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Outstanding Exposure | 12 Months Ended
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Dec. 31, 2023
Outstanding Exposure Disclosure |
Outstanding Exposure | Outstanding Exposure The Company sells credit protection primarily in financial guaranty insurance form. The Company may also sell credit protection by issuing policies that guarantee payment obligations under 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 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 or providing reinsurance on a portfolio of insurance; 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 U.S. 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 writes specialty business that is consistent with its risk profile and benefits from its underwriting experience and other types of financial guaranties. Significant Risk Management Activities The Portfolio Risk Management Committee, which includes members of senior management and senior risk and surveillance officers, is responsible for enterprise risk management for the Insurance segment and focuses on measuring and managing insurance credit, market and liquidity risk for the Company. This committee establishes company-wide credit policy for the Company’s direct and assumed insurance business. It implements specific insurance underwriting procedures and limits for the Company and allocates underwriting capacity among the Company’s insurance subsidiaries. All insurance transactions in new asset classes or new jurisdictions must be approved by this committee. The U.S., AG Re and AGRO risk management committees and AGUK’s and AGE’s (the European Insurance Subsidiaries) surveillance committees conduct in-depth reviews of the insured portfolios of the relevant subsidiaries, focusing on varying portions of the portfolio at each meeting. They review and may revise internal ratings assigned to the insured transactions and review sector reports, monthly product line surveillance reports and compliance reports. All transactions in the insured portfolio are assigned internal credit ratings by the relevant underwriting committee at inception, and such credit ratings are updated by the relevant risk management or surveillance committee based on changes in transaction credit quality. As part of the surveillance process, the Company monitors trends and changes in transaction credit quality, and recommends such remedial actions as may be necessary or appropriate. The Company also develops strategies to enforce its contractual rights and remedies and to mitigate its losses, engage in negotiation discussions with transaction participants and, when necessary, manage the Company’s litigation proceedings. 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 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). 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 pre-tax book 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. 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. Non U.S. dollar denominated 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, 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, and instead reports Loss Mitigation Securities in the investment portfolio. The Company manages such securities as investments and not insurance exposure. As of December 31, 2023 and December 31, 2022 the Company excluded net par outstanding of $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 estimated 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 December 31, 2023 |  | As of December 31, 2022
| Gross |  | Net |  | Gross |  | Net
| (in millions)
Debt Service |  |  |  |  |  |  |
Public finance | $ | 386,494 |  |  | $ | 386,419 |  |  | $ | 359,899 |  |  | $ | 359,703 |
Structured finance | 11,543 |  |  | 11,217 |  |  | 10,273 |  |  | 10,248 |
Total financial guaranty | $ | 398,037 |  |  | $ | 397,636 |  |  | $ | 370,172 |  |  | $ | 369,951 |
Par Outstanding |  |  |  |  |  |  |
Public finance | $ | 239,352 |  |  | $ | 239,296 |  |  | $ | 224,254 |  |  | $ | 224,099 |
Structured finance | 10,183 |  |  | 9,857 |  |  | 9,184 |  |  | 9,159 |
Total financial guaranty | $ | 249,535 |  |  | $ | 249,153 |  |  | $ | 233,438 |  |  | $ | 233,258 |
