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Outstanding Exposure | 3 Months Ended
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Mar. 31, 2022
Outstanding Exposure Disclosure [Abstract] |
Outstanding Exposure | Outstanding Exposure The Company sells credit protection primarily 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 since 2009 that include financial guaranty contracts in credit derivative form. The Company also writes specialty insurance and reinsurance that is consistent with its risk profile and benefits from its underwriting experience and other types of financial guarantees not subject to insurance accounting guidance. The Company seeks to limit its exposure to losses by underwriting obligations that it views to be investment grade at inception, although on occasion it may underwrite new issuances that it views to be 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 sector and geography and, in the structured finance portfolio, generally 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 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, healthcare facilities and government office buildings. The Company also includes within public finance obligations 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 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on these VIEs whether or not they are consolidated. The Company also provides specialty insurance and reinsurance on transactions without special purpose entities but with risk profiles similar to those of its structured finance exposures written in financial guaranty form. 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 of 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 generally reflect 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 classifies those portions of risks benefiting from reimbursement obligations collateralized by eligible assets held in trust in acceptable reimbursement structures as being the higher of ‘AA’ or their current internal rating. Unless otherwise noted, ratings disclosed herein on the Company’s insured portfolio reflect its internal ratings. 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 a 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 (Recovered), for additional information. Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid. The Company uses the tax-equivalent yield of the relevant subsidiary’s investment portfolio 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 are 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 in the future pay claims on that transaction that will not be fully reimbursed. The three BIG surveillance 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. Impact of COVID-19 Pandemic Variants of COVID-19 continue to spread throughout the world, while the production, acceptance, and distribution of vaccines and therapeutics for it are proceeding unevenly across the globe. The emergence of COVID-19 and reactions to it, including various intermittent closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets. The ultimate size, depth, course and duration of the pandemic, and the effectiveness, acceptance, and distribution of vaccines and therapeutics for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve. Consequently, and due to the nature of the Company’s business, all of the direct and indirect consequences of COVID-19 on the Company are not yet fully known to the Company, and still may not emerge for some time. From shortly after the pandemic reached the U.S. through early 2021 the Company’s surveillance department conducted supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various intermittent closures and capacity and travel restrictions or an economic downturn. Given significant federal funding in 2021 and the performance it observed, the Company’s surveillance department has reduced these supplemental procedures, but is still monitoring those sectors it identified as most at risk for any developments related to COVID-19 that may impact the ability of issuers to make upcoming debt service payments. The Company has paid only relatively small insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19, and has already received reimbursement for most of those claims. Financial Guaranty Exposure The Company measures its financial guaranty exposure in terms of (i) gross and net par outstanding and (ii) gross and net debt service. The Company typically guarantees the payment