Amounts presented in this note relate only to contracts accounted for as insurance, unless otherwise specified. See Note 6, Contracts Accounted for as Credit Derivatives, for amounts related to CDS and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as consolidated FG VIEs.

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

Premiums receivable represent the present value of contractual or expected future premium collections discounted using risk-free rates. Unearned premium reserve represents deferred premium revenue less claim payments made (net of recoveries received) that have not yet been recognized in the statement of operations (contra-paid). The following discussion relates to the deferred premium revenue component of the unearned premium reserve, while the contra-paid is discussed below under “Losses and Recoveries”.

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

•For premiums received in installments on financial guaranty insurance contracts that were originally underwritten by the Company, deferred premium revenue is the present value (discounted at risk free rates) of either: (i) contractual premiums due; or (ii) in cases where the underlying collateral is composed of homogeneous pools of assets, the expected premiums to be collected over the life of the contract. To be considered a homogeneous pool of assets, prepayments must be contractually allowable, the amount of prepayments must be probable, and the timing and amount of prepayments must be reasonably estimable. Installment premiums typically relate to structured finance and infrastructure transactions, where the insurance premium rate is determined at the inception of the contract but the insured par is subject to prepayment throughout the life of the transaction.

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

When the Company adjusts prepayment assumptions or expected premium collections for obligations backed by homogeneous pools of assets, an adjustment is recorded to the deferred premium revenue, with a corresponding adjustment to premiums receivable. Premiums receivable are discounted at the risk-free rate at inception and such discount rate is updated only when changes to prepayment assumptions are made that change the expected date of final maturity. Accretion of the discount on premiums receivable is reported in “net earned premiums”.

The Company recognizes deferred premium revenue as earned premium over the contractual period or expected period of the contract in proportion to the amount of insurance protection provided. As premium revenue is recognized, a corresponding decrease to the deferred premium revenue is recorded. The amount of insurance protection provided is a function of the insured par amount outstanding. Accordingly, the proportionate share of premium revenue recognized in a given reporting period is a constant rate calculated based on the relationship between the insured par amounts outstanding in the reporting period compared with the sum of each of the insured par amounts outstanding for all periods. When an insured financial obligation is retired before its maturity, the financial guaranty insurance contract is extinguished, and any nonrefundable deferred premium revenue related to that contract is accelerated and recognized as premium revenue. The Company assesses the need for an allowance for credit loss on premiums receivables each reporting period.

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


	Year Ended December 31,
	2022		2021		2020
	(in millions)
Financial guaranty insurance:
Scheduled net earned premiums	$	287	$	322	$	334
Accelerations from refundings and terminations (1)	179		59		129
Accretion of discount on net premiums receivable	24		30		20
Financial guaranty insurance net earned premiums	490		411		483
Specialty net earned premiums	4		3		2
Net earned premiums	$	494	$	414	$	485

____________________


	Year Ended December 31,
	2022		2021		2020
	(in millions)
Beginning of year	$	1,372	$	1,372	$	1,286
Less: Specialty insurance premium receivable	1		1		2
Financial guaranty insurance premiums receivable	1,371		1,371		1,284
Gross written premiums on new business, net of commissions	356		369		462
Gross premiums received, net of commissions	(345)		(383)		(426)
Adjustments:
Changes in the expected term and debt service assumptions	2		6		(10)
Accretion of discount, net of commissions on assumed business	24		26		18
Foreign exchange gain (loss) on remeasurement	(111)		(22)		43
Expected recovery of premiums previously written off	—		4		—
Financial guaranty insurance premium receivable	1,297		1,371		1,371
Specialty insurance premium receivable	1		1		1
December 31,	$	1,298	$	1,372	$	1,372

Approximately 74% and 78% of gross premiums receivable, net of commissions payable at December 31, 2022 and December 31, 2021, 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 and net earned premiums may differ from those of expected collections and of expected net earned premiums in the table below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations, restructurings, changes in the consumer price index changes in expected lives and new business.


	As of December 31, 2022
	Future Premiums to be Collected (1)		Future Net Premiums to be Earned (2)
	(in millions)
2023 (January 1 - March 31)	$	43	$	69
2023 (April 1 - June 30)	32		69
2023 (July 1 - September 30)	25		69
2023 (October 1 - December 31)	29		68
Subtotal 2023	129		275
2024	92		260
2025	90		244
2026	87		229
2027	82		214
2028-2032	348		898
2033-2037	241		608
2038-2042	167		370
After 2042	352		521
Total	$	1,588	3,619
Future accretion			293
Total future net earned premiums			$	3,912


	As of December 31,
	2022		2021
	(dollars in millions)
Premiums receivable, net of commissions payable	$	1,297	$	1,371
Deferred premium revenue	$	1,663	$	1,663
Weighted-average risk-free rate used to discount premiums	1.8%		1.6%
Weighted-average period of premiums receivable (in years)	12.9		12.7

Policy acquisition costs that are directly related and essential to successful insurance contract acquisition, as well as ceding commission income and expense on ceded and assumed reinsurance contracts, are deferred and reported net.

