can vary considerably across periods. The timing of sales is largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax and capital profile.

2) Elimination of non-credit-impairment unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, the Company's credit spreads, and other market factors and are not expected to result in an economic gain or loss.

3) Elimination of fair value gains (losses) on the Company’s CCS that are recognized in net income. Such amounts are affected by changes in market interest rates, the Company's credit spreads, price indications on the Company's publicly traded debt, and other market factors and are not expected to result in an economic gain or loss.

4) Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and LAE reserves that are recognized in net income. Long-dated receivables and loss and LAE reserves represent the present value of future contractual or expected cash flows. Therefore, the current period’s foreign exchange remeasurement gains (losses) are not necessarily indicative of the total foreign exchange gains (losses) that the Company will ultimately recognize.

5) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

111

Reconciliation of Net Income (Loss)

to Non-GAAP Operating Income

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Net income (loss)	$	142		$	75		$	196		$	272
Less pre-tax adjustments:
Realized gains (losses) on investments	8			(2		)	(4		)	(7		)
Non-credit impairment unrealized fair value gains (losses) on credit derivatives	(12		)	44			(40		)	74
Fair value gains (losses) on CCS (1)	19			(1		)	10			(2		)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves (1)	(12		)	(34		)	(3		)	(12		)
Total pre-tax adjustments	3			7			(37		)	53
Less tax effect on pre-tax adjustments	(2		)	(6		)	6			(10		)
Non-GAAP operating income	$	141		$	74		$	227		$	229
Gain (loss) related to FG VIE consolidation (net of tax provision (benefit) of $1, $(1), $1 and $0 included in non-GAAP operating income	$	6		$	(4	)	$	6		$	1

____________________

(1) Included in other income (loss) in the condensed consolidated statements of operations.

Non-GAAP Operating Shareholders’ Equity and Non-GAAP Adjusted Book Value

     Management believes that non-GAAP operating shareholders’ equity is a useful measure because it presents the equity of the Company excluding the fair value adjustments on investments, credit derivatives and CCS, that are not expected to result in economic gain or loss, along with other adjustments described below. Management adjusts non-GAAP operating shareholders’ equity further by removing FG VIE consolidation to arrive at its core operating shareholders' equity and core adjusted book value.

Non-GAAP operating shareholders’ equity is the basis of the calculation of non-GAAP adjusted book value (see below). Non-GAAP operating shareholders’ equity is defined as shareholders’ equity attributable to AGL, as reported under GAAP, adjusted for the following:

1) Elimination of non-credit-impairment unrealized fair value gains (losses) on credit derivatives, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

2) Elimination of fair value gains (losses) on the Company’s CCS. Such amounts are affected by changes in market interest rates, the Company's credit spreads, price indications on the Company's publicly traded debt, and other market factors and are not expected to result in an economic gain or loss.

3) Elimination of unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (AOCI) (excluding foreign exchange remeasurement). The AOCI component of the fair value adjustment on the investment portfolio is not deemed economic because the Company generally holds these investments to maturity and therefore should not recognize an economic gain or loss.

4) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

112

Management uses non-GAAP adjusted book value, adjusted for FG VIE consolidation, to measure the intrinsic value of the Company, excluding franchise value. Growth in non-GAAP adjusted book value per share, adjusted for FG VIE consolidation (core adjusted book value), is one of the key financial measures used in determining the amount of certain long-term compensation elements to management and employees and used by rating agencies and investors. Management believes that non-GAAP adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues net of expected losses. Non-GAAP adjusted book value is non-GAAP operating shareholders’ equity, as defined above, further adjusted for the following:

1) Elimination of deferred acquisition costs, net. These amounts represent net deferred expenses that have already been paid or accrued and will be expensed in future accounting periods.

2) Addition of the net present value of estimated net future revenue. See below.

3) Addition of the deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed, net of reinsurance. This amount represents the expected future net earned premiums, net of expected losses to be expensed, which are not reflected in GAAP equity.

4) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

The unearned premiums and revenues included in non-GAAP adjusted book value will be earned in future periods, but actual earnings may differ materially from the estimated amounts used in determining current non-GAAP adjusted book value due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults and other factors.

Reconciliation of Shareholders’ Equity

to Non-GAAP Adjusted Book Value

	As of June 30, 2019						As of December 31, 2018
	After-Tax			Per Share			After-Tax			Per Share
	(dollars in millions, except per share amounts)
Shareholders’ equity	$	6,722		$	67.35		$	6,555		$	63.23
Less pre-tax adjustments:
Non-credit impairment unrealized fair value gains (losses) on credit derivatives	(85		)	(0.85		)	(45		)	(0.44		)
Fair value gains (losses) on CCS	84			0.84			74			0.72
Unrealized gain (loss) on investment portfolio excluding foreign exchange effect	478			4.79			247			2.39
Less taxes	(90		)	(0.91		)	(63		)	(0.61		)
Non-GAAP operating shareholders’ equity	6,335			63.48			6,342			61.17
Pre-tax adjustments:
Less: Deferred acquisition costs	106			1.06			105			1.01
Plus: Net present value of estimated net future revenue	196			1.97			204			1.96
Plus: Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed	2,932			29.37			3,005			28.98
Plus taxes	(508		)	(5.09		)	(524		)	(5.04		)
Non-GAAP adjusted book value	$	8,849		$	88.67		$	8,922		$	86.06
Gain (loss) related to FG VIE consolidation included in non-GAAP operating shareholders' equity (net of tax provision of $3 and $1)	$	12		$	0.12		3			0.03
Gain (loss) related to FG VIE consolidation included in non-GAAP adjusted book value (net of tax benefit of $1 and $4)	$	(2	)	$	(0.02	)	(15		)	(0.15		)

113

Net Present Value of Estimated Net Future Revenue

Management believes that this amount is a useful measure because it enables an evaluation of the value of future estimated revenue for contracts other than financial guaranty insurance contracts (such as non-financial guaranty insurance contracts and credit derivatives). There is no corresponding GAAP financial measure. This amount represents the present value of estimated future revenue from these contracts, net of reinsurance, ceding commissions and premium taxes, for contracts without expected economic losses, and is discounted at 6%. Estimated net future revenue may change from period to period due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation.

PVP or Present Value of New Business Production

Management believes that PVP is a useful measure because it enables the evaluation of the value of new business production for the Company by taking into account the value of estimated future installment premiums on all new contracts underwritten in a reporting period as well as premium supplements and additional installment premium on existing contracts as to which the issuer has the right to call the insured obligation but has not exercised such right, whether in insurance or credit derivative contract form, which management believes GAAP gross written premiums and the net credit derivative premiums received and receivable portion of net realized gains and other settlements on credit derivatives (Credit Derivative Realized Gains (Losses)) do not adequately measure. PVP in respect of contracts written in a specified period is defined as gross upfront and installment premiums received and the present value of gross estimated future installment premiums, discounted, in each case, at 6%. Under GAAP, financial guaranty installment premiums are discounted at a risk-free rate. Additionally, under GAAP, management records future installment premiums on financial guaranty insurance contracts covering non-homogeneous pools of assets based on the contractual term of the transaction, whereas for PVP purposes, management records an estimate of the future installment premiums the Company expects to receive, which may be based upon a shorter period of time than the contractual term of the transaction. Actual future earned or written premiums and Credit Derivative Realized Gains (Losses) may differ from PVP due to factors including, but not limited to, changes in foreign exchange rates, prepayment speeds, terminations, credit defaults, or other factors that affect par outstanding or the ultimate maturity of an obligation. 

Reconciliation of GWP to PVP

	Second Quarter 2019												Second Quarter 2018
	Public Finance					Structured Finance							Public Finance				Structured Finance
	U.S.			Non - U.S.		U.S.			Non - U.S.		Total		U.S.		Non - U.S.		U.S.		Non - U.S.		Total
	(in millions)
GWP	$	43		$	12	$	(4	)	$	—	$	51	$	170	$	55	$	158	$	10	$	393
Less: Installment GWP and other GAAP adjustments (1)	(1		)	12		(4		)	—		7		20		32		5		1		58
Upfront GWP	44			—		—			—		44		150		23		153		9		335
Plus: Installment premium PVP (2)	—			7		3			—		10		84		30		5		—		119
PVP	$	44		$	7	$	3		$	—	$	54	$	234	$	53	$	158	$	9	$	454

114

	Six Months 2019											Six Months 2018
	Public Finance					Structured Finance						Public Finance				Structured Finance
	U.S.			Non - U.S.		U.S.		Non - U.S.		Total		U.S.		Non - U.S.		U.S.		Non - U.S.		Total
	(in millions)
GWP	$	73		$	14	$	2	$	1	$	90	$	203	$	94	$	159	$	10	$	466
Less: Installment GWP and other GAAP adjustments (1)	(3		)	14		1		—		12		18		55		6		1		80
Upfront GWP	76			—		1		1		78		185		39		153		9		386
Plus: Installment premium PVP (2)	—			11		7		—		18		84		40		5		—		129
PVP	$	76		$	11	$	8	$	1	$	96	$	269	$	79	$	158	$	9	$	515

___________________

(1) Includes present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions, any cancellations of assumed reinsurance contracts, and other GAAP adjustments.

(2) Includes PVP of credit derivatives assumed in the SGI Transaction in Second Quarter 2018.

Insured Portfolio

Financial Guaranty Exposure

The following table presents the insured financial guaranty portfolio by sector net of cessions to reinsurers. It includes all financial guaranty contracts outstanding as of the dates presented, regardless of the form written (i.e., credit derivative form or traditional financial guaranty insurance form) or the applicable accounting model (i.e., insurance, derivative or VIE consolidation). The Company purchases securities that it has insured, and for which it has expected losses to be paid, in order to mitigate the economic effect of insured losses (loss mitigation securities). The Company excludes amounts attributable to loss mitigation securities from par and scheduled principal and interest payments (debt service) outstanding. These amounts are included in the investment portfolio, because the Company manages such securities as investments and not insurance exposure. As of June 30, 2019 and December 31, 2018, the Company excluded $1.5 billion and $1.9 billion of net par attributable to loss mitigation strategies. See Item 1, Financial Statements, Note 3, Outstanding Exposure, for additional information.

115

Financial Guaranty

Net Par Outstanding and Average Internal Rating by Sector

	As of June 30, 2019			As of December 31, 2018
Sector	Net Par Outstanding		Avg. Rating	Net Par Outstanding		Avg. Rating
	(dollars in millions)
Public finance:
U.S.:
General obligation	$	76,793	A-	$	78,800	A-
Tax backed	39,045		A-	40,616		A-
Municipal utilities	27,319		A-	28,462		A-
Transportation	14,890		A-	15,197		A-
Healthcare	6,658		A-	6,750		A-
Higher education	6,230		A-	6,643		A-
Infrastructure finance	5,440		A-	5,489		A-
Housing revenue	1,392		BBB+	1,435		BBB+
Investor-owned utilities	813		A-	1,001		A-
Other public finance—U.S.	1,957		A-	2,169		A-
Total public finance—U.S.	180,537		A-	186,562		A-
Non-U.S.:
Regulated utilities	18,433		BBB+	18,325		BBB+
Infrastructure finance	17,587		BBB	17,216		BBB
Pooled infrastructure	1,362		AAA	1,373		AAA
Other public finance	7,106		A	7,189		A
Total public finance—non-U.S.	44,488		BBB+	44,103		BBB+
Total public finance	225,025		A-	230,665		A-
Structured finance:
U.S.:
RMBS	3,835		BBB-	4,270		BBB-
Life insurance transactions	1,478		AA-	1,435		A+
Pooled corporate obligations	1,477		AA-	1,215		AA-
Consumer receivables	1,140		A-	1,255		A-
Financial products	1,002		AA-	1,094		AA-
Other structured finance—U.S.	617		BBB+	675		A-
Total structured finance—U.S.	9,549		A-	9,944		A-
Non-U.S.:
RMBS	438		A	576		A-
Pooled corporate obligations	55		BB+	126		A
Other structured finance	300		A	491		A
Total structured finance—non-U.S.	793		A	1,193		A
Total structured finance	10,342		A-	11,137		A-
Total net par outstanding	$	235,367	A-	$	241,802	A-

116

The following table sets forth the Company’s net financial guaranty portfolio by internal rating.

Financial Guaranty Portfolio by Internal Rating

	As of June 30, 2019				As of December 31, 2018
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	4,454	1.9	%	$	4,618	1.9	%
AA	26,825		11.4		27,021		11.2
A	114,485		48.6		119,415		49.4
BBB	80,740		34.3		80,588		33.3
BIG	8,863		3.8		10,160		4.2
Total net par outstanding	$	235,367	100.0	%	$	241,802	100.0	%

Exposure to Puerto Rico

The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $4.5 billion net par as of June 30, 2019, all of which was rated BIG. Beginning on January 1, 2016, a number of Puerto Rico exposures have defaulted on bond payments, and the Company has now paid claims on all of its Puerto Rico exposures except for Puerto Rico Aqueduct and Sewer Authority (PRASA), Municipal Finance Agency (MFA) and University of Puerto Rico (U of PR).

The Company groups its Puerto Rico exposure into three categories:

• Constitutionally Guaranteed.

• Public Corporations – Certain Revenues Potentially Subject to Clawback.

• Other Public Corporations.

Additional information about recent developments in Puerto Rico and the individual exposures insured by the Company may be found in Item 1, Financial Statements, Note 3, Outstanding Exposure.

117

Exposure to Puerto Rico (1)

As of June 30, 2019

	Net Par Outstanding
	AGM		AGC		AG Re		Eliminations (2)			Total Net Par Outstanding		Gross Par Outstanding
	(in millions)
Commonwealth Constitutionally Guaranteed
Commonwealth of Puerto Rico - General Obligation Bonds (3) (4)	$	647	$	301	$	393	$	(1	)	$	1,340	$	1,383
Puerto Rico Public Buildings Authority (PBA)	9		142		—		(9		)	142		148
Public Corporations - Certain Revenues Potentially Subject to Clawback
Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue) (4)	233		495		195		(79		)	844		874
PRHTA (Highway revenue) (4)	351		84		40		—			475		536
Puerto Rico Convention Center District Authority (PRCCDA)	—		152		—		—			152		152
Puerto Rico Infrastructure Financing Authority (PRIFA)	—		15		1		—			16		16
Other Public Corporations
PREPA (4)	544		72		232		—			848		866
PRASA	—		284		89		—			373		373
MFA	189		40		74		—			303		349
U of PR	—		1		—		—			1		1
Total exposure to Puerto Rico	$	1,973	$	1,586	$	1,024	$	(89	)	$	4,494	$	4,698

 ___________________

(1) While the Company no longer has any insured exposure to COFINA, it does have $152 million initial par of COFINA Exchange Senior Bonds in its investment portfolio.

(2) Net par outstanding eliminations relate to second-to-pay policies under which an Assured Guaranty insurance subsidiary guarantees an obligation already insured by another Assured Guaranty insurance subsidiary.

(3) Includes exposure to capital appreciation bonds with a current aggregate net par outstanding of $2.5 million and a fully accreted net par at maturity of $2.5 million.

(4) As of the date of this filing, the seven-member financial oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) has certified a filing under Title III of PROMESA for these exposures.

118

The following tables show the scheduled amortization of the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations insured by the Company. The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. In the event that obligors default on their obligations, the Company would only pay the shortfall between the principal and interest due in any given period and the amount paid by the obligors.     

Amortization Schedule

of Net Par Outstanding of Puerto Rico

As of June 30, 2019

	Scheduled Net Par Amortization
	2019 (3Q)		2019 (4Q)		2020		2021		2022		2023		2024 - 2028		2029 - 2033		2034 - 2038		2039 - 2043		2044 - 2047		Total
	(in millions)
Commonwealth Constitutionally Guaranteed
Commonwealth of Puerto Rico - General Obligation Bonds	$	87	$	—	$	141	$	15	$	37	$	14	$	298	$	341	$	407	$	—	$	—	$	1,340
PBA	3		—		5		13		—		7		58		36		20		—		—		142
Public Corporations - Certain Revenues Potentially Subject to Clawback
PRHTA (Transportation revenue)	32		—		25		18		28		33		120		127		296		165		—		844
PRHTA (Highway revenue)	21		—		22		35		6		32		77		145		137		—		—		475
PRCCDA	—		—		—		—		—		—		19		50		83		—		—		152
PRIFA	—		—		—		—		—		2		—		—		3		11		—		16
Other Public Corporations
PREPA	26		—		48		28		28		95		440		174		9		—		—		848
PRASA	—		—		—		—		—		—		110		—		2		—		261		373
MFA	55		—		45		40		40		22		91		10		—		—		—		303
U of PR	—		—		—		—		—		—		—		1		—		—		—		1
Total	$	224	$	—	$	286	$	149	$	139	$	205	$	1,213	$	884	$	957	$	176	$	261	$	4,494

119

Amortization Schedule

of Net Debt Service Outstanding of Puerto Rico

As of June 30, 2019

	Scheduled Net Debt Service Amortization
	2019 (3Q)		2019 (4Q)		2020		2021		2022		2023		2024 - 2028		2029 - 2033		2034 - 2038		2039 - 2043		2044 - 2047		Total
	(in millions)
Commonwealth Constitutionally Guaranteed
Commonwealth of Puerto Rico - General Obligation Bonds	$	122	$	—	$	206	$	74	$	94	$	70	$	539	$	512	$	457	$	—	$	—	$	2,074
PBA	7		—		12		20		6		13		84		50		23		—		—		215
Public Corporations - Certain Revenues Potentially Subject to Clawback
PRHTA (Transportation revenue)	54		—		67		59		68		72		294		262		375		180		—		1,431
PRHTA (Highway revenue)	34		—		46		58		27		52		159		208		152		—		—		736
PRCCDA	3		—		7		7		7		7		53		79		91		—		—		254
PRIFA	—		—		1		1		1		3		4		3		7		12		—		32
Other Public Corporations
PREPA	43		3		87		63		62		128		541		198		9		—		—		1,134
PRASA	10		—		19		19		19		19		198		68		70		67		300		789
MFA	62		—		58		50		48		28		106		11		—		—		—		363
U of PR	—		—		—		—		—		—		—		1		—		—		—		1
Total	$	335	$	3	$	503	$	351	$	332	$	392	$	1,978	$	1,392	$	1,184	$	259	$	300	$	7,029

Financial Guaranty Exposure to U.S. RMBS

The table below provides information on certain risk characteristics of the Company’s financial guaranty insurance, FG VIE and credit derivative U.S. RMBS exposures. As of June 30, 2019, U.S. RMBS net par outstanding was $3.8 billion, of which $1.7 billion was rated BIG. U.S. RMBS exposures represent 2% of the total net par outstanding, and BIG U.S. RMBS represent 19% of total BIG net par outstanding. See Item 1, Financial Statements, Note 4, Expected Loss to be Paid, for a discussion of expected losses to be paid on U.S. RMBS exposures.

Distribution of U.S. RMBS by Year Insured and Type of Exposure as of June 30, 2019

Year insured:	Prime First Lien		Alt-A First Lien		Option ARMs		Subprime First Lien		Second Lien		Total Net Par Outstanding
	(in millions)
2004 and prior	$	25	$	21	$	2	$	628	$	57	$	733
2005	56		231		26		229		150		692
2006	42		46		12		317		241		658
2007	—		358		34		1,004		311		1,707
2008	—		—		—		45		—		45
Total exposures	$	123	$	656	$	74	$	2,223	$	759	$	3,835

120

Non-Financial Guaranty Exposure

The Company also provides non-financial guaranty insurance and reinsurance on transactions with similar risk profiles to its structured finance exposures written in financial guaranty form. All non-financial guaranty exposures shown in the table below are rated investment grade internally.

Non-Financial Guaranty Exposure

	Gross Exposure				Net Exposure
	As of June 30, 2019		As of December 31, 2018		As of June 30, 2019		As of December 31, 2018
	(in millions)
Life insurance transactions (1)	$	908	$	880	$	784	$	763
Aircraft residual value insurance policies	360		340		239		218

____________________

(1) The life insurance transactions net exposure is expected to increase to approximately $949 million prior to September 30, 2036.

Reinsurer Exposures

The Company has exposure to reinsurers through reinsurance arrangements (both as a ceding company and as an assuming company). Most of the Company's exposure as a ceding company and as an assuming company relates to financial guaranty contracts written before 2009, although the Company has assumed or reassumed (from financial guarantors no longer writing new business) some of those exposures more recently. The Company continues to cede portions of certain non-financial guaranty exposures to reinsurers to mitigate its risk. See Item 1, Financial Statements, Note 11, Reinsurance.

Liquidity and Capital Resources

Liquidity Requirements and Sources

AGL and its Holding Company Subsidiaries

The liquidity of AGL, AGUS and AGMH is largely dependent on dividends from their operating subsidiaries and their access to external financing. The liquidity requirements of these entities include the payment of operating expenses, interest on debt issued by AGUS and AGMH, and dividends on AGL's common shares. AGL and its holding company subsidiaries may also require liquidity to fund acquisitions of new businesses, to make capital investments in their operating subsidiaries, purchase the Company's outstanding debt, or in the case of AGL, to repurchase its common shares pursuant to its share repurchase authorization. In the ordinary course of business, the Company evaluates its liquidity needs and capital resources in light of holding company expenses and dividend policy, as well as rating agency considerations. The Company also subjects its cash flow projections and its assets to a stress test, maintaining a liquid asset balance of one time its stressed operating company net cash flows. Management believes that AGL will have sufficient liquidity to satisfy its needs over the next twelve months. See “—Distributions From Subsidiaries” below for a discussion of the dividend restrictions of its insurance company subsidiaries.

The following table presents significant holding company cash flow activity (other than investment income, expenses and taxes) related to distributions from subsidiaries and outflows for debt service and dividends, dividends to AGL shareholders and other capital management activities.

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AGL and U.S. Holding Company Subsidiaries

Significant Cash Flow Items

	AGL			AGUS			AGMH
	(in millions)
Second Quarter 2019
Intercompany sources	$	132		$	143		$	4
Intercompany (uses)	—			(87		)	(19		)
External sources (uses):
Dividends paid to AGL shareholders	(19		)	—			—
Repurchases of common shares (1)	(110		)	—			—
Interest paid (2)	—			(21		)	(16		)
Purchase of AGMH's debt by AGUS	—			—			—
Second Quarter 2018
Intercompany sources	$	184		$	25		$	—
Intercompany (uses)	—			(144		)	(1		)
External sources (uses):
Dividends paid to AGL shareholders	(19		)	—			—
Repurchases of common shares (1)	(150		)	—			—
Interest paid (2)	—			(21		)	(16		)
Purchase of AGMH's debt by AGUS	—			(4		)	—
Six Months 2019
Intercompany sources	$	232		$	232		$	78
Intercompany (uses)	—			(147		)	(66		)
External sources (uses):
Dividends paid to AGL shareholders	(39		)	—			—
Repurchases of common shares (1)	(190		)	—			—
Interest paid (2)	—			(23		)	(23		)
Purchase of AGMH's debt by AGUS	—			(3		)	—
Six Months 2018
Intercompany sources	$	302		$	327		$	73
Intercompany (uses)	—			(222		)	(51		)
External sources (uses):
Dividends paid to AGL shareholders	(37		)	—			—
Repurchases of common shares (1)	(250		)	—			—
Interest paid (2)	—			(35		)	(23		)
Purchase of AGMH's debt by AGUS	—			(23		)	—

____________________

(1) See Item 1, Financial Statements, Note 14, Shareholders' Equity, for additional information about share repurchases and authorizations.

(2) See Long-Term Obligations below for interest paid by subsidiary.

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Distributions From Subsidiaries

The Company anticipates that for the next twelve months, amounts paid by AGL’s direct and indirect insurance company subsidiaries as dividends or other distributions will be a major source of its liquidity. The insurance company subsidiaries’ ability to pay dividends depends upon their financial condition, results of operations, cash requirements, other potential uses for such funds, and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their states of domicile. See Part II, Item 8, Financial Statements and Supplementary Data, Note 11, Insurance Company Regulatory Requirements, of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for a complete discussion of the Company's dividend restrictions applicable to AGC, AGM, MAC, AG Re and AGRO.

Dividend restrictions by insurance company subsidiary are as follows:

• The maximum amount available during 2019 for AGM to distribute as dividends without regulatory approval is estimated to be approximately $227 million, of which $109 million is estimated to be available for distribution in the third quarter of 2019.

• The maximum amount available during 2019 for AGC to distribute as ordinary dividends is approximately $123 million, of which approximately $15 million is available for distribution in the third quarter of 2019.

• In March 2019, MAC received approval from the New York State Department of Financial Services to dividend to MAC Holdings, which is owned by AGM and AGC, $100 million in 2019, an amount that exceeded the dividend capacity that was available for distribution without regulatory approval. MAC distributed a $100 million dividend to MAC Holdings in Second Quarter 2019. No further dividends are available for MAC to distribute in 2019 without approval from the New York State Department of Financial Services.

• Based on the applicable law and regulations, in 2019 AG Re has the capacity to (i) make capital distributions in an aggregate amount up to $128 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $312 million as of June 30, 2019. Such dividend capacity is further limited by the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements. As of June 30, 2019, AG Re had unencumbered assets of approximately $332 million. On July 30, 2019, AG Re declared a $90 million dividend to be paid during the third quarter of 2019.

• Based on the applicable law and regulations, in 2019 AGRO has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $96 million as of June 30, 2019. Such dividend capacity is further limited by the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements. As of June 30, 2019, AGRO had unencumbered assets of approximately $360 million.

Distributions from

Insurance Company Subsidiaries

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions)
Dividends paid by AGC to AGUS	$	24	$	24	$	66	$	76
Repurchase of common stock by AGC from AGUS	100		—		100		200
Dividends paid by AGM to AGMH	4		—		78		73
Dividends paid by AG Re to AGL	45		40		85		80
Dividends paid by MAC to MAC Holdings (1)	100		15		105		15

____________________

(1) MAC Holdings distributed the entire amounts to AGM and AGC, in proportion to their ownership percentages.

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Generally, dividends paid by a U.S. company to a Bermuda holding company are subject to a 30% withholding tax. After AGL became tax resident in the U.K., it became subject to the tax rules applicable to companies resident in the U.K., including the benefits afforded by the U.K.’s tax treaties. The income tax treaty between the U.K. and the U.S. reduces or eliminates the U.S. withholding tax on certain U.S. sourced investment income (to 5% or 0%), including dividends from U.S. subsidiaries to U.K. resident persons entitled to the benefits of the treaty.

External Financing

From time to time, AGL and its subsidiaries have sought external debt or equity financing in order to meet their obligations. External sources of financing may or may not be available to the Company, and if available, the cost of such financing may not be acceptable to the Company.

Intercompany Loans and Guarantees

From time to time, AGL and its subsidiaries have entered into intercompany loan facilities. For example, on October 25, 2013, AGL, as borrower, and AGUS, as lender, entered into a revolving credit facility pursuant to which AGL may, from time to time, borrow for general corporate purposes. Under the credit facility, AGUS committed to lend a principal amount not exceeding $225 million in the aggregate. The commitment under the revolving credit facility terminates on October 25, 2023 (the loan commitment termination date). The unpaid principal amount of each loan will bear semi-annual interest at a fixed rate equal to 100% of the then applicable interest rate as determined under Internal Revenue Code Section 1274(d), and interest on all loans will be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. Accrued interest on all loans will be paid on the last day of each June and December, beginning on December 31, 2013, and at maturity. AGL must repay the then unpaid principal amounts of the loans, if any, by the third anniversary of the loan commitment termination date. AGL has not drawn upon the credit facility.

In addition, in 2012 AGUS borrowed $90 million from its affiliate AGRO to fund the acquisition of MAC. In 2018, the maturity date was extended to November 2023. During 2018, AGUS repaid $10 million in outstanding principal as well as accrued and unpaid interest. As of June 30, 2019, $50 million remained outstanding.

Furthermore, AGL fully and unconditionally guarantees the payment of the principal of, and interest on, the $1,130 million aggregate principal amount of senior notes issued by AGUS and AGMH, and the $450 million aggregate principal amount of junior subordinated debentures issued by AGUS and AGMH, in each case, as described under "Commitments and Contingencies -- Long-Term Debt Obligations" below.

Cash and Investments

As of June 30, 2019, AGL had $27 million in cash and short-term investments. AGUS and AGMH had a total of $247 million in cash and short-term investments. In addition, the Company's U.S. holding companies have $23 million in fixed-maturity securities (excluding AGUS's investment in AGMH's debt) with weighted average duration of 1.4 years.

Insurance Company Subsidiaries

Liquidity of the insurance company subsidiaries is primarily used to pay for:

• operating expenses,

• claims on the insured portfolio,

• dividends or other distributions to AGL, AGUS and/or AGMH, as applicable,

• posting of collateral in connection with reinsurance and credit derivative transactions,

• reinsurance premiums,

• principal of and, where applicable, interest on surplus notes, and

• capital investments in their own subsidiaries, where appropriate.

Management believes that the insurance subsidiaries’ liquidity needs for the next twelve months can be met from current cash, short-term investments and operating cash flow, including premium collections and coupon payments as well as scheduled maturities and paydowns from their respective investment portfolios. The Company targets a balance of its most liquid assets including cash and short-term securities, Treasuries, agency RMBS and pre-refunded municipal bonds equal to 1.5 times its projected operating company cash flow needs over the next four quarters. The Company intends to hold and has the ability to hold temporarily impaired debt securities until the date of anticipated recovery of amortized cost.

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Beyond the next twelve months, the ability of the operating subsidiaries to declare and pay dividends may be influenced by a variety of factors, including market conditions, insurance regulations and rating agency capital requirements and general economic conditions.

Insurance policies issued provide, in general, that payments of principal, interest and other amounts insured may not be accelerated by the holder of the obligation. Amounts paid by the Company therefore are typically in accordance with the obligation’s original payment schedule, unless the Company accelerates such payment schedule, at its sole option.

 Payments made in settlement of the Company’s obligations arising from its insured portfolio may, and often do, vary significantly from year-to-year, depending primarily on the frequency and severity of payment defaults and whether the Company chooses to accelerate its payment obligations in order to mitigate future losses.

In addition, the Company has net par exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $4.5 billion, all of which is rated BIG. Beginning in 2016, the Commonwealth and certain related authorities and public corporations have defaulted on obligations to make payments on its debt. Information regarding the Company's exposure to the Commonwealth of Puerto Rico and its related authorities and public corporations is set forth in Item 1, Financial Statements, Note 3, Outstanding Exposure.

Claims (Paid) Recovered

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Public finance	$	(9	)	$	(22	)	$	(237	)	$	(133	)
Structured finance:
U.S. RMBS	43			5			52			135
Other structured finance	—			1			1			1
Structured finance	43			6			53			136
Claims (paid) recovered, net of reinsurance (1)	$	34		$	(16	)	$	(184	)	$	3

____________________

(1) Includes $11 million and $0.7 million recovered for consolidated FG VIEs for Second Quarter 2019 and 2018, respectively, and $12 million recovered and $1 million paid for Six Months 2019 and Six Months 2018, respectively. The amounts in Six Months 2019 are net of the closed lien senior bonds of COFINA validated by the PROMESA Title III Court and cash that were received pursuant to the COFINA Plan of Adjustment. See Item 1, Financial Statements, Note 3, Outstanding Exposure, for additional information.

In connection with the acquisition of AGMH, AGM agreed to retain the risks relating to the debt and strip policy portions of the leveraged lease business. In a leveraged lease transaction, a tax-exempt entity (such as a transit agency) transfers tax benefits to a tax-paying entity by transferring ownership of a depreciable asset, such as subway cars. The tax-exempt entity then leases the asset back from its new owner.

If the lease is terminated early, the tax-exempt entity must make an early termination payment to the lessor. A portion of this early termination payment is funded from monies that were pre-funded and invested at the closing of the leveraged lease transaction (along with earnings on those invested funds). The tax-exempt entity is obligated to pay the remaining, unfunded portion of this early termination payment (known as the strip coverage) from its own sources. AGM issued financial guaranty insurance policies (known as strip policies) that guaranteed the payment of these unfunded strip coverage amounts to the lessor, in the event that a tax-exempt entity defaulted on its obligation to pay this portion of its early termination payment. Following such events, AGM can then seek reimbursement of its strip policy payments from the tax-exempt entity, and can also sell the transferred depreciable asset and reimburse itself from the sale proceeds.

Currently, all the leveraged lease transactions in which AGM acts as strip coverage provider are breaching a rating trigger related to AGM and are subject to early termination. However, early termination of a lease does not result in a draw on the AGM policy if the tax-exempt entity makes the required termination payment. If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately $740 million as of June 30, 2019. To date, none of the leveraged lease transactions that involve AGM has experienced an early termination due to a lease default and a claim on the AGM policy. As

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of June 30, 2019, approximately $1.7 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis. The consensual terminations have resulted in no claims on AGM. 

The terms of the Company’s CDS contracts generally are modified from standard CDS contract forms approved by International Swaps and Derivative Association, Inc. in order to provide for payments on a scheduled "pay-as-you-go" basis and to replicate the terms of a traditional financial guaranty insurance policy. However, the Company may also be required to pay if the obligor becomes bankrupt or if the reference obligation were restructured if, after negotiation, those credit events are specified in the documentation for the credit derivative transactions. Furthermore, the Company may be required to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the Company may be required to make a cash termination payment to its swap counterparty upon such termination. Any such payment would probably occur prior to the maturity of the reference obligation and be in an amount larger than the amount due for that period on on a “pay-as-you-go” basis.

The transaction documentation with one counterparty for $209 million of the CDS net par insured by AGC requires AGC to post collateral, subject to a cap, to secure its obligation to make payments under such contracts. As of June 30, 2019, AGC had posted $1 million of collateral to satisfy these requirements and the maximum posting requirement was $209 million.

Condensed Consolidated Cash Flows

Condensed Consolidated Cash Flow Summary

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Net cash flows provided by (used in) operating activities before effects of FG VIE consolidation	$	136		$	413		$	(197	)	$	438
Effect of FG VIE consolidation	(2		)	4			(1		)	6
Net cash flows provided by (used in) operating activities	134			417			(198		)	444
Net cash flows provided by (used in) investing activities before effects of FG VIE consolidation	67			(164		)	535			(69		)
Effect of FG VIE consolidation	72			24			96			55
Net cash flows provided by (used in) investing activities	139			(140		)	631			(14		)
Dividends paid	(19		)	(19		)	(39		)	(37		)
Repurchases of common stock	(110		)	(150		)	(190		)	(250		)
Repurchase of debt	—			(4		)	(3		)	(23		)
Effect of FG VIE consolidation	(70		)	(28		)	(95		)	(61		)
Other	(2		)	(2		)	(16		)	(13		)
Net cash flows provided by (used in) financing activities (1)	(201		)	(203		)	(343		)	(384		)
Effect of exchange rate changes	(1		)	(2		)	—			(1		)
Cash and restricted cash at beginning of period	123			117			104			144
Total cash and restricted cash at the end of the period	$	194		$	189		$	194		$	189

____________________

(1) Claims paid on consolidated FG VIEs are presented in the condensed consolidated cash flow statements as a component of paydowns on FG VIEs' liabilities in financing activities as opposed to operating activities.

Excluding net cash flows from consolidated FG VIEs, cash inflows from operating activities decreased in Six Months 2019 compared with Six Months 2018 due primarily to cash received in connection with the SGI Transaction in Second Quarter 2018 (see Part I, Item 1, Financial Statements, Note 11, Reinsurance, for additional information) and higher net claim payments (including the COFINA settlement) in Six Months 2019 and lower premium collections, which were partially offset by lower tax and interest payments.

Investing activities primarily consisted of net sales (purchases) of fixed-maturity and short-term investments, and paydowns on and sales of FG VIEs’ assets. The increase in investing cash inflows was mainly attributable to sales of securities

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to fund the COFINA claim payment in Six Months 2019.

Financing activities primarily consisted of share repurchases, dividends, debt extinguishment and paydowns of FG VIEs’ liabilities.

From July 1, 2019 through August 7, 2019, the Company repurchased an additional $58 million of common shares. As of August 7, 2019, the Company was authorized to purchase $450 million of its common shares, including a $300 million authorization that was approved by the Board of Directors on August 7, 2019. For more information about the Company's share repurchases and authorizations, see Item 1, Financial Statements, Note 14, Shareholders' Equity.

Commitments and Contingencies

Leases

AGL and its subsidiaries lease office space and certain other items. Future cash payments associated with contractual obligations pursuant to operating leases for office space have not materially changed since December 31, 2018. See Item 1, Financial Statements, Note 12, Commitments and Contingencies.

Long-Term Debt Obligations

The outstanding principal, and interest paid on long-term debt were as follows:

Principal and Carrying Amounts of Debt 

	As of June 30, 2019						As of December 31, 2018
	Principal			Carrying Value			Principal			Carrying Value
	(in millions)
AGUS:
7% Senior Notes (1)	$	200		$	197		$	200		$	197
5% Senior Notes (1)	500			497			500			497
Series A Enhanced Junior Subordinated Debentures (2)	150			150			150			150
Total AGUS	850			844			850			844
AGMH(3):
6 7/8% QUIBS (1)	100			70			100			70
6.25% Notes (1)	230			144			230			143
5.6% Notes (1)	100			57			100			57
Junior Subordinated Debentures (2)	300			201			300			198
Total AGMH	730			472			730			468
AGM (3):
Notes Payable	5			5			5			5
Total AGM	5			5			5			5
AGMH's debt purchased by AGUS	(131		)	(88		)	(128		)	(84		)
Total	$	1,454		$	1,233		$	1,457		$	1,233

 ____________________

(1) AGL fully and unconditionally guarantees these obligations.

(2) Guaranteed by AGL on a junior subordinated basis.

(3)  Carrying amounts are different than principal amounts primarily due to fair value adjustments at the date of the AGMH acquisition, which are accreted or amortized into interest expense over the remaining terms of these obligations.

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The following table presents the principal amounts of AGMH's outstanding Junior Subordinated Debentures that AGUS purchased and the loss on extinguishment of debt recognized by the Company. The Company may choose to make additional purchases of this or other Company debt in the future.

AGUS's Purchase

of AGMH's Junior Subordinated Debentures

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions)
Principal amount repurchased	$	—	$	27	$	3	$	47
Loss on extinguishment of debt (1)	—		10		1		17

 ____________________

(1) Included in other income in the condensed consolidated statements of operations. The loss represents the difference between the amount paid to purchase AGMH's debt and the carrying value of the debt, which includes the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009.

Interest Paid on Long-Term Debt

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
AGUS	$	21		$	21		$	23		$	35
AGMH	16			16			23			23
AGM	—			—			—			—
AGMH's debt purchased by AGUS (1)	(4		)	(1		)	(4		)	(1		)
Total	$	33		$	36		$	42		$	57

 ____________________

(1) Represents principal amount of Junior Subordinated Debentures issued by AGMH that has been purchased by AGUS.

Issued by AGUS:

7% Senior Notes.  On May 18, 2004, AGUS issued $200 million of 7% Senior Notes due 2034 for net proceeds of $197 million. Although the coupon on the Senior Notes is 7%, the effective rate is approximately 6.4%, taking into account the effect of a cash flow hedge. The notes are redeemable, in whole or in part, at their principal amount plus accrued and unpaid interest at the date of redemption or, if greater, the make-whole redemption price.

5% Senior Notes. On June 20, 2014, AGUS issued $500 million of 5% Senior Notes due 2024 for net proceeds of $495 million. The net proceeds from the sale of the notes were used for general corporate purposes, including the purchase of common shares of AGL. The notes are redeemable, in whole or in part, at their principal amount plus accrued and unpaid interest at the date of redemption or, if greater, the make-whole redemption price.

Series A Enhanced Junior Subordinated Debentures.  On December 20, 2006, AGUS issued $150 million of Debentures due 2066. The Debentures paid a fixed 6.4% rate of interest until December 15, 2016, and thereafter pay a floating rate of interest, reset quarterly, at a rate equal to three month London Interbank Offered Rate (LIBOR) plus a margin equal to 2.38%. LIBOR may be discontinued. See the Risk Factor captioned "The Company may be adversely impacted by the transition from LIBOR as a reference rate" under Risks Related to the Financial, Credit and Financial Guaranty Markets in Part I, Item 1A, Risk Factors in AGL's Annual Report on Form 10-K for the year ended December 31, 2018. AGUS may select at one or more times to defer payment of interest for one or more consecutive periods for up to ten years. Any unpaid interest bears interest at the then applicable rate. AGUS may not defer interest past the maturity date. The debentures are redeemable, in whole or in part, at their principal amount plus accrued and unpaid interest to the date of redemption.

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Issued by AGMH:

6 7/8% QUIBS.  On December 19, 2001, AGMH issued $100 million face amount of 6 7/8% QUIBS due December 15, 2101, which are redeemable without premium or penalty in whole or in part at their principal amount plus accrued and unpaid interest up to but not including the date of redemption.

6.25% Notes.  On November 26, 2002, AGMH issued $230 million face amount of 6.25% Notes due November 1, 2102, which are redeemable without premium or penalty in whole or in part at their principal amount plus accrued and unpaid interest up to but not including the date of redemption.

5.6% Notes.  On July 31, 2003, AGMH issued $100 million face amount of 5.6% Notes due July 15, 2103, which are redeemable without premium or penalty in whole or in part at their principal amount plus accrued and unpaid interest up to but not including the date of redemption.

Junior Subordinated Debentures.  On November 22, 2006, AGMH issued $300 million face amount of Junior Subordinated Debentures with a scheduled maturity date of December 15, 2036 and a final repayment date of December 15, 2066. The final repayment date of December 15, 2066 may be automatically extended up to four times in five-year increments provided certain conditions are met. The debentures are redeemable, in whole or in part, at any time prior to December 15, 2036 at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, the make-whole redemption price. Interest on the debentures will accrue from November 22, 2006 to December 15, 2036 at the annual rate of 6.4%. If any amount of the debentures remains outstanding after December 15, 2036, then the principal amount of the outstanding debentures will bear interest at a floating interest rate equal to one-month LIBOR plus 2.215% until repaid. LIBOR may be discontinued. See the Risk Factor captioned "The Company may be adversely impacted by the transition from LIBOR as a reference rate" under Risks Related to the Financial, Credit and Financial Guaranty Markets in Part I, Item 1A, Risk Factors in AGL's Annual Report on Form 10-K for the year ended December 31, 2018. AGMH may elect at one or more times to defer payment of interest on the debentures for one or more consecutive interest periods that do not exceed ten years. In connection with the completion of this offering, AGMH entered into a replacement capital covenant for the benefit of persons that buy, hold or sell a specified series of AGMH long-term indebtedness ranking senior to the debentures. Under the covenant, the debentures will not be repaid, redeemed, repurchased or defeased by AGMH or any of its subsidiaries on or before the date that is twenty years prior to the final repayment date, except to the extent that AGMH has received proceeds from the sale of replacement capital securities. The proceeds from this offering were used to pay a dividend to the shareholders of AGMH. In Six Months 2019 and Six Months 2018, AGUS purchased $3 million and $47 million, respectively, of par of the debentures, which resulted in a loss on extinguishment of debt on a consolidated basis of $1 million in Six Months 2019 and $17 million in Six Months 2018. The Company may choose to make additional purchases of this or other Company debt in the future.

Committed Capital 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 Company does not consider itself to be the primary beneficiary of the trusts and the trusts are not consolidated in Assured Guaranty's financial statements.

The trusts provide AGC and AGM access to new equity capital at their respective sole discretion through the exercise of the put options. Upon AGC's or AGM's exercise of its put option, the relevant trust will liquidate its portfolio of eligible assets and use the proceeds to purchase the AGC or AGM preferred stock, as applicable. AGC or AGM may use the proceeds from its sale of preferred stock to the trusts for any purpose, including the payment of claims. The put agreements have no scheduled termination date or maturity. However, each put agreement will terminate if (subject to certain grace periods) specified events occur. Both AGC and AGM continue to have the ability to exercise their respective put options and cause the related trusts to purchase their preferred stock.

Prior to 2008 or 2007, the amounts paid on the CCS were established through an auction process. All of those auctions failed in 2008 or 2007, and the rates paid on the CCS increased to their respective maximums. The annualized rate on the AGC CCS is one-month LIBOR plus 250 bps, and the annualized rate on the AGM Committed Preferred Trust Securities (CPS) is one-month LIBOR plus 200 bps. LIBOR may be discontinued. See the Risk Factor captioned "The Company may be adversely impacted by the transition from LIBOR as a reference rate" under Risks Related to the Financial, Credit and

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Financial Guaranty Markets in Part I, Item 1A, Risk Factors in AGL's Annual Report on Form 10-K for the year ended December 31, 2018.

Investment Portfolio

The Company’s principal objectives in managing its investment portfolio are to support the highest possible ratings for each operating company, to manage investment risk within the context of the underlying portfolio of insurance risk, to maintain sufficient liquidity to cover unexpected stress in the insurance portfolio, and to maximize after-tax net investment income.

The Company’s fixed-maturity securities and short-term investments had a duration of 4.4 years as of June 30, 2019 and 4.9 years as of December 31, 2018. Generally, the Company’s fixed-maturity securities are designated as available-for-sale. For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments see Item 1, Financial Statements, Note 7, Investments and Cash.

Fixed-Maturity Securities and Short-Term Investments

by Security Type 

	As of June 30, 2019				As of December 31, 2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(in millions)
Fixed-maturity securities:
Obligations of state and political subdivisions	$	4,370	$	4,683	$	4,761	$	4,911
U.S. government and agencies	154		165		167		175
Corporate securities	2,212		2,267		2,175		2,136
Mortgage-backed securities (1):
RMBS	914		938		999		982
Commercial mortgage-backed securities (CMBS)	478		495		542		539
Asset-backed securities	746		779		942		1,068
Non-U.S. government securities	263		247		298		278
Total fixed-maturity securities	9,137		9,574		9,884		10,089
Short-term investments	1,159		1,159		729		729
Total fixed-maturity and short-term investments	$	10,296	$	10,733	$	10,613	$	10,818

 ____________________

(1) U.S. government-agency obligations were approximately 45% of mortgage backed securities as of June 30, 2019 and 48% as of December 31, 2018, based on fair value.

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The following tables summarize, for all fixed-maturity securities in an unrealized loss position as of June 30, 2019 and December 31, 2018, the aggregate fair value and gross unrealized loss by length of time the amounts have continuously been in an unrealized loss position.

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time 

As of June 30, 2019

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	7	$	—		$	17	$	—		$	24	$	—
U.S. government and agencies	10		—			21		—			31		—
Corporate securities	229		(2		)	204		(14		)	433		(16		)
Mortgage-backed securities:
RMBS	7		—			283		(13		)	290		(13		)
CMBS	—		—			51		(1		)	51		(1		)
Asset-backed securities	226		(2		)	76		(1		)	302		(3		)
Non-U.S. government securities	45		(1		)	113		(17		)	158		(18		)
Total	$	524	$	(5	)	$	765	$	(46	)	$	1,289	$	(51	)
Number of securities (1)			112					186					291
Number of securities with OTTI			6					11					17

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time 

As of December 31, 2018

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	195	$	(4	)	$	658	$	(14	)	$	853	$	(18	)
U.S. government and agencies	11		—			24		(1		)	35		(1		)
Corporate securities	836		(19		)	522		(33		)	1,358		(52		)
Mortgage-backed securities:
RMBS	85		(2		)	447		(32		)	532		(34		)
CMBS	111		(1		)	164		(6		)	275		(7		)
Asset-backed securities	322		(4		)	38		(1		)	360		(5		)
Non-U.S. government securities	83		(4		)	99		(18		)	182		(22		)
Total	$	1,643	$	(34	)	$	1,952	$	(105	)	$	3,595	$	(139	)
Number of securities (1)			417					608					997
Number of securities with OTTI (1)			22					22					42

___________________

(1) The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.

131

Of the securities in an unrealized loss position for 12 months or more as of June 30, 2019 and December 31, 2018, 27 and 38 securities, respectively, had unrealized losses greater than 10% of book value. The total unrealized loss for these securities was $29 million as of June 30, 2019 and $43 million as of December 31, 2018. The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company has determined that the unrealized losses recorded as of June 30, 2019 and December 31, 2018 were yield-related and not the result of OTTI.

Changes in interest rates affect the value of the Company’s fixed-maturity portfolio. As interest rates fall, the fair value of fixed-maturity securities generally increases and as interest rates rise, the fair value of fixed-maturity securities generally decreases. The Company’s portfolio of fixed-maturity securities primarily consists of high-quality, liquid instruments.

The amortized cost and estimated fair value of the Company’s available-for-sale fixed-maturity securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Fixed-Maturity Securities

by Contractual Maturity

As of June 30, 2019

	Amortized Cost		Estimated Fair Value
	(in millions)
Due within one year	$	223	$	216
Due after one year through five years	1,637		1,665
Due after five years through 10 years	2,101		2,196
Due after 10 years	3,784		4,064
Mortgage-backed securities:
RMBS	914		938
CMBS	478		495
Total	$	9,137	$	9,574

The following table summarizes the ratings distributions of the Company’s investment portfolio as of June 30, 2019 and December 31, 2018. Ratings reflect the lower of the Moody’s Investors Service, Inc. and S&P Global Ratings, a division of Standard & Poor's Financial Services LLC classifications, except for bonds purchased for loss mitigation or other risk management strategies, which use Assured Guaranty’s internal ratings classifications.

Distribution of

Fixed-Maturity Securities by Rating

Rating	As of June 30, 2019		As of December 31, 2018
AAA	16.0	%	15.7	%
AA	45.8		48.2
A	21.0		19.8
BBB	6.7		5.0
BIG (1)	8.3		10.8
Not rated (2)	2.2		0.5
Total	100.0	%	100.0	%

____________________

(1) Includes primarily loss mitigation and other risk management assets. See Item I, Financial Statements, Note 7, Investments and Cash, for additional information.

(2) As of June 30, 2019, the not-rated category includes COFINA bonds with a fair value of $152 million.

132

Based on fair value, investments and restricted cash that are either held in trust for the benefit of third party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted totaled $279 million and $266 million, as of June 30, 2019 and December 31, 2018, respectively. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,653 million and $1,855 million, based on fair value, as of June 30, 2019 and December 31, 2018, respectively.

The Company has collateral posting obligations with respect to one CDS counterparty. See Item I, Financial Statements, Note 8, Contracts Accounted for as Credit Derivatives, for additional information.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in the market risks that the Company is exposed to since December 31, 2018.

ITEM 4. CONTROLS AND PROCEDURES

Assured Guaranty’s management, with the participation of AGL’s President and Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are effective in recording, processing, summarizing and reporting, within the time periods specified in the Securities and Exchange Commission’s rules and forms, information required to be disclosed by AGL in the reports that it files or submits under the Exchange Act and ensuring that such information is accumulated and communicated to management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2019. Based on their evaluation as of June 30, 2019 covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective.

133

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to legal proceedings and claims, as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, and in Part I, Item 1, Financial Statements, Note 12, Commitments and Contingencies – Legal Proceedings contained in this Form 10-Q. Material developments to such proceedings during the three months ended June 30, 2019, are described below and in the "Litigation" section of Note 12, Commitments and Contingencies, of the Financial Statements.

On May 2, 2019, the seven-member financial oversight board (Oversight Board), established pursuant to the Puerto Rico Oversight, Management,and Economic Stability Act (PROMESA), which was signed into law by the President of the United States on June 30, 2016, and the Official Committee of Unsecured Creditors of the Commonwealth filed an adversary complaint in the United States District Court for the District of Puerto Rico (Federal District Court for Puerto Rico) against various Commonwealth general obligation bondholders and bond insurers, including AGC and AGM, that had asserted in their proofs of claim that their bonds are secured. The complaint seeks a judgment declaring that defendants do not hold consensual or statutory liens and are unsecured claimholders to the extent they hold allowed claims. The complaint also asserts that even if Commonwealth law granted statutory liens, such liens are avoidable under Section 545 of the Bankruptcy Code. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On May 20, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against the fiscal agent and holders and/or insurers, including AGC and AGM, that have asserted their Puerto Rico Highways and Transportation Authority (PRHTA) bond claims are entitled to secured status in PRHTA’s Title III case. Plaintiffs are seeking to avoid the PRHTA bondholders’ liens and contend that (i) the scope of any lien only applies to revenues that have been both received by PRHTA and deposited in certain accounts held by the fiscal agent and does not include PRHTA’s right to receive such revenues; (ii) any lien on revenues was not perfected because the fiscal agent does not have “control” of all accounts holding such revenues; (iii) any lien on the excise tax revenues is no longer enforceable because any rights PRHTA had to receive such revenues is preempted by PROMESA; and (iv) even if PRHTA held perfected liens on PRHTA’s revenues and the right to receive such revenues, such liens were terminated by Section 552(a) of the Bankruptcy Code as of the petition date. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

ITEM 1A. RISK FACTORS

See the risk factors set forth in Part I, "Item 1A. Risk Factors" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Except as set forth below, there have been no material changes to the risk factors disclosed in such Annual Report on Form 10-K during the six months ended June 30, 2019.

The Company may not complete the BlueMountain Acquisition within the timeframe it anticipates, or at all, which could have a negative effect on its business or its results of operations.

The closing conditions in the Purchase Agreement may not be satisfied or may take longer to be satisfied than the Company expects. The BlueMountain Acquisition is also subject to other risks and uncertainties, such as the possibility that the sellers could exercise their respective termination rights. Failure to complete the BlueMountain Acquisition would, and any delay in completing the acquisition could, prevent the Company from realizing the benefits that it expects from the BlueMountain Acquisition and any such failure or delay may negatively impact the price of the Company's common shares.

134

The announcement and, if it occurs, closing of the BlueMountain Acquisition may negatively impact the Company's relationships with its investors, regulators, rating agencies, employees or obligors it insures, or BlueMountain's business or its relationships with its clients and employees.

The BlueMountain Acquisition represents a significant increase in the Company's participation in the asset management business and involves a significant investment by the Company. The Company has engaged in preliminary discussions regarding the BlueMountain Acquisition with its relevant regulators and with the rating agencies, and, on that basis, does not believe that the BlueMountain Acquisition will have a negative impact on its relationship with those regulators or the rating agencies or cause those regulators or rating agencies to take any actions that would impede the Company's continued pursuit of its current businesses. There can be no assurance, however, that the BlueMountain Acquisition will not negatively impact the Company's relationships with its investors, regulators, rating agencies, employees or obligors it insures or its business or results of operations.

BlueMountain's ability to generate new business and to retain current clients is dependent on the performance of its clients' investments as well as its relationship with its clients. There can be no assurance that the BlueMountain Acquisition will not negatively impact BlueMountain's relationship with any investor or potential investor. Any such negative impact could prevent the Company from realizing the benefits it expects from the BlueMountain Acquisition.

The Company and BlueMountain are dependent on the experience and industry knowledge of their respective management personnel and other key employees, including, in the case of BlueMountain, key investment professionals, to execute their business plans. The Company’s success after the completion of the BlueMountain Acquisition will depend in part upon the ability of the Company and BlueMountain to attract, motivate and retain key management personnel and other key employees, including key investment professionals. Uncertainties associated with the BlueMountain Acquisition may result in the departure of management personnel and other key employees, including key investment professionals, at BlueMountain or the Company, and BlueMountain and the Company may have difficulty attracting and motivating management personnel and other key employees, including key investment professionals, to the same extent they did prior to the BlueMountain Acquisition.

BlueMountain, if acquired, may present risks that could have a negative effect on the Company's business, results of operations or financial condition.

While the Company acquired a minority interest in an investment adviser, Wasmer, Schroeder & Company LLC, in 2017, the BlueMountain Acquisition would represent a significant increase in the Company's participation in the asset management business. The expansion of this business line, which the Company believes is in line with its risk profile and benefits from its core competencies, may present new risks that could have a negative effect on the Company's business, results of operations or financial condition. In addition, if the Company does not obtain all of the anticipated approvals and consents from its regulators and BlueMountain's clients, its ability to successfully pursue the asset management business through [BlueMountain] may be negatively impacted.

The BlueMountain Acquisition may also present the risks described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 under Part I, "Item 1A. Risk Factors, Risks Related to the Company's Business -- Acquisitions may not result in the benefits anticipated and may subject the Company to non-monetary consequences" and -- Alternative investments may not result in the benefits anticipated".

If the BlueMountain Acquisition is closed, the Company’s business, results of operations and financial condition may subsequently be impacted by some of the risks faced by asset managers. Asset management services are primarily a fee-based business, and BlueMountain's asset management and performance fees are based on the amount of its assets under management (AUM) as well as the performance of those assets. Volatility or declines in the markets in which BlueMountain invests, or poor performance of its investments, may negatively affect its AUM and its asset management and performance fees and may deter future investment in BlueMountain’s funds. BlueMountain’s business is also subject to legal, regulatory, compliance, accounting, valuation and political risks that differ from the those involved in the Company’s current business of providing credit protection products. In addition, the asset management business is an intensely competitive business, creating competitive risks.

135

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer’s Purchases of Equity Securities

The following table reflects purchases of AGL common shares made by the Company during Second Quarter 2019.

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program (2)
April 1 - April 30	664,834	$	45.97	664,834	$	287,873,272
May 1 - May 31	690,781	$	44.31	677,615	$	257,873,299
June 1 - June 30	1,176,681	$	42.49	1,176,681	$	207,873,299
Total	2,532,296	$	43.90	2,519,130

____________________

(1) After giving effect to repurchases since the beginning of 2013 through August 7, 2019, the Company has repurchased a total of 100.3 million common shares for approximately $2,964 million, excluding commissions, at an average price of $29.55 per share. The Board of Directors authorized, on August 7, 2019, an additional $300 million of share repurchases. As of August 7, 2019, after combining the remaining authorization and the new authorization, the Company was authorized to purchase $450 million of its common shares, on a settlement basis.

(2) Excludes commissions.

ITEM 5. OTHER INFORMATION

On August 7, 2019, AGUS and AGL entered into the Purchase Agreement pursuant to which AGUS will purchase all of the outstanding interests in BlueMountain and its associated entities for approximately $160 million, subject to certain pre- and post-closing adjustments. Not less than $114.8 million of the purchase price will be payable in cash. The remainder of the purchase price will be payable, at the Company’s election, in cash, in common shares of the Company, in a one-year promissory note or in a combination of the foregoing. In addition, the Company will contribute $60 million of cash to BlueMountain at closing and intends to contribute an additional $30 million in cash within a year from closing. The Company intends to fund the cash portion of the purchase price and the cash contribution to BlueMountain with available cash and, subject to regulatory approval, intercompany borrowings from AGM, AGC, MAC or a combination of them.

Completion of the BlueMountain Acquisition is subject to certain customary closing conditions, including (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (ii) the receipt of applicable regulatory approvals, (iii) the receipt of consents from certain BlueMountain clients, (iv) the employment agreement with Andrew Feldstein, the current chief executive officer and chief investment officer of BlueMountain, remaining in full force and effect, and (v) other customary closing conditions. There can be no assurance that regulatory approvals and third party consents will be obtained.

The Purchase Agreement contains certain termination rights, including, among others, the right of either party to terminate the Purchase Agreement if the BlueMountain Acquisition does not occur by February 3, 2020. The Purchase Agreement also contains customary representations, covenants and indemnification provisions.

Mr. Feldstein has entered into a five-year employment agreement pursuant to which he will, effective upon the closing date of the BlueMountain Acquisition, serve as the Chief Investment Officer and Head of Asset Management of the Company and continue to serve as chief executive officer and chief investment officer of BlueMountain.

The foregoing summaries of the Purchase Agreement and Mr. Feldstein’s employment agreement do not purport to be complete and are subject to, and qualified in their entireties by, the full text of the Purchase Agreement and Mr. Feldstein’s employment agreement, which are filed as Exhibit 2.1 and Exhibit 10.1, respectively, to this Form 10-Q.

The Purchase Agreement has been attached to provide stockholders with information regarding its terms. It is not intended to provide any other factual information about the Company or BlueMountain. In particular, the assertions embodied in the representations and warranties in the Purchase Agreement were made as of a specified date, in the case of the Company,

136

are modified or qualified by information in a confidential disclosure letter provided by BlueMountain and the sellers to the Company in connection with the signing of the Purchase Agreement, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the parties. Accordingly, the representations and warranties in the Purchase Agreement are not necessarily characterizations of the actual state of facts about the Company or BlueMountain at the time they were made or otherwise and should only be read in conjunction with the other information that the Company makes publicly available in reports, statements and other documents filed with the SEC.

ITEM 6. EXHIBITS.

The following exhibits are filed with this report:

Exhibit Number	Description of Document
2.1	Purchase Agreement, dated as of August 7, 2019, among BlueMountain Capital Management, LLC, BlueMountain GP Holdings, LLC, BlueMountain CLO Management, LLC, Assured Guaranty US Holdings Inc., Assured Guaranty Ltd., Affiliated Managers Group, Inc. and the sellers named therein 1
10.1	Employment Agreement, dated as of August 7, 2019, among AG US Group Services Inc., BlueMountain Capital Management, LLC and Andrew Feldstein*
31.1	Certification of CEO Pursuant to Exchange Act Rules 13A-14 and 15D-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of CFO Pursuant to Exchange Act Rules 13A-14 and 15D-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
32.2	Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
101.1	The following financial information from Assured Guaranty Ltd.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in inline XBRL: (i) Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018; (ii) Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2019 and 2018; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months ended June 30, 2019 and 2018; (iv) Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months ended June 30, 2019 and 2018; (v) Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2019 and 2018; and (vi) Notes to Condensed Consolidated Financial Statements.
104	The Cover page from Assured Guaranty Ltd.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted, in inline XBRL (included in Exhibit 101).

¹ The Company has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation S-K and shall furnish supplementally to the SEC copies of any of the omitted schedules and exhibits upon request by the SEC.

* Management contract or compensatory plan

137

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	ASSURED GUARANTY LTD. (Registrant)
Dated August 8, 2019	By:	/s/ ROBERT A. BAILENSON
		Robert A. Bailenson Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

138

EX-2.1

EXECUTION VERSION

Exhibit 2.1

PURCHASE AGREEMENT

by and among

BLUEMOUNTAIN CAPITAL MANAGEMENT, LLC,
BLUEMOUNTAIN GP HOLDINGS, LLC,
BLUEMOUNTAIN CLO MANAGEMENT, LLC,

ASSURED GUARANTY US HOLDINGS INC.,
as Purchaser,

ASSURED GUARANTY LTD.,

solely for purposes of Sections 1.3(c)(ii), 4.1, 4.2, 4.5 and 4.9,

AFFILIATED MANAGERS GROUP, INC.,
solely for purposes of Section 12.17,

and

EACH OF THE SELLERS

DATED AS OF AUGUST 7, 2019

TABLE OF CONTENTS

		Page
SECTION 1.	PURCHASE	3
1.1	General	3
1.2	Time and Place of Closing	3
1.3	Purchase Price; Purchase Price Allocation	3
1.4	Closing Deliverables	8
1.5	Further Assurances	10
1.6	Transfer Taxes	10
1.7	Withholding	11
SECTION 2.	REPRESENTATIONS AND WARRANTIES OF THE BLUEMOUNTAIN OPERATING COMPANIES	11
2.1	Organization and Qualification of the BlueMountain Operating Companies	11
2.2	Ownership Interests of the BlueMountain Operating Companies	12
2.3	Subsidiaries; Investments	13
2.4	Authority of the BlueMountain Operating Companies	14
2.5	Real Property	15
2.6	Assets Under Management	15
2.7	Financial Statements	17
2.8	Taxes	19
2.9	Absence of Certain Changes	22
2.10	Ordinary Course	22
2.11	Intellectual Property	22
2.12	Contracts	25
2.13	Litigation	28
2.14	Compliance with Laws	29
2.15	Business; Registrations	31
2.16	Insurance	34
2.17	Finder’s Fee	34
2.18	Transactions with Interested Persons	34
2.19	Employee Programs	35
2.20	Managers, Directors, Officers and Employees	39
2.21	BlueMountain Funds; BlueMountain Fuji Agreements	40
2.22	Assets	43
2.23	Environmental Matters	43
2.24	Bank Accounts	43
SECTION 3.	REPRESENTATIONS AND WARRANTIES OF THE SELLERS	43
3.1	Ownership Interests	44

i

3.2	Authority of Sellers	44
3.3	Litigation	45
3.4	Finder’s Fee	45
3.5	No Securities Matters	45
SECTION 4.	REPRESENTATIONS AND WARRANTIES OF PURCHASER	46
4.1	Organization of Purchaser and Purchaser Parent	47
4.2	Authority of Purchaser and Purchaser Parent	47
4.3	Litigation	48
4.4	Acquisition for Investment	48
4.5	Finder’s Fee	49
4.6	Ineligible Persons	49
4.7	Financing	49
4.8	R&W Insurance Policy	49
4.9	Purchaser Parent Representations	49
SECTION 5.	COVENANTS	51
5.1	Actions of the BlueMountain Operating Companies	51
5.2	Pre-Closing Conduct of Business	51
5.3	Client Consents; BlueMountain Fuji Consents	56
5.4	Pre-Closing Access	58
5.5	Regulatory Matters; Antitrust Notifications; Third Party Consents	59
5.6	Financial Information	61
5.7	Notifications	62
5.8	Efforts of Parties to Close	62
5.9	Indemnification; D&O Insurance	62
5.10	No Solicitation of Other Offers	63
5.11	Restructuring	64
5.12	Confidentiality	65
5.13	Insurance	66
5.14	Section 401(k) Plan Termination	66
5.15	R&W Insurance Policy	66
5.16	Resignations	67
SECTION 6.	CERTAIN TAX MATTERS	67
6.1	Tax Treatment	67
6.2	Tax Indemnification	67
6.3	Tax Returns	67
6.4	Apportionment	69
6.5	Tax Contests	69
6.6	Refunds	70
6.7	Tax Sharing Agreements	71
6.8	Books and Records; Cooperation	71

ii

6.9	Section 754 Elections	71
6.10	Inconsistency	71
SECTION 7.	CONDITIONS TO THE OBLIGATIONS OF PURCHASER	72
7.1	Litigation; No Opposition	72
7.2	HSR Approval	72
7.3	Representations, Warranties and Covenants	72
7.4	Consents	73
7.5	FCA Approval	73
7.6	Employment Agreement	73
7.7	Restructuring	73
7.8	2018 Audited Financial Statements and Work Papers	74
7.9	Closing Deliverables	75
SECTION 8.	CONDITIONS TO THE OBLIGATIONS OF THE BLUEMOUNTAIN OPERATING COMPANIES AND THE SELLERS	75
8.1	Litigation; No Opposition	75
8.2	HSR Approval	75
8.3	Representations, Warranties and Covenants	75
8.4	FCA Approval	76
8.5	Closing Deliverables	76
SECTION 9.	INDEMNIFICATION	76
9.1	Survival of Representations, Warranties, Covenants and Agreements	76
9.2	Indemnification with respect to BlueMountain Operating Companies	77
9.3	Indemnification by each Seller	77
9.4	Limitations on Indemnification by the Sellers	78
9.5	Indemnification by Purchaser	79
9.6	Limitation on Indemnification by Purchaser	79
9.7	Notice; Defense of Claims	80
9.8	Other Indemnification Matters	82
9.9	Indemnification Payments; R&W Insurance Policy	83
9.10	Exclusive Remedy	84
9.11	Assignment of Claims	84
SECTION 10.	TERMINATION OF AGREEMENT	85
10.1	Termination	85
10.2	Effect of Termination	86
SECTION 11.	DEFINITIONS	86
11.1	Definitions	86
SECTION 12.	MISCELLANEOUS	107
12.1	Fees and Expenses	107
12.2	Waivers	107
12.3	Governing Law	107

iii

12.4	Notices	107
12.5	Entire Agreement, Etc.	109
12.6	Assignability; Binding Effect	110
12.7	Captions; Gender; Interpretation	111
12.8	Execution in Counterparts	111
12.9	Amendments	111
12.10	Publicity and Disclosures	111
12.11	Specific Performance	112
12.12	Submission to Jurisdiction; Waiver of Jury Trial	112
12.13	No Recourse	113
12.14	Releases	114
12.15	Disclosure Schedule	115
12.16	Seller Representative	115
12.17	Guaranty of AMG Parent	116

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PURCHASE AGREEMENT

This PURCHASE AGREEMENT (the “Agreement”) is entered into as of August 7, 2019, by and among:

(i)    Assured Guaranty US Holdings Inc., a Delaware corporation (“Purchaser”);

(ii)    solely for purposes of Sections 1.3(c)(ii), 4.1, 4.2, 4.5 and 4.9, Assured Guaranty Ltd., a limited company organized under the laws of Bermuda (“Purchaser Parent”);

(iii)    BlueMountain Capital Management, LLC, a Delaware limited liability company (“Management Company LLC”);

(iv)    BlueMountain GP Holdings, LLC, a Delaware limited liability company (“GP Holdings LLC”);

(v)    BlueMountain CLO Management, LLC, a Delaware limited liability company (“CLO Management LLC” and together with Management Company LLC and GP Holdings LLC, the “BlueMountain Operating Companies”, and each a “BlueMountain Operating Company”);

(vi)    BMCM Acquisition, LLC, a Delaware limited liability company (the “AMG Seller”), and each of those individuals identified on Schedule A hereto as BlueMountain Sellers (the “BlueMountain Sellers” and together with the AMG Seller, the “Sellers”); and

(vii)    solely for purposes of Section 12.17, Affiliated Managers Group, Inc., a Delaware corporation (“AMG Parent”).

W I T N E S SE T H:

WHEREAS, each of Management Company LLC, BMCP London (as defined herein) and CLO Management LLC is engaged in the business of providing Investment Management Services (as defined herein) and GP Holdings LLC holds interests, directly and indirectly, in pooled investment vehicles;

WHEREAS, the Sellers collectively own (a) all of the equity interests of each of the BlueMountain Operating Companies and (b) all of the equity interests of BMCP London not owned, directly or indirectly, by Management Company LLC (collectively, the “BlueMountain Interests”);

WHEREAS, Purchaser desires to purchase and the Sellers desire to sell, in each case on the terms and subject to the conditions set forth herein, all of the BlueMountain Interests;

WHEREAS, concurrently with the execution and delivery of this Agreement, the Principal has entered into an Employment Agreement with AG US Group Services Inc., a Delaware corporation and an Affiliate of Purchaser, and Management Company LLC (the “Employment Agreement”), effective upon and subject to the Closing;

WHEREAS, concurrently with the execution and delivery of this Agreement, the Principal and Purchaser Parent have entered into the lock-up agreement attached hereto as Exhibit A (the “Lock-Up Agreement”), effective upon and subject to the Closing;

WHEREAS, to induce the other parties to enter into this Agreement, the parties hereto have agreed to make certain representations, warranties, covenants and agreements as set forth herein. Initially capitalized terms used herein (and not otherwise defined herein) have the meanings given to such terms in Section 11.1 hereof.

NOW, THEREFORE, in order to consummate the transactions contemplated hereby, and in consideration of the mutual agreements set forth herein and other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

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Section 1. PURCHASE

1.1General. Upon the terms and subject to the conditions contained in this Agreement, and on the basis of the representations, warranties, covenants and agreements set forth herein, Purchaser shall purchase (the “Purchase”) from the Sellers all of the BlueMountain Interests, and each Seller hereby agrees to sell to Purchaser all of the BlueMountain Interests owned by such Seller, in exchange for the payment of the Purchase Price.

1.2Time and Place of Closing. The closing of the purchase and sale of the BlueMountain Interests (the “Closing”) shall take place at the offices of Purrington Moody Weil LLP, 414 West 14th Street, 4^th Floor, New York, New York, at 10:00 a.m. local time on (a) the later of (i) October 1, 2019 or (ii) the third (3^rd) Business Day after the last of the conditions to the Closing set forth in Section 7 and Section 8 hereof (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at the Closing) is satisfied or waived (such third (3^rd) Business Day, the “Satisfaction Date”) ; provided, that, in the case of this clause (a), if the Satisfaction Date occurs during the period from and including December 2, 2019 through and including December 31, 2019, then Purchaser may elect, in its sole discretion upon written notice to the Seller Representative and AMG Seller no later than the first (1^st) Business Day after the last of the conditions to the Closing set forth in Section 7 and Section 8 hereof is satisfied or waived, for the Closing to occur on December 31, 2019, or (b) at such other time and place as shall be mutually agreed upon by Purchaser, the Seller Representative and the AMG Seller, subject to the satisfaction or waiver of all of the conditions to Closing set forth herein. Notwithstanding anything to the contrary in this Section 1.2, if the Closing Date occurs on a date that is after the Satisfaction Date, then interest shall accrue and be payable at the Closing on the Seller Closing Consideration from the Satisfaction Date until the Closing Date at a rate per annum equal to the Interest Rate. For all purposes under this Agreement, from and after (and subject to) the Closing having occurred hereunder, the Closing shall be deemed to have occurred as of 12:01 a.m., Eastern Time on the Closing Date (notwithstanding what time the actual Closing logistics were completed on the Closing Date) ; provided, however, that if the Closing Date is December 31, 2019, then the Closing shall be deemed to have occurred as of 11:59 p.m., Eastern Time on December 31, 2019 (notwithstanding what time the actual Closing logistics were completed on December 31, 2019).

1.3Purchase Price; Purchase Price Allocation.

(a)The total consideration payable by Purchaser for the sale by the Sellers of the BlueMountain Interests shall be an aggregate amount equal to the sum of (i) the Seller Closing Consideration and (ii) the Contribution Amount (together, the “Purchase Price”). Each Seller’s share of the Seller Closing Consideration shall be payable (A) in the case of each Principal Seller, in any combination of cash, shares of Parent Common Stock and/or a

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promissory note substantially in the form annexed hereto as Exhibit B (the “Promissory Note”) and (B) in the case of any other Seller, in cash, in each case as set forth in this Section 1.3.

(b)Upon the terms and subject to the conditions contained in this Agreement, at the Closing, Purchaser shall pay the Purchase Price (other than the Principal Consideration) by Wire Transfer as follows:

(i)to the AMG Seller, an amount in cash equal to (A) $91,000,000.00 (the “AMG Seller Closing Consideration”, and together with the BlueMountain Seller Closing Cash Proceeds and the Principal Consideration, the “Seller Closing Consideration”) plus (B) any interest on such amount payable pursuant to Section 1.2minus (C) the AMG Seller’s Interim Leakage Amount, if any; provided, that in the event that the Single Investor Consent is not obtained on or prior to Closing, the AMG Seller Closing Consideration shall be reduced by an amount equal to $1,620,000.00; provided, further, that if the Single Investor Consent is obtained at any time during the two (2) month period after the Closing Date, then no later than five (5) Business Days after receipt of the Single Investor Consent, Purchaser shall pay such amount in cash to the AMG Seller by Wire Transfer;

(ii)to the Disbursing Agent, an aggregate amount in cash equal to (A) $23,787,861.98 (the “BlueMountain Seller Closing Cash Proceeds”) plus (B) any interest on such amount payable pursuant to Section 1.2; minus (C) the aggregate BM Seller Sale Percentages of all BlueMountain Sellers (other than the Principal Sellers) multiplied by the Unadjusted Differences Excess, if any (the sum of the amounts in clauses (A) through (C), the “Adjusted BlueMountain Seller Closing Cash Proceeds”) minus (D) the aggregate Interim Leakage Amount of all BlueMountain Sellers (other than the Principal Sellers), if any, which aggregate amount shall be further distributed by the Disbursing Agent to each BlueMountain Seller (other than the Principal Sellers) by Wire Transfer of (1) an amount in cash equal to such BlueMountain Seller’s BM Seller Sale Percentage of the Adjusted BlueMountain Seller Closing Cash Proceeds, which amount is set forth opposite each such BlueMountain Seller’s name under “BlueMountain Seller Closing Cash Proceeds” in the Funds Flow Memo minus (2) such BlueMountain Seller’s Interim Leakage Amount; provided, that in the event that the Single Investor Consent is not obtained on or prior to Closing, the BlueMountain Seller Closing Cash Proceeds shall be reduced by an amount equal to $475,757.40; provided, further, that if the Single Investor Consent is obtained at any time during the two (2) month period after the Closing Date, then no later than five (5) Business Days after receipt of the Single Investor Consent, Purchaser

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shall pay such amount in cash to the Disbursing Agent by Wire Transfer, for further distribution by the Disbursing Agent to each BlueMountain Seller (other than the Principal Sellers) in accordance with the written instructions of Seller Representative delivered to Purchaser promptly, and in any event within two Business Days, following receipt of notice of such Single Investor Consent; and

(iii)to Management Company LLC, an amount in cash equal to $60,000,000 (the “Contribution Amount”), which Contribution Amount will be utilized by the BlueMountain Operating Companies to satisfy and discharge, among other costs, expenses and capital investments, the Seller Transaction Expenses and the Restructuring Costs when due and payable on or after the Closing.

(c)Upon the terms and subject to the conditions contained in this Agreement, at the Closing, Purchaser or Purchaser Parent, as applicable, shall pay to each Principal Seller such Principal Seller’s Sale Percentage (as between the Principal Sellers) of an aggregate amount (such amount, the “Adjusted Principal Consideration”) equal to (A) $45,212,138.02 (the “Principal Consideration”) plus (B) any interest on such amount payable pursuant to Section 1.2minus (C) the aggregate BM Seller Sale Percentages of the Principal Sellers multiplied by the Unadjusted Differences Excess, if any, minus (D) the aggregate Interim Leakage Amount of the Principal Sellers, if any, minus (E) the R&W Insurance Costs; provided, that in the event that the Single Investor Consent is not obtained on or prior to Closing, the Principal Consideration shall be reduced by an amount equal to $904,242.60; provided, further, that if such Single Investor Consent is obtained at any time during the two (2) month period after the Closing Date, then no later than five (5) Business Days after receipt of such Single Investor Consent, Purchaser shall pay such amount to the Principal Sellers in the manner contemplated by this Section 1.3(c). With respect to each Principal Seller, Purchaser may elect, in its sole discretion at any time prior to Closing, to pay, or cause to be paid, the Adjusted Principal Consideration to which such Principal Seller is entitled in any combination of cash, shares of Parent Common Stock and/or the Promissory Note, and, at the Closing:

(i)Purchaser shall pay to the Disbursing Agent an amount in cash equal to the portion of the Adjusted Principal Consideration that Purchaser elects to pay to such Principal Seller in cash, for further distribution by the Disbursing Agent to such Principal Seller by Wire Transfer of such amount;

(ii)Purchaser Parent shall issue to such Principal Seller a number of shares of Parent Common Stock (rounded up to the nearest whole share) equal to (i) the portion of the Adjusted Principal Consideration that

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Purchaser elects to pay to such Principal Seller in the form of shares of Parent Common Stock, if any, divided by (ii) the Share Price; and/or

(iii)Purchaser shall issue to such Principal Seller the Promissory Note in a principal amount equal to the portion of the Adjusted Principal Consideration that Purchaser elects to pay to such Principal Seller in the form of the Promissory Note, if any.

(d)On the date that is two (2) Business Days prior to the Closing Date:

(i)the AMG Seller shall deliver to Purchaser written notice setting forth Wire Transfer instructions designating the account to which payment of the AMG Seller Closing Consideration (as such amount may be adjusted in accordance with Section 1.3(b)(i)) shall be made at the Closing pursuant to Section 1.3(b)(i);

(ii)the Seller Representative shall deliver to Purchaser a “funds flow memorandum” (the “Funds Flow Memo”) in such format as the Disbursing Agent reasonably requires setting forth:

(A) the aggregate amount to be paid by the Purchaser to the Disbursing Agent pursuant to each of Section 1.3(b)(ii) and Section 1.3(c)(i);

(B) with respect to each BlueMountain Seller (other than the Principal Sellers), (1) the name of such BlueMountain Seller, (2) the amount to be paid in cash to such BlueMountain Seller pursuant to Section 1.3(b)(ii) if the Single Investor Consent has not been obtained prior to the date on which the Funds Flow Memo is required to be delivered, (3) the amount to be paid in cash to such BlueMountain Seller pursuant to Section 1.3(b)(ii) if the Single Investor Consent has been obtained or is obtained prior to Closing, (4) the amount to be paid in cash to such BlueMountain Seller in the event that Single Investor Consent is obtained at any time during the two (2) month period after the Closing Date and (5) Wire Transfer instructions designating the account(s) to which the Disbursing Agent shall pay the applicable amounts contemplated by the foregoing clauses (2) through (4) to such BlueMountain Seller;

(C) with respect to each Principal Seller, (1) the pro rata portion of the Adjusted Principal Consideration to which such Principal Seller is entitled, (2) the amount to be paid in cash to such Principal Seller pursuant to

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Section 1.3(c)(i) if the Single Investor Consent has not been obtained prior to the date on which the Funds Flow Memo is required to be delivered, (3) the amount to be paid in cash to such Principal Seller pursuant to Section 1.3(c)(i) if the Single Investor Consent has been obtained or is obtained prior to Closing, (4) the amount to be paid in cash to such Principal Seller in the event that Single Investor Consent is obtained at any time during the two (2) month period after the Closing Date, and (5) Wire Transfer instructions designating the account(s) to which the Disbursing Agent shall pay the applicable amounts contemplated by the foregoing clauses (2) through (4) to such Principal Seller; and

(D) with respect to each payee of Seller Transaction Expenses to which payment shall be made at Closing pursuant to Section 1.3(b)(iii), (1) the name of such payee, (2) the amount(s) of such payments and (3) Wire Transfer instructions designating the account(s) of such payee to which such payments shall be made at the Closing;

(iii)the BlueMountain Operating Companies shall deliver to Purchaser a certificate (the “Leakage Certificate”), executed by a senior officer of the BlueMountain Operating Companies on behalf of the BlueMountain Operating Companies, setting forth, with respect to each Seller, the Leakage Amount of such Seller’s Locked Box Group during the period from the Locked Box Date until the day immediately preceding the delivery of the Leakage Certificate, and each Seller’s Leakage Amount set forth on the Leakage Certificate shall be such Seller’s “Interim Leakage Amount”;

(iv)the Seller Representative shall deliver to Purchaser the Disbursing Agent Agreement, duly executed by Seller Representative (on behalf of itself and the BlueMountain Sellers); and

(v)Purchaser shall deliver to the Seller Representative the Disbursing Agent Agreement, duly executed by Purchaser and the Disbursing Agent.

The parties agree that Purchaser and the Disbursing Agent shall be entitled to rely on the Funds Flow Memo and the Leakage Certificate in making payments under Section 1.3(b)(ii), Section 1.3(b)(iii) and Section 1.3(c)(i) and Purchaser shall not be responsible for the calculations or the determinations regarding such calculations in the Funds Flow Memo or the Leakage Certificate.

(e)No later than sixty (60) days after the Closing Date, Seller Representative and the AMG Seller shall (acting jointly) deliver to Purchaser for its review a

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schedule that sets forth the allocation of the total consideration paid for the BlueMountain Interests (as determined for U.S. federal income tax purposes) (the “Total Consideration”) among the assets of the BlueMountain Operating Companies (and other assets acquired or deemed acquired pursuant to this Agreement) in accordance with the applicable provisions of the Code and Treasury Regulations thereunder (as finally determined, and subject to any further amendment, in each case pursuant to this Section 1.3(e), the “Purchase Price Allocation”). Purchaser shall have the right to review and provide to the Seller Representative any objections to the Purchase Price Allocation within thirty (30) days following the receipt of such schedule, in which case Purchaser and the Seller Representative shall negotiate in good faith and use reasonable efforts to resolve such dispute. If Purchaser and Seller Representative fail to resolve such dispute within fifteen (15) days after the Purchaser timely raised its objections, or such later date as may be agreed, then Purchaser and Sellers (and their respective Affiliates) may each report the allocation of the Total Consideration its sole discretion. Any adjustment to the Total Consideration made pursuant to this Agreement shall be allocated in accordance with the provisions of this Section 1.3(e). The parties shall notify and provide each other with reasonable assistance in the event of an examination, audit, or other proceeding relating to Taxes regarding the allocation of the Total Consideration.

1.4Closing Deliverables. At the Closing:

(a)The BlueMountain Operating Companies shall deliver (or cause to be delivered) to Purchaser:

(i)the executed officer’s certificate required pursuant to Section 7.3(e)(i), in form and substance reasonably satisfactory to Purchaser;

(ii)the executed certificate required pursuant to Section 7.8(c); and

(iii)a certificate from each BlueMountain Operating Company, duly executed by an authorized officer of such BlueMountain Operating Company and dated as of the Closing Date, (A) attaching a good standing certificate for such BlueMountain Operating Company as of a date within ten (10) days of the Closing Date, and the certificate of formation of such BlueMountain Operating Company, certified by the Secretary of State of the State of Delaware and (B) certifying, as to such BlueMountain Operating Company, (1) the incumbency of managers or officers executing this Agreement; and (2) resolutions of the board of managers and/or members, as applicable, authorizing the execution, delivery and performance of this Agreement and approving the consummation of the transactions contemplated herein.

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(b)Each Seller shall deliver (or cause to be delivered):

(i)to Purchaser, a Transfer Instrument substantially in the form attached hereto as Exhibit C-1 (in the case of BlueMountain Interests in the BlueMountain Operating Companies) and/or Exhibit C-2 (in the case of BlueMountain Interests in the BMCP London), duly executed by each such Seller;

(ii)to Purchaser, the executed certificate of such Seller required pursuant to Section 7.3(e)(ii), in form and substance reasonably satisfactory to Purchaser; and

(iii)in the case of a Seller that is a “United States person” within the meaning of Section 7701(a)(30) of the Code, to Purchaser, (1) an affidavit prepared in accordance with Treasury Regulations Section 1.1445‑2 certifying that such Seller is not a foreign person (each such affidavit, a “FIRPTA Certificate”) and (2) a valid IRS Form W-9 certifying its non-foreign status for purposes of Proposed Treasury Regulations Section 1.1446(f)‑2(b)(2) (or any successor provision thereto).

(c)Purchaser shall deliver (or cause to be delivered):

(i)to the AMG Seller, payment in cash of the AMG Seller Closing Consideration (as such amount may be adjusted in accordance with Section 1.3(b)(i));

(ii)to each BlueMountain Seller, payment in cash of such Seller’s share of the BlueMountain Seller Closing Cash Proceeds (as such amount may be adjusted in accordance with Section 1.3(b)(ii)) set forth in the Funds Flow Memo;

(iii)to Management Company LLC, payment in cash of the Contribution Amount in accordance with Section 1.3(b)(iii);

(iv)to each Principal Seller, if applicable, payment in cash of all or a portion of the Adjusted Principal Consideration;

(v)if applicable, to the Seller Representative, evidence in form and substance reasonably satisfactory to the Seller Representative of the issuance of the number of shares of Parent Common Stock contemplated by Section 1.3(c)(ii), if any, in book entry form, registered in the name of the

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applicable Principal Seller, and bearing customary legends noting that such securities constitute restricted securities under the Securities Act;

(vi)to each Principal Seller, if applicable, the Promissory Note in a principal amount equal to a portion of the Adjusted Principal Consideration in accordance with Section 1.3(c)(iii);

(vii)to the Seller Representative and the AMG Seller, the executed officer’s certificate required pursuant to Section 8.3(d), in form and substance reasonably satisfactory to the Seller Representative and the AMG Seller; and

(viii)to the Seller Representative and the AMG Seller, a certificate from Purchaser, duly executed by an authorized officer of Purchaser and dated as of the Closing Date, (A) attaching a good standing certificate for Purchaser as of a date within ten (10) days of the Closing Date, and the certificate of incorporation of Purchaser, certified by the Secretary of State of the State of Delaware and (B) certifying, as to the Purchaser, (1) the incumbency of directors or officers executing this Agreement; and (2) resolutions of the board of directors of Purchaser authorizing the execution, delivery and performance of this Agreement and approving the consummation of the transactions contemplated herein.

1.5Further Assurances. Each of the BlueMountain Sellers and Purchaser shall, from time to time after the Closing, at the request of any other party hereto and without further consideration, execute and deliver further instruments of transfer and assignment and take such other action as such other party may reasonably request to fully implement the provisions of this Agreement and the Transaction Documents.

1.6Transfer Taxes. All transfer, documentary, sales, use, registration, stamp and other Taxes and fees (including any penalties and interest thereon) incurred in connection with the transactions contemplated by this Agreement (together, “Transfer Taxes”) shall be timely paid 50% by the Purchaser, on the one hand, and 50% by the AMG Seller and the BlueMountain Sellers, severally among such Sellers based upon their respective Sale Percentages, on the other hand. The party responsible under applicable law for filing a Tax Return or other documentation with respect to any such Transfer Taxes shall prepare and timely file such Tax Return and promptly provide a copy of such Tax Return to the other party. Each party shall, and shall cause their respective Affiliates to, cooperate to timely prepare and file any Tax Returns or other filings relating to such Transfer Taxes, including any claim for exemption or exclusion from the application or imposition of any Transfer Tax.

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1.7Withholding. Notwithstanding any other provision of this Agreement, Purchaser and the Disbursing Agent shall be entitled to deduct and withhold from any amounts payable or otherwise deliverable pursuant to this Agreement such amounts as may be required to be deducted or withheld therefrom under any provision of federal, state, local or non-U.S. Laws and Regulations; provided, however, that no amounts shall be deducted or withheld under Code Sections 1445 or 1446 from amounts payable to Sellers that provide FIRPTA Certificates and valid IRS Forms W-9 in accordance with Section 1.4(b)(iii). To the extent such amounts are so deducted or withheld and are timely remitted to the applicable governmental authority, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE BLUEMOUNTAIN OPERATING COMPANIES

Except as set forth in a correspondingly labeled section of the written disclosure schedule delivered by the BlueMountain Operating Companies to Purchaser on or prior to the date of this Agreement (the “Disclosure Schedule”) (it being agreed that any matter disclosed in any section or subsection of the Disclosure Schedule shall be deemed disclosed in any other section or subsection to the extent that such information is reasonably apparent on its face to be so applicable to such other section or subsection), the BlueMountain Operating Companies hereby represent and warrant to Purchaser, as of the date hereof and the Closing (or, in the case of any representation or warranty made as of a specified date, as of such specified date), as follows:

2.1Organization and Qualification of the BlueMountain Operating Companies. Each of the BlueMountain Operating Companies is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware with full power and authority under the Delaware LLC Act to own or lease its material properties and to conduct its business in the manner currently conducted. Each of the BlueMountain Operating Companies is duly qualified to do business as a foreign limited liability company under the laws of each jurisdiction in which the ownership or leasing of its properties or the conduct of its business in the manner and in the places where such properties are owned or leased or such business is currently conducted requires such qualification, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect. A true and correct list of all of the jurisdictions in which each BlueMountain Operating Company is so licensed or qualified to do business is set forth on Schedule 2.1. True and complete copies of each of the BlueMountain Operating Company’s Organizational Documents and, if applicable, minute books and equity transfer ledgers, have been made available to Purchaser. None of the BlueMountain Operating Companies are in default under or in violation of any provision of their Organizational Documents, and all such documents are in full force and effect.

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2.2Ownership Interests of the BlueMountain Operating Companies.

(a)All of the BlueMountain Interests have been duly authorized and issued under the Governing Agreements. Such BlueMountain Interests constitute (x) the only outstanding partnership, membership or other ownership interests in the BlueMountain Operating Companies and (y) the only outstanding partnership interests in BMCP London not owned, directly or indirectly, by Management Company LLC, in each case as of the execution and delivery of this Agreement. Except for the obligations created by this Agreement and as set forth in agreements listed in Schedule 2.2(a) that will be of no further force and effect following the Closing, (i) there are no rights, options, warrants, commitments, agreements or understandings obligating or which might obligate the BlueMountain Operating Companies or BMCP London or any of their respective partners or members to issue, transfer, sell, repurchase or redeem any securities or interests in the BlueMountain Operating Companies or BMCP London and (ii) there are no outstanding options, warrants, rights, commitments, preemptive rights or agreements of any kind for the issuance or sale of, or outstanding securities convertible into, any additional partnership interests, membership interests or other ownership interests of any of the BlueMountain Operating Companies or BMCP London. Other than as set forth on Schedule 2.2(a), there are no voting trusts, voting agreements, proxies or other agreements, instruments or undertakings with respect to the voting of any BlueMountain Interests. None of the BlueMountain Operating Companies has any outstanding debt securities.

(b)As of the date hereof, all of the outstanding BlueMountain Interests are owned exclusively by the Persons listed on Schedule 2.2(b)-1 hereto in the respective amounts set forth on Schedule 2.2(b)-1 hereto, and as of the Closing Date, all of the outstanding BlueMountain Interests will be owned exclusively by the Persons listed on Schedule 2.2(b)-2 hereto in the respective amounts set forth on Schedule 2.2(b)-2 hereto. As of the date hereof, each Person listed on Schedule 2.2(b)-1 owns of record and beneficially the respective BlueMountain Interests set forth opposite such Person’s name on Schedule 2.2(b)-1 hereto, free and clear of any Claims (other than the contractual provisions of the Governing Agreements and Claims created by Purchaser), and such membership interests or partnership interests, as applicable, are the only membership interests or partnership interests, as applicable, (or other ownership interests) of the BlueMountain Operating Companies or BMCP London held by such Person or with respect to which such Person has any rights, and as of the Closing Date, each Person listed on Schedule 2.2(b)-2 will own of record and beneficially the respective BlueMountain Interests set forth opposite such Person’s name on Schedule 2.2(b)-2 hereto, free and clear of any Claims (other than the contractual provisions of the Governing Agreements and Claims created by Purchaser), and such membership interests or partnership interests, as applicable, are the only membership interests or partnership interests, as applicable, (or other ownership interests) of the BlueMountain Operating Companies or BMCP London held by such Person or with respect to which such Person has any rights. At the Closing, the Sellers will sell,

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transfer and deliver to Purchaser all of their right, title and interest in and to the BlueMountain Interests, free and clear of any Claims.

2.3Subsidiaries; Investments.

(a)Schedule 2.3(a) sets forth the names, jurisdictions of incorporation, formation or organization and the issued share capital and beneficial ownership, of all Subsidiaries of the BlueMountain Operating Companies (the “BlueMountain Subsidiaries”). The BlueMountain Operating Companies have no Subsidiaries other than the BlueMountain Subsidiaries. Other than as set forth on Schedule 2.3(a), none of the BlueMountain Operating Companies and the BlueMountain Subsidiaries owns for its own account, either directly or indirectly, any of the capital of, or other equity or proprietary interest in, any corporation, or any such interest in any association, trust, partnership, joint venture or similar entity, or in any other entity or enterprise (other than interests in the BlueMountain Funds). All the issued share capital, partnership interests, membership interests or other equity interests, as applicable, of each BlueMountain Subsidiary are validly issued, fully paid (and no money or other obligation is owing in respect of them), have not been issued in violation of any preemptive or similar rights, and, other than the BlueMountain Interests in BMCP London, which are addressed in Section 2.2, are owned, legally and beneficially, by one or more of the BlueMountain Operating Companies or other BlueMountain Subsidiaries, free and clear of any Claims. None of the BlueMountain Subsidiaries has any outstanding debt securities.

(b)Each BlueMountain Subsidiary is duly formed, validly existing and in good standing under the laws of its jurisdiction of formation or organization with full power and authority under such laws to own or lease its properties and to conduct its business as currently conducted, except where the failure to have such power and authority would not reasonably be expected to adversely affect the BlueMountain Operating Companies and BlueMountain Subsidiaries, taken as a whole, in any material respect. Each of the BlueMountain Subsidiaries is duly qualified to do business as a foreign limited liability company, foreign limited partnership or foreign limited liability partnership under the laws of each jurisdiction in which the ownership or leasing of its properties or the conduct of its business in the manner and in the places where such properties are owned or leased or such business is currently conducted requires such qualification, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect. True and complete copies of each of the BlueMountain Subsidiary’s Organizational Documents and, if applicable, minute books, certificates representing the equity interests of such BlueMountain Subsidiary and equity transfer ledgers, have been made available to Purchaser. None of the BlueMountain Subsidiaries are in default under or in violation of any provision of their Organizational Documents, and all such documents are in full force and effect.