of debt service when due. Since most of these payments are due in the future, the Company generally uses gross and net par outstanding as a proxy for its financial guaranty exposure. Gross par outstanding generally represents the principal amount of the insured obligation at a point in time. Net par outstanding equals gross par outstanding net of any reinsurance. The Company includes in its par outstanding calculation the impact of any consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date. Foreign denominated net par outstanding is translated at the spot rate at the end of the reporting period. The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid (loss mitigation securities), in order to mitigate the economic effect of insured losses. The Company excludes amounts attributable to loss mitigation securities from par and debt service outstanding, and instead includes such amounts in the investment portfolio, because the Company manages such securities as investments and not insurance exposure. As of March 31, 2022 and December 31, 2021, the Company excluded from net par outstanding $1.2 billion and $1.3 billion, respectively, attributable to loss mitigation securities. Gross debt service outstanding represents the sum of all estimated future debt service payments on the insured obligations, on an undiscounted basis. Net debt service outstanding equals gross debt service outstanding net of any reinsurance. Future debt service payments include the impact of any consumer price index inflator after the reporting date, as well as, in the case of accreting (zero-coupon) obligations, accretion after the reporting date. The Company calculates its debt service outstanding as follows: •for insured obligations that are not supported by homogeneous pools of assets (which category includes most of the Company’s public finance transactions), as the total estimated contractual future debt service due through maturity, regardless of whether the obligations may be called and regardless of whether, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, the Company believes the obligations will be repaid prior to contractual maturity; and •for insured obligations that are supported by homogeneous pools of assets that are contractually permitted to prepay principal (which category includes, for example, residential mortgage-backed securities (RMBS)), as the total estimated expected future debt service due on insured obligations through their respective expected terms, which includes the Company’s expectations as to whether the obligations may be called and, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity. The calculation of debt service requires the use of estimates, which the Company updates periodically, including estimates and assumptions for the expected remaining term of insured obligations supported by homogeneous pools of assets, updated interest rates for floating and variable rate insured obligations, behavior of consumer price indices for obligations with consumer price index inflators, foreign exchange rates and other assumptions based on the characteristics of each insured obligation. Debt service is a measure of the estimated maximum potential exposure to insured obligations before considering the Company’s various legal rights to the underlying collateral and other remedies available to it under its financial guaranty contract. Actual debt service may differ from estimated debt service due to refundings, terminations, negotiated restructurings, prepayments, changes in interest rates on variable rate insured obligations, consumer price index behavior differing from that projected, changes in foreign exchange rates on non-U.S. dollar denominated insured obligations and other factors. Financial Guaranty Portfolio Debt Service and Par Outstanding
| As of March 31, 2022 |  | As of December 31, 2021
| Gross |  | Net |  | Gross |  | Net
| (in millions)
Debt Service |  |  |  |  |  |  |
Public finance | $ | 352,611 |  |  | $ | 352,285 |  |  | $ | 357,694 |  |  | $ | 357,314 |
Structured finance | 9,734 |  |  | 9,704 |  |  | 10,076 |  |  | 10,046 |
Total financial guaranty | $ | 362,345 |  |  | $ | 361,989 |  |  | $ | 367,770 |  |  | $ | 367,360 |
Par Outstanding |  |  |  |  |  |  |
Public finance | $ | 224,763 |  |  | $ | 224,463 |  |  | $ | 227,507 |  |  | $ | 227,164 |
Structured finance | 8,946 |  |  | 8,916 |  |  | 9,258 |  |  | 9,228 |