Capitalized policy acquisition costs include the cost of underwriting personnel attributable to successful underwriting efforts. The Company conducts an annual time study, which requires the use of judgement, to estimate the amount of costs to be deferred.

Ceding commission expense on assumed reinsurance contracts and ceding commission income on ceded reinsurance contracts that are associated with premiums received in installments are calculated at their contractually defined commission

DAC is amortized in proportion to net earned premiums. Amortization of deferred policy acquisition costs includes the accretion of discount on ceding commission receivable and payable. When an insured obligation is retired early, the remaining related DAC is expensed at that time.

Loss and LAE reserve reported on the balance sheet relates only to direct and assumed reinsurance contracts that are accounted for as insurance, substantially all of which are financial guaranty insurance contracts. The corresponding reserve ceded to reinsurers is reported as reinsurance recoverable on unpaid losses and reported in other assets. Any loss and LAE reserves related to FG VIEs are eliminated upon consolidation. Any expected losses to be paid (recovered) on credit derivatives are reflected in the fair value of credit derivatives.

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

When a claim or LAE payment is made on a contract, it first reduces any recorded loss and LAE reserve. To the extent there is insufficient loss and LAE reserve on a contract, then such claim payment is recorded as contra-paid, which reduces the unearned premium reserve. The contra-paid is recognized in “loss and loss adjustment expenses (benefit)” in the consolidated statement of operations when and for the amount that total losses exceed the remaining deferred premium revenue on the insurance contract. “Loss and loss adjustment expenses (benefit)” in the consolidated statement of operations is presented net of cessions to reinsurers.

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

following: (i) a reduction in the corresponding loss and LAE reserve with a benefit to the consolidated statement of operations; (ii) no effect on the consolidated balance sheet or statements of operations, if total loss is not in excess of deferred premium revenue; or (iii) the recording of a salvage asset with a benefit to the consolidated statements of operations if the transaction is in a net recovery position at the reporting date. The ceded component of salvage and subrogation recoverable is reported in “other liabilities”.

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

Loss reserves and salvage are discounted at risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 3.82% to 4.69% with a weighted average of 4.15% as of December 31, 2022, and 0.0% to 1.98% with a weighted average of 1.02% as of December 31, 2021.


	As of December 31,
Sector	2022		2021
	(in millions)
Public finance:
U.S. public finance	$	71	$	60
Non-U.S. public finance	1		1
Public finance	72		61
Structured finance:
U.S. RMBS	(77)		(24)
Other structured finance	42		42
Structured finance	(35)		18
Total	$	37	$	79


	As of December 31,
	2022		2021
	(in millions)
Loss and LAE reserve	$	296	$	869
Reinsurance recoverable on unpaid losses (1)	(3)		(5)
Loss and LAE reserve, net	293		864
Salvage and subrogation recoverable	(257)		(801)
Salvage and subrogation reinsurance payable (2)	1		16
Salvage and subrogation recoverable, net	(256)		(785)
Net reserve (salvage)	$	37	$	79

The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed. Expected loss to be paid (recovered) for financial guaranty insurance contracts differs from expected loss to be expensed due to: (i) the contra-paid, which represents the claim payments made and recoveries

received that have not yet been recognized in the statements 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).


	As of December 31, 2022
	(in millions)
Net expected loss to be paid (recovered) - financial guaranty insurance	$	201
Contra-paid, net	23
Salvage and subrogation recoverable, net	256
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(289)
Net expected loss to be expensed (present value)	$	191

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.


	As of December 31, 2022
	(in millions)
2023 (January 1 - March 31)	$	2
2023 (April 1 - June 30)	2
2023 (July 1 - September 30)	3
2023 (October 1 - December 31)	3
Subtotal 2023	10
2024	12
2025	13
2026	17
2027	15
2028-2032	61
2033-2037	43
2038-2042	8
After 2042	12
Net expected loss to be expensed	191
Future accretion	82
Total expected future loss and LAE	$	273


	Year Ended December 31,
Sector	2022		2021		2020
	(in millions)
Public finance:
U.S. public finance	$	125	$	(146)	$	225
Non-U.S. public finance	—		(9)		5
Public finance	125		(155)		230
Structured finance:
U.S. RMBS	(112)		(69)		(34)
Other structured finance	3		4		7
Structured finance	(109)		(65)		(27)
Loss and LAE (benefit)	$	16	$	(220)	$	203


	Gross								Net Total BIG
	BIG 1		BIG 2		BIG 3		Total BIG
	(dollars in millions)
Number of risks (1)	122		14		111		247		247
Remaining weighted-average period (in years)	11.3		8.7		7.6		9.8		9.8