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2.4Authority of the BlueMountain Operating Companies. Each BlueMountain Operating Company has full right, authority and power under its Governing Agreement and the Delaware LLC Act to enter into this Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance by each BlueMountain Operating Company of this Agreement has been duly authorized by all necessary action of such BlueMountain Operating Company, and no other action on the part of such BlueMountain Operating Company is required in connection therewith. This Agreement constitutes a valid and binding obligation of each BlueMountain Operating Company, enforceable against such BlueMountain Operating Company in accordance with its terms, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or similar laws affecting creditors’ rights generally. The execution, delivery and performance by each BlueMountain Operating Company of this Agreement and the consummation of the transactions contemplated hereby do not and will not, except as set forth on Schedule 2.4:

(i)violate any provision of the Organizational Documents of the BlueMountain Operating Companies or any BlueMountain Subsidiary;

(ii)(A) violate any Laws and Regulations applicable to any BlueMountain Operating Company or any BlueMountain Subsidiary or by which such BlueMountain Operating Company’s or any BlueMountain Subsidiary’s assets are bound, or (B) except as required pursuant to the HSR Act and the FSMA, require such BlueMountain Operating Company or any BlueMountain Subsidiary to obtain any approval, consent or waiver of any Governmental Authority which has not been obtained; or

(iii)(A) require any BlueMountain Operating Company or any BlueMountain Subsidiary to obtain any approval, consent or waiver of any Person that is not a Governmental Authority which has not been obtained, (B) require any BlueMountain Operating Company or any BlueMountain Subsidiary to deliver any notification to, or make any filing with, any Person which has not been delivered or made, or (C) or result in a breach of, constitute a default under, accelerate any obligation under, give rise to a reduction of fees under, or give rise to a right of termination of, any agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which any BlueMountain Operating Company or any BlueMountain Subsidiary is a party or by which the property of any BlueMountain Operating Company or any BlueMountain Subsidiary is bound, or result in the creation or imposition of any Claim on any of the BlueMountain Interests or the assets of a BlueMountain Operating Company

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or BlueMountain Subsidiary, including the interests of a BlueMountain Operating Company in any BlueMountain Subsidiary;

except for, in the case of the foregoing clauses (ii) and (iii), any violation, requirement, breach, default, acceleration, reduction of fees, right of termination or Claim that would not reasonably be expected to adversely affect the BlueMountain Operating Companies and the BlueMountain Subsidiaries, taken as a whole, in any material respect.

2.5Real Property. None of the BlueMountain Operating Companies or BlueMountain Subsidiaries owns any real property. All of the real property leased by the BlueMountain Operating Companies and BlueMountain Subsidiaries is identified in Schedule 2.5 hereto (herein referred to as the “Leases”). All Leases of the BlueMountain Operating Companies and the BlueMountain Subsidiaries are identified in Schedule 2.5, and true and complete copies thereof have been delivered to Purchaser. Each of said Leases has been duly authorized and executed by the parties thereto and is in full force and effect, and the applicable BlueMountain Operating Company or BlueMountain Subsidiary has a valid, leasehold interest under each Lease, free and clear of any Claims (except for the Permitted Encumbrances). Since January 1, 2017, the applicable BlueMountain Operating Company or BlueMountain Subsidiary has performed and complied with all of its covenants and obligations under each Lease in all material respects. None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries is in material default under any of said Leases, nor has any event occurred which, with the giving of notice or the passage of time, or both, would give rise to such a material default. To the Knowledge of the BlueMountain Operating Companies, each other party to each of said Leases is not in material default under any of said Leases and there is no event which, with the giving of notice or the passage of time, or both, would give rise to such a material default. The Leases constitutes all of the real property used in the business of the BlueMountain Operating Companies and BlueMountain Subsidiaries as currently conducted.

2.6Assets Under Management.

(a)Set forth in Schedule 2.6(a) is a complete and correct list as of June 1, 2019 (the “Base Date”) of all Advisory Contracts in effect on such date, setting forth with respect to each such Advisory Contract:

(i)the name of the Client under such Advisory Contract and the type of Client (e.g., private fund, CLO, separate account);

(ii)the amount of assets under management pursuant to such Advisory Contract at the Base Date;

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(iii)the fee schedule(s) and any other compensation arrangements in effect with respect to such Advisory Contract (including without limitation investment management fees, performance fees and incentive fees); and

(iv)the identity of which of the BlueMountain Operating Companies or the BlueMountain Subsidiaries are parties to such Advisory Contract (or are relying advisers in relation thereto) and the capacity in which they are acting.

Except as set forth in Schedule 2.6(a), there are no contracts, agreements, arrangements or understandings pursuant to which any of the BlueMountain Operating Companies or BlueMountain Subsidiaries has undertaken or agreed to cap, waive, offset, reimburse, refund, clawback, giveback or otherwise reduce any fees payable or paid by or with respect to any of the Clients set forth in Schedule 2.6(a) or pursuant to any of the contracts set forth in Schedule 2.6(a). As of the date hereof, except as is set forth in Schedule 2.6(a), no Client or investor in any Client has provided written notice to the BlueMountain Operating Companies or BlueMountain Subsidiaries of an intention to terminate, negotiate or renegotiate its investment relationship with the BlueMountain Operating Companies or BlueMountain Subsidiaries or replace any such BlueMountain Operating Company or BlueMountain Subsidiary in that respect.

(b)Except as set forth on Schedule 2.6(b)(i), no Client is, or within the past six (6) years has been, (i) an “employee benefit plan,” as defined in Section 3(3) of ERISA or “plan” as defined in Section 4975 of the Code that is subject to Title I of ERISA or Section 4975 of the Code; (ii) a person acting on behalf of such a plan; or (iii) an entity whose assets constitute “plan assets” subject to Title I of ERISA or Section 4975 of the Code (each of the foregoing, an “ERISA Investor”). Schedule 2.6(b)(ii) sets forth a correct and complete list of each BlueMountain Fund which has, or within the past six (6) years has had, one or more investors which is an ERISA Investor. With respect to each such BlueMountain Fund set forth on Schedule 2.6(b)(ii), (A) all investors in such BlueMountain Fund have provided such BlueMountain Fund with a subscription document which requires the investor to represent whether or not they are an ERISA Investor, (B) each such subscription document has been reviewed for accuracy and completeness by such BlueMountain Fund’s administrator; and (C) the underlying assets of each BlueMountain Fund do not constitute, and have never constituted, assets of an ERISA Investor because less than 25% of the total value of each class of equity interests in such BlueMountain Fund (calculated in accordance with 29 C.F.R. §2510.3-101, as modified by Section 3(42) of ERISA) are held and have been held by ERISA Investors.

(c)No exemptive orders, “no-action” letters or similar exemptions or regulatory relief or guidance have been obtained, nor are any requests pending therefor as of the date of this Agreement, by or with respect to the BlueMountain Operating Companies or the

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BlueMountain Subsidiaries, in connection with the business of the BlueMountain Operating Companies or the BlueMountain Subsidiaries, or by or with respect to any BlueMountain Fund in connection with the provision of Investment Management Services to such BlueMountain Fund by the BlueMountain Operating Companies or the BlueMountain Subsidiaries.

(d)With respect to each BlueMountain Fund, copies of any and all current Offering Documents, Side Letters and Organizational Documents of such BlueMountain Fund have been provided to Purchaser by the BlueMountain Operating Companies or the BlueMountain Subsidiaries.

(e)With respect to each Client, since January 1, 2017, each investment by or for such Client has been made in all material respects in accordance with such Client’s investment policies and restrictions set forth in its Advisory Contract and in its Offering Document and Organizational Documents in effect at the time the investments were made, and has been held in all material respects in accordance with its respective investment policies and restrictions, to the extent applicable and in effect at the time such investments were held and to the extent such investments were made, directly or indirectly, by the BlueMountain Operating Companies or the BlueMountain Subsidiaries.

2.7Financial Statements.

(a)The BlueMountain Operating Companies have made available to Purchaser true, correct and complete copies of the following financial statements:

(i)audited combined statements of financial condition (including any notes thereto) at each of the years ended December 31, 2016 and December 31, 2017, and audited combined statements of operations, comprehensive income, changes in members’ or partners’ equity and cash flows (including any notes thereto) for each of the years ended December 31, 2016 and December 31, 2017, together with a copy of the auditor’s report thereon (such audited statements of financial condition of each of the BlueMountain Operating Companies at December 31, 2016 and December 31, 2017 (in each case, including the notes thereto), the “Base Financial Statements”);

(ii)an unaudited combined balance sheet at December 31, 2018, and unaudited combined statements of operations, comprehensive income, changes in members’ or partners’ equity and cash flows for such year; and

(iii)an unaudited combined balance sheet (the “Base Interim Balance Sheet”) at the Locked Box Date and unaudited combined

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statements of operations, comprehensive income, changes in members’ or partners’ equity and cash flows for the three (3) months ended the Locked Box Date.

Such financial statements have been prepared in accordance with GAAP, applied consistently during the periods covered thereby (except that such unaudited financial statements do not include footnote disclosure (which, if presented, would not differ materially in nature or amount from those presented in the Base Financial Statements) and are subject to normal year-end audit adjustments which are not in the aggregate material), and present fairly in all material respects, the financial condition of each of the BlueMountain Operating Companies, as applicable, at the dates of said statements and the results of its operations, income, changes in partners’ capital and cash flows for the periods covered thereby.

(b)None of the BlueMountain Operating Companies nor any of the BlueMountain Subsidiaries has any liabilities, whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown, except: (i) liabilities specifically reflected and adequately reserved against on the Base Interim Balance Sheet; (ii) liabilities consisting of contractual performance or payment obligations in the ordinary course of business consistent with past practice; and (iii) liabilities incurred after the Locked Box Date in the ordinary course of business consistent with past practice that are not, individually or in the aggregate, material to the BlueMountain Operating Companies and BlueMountain Subsidiaries, taken as a whole, in each case, which are not resulting from or arising out of any breach of contract, breach of warranty, tort, infringement misappropriation or violation of Laws and Regulations.

(c)Each of the BlueMountain Operating Companies maintains internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Since January 1, 2017, there has not been (A) any significant deficiency or material weakness in any system of internal accounting controls used by any of the BlueMountain Operating Companies, (B) any Fraud or other wrongdoing that involves any of the management or other employees of the BlueMountain Operating Companies who have a role in the preparation of financial statements or the internal accounting controls used by the BlueMountain Operating Companies, or (C) any written claim or, to the Knowledge of the BlueMountain Operating Companies, any allegation regarding any of the foregoing.

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(d)Schedule 2.7(d) sets forth a correct list of all Indebtedness of each BlueMountain Operating Company outstanding as of the Locked Box Date and identifies for each item of Indebtedness the outstanding amount thereof as of the Locked Box Date.

(e)Schedule 2.7(e) sets forth the aggregate amount of all obligations of the BlueMountain Operating Companies for deferred compensation as of the Locked Box Date.

2.8Taxes. Except as set forth on Schedule 2.8:

(a)Each BlueMountain Operating Company, each BlueMountain Subsidiary and each BlueMountain Fund has, in accordance with applicable law, filed or furnished all material Tax Returns required to be filed or furnished by it, and all such returns are correct and complete in all material respects. Each of the BlueMountain Operating Companies, each BlueMountain Subsidiary and each BlueMountain Fund has paid or caused to be paid all Taxes required to be paid by it through the date hereof, other than Taxes being disputed in good faith through appropriate proceedings. The unpaid Taxes of each BlueMountain Operating Company and of each BlueMountain Subsidiary (i) did not, as of the Locked Box Date, exceed the reserve for Tax liability (other than the reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth in the unaudited statements of financial condition of each BlueMountain Operating Company and of each BlueMountain Subsidiary at the Locked Box Date and (ii) do not exceed that reserve as adjusted for the passage of time through the date hereof and the date of the Closing in accordance with the past custom and practice of each BlueMountain Operating Company and of each BlueMountain Subsidiary in filing its Tax Returns. All material Taxes required to be collected or withheld by each BlueMountain Operating Company, each BlueMountain Subsidiary and each BlueMountain Fund including, but not limited to, Taxes arising as a result of payments, including salaries and wages, to employees of each BlueMountain Operating Company and of each BlueMountain Subsidiary or to the partners of each BlueMountain Fund, have been collected and withheld, and have either been paid to the respective governmental agencies, set aside in accounts for such purpose, or accrued, reserved against and entered on the books and records of the applicable BlueMountain Operating Company, BlueMountain Subsidiary or BlueMountain Fund.

(b)Neither the IRS nor any other governmental authority responsible for the imposition or collection of any Tax (a “Taxing Authority”) is now asserting or, to the Knowledge of the BlueMountain Operating Companies, threatening to assert against any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds any deficiency or claim for additional Taxes. No claim has ever been made in writing by a Taxing Authority in a jurisdiction where a BlueMountain Operating Company, a BlueMountain Subsidiary or a BlueMountain Fund does not file reports or returns that a BlueMountain

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Operating Company, a BlueMountain Subsidiary or a BlueMountain Fund, as applicable, is or may be subject to taxation by that jurisdiction. There are no Tax liens or security interests on any of the assets of the BlueMountain Operating Companies or the BlueMountain Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Taxes (other than liens for Taxes not yet due and payable). None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has ever entered into a “closing agreement” with any Taxing Authority pursuant to Section 7121 of the Code or similar provision of state, local or foreign law.

(c)There has not been any audit of any Tax Return filed by the BlueMountain Operating Companies or the BlueMountain Subsidiaries, no such audit is in progress, and none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has been notified by any Taxing Authority in writing that any such audit is contemplated or pending. No extension of time with respect to any date on which a Tax Return was or is to be filed by the BlueMountain Operating Companies or the BlueMountain Subsidiaries is in force, and no waiver or agreement by the BlueMountain Operating Companies or the BlueMountain Subsidiaries is in force for the extension of time for the assessment or payment of any Taxes.

(d)None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has ever been a member of an “affiliated group” (as defined in Section 1504(a) of the Code) or any comparable provision of state, local, or foreign law governing affiliated groups. None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries is a party to, or has any obligation under, any Tax sharing agreement other than pursuant to a contract entered into in the ordinary course of business the principal subject matter of which is not Taxes (a “Commercial Contract”). None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has any liability for the Taxes of any Person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) as a transferee or successor or pursuant to any contractual obligation, other than a Commercial Contract.

(e)No private letter rulings, technical advice memoranda or similar agreement or rulings have been requested, entered into, or issued by any Taxing Authority with respect to a BlueMountain Operating Company or a BlueMountain Subsidiary.

(f)None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has been a party to a “reportable transaction” as such term is defined in Treasury Regulations Section 1.6011-4(b) or any other transaction requiring disclosure under analogous provisions of state, local or foreign Tax law.

(g)Since the Locked Box Date, none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has (i) amended any material Tax Return, (ii) filed

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any Tax Return in a jurisdiction where it did not file a Tax Return of the same type in the immediately preceding Tax period, (iii) made, changed or rescinded any election relating to Taxes, (iv) surrendered any claim for a refund of Taxes, (v) made any material change to any of its methods of accounting or methods of reporting income or deductions for Tax or accounting practice or policy from those employed in the preparation of its most recent Tax Return or (vi) settled any claim relating to Taxes.

(h)None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries (or the Purchaser on account of its tax ownership of the BlueMountain Operating Companies or the BlueMountain Subsidiaries) will be required to include any item of income in, or exclude any item or deduction from, taxable income for any taxable period or portion thereof ending after the Closing Date as a result of: (i) any change in a method of accounting under Section 481 of the Code (or any comparable provision of state, local or foreign Tax Laws) for a taxable period ending on or prior to the Closing Date; (ii) an installment sale or open transaction occurring on or prior to the Closing Date; (iii) any prepaid amount outside the ordinary course of business received on or prior to the Closing Date; or (v) an election described in Section 108(i) of the Code (or any corresponding or similar provision of state, local or foreign Tax Law) made on or prior to the Closing Date.

(i)At all times since its formation, each BlueMountain Operating Company has been classified for U.S. federal income Tax purposes either as a partnership or as an entity disregarded as separate from its owner within the meaning of Treasury Regulation Section 301.7701-2(c)(2)(i), and each BlueMountain Subsidiary has been classified for U.S. federal income Tax purposes as an entity disregarded as separate from its owner within the meaning of such Treasury Regulation.

(j)Each BlueMountain Operating Company and each BlueMountain Subsidiary has either (i) filed or caused to be filed with the appropriate Governmental Authority all material unclaimed property reports required to be filed and has remitted to the appropriate Governmental Authority all material unclaimed property required to be remitted or (ii) delivered and paid all material unclaimed property to its proper recipient.

(k)BMCP London does not own any United States real property interest as defined in Section 897(c) of the Code.

Notwithstanding anything in this Agreement to the contrary: (i) the representations and warranties set forth in Sections 2.8 and 2.19 shall be the only representations or warranties in this Agreement regarding Taxes; (ii) the Sellers and the BlueMountain Operating Companies make no representations or warranties, and no Seller shall be liable for any indemnity obligations hereunder, directly or indirectly, for the amount, value, or condition of, or any limitations on, any

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Tax asset or attribute of the BlueMountain Operating Companies or the BlueMountain Subsidiaries available for any taxable period ending after the Closing Date; and (iii) except for Sections 2.8(d), 2.8(f), 2.8(h) and 2.8(i), nothing in this Section 2.8 shall be deemed to apply, directly or indirectly, with respect to any taxable period (or portion thereof) beginning after the Closing Date or shall be construed as a representation or warranty with respect to any Tax position that Purchaser or its Affiliates (including, following the Closing, the BlueMountain Operating Companies and the BlueMountain Subsidiaries) may take after the Closing Date.

2.9Absence of Certain Changes.

(a)Since the Locked Box Date, none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has suffered any condition, event or occurrence which has had or would reasonably be expected to have a Material Adverse Effect.

(b)Since the Locked Box Date, none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has taken any action which, had it occurred after the date of this Agreement, would have required the consent of Purchaser under clauses (a)-(z) of Section 5.2.

2.10Ordinary Course. Except as otherwise specifically contemplated by this Agreement, since the Locked Box Date, each of the BlueMountain Operating Companies and the BlueMountain Subsidiaries has conducted its business in the ordinary course consistent with its prior practices in all material respects.

2.11Intellectual Property.

(a)Each of the BlueMountain Operating Companies and the BlueMountain Subsidiaries has ownership of or license or other legally enforceable right to use (other than as set forth on Schedule 2.11 or in the case of computer software that is available to the public in the retail marketplace, for which the licenses are non-exclusive) all material Intellectual Property used in the businesses of the BlueMountain Operating Companies and the BlueMountain Subsidiaries as presently conducted. There are no claims or demands of any other Person pertaining to any of such Intellectual Property owned by any of the BlueMountain Operating Companies and the BlueMountain Subsidiaries, that are pending or, to the Knowledge of the BlueMountain Operating Companies, threatened, which challenge the rights of any of the BlueMountain Operating Companies and the BlueMountain Subsidiaries in respect of the Intellectual Property used in connection with its business. Each of the BlueMountain Operating Companies and the BlueMountain Subsidiaries has the right to use, free and clear of any claims or rights of other Persons except, with respect to licensed assets, the rights of the owner/licensor thereof, all customer lists (subject to applicable confidentiality restrictions), investment and other processes, computer software (other than rights of other Persons in computer software that is

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generally available to the public in the retail marketplace), systems, data compilations, research results and other information required for or incident to their services and their businesses as presently conducted.

(b)All items of Intellectual Property that are material to the businesses or operations of the BlueMountain Operating Companies or the BlueMountain Subsidiaries are listed in Schedule 2.11. None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has any patents, patent applications, trademark registrations, trademark applications or registered copyrights.

(c)All licenses or other agreements under which any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries have been granted rights in items of Intellectual Property which are material to the businesses or operations of the BlueMountain Operating Companies or the BlueMountain Subsidiaries are listed in Schedule 2.11or Schedule 2.12. All said licenses or other agreements are in full force and effect, and there is no material default by any party thereto. To the Knowledge of the BlueMountain Operating Companies, the licensors under said licenses and other agreements have all requisite power and authority to grant the rights purported to be conferred thereby.

(d)None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has granted material rights to others in Intellectual Property owned or licensed by any BlueMountain Operating Company or BlueMountain Subsidiary.

(e)The BlueMountain Operating Companies and the BlueMountain Subsidiaries have taken commercially reasonable measures to maintain the secrecy of, and protect the value of, its Trade Secrets. To the Knowledge of the BlueMountain Operating Companies, since January 1, 2017, no confidential information, Trade Secrets or other confidential Intellectual Property of the BlueMountain Operating Companies has been disclosed by any BlueMountain Operating Company or any BlueMountain Subsidiary to any Person, except pursuant to valid and appropriate non-disclosure and/or license agreements that to the Knowledge of the BlueMountain Operating Companies have not been breached. All former and current officers, directors, employees, personnel, consultants, advisors, agents, independent contractors and contract manufacturers of the BlueMountain Operating Companies and the BlueMountain Subsidiaries (or any of their predecessors), who have contributed to or actively participated in the conception or development of any Intellectual Property of the BlueMountain Operating Companies have entered into a written agreement with the BlueMountain Operating Companies or one of the BlueMountain Subsidiaries transferring to the BlueMountain Operating Companies or such BlueMountain Subsidiary all such Intellectual Property by operation of law or by valid written assignment.

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(f)To the Knowledge of the BlueMountain Operating Companies, there is no infringement by other Persons of any Intellectual Property rights of any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries.

(g)The present businesses, activities and products of the BlueMountain Operating Companies and the BlueMountain Subsidiaries do not infringe upon any rights of any other Person in Intellectual Property. No proceeding charging any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries with infringement of any Intellectual Property of any other Person has been filed or, to the Knowledge of the BlueMountain Operating Companies, is threatened as of the date of this Agreement. None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries is making unauthorized use of any confidential information or Trade Secrets of any Person. Except as set forth in Schedule 2.11, none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has any agreements or arrangements with any Persons (other than the BlueMountain Operating Companies and the BlueMountain Subsidiaries) related to confidential information or Trade Secrets of such Persons, other than non-disclosure and confidentiality agreements entered into in the ordinary course with respect to the investment activities of the BlueMountain Funds. To the Knowledge of the BlueMountain Operating Companies, the activities of employees of the BlueMountain Operating Companies and BlueMountain Subsidiaries on behalf of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds, do not violate any such agreements or arrangements.

(h)No source code prepared by any of the BlueMountain Operating Companies or BlueMountain Subsidiaries has been delivered or licensed to any Person other than the BlueMountain Operating Companies, the BlueMountain Subsidiaries, their Affiliates and their respective employees, or is subject to any source code escrow or assignment obligation.

(i)Each of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds have at all times since January 1, 2017, complied in all material respects with all applicable data protection laws. No notice or allegation has been received since January 1, 2017, by any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds from a competent authority alleging that the BlueMountain Operating Companies or the relevant BlueMountain Subsidiary or BlueMountain Fund has not complied with all applicable data protection laws, guidelines and industry standards. No individual has claimed since January 1, 2017, and, to the Knowledge of the BlueMountain Operating Companies, no grounds exist for an individual to claim, compensation from any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds for breaches of applicable data protection laws.

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2.12Contracts. Schedule 2.12 sets forth a correct list of all of the contracts, commitments, plans, agreements and licenses of the following types to which any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries is, as of the date hereof, a party or by which any of their respective properties or assets are bound (such list, together with those contracts, commitments, plans, agreements and licenses described in Schedule 2.5 (Real Property), Schedule 2.6(a) (Advisory Contracts), Schedule 2.11 (Intellectual Property), Schedule 2.12 (Contracts), Schedule 2.16 (Insurance), Schedule 2.19(a) (Employee Programs), Schedule 2.20(b) (Employee Arrangements) and Schedule 2.21(a) (BlueMountain Fund Agreements), the “Contracts”):

(i)Advisory Contract or any other contract for the provision of Investment Management Services;

(ii)any contract relating to “soft-dollar” arrangements (i.e., providing for benefits relating to commissions generated from financial transactions executed by broker-dealers on behalf of any Clients) or similar arrangements;

(iii)administration agreement or any other contract for the provision of administrative services or other similar services, including with any Client;

(iv)custodial agreement or any other contract for the provision of custodial services or other similar services;

(v)contract or agreement for the provision of services to Clients of the BlueMountain Operating Companies or any BlueMountain Subsidiary, other than Investment Management Services (e.g., brokerage services, tax preparation or similar services);

(vi)plan or contract providing for bonuses, pensions, options, stock (or other beneficial interest) purchases (or other securities or phantom equity purchases), deferred compensation, retirement payments, profit sharing, or the like;

(vii)employment contract or contract for services which is not terminable at will by the BlueMountain Operating Companies or the applicable BlueMountain Subsidiary without liability for any penalty or severance payment (excluding any liability or obligation imposed by statute (e.g., COBRA));

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(viii)contract or agreement for the purchase of any assets, material or equipment for any of the BlueMountain Operating Companies, BlueMountain Subsidiaries or BlueMountain Funds except purchase orders in the ordinary course for less than $10,000 each, such orders not exceeding $50,000 in the aggregate;

(ix)contract creating any obligations of any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries of $200,000 or more with respect to any such contract or agreement not specifically disclosed elsewhere under this Agreement;

(x)contract for the sale of all or any portion of the assets in excess of $200,000 of any of the BlueMountain Operating Companies or BlueMountain Subsidiaries, or any contract for the purchase of all or any portion of the assets in excess of $200,000 of any other entity;

(xi)contract with any investment or research consultant, solicitor or sales agent, or otherwise with respect to the referral of business to any BlueMountain Operating Company, BlueMountain Subsidiary or BlueMountain Fund (including without limitation any agreement with respect to solicitation of prospective investors in any of the BlueMountain Funds);

(xii)contract containing covenants (i) limiting the freedom of the BlueMountain Operating Companies or the BlueMountain Subsidiaries (or their respective Affiliates) to compete in any line of business or with any Person or (ii) granting exclusive rights to any Person to sell, distribute or promote in any geographical area any particular product of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds;

(xiii)material license agreement (as licensor or licensee);

(xiv)contract: (i) for borrowed money, (ii) evidenced by bonds, debentures, notes or similar instruments, (iii) to pay the deferred purchase price of property or services, (iv) under leases that would, in accordance with GAAP, appear on the balance sheet of the lessee as a liability, (v) secured by a Claim, (vi) in respect of letters of credit, or bankers acceptances, contingent or otherwise, or (vii) in respect of any guaranty or endorsement or other obligations to be liable for the debts of another Person (other than contracts or arrangements entered into by the BlueMountain Funds in the ordinary course of their portfolio investment, trading, hedging and related activities not exceeding $100,000);

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(xv)contract relating to any joint venture, partnership, strategic alliance or similar relationship;

(xvi)contract under which any of the BlueMountain Operating Companies or BlueMountain Subsidiaries has, directly or indirectly, made any advance, loan, or extension of credit to, or capital contribution or other investment in, any other Person, including any of the BlueMountain Funds;

(xvii)contract materially restricting the ability of any BlueMountain Operating Company or BlueMountain Subsidiary to solicit or hire any other Person;

(xviii)contract with any Governmental Authority;

(xix)contract which contains (i) a “most favored nation,” right of first refusal or similar provisions running against any of the BlueMountain Operating Companies, BlueMountain Subsidiaries or BlueMountain Funds, (ii) ”clawback,” “giveback” or similar obligations running against any of the BlueMountain Operating Companies, BlueMountain Subsidiaries or BlueMountain Funds, (iii) reimbursements, refunds, caps or waivers on fees or expenses or (iv) ”key person” provisions (including any such “key person” provisions giving rights of termination to other parties) running against any of the BlueMountain Operating Companies, BlueMountain Subsidiaries or BlueMountain Funds;

(xx)contract that restricts payment of dividends or any distributions in respect of BlueMountain Interests or the equity interests of the BlueMountain Subsidiaries;

(xxi)contract entered into in the last three (3) years providing for a merger or consolidation or acquisition of, or sale of all or a material portion of the assets of, or other extraordinary transaction in respect of, any of the BlueMountain Operating Companies or BlueMountain Subsidiaries with or to any other Person;

(xxii)contract relating to any swap, forward, futures, warrant, potion, cap, floor or collar financial contract, or any other interest-rate, commodity price, equity value or foreign currency protection contract or other hedging or derivative transaction, including any such contract to which a BlueMountain Funds is a party, involving a notional exposure by or liability to

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any BlueMountain Operating Company or BlueMountain Subsidiary of more than $100,000 as of March 31, 2019; or

(xxiii)contract with an Affiliate that is material to the business of any BlueMountain Operating Company, BlueMountain Subsidiary or Client.

A true and correct copy of each Contract (including all amendments, modifications, exhibits and schedules thereto) has been made available to Purchaser. The applicable BlueMountain Operating Company or BlueMountain Subsidiary has performed or complied with all of its covenants and obligations under each Contract in all material respects, and neither the applicable BlueMountain Operating Company or BlueMountain Subsidiary, nor, to the Knowledge of the BlueMountain Operating Companies, any other party to a Contract is in, or is alleged to be in, breach or violation of or default under such Contract. The BlueMountain Operating Companies and BlueMountain Subsidiaries have not received any written or, to the Knowledge of the BlueMountain Operating Companies, oral notice from any counterparty to a Contract that such counterparty intends to terminate, not renew, or materially amend the terms of such Contract and no BlueMountain Operating Company or BlueMountain Subsidiary has given any such written notice to any counterparty to a Contract except for notice given in the ordinary course of business with respect to Contracts involving data and research services. The BlueMountain Operating Companies and the BlueMountain Subsidiaries have not waived any of their material rights under any Contract with effect after the date hereof.

2.13Litigation.

(a)Except as set forth in Schedule 2.13(a), there is not, and since January 1, 2017, there has not been, any litigation or other action, suit or proceeding or, to the Knowledge of the BlueMountain Operating Companies, any investigation, examination or audit, at law or in equity, by or before any Governmental Authority (including, without limitation, any voluntary or involuntary proceedings under the Bankruptcy Code or any action, suit, proceeding or investigation under any federal or state securities law, rule or regulation), in which any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries, the BlueMountain Funds or, to the Knowledge of the BlueMountain Operating Companies, any other officer, director, member, partner, investor or employee of any such Person is a party or otherwise engaged or, to the Knowledge of the BlueMountain Operating Companies, with which any of them is threatened, in connection with the businesses, affairs, properties or assets of the BlueMountain Operating Companies or the BlueMountain Subsidiaries, or which would reasonably be expected to hinder the enforceability or performance of this Agreement or the consummation of the transactions contemplated hereby and thereby.

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(b)Except as set forth on Schedule 2.13(b), none of the BlueMountain Operating Companies or BlueMountain Subsidiaries are, or since January 1, 2017, have been, subject to any Order. None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries is a party to or bound by any contract to settle or compromise any litigation or other action, suit or proceeding against it which has involved any obligation other than the payment of money or under which any of the BlueMountain Operating Companies or BlueMountain Subsidiaries has any continuing liability.

2.14Compliance with Laws.

(a)Except as set forth in Schedule 2.14(a), each of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds is, and at all times since January 1, 2017, has been, in material compliance with all applicable laws and governmental rules and regulations, domestic or foreign, including, without limitation, the Advisers Act, ERISA, the Exchange Act, the Investment Company Act, the Securities Act and the regulations promulgated under each of the foregoing; all laws regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment; the rules and regulations of self-regulatory organizations including, without limitation, FINRA and each applicable exchange (as defined under the Exchange Act); and all other foreign, federal or state securities laws and regulations, in each case applicable to the business or affairs or properties or assets of any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds (collectively, “Laws and Regulations”).

(b)None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds or, to the Knowledge of the BlueMountain Operating Companies (solely in connection with the business of any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds), any other director, officer or employee of any of the foregoing Persons, is in default with respect to any judgment, order, writ, injunction, decree, demand or assessment issued by any Governmental Authority relating to or otherwise affecting any of the foregoing Persons that, individually, or in the aggregate, would reasonably be expected to be material to the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds. None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries, the BlueMountain Funds or, to the Knowledge of the BlueMountain Operating Companies, any other director, officer or employee of any of the foregoing Persons, has at any time since January 1, 2017, been, or is as of the date hereof, charged with any violation of any Laws and Regulations or has received any written notice asserting any violation of any Laws and Regulations affecting or relating to the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds or their businesses or the transactions contemplated hereby that, individually, or in the aggregate, would reasonably be expected to be material to the

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BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds.

(c)Except as set forth in Schedule 2.14(c), none of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds is subject to any cease-and-desist or other Order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any supervisory letter from or has adopted any resolutions at the request of any Governmental Authority that materially restricts the conduct of the foregoing Persons and that in any manner relates to the businesses of any of the foregoing Persons or has received written notice of any of the foregoing.

(d)Each of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds conducts and at all times since January 1, 2017, has conducted its business in all material respects in accordance with, and at all times since January 1, 2017, has otherwise complied in all material respects with, the relevant BlueMountain Funds’ Offering Documents and Organizational Documents.

(e)None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds, nor, to the Knowledge of the BlueMountain Operating Companies, any Affiliate, director, officer or employee thereof, or any agent, representative, sales intermediary or other third party acting on behalf of any member of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds: (i) has taken any action in violation of or prohibited by any applicable anticorruption, anti-money laundering or anti-bribery Laws and Regulations, including the U.S. Foreign Corrupt Practices Act (15 U.S.C. § 78 dd 1 et seq.) and the U.K. Bribery Act and any such Laws and Regulations, or executive orders administered by the U.S. Department of the Treasury, the Office of Foreign Assets Control, the United Nations Security Council, The European Union or Her Majesty’s Treasury; (ii) has offered, paid, given, promised to pay or give or authorized the payment or gift of anything of value, directly or indirectly through third parties, to any Public Official or other Person, for purposes of (A) influencing any act or decision of any Public Official or other Person in his or her official capacity; (B) inducing such Public Official to do or omit to do any act in violation of his or her lawful duty; (C) securing any improper benefit; or (D) inducing such Public Official or other Person to use his or her influence with a government, Governmental Authority, commercial enterprise owned or controlled by any government (including state owned or controlled facilities), or any other Person in order to assist the business of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds, or any Person related in any way to the business of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds, in obtaining or retaining

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business or directing any business to any Person. None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries or any “covered associate” (as defined under the Advisers Act) of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has made a contribution to an official of a government entity (as such terms are defined in Rule 206(4)-5 of the Advisers Act) in excess of the de minimis limits set forth in Rule 206(4)-5 of the Advisers Act.

2.15Business; Registrations.

(a)Each BlueMountain Operating Company has at all times since its inception been engaged solely in the business of providing Investment Management Services, holding interests in Persons that provide Investment Management Services or holding interests in BlueMountain Funds.

(b)Each of Management Company LLC (and any predecessors thereto), Fuji Management LLC (and any predecessors thereto) and CLO Management LLC (and any predecessors thereto) (collectively, the “RIAs”) has at all times since January 1, 2017, been duly registered as an investment adviser under the Advisers Act and registered, licensed or qualified as an investment adviser in each jurisdiction where the conduct of its business required or requires such registration, licensing or qualification. None of the other BlueMountain Operating Companies or BlueMountain Subsidiaries is required to be registered as an investment adviser under the Advisers Act or any other applicable Law or Regulation. Each RIA has delivered to Purchaser true and complete copies of its most recent Form ADV, as amended as of the date hereof, and each of the BlueMountain Operating Companies has delivered or made available to Purchaser true and complete copies of all of its other foreign and domestic registration forms, likewise as amended as of the date hereof. At all times since January 1, 2017, the information contained in such forms (and in any such forms filed by any predecessors thereto) was true and complete in all material respects at the time of filing and each RIA has made all material amendments to such forms as they are required to make under applicable Laws and Regulations. Each BlueMountain Operating Company and each of its supervised persons (as that term is defined in the Advisers Act) have all permits, registrations, qualifications, licenses, notice or other filing, franchises, certifications and other approvals (collectively, “Licenses”) required from foreign, federal, state or local authorities in order for them to conduct the businesses presently conducted by the BlueMountain Operating Companies and the BlueMountain Subsidiaries, as the case may be, and such supervised persons in the manner presently conducted. Each such License is and has been since January 1, 2017, valid, is in full force and effect and is not the subject of any pending or, to the Knowledge of the BlueMountain Operating Companies, threatened administrative or judicial proceeding to revoke, cancel, suspend, modify or declare such License invalid or deficient in any respect. The books and records of the BlueMountain Operating Companies and BlueMountain Subsidiaries, as

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applicable, relating to Investment Advisory Services are complete and correct in all material respects and, have been maintained, in all material respects, in accordance with applicable Laws and Regulations.

(c)None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries, the BlueMountain Sellers or, to the Knowledge of the BlueMountain Operating Companies, any Person “associated” (within the meaning of Section 202(a)(17) of the Advisers Act) with the foregoing, has at any time since January 1, 2017, been convicted of any crime or is or has at any time since January 1, 2017, been engaged in any conduct that would be a basis for (i) denial, suspension or revocation of registration of an investment adviser under Section 203(e) of the Advisers Act or Rule 206(4)-4(b) thereunder, or ineligibility to serve as an associated person of an investment adviser, or (ii) being ineligible to serve as an investment adviser (or in any other capacity contemplated by the Investment Company Act) to a registered investment company pursuant to Section 9(a) or 9(b) of the Investment Company Act, and to the Knowledge of the BlueMountain Operating Companies there is no proceeding or investigation that is reasonably likely to become the basis for any such ineligibility, disqualification, denial, suspension or revocation. To the Knowledge of the BlueMountain Operating Companies, no “bad actor” disqualifying event described in Rule 506(d)(1)(i)-(viii) of the Securities Act is applicable to any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries, any BlueMountain Seller or any Person listed in the first paragraph of Rule 506(d)(1) promulgated under the Securities Act (in each case with respect to a BlueMountain Operating Company, a BlueMountain Subsidiary or a BlueMountain Fund as an issuer).

(d)None of the BlueMountain Operating Companies (or any predecessor thereto) or the BlueMountain Subsidiaries (or any predecessor thereto) has at any time been a “broker” or “dealer” within the meaning of the Exchange Act. Except as set forth on Schedule 2.15(d), none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries (or any predecessor thereto) has at any time since January 1, 2017, been a “commodity pool operator” or “commodity trading adviser” within the meaning of the Commodity Exchange Act or the regulations of the Commodity Futures Trading Commission, or a trust company. Except as set forth on Schedule 2.15(d), none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries (or any predecessor thereto), the BlueMountain Sellers, or the BlueMountain Operating Companies’ other directors, officers or employees, (i) is registered or required to be registered as a commodity trading adviser, a commodity pool operator, a futures commission merchant, an introducing broker, a retail forex dealer, a broker, a dealer, a registered representative or associated person, a counseling officer, an insurance agent, a sales person or in any similar capacity with the SEC, the Commodity Futures Trading Commission, the National Futures Association, FINRA or the securities commission of any state or any self-regulatory body; or (ii) is a member or member firm of a U.S. designated contract market, as such term is defined in the Commodity Exchange Act. No Person renders Investment

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Management Services to or on behalf of Clients of any BlueMountain Operating Company or BlueMountain Subsidiary, other than full-time employees of the RIAs (or a relying adviser thereof).

(e)BMCP London is duly authorized by the FCA as an authorized person under the FSMA. At all times since January 1, 2017, BMCP London has timely filed all documents required to be filed with the FCA under applicable law (each, an “FCA Document”) and has paid all fees and assessments due and payable in connection therewith. At all times since January 1, 2017, as of the date of its filing or amendment, each such FCA Document complied in all material respects with applicable Laws and Regulations. Except for BMCP London, none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries is required to be, or at any time since January 1, 2017, has been, authorized by any Governmental Authority of the United Kingdom, whether under the FSMA or otherwise.

(f)Since January 1, 2017, each BlueMountain Operating Company and each BlueMountain Subsidiary (and any and all predecessors of either) has filed (after giving effect to any extensions and immaterial delays) all material forms, reports, registration statements, schedules and other documents, together with any amendments required to be made with respect thereto, that were required to be filed with any Governmental Authority pursuant to applicable Laws and Regulations. To the Knowledge of the BlueMountain Operating Companies, no such filing contained any material misstatement or omission at the time of filing.

(g)Investment Performance Record. All investment performance records used by any BlueMountain Operating Company or BlueMountain Subsidiary (“Track Records”) are owned by such company or subsidiary, and such company or subsidiary has the right to use the Track Records. The BlueMountain Operating Companies and the BlueMountain Subsidiaries have possession of, or ready access to, all books and records and other documentation necessary or desirable to calculate and substantiate the Track Records for purposes of the Advisers Act. To the Knowledge of the BlueMountain Operating Companies, there exist no other limitations other than those provided under applicable Laws and Regulations on the ability of Purchaser to use the Track Records after consummation of the transactions contemplated by this Agreement, and except as set forth on Schedule 2.15(g), no other Person (other than, with respect to the Track Records, each Client to which a Track Record relates) has the right to use the Track Records. No BlueMountain Operating Company, BlueMountain Subsidiary or BlueMountain Fund has given any guarantee, warranty or assurance as to the future investment performance of any BlueMountain Fund (or investment thereof) or the investment performance resulting from the Investment Advisory Services meeting or exceeding any particular level or target of investment performance.

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2.16Insurance. Each of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds (a) has, and will have as of the Closing, in full force and effect all insurance coverage and bonds required by ERISA and other applicable Laws and Regulations and by any contract or other agreement to which any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds is a party and (b) has provided to Purchaser copies of (i) all insurance policies, binder, bonds or risk management agreements maintained by the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds and (ii) documentation or correspondence, including any reservation of rights letters, relating to any pending or outstanding claims under such insurance coverages and bonds. All insurance policies maintained by the BlueMountain Operating Companies and the BlueMountain Subsidiaries and the BlueMountain Funds as of the date of this Agreement are listed in Schedule 2.16 hereto, and such policies have been selected based on, among other things, a market check, including an assessment of the insurance coverage maintained by comparable investment advisory firms. All applications for insurance coverage by the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds, have been materially accurate. None of the BlueMountain Operating Companies, BlueMountain Subsidiaries or BlueMountain Funds is in material default under any such insurance policy and all premiums thereunder have been paid in full. Except as set forth on Schedule 2.16, no claim is outstanding by any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds under any such insurance policy. None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds have received since January 1, 2017, notice from any insurer or agent of any material changes in the terms or premium under such insurance policy or bond or intent to cancel any such insurance policy or bond or have otherwise been denied by an insurer thereunder, except for such notices received in the ordinary course of business.

2.17Finder’s Fee. Except as set forth on Schedule 2.17, none of the BlueMountain Operating Companies has incurred, become liable for or otherwise entered into any contract or agreement with respect to any broker’s commission, finder’s fee or similar payment relating to or in connection with the transactions contemplated by this Agreement.

2.18Transactions with Interested Persons. Except for Employee Programs, since January 1, 2017, none of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds has been a party to any transaction or contract or arrangement with any of the BlueMountain Sellers, any other director, officer or employee of the BlueMountain Operating Companies or any of the BlueMountain Subsidiaries, or any of the respective Affiliates or Immediate Family members of any such Persons, and, to the Knowledge of the BlueMountain Operating Companies, none of such Persons owns, directly or indirectly on an individual or joint basis, any interest (excluding passive investments in the shares of any enterprise which are publicly traded; provided that such Person’s holdings therein, together with

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any holdings of such Person’s Affiliates and Immediate Family members, are less than five percent (5%) of the outstanding shares or comparable interest in such entity in the aggregate) in, or serves as an employee, independent contractor, officer, director or in another similar capacity of, any competitor or Client of the BlueMountain Operating Companies.

2.19Employee Programs.

(a)Schedule 2.19(a) hereto lists each Employee Program (as defined below).

(b)Each Employee Program which is intended to qualify under Section 401(a) or 501(c)(9) of the Code has received a favorable determination or approval letter from the IRS regarding its qualification under such section, and has in fact been qualified under the applicable section of the Code from the effective date of such Employee Program through and including the Closing (or, if earlier, the date that all of such Employee Program’s assets were distributed). No event or omission has occurred which would reasonably be expected to cause any such Employee Program to lose its qualification under the applicable section of the Code.

(c)Each Employee Program other than a Foreign Plan has been established and administered in accordance with its terms in all material respects, and is in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable Laws and Regulations. With respect to any Employee Program, there has occurred no non-exempt “prohibited transaction,” as defined in Section 406 of ERISA or Section 4975 of the Code, or breach of any fiduciary duty under ERISA or other applicable law (including, without limitation, any health care continuation requirements or any other tax law requirements, or conditions to favorable tax treatment, applicable to such plan), which would reasonably be expected to result, directly or indirectly, in any taxes or penalties or other liabilities to Purchaser, and none of the Sellers or the BlueMountain Operating Companies or any of its ERISA Affiliates has engaged in any such “prohibited transaction.” No litigation, arbitration, or governmental administrative proceeding (or, to the Knowledge of the BlueMountain Operating Companies, investigation) or other proceeding (other than those relating to routine claims for benefits or domestic relations orders) is pending or, to the Knowledge of the BlueMountain Operating Companies, threatened with respect to any such Employee Program.

(d)None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or their ERISA Affiliates (as defined below) (i) has ever maintained any employee benefit plan, program or arrangement (including, without limitation, the Employee Programs) which has been subject to Title IV of ERISA (including, but not limited to, any Multiemployer Plan (as defined below)) or (ii) has ever contributed to or had any liability to any Multiemployer Plan. None of the Employee Programs is a multiple employer pension plan or a

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multiple employer welfare arrangement (within the meaning of section 3(40) of ERISA). Neither the BlueMountain Operating Companies nor the BlueMountain Subsidiaries is obligated to provide or has any liability with respect to any health care or life insurance benefits to employees after their employment is terminated (other than (i) as required by part 6 of subtitle B of Title I of ERISA or similar state or local Laws and Regulations, (ii) benefits through the end of the month of termination of employment, or (iii) a subsidy provided in an employment agreement or separation agreement for all or a portion of the premium payment for coverage required by part 6 of subtitle B of Title I of ERISA or similar state or local Laws and Regulations).

(e)With respect to each Employee Program complete and correct copies of the following documents (if applicable to such Employee Program) have previously been delivered to Purchaser: (i) all material documents embodying or governing such Employee Program, and any funding medium for the Employee Program (including, without limitation, trust agreements) as they may have been amended; (ii) the most recent IRS determination or approval letter with respect to such Employee Program under Code Sections 401 or 501(c)(9), and any applications for determination or approval subsequently filed with the IRS; (iii) the summary plan description for such Employee Program (or other descriptions of such Employee Program provided to employees) and all modifications thereto; (iv) any insurance policy (including any fiduciary liability insurance policy) related to such Employee Program; and (v) any documents evidencing any loan to an Employee Program that is a leveraged employee stock ownership plan.

(f)None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds is in default with respect to any material term or condition of any Employee Program, nor will the Closing (or the transactions contemplated hereby or thereby) result in any such default, including, without limitation, after the giving of notice, lapse of time or both.

(g)None of the assets of any Employee Program are invested in securities issued by, or real property leased by, the BlueMountain Operating Companies.

(h)There have been no acts or omissions by the BlueMountain Operating Companies or any ERISA Affiliates which have given rise to or may give rise to material interest, fines, penalties, taxes or related charges under section 502 of ERISA or Chapters 43, 47, 68 or 100 of the Code for which the BlueMountain Operating Companies or any ERISA Affiliates may be liable or under Section 409A of the Code for which the BlueMountain Operating Companies or any ERISA Affiliates or any participant in any Employee Program that is a nonqualified deferred compensation plan (within the meaning of section 409A of the Code) may be liable. The BlueMountain Operating Companies, and each Employee Program that is a

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“group health plan” as defined in Section 733(a)(1) of ERISA (a “Health Plan”) (i) is currently in compliance in all material respects with the Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (“PPACA”), the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152 (“HCERA”), and the regulations and guidance issued thereunder (collectively, with PPACA and HCERA, the “Healthcare Reform Laws”) and (ii) has been in compliance in all material respects with all applicable Healthcare Reform Laws since March 23, 2010.

(i)Neither consummation of the transactions contemplated by this Agreement nor this Agreement (whether separately or together with any other action) will accelerate the time of vesting or the time of payment, or increase the amount, of compensation due to any current or former director, officer, or employee (including partners who perform services) of BlueMountain Operating Companies or any ERISA Affiliates. None of the payments contemplated by the Employee Programs would, in the aggregate, constitute excess parachute payments (as defined in section 280G of the Code (without regard to subsection (b)(4) thereof)) or would exceed the amount deductible pursuant to section 162(m) of the Code. None of the BlueMountain Operating Companies or any ERISA Affiliates is a nonqualified entity within the meaning of section 457A of the Code.

(j)The BlueMountain Operating Companies (i) have withheld and reported all amounts required by law or by contract to be withheld and reported with respect to wages, salaries and other payments to employees and former employees, consultants and independent contractors, (ii) are not liable for any arrearage of wages or any Taxes or any interest, fine or penalty for failure to comply with any of the foregoing and (iii) are not liable for any unpaid amounts due to any trust or other fund governed by or maintained by or on behalf of any Governmental Authority with respect to unemployment compensation benefits, social security or other benefits or obligations for employees or former employees.

(k)Each Employee Program maintained or contributed to by any BlueMountain Operating Companies or any BlueMountain Subsidiary or ERISA Affiliate under the law or applicable custom or rule of the relevant jurisdiction outside of the United States (each such plan, a “Foreign Plan”) is listed on Schedule 2.19(k). Except as disclosed on Schedule 2.19(k), as regards each Foreign Plan, (i) such Foreign Plan is, and has been operated, in material compliance with its terms and the provisions of the Laws and Regulations of each jurisdiction in which such Foreign Plan is maintained, to the extent those Laws and Regulations are applicable to such Foreign Plan, (ii) all material contributions to, and material payments from, such Foreign Plan which may have been required to be made in accordance with the terms of such Foreign Plan, and, when applicable, the Laws and Regulations of the jurisdiction in which such Foreign Plan is maintained, have been timely made or accrued, (iii) such Foreign Plan has obtained from the Government Authority having jurisdiction with respect to such Foreign Plan any required determinations, if any, that such Foreign Plan is in compliance with the Laws and Regulations of

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the relevant jurisdictions if such determinations are required in order to give effect to such Foreign Plan, (iv) to the Knowledge of the BlueMountain Operating Companies, there are no pending investigations by any Governmental Authority involving such Foreign Plan, (v) there are no pending claims (except for claims for benefits payable in the normal operation of such Foreign Plan), suits or proceedings against such Foreign Plan or asserting any rights or claims to benefits under such Foreign Plan, (vi) the consummation of the transactions contemplated by this Agreement will not by themselves create or otherwise result in any liability with respect to such Foreign Plan, and (vii), such Foreign Plan has no unfunded liabilities that will not be offset by insurance.

(l)For purposes of this section:

(i)“Employee Program” means (A) all employee benefit plans within the meaning of ERISA Section 3(3), including, but not limited to, multiple employer welfare arrangements (within the meaning of ERISA Section 3(4)), plans to which more than one unaffiliated employer contributes and employee benefit plans (such as foreign or excess benefit plans) which are not subject to ERISA; and (B) all employment agreements, collective bargaining agreements, fringe benefits, consulting agreements, stock option or other equity plans, bonus or incentive award plans, severance pay policies, severance agreements, change in control agreements, deferred compensation agreements, supplemental income arrangements, vacation plans, retention plan or agreement, unemployment compensation plan, insurance or hospitalization program, flexible benefit plan, cafeteria plan, dependent care plan or any fringe benefit arrangements and all other material employee benefit plans, agreements, programs, policies and arrangements not described in (A) above, whether formal or informal, oral or written, that are maintained by any of the BlueMountain Operating Companies, the BlueMountain Subsidiaries, the BlueMountain Funds or any ERISA Affiliate. In the case of an Employee Program funded through an organization described in Code Section 501(c)(9), each reference to such Employee Program shall include a reference to such organization.

(ii)An entity or trade or business “maintains” an Employee Program if such entity or trade or business sponsors, contributes to, or provides (or has promised to provide) benefits under such Employee Program, or has any obligation (by agreement or under applicable law) to contribute to or any liability or contingent liability to or provide benefits under such Employee Program, or if such Employee Program provides benefits to or otherwise covers employees or former employees of such entity or trade or business, or their spouses, dependents, or beneficiaries.

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(iii)An entity or person or trade or business is an “ERISA Affiliate” with respect to a BlueMountain Operating Company if, together with any BlueMountain Operating Company, such entity or person or trade or business is a member of a controlled group of corporations or a group of trades or businesses under common control within the meaning of Section 414 of the Code.

(iv)“Multiemployer Plan” means a multiemployer plan within the meaning of Section 3(37) of ERISA.

2.20Managers, Directors, Officers and Employees.

(a)Schedule 2.20(a) hereto contains a true and complete list of all current directors, officers and employees of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and BlueMountain Funds.

(b)None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds is delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it to the date hereof or amounts required to be reimbursed to such employees. Except as set forth in Schedule 2.20(b), none of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds would, by reason of the transactions contemplated by this Agreement, be liable to any employee of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds for any payments. Except as set forth in Schedule 2.20(b), none of the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds has any policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment. There are no charges of employment discrimination or unfair labor practices, or other employment-related claims against or involving the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds pending, or, to the Knowledge of the BlueMountain Operating Companies, threatened. To the Knowledge of the BlueMountain Operating Companies, there are no grievances, complaints or charges that have been filed against the BlueMountain Operating Companies, the BlueMountain Subsidiaries or the BlueMountain Funds under any dispute resolution procedure , and there is no arbitration or similar proceeding pending.

(c)Each of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds has in place all material employee policies required by applicable Laws and Regulations, and there have been no material violations or alleged violations of any of such policies since January 1, 2017. Each of the BlueMountain

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Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds that has employees is, and at all times since January 1, 2017, has been, in material compliance with the requirements of the Immigration Reform and Control Act of 1986. Each of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds has been and is in compliance with all applicable Laws respecting employment and employment practices, terms and conditions of employment, collective bargaining, disability, immigration, health and safety, wages, hours and benefits, harassment, non-discrimination in employment, workers’ compensation, unemployment compensation and the collection and payment of withholding or payroll Taxes and similar Taxes. All independent contractors and consultants providing personal services to each of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds have been properly classified as independent contractors for purposes of all Laws, including Laws with respect to employee benefits, and all employees of each of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds have been properly classified under the Fair Labor Standards Act and similar state laws.

(d)(i) There is not currently pending, and to the Knowledge of the BlueMountain Operating Companies, in the last seven (7) years there have not been, any allegations of sexual harassment or other sexual misconduct made against any manager, officer, executive or other employee of any BlueMountain Operating Company, BlueMountain Subsidiary or BlueMountain Fund, (ii) in the past five (5) years, none of the BlueMountain Operating Companies, the BlueMountain Subsidiaries and the BlueMountain Funds has entered into a settlement agreement to resolve any allegations of sexual harassment or other sexual misconduct by any of its managers, officers, executives or other employees, and (iii) to the Knowledge of the BlueMountain Operating Companies, there are no circumstances or conduct by any manager, officer, executive or other employee of any BlueMountain Operating Company, BlueMountain Subsidiary or BlueMountain Fund that would lead to material liability related to allegations of sexual harassment or other sexual misconduct.

2.21BlueMountain Funds; BlueMountain Fuji Agreements.

(a)Schedule 2.21(a) lists each of the Advisory Contracts, arrangements for the payment of service fees and all administrative services and other service agreements, if any, pertaining to any of the BlueMountain Funds. As to each BlueMountain Fund, there has been in full force and effect an Advisory Contract at all times since January 1, 2017, that any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries (or predecessors thereto) were performing such services for such BlueMountain Fund, and each such Advisory Contract pursuant to which any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries has at any time since January 1, 2017, received compensation in respect of its activities in connection with any of the BlueMountain Funds was duly approved in

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accordance with all applicable Laws and Regulations (as applicable to such BlueMountain Fund).

(b)None of the BlueMountain Operating Companies or the BlueMountain Subsidiaries (or any predecessors thereto) has at any time since January 1, 2017, (i) sponsored or served as the principal underwriter of any collective investment vehicle required to be registered as an investment company under the Investment Company Act and, in the case of any BlueMountain Fund domiciled outside of the United States, the similar laws of its jurisdiction of domicile, (ii) provided Investment Management Services to or through any investment company registered under the Investment Company Act, or (except for the BlueMountain Funds) any issuer or other Person that would be an investment company (within the meaning of the Investment Company Act) but for the exemptions contained in Section 3(c)(1), Section 3(c)(7), the final clause of Section 3(c)(3) or the third or fourth clauses of Section 3(c)(11) of the Investment Company Act, or (iii) except for Cayman Mutual Funds and CLOs, provided Investment Management Services to or through any issuer or other Person that is required to be registered under the laws of the appropriate securities regulatory authority in the jurisdiction in which the issuer is domiciled (other than the United States or the states thereof), which is or holds itself out as engaged primarily in the business of investing, reinvesting or trading in securities. Schedule 2.21(b) sets forth with respect to each BlueMountain Fund the exemption from registration under the Investment Company Act and, in the case of any BlueMountain Fund domiciled outside of the United States, the similar laws of its jurisdiction of domicile, and identifies each Cayman Mutual Fund and CLO. None of the BlueMountain Operating Companies or BlueMountain Subsidiaries provides Investment Management Services to any pooled investment fund other than the BlueMountain Funds.

(a)None of the BlueMountain Operating Companies, the BlueMountain Subsidiaries, the BlueMountain Sellers, or any Person who is an “affiliated person” (as defined in the Investment Company Act) or any other “interested person” of the BlueMountain Operating Companies (as defined in the Investment Company Act), receives or is entitled to receive any compensation directly or indirectly from any of the BlueMountain Funds or their security holders for other than bona fide investment advisory, administrative or other services. None of the foregoing is an “affiliated person” of an investment company that is registered or required to be registered under the Investment Company Act.

(b)Schedule 2.21(d) hereto sets out a complete and accurate list, as of the date hereof, of the name and jurisdiction of formation or organization of each BlueMountain Fund, and each BlueMountain Fund is in good standing in such jurisdiction. True and complete copies of the Organizational Documents for each BlueMountain Fund have been made available to the Purchaser

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(c)Each of the BlueMountain Funds has a separate prime broker, custodian or trustee which is a third-party entity independent of any of the BlueMountain Operating Companies or BlueMountain Subsidiaries undertaking asset management services for the BlueMountain Funds.

(d)Other than in the capacity of a general partner or in a similar capacity, none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries is liable in connection with, on behalf of, or for, any obligation of any of the BlueMountain Funds, and none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries is in a position in which it may become so liable, including on any insolvency, liquidation, transformation, amalgamation, merger or split-up of any of the BlueMountain Funds.

(e)Since January 1, 2017, each BlueMountain Fund offers and has offered its securities in compliance with all applicable Laws and Regulations in all material respects.

(f)Each BlueMountain Fund is duly organized and validly existing under the laws of the jurisdiction of its organization and has the requisite corporate, trust, company or partnership power and authority to own its assets and to carry on its business as currently conducted, and is qualified to do business in each jurisdiction where it is required to be so qualified under applicable Laws and Regulations except where the failure to be so registered would not have a material adverse effect on such BlueMountain Fund.

(g)As of the Base Date, there were no outstanding notices of redemption, refinancing, reset, repricing, supplemental indenture, amendment to management agreement (other than the transaction contemplated by this Agreement), actions by noteholders or similar actions (in each case, other than actions undertaking in the ordinary course and not at the behest of third parties) (“Material CLO Action”) with respect to any CLO Client and no Material CLO Action is ongoing or currently under consideration with respect to any CLO Client. Since the Base Date, no investor in a CLO Client has notified a BlueMountain Operating Company or BlueMountain Subsidiary, the manager of such company, or the trustee of such company that such investor intends to submit a notice of Material CLO Action. No notices regarding potential Material CLO Actions (which have not closed) have been published under Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC.

(h)The BlueMountain Fuji Agreements are the only agreements, contracts or arrangements (i) pursuant to which any BlueMountain Operating Company or

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BlueMountain Subsidiary receives or is entitled to receive, or otherwise generates fees from or shares fees with Fuji Management LLC or any BlueMountain Fuji CLO or (ii) that require any consent of Fuji Management LLC or any BlueMountain Fuji CLO as a result of or in connection with the consummation of the transactions contemplated by this Agreement.

2.22Assets.

(a)Except for assets disposed of in the ordinary course of business since the Locked Box Date or as set forth on Schedule 2.22(a), the BlueMountain Operating Companies and the BlueMountain Subsidiaries have good and valid title to, a valid leasehold interest in, or a valid license to use all of the properties and assets (tangible or intangible, real or personal) reflected on the Base Interim Balance Sheet or acquired, leased, or licensed by the BlueMountain Operating Companies and the BlueMountain Subsidiaries since the Locked Box Date, free and clear of any Claims (other than Permitted Encumbrances).

(b)The properties and assets owned, leased, or licensed by the BlueMountain Operating Companies and the BlueMountain Subsidiaries constitute all of the properties and assets used in or necessary to conduct their business immediately after the Closing in the manner conducted during the twelve (12) month period prior to Closing.

2.23Environmental Matters. The BlueMountain Operating Companies and the BlueMountain Subsidiaries are, and since January 1, 2017, have been, in compliance in all material respects with all Environmental Laws. As of the date hereof: (a) since January 1, 2017, no BlueMountain Operating Company or the BlueMountain Subsidiary has received written notice of any violation or potential liability under any Environmental Law, (b) none of the BlueMountain Operating Companies or BlueMountain Subsidiaries are subject to any Orders arising under Environmental Laws, and (c) to the Knowledge of the BlueMountain Operating Companies, none of the BlueMountain Operating Companies or the BlueMountain Subsidiaries have received written notice of any pending or threatened administrative, civil or criminal actions, suits, proceedings or investigations under any Environmental Laws which would result in the BlueMountain Operating Companies or the BlueMountain Subsidiaries incurring material liability under Environmental Laws.

2.24Bank Accounts. Schedule 2.24 sets forth a correct list of all bank accounts, safe deposit boxes, and lock boxes maintained by or on behalf of the BlueMountain Operating Companies and the BlueMountain Subsidiaries and the persons authorized to sign or otherwise act with respect thereto.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS

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Except as set forth in a correspondingly labeled section of the Disclosure Schedule (it being agreed that any matter disclosed in any section or subsection of a Disclosure Schedule shall be deemed disclosed in any other section or subsection to the extent that such information is reasonably apparent on its face to be so applicable to such other section or subsection), each Seller, severally and not jointly, hereby represents and warrants to Purchaser, as of the date hereof and the Closing (or, in the case of any representation or warranty made as of a specified date, as of such specified date), as follows:

3.1Ownership Interests. As of the execution and delivery of this Agreement and as of immediately prior to the Closing, such Seller owns of record and beneficially the BlueMountain Interests set forth opposite such Seller’s name in Schedule 2.2(b) hereto, free and clear of any Claims, and such BlueMountain Interests are the only ownership interests in any of the BlueMountain Operating Companies or BMCP London held by such Seller. Upon the sale, transfer and delivery of such Seller’s BlueMountain Interests to Purchaser pursuant to this Agreement, Purchaser will acquire all interests of such Seller in and to all of Seller’s BlueMountain Interests, free and clear of any Claims.

3.2Authority of Sellers. Such Seller has full right, authority and capacity to enter into this Agreement and to carry out the transactions contemplated hereby. In the case of a Seller that is not a natural person, the execution, delivery and performance by such Seller of this Agreement has been duly authorized by all necessary action of such Seller, and no other action on the part of such Seller is required in connection therewith. This Agreement and the transactions contemplated hereby are approved by such Seller, and this Agreement constitutes a valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or similar laws affecting creditors’ rights generally. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not:

(i)in the case of a Seller that is not a natural person, violate any provision of the Organizational Documents of such Seller;

(ii)(A) violate any Laws and Regulations applicable to such Seller or (B) except as required pursuant to the HSR Act and the FSMA, require such Seller to obtain any approval, consent or waiver of any Governmental Authority which has not been obtained; or

(iii)(A) require any Seller to obtain any approval, consent or waiver of any Person that is not a Governmental Authority which has not been obtained, (B) require any Seller to deliver notification to, or make any

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filing with, any Person which has not been delivered or made, or (C) result in a breach of, or constitute a default under, accelerate any obligation under, or give rise to a right of termination of, any agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which such Seller is a party or by which the property of such Seller is bound, or result in the creation or imposition of any Claim on such Seller’s BlueMountain Interests;

except for, in the case of the foregoing clauses (ii) and (iii), any violation, requirement, breach, default, acceleration, right of termination or Claim that would not, individually or in the aggregate, reasonably be expected to prevent or materially delay the consummation by Seller of the transactions contemplated hereby or Seller’s compliance with its obligations hereunder in a timely manner.

3.3Litigation. As of the date of this Agreement, there is not any litigation or other action, suit or proceeding or, to the Knowledge of such Seller, any investigation, examination or audit, at law or in equity, by or before any Governmental Authority (including, without limitation, any voluntary or involuntary proceedings under the Bankruptcy Code or any action, suit, proceeding or investigation under any federal or state securities law, rule or regulation), in which such Seller is a party or is otherwise engaged or with which any of them is threatened except, in each case that (i) would reasonably be expected to prevent or materially delay the ability of such Seller to perform its obligations hereunder or (ii) as of the date hereof, challenge the validity of the transactions contemplated by this Agreement. There are no Orders currently in effect against such Seller or any of its Affiliates that would reasonably be expected to prevent or materially delay the ability of such Seller to perform its obligations hereunder.

3.4Finder’s Fee. Such Seller has not incurred, become liable for or otherwise entered into any contract or agreement with respect to any broker’s commission, finder’s fee or similar payment relating to or in connection with the transactions contemplated by this Agreement.

3.5No Securities Matters. To the extent such Seller is receiving Parent Common Stock hereunder:

(a)Such Seller is financially able to hold the Parent Common Stock received by such Seller for long-term investment and to suffer a complete loss of such Seller’s investment in Parent Common Stock received by such Seller hereunder. The Parent Common Stock received by such Seller hereunder is being obtained by it for his own account for investment purposes, and not with a view to any distribution thereof in violation of any applicable securities Laws and Regulations. Such Seller has had the opportunity to ask questions

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of Purchaser Parent and its respective officers and employees and to receive to such Seller’s satisfaction such information about the business and financial condition of Purchaser Parent as such Seller considers necessary or appropriate for deciding whether to acquire the Parent Common Stock, and such Seller is fully capable of understanding and evaluating the risks associated with the ownership of the Parent Common Stock received by such Seller hereunder.

(b)Such Seller has conducted his own diligence investigation with respect to the merits and risks associated with his investment in the Parent Common Stock to be received by such Seller hereunder. Notwithstanding that Purchaser Parent may have provided information to such Seller, such Seller is not relying on, and has not relied on, any representation by Purchaser Parent or any Affiliate of Purchaser Parent (including Purchaser) with respect to the Parent Common Stock other than the representations and warranties of Purchaser Parent hereunder.

(c)Such Seller understands and acknowledges that the shares of Parent Common Stock received by such Seller hereunder are “restricted securities” under U.S. federal Securities Laws inasmuch as they are being acquired from Purchaser Parent in a transaction not involving a public offering. Accordingly, such Seller understands and acknowledges that, under such laws and applicable regulations, such securities may be resold without registration under the applicable U.S. Securities Laws only in certain limited circumstances and the Parent Common Stock received by such Seller hereunder will bear a customary legend noting that such securities constitute restricted securities under the Securities Act.

(d)Such Seller is acquiring the shares of Parent Common Stock solely for his own account for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof. Such Seller acknowledges that the shares of Parent Common Stock are not registered under the Securities Act, or any state Securities Laws, and that the shares of Parent Common Stock may not be transferred or sold except pursuant to the registration provisions of the Securities Act or pursuant to an applicable exemption therefrom and subject to state Securities Laws and regulations, as applicable. Such Seller is an “accredited investor” as such term is defined in Rule 501(a) promulgated under the Securities Act. Such Seller is able to bear the economic risk of holding the shares of Parent Common Stock for an indefinite period (including total loss of its investment), and has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risk of its investment.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER

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Purchaser (as to itself) and, solely for purposes of Sections 4.1, 4.2, 4.5 and 4.9, Purchaser Parent (as to itself) hereby represent and warrant to the BlueMountain Operating Companies and each Seller, as of the date hereof and the Closing (or, in the case of any representation or warranty made as of a specified date, as of such specified date), as follows:

4.1Organization of Purchaser and Purchaser Parent. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Delaware with full power and authority under the Delaware General Corporation Law to own or lease its material properties and to conduct its business in the manner currently conducted. Purchaser Parent is an exempted company limited by shares duly organized, validly existing and in good standing under the laws of Bermuda with full power and authority under the Bermuda Companies Act 1981, as amended, to own or lease its material properties and to conduct its business in the manner currently conducted.

4.2Authority of Purchaser and Purchaser Parent. Each of Purchaser and Purchaser Parent has full right, authority and power under its Governing Agreement, the Delaware General Corporation Law (in the case of Purchaser) and the Bermuda Companies Act 1981, as amended (in the case of Purchaser Parent) to enter into this Agreement, and to carry out the transactions contemplated hereby. The execution, delivery and performance by each of Purchaser and Purchaser Parent of this Agreement have been duly authorized by all necessary action of Purchaser and Purchaser Parent, as applicable, and no other action on the part of Purchaser or Purchaser Parent is required in connection therewith. This Agreement constitutes a valid and binding obligation of Purchaser and Purchaser Parent, enforceable against Purchaser and Purchaser Parent, as applicable, in accordance with their terms, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or similar laws affecting creditors’ rights generally. The execution, delivery and performance by each of Purchaser and Purchaser Parent of this Agreement and the consummation of the transactions contemplated hereby do not and will not:

(i)violate any provision of the Organizational Documents of Purchaser or Purchaser Parent, as applicable;

(ii)(A) violate any Laws and Regulations applicable to Purchaser or Purchaser Parent, as applicable, or by which the assets of Purchaser or Purchaser Parent, as applicable, are bound, or (B) except as required pursuant to the HSR Act and the FSMA, require Purchaser or Purchaser Parent to obtain any approval, consent or waiver of any Governmental Authority which has not been obtained; or

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(iii)(A) require Purchaser or Purchaser Parent to obtain any approval, consent or waiver of any Person that is not a Governmental Authority which has not been obtained, (B) except as set forth on Schedule 4.2(iii), require Purchaser or Purchaser Parent to deliver a notification to, or make any filing with, any Person which has not been delivered or made, or (C) result in a breach of or constitute a default under, accelerate any obligation under, or give rise to a right of termination of, any material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Purchaser is a party or by which the property of Purchaser or Purchaser Parent, as applicable is bound;

except for, in the case of the foregoing clauses (ii) and (iii), any violation, requirement, breach, default or Claim that would not, individually or in the aggregate, reasonably be expected to prevent or materially delay the consummation by Purchaser or Purchaser Parent, as applicable, of the transactions contemplated hereby or Purchaser’s or Purchaser Parent’s, as applicable, compliance with its obligations hereunder in a timely manner.

4.3Litigation. As of the date of this Agreement, there is no litigation or other action, suit or proceeding or, to the Knowledge of Purchaser, any investigation, examination or audit, at law or in equity, by or before any Governmental Authority (including, without limitation, any voluntary or involuntary proceedings under the Bankruptcy Code or any action, suit, proceeding or investigation under any federal or state securities law, rule or regulation), to which Purchaser or, to Purchaser’s Knowledge, any officer, director, member, partner or employee thereof is a party or is otherwise engaged or with which any of them is threatened, in each case, that (i) would reasonably be expected to prevent or materially delay the ability of Purchaser to perform its obligations hereunder or (ii) as of the date hereof, challenges the validity of the transactions contemplated by this Agreement. There are no Orders currently in effect against Purchaser or any of its Affiliates that would reasonably be expected to prevent or materially delay the ability of Purchaser to perform its obligations hereunder.

4.4Acquisition for Investment. Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its purchase of the BlueMountain Interests. Purchaser represents and warrants that it is an “accredited investor” within the meaning of Rule 501 under the Securities Act. Purchaser confirms that it has been provided with the opportunity to ask questions of the BlueMountain Operating Companies and their officers and employees, and to acquire additional information about the business and financial condition of the BlueMountain Operating Companies. Purchaser is acquiring the BlueMountain Interests for investment and not with a view toward or for sale in connection with any distribution thereof in violation of any federal or state securities or “blue sky” law, or with any present intention of distributing or selling such shares in violation

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of any federal or state securities or “blue sky” law. Purchaser understands and agrees that the BlueMountain Interests may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act, except pursuant to an exemption from such registration available under the Securities Act, and without compliance with state, local and foreign securities laws, in each case, to the extent applicable.

4.5Finder’s Fee. Neither Purchaser nor Purchaser Parent has incurred, become liable for or otherwise entered into any contract or agreement with respect to any broker’s commission, finder’s fee or similar payment relating to or in connection with the transactions contemplated by this Agreement.

4.6Ineligible Persons. Neither Purchaser, nor any Person related to the Purchaser as of immediately prior to the Closing that will be a “person associated with” (within the meaning of Section 202(a)(17) of the Investment Advisers Act) Management Company LLC as of immediately following the Closing, is ineligible pursuant to Section 203(e) of the Advisers Act to serve as an investment adviser or a “person associated with” an investment advisor, nor is there, to the Knowledge of Purchaser, any Proceeding pending by any Governmental Authority that would result in the ineligibility of Purchaser or any such related Person to serve in any such capacity pursuant to Section 203(e) of the Investment Advisers Act. Purchaser is not subject to any of the disqualifying events listed in Section 506 of Regulation D under the Securities Act, and, to the Knowledge of Purchaser, there is no Proceeding pending against Purchaser that would reasonably be expected to result in any such disqualifying event.

4.7Financing. Purchaser has, and at the Closing will have available, all funds necessary (a) to pay in immediately available funds the portion of the Purchase Price required to be paid in cash at Closing and all other amounts payable under this Agreement, and (b) to pay in immediately available funds any fees and expenses payable by Purchaser in connection with the transactions contemplated by this Agreement. Purchaser acknowledges that its obligations set forth in this Agreement are not contingent or conditioned upon Purchaser’s ability to obtain or have at the Closing sufficient funds necessary to make the payments required pursuant to Section 1.

4.8R&W Insurance Policy. Purchaser has obtained the R&W Insurance Policy bound and effective as of the date hereof, and all amounts required to be paid thereunder as of the date hereof have been paid. Purchaser has provided the Seller Representative and the AMG Seller with a true, correct and complete copy of the R&W Insurance Policy on or prior to the date hereof.

4.9Purchaser Parent Representations.

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(a)Capitalization of Purchaser Parent. As of the date hereof, the authorized capital stock of Purchaser Parent consists of 500,000,000 shares of Parent Common Stock. As of March 31, 2019, there were 102,270,409 shares of Parent Common Stock (all of which were duly authorized, validly issued, fully paid and non-assessable) issued and outstanding. The Parent Common Stock being issued to the Principal Sellers, if any, is and shall be duly authorized and, if and when issued and delivered to the applicable Principal Sellers in accordance with the terms of this Agreement, validly issued, fully paid, nonassessable, and free and clear of all Claims other than those arising under generally applicable securities Laws and Regulations, the Organizational Documents of Purchaser Parent, as created by the applicable Principal Sellers, or as provided for in this Agreement.

(b)Purchaser Parent SEC Reports. Purchaser Parent has timely filed with or furnished to the SEC all reports, schedules, forms, statements, and other documents (including exhibits and other information incorporated therein) required to be filed or furnished by it since January 1, 2018 (all such documents, collectively, the “Parent SEC Documents”). The Parent SEC Documents, including any audited or unaudited financial statements and any notes thereto or schedules included therein (the “Parent Financial Statements”), at the time filed or furnished (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein (in the light of the circumstances under which they were made) not misleading, (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as applicable, (iii) complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, (iv) in the case of the Parent Financial Statements, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or the omission of notes to the extent permitted by Regulation S-K promulgated under the Securities Act or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) and subject, in the case of interim financial statements, to normal year-end adjustments which are not material in the aggregate, and (v) in the case of the Parent Financial Statements, fairly present in all material respects the consolidated financial condition, results of operations, and cash flows of Purchaser Parent as of the dates and for the periods indicated therein, except any unaudited Parent Financial Statements are subject to normal year-end adjustments which are not material in the aggregate.

(c)Listing. The Parent Common Stock is registered under Section 12(b) of the Exchange Act and is listed on the NYSE, and Purchaser Parent has not received any notice of delisting.

(d)Absence of Changes. Since the date of the filing by Purchaser Parent with the SEC of its most recent annual or quarterly report required to be filed prior to the

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date hereof, there has not occurred any change, event, or development that, individually or in the aggregate, has had, or would reasonably be excepted to have, a material adverse effect on the condition, financial or otherwise, or in the earnings, business or operations of Purchaser Parent and its subsidiaries, taken as a whole.

SECTION 5. COVENANTS

5.1Actions of the BlueMountain Operating Companies. The BlueMountain Sellers, jointly and severally, hereby agree to cause the BlueMountain Operating Companies and the BlueMountain Subsidiaries to comply with the covenants and agreements contained in this Section 5.

5.2Pre-Closing Conduct of Business. During the period from the date of this Agreement and continuing through the earlier to occur of the Closing or the termination of this Agreement pursuant to Section 10 (the “Interim Period”), except (A) as expressly contemplated by this Agreement (including the Restructuring) and actions constituting Permitted Leakage, (B) as set forth in Schedule 5.2, (C) as may be required by applicable Laws and Regulations or (D) with the prior written consent of Purchaser, the BlueMountain Operating Companies shall and shall cause the BlueMountain Subsidiaries to (i) conduct in all material respects their business in the ordinary course consistent with past practice and (ii) use their reasonable best efforts to preserve intact their material business and rights, franchise, goodwill and relationships with all Clients (including the BlueMountain Funds), investors, landlords, employees and other Persons having business relationships with them; provided that (x) subject to compliance with clause (i) hereof, any change in Clients, assets under management or Client revenues shall not constitute a breach of this clause (ii), with such matters governed exclusively by Sections 1.3 and 7.4, and (y) the obligations of the parties to obtain consent from any Clients shall be governed exclusively by Section5.3. To facilitate the fulfillment of the BlueMountain Operating Companies’ obligations under the first sentence of this Section 5.2, the Purchaser will consult with the BlueMountain Operating Companies from time to time during the Interim Period upon the request of the BlueMountain Operating Companies, and the BlueMountain Operating Companies will be deemed not to have violated their obligations under this Section 5.2 with respect to actions taken by them in reliance upon such consultations. Without limiting the generality of the foregoing, except (1) as expressly contemplated by this Agreement (including the Restructuring) and actions constituting Permitted Leakage, (2) as may be required by applicable Laws and Regulations, (3) as set forth in Schedule 5.2 or (4) with the prior written consent of Purchaser (such consent not to be unreasonably withheld or delayed), the BlueMountain Operating Companies shall not and shall cause each BlueMountain Subsidiary not to:

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(a)merge with or into or consolidate with any other Person, adopt a plan or agreement of complete or partial liquidation, liquidate, dissolve, restructure or recapitalize, make a voluntary assignment for the benefit of its creditors or file a voluntary petition of bankruptcy or insolvency;

(b)amend or waive the Organizational Documents of any BlueMountain Operating Company, any BlueMountain Subsidiary or any BlueMountain Fund, except, in the case of a BlueMountain Fund, to the extent resulting from the execution a Side Letter between such BlueMountain Fund and an investor therein in the ordinary course of business that is substantially consistent in form and substance with Side Letters entered into by such BlueMountain Fund with similarly situated investors in the ordinary course of business consist with past practice;

(c)split, combine or reclassify any limited liability company interests, limited partnership interests, shares of capital stock or other equity interest in any BlueMountain Operating Company or BlueMountain Subsidiary;

(d)make any distribution or declare, pay or set aside any dividend with respect to any equity interest in any BlueMountain Operating Company or BlueMountain Subsidiary, other than cash dividends or distributions from a BlueMountain Operating Company or BlueMountain Subsidiary to another BlueMountain Operating Company or BlueMountain Subsidiary;

(e)redeem, purchase or otherwise acquire, directly or indirectly, any equity interest in any BlueMountain Operating Company or BlueMountain Subsidiary, including any Common Equity Interest, Common Equity Unit, Profit Interest or Profit Unit of any BlueMountain Operating Company, other than in connection with the formation of a BlueMountain Fund;

(f)issue, sell or grant, or authorize the issuance, sale or grant of (i) any equity interests or voting interests in any BlueMountain Operating Company or BlueMountain Subsidiary, (ii) any option, restricted share unit, profits interest or other equity-based compensation award, call, warrant or right to acquire any equity interests or voting interest in any BlueMountain Operating Company or BlueMountain Subsidiary or (iii) other securities convertible into, exchangeable for or evidencing the right to subscribe for or acquire any equity interests or voting interests in any BlueMountain Operating Company or BlueMountain Subsidiary, in each case including, without limitation, any Common Equity Interest, Common Equity Unit, Profit Interest or Profit Unit of any BlueMountain Operating Company;

(g)incur any Indebtedness (including by issuing or selling any debt securities or rights to acquire any debt securities), guarantee the Indebtedness of any Person or

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enter into any “keep well” or other agreement to maintain any financial statement condition of another Person other than (i) solely among the BlueMountain Operating Companies and BlueMountain Subsidiaries, (ii) obligations for clawback liability assumed in connection with the formation of a BlueMountain Fund, or (iii) aggregate Indebtedness, guarantees, “keep well” and other such agreements incurred, assumed or otherwise entered into in the ordinary course of business or for additional amounts up to $100,000;

(h)make any loan or advance other than to another BlueMountain Operating Company or BlueMountain Subsidiary;

(i)sell, transfer, lease or otherwise dispose of or pledge (other than Permitted Encumbrances) any of their material assets, other than in the ordinary course of business consistent with past practices;

(j)settle, or offer or propose to settle, any litigation or other action, investigation, arbitration, suit or proceeding involving a BlueMountain Operating Company or a BlueMountain Subsidiary other than (i) settlements involving only the payment of monetary damages by a BlueMountain Operating Company or a BlueMountain Subsidiary not exceeding, in the aggregate, $50,000 or (ii) any settlement that would not prohibit or restrict a BlueMountain Operating Company or a BlueMountain Subsidiary from operating its business in substantially the same manner as operated on the date of this Agreement;

(k)make any material change to (i) their accounting methods, practices or policies, other than as required by GAAP or applicable Laws and Regulations or (ii) their practices in respect of cash management and collection of accounts receivable;

(l)(i) make, revoke or change any material election relating to Taxes, (ii) change or revoke any material Tax accounting method, (iii) change any material Tax accounting period, (iv) amend any material Tax Return or (v) settle or compromise any material Tax liability with any Taxing Authority;

(m)(i) modify, amend, terminate or waive any Primary Lease, (ii) subject to clause (i) hereof, modify, amend, terminate or waive any Contract, in each case in a manner that would reasonably be expected to be material and adverse to the BlueMountain Operating Companies and BlueMountain Subsidiaries, taken as a whole, or (iii) enter into any contract, agreement, or arrangement that would have been a Contract if entered into prior to the date hereof (other than replacement contracts, agreements or arrangements to replace expired or terminated Contracts on substantially similar terms) requiring an annual payment in excess of $50,000 by the BlueMountain Operating Company or BlueMountain Subsidiary party to such contract, agreement or arrangement;

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(n)amend or otherwise modify, or permit any waiver under, any Advisory Contract; provided that nothing in this Section 5.2(n) shall restrict the amendment or modification of any Advisory Contract (i) in the ordinary course of business, as long as such amendment or modification does not (A) reduce the applicable fee rate, (B) introduce or adversely amend or modify (1) a most favored nation provision or (2) any agreement by any BlueMountain Operating Company or BlueMountain Subsidiary to cap, waive, offset, reimburse, rebate, discount or otherwise reduce or defer any or all fees or charges thereunder resulting in an effective fee rate lower than that stated in such Advisory Contract (other than (x) any Side Letter entered into between a BlueMountain Fund and an investor therein in the ordinary course of business that is substantially consistent in form and substance with Side Letters entered into by such BlueMountain Fund with similarly situated investors in such BlueMountain Fund in the ordinary course of business consistent with past practice and (y) fee waivers provided in connection with the investment by a Client in another Client to avoid “double dipping”), or (C) obligate any BlueMountain Operating Company or BlueMountain Subsidiary to provide a materially broader scope of services, or be subject to materially broader obligations, under such Advisory Contract, or (ii) to modify the investment guidelines under such Advisory Contract;

(o)enter into any Advisory Contract that obligates a BlueMountain Operating Company, a BlueMountain Subsidiary or any of their respective Affiliates to guarantee the obligations or performance of the BlueMountain Operating Company or BlueMountain Subsidiary party to such Advisory Contract; provided that, for the avoidance of doubt, nothing in this Section 5.2(o) shall restrict the ability of GP Holdings LLC to guarantee the obligations of any BlueMountain Subsidiary that is the general partner of a BlueMountain Fund;

(p)enter into any Advisory Contract with a Client that contains any most favored nation provision or any agreement by any BlueMountain Operating Company or BlueMountain Subsidiary to cap, waive, offset, reimburse, rebate, discount or otherwise reduce or defer any or all fees or charges thereunder resulting in an effective fee rate lower than that stated in such Advisory Contract (other than any Side Letter entered into between a BlueMountain Fund and an investor therein in the ordinary course of business that is substantially consistent in form and substance with Side Letters entered into by such BlueMountain Fund with similarly situated investors in such BlueMountain Fund in the ordinary course of business consistent with past practice);

(q)other than in the ordinary course of business consistent with past practices or as required by any existing Employee Program, (i) enter into or materially amend any Employee Program (or any arrangement that would be an Employee Program if in effect on the date hereof), (ii) grant, increase or take any action to accelerate any rights or benefits under any Employee Program, or (iii) make any material increase in salaries or other compensation

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payable to any employee of the BlueMountain Operating Companies or BlueMountain Subsidiaries;

(r)except in the ordinary course of business consistent with past practice, grant or increase any retention, change in control or similar payment or benefit to, or enter into or amend any existing retention, change in control or similar payment or benefit arrangement with, any current or former officers, directors, employees, independent contractors or service providers of any of the BlueMountain Operating Companies or BlueMountain Subsidiaries (including, in each case, any payment or benefit that is contingent on the consummation of the transactions contemplated by this Agreement, whether “single trigger” or “double trigger”);

(s)enter into a new line of business not related to Investment Management Services;

(t)acquire any business or Person, by merger, consolidation, or otherwise, or acquire any material asset or any equity of any other Person (other than commitments for capital expenditures, which shall be governed exclusively by Section 5.2(u));

(u)make or incur any new non-cancelable financial commitment or capital expenditure requiring payments in excess of $100,000 annually;

(v)enter into any material transaction with any of their respective Affiliates (other than any BlueMountain Operating Company or BlueMountain Subsidiary) or the AMG Seller other than (i) service agreements entered into in connection with the launch of new collateralized loan obligations managed by Fuji Management LLC, provided that any such services agreement are in form and substance consistent with service agreements entered into by the BlueMountain Operating Company and BlueMountain Funds with the CLO Clients; and (ii) pursuant to written arrangements in effect on the date of this Agreement and excluding any employment, compensation or similar arrangements otherwise permitted pursuant to this Section 5.2;

(w)sell or transfer any Intellectual Property material to the conduct of the business of any of the BlueMountain Operating Companies and the BlueMountain Subsidiaries, taken as a whole;

(x)(i) except in the ordinary course of business consistent with past practice in terms of amount and frequency and after prior consultation with Purchaser, commit any seed capital to any BlueMountain Fund or (ii) form any BlueMountain Fund or establish any new Client except to the extent that its applicable Advisory Contract includes an affirmative

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consent to the “assignment” (as defined in the Advisers Act) of such Advisory Contract in connection with the consummation of the transactions contemplated hereby;

(y)solely with respect to the period from the date on which the Leakage Certificate is delivered until the Closing Date, incur or otherwise cause any Leakage; or

(z)agree or commit to do, or otherwise enter into any Contract to do, any of the foregoing.

Notwithstanding the foregoing, nothing contained in this Agreement is intended to give to Purchaser, directly or indirectly, rights to Control or direct the operations of the BlueMountain Operating Companies or BlueMountain Subsidiaries or any BlueMountain Funds prior to the Closing.

5.3Client Consents; BlueMountain Fuji Consents.

(a)With respect to each Client, the BlueMountain Operating Companies shall use their reasonable best efforts to obtain, as promptly as reasonably practicable following the date hereof, the consent of such Client to the “assignment” (as defined in the Advisers Act) of such Client’s Advisory Contract resulting from the consummation of the transactions contemplated hereby, in each case in accordance with, and in the manner required by the terms of such Advisory Contract and all applicable Laws and Regulations (each such consent, a “Client Consent”). In furtherance of the foregoing, the parties agree that:

(i)in the case of each Fund Client, such Fund Client shall be deemed to have provided Client Consent for all purposes of this Agreement if written consent has been obtained from each individual that is not a Seller or an employee of a Seller, a BlueMountain Operating Company, a BlueMountain Subsidiary or any of their respective Affiliates (each such individual, an “Unaffiliated Party”) serving on the board of directors, managers or similar governing body (a “Governing Body”) of such Fund Client;

(ii)in the case of each CLO Client, such CLO Client shall be deemed to have provided Client Consent for all purposes of this Agreement if (A) written consent has been obtained from each individual serving on the Governing Body of such CLO Client that is an Unaffiliated Party, (B) consent has been obtained from (1) holders of a majority of the controlling class of notes of such CLO Client, and (2) holders of a majority of the subordinated notes of such CLO Client and (C) each relevant rating agency has confirmed that the transactions contemplated hereby will not result in the immediate withdrawal or reduction with respect to its then-current rating of any

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class of secured notes of such CLO Client, in each of the cases of clauses (B) and (C), solely to the extent such consent or confirmation is required under the terms of the applicable portfolio management agreement of such CLO Client; and

(iii)in the case of the Single Investor Fund, the Single Investor Fund shall be deemed to have provided Client Consent for all purposes of this Agreement if (A) written consent has been obtained from each individual serving on the Governing Body thereof that is an Unaffiliated Party and (B) written consent has been obtained from the investor therein. For the avoidance of doubt, if the Single Investor Consent is not obtained on or prior to Closing, Purchaser shall, during the period of two (2) months following the Closing Date, cause the BlueMountain Operating Companies to continue using their reasonable best efforts to obtain, as promptly as reasonably practicable, the Single Investor Consent.

(b)With respect to each BlueMountain Fuji CLO, the BlueMountain Operating Companies shall use their reasonable best efforts to obtain, as promptly as reasonably practicable following the date hereof, the BlueMountain Fuji Consent with respect to such BlueMountain Fuji CLO, in each case in accordance with, and in the manner required by the terms of the applicable BlueMountain Fuji Agreements and all applicable Laws and Regulations. In furtherance of the foregoing, the parties agree that Fuji Management LLC shall be deemed to have provided the BlueMountain Fuji Consents for all purposes of this Agreement if written consent has been obtained from each Unaffiliated Party serving on the Governing Body of Fuji Management LLC.

(c)As soon as reasonably practicable following the date hereof, the BlueMountain Operating Companies shall send a written notice to each Client and each BlueMountain Fuji CLO (including, where applicable, its Governing Body) and the limited partners, shareholders or other investors thereof (as applicable) informing them of the proposed transactions hereunder and requesting Client Consent or BlueMountain Fuji Consent, as applicable. Purchaser shall have the reasonable opportunity to review drafts of any such material written notices and any other material written communications with any Client or BlueMountain Fuji CLO (including, where applicable, its Governing Body) or the partners, shareholders or other investors thereof (as applicable) regarding the transactions contemplated by this Agreement (including any Client Consent or BlueMountain Fuji Consent solicitation materials), and to have Purchaser’s comments to any such drafts considered in good faith, in advance of dissemination of such materials to the applicable recipients thereof (other than, for the avoidance of doubt, ordinary course communications with the foregoing which do not refer to Purchaser or the transactions contemplated by this Agreement). The foregoing review process shall not apply to materials that are substantively similar to prior materials already disseminated to any Client or

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BlueMountain Fuji CLO (including, where applicable, its Governing Body) or the partners, shareholders or other investors thereof (as applicable) in accordance with the foregoing.

(d)Subject to the limitations set out in Section 5.3(e) below, Purchaser shall reasonably cooperate with the BlueMountain Operating Companies in connection with the obtaining of Client Consents and BlueMountain Fuji Consents under this Section 5.3. Without limiting the generality of the foregoing, upon the request of any BlueMountain Operating Company, Purchaser shall assist and cooperate with the BlueMountain Operating Companies in seeking and obtaining Client Consents and BlueMountain Fuji Consents under this Section 5.3, including, if reasonably requested by a BlueMountain Operating Company, participating during normal business hours with the BlueMountain Operating Companies in calls and meetings with any Client or BlueMountain Fuji CLO (including, where applicable, its Governing Body) or any of the partners, shareholders or other investors thereof (as applicable). The BlueMountain Operating Companies shall take reasonable steps to keep Purchaser reasonably informed of the status of the BlueMountain Operating Companies’ efforts to obtain the Client Consents and the BlueMountain Fuji Consents.

(e)Prior to Closing, without the prior written consent of the Company, none of Purchaser or its Affiliates or their respective employees, directors, officers or agents shall, directly or indirectly, contact or communicate with any Client or BlueMountain Fuji CLO, any investor in a Client or BlueMountain Fuji CLO, any Affiliate of a Client or BlueMountain Fuji CLO or any such investor or any investment consultant or similar Person representing any Client or BlueMountain Fuji CLO or any investor in a Client or BlueMountain Fuji CLO regarding the transactions contemplated by this Agreement.

5.4Pre-Closing Access.

(a)During the Interim Period, subject to the other provisions of this Section 5.4, upon the reasonable request of Purchaser, the BlueMountain Operating Companies shall and shall cause each BlueMountain Subsidiary to provide access to Purchaser and its representatives to the properties, employees, books and records and Contracts of the BlueMountain Operating Companies and BlueMountain Subsidiaries to the extent reasonably requested by Purchaser in furtherance of a bona fide business purpose reasonably related to the transactions contemplated hereby. Such access shall occur only during normal business hours upon reasonable advance notice by Purchaser to the BlueMountain Operating Companies, under the supervision of the BlueMountain Operating Companies’ personnel and shall be conducted in a manner that does not unreasonably interfere with the operations of the BlueMountain Operating Companies or BlueMountain Subsidiaries. Notwithstanding the obligations contained in this Section 5.4, the BlueMountain Operating Companies shall not be required to provide access to or to disclose information where such access or disclosure would (i) jeopardize the

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attorney-client privilege of it or its Affiliates (provided that the BlueMountain Operating Companies shall use their reasonable best efforts to provide such access or disclosure in a manner and to such extent as would not, in the reasonable determination of the BlueMountain Operating Companies, give rise to a colorable claim that such privilege has been waived or is lost as a result of such access or disclosure) or contravene any applicable Laws and Regulations, fiduciary duty or Contract (provided that the BlueMountain Operating Companies shall consider any reasonable alternatives to provide such information in a manner so as to not result in such contravention) or (ii) cause material competitive harm to the BlueMountain Operating Companies and BlueMountain Subsidiaries if the transactions contemplated hereby are not consummated. All information provided or accessed under thisSection 5.4 (or otherwise) shall be subject to the terms of the Confidentiality Agreement.

(b)Prior to the Closing, none of Purchaser or its Affiliates or their respective employees, directors, officers or agents shall contact or communicate with the owners, employees, representatives, suppliers, lenders or service providers of any BlueMountain Operating Company or BlueMountain Subsidiary (other than the Sellers) in connection with the transactions contemplated hereby without the prior written consent of Management Company LLC.

5.5Regulatory Matters; Antitrust Notifications; Third Party Consents.

(a)Purchaser and the BlueMountain Operating Companies shall, and shall cause its respective Affiliates to, cooperate with each other and use its reasonable best efforts to as promptly as practicable after the date hereof prepare and file, or cause to be prepared and filed, all applications, notices and filings with, and use its reasonable best efforts to obtain as promptly as practicable after the date hereof all consents, approvals and waivers of, all third parties and Governmental Authorities that are necessary for it to timely consummate the transactions contemplated by this Agreement. Purchaser and the BlueMountain Operating Companies agree to take all reasonable steps necessary to satisfy any conditions or requirements imposed on it by any Governmental Authority in connection with the consummation of the transactions contemplated by this Agreement. Each of the BlueMountain Operating Companies and Purchaser (each, a “Reviewing Party”) will have the right to review in advance, and the other party (each, a “Filing Party”) will consult with the Reviewing Party on, all the information relating to the Reviewing Party and its Affiliates that appears in any filing or written materials submitted by the Filing Party to any third party or any Governmental Authority in connection with the transactions contemplated by this Agreement. The parties hereto agree that they will keep the other parties apprised in a timely manner of the status of matters referred to in this Section 5.5(a). This Section 5.5(a) shall not apply to the obtaining of Client Consents, which shall be governed exclusively by Section 5.3, or to the obtaining of any Insurance Approval.