Total financial guaranty | $ | 233,709 |  |  | $ | 233,379 |  |  | $ | 236,765 |  |  | $ | 236,392 |
In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $1,174 million of public finance direct gross par and $860 million of structured finance direct gross par as of March 31, 2022. These 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 by Internal Rating As of March 31, 2022
|  | 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 |  | $ | 270 |  |  | 0.2 | % |  | $ | 2,102 |  |  | 4.3 | % |  | $ | 757 |  |  | 9.3 | % |  | $ | 482 |  |  | 59.1 | % |  | $ | 3,611 |  |  | 1.5 | %
AA |  | 16,472 |  |  | 9.4 |  |  | 3,975 |  |  | 8.2 |  |  | 4,633 |  |  | 57.2 |  |  | 21 |  |  | 2.7 |  |  | 25,101 |  |  | 10.8 |
A |  | 94,442 |  |  | 53.6 |  |  | 10,382 |  |  | 21.4 |  |  | 801 |  |  | 9.9 |  |  | 156 |  |  | 19.1 |  |  | 105,781 |  |  | 45.3 |
BBB |  | 61,039 |  |  | 34.7 |  |  | 31,486 |  |  | 64.9 |  |  | 566 |  |  | 7.0 |  |  | 156 |  |  | 19.1 |  |  | 93,247 |  |  | 40.0 |
BIG |  | 3,734 |  |  | 2.1 |  |  | 561 |  |  | 1.2 |  |  | 1,344 |  |  | 16.6 |  |  | — |  |  | — |  |  | 5,639 |  |  | 2.4 |
Total net par outstanding |  | $ | 175,957 |  |  | 100.0 | % |  | $ | 48,506 |  |  | 100.0 | % |  | $ | 8,101 |  |  | 100.0 | % |  | $ | 815 |  |  | 100.0 | % |  | $ | 233,379 |  |  | 100.0 | %
Financial Guaranty Portfolio by Internal Rating As of December 31, 2021
|  | 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 |  | $ | 272 |  |  | 0.2 | % |  | $ | 2,217 |  |  | 4.5 | % |  | $ | 806 |  |  | 9.6 | % |  | $ | 493 |  |  | 57.7 | % |  | $ | 3,788 |  |  | 1.6 | %
AA |  | 16,372 |  |  | 9.2 |  |  | 4,205 |  |  | 8.4 |  |  | 4,760 |  |  | 56.8 |  |  | 22 |  |  | 2.6 |  |  | 25,359 |  |  | 10.7 |
A |  | 94,459 |  |  | 53.3 |  |  | 10,659 |  |  | 21.3 |  |  | 813 |  |  | 9.7 |  |  | 160 |  |  | 18.7 |  |  | 106,091 |  |  | 44.9 |
BBB |  | 60,744 |  |  | 34.3 |  |  | 32,264 |  |  | 64.6 |  |  | 611 |  |  | 7.3 |  |  | 179 |  |  | 21.0 |  |  | 93,798 |  |  | 39.7 |
BIG |  | 5,372 |  |  | 3.0 |  |  | 600 |  |  | 1.2 |  |  | 1,384 |  |  | 16.6 |  |  | — |  |  | — |  |  | 7,356 |  |  | 3.1 |
Total net par outstanding |  | $ | 177,219 |  |  | 100.0 | % |  | $ | 49,945 |  |  | 100.0 | % |  | $ | 8,374 |  |  | 100.0 | % |  | $ | 854 |  |  | 100.0 | % |  | $ | 236,392 |  |  | 100.0 | %
Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of March 31, 2022
| BIG Net Par Outstanding |  | Net Par
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |  | Outstanding
|  |  |  |  | (in millions) |  |  |  |
Public finance: |  |  |  |  |  |  |  |  |
U.S. public finance | $ | 1,462 |  |  | $ | 116 |  |  | $ | 2,156 |  |  | $ | 3,734 |  |  | $ | 175,957 |
Non-U.S. public finance | 518 |  |  | — |  |  | 43 |  |  | 561 |  |  | 48,506 |
Public finance | 1,980 |  |  | 116 |  |  | 2,199 |  |  | 4,295 |  |  | 224,463 |
Structured finance: |  |  |  |  |  |  |  |  |
U.S. RMBS | 53 |  |  | 81 |  |  | 1,095 |  |  | 1,229 |  |  | 2,277 |
Other structured finance | — |  |  | 39 |  |  | 76 |  |  | 115 |  |  | 6,639 |
Structured finance | 53 |  |  | 120 |  |  | 1,171 |  |  | 1,344 |  |  | 8,916 |
Total | $ | 2,033 |  |  | $ | 236 |  |  | $ | 3,370 |  |  | $ | 5,639 |  |  | $ | 233,379 |
Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of December 31, 2021
| BIG Net Par Outstanding |  | Net Par
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |  | Outstanding
|  |  |  |  | (in millions) |  |  |  |
Public finance: |  |  |  |  |  |  |  |  |
U.S. public finance | $ | 1,765 |  |  | $ | 116 |  |  | $ | 3,491 |  |  | $ | 5,372 |  |  | $ | 177,219 |
Non-U.S. public finance | 556 |  |  | — |  |  | 44 |  |  | 600 |  |  | 49,945 |
Public finance | 2,321 |  |  | 116 |  |  | 3,535 |  |  | 5,972 |  |  | 227,164 |
Structured finance: |  |  |  |  |  |  |  |  |
U.S. RMBS | 121 |  |  | 24 |  |  | 1,120 |  |  | 1,265 |  |  | 2,391 |
Other structured finance | 1 |  |  | 41 |  |  | 77 |  |  | 119 |  |  | 6,837 |
Structured finance | 122 |  |  | 65 |  |  | 1,197 |  |  | 1,384 |  |  | 9,228 |
Total | $ | 2,443 |  |  | $ | 181 |  |  | $ | 4,732 |  |  | $ | 7,356 |  |  | $ | 236,392 |
Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of March 31, 2022
|  | Net Par Outstanding |  | Number of Risks (2)
Description |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total
|  | (dollars in millions)
BIG: |  |  |  |  |  |  |  |  |  |  |  |
Category 1 |  | $ | 2,027 |  |  | $ | 6 |  |  | $ | 2,033 |  |  | 108 |  |  | 1 |  |  | 109 |