Outstanding exposure:
Par	$	3,363	$	171	$	2,318	$	5,852	$	5,835
Interest	2,177		77		894		3,148		3,144
Total (2)	$	5,540	$	248	$	3,212	$	9,000	$	8,979

Expected cash outflows (inflows)	$	128	$	121	$	1,771	$	2,020	$	2,008
Potential recoveries (3)	(294)		(79)		(1,364)		(1,737)		(1,725)
Subtotal	(166)		42		407		283		283
Discount	35		(13)		(104)		(82)		(82)
Expected losses to be paid (recovered)	$	(131)	$	29	$	303	$	201	$	201

Deferred premium revenue	$	170	$	15	$	160	$	345	$	345
Reserves (salvage)	$	(174)	$	21	$	186	$	33	$	33


	Gross								Net Total BIG
	BIG 1		BIG 2		BIG 3		Total BIG
	(dollars in millions)
Number of risks (1)	117		16		129		262		262
Remaining weighted-average period (in years)	7.6		8.9		8.9		8.5		8.5

Outstanding exposure:
Par	$	2,437	$	177	$	4,745	$	7,359	$	7,293
Interest	1,000		36		1,942		2,978		2,962
Total (2)	$	3,437	$	213	$	6,687	$	10,337	$	10,255

Expected cash outflows (inflows)	$	111	$	40	$	4,820	$	4,971	$	4,918
Potential recoveries (3)	(656)		(10)		(3,829)		(4,495)		(4,430)
Subtotal	(545)		30		991		476		488
Discount	19		(3)		(145)		(129)		(129)
Expected losses to be paid (recovered)	$	(526)	$	27	$	846	$	347	$	359

Deferred premium revenue	$	85	$	2	$	350	$	437	$	435
Reserves (salvage)	$	(549)	$	25	$	584	$	60	$	74

(3)Represents expected inflows from future payments by obligors pursuant to restructuring agreements, settlements, excess spread on any underlying collateral and other estimated recoveries. Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past.

The Company assumes financial guaranty exposure (Assumed Financial Guaranty Business) from third-party insurers, primarily other monoline financial guaranty companies that currently are in runoff (Legacy Monoline Insurers). The Company’s Assumed Financial Guaranty Business represents $14.0 billion, or approximately 3.8%, of the Company’s total gross financial guaranty insured exposure of $370.2 billion, as measured by insured debt service, as of December 31, 2022.

The Company’s assumed reinsurance agreements with the Legacy Monoline Insurers are generally subject to termination at the option of the ceding company: (i) if the Company fails to meet certain financial and regulatory criteria; (ii) if the Company fails to maintain a specified minimum financial strength rating(s); or (iii) 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 Financial Guaranty 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 December 31, 2022, if each third-party insurer ceding financial guaranty business to any of the Company’s insurance subsidiaries had a right to recapture such business, and chose to exercise such right, the aggregate amounts that AGC and AG Re could be required to pay to all such companies would be approximately $234 million and $34 million, respectively.

The Company also assumes specialty business at AGRO. AGRO’s assumed reinsurance agreements in respect of this specialty business generally require it to post collateral for the ceding insurer if AGRO fails to maintain a specified minimum financial strength rating. If S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P) downgrades AGRO’s financial strength rating (currently “AA”) below “A-”, and A.M. Best Company, Inc. downgrades AGRO’s financial strength rating (currently “A+”) below “A-”, AGRO would be required to post, as of December 31, 2022, up to an estimated $12 million of collateral in respect of its assumed specialty business.

The Company cedes portions of its gross insured financial guaranty exposure (Ceded Financial Guaranty Business) to third-party insurers. This Ceded Financial Guaranty Business represents $221 million, or approximately 0.1%, of the Company’s total gross insured exposure of $370.2 billion, as measured by insured debt service, as of December 31, 2022. The Company also cedes $483 million of its $1.7 billion in gross insured specialty business.

In 2020, the Company reassumed $336 million in par, including $118 million in net par of Puerto Rico exposures, from its largest remaining legacy third-party financial guaranty reinsurer, resulting in a commutation gain of $38 million.


	Year Ended December 31,
	2022		2021		2020
	(in millions)
Premiums Written:
Direct	$	377	$	355	$	453
Assumed (1)	(17)		22		1
Ceded (2)	—		—		13
Net	$	360	$	377	$	467

Premiums Earned:
Direct	$	469	$	385	$	448
Assumed	28		32		41
Ceded	(3)		(3)		(4)
Net	$	494	$	414	$	485

Loss and LAE (benefit):
Direct (3)	$	32	$	(203)	$	182
Assumed	(17)		5		24
Ceded	1		(22)		(3)
Net	$	16	$	(220)	$	203