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(b)Except in respect of any Insurance Approval, Purchaser and the BlueMountain Operating Companies shall promptly advise the other upon receiving any communication from any Governmental Authority relating to the transactions contemplated by this Agreement or otherwise materially affecting its ability to timely consummate the transactions contemplated hereby or thereby. Notwithstanding anything herein to the contrary, except in respect of any Insurance Approval, each of the BlueMountain Operating Companies and Purchaser shall, and shall cause each of its Affiliates, to (i) provide the other with advance copies of all material correspondence, filings or communications (or memoranda setting forth the substance thereof) between such party or any of its Affiliates and any Governmental Authority in connection with the transactions contemplated this Agreement and (ii) not agree to participate in any substantive meeting or communication with any Governmental Authority in respect of any filing or any investigation or inquiry related to the transactions contemplated by this Agreement unless it consults with the other party in advance and provides the other party the opportunity to attend and participate thereat.

(c)Without limitation of the generality of the provisions of this Section 5.5, as promptly as possible after the date of this Agreement, but in any event within ten (10) Business Days following the date of this Agreement, each of Management Company LLC and Purchaser shall file with the Federal Trade Commission (the “FTC”) and the Antitrust Division of the United States Department of Justice a pre-merger notification in accordance with the HSR Act with respect to the transactions contemplated by this Agreement, and shall file an antitrust notification in any other jurisdiction if required by any Laws and Regulations. Each of Management Company LLC and Purchaser shall request, in such party’s pre-merger notification filed in accordance with the HSR Act, early termination of the applicable waiting period under the HSR Act. Each of Management Company LLC and Purchaser shall furnish promptly to the FTC, the Antitrust Division and any other requesting Governmental Authority any additional information requested by either of them pursuant to the HSR Act or any other antitrust notification in connection with such filings. Subject to applicable Laws and Regulations and all privileges, including the attorney-client privilege, Management Company LLC and Purchaser shall cooperate with each other in connection with the making of all such filings or responses, including providing copies of all such documents to the other party and its advisors prior to filing or responding. The Purchaser shall bear the filing fees associated with any applicable premerger notification and report form filing required under the HSR Act and any filings required under any foreign investment or competition law.

(d)Without limitation of the generality of the provisions of this Section 5.5, Management Company LLC and Purchaser shall use their respective reasonable best efforts to obtain any necessary approval from any Governmental Authority responsible for merger control, antitrust or competition Laws and Regulations or to prevent the initiation of any lawsuit by any Governmental Authority under any merger control, antitrust or competition Laws

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and Regulations or to prevent the entry of any decree, judgment, injunction, preliminary or permanent, or any Order that would otherwise make the transactions contemplated by this Agreement unlawful under any merger control, antitrust or competition Laws and Regulations; provided that the foregoing shall not require Purchaser to: (i) dispose or transfer any material asset, including those of Purchaser, Management Company LLC or their respective Affiliates; (ii) hold separate any material assets or operations (either before or after the Closing Date) of Purchaser, Management Company LLC and Purchaser or their respective Affiliates; (iii) materially change or modify any course of conduct or otherwise make any commitment to any Governmental Authority regarding future operations of Purchaser, Management Company LLC and Purchaser or their respective Affiliates’ business; or (iv) defend, contest, or resist any action or proceeding instituted (or threatened to be instituted) by any Governmental Authority under any merger control, antitrust or competition Laws and Regulations.

(e)Anything to the contrary in this Agreement notwithstanding, to the extent that the transactions contemplated by this Agreement requires the consent or waiver of a third party (other than a Client Consent or BlueMountain Fuji Consent) pursuant to any contract or arrangement to which a BlueMountain Operating Company or any BlueMountain Subsidiary is a party, including pursuant to any Leases, the BlueMountain Operating Companies shall use reasonable best efforts to obtain such consent or waiver (which shall be in form and substance reasonably satisfactory to the Purchaser) prior to the Closing Date in accordance with the terms of such contract or arrangement. To the extent that any such consent or waiver is not obtained prior to the Closing Date, the BlueMountain Operating Companies shall use reasonable best efforts to (i) obtain any such consent or waiver after the Closing Date and (ii) enter into or facilitate lawful arrangements reasonably acceptable to Purchaser to provide or cause to be provided to Purchaser the benefits and use of such contract or arrangement with respect to which such consent or waiver has not been obtained, as though the requisite consent or waiver had been obtained as of the Closing Date. For the avoidance of doubt, the obligations contemplated by this Section 5.5(e) shall not apply to any Client Consents or BlueMountain Fuji Consents, which shall be governed by the terms of Section 5.3.

5.6Financial Information. During the Interim Period, the BlueMountain Operating Companies shall provide (or cause to be provided) to Purchaser, (a) within thirty (30) Business Days following the end of each calendar month during such Interim Period, or, if later, as promptly as practicable after the same are available to the BlueMountain Operating Companies, (i) in the case of a month end that is the end of a calendar quarter, copies of any regularly prepared quarterly financial information of the BlueMountain Operating Companies and BlueMountain Subsidiaries prepared in accordance with GAAP in a manner consistent with the Base Financial Statements (but only to the extent such Base Financial Statements are in accordance with GAAP and subject to year-end audit adjustments which are not in the aggregate material) and (ii) in the case of each other month end, copies of any regularly prepared monthly

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financial information of the BlueMountain Operating Companies and BlueMountain Subsidiaries and (b) as promptly as practicable after the delivery to Sellers, any other periodic financial reports prepared and delivered to Sellers in the ordinary course of business in respect of any BlueMountain Operating Company, BlueMountain Subsidiary or BlueMountain Fund.

5.7Notifications. During the Interim Period, (a) each Seller and each BlueMountain Operating Company shall promptly notify Purchaser in writing of the occurrence of any event of which it has knowledge that would reasonably be expected to result in any of the conditions set forth in Section 7 of this Agreement becoming incapable of being satisfied and (b) Purchaser shall promptly notify the AMG Seller and the Seller Representative in writing of the occurrence of any event of which it has knowledge that would reasonably be expected to result in any of the conditions set forth in Section 8 of this Agreement becoming incapable of being satisfied. The delivery of written notification pursuant to this Section 5.7 shall not affect any conditions precedent to Closing under Section 7 or Section 8.

5.8Efforts of Parties to Close. During the Interim Period, Purchaser, the Sellers and the BlueMountain Operating Companies agree to use their respective reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and Regulations or otherwise to fulfill or obtain the fulfillment of all conditions precedent to be fulfilled by each such Person under this Agreement in order to effect the consummation of the transactions contemplated by this Agreement as promptly as practicable following the date of this Agreement. Purchaser and the Seller Representative shall execute and deliver the Disbursing Agent Agreement prior to the Closing, and each BlueMountain Seller shall deliver to the Disbursing Agent prior to the Closing a valid IRS Form W-9 or equivalent form for purposes of satisfying the Disbursing Agent’s withholding requirements, if applicable. Upon the request of the Seller Representative or the AMG Seller, Purchaser will provide the requesting Person with evidence of the effectiveness of the R&W Insurance Policy.

5.9Indemnification; D&O Insurance.

(a)Purchaser agrees that, for a period of six (6) years after the Closing Date, it will not amend the Organizational Documents of any BlueMountain Operating Company or BlueMountain Subsidiary with respect to any rights to indemnification, advancement of expenses and exculpation in favor of the current or former owners, partners, members, directors, officers or employees of the BlueMountain Operating Companies or BlueMountain Subsidiaries as in effect on the date hereof to the extent that any such amendment would adversely affect the rights, protections or exculpation in favor of any such owner, partner, member, director, officer or employee.

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(b)Subject to Section 5.9(c), for a period of six (6) years from and after the Closing, Purchaser shall either (i) cause to be maintained in effect the current policies of directors’ and officers’ liability, errors and omissions liability, professional liability, employment practices liability and employee benefit plan fiduciary liability of the BlueMountain Operating Companies and BlueMountain Subsidiaries in effect as of the Closing or (ii) provide substitute polices providing for not less than the existing coverage in effect as of the Closing and have other terms not less favorable to the insured persons with respect to claims arising from facts or events that occurred at or before the Closing (including consummation of the transactions contemplated by this Agreement) in an amount and scope at least as favorable as the BlueMountain Operating Companies and BlueMountain Subsidiaries’ and their respective current and former owners, partners, members, directors, officers and employees existing policies with respect to matters existing or occurring at or prior to the Closing Date.

(c)At the request of Purchaser (and subject to the Purchaser’s written approval of the cost therefor), the BlueMountain Operating Companies shall, on or prior to Closing, purchase a run off (i.e., “tail”) policy or endorsement with respect to the current policies of directors’ and officers’ liability, errors and omissions liability, professional liability, employment practices liability and employee benefit plan fiduciary liability insurance of the BlueMountain Operating Companies and BlueMountain Subsidiaries in effect as of the Closing covering claims asserted within six (6) years after the Closing arising from facts or events that occurred at or before the Closing (including consummation of the transactions contemplated by this Agreement). The entire premium for such “tail” policy, if applicable, shall be paid by the BlueMountain Operating Companies in a single lump sum on or prior to the Closing Date. The Purchaser shall cause the BlueMountain Operating Companies and BlueMountain Subsidiaries to not amend, cancel or otherwise terminate such “tail” policy if so obtained by the BlueMountain Operating Companies or BlueMountain Subsidiaries. In the event that the BlueMountain Operating Companies purchase the “tail” policy in accordance with this Section 5.9(c), the obligations of Purchaser pursuant to Section 5.9(b) shall be terminated and of no further force or effect.

(d)The covenants contained in this Section 5.9 are intended to be for the benefit of, and shall be enforceable by, each of the parties hereto and each indemnified or insured party and shall not be deemed exclusive of any other rights to which such Person is entitled, whether pursuant to law, Contract or otherwise.

5.10No Solicitation of Other Offers. During the Interim Period, none of the Sellers, the BlueMountain Operating Companies or any of their respective Affiliates, nor any of their respective directors, officers, managers, partners, shareholders, owners, employees, representatives or agents, shall (and the BlueMountain Operating Companies and the Sellers shall cause them not to), directly or indirectly, (a) solicit, encourage, or initiate any inquiries,

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proposals, submissions or offers for, or negotiate or otherwise engage or participate in discussions or communications with any Person with respect to, any Alternative Proposal, (b) furnish or cause to be furnished any non-public information concerning the BlueMountain Operating Companies or the BlueMountain Subsidiaries, their respective businesses, operations, properties or assets to any Person in connection with any Alternative Proposal or (c) execute or enter into any agreement, understanding, letter of intent or arrangement with respect to any Alternative Proposal. Effective as of the date hereof, each Seller and each BlueMountain Operating Company shall, and shall cause each BlueMountain Subsidiary and all Persons acting on behalf of it to, immediately cease any existing activities, discussions and negotiations with any Persons with respect to any Alternative Proposal and to notify Purchaser of any Alternative Proposals that such Seller or BlueMountain Operating Company receives following the date hereof. “Alternative Proposal” for purposes of this Agreement means any offer or proposal by any Person other than the Purchaser or any of its Affiliates concerning any (i) merger, consolidation, other business combination or similar transaction involving the BlueMountain Operating Companies or the BlueMountain Subsidiaries, (ii) sale, lease, license or other disposition directly or indirectly of any BlueMountain Operating Company or any BlueMountain Subsidiary, (iii) issuance or sale or other disposition of equity interests representing 20% or more of the voting power of any BlueMountain Operating Company, (iv) transaction or series of transactions in which any Person will acquire beneficial ownership, or the right to acquire beneficial ownership or any group (as defined in Section 13(d) of the Exchange Act) has been formed which beneficially owns or has the right to acquire beneficial ownership, of equity interests representing 20% or more of the voting power of any BlueMountain Operating Company or (v) combination of the foregoing.

5.11Restructuring. During the Interim Period, (a) the BlueMountain Operating Companies shall use their respective reasonable best efforts to continue to implement the Restructuring, (b) the BlueMountain Operating Companies shall keep Purchaser reasonably informed regarding the status of the implementation of the Restructuring and (b) upon the reasonable request of Purchaser, the BlueMountain Operating Companies shall provide Purchaser with copies of the documentation being used to implement the Restructuring (to the extent materially different from the documentation attached as exhibits to Schedule 5.11) and updates on the amount of Restructuring Costs incurred or expected to be incurred. In connection with the implementation of the Restructuring during the Interim Period, without the prior written consent of Purchaser, the BlueMountain Operating Companies shall not take any action that is reasonably likely to result in the incurrence of Restructuring Costs greater than those set forth on Schedule 5.11.

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5.12Confidentiality.

(a)Each Seller acknowledges that during the course of its ownership of interests in the BlueMountain Operating Companies, such Seller has had access to Confidential Information, as defined herein, of the BlueMountain Operating Companies and the BlueMountain Subsidiaries, as the case may be, and in particular, Trade Secrets of the BlueMountain Operating Companies and the BlueMountain Subsidiaries, as the case may be. For a period of three (3) years after the Closing, each Seller shall hold in confidence, and not use or disclose to any Person (other than such Seller’s clients, officers and employees who need to know such information in connection with his or her normal job function) without written authorization of Purchaser, any Confidential Information of the BlueMountain Operating Companies or the BlueMountain Subsidiaries; provided, that such obligations shall be in effect for a period of five (5) years after the Closing to the extent that the Confidential Information relates to (i) financial and/or performance information of the BlueMountain Operating Companies and the BlueMountain Subsidiaries and (ii) compensation information concerning members or employees of the BlueMountain Operating Companies and the BlueMountain Subsidiaries. “Confidential Information” means, with respect to any Seller, any proprietary and non-public information, technical data, Trade Secrets or know-how of any BlueMountain Operating Company and any BlueMountain Subsidiary, including, but not limited to, proprietary research, technical services, products, services, pricing, techniques, operating systems, client lists, leads, customer lists and confidential information regarding clients, customers and suppliers, non-public terms of agreements with clients, customers or suppliers, proprietary processes, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information, in each case, disclosed to such Seller by any BlueMountain Operating Company or BlueMountain Subsidiary either directly or indirectly in writing. Confidential Information with respect to the applicable Seller does not include any of the foregoing items which (A) are or become generally known in the industry and not specific to the BlueMountain Operating Companies and the BlueMountain Subsidiaries or are or become generally known by or available to the public through no breach of this Agreement by such Seller, (B) are or become available to such Seller on a non-confidential basis from a source other than the BlueMountain Operating Companies and BlueMountain Subsidiaries that, to such Seller’s knowledge, is not bound by a confidentiality obligation to the BlueMountain Operating Companies and the BlueMountain Subsidiaries with respect to such items or (C) have been or are independently developed by such Seller without use of, or reference to, Confidential Information. Notwithstanding the foregoing, the restrictions in this Section 5.12(a) shall not apply to the disclosure of any Confidential Information (x) as required by any Laws and Regulations or rules of any stock exchange or any Order from any Governmental Authority or legal process or as required or requested to be made available to any Governmental Authority or any of its Affiliates

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or (y) in connection with any actual or threatened dispute, proceeding or action related to this Agreement or the transactions contemplated hereby; provided that in the case of clause (x), to the extent legally permissible, such Seller gives Purchaser prior written notice of any such disclosure and cooperates with Purchaser, at the sole cost of Purchaser, in a reasonable manner to protect the confidentiality of such information to the fullest extent possible.

(b)Each Seller acknowledges and agrees that (i) Purchaser and its Affiliates would suffer irreparable harm in the event that any provision of Section 5.12(a) were not performed in accordance with its terms or otherwise were breached; and (ii) monetary damages, even if available, alone may not be an adequate remedy for any such non-performance or breach. Accordingly, each Seller agrees that in the event of any breach or threatened breach of any provision of Section 5.12(a), Purchaser shall be entitled, in addition to all other rights and remedies that it may have existing in its favor at law, in equity or otherwise, to obtain injunctive or other equitable relief, including a temporary restraining order, a preliminary injunction and a final injunction, to prevent any such breach or threatened breach and to enforce such provisions specifically, without the necessity of posting a bond or other security or of proving actual damages.

5.13Insurance. The BlueMountain Operating Companies and the BlueMountain Subsidiaries shall use their reasonable best efforts to maintain in effect until the Closing Date (and shall pay all premiums due thereon), the insurance policies and fidelity bonds listed on Schedule 2.16, or use their reasonable best efforts to procure comparable replacement policies and bonds (or such replacement coverage as is obtainable) and maintain such policies and bonds in effect until the Closing.

5.14Section 401(k) Plan Termination. In the event that the Purchaser elects to terminate the BlueMountain Capital Management, LLC 401(k) Plan (the “Savings Plan”), Purchaser shall provide written notice to such effect to the Seller Representative and the AMG Seller no later than five (5) Business Days prior to the Closing Date, and the BlueMountain Operating Companies shall adopt, prior to the Closing, resolutions to terminate the Savings Plan effective as of immediately prior to the Closing.

5.15R&W Insurance Policy. Purchaser acknowledges and agrees that the R&W Insurance Policy provides that the insurer providing the same shall have no right of subrogation against the Seller Representative, any Seller, or their respective Affiliates, except in the case of Fraud. Purchaser shall not: (a) permit the R&W Insurance Policy to be amended, supplemented, or otherwise modified, and shall not grant any waiver or consent thereunder, in each case in a manner that would reasonably be expected to be adverse to the Seller Representative, any Seller or their respective Affiliates; (b) cancel the R&W Insurance Policy or

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permit it to lapse; or (c) take action that would reasonably be expected to cause the R&W Insurance Policy to lapse or to be rescinded or canceled.

5.16Resignations. Upon the written request of Purchaser delivered to Management Company LLC not less than ten (10) Business Days prior to the Closing Date, the BlueMountain Operating Companies and the BlueMountain Subsidiaries shall promptly request each of the managers, managing members and officers of the BlueMountain Operating Companies and the BlueMountain Subsidiaries identified by Purchaser in such written request to resign, effective as of the Closing, from his or her position(s) as managers, managing members and officers with the BlueMountain Operating Companies and the BlueMountain Subsidiaries by executing and delivering a resignation letter in form and substance reasonably satisfactory to Purchaser to the applicable BlueMountain Operating Company(ies) and/or BlueMountain Subsidiary(ies); provided, however, that any manager, managing member or officer of a BlueMountain Operating Company or a BlueMountain Subsidiary that is an employee or designee of the AMG Seller shall deliver such resignation letter on or prior to the Closing.

SECTION 6. CERTAIN TAX MATTERS

6.1Tax Treatment. The parties hereto agree that the purchase and sale of the BlueMountain Interests pursuant to this Agreement shall each be treated, for all U.S. federal and corresponding state and local income Tax purposes, as a taxable sale governed by IRS Revenue Ruling 99-6, Situation 2 and that the transactions contemplated by this Agreement will result in a termination of each BlueMountain Operating Company as a partnership under Section 708(b)(1) of the Code, which termination shall close the taxable year of each such entity as of the Closing Date. None of the Parties shall take any position (whether in audits, on any Tax Returns or otherwise) that is inconsistent with the treatment described in this Section 6.1 except as required by a “determination” within the meaning of Section 1313(a) of the Code.

6.2Tax Indemnification. Following the Closing, subject to the terms and conditions of this Section 6, the Principal agrees to indemnify, defend and hold harmless the Purchaser Indemnified Parties from and against Indemnified Taxes; provided, however, that the Principal shall not be required to indemnify Purchaser pursuant to this Section 6.2 for any amounts to the extent attributable to any Taxes arising out of or resulting from any transaction or action taken or caused by Purchaser or any of its Affiliates outside the ordinary course of business on the Closing Date after the Closing or any Transfer Taxes for which Purchaser is responsible pursuant to Section 1.6.

6.3Tax Returns.

(a)The Seller Representative shall timely prepare and file (or cause to be timely prepared and filed) (i) IRS Form 1065 and all comparable state and local partnership

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information Tax Returns for each of the BlueMountain Operating Companies for taxable periods ending on or before the Closing Date and (ii) all other Tax Returns of the BlueMountain Operating Companies and BlueMountain Subsidiaries for taxable periods ending on or before the Closing Date (collectively, “BlueMountain Tax Returns”). All BlueMountain Tax Returns shall be prepared and filed in a manner consistent with past practice, provided that any tax deductions attributable to expenses borne directly or indirectly by Sellers or any BlueMountain Operating Company or any BlueMountain Subsidiary in connection with the transactions contemplated by this Agreement shall be attributed to the taxable period (or portion thereof) ending on the Closing Date and shall be allocated to the Sellers to the maximum extent permitted by law.

(b)Without the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed), the BlueMountain Sellers shall not make, change or rescind any Tax election of a BlueMountain Operating Company or a BlueMountain Subsidiary, amend any Tax Return of a BlueMountain Operating Company or a BlueMountain Subsidiary or take any position on any Tax Return of a BlueMountain Operating Company or a BlueMountain Subsidiary, in each case to the extent such action would have the effect of increasing the Tax liability or reducing any Tax asset of Purchaser, a BlueMountain Operating Company or a BlueMountain Subsidiary in respect of any Post-Closing Tax Period.

(c)Purchaser shall timely prepare and file (or cause to be timely prepared and filed) all Tax Returns of the BlueMountain Operating Companies and BlueMountain Subsidiaries not described in Section 6.3(a) (each, a “Purchaser Tax Return”); provided that, not later than thirty (30) days prior to the due date (including extensions) of any such Purchaser Tax Return for a Straddle Period, Purchaser shall submit a draft of such Purchaser Tax Return, together with all material supporting documentation and work papers to the Seller Representative and the AMG Seller for their comment and approval. The Seller Representative or the AMG Seller shall, no later than fifteen (15) days following receipt of each such Purchaser Tax Return, provide written notice (the “Tax Dispute Notice”) to Purchaser of any items in such Purchaser Tax Returns that the Seller Representative or the AMG Seller (as applicable) disputes in good faith including the reasons for such dispute. During the thirty (30) day period following delivery of a Tax Dispute Notice, Purchaser and the Seller Representative and the AMG Seller shall negotiate in good faith with a view to resolving their disagreements over the disputed items. If the parties fail to resolve their differences over the disputed items within such thirty (30) day period, then Purchaser, the Seller Representative and the AMG Seller shall forthwith jointly request that the Accounting Firm make a binding determination as to the disputed items in accordance with this Agreement. If any dispute with respect to a Purchaser Tax Return is not resolved prior to the applicable filing due date (including extensions), such Purchaser Tax Return shall be filed in the manner requested by Seller Representative and the AMG Seller; provided that such Purchaser Tax Return shall subsequently be amended to reflect the determination of the Accounting Firm. The costs of the Accounting Firm with respect to

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such determination shall be borne equally by the Sellers (pro rata based on each Seller’s Sale Percentage), on the one hand, and Purchaser, on the other hand.

(d)Without the prior written consent of the Seller Representative and the AMG Seller (which consent shall not be unreasonably withheld, conditioned or delayed), Purchaser shall not, and shall not permit any of its Affiliates to take any of the following actions with respect to a Pre-Closing Tax Period or a Straddle Period of any BlueMountain Operating Company or BlueMountain Subsidiary (i) file, re-file or amend any Tax Return; (ii) enter into discussions regarding any voluntary disclosure involving Taxes; (iii) change any method or period of accounting; (iv) enter into any closing agreement or settle any Tax claim or assessment; (v) extend or waive the limitation period applicable to any Tax claim or assessment; (vi) surrender any right to claim a refund of Taxes; (vii) make or change any Tax election (including under Code Section 6226 or any comparable applicable provisions of state, local, or foreign Tax law); or (viii) take any other similar action, or omit to take any action, relating to the filing of any Tax Return or the payment of any Tax.

6.4Apportionment. For all purposes under this Agreement, in the case of any real property, personal property, ad valorem or other Taxes that are imposed on a periodic basis and are payable for a Straddle Period, the portion of such Tax which relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction, the numerator of which is the number of days in the portion of the Straddle Period ending on and including the Closing Date and the denominator of which is the number of days in the entire Straddle Period. Any such Taxes that are not allocated to the Pre-Closing Tax Period shall be allocated to the Post-Closing Tax Period. In the case of any other Taxes for a Straddle Period, the allocation of such Taxes between the Pre-Closing Tax Period and the Post-Closing Tax Period shall be made on the basis of an interim closing of the books as of close of business on the Closing Date. If any such Taxes shall thereafter be reduced by abatement, the amount of such abatement, less the reasonable cost of obtaining the same, shall be apportioned as described above.

6.5Tax Contests.

(a)Purchaser shall notify the Seller Representative and the AMG Seller within five (5) days after receipt by Purchaser or any of its Affiliates of written notice of any pending federal, state, local or foreign Tax audit or examination or notice of deficiency or other adjustment, assessment or redetermination (each a “Tax Proceeding”) relating to any BlueMountain Tax Return (each, a “Pre-Closing Tax Proceeding”).

(b)The Seller Representative and the AMG Seller shall have the sole right, at Sellers’ expense and with counsel of their choosing, to control, contest, resolve, and

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defend against any Pre-Closing Tax Proceeding. In the event of any such Pre-Closing Tax Proceeding, Purchaser and Sellers shall cause Seller Representative and the AMG Seller to be designated as (i) the “partnership representative” of each BlueMountain Operating Company for each taxable period ending on or prior to the Closing Date, in accordance with Section 6223 of the Code and any similar provision under any state or local or non-U.S. tax laws, and (ii) the “tax matters partner” of each BlueMountain Operating Company, in accordance with Section 6231 of the Code as in effect before the enactment of the Bipartisan Budget Act of 2015, and any similar provision under any state or local or non-U.S. tax laws, for any such period, as applicable.

(c)Purchaser shall have the sole right at its own expense and with counsel of its choosing to control all Tax Proceedings of any BlueMountain Operating Company or BlueMountain Subsidiary other than any Pre-Closing Tax Proceeding with respect to which Seller Representative or the AMG Seller has exercised its control rights pursuant to Section 6.5(a); provided that, with respect to any such Tax Proceeding in respect of which any Seller could be liable or the Principal could be obligated to indemnify Purchaser under Section 6.2, (i) Purchaser shall offer Seller Representative and the AMG Seller a reasonable opportunity to comment before submitting to any Taxing Authority any written materials prepared or furnished in connection with such Tax Proceeding, and allow Seller Representative and the AMG Seller to participate at their own expense in any related meeting or telephonic conference with the applicable Taxing Authority and (ii) Purchaser shall keep Seller Representative and the AMG Seller reasonably apprised of such Tax Proceeding.

(d)Purchaser shall not, and shall not permit its Affiliates to, concede, settle, or compromise any Tax Proceeding (or portion thereof) controlled by Purchaser under Section 6.5(c) without the prior written consent of Seller Representative and the AMG Seller, which consent shall not be unreasonably withheld, conditioned or delayed; it being understood and agreed that Seller Representative’s or the AMG Seller’s withholding of consent shall not be deemed to be unreasonable to the extent such concession, settlement, or compromise would reasonably be expected to adversely affect Sellers or their respective Affiliates.

6.6Refunds. Any refunds (or credits in lieu thereof) of Taxes (net of any (i) Taxes imposed on Purchaser or any BlueMountain Operating Company or any BlueMountain Subsidiary as a result of the receipt of such refund and (ii) any reasonable costs and expenses incurred by Purchaser or any BlueMountain Operating Company or any BlueMountain Subsidiary in obtaining such refund) of, or with respect to, any BlueMountain Operating Company or any BlueMountain Subsidiary that are received or claimed after the Closing Date by Purchaser or any BlueMountain Operating Company or any BlueMountain Subsidiary and are attributable or allocable to any Pre-Closing Tax Period (each, a “Tax Refund”) shall be payable to the Seller Representative, for the benefit of the BlueMountain Sellers, and the AMG Seller (pro rata in accordance with their respective Sale Percentages) within ten (10) days after the

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receipt of such refund; provided, however, that in the event that any such Tax Refund is subsequently reduced or denied by any governmental authority, the Seller Representative and the AMG Seller shall repay such Tax Refund (including the after-Tax amount of any interest payable to the applicable Taxing Authority with respect to such reduced or denied Tax Refund) to Purchaser within ten (10) days after receiving Purchaser’s demand therefor. Purchaser shall, upon request, permit Seller Representative and the AMG Seller to participate at their own expense in the prosecution of any such Tax Refund claim and shall not settle or otherwise resolve any such Tax Refund claim without the prior written consent of Seller Representative and the AMG Seller, which consent shall not be unreasonably withheld.

6.7Tax Sharing Agreements. All Tax allocation, sharing or indemnity agreements or arrangements involving any BlueMountain Operating Company or any BlueMountain Subsidiary (other than any Commercial Contract, and excluding for the avoidance of doubt, this Agreement) shall be terminated as of the Closing Date and, after the Closing Date, no BlueMountain Operating Company or BlueMountain Subsidiary shall be bound thereby or have any liability thereunder.

6.8Books and Records; Cooperation. Purchaser and the BlueMountain Operating Companies shall (and shall cause their respective Affiliates to) (a) provide the other party and its Affiliates with such assistance as may be reasonably requested in connection with the preparation and filing of any Tax Return or any audit or other examination by any Taxing Authority or any judicial or administrative proceeding relating to Taxes and (b) retain (and provide the other party and its Affiliates (at their own cost and expense) with reasonable access to) all records or information which may be relevant to such Tax Return, audit, examination or proceeding, provided that the foregoing shall be done in a manner so as not to interfere unreasonably with the conduct of the business of the parties. Any information obtained under this Section 6.8 shall be kept confidential except (i) as may be necessary in connection with the filing of Tax Returns or claims for refund of in conducting an audit or other proceeding, or (ii) with the consent of the Seller Representative and the AMG Seller or Purchaser, as the case may be.

6.9Section 754 Elections. At the request of the Purchaser, and in connection with the Closing, the BlueMountain Sellers, the BlueMountain Operating Companies and their respective Affiliates shall cause any entity treated as a partnership for U.S. federal income tax purposes in which a BlueMountain Operating Company is treated as a partner to make a timely election under Section 754 of the Code to the extent such election has not already been made prior to the Closing.

6.10Inconsistency. In the event of any inconsistency between this Section 6 and Section 9, this Section 6 shall control as to Tax matters.

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SECTION 7. CONDITIONS TO THE OBLIGATIONS OF PURCHASER

The obligation of Purchaser to consummate the transactions contemplated by this Agreement is subject to the fulfillment (or, to the extent permitted by applicable Laws and Regulations, waiver in writing by Purchaser) at or prior to the Closing of each of the following conditions:

7.1Litigation; No Opposition. (a) No Order by any Governmental Authority of competent jurisdiction enjoining or prohibiting the consummation of the transactions contemplated by this Agreement shall be in effect; and (b) no statute, rule, regulation or Order shall have been enacted, entered, promulgated or enforced by any Governmental Authority that prohibits or makes illegal the consummation of the transactions contemplated hereby.

7.2HSR Approval. Any applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or been terminated.

7.3Representations, Warranties and Covenants.

(a)Each of the representations and warranties of the BlueMountain Operating Companies or any Seller contained in this Agreement (other than the representations and warranties set forth in Section 2.1 (Organization and Qualification of the BlueMountain Operating Companies), Section 2.2(b) (Ownership Interests of the BlueMountain Operating Companies), the first two sentences of Section 2.3(a) (Subsidiaries; Investments), the first sentence of Section 2.3(b) (Subsidiaries; Investments), the first three sentences of Section 2.4 (Authority of the BlueMountain Operating Companies), Section 2.17 (Finder’s Fee), Section 3.1 (Ownership Interests), the first three sentences of Section 3.2 (Authority of Sellers), and Section 3.4 (Finder’s Fee) (collectively, the “Seller Fundamental Representations”) and the representation and warranty set forth in Section 2.9(a) (Absence of Certain Changes)) shall be true and correct in all respects (determined without regard to any qualifications as to materiality or Material Adverse Effect or words of similar effect), in each case on the date hereof and on the Closing Date (except for any representation or warranty made as of a specific date, which shall be so true and correct as of such specific date), except for any failure(s) to be so true and correct that, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.

(b)(i) Each of the Seller Fundamental Representations (other than the representations and warranties set forth in Section 2.2(b) (Ownership Interests of the BlueMountain Operating Companies)) shall be true and correct in all material respects on the date hereof and on the Closing Date (except for any such representations or warranties made as of a specific date, which shall be so true and correct as of such specific date), (ii) each of the representations and warranties set forth in Section 2.2(b) (Ownership Interests of the

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BlueMountain Operating Companies) shall be true and correct in all respects on the date hereof and on the Closing Date (except for any such representations or warranties made as of a specific date, which shall be so true and correct as of such specific date), except for any failure(s) to be so true and correct that are de minimis and (iii) the representation and warranty set forth in Section 2.9(a) (Absence of Certain Changes) shall be true and correct in all respects on the date hereof and on the Closing Date.

(c)Each of the covenants and agreements of the BlueMountain Operating Companies hereunder that by its terms is to be performed at or prior to the Closing shall have been duly performed in all material respects at or prior to the Closing.

(d)Each of the covenants and agreements of each Seller hereunder that by its terms is to be performed at or prior to the Closing by such Seller shall have been duly performed in all material respects by such Seller at or prior to the Closing.

(e)(i) A senior officer of the BlueMountain Operating Companies shall have delivered to Purchaser a certificate dated as of the Closing Date signed by such officer on behalf of the BlueMountain Operating Companies confirming the satisfaction of the conditions contained in Sections 7.3(a)-(c) solely with respect to the BlueMountain Operating Companies and (ii) each Seller shall have delivered to Purchaser a certificate with respect to such Seller dated as of the Closing Date confirming the satisfaction of the conditions contained in Sections 7.3(a), (b) and (d) solely to the extent the representations, warranties, covenants and agreements specified therein are representations, warranties, covenants and agreements of such Seller.

7.4Consents. (a) Client Consents in respect of each of the Required Clients shall have been obtained and (b) the BlueMountain Fuji Consents shall have been obtained.

7.5FCA Approval. Purchaser shall have received notice of approval of acquisition of control from the FCA in accordance with Part XII FSMA in respect of the proposed change of control of BMCP London pursuant to this Agreement and such approval shall not have been revoked and shall be in full force and effect on Closing or, in the absence of such notification, the assessment period shall have expired in accordance with section 189(6) FSMA without the FCA having served any notice of objection on Purchaser or any other party.

7.6Employment Agreement. The Employment Agreement shall remain in full force and effect and shall not have been rescinded by the Principal.

7.7Restructuring. The reduction in workforce contemplated by the Restructuring shall have been completed in all material respects.

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7.82018 Audited Financial Statements and Work Papers.

(a)Not later than fifteen (15) Business Days prior to the Closing Date, Management Company LLC shall have delivered to Purchaser (i) audited statements of financial condition (including any notes thereto) at December 31, 2018, and audited statements of operations, comprehensive income, changes in members’ or partners’ equity and cash flows (including any notes thereto) for the year ended December 31, 2018 (the “2018 Audited Financial Statements”), which 2018 Audited Financial Statements shall be substantially identical to the unaudited financial statements attached hereto as Schedule 7.8 (the “2018 Draft Financial Statements”) (other than with respect to subsequent events occurring after the date hereof), and (ii) an auditor’s report issued by the BlueMountain Operating Companies’ independent auditor in respect of the 2018 Audited Financial Statements that does not contain any disclaimer, qualification or modification as to “going concern,” uncertainty, audit scope, or accounting principles.

(b)Not later than fifteen (15) Business Days prior to the Closing Date, and in any case promptly following Management Company LLC’s delivery of the 2018 Audited Financial Statements, Management Company LLC shall have directed the independent auditor of the BlueMountain Operating Companies to provide Purchaser access to its audit work papers with respect to the 2018 Audited Financial Statements (the “2018 Audit Work Papers”). The 2018 Audit Work Papers shall not reflect (i) unadjusted differences that would result (if recorded) in a reduction in the value of the net assets reflected on the 2018 Audited Financial Statements in an aggregate amount in excess of $4,000,000 (which unadjusted differences have not subsequently been recorded on the Base Interim Balance Sheet) or (ii) a change in the BlueMountain Operating Companies’ or the BlueMountain Subsidiaries’ accounting policies, practices, principles or procedures or any of their methods of reporting income, deductions or other material items for financial accounting purposes from those disclosed in the work papers of the BlueMountain Operating Companies’ independent auditor with respect to the Base Financial Statements for the year ended December 31, 2017, other than changes required by GAAP or applicable Laws and Regulations and disclosed in the footnotes to the 2018 Audited Financial Statements, and, in the case of each of clauses (i) and (ii), except to the extent disclosed in the 2018 Draft Financial Statements.

(c)The Principal shall have delivered to Purchaser a certificate in the form attached hereto as Exhibit D dated as of the Closing Date signed by the Principal certifying that the 2018 Audited Financial Statements have been prepared in accordance with GAAP, applied consistently during the periods covered thereby, and present fairly in all material respects, the financial condition of each of the BlueMountain Operating Companies, as applicable, at the date of said statements and the results of its operations, income, changes in partners’ capital and cash flows for the period covered thereby.

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7.9Closing Deliverables. Purchaser shall have received the Closing deliverables contemplated by Section 1.4(a) and Section 1.4(b).

SECTION 8. CONDITIONS TO THE OBLIGATIONS OF THE BLUEMOUNTAIN OPERATING COMPANIES AND THE SELLERS

The obligation of the BlueMountain Operating Companies and the Sellers to consummate the transactions contemplated by this Agreement is subject to the fulfillment (or, to the extent permitted by applicable Laws and Regulations, waiver in writing by the Seller Representative and the AMG Seller) at or prior to the Closing of each of the following conditions:

8.1Litigation; No Opposition. (a) No Order by any Governmental Authority of competent jurisdiction enjoining or prohibiting the consummation of the transactions contemplated by this Agreement shall be in effect; and (b) no statute, rule, regulation or Order shall have been enacted, entered, promulgated or enforced by any Governmental Authority that prohibits or makes illegal the consummation of the transactions contemplated hereby.

8.2HSR Approval. Any applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or been terminated.

8.3Representations, Warranties and Covenants.

(a)Each of the representations and warranties of Purchaser or Purchaser Parent contained in this Agreement (other than the representations and warranties set forth in Section 4.1(Organization of Purchaser and Purchaser Parent), Section 4.2 (first three sentences) (Authority) and Section 4.5 (Finder’s Fee) (the “Purchaser Fundamental Representations”)) shall be true and correct in all respects (determined without regard to any qualifications or limitations as to materiality or material adverse effect or words of similar effect), in each case on the date hereof and on the Closing Date (except for any representation or warranty made as of a specific date, which shall be so true and correct as of such specific date), except for any failure(s) to be so true and correct that, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on the ability of Purchaser or Purchaser Parent to consummate the transactions contemplated hereby or to comply with its obligations hereunder in a timely manner.

(b)Each of the Purchaser Fundamental Representations shall be true and correct in all material respects on the date hereof and on the Closing Date (except for any such representations or warranties made as of a specific date, which shall be so true and correct as of such specific date).

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(c)Each of the covenants and agreements of each of Purchaser and Purchaser Parent hereunder that by its terms is to be performed at or prior to the Closing by Purchaser or Purchaser Parent, as applicable, shall have been duly performed in all material respects by Purchaser or Purchaser Parent, as applicable, at or prior to the Closing.

(d)A senior officer of Purchaser shall have delivered to the Seller Representative and the AMG Seller a certificate dated as of the Closing Date signed by such officer on behalf of Purchaser certifying as to the satisfaction of the conditions contained in Section 8.3(a)-(c).

8.4FCA Approval. Purchaser shall have received notice of approval of acquisition of control from the FCA in accordance with Part XII FSMA in respect of the proposed change of control of BMCP London pursuant to this Agreement and such approval shall not have been revoked and shall be in full force and effect on Closing or, in the absence of such notification, the assessment period shall have expired in accordance with section 189(6) FSMA without the FCA having served any notice of objection on Purchaser or any other party.

8.5Closing Deliverables. The BlueMountain Operating Companies and the Sellers, as applicable, shall have received the Closing deliverables contemplated by Section 1.4(c).

SECTION 9. INDEMNIFICATION

9.1Survival of Representations, Warranties, Covenants and Agreements. Each of the representations and warranties contained in this Agreement or any certificate delivered by any party hereto to any other party or parties shall survive the Closing until the date that is three (3) years following the Closing Date, except for the representations and warranties made in Section 2.8 (Taxes), the Seller Fundamental Representations and the Purchaser Fundamental Representations, each of which shall survive until the date that is six (6) years following the Closing Date; provided, however, that notwithstanding the foregoing or anything to the contrary contained herein, this Section 9.1 shall not limit any claim or recovery available to Purchaser (or any additional insured) under the R&W Insurance Policy. All covenants and agreements contained in this Agreement to be performed prior to the Closing shall survive the Closing and continue thereafter for a period of twelve (12) months; all covenants and agreements contained in this Agreement to be performed following the Closing shall survive the Closing and continue thereafter in accordance with their terms. The expiration of any representation, warranty, covenant or agreement shall not affect any claim asserted in writing by an indemnified party to an indemnifying party prior to the date of such expiration in accordance with Section 9.7(a) hereof, and any such claim shall survive until such claim has been finally satisfied or otherwise resolved pursuant to this Section 9.

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9.2Indemnification with respect to BlueMountain Operating Companies. From and after the Closing, subject to the terms of this Section 9, the Principal agrees to indemnify and hold Purchaser and its subsidiaries and Affiliates (including Purchaser Parent and the BlueMountain Operating Companies and the BlueMountain Subsidiaries) and their respective officers, directors, members, employees, agents and representatives (individually an “Purchaser Indemnified Party” and, collectively, the “Purchaser Indemnified Parties”) harmless from and against any damages, liabilities, losses, Taxes, judgments, awards, fines, penalties, claims, costs, and expenses (including, without limitation, reasonable fees and expenses of counsel and experts) (whether or not arising out of third-party claims) (collectively, “Losses”) incurred by any of them resulting from, arising out of or based upon any of the following matters:

(a)any breach of any Seller Fundamental Representations set forth in Section 2 of this Agreement and any breach of the representations of the BlueMountain Operating Companies set forth in Section 2.8, in each case solely to the extent that such Losses cannot be recovered by the Purchaser Indemnified Parties under the R&W Insurance Policy either (i) as a result of the application of the then-applicable Deductible under the R&W Insurance Policy to all or a portion of such Losses or (ii) because the Cap under the R&W Insurance Policy has been exhausted;

(b)any breach of covenant or agreement of the BlueMountain Operating Companies in this Agreement;

(c)any claim that the payees, or the amount or calculation, of the payments contemplated by Section 1.3(b) as set forth in the Funds Flow Memo are not true, complete and accurate in all respects or relating to the allocation or payment of all or any portion of the consideration payable to such payees in accordance with the Funds Flow Memo;

(d)(i) Restructuring Costs in excess of the Restructuring Costs set forth on Schedule 5.11, (ii) the failure by the BlueMountain Operating Companies to comply with applicable Laws and Regulations in connection with the implementation of the Restructuring, (iii) the cost of any penalties, fines, damages or other amounts payable in lieu of compliance with such Laws and Regulations, such as payments in lieu of notice (e.g., under the WARN Act or similar state law), and (iv) the failure by the BlueMountain Operating Companies to implement the Restructuring as set forth on Schedule 5.11; and

(e)any Seller Transaction Expenses in excess of $5,000,000.

9.3Indemnification by each Seller. From and after the Closing, subject to the other terms of this Section 9, each Seller agrees, severally and not jointly with any other Seller, to indemnify and hold the Purchaser Indemnified Parties harmless from and against any Losses

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that may be incurred by any of them resulting from, arising out of or based upon any of the following matters:

(a)any breach of any Seller Fundamental Representation of such Seller set forth in Section 3 of this Agreement solely to the extent that such Losses cannot be recovered by the Purchaser Indemnified Parties under the R&W Insurance Policy either (i) as a result of the application of the then-applicable Deductible under the R&W Insurance Policy to all or a portion of such Losses or (ii) because the Cap under the R&W Insurance Policy has been exhausted;

(b)any breach of covenant or agreement of such Seller in this Agreement; and

(c)any Leakage Amount of any member(s) of such Seller’s Locked Box Group; provided, for the avoidance of doubt, that no Seller shall have any liability under this Section 9.3(c) for (i) any Leakage Amount of any other Seller’s Locked Box Group or (ii) any Interim Leakage Amount that has been deducted from the consideration otherwise payable to such Seller in accordance with Section 1.3.

9.4Limitations on Indemnification by the Sellers. Notwithstanding any other provision of this Agreement to the contrary, other than in the case of Fraud, the right of the Purchaser Indemnified Parties to indemnification under Section 9.2 and Section 9.3 shall be subject to the following limitations:

(a)No indemnification shall be payable to a Purchaser Indemnified Party with respect to any claim asserted pursuant to Section 9.2 or Section 9.3, as applicable, after the expiration of the related representation, warranty, covenant or agreement pursuant to Section 9.1 (the “Indemnification Cut-Off Date”); provided, however, that such expiration shall not affect any claim with respect to which notice was given in accordance with Section 9.7 prior to the applicable Indemnification Cut-Off Date; and

(b)Notwithstanding any other provision of this Agreement to the contrary, (i) except with respect to Section 9.3(c), (A) no BlueMountain Seller (excluding the Principal) shall be obligated to indemnify the Purchaser Indemnified Parties under this Section 9 for any amounts in excess of the amount equal to such BlueMountain Seller’s BM Sale Percentage of the Adjusted Blue Mountain Seller Closing Consideration (excluding interest, if any, thereon), (B) the Principal shall not be obligated to indemnify the Purchaser Indemnified Parties under this Section 9 for amounts in excess of the Adjusted Principal Consideration (excluding interest, if any, thereon) and (C) the AMG Seller shall not be obligated to indemnify the Purchaser Indemnified Parties under this Section9 for amounts in excess of the AMG Seller Closing Consideration, and (ii) no Seller have any liability with respect to (A) any breach or

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failure of any representation or warranty made by any other Seller in Section 3 or in any certificate delivered at the Closing with respect to such representations and warranties by any other Seller, (B) any breach of any covenant or agreement of any other Seller under this Agreement (and, in the case of the AMG Seller, any breach of any covenant or agreement of any BlueMountain Operating Company or BlueMountain Subsidiary in this Agreement) or (C) any Fraud of any other Seller (and, in the case of the AMG Seller, any Fraud of any BlueMountain Operating Company or BlueMountain Subsidiary, in which case the BlueMountain Sellers shall be jointly and severally liable for such Fraud of any BlueMountain Operating Company or BlueMountain Subsidiary). For the avoidance of doubt, (x) the AMG Seller shall not be liable for any Fraud of any other Seller or any BlueMountain Operating Company or BlueMountain Subsidiary and (y) no Seller shall have any obligation to contribute to or otherwise fund any portion of the indemnification obligation of any other Seller under this Agreement (whether under the Organizational Documents of the BlueMountain Operating Companies or the BlueMountain Subsidiaries or otherwise).

9.5Indemnification by Purchaser. From and after the Closing, subject to the terms of this Section 9, Purchaser agrees to indemnify and hold the Sellers and their respective Affiliates and their officers, directors, members, employees, agents and representatives (individually, a “Seller Indemnified Party” and, collectively, the “Seller Indemnified Parties”) harmless from and against any Losses by any of them resulting from, arising out of or based upon any of the following matters:

(a)any breach of a representation or warranty of Purchaser or Purchaser Parent set forth in Section 4 of this Agreement; or

(b)any breach of covenant or agreement of Purchaser or Purchaser Parent under this Agreement.

9.6Limitation on Indemnification by Purchaser. Notwithstanding any other provision of this Agreement to the contrary, other than in the case of Fraud, the right of Seller Indemnified Parties to indemnification under Section 9.5 shall be subject to the following provisions:

(a)No indemnification pursuant to Section 9.5(a) shall be payable to the Seller Indemnified Parties, and Purchaser shall not be liable for any Losses thereunder, unless the total of all Losses for which indemnification would otherwise be payable pursuant to Section 9.5(a) shall exceed the then-applicable Deductible, in which case Purchaser shall only be liable for such Losses in excess of such amount; provided that in no event shall the limitation provided in this Section 9.6(a) apply to any claim based upon or related to a breach of any Purchaser Fundamental Representation;

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(b)No indemnification shall be payable to any Seller Indemnified Party with respect to claims asserted pursuant to Section 9.5 above after the applicable Indemnification Cut-Off Date; provided, however, that such expiration shall not affect any claim with respect to which notice was given in accordance with Section 9.7 prior to the applicable Indemnification Cut-Off Date; and

(c)No indemnification shall be payable to the Seller Indemnified Parties for Losses arising under or related to any claims asserted under Section 9.5(a) in amounts in the aggregate in excess of the Cap; provided that in no event shall the limitation provided in this Section 9.6(c) apply to any claim based upon a breach of any Purchaser Fundamental Representation.

9.7Notice; Defense of Claims.

(a)An indemnified party may make a claim for indemnification under this Section 9 by giving written notice thereof to Purchaser (if it is the indemnifying party), the Principal (if he is the indemnifying party) or the Seller Representative and the AMG Seller (if any Seller other than the Principal is an indemnifying party) prior to the applicable Indemnification Cut-Off Date. Promptly after the Person seeking indemnification pursuant to this Section 9 (the “Indemnified Party”) has knowledge of any claim of a third party that would reasonably be expected to give rise to indemnification under this Section 9 (a “Third-Party Claim”), the Indemnified Party shall deliver to the Person from which indemnification is sought (the “Indemnifying Party”) (and, where the Indemnifying Party is a Seller other than the Principal, to the Seller Representative and the AMG Seller), written notice thereof pursuant to the preceding sentence promptly after it obtains such knowledge, provided that the failure to give such written notice shall not relieve the Indemnifying Party from any liability except to the extent that the Indemnifying Party is materially prejudiced as a result of such failure to give notice. Each notice under this Section 9.7 shall reasonably summarize (i) the bases for the claim for indemnification and any claim or liability being asserted by a third party, (ii) the representation and warranty or covenant or other agreement that is alleged to have been inaccurate or to have been breached, and (iii) to the extent reasonably practicable or estimable, an estimate of, the aggregate amount of the Losses for which a claim is being made under this Section 9.

(b)After receipt by Purchaser (where it is the Indemnifying Party), the Principal (where he is the Indemnifying Party) or the Seller Representative and the AMG Seller (where any Seller other than the Principal is the Indemnifying Party) of a claim notice under Section 9.7(a) with respect to a Third-Party Claim, Purchaser (where it is the Indemnifying Party), the Principal (where he is the Indemnifying Party), the AMG Seller (where it is an Indemnifying Party) or the Seller Representative (where a Seller other than the Principal and the

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AMG Seller is an Indemnifying Party), as applicable, may, at its option, upon written notice given to the Indemnified Party within thirty (30) days of the receipt of the notice of such Third-Party Claim, assume the defense of the Indemnified Party against such claim (including the employment of counsel of its choosing), provided, however, if (A) any portion of such Third-Party Claim seeks injunctive, equitable or other non-monetary relief against any Indemnified Party or (B) any portion of such Third-Party Claim involves criminal or quasi-criminal allegations against any Indemnified Party, the Indemnified Party shall have the right to control such portion of such Third-Party Claim. The Indemnified Party shall reasonably cooperate in the compromise of, or defense against, such Third-Party Claim. Except with the prior written consent of the Indemnified Party, such consent not to be unreasonably withheld or delayed, no Indemnifying Party (or the Seller Representative on behalf of any BlueMountain Seller) shall settle or compromise any Third-Party Claim or permit a default judgment or consent to an entry of judgment unless such settlement, compromise or judgment (i) provides solely for the payment of money damages, (ii) provides for a full release of the Indemnified Party to the extent that there is an Indemnified Party defendant with respect to the claim(s) being settled, (iii) does not contain any admission or finding of wrongdoing on behalf of the Indemnified Party, and (iv) does not require such Indemnified Party to pay any portion of the settlement. Until the Indemnifying Party or the Seller Representative, as applicable, shall have so assumed the defense of any Third-Party Claim in accordance with the terms of this Section 9.7(b), the Indemnified Party may, but shall not be obligated to, undertake the defense of such claim on behalf of and for the account and risk of the Indemnifying Party, and if such Indemnified Party is entitled to indemnification under this Section 9, all reasonable legal and other expenses reasonably incurred by the Indemnified Party shall be borne by the Indemnifying Party. In the event that an Indemnifying Party elects to assume the defense of a Third-Party Claim in accordance with the terms of this Section 9.7(b), any Indemnified Party shall have the right to employ one separate counsel (other than local counsel) in any such action or claim and to participate in (but not control) the defense thereof (A) at its own expense or (B) at the Indemnifying Party’s sole cost and expense if (x) the employment of such counsel has been specifically authorized in writing by the Indemnifying Party, (y) in the reasonable opinion of counsel to the Indemnified Party, a conflict or potential conflict exists between the Indemnified Party and the Indemnifying Party that would make such separate representation advisable or (z) one or more defenses are available to the Indemnified Party that are not available to the Indemnifying Party. No Indemnifying Party shall be liable to indemnify any Indemnified Party for any consent to an entry of any judgment or any compromise or settlement of any such action or claim effected without the consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed). After any Third-Party Claim has been filed or initiated, subject to applicable Laws and Regulations and all privileges, including the attorney-client privilege, each party shall make available to the other parties and their attorneys and accountants all pertinent information under its control relating to

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such claim, and the parties agree to render to each other such assistance as they may reasonably require of each other in order to facilitate the proper and adequate defense of any such claim.

(c)For all purposes of this Section 9, in the case when the Indemnifying Party with respect to any particular claim includes both the AMG Seller and one or more other Sellers, (i) all notices required to be given to or made by, and all consents and other actions to be taken by, the Indemnifying Party shall be given to or made by or taken by the AMG Seller and the Seller Representative and all references to the “Indemnifying Party” shall be deemed to be references to the AMG Seller and the Seller Representative, (ii) the AMG Seller shall be entitled to control the defense and conduct of any Third-Party Claim and related proceeding or portion thereof to the extent related to the AMG Seller or one of its Affiliates (including by employing counsel of its choosing) and (iii) in no event shall the AMG Seller be liable for any action (including any settlement) taken without its prior written consent (not to be unreasonably withheld or delayed).

9.8Other Indemnification Matters.

(a)In calculating any amount indemnifiable hereunder in respect of Losses, Losses shall be reduced by any amounts actually recovered by the Indemnified Party under available insurance policies, pursuant to indemnification obligations, or from any other Person alleged to be responsible for any Losses (including, in the case of any claims made by the Purchaser Indemnified Parties, any recovery pursuant to the terms of the R&W Insurance Policy), net of (i) any increase in related premiums based on retrospective or reinstatement premium adjustments or other similar adjustments, (ii) any deductible and (iii) any other reasonable and necessary out-of-pocket expense incurred by the Indemnified Party in obtaining such recovery. If an Indemnified Party or its Affiliates receive any such recovery described in the immediately preceding sentence after an indemnification payment by the Indemnifying Party has been made, then such Indemnified Party or its Affiliates shall promptly reimburse the Indemnifying Party for any payment made, but not in excess of such amount received by the Indemnified Party or its Affiliates. In the event of the occurrence of any Losses for which indemnification is available under this Section 9, the Indemnified Party shall use commercially reasonable efforts to seek recovery under any available third-party insurance policies or third-party indemnification obligations or other rights of recovery with respect to such Losses.

(b)The parties agree to treat any indemnity payment made under this Agreement as an adjustment to the Purchase Price for U.S. federal, state, local and foreign income tax purposes (unless there is a contrary “determination” (within the meaning of Section 1313(a) of the Code or any similar state or local tax provision)).

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(c)Any liability for any Loss shall be determined without duplication of recovery by reason of the state of facts giving rise to such Loss constituting a breach of more than one representation, warranty, covenant or agreement of this Agreement.

(d)Notwithstanding anything to the contrary in this Agreement, for purposes of (i) determining whether there has been a breach or inaccuracy giving rise to an indemnification obligation under this Section 9 and (ii) calculating the amount of Losses resulting from any breach or inaccuracy of a representation or warranty in this Agreement, all “material,” “materially,” “in all material respects,” “Material Adverse Effect” and other like qualifications shall be disregarded.

(e)Notwithstanding any other provision herein to the contrary, the right of any party hereto to seek indemnification and to payment of Losses pursuant to this Section 9 shall not be affected in any way by any investigation conducted (or omitted), or any knowledge (whether actual, constructive or imputed) acquired (or capable of being acquired), by such party hereto at any time with respect to the accuracy or inaccuracy of or compliance with or performance of any representation, warranty, covenant, agreement or obligation. The waiver, other than a written waiver, of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, shall not affect the right to indemnification based on such representations, warranties, covenants, agreements and obligations.

(f)Notwithstanding any other provision herein to the contrary, Section 9.3(c) shall be the sole and exclusive provision in this Agreement under which the Purchaser Indemnified Parties shall be entitled to make any claim or recover any Losses resulting from, arising out of or based upon any matter constituting Leakage, and no Purchaser Indemnified Party shall be entitled to any recovery under this Agreement in respect of Leakage under Section 9.2(a) (including where any such matter could also constitute a breach of any representation or warranty in this Agreement) or any other provision of this Section 9.

9.9Indemnification Payments; R&W Insurance Policy.

(a)(i) The parties acknowledge that Purchaser has obtained the R&W Insurance Policy (with the R&W Insurance Costs borne by Purchaser and deducted from the portion of the Principal Consideration otherwise payable to the Principal in accordance with Section 1.3(c)) on its own behalf, to insure Purchaser after the Closing against Losses arising out of or in connection with breaches of any of the representations and warranties in Section 2 and Section 3 and such other Losses covered under the terms of the R&W Insurance Policy and (ii) for purposes of clarity, as between any Purchaser Indemnified Party, on the one hand, and the insurer under the R&W Insurance Policy, on the other hand, none of the terms, limitations,

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conditions and restrictions on indemnification set forth in this Section 9 shall affect the rights of the Purchaser Indemnified Parties under the R&W Insurance Policy, which rights shall be governed solely thereby.

(b)The parties hereto acknowledge and agree that, other than as provided in Section 9.2(a) and Section 9.3(a), the sole and exclusive recourse of the Purchaser Indemnified Parties for any breach or inaccuracy of any representations and warranties in this Agreement shall be the R&W Insurance Policy and any recovery for any Losses related thereto shall be satisfied only under the R&W Insurance Policy. Other than any indemnification for Losses for which the Purchaser Indemnified Parties are entitled to indemnification directly from the applicable Seller(s) pursuant to Section 9.2(a) or Section 9.3(a), no Purchaser Indemnified Party shall have any right to seek or recover any amounts from any Seller resulting from, arising out of or relating to any breach or inaccuracy of any representations and warranties in this Agreement.

9.10Exclusive Remedy. Each party hereto acknowledges and agrees that, from and after the Closing, except for the right to seek and obtain equitable relief pursuant to Section 5.12(b) or Section 12.11 or to seek any remedy in respect of Fraud, such party’s sole and exclusive remedy with respect to any and all claims for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement shall be pursuant to the provisions set forth in this Section 9. In furtherance of the foregoing, each party hereto hereby waives, from and after the Closing, to the fullest extent permitted under applicable Law or Regulation, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement that such party may have against the other parties hereto, such other parties’ Affiliates and each of their respective representatives arising under or based upon any applicable Law or Regulation, in each case except pursuant to the provisions set forth in this Section 9. Notwithstanding anything to the contrary in this Section 9.10, nothing in this Section 9.10 shall limit the right of any party hereto to seek and obtain any equitable relief to which any such party hereto shall be entitled pursuant to Section 5.12(b) or Section 12.11 or to seek any remedy on account of Fraud by any party hereto.

9.11Assignment of Claims. With respect to any matter giving rise to a claim for indemnification hereunder, the Indemnifying Party shall be subrogated to, and the Indemnified Party shall assign to the Indemnifying Party, any right of action (whether pursuant to contract, arising under applicable law or otherwise) which the Indemnified Party may have against any other Person other than any such right of action against a BlueMountain Operating Company or a BlueMountain Subsidiary; provided, that no such subrogation or assignment shall contravene the terms of the R&W Insurance Policy.

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SECTION 10. TERMINATION OF AGREEMENT

10.1Termination. Prior to the Closing, this Agreement may be terminated only as follows (and it may not be terminated following the Closing):

(a)By mutual written consent of the Purchaser, the Seller Representative and the AMG Seller;

(b)by Purchaser, one the one hand, or the Seller Representative and the AMG Seller (acting jointly), on the other hand, if any Order of any Governmental Authority permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby shall have become final and non-appealable;

(c)(i) by the Seller Representative and the AMG Seller (acting jointly) if Purchaser breaches or fails to perform any of its representations, warranties, covenants or agreements contained in this Agreement, or if any representation or warranty of Purchaser contained in this Agreement shall have become untrue, that would result in a failure of a condition set forth in Section 8 and which breach cannot be cured or has not been cured (to the extent necessary to avoid a failure of such a condition) prior to the earlier of (A) thirty (30) days’ following delivery of written notice from the Seller Representative and the AMG Seller (acting jointly) to Purchaser and (B) the Outside Date; provided, that the Seller Representative and the AMG Seller (acting jointly) may not terminate this Agreement pursuant to this Section 10.1(c)(i) if the BlueMountain Operating Companies or any Seller is then in breach of this Agreement and such breach shall have been the cause of, or shall have resulted in, any of the conditions set forth in Section 8 not to be satisfied; or (ii) by Purchaser, if the BlueMountain Operating Companies or any Seller breaches or fails to perform any of its representations, warranties, covenants or agreements contained in this Agreement, or if any representation or warranty of the BlueMountain Operating Companies or any Seller contained in this Agreement shall have become untrue, that would result in a failure of a condition set forth in Section 7 and which breach cannot be cured or has not been cured (to the extent necessary to avoid a failure of such condition) prior to the earlier of (A) thirty (30) days’ notice thereof from Purchaser to the Seller Representative and the AMG Seller and (B) the Outside Date; provided that Purchaser may not terminate this Agreement pursuant to this Section 10.1(c)(ii) if Purchaser is then in breach of this Agreement and such breach shall have been the cause of, or shall have resulted in, any of the conditions set forth in Section 7 not to be satisfied; or

(d)(i) by the Seller Representative and the AMG Seller (acting jointly) if the Closing does not occur by the close of business on February 3, 2020 (the “Outside Date”); provided, that the right to terminate this Agreement under this Section 10.1(d) (i) shall not be available to the Seller Representative and the AMG Seller if a material breach of this Agreement

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by the BlueMountain Operating Companies or any Seller shall have been the cause of, or shall have resulted in, the failure of the Closing to occur by the Outside Date; or (ii) by Purchaser if the Closing does not occur by the close of business on the Outside Date; provided that the right to terminate this Agreement under this Section 10.1(d)(ii) shall not be available to Purchaser if a material breach of this Agreement by Purchaser shall have been the cause of, or shall have resulted in, the failure of the Closing to occur by the Outside Date.

In the event that Purchaser is seeking to terminate this Agreement pursuant to this Section 10.1 (other than Section 10.1(a)), Purchaser shall give prompt written notice of such termination to the Seller Representative and AMG Seller, and in the event the Seller Representative and AMG Seller (acting jointly) are seeking to terminate this Agreement pursuant to this Section 10.1 (other than Section 10.1(a)), the Seller Representative and AMG Seller (acting jointly) shall give prompt written notice of such termination to Purchaser. If this Agreement so terminates, it shall become null and void and have no further force or effect, except as provided in Section 10.2.

10.2Effect of Termination. If this Agreement is terminated in accordance with Section 10.1 hereof and the transactions contemplated hereby are not consummated, this Agreement shall become void and of no further force and effect, without any liability on the part of any party hereto; provided, however, that (a) the provisions of this Section 10 and the provisions of Section 12 hereof shall survive any termination of this Agreement; and (b) nothing herein shall relieve any party hereto from any liability for its Fraud or willful and material breach of this Agreement. For purposes of this Agreement, “willful and material breach” means a material breach of any material representation, warranty or covenant or other agreement set forth in this Agreement that is a consequence of an act or failure to act by or on behalf of the breaching party with actual knowledge that the taking of such act or failure to take such act would, or would reasonably be expected to, result in a breach of this Agreement.

SECTION 11. DEFINITIONS

11.1Definitions. For purposes of this Agreement and the Exhibits and Schedules hereto, the following terms shall have the respective meanings set forth in this Section 11.1:

“2018 Audit Work Papers” shall have the meaning specified in Section 7.8(b).

“2018 Audited Financial Statements” shall have the meaning specified in Section 7.8(a).

“2018 Draft Financial Statements” shall have the meaning specified in Section 7.8(a).

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“Accounting Firm” means such internationally recognized independent public accounting firm mutually agreed to by the Seller Representative, the AMG Seller and Purchaser; provided that if Purchaser, the Seller Representative and the AMG Seller do not appoint an Accounting Firm within thirty (30) days after written notice by one party to the other proposing the nomination of an accounting firm to serve as the Accounting Firm in accordance with the applicable terms of this Agreement, any party may request the American Arbitration Association to appoint as the Accounting Firm a senior partner in a nationally recognized independent public accounting firm that has not had a material relationship with any Seller, any of the BlueMountain Operating Companies or BlueMountain Subsidiaries or Purchaser or any of their respective Affiliates within the preceding two years.

“Adjusted BlueMountain Seller Closing Cash Proceeds” shall have the meaning specified in Section 1.3(b)(ii).

“Adjusted Principal Consideration” shall have the meaning specified in Section 1.3(c).

“Advisers Act” means the Investment Advisers Act of 1940, as the same may be amended from time to time, and any successor to such act.

“Advisory Contract” means any investment management, advisory or sub advisory contract, or any other contract, agreement, arrangement or understanding (whether written or oral) pursuant to which any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries provides Investment Management Services, pursuant to which all or a portion of the compensation for such services is determined or calculated, or which, in whole or in part, determines the manner in which such services are provided (including, without limitation, Side Letters).

“Affiliate” means with respect to any Person (herein the “first party”), any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such first party. The term “control” as used herein (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to (a) vote twenty-five percent (25%) or more of the outstanding voting securities of such Person, or (b) otherwise direct the management or policies of such Person by contract or otherwise. No BlueMountain Operating Company or BlueMountain Subsidiary shall be an Affiliate of the AMG Seller.

“Agreement” shall have the meaning specified in the preamble hereto.

“AMG Parent” shall have the meaning specified in the preamble hereto.

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“AMG Seller” shall have the meaning specified in the preamble hereto.

“AMG Seller Closing Consideration” shall have the meaning specified in Section 1.3(b)(i).

“AMG Side Letters” means, collectively, the letter agreements with AMG Seller listed on Schedule 2.12(xx) and the Distribution Partnership Master Agreement dated as of April 26, 2013 by and between Management Company LLC and AMG Parent (and amendments thereto).

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy” as the same may be amended, modified, succeeded or replaced from time to time.

“Base Date” shall have the meaning specified in Section 2.6(a).

“Base Financial Statements” shall have the meaning specified in Section 2.7(a)(i).

“Base Interim Balance Sheet” shall have the meaning specified in Section 2.7(a)(iii).

“BlueMountain Fuji Agreements” means collectively, (a) that certain Services Agreement between Fuji Management LLC and Management Company LLC dated November 24, 2015 and (b) that certain Secondment Agreement between Fuji Management LLC and Management Company LLC dated November 24, 2015.

“BlueMountain Fuji CLO” means each of BlueMountain Fuji EUR CLO 2016-1 DAC, BlueMountain Fuji EUR CLO II DAC, BlueMountain CLO 2013-2 Ltd., BlueMountain Fuji US CLO I Ltd., BlueMountain Fuji US CLO II Ltd., BlueMountain Fuji US CLO III Ltd., BlueMountain Fuji EUR CLO III DAC and BlueMountain Fuji EUR CLO IV DAC.

“BlueMountain Fuji Consents” means, with respect to a particular BlueMountain Fuji CLO, the consent of Fuji Management LLC to the “assignment” (as defined in the Advisers Act) of the BlueMountain Fuji Agreements with respect to such BlueMountain Fuji CLO resulting from the consummation of the transactions contemplated hereby.

“BlueMountain Funds” means, collectively, all collective investment vehicles and single investor investment vehicles (whether open-ended or closed-ended, structured as a collateralized loan obligation or similar, and including, without limitation, investment companies, partnerships, limited liability companies) (a) sponsored or promoted by any of the BlueMountain Operating Companies, (b) for which any of the BlueMountain Operating Companies or BlueMountain Subsidiaries acts as a general partner, trustee or managing member (or in a similar capacity), principal underwriter or distributor or (c) for which any of the

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BlueMountain Operating Companies or BlueMountain Subsidiaries acts as an investment adviser, investment manager or otherwise provides Investment Management Services, directly or indirectly.

“BlueMountain Interests” shall have the meaning specified in the recitals hereto.

“BlueMountain Operating Company” and “BlueMountain Operating Companies” shall have the meaning specified in the preamble hereto.

“BlueMountain Seller Closing Cash Proceeds” shall have the meaning specified in Section 1.3(b)(ii).

“BlueMountain Sellers” shall have the meaning specified in the preamble hereto.

“BlueMountain Subsidiaries” shall have the meaning specified in Section 2.3(a).

“BlueMountain Tax Return” shall have the meaning specified in Section 6.3(a).

“BM Seller Sale Percentage” means, with respect to each BlueMountain Seller, the percentage determined by dividing such BlueMountain Seller’s Sale Percentage by the aggregate Sale Percentages of all BlueMountain Sellers.

“BMCP London” means BlueMountain Capital Partners (London) LLP, Company Number OC311093 of 20-22 Bedford Row, London, a United Kingdom limited liability partnership.

“BMCP London LLP Deed” means the Eighth Amended and Restated Limited Liability Partnership Deed of BMCP London, effective as of January 1, 2017.

“Bonus Plan” shall have the meaning specified in Section 2.18.

“Business Day” means any day other than (a) a Saturday or Sunday or (b) any other day on which banks are authorized or required by law to close in any of Massachusetts or New York City.

“Cap” means $40,000,000.

“Cayman Mutual Fund” means any BlueMountain Fund that falls within the definition of “Mutual Fund” under the Mutual Funds Law (2007 Revision) of the Cayman Islands.

“Claims” means any transfer restrictions, liens, claims, charges, security interests, assignments, mortgages, deposit arrangements, pledges or encumbrances of any kind or nature

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whatsoever, excluding restrictions on transferability imposed by federal and state securities laws and excluding restrictions arising under this Agreement.

“Client” means any Person (other than a BlueMountain Operating Company or BlueMountain Subsidiary) to whom any of the BlueMountain Operating Companies or the BlueMountain Subsidiaries provides Investment Management Services, including any BlueMountain Fund.

“Client Consent” shall have the meaning specified in Section 5.3(a).

“CLO Client” means each of BlueMountain CLO 2012-2 Ltd., BlueMountain CLO 2013-1 Ltd., BlueMountain CLO 2014-2 Ltd., BlueMountain CLO 2015-2 Ltd., BlueMountain CLO 2015-3 Ltd., BlueMountain CLO 2015-4 Ltd., BlueMountain CLO 2016-1 Ltd., BlueMountain CLO 2016-3 Ltd., BlueMountain CLO 2018-1 Ltd., BlueMountain CLO 2018-2 Ltd., BlueMountain CLO 2018-3 Ltd., BlueMountain CLO XXII Ltd., BlueMountain CLO XXIII Ltd., BlueMountain CLO XXIV Ltd., BlueMountain CLO 2011-1 Ltd., BlueMountain CLO 2012-1 Ltd., BlueMountain CLO 2013-3 Ltd., BlueMountain CLO 2013-4 Ltd., BlueMountain CLO 2014-1 Ltd., BlueMountain CLO 2015-1 Ltd., BlueMountain CLO 2016-2 Ltd., BlueMountain CLO II Ltd., BlueMountain CLO III Ltd. and BlueMountain CLO XXV Ltd.

“CLO Management LLC” shall have the meaning specified in the preamble hereto.

“CLO Management LLC Agreement” means the Limited Liability Company Agreement of CLO Management LLC, effective as of January 27, 2017.

“Closing” shall have the meaning specified in Section 1.2.

“Closing Date” means the date on which the Closing occurs.

“Code” means the Internal Revenue Code of 1986, as amended from time to time and any successor code thereto. For purposes of this Agreement, all references to Sections of the Code shall include any predecessor provisions to such sections and any similar provisions of state, local or foreign law.

“Commodity Exchange Act” means Title 7, Section 1 et seq. of the United States Code as the same may be amended, modified, succeeded or replaced from time to time.

“Common Equity Interest” shall have the meaning specified in each applicable Governing Agreement.

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“Common Equity Units” shall have the meaning specified in each applicable Governing Agreement.

“Confidential Information” shall have the meaning specified in Section 5.12(a).

“Confidentiality Agreement” means that certain Amended and Restated Confidentiality Agreement, dated as of June 5, 2019, between Purchaser and Management Company LLC.

“Contracts” shall have the meaning specified in Section 2.12(a).

“Contribution Amount” shall have the meaning specified in Section 1.3(b)(iii).

“Control” or “Controlled” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or partnership or other interests, by contract or otherwise. For purposes of this definition, a general partner or managing member of a Person shall always be considered to Control such Person. The terms “controlling” and “controlled” shall have their correlative meanings.

“Controlled Affiliate”, in respect of a Person, means an Affiliate that is Controlled by such Person; provided that no Client or Controlled Affiliate thereof shall be a Controlled Affiliate of any Seller or any BlueMountain Operating Company or BlueMountain Subsidiary.

“Deductible” means $2,100,000; provided that, on the date that is twelve (12) months after the Closing Date, the Deductible shall be reduced to $1,050,000.

“Delaware LLC Act” means the Delaware Limited Liability Company Act, as amended.

“Disbursing Agent” means Citibank, N.A. or such other disbursing or paying agent mutually agreed by Purchaser and Seller Representative.

“Disbursing Agent Agreement” means the Disbursing Agent Agreement by and among the Seller Representative (on behalf of itself and the BlueMountain Sellers), Purchaser and the Disbursing Agent, substantially in the form attached hereto as Exhibit E.

“Disclosure Schedule” shall have the meaning specified in Section 2.

“Employment Agreement” shall have the meaning specified in the recitals hereto.

“Employee Program” shall have the meaning specified in Section 2.19(l)(i).

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“Environmental Law” means any applicable Laws and Regulations (including common law) concerning the protection of human health or the environment (including ambient air, surface water, groundwater, sediment, land, surface or subsurface strata, and natural resources), including Laws and Regulations (a) imposing liability in connection with cleanup, investigation or remediation relative to any release or threatened release of Hazardous Substances, (b) relating to exposure to Hazardous Substances and protection of worker health and safety, and (c) otherwise relating to the environmental aspects of the manufacture, processing, distribution, use, treatment, storage, disposal, emission, transport, or handling of Hazardous Substances.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor to such Act.

“ERISA Affiliate” shall have the meaning specified in Section 2.19(l)(iii).

“ERISA Investor” shall have the meaning specified in Section 2.6(b).

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor to such Act.

“FCA” means the United Kingdom Financial Conduct Authority.

“FCA Document” shall have the meaning specified in Section 2.15(e).

“Filing Party” shall have the meaning specified in Section 5.5(a).

“FINRA” means the Financial Industry Regulatory Authority.

“FIRPTA Certificate” shall have the meaning specified in Section 1.4(b)(iii).

“Foreign Plan” shall have the meaning specified in Section 2.19(k).

“Fraud” means a knowing and intentional misrepresentation of material facts in this Agreement which constitutes common law fraud under the laws of the state of New York.

“FSMA” means the Financial Services and Markets Act, as amended, and all rules, regulations and orders thereunder, including any made by HM Treasury or the FCA.

“FTC” shall have the meaning specified in Section 5.5(c).

“Fuji Management LLC” means BlueMountain Fuji Management, LLC.

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“Fund Client” means each Client other than a CLO Client and the Single Investor Fund. For the avoidance of doubt, none of Fuji Management LLC or the BlueMountain Fuji CLOs is a Fund Client.

“Funds Flow Memo” shall have the meaning specified in Section 1.3(d)(ii).

“GAAP” means United States generally accepted accounting principles as in effect from time to time.

“Governing Agreement” means the Management Company LLC Agreement, the BMCP London LLP Deed, the GP Holdings LLC Agreement and/or the CLO Management LLC Agreement, as applicable.

“Governing Body” shall have the meaning specified in Section 5.3(a)(i).

“Governmental Authority” means any United States or other foreign, federal, state, municipal or other governmental entity exercising executive, legislative, judicial, regulatory or administrative functions, including the SEC, and including any governmental or non-governmental self-regulatory organization, agency, board, commission, bureau, instrumentality department or authority.

“GP Holdings LLC” shall have the meaning specified in the preamble hereto.

“GP Holdings LLC Agreement” means the Twelfth Amended and Restated Limited Liability Company Agreement of GP Holdings LLC, dated June 3, 2019 and effective as of January 1, 2019.

“Guaranteed Obligations” shall have the meaning specified in Section 12.17(a).

“Guaranteed Parties” shall have the meaning specified in Section 12.17(a).

“Hazardous Substance” means petroleum or any material or substance in such concentration that it is regulated or controlled as a hazardous substance, toxic substance, hazardous waste, or pollutant under any Environmental Law.

“HCERA” shall have the meaning specified in Section 2.19(h).

“Health Plan” shall have the meaning specified in Section 2.19(h).

“Healthcare Reform Laws” shall have the meaning specified in Section 2.19(h).

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

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“Immediate Family” means, with respect to any natural person, (a) such person’s spouse, parents, grandparents, children, grandchildren and siblings and (b) such person’s former spouse(s) and current spouses of such person’s children, grandchildren and siblings and (c) estates, trusts, partnerships and other entities of which substantially all of the beneficial interest is held directly or indirectly by the foregoing.

“Incentive Fees” means (a) all “carried interests,” “performance allocations,” “incentive allocations,” and other items of gain allocated (directly or indirectly) to the BlueMountain Operating Companies or the BlueMountain Subsidiaries by a Client or in respect of a Client’s account, and (b) all “performance fees,” “incentive fees” and other payments based, in whole or in part, on the investment performance of a Client.

“Indebtedness” means, with respect to each BlueMountain Operating Company and its consolidated subsidiaries, without duplication, (a) the unpaid principal amount of and accrued interest on all indebtedness for borrowed money, including any prepayment penalties or premiums, make-whole payments, indemnities, breakage costs (including breakage fees payable on termination of the arrangements), fees and other costs and expenses associated with the repayment of any such indebtedness, (b) any other indebtedness that is evidenced by a note, bond, debenture, draft or similar instrument, or debt security, (c) liabilities for the deferred purchase price of property, assets, securities, businesses or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), including all seller notes and “earn-out” payments related to past acquisitions (assuming the maximum amounts earned), (d) all liabilities arising out of interest rate and currency swap arrangements and any other derivative arrangements or arrangements designed to provide protection against fluctuations in interest or currency rates (in each case, valued as if terminated or closed at the Closing), (e) all obligations classified as financing or capital leases in the Base Financial Statements or the Base Interim Balance Sheet or required to be capitalized by GAAP, (f) letters of credit and any similar agreements and (g) any guarantee of any of the foregoing obligations.

“Indemnification Cut-Off Date” shall have the meaning specified in Section 9.4(a).

“Indemnified Party” shall have the meaning specified in Section 9.7(a).

“Indemnified Taxes” means (a) any Taxes required to be paid by or with respect to any BlueMountain Operating Company or any BlueMountain Subsidiary attributable to any Pre-Closing Tax Period (such Taxes for a Straddle Period to be apportioned in accordance with Section 6.4), (b) any Taxes required to be paid by or with respect to any BlueMountain Operating Company or any BlueMountain Subsidiary as a result of such entity having been a member of

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any U.S. federal “affiliated group” (as defined in Section 1504 of the Code) or state, local or non-U.S. combined, unitary or analogous group, in each case, on or prior to the Closing Date, including pursuant to Treasury Regulations Section 1.1502-6 or any comparable, similar or analogous provision of state, local or non-U.S. law, (c) any Taxes required to be paid by or with respect to any BlueMountain Operating Company or any BlueMountain Subsidiary as a transferee or successor pursuant to applicable law, in either case where the liability is attributable to an event or transaction that occurred before the Closing, (d) any amounts required to be paid by any BlueMountain Operating Company or any BlueMountain Subsidiary pursuant to any tax sharing agreement to which any BlueMountain Operating Company or any BlueMountain Subsidiary is a party or is otherwise bound by on or prior to the Closing Date, (e) any Taxes resulting from any breach of any covenant or agreement to be performed by Sellers pursuant to Section 6 and (f) any Transfer Taxes for which the Sellers are responsible under Section 1.6.

“Indemnifying Party” shall have the meaning specified in Section 9.7(a).

“Insurance Approvals” means any approvals or non-disapprovals requested by any Affiliate of Purchaser from the New York State Department of Financial Services or the Maryland Insurance Administration.

“Intellectual Property” means (a) all patents, patent applications and patent disclosures, and related improvements (b) all trademarks, service marks, trade dress, logos, trade names, domain names and corporate names, and all applications, registrations and renewals in connection therewith, (c) all copyrights, database rights, applications, registrations and renewals in connection therewith, and related improvements (d) all Trade Secrets and confidential business information (including software programs, research and development, know-how, compositions, manufacturing and production processes, technical data, designs, specifications and business and marketing plan and proposals) and related improvements, and (e) internet websites, including all content and materials displayed on and/or accessible through such sites and related improvements.

“Interest Rate” means a rate per annum equal to the LIBO Screen Rate.

“Interim Leakage Amount” shall have the meaning specified in Section 1.3(d)(iii).

“Interim Period” shall have the meaning specified in Section 5.2.

“Investment Company Act” means the Investment Company Act of 1940, as the same may be amended from time to time and any successor to such Act.

“Investment Management Services” means any services which involve (a) the management, directly or indirectly, of an investment account or fund (or portions thereof or a

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group of investment accounts or funds) or collateralized loan obligation for compensation, (b) the giving of advice with respect to the investment and/or reinvestment of assets or funds (or any group of assets or funds) for compensation or (c) otherwise acting as an “investment adviser” within the meaning of the Advisers Act, and performing activities related or incidental thereto.

“IRS” means the Internal Revenue Service.

“Knowledge” means, (a) with respect to the BlueMountain Operating Companies, the knowledge of Andrew Feldstein, Michael Liberman, Stephen Siderow, Dava Ritchea, Paul Friedman, Lee Kempler, Laura Cappiello and Amy Wierengaafter reasonable inquiry by each such individual of those employees who would reasonably be expected to have knowledge of the relevant subject matter, (b) with respect to the AMG Seller, the knowledge of David Billings after reasonable inquiry by such individual of those employees who would reasonably be expected to have knowledge of the relevant subject matter, (c) with respect to any other Seller, the knowledge of such Seller, and (d) with respect to Purchaser, the knowledge of Dominic Frederico, Robert Bailenson, Ling Chow, David Buzen, Ashleigh Bischoff and Dawn Jasiak after reasonable inquiry by each such individual of those employees who would reasonably be expected to have knowledge of the relevant subject matter.

“Laws and Regulations” shall have the meaning specified in Section 2.14(a), and “Laws or Regulations” means any of such Laws or Regulations individually.

“Leakage” means, with respect to any particular Seller’s Locked Box Group, any of the following occurring during the period from the Locked Box Date until the Closing that is not Permitted Leakage:

(a)any dividend or other distribution (whether in cash, cash equivalents or in-kind) declared, paid or made by any BlueMountain Operating Company or BlueMountain Subsidiary to any member of such Seller’s Locked Box Group;

(b)any payment to any member of such Seller’s Locked Box Group by any BlueMountain Operating Company or BlueMountain Subsidiary for the purchase or redemption of any BlueMountain Interests;

(c)any sale or transfer of assets, in a single transaction or a series of related transactions, by any BlueMountain Operating Company or BlueMountain Subsidiary to any member of such Seller’s Locked Box Group;

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(d)any payment (other than payments of a type described in clauses (a), (b), (f) or (g) of this definition of “Leakage”) by any BlueMountain Operating Company or BlueMountain Subsidiary to or on behalf of any member of such Seller’s Locked Box Group;

(e)any waiver, discount, release or forgiveness by any BlueMountain Operating Company or BlueMountain Subsidiary of any amounts, rights, values or benefits owed by a member of such Seller’s Locked Box Group;

(f)any payment of service, management, shareholder or adviser’s fees, costs and expenses or compensation of a similar nature by any BlueMountain Operating Company or BlueMountain Subsidiary to a member of such Seller’s Locked Box Group in connection with the transactions contemplated by this Agreement;

(g)any service, shareholder, adviser, management, director, or attendance fee (or equivalent) paid by any BlueMountain Operating Company or BlueMountain Subsidiary to any director, employee, representative or agent of any Seller’s Locked Box Group;

(h)any guarantee or indemnity provided by, or the creation of any Claims over the assets of, any BlueMountain Operating Company or BlueMountain Subsidiary, in each case of or as security for any obligation of any member of such Seller’s Locked Box Group;

(i)any assumption by any BlueMountain Operating Company or BlueMountain Subsidiary of any liability or obligation (contingent or otherwise) of, or any incurrence by any BlueMountain Operating Company or BlueMountain Subsidiary of any liability or obligation (contingent or otherwise) for, any member of such Seller’s Locked Box Group; and

(j)any agreement by any BlueMountain Operating Company or BlueMountain Subsidiary to do any of the foregoing with respect to such Seller’s Locked Box Group.

“Leakage Amount” means, in relation to any Leakage with respect to a particular Seller’s Locked Box Group, the aggregate of the following amounts to the extent that such amounts constitute Leakage with respect to such Seller’s Locked Box Group:

(a)the payments made, or agreed to be made;

(b)the market value of the asset transferred, or agreed to be transferred, less any cash and the market value of any other consideration received, or to be received, for it;

(c)the amount of the debt waived, or agreed to be waived;

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(d)the amount of the liabilities assumed or incurred, or agreed to be assumed or incurred, including any Tax becoming payable at any time by any BlueMountain Operating Company or BlueMountain Subsidiary as a consequence of any such Leakage; and

(e)any Tax amount in respect of such Leakage Amount, whether or not actually received by the applicable Persons or in respect of which such Persons have benefitted.

“Leakage Certificate” shall have the meaning specified in Section 1.3(d)(iii).

“Lease” shall have the meaning specified in Section 2.5.

“LIBO Screen Rate” means, for any day and time, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for U.S. Dollars for a period of one month as displayed on such day and time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as agreed by Purchaser, the Seller Representative and the AMG Seller); provided that if the LIBO Screen Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.

“License” and “Licenses” shall have the meanings specified in Section 2.15(b).

“Lock-Up Agreement” shall have the meaning specified in the recitals hereto.

“Locked Box Date” means March 31, 2019.

“Locked Box Group” means, with respect to any particular Seller, such Seller or any of his, her or its Affiliates or any of their respective officers, partners, members, equityholders, directors, employees or family members. For purposes of this definition, any Person that provides Investment Management Services in which AMG Parent owns a direct or indirect equity interest shall not be considered an Affiliate of the AMG Seller.

“Losses” shall have the meaning specified in Section 9.2.

“Management Company LLC” shall have the meaning specified in the preamble hereto.

“Management Company LLC Agreement” means the Twelfth Amended and Restated Limited Liability Company Agreement of Management Company LLC, dated June 3, 2019 and effective as of January 1, 2019.

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“Material Adverse Effect” means a change, effect, event, occurrence, circumstance, state of facts or development that, individually or in the aggregate, (a) has had or would reasonably be expected to have a material adverse effect on the financial condition, results of operations, properties, assets, liabilities, business or operations of the BlueMountain Operating Companies and BlueMountain Subsidiaries, taken together as a whole or (b) would reasonably be expected to prevent or materially delay the consummation of the transactions contemplated by this Agreement; provided that, solely with respect to the foregoing clause (a), any such change, effect, event, occurrence, circumstance, state of facts or development resulting from or arising in connection with the following shall be disregarded for purposes of determining whether a Material Adverse Effect has occurred or exists or would reasonably be expected to occur or exist: (i) the entering into of this Agreement or the public announcement or consummation of the transactions contemplated hereby, (ii) any change or condition generally affecting the investment management industry, (iii) any change in economic, financial market, regulatory or political conditions (including any change in interest rates), (iv) any outbreak or substantial worsening of war or hostilities or terrorist act, calamity, natural disaster or any similar crisis, (v) any change in applicable Laws and Regulations or accounting principles or official binding interpretations or enforcement thereof, (vi) any failure of any BlueMountain Operating Company or BlueMountain Subsidiary to meet any projections or forecasts (provided that the exception in this clause (vi) shall not prevent or otherwise affect any determination that the underlying reasons for such failure constitutes or contributed to a Material Adverse Effect), (vii) any action or inaction that is expressly required by the terms of this Agreement, (viii) any termination of any Advisory Contracts, termination or reduction of any Client relationships, failure to obtain Client Consents or reduction in assets under management or the revenues of any Client (the subject matter of which shall be governed solely by Sections 1.3 and 7.4) (provided that the exception in this clause (viii) shall not prevent or otherwise affect any determination that the underlying reasons for such failure constitutes or contributed to a Material Adverse Effect),or (ix) any action taken at the request of Purchaser or its Affiliates; provided, further, that any change, effect, event, occurrence, circumstance, state of facts or development, in the case of the foregoing clauses (ii), (iii), (iv) and (v), which has a disproportionate impact on the BlueMountain Operating Companies and BlueMountain Subsidiaries as compared to similarly situated Persons in the investment management industry may be taken into account in determining whether there has been a Material Adverse Effect.

“Material CLO Action” shall have the meaning specified in Section 2.21(i).

“Multiemployer Plan” shall have the meaning specified in Section 2.19(l)(iv).

“Net Assets Reduction Amount” means the lesser of (a) the aggregate amount by which the value of the net assets reflected on the 2018 Audited Financial Statements would be

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reduced by unadjusted differences reflected in the 2018 Audit Work Papers if such unadjusted differences were recorded and (b) $4,000,000.

“NYSE” means the New York Stock Exchange Inc.

“Offering Document” means offering document, offering memorandum, private placement memorandum or similar document and any amendments or supplements with respect to any of the foregoing with respect to a BlueMountain Fund.

“Order” means any order, judgment, decree, injunction, stipulation, settlement, or consent order of or with any Governmental Authority.

“Organizational Documents” means, with respect to any Person that is a corporation, its articles or certificate of incorporation or memorandum and articles of association, as the case may be, and bylaws; with respect to any Person that is a partnership, its certificate of partnership and partnership agreement; with respect to any Person that is a limited liability company, its certificate of formation and limited liability company or operating agreement; with respect to any Person that is a trust or other entity, its declaration or agreement of trust or other constituent document; and with respect to any other Person, its comparable organizational documents; in each case, as has been amended or restated and as in effect on the date hereof.

“Outside Date” shall have the meaning specified in Section 10.1(d).

“Parent Common Stock” means the common shares, par value $0.01 per share, of Purchaser Parent.

“Parent Financial Statements” shall have the meaning specified in Section 4.9(b).

“Parent SEC Documents” shall have the meaning specified in Section 4.9(b).

“Permitted Encumbrances” means (a) statutory Claims arising by operation of law with respect to a liability incurred in the ordinary course of business and which is not delinquent; (b) requirements and restrictions of zoning, building and other laws; (c) Claims for Taxes not yet subject to penalties for nonpayment or which are being contested in good faith by appropriate proceedings; (d) mechanics’, materialmen’s, carriers’, workmen’s, warehousemen’s, repairmen’s, landlords’ or other like Claims and security obligations that are not delinquent; (e) Claims set forth in any title policy or title report or survey with respect to leases and other Claims of record; (f) licenses of, or other grants of rights to use, Intellectual Property; or (g) such Claims that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

“Permitted Leakage” means any of the following:

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(a)any payments or transactions to the extent specifically provided for in the Base Interim Balance Sheet;

(b)any payments or other actions contemplated by this Agreement or the Transaction Documents;

(c)the payment of any salary, bonus or other compensation or employee benefits or expenses to or in favor of any officer, director, member, partner, investor or employee of any BlueMountain Operating Company or BlueMountain Subsidiary in the ordinary course of business of the BlueMountain Operating Companies and the BlueMountain Subsidiaries consistent with past practice, in each case in accordance with the terms of any applicable Employee Program and to the extent set forth on Schedule 11.2;

(d)the incurrence or payment of any Restructuring Costs or Seller Transaction Expenses; provided, that the incurrence or payment of Seller Transaction Expenses shall in no way limit the obligation of the Principal pursuant to Section 9.2(e);

(e)any action or matter undertaken at the request of, or with the written consent of, Purchaser;

(f)any Tax Distribution Amount;

(g)any payment described on Schedule 11.2; and/or

(h)any fees, costs, expenses and any Tax incurred by any Blue Mountain Operating Company or BlueMountain Subsidiary as a result of any of the items described in the foregoing clauses (a)-(g).

“Person” means any individual, partnership (general or limited), corporation, limited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization, and any government, governmental department or agency or political subdivision thereof.

“Post-Closing Tax Period” means any Tax period beginning after the Closing Date and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period beginning on the day after the Closing Date.

“PPACA” shall have the meaning specified in Section 2.19(h).

“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period ending at the end of the Closing Date.

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“Pre-Closing Tax Proceeding” shall have the meaning specified in Section 6.5(a).

“Primary Lease” means the Leases in respect of the real property located at (a) 280 Park Avenue, New York, New York 10017 and (b) 5 Hanover Square, London W1S 1HE, United Kingdom.

“Principal” means Mr. Andrew Feldstein, in his capacity as such pursuant to the terms of this Agreement.

“Principal Seller” means each of the Principal and Jane Veron.

“Principal Consideration” shall have the meaning specified in Section 1.3(c).

“Proceeding” means a formal administrative or civil action initiated by a Governmental Authority, a felony criminal indictment or information (or equivalent formal charge); or a misdemeanor criminal information (or equivalent formal charge). For the avoidance of doubt, a “Proceeding” shall not include other civil litigation, investigations, or arrests or similar charges effected in the absence of a formal criminal indictment or information (or equivalent formal charge).

“Profit Interest” shall have the meaning specified in each applicable Governing Agreement.

“Profit Units” shall have the meaning specified in each applicable Governing Agreement.

“Promissory Note” shall have the meaning specified in Section 1.3(a).

“Public Official” means (a) any director, officer, employee or representative of any regional, federal, state, provincial, county or municipal government or government department, agency, or other division; (b) any director, officer, employee or representative of any commercial enterprise that is owned or controlled by a government, including any state-owned or controlled company or organization; (c) any director, officer, employee or representative of any public international organization, such as the United Nations or the World Bank; (d) any person acting in an official capacity for any government or government entity, enterprise, or organization identified above; and (e) any political party, party official or candidate for political office.

“Purchase Price” shall have the meaning specified in Section 1.3(a).

“Purchase Price Allocation” shall have the meaning specified in Section 1.3(e).

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“Purchaser” shall have the meaning specified in the preamble hereto.

“Purchaser Fundamental Representations” shall have the meaning specified in Section 8.3(a).

“Purchaser Indemnified Party” and “Purchaser Indemnified Parties” shall have the meanings specified in Section 9.2.

“Purchaser Parent” shall have the meaning specified in the preamble hereto.

“Purchaser Tax Return” shall have the meaning specified in Section 6.3(c).

“Related Party” shall have the meaning specified in Section 12.13.

“Required Clients” means each of the Clients set forth on Schedule 11.3.

“Restructuring” means the actions of the BlueMountain Operating Companies and the BlueMountain Subsidiaries, as applicable, taken since January 1, 2019, or anticipated to be take prior to the Closing, in order to implement the reduction in workforce of the individuals set forth on Schedule 5.11, including using commercially reasonable efforts to obtain from each such individual an executed release agreement that is substantially in the form of the applicable agreement attached as an exhibit to Schedule 5.11.

“Restructuring Costs” means any fees, costs and expenses incurred by the BlueMountain Operating Companies and the BlueMountain Subsidiaries since January 1, 2019 in connection with or as a result of the implementation of the Restructuring, including without limitation any costs specified on Schedule 5.11 and any severance costs and/or deferred compensation payable to employees of the BlueMountain Operating Companies or the BlueMountain Subsidiaries that have been or will be terminated in connection with the Restructuring.

“RIA” shall have the meaning specified in Section 2.15(b).

“R&W Insurance Costs” means the aggregate cost of the R&W Insurance Policy, including any premium, underwriting costs and fees relating thereto.

“R&W Insurance Policy” means the Purchaser-side representation and warranty insurance policy attached hereto as Exhibit F.

“Sale Percentage” means, with respect to each Seller, the percentage set forth opposite such Seller’s name under “Sale Percentage” in Schedule A, which percentage represents

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such Seller’s aggregate pro rata ownership of the BlueMountain Interests as of the Closing Date. For the avoidance of doubt, the aggregate Sale Percentages are equal to 100%.

“Satisfaction Date” shall have the meaning specified in Section 1.2.

“Savings Plan” shall have the meaning specified in Section 5.15.

“SEC” means the Securities and Exchange Commission or any successor agency thereto.

“Securities Act” means the Securities Act of 1933, as the same may be amended from time to time and any successor to such act.

“Seller” and “Sellers” shall have the meanings specified in the preamble hereto.