Category 2 |  | 225 |  |  | 11 |  |  | 236 |  |  | 20 |  |  | 2 |  |  | 22 |
Category 3 |  | 3,327 |  |  | 43 |  |  | 3,370 |  |  | 127 |  |  | 8 |  |  | 135 |
Total BIG |  | $ | 5,579 |  |  | $ | 60 |  |  | $ | 5,639 |  |  | 255 |  |  | 11 |  |  | 266 |
Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of December 31, 2021
|  | Net Par Outstanding |  | Number of Risks (2)
Description |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total
|  | (dollars in millions)
BIG: |  |  |  |  |  |  |  |  |  |  |  |
Category 1 |  | $ | 2,429 |  |  | $ | 14 |  |  | $ | 2,443 |  |  | 117 |  |  | 2 |  |  | 119 |
Category 2 |  | 177 |  |  | 4 |  |  | 181 |  |  | 16 |  |  | 1 |  |  | 17 |
Category 3 |  | 4,687 |  |  | 45 |  |  | 4,732 |  |  | 129 |  |  | 8 |  |  | 137 |
Total BIG |  | $ | 7,293 |  |  | $ | 63 |  |  | $ | 7,356 |  |  | 262 |  |  | 11 |  |  | 273 |
_____________________ (1) Includes FG 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 $2,237 million net par outstanding as of March 31, 2022, a decrease of $1,335 million from the $3,572 million net par outstanding as of December 31, 2021. All of the Company’s insured exposure to Puerto Rico is rated BIG. The Company has paid claims as a result of payment defaults on all of its outstanding Puerto Rico exposures except the Municipal Finance Agency (MFA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the University of Puerto Rico (U of PR). 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 and Management Board (the FOMB) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico. Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under Chapter 9 of the United States Bankruptcy Code (Bankruptcy Code). After over five years of negotiations, on March 15, 2022, a substantial portion of the Company’s Puerto Rico exposure was resolved in accordance with three orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico): •On January 18, 2022, the Federal District Court of Puerto Rico, acting under Title III of PROMESA, entered an order and judgment confirming the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan). The GO/PBA Plan restructured approximately $35 billion of debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities as well as $50 billion in pension obligations (none of the pension obligations are insured by the Company), all consistent with the terms of the settlement embodied in a revised GO and PBA plan support agreement (PSA) entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the FOMB (GO/PBA PSA). •On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered an order under Title VI of PROMESA (PRCCDA Modification) modifying the debt of the Puerto Rico Convention Center District Authority (PRCCDA). •On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered another order under Title VI of PROMESA (PRIFA Modification) modifying certain debt of the Puerto Rico Infrastructure Financing Authority (PRIFA). As a result of the consummation on March 15, 2022, of each of the GO/PBA Plan, PRCCDA Modification and PRIFA Modification (together, the March Puerto Rico Resolutions), including claim payments made by the Company under the March Puerto Rico Resolutions, the Company’s obligations under its insurance policies covering debt of the PRCCDA and PRIFA were extinguished, and its insurance exposure to Puerto Rico GO and PBA was greatly reduced. The Company is continuing its efforts to resolve two other Puerto Rico insured exposures that are in payment default, the Puerto Rico Highways and Transportation Authority (PRHTA) and the Puerto Rico Electric Power Authority (PREPA). Both economic and political developments, including those related to the COVID-19 pandemic, may impact any resolution of the Company’s PRHTA and PREPA insured exposures and the value of the consideration the Company has received in connection with the March Puerto Rico Resolutions or may receive in the future in connection with any future resolutions of the Company’s PRHTA and/or PREPA insured exposures. The impact of developments relating to Puerto Rico during any quarter or year could be material to the Company’s results of operations and shareholders’ equity. Puerto Rico GO and PBA As of March 31, 2022, the Company had remaining $47 million of insured net par outstanding of GO bonds and $5 million of insured net par outstanding of PBA bonds, consisting of direct exposure, second-to-pay exposure, and assumed reinsurance exposure.
|  | Direct |  | Second-to-Pay |  | Assumed |  | Total
|  | (in millions)
GO |  | $ | 36 |  |  | $ | 10 |  |  | $ | 1 |  |  | $ | 47 |
PBA |  | 5 |  |  | — |  |  | — |  |  | 5 |
Total GO and PBA |  | $ | 41 |  |  | $ | 10 |  |  | $ | 1 |  |  | $ | 52 |
Under the GO/PBA Plan the Company received (including amounts received in connection with the second election described further below): •$530 million in cash, net of ceded reinsurance, •$605 million of new recovery bonds (see Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the face value of current interest bonds and the maturity value of capital appreciation bonds, net of ceded reinsurance, and •$258 million of contingent value instruments (CVIs) (see Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the original notional value, net of ceded reinsurance. The Company expects to receive amounts in addition to the amounts listed above (and to make additional payments) in connection with its $1 million in net outstanding par of assumed reinsurance and $10 million in net outstanding par of second-to-pay exposure. The CVIs are intended to provide creditors with additional recoveries tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax (SUT) receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps. The Company has sold a portion of the new recovery bonds and CVIs it received on March 15, 2022, and may sell in the future any new recovery bonds or CVIs it continues to hold. The fair value of any new recovery bonds or CVIs the Company retains will fluctuate. Any gains or losses on sales of new recovery bonds and CVIs relative to their values on March 15, 2022, were and will be reported as realized gains and losses on investments, rather than loss and LAE. The notional amount of the CVI represents the sum of the maximum distributions the holder could receive under the CVI, subject to the cumulative and annual caps, if the SUT sufficiently exceeds 2020 certified fiscal plan projections, without any discount for time. In August 2021, the Company exercised certain elections under the GO/PBA Plan that impact the timing of payments under its insurance policies. In accordance with the terms of the GO/PBA Plan, the payment of the principal of all GO bonds and PBA bonds insured by the Company was accelerated against the Commonwealth and became due and payable as of March 15, 2022. With respect to certain insured securities covered by the GO/PBA Plan, insured bondholders were permitted to elect either: (i) to receive on March 15, 2022, 100% of the then outstanding principal amount of insured bonds plus accrued interest; or (ii) to receive custody receipts that represent an interest in the legacy insurance policy plus cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan. For those who made the second election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds. The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates to the extent that distributions of Plan Consideration are insufficient to pay such amounts after giving effect to the distributions described in the immediately preceding sentence. In the case of insured bondholders who elected to receive custody receipts, the Company retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying 100% of the then outstanding principal amount of insured bonds plus accrued interest. As of March 31, 2022, the net insured par outstanding under the legacy GO and PBA insurance policies was $41 million, and constituted all of the Company’s remaining net par exposure to the GO and PBA bonds it had directly insured. PRCCDA and PRIFA As of March 31, 2022, the Company had no insured net par outstanding of PRCCDA or PRIFA obligations remaining. Under the PRCCDA Modification and the PRIFA Modification, on March 15, 2022, the Company received an aggregate of $47 million in cash (net of ceded reinsurance) and $98 million in notional amount of CVIs (net of ceded reinsurance). PRHTA As of March 31, 2022, the Company had $1.3 billion of insured net par outstanding that is covered by a PSA with respect to PRHTA entered into on May 5, 2021, by AGM and AGC and certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA): $799 million insured net par outstanding of PRHTA (transportation revenue) bonds and $457 million insured net par outstanding of PRHTA (highway 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 taxes