“Seller Closing Consideration” shall have the meaning specified in Section 1.3(b)(i).

“Seller Fundamental Representations” shall have the meaning specified in Section 7.3(a).

“Seller Indemnified Party” and “Seller Indemnified Parties” shall have the meaning specified in Section 9.5.

“Seller Released Party” means (a) each Seller, (b) each Affiliate of any Seller and (c) any then-current or former director, officer, stockholder, owner, employee, agent or representative of any Person described in clauses (a) or (b).

“Seller Representative” means Andrew Feldstein, in his capacity as such pursuant to the terms of this Agreement.

“Seller Transaction Expenses” means (a) all fees, costs and expenses incurred by the BlueMountain Operating Companies and their respective Subsidiaries on or after the Locked Box Date (whether or not paid prior to the Closing) in connection with the sale process of the BlueMountain Operating Companies and BMCP London, and the preparation, negotiation and execution of this Agreement and the performance and consummation of the Purchase and the other transactions contemplated hereby and thereby, including: (i) fees, costs and expenses of all investment bankers, attorneys, accountants, actuaries, consultants, experts or other professionals, if any, engaged by or on behalf of any BlueMountain Operating Company or any of its Subsidiaries; (ii) severance, bonuses, retention payments and other change-of-control payments made to employees, independent contractors or directors of any BlueMountain Operating Company or any of its Subsidiaries that become contractually due as a result of this Agreement

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and the transactions contemplated hereby (but excluding, for the avoidance of doubt, (A) payments of amounts specified on Schedule 11.4 and (B) any “double-trigger” severance or similar payments caused by actions taken by Purchaser after the Closing); and (iii) the employer paid portion of any employment or payroll Taxes, without duplication, that become payable in connection with the payments referenced in clause (ii) above; and (b) legal fees of Skadden, Arps, Slate, Meagher & Flom LLP accrued through June 23, 2019 by the AMG Seller in connection with the sale process of the BlueMountain Operating Companies and BMCP London, and the preparation, negotiation and execution of this Agreement; provided that the amount of such legal fees shall not exceed the lesser of (i) $300,000 and (ii) the amount, if any, by which $5,000,000 exceeds the aggregate amount of the fees, costs and expenses of the BlueMountain Operating Companies and their respective Subsidiaries under clause (a) above. For the avoidance of doubt, Seller Transaction Expenses shall not include any Restructuring Costs.

“Share Price” means the VWAP of Parent Common Stock for the twenty (20) consecutive trading days ending on (and including) the trading day immediately prior to the Closing Date.

“Side Letter” means any agreement entered into between a BlueMountain Fund and an investor in such BlueMountain Fund in connection with such investor’s investment.

“Single Investor Consent” means the Client Consent in respect of the Single Investor Fund.

“Single Investor Fund” means BlueMountain Fursan Fund L.P.

“Straddle Period” means any Tax period that includes, but does not end on, the Closing Date.

“Subsidiaries” means, with respect to any Person, any and all corporations, partnerships, limited liability companies and other entities with respect to which such Person, directly or indirectly, owns securities having the power to elect a majority of the board of directors or similar body governing the affairs of such entity; provided that no BlueMountain Fund or CLO Client shall be a Subsidiary.

“Tax” and “Taxes” means all federal, state, local, foreign, and other taxes, government fees or the like, including, without limitation, income taxes, estimated taxes, alternative minimum taxes, franchise taxes, capital stock taxes, sales taxes, use taxes, ad valorem or value-added taxes, employment and payroll-related taxes, withholding taxes, and transfer taxes, whether or not measured in whole or in part by net income, and all deficiencies, or other additions to tax, interest thereon and fines and penalties in connection therewith.

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“Tax Dispute Notice” shall have the meaning specified in Section 6.3(c).

“Tax Distribution Amount” means, with respect to any Seller, the amount, if any, distributed to such Seller by Management Company LLC, GP Holdings LLC or CLO Management LLC, as the case may be, constituting a “Tax Distribution Amount” (as that term is defined in the Management Company LLC Agreement, GP Holdings LLC Agreement and CLO Management LLC Agreement, respectively).

“Tax Proceeding” shall have the meaning specified in Section 6.5(a).

“Tax Refund” shall have the meaning specified in Section 6.6.

“Tax Return” means any federal, state, local or foreign return, declaration, election, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto and including any amendment thereof.

“Taxing Authority” shall have the meaning specified in Section 2.8(b).

“Total Consideration” shall have the meaning specified in Section 1.3(e).

“Track Records” shall have the meaning specified in Section 2.15(g).

“Trade Secrets” means all know-how, trade secrets and confidential proprietary information, including concepts, methods, practices, processes, designs, customer lists, technical information, inventions and discoveries, in each case, in any form or medium.

“Transaction Documents” means the Employment Agreement, the Lock-Up Agreement, the Disbursing Agent Agreement and the Transfer Instruments described in Section 1.4(b)(i).

“Transfer Taxes” shall have the meaning specified in Section 1.6.

“Unadjusted Differences Excess” means an amount equal to (a) the Net Assets Reduction Amount minus (b) $1,000,000. For the avoidance of doubt, in no case shall the “Unadjusted Differences Excess” be a negative number.

“Unaffiliated Party” shall have the meaning specified in Section 5.3(a)(i).

“VWAP” means for the Parent Common Stock, the volume weighted average trade price per share of Parent Common Stock on the NYSE (calculated to the nearest one-hundredth of a cent) as reported by Bloomberg L.P., or any successor thereto, through its “Volume Weighted Average Price” function.

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“Wire Transfer” means a payment in immediately available funds by wire transfer in lawful money of the United States to such account or to a number of accounts as shall have been designated by written notice from the receiving party to the paying party.

SECTION 12. MISCELLANEOUS

12.1Fees and Expenses. Except as otherwise expressly provided herein, (a) Purchaser shall pay its own expenses incident to the negotiation and consummation of the transactions contemplated by this Agreement and the agreements, instruments and documents contemplated hereby and (b) the BlueMountain Operating Companies and the Sellers shall pay their own respective expenses incident to the negotiation and consummation of the transactions contemplated by this Agreement and the agreements, instruments and documents contemplated hereby.

12.2Waivers. Any waiver of any terms or conditions or of the breach of any covenant, agreement, representation or warranty of this Agreement in any one instance shall not operate as or be deemed to be or construed as a further or continuing waiver of any other breach of such term, condition, covenant, representation or warranty or any other term, condition, covenant, agreement, representation or warranty, nor shall any failure or delay at any time or times to enforce or require performance of any provision hereof operate as a waiver of or affect in any manner a party’s right at a later time to enforce or require performance of such provision or of any provision hereof; provided, however, that no such waiver, unless it, by its own terms, explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provision being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance.

12.3Governing Law. This Agreement, the legal relations between the parties and the adjudication and the enforcement thereof shall be governed by and interpreted and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within the State of New York, without regard to the conflict of law provisions thereof that could result in the application of the laws of any other jurisdiction.

12.4Notices. Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if delivered by hand, upon receipt, (ii) if delivered by email, the Business Day following the day it is sent, and (iii) if sent by overnight courier, the Business Day following the date it is sent. All notices to a party will be sent to the addresses set forth below or to such other address or Person as such party may designate by notice to each other party hereunder:

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TO PURCHASER OR PURCHASER PARENT:

c/o Assured Guaranty US Holdings Inc.1633 Broadway
New York, New York 10019
Attn: General Counselgeneralcounsel@agltd.com

with a copy (which shall not constitute notice) to:

Mayer Brown LLP
71 South Wacker Drive
Chicago, Illinois 60606
Attention: Edward S. Best
Email: ebest@mayerbrown.com

TO ANY BLUEMOUNTAIN OPERATING ENTITY:

c/o BlueMountain Capital Management, LLC
280 Park Avenue, 12^th Floor
New York, New York 10017
Attn: General Counsellegalnotices@bluemountaincapital.com

TO ANY BLUEMOUNTAIN SELLER:

c/o BlueMountain Capital Management, LLC
280 Park Avenue, 12th Floor
New York, New York 10017
Attn: Sellers Representativesellersrep@bluemountaincapital.com

TO THE AMG SELLER OR AMG PARENT:

c/o Affiliated Managers Group, Inc.
777 South Flagler DriveWest Palm Beach, FL, 33401Attn: David Billings; Ben LangilleEmail: david.billings@amg.com; ben.langille@amg.com

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12.5Entire Agreement, Etc.

(a)This Agreement, including the Schedules and Exhibits referred to herein, the Transaction Documents and the other writings specifically identified herein or contemplated hereby, is complete, reflects the entire agreement of the parties with respect to its subject matter, and supersedes all previous written or oral negotiations, commitments and writings. No promises, representations, understandings, warranties and agreements have been made by any of the parties hereto, except as referred to herein or in such Schedules and Exhibits or in such other writings; and all inducements to the making of this Agreement and the transactions contemplated hereby which were relied upon by any party hereto have been expressed herein or in such Schedules or Exhibits or in such other writings. All references to “dollars” or “$” in this Agreement are to U.S. dollars.

(b)(i) The parties hereto acknowledge and agree that no party nor any of its Affiliates, representatives or agents is making any representation or warranty whatsoever, oral or written, express or implied, other than those set forth in Sections 2, 3 and 4 (as applicable) (or any certificate delivered pursuant to this Agreement), and, except as and only to the extent expressly set forth in Sections 2, 3 and 4, no party is relying on any statement, representation or warranty, oral or written, express or implied, made by any other party or such other party’s Affiliates, representatives or agents (including with respect to (A) the success, profitability or financial results or condition of the BlueMountain Operating Companies, BlueMountain Subsidiaries or BlueMountain Funds or the business of the BlueMountain Operating Companies, BlueMountain Subsidiaries or BlueMountain Funds after the Closing or (B) the accuracy or completeness of any information (written or oral), documents or material (including any cost estimate, valuation, appraisal, projection or forecast) made available by or on behalf of the BlueMountain Operating Companies or any BlueMountain Subsidiary, any BlueMountain Fund or any Seller to Purchaser or its respective counsels, accountants or advisors, whether before or after the execution and delivery of this Agreement, in any “data rooms,” information memoranda, management presentations, functional “break-out” discussions or in any other form or forum in connection with the transactions contemplated by this Agreement, (including any information that may be delivered by or on behalf of such Persons pursuant to Section 5.4) or any omission therefrom to another party or any of its Affiliates) and (ii) Purchaser acknowledges and agrees that, to the fullest extent permitted by applicable Laws and Regulations, neither the BlueMountain Operating Companies nor any Seller, controlling persons or representatives shall have any liability or responsibility whatsoever to Purchaser or its affiliates or any of their respective stockholders, controlling persons or representatives on any basis (including in contract or tort, under federal or state securities laws or otherwise) based upon any such information made available to Purchaser or its affiliates, or their respective stockholders, controlling persons or representatives, except as and only to the extent expressly set forth in Section 2 and Section 3 (as supplemented and qualified by the Disclosure Schedule).

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EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE ASSETS OF THE BLUEMOUNTAIN OPERATING COMPANIES OR BLUEMOUNTAIN SUBSIDIARIES. In furtherance of the foregoing, Purchaser acknowledges and agrees that it (i) is an informed and sophisticated purchaser, and has engaged expert advisors experienced in the evaluation and purchase of companies such as the BlueMountain Operating Companies and BlueMountain Subsidiaries as contemplated hereunder, (ii) has undertaken such investigation and has been provided with and has evaluated such documents, information and other material as it has deemed necessary to enable it to make an informed and intelligent decision and, based thereon, has formed an independent judgment concerning the BlueMountain Operating Companies, BlueMountain Subsidiaries and BlueMountain Funds, the business, financial condition, operations, assets, liabilities and properties of the BlueMountain Operating Companies, BlueMountain Subsidiaries and BlueMountain Funds, and the transactions contemplated hereby, (iii) has had such time as it deems necessary and appropriate fully and completely to review and analyze such documents, information and other materials and (iv) is not relying upon and has not relied upon any other representations, opinions or other information made available or delivered (or failure thereof) by, on behalf of or with respect to the BlueMountain Operating Companies, BlueMountain Subsidiaries and BlueMountain Funds or the Sellers or by any of their Affiliates or any of their respective representatives other than the representations and warranties expressly set forth in Sections 3 and 4, and any claims Purchaser may have for breach of representation or warranty in this agreement shall be based solely on the representations and warranties expressly set forth in Sections 3 and 4; provided, that nothing herein shall limit or preclude the ability of any party hereto to seek recovery in the event of Fraud.

12.6Assignability; Binding Effect. This Agreement or any of the obligations or rights hereunder: (i) may not be assigned by Purchaser without the prior written consent of the Seller Representative and the AMG Seller; provided that Purchaser may assign this Agreement or any obligations or rights hereunder to any of its Affiliates that is wholly owned by Purchaser Parent, including for purposes of designating any such Affiliate to purchase the equity of one or more of the BlueMountain Operating Companies or BlueMountain Subsidiaries hereunder; provided, further, that no such assignment by Purchaser shall relieve Purchaser of any of its obligations hereunder; (ii) may not be assigned by the AMG Seller without the prior written consent of Purchaser and the Seller Representative other than to a controlled Affiliate of the AMG Seller (for which consent shall not be required); provided that no such assignment by the AMG Seller shall relieve the AMG Seller of any of its obligations hereunder; and (iii) may not be assigned by any of the BlueMountain Sellers or any of the BlueMountain Operating Companies without the prior written consent of Purchaser and the AMG Seller. This Agreement

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shall be binding upon and enforceable by, and shall inure to the benefit of, the parties hereto and their respective successors, heirs, executors, administrators and permitted assigns. Except as otherwise provided herein, nothing in this Agreement is intended or shall be construed to confer upon any Person other than the parties hereto and their respective successors and permitted assigns any right, remedy or claim.

12.7Captions; Gender; Interpretation. The captions in this Agreement are for convenience only and shall not affect the construction or interpretation of any term or provision hereof. The use in this Agreement of the masculine pronoun in reference to a party hereto shall be deemed to include the feminine or neuter, as the context may require. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” Any document, list or other item shall be deemed to have been “made available” to Purchaser for all purposes of this Agreement only if such document, list or other item was posted at least two (2) Business Days prior to the date hereof in the electronic dataroom established by the Sellers in connection with the transactions contemplated by this Agreement. All terms defined in this Agreement in the singular have a comparable meaning when used in the plural, and vice versa. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by all parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. References to any Person include the successors and permitted assigns of that Person.

12.8Execution in Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be (i) executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document, and (ii) executed by facsimile.

12.9Amendments. This Agreement may not be amended or modified except by a writing duly and validly executed by (i) Purchaser, (ii) the AMG Seller and (iii) the Seller Representative (on his own behalf and on behalf of each of the BlueMountain Sellers and the BlueMountain Operating Companies, and the Seller Representative shall be authorized to so amend this Agreement on behalf of each of them), and compliance with any provisions set forth in this Agreement may not be waived except by a writing duly and validly executed by the party waiving compliance.

12.10Publicity and Disclosures. Purchaser, the AMG Seller and the Seller Representative shall coordinate with each other in advance as to the form and content of any press release or other external written communication to be disseminated to members of the public regarding the transactions contemplated by this Agreement. No press releases or public

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disclosure, either written or oral, of the transactions contemplated by this Agreement shall be made by a party to this Agreement without the prior written consent of Purchaser, the AMG Seller and the Seller Representative (which consent shall not be unreasonably withheld), except as is otherwise required by applicable Laws and Regulations or pursuant to any listing agreement with or rules of any national securities exchange or by the request of any Governmental Authority (in which case, to the extent possible under the circumstances and permitted by applicable Laws or Regulations, the party making such disclosure shall provide prior notice to the other parties described in this Section 12.10).

12.11Specific Performance.

(a)The parties agree that if any of the provisions of this Agreement were not performed by the parties hereto in accordance with their specific terms or were otherwise breached thereby at or prior to the Closing, irreparable damage would occur, no adequate remedy at law would exist and damages would not be able to be determined, and that each of Purchaser, the AMG Seller and the Seller Representative (acting on behalf of the BlueMountain Sellers), but no other party hereto, will be entitled to specific performance at or prior to the Closing to prevent such breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which it may be entitled at law or in equity.

(b)Each of the parties agrees that (i) it is their intention that each of Purchaser, the AMG Seller and the Seller Representative (on behalf of the BlueMountain Sellers) be able to obtain specific performance to specifically enforce the provisions of this Agreement, and no party will take any different or conflicting position in any legal, administrative, arbitral or other proceedings, suits or actions and (ii) it will not oppose the granting of, or raise any objections to the availability or granting of, the equitable remedy of specific performance or other equitable relief on the basis that (x) the other party has an adequate remedy at law (including monetary damages) or (y) an award of specific performance is not an appropriate remedy for any reason at law or equity. No party hereto shall be required to provide any bond or other security in connection with any order or injunction to prevent breaches of this Agreement or to enforce specifically the terms and provisions of this Agreement.

12.12Submission to Jurisdiction; Waiver of Jury Trial.

(a)Any suit, action or proceeding arising under or in connection with this Agreement or any Transaction Document and the transactions contemplated hereby and thereby shall be brought in a state court located in the borough of Manhattan in New York, New York or a federal court located in the borough of Manhattan in New York, New York. Each party hereto hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate

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appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by applicable Laws and Regulations, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party hereto anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party hereto agrees that service of process on such party as provided in Section 12.4 shall be deemed effective service of process on such party.

(b)EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTION DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY HERETO UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY HERETO MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HERETO HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.12(B).

12.13No Recourse. Any claim or cause of action based upon, arising out of, or related to this Agreement may only be brought against Persons that are expressly named as parties hereto and then only with respect to the specific obligations set forth herein with respect to such party. Subject to the immediately preceding sentence, no former, current or future direct or indirect equity holders, controlling Persons, stockholders, directors, officers, employees, members, managers, agents, Affiliates, general or limited partners or assignees (each, with respect to any Person, a “Related Party”) of any Seller, any BlueMountain Operating Company or any BlueMountain Subsidiaries, Purchaser or any Related Party of any of the foregoing shall have any liability or obligation for any of the representations, warranties, covenants, agreements, obligations or liabilities of the BlueMountain Operating Companies, any Seller or Purchaser under this Agreement or of or for any proceeding based on, in respect of, or by reason of, the transactions contemplated hereby (including the breach, termination or failure to consummate such transactions), in each case whether based on contract, tort, strict liability or otherwise, by

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the enforcement of any assessment, by any legal or equitable proceeding, by virtue of any applicable Laws and Regulations or otherwise and whether by or through attempted piercing of the corporate or partnership veil, by or through a claim by or on behalf of any party or other Person or otherwise. Notwithstanding the foregoing, nothing herein shall limit or preclude the ability of any party hereto to bring a claim and seek recovery in the event of Fraud.

12.14Releases. %3. Effective at the Closing, each Seller, on behalf of itself and its respective Affiliates (other than the BlueMountain Operating Companies and BlueMountain Subsidiaries) and their respective successors and assigns, hereby irrevocably and unconditionally releases and forever discharges each other Seller Released Party, each BlueMountain Operating Company and each BlueMountain Subsidiary from any and all past, present and future actions, claims, causes of action, debts, obligations, liabilities, damages or losses of any kind, character, description or nature whatsoever, known or unknown to such Seller and its Affiliates, suspected or unsuspected, reported or unreported, fixed or contingent, accrued or unaccrued, liquidated or unliquidated, whether grounded in law or equity or sounding in tort or contract or otherwise, which such Seller or its respective Affiliates (other than the BlueMountain Operating Companies and BlueMountain Subsidiaries) and their respective successors and assigns any time prior to the Closing has, owns or holds or claims to have, own or hold against another Seller Released Party or any BlueMountain Operating Company or BlueMountain Subsidiary, arising directly or indirectly out of, based upon, or in any way related to or in connection with the ownership of the BlueMountain Operating Companies or BlueMountain Subsidiaries by such Seller or the conduct of the business of the BlueMountain Operating Companies or BlueMountain Subsidiaries prior to the Closing; provided, however, that the provisions of this Section 12.14(a) shall not apply to, or modify, the rights of any Seller under this Agreement or the Transaction Documents.

(a)Effective at the Closing, each BlueMountain Operating Company, on behalf of itself and its respective Controlled Affiliates (including the BlueMountain Subsidiaries) and their respective successors and assigns, hereby irrevocably and unconditionally releases and forever discharges each Seller Released Party from any and all past, present and future actions, claims, causes of action, debts, obligations, liabilities, damages or losses of any kind, character, description or nature whatsoever, known or unknown to such BlueMountain Operating Company and its Controlled Affiliates, suspected or unsuspected, reported or unreported, fixed or contingent, accrued or unaccrued, liquidated or unliquidated, whether grounded in law or equity or sounding in tort or contract or otherwise, which such BlueMountain Operating Company or any of its Controlled Affiliates (including the BlueMountain Subsidiaries) or their respective successors and assigns at any time prior to Closing has, owns or holds or claims to have, own or hold against a Seller Released Party, arising directly or indirectly out of, based upon, or in any way related to or in connection with any Seller Released Party’s ownership of any BlueMountain Operating Company or BlueMountain Subsidiary or the conduct of the business of the BlueMountain Operating Companies or BlueMountain Subsidiaries prior to

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the Closing; provided, however, that the provisions of this Section 12.14(b) shall not apply to, or modify, the rights of any BlueMountain Operating Company or of Purchaser or its Affiliates under this Agreement or the Transaction Documents.

(b)Effective as of the Closing, each of the AMG Side Letters shall automatically terminate and cease to be of any further force and effect, and no party shall have any further rights, obligations or liability thereunder.

(c)For the avoidance of doubt, effective from and after the Closing, (i) each Seller agrees that it shall have no further right to consent to or approve any amendment, modification or restatement of any of the Organizational Documents of the BlueMountain Operating Companies or the BlueMountain Subsidiaries and (ii) none of the Sellers shall have any obligations under any of the Organizational Documents of the BlueMountain Operating Companies.

12.15Disclosure Schedule. The disclosure of any item or matter in a Disclosure Schedule shall not be construed as an admission, representation or indication that such item or other matter is “material” or would, or would reasonably be expected to, have a Material Adverse Effect, as the case may be, or that such item or other matter is required to be referred to or disclosed in such Disclosure Schedule, nor shall such disclosure establish a standard of materiality for any purpose whatsoever. The disclosure of any item or matter relating to any possible breach or violation of any law or contract shall not be construed as an admission or indication that any such breach or violation exists or has actually occurred.

12.16Seller Representative.

(a)Each of the BlueMountain Sellers hereby irrevocably appoints the Seller Representative as agent and attorney-in-fact for and on behalf of the BlueMountain Sellers, and the Seller Representative hereby accepts his appointment as the “Seller Representative” hereunder. The Seller Representative shall have full power and authority to represent all of the BlueMountain Sellers and their respective successors with respect to all matters arising under this Agreement for which the Seller Representative is authorized to act on their behalf. All actions taken by the Seller Representative pursuant to the authority granted hereunder shall be binding upon the BlueMountain Sellers as if expressly confirmed and ratified in writing by each of them. and the BlueMountain Sellers shall not have the right to object, dissent, protest or otherwise contest the same. The Seller Representative shall take any and all actions that the Seller Representative believes are necessary or appropriate under this Agreement for and on behalf of the BlueMountain Sellers as if the BlueMountain Sellers were acting on their own behalf. Purchaser and the AMG Seller may rely (without investigation) upon any representation or action taken or notice, consent or instruction given by the Seller Representative

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on behalf of the BlueMountain Sellers pursuant to the terms of this Agreement as being authorized by the BlueMountain Sellers, and no party hereto shall have any cause of action against Purchaser, the AMG Seller, the BlueMountain Operating Companies or any BlueMountain Subsidiary for any action taken by Purchaser or the AMG Seller (as applicable) in reliance upon any such decision, consent, instruction or action.

(b)All actions, decisions and instructions of the Seller Representative in connection with the administration of his duties hereunder shall be conclusive and binding upon all of the BlueMountain Sellers. Except as otherwise provided in this Agreement, the Seller Representative shall have no duties to the BlueMountain Sellers, shall not be deemed to be an agent of the BlueMountain Sellers and shall have no liability to the BlueMountain Sellers for any action taken, decision made or instruction given by the Seller Representative pursuant to the authority granted to the Seller Representative under the terms of this Agreement, except in the case of the Seller Representative’s willful misconduct. The Seller Representative may, in all questions arising under this Agreement, rely on the advice of counsel, and for anything done, omitted or suffered in good faith by the Seller Representative in accordance with such advice, the Seller Representative shall not be liable to the BlueMountain Sellers. The BlueMountain Sellers shall severally but not jointly indemnify, defend and hold the Seller Representative harmless against any Loss, liability or expense incurred without gross negligence, fraud or willful misconduct on the part of the Seller Representative and arising out of or in connection with the acceptance or administration of his duties hereunder, including the reasonable fees and expenses of any third party retained by Seller Representative in connection with the performance of his duties hereunder.

(c)In the event of the death or permanent disability of the Seller Representative, a successor Seller Representative shall be selected by the BlueMountain Sellers (or their respective estates, executors or personal representatives) representing a majority of the Sale Percentages held by all BlueMountain Sellers, in which event the selected successor shall promptly notify Purchaser in writing of his, her or its succession as the Seller Representative.

12.17Guaranty of AMG Parent.

(a)AMG Parent hereby absolutely, unconditionally and irrevocably guarantees to and for the benefit of Purchaser and any Purchaser Indemnified Party (collectively, the “Guaranteed Parties”) the punctual and complete payment and performance if, as and when due, by the AMG Seller of all of the AMG Seller’s indemnification obligations set forth in Section 9 of this Agreement (such obligations, as amended from time to time, the “Guaranteed Obligations”). Each Guaranteed Party may, in its sole discretion, bring and prosecute a separate action against AMG Parent for the performance or payment of the Guaranteed Obligations, regardless of whether such action is brought against the AMG Seller or whether the AMG Seller

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is joined in any such action. This guarantee constitutes a guarantee of payment and not of collection. The Guaranteed Obligations will not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of the AMG Seller or by any defense which the AMG Seller may have by reason of the Order or decision of any court or administrative body resulting from any such proceeding. The Guaranteed Parties shall not be obligated to file any claim relating to the Guaranteed Obligations in the event that the AMG Seller becomes subject to a bankruptcy, reorganization, insolvency or similar proceeding, and the failure of any Guaranteed Party to so file shall not affect the Guaranteed Obligations hereunder. AMG Parent shall not institute any proceeding asserting or assert as a defense in any proceeding, and shall cause its respective Affiliates not to institute any proceeding asserting or assert a defense in any proceeding, that this guarantee is illegal, invalid or unenforceable in accordance with its terms.

(b)AMG Parent waives promptness, diligence, notice of the acceptance of this guarantee, presentment, demand for payment, notice of non-performance, default, dishonor and protest, notice of any Guaranteed Obligations incurred, notice of the creation, renewal, extension or accrual of any of the Guaranteed Obligations, notice of or proof of reliance by Purchaser upon guarantee, any right to require the marshalling of assets of the AMG Seller and all suretyship defenses generally.

(c)AMG Parent hereby represents and warrants that (i) AMG Parent has full power and authority to execute and deliver this Agreement and to perform the obligations under this Section 12.17, and the execution, delivery and performance under this Section 12.17 of this Agreement by AMG Parent has been duly authorized by all necessary action on the part of AMG Parent; (ii) this Agreement constitutes a legal, valid and binding obligation of AMG Parent enforceable in accordance with its terms, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or similar laws affecting creditors’ rights generally; and (iii) the execution, delivery and performance under this Section 12.17 by AMG Parent does not contravene any provision of AMG Parent’s Organizational Documents or any Laws and Regulations or contractual restriction binding on AMG Parent or any of its assets.

[Remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be executed as of the date first above written.

Purchaser:

ASSURED GUARANTY US HOLDINGS INC.

By:        Name:    [●]    Title:    [●]

Purchaser Parent:

ASSURED GUARANTY LTD., solely for purposes of Sections 1.3(c)(ii), 4.1, 4.2, 4.5 and 4.9

By:        Name:    [●]    Title:    [●]

[Purchase Agreement]

BlueMountain Operating Companies:

BLUEMOUNTAIN CAPITAL MANAGEMENT, LLC

By:        Name:    [●]    Title:    [●]

BLUEMOUNTAIN GP
HOLDINGS, LLC

By:        Name:    [●]    Title:    [●]

BLUEMOUNTAIN CLO MANAGEMENT, LLC

By:        Name:    [●]    Title:    [●]

BlueMountain Sellers:

    Name:    [●]

    Name:    [●]

    Name:    [●]

[Purchase Agreement]

AMG Seller:

BMCM ACQUISITION, LLC

By:    AMG New York Holdings Corp.,    Its Sole Member and Manager

By:    

    Name:    David M. Billings    Title:    President and Secretary

AMG Parent:

AFFILIATED MANAGERS GROUP, INC., solely for purposes of Section 12.17

By:    

    Name:    David M. Billings    Title:    Executive Vice President,        General Counsel and Secretary

[Purchase Agreement]

EX-10.1

Execution Version

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of August 7, 2019 (the “Effective Date”), by and between AG US Group Services Inc. (the “Company”), BlueMountain Capital Management, LLC, a Delaware limited liability company (“BCM”), and Andrew Feldstein (“Executive”). The Company and Executive are sometimes hereinafter referred to individually as a “Party” and together as “Parties.” Assured Guaranty Ltd. (“Parent”) and Assured Guaranty US Holdings Inc. (“AGUS”) (the Parent, AGUS, the Company and their Affiliates collectively referred to as the “Assured Guaranty Group”) are expressly intended to be third party beneficiaries of this Agreement. Unless otherwise defined in the body of this Agreement, capitalized terms shall be defined as provided in Appendix I to this Agreement.

WHEREAS, Executive currently owns equity interests in BCM, BlueMountain GP Holdings, LLC and BlueMountain CLO Management LLC (such entities referred to as the “BlueMountain Operating Companies”) and serves as Chief Executive Officer, Chief Investment Officer and Executive Partner of BCM, BlueMountain CLO Management LLC and BlueMountain GP Holdings, LLC;

WHEREAS, Parent and AGUS have, concurrently with the execution and delivery of this Agreement, entered into a purchase agreement by and among the Blue Mountain Operating Companies, Executive, and certain other sellers named therein (the “Purchase Agreement”) pursuant to which AGUS is agreeing to purchase all of the equity interests in each of the BlueMountain Operating Companies (including those owned by Executive), subject to the terms and conditions contained therein;

WHEREAS, following the closing of such purchase (the “Transaction”), the Blue Mountain Operating Companies, among other entities, shall become wholly-owned subsidiaries of AGUS and shall be part of the Assured Guaranty Group for purposes of this Agreement;

WHEREAS, Parent and AGUS would not have entered into the Purchase Agreement but for Executive’s agreement to enter into this Agreement with the Company and BCM, and Executive would not have entered into the Purchase Agreement but for the Company and BCM’s agreement to enter into this Agreement with Executive;

WHEREAS, the Company and BCM desire to employ Executive, and Executive desires to be employed by the Company and BCM, in each case from and after the consummation of the Transaction, and pursuant to which Executive’s units in such BlueMountain Operating Companies will be sold to AGUS; and

WHEREAS, the Company, BCM, and Executive desire to enter into this Agreement pertaining to the employment of Executive by the Company and BCM from and after the consummation of the Transaction.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, the Parties agree as follows:

AGREEMENT

1.Agreement Term. The “Agreement Term” shall mean the period commencing on the Closing Date (as such term is defined in the Purchase Agreement) and, unless terminated sooner as provided in Section 6(a) hereof, continuing until the five (5)-year anniversary of the Closing Date. Following the end of the Agreement Term, Executive shall continue to be employed on an “at-will” basis, and the provisions of this Agreement shall no longer apply except to the extent that a provision hereunder specifically continues to apply after the end of the Agreement Term. For the avoidance of doubt, Sections 5, 7, 8, 9 and 10 shall continue in full force and effect on or after the end of the Agreement Term to the extent provided herein and subject to the terms and conditions hereof.

2.Position and Duties.

(a)Title; Responsibilities; Authority. During the Agreement Term, Executive will serve as the Chief Investment Officer and Head of Asset Management of the Assured Guaranty Group, and will have the normal duties, responsibilities and authority of that position, including, without limitation, primary authority with respect to asset management activities of the Assured Guaranty Group, as presently conducted or as may be conducted after the date hereof, by any current or future member of the Assured Guaranty Group, including, without limitation, with respect to any Affiliated Asset Manager. As Chief Investment Officer and Head of Asset Management of the Assured Guaranty Group, Executive shall have sole responsibility for serving as the chief executive officer and chief investment officer of the BlueMountain Operating Companies and as managing partner of BlueMountain Capital Partners (London) LLP. Additional duties and responsibilities may, in the reasonable discretion of the Chief Executive Officer of the Company, be assigned to Executive, provided that the same are not inconsistent with the role of the Head of Asset Management and Chief Investment Officer. Executive shall report to the Chief Executive Officer of the Company and be subject to the supervision and control of the Chief Executive Officer of the Company and the Parent’s board of directors (the “Board”) or its delegate, and any other executive of any member of the Assured Guaranty Group who is primarily engaged in asset management activities shall report to Executive (or shall report to a Person who reports to Executive) in respect of such activities. In this trusted, executive position, Executive will be given access to the Company’s and its Affiliates’ Confidential Information (as defined below) to the extent such access does not violate applicable laws, rules, regulations or Assured Guaranty Group policies or otherwise conflict with Executive’s duties hereunder. Executive shall be appointed to serve on the executive committees as are listed on Exhibit A attached hereto, unless Executive’s membership on any such committee is prohibited by applicable laws, rules or regulations or Assured Guaranty Group policies, with such appointment to take effect upon approval by the relevant governing body of the relevant entity for which each such committee operates. Executive shall comply in all material respects with all applicable laws, rules and regulations relating to the performance of Executive’s duties and responsibilities hereunder. Executive’s primary place of employment shall be the Company’s or BCM’s headquarters in the Borough of Manhattan, New York. For the avoidance of doubt, the Parties agree that Executive shall not be treated as having a termination of employment with BCM as a result of the transactions contemplated hereunder. Notwithstanding anything in this Agreement to the contrary, Executive’s performance of his duties hereunder shall be subject to Executive’s fiduciary duties with respect to BlueMountain Funds or any Affiliated Funds and nothing herein shall require any act or omission inconsistent with any such fiduciary duties.

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(b)Exclusive Employment. During the Agreement Term, Executive shall devote substantially all of his full business time to his duties and responsibilities set forth above, and may not, without the prior written consent of the Board, operate, participate in the management, board of directors, operations or control of, or act as an employee, officer, consultant, agent or representative of, any type of business or service (other than as an employee of the Assured Guaranty Group); provided, however, that Executive may (i) engage in civic and charitable activities to the extent they do not materially interfere with Executive’s performance of his duties hereunder, (ii) make and maintain outside personal investments, and (iii) serve as a member of (A) the board of directors of PNC Financial Services Group Inc., (B) the Board of Trustees of Third Way, (C) the Board of Trustees of the Santa Fe Institute, and (D) the Advisory Board of Starfish Capital LLC (“Starfish”), provided that none of the foregoing activities and service (x) materially interfere with Executive’s performance of his duties hereunder, (y) violate his obligations under Sections 7, 8, 9 or 10 of this Agreement, or (z) are prohibited by applicable law or regulation.

3.Compensation.

(a)Base Salary. Executive shall receive a yearly Base Salary under this Agreement in the initial amount of three hundred thousand dollars ($300,000) for the remainder of 2019 and eight hundred thousand dollars ($800,000) for 2020; provided, that, for the avoidance of doubt, the amount for either such year will be prorated based on the number of days that Executive is employed by the Company in such year. Executive’s Base Salary will be paid by the Company in substantially equal installments in accordance with the Company’s normal payroll practices. The Base Salary will be reviewed annually in accordance with the Company’s procedures for the review of compensation of executives at Executive’s level and may be changed in the discretion of the Compensation Committee of the Board for years after 2020, and any such increased or decreased Base Salary shall constitute “Base Salary” for purposes of this Agreement. All amounts payable to Executive under this Agreement will be subject to all required withholding by the Company.

(b)Annual Non-Equity Incentive Program (“AIP”), Equity Incentive Compensation and Retention Grants. In addition to the Base Salary, for performance years 2020 and subsequent years during the Agreement Term, Executive shall be eligible for an annual grant of non-equity incentive-based cash compensation (the “AIP Grant”). The target amount of the AIP Grant and applicable performance goals shall be determined by the Compensation Committee of the Board (the “Compensation Committee”) during a meeting in the first quarter of each year; provided that the target AIP Grant for Executive for the grant to be made in respect of the 2020 performance year shall be 200% of Base Salary. The actual amount of Executive’s AIP Grant to be paid shall be determined by the Compensation Committee and paid no later than March 15 of the year following the performance year to which such AIP Grant relates. Executive must remain employed by the Company on the day on which AIP Grants are paid by the Company in order to receive such AIP Grant, except as provided below in Section 6.

For performance years 2020 and subsequent years during the Agreement Term, Executive shall also be eligible for annual grants of long-term incentive awards (the “Equity Incentive Compensation”) granted pursuant to the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan or such other long-term incentive plan as may be adopted by Parent, as in effect from time to time (in either case, the “LTIP”), provided that the amount, form, and performance conditions (if any) of any such awards shall be as determined by the Compensation Committee in its sole discretion, subject to the terms and conditions

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of the LTIP and any award agreement; provided that for the grants to be made in respect of the 2020 performance year, the target grant value of the Equity Incentive Compensation for Executive shall be three million six hundred thousand dollars ($3,600,000).

(c)As of the date of execution of this Agreement, Executive has provided the Company with a list in writing of all the interests that each member of the Executive Investor Group owns in any BlueMountain Fund and a list in writing of all accrued compensation, benefits or amounts that are owed to Executive by BCM or any of its Affiliates (other than any employee benefit plans that are subject to ERISA). Executive represents that such lists are accurate as of the date of execution of this Agreement, and Executive agrees to promptly provide to the Company any updates to those lists through the Closing Date as may be reasonably requested by the Company and, in any event, shall provide any such update no later than three (3) Business Days prior to the Closing Date.

4.Benefits. In addition to the Base Salary and other compensation provided for in Section 3 above, Executive shall be eligible to participate in such health and welfare benefit plans (including for Executive’s eligible dependents) and any qualified and/or non-qualified retirement plans of the Company as may be in effect from time to time;provided, however, that participation shall be subject to all of the terms and conditions of such plans, including, without limitation, all waiting periods, eligibility requirements, vesting, contributions, exclusions and other similar conditions or limitations. Any and all benefits under any such plans shall also be payable, if applicable, in accordance with the underlying terms and conditions of such plan document. Executive’s participation in the foregoing plans and any perquisite programs will be on terms no less favorable than afforded to executives at Executive’s level, as in effect from time to time. The Company, however, shall have the right in its sole discretion to modify, amend or terminate such benefit plans and/or perquisite programs at any time except as otherwise provided pursuant to the terms of such plans or programs. The Company will reimburse Executive for all reasonable business expenses incurred by Executive in the course of performing Executive’s duties and responsibilities under this Agreement which are consistent with the Company’s policies and procedures in effect from time to time.

5.Co-Investment. For the period beginning on the Closing Date and ending on the last day of the Covenant Period (the “Co-Investment Required Period”), Executive agrees to maintain a total subscription amount of the investments in or commitments to BlueMountain Funds and Affiliated Funds of at least the Required Investment Amount; provided, that investments or commitments held by Immediate Family Members of Executive and certain trusts all as provided to the Company in writing pursuant to Section 3(c) above (Executive together with all such Immediate Family Members and trusts referred to as the “Executive Investor Group”) shall be counted as part of his aggregate investments and commitments in BlueMountain Funds and Affiliated Funds for this purpose; provided, further, however, that, (i) at all times during the Co-Investment Required Period, no less than thirty million dollars ($30,000,000) (the “Executive Minimum Amount”) of the Required Investment Amount shall be invested directly by Executive in BlueMountain Funds and/or Affiliated Funds as an individual; (ii) in the event of any increase in the Required Investment Amount as a result of an increase in the total amount invested in or committed to BlueMountain Funds by the Assured Guaranty Group or in the event of any shortfall in the Required Investment Amount arising as a result of less than the full amount subscribed or committed by the Executive Investor Group being called prior to the end of the investment period for the applicable fund, then the Executive Investor Group shall have sixty (60) days from the date Executive receives notice thereof pursuant

4

to Section 5(b) hereof to satisfy such increased Required Investment Amount. For the avoidance of doubt, for purposes of this Section 5, a reference to a subscription or a commitment means the dollar amount of an enforceable written contractual commitment by Executive or the Executive Investor Group to make a capital contribution to a BlueMountain Fund or an Affiliated Fund or the dollar amount of an enforceable written contractual commitment by the Assured Guaranty Group to make a capital contribution to a BlueMountain Fund.

(a)The “Required Investment Amount” (i) shall, for the period beginning on the Closing Date and ending on the two (2)-year anniversary of the Closing Date, be equal to the greater of (x) eighty million dollars ($80,000,000) and (y) an amount equal to twenty percent (20%) of the total amount of the subscription amount of the investments in or commitments to BlueMountain Funds by the Assured Guaranty Group and (ii) shall, for the period beginning on the two (2)-year anniversary of the Closing Date and ending on the last day of the Co-Investment Required Period, be equal to twenty percent (20%) of the total subscription amount of the investments in or commitments to BlueMountain Funds by the Assured Guaranty Group; provided, that, in all events, the Required Investment Amount shall not exceed one hundred fifty million dollars ($150,000,000); provided, further, that notwithstanding the foregoing, in the event Executive’s employment terminates for any reason other than under Section 6(c), each of the Required Investment Amount and the Executive Minimum Amount shall be equal to the Forfeiture Amount.

(i)Executive agrees that neither he nor members of the Executive Investor Group will make any withdrawals from a BlueMountain Fund or an Affiliated Fund if, immediately following any such withdrawal, the investments in or commitments to BlueMountain Funds and Affiliated Funds by the Executive Investor Group would have an aggregate subscription or commitment amount, as the case may be, less than the Required Investment Amount, unless (i) within sixty (60) days of such withdrawal the Executive Investor Group makes investment(s) in or commitment(s) to one or more BlueMountain Funds and Affiliated Funds such that the aggregate subscription or commitment amount of the Executive Investor Group's aggregate investments in or commitments to BlueMountain Funds and Affiliated Funds equals or exceeds the Required Investment Amount, or (ii) in the event of the unavailability of investment and/or commitment opportunities to one or more BlueMountain Funds and Affiliated Funds during such sixty (60) day period, such longer period as is required until such an investment or commitment opportunity is available; provided, that any such withdrawal of any funds shall be held in escrow by the Company between the date of such withdrawal and the date of such investment or commitment; provided, further, that, in the event of withdrawal of any funds invested by any member of the Executive Investor Group (other than Executive), Executive shall be responsible for either (1) taking any and all actions required to cause any the Executive Investor Group member to authorize such funds to be held in escrow pursuant to this section or (2) otherwise satisfying such condition by Executive directly placing such amounts in escrow. Additionally, Executive will not make any withdrawals from a BlueMountain Fund or an Affiliated Fund if, immediately following any such withdrawal, the investments in BlueMountain Funds and Affiliated Funds by Executive would have an aggregate net asset value less than the Executive Minimum Amount, unless (i) within sixty (60) days of such withdrawal Executive makes an investment in one or more BlueMountain Funds or Affiliated Funds such that the net asset value of Executive's aggregate investments in BlueMountain Funds and Affiliated Funds equals or exceeds the Executive Minimum Amount, or (ii) in the event of the unavailability of investment and/or commitment opportunities to one or more BlueMountain Funds and Affiliated Funds during such sixty (60) day period, such longer period as is required until such an investment opportunity is available; provided, that, Executive agrees

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that any such withdrawal of any funds shall be held in escrow by the Company between the date of such withdrawal and the date of such investment or commitment.

(ii)If a BlueMountain Fund or an Affiliated Fund makes a distribution to Executive or other member of the Executive Investor Group (whether in liquidation or otherwise) such that immediately following such distribution the Executive Investor Group’s investments in or commitments to BlueMountain Funds and Affiliated Funds would have an aggregate subscription and commitment amount less than the Required Investment Amount, then (i) within sixty (60) days of such distribution, the Executive Investor Group shall make an investment in or commitment to one or more BlueMountain Funds or Affiliated Funds such that the aggregate subscription and commitment amount of the Executive Investor Group's aggregate investments in or commitments to BlueMountain Funds and Affiliated Funds equals or exceeds the Required Investment Amount, or (ii) in the event of the unavailability of commitment and/or investment opportunities to one or more BlueMountain Funds and Affiliated Funds during such sixty (60) day period, the Executive Investor Group shall make such investment or commitment in such longer period as required until such an investment or commitment opportunity is available; provided, that any such distribution of any funds shall be held in escrow by the Company between the date of such distribution and the date of such reinvestment or commitment; provided, further, that, in the event of distribution of any funds invested by any member of the Executive Investor Group (other than Executive), Executive shall be responsible for either (1) taking any and all actions required to cause any the Executive Investor Group member to authorize such funds to be held in escrow pursuant to this section, or (2) otherwise satisfying such condition by Executive directly placing such amounts in escrow. Additionally, if a BlueMountain Fund or an Affiliated Fund makes a distribution to Executive (whether in liquidation or otherwise) such that immediately following such distribution Executive’s investments in BlueMountain Funds and Affiliated Funds would have an aggregate net asset value less than the Executive Minimum Amount, then (i) within sixty (60) days of such distribution, Executive makes an investment in one or more BlueMountain Funds or Affiliated Funds such that the net asset value of Executive's aggregate investments in BlueMountain Funds and Affiliated Funds equals or exceeds the Executive Minimum Amount, or (ii) in the event of the unavailability of commitment and/or investment opportunities to one or more BlueMountain Funds and Affiliated Funds during such sixty (60) day period, such longer period as required until such an investment opportunity is available; provided, that, Executive agrees that any such distribution of any funds shall be held in escrow by the Company between the date of such distribution and the date of such reinvestment.

(iii)Notwithstanding that one or more of the Excluded Investments may be available for commitments and/or investments, Executive may in his sole discretion treat any such Excluded Investments as being unavailable for purposes of this Section 5(a), provided that any subscription or commitment by Executive or the Executive Investor Group that is made to any one or more of the Excluded Investments shall be counted as part of his or their aggregate investments in and commitments to BlueMountain Funds and Affiliated Funds for purposes of measuring the Required Investment Amount and/or Executive Minimum Amount, as applicable.

(iv)If (A) currently invested amounts become available as a result of any distributions from or liquidations or sales of existing investments, (B) amounts currently subscribed or committed are not called during the applicable investment period and are contractually released or could no longer reasonably be expected to be called, or (C) the Executive Investor Group is making a new

6

commitment or investment, then Executive agrees to use commercially reasonable efforts to reallocate investments and commitments of the Executive Investor Group so that the investments and commitments of the Executive Investor Group in each BlueMountain Fund or Affiliated Fund equals the lesser of (x) twenty percent (20%) of the amount that the Assured Guaranty Group has invested in or committed to such BlueMountain Fund or Affiliated Fund and (y) twenty million dollars ($20,000,000). Notwithstanding anything to the contrary in this Section 5, (I) Executive shall not be required to invest in or commit to any of the Excluded Investments even if the Assured Guaranty Group invests in such investments; (II) Executive shall not be required to invest more than twenty percent (20%) of the total Required Investment Amount in any one type of investment exposure (with collateralized loan obligations being considered a type of investment exposure for this purpose and with other types of investment exposure being approved in good faith by the Company from time to time (with the Executive to make proposals of types of investment exposure to the Company for consideration for approval)); and (III) Executive shall not be required to invest more than twenty million dollars ($20,000,000) in any one BlueMountain Fund or Affiliated Fund. The Executive Investor Group shall also be entitled to take into account the tax consequences of any investment reallocation and may structure any such reallocation in a manner intended to result in the best after-tax outcome to the Executive Investor Group, as determined by the Executive Investor Group in its sole discretion.

(v)Any amounts placed in escrow pursuant to this Section 5(a) shall be invested in cash, money market accounts, treasury bonds or bonds no less than investment grade, as determined by Executive in Executive’s sole discretion; provided, that Executive acknowledges and agrees that the Company shall not be responsible for any investment gains or losses on such amounts.

(vi)If Executive breaches Section 7 or 10 of this Agreement or materially breaches Sections 5, 8 or 9 of this Agreement before the Forfeiture Amount has been reduced to zero, or (without duplication) if Executive’s employment terminates under Section 6(c), then he will as soon as reasonably practical transfer to AGUS interests held by Executive in BlueMountain Funds with a total net asset value equal to the Forfeiture Amount determined as of the last day of the month immediately preceding the date on which Executive breaches Section 7 or 10 of this Agreement or materially breaches Sections 5, 8 or 9 of this Agreement or his employment terminates under Section 6(c), as applicable. For purposes of this Agreement, the “Forfeiture Amount” shall equal thirty million dollars ($30,000,000); provided, however, that, on each of the first five (5) annual anniversaries of the Closing Date, the Forfeiture Amount shall be reduced by six million dollars ($6,000,000) until the Forfeiture Amount equals zero ($0) on the fifth (5^th) anniversary of the Closing Date; provided, however, in the event Executive is terminated pursuant to (x) Section 6(b) prior to the fifth (5th) anniversary of the Closing Date, the Forfeiture Amount shall equal zero ($0) on the date of such termination or (y) Section 6(d) prior to the fifth (5th) anniversary of the Closing Date, subject to the Release becoming effective and Executive’s continued compliance with Section 5, 7, 8, 9 and 10 of this Agreement, the Forfeiture Amount shall equal zero (0) on the last day of the Covenant Period. Executive may satisfy such transfer requirement by paying to the Company an amount in cash equal to the Forfeiture Amount, determined as of the last day of the month immediately preceding the date on which Executive breaches Sections 7 or 10 or materially breaches Sections 5, 8 or 9 of this Agreement or his employment terminates under Section 6(c), as applicable. For purposes of the foregoing, in order for Executive to be found to be in breach of Sections 7 or 10 of this Agreement or in material breach of Sections 5, 8 or 9 of this Agreement, in each case, prior to his termination of employment for any reason (other than in respect of an alleged material breach of Section 5 which shall remain subject

7

to cure following a termination of employment), the Company must first notify Executive in writing, specifying the event alleged to constitute such breach or material breach, as applicable, within ninety (90) days after the Company first becomes aware of the occurrence of the event the Company believes constitutes a breach or material breach. Executive will have a period of thirty (30) days after the receipt of such notice in which to cure any acts constituting such breach or material breach, except for a material breach which, by its nature, cannot reasonably be expected to be cured (provided that any alleged breach of Section 5 shall be deemed capable of being cured). If the Company is required to provide notice because such breach is prior to termination of employment and the breach or material breach is cured within this period, Executive will be deemed to be in compliance with Sections 5, 7, 8, 9 or 10 of this Agreement, as applicable.

(vii)Additionally, for any period after termination of Executive’s employment for any reason during which any of Sections 7, 8, 9 or 10 of this Agreement remain in effect, Executive shall be entitled to provide written notice to the Company inquiring whether any proposed action or engagement by Executive would be considered by the Company to be a breach of Sections 7, 8, 9 or 10 of this Agreement with sufficient detail in order for the Company to make such a determination, including any additional details as reasonably requested by the Company to the extent not provided in such notice; and the Company agrees to respond in writing to such written notice within ten (10) business days of the receipt of such written notice from Executive or, if later, the receipt of the required detail, stating whether such proposed action would, in the Company’s opinion, constitute a breach of Sections 7, 8, 9 or 10 of this Agreement. Notwithstanding Section 12 of this Agreement, for purposes of this Section 5(a)(vii), the Executive agrees to provide such written notice by emailing such notice to generalcounsel@agltd.com and by sending written notice either by certified mail or by overnight courier to the Company to the attention of each of the Chief Executive Officer and the General Counsel of the Company. Executive shall be entitled to rely on any favorable opinion provided by the Company but shall not be legally bound by any unfavorable opinion provided by the Company. A failure by the Company to respond to Executive’s inquiry within ten (10) business days following confirmed receipt of such written notice (provided that such notice has included sufficient detail as reasonably requested by the Company) shall be deemed a favorable opinion and approval by the Company of Executive’s proposed action or engagement. Executive acknowledges that the Company’s favorable opinion or deemed opinion with respect to any proposed action or engagement shall only be applicable to the facts and circumstances set forth in Executive’s inquiry and shall be without prejudice to the right of the Company to approve or reject any future inquiries (or to update its opinion based on any facts learned subsequently).

(b)Within forty-five (45) days of the commencement of a calendar year, the Company will provide Executive with a statement setting forth (i) a listing of Executive’s investments in BlueMountain Funds and Affiliated Funds as of the first day of such calendar year together with their respective net asset values, and (ii) a calculation of the Required Investment Amount as of the first day of such calendar year; provided, that such statement may be updated on a more frequent basis in the sole discretion of the Company including, without limitation, if there is a new investment or commitment made by the Assured Guaranty Group in a BlueMountain Fund that changes the amount of the Required Investment Amount or in the event that an investment period ends with respect to a BlueMountain Fund or an Affiliated Fund and less than the full amount subscribed or committed to such fund by the Executive Investor Group was called; provided the related commitments are contractually released or the related commitments could no longer reasonably be expected to be called. Such statement will be deemed correct unless Executive provides the Company

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with written notice of any objections he may have within thirty (30) days of receipt of such statement, in which case each of Executive and the Company will work in good faith to resolve any issue giving rise to such objection. The Company shall promptly provide Executive any information reasonably requested by Executive in connection with determining whether any such statement is correct, and in the event the Company fails to promptly provide Executive any such information Executive shall have thirty (30) days from the date such information is received by Executive to provide the Company with any objections he may have.

6.Termination.

(a)Events of Termination. Executive’s employment with the Company and the Agreement Term will end on the earliest to occur of (i) Executive’s death or Permanent Disability,(ii) Executive’s resignation at any time with or without Good Reason, or (iii) termination by the Company at any time with or without Cause. Except as otherwise provided herein, any termination of Executive’s employment by the Company or by Executive will be effective as specified in a written notice from the terminating Party to the other Party; provided, however, if Executive’s employment with the Company is terminated during the Agreement Term by the Company without Cause, the Company must give Executive at least thirty (30) days prior written notice; provided, further, if Executive’s employment with the Company is terminated during the Agreement Term by Executive without Good Reason, Executive must give the Company at least six (6) monthsprior written notice.

(b)Termination Due to Death or Permanent Disability. If Executive’s employment is terminated during the Agreement Term pursuant to Section 6(a)(i) above, then, through Executive’s Termination Date, Executive will be entitled to (i) the Accrued Benefits, and (ii) any earned but unpaid AIP Grant for a completed performance year pursuant to Section 3(b).

(c)Termination by the Company With Cause or by Executive Without Good Reason. If Executive’s employment is terminated during the Agreement Term by the Companywith Cause or on account of Executive’s resignation without Good Reason, then, through Executive’s Termination Date, Executive will be entitled to receive the Accrued Benefits.

(d)Termination by the Company Without Cause or by Executive With Good Reason. If:

(i)Executive’s employment is terminated during the Agreement Term (A) by the Company without Cause, or (B) on account of Executive’s resignation with Good Reason; and

(ii)Executive executes the Release, and such Release is not timely revoked by Executive and becomes legally effective, as provided in Section 6(e); and

(iii)Executive agrees to continue to comply and does continue to comply with the terms of Sections 7 and 10 of this Agreement and materially complies with all other Sections of this Agreement and the Release,

then Executive will be entitled to receive the following:

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(A) Accrued Benefits. The Accrued Benefits and any earned but unpaid AIP Grant for a completed performance year pursuant to Section 3(b);

(B) Severance Pay. Payment of an amount equal to the Severance Payment in a single lump sum payment on the fifty-fifth (55th) day following the Termination Date.

(e)Release Requirements. Without limiting the foregoing, Executive shall not be entitled to receive any of the payments or benefits described in Section 6(d) (other than the Accrued Benefits) unless, not later than fifty-five (55) days after the Termination Date, Executive has executed the Release, and the period during which the Release may be revoked has expired without Executive having revoked the Release; provided, however that if Executive dies or incurs a Permanent Disability (such that Executive is unable to legally execute an enforceable Release) following termination by the Company without Cause or resignation by Executive with Good Reason but prior to the date that such Release becomes effective, Executive or Executive’s estate shall remain eligible to receive such payments without the Release becoming effective. None of the payments or benefits described in Section 6(d) (other than the Accrued Benefits) shall be paid until the Release has been signed and become effective (other than in the event of death or Permanent Disability as provided in the previous sentence), and any payments, which would otherwise be payable during such fifty-five (55)-day period prior to the date the Release becomes effective, shall be accumulated and paid to Executive on the first payroll date following the date the Release becomes effective without interest, or, with respect to any “nonqualified deferred compensation” subject to, and not exempt from, Section 409A, if such fifty-five (55)-day period begins in one calendar year and ends in a second calendar year, the first payroll date during the second calendar year following the date the Release becomes effective, as described above and subject to any other conditions to its payment.

(f)No Offset or Mitigation. Except for monies due and owing to the Company, if Executive’s employment with the Company is terminated for any reason, then the Company will have no right of offset, nor will Executive be under any duty or obligation to seek or accept alternative or substitute employment at any time after the effective date of such termination or otherwise mitigate any amounts payable by the Company to Executive.

(g)No Other Benefits. Except as set forth in this Section 6, Executive will not be entitled to any other Base Salary, severance, compensation or benefits from the Company following a termination of employment, other than those previously earned or vested under any of the Company’s retirement or other benefit plans or expressly required under applicable law. For the avoidance of doubt, Executive’s rights upon termination of employment under any outstanding LTIP grants will be determined exclusively by the terms of the LTIP and any award agreements.

(h)Defend Trade Secrets Act. In compliance with 18 U.S.C. § 1833(b), as established by the Defend Trade Secrets Act of 2016, Executive is given notice of the following: (1) that an individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal; and (2) that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and

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use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.

7.Confidential Information.

(a)Executive recognizes and acknowledges that the continued success of the Company and its Affiliates depends upon the use and protection of a large body of confidential and proprietary information and that Executive will have access to the entire universe of the Company’s Confidential Information (as defined below in Section 7(b)), as well as certain confidential information of other Persons with which the Company and its Affiliates do business, and that such information constitutes valuable, special and unique property of the Company, its Affiliates and such other Persons.

(b)Confidential Information. For purposes of this Agreement, the Company’s “Confidential Information” shall include the Company and its Affiliates’ trade secrets as defined under New York law, as well as any other information or material which is not generally known to the public, and which: (i) is generated, collected by or utilized in the operations of the Company or its Affiliates’ business and relates to the actual or anticipated business, research or development of the Company, its Affiliates or the Company and its Affiliates’ actual or prospective customers or investors; or (ii) results from any task assigned to Executive by the Company or its Affiliates, or work performed by Executive for or on behalf of the Company or its Affiliates. Confidential Information shall not be considered generally known to the public if Executive or others improperly reveal such information to the public without the Company or its Affiliates’ express written consent and/or in violation of an obligation of confidentiality owed to the Company or its Affiliates. Confidential Information includes, without limitation, the information, observations and data obtained by Executive while employed by the Company concerning the business or affairs of the Company or its Affiliates, including information concerning acquisition opportunities in or reasonably related to the Company or its Affiliates’ business or industry, the identities of and other information (such as databases) relating to the current, former or prospective employees, suppliers and customers or investors of the Company or its Affiliates, development, transition and transformation plans, methodologies and methods of doing business, strategic, marketing and expansion plans, financial and business plans, financial data, pricing information, employee lists and telephone numbers, locations of sales representatives, new and existing customer, investor or supplier programs and services, customer terms, customer service and integration processes, requirements and costs of providing service, support and equipment. Notwithstanding the foregoing, “Confidential Information” shall not include: (i) information that is or becomes publicly known without the breach by Executive of this Agreement; (ii) information that at the time of disclosure under this Agreement is already known to the receiving party without any restriction on its disclosure; (iii) information that is or subsequently comes into the possession of the receiving party from a third party where disclosure by such third party is without violation of any contractual or legal obligation; (iv) information that is independently developed by the receiving party without the use of Confidential Information or breach of this Agreement; and (v) information that is otherwise required to be disclosed under applicable laws, regulations or judicial or regulatory process.

(c)Executive agrees to use the Company’s Confidential Information only as necessary and only in connection with the performance of Executive’s duties hereunder. Executive shall not, without the Company’s prior written permission, directly or indirectly, utilize for any purpose other than for a legitimate business purpose solely on behalf of the Company or its Affiliates, or directly or indirectly,

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disclose outside of the Company or outside of the Affiliates, any of the Company’s Confidential Information, as long as such matters remain Confidential Information. The restrictions set forth in this paragraph are in addition to and not in lieu of any obligations Executive may have by law with respect to the Company’s Confidential Information, including any obligations Executive may owe under any applicable trade secrets statutes or similar state or federal statutes. This Agreement shall not prevent Executive from revealing evidence of criminal wrongdoing to law enforcement or prohibit Executive from divulging the Company’s Confidential Information by order of court or agency of competent jurisdiction. However, to the extent permitted by applicable law, Executive shall promptly inform the Company of any such situations and shall take such reasonable steps to prevent disclosure of the Company’s Confidential Information until the Company or its relevant Affiliates have been informed of such requested disclosure and the Company has had an opportunity to respond to the court or agency.

(d)Executive understands that the Company and its Affiliates will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on the Company or its Affiliates to maintain the confidentiality of such information and to use it only for certain limited purposes. During the Agreement Term and thereafter, and without in any way limiting the foregoing provisions of this Section 7, Executive will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than personnel and consultants of the Company and its Affiliates who need to know such information in connection with their work for the Company or its Affiliates) or use Third Party Information unless expressly authorized by such third party or by the Board.

(e)During the Agreement Term and thereafter, Executive will not improperly use or disclose any confidential information or trade secrets, if any, of any former employers or any other person or entity to whom Executive has an obligation of confidentiality, and will not bring onto the premises of the Company or its Affiliates any unpublished documents or any property belonging to any former employer or any other person or entity to whom Executive has an obligation of confidentiality unless consented to in writing by the former employer or such other person or entity. Executive will use in the performance of Executive’s duties only information which is (i) generally known and used by persons with training and experience comparable to Executive’s and which is (x) common knowledge in the industry or (y) otherwise legally in the public domain, (ii) otherwise provided or developed by the Company or its Affiliates or (iii) in the case of materials, property or information belonging to any former employer or other person or entity to whom Executive has an obligation of confidentiality, approved for such use in writing by such former employer or other person or entity.

(f)Nothing in this Section 7 prohibits Executive from reporting possible violations of applicable law or regulation to any governmental agency or entity or making other disclosures that are protected under the whistleblower provisions of applicable law or regulation.

8.Return of the Company Property. Executive acknowledges and agrees that all notes, records, reports, sketches, plans, unpublished memoranda or other documents, whether in paper, electronic or other form (and all copies thereof), held by Executive concerning any information relating to the business of the Company or its Affiliates, whether confidential or not, are the property of the Company and its Affiliates. Executive will immediately deliver to the Company at the termination or expiration of the Agreement Term, or, if later, at the termination of employment, or at any other time the Company may request, all equipment, files, property, memoranda, notes, plans, records, reports, computer tapes, printouts

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and software and other documents and data (and all electronic, paper or other copies thereof) belonging to the Company or its Affiliates which includes, but is not limited to, any materials that contain, embody or relate to the Confidential Information, Work Product or the business of the Company or its Affiliates, which Executive may then possess or have under Executive’s control. Executive will take any and all actions reasonably deemed necessary or appropriate by the Company or its Affiliates from time to time in its sole discretion to ensure the continued confidentiality and protection of the Confidential Information. Executive will notify the Company and the appropriate Affiliates promptly and in writing of any circumstances of which Executive has knowledge relating to any improper possession or use of any Confidential Information by any Person other than those authorized by the terms of this Agreement.

9.Intellectual Property Rights. Executive acknowledges and agrees that all inventions, technology, processes, innovations, ideas, improvements, developments, methods, designs, analyses, trademarks, service marks, and other indicia of origin, writings, audiovisual works, concepts, drawings, reports and all similar, related, or derivative information or works (whether or not patentable or subject to copyright), including but not limited to all resulting patent applications, issued patents, copyrights, copyright applications and registrations, and trademark applications and registrations in and to any of the foregoing, along with the right to practice, employ, exploit, use, develop, reproduce, copy, distribute copies, publish, license, or create works derivative of any of the foregoing, and the right to choose not to do or permit any of the aforementioned actions, which relate to the Company or Affiliates’ actual or anticipated Business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company or an Affiliate (collectively, the “Work Product”) belong to the Company. Executive further acknowledges and agrees that to the extent relevant, this Agreement constitutes a “work for hire agreement” under the Copyright Act, and that any copyrightable work (“Creation”) constitutes a “work made for hire” under the Copyright Act such that the Company is the copyright owner of the Creation. To the extent that any portion of the Creation is held not to be a “work made for hire” under the Copyright Act, Executive hereby irrevocably assigns to the Company all right, title and interest in such Creation. All other rights to any new Work Product and all rights to any existing Work Product are also hereby irrevocably conveyed, assigned and transferred to the Company pursuant to this Agreement. Executive will promptly disclose and deliver such Work Product to the Company and, at the Company’s expense, perform all actions reasonably requested by the Company (whether during or after the Agreement Term) to establish, confirm and protect such ownership (including, without limitation, the execution of assignments, copyright registrations, consents, licenses, powers of attorney and other instruments).

10.Restrictive Covenants.

(a)Non-Competition Obligations. As a further material inducement for the Company to employ Executive hereunder and as a condition precedent for Parent’s and AGUS’s willingness to enter into the Purchase Agreement and as a consequence of which Executive will receive substantial remuneration, Executive agrees, for the benefit of the Assured Guaranty Group (including, after the Closing Date, for the avoidance of doubt, BCM, the BlueMountain Entities, BlueMountain Funds and other Affiliates of BCM), that Executive’s engaging in Competing Activities during the Covenant Period, in each case without the prior written consent of the Board of Parent, constitutes a breach of this Section 10(a); however, in no case will Executive’s engaging in Competing Activities after the Covenant Period ends violate this Section 10(a). For purposes of this Agreement:

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(i)“Covenant Period” means the period beginning on the Closing Date and ending on the later to occur of (i) the third (3^rd) anniversary of the Closing Date; (ii) the second (2nd) anniversary of Executive’s Termination Date due to an involuntary termination for Cause or a voluntary termination without Good Reason, and (iii) the first (1st) anniversary of Executive’s Termination Date due to an involuntary termination without Cause or voluntary termination with Good Reason if, and to the extent that, Executive signs the Release and agrees to be bound by the terms of this Agreement in exchange for payment of the Severance Payment and any other amounts of compensation payable following such termination.

(ii) “Competing Activities” means directly or indirectly (whether or not for compensation, and whether individually or as owner, part owner, shareholder, partner, member, director, officer, trustee, employee, agent, consultant or in any other capacity), on behalf of Executive or any other Person (other than the Assured Guaranty Group while employed by the Assured Guaranty Group), being engaged in or having any financial interest in any business competing with the business of the Assured Guaranty Group or engaging in the direct or indirect provision of services of any kind to any Person engaged in, or any Affiliate of any Person engaged in, investing, trading or providing advisory, operational or risk management services with respect to financial products or instruments similar to those which the Assured Guaranty Group is then investing in, trading, or providing advisory, operational or risk management services with respect to; provided, that the following shall not be deemed Competing Activities hereunder (and shall not otherwise be limited or prohibited under any other agreements or policies of the Assured Guaranty Group relating to or governing competitive activities):

(A)Executive’s passive ownership of up to ten percent (10%) of the securities or economic interests of a publicly traded entity;

(B)Executive’s serving as a member of the (1) Board of Directors of PNC Financial Services Group, Inc., (2) the Board of Trustees of Third Way, (3) the Board of Trustees of the Santa Fe Institute, and (4) the Advisory Board of Starfish;

(C)Executive’s serving as a non-executive member of any board of directors, board of managers or similar body of any institution that derives less than twenty five (25%) of its revenues from asset management businesses that compete with the business of the Company or any of it Controlled Affiliates;

(D)Executive’s passive ownership interest of Starfish; and

(E)Executive’s providing Investment Advisory Services to any charitable, educational or other non-profit organization at any time following the termination of Executive’s employment.

(b)Client Non-Solicitation Obligations. In addition to (and not in limitation of) the provisions of Section 10(a) of this Agreement, Executive agrees, for the benefit of the Assured Guaranty Group, that Executive will not, during the Covenant Period, directly or indirectly (whether individually or as owner, part owner, shareholder, partner, member, director, officer, trustee, employee, agent, consultant or in any other capacity, on behalf of Executive or any other Person (other than the Assured Guaranty Group while employed by the Assured Guaranty Group)), (i) (A) make a solicitation for the purpose of performing

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any Investment Advisory Services for any Person that is an investor in any BlueMountain Fund or any Person to which, to Executive’s actual knowledge after due inquiry, Parent or any of its Affiliates provides advisory, operational or risk-management services, whether in an individual capacity or in any other capacity (including as an employee, consultant, contractor, owner, volunteer, agent or principal of any third party), (B) aid, assist, or direct any third party to do any of the foregoing, or (ii) (A) solicit or encourage any investor in a BlueMountain Fund, or any affiliate of such investor, to make any investment in any pooled investment vehicle, (B) accept, participate in accepting, or aid, assist, or direct anyone in procuring or accepting, any such investment from any such investor or affiliate thereof or (C) aid, assist, or direct any third party in connection with any of the foregoing, in each case whether in an individual capacity or in any other capacity (including, but not limited to, as an employee, consultant, contractor, owner, volunteer, agent or principal of any third party), in each case without the prior written consent of the Board in each case (which may be granted or withheld in its absolute discretion). No preference or decision of a client will be relevant to the application of this Section 10(b). For the avoidance of doubt, nothing in this Section 10(b) shall prevent any Person to whom Executive provide services from making a solicitation for the purpose of performing any Investment Advisory Services for any Person that is an investor in any BlueMountain Fund or any Person to which the Company or any of its Affiliates provides advisory, operational or risk-management services so long as Executive does not breach this Section 10(b) by aiding, assisting, or participating in such solicitation in any manner.

(c)Personnel Non-Solicitation Obligations. In addition to (and not in limitation of) the provisions of Sections 10(a) and 10(b) of this Agreement, Executive agrees, for the benefit of the Assured Guaranty Group, that Executive will not, during the Covenant Period, directly or indirectly (whether individually or as owner, part owner, shareholder, partner, member, director, officer, trustee, employee, agent, consultant or in any other capacity, on behalf of Executive or any other Person (other than the Assured Guaranty Group while employed by the Assured Guaranty Group)), solicit, hire, recruit, or retain; or aid, assist, direct, or encourage others to solicit, hire, recruit, or retain any Person (each, a “Solicitation Activity”) who as of the date of such Solicitation Activity, or at some time during the twenty four (24) months preceding such date, to Executive’s actual knowledge after due inquiry is or was a partner, member, principal, director, officer, executive, employee, contractor, or consultant of the Assured Guaranty Group without the prior written consent of the Board. For the avoidance of doubt, nothing in this Section 10(c) shall prevent any Person to whom Executive provides services from soliciting or hiring a partner, member, principal, director, officer, executive, employee, contractor, or consultant of the Assured Guaranty Group so long as Executive does not breach this Section 10(c) by aiding, assisting, or participating in such solicitation or hire in any manner.

(d)Family Office Exception. Notwithstanding the provisions of Sections 10(a), 10(b), and 10(c) of this Agreement, Executive may directly perform Investment Advisory Services for Executive’s own account or the account of a member of Executive’s Immediate Family (which will include without limitation any Fund or other investment account of which Executive and/or members of his Immediate Family are the sole beneficial owners) without a fee or other remuneration. For the avoidance of doubt, this Section 10(d) is subject to Section 2(b) of this Agreement.

(e)No Disparagement. Executive agrees that, both during and after Executive’s employment, Executive shall not make any statements or express any views that disparage the business reputation or goodwill of the Company and/or any of its Affiliates; and the Company agrees to instruct its

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executive officers and directors (while serving in such capacity) not to make any statements or express any views that disparage the business reputation or goodwill of Executive. Further, separate and apart from Executive’s obligations to maintain confidentiality, as set forth in Section 7(a) above, Executive agrees that both during and after Executive’s employment, he will not, except as expressly authorized by the Board in writing, directly or indirectly make, authorize, encourage, or ratify (or aid, assist, direct, or enable any other Person to make, authorize, or ratify) any communication to any Person, including but not limited to any actual or potential investor, partner, or employer, (x) summarizing or describing all or part of the record of any BlueMountain Fund, or (y) suggesting that Executive is principally responsible for all or part of the record of any BlueMountain Fund.

(f)Your Importance as a Key Employee. Executive and the Assured Guaranty Group agree that the non-competition and other restrictive covenants set forth in this Section 10 have been entered into by Executive in recognition of (and in connection with) Executive’s capacity as a key employee of the Company, and that the periods of time and the unlimited geographic area applicable to the covenants set forth in this Section 10 are reasonable in view of (without limitation) (i) the geographic scope and nature of the businesses in which the Assured Guaranty Group is engaged, (ii) Executive’s role as a key employee and/or status as an officer of the Assured Guaranty Group, (iii) Executive’s knowledge of the business of the Assured Guaranty Group as a key employee of the Assured Guaranty Group, and (iv) Executive’s relationships with the investment advisory clients of the Assured Guaranty Group as a key employee of the Assured Guaranty Group.

(g)Intent of the Parties. Executive acknowledges and agrees that the restrictive covenants and other agreements contained in this Agreement are an essential part of this Agreement and a condition subsequent to Parent and Assured Holding’s willingness to enter into the Purchase Agreement. Executive further represents, warrants and agrees that he has been fully advised by, or have had the opportunity to be advised by, counsel in connection with the negotiation, preparation, execution and delivery of this Agreement and the transactions contemplated by this Agreement and the Purchase Agreement. Accordingly, Executive agrees to be bound by the restrictive covenants and the other agreements contained in this Agreement, it being the intent and spirit of the parties to this Agreement that the restrictive covenants and the other agreements contained herein be valid and enforceable in all respects. Executive acknowledges and agrees that the restrictions contained in this Section 10 with respect to time, geographical area and scope of activity are reasonable and do not impose a greater restraint than is necessary to protect the goodwill and other legitimate business interests of the Company and its Affiliates. However, if, at the time of enforcement of this Section 10, a court holds that the duration, geographical area or scope of activity restrictions stated herein are unreasonable under circumstances then existing or impose a greater restraint than is necessary to protect the goodwill and other business interests of the Company and its Affiliates, the Parties agree that the maximum duration, scope or area reasonable under such circumstances will be substituted for the stated duration, scope or area and that the court will be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law, in all cases giving effect to the intent of the parties that the restrictions contained herein be given effect to the broadest extent possible. The existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, will not constitute a defense to the enforcement by the Company of the provisions of Sections 7, 8, 9 and 10, which Sections will be enforceable notwithstanding the existence of any breach by the Company. Notwithstanding the foregoing, Executive will not be prohibited from pursuing such claims or causes of action against the Company (including, but not limited to, a declaratory judgment).

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(h)Notice to Future Employers. Following Executive’s Termination Date, Executive agrees to provide written notice of the provisions of Sections 10(a), 10(b), and 10(c) of this Agreement to which he is then subject (and must provide a copy of such notice concurrently to the Assured Guaranty Group), together with a copy thereof, to any enterprise engaged in whole or in part in the provision of Investment Advisory Services for which Executive acts as an employee or independent contractor following the termination of employment with the Assured Guaranty Group prior to acting in such capacity. The Company acknowledges and agrees that such provision of information pursuant to this Section 10(h) will not constitute a breach of any confidentiality obligations Executive has to the Assured Guaranty Group.

(i)Remedies. Executive acknowledges and agrees that the Company’s remedies at law for a breach of any of Sections 7, 8, 9 and 10 of this Agreement would be inadequate and the Company and members of the Assured Guaranty Group would suffer significant harm and irreparable damages as a result of a breach or threatened breach of Sections 7, 8, 9 and 10 of this Agreement. In recognition of this fact, Executive agrees that, in the event of such a breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. In the event of a breach of Sections 7 or 10 of this Agreement or a material breach of Sections 8 or 9 of this Agreement, Executive shall forfeit any unpaid Severance Payment provided for in this Agreement and promptly repay to the Company any cash Severance Payment received by Executive from the Company pursuant to this Agreement. The remedies under this Agreement are without prejudice to the Company’s right to seek any other remedy to which it may be entitled at law or in equity.

11.Survival. Any provision shall continue notwithstanding the termination of the Agreement Term to the extent provided in this Agreement.

12.Notices. Any notice provided for in this Agreement will be in writing and will be either personally delivered, sent by reputable overnight courier service, mailed by first class mail, return receipt requested, to the recipient at the address below indicated:

Notices to Executive:

Andrew Feldstein

At such home address which is currently on record with the Company

With a copy to:

Peter D. Greene

Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, NY 10020

Notices to the Company:

AG US Group Services Inc.

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Managing Director, Human Resources

1633 Broadway

New York, NY 10019

or such other address or to the attention of such other person as the recipient Party will have specified by prior written notice to the sending Party. Any notice under this Agreement will be deemed to have been given when so delivered, sent or mailed.

13.Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any action in any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

14.Complete Agreement. This Agreement embodies the complete agreement and understanding among the Parties and supersede and preempt any prior understandings, agreements or representations by or among the Parties, written or oral, which may have related to the subject matter hereof and thereof in any way; provided, however, that this Agreement is not intended to supersede or preempt any rights that any of the Parties have under the Purchase Agreement. The Parties expressly agree that neither the Company nor BCM shall have any further obligations under, and Executive shall have no further rights under, that certain Employment Agreement, dated as of March 31, 2017, between BCM and Executive. The Parties agree that no party hereto shall have any rights or obligations hereunder unless and until the Closing Date and, in furtherance of the foregoing, in the event the parties to the Purchase Agreement do not close the Transaction or in the event that Executive’s employment terminates for any reason prior to the Closing Date, this Agreement shall be null and void. This Agreement shall not be changed, altered, modified or amended, except by a written agreement that (i) explicitly states the intent of each of the Parties hereto to supplement this Agreement and (ii) is signed by each of the Parties. For the avoidance of doubt, this Agreement shall govern and control in the event of any express conflict with any other agreements or policies of the Assured Guaranty Group; provided, however, the parties hereto agree to cooperate in good faith to amend this Agreement to the extent necessary to comply with any applicable change in law, rule or regulation.

15.Counterparts. This Agreement may be executed in separate counterparts (including by facsimile signature pages), each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

16.No Strict Construction. The parties hereto jointly participated in the negotiation and drafting of this Agreement. The language used in this Agreement will be deemed to be the language chosen by the Parties hereto to express their collective mutual intent, this Agreement will be construed as if drafted jointly by the Parties hereto, and no rule of strict construction will be applied against any Person.

17.Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company, BCM, and their respective heirs, successors and assigns. Executive may not assign Executive’s rights or delegate Executive’s duties or obligations hereunder without the prior written consent of the Company. The Company and BCM may not assign their respective rights

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and obligations hereunder without the consent of Executive, with an exception being an assignment to an Affiliate of the Company made as part of an internal reorganization applicable to employees of the Company generally, in which case such prior written consent of Executive is not necessary.

18.Choice of Law; Exclusive Venue. THIS AGREEMENT, AND ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF ILLINOIS. SUBJECT TO SECTION 19 OF THIS AGREEMENT, THE PARTIES AGREE THAT ALL LITIGATION ARISING OUT OF OR RELATING TO SECTIONS 5, 7, 8, 9 OR 10 OF THIS AGREEMENT MUST BE BROUGHT EXCLUSIVELY IN NEW YORK (COLLECTIVELY THE “DESIGNATED COURTS”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

19.Arbitration. Executive agrees to the terms of the Company’s arbitration policy attached hereto as Exhibit B.

20.Mutual Waiver of Jury Trial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21.Assistance in Proceedings. During the Agreement Term and thereafter, Executive will cooperate with the Company in any internal investigation or administrative, regulatory or judicial proceeding as reasonably requested by the Company the Company (including, without limitation, Executive being available to the Company upon reasonable notice for interviews and factual investigations, appearing at the Company’s reasonable request to give testimony without requiring service of a subpoena or other legal process, volunteering to the Company all pertinent non-confidential information (excluding information that Executive otherwise holds under a duty or obligation to maintain confidentiality) and turning over to the Company all relevant documents which are or may come into Executive’s possession, all at times and on schedules that are reasonably consistent with Executive’s other personal and professional activities and commitments). In the event the Company requires Executive’s cooperation in accordance with this Section 21, the Company will pay Executive a reasonable per diem to be agreed upon in good faith by the Company and Executive and promptly reimburse Executive for all reasonable expenses incurred in connection therewith (including, without limitation, attorneys’ fees and lodging and meals, upon submission of receipts).

22.Amendment and Waiver. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and Executive, and no course of conduct or course of dealing or failure or delay by any Party hereto in enforcing or exercising any of the provisions of this Agreement will affect the validity, binding effect or enforceability of this Agreement or be deemed to be an implied waiver of any provision of this Agreement.

23.Section 409A of the Code.

(a)General. The payments due under this Agreement are intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments of “nonqualified deferred compensation” provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. To the extent Section 409A applies, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments of “nonqualified deferred compensation” to be made under this Agreement by reason of a termination of employment shall only be made if such termination of employment constitutes a “separation from service” under Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by Executive on account of non-compliance with Section 409A. For avoidance of doubt, the Parties intend that the Severance Payment shall be excluded in full from Section 409A as a short-term deferral and this Agreement shall be construed and administered accordingly.

(b)Specified Employees. Notwithstanding any other provision of this Agreement, if at the time of Executive’s termination of employment, he is a “specified employee”, determined in accordance with Section 409A, any payments and benefits provided under this Agreement that constitute “nonqualified deferred compensation” subject to Section 409A that are provided to Executive on account

20

of his separation from service shall not be paid until the first payroll date to occur following the six (6)-month anniversary of Executive’s termination date (“Specified Employee Payment Date”). The aggregate amount of any payments that would otherwise have been made during such six (6)-month period shall be paid in a lump sum on the Specified Employee Payment Date, with interest thereon at one-hundred percent (100%) of the applicable federal funds rate during such period, and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule. If Executive dies during the six (6)-month period, any delayed payments shall be paid to Executive’s estate in a lump sum upon Executive’s death.

(a)Reimbursements. To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following: (i) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (ii) any reimbursement of an eligible expense shall be paid to Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (iii) any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.

24.Recoupment. Executive hereby acknowledges and agrees that the Amended and Restated Assured Guaranty Ltd. Executive Officer Recoupment Policy, as amended from time to time (the “Recoupment Policy”), or, solely to the extent required by applicable law, any other similar policy as may be adopted by Parent or the Company covering executives at Executive’s level, shall control over any inconsistent provision of the Agreement and shall be binding on Executive, and in no event shall the enforcement of such policy in accordance with the terms thereof constitute Good Reason. The Recoupment Policy in effect as of the date hereof is attached hereto as Exhibit C.

25.Ownership Guidelines. Executive hereby acknowledges and agrees that the Stock Ownership Guidelines adopted by the Board from time to time shall be binding on Executive.

* * * * *

21

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date.

AG US GROUP SERVICES, INC.

By:

Its:

BLUEMOUNTAIN CAPITAL MANAGEMENT, LLC

By:

Its:

EXECUTIVE

Andrew Feldstein

22

APPENDIX I

DEFINITIONS

“Accrued Benefits” means (a) Base Salary earned through the Termination Date; (b) a payment representing Executive’s accrued but unused vacation; and (c) anything in this Agreement to the contrary notwithstanding, (i) the payment of any vested, but not forfeited, benefits as of the Termination Date under the Company’s employee benefit plans payable in accordance with the terms of such plans and (ii) the availability of such benefit continuation and conversion rights to which Executive is entitled in accordance with the terms of such plans.

“Affiliate” means, with respect to any Person, any company, directly or indirectly, controlled by, controlling or under common control with such Person, including, but not limited to, subsidiary entities, parent, partners, joint ventures, and predecessors, as well as successors and assigns.

“Affiliated Asset Manager” means any Affiliate of the Assured Guaranty Group that is an asset manager.

“Affiliated Funds” means the funds of any other Affiliated Asset Manager.

“AIP Amount” shall mean the three (3)-year average of the annual AIP amounts paid or payable to Executive with respect to the three (3) most recently completed calendar years immediately preceding the Termination Date. If Executive has not been employed by the Company during the three (3) most recently completed calendar years immediately preceding the Termination Date, the average annual AIP amount shall be calculated based on the number of full calendar years of employment immediately preceding the Termination Date. If Executive has not been employed long enough to receive an annual AIP with respect to one (1) completed calendar year, the annual AIP amount shall be equal to Executive’s target AIP amount.

“Agreement” has the meaning set forth in the recitals.

“Agreement Term” has the meaning set forth in Section 1.

“AGUS” has the meaning set forth in the recitals.

“AIP Grant” has the meaning set forth in Section 3(b).

“Assured Guaranty Group” has the meaning set forth in the recitals.

“Assured Guaranty Group Parties” means, collectively, each member of the Assured Guaranty Group, or any of their respective officers, directors, partners, principals, members, or employees (each, an “Assured Guaranty Group Party”).

“BCM” has the meaning set forth in the recitals.

23

“BlueMountain Funds” means, collectively, all comingled investment vehicles, single-investor investment vehicles and other investment vehicles and/or separately managed accounts (including, without limitation, any acting as a warehouse or in a similar capacity) (whether open-ended or closed-ended, structured as a collateralized loan obligation or similar, and including, without limitation, investment companies, corporations, partnerships and limited liability companies) (i) sponsored or promoted by any of the BlueMountain Operating Companies, (ii) for which any of the BlueMountain Operating Companies or BlueMountain Subsidiaries (defined as all subsidiaries of the BlueMountain Operating Companies other than the BlueMountain Funds) acts as a general partner, trustee or managing member (or in a similar capacity), principal underwriter or distributor or (iii) for which any of the BlueMountain Operating Companies or BlueMountain Subsidiaries acts as an investment adviser, investment manager or otherwise provides Investment Advisory Services, directly or indirectly.

“BlueMountain Operating Companies” has the meaning set forth in the recitals.

“Board” has the meaning set forth in Section 2(a).

“Cause” shall mean the occurrence of any of the following: (i) Executive’s conviction of or plea of guilty or no-contest to any felony; or (ii) a breach of Sections 7 or 10 of this Agreement or a material breach of any other Sections of this Agreement; or (iii) willful failure by Executive to carry out the lawful and reasonable directions of the Board and the Chief Executive Officer; (iv) any acts or omissions by the Executive that (x) constitute gross negligence or the commission of or conviction for or plea of guilty or no contest to any crime and (y) that trigger conversion or redemption rights, investment period termination, and/or dissolution of any BlueMountain Fund; or (v) Executive, in carrying out his duties, has been guilty of (1) a willful, serious, and continued failure to perform his duties, (2) willful and serious misconduct, (3) a willful act of material fraud or material embezzlement against the Employer or (4) a willful and material breach of the Company Code of Conduct to the extent previously provided to Executive; provided, however, that any act, or failure to act, by Executive shall not constitute Cause for purposes of this Agreement if such act, or failure to act, was committed, or omitted, by Executive (i) in good faith and in a manner he reasonably believed to be in the best interests of the Company, or (ii) based upon advice of counsel to the Company or the direction of the Board. Without limitation of the foregoing, for a termination of employment to constitute termination for Cause, except for a material breach, failure or refusal which, by its nature, cannot reasonably be expected to be cured, the Company must first notify Executive in writing, specifying the event alleged to constitute Cause within ninety (90) days after the Company first becomes aware of the occurrence of the event the Company believes constitutes Cause, and Executive will have a period of thirty (30) days after the receipt of such notice in which to cure the grounds for Cause. If Cause is not cured within this period, the Executive’s employment will be terminated for Cause effective as of the end of such cure period. For the avoidance of doubt, for a material breach, failure or refusal which, by its nature, cannot reasonably be expected to be cured, the Company may provide notice of termination for Cause without providing any opportunity to cure.

“Code” means the Internal Revenue Code of 1986, as amended.

“Co-Investment Required Period” has the meaning set forth in Section 5.

“Company” has the meaning set forth in the recitals.

24

“Compensation Committee” has the meaning set forth in Section 3(b).

“Competing Activities” has the meaning set forth in Section 10(a)(ii).

“Confidential Information” has the meaning set forth in Section 7(b).

“Copyright Act” means the United States Copyright Act of 1976, as amended.

“Covenant Period” has the meaning set forth in Section 10(a)(i).

“Creation” has the meaning set forth in Section 9.

“Designated Courts” has the meaning set forth in Section 18.

“Effective Date” has the meaning set forth in the recitals.

“Equity Incentive Compensation” has the meaning set forth in Section 3(b).

“Excluded Investments” means any of the following BlueMountain Funds: Blue Mountain Credit Alternatives Master Fund L.P., Blue Mountain Credit Alternatives Fund L.P., Blue Mountain Credit Alternatives Fund Ltd., BlueMountain Global Volatility Master Fund L.P., BlueMountain Global Volatility Fund L.P., and BlueMountain Global Volatility Fund Ltd.

“Executive” has the meaning set forth in the recitals.

“Executive Investor Group” has the meaning set forth in Section 5.

“Executive Minimum Amount” has the meaning set forth in Section 5.

“Forfeiture Amount” has the meaning set forth in Section 5(b)(v).

“Good Reason” shall mean the occurrence of any of the following without Executive’s prior written consent: (i) a reduction of Executive’s title or reporting line or a material reduction of Executive’s authority duties, or responsibilities; (ii) a reduction in Executive’s salary for 2019 or 2020 or AIP target amount for 2020; (iii) a relocation of Executive’s principal place of employment outside the Borough of Manhattan, New York; (iv) a material breach by any member of the Assured Guaranty Group of any agreement to which such member and Executive are a party, including, without limitation, this Agreement or any promissory note that may be issued to Executive pursuant to the Purchase Agreement; (v) any breach of Section 2 of this Agreement; (vi) a failure by the boards of directors of the applicable entities to establish and maintain an Investment Committee and to appoint and retain Executive as Chairman of such Investment Committee; (vii) a failure by Assured Guaranty Group to make aggregate capital contributions to one or more of the BlueMountain Operating Companies of at least thirty million dollars ($30,000,000) within one year of the Closing Date, which shall be utilized by the BlueMountain Operating Companies to satisfy and discharge, among other costs, expenses and capital investments, the Seller Transaction Expenses and the Restructuring Costs when due and payable on or after the Closing (as such terms are defined in the Purchase Agreement); (viii) a failure by the Assured Guaranty Group to make aggregate commitments and/or investments of at least five hundred million dollars ($500,000,000) to one or more BlueMountain Funds within three years

25

of the Closing Date; provided, however, that the failure to so commit and/or invest as a result of the Minimum Conditions not being satisfied shall not constitute Good Reason; (ix) a material diminishment in the amount of paid parental leave, or a material diminishment of any other material term or condition of such paid parental leave policy, as provided by BCM as of the Locked Box Date (as defined in the Purchase Agreement) (except for changes that are required by law); or (x) any change in the composition of or number of people on the Investment Committee. In order for a termination of employment to constitute termination for Good Reason, Executive must notify the Company in writing of termination for Good Reason, specifying the event constituting Good Reason, within ninety (90) days after the date Executive knows or should have known of the occurrence of the event that Executive believes constitutes Good Reason. Failure for any reason to give written notice of termination of employment for Good Reason in accordance with the foregoing will be deemed a waiver of the right to voluntarily terminate Executive’s employment for that Good Reason event. The Company will have a period of thirty (30) days after receipt of such notice in which to cure the Good Reason. If the Good Reason is cured within this period, Executive will not be entitled to the Severance Payment under the Plan. If the Company waives its right to cure or does not, within the thirty (30) day period, cure the Good Reason, Executive will be entitled to the Severance Payment subject to the terms and conditions hereof, and such Executive’s actual Termination Date will be determined in the sole discretion of Executive, but in no event will it be later than fifteen (15) calendar days from the date the Company waives its right to cure or the end of the thirty (30)-day period during which the Company may cure the Good Reason, whichever is earlier.

“Health Continuation Amount” shall mean, to the extent Executive participates in the health and/or dental plans of the Company as of the Termination Date, an amount equal to twelve (12) months of health and/or dental premium payments as determined under Section 4980B of the Code, and Sections 601-609 of ERISA and determined for Executive (and Executive’s dependents) based on such Executive’s elections as in effect on such Executive’s Termination Date.

“Immediate Family Member” means, with respect to Executive, (i) his current spouse, former spouse(s), children (including natural, adopted and stepchildren), grandchildren, parents, grandparents and siblings and (ii) any estates, trusts, partnerships and other entities for the primary benefit of such specified Person or of which all of the interests are held directly or indirectly for the benefit of any of the individuals described in clause (i) or any combination of the foregoing.

“Investment Advisory Services” means any services that involve: (i) the management of an investment account or fund (or portions thereof or a group of investment accounts or funds) for compensation; (ii) the giving of advice with respect to the investment and/or reinvestment of assets or funds (or any group of assets or funds), or the giving of services that support the foregoing, in either case for compensation (or the giving of services that support the foregoing); or (iii) otherwise acting as an “investment adviser” within the meaning of the Investment Advisers Act of 1940; including, without limitation, in each of the foregoing cases, performing activities related or incidental thereto.

“Investment Committee” means an executive committee of the boards of directors of each of Assured Guaranty Corp., Assured Guaranty Municipal Corp. and Municipal Assurance Corp., which committee shall have the right to approve any investment directly or indirectly made by such entity in any BlueMountain Fund or any Affiliated Funds, and which shall consist of no more than three

26

members, comprised of the Head of Asset Management, the Chief Executive Officer and the Chief Financial Officer of each such entity.

“LTIP” has the meaning set forth in Section 3(b).

“Minimum Conditions” means (a) the receipt by the Assured Guaranty Group of the requisite regulatory approval or non-disapproval from the New York State Department of Financial Services and the Maryland Insurance Administration to make, directly or indirectly, aggregate commitments and/or investments of at least five hundred million dollars ($500,000,000) to one or more BlueMountain Funds and (b) the availability of sufficient (in the sole opinion of the Investment Committee) commitment and/or investment opportunities to one or more BlueMountain Funds that (i) are not prohibited by applicable law, regulation or Assured Guaranty Group company policy and (ii) meet diversification and other requirements and limits on investments imposed by applicable law and regulation.

“Parent” has the meaning set forth in the recitals.

“Party” has the meaning set forth in the recitals.

“Permanent Disability” means mental, physical or other illness, disease or injury for which Executive is determined to be eligible for long-term disability benefits under the AG US Group Services Inc. Health and Welfare Plan (or any successor plan thereto); or if Executive does not participate in such plan, then mental, physical or other illness, disease or injury which has prevented Executive from substantially performing, with or without reasonable accommodations, Executive’s essential duties hereunder for the greater of: (a) the eligibility waiting period for long-term disability benefits under the AG US Group Services Inc. Health and Welfare Plan (or any successor plan thereto), if any, (b) an aggregate of six (6) months in any consecutive twelve (12) month period, or (c) a period of three (3) consecutive months.

“Person” means any natural person, corporation, general partnership, limited partnership, limited liability company or partnership, proprietorship, other business organization, trust, union, association or governmental or regulatory entities, department, agency or authority.

“Pro-Rata AIP Amount” means an amount equal to the AIP Amount for Executive for the year in which such Executive incurs a Termination Date multiplied by a fraction, the numerator of which shall equal the number of days worked in the year between January 1st of such year and the Termination Date and the denominator of which shall equal 365.

“Purchase Agreement” has the meaning set forth in the recitals.

“Recoupment Policy” has the meaning set forth in Section 24.

“Release” means the customary waiver and release agreement generally used by the Company for executives, in the form attached as Exhibit D hereto, with only such modifications as may be required to address changes in law.

“Required Investment Amount” has the meaning set forth in Section 5(a).

27

“Section 409A” has the meaning set forth in Section 23(a).

“Severance Payment” means a lump-sum cash payment equal to the sum of: (a) an amount equal to the Pro-Rata AIP Amount, plus (b) an amount equal to one year of Executive’s Base Salary, plus (c) an amount equal to Executive’s AIP Amount, plus (d) an amount equal to the Health Continuation Amount

“Solicitation” has the meaning set forth in Section 10(c).

“Specified Employee Payment Date” has the meaning set forth in Section 23(b).