on crude oil, unfinished oil and derivative products. The highway 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 HTA PSA provides for payments to AGM and AGC consisting of: (i) cash; (ii) new bonds expected to be backed by toll revenue (Toll Bonds); and (iii) a CVI. The HTA PSA contemplates a Title III proceeding requiring court approval of a disclosure statement, solicitation and voting process, and a plan confirmation hearing. On May 2, 2022, the FOMB took the first step in this process by filing with the Title III Court a plan of adjustment for HTA (HTA Plan) which it believes to be consistent with the HTA PSA. The HTA PSA includes a number of conditions and the HTA Plan is subject to confirmation by the Title III Court, so there can be no assurance that the consensual resolution for PRHTA embodied in the HTA PSA will be achieved in its current form, or at all. On February 22, 2022, the FOMB certified a revised fiscal plan for PRHTA generally consistent with the HTA PSA. PREPA As of March 31, 2022, the Company had $748 million insured net par outstanding of PREPA obligations. The PREPA obligations are secured by a lien on the revenues of the electric system. On May 3, 2019, AGM and AGC entered into a restructuring support agreement with respect to PREPA with PREPA and other stakeholders, including a group of uninsured PREPA bondholders, the Commonwealth and the FOMB (PREPA RSA). This agreement was terminated by Puerto Rico on March 8, 2022. On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order, in an action initiated by AGM and ACG in 2017, appointing as members of a PREPA mediation team U.S. Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon. Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that mediation shall terminate on June 1, 2022, unless extended by the PREPA mediation team to July 1, 2022. The last revised fiscal plan for PREPA was certified by the FOMB on May 27, 2021. Other Puerto Rico Exposures All debt service payments for the Company’s remaining Puerto Rico exposures have been made in full by the obligors as of the date of this filing. Such exposures comprise: MFA. As of March 31, 2022, the Company had $179 million insured net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues. U of PR. As of March 31, 2022, 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. PRASA. As of March 31, 2022, the Company had $1 million insured net par outstanding of PRASA obligations. The Company’s insured PRASA obligations are secured by a lien on the gross revenues of the water and sewer system. Puerto Rico Litigation Currently, there are numerous legal actions relating to the default by the Commonwealth and certain of its instrumentalities on debt service payments, and related matters, and the Company is a party to a number of them. The Company has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to Puerto Rico obligations which the Company insures. In addition, the Commonwealth, the FOMB and others have taken legal action naming the Company as party. A number of legal actions involving the Company and relating to PRCCDA and PRIFA, as well as claims related to the clawback of certain excise taxes and revenues pledged to secure bonds issued by PRHTA, were resolved on March 15, 2022 in connection with the consummation of the March Puerto Rico Resolutions. All other proceedings remain stayed pending the Court’s determination on plans of adjustment or other proceedings related to PRHTA and PREPA. Remaining Stayed Proceedings. The following Puerto Rico proceedings in which the Company is involved remain stayed: •On June 26, 2017, AGM and AGC filed a complaint in the Federal District Court of Puerto Rico to compel the FOMB to certify the PREPA RSA for implementation under Title VI of PROMESA. On July 21, 2017, considering its PREPA Title III petition on July 2, 2017, the FOMB filed a notice of stay under PROMESA. •On July 18, 2017, AGM and AGC filed a motion for relief in the Federal District Court of Puerto Rico from the automatic stay filed in the PREPA Title III Bankruptcy proceeding. 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. On May 3, 2019, AGM and AGC entered into the PREPA RSA, but on March 8, 2022, the Commonwealth and PREPA terminated the PREPA RSA. Given the termination of the PREPA RSA, the Company is considering several options to enforce its rights in respect of insured PREPA bonds, including, among other things, a renewal of the motion to lift the automatic stay and seek the appointment of a receiver. On April 8, 2022, Judge Swain issued an order appointing as members of the PREPA mediation team U.S. Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon. Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that mediation shall terminate on June 1, 2022, unless extended by the PREPA mediation team to July 1, 2022. •On May 20, 2019, the FOMB and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court of Puerto Rico challenging the validity, enforceability, and extent of security interests in PRHTA revenues. 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; Judge Swain extended the stay through December 31, 2019, and subsequently extended the stay again pending further order of the court on the understanding that these issues will be resolved in other proceedings. •On September 30, 2019, certain fuel line lenders filed an amended adversary complaint against the FOMB and other parties, including AGC and AGM, seeking subordination of PREPA bondholder claims to fuel line lender claims. The FOMB filed a status report on May 15, 2020 regarding PREPA’s financial condition and its request for approval of the PREPA RSA settlement, in which it requested that it be permitted to file an updated report by July 31, 2020, that all proceedings related to the approval of the PREPA RSA settlement continue to be adjourned, and that the hearing in this adversary proceeding scheduled for June 3, 2020 be adjourned. On May 22, 2020, the Title III Court issued an order to that effect. •On October 30, 2019, the retirement system for PREPA employees (SREAEE) filed an amended adversary complaint in the Federal District Court of Puerto Rico against the FOMB and other parties, seeking subordination of PREPA bondholder claims to SREAEE claims. The FOMB filed a status report on May 15, 2020 regarding PREPA’s financial condition and its request for approval of the PREPA RSA settlement, in which it requested that it be permitted to file an updated report by July 31, 2020, that all proceedings related to the approval of the PREPA RSA settlement continue to be adjourned, and that the hearing in this adversary proceeding scheduled for June 3, 2020 be adjourned. On May 22, 2020, the Title III Court issued an order to that effect. •On January 16, 2020, the FOMB, on behalf of the PRHTA, brought an adversary proceeding in the Federal District Court of Puerto Rico against AGM and AGC and other insurers of PRHTA bonds, objecting to the bond insurers claims in the PRHTA Title III proceedings and seeking to disallow such claims. Considering the PSA, on May 25, 2021, Judge Swain stayed the participation of AGM and AGC. 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
| As of |  | As of
| March 31, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021
| (in millions)
Exposure to Puerto Rico | $ | 2,256 |  |  | $ | 3,629 |  |  | $ | 3,169 |  |  | $ | 5,322 |
Puerto Rico Net Par Outstanding
| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement |  |  |
Commonwealth of Puerto Rico - GO (1) | $ | 47 |  |  | $ | 1,097 |
PBA (1) | 5 |  |  | 122 |
Total GO/PBA Plan | 52 |  |  | 1,219 |
PRHTA (Transportation revenue) | 799 |  |  | 799 |
PRHTA (Highway revenue) | 457 |  |  | 457 |
PRCCDA (2) | — |  |  | 152 |
Total HTA/CCDA PSA | 1,256 |  |  | 1,408 |
PRIFA (2) | — |  |  | 16 |
Total Subject to a Plan or Support Agreement | 1,308 |  |  | 2,643 |
Other Puerto Rico Exposures |  |  |
PREPA | 748 |  |  | 748 |
MFA (3) | 179 |  |  | 179 |
PRASA and U of PR (3) | 2 |  |  | 2 |
Total Other Puerto Rico Exposures | 929 |  |  | 929 |
Total net exposure to Puerto Rico | $ | 2,237 |  |  | $ | 3,572 |
____________________ (1) On March 15, 2022, the Modified Eighth Amended Title III Joint Plan of Adjustment, confirmed on January 18, 2022, was consummated, pursuant to which the Company, among other things, fully paid claims on all of its directly insured Puerto Rico GO bonds, other than certain GO bonds whose holders made certain elections. On the same date and pursuant to the same Plan of Adjustment, the Company fully paid claims on all of its directly insured PBA bonds, other than certain PBA bonds whose holders made certain elections. (2) On March 15, 2022, the Company fully paid claims on all of its insured PRCCDA and PRIFA bonds, eliminating its exposure to insured PRCCDA and PRIFA bonds, pursuant to Title VI orders entered on January 20, 2022. (3) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company. 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, although in certain circumstances it may elect to do so. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the debt service 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 March 31, 2022
| Scheduled Net Par Amortization |  | Scheduled Net Debt Service Amortization