“Termination Date” means the last day of Executive’s employment with the Company and any Affiliate; provided, further, however, that the determination of Executive’s termination of employment by reason of a sale of assets, sale of stock, spin-off or other similar transaction of the Company or an Affiliate will be made in accordance with Treasury Regulation Section 1.409A-1(h).

“Third Party Information” has the meaning set forth in Section 7(d).

“Transaction” has the meaning set forth in the recitals.

“Work Product” has the meaning set forth in Section 9.

28

EX-31.1

EXHIBIT 31.1

Assured Guaranty Ltd.

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dominic J. Frederico, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Assured Guaranty Ltd.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ DOMINIC J. FREDERICO
	Dominic J. Frederico
	President and Chief Executive Officer

Date: August 8, 2019

EX-31.2

EXHIBIT 31.2

Assured Guaranty Ltd.

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert A. Bailenson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Assured Guaranty Ltd.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ ROBERT A. BAILENSON
	Robert A. Bailenson
	Chief Financial Officer

Date: August 8, 2019

EX-32.1

Exhibit 32.1

CERTIFICATION OF CEO PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Assured Guaranty Ltd. (the “Company”) for the period ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Dominic J. Frederico, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DOMINIC J. FREDERICO

Name: Dominic J. Frederico

Title: President and Chief Executive Officer

Date: August 8, 2019

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CFO PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Assured Guaranty Ltd. (the “Company”) for the period ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert A. Bailenson, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ ROBERT A. BAILENSON

Name: Robert A. Bailenson

Title: Chief Financial Officer

Date: August 8, 2019

XML

Cover Page - shares	6 Months Ended
	Jun. 30, 2019	Aug. 05, 2019
Cover page.
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2019
Entity File Number	001-32141
Entity Registrant Name	ASSURED GUARANTY LTD
Entity Incorporation, State or Country Code	D0
Entity Tax Identification Number	98-0429991
Entity Address, Address Line One	30 Woodbourne Avenue
Entity Address, City or Town	Hamilton
Entity Address, Postal Zip Code	HM 08
Entity Address, Country	BM
City Area Code	441
Local Phone Number	279-5700
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	true
Title of 12(b) Security	Common Shares
Trading Symbol	AGO
Security Exchange Name	NYSE
Entity Common Stock, Shares Outstanding		98,708,604
Entity Central Index Key	0001273813
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2

XML

Condensed Consolidated Balance Sheets (unaudited) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Investment portfolio:
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $9,137 and $9,884)	$ 9,574	$ 10,089
Short-term investments, at fair value	1,159	729
Other invested assets	60	55
Total investment portfolio	10,793	10,873
Cash	190	104
Premiums receivable, net of commissions payable	866	904
Deferred acquisition costs	106	105
Salvage and subrogation recoverable	580	490
Financial guaranty variable interest entities’ assets, at fair value	526	569
Other assets	520	558
Total assets	13,581	13,603
Liabilities and shareholders’ equity
Unearned premium reserve	3,387	3,512
Loss and loss adjustment expense reserve	1,102	1,177
Long-term debt	1,233	1,233
Credit derivative liabilities	224	209
Financial guaranty variable interest entities’ liabilities with recourse, at fair value	446	517
Financial guaranty variable interest entities’ liabilities without recourse, at fair value	105	102
Other liabilities	362	298
Total liabilities	6,859	7,048
Commitments and contingencies (see Note 12)
Common stock ($0.01 par value, 500,000,000 shares authorized; 99,801,012 and 103,672,592 shares issued and outstanding)	1	1
Additional paid-in capital	0	86
Retained earnings	6,425	6,374
Accumulated other comprehensive income, net of tax of $71 and $38	295	93
Deferred equity compensation	1	1
Total shareholders’ equity	6,722	6,555
Total liabilities and shareholders’ equity	$ 13,581	$ 13,603

XML

Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Fixed maturity securities, available-for-sale, at fair value	$ 9,137	$ 9,884
Common stock par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	99,801,012	103,672,592
Common stock, shares outstanding (in shares)	99,801,012	103,672,592
Accumulated other comprehensive income, tax provision	$ 71	$ 38

XML

Condensed Consolidated Statements of Operations (unaudited) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues
Net earned premiums	$ 112	$ 136	$ 230	$ 281
Net investment income	110	98	208	198
Net realized investment gains (losses)	8	(2)	(4)	(7)
Net change in fair value of credit derivatives	(8)	48	(30)	82
Fair value gains (losses) on financial guaranty variable interest entities	33	2	38	6
Foreign exchange gain (loss) on remeasurement	(14)	(36)	(3)	(14)
Other income (loss)	25	(26)	22	(33)
Total revenues	266	220	461	513
Expenses
Loss and loss adjustment expenses	(1)	44	45	26
Amortization of deferred acquisition costs	4	4	10	9
Interest expense	22	24	45	48
Other operating expenses	60	62	124	127
Total expenses	85	134	224	210
Income (loss) before income taxes and equity in net earnings of investees	181	86	237	303
Equity in net earnings of investees	1	1	3	1
Income (loss) before income taxes	182	87	240	304
Provision (benefit) for income taxes	40	12	44	32
Net income (loss) attributable to Assured Guaranty Ltd.	$ 142	$ 75	$ 196	$ 272
Earnings per share:
Basic (in dollars per share)	$ 1.40	$ 0.67	$ 1.92	$ 2.39
Diluted (in dollars per share)	$ 1.39	$ 0.67	$ 1.90	$ 2.37

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Condensed Consolidated Statements of Comprehensive Income (unaudited) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 142	$ 75	$ 196	$ 272
Change in net unrealized gains (losses) on:
Investments with no other-than-temporary impairment, net of tax provision (benefit) of $19, $(2), $44 and $(31)	79	(63)	242	(191)
Investments with other-than-temporary impairment, net of tax provision (benefit) of $(12), $1, $(12) and $0	(48)	6	(43)	4
Change in net unrealized gains (losses) on investments	31	(57)	199	(187)
Change in net unrealized gains (losses) on financial guaranty variable interest entities' liabilities with recourse resulting from a change in the instrument-specific credit risk, net of tax	4	4	4	2
Other, net of tax provision (benefit)	(1)	(9)	(1)	(3)
Other comprehensive income (loss)	34	(62)	202	(188)
Comprehensive income (loss)	$ 176	$ 13	$ 398	$ 84

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Condensed Consolidated Statements of Comprehensive Income (unaudited) (Parenthetical) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Investments with no other-than-temporary impairment, tax provision (benefit)	$ 19	$ (2)	$ 44	$ (31)
Investments with other-than-temporary impairment, tax provision (benefit)	$ 12	$ (1)	$ 12	$ 0

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Condensed Consolidated Statement of Shareholders' Equity (unaudited) - USD ($) $ in Millions	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Deferred Equity Compensation [Member]
Increase (Decrease) in Shareholders' Equity
Effect of adoption of ASU	$ (32)
Beginning balance (in shares) at Dec. 31, 2017		116,020,852
Beginning balance at Dec. 31, 2017	6,839	$ 1	$ 573	$ 5,892	$ 372	$ 1
Increase (Decrease) in Shareholders' Equity
Net income (loss)	272			272
Dividends (in dollars per share)	(37)			(37)
Common stock repurchases (in shares)		(6,951,126)
Common stock repurchases	(250)		(250)
Share-based compensation and other (in shares)		544,488
Share-based compensation and other	(2)		(2)
Effect on OCI	(188)				(188)
Ending balance (in shares) at Jun. 30, 2018		109,614,214
Ending balance at Jun. 30, 2018	6,634	$ 1	321	6,159	152	1
Beginning balance (in shares) at Mar. 31, 2018		113,709,322
Beginning balance at Mar. 31, 2018	6,784	$ 1	466	6,102	214	1
Increase (Decrease) in Shareholders' Equity
Net income (loss)	75			75
Dividends (in dollars per share)	(18)			(18)
Common stock repurchases (in shares)		(4,163,190)
Common stock repurchases	(152)		(152)
Share-based compensation and other (in shares)		68,082
Share-based compensation and other	7		7
Effect on OCI	(62)				(62)
Ending balance (in shares) at Jun. 30, 2018		109,614,214
Ending balance at Jun. 30, 2018	6,634	$ 1	321	6,159	152	1
Beginning balance (in shares) at Dec. 31, 2018		103,672,592
Beginning balance at Dec. 31, 2018	6,555	$ 1	86	6,374	93	1
Increase (Decrease) in Shareholders' Equity
Net income (loss)	196			196
Dividends (in dollars per share)	(38)			(38)
Common stock repurchases (in shares)		(4,427,735)
Common stock repurchases	(190)		(83)	(107)
Share-based compensation and other (in shares)		556,155
Share-based compensation and other	(3)		(3)
Effect on OCI	202				202
Ending balance (in shares) at Jun. 30, 2019		99,801,012
Ending balance at Jun. 30, 2019	6,722	$ 1	0	6,425	295	1
Beginning balance (in shares) at Mar. 31, 2019		102,270,409
Beginning balance at Mar. 31, 2019	6,669	$ 1	0	6,406	261	1
Increase (Decrease) in Shareholders' Equity
Net income (loss)	142			142
Dividends (in dollars per share)	(19)			(19)
Common stock repurchases (in shares)		(2,519,130)
Common stock repurchases	(111)		(7)	(104)
Share-based compensation and other (in shares)		49,733
Share-based compensation and other	7		7
Effect on OCI	34				34
Ending balance (in shares) at Jun. 30, 2019		99,801,012
Ending balance at Jun. 30, 2019	$ 6,722	$ 1	$ 0	$ 6,425	$ 295	$ 1

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Condensed Consolidated Statement of Shareholders' Equity (unaudited) (Parenthetical) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Stockholders' Equity [Abstract]
Dividends, per share (in dollars per share)	$ 0.18	$ 0.16	$ 0.36	$ 0.32

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Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Statement of Cash Flows [Abstract]
Net cash flows provided by (used in) operating activities	$ (198)	$ 444
Fixed-maturity securities:
Purchases	(503)	(879)
Sales	914	592
Maturities and paydowns	506	533
Short-term investments with original maturities of over three months:
Purchases	(209)	(121)
Sales	2	1
Maturities and paydowns	174	104
Net sales (purchases) of short-term investments with original maturities of less than three months	(389)	(288)
Net proceeds from paydowns on financial guaranty variable interest entities’ assets	50	60
Net proceeds from sales of financial guaranty variable interest entities’ assets	51	0
Other	35	(16)
Net cash flows provided by (used in) investing activities	631	(14)
Financing activities
Dividends paid	(39)	(37)
Repurchases of common stock	(190)	(250)
Repurchases of common stock to pay withholding taxes	(16)	(13)
Net paydowns of financial guaranty variable interest entities’ liabilities	(95)	(61)
Paydown of long-term debt	(4)	(24)
Proceeds from option exercises	1	1
Net cash flows provided by (used in) financing activities	(343)	(384)
Effect of foreign exchange rate changes	0	(1)
Increase (decrease) in cash and restricted cash	90	45
Cash and restricted cash at beginning of period (see Note 7)	104	144
Cash and restricted cash at end of period (see Note 7)	194	189
Supplemental cash flow information
Income taxes	(3)	39
Interest on long-term debt	$ 42	$ 57

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Expected Loss to be Paid - Net Economic Loss Development - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Schedule of Expected Losses to be Paid [Line Items]
Economic Loss Development / (Benefit)	$ 37	$ (19)	$ 39	$ 5
United States [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Economic Loss Development / (Benefit)	118	28	183	12
First Lien [Member] | United States [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Economic Loss Development / (Benefit)	(19)	(7)	(50)	17
Second Lien [Member] | United States [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Economic Loss Development / (Benefit)	$ (99)	$ (21)	$ (133)	$ (29)

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Business and Basis of Presentation

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Business and Basis of Presentation

Business and Basis of Presentation

Business

Assured Guaranty Ltd. (AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the United States (U.S.) and international public finance (including infrastructure) and structured finance markets. The Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. If an obligor defaults on a scheduled payment due on an obligation, including a scheduled principal or interest payment (debt service), the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The Company guarantees obligations issued principally in the U.S. and the United Kingdom (U.K.), and also guarantees obligations issued in other countries and regions, including Western Europe, Canada and Australia. The Company also provides non-financial guaranty insurance and reinsurance on transactions with similar risk profiles to its structured finance exposures written in financial guaranty form.

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In management's opinion, all material adjustments necessary for a fair statement of the financial condition, results of operations and cash flows of the Company and its consolidated variable interest entities (VIEs) are reflected in the periods presented and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited interim condensed consolidated financial statements are as of June 30, 2019 and cover the three-month period ended June 30, 2019 (Second Quarter 2019), the three-month period ended June 30, 2018 (Second Quarter 2018), the six-month period ended June 30, 2019 (Six Months 2019) and the six-month period ended June 30, 2018 (Six Months 2018). Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The presentation of cash flow amounts related to short-term investments was changed during the fourth quarter of 2018 to reflect cash flows on a gross, rather than a net, basis. The presentation of equity in net earnings of investees was changed in 2019 to reflect amounts previously reported in net investment income and other income to a separate line item on the condensed consolidated statements of operations. Certain prior year balances have been reclassified to conform to the current year's presentation.

The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries and its consolidated VIEs. Intercompany accounts and transactions between and among all consolidated entities have been eliminated.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in AGL’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (SEC).

The Company's principal insurance company subsidiaries are:

• Assured Guaranty Municipal Corp. (AGM), domiciled in New York;

• Municipal Assurance Corp. (MAC), domiciled in New York;

• Assured Guaranty Corp. (AGC), domiciled in Maryland;

• Assured Guaranty (Europe) plc (AGE), organized in the U.K.;

• Assured Guaranty Re Ltd. (AG Re), domiciled in Bermuda; and

• Assured Guaranty Re Overseas Ltd. (AGRO), domiciled in Bermuda.

The Company’s organizational structure includes various holding companies, two of which - Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH) - have public debt outstanding. See Note 15, Subsidiary Information.

Acquisition of BlueMountain

On August 7, 2019, AGUS and AGL entered into a purchase agreement (Purchase Agreement) pursuant to which AGUS will purchase all of the outstanding equity interests in BlueMountain Capital Management, LLC (BlueMountain) and its associated entities, for a purchase price of approximately $160 million, subject to certain pre- and post-closing adjustments (BlueMountain Acquisition). BlueMountain manages $19.3 billion in assets across collateralized loan obligations (CLOs); long-duration opportunity funds that build on the firm’s corporate credit, asset-backed finance, infrastructure and healthcare experience; and hedge funds employing relative value approaches. Completion of the BlueMountain Acquisition is subject to certain customary closing conditions, including the receipt of certain consents and regulatory approvals.

Not less than $114.8 million of the purchase price will be payable in cash. The remainder of the purchase price will be payable, at AGUS' election, in cash, in AGL common shares, in a one-year promissory note or in a combination of the foregoing. In addition, AGUS will contribute $60 million of cash to BlueMountain at closing and intends to contribute an additional $30 million in cash within a year from closing. AGUS intends to fund the cash portion of the purchase price and the cash contributions to BlueMountain with available cash and, subject to regulatory approval, intercompany borrowings from AGM, AGC, MAC or a combination of them.

Adopted Accounting Standards

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The Company adopted Topic 842 on January 1, 2019 using the optional transition method that allows the Company to initially apply the new requirements at the effective date, with no revision to prior periods. See Note 12, Commitments and Contingencies, for additional information.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Topic 310-20) - Premium Amortization on Purchased Callable Debt Securities.  This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date.  This ASU was adopted on January 1, 2019, with no effect on the Company's condensed consolidated financial statements.

Future Application of Accounting Standards

Credit Losses on Financial Instruments

                In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The ASU provides a new current expected credit loss model to account for credit losses on certain financial assets (e.g., reinsurance recoverables, premium receivables, and held-to-maturity debt securities) and off-balance sheet exposures (e.g., loan commitments). That model requires an entity to estimate lifetime credit losses related to certain financial assets, based on relevant historical information, adjusted for current conditions and reasonable and supportable forecasts that could affect the collectability of the reported amount. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities, which includes requiring the recognition of an allowance rather than a direct write-down of the investment. The allowance may be reversed in the event that the credit of an issuer improves. In addition, the ASU eliminates the existing guidance for purchased credit impaired assets and introduces a new model for

purchased financial assets with credit deterioration, such as the Company's loss mitigation securities, which requires the recognition of an initial allowance for credit losses. Under the new guidance, the amortized cost would be the purchase price plus the allowance.

                The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For reinsurance recoverables, premiums receivable and debt instruments such as loans and held to maturity securities, entities will be required to record a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is adopted. The changes to the impairment model for available-for-sale securities and purchased financial assets with credit deterioration are to be applied prospectively. Early adoption of the amendments is permitted; however, the Company does not plan to adopt this ASU until January 1, 2020. The Company does not expect the adoption of ASU 2016-13 to have a material effect on shareholders' equity.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.  The amendments in this ASU:

• improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows,

• simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,

• simplify the amortization of deferred acquisition costs, and

• improve the effectiveness of the required disclosures.

This ASU does not affect the Company’s financial guaranty insurance contracts, but may affect its accounting for certain non-financial guaranty contracts. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not plan to adopt this ASU early, and does not expect this ASU to have a material effect on its condensed consolidated financial statements.

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Ratings

6 Months Ended

Jun. 30, 2019

Rating Actions [Abstract]

Ratings

Ratings

The financial strength ratings (or similar ratings) for AGL’s insurance subsidiaries, along with the date of the most recent rating action (or confirmation) by the rating agency, are shown in the table below. Ratings are subject to continuous rating agency review and revision or withdrawal at any time. In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment may request that a rating agency add or drop a rating from certain of its companies.

	S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC	Kroll Bond Rating Agency	Moody’s Investors Service, Inc.	A.M. Best Company, Inc.
AGM	AA (stable) (6/27/19)	AA+ (stable) (12/21/18)	A2 (stable) (5/7/18)	—
AGC	AA (stable) (6/27/19)	AA (stable) (11/30/18)	(1)	—
MAC	AA (stable) (6/27/19)	AA+ (stable) (7/12/19)	—	—
AG Re	AA (stable) (6/27/19)	—	—	—
AGRO	AA (stable) (6/27/19)	—	—	A+ (stable) (7/12/19)
AGE	AA (stable) (6/27/19)	AA+ (stable) (12/21/18)	A2 (stable) (5/7/18)	—

____________________

(1) AGC requested that Moody’s Investors Service, Inc. (Moody’s) withdraw its financial strength ratings of AGC in January 2017, but Moody's denied that request. Moody’s continues to rate AGC A3 (stable).

There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL's insurance subsidiaries in the future or cease to rate one or more of AGL's insurance subsidiaries, either voluntarily or at the request of that subsidiary.

For a discussion of the effects of rating actions on the Company, see Note 5, Contracts Accounted for as Insurance, and Note 11, Reinsurance.

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Outstanding Exposure

6 Months Ended

Jun. 30, 2019

Outstanding Exposure Disclosure

Outstanding Exposure

Outstanding Exposure

The Company primarily sells credit protection contracts in financial guaranty insurance form. Until 2009, the Company also sold credit protection by issuing policies that guaranteed payment obligations under credit derivatives, primarily credit default swaps (CDS). The Company's contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts. The Company has not entered into any new CDS in order to sell credit protection in the U.S. since the beginning of 2009, when regulatory guidelines were issued that limited the terms under which such protection could be sold. The capital and margin requirements applicable under the Dodd-Frank Wall Street Reform and Consumer Protection Act also contributed to the Company not entering into such new CDS in the U.S. since 2009. The Company has, however, acquired or reinsured portfolios both before and after 2009 that include financial guaranty contracts in credit derivative form.

The Company also writes non-financial guaranty insurance that is consistent with its risk profile and benefits from its underwriting experience.

The Company seeks to limit its exposure to losses by underwriting obligations that it views as investment grade at inception, although on occasion it may underwrite new issuances that it views as below-investment-grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures. The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies, providing reinsurance on a portfolio of insurance or reassuming a portfolio of reinsurance it had previously ceded; in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction. The Company diversifies its insured portfolio across asset classes and, in the structured finance portfolio, typically requires subordination or collateral to protect it from loss. Reinsurance may be used in order to reduce net exposure to certain insured transactions.

     Public finance obligations insured by the Company primarily consist of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company also includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, health care facilities and government office buildings. The Company also includes within public finance similar obligations issued by territorial and non-U.S. sovereign and sub-sovereign issuers and governmental authorities.

Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. Some of these VIEs are consolidated as described in Note 9, Variable Interest Entities. Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on VIEs whether or not they are consolidated. The Company also provides non-financial guaranty insurance and reinsurance on transactions without special purpose entities but with similar risk profiles to its structured finance exposures written in financial guaranty form.

Second-to-pay insured par outstanding represents transactions the Company has insured that are already insured by another financial guaranty insurer and where the Company's obligation to pay under its insurance of such transactions arises only if both the obligor on the underlying insured obligation and the primary financial guaranty insurer default. The Company underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary financial guarantor. The second-to-pay insured par outstanding as of June 30, 2019 and December 31, 2018 was $6.6 billion and $6.7 billion, respectively. The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction are both BIG and/or not rated was $107 million and $111 million as of June 30, 2019 and December 31, 2018, respectively.

Surveillance Categories

The Company segregates its insured portfolio into investment grade and BIG surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review for each exposure. BIG exposures include all exposures with internal credit ratings below BBB-. The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and are generally reflective of an approach similar to that employed by the rating agencies, except that the Company's internal credit ratings focus on future performance rather than lifetime performance.

The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector. Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting the credit when a ratings review is not scheduled. For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating.

Exposures identified as BIG are subjected to further review to determine the probability of a loss. See Note 4, Expected Loss to be Paid, for additional information. Surveillance personnel then assign each BIG transaction to the appropriate BIG surveillance category based upon whether a future loss is expected and whether a claim has been paid. The Company uses a tax-equivalent yield, which reflects long-term trends in interest rates, to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction. For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss.

More extensive monitoring and intervention is employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will pay more claims on that transaction in the future than it will have reimbursed. The three BIG categories are:

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

• BIG Category 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year) have yet been paid.

• BIG Category 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid.

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

Financial Guaranty Exposure

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

mitigate the economic effect of insured losses (loss mitigation securities). The Company excludes amounts attributable to loss mitigation securities from par and debt service outstanding, which amounts are included in the investment portfolio, because it manages such securities as investments and not insurance exposure. As of June 30, 2019 and December 31, 2018, the Company excluded $1.5 billion and $1.9 billion, respectively, of net par attributable to loss mitigation securities (which are mostly BIG).

Financial Guaranty

Debt Service Outstanding

	Gross Debt Service Outstanding				Net Debt Service Outstanding
	As of June 30, 2019		As of December 31, 2018		As of June 30, 2019		As of December 31, 2018
	(in millions)
Public finance	$	350,977	$	361,511	$	349,779	$	358,438
Structured finance	12,734		13,569		12,220		13,148
Total financial guaranty	$	363,711	$	375,080	$	361,999	$	371,586

Financial Guaranty Portfolio by Internal Rating

As of June 30, 2019

	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	385	0.2	%	$	2,460	5.5	%	$	1,428	15.0	%	$	181	22.8	%	$	4,454	1.9	%
AA	21,289		11.8		1,880		4.2		3,617		37.9		39		4.9		26,825		11.4
A	100,156		55.5		13,067		29.4		1,079		11.3		183		23.1		114,485		48.6
BBB	52,682		29.2		26,197		58.9		1,512		15.8		349		44.0		80,740		34.3
BIG	6,025		3.3		884		2.0		1,913		20.0		41		5.2		8,863		3.8
Total net par outstanding	$	180,537	100.0	%	$	44,488	100.0	%	$	9,549	100.0	%	$	793	100.0	%	$	235,367	100.0	%

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2018 

	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	413	0.2	%	$	2,399	5.4	%	$	1,533	15.4	%	$	273	22.9	%	$	4,618	1.9	%
AA	21,646		11.6		1,711		3.9		3,599		36.2		65		5.4		27,021		11.2
A	105,180		56.4		13,013		29.5		1,016		10.2		206		17.3		119,415		49.4
BBB	52,935		28.4		25,939		58.8		1,164		11.7		550		46.1		80,588		33.3
BIG	6,388		3.4		1,041		2.4		2,632		26.5		99		8.3		10,160		4.2
Total net par outstanding	$	186,562	100.0	%	$	44,103	100.0	%	$	9,944	100.0	%	$	1,193	100.0	%	$	241,802	100.0	%

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $295 million of gross par as of June 30, 2019. The commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts.

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of June 30, 2019

	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	1,679	$	398	$	3,948	$	6,025	$	180,537
Non-U.S. public finance	884		—		—		884		44,488
Public finance	2,563		398		3,948		6,909		225,025
Structured finance:
U.S. residential mortgage-backed securities (RMBS)	151		58		1,514		1,723		3,835
Life insurance transactions	—		—		40		40		1,228
Other structured finance	67		72		52		191		5,279
Structured finance	218		130		1,606		1,954		10,342
Total	$	2,781	$	528	$	5,554	$	8,863	$	235,367

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of December 31, 2018

	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	1,767	$	399	$	4,222	$	6,388	$	186,562
Non-U.S. public finance	796		245		—		1,041		44,103
Public finance	2,563		644		4,222		7,429		230,665
Structured finance:
U.S. RMBS	368		214		1,805		2,387		4,270
Life insurance transactions	—		—		85		85		1,184
Other structured finance	127		79		53		259		5,683
Structured finance	495		293		1,943		2,731		11,137
Total	$	3,058	$	937	$	6,165	$	10,160	$	241,802

Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of June 30, 2019

	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivative		Total		Financial Guaranty Insurance (1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	2,705	$	76	$	2,781	116	6	122
Category 2	524		4		528		27	1	28
Category 3	5,486		68		5,554		135	8	143
Total BIG	$	8,715	$	148	$	8,863	278	15	293

 Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of December 31, 2018

	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivative		Total		Financial Guaranty Insurance (1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	2,981	$	77	$	3,058	128	6	134
Category 2	932		5		937		39	1	40
Category 3	6,090		75		6,165		145	8	153
Total BIG	$	10,003	$	157	$	10,160	312	15	327

_____________________

(1)    Includes VIEs.

(2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.   

Exposure to Puerto Rico

The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $4.5 billion net par as of June 30, 2019, all of which was rated BIG. Beginning on January 1, 2016, a number of Puerto Rico exposures have defaulted on bond payments, and the Company has now paid claims on all of its Puerto Rico exposures except for Puerto Rico Aqueduct and Sewer Authority (PRASA), Municipal Finance Agency (MFA) and University of Puerto Rico (U of PR).

On November 30, 2015 and December 8, 2015, the then governor of Puerto Rico (Former Governor) issued executive orders (Clawback Orders) directing the Puerto Rico Department of Treasury and the Puerto Rico Tourism Company to "claw back" certain taxes pledged to secure the payment of bonds issued by the Puerto Rico Highways and Transportation Authority (PRHTA), Puerto Rico Infrastructure Financing Authority (PRIFA), and Puerto Rico Convention Center District Authority (PRCCDA). The Puerto Rico exposures insured by the Company subject to clawback are shown in the table “Puerto Rico Net Par Outstanding.”

On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. PROMESA established a seven-member financial oversight board (Oversight Board) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico.

On July 24, 2019, and effective August 2, 2019, the then governor of the Commonwealth resigned as governor under intense political and public pressure related to corruption within his administration and the public disclosure of a series of inappropriate electronic messages. Before resigning, he appointed another individual secretary of state, the next in line of succession for governor, and that individual was sworn in as governor on August 2. While the Commonwealth's House of Representatives ratified that individual's appointment as secretary of state on August 2 (after he was sworn in), the Commonwealth's Senate did not do so. On August 7 the Puerto Rico Supreme Court held that his swearing-in as governor was unconstitutional. The impact of these developments on obligations insured by the Company is uncertain.

The Company believes that a number of the actions taken by the Commonwealth, the Oversight Board and others with respect to obligations the Company insures are illegal or unconstitutional or both, and has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to these matters. In addition, the Commonwealth, the Oversight Board and others have taken legal action naming the Company as party. See “Puerto Rico Litigation” below.

The Company also participates in mediation and negotiations relating to its Puerto Rico exposure.

The final form and timing of responses to Puerto Rico’s financial distress and the devastation of Hurricane Maria eventually taken by the federal government or implemented under the auspices of PROMESA and the Oversight Board or otherwise, and the final impact, after resolution of legal challenges, of any such responses on obligations insured by the Company, are uncertain.

The Company groups its Puerto Rico exposure into three categories:

• Constitutionally Guaranteed. The Company includes in this category public debt benefiting from Article VI of the Constitution of the Commonwealth, which expressly provides that interest and principal payments on the public debt are to be paid before other disbursements are made.

• Public Corporations – Certain Revenues Potentially Subject to Clawback. The Company includes in this category the debt of public corporations for which applicable law permits the Commonwealth to claw back, subject to certain conditions and for the payment of public debt, at least a portion of the revenues supporting the bonds the Company insures. As a constitutional condition to clawback, available Commonwealth revenues for any fiscal year must be insufficient to pay Commonwealth debt service before the payment of any appropriations for that year. The Company believes that this condition has not been satisfied to date, and accordingly that the Commonwealth has not to date been entitled to claw back revenues supporting debt insured by the Company.

• Other Public Corporations. The Company includes in this category the debt of public corporations that are supported by revenues it does not believe are subject to clawback.

Constitutionally Guaranteed

General Obligation. As of June 30, 2019, the Company had $1,340 million insured net par outstanding of the general obligations of Puerto Rico, which are supported by the good faith, credit and taxing power of the Commonwealth. Despite the requirements of Article VI of its Constitution, the Commonwealth defaulted on the debt service payment due on July 1, 2016, and the Company has been making claim payments on these bonds since that date. The Oversight Board has filed a petition under Title III of PROMESA with respect to the Commonwealth.

On May 9, 2019, the Oversight Board certified a revised fiscal plan for the Commonwealth. The revised certified Commonwealth fiscal plan indicates an expected primary budget surplus, if fiscal plan reforms are enacted, of $13.7 billion that would be available for debt service over the six-year forecast period ending 2024. The Company believes the available surplus set forth in the Oversight Board's revised certified fiscal plan (which assumes certain fiscal reforms are implemented by the Commonwealth) should be sufficient to cover contractual debt service of Commonwealth general obligation issuances and of authorities and public corporations directly implicated by the Commonwealth’s general fund during the forecast period. However, the revised certified Commonwealth fiscal plan indicates a net cumulative primary budget deficit through 2049, and there can be no assurance that the fiscal reforms will be enacted or, if they are, that the forecasted primary budget surplus will occur or, if it does, that such funds will be used to cover contractual debt service.

On June 16, 2019, the Oversight Board announced it had entered into a general obligation Plan Support Agreement (GO PSA) with certain general obligation and Puerto Rico Public Buildings Authority (PBA) bondholders representing approximately $3 billion of claims. The GO PSA purports to provide a framework to address approximately $35 billion of claims against the Commonwealth. The Company is not a party to that agreement and does not support it. 

The GO PSA provides for different recoveries for bonds issued before 2012 (Vintage) and bonds issued in 2012 and 2014 (New) based on the Oversight Board’s attempt to invalidate the New general obligation and PBA bonds (see “Puerto Rico Litigation” below), and the proposed recovery varies depending on the outcome of that litigation.  Under the GO PSA:

• Vintage general obligation bondholders generally would receive newly issued Commonwealth bonds and cash equal to 64.3% of their outstanding claims, plus up to approximately 25.1% of their outstanding claims to a cap of 89.4% from settlement and litigation savings from the invalidation lawsuit, as well as a share of excess revenues if the Commonwealth outperforms its fiscal plan in the near term.

• If the Oversight Board loses its invalidation lawsuit, holders of New general obligation bonds generally would receive the same treatment as the holders of Vintage general obligation bonds but would not share in the upside if the Commonwealth outperforms its fiscal plan.

• If the Oversight Board wins its invalidation lawsuit, holders of New general obligation bonds would not receive any recovery.  

• In all cases, holders of general obligation bonds supporting the GO PSA are also entitled to certain fees.

PBA. As of June 30, 2019, the Company had $142 million insured net par outstanding of PBA bonds, which are supported by a pledge of the rents due under leases of government facilities to departments, agencies, instrumentalities and municipalities of the Commonwealth, and that benefit from a Commonwealth guaranty supported by a pledge of the Commonwealth’s good faith, credit and taxing power. Despite the requirements of Article VI of its Constitution, the PBA defaulted on most of the debt service payment due on July 1, 2016, and the Company has been making claim payments on these bonds since then.

            Under the GO PSA (which does not include the Company as a party and which the Company does not support):

• Holders of Vintage PBA bonds generally would receive newly issued Commonwealth bonds and cash equal to 72.6% of their outstanding claims, plus up to approximately 16.8% of their outstanding claims to a cap of 89.4% from settlement and litigation savings from the invalidation lawsuit, as well as a share of excess revenues if the Commonwealth outperforms its fiscal plan in the near term.

• If the Oversight Board loses its invalidation lawsuit, holders of New PBA bonds generally would receive the same treatment as the holders of Vintage PBA bonds but would not share in the upside if the Commonwealth outperforms its fiscal plan.

• If the Oversight Board wins its invalidation lawsuit, holders of New PBA bonds would not receive any recovery.  

• In all cases, holders of PBA bonds supporting the GO PSA are also entitled to certain fees.

Public Corporations - Certain Revenues Potentially Subject to Clawback

PRHTA. As of June 30, 2019, the Company had $844 million insured net par outstanding of PRHTA (transportation revenue) bonds and $475 million insured net par outstanding of PRHTA (highways revenue) bonds. The transportation revenue bonds are secured by a subordinate gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls, plus a first lien on up to $120 million annually of taxes on crude oil, unfinished oil and derivative products. The highways revenue bonds are secured by a gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls. The non-toll revenues consisting of excise taxes and fees collected by the Commonwealth on behalf of PRHTA and its bondholders that are statutorily allocated to PRHTA and its bondholders are potentially subject to clawback. Despite the presence of funds in relevant debt service reserve accounts that the Company believes should have been employed to fund debt service, PRHTA defaulted on the full July 1, 2017 insured debt service payment, and the Company has been making claim payments on these bonds since that date. The Oversight Board has filed a petition under Title III of PROMESA with respect to PRHTA.

On June 5, 2019, the Oversight Board certified a revised fiscal plan for PRHTA. The revised certified PRHTA fiscal plan projects very limited capacity to pay debt service over the six-year forecast period.

PRCCDA. As of June 30, 2019, the Company had $152 million insured net par outstanding of PRCCDA bonds, which are secured by certain hotel tax revenues. These revenues are sensitive to the level of economic activity in the area and are potentially subject to clawback. There were sufficient funds in the PRCCDA bond accounts to make only partial payments on the July 1, 2017 PRCCDA bond payments guaranteed by the Company, and the Company has been making claim payments on these bonds since that date.

PRIFA. As of June 30, 2019, the Company had $16 million insured net par outstanding of PRIFA bonds, which are secured primarily by the return to PRIFA and its bondholders of a portion of federal excise taxes paid on rum. These revenues are potentially subject to the clawback. The Company has been making claim payments on the PRIFA bonds since January 2016.

Other Public Corporations

Puerto Rico Electric Power Authority (PREPA). As of June 30, 2019, the Company had $848 million insured net par outstanding of PREPA obligations, which are secured by a lien on the revenues of the electric system. The Company has been making claim payments on these bonds since July 1, 2017. On July 2, 2017, the Oversight Board commenced proceedings for PREPA under Title III of PROMESA. On June 27, 2019, the Oversight Board certified a revised fiscal plan for PREPA.

On May 3, 2019, AGM and AGC entered into a restructuring support agreement with PREPA (PREPA RSA) and other stakeholders, including a group of uninsured PREPA bondholders, the Commonwealth of Puerto Rico, and the Oversight Board, that is intended to, among other things, provide a framework for the consensual resolution of the treatment of the Company’s insured PREPA revenue bonds in PREPA's recovery plan. Upon consummation of the restructuring transaction, PREPA’s revenue bonds will be exchanged into new securitization bonds issued by a special purpose corporation and secured by a segregated transition charge assessed on electricity bills. The revised fiscal plan of PREPA certified by the Oversight Board on June 27, 2019 reflects the relevant terms of the PREPA RSA.

The closing of the restructuring transaction is subject to a number of conditions, including approval by the Title III Court of the PREPA RSA and settlement described therein, a minimum of 67% support of voting bondholders for a plan of adjustment that includes this proposed treatment of PREPA revenue bonds and confirmation of such plan by the Title III court, and execution of acceptable documentation and legal opinions. Under the PREPA RSA, the Company has the option to guarantee its allocated share of the securitization exchange bonds, which may then be offered and sold in the capital markets. The Company believes that the additive value created by attaching its guarantee to the securitization exchange bonds would materially improve its overall recovery under the transaction, as well as generate new insurance premiums; and therefore that its economic results could differ from those reflected in the PREPA RSA.

PRASA. As of June 30, 2019, the Company had $373 million of insured net par outstanding of PRASA bonds, which are secured by a lien on the gross revenues of the water and sewer system. On September 15, 2015, PRASA entered into a settlement with the U.S. Department of Justice and the U.S. Environmental Protection Agency that requires it to spend $1.6 billion to upgrade and improve its sewer system island-wide. The PRASA bond accounts contained sufficient funds to make the PRASA bond payments due through the date of this filing that were guaranteed by the Company, and those payments were made in full. On June 29, 2019, the Oversight Board certified a revised fiscal plan for PRASA.

MFA. As of June 30, 2019, the Company had $303 million net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues. The MFA bond accounts contained sufficient funds to make the MFA bond payments due through the date of this filing that were guaranteed by the Company, and those payments were made in full.

U of PR. As of June 30, 2019, the Company had $1 million insured net par outstanding of U of PR bonds, which are general obligations of the university and are secured by a subordinate lien on the proceeds, profits and other income of the university, subject to a senior pledge and lien for the benefit of outstanding university system revenue bonds. As of the date of this filing, all debt service payments on U of PR bonds insured by the Company have been made.

Resolved Commonwealth Credit

Puerto Rico Sales Tax Financing Corporation (COFINA). On February 12, 2019, pursuant to a plan of adjustment approved by the PROMESA Title III Court on February 4, 2019 (COFINA Plan of Adjustment), the Company paid off in full its $273 million net par outstanding of insured COFINA bonds, plus accrued and unpaid interest. Pursuant to the COFINA Plan of Adjustment, the Company received $152 million in initial par of closed lien senior bonds of COFINA validated by the PROMESA Title III Court (COFINA Exchange Senior Bonds), along with cash. The total par recovery (cash and COFINA Exchange Senior Bonds) represented 60% of the Company’s official Title III claim, which related to amounts owed as of the date COFINA entered Title III proceedings. The Company may in the future retain, sell, or insure and then sell, all or any portion of its $152 million of COFINA Exchange Senior Bonds it received pursuant to the COFINA Plan of Adjustment. The COFINA Exchange Senior Bonds consist of both current interest bonds ($115 million) and capital appreciation bonds ($37 million). The fair value of the COFINA Exchange Senior Bonds, excluding accrued interest, was $139 million at February 12, 2019, and was recorded as salvage received. This was recorded as a non-cash purchase of fixed-maturity securities, and as a result is not shown as an investing cash flow on the condensed consolidated statements of cash flows.

Puerto Rico Litigation

The Company believes that a number of the actions taken by the Commonwealth, the Oversight Board and others with respect to obligations it insures are illegal or unconstitutional or both, and has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to these matters. In addition, the Commonwealth, the Oversight Board and others have taken legal action naming the Company as party.

Currently there are numerous legal actions relating to the default by the Commonwealth and certain of its entities on debt service payments, and related matters, and the Company is a party to a number of them. On July 24, 2019, Judge Laura Taylor Swain of the United States District Court for the District of Puerto Rico (Federal District Court for Puerto Rico) held an omnibus hearing on litigation matters relating to the Commonwealth. At that hearing, she imposed a stay through November 30, 2019, on a series of adversary proceedings and contested matters amongst the stakeholders and imposed mandatory mediation on all parties through that date. Among the goals of the mediation is to reach an agreed-upon schedule for addressing the resolution of numerous issues, including, among others: (a) issues related to the validity, secured status and priority regarding bonds issued by the Commonwealth and certain of its entities; (b) the validity and impact of the Clawback Orders and other diversion of collateral securing certain bonds; (c) classification of claims; (d) constitutional issues; and (e) identification of essential services. The Company believes a number of the legal actions in which it is involved are covered by the stay and mandatory mediation order.

On January 7, 2016, AGM, AGC and Ambac Assurance Corporation commenced an action for declaratory judgment and injunctive relief in the Federal District Court for Puerto Rico to invalidate the executive orders issued by the Former Governor on November 30, 2015 and December 8, 2015 directing that the Secretary of the Treasury of the Commonwealth of Puerto Rico and the Puerto Rico Tourism Company claw back certain taxes and revenues pledged to secure the payment of bonds issued by the PRHTA, the PRCCDA and PRIFA. The Commonwealth defendants filed a motion to dismiss the action for lack of subject matter jurisdiction, which the court denied on October 4, 2016. On October 14, 2016, the Commonwealth defendants filed a notice of PROMESA automatic stay. While the PROMESA automatic stay expired on May 1, 2017, on May 17, 2017, the court stayed the action under Title III of PROMESA.

On June 3, 2017, AGC and AGM filed an adversary complaint in the Federal District Court for Puerto Rico seeking (i) a judgment declaring that the application of pledged special revenues to the payment of the PRHTA bonds is not subject to the PROMESA Title III automatic stay and that the Commonwealth has violated the special revenue protections provided to the PRHTA bonds under the United States Bankruptcy Code (Bankruptcy Code); (ii) an injunction enjoining the Commonwealth from taking or causing to be taken any action that would further violate the special revenue protections provided to the PRHTA bonds under the Bankruptcy Code; and (iii) an injunction ordering the Commonwealth to remit the pledged special revenues securing the PRHTA bonds in accordance with the terms of the special revenue provisions set forth in the Bankruptcy Code. On January 30, 2018, the court rendered an opinion dismissing the complaint and holding, among other things, that (x) even though the special revenue provisions of the Bankruptcy Code protect a lien on pledged special revenues, those provisions do not mandate the turnover of pledged special revenues to the payment of bonds and (y) actions to enforce liens on pledged special revenues remain stayed. A hearing on AGM and AGC’s appeal of the trial court’s decision to the United States Court of Appeals for the First Circuit (First Circuit) was held on November 5, 2018. On March 26, 2019, the First Circuit issued its opinion affirming the trial court’s decision and held that Sections 928(a) and 922(d) of the Bankruptcy Code permit, but do not require, continued payments during the pendency of the Title III proceedings. The First Circuit agreed with the trial court that (i) Section 928(a) of the Bankruptcy Code does not mandate the turnover of special revenues or require continuity of payments to

the PRHTA bonds during the pendency of the Title III proceedings, and (ii) Section 922(d) of the Bankruptcy Code is not an exception to the automatic stay that would compel PRHTA, or third parties holding special revenues, to apply special revenues to outstanding obligations. On April 9, 2019, AGM, AGC and other petitioners filed a petition with the First Circuit seeking a rehearing by the full court; the petition was denied by the First Circuit on July 31, 2019.

On June 26, 2017, AGM and AGC filed a complaint in the Federal District Court for Puerto Rico seeking (i) a declaratory judgment that the PREPA restructuring support agreement executed in December 2015 (2015 PREPA RSA) is a “Preexisting Voluntary Agreement” under Section 104 of PROMESA and the Oversight Board’s failure to certify the 2015 PREPA RSA is an unlawful application of Section 601 of PROMESA; (ii) an injunction enjoining the Oversight Board from unlawfully applying Section 601 of PROMESA and ordering it to certify the 2015 PREPA RSA; and (iii) a writ of mandamus requiring the Oversight Board to comply with its duties under PROMESA and certify the 2015 PREPA RSA. On July 21, 2017, in light of its PREPA Title III petition on July 2, 2017, the Oversight Board filed a notice of stay under PROMESA.

On July 18, 2017, AGM and AGC filed in the Federal District Court for Puerto Rico a motion for relief from the automatic stay in the PREPA Title III bankruptcy proceeding and a form of complaint seeking the appointment of a receiver for PREPA. The court denied the motion on September 14, 2017, but on August 8, 2018, the First Circuit vacated and remanded the court's decision. On October 3, 2018, AGM and AGC, together with other bond insurers, filed a motion with the court to lift the automatic stay to commence an action against PREPA for the appointment of a receiver, and a hearing was scheduled for May 2019. Under the PREPA RSA, AGM and AGC have agreed to withdraw from the lift stay motion upon the Title III Court’s approval of the settlement of claims embodied in the PREPA RSA.

On May 23, 2018, AGM and AGC filed an adversary complaint in the Federal District Court for Puerto Rico seeking a judgment declaring that (i) the Oversight Board lacked authority to develop or approve the new fiscal plan for Puerto Rico which it certified on April 19, 2018 (Revised Fiscal Plan); (ii) the Revised Fiscal Plan and the Fiscal Plan Compliance Law (Compliance Law) enacted by the Commonwealth to implement the original Commonwealth Fiscal Plan violate various sections of PROMESA; (iii) the Revised Fiscal Plan, the Compliance Law and various moratorium laws and executive orders enacted by the Commonwealth to prevent the payment of debt service (a) are unconstitutional and void because they violate the Contracts, Takings and Due Process Clauses of the U.S. Constitution and (b) are preempted by various sections of PROMESA; and (iv) no Title III plan of adjustment based on the Revised Fiscal Plan can be confirmed under PROMESA. On August 13, 2018, the court-appointed magistrate judge granted the Commonwealth's and the Oversight Board's motion to stay this adversary proceeding pending a decision by the First Circuit in an appeal by Ambac Assurance Corporation of an unrelated adversary proceeding decision, which the First Circuit rendered on June 24, 2019. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which likely includes this proceeding, through November 30, 2019, with a mandatory mediation element.

On July 23, 2018, AGC and AGM filed an adversary complaint in the Federal District Court for Puerto Rico seeking a judgment (i) declaring the members of the Oversight Board are officers of the U.S. whose appointments were unlawful under the Appointments Clause of the U.S. Constitution; (ii) declaring void from the beginning the unlawful actions taken by the Oversight Board to date, including (x) development of the Commonwealth's Fiscal Plan, (y) development of PRHTA's Fiscal Plan, and (z) filing of the Title III cases on behalf of the Commonwealth and PRHTA; and (iii) enjoining the Oversight Board from taking any further action until the Oversight Board members have been lawfully appointed in conformity with the Appointments Clause of the U.S. Constitution. The Title III court dismissed a similar lawsuit filed by another party in the Commonwealth’s Title III case in July 2018. On August 3, 2018, a stipulated judgment was entered against AGM and AGC at their request based upon the court's July decision in the other Appointments Clause lawsuit and, on the same date, AGM and AGC appealed the stipulated judgment to the First Circuit. On August 15, 2018, the court consolidated, for purposes of briefing and oral argument, AGM and AGC's appeal with the other Appointments Clause lawsuit. The First Circuit consolidated AGM and AGC's appeal with a third Appointments Clause lawsuit on September 7, 2018 and held a hearing on December 3, 2018. On February 15, 2019, the First Circuit issued its ruling on the appeal and held that members of the Oversight Board were not appointed in compliance with the Appointments Clause of the U.S. Constitution but declined to dismiss the Title III petitions citing the (i) de facto officer doctrine and (ii) negative consequences to the many innocent third parties who relied on the Oversight Board’s actions to date, as well as the further delay which would result from a dismissal of the Title III petitions. The case was remanded back to the Federal District Court for Puerto Rico for the appellants’ requested declaratory relief that the appointment of the board members of the Oversight Board is unconstitutional. The First Circuit delayed the effectiveness of its ruling for 90 days so as to allow the President and the Senate to validate the currently defective appointments or reconstitute the Oversight Board in accordance with the Appointments Clause. On April 23, 2019, the Oversight Board filed a petition for a review by the U.S. Supreme Court of the First Circuit's holding that its members were not appointed in compliance with the Appointments Clause and on the following day filed a motion in the First Circuit to further stay the effectiveness of the First Circuit’s February 15, 2019 ruling pending final disposition by the U.S. Supreme Court. On May 24, 2019, AGC and AGM filed a petition for a review by the U.S. Supreme Court of the First Circuit’s holding that the de facto officer doctrine allows

courts to deny meaningful relief to successful challengers suffering ongoing injury at the hands of unconstitutionally appointed officers. On June 20, 2019, the U.S. Supreme Court agreed to review the First Circuit’s holdings in this case. On July 2, 2019, the First Circuit granted the Oversight Board’s motion to stay the effectiveness of the First Circuit’s February 15, 2019 ruling pending final disposition by the U.S. Supreme Court.

On December 21, 2018, the Oversight Board and the Official Committee of Unsecured Creditors of all Title III Debtors (other than COFINA) filed an adversary complaint in the Federal District Court for Puerto Rico seeking a judgment declaring that (i) the leases to public occupants entered into by the PBA are not “true leases” for purposes of Section 365(d)(3) of the Bankruptcy Code and therefore the Commonwealth has no obligation to make payments to the PBA under the leases or Section 365(d)(3) of the Bankruptcy Code, (ii) the PBA is not entitled to a priority administrative expense claim under the leases pursuant to Sections 503(b)(1) and 507(a)(2) of the Bankruptcy Code, and (iii) any such claims filed or asserted against the Commonwealth are disallowed. On January 28, 2019, the PBA filed an answer to the complaint. On March 12, 2019, the Federal District Court for Puerto Rico granted, with certain limitations, AGM’s and AGC’s motion to intervene. On March 21, 2019, AGM and AGC, together with certain other intervenors, filed a motion for judgment on the pleadings. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On January 14, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an omnibus objection in the Title III Court to claims filed by holders of approximately $6 billion of Commonwealth general obligation bonds issued in 2012 and 2014, asserting among other things that such bonds were issued in violation of the Puerto Rico constitutional debt service limit, such bonds are null and void, and the holders have no equitable remedy against the Commonwealth. On April 10, 2019, AGM filed a notice of participation in these proceedings. As of June 30, 2019, $369 million of the Company’s insured net par outstanding of the general obligation bonds of Puerto Rico were issued on or after March 2012. On May 21, 2019, the Official Committee of Unsecured Creditors filed a claim objection to certain Commonwealth general obligation bonds issued in 2011, approximately $220 million of which are insured by the Company as of June 30, 2019, on substantially the same bases as the January 14, 2019 filing, and which the plaintiffs propose to be subject to the proceedings relating to the 2012 and 2014 bonds. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On May 2, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against various Commonwealth general obligation bondholders and bond insurers, including AGC and AGM, that had asserted in their proofs of claim that their bonds are secured. The complaint seeks a judgment declaring that defendants do not hold consensual or statutory liens and are unsecured claimholders to the extent they hold allowed claims. The complaint also asserts that even if Commonwealth law granted statutory liens, such liens are avoidable under Section 545 of the Bankruptcy Code. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On May 20, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against the fiscal agent and holders and/or insurers, including AGC and AGM, that have asserted their PRHTA bond claims are entitled to secured status in PRHTA’s Title III case. Plaintiffs are seeking to avoid the PRHTA bondholders’ liens and contend that (i) the scope of any lien only applies to revenues that have been both received by PRHTA and deposited in certain accounts held by the fiscal agent and does not include PRHTA’s right to receive such revenues; (ii) any lien on revenues was not perfected because the fiscal agent does not have “control” of all accounts holding such revenues; (iii) any lien on the excise tax revenues is no longer enforceable because any rights PRHTA had to receive such revenues is preempted by PROMESA; and (iv) even if PRHTA held perfected liens on PRHTA’s revenues and the right to receive such revenues, such liens were terminated by Section 552(a) of the Bankruptcy Code as of the petition date. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

Puerto Rico Par and Debt Service Schedules

All Puerto Rico exposures are internally rated BIG. The following tables show the Company’s insured exposure to general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.

Puerto Rico

Gross Par and Gross Debt Service Outstanding

	Gross Par Outstanding				Gross Debt Service Outstanding
	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
	(in millions)
Exposure to Puerto Rico	$	4,698	$	4,971	$	7,316	$	8,035

Puerto Rico

Net Par Outstanding

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Commonwealth Constitutionally Guaranteed
Commonwealth of Puerto Rico - General Obligation Bonds (1)	$	1,340	$	1,340
PBA	142		142
Public Corporations - Certain Revenues Potentially Subject to Clawback
PRHTA (Transportation revenue) (1)	844		844
PRHTA (Highways revenue) (1)	475		475
PRCCDA	152		152
PRIFA	16		16
Other Public Corporations
PREPA (1)	848		848
PRASA	373		373
MFA	303		303
COFINA (2)	—		273
U of PR	1		1
Total net exposure to Puerto Rico	$	4,494	$	4,767

____________________

(1) As of the date of this filing, the Oversight Board has certified a filing under Title III of PROMESA for these exposures.

(2) While the Company no longer has any insured exposure to COFINA, it does have $152 million initial par of COFINA Exchange Senior Bonds in its investment portfolio.

The following table shows the scheduled amortization of the insured general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations. The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the principal and interest due in any given period and the amount paid by the obligors.

Amortization Schedule of Puerto Rico Net Par Outstanding

and Net Debt Service Outstanding

As of June 30, 2019

	Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization
	(in millions)
2019 (July 1 - September 30)	$	224	$	335
2019 (October 1 - December 31)	—		3
Subtotal 2019	224		338
2020	286		503
2021	149		351
2022	139		332
2023	205		392
2024-2028	1,213		1,978
2029-2033	884		1,392
2034-2038	957		1,184
2039-2043	176		259
2044-2047	261		300
Total	$	4,494	$	7,029

Exposure to the U.S. Virgin Islands

As of June 30, 2019, the Company had $495 million insured net par outstanding to the U.S. Virgin Islands and its related authorities (USVI), of which it rated $221 million BIG. The $274 million USVI net par the Company rated investment grade primarily consisted of bonds secured by a lien on matching fund revenues related to excise taxes on products produced in the USVI and exported to the U.S., primarily rum. The $221 million BIG USVI net par consisted of (a) Public Finance Authority bonds secured by a gross receipts tax and the general obligation, full faith and credit pledge of the USVI and (b) bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system.

Hurricane Irma caused significant damage in St. John and St. Thomas, while Hurricane Maria made landfall on St. Croix as a Category 4 hurricane on the Saffir-Simpson scale, causing loss of life and substantial damage to St. Croix’s businesses and infrastructure, including the power grid. The USVI is benefiting from the federal response to the 2017 hurricanes and has made its debt service payments to date.

Non-Financial Guaranty Exposure

The Company also provides non-financial guaranty insurance and reinsurance on transactions with similar risk profiles to its structured finance exposures written in financial guaranty form. All non-financial guaranty exposures shown in the table below are rated investment grade internally.

Non-Financial Guaranty Exposure

	Gross Exposure				Net Exposure
	As of June 30, 2019		As of December 31, 2018		As of June 30, 2019		As of December 31, 2018
	(in millions)
Life insurance transactions (1)	$	908	$	880	$	784	$	763
Aircraft residual value insurance policies	360		340		239		218

____________________

(1)

The life insurance transactions net exposure is expected to increase to approximately $949 million prior to September 30, 2036.

XML

Contracts Accounted for as Insurance

6 Months Ended

Jun. 30, 2019

Insurance [Abstract]

Contracts Accounted for as Insurance

Contracts Accounted for as Insurance

Premiums

The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid, includes contracts that are accounted for as insurance contracts, derivatives, or consolidated FG VIEs. Amounts presented in this note relate only to contracts accounted for as insurance. See Note 8, Contracts Accounted for as Credit Derivatives for amounts that relate to CDS and Note 9, Variable Interest Entities for amounts that are accounted for as consolidated FG VIEs.

Net Earned Premiums

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions)
Financial guaranty:
Scheduled net earned premiums	$	85	$	92	$	172	$	180
Accelerations from refundings and terminations	20		39		46		91
Accretion of discount on net premiums receivable	5		4		9		8
Financial guaranty insurance net earned premiums	110		135		227		279
Non-financial guaranty net earned premiums	2		1		3		2
Net earned premiums (1)	$	112	$	136	$	230	$	281

 ___________________

(1) Excludes $11 million and $3 million for Second Quarter 2019 and 2018, respectively, and $14 million and $6 million for Six Months 2019 and 2018, respectively, related to consolidated FG VIEs.

Gross Premium Receivable,

Net of Commissions on Assumed Business

Roll Forward 

	Six Months
	2019			2018
	(in millions)
Beginning of year	$	904		$	915
Less: Non-financial guaranty insurance premium receivable	1			1
Financial guaranty insurance premiums receivable	903			914
Gross written premiums on new business, net of commissions (1)	98			459
Gross premiums received, net of commissions	(127		)	(415		)
Adjustments:
Changes in the expected term	(10		)	(3		)
Accretion of discount, net of commissions on assumed business	4			—
Foreign exchange translation and remeasurement (2)	(3		)	(14		)
Cancellation of assumed reinsurance	—			(10		)
Financial guaranty insurance premium receivable (3)	865			931
Non-financial guaranty insurance premium receivable	1			1
June 30,	$	866		$	932

____________________

(1) For transactions where one of the Company's financial guaranty contracts is replaced by another of the Company's insurance subsidiary's contracts, gross written premium in this table represents only the incremental amount in excess of the original gross written premiums. Six Months 2018 included $330 million of gross written premiums assumed from SGI on June 1, 2018, when the Company closed a reinsurance transaction with SGI (SGI Transaction). See Note 11, Reinsurance.

(2) Includes foreign exchange loss on remeasurement recorded in the condensed consolidated statements of operations of $3 million in Six Months 2019 and $13 million in Six Months 2018. The remaining foreign exchange translation in Six Months 2018 was recorded in other comprehensive income (OCI) prior to the combination of the European subsidiaries.

(3) Excludes $8 million and $9 million as of June 30, 2019 and June 30, 2018, respectively, related to consolidated FG VIEs.

Approximately 73% and 72% of installment premiums at June 30, 2019 and December 31, 2018, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro.

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

Expected Collections of

Financial Guaranty Insurance Gross Premiums Receivable,

Net of Commissions on Assumed Business

(Undiscounted)

	As of June 30, 2019
	(in millions)
2019 (July 1 - September 30)	31
2019 (October 1 - December 31)	26
2020	98
2021	78
2022	78
2023	65
2024-2028	278
2029-2033	184
2034-2038	97
After 2038	100
Total (1)	$	1,035

 ____________________

(1) Excludes expected cash collections on consolidated FG VIEs of $10 million.

The timing and cumulative amount of actual net earned premiums may differ from those of expected net earned premiums in the table below due to factors such as accelerations, commutations, changes in expected lives and new business.

Scheduled Financial Guaranty Insurance Net Earned Premiums

	As of June 30, 2019
	(in millions)
2019 (July 1 - September 30)	82
2019 (October 1 - December 31)	80
Subtotal 2019	162
2020	304
2021	277
2022	251
2023	230
2024-2028	905
2029-2033	615
2034-2038	348
After 2038	300
Net deferred premium revenue (1)	3,392
Future accretion	170
Total future net earned premiums	$	3,562

 ____________________

(1) Excludes net earned premiums on consolidated FG VIEs of $51 million.

Selected Information for Financial Guaranty Insurance

Policies with Premiums Paid in Installments

	As of June 30, 2019			As of December 31, 2018
	(dollars in millions)
Premiums receivable, net of commission payable	$	865		$	903
Gross deferred premium revenue	1,251			1,313
Weighted-average risk-free rate used to discount premiums	2.3		%	2.3		%
Weighted-average period of premiums receivable (in years)	9.1			9.1

Financial Guaranty Insurance Losses

The following table provides information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance. To discount loss reserves, the Company used risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 0.00% to 2.63% with a weighted average of 2.11% as of June 30, 2019 and 0.00% to 3.06% with a weighted average of 2.74% as of December 31, 2018.

Net Reserve (Salvage) 

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Public finance:
U.S. public finance	$	539		$	612
Non-U.S. public finance	5			14
Public finance	544			626
Structured finance:
U.S. RMBS (1)	(79		)	21
Other structured finance	39			30
Structured finance	(40		)	51
Subtotal	504			677
Other payable (recoverable)	(1		)	(3		)
Total	$	503		$	674

____________________

(1) Excludes net reserves of $39 million and $47 million as of June 30, 2019 and December 31, 2018, respectively, related to consolidated FG VIEs.

Components of Net Reserves (Salvage)

 

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Loss and LAE reserve	$	1,102		$	1,177
Reinsurance recoverable on unpaid losses (1)	(41		)	(34		)
Loss and LAE reserve, net	1,061			1,143
Salvage and subrogation recoverable	(580		)	(490		)
Salvage and subrogation reinsurance payable (2)	23			24
Other payable (recoverable) (1)	(1		)	(3		)
Salvage and subrogation recoverable, net, and other recoverable	(558		)	(469		)
Net reserves (salvage)	$	503		$	674

____________________

(1) Recorded as a component of other assets in the condensed consolidated balance sheets.

(2) Recorded as a component of other liabilities in the condensed consolidated balance sheets.

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: (i) the contra-paid which represent the claim payments made and recoveries received that have not yet been recognized in the statement of operations, (ii) 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 (and therefore recognized in income but not yet received), and (iii) 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 June 30, 2019
	(in millions)
Net expected loss to be paid - financial guaranty insurance	$	906
Contra-paid, net	56
Salvage and subrogation recoverable, net, and other recoverable	558
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(1,060		)
Net expected loss to be expensed (present value) (1)	$	460

____________________

(1)    Excludes $33 million as of June 30, 2019, 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 June 30, 2019
	(in millions)
2019 (July 1 - September 30)	8
2019 (October 1 - December 31)	9
Subtotal 2019	17
2020	38
2021	35
2022	34
2023	35
2024-2028	148
2029-2033	99
2034-2038	45
After 2038	9
Net expected loss to be expensed	460
Future accretion	30
Total expected future loss and LAE	$	490

 

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

Loss and LAE

Reported on the

Condensed Consolidated Statements of Operations

  

	Loss (Benefit)
	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Public finance:
U.S. public finance	94			62			$	164		$	34
Non-U.S. public finance	(8		)	(1		)	(8		)	(2		)
Public finance	86			61			156			32
Structured finance:
U.S. RMBS (1)	(88		)	(12		)	(115		)	4
Other structured finance	1			(5		)	4			(10		)
Structured finance	(87		)	(17		)	(111		)	(6		)
Loss and LAE	$	(1	)	$	44		$	45		$	26

____________________

(1) Excludes a benefit of $14 million and $3 million for Second Quarter 2019 and 2018, respectively, and a benefit of $15 million and a loss of $3 million for Six Months 2019 and 2018 respectively, related to consolidated FG VIEs.

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of June 30, 2019

	BIG  Categories
	BIG 1						BIG 2					BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded		Gross			Ceded
	(dollars in millions)
Number of risks (1)	116			7			27			—		135			6			278			—			278
Remaining weighted-average contract period (in years)	7.8			4.7			17.6			—		9.6			8.4			9.6			—			9.6
Outstanding exposure:
Principal	$	2,771		$	(66	)	$	524		$	—	$	5,650		$	(164	)	$	8,715		$	—		$	8,715
Interest	1,215			(16		)	470			—		2,670			(68		)	4,271			—			4,271
Total (2)	$	3,986		$	(82	)	$	994		$	—	$	8,320		$	(232	)	$	12,986		$	—		$	12,986
Expected cash outflows (inflows)	$	108		$	(4	)	$	131		$	—	$	3,871		$	(122	)	$	3,984		$	(273	)	$	3,711
Potential recoveries (3)	(552		)	21			(51		)	—		(2,479		)	95			(2,966		)	191			(2,775		)
Subtotal	(444		)	17			80			—		1,392			(27		)	1,018			(82		)	936
Discount	79			(4		)	(18		)	—		(97		)	(8		)	(48		)	18			(30		)
Present value of expected cash flows	$	(365	)	$	13		$	62		$	—	$	1,295		$	(35	)	$	970		$	(64	)	$	906
Deferred premium revenue	$	172		$	(3	)	$	24		$	—	$	517		$	(2	)	$	708		$	(50	)	$	658
Reserves (salvage)	$	(400	)	$	15		$	43		$	—	$	916		$	(33	)	$	541		$	(39	)	$	502

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2018

	BIG Categories
	BIG 1						BIG 2						BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded			Gross			Ceded
	(dollars in millions)
Number of risks (1)	128			(8		)	39			(1		)	145			(7		)	312			—			312
Remaining weighted-average contract period (in years)	7.9			6.5			13.2			2.1			10.1			9.1			9.8			—			9.8
Outstanding exposure:
Principal	$	3,052		$	(71	)	$	938		$	(6	)	$	6,249		$	(159	)	$	10,003		$	—		$	10,003
Interest	1,319			(29		)	592			(1		)	3,140			(72		)	4,949			—			4,949
Total (2)	$	4,371		$	(100	)	$	1,530		$	(7	)	$	9,389		$	(231	)	$	14,952		$	—		$	14,952
Expected cash outflows (inflows)	$	98		$	(5	)	$	264		$	(1	)	$	4,029		$	(80	)	$	4,305		$	(290	)	$	4,015
Potential recoveries (3)	(465		)	23			(81		)	—			(2,542		)	55			(3,010		)	192			(2,818		)
Subtotal	(367		)	18			183			(1		)	1,487			(25		)	1,295			(98		)	1,197
Discount	83			(5		)	(53		)	—			(134		)	(2		)	(111		)	23			(88		)
Present value of expected cash flows	$	(284	)	$	13		$	130		$	(1	)	$	1,353		$	(27	)	$	1,184		$	(75	)	$	1,109
Deferred premium revenue	$	125		$	(4	)	$	151		$	—		$	518		$	(2	)	$	788		$	(64	)	$	724
Reserves (salvage)	$	(311	)	$	15		$	48		$	(1	)	$	993		$	(24	)	$	720		$	(47	)	$	673

____________________

(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) Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlement or litigation judgments, excess spread on any underlying collateral and other estimated recoveries.

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 counterparties exercise contractual rights triggered by the downgrade against insured obligors, and the insured obligors are unable to pay. See Part II, Item 8, Financial Statements and Supplementary Data, Note 6, Contracts Accounted for as Insurance, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

XML

Expected Loss to be Paid

6 Months Ended

Jun. 30, 2019

Expected Losses [Abstract]

Expected Loss to be Paid

Expected Loss to be Paid

This note provides information regarding expected claim payments to be made under all contracts in the insured portfolio, regardless of the accounting model (insurance, derivative or VIE). The expected loss to be paid is equal to the present value of expected future cash outflows for claim and LAE payments, net of inflows for expected salvage and subrogation (e.g., future payments by obligors pursuant to restructuring agreements, settlements or litigation judgments, excess spread on underlying collateral, and other estimated recoveries, including those from restructuring bonds and for breaches of representations and warranties (R&W)), using current risk-free rates.

Loss Estimation Process

The Company’s loss reserve committees estimate expected loss to be paid for all contracts by reviewing analyses that consider various scenarios with corresponding probabilities assigned to them. Depending upon the nature of the risk, the Company’s view of the potential size of any loss and the information available to the Company, that analysis may be based upon individually developed cash flow models, internal credit rating assessments, sector-driven loss severity assumptions and/or judgmental assessments. In the case of its assumed business, the Company may conduct its own analysis as just described or, depending on the Company’s view of the potential size of any loss and the information available to the Company, the Company may use loss estimates provided by ceding insurers. The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the quarter and their view of future performance.

The financial guaranties issued by the Company insure the credit performance of the guaranteed obligations over an extended period of time, in some cases over 30 years, and in most circumstances the Company has no right to cancel such financial guaranties. As a result, the Company's estimate of ultimate loss on a policy is subject to significant uncertainty over the life of the insured transaction. Credit performance can be adversely affected by economic, fiscal and financial market variability over the life of most contracts.

The Company does not use traditional actuarial approaches to determine its estimates of expected losses. The determination of expected loss to be paid is an inherently subjective process involving numerous estimates, assumptions and judgments by management, using both internal and external data sources with regard to frequency, severity of loss, economic projections, governmental actions, negotiations and other factors that affect credit performance. These estimates, assumptions and judgments, and the factors on which they are based, may change materially over a reporting period, and as a result the Company’s loss estimates may change materially over that same period.

In some instances, the terms of the Company's policy gives it the option to pay principal losses that have been recognized in the transaction but which it is not yet required to pay, thereby reducing the amount of guaranteed interest due in the future. The Company has sometimes exercised this option, which uses cash but reduces projected future losses.

The following tables present a roll forward of net expected loss to be paid for all contracts. The Company used risk-free rates for U.S. dollar denominated obligations that ranged from 0.00% to 2.63% with a weighted average of 2.10% as of June 30, 2019 and 0.00% to 3.06% with a weighted average of 2.74% as of December 31, 2018. Expected losses to be paid for transactions denominated in currencies other than the U.S. dollar represented approximately 2.3% and 2.7% of the total as of June 30, 2019 and December 31, 2018, respectively.

Net Expected Loss to be Paid

Roll Forward

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Net expected loss to be paid, beginning of period	$	963		$	1,298		$	1,183		$	1,303
Net expected loss to be paid on the Syncora Guarantee Inc. (SGI) portfolio as of June 1, 2018 (see Note 11)	—			131			—			131
Economic loss development (benefit) due to:
Accretion of discount	6			9			14			17
Changes in discount rates	(1		)	—			(5		)	(6		)
Changes in timing and assumptions	(42		)	10			(48		)	(16		)
Total economic loss development (benefit)	(37		)	19			(39		)	(5		)
Net (paid) recovered losses	34			(16		)	(184		)	3
Net expected loss to be paid, end of period	$	960		$	1,432		$	960		$	1,432

Net Expected Loss to be Paid

Roll Forward by Sector

Second Quarter 2019

	Net Expected Loss to be Paid (Recovered) as of March 31, 2019		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	666	$	92		$	(9	)	$	749
Non-U.S. public finance	31		(8		)	—			23
Public finance	697		84			(9		)	772
Structured finance:
U.S. RMBS	237		(118		)	43			162
Other structured finance	29		(3		)	—			26
Structured finance	266		(121		)	43			188
Total	$	963	$	(37	)	$	34		$	960

Net Expected Loss to be Paid

Roll Forward by Sector

Second Quarter 2018

	Net Expected Loss to be Paid (Recovered) as of March 31, 2018		Net Expected Loss to be Paid on SGI Portfolio as of June 1, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2018
	(in millions)
Public finance:
U.S. public finance	$	1,007	—		$	56		$	(22	)	$	1,041
Non-U.S. public finance	43		1		(3		)	—			41
Public finance	1,050		1		53			(22		)	1,082
Structured finance:
U.S. RMBS	219		130		(28		)	5			326
Other structured finance	29		—		(6		)	1			24
Structured finance	248		130		(34		)	6			350
Total	$	1,298	$	131	$	19		$	(16	)	$	1,432

Net Expected Loss to be Paid

Roll Forward by Sector

Six Months 2019

	Net Expected Loss to be Paid (Recovered) as of December 31, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	832	$	154		$	(237	)	$	749
Non-U.S. public finance	32		(9		)	—			23
Public finance	864		145			(237		)	772
Structured finance:
U.S. RMBS	293		(183		)	52			162
Other structured finance	26		(1		)	1			26
Structured finance	319		(184		)	53			188
Total	$	1,183	$	(39	)	$	(184	)	$	960

Net Expected Loss to be Paid

Roll Forward by Sector

Six Months 2018

	Net Expected Loss to be Paid (Recovered) as of December 31, 2017		Net Expected Loss to be Paid on SGI Portfolio as of June 1, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2018
	(in millions)
Public finance:
U.S. public finance	$	1,157	—		$	17		$	(133	)	$	1,041
Non-U.S. public finance	46		1		(6		)	—			41
Public finance	1,203		1		11			(133		)	1,082
Structured finance:
U.S. RMBS	73		130		(12		)	135			326
Other structured finance	27		—		(4		)	1			24
Structured finance	100		130		(16		)	136			350
Total	$	1,303	$	131	$	(5	)	$	3		$	1,432

____________________

(1) Net of ceded paid losses, whether or not such amounts have been settled with reinsurers. Ceded paid losses are typically settled 45 days after the end of the reporting period. Such amounts are recorded as reinsurance recoverable on paid losses in other assets. The amounts for Six Months 2019 are net of the COFINA Exchange Senior Bonds and cash that were received pursuant to the COFINA Plan of Adjustment. See Note 3, Outstanding Exposure, for additional information.

The tables above include (1) loss adjustment expenses (LAE) paid of $9 million and $6 million for Second Quarter 2019 and 2018, respectively, and $16 million and $11 million for Six Months 2019 and 2018, respectively, and (2) expected LAE to be paid of $21 million as of June 30, 2019 and $31 million as of December 31, 2018.

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

By Accounting Model

	Net Expected Loss to be Paid (Recovered)						Net Economic Loss Development  (Benefit)
	As of						Second Quarter						Six Months
	June 30, 2019			December 31, 2018			2019			2018			2019			2018
	(in millions)
Insurance	$	907		$	1,110		(22		)	23			$	(12	)	$	(10	)
Financial guaranty VIEs (FG VIEs) (See Note 9)	64			75			(14		)	(6		)	(24		)	(4		)
Credit derivatives (See Note 8)	(11		)	(2		)	(1		)	2			(3		)	9
Total	$	960		$	1,183		$	(37	)	$	19		$	(39	)	$	(5	)

Selected U.S. Public Finance Transactions

The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $4.5 billion net par as of June 30, 2019, all of which was BIG. For additional information regarding the Company's Puerto Rico exposure, see "Exposure to Puerto Rico" in Note 3, Outstanding Exposure.

The Company had approximately $17 million of net par exposure as of June 30, 2019 to bonds issued by Parkway East Public Improvement District (District), which is located in Madison County, Mississippi (the County). The bonds, which are rated BIG, are payable from special assessments on properties within the District, as well as amounts paid under a contribution agreement with the County in which the County covenants that it will provide funds in the event special assessments are not sufficient to make a debt service payment. The special assessments have not been sufficient to pay debt service in full.

On February 25, 2015, a plan of adjustment resolving the bankruptcy filing of the City of Stockton, California under chapter 9 of the Bankruptcy Code became effective. As of June 30, 2019, the Company’s net par subject to the plan consisted of $110 million of pension obligation bonds. As part of the plan of adjustment, the City will repay any claims paid on the pension obligation bonds from certain fixed payments and certain variable payments contingent on the City’s revenue growth. 

The Company projects its total net expected loss across its troubled U.S. public finance exposures as of June 30, 2019, including those mentioned above, to be $749 million, compared with a net expected loss of $832 million as of December 31, 2018. The total net expected loss for troubled U.S. public finance exposures is net of a credit for estimated future recoveries of claims already paid. At June 30, 2019 that credit was $657 million compared with $586 million at December 31, 2018. The Company’s net expected losses incorporate management’s probability weighted estimates of possible scenarios. Each quarter, the Company revises its scenarios, updates assumptions and/or shifts probability weightings of its scenarios based on public information as well as nonpublic information obtained through its surveillance and loss mitigation activities. Management assesses the possible implications of such information on each insured obligation, considering the unique characteristics of each transaction.

The economic loss development for U.S. public finance transactions was $92 million during Second Quarter 2019 and $154 million during Six Months 2019, which was primarily attributable to Puerto Rico exposures. The loss development attributable to the Company’s Puerto Rico exposures reflects adjustments the Company made to the assumptions and weightings it uses in its scenarios based on the public information summarized under "Exposure to Puerto Rico" in Note 3, Outstanding Exposure as well as nonpublic information related to its loss mitigation activities during the quarter.

Selected Non - U.S. Public Finance Transactions

Expected loss to be paid for non-U.S. public finance transactions was $23 million as of June 30, 2019, compared with $32 million as of December 31, 2018, primarily consisting of: (i) transactions with sub-sovereign exposure to various Spanish and Portuguese issuers where a Spanish and Portuguese sovereign default may cause the sub-sovereigns also to default, and (ii) an obligation backed by the availability and toll revenues of a major arterial road into a city in the U.K., which has been underperforming due to higher costs compared with expectations at underwriting.

The economic benefit for non U.S. public finance transactions, including those mentioned above was approximately $8 million during Second Quarter 2019 and $9 million during Six Months 2019, which was mainly attributable to the improved internal outlook of certain Spanish sovereigns and sub-sovereigns.

U.S. RMBS Loss Projections

The Company projects losses on its insured U.S. RMBS on a transaction-by-transaction basis by projecting the performance of the underlying pool of mortgages over time and then applying the structural features (i.e., payment priorities and tranching) of the RMBS and any expected R&W recoveries/payables to the projected performance of the collateral over time. The resulting projected claim payments or reimbursements are then discounted using risk-free rates.

As of June 30, 2019, the Company had a net R&W payable of $34 million to R&W counterparties, compared with a net R&W receivable of $5 million as of December 31, 2018. The Company’s agreements with providers of R&W generally provide for reimbursement to the Company as claim payments are made and, to the extent the Company later receives reimbursements of such claims from excess spread or other sources, for the Company to provide reimbursement to the R&W providers. When the Company projects receiving more reimbursements in the future than it projects to pay in claims on transactions covered by R&W settlement agreements, the Company will have a net R&W payable.

The Company's RMBS loss projection methodology assumes that the housing and mortgage markets will continue improving. Each period the Company makes a judgment as to whether to change the assumptions it uses to make RMBS loss projections based on its observation during the period of the performance of its insured transactions (including early-stage delinquencies, late-stage delinquencies and loss severity) as well as the residential property market and economy in general,

and, to the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a trend. The assumptions that the Company uses to project RMBS losses are shown in the sections below.

Net Economic Loss Development (Benefit)

U.S. RMBS

	Second Quarter					Six Months
	2019			2018		2019			2018
	(in millions)
First lien U.S. RMBS	$	(19	)	(7	)	$	(50	)	$	17
Second lien U.S. RMBS	(99		)	(21	)	(133		)	(29		)

U.S. First Lien RMBS Loss Projections: Alt-A First Lien, Option ARM, Subprime and Prime

     The majority of projected losses in first lien RMBS transactions are expected to come from non-performing mortgage loans (those that are or in the past twelve months have been two or more payments behind, have been modified, are in foreclosure, or have been foreclosed upon). Changes in the amount of non-performing loans from the amount projected in the previous period are one of the primary drivers of loss development in this portfolio. In order to determine the number of defaults resulting from these delinquent and foreclosed loans, the Company applies a liquidation rate assumption to loans in each of various non-performing categories. The Company arrived at its liquidation rates based on data purchased from a third party provider and assumptions about how delays in the foreclosure process and loan modifications may ultimately affect the rate at which loans are liquidated. Each quarter the Company reviews the most recent twelve months of this data and (if necessary) adjusts its liquidation rates based on its observations. The following table shows liquidation assumptions for various non-performing categories.

First Lien Liquidation Rates

	As of June 30, 2019	As of March 31, 2019	As of December 31, 2018
Delinquent/Modified in the Previous 12 Months
Alt-A and Prime	20%	20%	20%
Option ARM	20	20	20
Subprime	20	20	20
30 – 59 Days Delinquent
Alt-A and Prime	30	30	30
Option ARM	35	35	35
Subprime	40	40	40
60 – 89 Days Delinquent
Alt-A and Prime	40	40	40
Option ARM	45	45	45
Subprime	45	45	45
90+ Days Delinquent
Alt-A and Prime	50	50	50
Option ARM	55	55	55
Subprime	55	50	50
Bankruptcy
Alt-A and Prime	45	45	45
Option ARM	50	50	50
Subprime	40	40	40
Foreclosure
Alt-A and Prime	60	60	60
Option ARM	65	65	65
Subprime	60	60	60
Real Estate Owned
All	100	100	100

While the Company uses liquidation rates as described above to project defaults of non-performing loans (including current loans modified or delinquent within the last 12 months), it projects defaults on presently current loans by applying a conditional default rate (CDR) trend. The start of that CDR trend is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans. The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, would be sufficient to produce approximately the amount of defaults that were calculated to emerge from the various delinquency categories. The CDR thus calculated individually on the delinquent collateral pool for each RMBS is then used as the starting point for the CDR curve used to project defaults of the presently performing loans.

In the most heavily weighted scenario (the base case), after the initial 36-month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to an intermediate CDR (calculated as 20% of its CDR plateau); that intermediate CDR is held constant for 36 months and then trails off in steps to a final CDR of 5% of the CDR plateau. In the base case, the Company assumes the final CDR will be reached 4.0 years after the initial 36-month CDR plateau period. Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were modified or delinquent in the last 12 months or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36-month period represent defaults attributable to borrowers that are currently performing or are projected to reperform.

     Another important driver of loss projections is loss severity, which is the amount of loss the transaction incurs on a loan after the application of net proceeds from the disposal of the underlying property. Loss severities experienced in first lien

transactions had reached historically high levels, and the Company is assuming in the base case that the still elevated levels generally will continue for another 18 months. The Company determines its initial loss severity based on actual recent experience. Each quarter the Company reviews available data and (if necessary) adjusts its severities based on its observations. The Company then assumes that loss severities begin returning to levels consistent with underwriting assumptions beginning after the initial 18-month period, declining to 40% in the base case over 2.5 years.

The following table shows the range as well as the average, weighted by outstanding net insured par, for key assumptions used in the calculation of expected loss to be paid for individual transactions for vintage 2004 - 2008 first lien U.S. RMBS.

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS

	As of June 30, 2019					As of March 31, 2019					As of December 31, 2018
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Alt-A First Lien
Plateau CDR	0.0	%	-	9.5%	4.0%	1.0	%	-	10.7%	4.3%	1.2	%	-	11.4%	4.6%
Final CDR	0.0	%	-	0.5%	0.2%	0.0	%	-	0.5%	0.2%	0.1	%	-	0.6%	0.2%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	70%					70%					70%
2007+	70%					70%					70%
Option ARM
Plateau CDR	2.4	%	-	7.9%	5.5%	2.1	%	-	9.3%	5.9%	1.8	%	-	8.3%	5.6%
Final CDR	0.1	%	-	0.4%	0.3%	0.1	%	-	0.5%	0.3%	0.1	%	-	0.4%	0.3%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	60%					60%					60%
2007+	70%					70%					70%
Subprime
Plateau CDR	2.5	%	-	22.8%	6.0%	2.4	%	-	24.1%	6.2%	1.8	%	-	23.2%	6.2%
Final CDR	0.1	%	-	1.1%	0.3%	0.1	%	-	1.2%	0.3%	0.1	%	-	1.2%	0.3%
Initial loss severity:
2005 and prior	80%					80%					80%
2006	75%					75%					75%
2007+	95%					95%					95%

The rate at which the principal amount of loans is voluntarily prepaid may impact both the amount of losses projected (since that amount is a function of the CDR, the loss severity and the loan balance over time) as well as the amount of excess spread (the amount by which the interest paid by the borrowers on the underlying loan exceeds the amount of interest owed on the insured obligations). The assumption for the voluntary conditional prepayment rate (CPR) follows a similar pattern to that of the CDR. The current level of voluntary prepayments is assumed to continue for the plateau period before gradually increasing over 12 months to the final CPR, which is assumed to be 15% in the base case. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. These CPR assumptions are the same as those the Company used for March 31, 2019 and December 31, 2018.

In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien transactions by varying its assumptions of how fast a recovery is expected to occur. One of the variables used to model sensitivities was how quickly the CDR returned to its modeled equilibrium, which was defined as 5% of the initial CDR. The Company also

stressed CPR and the speed of recovery of loss severity rates. The Company probability weighted a total of five scenarios as of June 30, 2019 and December 31, 2018.

Total expected loss to be paid on all first lien U.S. RMBS was $193 million and $243 million as of June 30, 2019 and December 31, 2018, respectively. The $19 million economic benefit in Second Quarter 2019 and $50 million economic benefit in Six Months 2019 for first lien U.S. RMBS was primarily attributable to higher excess spread on certain transactions supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) and with insured floating rate debt linked to London Interbank Offered Rate (LIBOR), which decreased in Second Quarter 2019 and Six Months 2019. The Company used a similar approach to establish its pessimistic and optimistic scenarios as of June 30, 2019 as it used as of December 31, 2018, increasing and decreasing the periods of stress from those used in the base case. LIBOR may be discontinued, and it is not yet clear how this will impact the calculation of the various interest rates in this portfolio referencing LIBOR.

In the Company's most stressful scenario where loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 15 months, expected loss to be paid would increase from current projections by approximately $54 million for all first lien U.S. RMBS transactions.

In the Company's least stressful scenario where the CDR plateau was six months shorter (30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over nine months), expected loss to be paid would decrease from current projections by approximately $41 million for all first lien U.S. RMBS transactions.

U.S. Second Lien RMBS Loss Projections

Second lien RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages. The Company believes the primary variable affecting its expected losses in second lien RMBS transactions is the amount and timing of future losses in the collateral pool supporting the transactions. Expected losses are also a function of the structure of the transaction, the CPR of the collateral, the interest rate environment and assumptions about loss severity.

In second lien transactions, the projection of near-term defaults from currently delinquent loans is relatively straightforward because loans in second lien transactions are generally “charged off” (treated as defaulted) by the securitization’s servicer once the loan is 180 days past due. The Company estimates the amount of loans that will default over the next six months by calculating current representative liquidation rates. Similar to first liens, the Company then calculates a CDR for six months, which is the period over which the currently delinquent collateral is expected to be liquidated. That CDR is then used as the basis for the plateau CDR period that follows the embedded plateau losses.

For the base case scenario, the CDR (the plateau CDR) was held constant for six months. Once the plateau period has ended, the CDR is assumed to gradually trend down in uniform increments to its final long-term steady state CDR. (The long-term steady state CDR is calculated as the constant CDR that would have yielded the amount of losses originally expected at underwriting.) In the base case scenario, the time over which the CDR trends down to its final CDR is 28 months. Therefore, the total stress period for second lien transactions is 34 months, representing six months of delinquent loan liquidations, followed by 28 months of decrease to the steady state CDR, the same as of December 31, 2018.

HELOC loans generally permit the borrower to pay only interest for an initial period (often ten years) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment. This causes the borrower's total monthly payment to increase, sometimes substantially, at the end of the initial interest-only period. In prior periods, as the HELOC loans underlying the Company's insured HELOC transactions reached their principal amortization period, the Company incorporated an assumption that a percentage of loans reaching their principal amortization periods would default around the time of the payment increase.

The HELOC loans underlying the Company's insured HELOC transactions are now past their original interest-only reset date, although a significant number of HELOC loans were modified to extend the original interest-only period for another five years. As a result, the Company does not apply a CDR increase when such loans reach their principal amortization period. In addition, based on the average performance history, the Company applies a CDR floor of 2.5% for the future steady state CDR on all its HELOC transactions.

When a second lien loan defaults, there is generally a low recovery. The Company assumed, as of June 30, 2019 and December 31, 2018, that it will generally recover 2% of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time. A second lien on the borrower’s home may be retained in

the Company's second lien transactions after the loan is charged off and the loss applied to the transaction, particularly in cases where the holder of the first lien has not foreclosed. If the second lien is retained and the value of the home increases, the servicer may be able to use the second lien to increase recoveries, either by arranging for the borrower to resume payments or by realizing value upon the sale of the underlying real estate. The Company evaluates its assumptions periodically based on actual recoveries of charged-off loans observed from period to period. In instances where the Company is able to obtain information on the lien status of charged-off loans, it assumes there will a certain level of future recoveries of the balance of the charged-off loans where the second lien is still intact. The Company projected future recoveries of 20% as of June 30, 2019 and 10% as of December 31, 2018, with such recoveries to be received evenly over the next five years. The increase in recovery assumptions is attributable to the higher actual recovery rates observed in certain transactions during the period. Increasing the recovery rate to 30% would result in an economic benefit of $64 million, while decreasing the recovery rate back to 10% would result in an economic loss of $64 million. 

The rate at which the principal amount of loans is prepaid may impact both the amount of losses projected as well as the amount of excess spread. In the base case, an average CPR (based on experience of the past year) is assumed to continue until the end of the plateau before gradually increasing to the final CPR over the same period the CDR decreases. The final CPR is assumed to be 15% for second lien transactions (in the base case), which is lower than the historical average but reflects the Company’s continued uncertainty about the projected performance of the borrowers in these transactions. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. This pattern is consistent with how the Company modeled the CPR as of March 31, 2019 and December 31, 2018. To the extent that prepayments differ from projected levels it could materially change the Company’s projected excess spread and losses.

In estimating expected losses, the Company modeled and probability weighted five scenarios, each with a different CDR curve applicable to the period preceding the return to the long-term steady state CDR. The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers behind the amount of losses the collateral will likely suffer.

The Company continues to evaluate the assumptions affecting its modeling results. The Company believes the most important driver of its projected second lien RMBS losses is the performance of its HELOC transactions. Total expected recovery on all second lien U.S. RMBS was $31 million as of June 30, 2019 and the expected loss to be paid was $50 million as of December 31, 2018. The $99 million economic benefit in Second Quarter 2019 and $133 million economic benefit in Six Months 2019 for second lien U.S. RMBS was primarily attributable to higher projected recoveries for previously charged-off loans, improved performance, and loss mitigation efforts.

The following table shows the range as well as the average, weighted by net par outstanding, for key assumptions used in the calculation of expected loss to be paid for individual transactions for vintage 2004 - 2008 HELOCs.

Key Assumptions in Base Case Expected Loss Estimates

HELOCs

	As of June 30, 2019					As of March 31, 2019					As of December 31, 2018
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Plateau CDR	4.6	%	-	23.5%	9.2%	5.5	%	-	25.6%	9.5%	4.6	%	-	26.8%	10.1%
Final CDR trended down to	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%
Liquidation rates:
Delinquent/Modified in the Previous 12 Months	20%					20%					20%
30 – 59 Days Delinquent	30					30					35
60 – 89 Days Delinquent	45					45					50
90+ Days Delinquent	65					65					70
Bankruptcy	55					55					55
Foreclosure	60					60					65
Real Estate Owned	100					100					100
Loss severity (1)	98%					98%					98%

___________________

(1)    Loss severities on future defaults.

The Company’s base case assumed a six month CDR plateau and a 28 month ramp-down (for a total stress period of 34 months). The Company also modeled a scenario with a longer period of elevated defaults and another with a shorter period of elevated defaults. In the Company's most stressful scenario, increasing the CDR plateau to eight months and increasing the ramp-down by three months to 31 months (for a total stress period of 39 months) would increase the expected loss by approximately $7 million for HELOC transactions. On the other hand, in the Company's least stressful scenario, reducing the CDR plateau to four months and decreasing the length of the CDR ramp-down to 25 months (for a total stress period of 29 months), and lowering the ultimate prepayment rate to 10% would decrease the expected loss by approximately $7 million for HELOC transactions.

Other Structured Finance

The Company projected that its total net expected loss across its troubled non-U.S. RMBS structured finance exposures as of June 30, 2019 was $26 million and is primarily attributable to $92 million in BIG net par of student loan securitizations issued by private issuers that are classified as structured finance. In general, the projected losses of these transactions are due to: (i) the poor credit performance of private student loan collateral and high loss severities, or (ii) high interest rates on auction rate securities with respect to which the auctions have failed.

The Company also had exposure to troubled life insurance transactions. As of June 30, 2019, the Company's BIG net par in these transactions was $40 million, which was lower than the $85 million as of December 31, 2018 because of the settlement of a transaction.

The economic benefit during Second Quarter 2019 and Six Months 2019 was $3 million and $1 million.

Recovery Litigation

In the ordinary course of their respective businesses, certain of AGL's subsidiaries assert claims in legal proceedings against third parties to recover losses paid in prior periods or prevent losses in the future.

Public Finance Transactions

The Company has asserted claims in a number of legal proceedings in connection with its exposure to Puerto Rico. See Note 3, Outstanding Exposure, for a discussion of the Company's exposure to Puerto Rico and related recovery litigation being pursued by the Company.

RMBS Transactions

On November 26, 2012, CIFG Assurance North America Inc. (CIFGNA) filed a complaint in the Supreme Court of the State of New York against JP Morgan Securities LLC (JP Morgan) for material misrepresentation in the inducement of insurance and common law fraud, alleging that JP Morgan fraudulently induced CIFGNA to insure $400 million of securities issued by ACA ABS CDO 2006-2 Ltd. and $325 million of securities issued by Libertas Preferred Funding II, Ltd. On June 26, 2015, the court dismissed with prejudice CIFGNA’s material misrepresentation in the inducement of insurance claim and dismissed without prejudice CIFGNA’s common law fraud claim. On September 24, 2015, the court denied CIFGNA’s motion to amend but allowed CIFGNA to re-plead a cause of action for common law fraud. On November 20, 2015, CIFGNA filed a motion for leave to amend its complaint to re-plead common law fraud. On April 29, 2016, CIFGNA filed an appeal to reverse the court’s decision dismissing CIFGNA’s material misrepresentation in the inducement of insurance claim. On November 29, 2016, the Appellate Division of the Supreme Court of the State of New York ruled that the court’s decision dismissing with prejudice CIFGNA’s material misrepresentation in the inducement of insurance claim should be modified to grant CIFGNA leave to re-plead such claim. On February 27, 2017, AGC (as successor to CIFGNA) filed an amended complaint which includes a claim for material misrepresentation in the inducement of insurance. On July 31, 2019, the parties entered into a confidential settlement.

XML

Reinsurance

6 Months Ended

Jun. 30, 2019

Insurance [Abstract]

Reinsurance

Reinsurance

The Company assumes exposure (Assumed Business) from third party insurers, primarily other monoline financial guaranty companies that currently are in runoff and no longer actively writing new business (Legacy Monoline Insurers), and may cede portions of exposure it has insured (Ceded Business) in exchange for premiums, net of any ceding commissions. The Company, if required, secures its reinsurance obligations to these Legacy Monoline Insurers, typically by depositing in trust assets with a market value equal to its assumed liabilities calculated on a U.S. statutory basis.

Substantially all of the Company’s Assumed Business and Ceded Business relates to financial guaranty business, except for a modest amount that relates to AGRO's non-financial guaranty business. The Company historically entered into, and with respect to new business originated by AGRO continues to enter into, ceded reinsurance contracts in order to obtain greater business diversification and reduce the net potential loss from large risks.

Financial Guaranty Business

The Company’s facultative and treaty assumed agreements with the Legacy Monoline Insurers are generally subject to termination at the option of the ceding company:

• if the Company fails to meet certain financial and regulatory criteria;

• if the Company fails to maintain a specified minimum financial strength rating, or

• upon certain changes of control of the Company.

Upon termination due to one of the above events, the Company typically would be required to return to the ceding company unearned premiums (net of ceding commissions) and loss reserves, calculated on a U.S. statutory basis, attributable to the Assumed Business (plus in certain cases, an additional required amount), after which the Company would be released from liability with respect to such business.

As of June 30, 2019, if each third party company ceding business to AG Re and/or AGC had a right to recapture such business, and chose to exercise such right, the aggregate amounts that AG Re and AGC could be required to pay to all such companies would be approximately $40 million and $302 million, respectively.

The Company has ceded financial guaranty business to non-affiliated companies to limit its exposure to risk. The Company remains primarily liable for all risks it directly underwrites and is required to pay all gross claims. It then seeks

reimbursement from the reinsurer for its proportionate share of claims. The Company may be exposed to risk for this exposure if it were required to pay the gross claims and not be able to collect ceded claims from an assuming company experiencing financial distress. The Company’s ceded contracts generally allow the Company to recapture ceded financial guaranty business after certain triggering events, such as reinsurer downgrades.

Non-Financial Guaranty Business

The Company, through AGRO, assumes non-financial guaranty business from third party insurers (Assumed Non-Financial Guaranty Business). It also cedes and retrocedes some of its non-financial guaranty business to third party reinsurers. A downgrade of AGRO’s financial strength rating by S&P below A would require AGRO to post, as of June 30, 2019, an estimated $1 million of collateral in respect of certain of its Assumed Non-Financial Guaranty Business. A further downgrade of AGRO’s S&P rating below A- would give the company ceding such business the right to recapture the business for AGRO’s collateral amount, and, if also accompanied by a downgrade of AGRO's financial strength rating by A.M. Best Company, Inc. below A-, would also require AGRO to post, as of June 30, 2019, an estimated $10 million of collateral in respect of a different portion of AGRO’s Assumed Non-Financial Guaranty Business. AGRO’s ceded/retroceded contracts generally have equivalent provisions requiring the assuming reinsurer to post collateral and/or allowing AGRO to recapture the ceded/retroceded business upon certain triggering events, such as reinsurer rating downgrades.

Effect of Reinsurance

The following table presents the components of premiums and losses reported in the condensed consolidated statements of operations and the contribution of the Company's Assumed and Ceded Businesses (both financial guaranty and non-financial guaranty).