| (in millions)
2022 (April 1 - June 30) | $ | — |  |  | $ | 3 |
2022 (July 1 - September 30) | 159 |  |  | 213 |
2022 (October 1 - December 31) | — |  |  | 3 |
Subtotal 2022 | 159 |  |  | 219 |
2023 | 186 |  |  | 289 |
2024 | 149 |  |  | 243 |
2025 | 151 |  |  | 237 |
2026 | 170 |  |  | 249 |
2027-2031 | 639 |  |  | 935 |
2032-2036 | 577 |  |  | 732 |
2037-2041 | 201 |  |  | 237 |
2042 | 5 |  |  | 5 |
Total | $ | 2,237 |  |  | $ | 3,146 |
Exposure to the U.S. Virgin Islands As of March 31, 2022, the Company had $443 million insured net par outstanding to the U.S. Virgin Islands and its related authorities (USVI), of which it rated $185 million BIG (down from $469 million BIG as of December 31, 2021). During First Quarter 2022, the Company upgraded $256 million insured par net outstanding of USVI bonds in anticipation of a legal defeasance of such bonds, which occurred on April 6, 2022. The $185 million of BIG USVI net par outstanding consisted of: (i) Public Finance Authority bonds secured by a gross receipts tax and the general obligation, full faith and credit pledge of the USVI; and (ii) bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system. The COVID-19 pandemic and evolving governmental and private responses to the pandemic have been impacting the USVI economy, especially the tourism sector. The USVI continues to benefit from the federal response to the 2017 hurricanes and COVID-19, has seen improvement in portions of the tourism sector, recently took actions to address its pension shortfalls, and has made its debt service payments to date. Specialty Insurance and Reinsurance Exposure The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form. As of both March 31, 2022 and December 31, 2021, gross exposure of $144 million and net exposure of $84 million of aircraft residual value insurance was rated BIG. All other exposures in the table below are investment-grade quality. Specialty Insurance and Reinsurance Exposure
|  | As of March 31, 2022 |  | As of December 31, 2021
|  | Gross Exposure |  | Net Exposure |  | Gross Exposure |  | Net Exposure
|  | (in millions)
Life insurance transactions (1) |  | $ | 1,261 |  |  | $ | 890 |  |  | $ | 1,250 |  |  | $ | 871 |
Aircraft residual value insurance policies |  | 355 |  |  | 200 |  |  | 355 |  |  | 200 |
Total |  | $ | 1,616 |  |  | $ | 1,090 |  |  | $ | 1,605 |  |  | $ | 1,071 |
____________________ (1) The life insurance transactions’ net exposure is projected to reach $1.1 billion by March 31, 2026. Guarantee On March 31, 2022, the Company’s subsidiary, AGRO, entered into an agreement (internally rated AA) which guarantees the receipt of a minimum rental income from a multifamily and commercial real estate portfolio. AGRO’s attachment point is significantly below current annual rental income, and further protective provisions are triggered when rental income falls below a certain level. In addition, AGRO is entitled to be reimbursed for any claims made on the guarantee from future rental income generated by the portfolio. The Company’s maximum potential exposure under the guarantee was $257 million as of March 31, 2022. The Company accounts for the guarantee in accordance with Accounting Standards Codification (ASC) 460, Guarantees.

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- Definition The entity's insurance policies and credit derivative contracts guarantee the scheduled payments of principal and interest ("Debt Service") on public finance and structured finance obligations. Outstanding Exposure includes outstanding par and/or debt service amounts, including outstanding exposures on VIE's whether or not they are consolidated under US GAAP, on credits that are guaranteed by the entity. + References No definition available. + Details
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