Effect of Reinsurance on Statement of Operations

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Premiums Written:
Direct	$	50		$	62		$	89		$	135
Assumed	1			331			1			331
Ceded (1)	(2		)	24			13			13
Net	$	49		$	417		$	103		$	479
Premiums Earned:
Direct	$	99		$	130		$	204		$	273
Assumed	15			9			30			14
Ceded	(2		)	(3		)	(4		)	(6		)
Net	$	112		$	136		$	230		$	281
Loss and LAE:
Direct	$	—		$	49		$	54		$	35
Assumed	1			(5		)	2			(8		)
Ceded	(2		)	—			(11		)	(1		)
Net	$	(1	)	$	44		$	45		$	26

____________________

(1)    Positive ceded premiums written were due to terminations, commutations and changes in expected debt service schedules.

Ceded Reinsurance (1)

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Ceded premium payable, net of commissions	$	20	$	26
Ceded expected loss to be recovered (paid)	22		14
Financial guaranty ceded par outstanding (2)	1,372		2,389
Non-financial guaranty ceded exposure (see Note 3)	245		239

____________________

(1) The total collateral posted by all non-affiliated reinsurers required to post, or that had agreed to post, collateral as of June 30, 2019 and December 31, 2018 was approximately $72 million and $80 million, respectively. Such collateral is posted (i) in the case of certain reinsurers not authorized or "accredited" in the U.S., in order for the Company to receive credit for the liabilities ceded to such reinsurers in statutory financial statements, and (ii) in the case of certain reinsurers authorized in the U.S., on terms negotiated with the Company.

(2) Of the total par ceded to unrated or BIG rated reinsurers, $229 million and $236 million is rated BIG as of June 30, 2019 and December 31, 2018, respectively.

Reinsurance of Syncora Guarantee Inc.’s Insured Portfolio

On June 1, 2018, the Company closed the SGI Transaction under which AGC assumed, generally on a 100% quota share basis, substantially all of SGI’s insured portfolio and AGM reassumed a book of business previously ceded to SGI by AGM. As of June 1, 2018, the net par value of exposures reinsured and commuted totaled approximately $12 billion (including credit derivative net par of approximately $1.5 billion). The reinsured portfolio consisted predominantly of public finance and infrastructure obligations that met AGC’s underwriting criteria and generated $330 million of gross written premiums. On June 1, 2018, as consideration, SGI paid $363 million and assigned to Assured Guaranty financial guaranty future insurance installment premiums of $45 million, and future credit derivative installments of approximately $17 million. The assumed portfolio from SGI included BIG contracts which had, as of June 1, 2018, expected losses to be paid of $131 million (present value basis using risk-free rates), which will be expensed over the expected terms of those contracts as unearned premium reserve amortizes. In connection with the SGI Transaction, the Company incurred and expensed $4 million in fees to professional advisors.

Additionally, beginning on June 1, 2018, on behalf of SGI, AGC began providing certain administrative services on the assumed portfolio, including surveillance, risk management, and claims processing.

Commutations

Commutations of Ceded Reinsurance Contracts

	Second Quarter					Six Months
	2019		2018			2019		2018
	(in millions)
Increase in net unearned premium reserve	$	15	$	56		$	15	$	60
Increase in net par outstanding	1,069		1,191			1,069		1,233
Commutation gains (losses)	1		(18		)	1		(17		)

Excess of Loss Reinsurance Facility

     Effective January 1, 2018, AGC, AGM and MAC entered into a $400 million aggregate excess of loss reinsurance facility of which $180 million was placed with an unaffiliated reinsurer. This facility covers losses occurring either from January 1, 2018 through December 31, 2024, or January 1, 2019 through December 31, 2025, at the option of AGC, AGM and MAC. It terminates on January 1, 2020, unless AGC, AGM and MAC choose to extend it. It covers certain U.S. public finance

exposures insured or reinsured by AGC, AGM and MAC as of September 30, 2017, excluding exposures that were rated below investment grade as of December 31, 2017 by Moody’s or S&P or internally by AGC, AGM or MAC and is subject to certain per credit limits. Among the exposures excluded are those associated with the Commonwealth of Puerto Rico and its related authorities and public corporations. The facility attaches when AGC’s, AGM’s and MAC’s net losses (net of AGC’s and AGM's reinsurance (including from affiliates) and net of recoveries) exceed $0.8 billion in the aggregate. The facility covers a portion of the next $400 million of losses, with the reinsurer assuming $180 million of the $400 million of losses and AGC, AGM and MAC jointly retaining the remaining $220 million. The reinsurer is required to be rated at least AA- or to post collateral sufficient to provide AGC, AGM and MAC with the same reinsurance credit as reinsurers rated AA-. AGC, AGM and MAC are each obligated to pay the reinsurer its share of recoveries relating to losses during the coverage period in the covered portfolio. AGC, AGM and MAC paid approximately $3.2 million of premiums in 2018 for the term January 1, 2018 through December 31, 2018 and approximately $3.2 million of premiums in 2019 for the term January 1, 2019 through December 31, 2019.

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Fair Value Measurement

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurement

Fair Value Measurement

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 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 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 1—Quoted prices for identical instruments in active markets. The Company generally defines an active market as a market in which trading occurs at significant volumes. Active markets generally are more liquid and have a lower bid-ask spread than an inactive market.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and observable inputs other than quoted prices, such as interest rates or yield curves and other inputs derived from or corroborated by observable market inputs.

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.

There was a transfer of a fixed-maturity security from Level 2 into Level 3 during Second Quarter 2019 and Six Months 2019. There were no other transfers into or from Level 3 during the periods presented.

Carried at Fair Value

Fixed-Maturity Securities and Short-Term Investments

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 June 30, 2019, the Company used models to price 132 securities, including securities that were purchased or obtained for loss mitigation or other risk management purposes, with a Level 3 fair value of $1,152 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.

Other Assets

Committed Capital Securities (CCS)

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 gains on CCS recorded in other income were $19 million and $10 million in Second Quarter 2019 and Six Months 2019, respectively, and fair value losses were $1 million and $2 million in Second Quarter 2018 and Six 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.

Supplemental Executive Retirement Plan (SERP)

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 (NAV) of the funds if a published daily value is not available (Level 2). The NAV'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.

Contracts Accounted for as Credit Derivatives

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 June 30, 2019 were such that market prices of the Company’s CDS contracts were not available.

Assumptions and Inputs

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.

• Actual collateral specific credit spreads (if up-to-date and reliable market-based spreads are available).

• Transactions priced or closed during a specific quarter within a specific asset class and specific rating.

• Credit spreads interpolated based upon market indices adjusted to reflect the non-standard terms of the Company's CDS contracts.

• Credit spreads extrapolated based upon transactions of similar asset classes, similar ratings, and similar time to maturity.

The rates used to discount future expected premium cash flows ranged from 1.75% to 2.37% at June 30, 2019 and 2.47% to 2.89% at December 31, 2018.

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 or AGM. For credit spreads on the Company’s name the Company obtains the quoted price of CDS contracts traded on AGC and AGM from market data sources published by third parties. The cost to acquire CDS protection referencing AGC or AGM 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 or AGM 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 June 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 and AGM hedged by its counterparties, with independent third parties periodically. The implied credit risk of AGC and AGM, indicated by the trading level of AGC’s and AGM’s own credit spread, is a significant factor in the amount of exposure to AGC and AGM that a bank or transaction hedges. When AGC's or AGM's credit spreads widen, the hedging cost of a bank or originator increases. Higher hedging costs reduce the amount of contractual cash flows AGC and AGM can capture as premium for selling its protection, while lower hedging costs increase the amount of contractual cash flows AGC and AGM 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.

Strengths and Weaknesses of Model

The Company’s credit derivative valuation model, like any financial model, has certain strengths and weaknesses.

The primary strengths of the Company’s CDS modeling techniques are:

• The model takes into account the transaction structure and the key drivers of market value.

• The model maximizes the use of market-driven inputs whenever they are available.

• The model is a consistent approach to valuing positions.

The primary weaknesses of the Company’s CDS modeling techniques are:

• There is no exit market or any actual exit transactions; therefore, the Company’s exit market is a hypothetical one based on the Company’s entry market.

• There is a very limited market in which to validate the reasonableness of the fair values developed by the Company’s model.

• The markets for the inputs to the model are highly illiquid, which impacts their reliability.

• Due to the non-standard terms under which the Company enters into derivative contracts, the fair value of its credit derivatives may not reflect the same prices observed in an actively traded market of credit derivatives that do not contain terms and conditions similar to those observed in the financial guaranty market.

Fair Value Option on FG VIEs’ Assets and Liabilities

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.

Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of June 30, 2019

			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	$	4,683	$	—	$	4,578	$	105
U.S. government and agencies	165		—		165		—
Corporate securities	2,267		—		2,219		48
Mortgage-backed securities:
RMBS	938		—		613		325
Commercial mortgage-backed securities (CMBS)	495		—		495		—
Asset-backed securities	779		—		105		674
Non-U.S. government securities	247		—		247		—
Total fixed-maturity securities	9,574		—		8,422		1,152
Short-term investments	1,159		893		266		—
Other invested assets (1)	6		—		—		6
FG VIEs’ assets, at fair value	526		—		—		526
Other assets	166		32		42		92
Total assets carried at fair value	$	11,431	$	925	$	8,730	$	1,776
Liabilities:
Credit derivative liabilities	$	224	$	—	$	—	$	224
FG VIEs’ liabilities with recourse, at fair value	446		—		—		446
FG VIEs’ liabilities without recourse, at fair value	105		—		—		105
Total liabilities carried at fair value	$	775	$	—	$	—	$	775

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of December 31, 2018

			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

____________________

(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.

Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during Second Quarter 2019 and 2018 and Six Months 2019 and 2018.

Fair Value Level 3 Rollforward

Recurring Basis

Second Quarter 2019

	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 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		)	(5	)	(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	)	(5	)	$	(20	)	(2	)	$	(12	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2019	$	—			$	(1	)			$	15				$	8									$	—								$	5

Fair Value Level 3 Rollforward

Recurring Basis

Second Quarter 2018

	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 March 31, 2018	$	83			$	62			$	314				$	809				$	651				$	62				$	(236	)			$	(598	)			$	(110	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1	)	1		(1	)	6			(1	)	14			(1	)	3			(2	)	(1		)	(3	)	48			(5	)	(4		)	(2	)	1			(2	)
Other comprehensive income (loss)	8				—				(3		)			6					—					—					—					4					—
Purchases	—				—				9					91					—					—					—					—					—
Issuances	—				—				—					—					—					—					(68		)	(7	)	—					—
Settlements	—				—				(15		)			(23		)			(27		)			—					(1		)			27					1
Fair value as of June 30, 2018	$	92			$	63			$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018	$	8			$	—			$	(2	)			$	6				$	6		(2	)	$	(1	)	(3	)	$	46		(5	)	$	2		(2	)	$	1		(2	)

Fair Value Level 3 Rollforward

Recurring Basis

Six Months 2019

	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)	2			(1	)	(10		)	(1	)	11			(1	)	44			(1	)	64			(2	)	10		(3	)	(30		)	(5	)	(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	)	(5	)	$	(31	)	(2	)	$	(15	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2019	$	5				$	2				$	20				$	11									$	—								$	5

Fair Value Level 3 Rollforward

Recurring Basis

Six Months 2018

	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)	2			(1	)	(4		)	(1	)	13			(1	)	29			(1	)	4			(2	)	(2		)	(3	)	82			(5	)	(4		)	(2	)	2			(2	)
Other comprehensive income (loss)	11					—					(10		)			9					—					—					—					2					—
Purchases	4					—					9					100					—					—					—					—					—
Issuances	—					—					—					—					—					—					(68		)	(7	)	—					—
Settlements	(1		)			—					(35		)			(28		)			(60		)			(1		)			(2		)			57					4
FG VIE deconsolidations	—					—					—					—					(17		)			—					—					1					16
Fair value as of June 30, 2018	$	92				$	63				$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018	$	11				$	—				$	(8	)			$	10				$	10		(2	)	$	(2	)	(3	)	$	73		(5	)	$	(1	)	(2	)	$	1		(2	)

 ____________________

(1) Included in net realized investment gains (losses) and net investment income.

(2) Included in fair value gains (losses) on FG VIEs.

(3) Recorded in net investment income and other income.

(4) Represents the net position of credit derivatives. Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheet based on net exposure by counterparty.

(5) Reported in net change in fair value of credit derivatives.

(6) Includes CCS and other invested assets.

(7) Relates to SGI Transaction. See Note 11, Reinsurance.

Level 3 Fair Value Disclosures

Quantitative Information About Level 3 Fair Value Inputs

At June 30, 2019

Financial Instrument Description (1)	Fair Value at June 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	$	105		Yield	4.5	%	-	33.0%	7.1%
Corporate securities	48			Yield	30.9%
RMBS	325			CPR	1.5	%	-	18.2%	5.9%
				CDR	1.5	%	-	6.9%	4.9%
				Loss severity	40.0	%	-	125.0%	85.5%
				Yield	3.8	%	-	6.2%	4.5%
Asset-backed securities:
Life insurance transactions	337			Yield	5.6%
Collateralized loan obligations (CLOs) /Trust preferred securities (TruPS)	280			Yield	2.8	%	-	5.1%	3.8%
Others	57			Yield	10.4%
FG VIEs’ assets, at fair value	526			CPR	0.9	%	-	18.3%	8.9%
				CDR	1.3	%	-	24.2%	4.6%
				Loss severity	60.0	%	-	100.0%	78.4%
				Yield	3.6	%	-	8.5%	5.3%
Other assets	84			Implied Yield	6.7	%	-	7.3%	7.0%
				Term (years)	10 years
Credit derivative liabilities, net	(216		)	Year 1 loss estimates	0.0	%	-	80.0%	1.8%
				Hedge cost (in basis points (bps))	7.0		-	42.0	15.0
				Bank profit (in bps)	38.0		-	215.0	88.0
				Internal floor (in bps)	30.0
				Internal credit rating	AAA		-	CCC	A+
FG VIEs’ liabilities, at fair value	(551		)	CPR	0.9	%	-	18.3%	8.9%
				CDR	1.3	%	-	24.2%	4.6%
				Loss severity	60.0	%	-	100.0%	78.4%
				Yield	3.5	%	-	8.5%	4.3%

___________________

(1) Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2) Excludes several investments recorded in other invested assets with fair value of $6 million.

Quantitative Information About Level 3 Fair Value Inputs

At December 31, 2018

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%
				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%

____________________

(1) Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2) Excludes several investments recorded in other invested assets with fair value of $7 million.

Not Carried at Fair Value

Financial Guaranty Insurance Contracts

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

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.

The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.

Fair Value of Financial Instruments Not Carried at Fair Value

	As of June 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)	(2,995		)	(5,870		)	(3,240		)	(5,932		)
Long-term debt	(1,233		)	(1,545		)	(1,233		)	(1,496		)
Other liabilities (1)	(22		)	(22		)	(12		)	(12		)

____________________

(1) The Company's other assets and other liabilities consist predominantly of accrued interest, receivables for securities sold and payables for securities purchased, for which the carrying value approximates fair value.

(2)

Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.

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Contracts Accounted for as Credit Derivatives

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Contracts Accounted for as Credit Derivatives

Contracts Accounted for as Credit Derivatives

The Company has a portfolio of financial guaranty contracts that meet the definition of a derivative in accordance with GAAP (primarily CDS). The credit derivative portfolio also includes interest rate swaps.

Credit derivative transactions are governed by International Swaps and Derivative Association, Inc. documentation and have certain characteristics that differ from financial guaranty insurance contracts. For example, the Company’s control rights with respect to a reference obligation under a credit derivative may be more limited than when the Company issues a financial guaranty insurance contract. In addition, there are more circumstances under which the Company may be obligated to make payments. Similar to a financial guaranty insurance contract, the Company would be obligated to pay if the obligor failed to make a scheduled payment of principal or interest in full. However, the Company may also be required to pay if the obligor becomes bankrupt or if the reference obligation were restructured if, after negotiation, those credit events are specified in the documentation for the credit derivative transactions. Furthermore, the Company may be required to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the non-defaulting or the non-affected party, which may be either the Company or the counterparty, depending upon the circumstances, may decide to terminate a credit derivative prior to maturity. In that case, the Company may be required to make a termination payment to its swap counterparty upon such termination. Absent such an event of default or termination event, the Company may not unilaterally terminate a CDS contract; however, the Company on occasion has mutually agreed with various counterparties to terminate certain CDS transactions.

Credit Derivative Net Par Outstanding by Sector

The components of the Company’s credit derivative net par outstanding are presented in the table below. The estimated remaining weighted average life of credit derivatives was 11.4 years and 11.6 years as of June 30, 2019 and December 31, 2018 respectively.

Credit Derivatives (1)

	As of June 30, 2019					As of December 31, 2018
	Net Par Outstanding		Net Fair Value			Net Par Outstanding		Net Fair Value
	(in millions)
U.S. public finance	$	1,933	$	(105	)	$	1,783	$	(65	)
Non-U.S. public finance	2,798		(51		)	2,807		(51		)
U.S. structured finance	1,302		(52		)	1,465		(85		)
Non-U.S. structured finance	127		(8		)	127		(6		)
Total	$	6,160	$	(216	)	$	6,182	$	(207	)

____________________

(1)    Expected recoveries were $11 million as of June 30, 2019 and $2 million as of December 31, 2018.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

	As of June 30, 2019				As of December 31, 2018
Ratings	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total
	(dollars in millions)
AAA	$	1,730	28.1	%	$	1,813	29.4	%
AA	1,700		27.6		1,690		27.3
A	1,229		19.9		1,171		18.9
BBB	1,353		22.0		1,351		21.9
BIG (1)	148		2.4		157		2.5
Credit derivative net par outstanding	$	6,160	100.0	%	$	6,182	100.0	%

____________________

(1) BIG relates to U.S. RMBS.

Fair Value of Credit Derivatives

Net Change in Fair Value of Credit Derivative Gain (Loss)

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Realized gains on credit derivatives	$	1		$	2		$	4		$	4
Net credit derivative losses (paid and payable) recovered and recoverable and other settlements	(21		)	(1		)	(25		)	(1		)
Realized gains (losses) and other settlements	(20		)	1			(21		)	3
Net unrealized gains (losses)	12			47			(9		)	79
Net change in fair value of credit derivatives	$	(8	)	$	48		$	(30	)	$	82

     Realized losses and other settlements for Second Quarter 2019 and Six Months 2019 were primarily due to a final maturity paydown of a U.S. structured finance transaction, for which there was an offsetting unrealized gain.

During Second Quarter 2019, unrealized fair value gains were generated primarily as a result of a final maturity paydown of a CDS contract and price improvements. These items were partially offset by wider implied net spreads driven by the decreased market cost to buy protection in AGC’s name during the period. For those CDS transactions that were pricing at or above their floor levels, when the cost of purchasing CDS protection on AGC, which management refers to as the CDS spread on AGC, decreased, the implied spreads that the Company would expect to receive on these transactions increased.

During Six Months 2019, unrealized fair value losses were generated primarily as a result of wider implied net spreads driven by the decreased market cost to buy protection in AGC’s name during the period. These losses were partially offset by the paydown of a CDS contract and price improvements.

During Second Quarter 2018, unrealized fair value gains were generated primarily as a result of price improvements on the underlying collateral of the Company’s CDS. This was the primary driver of the unrealized fair value gain in the U.S. structured finance sector. The unrealized fair value gains were partially offset by unrealized fair value losses related to the decreased cost to buy protection in AGC’s and AGM’s name as the market cost of AGC’s and AGM’s credit protection decreased during the period.

During Six Months 2018, unrealized fair value gains were generated primarily as a result of the increase in credit given to the primary insurer on one of the Company's second-to-pay CDS policies, CDS terminations, and price improvements on the underlying collateral of the Company’s CDS. The unrealized fair value gains were partially offset by unrealized fair value losses related to the decreased cost to buy protection in AGC’s and AGM’s name as the market cost of AGC’s and AGM’s credit protection decreased during the period.

The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time these fair values are determined. In addition, since each transaction has unique collateral and structural terms, the underlying change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts also reflects the change in the Company’s own credit cost based on the price to purchase credit protection on AGC and AGM. The Company determines its own credit risk based on quoted CDS prices traded on the Company at each balance sheet date.

CDS Spread on AGC and AGM

Quoted price of CDS contract (in bps)

 

	As of June 30, 2019	As of March 31, 2019	As of December 31, 2018	As of June 30, 2018	As of March 31, 2018	As of December 31, 2017
Five-year CDS spread:
AGC	56	74	110	105	121	163
AGM	54	72	116	106	109	145
One-year CDS spread
AGC	13	20	22	22	25	70
AGM	13	13	24	21	22	28

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC and AGM

Credit Spreads

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Fair value of credit derivatives before effect of AGC and AGM credit spreads	$	(318	)	$	(407	)
Plus: Effect of AGC and AGM credit spreads	102			200
Net fair value of credit derivatives	$	(216	)	$	(207	)

The fair value of CDS contracts at June 30, 2019, before considering the benefit applicable to AGC’s credit spreads, is a direct result of the relatively wide credit spreads of certain underlying credits generally due to the long tenor of these credits.

Collateral Posting for Certain Credit Derivative Contracts

The transaction documentation with one counterparty for $209 million in CDS net par insured by AGC requires AGC to post collateral, subject to a $209 million cap, to secure its obligation to make payments under such contracts. Eligible collateral is generally cash or U.S. government or agency securities; eligible collateral other than cash is valued at a discount to the face amount. The table below summarizes AGC’s CDS collateral posting requirements as of June 30, 2019 and December 31, 2018.

AGC Insured CDS Collateral Posting Requirements

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Gross par of CDS with collateral posting requirement	$	209	$	250
Maximum posting requirement	209		250
Collateral posted	1		1

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Variable Interest Entities

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Variable Interest Entities

Variable Interest Entities

The Company provides financial guaranties with respect to debt obligations of special purpose entities, including VIEs but does not act as the servicer or collateral manager for any VIE obligations guaranteed by its insurance subsidiaries. The transaction structure generally provides certain financial protections to the Company. This financial protection can take several forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread. In the case of overcollateralization (i.e., the principal amount of the securitized assets exceeds the principal amount of the structured finance obligations guaranteed by the Company), the structure allows defaults of the securitized assets before a default is experienced on the structured finance obligation guaranteed by the Company. In the case of first loss, the Company's financial guaranty insurance policy only covers a senior layer of losses experienced by multiple obligations issued by the VIE. The first loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors. In the case of excess spread, the financial assets contributed to VIEs generate interest income that are in excess of the interest payments on the debt issued by the VIE. Such excess spread is typically distributed through the transaction’s cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the VIE (thereby, creating additional overcollateralization), or distributed to equity or other investors in the transaction.

Assured Guaranty is not primarily liable for the debt obligations issued by the VIEs it insures and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall. AGL’s and its subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs. Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on FG VIEs’ liabilities. Net fair value gains and losses on FG VIEs are expected to reverse to zero at maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by Assured Guaranty under the financial guaranty insurance contract. The Company’s estimate of expected loss to be paid for FG VIEs is included in Note 4, Expected Loss to be Paid.

As part of the terms of its financial guaranty contracts, the Company, under its insurance contract, obtains certain protective rights with respect to the VIE that give the Company additional controls over a VIE. These protective rights are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager's financial condition. At deal inception, the Company typically is not deemed to control a VIE; however, once a trigger event occurs, the Company's control of the VIE typically increases. The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the Company and, accordingly, where the Company is obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE. The Company is deemed to be the control party for certain VIEs under GAAP, typically when its protective rights give it the power to both terminate and replace the deal servicer, which are characteristics specific to the Company's financial guaranty contracts. If the protective rights that could make the Company the control party have not been triggered, then the VIE is not consolidated. If the Company is deemed to no longer have those protective rights, the VIE is deconsolidated.

Consolidated FG VIEs

As of June 30, 2019 and December 31, 2018, the Company consolidated 29 and 31 FG VIEs, respectively. During Six Months 2019, two FG VIE were deconsolidated. During Six Months 2018, one FG VIE was deconsolidated. There were no new consolidations for the periods presented.

The change in the ISCR of the FG VIEs’ assets held as of the end of the reporting period that was recorded in the condensed consolidated statements of operations for Second Quarter 2019 and 2018 were gains of $29 million and $1 million, respectively, and $35 million and $3 million for Six Months 2019 and 2018, respectively. To calculate ISCR, the change in the fair value of the FG VIEs’ assets is allocated between changes that are due to ISCR and changes due to other factors, including interest rates. The ISCR amount is determined by using expected cash flows at the original date of consolidation discounted at the effective yield less current expected cash flows discounted at that same original effective yield.

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Excess of unpaid principal over fair value of:
FG VIEs' assets	$	286	$	350
FG VIEs' liabilities with recourse	22		48
FG VIEs' liabilities without recourse	20		28
Unpaid principal balance for the FG VIEs’ assets that were over 90 days or more past due	62		71
Unpaid principal for FG VIEs’ liabilities with recourse (1)	468		565

____________________

(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2019 to 2038.

The table below shows the carrying value of the consolidated FG VIEs’ assets and liabilities in the condensed consolidated financial statements, segregated by the types of assets that collateralize the respective debt obligations for FG VIEs’ liabilities with recourse.

Consolidated FG VIEs

By Type of Collateral

	As of June 30, 2019				As of December 31, 2018
	Assets		Liabilities		Assets		Liabilities
	(in millions)
With recourse:
U.S. RMBS first lien	$	291	$	316	$	299	$	326
U.S. RMBS second lien	81		80		115		137
Manufactured housing	49		50		53		54
Total with recourse	421		446		467		517
Without recourse	105		105		102		102
Total	$	526	$	551	$	569	$	619

The effect of consolidating FG VIEs includes (i) changes in fair value gains (losses) on FG VIEs’ assets and liabilities, (ii) the elimination of premiums and losses related to the AGC and AGM FG VIEs’ liabilities with recourse and (iii) the elimination of investment balances related to the Company’s purchase of AGC and AGM insured FG VIEs’ debt. Upon consolidation of a FG VIE, the related insurance and, if applicable, the related investment balances, are considered intercompany transactions and therefore eliminated. Such eliminations are included in the table below to present the full effect of consolidating FG VIEs.

Effect of Consolidating FG VIEs 

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Net earned premiums	$	(11	)	$	(3	)	$	(14	)	$	(6	)
Net investment income	(1		)	(1		)	(2		)	(2		)
Fair value gains (losses) on FG VIEs (1)	33			2			38			6
Loss and LAE	(14		)	(3		)	(15		)	3
Effect on income before tax	7			(5		)	7			1
Less: Tax provision (benefit)	1			(1		)	1			—
Effect on net income (loss)	$	6		$	(4	)	$	6		$	1
Effect on OCI	$	(1	)	$	4		$	(2	)	$	2
Effect on cash flows from operating activities	$	(2	)	$	4		$	(1	)	$	6

 ____________________

(1) See condensed consolidated statements of comprehensive income and Note 14, Shareholders' Equity, for information on changes in fair value of the FG VIEs’ liabilities with recourse that are attributable to changes in the Company's own credit risk.

The consolidation of FG VIEs increased shareholders' equity by $4 million as of June 30, 2019 and $1 million as of December 31, 2018.

The primary driver of the gain during Second Quarter 2019 and Six Months 2019 was attributable to higher recoveries on second lien U.S. RMBS FG VIEs' assets. The primary driver of the gain during Second Quarter 2018 and Six Months 2018 was improvement in the underlying collateral of the FG VIEs' assets.

Other Consolidated VIEs

In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the original insured financial guaranty insurance or credit derivative contract, the Company classifies the assets and liabilities of those VIEs in the line items that most accurately reflect the nature of the items, as opposed to within the FG VIEs’ assets and FG VIEs’ liabilities. The largest of these VIEs had assets of $90 million and liabilities of $9 million as of June 30, 2019, and assets of $87 million and liabilities of $21 million as of December 31, 2018, primarily recorded in the investment portfolio and credit derivative liabilities on the condensed consolidated balance sheets.

Non-Consolidated VIEs

As described in Note 3, Outstanding Exposure, the Company monitors all policies in the insured portfolio. Of the approximately 18 thousand policies monitored as of June 30, 2019, approximately 16 thousand policies are not within the scope of Accounting Standards Codification (ASC) 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization. The majority of the remaining policies involve transactions where the Company is not deemed to currently have control over the FG VIEs’ most significant activities. As of June 30, 2019 and December 31, 2018, the Company identified 102 and 110 policies, respectively, that contain provisions and experienced events that may trigger consolidation. Based on management’s assessment of these potential triggers or events, the Company consolidated 29 and 31 FG VIEs as of June 30, 2019 and December 31, 2018, respectively. The Company’s exposure provided through its financial guaranties with respect to debt obligations of FG VIEs is included within net par outstanding in Note 3, Outstanding Exposure.

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Investments and Cash

6 Months Ended

Jun. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Investments and Cash

Investments and Cash

Net Investment Income and Realized Gains (Losses)

Net investment income is a function of the yield that the Company earns on invested assets and the size of the portfolio. The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the invested assets. Accrued investment income, which is recorded in other assets, was $86 million and $91 million as of June 30, 2019 and December 31, 2018, respectively.

Net Investment Income

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Income from fixed-maturity securities managed by third parties	$	69		$	74		$	141		$	149
Income from internally managed securities	43			27			71			54
Gross investment income	112			101			212			203
Investment expenses	(2		)	(3		)	(4		)	(5		)
Net investment income	$	110		$	98		$	208		$	198

The table below presents the components of net realized investment gains (losses). Realized gains and losses on sales of investments are determined using the specific identification method.

Net Realized Investment Gains (Losses)

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Gross realized gains on available-for-sale securities	$	13		$	2		$	19		$	11
Gross realized losses on available-for-sale securities	(1		)	(1		)	(3		)	(6		)
Net realized gains (losses) on other invested assets	—			—			—			(1		)
Other-than-temporary impairment (OTTI):
Total OTTI	(4		)	(4		)	(17		)	(15		)
Less: portion of OTTI recognized in OCI	—			(1		)	3			(4		)
Net OTTI recognized in net income (loss) (1)	(4		)	(3		)	(20		)	(11		)
Net realized investment gains (losses)	$	8		$	(2	)	$	(4	)	$	(7	)

____________________

(1) Net OTTI recognized in net income was mainly attributable to change in foreign exchange rates in Second Quarter 2019. OTTI for all other periods presented was primarily attributable to securities purchased for loss mitigation and other risk management purposes.

The proceeds from sales of fixed-maturity securities available-for-sale were $443 million in Second Quarter 2019, $183 million in Second Quarter 2018, $914 million in Six Months 2019 and $592 million in Six Months 2018.

The following table presents the roll-forward of the credit losses on fixed-maturity securities for which the Company has recognized an OTTI and for which unrealized loss was recognized in OCI.

Roll Forward of Credit Losses

in the Investment Portfolio

	Second Quarter					Six Months
	2019			2018		2019			2018
	(in millions)
Balance, beginning of period	$	197		$	169	$	185		$	162
Additions for credit losses on securities for which an OTTI was previously recognized	—			1		12			8
Reductions for securities sold and other settlements	(6		)	—		(6		)	—
Balance, end of period	$	191		$	170	$	191		$	170

See Part II, Item 8, Financial Statements and Supplementary Data, Note 10, Investments and Cash, of the Company's 2018 Annual Report on Form 10-K for a discussion of the accounting policy for evaluating investments for OTTI.

Investment Portfolio

As of June 30, 2019, the majority of the investment portfolio is managed by seven outside managers (including Wasmer, Schroeder & Company LLC, in which the Company has a minority interest). The Company has established detailed guidelines regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector. The Company's investment guidelines generally permit its outside managers to purchase only a small amount of securities rated lower than BBB- by S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P) or Baa3 by Moody’s, and then only those securities rated no lower than B by S&P or B2 by Moody’s and subject to certain other specific requirements. Additionally, the managed portfolio must maintain a minimum average rating of A+ by S&P or A1 by Moody's.

The investment portfolio tables shown below include assets managed both externally and internally. The internally managed portfolio primarily consists of the Company's investments in securities for (i) loss mitigation purposes, (ii) other risk management purposes and (iii) other alternative investments that the Company believes present an attractive investment opportunity.

One of the Company's strategies for mitigating losses has been to purchase loss mitigation securities at discounted prices. The Company also holds other invested assets that were obtained or purchased as part of negotiated settlements with insured counterparties or under the terms of the financial guaranties (other risk management assets).

Alternative investments include investing in both equity and debt securities as well as investments in investment managers. In February 2017 the Company agreed to purchase up to $100 million of limited partnership interests in a fund that invests in the equity of private equity managers of which $85 million of the commitment was not funded as of June 30, 2019.

Investment Portfolio

Carrying Value

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Fixed-maturity securities (1):
Externally managed	$	8,499	$	8,909
Internally managed	1,075		1,180
Short-term investments	1,159		729
Other invested assets:
Internally managed
Alternative investments	44		39
Other	16		16
Total	$	10,793	$	10,873

____________________

(1) 8.3% and 10.8% of fixed-maturity securities are rated BIG as of June 30, 2019 and December 31, 2018, respectively.

Fixed-Maturity Securities and Short-Term Investments

by Security Type 

As of June 30, 2019

Security Type	Percent of Total (1)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		AOCI (2) Pre-tax Gain (Loss) on Securities with OTTI			Weighted Average Credit Rating  (3)
	(dollars in millions)
Fixed-maturity securities:
Obligations of state and political subdivisions	42	%	$	4,370	$	313	$	—		$	4,683	$	46		AA-
U.S. government and agencies	1		154		11		—			165		—			AA+
Corporate securities	22		2,212		71		(16		)	2,267		(1		)	A
Mortgage-backed securities (4):	0
RMBS	9		914		37		(13		)	938		4			A-
CMBS	5		478		18		(1		)	495		—			AAA
Asset-backed securities	7		746		36		(3		)	779		14			BBB-
Non-U.S. government securities	3		263		2		(18		)	247		—			AA
Total fixed-maturity securities	89		9,137		488		(51		)	9,574		63			A+
Short-term investments	11		1,159		—		—			1,159		—			AAA
Total investment portfolio	100	%	$	10,296	$	488	$	(51	)	$	10,733	$	63		A+

Fixed-Maturity Securities and Short-Term Investments

by Security Type 

As of December 31, 2018 

Security Type	Percent of Total (1)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		AOCI Pre-tax Gain (Loss) on Securities with OTTI			Weighted Average Credit Rating  (3)
	(dollars in millions)
Fixed-maturity securities:
Obligations of state and political subdivisions	45	%	$	4,761	$	168	$	(18	)	$	4,911	$	40		AA-
U.S. government and agencies	2		167		9		(1		)	175		—			AA+
Corporate securities	20		2,175		13		(52		)	2,136		(4		)	A
Mortgage-backed securities (4):
RMBS	9		999		17		(34		)	982		(15		)	A-
CMBS	5		542		4		(7		)	539		—			AAA
Asset-backed securities	9		942		131		(5		)	1,068		97			BB
Non-U.S. government securities	3		298		2		(22		)	278		—			AA
Total fixed-maturity securities	93		9,884		344		(139		)	10,089		118			A+
Short-term investments	7		729		—		—			729		—			AAA
Total investment portfolio	100	%	$	10,613	$	344	$	(139	)	$	10,818	$	118		A+

____________________

(1) Based on amortized cost.

(2) Accumulated OCI (AOCI).

(3) Ratings represent the lower of the Moody’s and S&P classifications, except for bonds purchased for loss mitigation or risk management strategies, which use internal ratings classifications. The Company’s portfolio primarily consists of high-quality, liquid instruments.

(4) U.S. government-agency obligations were approximately 45% of mortgage backed securities as of June 30, 2019 and 48% as of December 31, 2018 based on fair value.

The following tables summarize, for all fixed-maturity securities in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time the amounts have continuously been in an unrealized loss position.

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time

As of June 30, 2019

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	7	$	—		$	17	$	—		$	24	$	—
U.S. government and agencies	10		—			21		—			31		—
Corporate securities	229		(2		)	204		(14		)	433		(16		)
Mortgage-backed securities:
RMBS	7		—			283		(13		)	290		(13		)
CMBS	—		—			51		(1		)	51		(1		)
Asset-backed securities	226		(2		)	76		(1		)	302		(3		)
Non-U.S. government securities	45		(1		)	113		(17		)	158		(18		)
Total	$	524	$	(5	)	$	765	$	(46	)	$	1,289	$	(51	)
Number of securities (1)			112					186					291
Number of securities with OTTI			6					11					17

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time

As of December 31, 2018

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	195	$	(4	)	$	658	$	(14	)	$	853	$	(18	)
U.S. government and agencies	11		—			24		(1		)	35		(1		)
Corporate securities	836		(19		)	522		(33		)	1,358		(52		)
Mortgage-backed securities:
RMBS	85		(2		)	447		(32		)	532		(34		)
CMBS	111		(1		)	164		(6		)	275		(7		)
Asset-backed securities	322		(4		)	38		(1		)	360		(5		)
Non-U.S. government securities	83		(4		)	99		(18		)	182		(22		)
Total	$	1,643	$	(34	)	$	1,952	$	(105	)	$	3,595	$	(139	)
Number of securities (1)			417					608					997
Number of securities with OTTI (1)			22					22					42

___________________

(1) The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.

Of the securities in an unrealized loss position for 12 months or more as of June 30, 2019 and December 31, 2018, 27 and 38 securities, respectively, had unrealized losses greater than 10% of book value. The total unrealized loss for these securities was $29 million as of June 30, 2019 and $43 million as of December 31, 2018. The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company has determined that the unrealized losses recorded as of June 30, 2019 and December 31, 2018 were yield-related and not the result of OTTI.

The amortized cost and estimated fair value of available-for-sale fixed maturity securities by contractual maturity as of June 30, 2019 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Fixed-Maturity Securities

by Contractual Maturity

As of June 30, 2019

	Amortized Cost		Estimated Fair Value
	(in millions)
Due within one year	$	223	$	216
Due after one year through five years	1,637		1,665
Due after five years through 10 years	2,101		2,196
Due after 10 years	3,784		4,064
Mortgage-backed securities:
RMBS	914		938
CMBS	478		495
Total	$	9,137	$	9,574

Based on fair value, investments and restricted cash that are either held in trust for the benefit of third party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted totaled $279 million and $266 million, as of June 30, 2019 and December 31, 2018, respectively. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,653 million and $1,855 million, based on fair value as of June 30, 2019 and December 31, 2018, respectively.

Cash and Restricted Cash

The following table provides a reconciliation of the cash reported on the condensed consolidated balance sheets and the cash and restricted cash reported in the statements of cash flows.

Cash and Restricted Cash

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Cash	$	190	$	104
Restricted cash	4		—
Total cash and restricted cash	$	194	$	104

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Income Taxes

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Overview

AGL and its Bermuda subsidiaries AG Re, AGRO, and Cedar Personnel Ltd. (Bermuda Subsidiaries) are not subject to any income, withholding or capital gains taxes under current Bermuda law. The Company has received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, AGL and its Bermuda Subsidiaries will be exempt from taxation in Bermuda until March 31, 2035. AGL's U.S. and U.K. subsidiaries are subject to income taxes imposed by U.S. and U.K. authorities, respectively, and file applicable tax returns. In addition, AGRO, a Bermuda domiciled company, has elected under Section 953(d) of the U.S. Internal Revenue Code to be taxed as a U.S. domestic corporation.

In November 2013, AGL became tax resident in the U.K. although it remains a Bermuda-based company and its administrative and head office functions continue to be carried on in Bermuda. As a U.K. tax resident company, AGL is required to file a corporation tax return with Her Majesty's Revenue & Customs. AGL is subject to U.K. corporation tax in respect of its worldwide profits (both income and capital gains), subject to any applicable exemptions. The corporation tax rate is at 19% for 2019. Assured Guaranty expects that the dividends AGL receives from its direct subsidiaries will be exempt from U.K. corporation tax due to the exemption in section 931D of the U.K. Corporation Tax Act 2009. In addition, any dividends paid by AGL to its shareholders should not be subject to any withholding tax in the U.K. Assured Guaranty does not expect any profits of non-U.K. resident members of the group to be taxed under the U.K. "controlled foreign companies" regime and has obtained a clearance from Her Majesty's Revenue & Customs confirming this on the basis of current facts.

AGUS files a consolidated federal income tax return with all of its U.S. subsidiaries.

Assured Guaranty Overseas US Holdings Inc. (AGOUS) and its subsidiaries AGRO and AG Intermediary Inc. file their own consolidated federal income tax return.

Provision for Income Taxes

The Company's provision for income taxes for interim financial periods is not based on an estimated annual effective rate due, for example, to the variability in loss reserves, fair value of its credit derivatives and VIEs, and foreign exchange gains and losses which prevents the Company from projecting a reliable estimated annual effective tax rate and pretax income for the full year 2019. A discrete calculation of the provision is calculated for each interim period.

The effective tax rates reflect the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19%, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S. tax by election. The Company’s overall effective tax rate fluctuates based on the distribution of income across jurisdictions.

A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below.

Effective Tax Rate Reconciliation

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Expected tax provision (benefit) at statutory rates in taxable jurisdictions	$	38		$	14		$	47		$	49
Tax-exempt interest	(5		)	(6		)	(10		)	(12		)
Change in liability for uncertain tax positions	—			1			—			(6		)
Foreign taxes	4			6			5			3
Taxes on reinsurance	3			(1		)	4			(1		)
Other	—			(2		)	(2		)	(1		)
Total provision (benefit) for income taxes	$	40		$	12		$	44		$	32
Effective tax rate	21.9		%	13.2		%	18.4		%	10.4		%

The expected tax provision at statutory rates in taxable jurisdictions is calculated as the sum of pretax income in each jurisdiction multiplied by the statutory tax rate of the jurisdiction by which it will be taxed. Where there is a pretax loss in one jurisdiction and pretax income in another, the total combined expected tax rate may be higher or lower than any of the individual statutory rates.

 The following tables present pretax income and revenue by jurisdiction.

Pretax Income (Loss) by Tax Jurisdiction

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
U.S.	$	190		$	71		$	225		$	246
Bermuda	—			24			16			73
U.K. and other	(8		)	(8		)	(1		)	(15		)
Total	$	182		$	87		$	240		$	304

Revenue by Tax Jurisdiction

	Second Quarter						Six Months
	2019			2018			2019		2018
	(in millions)
U.S.	$	227		$	189		$	376	$	436
Bermuda	40			36			73		88
U.K. and other	(1		)	(5		)	12		(11		)
Total	$	266		$	220		$	461	$	513

Pretax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities) (1)

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Deferred tax assets (liabilities)	$	8	$	68
Current tax assets (liabilities)	3		22

____________________

(1) Included in other assets or other liabilities on the condensed consolidated balance sheets.

Valuation Allowance

The Company has $13 million of foreign tax credit (FTC) carryovers from previous acquisitions and $23 million of FTC due to the 2017 Tax Cuts and Jobs Act for use against regular tax in future years. FTCs will begin to expire in 2020 and will fully expire by 2027. In analyzing the future realizability of FTCs, the Company notes limitations on future foreign source income due to overall foreign losses as negative evidence. After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the FTC of $36 million will not be utilized, and therefore recorded a valuation allowance with respect to this tax attribute.

The Company came to the conclusion that it is more likely than not that the remaining net deferred tax asset will be fully realized after weighing all positive and negative evidence available as required under GAAP. The positive evidence that

was considered included the cumulative income the Company has earned over the last three years, and the significant unearned premium income to be included in taxable income. The positive evidence outweighs any negative evidence that exists. As such, the Company believes that no valuation allowance is necessary in connection with the remaining net deferred tax asset. The Company will continue to analyze the need for a valuation allowance on a quarterly basis.

Audits

As of June 30, 2019, AGUS had open tax years with the U.S. Internal Revenue Service (IRS) for 2015 to present and is currently under audit for the 2016 tax year. In December 2016, the IRS issued a Revenue Agent Report for the 2009 - 2012 audit period, which did not identify any material adjustments that were not already accounted for in prior periods. The 2013 and 2014 tax years closed in 2018. AGOUS has open tax years of 2015 forward but is not currently under audit with the IRS. The Company's U.K. subsidiaries are not currently under examination and have open tax years of 2016 forward. CIFGNA, which was acquired by AGC during 2016, is not currently under examination and has open tax years of 2015 to the date of acquisition.

Uncertain Tax Positions

The Company's policy is to recognize interest related to uncertain tax positions in income tax expense and has accrued $0.5 million for Six Months 2019 and $1 million for the full year 2018. As of both June 30, 2019 and December 31, 2018, the Company has accrued $2 million of interest.

The total amount of reserves for unrecognized tax positions, including accrued interest, as of both June 30, 2019 and December 31, 2018 that would affect the effective tax rate, if recognized, was $16 million.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Leases

The Company is party to various non-cancelable lease agreements. The largest lease relates to approximately 103,500 square feet of office space in New York City, which expires in 2032. Subject to certain conditions, the Company has an option to renew this lease for an additional five years at a fair market rent. The Company also has leases for additional office and apartment space in several other locations which expire at various dates through 2029.

Effective January 1, 2019, the Company adopted Topic 842, which requires the establishment of a right-of-use (ROU) asset and a lease liability on the balance sheet for operating leases. All of the Company’s leases are classified as operating leases; however, the Company made an accounting policy election not to apply the recognition requirements of Topic 842 to short-term leases with an initial term of 12 months or less. At the inception of a lease the total payments under a lease agreement are discounted utilizing an incremental borrowing rate that represents the Company’s collateralized borrowing rate. The rate was determined based on the remaining lease term as of the date of adoption. The Company does not include its renewal options in calculating the lease liability.

Operating lease expense is recognized on a straight-line basis over the lease term. Actual costs incurred related to non-lease components (i.e., common area maintenance, real estate taxes, building insurance and other operating expenses) for all the Company’s office leases are recorded as a variable lease expense in the period incurred.

The Company elected the package of practical expedients, which permits organizations not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification of expired or existing leases and (iii) initial direct costs for existing leases. The Company also elected the practical expedient to account for all lease components and their associated non-lease components as a single lease component and has allocated all of the contract consideration across lease components.

Upon adoption, the Company recognized lease liabilities of approximately $95 million (recorded in other liabilities) and ROU assets of approximately $69 million (recorded in other assets), and derecognized existing deferred rent and lease incentive liabilities of approximately $26 million, resulting in no cumulative-effect adjustment to retained earnings.

As of June 30, 2019, the ROU assets were $66 million and the lease liabilities were $91 million.

Components of Lease Expense

	Second Quarter 2019		Six Months 2019
	(in millions)
Lease cost (1)	$	2	$	4
Cash paid for amounts included in the measurement of lease liabilities	2		4

 ____________________

(1) Variable and short-term lease costs are de minimis.

As of June 30, 2019, operating leases had a weighted average remaining lease term of 12.3 years and were discounted at a weighted average rate of 3.0%.

Future Minimum Rental Payments

	As of June 30, 2019
Year	(in millions)
2019 (remaining six months)	$	4
2020	9
2021	8
2022	8
2023	9
Thereafter	72
Total lease payments (1)	110
Less: imputed interest	19
Total operating lease liabilities	$	91

 ____________________

(1) At December 31, 2018, future lease payments were $9 million, $9 million, $8 million, $8 million, and $9 million for 2019 through 2023, respectively, and $72 million in aggregate for all years thereafter.

Legal Proceedings

Lawsuits arise in the ordinary course of the Company’s business. It is the opinion of the Company’s management, based upon the information available, that the expected outcome of litigation against the Company, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position or liquidity, although an adverse resolution of litigation against the Company in a fiscal quarter or year could have a material adverse effect on the Company’s results of operations in a particular quarter or year.

In addition, in the ordinary course of their respective businesses, certain of AGL's subsidiaries assert claims in legal proceedings against third parties to recover losses paid in prior periods or prevent losses in the future. For example, the Company has commenced a number of legal actions in the Federal District Court for Puerto Rico to enforce its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations. See "Exposure to Puerto Rico" section of Note 3, Outstanding Exposure, for a description of such actions. See "Recovery Litigation" section of Note 4, Expected Loss to be Paid, for a description of recovery litigation unrelated to Puerto Rico. The amounts, if any, the Company will recover in these and other proceedings to recover losses are uncertain, and recoveries, or failure to obtain recoveries, in any one or more of these proceedings during any quarter or year could be material to the Company's results of operations in that particular quarter or year.

The Company also receives subpoenas duces tecum and interrogatories from regulators from time to time.

Litigation

On November 28, 2011, Lehman Brothers International (Europe) (in administration) (LBIE) sued AG Financial Products Inc. (AGFP), an affiliate of AGC which in the past had provided credit protection to counterparties under CDS. AGC acts as the credit support provider of AGFP under these CDS. LBIE’s complaint, which was filed in the Supreme Court of the State of New York, asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP's termination of 28 other credit derivative transactions between LBIE and AGFP and AGFP's calculation of the termination payment in connection with those 28 other credit derivative transactions. Following defaults by LBIE, AGFP properly terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly. AGFP calculated that LBIE owes AGFP approximately $4 million for the claims which were dismissed and $25 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $1.4 billion. AGFP filed a motion to dismiss the claims for breach of the implied covenant of good faith in LBIE's complaint, and on March 15, 2013, the court granted AGFP's motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE's claim with respect to the 28 other credit derivative transactions. LBIE's administrators disclosed in an April 10, 2015 report to LBIE’s unsecured creditors that LBIE's valuation expert has calculated LBIE's claim for damages in aggregate for the 28 transactions to range between a minimum of

approximately $200 million and a maximum of approximately $500 million, depending on what adjustment, if any, is made for AGFP's credit risk and excluding any applicable interest. AGFP filed a motion for summary judgment on the remaining causes of action asserted by LBIE and on AGFP's counterclaims, and on July 2, 2018, the court granted in part and denied in part AGFP’s motion. The court dismissed, in its entirety, LBIE’s remaining claim for breach of the implied covenant of good faith and fair dealing and also dismissed LBIE’s claim for breach of contract solely to the extent that it is based upon AGFP’s conduct in connection with the auction. With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith. On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the lower court's ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole remaining claim for breach of contract. On January 17, 2019, the Appellate Division affirmed the Supreme Court's decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

On May 2, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against various Commonwealth general obligation bondholders and bond insurers, including AGC and AGM, that had asserted in their proofs of claim that their bonds are secured. The complaint seeks a judgment declaring that defendants do not hold consensual or statutory liens and are unsecured claimholders to the extent they hold allowed claims. The complaint also asserts that even if Commonwealth law granted statutory liens, such liens are avoidable under Section 545 of the Bankruptcy Code. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

On May 20, 2019, the Oversight Board and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico against the fiscal agent and holders and/or insurers, including AGC and AGM, that have asserted their PRHTA bond claims are entitled to secured status in PRHTA’s Title III case. Plaintiffs are seeking to avoid the PRHTA bondholders’ liens and contend that (i) the scope of any lien only applies to revenues that have been both received by PRHTA and deposited in certain accounts held by the fiscal agent and does not include PRHTA’s right to receive such revenues; (ii) any lien on revenues was not perfected because the fiscal agent does not have “control” of all accounts holding such revenues; (iii) any lien on the excise tax revenues is no longer enforceable because any rights PRHTA had to receive such revenues is preempted by PROMESA; and (iv) even if PRHTA held perfected liens on PRHTA’s revenues and the right to receive such revenues, such liens were terminated by Section 552(a) of the Bankruptcy Code as of the petition date. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element.

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Earnings Per Share

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Computation of Earnings Per Share 

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions, except per share amounts)
Basic Earnings Per Share (EPS):
Net income (loss) attributable to AGL	$	142	$	75	$	196	$	272
Less: Distributed and undistributed income (loss) available to nonvested shareholders	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	142	$	75	$	196	$	272
Basic shares	101.2		111.7		102.1		113.4
Basic EPS	$	1.40	$	0.67	$	1.92	$	2.39
Diluted EPS:
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	142	$	75	$	196	$	272
Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	$	142	$	75	$	196	$	272
Basic shares	101.2		111.7		102.1		113.4
Dilutive securities:
Options and restricted stock awards	0.7		1.2		0.9		1.4
Diluted shares	101.9		112.9		103.0		114.8
Diluted EPS	$	1.39	$	0.67	$	1.90	$	2.37
Potentially dilutive securities excluded from computation of EPS because of antidilutive effect	0.1		0.1		—		0.2

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Shareholders' Equity

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Shareholders' Equity

Shareholders' Equity

Other Comprehensive Income

The following tables present the changes in each component of AOCI and the effect of reclassifications out of AOCI on the respective line items in net income.

Changes in Accumulated Other Comprehensive Income by Component

Second Quarter 2019

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, March 31, 2019	$	222		$	99		$	(31	)	$	(37	)	$	8	261
Other comprehensive income (loss) before reclassifications	90			(40		)	(2		)	(1		)	—		47
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	11			(3		)	—			—			—		8
Net investment income	2			14			—			—			—		16
Fair value gains (losses) on FG VIEs	—			—			(8		)	—			—		(8		)
Total before tax	13			11			(8		)	—			—		16
Tax (provision) benefit	(2		)	(3		)	2			—			—		(3		)
Total amount reclassified from AOCI, net of tax	11			8			(6		)	—			—		13
Net current period other comprehensive income (loss)	79			(48		)	4			(1		)	—		34
Balance, June 30, 2019	$	301		$	51		$	(27	)	$	(38	)	$	8	$	295

Changes in Accumulated Other Comprehensive Income by Component

Second Quarter 2018

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI		Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, March 31, 2018	$	146		$	118	$	(35	)	$	(23	)	$	8	$	214
Other comprehensive income (loss) before reclassifications	(64		)	6		3			(9		)	—		(64		)
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	1			—		—			—			—		1
Fair value gains (losses) on FG VIEs	—			—		1			—			—		1
Total before tax	1			—		1			—			—		2
Tax (provision) benefit	—			—		—			—			—		—
Total amount reclassified from AOCI, net of tax	1			—		1			—			—		2
Net current period other comprehensive income (loss)	(63		)	6		4			(9		)	—		(62		)
Balance, June 30, 2018	$	83		$	124	$	(31	)	$	(32	)	$	8	$	152

Changes in Accumulated Other Comprehensive Income by Component

Six Months 2019

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, December 31, 2018	$	59		$	94		$	(31	)	$	(37	)	$	8	$	93
Other comprehensive income (loss) before reclassifications	255			(47		)	(4		)	(1		)	—		203
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	14			(18		)	—			—			—		(4		)
Net investment income	2			14			—			—			—		16
Fair value gains (losses) on FG VIEs	—			—			(10		)	—			—		(10		)
Total before tax	16			(4		)	(10		)	—			—		2
Tax (provision) benefit	(3		)	—			2			—			—		(1		)
Total amount reclassified from AOCI, net of tax	13			(4		)	(8		)	—			—		1
Net current period other comprehensive income (loss)	242			(43		)	4			(1		)	—		202
Balance, June 30, 2019	$	301		$	51		$	(27	)	$	(38	)	$	8	$	295

Changes in Accumulated Other Comprehensive Income by Component

Six Months 2018

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, December 31, 2017	$	273		$	120		$	—		$	(29	)	$	8	$	372
Effect of adoption of ASU 2016-01 (1)	1			—			(33		)	—			—		(32		)
Other comprehensive income (loss) before reclassifications	(186		)	(5		)	(1		)	(3		)	—		(195		)
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	(5		)	11			—			—			—		6
Fair value gains (losses) on FG VIEs	—			—			4			—			—		4
Total before tax	(5		)	11			4			—			—		10
Tax (provision) benefit	—			(2		)	(1		)	—			—		(3		)
Total amount reclassified from AOCI, net of tax	(5		)	9			3			—			—		7
Net current period other comprehensive income (loss)	(191		)	4			2			(3		)	—		(188		)
Balance, June 30, 2018	$	83		$	124		$	(31	)	$	(32	)	$	8	$	152

____________________

(1) On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, resulting in a cumulative-effect reclassification of a $32 million loss, net of tax, from retained earnings to AOCI.

Share Repurchases

On February 27, 2019, the Board of Directors authorized the repurchase of $300 million of common shares and on August 7, 2019 authorized the repurchase of another $300 million of common shares. As of August 7, 2019, after combining the remaining authorization and the new authorization, the Company was authorized to purchase $450 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company's capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board of Directors at any time. It does not have an expiration date.

Share Repurchases

Period	Number of Shares Repurchased	Total Payments (in millions)		Average Price Paid Per Share
2018 (January 1 - March 31)	2,787,936	$	98	$	35.20
2018 (April 1 - June 30)	4,163,190	152		36.48
2018 (July 1 - September 30)	3,299,049	130		39.41
2018 (October 1 - December 31)	2,992,932	120		40.09
Total 2018	13,243,107	$	500	$	37.76
2019 (January 1 - March 31)	1,908,605	79		41.62
2019 (April 1 - June 30)	2,519,130	111		43.89
2019 (July 1 - August 7)	1,317,094	58		43.59
Total 2019	5,744,829	$	248	$	43.07
Cumulative repurchases since the beginning of 2013	100,300,786	$	2,964	$	29.55

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Subsidiary Information

6 Months Ended

Jun. 30, 2019

Condensed Financial Information Disclosure [Abstract]

Subsidiary Information

Subsidiary Information

The following tables present the condensed consolidating financial information for AGUS and AGMH, 100%-owned subsidiaries of AGL, which have issued publicly traded debt securities that are fully and unconditionally guaranteed by AGL. The information for AGL, AGUS and AGMH presents their subsidiaries on the equity method of accounting.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)		AGUS (Issuer) (1)		AGMH (Issuer)		Other Entities		Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Assets
Total investment portfolio and cash	$	27	$	397	$	17	$	10,972	$	(430	)	$	10,983
Investment in subsidiaries	6,620		5,937		4,196		199		(16,952		)	—
Premiums receivable, net of commissions payable	—		—		—		1,020		(154		)	866
Deferred acquisition costs	—		—		—		142		(36		)	106
Intercompany loan receivable	—		—		—		50		(50		)	—
FG VIEs’ assets, at fair value	—		—		—		526		—			526
Dividends receivable from affiliate	60		—		—		—		(60		)	—
Other	27		82		30		2,687		(1,726		)	1,100
Total assets	$	6,734	$	6,416	$	4,243	$	15,596	$	(19,408	)	$	13,581
Liabilities and shareholders' equity
Unearned premium reserves	$	—	$	—	$	—	$	4,290	$	(903	)	$	3,387
Loss and LAE reserve	—		—		—		1,363		(261		)	1,102
Long-term debt	—		844		472		5		(88		)	1,233
Intercompany loan payable	—		50		—		300		(350		)	—
Credit derivative liabilities	—		—		—		259		(35		)	224
FG VIEs’ liabilities, at fair value	—		—		—		551		—			551
Dividends payable to affiliate	—		60		—		—		(60		)	—
Other	12		66		68		918		(702		)	362
Total liabilities	12		1,020		540		7,686		(2,399		)	6,859
Total shareholders' equity attributable to Assured Guaranty Ltd.	6,722		5,396		3,703		7,711		(16,810		)	6,722
Noncontrolling interest	—		—		—		199		(199		)	—
Total shareholders' equity	6,722		5,396		3,703		7,910		(17,009		)	6,722
Total liabilities and shareholders' equity	$	6,734	$	6,416	$	4,243	$	15,596	$	(19,408	)	$	13,581

 ____________________

(1) The fair value of the AGMH debt purchased by AGUS, and recorded in the AGUS investment portfolio, was $129 million.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)		AGUS (Issuer) (1)		AGMH (Issuer)		Other Entities		Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Assets
Total investment portfolio and cash	$	45	$	334	$	23	$	11,000	$	(425	)	$	10,977
Investment in subsidiaries	6,440		5,835		3,991		226		(16,492		)	—
Premiums receivable, net of commissions payable	—		—		—		1,071		(167		)	904
Deferred acquisition costs	—		—		—		143		(38		)	105
Deferred tax asset, net	—		—		—		162		(94		)	68
Intercompany loan receivable	—		—		—		50		(50		)	—
FG VIEs’ assets, at fair value	—		—		—		569		—			569
Dividends receivable from affiliate	60		—		—		—		(60		)	—
Other	29		66		24		2,437		(1,576		)	980
Total assets	$	6,574	$	6,235	$	4,038	$	15,658	$	(18,902	)	$	13,603
Liabilities and shareholders' equity
Unearned premium reserves	$	—	$	—	$	—	$	4,452	$	(940	)	$	3,512
Loss and LAE reserve	—		—		—		1,467		(290		)	1,177
Long-term debt	—		844		468		5		(84		)	1,233
Intercompany loan payable	—		50		—		300		(350		)	—
Credit derivative liabilities	—		—		—		236		(27		)	209
Deferred tax liabilities, net	—		49		50		—		(99		)	—
FG VIEs’ liabilities, at fair value	—		—		—		619		—			619
Dividends payable to affiliate	—		60		—		—		(60		)	—
Other	19		3		17		763		(504		)	298
Total liabilities	19		1,006		535		7,842		(2,354		)	7,048
Total shareholders' equity attributable to Assured Guaranty Ltd.	6,555		5,229		3,503		7,590		(16,322		)	6,555
Noncontrolling interest	—		—		—		226		(226		)	—
Total shareholders' equity	6,555		5,229		3,503		7,816		(16,548		)	6,555
Total liabilities and shareholders' equity	$	6,574	$	6,235	$	4,038	$	15,658	$	(18,902	)	$	13,603

 ____________________

(1) The fair value of the AGMH debt purchased by AGUS, and recorded in the AGUS investment portfolio, was $125 million.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	114		$	(2	)	$	112
Net investment income	—			4			—			110			(4		)	110
Net realized investment gains (losses)	—			—			—			8			—			8
Net change in fair value of credit derivatives	—			—			—			(8		)	—			(8		)
Other	2			—			—			93			(51		)	44
Total revenues	2			4			—			317			(57		)	266
Expenses
Loss and LAE	—			—			—			5			(6		)	(1		)
Amortization of deferred acquisition costs	—			—			—			5			(1		)	4
Interest expense	—			13			14			1			(6		)	22
Other operating expenses	10			1			—			98			(49		)	60
Total expenses	10			14			14			109			(62		)	85
Equity in net earnings of investees	—			(1		)	—			2			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(8		)	(11		)	(14		)	210			5			182
Total (provision) benefit for income taxes	—			2			3			(44		)	(1		)	(40		)
Equity in net earnings of subsidiaries	150			154			95			5			(404		)	—
Net income (loss)	$	142		$	145		$	84		$	171		$	(400	)	$	142
Less: noncontrolling interest	—			—			—			5			(5		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	142		$	145		$	84		$	166		$	(395	)	$	142
Comprehensive income (loss)	$	176		$	145		$	109		$	206		$	(460	)	$	176

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	139		$	(3	)	$	136
Net investment income	—			2			—			99			(3		)	98
Net realized investment gains (losses)	—			—			—			(2		)	—			(2		)
Net change in fair value of credit derivatives	—			—			—			48			—			48
Other	3			—			—			(9		)	(54		)	(60		)
Total revenues	3			2			—			275			(60		)	220
Expenses
Loss and LAE	—			—			—			46			(2		)	44
Amortization of deferred acquisition costs	—			—			—			5			(1		)	4
Interest expense	—			12			14			2			(4		)	24
Other operating expenses	10			—			1			95			(44		)	62
Total expenses	10			12			15			148			(51		)	134
Equity in net earnings of investees	—			—			—			1			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(7		)	(10		)	(15		)	128			(9		)	87
Total (provision) benefit for income taxes	—			2			3			(20		)	3			(12		)
Equity in net earnings of subsidiaries	82			64			9			6			(161		)	—
Net income (loss)	$	75		$	56		$	(3	)	$	114		$	(167	)	$	75
Less: noncontrolling interest	—			—			—			6			(6		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	75		$	56		$	(3	)	$	108		$	(161	)	$	75
Comprehensive income (loss)	$	13		$	7		$	(53	)	$	52		$	(6	)	$	13

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	235		$	(5	)	$	230
Net investment income	—			6			—			211			(9		)	208
Net realized investment gains (losses)	—			—			—			(4		)	—			(4		)
Net change in fair value of credit derivatives	—			—			—			(30		)	—			(30		)
Other	4			—			—			159			(106		)	57
Total revenues	4			6			—			571			(120		)	461
Expenses
Loss and LAE	—			—			—			52			(7		)	45
Amortization of deferred acquisition costs	—			—			—			12			(2		)	10
Interest expense	—			25			27			5			(12		)	45
Other operating expenses	20			2			—			205			(103		)	124
Total expenses	20			27			27			274			(124		)	224
Equity in net earnings of investees	—			—			—			3			—			3
Income (loss) before income taxes and equity in net earnings of subsidiaries	(16		)	(21		)	(27		)	300			4			240
Total (provision) benefit for income taxes	—			4			6			(53		)	(1		)	(44		)
Equity in net earnings of subsidiaries	212			204			163			9			(588		)	—
Net income (loss)	$	196		$	187		$	142		$	256		$	(585	)	$	196
Less: noncontrolling interest	—			—			—			9			(9		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	196		$	187		$	142		$	247		$	(576	)	$	196
Comprehensive income (loss)	$	398		$	315		$	261		$	460		$	(1,036	)	$	398

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	288		$	(7	)	$	281
Net investment income	—			4			—			200			(6		)	198
Net realized investment gains (losses)	—			—			—			(7		)	—			(7		)
Net change in fair value of credit derivatives	—			—			—			82			—			82
Other	6			—			—			65			(112		)	(41		)
Total revenues	6			4			—			628			(125		)	513
Expenses
Loss and LAE	—			—			—			30			(4		)	26
Amortization of deferred acquisition costs	—			—			—			11			(2		)	9
Interest expense	—			24			27			5			(8		)	48
Other operating expenses	20			3			1			200			(97		)	127
Total expenses	20			27			28			246			(111		)	210
Equity in net earnings of investees	—			—			—			1			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(14		)	(23		)	(28		)	383			(14		)	304
Total (provision) benefit for income taxes	—			5			6			(45		)	2			(32		)
Equity in net earnings of subsidiaries	286			225			111			13			(635		)	—
Net income (loss)	$	272		$	207		$	89		$	351		$	(647	)	$	272
Less: noncontrolling interest	—			—			—			13			(13		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	272		$	207		$	89		$	338		$	(634	)	$	272
Comprehensive income (loss)	$	84		$	74		$	(7	)	$	163		$	(230	)	$	84

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Net cash flows provided by (used in) operating activities	$	226		$	110		$	56		$	(121	)	$	(469	)	$	(198	)
Cash flows from investing activities
Fixed-maturity securities:
Purchases	—			(3		)	—			(503		)	3			(503		)
Sales	—			—			—			914			—			914
Maturities and paydowns	—			—			2			504			—			506
Short-term investments with maturities of over three months:
Purchases	—			—			—			(209		)	—			(209		)
Sales	—			—			—			2			—			2
Maturities and paydowns	—			12			—			162			—			174
Net sales (purchases) of short-term investments with maturities of less than three months	18			(72		)	5			(340		)	—			(389		)
Net proceeds from paydowns on FG VIEs’ assets	—			—			—			50			—			50
Net proceeds from sales of FG VIEs’ assets	—			—			—			51			—			51
Proceeds from stock redemption and return of capital from subsidiaries	—			100			—			10			(110		)	—
Other	—			—			—			35			—			35
Net cash flows provided by (used in) investing activities	18			37			7			676			(107		)	631
Cash flows from financing activities
Return of capital	—			—			—			(10		)	10			—
Dividends paid	(39		)	(147		)	(62		)	(260		)	469			(39		)
Repurchases of common stock	(190		)	—			—			(100		)	100			(190		)
Repurchases of common stock to pay withholding taxes	(16		)	—			—			—			—			(16		)
Net paydowns of FG VIEs’ liabilities	—			—			—			(95		)	—			(95		)
Paydown of long-term debt	—			—			—			(1		)	(3		)	(4		)
Proceeds from options exercises	1			—			—			—			—			1
Net cash flows provided by (used in) financing activities	(244		)	(147		)	(62		)	(466		)	576			(343		)
Effect of exchange rate changes	—			—			—			—			—			—
Increase (decrease) in cash and restricted cash	—			—			1			89			—			90
Cash and restricted cash at beginning of period	—			1			—			103			—			104
Cash and restricted cash at end of period	$	—		$	1		$	1		$	192		$	—		$	194

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Net cash flows provided by (used in) operating activities	$	296		$	88		$	43		$	524		$	(507	)	$	444
Cash flows from investing activities
Fixed-maturity securities:
Purchases	—			(27		)	(12		)	(863		)	23			(879		)
Sales	—			11			2			579			—			592
Maturities and paydowns	—			10			—			523			—			533
Short-term investments with maturities of over three months:
Purchases	—			—			—			(121		)	—			(121		)
Sales	—			—			—			1			—			1
Maturities and paydowns	—			—			—			104			—			104
Net sales (purchases) of short-term investments with maturities of less than three months	3			(78		)	16			(229		)	—			(288		)
Net proceeds from paydowns on FG VIEs’ assets	—			—			—			60			—			60
Proceeds from stock redemption and return of capital from subsidiaries	—			200			—			—			(200		)	—
Other	—			(15		)	—			(1		)	—			(16		)
Net cash flows provided by (used in) investing activities	3			101			6			53			(177		)	(14		)
Cash flows from financing activities
Dividends paid	(37		)	(222		)	(50		)	(235		)	507			(37		)
Repurchases of common stock	(250		)	—			—			(200		)	200			(250		)
Repurchases of common stock to pay withholding taxes	(13		)	—			—			—			—			(13		)
Net paydowns of FG VIEs’ liabilities	—			—			—			(61		)	—			(61		)
Paydown of long-term debt	—			—			—			(1		)	(23		)	(24		)
Proceeds from options exercises	1			—			—			—			—			1
Net cash flows provided by (used in) financing activities	(299		)	(222		)	(50		)	(497		)	684			(384		)
Effect of exchange rate changes	—			—			—			(1		)	—			(1		)
Increase (decrease) in cash and restricted cash	—			(33		)	(1		)	79			—			45
Cash and restricted cash at beginning of period	—			33			2			109			—			144
Cash and restricted cash at end of period	$	—		$	—		$	1		$	188		$	—		$	189

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Business and Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In management's opinion, all material adjustments necessary for a fair statement of the financial condition, results of operations and cash flows of the Company and its consolidated variable interest entities (VIEs) are reflected in the periods presented and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited interim condensed consolidated financial statements are as of June 30, 2019 and cover the three-month period ended June 30, 2019 (Second Quarter 2019), the three-month period ended June 30, 2018 (Second Quarter 2018)

Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries and its consolidated VIEs. Intercompany accounts and transactions between and among all consolidated entities have been eliminated.

New Accounting Pronouncements Adopted and Future Application

Adopted Accounting Standards

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The Company adopted Topic 842 on January 1, 2019 using the optional transition method that allows the Company to initially apply the new requirements at the effective date, with no revision to prior periods. See Note 12, Commitments and Contingencies, for additional information.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Topic 310-20) - Premium Amortization on Purchased Callable Debt Securities.  This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date.  This ASU was adopted on January 1, 2019, with no effect on the Company's condensed consolidated financial statements.

Future Application of Accounting Standards

Credit Losses on Financial Instruments

                In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The ASU provides a new current expected credit loss model to account for credit losses on certain financial assets (e.g., reinsurance recoverables, premium receivables, and held-to-maturity debt securities) and off-balance sheet exposures (e.g., loan commitments). That model requires an entity to estimate lifetime credit losses related to certain financial assets, based on relevant historical information, adjusted for current conditions and reasonable and supportable forecasts that could affect the collectability of the reported amount. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities, which includes requiring the recognition of an allowance rather than a direct write-down of the investment. The allowance may be reversed in the event that the credit of an issuer improves. In addition, the ASU eliminates the existing guidance for purchased credit impaired assets and introduces a new model for

purchased financial assets with credit deterioration, such as the Company's loss mitigation securities, which requires the recognition of an initial allowance for credit losses. Under the new guidance, the amortized cost would be the purchase price plus the allowance.

                The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For reinsurance recoverables, premiums receivable and debt instruments such as loans and held to maturity securities, entities will be required to record a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is adopted. The changes to the impairment model for available-for-sale securities and purchased financial assets with credit deterioration are to be applied prospectively. Early adoption of the amendments is permitted; however, the Company does not plan to adopt this ASU until January 1, 2020. The Company does not expect the adoption of ASU 2016-13 to have a material effect on shareholders' equity.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.  The amendments in this ASU:

• improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows,

• simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,

• simplify the amortization of deferred acquisition costs, and

• improve the effectiveness of the required disclosures.

This ASU does not affect the Company’s financial guaranty insurance contracts, but may affect its accounting for certain non-financial guaranty contracts. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not plan to adopt this ASU early, and does not expect this ASU to have a material effect on its condensed consolidated financial statements.

Fair Value of Financial Instruments

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 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 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 1—Quoted prices for identical instruments in active markets. The Company generally defines an active market as a market in which trading occurs at significant volumes. Active markets generally are more liquid and have a lower bid-ask spread than an inactive market.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and observable inputs other than quoted prices, such as interest rates or yield curves and other inputs derived from or corroborated by observable market inputs.

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.

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Ratings (Tables)

6 Months Ended

Jun. 30, 2019

Rating Actions [Abstract]

Schedule of Credit Agency Ratings

The financial strength ratings (or similar ratings) for AGL’s insurance subsidiaries, along with the date of the most recent rating action (or confirmation) by the rating agency, are shown in the table below. Ratings are subject to continuous rating agency review and revision or withdrawal at any time. In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment may request that a rating agency add or drop a rating from certain of its companies.

	S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC	Kroll Bond Rating Agency	Moody’s Investors Service, Inc.	A.M. Best Company, Inc.
AGM	AA (stable) (6/27/19)	AA+ (stable) (12/21/18)	A2 (stable) (5/7/18)	—
AGC	AA (stable) (6/27/19)	AA (stable) (11/30/18)	(1)	—
MAC	AA (stable) (6/27/19)	AA+ (stable) (7/12/19)	—	—
AG Re	AA (stable) (6/27/19)	—	—	—
AGRO	AA (stable) (6/27/19)	—	—	A+ (stable) (7/12/19)
AGE	AA (stable) (6/27/19)	AA+ (stable) (12/21/18)	A2 (stable) (5/7/18)	—

____________________

(1) AGC requested that Moody’s Investors Service, Inc. (Moody’s) withdraw its financial strength ratings of AGC in January 2017, but Moody's denied that request. Moody’s continues to rate AGC A3 (stable).

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Outstanding Exposure (Tables)

6 Months Ended

Jun. 30, 2019

Schedule of Insured Financial Obligations [Line Items]

Debt Service Outstanding

Financial Guaranty

Debt Service Outstanding

	Gross Debt Service Outstanding				Net Debt Service Outstanding
	As of June 30, 2019		As of December 31, 2018		As of June 30, 2019		As of December 31, 2018
	(in millions)
Public finance	$	350,977	$	361,511	$	349,779	$	358,438
Structured finance	12,734		13,569		12,220		13,148
Total financial guaranty	$	363,711	$	375,080	$	361,999	$	371,586

Financial Guaranty Portfolio by Internal Rating

Financial Guaranty Portfolio by Internal Rating

As of June 30, 2019

	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	385	0.2	%	$	2,460	5.5	%	$	1,428	15.0	%	$	181	22.8	%	$	4,454	1.9	%
AA	21,289		11.8		1,880		4.2		3,617		37.9		39		4.9		26,825		11.4
A	100,156		55.5		13,067		29.4		1,079		11.3		183		23.1		114,485		48.6
BBB	52,682		29.2		26,197		58.9		1,512		15.8		349		44.0		80,740		34.3
BIG	6,025		3.3		884		2.0		1,913		20.0		41		5.2		8,863		3.8
Total net par outstanding	$	180,537	100.0	%	$	44,488	100.0	%	$	9,549	100.0	%	$	793	100.0	%	$	235,367	100.0	%

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2018 

	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	413	0.2	%	$	2,399	5.4	%	$	1,533	15.4	%	$	273	22.9	%	$	4,618	1.9	%
AA	21,646		11.6		1,711		3.9		3,599		36.2		65		5.4		27,021		11.2
A	105,180		56.4		13,013		29.5		1,016		10.2		206		17.3		119,415		49.4
BBB	52,935		28.4		25,939		58.8		1,164		11.7		550		46.1		80,588		33.3
BIG	6,388		3.4		1,041		2.4		2,632		26.5		99		8.3		10,160		4.2
Total net par outstanding	$	186,562	100.0	%	$	44,103	100.0	%	$	9,944	100.0	%	$	1,193	100.0	%	$	241,802	100.0	%

Components of BIG Net Par Outstanding (Insurance and Credit Derivative Form)

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of June 30, 2019

	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	1,679	$	398	$	3,948	$	6,025	$	180,537
Non-U.S. public finance	884		—		—		884		44,488
Public finance	2,563		398		3,948		6,909		225,025
Structured finance:
U.S. residential mortgage-backed securities (RMBS)	151		58		1,514		1,723		3,835
Life insurance transactions	—		—		40		40		1,228
Other structured finance	67		72		52		191		5,279
Structured finance	218		130		1,606		1,954		10,342
Total	$	2,781	$	528	$	5,554	$	8,863	$	235,367

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of December 31, 2018

	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	1,767	$	399	$	4,222	$	6,388	$	186,562
Non-U.S. public finance	796		245		—		1,041		44,103
Public finance	2,563		644		4,222		7,429		230,665
Structured finance:
U.S. RMBS	368		214		1,805		2,387		4,270
Life insurance transactions	—		—		85		85		1,184
Other structured finance	127		79		53		259		5,683
Structured finance	495		293		1,943		2,731		11,137
Total	$	3,058	$	937	$	6,165	$	10,160	$	241,802

Schedule of BIG Net Par Outstanding and Number of Risks

Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of June 30, 2019

	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivative		Total		Financial Guaranty Insurance (1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	2,705	$	76	$	2,781	116	6	122
Category 2	524		4		528		27	1	28
Category 3	5,486		68		5,554		135	8	143
Total BIG	$	8,715	$	148	$	8,863	278	15	293

 Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of December 31, 2018

	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivative		Total		Financial Guaranty Insurance (1)	Credit Derivative	Total
	(dollars in millions)
BIG:
Category 1	$	2,981	$	77	$	3,058	128	6	134
Category 2	932		5		937		39	1	40
Category 3	6,090		75		6,165		145	8	153
Total BIG	$	10,003	$	157	$	10,160	312	15	327

_____________________

(1)    Includes VIEs.

(2)

A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.

BIG Net Par Outstanding and Number of Risks

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of June 30, 2019

	BIG  Categories
	BIG 1						BIG 2					BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded		Gross			Ceded
	(dollars in millions)
Number of risks (1)	116			7			27			—		135			6			278			—			278
Remaining weighted-average contract period (in years)	7.8			4.7			17.6			—		9.6			8.4			9.6			—			9.6
Outstanding exposure:
Principal	$	2,771		$	(66	)	$	524		$	—	$	5,650		$	(164	)	$	8,715		$	—		$	8,715
Interest	1,215			(16		)	470			—		2,670			(68		)	4,271			—			4,271
Total (2)	$	3,986		$	(82	)	$	994		$	—	$	8,320		$	(232	)	$	12,986		$	—		$	12,986
Expected cash outflows (inflows)	$	108		$	(4	)	$	131		$	—	$	3,871		$	(122	)	$	3,984		$	(273	)	$	3,711
Potential recoveries (3)	(552		)	21			(51		)	—		(2,479		)	95			(2,966		)	191			(2,775		)
Subtotal	(444		)	17			80			—		1,392			(27		)	1,018			(82		)	936
Discount	79			(4		)	(18		)	—		(97		)	(8		)	(48		)	18			(30		)
Present value of expected cash flows	$	(365	)	$	13		$	62		$	—	$	1,295		$	(35	)	$	970		$	(64	)	$	906
Deferred premium revenue	$	172		$	(3	)	$	24		$	—	$	517		$	(2	)	$	708		$	(50	)	$	658
Reserves (salvage)	$	(400	)	$	15		$	43		$	—	$	916		$	(33	)	$	541		$	(39	)	$	502

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2018

	BIG Categories
	BIG 1						BIG 2						BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded			Gross			Ceded
	(dollars in millions)
Number of risks (1)	128			(8		)	39			(1		)	145			(7		)	312			—			312
Remaining weighted-average contract period (in years)	7.9			6.5			13.2			2.1			10.1			9.1			9.8			—			9.8
Outstanding exposure:
Principal	$	3,052		$	(71	)	$	938		$	(6	)	$	6,249		$	(159	)	$	10,003		$	—		$	10,003
Interest	1,319			(29		)	592			(1		)	3,140			(72		)	4,949			—			4,949
Total (2)	$	4,371		$	(100	)	$	1,530		$	(7	)	$	9,389		$	(231	)	$	14,952		$	—		$	14,952
Expected cash outflows (inflows)	$	98		$	(5	)	$	264		$	(1	)	$	4,029		$	(80	)	$	4,305		$	(290	)	$	4,015
Potential recoveries (3)	(465		)	23			(81		)	—			(2,542		)	55			(3,010		)	192			(2,818		)
Subtotal	(367		)	18			183			(1		)	1,487			(25		)	1,295			(98		)	1,197
Discount	83			(5		)	(53		)	—			(134		)	(2		)	(111		)	23			(88		)
Present value of expected cash flows	$	(284	)	$	13		$	130		$	(1	)	$	1,353		$	(27	)	$	1,184		$	(75	)	$	1,109
Deferred premium revenue	$	125		$	(4	)	$	151		$	—		$	518		$	(2	)	$	788		$	(64	)	$	724
Reserves (salvage)	$	(311	)	$	15		$	48		$	(1	)	$	993		$	(24	)	$	720		$	(47	)	$	673

____________________

(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) Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlement or litigation judgments, excess spread on any underlying collateral and other estimated recoveries.

Schedule of Non-Financial Guaranty Exposure

The Company also provides non-financial guaranty insurance and reinsurance on transactions with similar risk profiles to its structured finance exposures written in financial guaranty form. All non-financial guaranty exposures shown in the table below are rated investment grade internally.

Non-Financial Guaranty Exposure

	Gross Exposure				Net Exposure
	As of June 30, 2019		As of December 31, 2018		As of June 30, 2019		As of December 31, 2018
	(in millions)
Life insurance transactions (1)	$	908	$	880	$	784	$	763
Aircraft residual value insurance policies	360		340		239		218

____________________

(1)

The life insurance transactions net exposure is expected to increase to approximately $949 million prior to September 30, 2036.

Puerto Rico [Member]

Schedule of Insured Financial Obligations [Line Items]

Gross Par and Gross Debt Service Outstanding

Puerto Rico

Gross Par and Gross Debt Service Outstanding

	Gross Par Outstanding				Gross Debt Service Outstanding
	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
	(in millions)
Exposure to Puerto Rico	$	4,698	$	4,971	$	7,316	$	8,035

Schedule of Geographic Exposure of Net Par Outstanding

Puerto Rico

Net Par Outstanding

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Commonwealth Constitutionally Guaranteed
Commonwealth of Puerto Rico - General Obligation Bonds (1)	$	1,340	$	1,340
PBA	142		142
Public Corporations - Certain Revenues Potentially Subject to Clawback
PRHTA (Transportation revenue) (1)	844		844
PRHTA (Highways revenue) (1)	475		475
PRCCDA	152		152
PRIFA	16		16
Other Public Corporations
PREPA (1)	848		848
PRASA	373		373
MFA	303		303
COFINA (2)	—		273
U of PR	1		1
Total net exposure to Puerto Rico	$	4,494	$	4,767

____________________

(1) As of the date of this filing, the Oversight Board has certified a filing under Title III of PROMESA for these exposures.

(2) While the Company no longer has any insured exposure to COFINA, it does have $152 million initial par of COFINA Exchange Senior Bonds in its investment portfolio.

BIG Net Par Outstanding and Number of Risks

Amortization Schedule of Puerto Rico Net Par Outstanding

and Net Debt Service Outstanding

As of June 30, 2019

	Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization
	(in millions)
2019 (July 1 - September 30)	$	224	$	335
2019 (October 1 - December 31)	—		3
Subtotal 2019	224		338
2020	286		503
2021	149		351
2022	139		332
2023	205		392
2024-2028	1,213		1,978
2029-2033	884		1,392
2034-2038	957		1,184
2039-2043	176		259
2044-2047	261		300
Total	$	4,494	$	7,029

XML

Contracts Accounted for as Insurance (Tables)

6 Months Ended

Jun. 30, 2019

Insurance [Abstract]

Net Earned Premiums

Net Earned Premiums

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions)
Financial guaranty:
Scheduled net earned premiums	$	85	$	92	$	172	$	180
Accelerations from refundings and terminations	20		39		46		91
Accretion of discount on net premiums receivable	5		4		9		8
Financial guaranty insurance net earned premiums	110		135		227		279
Non-financial guaranty net earned premiums	2		1		3		2
Net earned premiums (1)	$	112	$	136	$	230	$	281

 ___________________

(1)

Excludes $11 million and $3 million for Second Quarter 2019 and 2018, respectively, and $14 million and $6 million for Six Months 2019 and 2018, respectively, related to consolidated FG VIEs.

Gross Premium Receivable, Net of Commissions on Assumed Business Roll Forward

Gross Premium Receivable,

Net of Commissions on Assumed Business

Roll Forward 

	Six Months
	2019			2018
	(in millions)
Beginning of year	$	904		$	915
Less: Non-financial guaranty insurance premium receivable	1			1
Financial guaranty insurance premiums receivable	903			914
Gross written premiums on new business, net of commissions (1)	98			459
Gross premiums received, net of commissions	(127		)	(415		)
Adjustments:
Changes in the expected term	(10		)	(3		)
Accretion of discount, net of commissions on assumed business	4			—
Foreign exchange translation and remeasurement (2)	(3		)	(14		)
Cancellation of assumed reinsurance	—			(10		)
Financial guaranty insurance premium receivable (3)	865			931
Non-financial guaranty insurance premium receivable	1			1
June 30,	$	866		$	932

____________________

(1) For transactions where one of the Company's financial guaranty contracts is replaced by another of the Company's insurance subsidiary's contracts, gross written premium in this table represents only the incremental amount in excess of the original gross written premiums. Six Months 2018 included $330 million of gross written premiums assumed from SGI on June 1, 2018, when the Company closed a reinsurance transaction with SGI (SGI Transaction). See Note 11, Reinsurance.

(2) Includes foreign exchange loss on remeasurement recorded in the condensed consolidated statements of operations of $3 million in Six Months 2019 and $13 million in Six Months 2018. The remaining foreign exchange translation in Six Months 2018 was recorded in other comprehensive income (OCI) prior to the combination of the European subsidiaries.

(3) Excludes $8 million and $9 million as of June 30, 2019 and June 30, 2018, respectively, related to consolidated FG VIEs.

Expected Collections of

Financial Guaranty Insurance Gross Premiums Receivable,

Net of Commissions on Assumed Business

(Undiscounted)

	As of June 30, 2019
	(in millions)
2019 (July 1 - September 30)	31
2019 (October 1 - December 31)	26
2020	98
2021	78
2022	78
2023	65
2024-2028	278
2029-2033	184
2034-2038	97
After 2038	100
Total (1)	$	1,035

 ____________________

(1)

Excludes expected cash collections on consolidated FG VIEs of $10 million.

Schedule of Net Earned Premiums

Scheduled Financial Guaranty Insurance Net Earned Premiums

	As of June 30, 2019
	(in millions)
2019 (July 1 - September 30)	82
2019 (October 1 - December 31)	80
Subtotal 2019	162
2020	304
2021	277
2022	251
2023	230
2024-2028	905
2029-2033	615
2034-2038	348
After 2038	300
Net deferred premium revenue (1)	3,392
Future accretion	170
Total future net earned premiums	$	3,562

 ____________________

(1) Excludes net earned premiums on consolidated FG VIEs of $51 million.

Selected Information for Policies Paid in Installments

Selected Information for Financial Guaranty Insurance

Policies with Premiums Paid in Installments

	As of June 30, 2019			As of December 31, 2018
	(dollars in millions)
Premiums receivable, net of commission payable	$	865		$	903
Gross deferred premium revenue	1,251			1,313
Weighted-average risk-free rate used to discount premiums	2.3		%	2.3		%
Weighted-average period of premiums receivable (in years)	9.1			9.1

Loss and LAE Reserve and Salvage and Subrogation Recoverable Net of Reinsurance Insurance Contracts

Net Reserve (Salvage) 

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Public finance:
U.S. public finance	$	539		$	612
Non-U.S. public finance	5			14
Public finance	544			626
Structured finance:
U.S. RMBS (1)	(79		)	21
Other structured finance	39			30
Structured finance	(40		)	51
Subtotal	504			677
Other payable (recoverable)	(1		)	(3		)
Total	$	503		$	674

____________________

(1) Excludes net reserves of $39 million and $47 million as of June 30, 2019 and December 31, 2018, respectively, related to consolidated FG VIEs.

Components of Net Reserves (Salvage) Insurance Contracts

Components of Net Reserves (Salvage)

 

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Loss and LAE reserve	$	1,102		$	1,177
Reinsurance recoverable on unpaid losses (1)	(41		)	(34		)
Loss and LAE reserve, net	1,061			1,143
Salvage and subrogation recoverable	(580		)	(490		)
Salvage and subrogation reinsurance payable (2)	23			24
Other payable (recoverable) (1)	(1		)	(3		)
Salvage and subrogation recoverable, net, and other recoverable	(558		)	(469		)
Net reserves (salvage)	$	503		$	674

____________________

(1) Recorded as a component of other assets in the condensed consolidated balance sheets.

(2)

Recorded as a component of other liabilities in the condensed consolidated balance sheets.

Reconciliation of Net Expected Loss to be Paid and Net Expected Loss to be Expensed Financial Guaranty Insurance Contracts

Reconciliation of Net Expected Loss to be Paid and

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts

	As of June 30, 2019
	(in millions)
Net expected loss to be paid - financial guaranty insurance	$	906
Contra-paid, net	56
Salvage and subrogation recoverable, net, and other recoverable	558
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(1,060		)
Net expected loss to be expensed (present value) (1)	$	460

____________________

(1)    Excludes $33 million as of June 30, 2019, related to consolidated FG VIEs.

Net Expected Loss to be Expensed Insurance Contracts

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts 

	As of June 30, 2019
	(in millions)
2019 (July 1 - September 30)	8
2019 (October 1 - December 31)	9
Subtotal 2019	17
2020	38
2021	35
2022	34
2023	35
2024-2028	148
2029-2033	99
2034-2038	45
After 2038	9
Net expected loss to be expensed	460
Future accretion	30
Total expected future loss and LAE	$	490

 

Loss and LAE Reported on the Consolidated Statements of Operations

Loss and LAE

Reported on the

Condensed Consolidated Statements of Operations

  

	Loss (Benefit)
	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Public finance:
U.S. public finance	94			62			$	164		$	34
Non-U.S. public finance	(8		)	(1		)	(8		)	(2		)
Public finance	86			61			156			32
Structured finance:
U.S. RMBS (1)	(88		)	(12		)	(115		)	4
Other structured finance	1			(5		)	4			(10		)
Structured finance	(87		)	(17		)	(111		)	(6		)
Loss and LAE	$	(1	)	$	44		$	45		$	26

____________________

(1)

Excludes a benefit of $14 million and $3 million for Second Quarter 2019 and 2018, respectively, and a benefit of $15 million and a loss of $3 million for Six Months 2019 and 2018 respectively, related to consolidated FG VIEs.

BIG Net Par Outstanding and Number of Risks

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of June 30, 2019

	BIG  Categories
	BIG 1						BIG 2					BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded		Gross			Ceded
	(dollars in millions)
Number of risks (1)	116			7			27			—		135			6			278			—			278
Remaining weighted-average contract period (in years)	7.8			4.7			17.6			—		9.6			8.4			9.6			—			9.6
Outstanding exposure:
Principal	$	2,771		$	(66	)	$	524		$	—	$	5,650		$	(164	)	$	8,715		$	—		$	8,715
Interest	1,215			(16		)	470			—		2,670			(68		)	4,271			—			4,271
Total (2)	$	3,986		$	(82	)	$	994		$	—	$	8,320		$	(232	)	$	12,986		$	—		$	12,986
Expected cash outflows (inflows)	$	108		$	(4	)	$	131		$	—	$	3,871		$	(122	)	$	3,984		$	(273	)	$	3,711
Potential recoveries (3)	(552		)	21			(51		)	—		(2,479		)	95			(2,966		)	191			(2,775		)
Subtotal	(444		)	17			80			—		1,392			(27		)	1,018			(82		)	936
Discount	79			(4		)	(18		)	—		(97		)	(8		)	(48		)	18			(30		)
Present value of expected cash flows	$	(365	)	$	13		$	62		$	—	$	1,295		$	(35	)	$	970		$	(64	)	$	906
Deferred premium revenue	$	172		$	(3	)	$	24		$	—	$	517		$	(2	)	$	708		$	(50	)	$	658
Reserves (salvage)	$	(400	)	$	15		$	43		$	—	$	916		$	(33	)	$	541		$	(39	)	$	502

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2018

	BIG Categories
	BIG 1						BIG 2						BIG 3						Total BIG, Net			Effect of Consolidating FG VIEs			Total
	Gross			Ceded			Gross			Ceded			Gross			Ceded
	(dollars in millions)
Number of risks (1)	128			(8		)	39			(1		)	145			(7		)	312			—			312
Remaining weighted-average contract period (in years)	7.9			6.5			13.2			2.1			10.1			9.1			9.8			—			9.8
Outstanding exposure:
Principal	$	3,052		$	(71	)	$	938		$	(6	)	$	6,249		$	(159	)	$	10,003		$	—		$	10,003
Interest	1,319			(29		)	592			(1		)	3,140			(72		)	4,949			—			4,949
Total (2)	$	4,371		$	(100	)	$	1,530		$	(7	)	$	9,389		$	(231	)	$	14,952		$	—		$	14,952
Expected cash outflows (inflows)	$	98		$	(5	)	$	264		$	(1	)	$	4,029		$	(80	)	$	4,305		$	(290	)	$	4,015
Potential recoveries (3)	(465		)	23			(81		)	—			(2,542		)	55			(3,010		)	192			(2,818		)
Subtotal	(367		)	18			183			(1		)	1,487			(25		)	1,295			(98		)	1,197
Discount	83			(5		)	(53		)	—			(134		)	(2		)	(111		)	23			(88		)
Present value of expected cash flows	$	(284	)	$	13		$	130		$	(1	)	$	1,353		$	(27	)	$	1,184		$	(75	)	$	1,109
Deferred premium revenue	$	125		$	(4	)	$	151		$	—		$	518		$	(2	)	$	788		$	(64	)	$	724
Reserves (salvage)	$	(311	)	$	15		$	48		$	(1	)	$	993		$	(24	)	$	720		$	(47	)	$	673

____________________

(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) Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlement or litigation judgments, excess spread on any underlying collateral and other estimated recoveries.

XML

Expected Loss to be Paid (Tables)

6 Months Ended

Jun. 30, 2019

Expected Losses [Abstract]

Net Expected Loss to be Paid After Net Expected Recoveries for Breaches of R&W Roll Forward

The following tables present a roll forward of net expected loss to be paid for all contracts. The Company used risk-free rates for U.S. dollar denominated obligations that ranged from 0.00% to 2.63% with a weighted average of 2.10% as of June 30, 2019 and 0.00% to 3.06% with a weighted average of 2.74% as of December 31, 2018. Expected losses to be paid for transactions denominated in currencies other than the U.S. dollar represented approximately 2.3% and 2.7% of the total as of June 30, 2019 and December 31, 2018, respectively.

Net Expected Loss to be Paid

Roll Forward

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Net expected loss to be paid, beginning of period	$	963		$	1,298		$	1,183		$	1,303
Net expected loss to be paid on the Syncora Guarantee Inc. (SGI) portfolio as of June 1, 2018 (see Note 11)	—			131			—			131
Economic loss development (benefit) due to:
Accretion of discount	6			9			14			17
Changes in discount rates	(1		)	—			(5		)	(6		)
Changes in timing and assumptions	(42		)	10			(48		)	(16		)
Total economic loss development (benefit)	(37		)	19			(39		)	(5		)
Net (paid) recovered losses	34			(16		)	(184		)	3
Net expected loss to be paid, end of period	$	960		$	1,432		$	960		$	1,432

Net Expected Loss to be Paid

Roll Forward by Sector

Second Quarter 2019

	Net Expected Loss to be Paid (Recovered) as of March 31, 2019		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	666	$	92		$	(9	)	$	749
Non-U.S. public finance	31		(8		)	—			23
Public finance	697		84			(9		)	772
Structured finance:
U.S. RMBS	237		(118		)	43			162
Other structured finance	29		(3		)	—			26
Structured finance	266		(121		)	43			188
Total	$	963	$	(37	)	$	34		$	960

Net Expected Loss to be Paid

Roll Forward by Sector

Second Quarter 2018

	Net Expected Loss to be Paid (Recovered) as of March 31, 2018		Net Expected Loss to be Paid on SGI Portfolio as of June 1, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2018
	(in millions)
Public finance:
U.S. public finance	$	1,007	—		$	56		$	(22	)	$	1,041
Non-U.S. public finance	43		1		(3		)	—			41
Public finance	1,050		1		53			(22		)	1,082
Structured finance:
U.S. RMBS	219		130		(28		)	5			326
Other structured finance	29		—		(6		)	1			24
Structured finance	248		130		(34		)	6			350
Total	$	1,298	$	131	$	19		$	(16	)	$	1,432

Net Expected Loss to be Paid

Roll Forward by Sector

Six Months 2019

	Net Expected Loss to be Paid (Recovered) as of December 31, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2019
	(in millions)
Public finance:
U.S. public finance	$	832	$	154		$	(237	)	$	749
Non-U.S. public finance	32		(9		)	—			23
Public finance	864		145			(237		)	772
Structured finance:
U.S. RMBS	293		(183		)	52			162
Other structured finance	26		(1		)	1			26
Structured finance	319		(184		)	53			188
Total	$	1,183	$	(39	)	$	(184	)	$	960

Net Expected Loss to be Paid

Roll Forward by Sector

Six Months 2018

	Net Expected Loss to be Paid (Recovered) as of December 31, 2017		Net Expected Loss to be Paid on SGI Portfolio as of June 1, 2018		Economic Loss Development / (Benefit)			(Paid) Recovered Losses (1)			Net Expected Loss to be Paid (Recovered) as of June 30, 2018
	(in millions)
Public finance:
U.S. public finance	$	1,157	—		$	17		$	(133	)	$	1,041
Non-U.S. public finance	46		1		(6		)	—			41
Public finance	1,203		1		11			(133		)	1,082
Structured finance:
U.S. RMBS	73		130		(12		)	135			326
Other structured finance	27		—		(4		)	1			24
Structured finance	100		130		(16		)	136			350
Total	$	1,303	$	131	$	(5	)	$	3		$	1,432

____________________

(1) Net of ceded paid losses, whether or not such amounts have been settled with reinsurers. Ceded paid losses are typically settled 45 days after the end of the reporting period. Such amounts are recorded as reinsurance recoverable on paid losses in other assets. The amounts for Six Months 2019 are net of the COFINA Exchange Senior Bonds and cash that were received pursuant to the COFINA Plan of Adjustment. See Note 3, Outstanding Exposure, for additional information.

The tables above include (1) loss adjustment expenses (LAE) paid of $9 million and $6 million for Second Quarter 2019 and 2018, respectively, and $16 million and $11 million for Six Months 2019 and 2018, respectively, and (2) expected LAE to be paid of $21 million as of June 30, 2019 and $31 million as of December 31, 2018.

Schedule Of Net Expected Losses To Be Paid (Recovered) And Net Economic Development (Benefit) Loss

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

By Accounting Model

	Net Expected Loss to be Paid (Recovered)						Net Economic Loss Development  (Benefit)
	As of						Second Quarter						Six Months
	June 30, 2019			December 31, 2018			2019			2018			2019			2018
	(in millions)
Insurance	$	907		$	1,110		(22		)	23			$	(12	)	$	(10	)
Financial guaranty VIEs (FG VIEs) (See Note 9)	64			75			(14		)	(6		)	(24		)	(4		)
Credit derivatives (See Note 8)	(11		)	(2		)	(1		)	2			(3		)	9
Total	$	960		$	1,183		$	(37	)	$	19		$	(39	)	$	(5	)

Net Economic Loss Development (Benefit)

U.S. RMBS

	Second Quarter					Six Months
	2019			2018		2019			2018
	(in millions)
First lien U.S. RMBS	$	(19	)	(7	)	$	(50	)	$	17
Second lien U.S. RMBS	(99		)	(21	)	(133		)	(29		)

Net Expected Loss to be Paid By Accounting Model

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

By Accounting Model

	Net Expected Loss to be Paid (Recovered)						Net Economic Loss Development  (Benefit)
	As of						Second Quarter						Six Months
	June 30, 2019			December 31, 2018			2019			2018			2019			2018
	(in millions)
Insurance	$	907		$	1,110		(22		)	23			$	(12	)	$	(10	)
Financial guaranty VIEs (FG VIEs) (See Note 9)	64			75			(14		)	(6		)	(24		)	(4		)
Credit derivatives (See Note 8)	(11		)	(2		)	(1		)	2			(3		)	9
Total	$	960		$	1,183		$	(37	)	$	19		$	(39	)	$	(5	)

Liquidation Rates and Key Assumptions in Base Case Expected Loss Estimates First Lien RMBS

Key Assumptions in Base Case Expected Loss Estimates

First Lien RMBS

	As of June 30, 2019					As of March 31, 2019					As of December 31, 2018
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Alt-A First Lien
Plateau CDR	0.0	%	-	9.5%	4.0%	1.0	%	-	10.7%	4.3%	1.2	%	-	11.4%	4.6%
Final CDR	0.0	%	-	0.5%	0.2%	0.0	%	-	0.5%	0.2%	0.1	%	-	0.6%	0.2%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	70%					70%					70%
2007+	70%					70%					70%
Option ARM
Plateau CDR	2.4	%	-	7.9%	5.5%	2.1	%	-	9.3%	5.9%	1.8	%	-	8.3%	5.6%
Final CDR	0.1	%	-	0.4%	0.3%	0.1	%	-	0.5%	0.3%	0.1	%	-	0.4%	0.3%
Initial loss severity:
2005 and prior	60%					60%					60%
2006	60%					60%					60%
2007+	70%					70%					70%
Subprime
Plateau CDR	2.5	%	-	22.8%	6.0%	2.4	%	-	24.1%	6.2%	1.8	%	-	23.2%	6.2%
Final CDR	0.1	%	-	1.1%	0.3%	0.1	%	-	1.2%	0.3%	0.1	%	-	1.2%	0.3%
Initial loss severity:
2005 and prior	80%					80%					80%
2006	75%					75%					75%
2007+	95%					95%					95%

First Lien Liquidation Rates

	As of June 30, 2019	As of March 31, 2019	As of December 31, 2018
Delinquent/Modified in the Previous 12 Months
Alt-A and Prime	20%	20%	20%
Option ARM	20	20	20
Subprime	20	20	20
30 – 59 Days Delinquent
Alt-A and Prime	30	30	30
Option ARM	35	35	35
Subprime	40	40	40
60 – 89 Days Delinquent
Alt-A and Prime	40	40	40
Option ARM	45	45	45
Subprime	45	45	45
90+ Days Delinquent
Alt-A and Prime	50	50	50
Option ARM	55	55	55
Subprime	55	50	50
Bankruptcy
Alt-A and Prime	45	45	45
Option ARM	50	50	50
Subprime	40	40	40
Foreclosure
Alt-A and Prime	60	60	60
Option ARM	65	65	65
Subprime	60	60	60
Real Estate Owned
All	100	100	100

Key Assumptions in Base Case Expected Loss Estimates Second Lien RMBS

Key Assumptions in Base Case Expected Loss Estimates

HELOCs

	As of June 30, 2019					As of March 31, 2019					As of December 31, 2018
	Range				Weighted Average	Range				Weighted Average	Range				Weighted Average
Plateau CDR	4.6	%	-	23.5%	9.2%	5.5	%	-	25.6%	9.5%	4.6	%	-	26.8%	10.1%
Final CDR trended down to	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%	2.5	%	-	3.2%	2.5%
Liquidation rates:
Delinquent/Modified in the Previous 12 Months	20%					20%					20%
30 – 59 Days Delinquent	30					30					35
60 – 89 Days Delinquent	45					45					50
90+ Days Delinquent	65					65					70
Bankruptcy	55					55					55
Foreclosure	60					60					65
Real Estate Owned	100					100					100
Loss severity (1)	98%					98%					98%

___________________

(1)    Loss severities on future defaults.

XML

Reinsurance (Tables)

6 Months Ended

Jun. 30, 2019

Insurance [Abstract]

Effects of Reinsurance on Statement of Operations

Effect of Reinsurance on Statement of Operations

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Premiums Written:
Direct	$	50		$	62		$	89		$	135
Assumed	1			331			1			331
Ceded (1)	(2		)	24			13			13
Net	$	49		$	417		$	103		$	479
Premiums Earned:
Direct	$	99		$	130		$	204		$	273
Assumed	15			9			30			14
Ceded	(2		)	(3		)	(4		)	(6		)
Net	$	112		$	136		$	230		$	281
Loss and LAE:
Direct	$	—		$	49		$	54		$	35
Assumed	1			(5		)	2			(8		)
Ceded	(2		)	—			(11		)	(1		)
Net	$	(1	)	$	44		$	45		$	26

____________________

(1)    Positive ceded premiums written were due to terminations, commutations and changes in expected debt service schedules.

Exposure by Reinsurer

Ceded Reinsurance (1)

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Ceded premium payable, net of commissions	$	20	$	26
Ceded expected loss to be recovered (paid)	22		14
Financial guaranty ceded par outstanding (2)	1,372		2,389
Non-financial guaranty ceded exposure (see Note 3)	245		239

____________________

(1) The total collateral posted by all non-affiliated reinsurers required to post, or that had agreed to post, collateral as of June 30, 2019 and December 31, 2018 was approximately $72 million and $80 million, respectively. Such collateral is posted (i) in the case of certain reinsurers not authorized or "accredited" in the U.S., in order for the Company to receive credit for the liabilities ceded to such reinsurers in statutory financial statements, and (ii) in the case of certain reinsurers authorized in the U.S., on terms negotiated with the Company.

(2)

Of the total par ceded to unrated or BIG rated reinsurers, $229 million and $236 million is rated BIG as of June 30, 2019 and December 31, 2018, respectively.

Schedule Of Commutations And Cancellations Of Reinsurance Contracts

Commutations of Ceded Reinsurance Contracts

	Second Quarter					Six Months
	2019		2018			2019		2018
	(in millions)
Increase in net unearned premium reserve	$	15	$	56		$	15	$	60
Increase in net par outstanding	1,069		1,191			1,069		1,233
Commutation gains (losses)	1		(18		)	1		(17		)

XML

Fair Value Measurement (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of June 30, 2019

			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	$	4,683	$	—	$	4,578	$	105
U.S. government and agencies	165		—		165		—
Corporate securities	2,267		—		2,219		48
Mortgage-backed securities:
RMBS	938		—		613		325
Commercial mortgage-backed securities (CMBS)	495		—		495		—
Asset-backed securities	779		—		105		674
Non-U.S. government securities	247		—		247		—
Total fixed-maturity securities	9,574		—		8,422		1,152
Short-term investments	1,159		893		266		—
Other invested assets (1)	6		—		—		6
FG VIEs’ assets, at fair value	526		—		—		526
Other assets	166		32		42		92
Total assets carried at fair value	$	11,431	$	925	$	8,730	$	1,776
Liabilities:
Credit derivative liabilities	$	224	$	—	$	—	$	224
FG VIEs’ liabilities with recourse, at fair value	446		—		—		446
FG VIEs’ liabilities without recourse, at fair value	105		—		—		105
Total liabilities carried at fair value	$	775	$	—	$	—	$	775

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of December 31, 2018

			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

____________________

(1)

Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.

Fair Value Assets Measured on Recurring Basis

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during Second Quarter 2019 and 2018 and Six Months 2019 and 2018.

Fair Value Level 3 Rollforward

Recurring Basis

Second Quarter 2019

	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 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		)	(5	)	(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	)	(5	)	$	(20	)	(2	)	$	(12	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2019	$	—			$	(1	)			$	15				$	8									$	—								$	5

Fair Value Level 3 Rollforward

Recurring Basis

Second Quarter 2018

	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 March 31, 2018	$	83			$	62			$	314				$	809				$	651				$	62				$	(236	)			$	(598	)			$	(110	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1	)	1		(1	)	6			(1	)	14			(1	)	3			(2	)	(1		)	(3	)	48			(5	)	(4		)	(2	)	1			(2	)
Other comprehensive income (loss)	8				—				(3		)			6					—					—					—					4					—
Purchases	—				—				9					91					—					—					—					—					—
Issuances	—				—				—					—					—					—					(68		)	(7	)	—					—
Settlements	—				—				(15		)			(23		)			(27		)			—					(1		)			27					1
Fair value as of June 30, 2018	$	92			$	63			$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018	$	8			$	—			$	(2	)			$	6				$	6		(2	)	$	(1	)	(3	)	$	46		(5	)	$	2		(2	)	$	1		(2	)

Fair Value Level 3 Rollforward

Recurring Basis

Six Months 2019

	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)	2			(1	)	(10		)	(1	)	11			(1	)	44			(1	)	64			(2	)	10		(3	)	(30		)	(5	)	(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	)	(5	)	$	(31	)	(2	)	$	(15	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2019	$	5				$	2				$	20				$	11									$	—								$	5

Fair Value Level 3 Rollforward

Recurring Basis

Six Months 2018

	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)	2			(1	)	(4		)	(1	)	13			(1	)	29			(1	)	4			(2	)	(2		)	(3	)	82			(5	)	(4		)	(2	)	2			(2	)
Other comprehensive income (loss)	11					—					(10		)			9					—					—					—					2					—
Purchases	4					—					9					100					—					—					—					—					—
Issuances	—					—					—					—					—					—					(68		)	(7	)	—					—
Settlements	(1		)			—					(35		)			(28		)			(60		)			(1		)			(2		)			57					4
FG VIE deconsolidations	—					—					—					—					(17		)			—					—					1					16
Fair value as of June 30, 2018	$	92				$	63				$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018	$	11				$	—				$	(8	)			$	10				$	10		(2	)	$	(2	)	(3	)	$	73		(5	)	$	(1	)	(2	)	$	1		(2	)

 ____________________

(1) Included in net realized investment gains (losses) and net investment income.

(2) Included in fair value gains (losses) on FG VIEs.

(3) Recorded in net investment income and other income.

(4) Represents the net position of credit derivatives. Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheet based on net exposure by counterparty.

(5) Reported in net change in fair value of credit derivatives.

(6) Includes CCS and other invested assets.

(7) Relates to SGI Transaction. See Note 11, Reinsurance.

Fair Value, Liabilities Measured on Recurring Basis

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during Second Quarter 2019 and 2018 and Six Months 2019 and 2018.

Fair Value Level 3 Rollforward

Recurring Basis

Second Quarter 2019

	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 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		)	(5	)	(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	)	(5	)	$	(20	)	(2	)	$	(12	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2019	$	—			$	(1	)			$	15				$	8									$	—								$	5

Fair Value Level 3 Rollforward

Recurring Basis

Second Quarter 2018

	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 March 31, 2018	$	83			$	62			$	314				$	809				$	651				$	62				$	(236	)			$	(598	)			$	(110	)
Total pretax realized and unrealized gains/(losses) recorded in:
Net income (loss)	1		(1	)	1		(1	)	6			(1	)	14			(1	)	3			(2	)	(1		)	(3	)	48			(5	)	(4		)	(2	)	1			(2	)
Other comprehensive income (loss)	8				—				(3		)			6					—					—					—					4					—
Purchases	—				—				9					91					—					—					—					—					—
Issuances	—				—				—					—					—					—					(68		)	(7	)	—					—
Settlements	—				—				(15		)			(23		)			(27		)			—					(1		)			27					1
Fair value as of June 30, 2018	$	92			$	63			$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018	$	8			$	—			$	(2	)			$	6				$	6		(2	)	$	(1	)	(3	)	$	46		(5	)	$	2		(2	)	$	1		(2	)

Fair Value Level 3 Rollforward

Recurring Basis

Six Months 2019

	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)	2			(1	)	(10		)	(1	)	11			(1	)	44			(1	)	64			(2	)	10		(3	)	(30		)	(5	)	(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	)	(5	)	$	(31	)	(2	)	$	(15	)	(2	)
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of June 30, 2019	$	5				$	2				$	20				$	11									$	—								$	5

Fair Value Level 3 Rollforward

Recurring Basis

Six Months 2018

	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)	2			(1	)	(4		)	(1	)	13			(1	)	29			(1	)	4			(2	)	(2		)	(3	)	82			(5	)	(4		)	(2	)	2			(2	)
Other comprehensive income (loss)	11					—					(10		)			9					—					—					—					2					—
Purchases	4					—					9					100					—					—					—					—					—
Issuances	—					—					—					—					—					—					(68		)	(7	)	—					—
Settlements	(1		)			—					(35		)			(28		)			(60		)			(1		)			(2		)			57					4
FG VIE deconsolidations	—					—					—					—					(17		)			—					—					1					16
Fair value as of June 30, 2018	$	92				$	63				$	311				$	897				$	627				$	61				$	(257	)			$	(571	)			$	(108	)
Change in unrealized gains/(losses) related to financial instruments held as of June 30, 2018	$	11				$	—				$	(8	)			$	10				$	10		(2	)	$	(2	)	(3	)	$	73		(5	)	$	(1	)	(2	)	$	1		(2	)

 ____________________

(1) Included in net realized investment gains (losses) and net investment income.

(2) Included in fair value gains (losses) on FG VIEs.

(3) Recorded in net investment income and other income.

(4) Represents the net position of credit derivatives. Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheet based on net exposure by counterparty.

(5) Reported in net change in fair value of credit derivatives.

(6) Includes CCS and other invested assets.

(7) Relates to SGI Transaction. See Note 11, Reinsurance.

Schedule of Quantitative Information About Level 3 Liabilities, Fair Value Measurements

Quantitative Information About Level 3 Fair Value Inputs

At June 30, 2019

Financial Instrument Description (1)	Fair Value at June 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	$	105		Yield	4.5	%	-	33.0%	7.1%
Corporate securities	48			Yield	30.9%
RMBS	325			CPR	1.5	%	-	18.2%	5.9%
				CDR	1.5	%	-	6.9%	4.9%
				Loss severity	40.0	%	-	125.0%	85.5%
				Yield	3.8	%	-	6.2%	4.5%
Asset-backed securities:
Life insurance transactions	337			Yield	5.6%
Collateralized loan obligations (CLOs) /Trust preferred securities (TruPS)	280			Yield	2.8	%	-	5.1%	3.8%
Others	57			Yield	10.4%
FG VIEs’ assets, at fair value	526			CPR	0.9	%	-	18.3%	8.9%
				CDR	1.3	%	-	24.2%	4.6%
				Loss severity	60.0	%	-	100.0%	78.4%
				Yield	3.6	%	-	8.5%	5.3%
Other assets	84			Implied Yield	6.7	%	-	7.3%	7.0%
				Term (years)	10 years
Credit derivative liabilities, net	(216		)	Year 1 loss estimates	0.0	%	-	80.0%	1.8%
				Hedge cost (in basis points (bps))	7.0		-	42.0	15.0
				Bank profit (in bps)	38.0		-	215.0	88.0
				Internal floor (in bps)	30.0
				Internal credit rating	AAA		-	CCC	A+
FG VIEs’ liabilities, at fair value	(551		)	CPR	0.9	%	-	18.3%	8.9%
				CDR	1.3	%	-	24.2%	4.6%
				Loss severity	60.0	%	-	100.0%	78.4%
				Yield	3.5	%	-	8.5%	4.3%

___________________

(1) Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2) Excludes several investments recorded in other invested assets with fair value of $6 million.

Quantitative Information About Level 3 Fair Value Inputs

At December 31, 2018

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%
				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%

____________________

(1) Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.

(2)

Excludes several investments recorded in other invested assets with fair value of $7 million

Fair Value of Financial Instruments

Fair Value of Financial Instruments Not Carried at Fair Value

	As of June 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)	(2,995		)	(5,870		)	(3,240		)	(5,932		)
Long-term debt	(1,233		)	(1,545		)	(1,233		)	(1,496		)
Other liabilities (1)	(22		)	(22		)	(12		)	(12		)

____________________

(1) The Company's other assets and other liabilities consist predominantly of accrued interest, receivables for securities sold and payables for securities purchased, for which the carrying value approximates fair value.

(2)

Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance. 

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Contracts Accounted for as Credit Derivatives (Tables)

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Credit Derivatives Subordination and Ratings and Net Par Outstanding by Internal Rating

Credit Derivatives (1)

	As of June 30, 2019					As of December 31, 2018
	Net Par Outstanding		Net Fair Value			Net Par Outstanding		Net Fair Value
	(in millions)
U.S. public finance	$	1,933	$	(105	)	$	1,783	$	(65	)
Non-U.S. public finance	2,798		(51		)	2,807		(51		)
U.S. structured finance	1,302		(52		)	1,465		(85		)
Non-U.S. structured finance	127		(8		)	127		(6		)
Total	$	6,160	$	(216	)	$	6,182	$	(207	)

____________________

(1)    Expected recoveries were $11 million as of June 30, 2019 and $2 million as of December 31, 2018.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

	As of June 30, 2019				As of December 31, 2018
Ratings	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total
	(dollars in millions)
AAA	$	1,730	28.1	%	$	1,813	29.4	%
AA	1,700		27.6		1,690		27.3
A	1,229		19.9		1,171		18.9
BBB	1,353		22.0		1,351		21.9
BIG (1)	148		2.4		157		2.5
Credit derivative net par outstanding	$	6,160	100.0	%	$	6,182	100.0	%

____________________

(1) BIG relates to U.S. RMBS.

Net Change in Fair Value of Credit Derivatives

Net Change in Fair Value of Credit Derivative Gain (Loss)

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Realized gains on credit derivatives	$	1		$	2		$	4		$	4
Net credit derivative losses (paid and payable) recovered and recoverable and other settlements	(21		)	(1		)	(25		)	(1		)
Realized gains (losses) and other settlements	(20		)	1			(21		)	3
Net unrealized gains (losses)	12			47			(9		)	79
Net change in fair value of credit derivatives	$	(8	)	$	48		$	(30	)	$	82

CDS Spread on AGC and AGM

CDS Spread on AGC and AGM

Quoted price of CDS contract (in bps)

 

	As of June 30, 2019	As of March 31, 2019	As of December 31, 2018	As of June 30, 2018	As of March 31, 2018	As of December 31, 2017
Five-year CDS spread:
AGC	56	74	110	105	121	163
AGM	54	72	116	106	109	145
One-year CDS spread
AGC	13	20	22	22	25	70
AGM	13	13	24	21	22	28

Fair Value of Credit Derivatives and Effect of AGC and AGM Credit Spreads

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC and AGM

Credit Spreads

	As of June 30, 2019			As of December 31, 2018
	(in millions)
Fair value of credit derivatives before effect of AGC and AGM credit spreads	$	(318	)	$	(407	)
Plus: Effect of AGC and AGM credit spreads	102			200
Net fair value of credit derivatives	$	(216	)	$	(207	)

Schedule of Collateral Posting Requirements for Credit Derivative Contracts

AGC Insured CDS Collateral Posting Requirements

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Gross par of CDS with collateral posting requirement	$	209	$	250
Maximum posting requirement	209		250
Collateral posted	1		1

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Variable Interest Entities (Tables)

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Consolidated FG VIE's

Consolidated FG VIEs

By Type of Collateral

	As of June 30, 2019				As of December 31, 2018
	Assets		Liabilities		Assets		Liabilities
	(in millions)
With recourse:
U.S. RMBS first lien	$	291	$	316	$	299	$	326
U.S. RMBS second lien	81		80		115		137
Manufactured housing	49		50		53		54
Total with recourse	421		446		467		517
Without recourse	105		105		102		102
Total	$	526	$	551	$	569	$	619

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Excess of unpaid principal over fair value of:
FG VIEs' assets	$	286	$	350
FG VIEs' liabilities with recourse	22		48
FG VIEs' liabilities without recourse	20		28
Unpaid principal balance for the FG VIEs’ assets that were over 90 days or more past due	62		71
Unpaid principal for FG VIEs’ liabilities with recourse (1)	468		565

____________________

(1)

FG VIEs’ liabilities with recourse will mature at various dates ranging from 2019 to 2038.

Effect of Consolidating FG VIEs 

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Net earned premiums	$	(11	)	$	(3	)	$	(14	)	$	(6	)
Net investment income	(1		)	(1		)	(2		)	(2		)
Fair value gains (losses) on FG VIEs (1)	33			2			38			6
Loss and LAE	(14		)	(3		)	(15		)	3
Effect on income before tax	7			(5		)	7			1
Less: Tax provision (benefit)	1			(1		)	1			—
Effect on net income (loss)	$	6		$	(4	)	$	6		$	1
Effect on OCI	$	(1	)	$	4		$	(2	)	$	2
Effect on cash flows from operating activities	$	(2	)	$	4		$	(1	)	$	6

 ____________________

(1) See condensed consolidated statements of comprehensive income and Note 14, Shareholders' Equity, for information on changes in fair value of the FG VIEs’ liabilities with recourse that are attributable to changes in the Company's own credit risk.

The consolidation of FG VIEs increased shareholders' equity by $4 million as of June 30, 2019 and $1 million as of December 31, 2018.

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Investments and Cash (Tables)

6 Months Ended

Jun. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Net Investment Income

Net Investment Income

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Income from fixed-maturity securities managed by third parties	$	69		$	74		$	141		$	149
Income from internally managed securities	43			27			71			54
Gross investment income	112			101			212			203
Investment expenses	(2		)	(3		)	(4		)	(5		)
Net investment income	$	110		$	98		$	208		$	198

Net Realized Investment Gains (Losses)

Net Realized Investment Gains (Losses)

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Gross realized gains on available-for-sale securities	$	13		$	2		$	19		$	11
Gross realized losses on available-for-sale securities	(1		)	(1		)	(3		)	(6		)
Net realized gains (losses) on other invested assets	—			—			—			(1		)
Other-than-temporary impairment (OTTI):
Total OTTI	(4		)	(4		)	(17		)	(15		)
Less: portion of OTTI recognized in OCI	—			(1		)	3			(4		)
Net OTTI recognized in net income (loss) (1)	(4		)	(3		)	(20		)	(11		)
Net realized investment gains (losses)	$	8		$	(2	)	$	(4	)	$	(7	)

____________________

(1) Net OTTI recognized in net income was mainly attributable to change in foreign exchange rates in Second Quarter 2019. OTTI for all other periods presented was primarily attributable to securities purchased for loss mitigation and other risk management purposes.

Roll Forward of Credit Losses in the Investment Portfolio

The following table presents the roll-forward of the credit losses on fixed-maturity securities for which the Company has recognized an OTTI and for which unrealized loss was recognized in OCI.

Roll Forward of Credit Losses

in the Investment Portfolio

	Second Quarter					Six Months
	2019			2018		2019			2018
	(in millions)
Balance, beginning of period	$	197		$	169	$	185		$	162
Additions for credit losses on securities for which an OTTI was previously recognized	—			1		12			8
Reductions for securities sold and other settlements	(6		)	—		(6		)	—
Balance, end of period	$	191		$	170	$	191		$	170

Fixed Maturity Securities and Short Term Investments by Security Type

Fixed-Maturity Securities and Short-Term Investments

by Security Type 

As of June 30, 2019

Security Type	Percent of Total (1)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		AOCI (2) Pre-tax Gain (Loss) on Securities with OTTI			Weighted Average Credit Rating  (3)
	(dollars in millions)
Fixed-maturity securities:
Obligations of state and political subdivisions	42	%	$	4,370	$	313	$	—		$	4,683	$	46		AA-
U.S. government and agencies	1		154		11		—			165		—			AA+
Corporate securities	22		2,212		71		(16		)	2,267		(1		)	A
Mortgage-backed securities (4):	0
RMBS	9		914		37		(13		)	938		4			A-
CMBS	5		478		18		(1		)	495		—			AAA
Asset-backed securities	7		746		36		(3		)	779		14			BBB-
Non-U.S. government securities	3		263		2		(18		)	247		—			AA
Total fixed-maturity securities	89		9,137		488		(51		)	9,574		63			A+
Short-term investments	11		1,159		—		—			1,159		—			AAA
Total investment portfolio	100	%	$	10,296	$	488	$	(51	)	$	10,733	$	63		A+

Fixed-Maturity Securities and Short-Term Investments

by Security Type 

As of December 31, 2018 

Security Type	Percent of Total (1)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		AOCI Pre-tax Gain (Loss) on Securities with OTTI			Weighted Average Credit Rating  (3)
	(dollars in millions)
Fixed-maturity securities:
Obligations of state and political subdivisions	45	%	$	4,761	$	168	$	(18	)	$	4,911	$	40		AA-
U.S. government and agencies	2		167		9		(1		)	175		—			AA+
Corporate securities	20		2,175		13		(52		)	2,136		(4		)	A
Mortgage-backed securities (4):
RMBS	9		999		17		(34		)	982		(15		)	A-
CMBS	5		542		4		(7		)	539		—			AAA
Asset-backed securities	9		942		131		(5		)	1,068		97			BB
Non-U.S. government securities	3		298		2		(22		)	278		—			AA
Total fixed-maturity securities	93		9,884		344		(139		)	10,089		118			A+
Short-term investments	7		729		—		—			729		—			AAA
Total investment portfolio	100	%	$	10,613	$	344	$	(139	)	$	10,818	$	118		A+

____________________

(1) Based on amortized cost.

(2) Accumulated OCI (AOCI).

(3) Ratings represent the lower of the Moody’s and S&P classifications, except for bonds purchased for loss mitigation or risk management strategies, which use internal ratings classifications. The Company’s portfolio primarily consists of high-quality, liquid instruments.

(4) U.S. government-agency obligations were approximately 45% of mortgage backed securities as of June 30, 2019 and 48% as of December 31, 2018 based on fair value.

Fixed Maturity Securities Gross Unrealized Loss by Length of Time

The following tables summarize, for all fixed-maturity securities in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time the amounts have continuously been in an unrealized loss position.

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time

As of June 30, 2019

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	7	$	—		$	17	$	—		$	24	$	—
U.S. government and agencies	10		—			21		—			31		—
Corporate securities	229		(2		)	204		(14		)	433		(16		)
Mortgage-backed securities:
RMBS	7		—			283		(13		)	290		(13		)
CMBS	—		—			51		(1		)	51		(1		)
Asset-backed securities	226		(2		)	76		(1		)	302		(3		)
Non-U.S. government securities	45		(1		)	113		(17		)	158		(18		)
Total	$	524	$	(5	)	$	765	$	(46	)	$	1,289	$	(51	)
Number of securities (1)			112					186					291
Number of securities with OTTI			6					11					17

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time

As of December 31, 2018

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	195	$	(4	)	$	658	$	(14	)	$	853	$	(18	)
U.S. government and agencies	11		—			24		(1		)	35		(1		)
Corporate securities	836		(19		)	522		(33		)	1,358		(52		)
Mortgage-backed securities:
RMBS	85		(2		)	447		(32		)	532		(34		)
CMBS	111		(1		)	164		(6		)	275		(7		)
Asset-backed securities	322		(4		)	38		(1		)	360		(5		)
Non-U.S. government securities	83		(4		)	99		(18		)	182		(22		)
Total	$	1,643	$	(34	)	$	1,952	$	(105	)	$	3,595	$	(139	)
Number of securities (1)			417					608					997
Number of securities with OTTI (1)			22					22					42

___________________

(1) The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.

Distribution of Fixed Maturity Securities by Contractual Maturity

The amortized cost and estimated fair value of available-for-sale fixed maturity securities by contractual maturity as of June 30, 2019 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Fixed-Maturity Securities

by Contractual Maturity

As of June 30, 2019

	Amortized Cost		Estimated Fair Value
	(in millions)
Due within one year	$	223	$	216
Due after one year through five years	1,637		1,665
Due after five years through 10 years	2,101		2,196
Due after 10 years	3,784		4,064
Mortgage-backed securities:
RMBS	914		938
CMBS	478		495
Total	$	9,137	$	9,574

Restrictions on Cash and Cash Equivalents

The following table provides a reconciliation of the cash reported on the condensed consolidated balance sheets and the cash and restricted cash reported in the statements of cash flows.

Cash and Restricted Cash

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Cash	$	190	$	104
Restricted cash	4		—
Total cash and restricted cash	$	194	$	104

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Effective Tax Rate Reconciliation

A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below.

Effective Tax Rate Reconciliation

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
Expected tax provision (benefit) at statutory rates in taxable jurisdictions	$	38		$	14		$	47		$	49
Tax-exempt interest	(5		)	(6		)	(10		)	(12		)
Change in liability for uncertain tax positions	—			1			—			(6		)
Foreign taxes	4			6			5			3
Taxes on reinsurance	3			(1		)	4			(1		)
Other	—			(2		)	(2		)	(1		)
Total provision (benefit) for income taxes	$	40		$	12		$	44		$	32
Effective tax rate	21.9		%	13.2		%	18.4		%	10.4		%

Pretax Income (Loss) by Tax Jurisdiction

 The following tables present pretax income and revenue by jurisdiction.

Pretax Income (Loss) by Tax Jurisdiction

	Second Quarter						Six Months
	2019			2018			2019			2018
	(in millions)
U.S.	$	190		$	71		$	225		$	246
Bermuda	—			24			16			73
U.K. and other	(8		)	(8		)	(1		)	(15		)
Total	$	182		$	87		$	240		$	304

Revenue by Tax Jurisdiction

Revenue by Tax Jurisdiction

	Second Quarter						Six Months
	2019			2018			2019		2018
	(in millions)
U.S.	$	227		$	189		$	376	$	436
Bermuda	40			36			73		88
U.K. and other	(1		)	(5		)	12		(11		)
Total	$	266		$	220		$	461	$	513

Schedule of Deferred Tax Assets and Liabilities

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities) (1)

	As of June 30, 2019		As of December 31, 2018
	(in millions)
Deferred tax assets (liabilities)	$	8	$	68
Current tax assets (liabilities)	3		22

____________________

(1)

Included in other assets or other liabilities on the condensed consolidated balance sheets.

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Lease, Cost

Components of Lease Expense

	Second Quarter 2019		Six Months 2019
	(in millions)
Lease cost (1)	$	2	$	4
Cash paid for amounts included in the measurement of lease liabilities	2		4

 ____________________

(1)

Lessee, Operating Lease, Liability, Maturity

Future Minimum Rental Payments

	As of June 30, 2019
Year	(in millions)
2019 (remaining six months)	$	4
2020	9
2021	8
2022	8
2023	9
Thereafter	72
Total lease payments (1)	110
Less: imputed interest	19
Total operating lease liabilities	$	91

 ____________________

(1)

At December 31, 2018, future lease payments were $9 million, $9 million, $8 million, $8 million, and $9 million for 2019 through 2023, respectively, and $72 million in aggregate for all years thereafter.

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Schedule of computation of basic and diluted earnings per share

Computation of Earnings Per Share 

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions, except per share amounts)
Basic Earnings Per Share (EPS):
Net income (loss) attributable to AGL	$	142	$	75	$	196	$	272
Less: Distributed and undistributed income (loss) available to nonvested shareholders	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	142	$	75	$	196	$	272
Basic shares	101.2		111.7		102.1		113.4
Basic EPS	$	1.40	$	0.67	$	1.92	$	2.39
Diluted EPS:
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	142	$	75	$	196	$	272
Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	$	142	$	75	$	196	$	272
Basic shares	101.2		111.7		102.1		113.4
Dilutive securities:
Options and restricted stock awards	0.7		1.2		0.9		1.4
Diluted shares	101.9		112.9		103.0		114.8
Diluted EPS	$	1.39	$	0.67	$	1.90	$	2.37
Potentially dilutive securities excluded from computation of EPS because of antidilutive effect	0.1		0.1		—		0.2

Schedule of antidilutive securities excluded from computation of earnings per share

Computation of Earnings Per Share 

	Second Quarter				Six Months
	2019		2018		2019		2018
	(in millions, except per share amounts)
Basic Earnings Per Share (EPS):
Net income (loss) attributable to AGL	$	142	$	75	$	196	$	272
Less: Distributed and undistributed income (loss) available to nonvested shareholders	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	142	$	75	$	196	$	272
Basic shares	101.2		111.7		102.1		113.4
Basic EPS	$	1.40	$	0.67	$	1.92	$	2.39
Diluted EPS:
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	142	$	75	$	196	$	272
Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	$	142	$	75	$	196	$	272
Basic shares	101.2		111.7		102.1		113.4
Dilutive securities:
Options and restricted stock awards	0.7		1.2		0.9		1.4
Diluted shares	101.9		112.9		103.0		114.8
Diluted EPS	$	1.39	$	0.67	$	1.90	$	2.37
Potentially dilutive securities excluded from computation of EPS because of antidilutive effect	0.1		0.1		—		0.2

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Shareholders' Equity (Tables)

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Changes in Accumulated Other Comprehensive Income by Component

The following tables present the changes in each component of AOCI and the effect of reclassifications out of AOCI on the respective line items in net income.

Changes in Accumulated Other Comprehensive Income by Component

Second Quarter 2019

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, March 31, 2019	$	222		$	99		$	(31	)	$	(37	)	$	8	261
Other comprehensive income (loss) before reclassifications	90			(40		)	(2		)	(1		)	—		47
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	11			(3		)	—			—			—		8
Net investment income	2			14			—			—			—		16
Fair value gains (losses) on FG VIEs	—			—			(8		)	—			—		(8		)
Total before tax	13			11			(8		)	—			—		16
Tax (provision) benefit	(2		)	(3		)	2			—			—		(3		)
Total amount reclassified from AOCI, net of tax	11			8			(6		)	—			—		13
Net current period other comprehensive income (loss)	79			(48		)	4			(1		)	—		34
Balance, June 30, 2019	$	301		$	51		$	(27	)	$	(38	)	$	8	$	295

Changes in Accumulated Other Comprehensive Income by Component

Second Quarter 2018

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI		Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, March 31, 2018	$	146		$	118	$	(35	)	$	(23	)	$	8	$	214
Other comprehensive income (loss) before reclassifications	(64		)	6		3			(9		)	—		(64		)
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	1			—		—			—			—		1
Fair value gains (losses) on FG VIEs	—			—		1			—			—		1
Total before tax	1			—		1			—			—		2
Tax (provision) benefit	—			—		—			—			—		—
Total amount reclassified from AOCI, net of tax	1			—		1			—			—		2
Net current period other comprehensive income (loss)	(63		)	6		4			(9		)	—		(62		)
Balance, June 30, 2018	$	83		$	124	$	(31	)	$	(32	)	$	8	$	152

Changes in Accumulated Other Comprehensive Income by Component

Six Months 2019

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, December 31, 2018	$	59		$	94		$	(31	)	$	(37	)	$	8	$	93
Other comprehensive income (loss) before reclassifications	255			(47		)	(4		)	(1		)	—		203
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	14			(18		)	—			—			—		(4		)
Net investment income	2			14			—			—			—		16
Fair value gains (losses) on FG VIEs	—			—			(10		)	—			—		(10		)
Total before tax	16			(4		)	(10		)	—			—		2
Tax (provision) benefit	(3		)	—			2			—			—		(1		)
Total amount reclassified from AOCI, net of tax	13			(4		)	(8		)	—			—		1
Net current period other comprehensive income (loss)	242			(43		)	4			(1		)	—		202
Balance, June 30, 2019	$	301		$	51		$	(27	)	$	(38	)	$	8	$	295

Changes in Accumulated Other Comprehensive Income by Component

Six Months 2018

	Net Unrealized Gains (Losses) on Investments with no OTTI			Net Unrealized Gains (Losses) on Investments with OTTI			Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR			Cumulative Translation Adjustment			Cash Flow  Hedge		Total  AOCI
	(in millions)
Balance, December 31, 2017	$	273		$	120		$	—		$	(29	)	$	8	$	372
Effect of adoption of ASU 2016-01 (1)	1			—			(33		)	—			—		(32		)
Other comprehensive income (loss) before reclassifications	(186		)	(5		)	(1		)	(3		)	—		(195		)
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	(5		)	11			—			—			—		6
Fair value gains (losses) on FG VIEs	—			—			4			—			—		4
Total before tax	(5		)	11			4			—			—		10
Tax (provision) benefit	—			(2		)	(1		)	—			—		(3		)
Total amount reclassified from AOCI, net of tax	(5		)	9			3			—			—		7
Net current period other comprehensive income (loss)	(191		)	4			2			(3		)	—		(188		)
Balance, June 30, 2018	$	83		$	124		$	(31	)	$	(32	)	$	8	$	152

____________________

(1)

On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, resulting in a cumulative-effect reclassification of a $32 million loss, net of tax, from retained earnings to AOCI.

Schedule of Share Repurchases

On February 27, 2019, the Board of Directors authorized the repurchase of $300 million of common shares and on August 7, 2019 authorized the repurchase of another $300 million of common shares. As of August 7, 2019, after combining the remaining authorization and the new authorization, the Company was authorized to purchase $450 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company's capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board of Directors at any time. It does not have an expiration date.

Share Repurchases

Period	Number of Shares Repurchased	Total Payments (in millions)		Average Price Paid Per Share
2018 (January 1 - March 31)	2,787,936	$	98	$	35.20
2018 (April 1 - June 30)	4,163,190	152		36.48
2018 (July 1 - September 30)	3,299,049	130		39.41
2018 (October 1 - December 31)	2,992,932	120		40.09
Total 2018	13,243,107	$	500	$	37.76
2019 (January 1 - March 31)	1,908,605	79		41.62
2019 (April 1 - June 30)	2,519,130	111		43.89
2019 (July 1 - August 7)	1,317,094	58		43.59
Total 2019	5,744,829	$	248	$	43.07
Cumulative repurchases since the beginning of 2013	100,300,786	$	2,964	$	29.55

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Subsidiary Information (Tables)

6 Months Ended

Jun. 30, 2019

Condensed Financial Information Disclosure [Abstract]

Condensed Consolidating Balance Sheet

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)		AGUS (Issuer) (1)		AGMH (Issuer)		Other Entities		Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Assets
Total investment portfolio and cash	$	27	$	397	$	17	$	10,972	$	(430	)	$	10,983
Investment in subsidiaries	6,620		5,937		4,196		199		(16,952		)	—
Premiums receivable, net of commissions payable	—		—		—		1,020		(154		)	866
Deferred acquisition costs	—		—		—		142		(36		)	106
Intercompany loan receivable	—		—		—		50		(50		)	—
FG VIEs’ assets, at fair value	—		—		—		526		—			526
Dividends receivable from affiliate	60		—		—		—		(60		)	—
Other	27		82		30		2,687		(1,726		)	1,100
Total assets	$	6,734	$	6,416	$	4,243	$	15,596	$	(19,408	)	$	13,581
Liabilities and shareholders' equity
Unearned premium reserves	$	—	$	—	$	—	$	4,290	$	(903	)	$	3,387
Loss and LAE reserve	—		—		—		1,363		(261		)	1,102
Long-term debt	—		844		472		5		(88		)	1,233
Intercompany loan payable	—		50		—		300		(350		)	—
Credit derivative liabilities	—		—		—		259		(35		)	224
FG VIEs’ liabilities, at fair value	—		—		—		551		—			551
Dividends payable to affiliate	—		60		—		—		(60		)	—
Other	12		66		68		918		(702		)	362
Total liabilities	12		1,020		540		7,686		(2,399		)	6,859
Total shareholders' equity attributable to Assured Guaranty Ltd.	6,722		5,396		3,703		7,711		(16,810		)	6,722
Noncontrolling interest	—		—		—		199		(199		)	—
Total shareholders' equity	6,722		5,396		3,703		7,910		(17,009		)	6,722
Total liabilities and shareholders' equity	$	6,734	$	6,416	$	4,243	$	15,596	$	(19,408	)	$	13,581

 ____________________

(1) The fair value of the AGMH debt purchased by AGUS, and recorded in the AGUS investment portfolio, was $129 million.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)		AGUS (Issuer) (1)		AGMH (Issuer)		Other Entities		Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Assets
Total investment portfolio and cash	$	45	$	334	$	23	$	11,000	$	(425	)	$	10,977
Investment in subsidiaries	6,440		5,835		3,991		226		(16,492		)	—
Premiums receivable, net of commissions payable	—		—		—		1,071		(167		)	904
Deferred acquisition costs	—		—		—		143		(38		)	105
Deferred tax asset, net	—		—		—		162		(94		)	68
Intercompany loan receivable	—		—		—		50		(50		)	—
FG VIEs’ assets, at fair value	—		—		—		569		—			569
Dividends receivable from affiliate	60		—		—		—		(60		)	—
Other	29		66		24		2,437		(1,576		)	980
Total assets	$	6,574	$	6,235	$	4,038	$	15,658	$	(18,902	)	$	13,603
Liabilities and shareholders' equity
Unearned premium reserves	$	—	$	—	$	—	$	4,452	$	(940	)	$	3,512
Loss and LAE reserve	—		—		—		1,467		(290		)	1,177
Long-term debt	—		844		468		5		(84		)	1,233
Intercompany loan payable	—		50		—		300		(350		)	—
Credit derivative liabilities	—		—		—		236		(27		)	209
Deferred tax liabilities, net	—		49		50		—		(99		)	—
FG VIEs’ liabilities, at fair value	—		—		—		619		—			619
Dividends payable to affiliate	—		60		—		—		(60		)	—
Other	19		3		17		763		(504		)	298
Total liabilities	19		1,006		535		7,842		(2,354		)	7,048
Total shareholders' equity attributable to Assured Guaranty Ltd.	6,555		5,229		3,503		7,590		(16,322		)	6,555
Noncontrolling interest	—		—		—		226		(226		)	—
Total shareholders' equity	6,555		5,229		3,503		7,816		(16,548		)	6,555
Total liabilities and shareholders' equity	$	6,574	$	6,235	$	4,038	$	15,658	$	(18,902	)	$	13,603

 ____________________

(1)

The fair value of the AGMH debt purchased by AGUS, and recorded in the AGUS investment portfolio, was $125 million.

Condensed Consolidating Statement of Operations and Comprehensive Income

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	114		$	(2	)	$	112
Net investment income	—			4			—			110			(4		)	110
Net realized investment gains (losses)	—			—			—			8			—			8
Net change in fair value of credit derivatives	—			—			—			(8		)	—			(8		)
Other	2			—			—			93			(51		)	44
Total revenues	2			4			—			317			(57		)	266
Expenses
Loss and LAE	—			—			—			5			(6		)	(1		)
Amortization of deferred acquisition costs	—			—			—			5			(1		)	4
Interest expense	—			13			14			1			(6		)	22
Other operating expenses	10			1			—			98			(49		)	60
Total expenses	10			14			14			109			(62		)	85
Equity in net earnings of investees	—			(1		)	—			2			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(8		)	(11		)	(14		)	210			5			182
Total (provision) benefit for income taxes	—			2			3			(44		)	(1		)	(40		)
Equity in net earnings of subsidiaries	150			154			95			5			(404		)	—
Net income (loss)	$	142		$	145		$	84		$	171		$	(400	)	$	142
Less: noncontrolling interest	—			—			—			5			(5		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	142		$	145		$	84		$	166		$	(395	)	$	142
Comprehensive income (loss)	$	176		$	145		$	109		$	206		$	(460	)	$	176

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	139		$	(3	)	$	136
Net investment income	—			2			—			99			(3		)	98
Net realized investment gains (losses)	—			—			—			(2		)	—			(2		)
Net change in fair value of credit derivatives	—			—			—			48			—			48
Other	3			—			—			(9		)	(54		)	(60		)
Total revenues	3			2			—			275			(60		)	220
Expenses
Loss and LAE	—			—			—			46			(2		)	44
Amortization of deferred acquisition costs	—			—			—			5			(1		)	4
Interest expense	—			12			14			2			(4		)	24
Other operating expenses	10			—			1			95			(44		)	62
Total expenses	10			12			15			148			(51		)	134
Equity in net earnings of investees	—			—			—			1			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(7		)	(10		)	(15		)	128			(9		)	87
Total (provision) benefit for income taxes	—			2			3			(20		)	3			(12		)
Equity in net earnings of subsidiaries	82			64			9			6			(161		)	—
Net income (loss)	$	75		$	56		$	(3	)	$	114		$	(167	)	$	75
Less: noncontrolling interest	—			—			—			6			(6		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	75		$	56		$	(3	)	$	108		$	(161	)	$	75
Comprehensive income (loss)	$	13		$	7		$	(53	)	$	52		$	(6	)	$	13

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	235		$	(5	)	$	230
Net investment income	—			6			—			211			(9		)	208
Net realized investment gains (losses)	—			—			—			(4		)	—			(4		)
Net change in fair value of credit derivatives	—			—			—			(30		)	—			(30		)
Other	4			—			—			159			(106		)	57
Total revenues	4			6			—			571			(120		)	461
Expenses
Loss and LAE	—			—			—			52			(7		)	45
Amortization of deferred acquisition costs	—			—			—			12			(2		)	10
Interest expense	—			25			27			5			(12		)	45
Other operating expenses	20			2			—			205			(103		)	124
Total expenses	20			27			27			274			(124		)	224
Equity in net earnings of investees	—			—			—			3			—			3
Income (loss) before income taxes and equity in net earnings of subsidiaries	(16		)	(21		)	(27		)	300			4			240
Total (provision) benefit for income taxes	—			4			6			(53		)	(1		)	(44		)
Equity in net earnings of subsidiaries	212			204			163			9			(588		)	—
Net income (loss)	$	196		$	187		$	142		$	256		$	(585	)	$	196
Less: noncontrolling interest	—			—			—			9			(9		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	196		$	187		$	142		$	247		$	(576	)	$	196
Comprehensive income (loss)	$	398		$	315		$	261		$	460		$	(1,036	)	$	398

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Revenues
Net earned premiums	$	—		$	—		$	—		$	288		$	(7	)	$	281
Net investment income	—			4			—			200			(6		)	198
Net realized investment gains (losses)	—			—			—			(7		)	—			(7		)
Net change in fair value of credit derivatives	—			—			—			82			—			82
Other	6			—			—			65			(112		)	(41		)
Total revenues	6			4			—			628			(125		)	513
Expenses
Loss and LAE	—			—			—			30			(4		)	26
Amortization of deferred acquisition costs	—			—			—			11			(2		)	9
Interest expense	—			24			27			5			(8		)	48
Other operating expenses	20			3			1			200			(97		)	127
Total expenses	20			27			28			246			(111		)	210
Equity in net earnings of investees	—			—			—			1			—			1
Income (loss) before income taxes and equity in net earnings of subsidiaries	(14		)	(23		)	(28		)	383			(14		)	304
Total (provision) benefit for income taxes	—			5			6			(45		)	2			(32		)
Equity in net earnings of subsidiaries	286			225			111			13			(635		)	—
Net income (loss)	$	272		$	207		$	89		$	351		$	(647	)	$	272
Less: noncontrolling interest	—			—			—			13			(13		)	—
Net income (loss) attributable to Assured Guaranty Ltd.	$	272		$	207		$	89		$	338		$	(634	)	$	272
Comprehensive income (loss)	$	84		$	74		$	(7	)	$	163		$	(230	)	$	84

Condensed Consolidating Statement of Cash Flows

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Net cash flows provided by (used in) operating activities	$	226		$	110		$	56		$	(121	)	$	(469	)	$	(198	)
Cash flows from investing activities
Fixed-maturity securities:
Purchases	—			(3		)	—			(503		)	3			(503		)
Sales	—			—			—			914			—			914
Maturities and paydowns	—			—			2			504			—			506
Short-term investments with maturities of over three months:
Purchases	—			—			—			(209		)	—			(209		)
Sales	—			—			—			2			—			2
Maturities and paydowns	—			12			—			162			—			174
Net sales (purchases) of short-term investments with maturities of less than three months	18			(72		)	5			(340		)	—			(389		)
Net proceeds from paydowns on FG VIEs’ assets	—			—			—			50			—			50
Net proceeds from sales of FG VIEs’ assets	—			—			—			51			—			51
Proceeds from stock redemption and return of capital from subsidiaries	—			100			—			10			(110		)	—
Other	—			—			—			35			—			35
Net cash flows provided by (used in) investing activities	18			37			7			676			(107		)	631
Cash flows from financing activities
Return of capital	—			—			—			(10		)	10			—
Dividends paid	(39		)	(147		)	(62		)	(260		)	469			(39		)
Repurchases of common stock	(190		)	—			—			(100		)	100			(190		)
Repurchases of common stock to pay withholding taxes	(16		)	—			—			—			—			(16		)
Net paydowns of FG VIEs’ liabilities	—			—			—			(95		)	—			(95		)
Paydown of long-term debt	—			—			—			(1		)	(3		)	(4		)
Proceeds from options exercises	1			—			—			—			—			1
Net cash flows provided by (used in) financing activities	(244		)	(147		)	(62		)	(466		)	576			(343		)
Effect of exchange rate changes	—			—			—			—			—			—
Increase (decrease) in cash and restricted cash	—			—			1			89			—			90
Cash and restricted cash at beginning of period	—			1			—			103			—			104
Cash and restricted cash at end of period	$	—		$	1		$	1		$	192		$	—		$	194

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(in millions)

	Assured Guaranty Ltd. (Parent)			AGUS (Issuer)			AGMH (Issuer)			Other Entities			Consolidating Adjustments			Assured Guaranty Ltd. (Consolidated)
Net cash flows provided by (used in) operating activities	$	296		$	88		$	43		$	524		$	(507	)	$	444
Cash flows from investing activities
Fixed-maturity securities:
Purchases	—			(27		)	(12		)	(863		)	23			(879		)
Sales	—			11			2			579			—			592
Maturities and paydowns	—			10			—			523			—			533
Short-term investments with maturities of over three months:
Purchases	—			—			—			(121		)	—			(121		)
Sales	—			—			—			1			—			1
Maturities and paydowns	—			—			—			104			—			104
Net sales (purchases) of short-term investments with maturities of less than three months	3			(78		)	16			(229		)	—			(288		)
Net proceeds from paydowns on FG VIEs’ assets	—			—			—			60			—			60
Proceeds from stock redemption and return of capital from subsidiaries	—			200			—			—			(200		)	—
Other	—			(15		)	—			(1		)	—			(16		)
Net cash flows provided by (used in) investing activities	3			101			6			53			(177		)	(14		)
Cash flows from financing activities
Dividends paid	(37		)	(222		)	(50		)	(235		)	507			(37		)
Repurchases of common stock	(250		)	—			—			(200		)	200			(250		)
Repurchases of common stock to pay withholding taxes	(13		)	—			—			—			—			(13		)
Net paydowns of FG VIEs’ liabilities	—			—			—			(61		)	—			(61		)
Paydown of long-term debt	—			—			—			(1		)	(23		)	(24		)
Proceeds from options exercises	1			—			—			—			—			1
Net cash flows provided by (used in) financing activities	(299		)	(222		)	(50		)	(497		)	684			(384		)
Effect of exchange rate changes	—			—			—			(1		)	—			(1		)
Increase (decrease) in cash and restricted cash	—			(33		)	(1		)	79			—			45
Cash and restricted cash at beginning of period	—			33			2			109			—			144
Cash and restricted cash at end of period	$	—		$	—		$	1		$	188		$	—		$	189

XML

Business and Basis of Presentation Business and Basis of Presentation (Details) $ in Millions		12 Months Ended
	Aug. 07, 2019 USD ($)	Aug. 07, 2020 USD ($)	Jun. 30, 2019 Company
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of holding companies having outstanding public debt | Company			2
Subsequent Event [Member] | BlueMountain Acquisition [Member]
Business Acquisition [Line Items]
Purchase price	$ 160.0
Financial assets recognized	19,300.0
Cash portion of purchase price (Not Less than)	114.8
Other payments to acquire businesses	$ 60.0
Forecast [Member] | BlueMountain Acquisition [Member]
Business Acquisition [Line Items]
Other payments to acquire businesses		$ 30.0

XML

Outstanding Exposure - Debt Service Outstanding (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Schedule of Insured Financial Obligations [Line Items]
Gross Debt Service Outstanding	$ 363,711	$ 375,080
Net Debt Service Outstanding	361,999	371,586
Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Gross Debt Service Outstanding	350,977	361,511
Net Debt Service Outstanding	349,779	358,438
Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Gross Debt Service Outstanding	12,734	13,569
Net Debt Service Outstanding	$ 12,220	$ 13,148

XML

Outstanding Exposure - Financial Guaranty Portfolio by Internal Rating (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 235,367	$ 241,802
% of total net par outstanding	100.00%	100.00%
AAA [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 4,454	$ 4,618
% of total net par outstanding	1.90%	1.90%
AA [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 26,825	$ 27,021
% of total net par outstanding	11.40%	11.20%
A [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 114,485	$ 119,415
% of total net par outstanding	48.60%	49.40%
BBB [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 80,740	$ 80,588
% of total net par outstanding	34.30%	33.30%
BIG [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 8,863	$ 10,160
% of total net par outstanding	3.80%	4.20%
Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 225,025	$ 230,665
Public Finance [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 180,537	$ 186,562
% of total net par outstanding	100.00%	100.00%
Public Finance [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 44,488	$ 44,103
% of total net par outstanding	100.00%	100.00%
Public Finance [Member] | AAA [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 385	$ 413
% of total net par outstanding	0.20%	0.20%
Public Finance [Member] | AAA [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 2,460	$ 2,399
% of total net par outstanding	5.50%	5.40%
Public Finance [Member] | AA [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 21,289	$ 21,646
% of total net par outstanding	11.80%	11.60%
Public Finance [Member] | AA [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 1,880	$ 1,711
% of total net par outstanding	4.20%	3.90%
Public Finance [Member] | A [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 100,156	$ 105,180
% of total net par outstanding	55.50%	56.40%
Public Finance [Member] | A [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 13,067	$ 13,013
% of total net par outstanding	29.40%	29.50%
Public Finance [Member] | BBB [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 52,682	$ 52,935
% of total net par outstanding	29.20%	28.40%
Public Finance [Member] | BBB [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 26,197	$ 25,939
% of total net par outstanding	58.90%	58.80%
Public Finance [Member] | BIG [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 6,909	$ 7,429
Public Finance [Member] | BIG [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 6,025	$ 6,388
% of total net par outstanding	3.30%	3.40%
Public Finance [Member] | BIG [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 884	$ 1,041
% of total net par outstanding	2.00%	2.40%
Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 10,342	$ 11,137
Structured Finance [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 9,549	$ 9,944
% of total net par outstanding	100.00%	100.00%
Structured Finance [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 793	$ 1,193
% of total net par outstanding	100.00%	100.00%
Structured Finance [Member] | AAA [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 1,428	$ 1,533
% of total net par outstanding	15.00%	15.40%
Structured Finance [Member] | AAA [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 181	$ 273
% of total net par outstanding	22.80%	22.90%
Structured Finance [Member] | AA [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 3,617	$ 3,599
% of total net par outstanding	37.90%	36.20%
Structured Finance [Member] | AA [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 39	$ 65
% of total net par outstanding	4.90%	5.40%
Structured Finance [Member] | A [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 1,079	$ 1,016
% of total net par outstanding	11.30%	10.20%
Structured Finance [Member] | A [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 183	$ 206
% of total net par outstanding	23.10%	17.30%
Structured Finance [Member] | BBB [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 1,512	$ 1,164
% of total net par outstanding	15.80%	11.70%
Structured Finance [Member] | BBB [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 349	$ 550
% of total net par outstanding	44.00%	46.10%
Structured Finance [Member] | BIG [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 1,954	$ 2,731
Structured Finance [Member] | BIG [Member] | United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 1,913	$ 2,632
% of total net par outstanding	20.00%	26.50%
Structured Finance [Member] | BIG [Member] | Non United States [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 41	$ 99
% of total net par outstanding	5.20%	8.30%

XML

Outstanding Exposure - Components of BIG Net Par Outstanding (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 235,367	$ 241,802
Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	225,025	230,665
Life Insurance Transaction [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	1,228	1,184
Other structured finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	5,279	5,683
Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	10,342	11,137
BIG [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	8,863	10,160
BIG [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	6,909	7,429
BIG [Member] | Life Insurance Transaction [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	40	85
BIG [Member] | Other structured finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	191	259
BIG [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	1,954	2,731
BIG [Member] | BIG 1 [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	2,781	3,058
BIG [Member] | BIG 1 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	2,563	2,563
BIG [Member] | BIG 1 [Member] | Life Insurance Transaction [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	0	0
BIG [Member] | BIG 1 [Member] | Other structured finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	67	127
BIG [Member] | BIG 1 [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	218	495
BIG [Member] | BIG 2 [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	528	937
BIG [Member] | BIG 2 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	398	644
BIG [Member] | BIG 2 [Member] | Life Insurance Transaction [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	0	0
BIG [Member] | BIG 2 [Member] | Other structured finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	72	79
BIG [Member] | BIG 2 [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	130	293
BIG [Member] | BIG 3 [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	5,554	6,165
BIG [Member] | BIG 3 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	3,948	4,222
BIG [Member] | BIG 3 [Member] | Life Insurance Transaction [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	40	85
BIG [Member] | BIG 3 [Member] | Other structured finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	52	53
BIG [Member] | BIG 3 [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	1,606	1,943
United States [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	180,537	186,562
United States [Member] | RMBS [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	3,835	4,270
United States [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	9,549	9,944
United States [Member] | BIG [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	6,025	6,388
United States [Member] | BIG [Member] | RMBS [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	1,723	2,387
United States [Member] | BIG [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	1,913	2,632
United States [Member] | BIG [Member] | BIG 1 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	1,679	1,767
United States [Member] | BIG [Member] | BIG 1 [Member] | RMBS [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	151	368
United States [Member] | BIG [Member] | BIG 2 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	398	399
United States [Member] | BIG [Member] | BIG 2 [Member] | RMBS [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	58	214
United States [Member] | BIG [Member] | BIG 3 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	3,948	4,222
United States [Member] | BIG [Member] | BIG 3 [Member] | RMBS [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	1,514	1,805
Non United States [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	44,488	44,103
Non United States [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	793	1,193
Non United States [Member] | BIG [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	884	1,041
Non United States [Member] | BIG [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	41	99
Non United States [Member] | BIG [Member] | BIG 1 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	884	796
Non United States [Member] | BIG [Member] | BIG 2 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	0	245
Non United States [Member] | BIG [Member] | BIG 3 [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 0	$ 0

XML

Outstanding Exposure - BIG Net Par Outstanding (Details) $ in Millions	Jun. 30, 2019 USD ($) risk	Dec. 31, 2018 USD ($) risk
Schedule of Insured Financial Obligations [Line Items]
Net Par Outstanding, Credit Derivative	$ 6,160	$ 6,182
Total	235,367	241,802
BIG [Member]
Schedule of Insured Financial Obligations [Line Items]
Net Par Outstanding, Financial Guaranty Insurance	8,715	10,003
Net Par Outstanding, Credit Derivative	148	157
Total	$ 8,863	$ 10,160
Number of Risks, Financial Guaranty Insurance | risk	278	312
Number of Risks, Credit Derivative | risk	15	15
Number of Risks | risk	293	327
BIG [Member] | BIG 1 [Member]
Schedule of Insured Financial Obligations [Line Items]
Net Par Outstanding, Financial Guaranty Insurance	$ 2,705	$ 2,981
Net Par Outstanding, Credit Derivative	76	77
Total	$ 2,781	$ 3,058
Number of Risks, Financial Guaranty Insurance | risk	116	128
Number of Risks, Credit Derivative | risk	6	6
Number of Risks | risk	122	134
BIG [Member] | BIG 2 [Member]
Schedule of Insured Financial Obligations [Line Items]
Net Par Outstanding, Financial Guaranty Insurance	$ 524	$ 932
Net Par Outstanding, Credit Derivative	4	5
Total	$ 528	$ 937
Number of Risks, Financial Guaranty Insurance | risk	27	39
Number of Risks, Credit Derivative | risk	1	1
Number of Risks | risk	28	40
BIG [Member] | BIG 3 [Member]
Schedule of Insured Financial Obligations [Line Items]
Net Par Outstanding, Financial Guaranty Insurance	$ 5,486	$ 6,090
Net Par Outstanding, Credit Derivative	68	75
Total	$ 5,554	$ 6,165
Number of Risks, Financial Guaranty Insurance | risk	135	145
Number of Risks, Credit Derivative | risk	8	8
Number of Risks | risk	143	153

XML

Outstanding Exposure - Puerto Rico Gross Par and Gross Debt Service Outstanding (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Schedule of Insured Financial Obligations [Line Items]
Gross Debt Service Outstanding	$ 363,711	$ 375,080
Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Gross Par Outstanding	4,698	4,971
Gross Debt Service Outstanding	$ 7,316	$ 8,035

XML

Outstanding Exposure - Puerto Rico Net Par Outstanding (Details) - USD ($) $ in Millions	Jun. 30, 2019	Jun. 16, 2019	Dec. 31, 2018
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 235,367		$ 241,802
Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	4,494		4,767
Constitutionally Guaranteed [Member] | Puerto Rico [Member] | Commonwealth of Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	1,340	$ 3,000	1,340
Constitutionally Guaranteed [Member] | Puerto Rico [Member] | Puerto Rico Public Buildings Authority [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	142		142
Public Corporations, Certain Revenue Potentially Subject to Clawback [Member] | Puerto Rico [Member] | PRHTA (Transportation revenue) [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	844		844
Public Corporations, Certain Revenue Potentially Subject to Clawback [Member] | Puerto Rico [Member] | PRHTA (Highway revenue) [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	475		475
Public Corporations, Certain Revenue Potentially Subject to Clawback [Member] | Puerto Rico [Member] | PRCCDA (Puerto Rico Convention Center District Authority) [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	152		152
Public Corporations, Certain Revenue Potentially Subject to Clawback [Member] | Puerto Rico [Member] | PRIFA [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	16		16
Other Public Corporations [Member] | Puerto Rico [Member] | PREPA [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	848		848
Other Public Corporations [Member] | Puerto Rico [Member] | PRASA (Puerto Rico Aqueduct and Sewer Authority) [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	373		373
Other Public Corporations [Member] | Puerto Rico [Member] | MFA [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	303		303
Other Public Corporations [Member] | Puerto Rico [Member] | COFINA (Puerto Rico Sales Tax Financing Corporation) [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	0
Other Public Corporations [Member] | Puerto Rico [Member] | University of Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure	$ 1		$ 1

XML

Outstanding Exposure - Amortization Schedule of Puerto Rico Net Par Outstanding and Net Debt Service Outstanding (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Estimated Net Par Amortization [Abstract]
Total	$ 235,367	$ 241,802
Estimated Net Debt Service Amortization [Abstract]
Total	361,999	371,586
Puerto Rico [Member]
Estimated Net Par Amortization [Abstract]
2019 (October 1 - December 31)	224
Subtotal 2019	224
2020	286
2021	149
2022	139
2023	205
2024-2028	1,213
2029-2033	884
2034-2038	957
2039-2043	176
2044-2047	261
Total	4,494	$ 4,767
Estimated Net Debt Service Amortization [Abstract]
2019 (October 1 - December 31)	335
Insured Financial Obligations, Maturities of Outstanding Principal Amount, Fourth Quarter After Period End	0
Subtotal 2019	338
2020	503
2021	351
2022	332
2023	392
2024-2028	1,978
2029-2033	1,392
2034-2038	1,184
2039-2043	259
2044-2047	300
Total	7,029
Insured Financial Obligations, Maturities of Outstanding Contractual Payments, Fourth Quarter After Period End	$ 3

XML

Outstanding Exposure - Narrative (Details) - USD ($) $ in Millions			6 Months Ended	12 Months Ended
	Jun. 05, 2019	May 09, 2019	Jun. 30, 2019	Dec. 31, 2018	Jun. 27, 2019	Jun. 16, 2019	May 21, 2019	Feb. 12, 2019	Jan. 14, 2019	Sep. 15, 2015
Schedule of Insured Financial Obligations [Line Items]
Second-to-pay insured par outstanding			$ 6,600	$ 6,700
Loss mitigation securities			1,500	1,900
Total net exposure			235,367	241,802
Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			10,342	11,137
Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			225,025	230,665
Aircraft residual value insurance (RVI) [Member]
Schedule of Insured Financial Obligations [Line Items]
Net Exposure			$ 239	218
BIG [Member]
Schedule of Insured Financial Obligations [Line Items]
Maximum period of liquidity claims (in years)			1 year
Total net exposure			$ 8,863	10,160
BIG [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			1,954	2,731
BIG [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			6,909	7,429
AAA [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			4,454	4,618
United States [Member] | RMBS [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			3,835	4,270
United States [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			9,549	9,944
United States [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			180,537	186,562
United States [Member] | BIG [Member] | RMBS [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			1,723	2,387
United States [Member] | BIG [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			1,913	2,632
United States [Member] | BIG [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			6,025	6,388
United States [Member] | AAA [Member] | Structured Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			1,428	1,533
United States [Member] | AAA [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			385	413
Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			4,494	4,767
Puerto Rico [Member] | Closed Lien Senior Bonds [Member]
Schedule of Insured Financial Obligations [Line Items]
Financial guaranty insurance, plan of adjustment closed lien senior bonds received								$ 152
Puerto Rico [Member] | Closed Lien Senior Current Interest Bonds [Member]
Schedule of Insured Financial Obligations [Line Items]
Financial guaranty insurance, plan of adjustment closed lien senior bonds received								115
Puerto Rico [Member] | Closed Lien Senior Capital Appreciation Bonds [Member]
Schedule of Insured Financial Obligations [Line Items]
Financial guaranty insurance, plan of adjustment closed lien senior bonds received								37
Puerto Rico [Member] | COFINA Exchange Senior Bonds [Member]
Schedule of Insured Financial Obligations [Line Items]
Financial guaranty insurance, plan of adjustment closed lien senior bonds received								$ 139
Puerto Rico [Member] | BIG [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			4,500
U.S. Virgin Islands [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			495
U.S. Virgin Islands [Member] | BIG [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			221
U.S. Virgin Islands [Member] | Internal Investment Grade [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			274
Commitment to Provide Guarantees [Member] | Public Finance [Member]
Schedule of Insured Financial Obligations [Line Items]
Outstanding commitments to provide guaranties			$ 295
Minimum [Member]
Schedule of Insured Financial Obligations [Line Items]
Probability of paying more claims than being reimbursed (as a percent)			50.00%
Maximum [Member] | Capital relieve triple-X life insurance [Member]
Schedule of Insured Financial Obligations [Line Items]
Net Exposure			$ 949
Commonwealth of Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Certified fiscal plan, commonwealth debt service, period		6 years
PRHTA (Highway revenue) [Member] | Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Obligations secured by taxes on crude oil, unfinished oil and derivative products			120
PRHTA [Member]
Schedule of Insured Financial Obligations [Line Items]
Certified fiscal plan, commonwealth debt service, period	6 years
PRASA (Puerto Rico Aqueduct and Sewer Authority) [Member] | U.S. Justice Department and U.S. Environmental Protection Agency [Member]
Schedule of Insured Financial Obligations [Line Items]
Settlement agreement, required spending threshold										$ 1,600
Constitutionally Guaranteed [Member] | Commonwealth of Puerto Rico [Member] | Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			1,340	$ 1,340		$ 3,000
Fiscal plan, commonwealth general obligation bonds, litigation amount						$ 35,000
Vintage GO bondholders, expected receivable of outstanding claims, percent						64.30%
Vintage GO bondholders, additional expected receivable of outstanding claims, percent						25.10%
Expected receivable of outstanding claims, additional amount from Commonwealth if it outperforms fiscal plan, percent						16.80%
Fiscal plan, commonwealth surplus available for debt service		$ 13,700
Constitutionally Guaranteed [Member] | Commonwealth of Puerto Rico [Member] | General Obligations Bonds Issues On or After March 2012 [Member] | Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Fiscal plan, commonwealth general obligation bonds, litigation amount									$ 6,000
Fiscal plan, commonwealth surplus available for debt service			369				$ 220
Constitutionally Guaranteed [Member] | COFINA (Puerto Rico Sales Tax Financing Corporation) [Member] | Puerto Rico [Member] | Subordinated Bonds [Member]
Schedule of Insured Financial Obligations [Line Items]
Expected repayments of debt, percent				60.00%
Constitutionally Guaranteed [Member] | Puerto Rico Public Buildings Authority [Member] | Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			$ 142	$ 142
Vintage GO bondholders, expected receivable of outstanding claims, percent			72.60%
Vintage GO bondholders, additional expected receivable of outstanding claims, percent						89.40%
Other Public Corporations [Member] | PRASA (Puerto Rico Aqueduct and Sewer Authority) [Member] | Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			$ 373	373
Other Public Corporations [Member] | MFA [Member] | Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			303	303
Other Public Corporations [Member] | COFINA (Puerto Rico Sales Tax Financing Corporation) [Member] | Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			0
Other Public Corporations [Member] | COFINA (Puerto Rico Sales Tax Financing Corporation) [Member] | Puerto Rico [Member] | Closed Lien Senior Bonds [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure				273
Other Public Corporations [Member] | PREPA [Member] | Puerto Rico [Member]
Schedule of Insured Financial Obligations [Line Items]
Total net exposure			848	848
Fiscal plan, commonwealth contractual debt service restructuring, minimum bondholder support threshold, percent					67.00%
External Credit Rating, Non Investment Grade [Member] | Below Investment Grade, Rating Withdrawn Or Not Rated Reinsurer [Member]
Schedule of Insured Financial Obligations [Line Items]
Second-to-pay insured par outstanding			$ 107	$ 111

XML

Outstanding Exposure Outstanding Exposure - Schedule of Non-Financial Guaranty Exposure (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Life Insurance Transaction [Member]
Schedule of Insured Financial Obligations [Line Items]
Gross Exposure	$ 908	$ 880
Net Exposure	784	763
Aircraft residual value insurance policies [Member]
Schedule of Insured Financial Obligations [Line Items]
Gross Exposure	360	340
Net Exposure	$ 239	$ 218

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Contracts Accounted for as Insurance - Narrative (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Guarantor Obligations [Line Items]
Weighted average risk-free rates for U.S. dollar denominated financial guaranty insurance obligations	2.11%	2.74%
Minimum [Member]
Guarantor Obligations [Line Items]
Weighted average risk-free rates for U.S. dollar denominated financial guaranty insurance obligations	0.00%	0.00%
Maximum [Member]
Guarantor Obligations [Line Items]
Weighted average risk-free rates for U.S. dollar denominated financial guaranty insurance obligations	2.63%	3.06%
Foreign Currency Concentration Risk [Member] | Premiums Receivable [Member]
Guarantor Obligations [Line Items]
Percentage of installment premiums denominated in currencies other than the U.S. dollar	73.00%	72.00%

XML

Expected Loss to be Paid - Net Expected Loss to be Paid After Net Expected Recoveries for Breaches of R&W Rollforward (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W	$ 963	$ 1,298	$ 1,183	$ 1,303
Economic Loss Development / (Benefit)	(37)	19	(39)	(5)
Accretion of discount	6	9	14	17
Changes in discount rates	(1)	0	(5)	(6)
Changes in timing and assumptions	(42)	10	(48)	(16)
(Paid) Recovered Losses	34	(16)	(184)	3
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	960	1,432	$ 960	1,432
Period after the end of the reporting period within which the ceded paid losses are typically settled (in days)			45 days
Loss and LAE Reserve paid	9	6	$ 16	11
Expected LAE to be paid	21		21		$ 31
Public Finance [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W	697	1,050	864	1,203
Economic Loss Development / (Benefit)	84	53	145	11
(Paid) Recovered Losses	(9)	(22)	(237)	(133)
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	772	1,082	772	1,082
Public Finance [Member] | United States [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W	666	1,007	832	1,157
Economic Loss Development / (Benefit)	92	56	154	17
(Paid) Recovered Losses	(9)	(22)	(237)	(133)
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	749	1,041	749	1,041
Public Finance [Member] | Non United States [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W	31	43	32	46
Economic Loss Development / (Benefit)	(8)	(3)	(9)	(6)
(Paid) Recovered Losses	0	0	0	0
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	23	41	23	41
RMBS [Member] | United States [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W	237	219	293	73
Economic Loss Development / (Benefit)	(118)	(28)	(183)	(12)
(Paid) Recovered Losses	43	5	52	135
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	162	326	162	326
RMBS [Member] | First Lien [Member] | United States [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W			243
Economic Loss Development / (Benefit)	19	7	50	(17)
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	193		193
RMBS [Member] | Second Lien [Member] | United States [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W			50
Economic Loss Development / (Benefit)	99	21	133	29
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	(31)		(31)
Other structured finance [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W	29	29	26	27
Economic Loss Development / (Benefit)	(3)	(6)	(1)	(4)
(Paid) Recovered Losses	0	1	1	1
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	26	24	26	24
Structured Finance [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W	266	248	319	100
Economic Loss Development / (Benefit)	(121)	(34)	(184)	(16)
(Paid) Recovered Losses	43	6	53	136
End of Period, Net Expected Loss to be Paid After Recoveries for R&W	188	350	188	350
Reinsurance of SGI Insured Portfolio [Member]
Present Value of Net Expected Loss and Loss Adjustment Expenses to be Paid [Roll Forward]
Beginning of Period, Net Expected Loss to be Paid After Recoveries for R&W	$ 0	$ 131	$ 0	$ 131

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Reinsurance - Effect of Reinsurance on Statement of Operations (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Premiums Written:
Direct	$ 50	$ 62	$ 89	$ 135
Assumed	1	331	1	331
Ceded	(2)	24	13	13
Net	49	417	103	479
Premiums Earned:
Direct	99	130	204	273
Assumed	15	9	30	14
Ceded	(2)	(3)	(4)	(6)
Net	112	136	230	281
Loss and LAE:
Direct	0	49	54	35
Assumed	1	(5)	2	(8)
Ceded	(2)	0	(11)	(1)
Net	$ (1)	$ 44	$ 45	$ 26

XML

Contracts Accounted for as Insurance - Net Earned Premiums (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Financial Guarantee Insurance Premiums [Line Items]
Scheduled net earned premiums	$ 85	$ 92	$ 172	$ 180
Accelerations from refundings and terminations	20	39	46	91
Accretion of discount on net premiums receivable	5	4	9	8
Financial guaranty insurance net earned premiums	110	135	227	279
Non-financial guaranty net earned premiums	2	1	3	2
Net	112	136	230	281
Variable Interest Entity, Primary Beneficiary [Member]
Financial Guarantee Insurance Premiums [Line Items]
Net	$ 11	$ 3	$ 14	$ 6

XML

Expected Loss to be Paid - Narrative Net Expected Recoveries from Breaches of R&W (Details) - RMBS [Member] - United States [Member] - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Schedule of Expected Losses to be Paid [Line Items]
Future net R&W benefit	$ 34	$ 5
Second Lien [Member]
Schedule of Expected Losses to be Paid [Line Items]
Guarantor Obligations, Projected Loss Assumptions, Period to Reach Intermediate Conditional Default Rate	28 months
Second Lien [Member] | Most Stressful [Member]
Schedule of Expected Losses to be Paid [Line Items]
Guarantor Obligations, Projected Loss Assumptions, Period to Reach Intermediate Conditional Default Rate	31 months

XML

Reinsurance - Ceded Reinsurers (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Ceded Credit Risk [Line Items]
Ceded Premium, net of Commissions	$ 20	$ 26
Ceded expected loss to be recovered (paid)	22	14
Ceded par outstanding	1,372	2,389
Non-financial guaranty ceded exposure (see Note 3)	245	239
External Credit Rating, Non Investment Grade [Member] | Below Investment Grade, Rating Withdrawn Or Not Rated Reinsurer [Member]
Ceded Credit Risk [Line Items]
Ceded Par Outstanding	229	236
Non-affiliated Reinsurers [Member]
Ceded Credit Risk [Line Items]
Funds held under reinsurance agreements	$ 72	$ 80

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Contracts Accounted for as Insurance - Gross Premium Receivable Net of Commissions on Assumed Business Roll Forward (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Gross Premium Receivable Net of Ceding Commissions [Roll Forward]
Beginning balance	$ 904	$ 915
Less: Non-financial guaranty insurance premium receivable	1	1
Financial guaranty insurance premiums receivable	903	914
Gross written premiums on new business, net of commissions	98	459
Gross premiums received, net of commissions	(127)	(415)
Adjustments:
Changes in the expected term	(10)	(3)
Accretion of discount, net of commissions on assumed business	4	0
Foreign exchange translation and remeasurement	(3)	(14)
Cancellation of assumed reinsurance	0	(10)
FG insurance premiums receivable	865	931
Non-financial guaranty insurance premium receivable	1	1
Ending balance	866	932
Foreign Currency Gain (Loss) [Member]
Adjustments:
Foreign exchange translation and remeasurement	(3)	(13)
Variable Interest Entity, Primary Beneficiary [Member]
Adjustments:
Ending balance	$ 8	9
Reinsurance of SGI Insured Portfolio [Member]
Gross Premium Receivable Net of Ceding Commissions [Roll Forward]
Gross written premiums on new business, net of commissions		$ 330

XML

Expected Loss to be Paid - Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit) by Accounting Model (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	$ 960	$ 1,432	$ 960	$ 1,432	$ 963	$ 1,183	$ 1,298	$ 1,303
Economic loss development after recoveries for R&W	(37)	19	(39)	(5)
Public Finance [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	772	1,082	772	1,082	697	864	1,050	1,203
Economic loss development after recoveries for R&W	84	53	145	11
Public Finance [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	749	1,041	749	1,041	666	832	1,007	1,157
Economic loss development after recoveries for R&W	92	56	154	17
Public Finance [Member] | Non United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	23	41	23	41	31	32	43	46
Economic loss development after recoveries for R&W	(8)	(3)	(9)	(6)
RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	162	326	162	326	237	293	219	73
Economic loss development after recoveries for R&W	(118)	(28)	(183)	(12)
RMBS [Member] | First Lien [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	193		193			243
Economic loss development after recoveries for R&W	19	7	50	(17)
RMBS [Member] | Second Lien [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	(31)		(31)			50
Economic loss development after recoveries for R&W	99	21	133	29
Other structured finance [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	26	24	26	24	29	26	29	27
Economic loss development after recoveries for R&W	(3)	(6)	(1)	(4)
Structured Finance [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	188	350	188	350	$ 266	319	$ 248	$ 100
Economic loss development after recoveries for R&W	(121)	(34)	(184)	(16)
Insurance Contracts [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	907		907			1,110
Economic loss development after recoveries for R&W	(22)	23	(12)	(10)
FG VIEs and other [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	64		64			75
Economic loss development after recoveries for R&W	(14)	(6)	(24)	(4)
Credit derivatives [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	(11)		(11)			$ (2)
Economic loss development after recoveries for R&W	$ (1)	$ 2	$ (3)	$ 9

XML

Reinsurance - Narrative (Details) - USD ($)		6 Months Ended	12 Months Ended	24 Months Ended
	Jun. 01, 2018	Jun. 30, 2019	Dec. 31, 2018	Dec. 31, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
Ceded Credit Risk [Line Items]
Net expected loss to be paid after recoveries for R&W		$ 960,000,000	$ 1,183,000,000		$ 963,000,000	$ 1,432,000,000	$ 1,298,000,000		$ 1,303,000,000
Assured Guaranty Re [Member]
Ceded Credit Risk [Line Items]
Amounts could be required to pay if third party exercised right to recapture business		40,000,000
AGC [Member]
Ceded Credit Risk [Line Items]
Amounts could be required to pay if third party exercised right to recapture business		302,000,000
Reinsurance of SGI Insured Portfolio [Member]
Ceded Credit Risk [Line Items]
Net expected loss to be paid after recoveries for R&W	$ 131,000,000		0		$ 0		$ 131,000,000		$ 131,000,000
Reinsurance of SGI Insured Portfolio [Member] | AGC [Member]
Ceded Credit Risk [Line Items]
Reinsurance retention policy quota share basis percent	100.00%
Reinsurance retention policy, excess retention, amount reinsured	$ 12,000,000,000
Premiums paid during the period	330,000,000
Prepaid reinsurance premiums	363,000,000
Future insurance installment premiums	45,000,000
Professional fees paid to advisors	4,000,000
Excess of Loss Reinsurance Facility [Member] | AGM, AGC and MAC [Member]
Ceded Credit Risk [Line Items]
Premiums paid during the period		3,200,000	$ 3,200,000
Remaining amount of losses covered under the facility								$ 220,000,000
Amount of losses covered under the facility								400,000,000
Minimum net losses required for attachment of excess of loss reinsurance facility								$ 800,000,000
Uncollateralized [Member] | AM Best, A- Rating [Member]
Ceded Credit Risk [Line Items]
Guaranty Liabilities		10,000,000
Uncollateralized [Member] | Standard & Poor's, A Rating [Member]
Ceded Credit Risk [Line Items]
Guaranty Liabilities		$ 1,000,000
Forecast [Member] | Excess of Loss Reinsurance Facility [Member] | AGM, AGC and MAC [Member]
Ceded Credit Risk [Line Items]
Reinsurance retention policy, excess retention, amount reinsured				$ 180,000,000
Credit derivatives [Member] | Reinsurance of SGI Insured Portfolio [Member] | AGC [Member]
Ceded Credit Risk [Line Items]
Reinsurance retention policy, excess retention, amount reinsured	1,500,000,000
Future insurance installment premiums	$ 17,000,000

XML

Contracts Accounted for as Insurance - Expected Collections of Gross Premiums Receivable Net of Commissions on Assumed Business (Details) $ in Millions	Jun. 30, 2019 USD ($)
Consolidated Entity Excluding Variable Interest Entities (VIE) [Member]
Financial Guarantee Insurance Premiums [Line Items]
2019 (July 1 - September 30)	$ 31
2019 (October 1 - December 31)	26
2020	98
2021	78
2022	78
2023	65
2024-2028	278
2029-2033	184
2034-2038	97
After 2038	100
Total	1,035
Variable Interest Entity, Primary Beneficiary [Member]
Financial Guarantee Insurance Premiums [Line Items]
Cash collections on FG VIEs	$ 10

XML

Reinsurance Reinsurance - Net Effect of Commutations of Ceded and Cancellations of Assumed Reinsurance Contracts (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Insurance [Abstract]
Increase in net unearned premium reserve	$ 15	$ 56	$ 15	$ 60
Increase in net par outstanding	1,069	1,191	1,069	1,233
Commutation gains (losses)	$ 1	$ (18)	$ 1	$ (17)

XML

Contracts Accounted for as Insurance - Scheduled Net Earned Premiums Insurance Contracts (Details) $ in Millions	Jun. 30, 2019 USD ($)
Financial Guarantee Insurance Product Line [Member]
Financial Guarantee Insurance Premiums [Line Items]
2019 (July 1 - September 30)	$ 82
2019 (October 1 - December 31)	80
Subtotal 2019	162
2020	304
2021	277
2022	251
2023	230
2024-2028	905
2029-2033	615
2034-2038	348
After 2038	300
Deferred premium revenue, net	3,392
Future accretion	170
Total future net earned premiums	3,562
Variable Interest Entity, Primary Beneficiary [Member]
Financial Guarantee Insurance Premiums [Line Items]
Deferred premium revenue, net	$ 51

XML

Expected Loss to be Paid - Liquidation Rates and Key Assumptions in Base Case Expected Loss First Lien RMBS (Details) - scenario	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018	Mar. 31, 2019
Financing Receivable, Delinquent/Modified in Previous 12 Months [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	20.00%	20.00%	20.00%
Financing Receivable, Delinquent/Modified in Previous 12 Months [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	20.00%	20.00%	20.00%
Financing Receivable, Delinquent/Modified in Previous 12 Months [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	20.00%	20.00%	20.00%
Financial Asset, 30 to 59 Days Past Due [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	40.00%	40.00%	40.00%
Financial Asset, 30 to 59 Days Past Due [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	30.00%	30.00%	30.00%
Financial Asset, 30 to 59 Days Past Due [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	35.00%	35.00%	35.00%
Financial Asset, 60 to 89 Days Past Due [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	45.00%	45.00%	45.00%
Financial Asset, 60 to 89 Days Past Due [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	40.00%	40.00%	40.00%
Financial Asset, 60 to 89 Days Past Due [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	45.00%	45.00%	45.00%
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	55.00%	50.00%	50.00%
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	50.00%	50.00%	50.00%
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	55.00%	55.00%	55.00%
Financing Receivables, Bankruptcy [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	40.00%	40.00%	40.00%
Financing Receivables, Bankruptcy [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	45.00%	45.00%	45.00%
Financing Receivables, Bankruptcy [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	50.00%	50.00%	50.00%
Financing Receivable, Foreclosure [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	60.00%	60.00%	60.00%
Financing Receivable, Foreclosure [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	60.00%	60.00%	60.00%
Financing Receivable, Foreclosure [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	65.00%	65.00%	65.00%
Financing Receivable, Real Estate Owned [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	100.00%	100.00%	100.00%
United States [Member] | Alt-A and Prime [Member] | 2005 and prior [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	60.00%	60.00%	60.00%
United States [Member] | Alt-A and Prime [Member] | 2006 [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	70.00%	70.00%	70.00%
United States [Member] | Alt-A and Prime [Member] | 2007 [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	70.00%	70.00%	70.00%
United States [Member] | Alt-A and Prime [Member] | Minimum [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	0.00%	1.20%	1.00%
Final CDR	0.00%	0.10%	0.00%
United States [Member] | Alt-A and Prime [Member] | Maximum [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	9.50%	11.40%	10.70%
Final CDR	0.50%	0.60%	0.50%
United States [Member] | Alt-A and Prime [Member] | Weighted Average [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	4.00%	4.60%	4.30%
Final CDR	0.20%	0.20%	0.20%
United States [Member] | Option ARM [Member] | 2005 and prior [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	60.00%	60.00%	60.00%
United States [Member] | Option ARM [Member] | 2006 [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	60.00%	60.00%	60.00%
United States [Member] | Option ARM [Member] | 2007 [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	70.00%	70.00%	70.00%
United States [Member] | Option ARM [Member] | Minimum [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	2.40%	1.80%	2.10%
Final CDR	0.10%	0.10%	0.10%
United States [Member] | Option ARM [Member] | Maximum [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	7.90%	8.30%	9.30%
Final CDR	0.40%	0.40%	0.50%
United States [Member] | Option ARM [Member] | Weighted Average [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	5.50%	5.60%	5.90%
Final CDR	0.30%	0.30%	0.30%
United States [Member] | Subprime [Member] | 2005 and prior [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	80.00%	80.00%	80.00%
United States [Member] | Subprime [Member] | 2006 [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	75.00%	75.00%	75.00%
United States [Member] | Subprime [Member] | 2007 [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial loss severity	95.00%	95.00%	95.00%
United States [Member] | Subprime [Member] | Minimum [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	2.50%	1.80%	2.40%
Final CDR	0.10%	0.10%	0.10%
United States [Member] | Subprime [Member] | Maximum [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	22.80%	23.20%	24.10%
Final CDR	1.10%	1.20%	1.20%
United States [Member] | Subprime [Member] | Weighted Average [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	6.00%	6.20%	6.20%
Final CDR	0.30%	0.30%	0.30%
First Lien [Member] | United States [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Projected loss assumptions, Final CPR, Period for voluntary prepayments to continue	12 months
Number of scenarios weighted in estimating expected losses	5	5
Base Scenario [Member] | First Lien [Member] | United States [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Projected loss assumptions, Final CPR, Period for voluntary prepayments to continue	4 years
Final CPR	15.00%	15.00%	15.00%

XML

Contracts Accounted for as Insurance - Selected Information for Policies Paid In Installments (Details) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017
Financial Guarantee Insurance Premiums [Line Items]
Premiums receivable, net of commission payable	$ 866	$ 904	$ 932	$ 915
Financial Guarantee Policies Paid in Installments [Member]
Financial Guarantee Insurance Premiums [Line Items]
Premiums receivable, net of commission payable	865	903
Gross deferred premium revenue	$ 1,251	$ 1,313
Weighted-average risk-free rate used to discount premiums	2.30%	2.30%
Weighted-average period of premiums receivable (in years)	9 years 1 month 6 days	9 years 1 month 6 days

XML

Expected Loss to be Paid - Key Assumptions in Base Case Expected Loss Second Lien RMBS (Details) - scenario	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018	Mar. 31, 2019
RMBS [Member] | United States [Member] | Option ARM [Member] | Minimum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	2.40%	1.80%	2.10%
Final CDR	0.10%	0.10%	0.10%
RMBS [Member] | United States [Member] | Option ARM [Member] | Maximum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	7.90%	8.30%	9.30%
Final CDR	0.40%	0.40%	0.50%
RMBS [Member] | United States [Member] | Option ARM [Member] | Weighted Average [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	5.50%	5.60%	5.90%
Final CDR	0.30%	0.30%	0.30%
RMBS [Member] | United States [Member] | Alt-A and Prime [Member] | Minimum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	0.00%	1.20%	1.00%
Final CDR	0.00%	0.10%	0.00%
RMBS [Member] | United States [Member] | Alt-A and Prime [Member] | Maximum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	9.50%	11.40%	10.70%
Final CDR	0.50%	0.60%	0.50%
RMBS [Member] | United States [Member] | Alt-A and Prime [Member] | Weighted Average [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	4.00%	4.60%	4.30%
Final CDR	0.20%	0.20%	0.20%
RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	98.00%	98.00%	98.00%
RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member] | Minimum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Final CPR	2.50%
Plateau CDR	4.60%	4.60%	5.50%
Final CDR	2.50%	2.50%	2.50%
RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member] | Maximum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	23.50%	26.80%	25.60%
Final CDR	3.20%	3.20%	3.20%
RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member] | Weighted Average [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	9.20%	10.10%	9.50%
Final CDR	2.50%	2.50%	2.50%
RMBS [Member] | United States [Member] | Subprime [Member] | Minimum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	2.50%	1.80%	2.40%
Final CDR	0.10%	0.10%	0.10%
RMBS [Member] | United States [Member] | Subprime [Member] | Maximum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	22.80%	23.20%	24.10%
Final CDR	1.10%	1.20%	1.20%
RMBS [Member] | United States [Member] | Subprime [Member] | Weighted Average [Member]
Schedule of Expected Losses to be Paid [Line Items]
Plateau CDR	6.00%	6.20%	6.20%
Final CDR	0.30%	0.30%	0.30%
Financing Receivable, Delinquent/Modified in Previous 12 Months [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	20.00%	20.00%	20.00%
Financing Receivable, Delinquent/Modified in Previous 12 Months [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation rate	20.00%	20.00%	20.00%
Financial Asset, 30 to 59 Days Past Due [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	30.00%	30.00%	30.00%
Financial Asset, 30 to 59 Days Past Due [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation rate	30.00%	35.00%	30.00%
Financial Asset, 60 to 89 Days Past Due [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	40.00%	40.00%	40.00%
Financial Asset, 60 to 89 Days Past Due [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation rate	45.00%	50.00%	45.00%
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	50.00%	50.00%	50.00%
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation rate	65.00%	70.00%	65.00%
Financing Receivables, Bankruptcy [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	45.00%	45.00%	45.00%
Financing Receivables, Bankruptcy [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation rate	55.00%	55.00%	55.00%
Financing Receivable, Foreclosure [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	60.00%	60.00%	60.00%
Financing Receivable, Foreclosure [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation rate	60.00%	65.00%	60.00%
Financing Receivable, Real Estate Owned [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation Rate	100.00%	100.00%	100.00%
Financing Receivable, Real Estate Owned [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit [Member]
Schedule of Expected Losses to be Paid [Line Items]
Liquidation rate	100.00%	100.00%	100.00%
Second Lien [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss recovery assumption (as a percent)	2.00%	2.00%
Number of scenarios weighted in estimating expected losses		5
Second Lien [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit and Closed-end Mortgage [Member]
Schedule of Expected Losses to be Paid [Line Items]
Final CPR	15.00%	15.00%	15.00%
First Lien [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Number of scenarios weighted in estimating expected losses	5	5
Projected loss assumptions, Final CPR, Period for voluntary prepayments to continue	12 months
Base Scenario [Member] | First Lien [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Final CPR	15.00%	15.00%	15.00%
Projected loss assumptions, Final CPR, Period for voluntary prepayments to continue	4 years
2005 and prior [Member] | RMBS [Member] | United States [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	60.00%	60.00%	60.00%
2005 and prior [Member] | RMBS [Member] | United States [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	60.00%	60.00%	60.00%
2005 and prior [Member] | RMBS [Member] | United States [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	80.00%	80.00%	80.00%
2006 [Member] | RMBS [Member] | United States [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	60.00%	60.00%	60.00%
2006 [Member] | RMBS [Member] | United States [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	70.00%	70.00%	70.00%
2006 [Member] | RMBS [Member] | United States [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	75.00%	75.00%	75.00%
2007 [Member] | RMBS [Member] | United States [Member] | Option ARM [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	70.00%	70.00%	70.00%
2007 [Member] | RMBS [Member] | United States [Member] | Alt-A and Prime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	70.00%	70.00%	70.00%
2007 [Member] | RMBS [Member] | United States [Member] | Subprime [Member]
Schedule of Expected Losses to be Paid [Line Items]
Loss severity	95.00%	95.00%	95.00%

XML

Contracts Accounted for as Insurance - Loss and LAE Reserve and Salvage and Subrogation Recoverable Net of Reinsurance (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	$ 503	$ 674
Variable Interest Entity, Primary Beneficiary [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	39	47
Public Finance [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	544	626
Other structured finance [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	39	30
Structured Finance [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	(40)	51
Financial Guarantee [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	504	677
Other [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	(1)	(3)
United States [Member] | Public Finance [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	539	612
United States [Member] | RMBS [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	(79)	21
Non United States [Member] | Public Finance [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Net Reserve (Recoverable)	$ 5	$ 14

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Expected Loss to be Paid - Narrative (Details) $ in Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) Curve Payment scenario	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) scenario	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Nov. 26, 2012 USD ($)
Schedule of Expected Losses to be Paid [Line Items]
Period of insured credit performance of guaranteed obligations (in some cases over)			30 years
Discount factor (as a percent)			2.10%		2.74%
Total net exposure	$ 235,367		$ 235,367		$ 241,802
Net expected loss to be paid after recoveries for R&W	960	$ 1,432	960	$ 1,432	$ 1,183	$ 963	$ 1,298	$ 1,303
Economic loss development after recoveries for R&W	$ (37)	19	$ (39)	(5)
Additional loss recovery assumption	20.00%		20.00%		10.00%
Additional loss recovery assumption, recovery period			5 years
Loss Recovery Assumption, Additional Increase in Recovery Projection, Percent	30.00%		30.00%
Loss Recovery Assumption, Additional Increase in Recovery Projection, Economic Benefit	$ 64		$ 64
Loss Recovery Assumption, Additional Decrease in Recovery Projection, Percent	10.00%		10.00%
Loss Recovery Assumption, Additional Decrease in Recovery Projection, Economic Loss	$ 64		$ 64
Minimum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Risk free discount rate			0.00%		0.00%
Maximum [Member]
Schedule of Expected Losses to be Paid [Line Items]
Risk free discount rate			2.63%		3.06%
Puerto Rico [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	4,494		$ 4,494		$ 4,767
Non United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for representations and warranties, percent			2.30%		2.70%
RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	3,835		$ 3,835		$ 4,270
Net expected loss to be paid after recoveries for R&W	162	326	162	326	293	237	219	73
Economic loss development after recoveries for R&W	(118)	(28)	(183)	(12)
Future net R&W benefit	$ 34		$ 34		5
RMBS [Member] | United States [Member] | Minimum [Member] | HELOCs [Member]
Schedule of Expected Losses to be Paid [Line Items]
Final CPR	2.50%		2.50%
HELOCs [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Initial period for which borrower can pay only interest payments			10 years
Extended period for which borrow can pay only interest payments			5 years
Other structured finance [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	$ 5,279		$ 5,279		5,683
Net expected loss to be paid after recoveries for R&W	26	24	26	24	26	29	29	27
Economic loss development after recoveries for R&W	(3)	(6)	(1)	(4)
Public Finance [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	225,025		225,025		230,665
Net expected loss to be paid after recoveries for R&W	772	1,082	772	1,082	864	697	1,050	1,203
Economic loss development after recoveries for R&W	84	53	145	11
Public Finance [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	180,537		180,537		186,562
Net expected loss to be paid after recoveries for R&W	749	1,041	749	1,041	832	666	1,007	1,157
Net expected credit for estimated future recoveries of claims paid	657		657		586
Economic loss development after recoveries for R&W	92	56	154	17
Public Finance [Member] | Non United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	44,488		44,488		44,103
Net expected loss to be paid after recoveries for R&W	23	41	23	41	32	$ 31	$ 43	$ 46
Economic loss development after recoveries for R&W	(8)	(3)	(9)	(6)
Public Finance Stockton Pension Oblgiation Bonds [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	110		110
BIG [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	8,863		8,863		10,160
BIG [Member] | Puerto Rico [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	4,500		4,500
BIG [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	1,723		1,723		2,387
BIG [Member] | Other structured finance [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	191		191		259
BIG [Member] | Life Insurance Transaction [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	40		40
BIG [Member] | Student Loan [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	92		92
BIG [Member] | Public Finance [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	6,909		6,909		7,429
BIG [Member] | Public Finance [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	6,025		6,025		6,388
BIG [Member] | Public Finance [Member] | Non United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	884		884		1,041
First Lien [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	193		193		$ 243
Economic loss development after recoveries for R&W	$ 19	7	$ 50	(17)
Number of delinquent payments | Payment			2
Projected loss assumptions, CDR, plateau rate, projection period			36 months
Projected loss assumptions, Final CPR, Period for voluntary prepayments to continue			12 months
Intermediate conditional default rate (as a percent)	5.00%		5.00%
Number of scenarios weighted in estimating expected losses | scenario			5		5
First Lien [Member] | Base Scenario [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Projected loss assumptions, CDR, plateau rate, projection period			36 months
Performing or projected to reperform, projection period			36 months
Period from plateau to intermediate conditional default rate (in months)			12 months
Period of constant intermediate conditional default rate (in months)			36 months
Intermediate conditional default rate as a percentage of plateau conditional default rate			20.00%
Final conditional default rate as a percentage of plateau conditional default rate			5.00%
Projected loss assumptions, Final CPR, Period for voluntary prepayments to continue			4 years
Default from delinquentor rate, term			36 months
Projected loss assumptions, loss severity, subsequent period			18 months
Estimated loss severity rate, one through six months (as a percent)			18 months
Loss severity (as a percent)	40.00%		40.00%
Projected loss assumptions, period to reach final loss severity rate			2 years 6 months
Final CPR	15.00%		15.00%		15.00%	15.00%
First Lien [Member] | More Stressful Environment [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Period from plateau to intermediate conditional default rate (in months)			15 months
Projected loss assumptions, period to reach final loss severity rate			9 years
Projected loss assumptions, increase (decrease) in expected loss to be paid, net			$ 54
First Lien [Member] | Least Stressful Environment [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Projected loss assumptions, CDR, plateau rate, projection period			30 months
Period from plateau to intermediate conditional default rate (in months)			9 months
Projected loss assumptions, increase (decrease) in expected loss to be paid, net			$ 41
Decrease in the plateau period used to calculate potential change in loss estimate (in months)			6 months
Second Lien [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	$ (31)		$ (31)		$ 50
Economic loss development after recoveries for R&W	$ 99	21	$ 133	29
Period from plateau to intermediate conditional default rate (in months)			28 months
Number of scenarios weighted in estimating expected losses | scenario					5
Period of loan default estimate			6 months
Number of preceding months average liquidation rates used to estimate loan default rate			6 months
Projected loss assumptions, period of consistent conditional default rate			6 months
Stress period (in months)			34 months
Loss recovery assumption (as a percent)	2.00%		2.00%		2.00%
Number of conditional default rate curves modeled in estimating losses | Curve			5
Monthly delinquency threshold			6 months
Second Lien [Member] | RMBS [Member] | United States [Member] | Home Equity Line of Credit and Closed-end Mortgage [Member]
Schedule of Expected Losses to be Paid [Line Items]
Final CPR	15.00%		15.00%		15.00%	15.00%
Second Lien [Member] | Base Scenario [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Stress period (in months)			34 months
Second Lien [Member] | Most Stressful [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Projected loss assumptions, CDR, plateau rate, projection period			8 months
Period from plateau to intermediate conditional default rate (in months)			31 months
Stress period (in months)			39 months
Increase in conditional default rate ramp down period			3 months
Second Lien [Member] | Most Stressful [Member] | RMBS [Member] | United States [Member] | HELOCs [Member]
Schedule of Expected Losses to be Paid [Line Items]
Change in estimate for increased conditional default rate plateau period			$ 7
Second Lien [Member] | Lease Stressful [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Stress period (in months)			29 months
Period of constant conditional default rate (in months)			4 months
Change in estimate for decreased prepayment rate, Percent			10.00%
Decreased conditional default rate ramp down period			25 months
Second Lien [Member] | Lease Stressful [Member] | RMBS [Member] | United States [Member] | HELOCs [Member]
Schedule of Expected Losses to be Paid [Line Items]
Change in estimate for decreased conditional default rate ramp down period			$ 7
Southern District of Mississippi Vs Madison County, Mississippi [Member] | Parkway East [Member] | Public Finance [Member]
Schedule of Expected Losses to be Paid [Line Items]
Total net exposure	$ 17		$ 17
Second Lien [Member] | RMBS [Member] | United States [Member]
Schedule of Expected Losses to be Paid [Line Items]
Period from plateau to intermediate conditional default rate (in months)			28 months
Period of constant conditional default rate (in months)			6 months
Credit derivatives [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W	(11)		$ (11)		$ (2)
Economic loss development after recoveries for R&W	$ (1)	$ 2	$ (3)	$ 9
ACA 2005-2 Collateralized Debt Obligations [Member] | CIFG Holding Inc. [Member] | Total [Member] | Credit derivatives [Member] | CIFG Holdings Inc. vs JP Morgan Securities LLC [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W									$ 400
Libertas II Collateralized Debt Obligations [Member] | CIFG Holding Inc. [Member] | Total [Member] | Credit derivatives [Member] | CIFG Holdings Inc. vs JP Morgan Securities LLC [Member] | RMBS [Member]
Schedule of Expected Losses to be Paid [Line Items]
Net expected loss to be paid after recoveries for R&W									$ 325

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Contracts Accounted for as Insurance - Components of Net Reserves (Salvage) Insurance Contracts (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Insurance [Abstract]
Loss and LAE reserve	$ 1,102	$ 1,177
Reinsurance recoverable on unpaid losses	(41)	(34)
Loss and LAE reserve, net	1,061	1,143
Salvage and subrogation recoverable	(580)	(490)
Salvage and subrogation payable	23	24
Other payable (recoverable)	(1)	(3)
Salvage and subrogation recoverable, net, and other recoverable	(558)	(469)
Net reserves (salvage)	$ 503	$ 674

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Contracts Accounted for as Insurance - Reconciliation of Net Expected Loss to be Paid and Expensed (Details) - USD ($) $ in Millions	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Guarantor Obligations [Line Items]
Net expected loss to be paid - financial guaranty insurance	$ (960)	$ (963)	$ (1,183)	$ (1,432)	$ (1,298)	$ (1,303)
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(1,061)		$ (1,143)
Net expected loss to be expensed	460
Variable Interest Entity, Primary Beneficiary [Member]
Guarantor Obligations [Line Items]
Net expected loss to be expensed	33
Financial Guarantee Insurance And Other Product Line [Member]
Guarantor Obligations [Line Items]
Net expected loss to be paid - financial guaranty insurance	906
Contra-paid, net	56
Salvage and subrogation recoverable, net, and other recoverable	558
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(1,060)
Net expected loss to be expensed	$ 460

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Contracts Accounted for as Insurance - Net Expected Loss to be Expensed Insurance Contracts (Details) $ in Millions	Jun. 30, 2019 USD ($)
Insurance [Abstract]
2019 (July 1 - September 30)	$ 8
2019 (October 1 - December 31)	9
Subtotal 2019	17
2020	38
2021	35
2022	34
2023	35
2024-2028	148
2029-2033	99
2034-2038	45
After 2038	9
Net expected loss to be expensed	460
Future accretion	30
Total expected future loss and LAE	$ 490

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Contracts Accounted for as Insurance - Loss and LAE Reported on the Statements of Operations (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Loss and LAE	$ (1)	$ 44	$ 45	$ 26
Variable Interest Entity, Primary Beneficiary [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Loss and LAE	14	3	15	(3)
Public Finance [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Loss and LAE	86	61	156	32
Public Finance [Member] | Financial Guarantee Insurance And Other Product Line [Member] | United States [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Loss and LAE	94	62	164	34
Public Finance [Member] | Financial Guarantee Insurance And Other Product Line [Member] | Non United States [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Loss and LAE	(8)	(1)	(8)	(2)
RMBS [Member] | Financial Guarantee Insurance And Other Product Line [Member] | United States [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Loss and LAE	(88)	(12)	(115)	4
Other structured finance [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Loss and LAE	1	(5)	4	(10)
Structured Finance [Member] | Financial Guarantee Insurance And Other Product Line [Member]
Liability for Claims and Claims Adjustment Expense Including Salvage and Subrogation Recoverable [Line Items]
Loss and LAE	$ (87)	$ (17)	$ (111)	$ (6)

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Contracts Accounted for as Insurance - BIG Transaction Loss Summary (Details) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2019 USD ($) risk	Dec. 31, 2018 USD ($) risk
Discount
Total	$ (30)
Reserves (salvage)
Total	$ 503	$ 674
BIG [Member]
Number of risks
Total (in contracts) | risk	278	312
Remaining weighted average contract period
Total (in years)	9 years 7 months 6 days	9 years 9 months 18 days
Principal
Total	$ 8,715	$ 10,003
Interest
Total	4,271	4,949
Total net outstanding exposure
Total	12,986	14,952
Expected cash outflows (inflows)
Total	3,711	4,015
Potential recoveries
Total	(2,775)	(2,818)
Subtotal
Total	936	1,197
Discount
Total	(30)	(88)
Present value of expected cash flows
Net expected loss to be paid	906	1,109
Deferred premium revenue
Total	658	724
Reserves (salvage)
Total	$ 502	$ 673
BIG [Member] | BIG 1 [Member]
Number of risks
Total (in contracts) | risk	116	128
Principal
Total	$ 2,705	$ 2,981
BIG [Member] | BIG 2 [Member]
Number of risks
Total (in contracts) | risk	27	39
Principal
Total	$ 524	$ 932
BIG [Member] | BIG 3 [Member]
Number of risks
Total (in contracts) | risk	135	145
Principal
Total	$ 5,486	$ 6,090
BIG [Member] | Consolidated Entity Excluding Variable Interest Entities (VIE) [Member]
Number of risks
Total (in contracts) | risk	278	312
Remaining weighted average contract period
Total (in years)	9 years 7 months 6 days	9 years 9 months 18 days
Principal
Total	$ 8,715	$ 10,003
Interest
Total	4,271	4,949
Total net outstanding exposure
Total	12,986	14,952
Expected cash outflows (inflows)
Total	3,984	4,305
Potential recoveries
Total	(2,966)	(3,010)
Subtotal
Total	1,018	1,295
Discount
Total	(48)	(111)
Present value of expected cash flows
Net expected loss to be paid	970	1,184
Deferred premium revenue
Total	708	788
Reserves (salvage)
Total	$ 541	$ 720
BIG [Member] | Consolidated Entity Excluding Variable Interest Entities (VIE) [Member] | BIG 1 [Member]
Number of risks
Total (in contracts) | risk	116	128
Ceded (in contracts) | risk	7	(8)
Remaining weighted average contract period
Gross (in years)	7 years 9 months 18 days	7 years 10 months 24 days
Ceded (in years)	4 years 8 months 12 days	6 years 6 months
Principal
Gross	$ 2,771	$ 3,052
Ceded	(66)	(71)
Interest
Gross	1,215	1,319
Ceded	(16)	(29)
Total net outstanding exposure
Gross	3,986	4,371
Ceded	(82)	(100)
Expected cash outflows (inflows)
Gross	108	98
Ceded	(4)	(5)
Potential recoveries
Gross	(552)	(465)
Ceded	21	23
Subtotal
Gross	(444)	(367)
Ceded	17	18
Discount
Gross	79	83
Ceded	(4)	(5)
Present value of expected cash flows
Gross	(365)	(284)
Ceded	13	13
Deferred premium revenue
Gross	172	125
Ceded	(3)	(4)
Reserves (salvage)
Gross	(400)	(311)
Ceded	$ 15	$ 15
BIG [Member] | Consolidated Entity Excluding Variable Interest Entities (VIE) [Member] | BIG 2 [Member]
Number of risks
Total (in contracts) | risk	27	39
Ceded (in contracts) | risk	0	(1)
Remaining weighted average contract period
Gross (in years)	17 years 7 months 6 days	13 years 2 months 12 days
Ceded (in years)		2 years 1 month 6 days
Principal
Gross	$ 524	$ 938
Ceded	0	(6)
Interest
Gross	470	592
Ceded	0	(1)
Total net outstanding exposure
Gross	994	1,530
Ceded	0	(7)
Expected cash outflows (inflows)
Gross	131	264
Ceded	0	(1)
Potential recoveries
Gross	(51)	(81)
Ceded	0	0
Subtotal
Gross	80	183
Ceded	0	(1)
Discount
Gross	(18)	(53)
Ceded	0	0
Present value of expected cash flows
Gross	62	130
Ceded	0	(1)
Deferred premium revenue
Gross	24	151
Ceded	0	0
Reserves (salvage)
Gross	43	48
Ceded	$ 0	$ (1)
BIG [Member] | Consolidated Entity Excluding Variable Interest Entities (VIE) [Member] | BIG 3 [Member]
Number of risks
Total (in contracts) | risk	135	145
Ceded (in contracts) | risk	6	(7)
Remaining weighted average contract period
Gross (in years)	9 years 7 months 6 days	10 years 1 month 6 days
Ceded (in years)	8 years 4 months 24 days	9 years 1 month 6 days
Principal
Gross	$ 5,650	$ 6,249
Ceded	(164)	(159)
Interest
Gross	2,670	3,140
Ceded	(68)	(72)
Total net outstanding exposure
Gross	8,320	9,389
Ceded	(232)	(231)
Expected cash outflows (inflows)
Gross	3,871	4,029
Ceded	(122)	(80)
Potential recoveries
Gross	(2,479)	(2,542)
Ceded	95	55
Subtotal
Gross	1,392	1,487
Ceded	(27)	(25)
Discount
Gross	(97)	(134)
Ceded	(8)	(2)
Present value of expected cash flows
Gross	1,295	1,353
Ceded	(35)	(27)
Deferred premium revenue
Gross	517	518
Ceded	(2)	(2)
Reserves (salvage)
Gross	916	993
Ceded	(33)	(24)
BIG [Member] | Variable Interest Entity, Primary Beneficiary [Member]
Expected cash outflows (inflows)
Total	(273)	(290)
Potential recoveries
Total	191	192
Subtotal
Total	(82)	(98)
Discount
Total	18	23
Present value of expected cash flows
Net expected loss to be paid	(64)	(75)
Deferred premium revenue
Total	(50)	(64)
Reserves (salvage)
Total	$ (39)	$ (47)

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Fair Value Measurement - Narrative (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019 USD ($) Security	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) Security	Jun. 30, 2018 USD ($)	Dec. 31, 2018	Apr. 08, 2005 USD ($) Trust
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Percentage of CDS contracts which are fair valued using minimum premium					17.00%
Recurring [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Number of fixed maturity securities valued using model processes | Security	132		132
Fixed maturity securities	$ 1,152,000,000		$ 1,152,000,000
Measurement Input, Default Rate [Member] | Total [Member] | Recurring [Member] | Level 3 [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed			1.75%		2.47%
Measurement Input, Default Rate [Member] | Total [Member] | Recurring [Member] | Level 3 [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed			2.37%		2.89%
AGC [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Number of custodial trusts | Trust						4
Share value, amount						$ 200,000,000
Maximum amount						$ 50,000,000
Other Income [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value gains (losses) on Committed Capital Securities	$ 19,000,000	$ (1,000,000)	$ 10,000,000	$ (2,000,000)

XML

Fair Value Measurement - Financial Instruments Carried at Fair Value (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Assets:
Fixed-maturity securities	$ 10,733	$ 10,818
Other invested assets	60	55
Liabilities:
Credit derivative liabilities	224	209
Recurring [Member]
Assets:
Other invested assets	6	7
FG VIEs’ assets, at fair value	526	569
Other assets	166	139
Total assets carried at fair value	11,431	11,533
Liabilities:
Credit derivative liabilities	224	209
FG VIEs’ liabilities with recourse, at fair value	446	517
FG VIEs’ liabilities without recourse, at fair value	105	102
Total liabilities carried at fair value	775	828
Recurring [Member] | Level 1 [Member]
Assets:
Other invested assets	0	0
FG VIEs’ assets, at fair value	0	0
Other assets	32	25
Total assets carried at fair value	925	454
Liabilities:
Credit derivative liabilities	0	0
FG VIEs’ liabilities with recourse, at fair value	0	0
FG VIEs’ liabilities without recourse, at fair value	0	0
Total liabilities carried at fair value	0	0
Recurring [Member] | Level 2 [Member]
Assets:
Other invested assets	0	0
FG VIEs’ assets, at fair value	0	0
Other assets	42	38
Total assets carried at fair value	8,730	9,016
Liabilities:
Credit derivative liabilities	0	0
FG VIEs’ liabilities with recourse, at fair value	0	0
FG VIEs’ liabilities without recourse, at fair value	0	0
Total liabilities carried at fair value	0	0
Recurring [Member] | Level 3 [Member]
Assets:
Other invested assets	6	7
FG VIEs’ assets, at fair value	526	569
Other assets	92	76
Total assets carried at fair value	1,776	2,063
Liabilities:
Credit derivative liabilities	224	209
FG VIEs’ liabilities with recourse, at fair value	446	517
FG VIEs’ liabilities without recourse, at fair value	105	102
Total liabilities carried at fair value	775	828
Fixed Maturities [Member]
Assets:
Fixed-maturity securities	9,574	10,089
Fixed Maturities [Member] | Obligations of state and political subdivisions [Member]
Assets:
Fixed-maturity securities	4,683	4,911
Fixed Maturities [Member] | US government and agencies [Member]
Assets:
Fixed-maturity securities	165	175
Fixed Maturities [Member] | Corporate securities [Member]
Assets:
Fixed-maturity securities	2,267	2,136
Fixed Maturities [Member] | RMBS [Member]
Assets:
Fixed-maturity securities	938	982
Fixed Maturities [Member] | CMBS [Member]
Assets:
Fixed-maturity securities	495	539
Fixed Maturities [Member] | Asset-backed Securities [Member]
Assets:
Fixed-maturity securities	779	1,068
Fixed Maturities [Member] | Foreign government securities [Member]
Assets:
Fixed-maturity securities	247	278
Fixed Maturities [Member] | Recurring [Member]
Assets:
Fixed-maturity securities	9,574	10,089
Fixed Maturities [Member] | Recurring [Member] | Obligations of state and political subdivisions [Member]
Assets:
Fixed-maturity securities	4,683	4,911
Fixed Maturities [Member] | Recurring [Member] | US government and agencies [Member]
Assets:
Fixed-maturity securities	165	175
Fixed Maturities [Member] | Recurring [Member] | Corporate securities [Member]
Assets:
Fixed-maturity securities	2,267	2,136
Fixed Maturities [Member] | Recurring [Member] | RMBS [Member]
Assets:
Fixed-maturity securities	938	982
Fixed Maturities [Member] | Recurring [Member] | CMBS [Member]
Assets:
Fixed-maturity securities	495	539
Fixed Maturities [Member] | Recurring [Member] | Asset-backed Securities [Member]
Assets:
Fixed-maturity securities	779	1,068
Fixed Maturities [Member] | Recurring [Member] | Foreign government securities [Member]
Assets:
Fixed-maturity securities	247	278
Fixed Maturities [Member] | Recurring [Member] | Level 1 [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 1 [Member] | Obligations of state and political subdivisions [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 1 [Member] | US government and agencies [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 1 [Member] | Corporate securities [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 1 [Member] | RMBS [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 1 [Member] | CMBS [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 1 [Member] | Asset-backed Securities [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 1 [Member] | Foreign government securities [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 2 [Member]
Assets:
Fixed-maturity securities	8,422	8,678
Fixed Maturities [Member] | Recurring [Member] | Level 2 [Member] | Obligations of state and political subdivisions [Member]
Assets:
Fixed-maturity securities	4,578	4,812
Fixed Maturities [Member] | Recurring [Member] | Level 2 [Member] | US government and agencies [Member]
Assets:
Fixed-maturity securities	165	175
Fixed Maturities [Member] | Recurring [Member] | Level 2 [Member] | Corporate securities [Member]
Assets:
Fixed-maturity securities	2,219	2,080
Fixed Maturities [Member] | Recurring [Member] | Level 2 [Member] | RMBS [Member]
Assets:
Fixed-maturity securities	613	673
Fixed Maturities [Member] | Recurring [Member] | Level 2 [Member] | CMBS [Member]
Assets:
Fixed-maturity securities	495	539
Fixed Maturities [Member] | Recurring [Member] | Level 2 [Member] | Asset-backed Securities [Member]
Assets:
Fixed-maturity securities	105	121
Fixed Maturities [Member] | Recurring [Member] | Level 2 [Member] | Foreign government securities [Member]
Assets:
Fixed-maturity securities	247	278
Fixed Maturities [Member] | Recurring [Member] | Level 3 [Member]
Assets:
Fixed-maturity securities	1,152	1,411
Fixed Maturities [Member] | Recurring [Member] | Level 3 [Member] | Obligations of state and political subdivisions [Member]
Assets:
Fixed-maturity securities	105	99
Fixed Maturities [Member] | Recurring [Member] | Level 3 [Member] | US government and agencies [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 3 [Member] | Corporate securities [Member]
Assets:
Fixed-maturity securities	48	56
Fixed Maturities [Member] | Recurring [Member] | Level 3 [Member] | RMBS [Member]
Assets:
Fixed-maturity securities	325	309
Fixed Maturities [Member] | Recurring [Member] | Level 3 [Member] | CMBS [Member]
Assets:
Fixed-maturity securities	0	0
Fixed Maturities [Member] | Recurring [Member] | Level 3 [Member] | Asset-backed Securities [Member]
Assets:
Fixed-maturity securities	674	947
Fixed Maturities [Member] | Recurring [Member] | Level 3 [Member] | Foreign government securities [Member]
Assets:
Fixed-maturity securities	0	0
Short-term Investments [Member]
Assets:
Fixed-maturity securities	1,159	729
Short-term Investments [Member] | Recurring [Member]
Assets:
Fixed-maturity securities	1,159	729
Short-term Investments [Member] | Recurring [Member] | Level 1 [Member]
Assets:
Fixed-maturity securities	893	429
Short-term Investments [Member] | Recurring [Member] | Level 2 [Member]
Assets:
Fixed-maturity securities	266	300
Short-term Investments [Member] | Recurring [Member] | Level 3 [Member]
Assets:
Fixed-maturity securities	$ 0	$ 0

XML

Fair Value Measurement - Fair Value Level 3 Rollforward Recurring Basis (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
FG VIEs' assets, at fair value [Member]
Fair Value Level 3 Rollforward
Fair value at beginning of period	$ 560	$ 651	$ 569	$ 700
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Net Income (loss)	47	3	64	4
Other comprehensive income (loss)	0	0	0	0
Purchases	0	0	0	0
Issuances		0		0
Settlements	(75)	(27)	(101)	(60)
FG VIE deconsolidations	(6)		(6)	(17)
Transfers Into Level 3	0		0
Fair value at end of period	526	627	526	627
Change in unrealized gains/(losses) related to financial instruments held	52	6	72	10
Other Assets and Other Invested Assets [Member]
Fair Value Level 3 Rollforward
Fair value at beginning of period	68	62	77	64
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Net Income (loss)	19	(1)	10	(2)
Other comprehensive income (loss)	0	0	0	0
Purchases	0	0	0	0
Issuances		0		0
Settlements	0	0	0	(1)
FG VIE deconsolidations	0		0	0
Transfers Into Level 3	0		0
Fair value at end of period	87	61	87	61
Change in unrealized gains/(losses) related to financial instruments held	19	(1)	10	(2)
Obligations of state and political subdivisions [Member] | Fixed Maturities [Member]
Fair Value Level 3 Rollforward
Fair value at beginning of period	104	83	99	76
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Net Income (loss)	1	1	2	2
Other comprehensive income (loss)	0	8	5	11
Purchases	0	0	0	4
Issuances		0		0
Settlements	0	0	(1)	(1)
FG VIE deconsolidations	0		0	0
Transfers Into Level 3	0		0
Fair value at end of period	105	92	105	92
Change in unrealized gains/(losses) related to financial instruments held		8		11
Corporate securities [Member] | Fixed Maturities [Member]
Fair Value Level 3 Rollforward
Fair value at beginning of period	48	62	56	67
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Net Income (loss)	1	1	(10)	(4)
Other comprehensive income (loss)	(1)	0	2	0
Purchases	0	0	0	0
Issuances		0		0
Settlements	0	0	0	0
FG VIE deconsolidations	0		0	0
Transfers Into Level 3	0		0
Fair value at end of period	48	63	48	63
Change in unrealized gains/(losses) related to financial instruments held		0		0
RMBS [Member] | Fixed Maturities [Member]
Fair Value Level 3 Rollforward
Fair value at beginning of period	318	314	309	334
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Net Income (loss)	5	6	11	13
Other comprehensive income (loss)	15	(3)	20	(10)
Purchases	0	9	11	9
Issuances		0		0
Settlements	(13)	(15)	(26)	(35)
FG VIE deconsolidations	0		0	0
Transfers Into Level 3	0		0
Fair value at end of period	325	311	325	311
Change in unrealized gains/(losses) related to financial instruments held		(2)		(8)
Asset-backed Securities [Member] | Fixed Maturities [Member]
Fair Value Level 3 Rollforward
Fair value at beginning of period	958	809	947	787
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Net Income (loss)	30	14	44	29
Other comprehensive income (loss)	(85)	6	(94)	9
Purchases	8	91	18	100
Issuances		0		0
Settlements	(238)	(23)	(242)	(28)
FG VIE deconsolidations	0		0	0
Transfers Into Level 3	1		1
Fair value at end of period	674	897	674	897
Change in unrealized gains/(losses) related to financial instruments held		6		10
Other Comprehensive Income (Loss) [Member] | Other Assets and Other Invested Assets [Member]
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Change in unrealized gains/(losses) related to financial instruments held	0		0
Other Comprehensive Income (Loss) [Member] | Obligations of state and political subdivisions [Member] | Fixed Maturities [Member]
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Change in unrealized gains/(losses) related to financial instruments held	0		5
Other Comprehensive Income (Loss) [Member] | Corporate securities [Member] | Fixed Maturities [Member]
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Change in unrealized gains/(losses) related to financial instruments held	(1)		2
Other Comprehensive Income (Loss) [Member] | RMBS [Member] | Fixed Maturities [Member]
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Change in unrealized gains/(losses) related to financial instruments held	15		20
Other Comprehensive Income (Loss) [Member] | Asset-backed Securities [Member] | Fixed Maturities [Member]
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Assets [Abstract]
Change in unrealized gains/(losses) related to financial instruments held	8		11
FG VIEs' liabilities with recourse, at fair value [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair value at beginning of period	(505)	(598)	(517)	(627)
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Liabilities [Abstract]
Net income (loss)	(20)	(4)	(31)	(4)
Other comprehensive income (loss)	5	4	5	2
Purchases	0	0	0	0
Issuances		0		0
Settlements	69	27	92	57
FG VIE deconsolidations	5		5	1
Transfers Into Level 3	0		0
Fair value at end of period	(446)	(571)	(446)	(571)
Change in unrealized gains/(losses) included in earnings related to financial instruments	(20)	2	(31)	(1)
FG VIEs' liabilities with recourse, at fair value [Member] | Other Comprehensive Income (Loss) [Member]
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Liabilities [Abstract]
Change in unrealized gains/(losses) included in earnings related to financial instruments	5		5
Financial Guaranty Variable Interest Liabilities without Recourse [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair value at beginning of period	(104)	(110)	(102)	(130)
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Liabilities [Abstract]
Net income (loss)	(3)	1	(7)	2
Other comprehensive income (loss)	0	0	0	0
Purchases	0	0	0	0
Issuances		0		0
Settlements	1	1	3	4
FG VIE deconsolidations	1		1	16
Transfers Into Level 3	0		0
Fair value at end of period	(105)	(108)	(105)	(108)
Change in unrealized gains/(losses) included in earnings related to financial instruments	(12)	1	(15)	1
Credit Risk Contract [Member]
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Fair value at start of period	(228)	(236)	(207)	(269)
Total Pretax Realized And Unrealized Gains (Losses) Recorded As Net Derivative Asset (Liability) [Abstract]
Net income (loss)	(8)	48	(30)	82
Other comprehensive income (loss)	0	0	0	0
Purchases	0	0	0	0
Issuances		(68)		(68)
Settlements	20	(1)	21	(2)
FG VIE deconsolidations	0		0	0
Transfers into Level 3	0		0
Fair value at end of period	(216)	(257)	(216)	(257)
Change in unrealized gains/(losses) related to financial instruments held as of end of year	$ (7)	$ 46	$ (28)	$ 73

XML

Fair Value Measurement - Quantitative Information - Assets (Details) - Valuation, Income Approach [Member] - Level 3 [Member] - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Obligations of state and political subdivisions [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 105	$ 99
Obligations of state and political subdivisions [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	4.50%	4.50%
Obligations of state and political subdivisions [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	33.00%	32.70%
Obligations of state and political subdivisions [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	7.10%	12.00%
Corporate securities [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 48	$ 56
Yield (as a percent)	30.90%	29.50%
RMBS [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 325	$ 309
RMBS [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	3.80%	5.30%
RMBS [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	6.20%	8.10%
RMBS [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	4.50%	6.30%
Life Insurance Transaction [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 337	$ 620
Yield (as a percent)	5.60%
Life Insurance Transaction [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)		6.50%
Life Insurance Transaction [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)		7.10%
Life Insurance Transaction [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)		6.80%
Collateralized loan obligations (CLO) /TruPS [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 280	$ 274
Collateralized loan obligations (CLO) /TruPS [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	2.80%	3.80%
Collateralized loan obligations (CLO) /TruPS [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	5.10%	4.70%
Collateralized loan obligations (CLO) /TruPS [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	3.80%	4.30%
Other Asset Backed Securities [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 57	$ 53
Yield (as a percent)	10.40%	11.50%
FG VIEs and other [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 526	$ 569
FG VIEs and other [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	3.60%	5.00%
FG VIEs and other [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	8.50%	10.20%
FG VIEs and other [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	5.30%	7.10%
Other Assets [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 84	$ 74
Fair Value Inputs Term	10 years	10 years
Other Assets [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	6.70%	6.60%
Other Assets [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	7.30%	7.20%
Other Assets [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	7.00%	6.90%
Other invested assets [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Asset, fair value	$ 6	$ 7
Measurement Input, Prepayment Rate [Member] | RMBS [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	1.50%	3.40%
Measurement Input, Prepayment Rate [Member] | RMBS [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	18.20%	19.40%
Measurement Input, Prepayment Rate [Member] | RMBS [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	5.90%	6.20%
Measurement Input, Prepayment Rate [Member] | FG VIEs and other [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	0.90%	0.90%
Measurement Input, Prepayment Rate [Member] | FG VIEs and other [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	18.30%	18.10%
Measurement Input, Prepayment Rate [Member] | FG VIEs and other [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	8.90%	9.30%
Measurement Input, Default Rate [Member] | RMBS [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	1.50%	1.50%
Measurement Input, Default Rate [Member] | RMBS [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	6.90%	6.90%
Measurement Input, Default Rate [Member] | RMBS [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	4.90%	5.20%
Measurement Input, Default Rate [Member] | FG VIEs and other [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	1.30%	1.30%
Measurement Input, Default Rate [Member] | FG VIEs and other [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	24.20%	23.70%
Measurement Input, Default Rate [Member] | FG VIEs and other [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	4.60%	5.10%
Measurement Input, Loss Severity [Member] | RMBS [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	40.00%	40.00%
Measurement Input, Loss Severity [Member] | RMBS [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	125.00%	125.00%
Measurement Input, Loss Severity [Member] | RMBS [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	85.50%	82.70%
Measurement Input, Loss Severity [Member] | FG VIEs and other [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	60.00%	60.00%
Measurement Input, Loss Severity [Member] | FG VIEs and other [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	100.00%	100.00%
Measurement Input, Loss Severity [Member] | FG VIEs and other [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	78.40%	79.80%

XML

Fair Value Measurement - Quantitative Information - Liabilities (Details) - Valuation, Income Approach [Member] - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Credit derivative liabilities, net [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Total liabilities carried at fair value	$ (216)	$ (207)
Internal floor (as a percent)	0.30%
Credit derivative liabilities, net [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Internal floor (as a percent)		0.088%
Bank profit (as a percent)	0.38%	0.072%
Hedge cost (as a percent)	0.07%	0.055%
Credit derivative liabilities, net [Member] | Minimum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Year 1 loss estimates (as a percent)	0.00%	0.00%
Credit derivative liabilities, net [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Internal floor (as a percent)		0.30%
Bank profit (as a percent)	2.15%	5.099%
Hedge cost (as a percent)	0.42%	0.825%
Credit derivative liabilities, net [Member] | Maximum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Year 1 loss estimates (as a percent)	80.00%	66.00%
Credit derivative liabilities, net [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Internal floor (as a percent)		0.19%
Bank profit (as a percent)	0.88%	0.773%
Hedge cost (as a percent)	0.15%	0.233%
Credit derivative liabilities, net [Member] | Weighted Average [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Year 1 loss estimates (as a percent)	1.80%	2.20%
Financial Guaranty Variable Interest Entities [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Total liabilities carried at fair value	$ (551)	$ (619)
Financial Guaranty Variable Interest Entities [Member] | Minimum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	3.50%	5.00%
Financial Guaranty Variable Interest Entities [Member] | Maximum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	8.50%	10.20%
Financial Guaranty Variable Interest Entities [Member] | Weighted Average [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Yield (as a percent)	4.30%	5.60%
Measurement Input, Prepayment Rate [Member] | Financial Guaranty Variable Interest Entities [Member] | Minimum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	0.90%	0.90%
Measurement Input, Prepayment Rate [Member] | Financial Guaranty Variable Interest Entities [Member] | Maximum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	18.30%	18.10%
Measurement Input, Prepayment Rate [Member] | Financial Guaranty Variable Interest Entities [Member] | Weighted Average [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	8.90%	9.30%
Measurement Input, Default Rate [Member] | Financial Guaranty Variable Interest Entities [Member] | Minimum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	1.30%	1.30%
Measurement Input, Default Rate [Member] | Financial Guaranty Variable Interest Entities [Member] | Maximum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	24.20%	23.70%
Measurement Input, Default Rate [Member] | Financial Guaranty Variable Interest Entities [Member] | Weighted Average [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	4.60%	5.10%
Measurement Input, Loss Severity [Member] | Financial Guaranty Variable Interest Entities [Member] | Minimum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	60.00%	60.00%
Measurement Input, Loss Severity [Member] | Financial Guaranty Variable Interest Entities [Member] | Maximum [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	100.00%	100.00%
Measurement Input, Loss Severity [Member] | Financial Guaranty Variable Interest Entities [Member] | Weighted Average [Member] | Level 3 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Transferor's continuing involvement, servicing assets or liabilities, prepayment speed	78.40%	79.80%

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Fair Value Measurement - Fair Value of Financial Instruments Not Carried at Fair Value (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Assets:
Other invested assets	$ 60	$ 55
Carrying Amount [Member]
Assets:
Other invested assets	1	1
Other assets	91	130
Liabilities:
Financial guaranty insurance contracts	(2,995)	(3,240)
Long-term debt	(1,233)	(1,233)
Other liabilities	(22)	(12)
Estimated Fair Value [Member]
Assets:
Other invested assets	2	2
Other assets	91	130
Liabilities:
Financial guaranty insurance contracts	(5,870)	(5,932)
Long-term debt	(1,545)	(1,496)
Other liabilities	$ (22)	$ (12)

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Contracts Accounted for as Credit Derivatives - Credit Derivatives Subordination and Ratings (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Net Par Outstanding on Credit Derivatives
Net Par Outstanding	$ 6,160	$ 6,182
Credit risk derivatives, at fair value, net	(216)	(207)
Expected loss to be recovered	11	2
Public Finance [Member] | Non United States [Member]
Net Par Outstanding on Credit Derivatives
Net Par Outstanding	2,798	2,807
Credit risk derivatives, at fair value, net	(51)	(51)
Public Finance [Member] | United States [Member]
Net Par Outstanding on Credit Derivatives
Net Par Outstanding	1,933	1,783
Credit risk derivatives, at fair value, net	(105)	(65)
Structured Finance [Member] | Non United States [Member]
Net Par Outstanding on Credit Derivatives
Net Par Outstanding	127	127
Credit risk derivatives, at fair value, net	(8)	(6)
Structured Finance [Member] | United States [Member]
Net Par Outstanding on Credit Derivatives
Net Par Outstanding	1,302	1,465
Credit risk derivatives, at fair value, net	$ (52)	$ (85)

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Contracts Accounted for as Credit Derivatives - Distribution of Credit Derivative Net Par Outstanding by Internal Rating (Details) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Credit Derivatives
Net Par Outstanding	$ 6,160	$ 6,182
BIG [Member]
Credit Derivatives
Net Par Outstanding	148	157
Credit Concentration Risk [Member] | Derivative, Aggregate Notional Amount [Member]
Credit Derivatives
Net Par Outstanding	$ 6,160	$ 6,182
Percentage of installment premiums denominated in currencies other than the U.S. dollar	100.00%	100.00%
Credit Concentration Risk [Member] | Derivative, Aggregate Notional Amount [Member] | Internal Credit Rating, AAA [Member]
Credit Derivatives
Net Par Outstanding	$ 1,730	$ 1,813
Percentage of installment premiums denominated in currencies other than the U.S. dollar	28.10%	29.40%
Credit Concentration Risk [Member] | Derivative, Aggregate Notional Amount [Member] | Internal Credit Rating, AA [Member]
Credit Derivatives
Net Par Outstanding	$ 1,700	$ 1,690
Percentage of installment premiums denominated in currencies other than the U.S. dollar	27.60%	27.30%
Credit Concentration Risk [Member] | Derivative, Aggregate Notional Amount [Member] | Internal Credit Rating, A [Member]
Credit Derivatives
Net Par Outstanding	$ 1,229	$ 1,171
Percentage of installment premiums denominated in currencies other than the U.S. dollar	19.90%	18.90%
Credit Concentration Risk [Member] | Derivative, Aggregate Notional Amount [Member] | Internal Credit Rating, BBB [Member]
Credit Derivatives
Net Par Outstanding	$ 1,353	$ 1,351
Percentage of installment premiums denominated in currencies other than the U.S. dollar	22.00%	21.90%
Credit Concentration Risk [Member] | Derivative, Aggregate Notional Amount [Member] | BIG [Member]
Credit Derivatives
Net Par Outstanding	$ 148	$ 157
Percentage of installment premiums denominated in currencies other than the U.S. dollar	2.40%	2.50%

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Contracts Accounted for as Credit Derivatives - Net Change in Fair Value of Credit Derivatives Gains (Losses) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Credit Derivatives
Realized gains on credit derivatives	$ 1	$ 2	$ 4	$ 4
Net credit derivative losses (paid and payable) recovered and recoverable and other settlements	(21)	(1)	(25)	(1)
Realized gains (losses) and other settlements	(20)	1	(21)	3
Net unrealized gains (losses):
Net change in unrealized gains (losses) on credit derivatives	12	47	(9)	79
Net change in fair value of credit derivatives	$ (8)	$ 48	$ (30)	$ 82

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Contracts Accounted for as Credit Derivatives - CDS Spread and Components of Credit Derivative Assets (Liabilities) (Details) - USD ($) $ in Millions	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Credit Derivatives
Fair value of credit derivatives before effect of AGC and AGM credit spreads	$ (318)		$ (407)
Plus: Effect of AGC and AGM credit spreads	102		200
Net fair value of credit derivatives	$ (216)		$ (207)
Credit Risk Contract, 5 Year Spread [Member] | AGC [Member]
Credit Derivatives
Quoted price of CDS contract (as a percent)	0.56%	0.74%	1.10%	1.05%	1.21%	1.63%
Credit Risk Contract, 5 Year Spread [Member] | AGM [Member]
Credit Derivatives
Quoted price of CDS contract (as a percent)	0.54%	0.72%	1.16%	1.06%	1.09%	1.45%
Credit Risk Contract, 1 Year Spread [Member] | AGC [Member]
Credit Derivatives
Quoted price of CDS contract (as a percent)	0.13%	0.20%	0.22%	0.22%	0.25%	0.70%
Credit Risk Contract, 1 Year Spread [Member] | AGM [Member]
Credit Derivatives
Quoted price of CDS contract (as a percent)	0.13%	0.13%	0.24%	0.24%	0.22%	0.28%

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Contracts Accounted for as Credit Derivatives - Collateral Posting Requirements on Credit Derivatives (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Gross par of CDS with collateral posting requirement [Member]
Credit Derivatives
Collateral posting requirement.	$ 209	$ 250
Maximum posting requirement [Member]
Credit Derivatives
Collateral posting requirement.	209	250
Collateral posted [Member]
Credit Derivatives
Collateral posted	$ 1	$ 1

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Contracts Accounted for as Credit Derivatives - Narrative (Details) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2019 USD ($) Counterparty	Dec. 31, 2018 USD ($)	Mar. 31, 2019 USD ($)	Jun. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Credit Derivatives
Net Par Outstanding	$ 6,160	$ 6,182
Credit risk derivatives, at fair value, net	(216)	(207)
Net expected loss to be paid after recoveries	$ 960	$ 1,183	$ 963	$ 1,432	$ 1,298	$ 1,303
Estimated remaining weighted average life of credit derivatives (in years)	11 years 4 months 24 days	11 years 7 months 6 days
Gross par of CDS with collateral posting requirement [Member]
Credit Derivatives
Number of counterparties | Counterparty	1

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Variable Interest Entities - Narrative (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($) policies Entity	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) policies Entity	Jun. 30, 2018 USD ($) Entity	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($) policies Entity	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Variable Interest Entity [Line Items]
Effect on shareholders' equity (decrease) increase	$ 6,722,000,000	$ 6,634,000,000	$ 6,722,000,000	$ 6,634,000,000	$ 6,669,000,000	$ 6,555,000,000	$ 6,784,000,000	$ 6,839,000,000
Net fair value gains and losses on FG VIEs are expected to reverse to zero at maturity of the VIE debt	0		0
Fair value gains (losses) on FG VIEs (1)	33,000,000	2,000,000	38,000,000	6,000,000
Variable Interest Entity, Other Consolidated [Abstract]
Other consolidated VIE assets	90,000,000		90,000,000			87,000,000
Other consolidated VIE liabilities	$ 9,000,000		$ 9,000,000			$ 21,000,000
Number of Policies Monitored | policies	18,000		18,000
Number of Policies Monitored, Not Within the Scope of ASC 810 | policies	16,000		16,000
Number of Policies that Contain Provisions for Consolidation | policies	102		102			110
Variable Interest Entity, Primary Beneficiary [Member]
Variable Interest Entity [Line Items]
Effect on shareholders' equity (decrease) increase	$ 4,000,000		$ 4,000,000			$ 1,000,000
Fair value gains (losses) on FG VIEs (1)	$ 33,000,000	2,000,000	$ 38,000,000	$ 6,000,000
Variable Interest Entity, Other Consolidated [Abstract]
Number of Entities Consolidated | Entity	29		29			31
Number of Entities Deconsolidated | Entity			2	1
Residential Mortgage Backed Securities and Other Insurance Products [Member] | Variable Interest Entity, Primary Beneficiary [Member]
Variable Interest Entity [Line Items]
Change in the instrument specific credit risk of the VIEs' assets	$ 29,000,000	$ 1,000,000	$ 35,000,000	$ 3,000,000

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Variable Interest Entities Variable Interest Entities - Unpaid Principal (Details) - Variable Interest Entity, Primary Beneficiary [Member] - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Variable Interest Entity [Line Items]
FG VIEs' assets	$ 286	$ 350
FG VIEs' liabilities with recourse	22	48
FG VIEs' liabilities without recourse	20	28
Unpaid principal balance for the FG VIEs’ assets that were over 90 days or more past due	62	71
Unpaid principal for FG VIEs’ liabilities with recourse	$ 468	$ 565

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Variable Interest Entities - Consolidated FG VIE's By Type of Collateral (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Variable Interest Entity [Line Items]
Financial guaranty variable interest entities' assets with recourse, at fair value	$ 421	$ 467
Financial guaranty variable interest entities’ liabilities with recourse, at fair value	446	517
Financial guaranty variable interest entities' assets without recourse, at fair value	105	102
Financial guaranty variable interest entities’ liabilities without recourse, at fair value	105	102
Financial guaranty variable interest entities’ assets, at fair value	526	569
Financial guaranty variable interest entities’ liabilities, at fair value	551	619
Manufactured Housing Loans [Member]
Variable Interest Entity [Line Items]
Financial guaranty variable interest entities' assets with recourse, at fair value	49	53
Financial guaranty variable interest entities’ liabilities with recourse, at fair value	50	54
United States [Member] | First Lien [Member] | RMBS [Member]
Variable Interest Entity [Line Items]
Financial guaranty variable interest entities' assets with recourse, at fair value	291	299
Financial guaranty variable interest entities’ liabilities with recourse, at fair value	316	326
United States [Member] | Second Lien [Member] | RMBS [Member]
Variable Interest Entity [Line Items]
Financial guaranty variable interest entities' assets with recourse, at fair value	81	115
Financial guaranty variable interest entities’ liabilities with recourse, at fair value	$ 80	$ 137

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Variable Interest Entities - Effect of Consolidating FG VIE's on Financial Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Variable Interest Entity [Line Items]
Net earned premiums	$ 112	$ 136	$ 230	$ 281
Net investment income	110	98	208	198
Fair value gains (losses) on FG VIEs (1)	33	2	38	6
Loss and LAE	1	(44)	(45)	(26)
Income (loss) before income taxes and equity in net earnings of investees	181	86	237	303
Less: Tax provision (benefit)	40	12	44	32
Net income (loss) attributable to Assured Guaranty Ltd.	142	75	196	272
Effect on OCI	34	(62)	202	(188)
Net cash flows provided by (used in) operating activities			(198)	444
Variable Interest Entity, Primary Beneficiary [Member]
Variable Interest Entity [Line Items]
Net earned premiums	(11)	(3)	(14)	(6)
Net investment income	(1)	(1)	(2)	(2)
Fair value gains (losses) on FG VIEs (1)	33	2	38	6
Loss and LAE	(14)	(3)	(15)	3
Income (loss) before income taxes and equity in net earnings of investees	7	(5)	7	1
Less: Tax provision (benefit)	1	(1)	1	0
Net income (loss) attributable to Assured Guaranty Ltd.	6	(4)	6	1
Effect on OCI	(1)	4	(2)	2
Net cash flows provided by (used in) operating activities	$ (2)	$ 4	$ (1)	$ 6

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Investments and Cash - Narrative (Details) $ in Millions	1 Months Ended	3 Months Ended		6 Months Ended
	Feb. 28, 2017 USD ($)	Jun. 30, 2019 USD ($) Security	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) Security manager	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) Security
Investment [Line Items]
Restricted Cash		$ 4		$ 4		$ 0
Proceeds from sale of fixed-maturity securities available-for-sale		443	$ 183	914	$ 592
Accrued investment income		$ 86		$ 86		$ 91
Number of securities with unrealized losses greater than 10% of book value for 12 months or more | Security		27		27		38
Total unrealized losses for securities having losses greater than 10% of book value for 12 months or more		$ 29		$ 29		$ 43
Assets held-in-trust		279		$ 279		266
Number of outside managers managing investment portfolio | manager				7
Future Equity Investments [Member]
Investment [Line Items]
Long-term purchase commitment, amount	$ 100
Remaining minimum amount committed		85		$ 85
AGL Subsidiaries [Member]
Investment [Line Items]
Assets held-in-trust		$ 1,653		$ 1,653		$ 1,855

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Investments and Cash - Net Investment Income (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net Investment Income
Gross investment income	$ 112	$ 101	$ 212	$ 203
Investment expenses	(2)	(3)	(4)	(5)
Net investment income	110	98	208	198
Fixed Maturities, Managed Externally [Member]
Net Investment Income
Gross investment income	69	74	141	149
Investments, Managed Internally [Member]
Net Investment Income
Gross investment income	$ 43	$ 27	$ 71	$ 54

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Investments and Cash - Net Realized Investment Gains (Losses) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Investments, Debt and Equity Securities [Abstract]
Gross realized gains on available-for-sale securities	$ 13	$ 2	$ 19	$ 11
Gross realized losses on available-for-sale securities	(1)	(1)	(3)	(6)
Net realized gains (losses) on other invested assets	0	0	0	(1)
Total OTTI	(4)	(4)	(17)	(15)
Less: portion of OTTI recognized in OCI	0	(1)	3	(4)
Net OTTI recognized in net income (loss)	(4)	(3)	(20)	(11)
Net realized investment gains (losses)	$ 8	$ (2)	$ (4)	$ (7)

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Investments and Cash - Roll Forward of Credit Losses in the Investment Portfolio (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Roll Forward of Credit Losses in the Investment Portfolio
Balance, beginning of period	$ 197	$ 169	$ 185	$ 162
Additions for credit losses on securities for which an OTTI was previously recognized	0	1	12	8
Reductions for securities sold and other settlements	(6)	0	(6)	0
Balance, end of period	$ 191	$ 170	$ 191	$ 170

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Investments and Cash - Internally Managed Investment Portfolio (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Debt and Equity Securities, FV-NI [Line Items]
Fixed-maturity securities	$ 10,733	$ 10,818
Short-term investments, at fair value	1,159	729
Other invested assets	60	55
Total investment portfolio	10,793	10,873
Fixed Maturities, Managed Externally [Member]
Debt and Equity Securities, FV-NI [Line Items]
Fixed-maturity securities	8,499	8,909
Investments, Managed Internally [Member]
Debt and Equity Securities, FV-NI [Line Items]
Fixed-maturity securities	1,075	1,180
Alternative Investments [Member]
Debt and Equity Securities, FV-NI [Line Items]
Other invested assets	44	39
Other Investments, Internally Managed [Member]
Debt and Equity Securities, FV-NI [Line Items]
Other invested assets	$ 16	$ 16
BIG [Member]
Debt and Equity Securities, FV-NI [Line Items]
Fixed-Maturity Investments, Non-Investment Grade, Percent	8.30%	10.80%

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Investments and Cash - Fixed Maturity Securities and Short Term Investments (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Investments
Percent of Total	100.00%	100.00%
Amortized Cost	$ 10,296	$ 10,613
Gross Unrealized Gains	488	344
Gross Unrealized Losses	(51)	(139)
Estimated Fair Value	10,733	10,818
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 63	$ 118
Government agency obligations as a percentage of total mortgage backed securities	45.00%	48.00%
Fixed Maturities [Member]
Investments
Percent of Total	89.00%	93.00%
Amortized Cost	$ 9,137	$ 9,884
Gross Unrealized Gains	488	344
Gross Unrealized Losses	(51)	(139)
Estimated Fair Value	9,574	10,089
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 63	$ 118
Short-term Investments [Member]
Investments
Percent of Total	11.00%	7.00%
Amortized Cost	$ 1,159	$ 729
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Value	1,159	729
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 0	$ 0
Obligations of state and political subdivisions [Member] | Fixed Maturities [Member]
Investments
Percent of Total	42.00%	45.00%
Amortized Cost	$ 4,370	$ 4,761
Gross Unrealized Gains	313	168
Gross Unrealized Losses	0	(18)
Estimated Fair Value	4,683	4,911
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 46	$ 40
US government and agencies [Member] | Fixed Maturities [Member]
Investments
Percent of Total	1.00%	2.00%
Amortized Cost	$ 154	$ 167
Gross Unrealized Gains	11	9
Gross Unrealized Losses	0	(1)
Estimated Fair Value	165	175
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 0	$ 0
Corporate securities [Member] | Fixed Maturities [Member]
Investments
Percent of Total	22.00%	20.00%
Amortized Cost	$ 2,212	$ 2,175
Gross Unrealized Gains	71	13
Gross Unrealized Losses	(16)	(52)
Estimated Fair Value	2,267	2,136
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ (1)	$ (4)
RMBS [Member] | Fixed Maturities [Member]
Investments
Percent of Total	9.00%	9.00%
Amortized Cost	$ 914	$ 999
Gross Unrealized Gains	37	17
Gross Unrealized Losses	(13)	(34)
Estimated Fair Value	938	982
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 4	$ (15)
CMBS [Member] | Fixed Maturities [Member]
Investments
Percent of Total	5.00%	5.00%
Amortized Cost	$ 478	$ 542
Gross Unrealized Gains	18	4
Gross Unrealized Losses	(1)	(7)
Estimated Fair Value	495	539
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 0	$ 0
Asset-backed Securities [Member] | Fixed Maturities [Member]
Investments
Percent of Total	7.00%	9.00%
Amortized Cost	$ 746	$ 942
Gross Unrealized Gains	36	131
Gross Unrealized Losses	(3)	(5)
Estimated Fair Value	779	1,068
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 14	$ 97
Foreign government securities [Member] | Fixed Maturities [Member]
Investments
Percent of Total	3.00%	3.00%
Amortized Cost	$ 263	$ 298
Gross Unrealized Gains	2	2
Gross Unrealized Losses	(18)	(22)
Estimated Fair Value	247	278
AOCI Gain (Loss) on Securities with Other-Than-Temporary Impairment	$ 0	$ 0

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Investments and Cash - Gross Unrealized Loss by Length of Time (Details) $ in Millions	Jun. 30, 2019 USD ($) Security	Dec. 31, 2018 USD ($) Security
Less than 12 months
Fair value	$ 524	$ 1,643
Unrealized loss	(5)	(34)
12 months or more
Fair Value	765	1,952
Unrealized loss	(46)	(105)
Total
Fair value	1,289	3,595
Unrealized loss	$ (51)	$ (139)
Number of securities
Less than 12 months (in securities) | Security	112	417
12 months or more (in securities) | Security	186	608
Total (in securities) | Security	291	997
Number of securities with OTTI
Less than 12 months (in securities) | Security	6	22
12 months or more (in securities) | Security	11	22
Total (in securities) | Security	17	42
Obligations of state and political subdivisions [Member]
Less than 12 months
Fair value	$ 7	$ 195
Unrealized loss	0	(4)
12 months or more
Fair Value	17	658
Unrealized loss	0	(14)
Total
Fair value	24	853
Unrealized loss	0	(18)
US government and agencies [Member]
Less than 12 months
Fair value	10	11
Unrealized loss	0	0
12 months or more
Fair Value	21	24
Unrealized loss	0	(1)
Total
Fair value	31	35
Unrealized loss	0	(1)
Corporate securities [Member]
Less than 12 months
Fair value	229	836
Unrealized loss	(2)	(19)
12 months or more
Fair Value	204	522
Unrealized loss	(14)	(33)
Total
Fair value	433	1,358
Unrealized loss	(16)	(52)
RMBS [Member]
Less than 12 months
Fair value	7	85
Unrealized loss	0	(2)
12 months or more
Fair Value	283	447
Unrealized loss	(13)	(32)
Total
Fair value	290	532
Unrealized loss	(13)	(34)
CMBS [Member]
Less than 12 months
Fair value	0	111
Unrealized loss	0	(1)
12 months or more
Fair Value	51	164
Unrealized loss	(1)	(6)
Total
Fair value	51	275
Unrealized loss	(1)	(7)
Asset-backed Securities [Member]
Less than 12 months
Fair value	226	322
Unrealized loss	(2)	(4)
12 months or more
Fair Value	76	38
Unrealized loss	(1)	(1)
Total
Fair value	302	360
Unrealized loss	(3)	(5)
Foreign government securities [Member]
Less than 12 months
Fair value	45	83
Unrealized loss	(1)	(4)
12 months or more
Fair Value	113	99
Unrealized loss	(17)	(18)
Total
Fair value	158	182
Unrealized loss	$ (18)	$ (22)

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Investments and Cash - Distribution of Fixed-Maturity Securities by Contractual Maturity (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Amortized Cost
Amortized Cost	$ 10,296	$ 10,613
Estimated Fair Value
Estimated Fair Value	10,733	10,818
Fixed Maturities [Member]
Amortized Cost
Due within one year	223
Due after one year through five years	1,637
Due after five years through 10 years	2,101
Due after 10 years	3,784
Amortized Cost	9,137	9,884
Estimated Fair Value
Due within one year	216
Due after one year through five years	1,665
Due after five years through 10 years	2,196
Due after 10 years	4,064
Estimated Fair Value	9,574	10,089
Fixed Maturities [Member] | RMBS [Member]
Amortized Cost
Amortized Cost	914	999
Estimated Fair Value
Estimated Fair Value	938	982
Fixed Maturities [Member] | CMBS [Member]
Amortized Cost
Amortized Cost	478	542
Estimated Fair Value
Estimated Fair Value	$ 495	$ 539

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Investments and Cash Investments and Cash - Cash and Restricted Cash (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]
Cash	$ 190	$ 104
Restricted Cash	4	0
Cash and Restricted Cash	$ 194	$ 104	$ 189	$ 144

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Income Taxes - Effective Tax Rate Reconciliation and Pretax Income (Loss) and Revenue by Tax Jurisdiction (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Pre-tax Income Taxes and Revenue [Line Items]
Expected tax provision (benefit) at statutory rates in taxable jurisdictions	$ 38	$ 14	$ 47	$ 49
Tax-exempt interest	(5)	(6)	(10)	(12)
Change in liability for uncertain tax positions	0	1	0	(6)
Foreign taxes	4	6	5	3
Taxes on reinsurance	3	(1)	4	(1)
Other	0	(2)	(2)	(1)
Provision (benefit) for income taxes	$ 40	$ 12	$ 44	$ 32
Effective tax rate (as a percent)	21.90%	13.20%	18.40%	10.40%
Income (loss) before income taxes	$ 181	$ 86	$ 237	$ 303
Total before tax	182	87	240	304
Revenue	266	220	461	513
United States [Member]
Pre-tax Income Taxes and Revenue [Line Items]
Income (loss) before income taxes	190	71	225	246
Revenue	227	189	376	436
Bermuda [Member]
Pre-tax Income Taxes and Revenue [Line Items]
Income (loss) before income taxes	0	24	16	73
Revenue	40	36	73	88
U.K and Other [Member]
Pre-tax Income Taxes and Revenue [Line Items]
Income (loss) before income taxes	(8)	(8)	(1)	(15)
Revenue	$ (1)	$ (5)	$ 12	$ (11)

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Income Taxes - Narrative (Details) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Income Taxes [Line Items]
Foreign tax credits acquired	$ 36.0
Tax Cuts and Jobs Act of 2017, incomplete accounting, transition tax for accumulated foreign earnings, tax credit realized	$ 23.0
Realization assessment period	3 years
Interest and penalties related to uncertain tax positions	$ 0.5	$ 1.0
Accrued interest, uncertain tax positions	2.0	2.0
Unrecognized tax benefits that would impact effective tax rate	$ 16.0	$ 16.0
United Kingdom [Member]
Income Taxes [Line Items]
Corporate tax rate	19.00%
Radian [Member]
Income Taxes [Line Items]
Foreign tax credits acquired	$ 13.0

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Income Taxes Income Taxes - Deferred and Current Tax Liabilities (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Deferred tax assets (liabilities)	$ 8	$ 68
Current tax assets (liabilities)	$ 3	$ 22

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Commitments and Contingencies - Narrative (Details) $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($) ft²	Jan. 01, 2019 USD ($)	Apr. 10, 2015 USD ($) Transaction	Mar. 15, 2013 Transaction	Nov. 28, 2011 USD ($) Transaction
Commitments and Contingencies Legal Proceedings
Lease, number of square feet | ft²	103,500
Lessee, operating lease, renewal term	5 years
Weighted average remaining lease term (years)-operating leases	12 years 3 months 18 days
Weighted average discount rate-operating leases	3.00%
Total operating lease liabilities	$ 91	$ 95
Right-of-use asset	$ 66	69
Deferred rent and lease incentive liabilities		$ 26
LBIE vs. AG Financial Products [Member] | AG Financial Products Inc. [Member] | Guarantee Obligations [Member]
Commitments and Contingencies Legal Proceedings
Number of credit derivative transactions for which termination payment is alleged to be improperly calculated | Transaction				9	9
LBIE vs. AG Financial Products [Member] | Lehman Brothers International (Europe) [Member]
Commitments and Contingencies Legal Proceedings
Gain contingency, number of credit derivative transactions with improperly calculated payments | Transaction			28
Positive Outcome of Litigation [Member] | Pending Litigation [Member] | LBIE vs. AG Financial Products [Member] | AG Financial Products Inc. [Member]
Commitments and Contingencies Legal Proceedings
Termination payments which LBIE owes to AG Financial Products as per calculation of AG Financial Products					$ 4
Other credit derivative transactions which LBIE owes to AG Financial Products as per calculation of AG financial products					25
Positive Outcome of Litigation [Member] | Pending Litigation [Member] | LBIE vs. AG Financial Products [Member] | Lehman Brothers International (Europe) [Member]
Commitments and Contingencies Legal Proceedings
Termination payments which AG Financial Products owes to LBIE as per calculation of LBIE					$ 1,400
Minimum [Member] | Positive Outcome of Litigation [Member] | LBIE vs. AG Financial Products [Member] | Lehman Brothers International (Europe) [Member]
Commitments and Contingencies Legal Proceedings
Gain contingency, unrecorded amount			$ 200
Maximum [Member] | Positive Outcome of Litigation [Member] | LBIE vs. AG Financial Products [Member] | Lehman Brothers International (Europe) [Member]
Commitments and Contingencies Legal Proceedings
Gain contingency, unrecorded amount			$ 500

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Commitments and Contingencies Commitments and Contingencies - Components of Lease Expense (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]
Lease cost	$ 2	$ 4
Cash paid for amounts included in the measurement of lease liabilities	$ 2	$ 4

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Commitments and Contingencies Commitments and Contingencies - Lease Maturity Schedule (Details) - USD ($) $ in Millions	Jun. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Lessee, Operating Lease, Liability, Payment, Due [Abstract]
2019	$ 4
2020	9
2021	8
2022	8
2023	9
Thereafter	72
Total lease payments	110
Less: imputed interest	19
Total operating lease liabilities	$ 91	$ 95
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
2019			$ 9
2020			9
2021			8
2022			8
2023			9
Thereafter			$ 72

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Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Basic EPS:
Net income (loss) attributable to AGL	$ 142	$ 75	$ 196	$ 272
Less: Distributed and undistributed income (loss) available to nonvested shareholders	0	0	0	0
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$ 142	$ 75	$ 196	$ 272
Basic shares	101.2	111.7	102.1	113.4
Basic EPS (in dollars per share)	$ 1.40	$ 0.67	$ 1.92	$ 2.39
Diluted EPS:
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$ 142	$ 75	$ 196	$ 272
Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries	0	0	0	0
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	$ 142	$ 75	$ 196	$ 272
Basic shares	101.2	111.7	102.1	113.4
Effect of dilutive securities:
Options and restricted stock awards (in shares)	0.7	1.2	0.9	1.4
Diluted shares	101.9	112.9	103.0	114.8
Diluted EPS (in dollars per share)	$ 1.39	$ 0.67	$ 1.90	$ 2.37
Potentially dilutive securities excluded from computation of EPS because of antidilutive effect (in shares)	0.1	0.1	0.0	0.2

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Shareholders' Equity - Changes in AOCI by Component (Details) - USD ($) $ in Millions		3 Months Ended		6 Months Ended
	Jan. 01, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2017
Changes in Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	$ 6,839	$ 6,669	$ 6,784	$ 6,555	$ 6,839
New accounting pronouncement or change in accounting principle, effect of change on net income						$ (32)
Other comprehensive income (loss) before reclassifications		47	(64)	203	(195)
Amounts reclassified from AOCI to:
Net realized investment gains (losses)		8	(2)	(4)	(7)
Income (loss) before income taxes		182	87	240	304
Tax (provision) benefit		(40)	(12)	(44)	(32)
Net current period other comprehensive income (loss)		34	(62)	202	(188)
Ending balance		6,722	6,634	6,722	6,634
Effect on OCI		4	4	4	2
Reclassification out of Accumulated Other Comprehensive Income [Member]
Amounts reclassified from AOCI to:
Net realized investment gains (losses)		8	1	(4)	6
Net investment income		16		16
Fair value gains (losses) on FG VIEs		(8)	1	(10)	4
Income (loss) before income taxes		16	2	2	10
Tax (provision) benefit		(3)	0	(1)	(3)
Total amount reclassified from AOCI, net of tax		13	2	1	7
Total Accumulated Other Comprehensive Income [Member]
Changes in Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	372	261	214	93	372
Amounts reclassified from AOCI to:
Ending balance		295	152	295	152
Net Unrealized Gains (Losses) on Investments with no OTTI [Member]
Changes in Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	273	222	146	59	273
New accounting pronouncement or change in accounting principle, effect of change on net income						1
Other comprehensive income (loss) before reclassifications		90	(64)	255	(186)
Amounts reclassified from AOCI to:
Net current period other comprehensive income (loss)		79	(63)	242	(191)
Ending balance		301	83	301	83
Net Unrealized Gains (Losses) on Investments with no OTTI [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Amounts reclassified from AOCI to:
Net realized investment gains (losses)		11	1	14	(5)
Net investment income		2		2
Fair value gains (losses) on FG VIEs		0	0	0	0
Income (loss) before income taxes		13	1	16	(5)
Tax (provision) benefit		(2)	0	(3)	0
Total amount reclassified from AOCI, net of tax		11	1	13	(5)
Net Unrealized Gains (Losses) on Investments with OTTI [Member]
Changes in Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	120	99	118	94	120
New accounting pronouncement or change in accounting principle, effect of change on net income						0
Other comprehensive income (loss) before reclassifications		(40)	6	(47)	(5)
Amounts reclassified from AOCI to:
Net current period other comprehensive income (loss)		(48)	6	(43)	4
Ending balance		51	124	51	124
Net Unrealized Gains (Losses) on Investments with OTTI [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Amounts reclassified from AOCI to:
Net realized investment gains (losses)		(3)	0	(18)	11
Net investment income		14		14
Fair value gains (losses) on FG VIEs		0	0	0	0
Income (loss) before income taxes		11	0	(4)	11
Tax (provision) benefit		(3)	0	0	(2)
Total amount reclassified from AOCI, net of tax		8	0	(4)	9
Net Unrealized Gains (Losses) on FG VIE Liabilities with Recourse due to Instrument Specific Credit Risk [Member]
Changes in Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	0	(31)	(35)	(31)	0
New accounting pronouncement or change in accounting principle, effect of change on net income						(33)
Other comprehensive income (loss) before reclassifications		(2)	3	(4)	(1)
Amounts reclassified from AOCI to:
Net current period other comprehensive income (loss)		4	4	4	2
Ending balance		(27)	(31)	(27)	(31)
Net Unrealized Gains (Losses) on FG VIE Liabilities with Recourse due to Instrument Specific Credit Risk [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Amounts reclassified from AOCI to:
Net realized investment gains (losses)		0	0	0	0
Net investment income		0		0
Fair value gains (losses) on FG VIEs		(8)	1	(10)	4
Income (loss) before income taxes		(8)	1	(10)	4
Tax (provision) benefit		2	0	2	(1)
Total amount reclassified from AOCI, net of tax		(6)	1	(8)	3
Cumulative Translation Adjustment [Member]
Changes in Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	(29)	(37)	(23)	(37)	(29)
New accounting pronouncement or change in accounting principle, effect of change on net income						0
Other comprehensive income (loss) before reclassifications		(1)	(9)	(1)	(3)
Amounts reclassified from AOCI to:
Net current period other comprehensive income (loss)		(1)	(9)	(1)	(3)
Ending balance		(38)	(32)	(38)	(32)
Cumulative Translation Adjustment [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Amounts reclassified from AOCI to:
Net realized investment gains (losses)		0	0	0	0
Net investment income		0		0
Fair value gains (losses) on FG VIEs		0	0	0	0
Income (loss) before income taxes		0	0	0	0
Tax (provision) benefit		0	0	0	0
Total amount reclassified from AOCI, net of tax		0	0	0	0
Cash Flow Hedge [Member]
Changes in Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	8	8	8	8	8
New accounting pronouncement or change in accounting principle, effect of change on net income						$ 0
Other comprehensive income (loss) before reclassifications		0	0	0	0
Amounts reclassified from AOCI to:
Net current period other comprehensive income (loss)		0	0	0	0
Ending balance		8	8	8	8
Cash Flow Hedge [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Amounts reclassified from AOCI to:
Net realized investment gains (losses)		0	0	0	0
Net investment income		0		0
Fair value gains (losses) on FG VIEs		0	0	0	0
Income (loss) before income taxes		0	0	0	0
Tax (provision) benefit		0	0	0	0
Total amount reclassified from AOCI, net of tax		$ 0	$ 0	$ 0	$ 0
Accounting Standards Update 2016-01 [Member]
Amounts reclassified from AOCI to:
Effect on OCI	32
Accounting Standards Update 2016-01 [Member] | Total Accumulated Other Comprehensive Income [Member]
Changes in Accumulated Other Comprehensive Income [Roll Forward]
New accounting pronouncement or change in accounting principle, effect of change on net income	$ (32)

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Shareholders' Equity - Shares Repurchased (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended	3 Months Ended						6 Months Ended		7 Months Ended	12 Months Ended	79 Months Ended
	Aug. 07, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018	Aug. 07, 2019	Dec. 31, 2018	Aug. 07, 2019	Feb. 27, 2019
Equity, Class of Treasury Stock [Line Items]
Repurchases of common stock								$ 190	$ 250
Common Stock [Member]
Equity, Class of Treasury Stock [Line Items]
Shares repurchased (in shares)		2,519,130	1,908,605	2,992,932	3,299,049	4,163,190	2,787,936				13,243,107
Repurchases of common stock		$ 111	$ 79	$ 120	$ 130	$ 152	$ 98				$ 500
Average price paid per share (in dollars per share)		$ 43.89	$ 41.62	$ 40.09	$ 39.41	$ 36.48	$ 35.20				$ 37.76
Repurchase authorized amount													$ 300
Subsequent Event [Member] | Common Stock [Member]
Equity, Class of Treasury Stock [Line Items]
Shares repurchased (in shares)	1,317,094									5,744,829		100,300,786
Repurchases of common stock	$ 58									$ 248		$ 2,964
Average price paid per share (in dollars per share)	$ 43.59									$ 43.07		$ 29.55
Repurchase authorized amount	$ 300									$ 300		$ 300
Remaining capacity of shares repurchase program	$ 450									$ 450		$ 450

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Subsidiary Information - Condensed Consolidating Balance Sheet (Details) - USD ($) $ in Millions	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Assets
Total investment portfolio and cash	$ 10,983		$ 10,977
Investment in subsidiaries	0		0
Premiums receivable, net of commissions payable	866		904
Deferred acquisition costs	106		105
Deferred tax asset, net			68
Intercompany loan receivable	0		0
Financial guaranty variable interest entities’ assets, at fair value	526		569
Dividends receivable from affiliate	0		0
Other	1,100		980
Total assets	13,581		13,603
Liabilities and shareholders’ equity
Unearned premium reserve	3,387		3,512
Loss and loss adjustment expense reserve	1,102		1,177
Long-term debt	1,233		1,233
Intercompany loan payable	0		0
Credit derivative liabilities	224		209
Deferred tax liabilities, net			0
FG VIEs’ liabilities, at fair value	551		619
Dividends payable to affiliate	0		0
Other	362		298
Total liabilities	6,859		7,048
Effect on shareholders' equity (decrease) increase	6,722	$ 6,669	6,555	$ 6,634	$ 6,784	$ 6,839
Noncontrolling interest	0		0
Total shareholders' equity	6,722		6,555
Total liabilities and shareholders’ equity	13,581		13,603
Reportable Legal Entities [Member] | Assured Guaranty Ltd. (Parent) [Member]
Assets
Total investment portfolio and cash	27		45
Investment in subsidiaries	6,620		6,440
Premiums receivable, net of commissions payable	0		0
Deferred acquisition costs	0		0
Deferred tax asset, net			0
Intercompany loan receivable	0		0
Financial guaranty variable interest entities’ assets, at fair value	0		0
Dividends receivable from affiliate	60		60
Other	27		29
Total assets	6,734		6,574
Liabilities and shareholders’ equity
Unearned premium reserve	0		0
Loss and loss adjustment expense reserve	0		0
Long-term debt	0		0
Intercompany loan payable	0		0
Credit derivative liabilities	0		0
Deferred tax liabilities, net			0
FG VIEs’ liabilities, at fair value	0		0
Dividends payable to affiliate	0		0
Other	12		19
Total liabilities	12		19
Effect on shareholders' equity (decrease) increase	6,722		6,555
Noncontrolling interest	0		0
Total shareholders' equity	6,722		6,555
Total liabilities and shareholders’ equity	6,734		6,574
Reportable Legal Entities [Member] | Issuer Subsidiary [Member] | AGUS [Member]
Assets
Total investment portfolio and cash	397		334
Investment in subsidiaries	5,937		5,835
Premiums receivable, net of commissions payable	0		0
Deferred acquisition costs	0		0
Deferred tax asset, net			0
Intercompany loan receivable	0		0
Financial guaranty variable interest entities’ assets, at fair value	0		0
Dividends receivable from affiliate	0		0
Other	82		66
Total assets	6,416		6,235
Liabilities and shareholders’ equity
Unearned premium reserve	0		0
Loss and loss adjustment expense reserve	0		0
Long-term debt	844		844
Intercompany loan payable	50		50
Credit derivative liabilities	0		0
Deferred tax liabilities, net			49
FG VIEs’ liabilities, at fair value	0		0
Dividends payable to affiliate	60		60
Other	66		3
Total liabilities	1,020		1,006
Effect on shareholders' equity (decrease) increase	5,396		5,229
Noncontrolling interest	0		0
Total shareholders' equity	5,396		5,229
Total liabilities and shareholders’ equity	6,416		6,235
Reportable Legal Entities [Member] | Issuer Subsidiary [Member] | AGMH [Member]
Assets
Total investment portfolio and cash	17		23
Investment in subsidiaries	4,196		3,991
Premiums receivable, net of commissions payable	0		0
Deferred acquisition costs	0		0
Deferred tax asset, net			0
Intercompany loan receivable	0		0
Financial guaranty variable interest entities’ assets, at fair value	0		0
Dividends receivable from affiliate	0		0
Other	30		24
Total assets	4,243		4,038
Liabilities and shareholders’ equity
Unearned premium reserve	0		0
Loss and loss adjustment expense reserve	0		0
Long-term debt	472		468
Intercompany loan payable	0		0
Credit derivative liabilities	0		0
Deferred tax liabilities, net			50
FG VIEs’ liabilities, at fair value	0		0
Dividends payable to affiliate	0		0
Other	68		17
Total liabilities	540		535
Effect on shareholders' equity (decrease) increase	3,703		3,503
Noncontrolling interest	0		0
Total shareholders' equity	3,703		3,503
Total liabilities and shareholders’ equity	4,243		4,038
Reportable Legal Entities [Member] | Other Entities [Member]
Assets
Total investment portfolio and cash	10,972		11,000
Investment in subsidiaries	199		226
Premiums receivable, net of commissions payable	1,020		1,071
Deferred acquisition costs	142		143
Deferred tax asset, net			162
Intercompany loan receivable	50		50
Financial guaranty variable interest entities’ assets, at fair value	526		569
Dividends receivable from affiliate	0		0
Other	2,687		2,437
Total assets	15,596		15,658
Liabilities and shareholders’ equity
Unearned premium reserve	4,290		4,452
Loss and loss adjustment expense reserve	1,363		1,467
Long-term debt	5		5
Intercompany loan payable	300		300
Credit derivative liabilities	259		236
Deferred tax liabilities, net			0
FG VIEs’ liabilities, at fair value	551		619
Dividends payable to affiliate	0		0
Other	918		763
Total liabilities	7,686		7,842
Effect on shareholders' equity (decrease) increase	7,711		7,590
Noncontrolling interest	199		226
Total shareholders' equity	7,910		7,816
Total liabilities and shareholders’ equity	15,596		15,658
Consolidating Adjustments [Member]
Assets
Total investment portfolio and cash	(430)		(425)
Investment in subsidiaries	(16,952)		(16,492)
Premiums receivable, net of commissions payable	(154)		(167)
Deferred acquisition costs	(36)		(38)
Deferred tax asset, net			(94)
Intercompany loan receivable	(50)		(50)
Financial guaranty variable interest entities’ assets, at fair value	0		0
Dividends receivable from affiliate	(60)		(60)
Other	(1,726)		(1,576)
Total assets	(19,408)		(18,902)
Liabilities and shareholders’ equity
Unearned premium reserve	(903)		(940)
Loss and loss adjustment expense reserve	(261)		(290)
Long-term debt	(88)		(84)
Intercompany loan payable	(350)		(350)
Credit derivative liabilities	(35)		(27)
Deferred tax liabilities, net			(99)
FG VIEs’ liabilities, at fair value	0		0
Dividends payable to affiliate	(60)		(60)
Other	(702)		(504)
Total liabilities	(2,399)		(2,354)
Effect on shareholders' equity (decrease) increase	(16,810)		(16,322)
Noncontrolling interest	(199)		(226)
Total shareholders' equity	(17,009)		(16,548)
Total liabilities and shareholders’ equity	(19,408)		(18,902)
AGMH [Member] | Issuer Subsidiary [Member]
Liabilities and shareholders’ equity
Debt instrument, fair value	$ 129		$ 125

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Subsidiary Information - Condensed Consolidating Statement of Operations (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues
Net earned premiums	$ 112	$ 136	$ 230	$ 281
Net investment income	110	98	208	198
Net realized investment gains (losses)	8	(2)	(4)	(7)
Net change in fair value of credit derivatives	(8)	48	(30)	82
Other	44	(60)	57	(41)
Total revenues	266	220	461	513
Expenses
Loss and LAE	(1)	44	45	26
Amortization of deferred acquisition costs	4	4	10	9
Interest expense	22	24	45	48
Other operating expenses	60	62	124	127
Total expenses	85	134	224	210
Equity in net earnings of investees	1	1	3	1
Total before tax	182	87	240	304
Total (provision) benefit for income taxes	(40)	(12)	(44)	(32)
Equity in net earnings of subsidiaries	0	0	0	0
Net income (loss)	142	75	196	272
Less: noncontrolling interest	0	0	0	0
Net income (loss) attributable to Assured Guaranty Ltd.	142	75	196	272
Comprehensive income (loss)	176	13	398	84
Reportable Legal Entities [Member] | Assured Guaranty Ltd. (Parent) [Member]
Revenues
Net earned premiums	0	0	0	0
Net investment income	0	0	0	0
Net realized investment gains (losses)	0	0	0	0
Net change in fair value of credit derivatives	0	0	0	0
Other	2	3	4	6
Total revenues	2	3	4	6
Expenses
Loss and LAE	0	0	0	0
Amortization of deferred acquisition costs	0	0	0	0
Interest expense	0	0	0	0
Other operating expenses	10	10	20	20
Total expenses	10	10	20	20
Equity in net earnings of investees	0	0	0	0
Total before tax	(8)	(7)	(16)	(14)
Total (provision) benefit for income taxes	0	0	0	0
Equity in net earnings of subsidiaries	150	82	212	286
Net income (loss)	142	75	196	272
Less: noncontrolling interest	0	0	0	0
Net income (loss) attributable to Assured Guaranty Ltd.	142	75	196	272
Comprehensive income (loss)	176	13	398	84
Reportable Legal Entities [Member] | Issuer Subsidiary [Member] | AGUS [Member]
Revenues
Net earned premiums	0	0	0	0
Net investment income	4	2	6	4
Net realized investment gains (losses)	0	0	0	0
Net change in fair value of credit derivatives	0	0	0	0
Other	0	0	0	0
Total revenues	4	2	6	4
Expenses
Loss and LAE	0	0	0	0
Amortization of deferred acquisition costs	0	0	0	0
Interest expense	13	12	25	24
Other operating expenses	1	0	2	3
Total expenses	14	12	27	27
Equity in net earnings of investees	(1)	0	0	0
Total before tax	(11)	(10)	(21)	(23)
Total (provision) benefit for income taxes	2	2	4	5
Equity in net earnings of subsidiaries	154	64	204	225
Net income (loss)	145	56	187	207
Less: noncontrolling interest	0	0	0	0
Net income (loss) attributable to Assured Guaranty Ltd.	145	56	187	207
Comprehensive income (loss)	145	7	315	74
Reportable Legal Entities [Member] | Issuer Subsidiary [Member] | AGMH [Member]
Revenues
Net earned premiums	0	0	0	0
Net investment income	0	0	0	0
Net realized investment gains (losses)	0	0	0	0
Net change in fair value of credit derivatives	0	0	0	0
Other	0	0	0	0
Total revenues	0	0	0	0
Expenses
Loss and LAE	0	0	0	0
Amortization of deferred acquisition costs	0	0	0	0
Interest expense	14	14	27	27
Other operating expenses	0	1	0	1
Total expenses	14	15	27	28
Equity in net earnings of investees	0	0	0	0
Total before tax	(14)	(15)	(27)	(28)
Total (provision) benefit for income taxes	3	3	6	6
Equity in net earnings of subsidiaries	95	9	163	111
Net income (loss)	84	(3)	142	89
Less: noncontrolling interest	0	0	0	0
Net income (loss) attributable to Assured Guaranty Ltd.	84	(3)	142	89
Comprehensive income (loss)	109	(53)	261	(7)
Reportable Legal Entities [Member] | Other Entities [Member]
Revenues
Net earned premiums	114	139	235	288
Net investment income	110	99	211	200
Net realized investment gains (losses)	8	(2)	(4)	(7)
Net change in fair value of credit derivatives	(8)	48	(30)	82
Other	93	(9)	159	65
Total revenues	317	275	571	628
Expenses
Loss and LAE	5	46	52	30
Amortization of deferred acquisition costs	5	5	12	11
Interest expense	1	2	5	5
Other operating expenses	98	95	205	200
Total expenses	109	148	274	246
Equity in net earnings of investees	2	1	3	1
Total before tax	210	128	300	383
Total (provision) benefit for income taxes	(44)	(20)	(53)	(45)
Equity in net earnings of subsidiaries	5	6	9	13
Net income (loss)	171	114	256	351
Less: noncontrolling interest	5	6	9	13
Net income (loss) attributable to Assured Guaranty Ltd.	166	108	247	338
Comprehensive income (loss)	206	52	460	163
Consolidating Adjustments [Member]
Revenues
Net earned premiums	(2)	(3)	(5)	(7)
Net investment income	(4)	(3)	(9)	(6)
Net realized investment gains (losses)	0	0	0	0
Net change in fair value of credit derivatives	0	0	0	0
Other	(51)	(54)	(106)	(112)
Total revenues	(57)	(60)	(120)	(125)
Expenses
Loss and LAE	(6)	(2)	(7)	(4)
Amortization of deferred acquisition costs	(1)	(1)	(2)	(2)
Interest expense	(6)	(4)	(12)	(8)
Other operating expenses	(49)	(44)	(103)	(97)
Total expenses	(62)	(51)	(124)	(111)
Equity in net earnings of investees	0	0	0	0
Total before tax	5	(9)	4	(14)
Total (provision) benefit for income taxes	(1)	3	(1)	2
Equity in net earnings of subsidiaries	(404)	(161)	(588)	(635)
Net income (loss)	(400)	(167)	(585)	(647)
Less: noncontrolling interest	(5)	(6)	(9)	(13)
Net income (loss) attributable to Assured Guaranty Ltd.	(395)	(161)	(576)	(634)
Comprehensive income (loss)	$ (460)	$ (6)	$ (1,036)	$ (230)

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Subsidiary Information - Condensed Consolidating Statement of Cash Flows (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Condensed Cash Flow Statements, Captions [Line Items]
Net cash flows provided by (used in) operating activities			$ (198)	$ 444
Fixed-maturity securities:
Purchases			(503)	(879)
Sales	$ 443	$ 183	914	592
Maturities and paydowns			506	533
Short-term investments with maturities of over three months:
Purchases			(209)	(121)
Sales			2	1
Maturities and paydowns			174	104
Net sales (purchases) of short-term investments with original maturities of less than three months			(389)	(288)
Net proceeds from paydowns on FG VIEs’ assets			50	60
Net proceeds from sales of FG VIEs’ assets			51	0
Proceeds from stock redemption and return of capital from subsidiaries			0	0
Other				(16)
Other			35	(16)
Net cash flows provided by (used in) investing activities			631	(14)
Cash flows from financing activities
Return of capital			0
Dividends paid			(39)	(37)
Repurchases of common stock			(190)	(250)
Repurchases of common stock to pay withholding taxes			(16)	(13)
Net paydowns of financial guaranty variable interest entities’ liabilities			(95)	(61)
Paydown of long-term debt			(4)	(24)
Proceeds from option exercises			1	1
Net cash flows provided by (used in) financing activities			(343)	(384)
Effect of foreign exchange rate changes			0	(1)
Increase (decrease) in cash			90	45
Cash and restricted cash at beginning of period			104	144	$ 144
Cash and restricted cash at end of period	194	189	194	189	104
Reportable Legal Entities [Member] | Assured Guaranty Ltd. (Parent) [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash flows provided by (used in) operating activities			226	296
Fixed-maturity securities:
Purchases			0	0
Sales			0	0
Maturities and paydowns			0	0
Short-term investments with maturities of over three months:
Purchases			0	0
Sales			0	0
Maturities and paydowns			0	0
Net sales (purchases) of short-term investments with original maturities of less than three months			18	3
Net proceeds from paydowns on FG VIEs’ assets			0	0
Net proceeds from sales of FG VIEs’ assets			0
Proceeds from stock redemption and return of capital from subsidiaries			0	0
Other				0
Other			0
Net cash flows provided by (used in) investing activities			18	3
Cash flows from financing activities
Return of capital			0
Dividends paid			(39)	(37)
Repurchases of common stock			(190)	(250)
Repurchases of common stock to pay withholding taxes			(16)	(13)
Net paydowns of financial guaranty variable interest entities’ liabilities			0	0
Paydown of long-term debt			0	0
Proceeds from option exercises			1	1
Net cash flows provided by (used in) financing activities			(244)	(299)
Effect of foreign exchange rate changes			0	0
Increase (decrease) in cash			0	0
Cash and restricted cash at beginning of period			0	0	0
Cash and restricted cash at end of period	0	0	0	0	0
Reportable Legal Entities [Member] | Issuer Subsidiary [Member] | AGUS [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash flows provided by (used in) operating activities			110	88
Fixed-maturity securities:
Purchases			(3)	(27)
Sales			0	11
Maturities and paydowns			0	10
Short-term investments with maturities of over three months:
Purchases			0	0
Sales			0	0
Maturities and paydowns			12	0
Net sales (purchases) of short-term investments with original maturities of less than three months			(72)	(78)
Net proceeds from paydowns on FG VIEs’ assets			0	0
Net proceeds from sales of FG VIEs’ assets			0
Proceeds from stock redemption and return of capital from subsidiaries			100	200
Other				(15)
Other			0
Net cash flows provided by (used in) investing activities			37	101
Cash flows from financing activities
Return of capital			0
Dividends paid			(147)	(222)
Repurchases of common stock			0	0
Repurchases of common stock to pay withholding taxes			0	0
Net paydowns of financial guaranty variable interest entities’ liabilities			0	0
Paydown of long-term debt			0	0
Proceeds from option exercises			0	0
Net cash flows provided by (used in) financing activities			(147)	(222)
Effect of foreign exchange rate changes			0	0
Increase (decrease) in cash			0	(33)
Cash and restricted cash at beginning of period			1	33	33
Cash and restricted cash at end of period	1	0	1	0	1
Reportable Legal Entities [Member] | Issuer Subsidiary [Member] | AGMH [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash flows provided by (used in) operating activities			56	43
Fixed-maturity securities:
Purchases			0	(12)
Sales			0	2
Maturities and paydowns			2	0
Short-term investments with maturities of over three months:
Purchases			0	0
Sales			0	0
Maturities and paydowns			0	0
Net sales (purchases) of short-term investments with original maturities of less than three months			5	16
Net proceeds from paydowns on FG VIEs’ assets			0	0
Net proceeds from sales of FG VIEs’ assets			0
Proceeds from stock redemption and return of capital from subsidiaries			0	0
Other				0
Other			0
Net cash flows provided by (used in) investing activities			7	6
Cash flows from financing activities
Return of capital			0
Dividends paid			(62)	(50)
Repurchases of common stock			0	0
Repurchases of common stock to pay withholding taxes			0	0
Net paydowns of financial guaranty variable interest entities’ liabilities			0	0
Paydown of long-term debt			0	0
Proceeds from option exercises			0	0
Net cash flows provided by (used in) financing activities			(62)	(50)
Effect of foreign exchange rate changes			0	0
Increase (decrease) in cash			1	(1)
Cash and restricted cash at beginning of period			0	2	2
Cash and restricted cash at end of period	1	1	1	1	0
Reportable Legal Entities [Member] | Other Entities [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash flows provided by (used in) operating activities			(121)	524
Fixed-maturity securities:
Purchases			(503)	(863)
Sales			914	579
Maturities and paydowns			504	523
Short-term investments with maturities of over three months:
Purchases			(209)	(121)
Sales			2	1
Maturities and paydowns			162	104
Net sales (purchases) of short-term investments with original maturities of less than three months			(340)	(229)
Net proceeds from paydowns on FG VIEs’ assets			50	60
Net proceeds from sales of FG VIEs’ assets			51
Proceeds from stock redemption and return of capital from subsidiaries			10	0
Other				(1)
Other			35
Net cash flows provided by (used in) investing activities			676	53
Cash flows from financing activities
Return of capital			(10)
Dividends paid			(260)	(235)
Repurchases of common stock			(100)	(200)
Repurchases of common stock to pay withholding taxes			0	0
Net paydowns of financial guaranty variable interest entities’ liabilities			(95)	(61)
Paydown of long-term debt			(1)	(1)
Proceeds from option exercises			0	0
Net cash flows provided by (used in) financing activities			(466)	(497)
Effect of foreign exchange rate changes			0	(1)
Increase (decrease) in cash			89	79
Cash and restricted cash at beginning of period			103	109	109
Cash and restricted cash at end of period	192	188	192	188	103
Consolidating Adjustments [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash flows provided by (used in) operating activities			(469)	(507)
Fixed-maturity securities:
Purchases			3	23
Sales			0	0
Maturities and paydowns			0	0
Short-term investments with maturities of over three months:
Purchases			0	0
Sales			0	0
Maturities and paydowns			0	0
Net sales (purchases) of short-term investments with original maturities of less than three months			0	0
Net proceeds from paydowns on FG VIEs’ assets			0	0
Net proceeds from sales of FG VIEs’ assets			0
Proceeds from stock redemption and return of capital from subsidiaries			(110)	(200)
Other				0
Other			0
Net cash flows provided by (used in) investing activities			(107)	(177)
Cash flows from financing activities
Return of capital			10
Dividends paid			469	507
Repurchases of common stock			100	200
Repurchases of common stock to pay withholding taxes			0	0
Net paydowns of financial guaranty variable interest entities’ liabilities			0	0
Paydown of long-term debt			(3)	(23)
Proceeds from option exercises			0	0
Net cash flows provided by (used in) financing activities			576	684
Effect of foreign exchange rate changes			0	0
Increase (decrease) in cash			0	0
Cash and restricted cash at beginning of period			0	0	0
Cash and restricted cash at end of period	$ 0	$ 0	$ 0	$ 0	$ 0

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Label	Element	Value
Reinsurance of SGI Insured Portfolio [Member] | Structured Finance [Member]
Guarantor Obligations, Net Expected Loss to be Paid After Recoveries for Representations and Warranties	ago_GuarantorObligationsNetExpectedLosstobePaidAfterRecoveriesforRepresentationsandWarranties	$ 130,000,000
Reinsurance of SGI Insured Portfolio [Member] | Other Structured Finance [Member]
Guarantor Obligations, Net Expected Loss to be Paid After Recoveries for Representations and Warranties	ago_GuarantorObligationsNetExpectedLosstobePaidAfterRecoveriesforRepresentationsandWarranties	0
Reinsurance of SGI Insured Portfolio [Member] | Public Finance [Member]
Guarantor Obligations, Net Expected Loss to be Paid After Recoveries for Representations and Warranties	ago_GuarantorObligationsNetExpectedLosstobePaidAfterRecoveriesforRepresentationsandWarranties	1,000,000
UNITED STATES | Reinsurance of SGI Insured Portfolio [Member] | Residential Mortgage Backed Securities [Member]
Guarantor Obligations, Net Expected Loss to be Paid After Recoveries for Representations and Warranties	ago_GuarantorObligationsNetExpectedLosstobePaidAfterRecoveriesforRepresentationsandWarranties	130,000,000
UNITED STATES | Reinsurance of SGI Insured Portfolio [Member] | Public Finance [Member]
Guarantor Obligations, Net Expected Loss to be Paid After Recoveries for Representations and Warranties	ago_GuarantorObligationsNetExpectedLosstobePaidAfterRecoveriesforRepresentationsandWarranties	0
Non United States [Member] | Reinsurance of SGI Insured Portfolio [Member] | Public Finance [Member]
Guarantor Obligations, Net Expected Loss to be Paid After Recoveries for Representations and Warranties	ago_GuarantorObligationsNetExpectedLosstobePaidAfterRecoveriesforRepresentationsandWarranties	1,000,000
Accounting Standards Update 2016-01 [Member] | Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ 32,000,000