In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $193 million of public finance gross par and $1.7 billion of structured finance gross par as of December 31, 2023. These commitments are contingent on the satisfaction of all conditions set forth in the guaranties 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 December 31, 2023
|  | 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 |  | $ | 110 |  |  | 0.1 | % |  | $ | 2,062 |  |  | 4.2 | % |  | $ | 867 |  |  | 10.0 | % |  | $ | 465 |  |  | 38.0 | % |  | $ | 3,504 |  |  | 1.4 | %
AA |  | 17,883 |  |  | 9.4 |  |  | 3,379 |  |  | 6.9 |  |  | 4,517 |  |  | 52.3 |  |  | 89 |  |  | 7.3 |  |  | 25,868 |  |  | 10.4 |
A |  | 102,945 |  |  | 54.1 |  |  | 12,968 |  |  | 26.5 |  |  | 1,639 |  |  | 19.0 |  |  | 571 |  |  | 46.6 |  |  | 118,123 |  |  | 47.4 |
BBB |  | 66,080 |  |  | 34.7 |  |  | 29,467 |  |  | 60.1 |  |  | 574 |  |  | 6.7 |  |  | 100 |  |  | 8.1 |  |  | 96,221 |  |  | 38.6 |
BIG |  | 3,271 |  |  | 1.7 |  |  | 1,131 |  |  | 2.3 |  |  | 1,035 |  |  | 12.0 |  |  | — |  |  | — |  |  | 5,437 |  |  | 2.2 |
Total net par outstanding |  | $ | 190,289 |  |  | 100.0 | % |  | $ | 49,007 |  |  | 100.0 | % |  | $ | 8,632 |  |  | 100.0 | % |  | $ | 1,225 |  |  | 100.0 | % |  | $ | 249,153 |  |  | 100.0 | %
Financial Guaranty Portfolio by Internal Rating As of December 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 |  | $ | 222 |  |  | 0.1 | % |  | $ | 1,967 |  |  | 4.4 | % |  | $ | 926 |  |  | 11.2 | % |  | $ | 469 |  |  | 50.4 | % |  | $ | 3,584 |  |  | 1.5 | %
AA |  | 16,241 |  |  | 9.1 |  |  | 3,497 |  |  | 7.9 |  |  | 4,633 |  |  | 56.3 |  |  | 12 |  |  | 1.3 |  |  | 24,383 |  |  | 10.5 |
A |  | 96,807 |  |  | 53.9 |  |  | 9,271 |  |  | 20.9 |  |  | 1,075 |  |  | 13.1 |  |  | 340 |  |  | 36.5 |  |  | 107,493 |  |  | 46.1 |
BBB |  | 62,570 |  |  | 34.8 |  |  | 28,747 |  |  | 64.6 |  |  | 479 |  |  | 5.8 |  |  | 110 |  |  | 11.8 |  |  | 91,906 |  |  | 39.4 |
BIG |  | 3,796 |  |  | 2.1 |  |  | 981 |  |  | 2.2 |  |  | 1,115 |  |  | 13.6 |  |  | — |  |  | — |  |  | 5,892 |  |  | 2.5 |
Total net par outstanding |  | $ | 179,636 |  |  | 100.0 | % |  | $ | 44,463 |  |  | 100.0 | % |  | $ | 8,228 |  |  | 100.0 | % |  | $ | 931 |  |  | 100.0 | % |  | $ | 233,258 |  |  | 100.0 | %
The following tables present net par outstanding by sector for the financial guaranty portfolio. Financial Guaranty Portfolio Net Par Outstanding by Sector
|  | As of December 31,
Sector |  | 2023 |  | 2022
|  | (in millions)
Public finance: |  |  |  |
U.S. public finance: |  |  |  |
General obligation |  | $ | 74,609 |  |  | $ | 71,868 |
Tax backed |  | 33,060 |  |  | 33,752 |
Municipal utilities |  | 29,300 |  |  | 26,436 |
Transportation |  | 22,052 |  |  | 19,688 |
Healthcare |  | 12,604 |  |  | 11,304 |
Infrastructure finance |  | 8,796 |  |  | 6,955 |
Higher education |  | 7,250 |  |  | 7,137 |
Housing revenue |  | 1,152 |  |  | 959 |
Investor-owned utilities |  | 329 |  |  | 332 |
Renewable energy |  | 167 |  |  | 180 |
Other public finance |  | 970 |  |  | 1,025 |
Total U.S. public finance |  | 190,289 |  |  | 179,636 |
Non-U.S public finance: |  |  |  |
Regulated utilities |  | 20,545 |  |  | 17,855 |
Infrastructure finance |  | 15,430 |  |  | 13,915 |
Sovereign and sub-sovereign |  | 9,869 |  |  | 9,526 |
Renewable energy |  | 2,030 |  |  | 2,086 |
Pooled infrastructure |  | 1,133 |  |  | 1,081 |
Total non-U.S. public finance |  | 49,007 |  |  | 44,463 |
Total public finance |  | 239,296 |  |  | 224,099 |
Structured finance: |  |  |  |
U.S. structured finance: |  |  |  |
Insurance securitizations |  | 4,379 |  |  | 3,879 |
RMBS |  | 1,774 |  |  | 1,956 |
Pooled corporate obligations |  | 631 |  |  | 625 |
Financial products |  | 464 |  |  | 453 |
Consumer receivables |  | 314 |  |  | 437 |
Subscription finance facilities |  | 178 |  |  | 72 |
Other structured finance |  | 892 |  |  | 806 |
Total U.S. structured finance |  | 8,632 |  |  | 8,228 |
Non-U.S. structured finance: |  |  |  |
Subscription finance facilities |  | 444 |  |  | 219 |
Pooled corporate obligations |  | 425 |  |  | 344 |
RMBS |  | 252 |  |  | 263 |
Other structured finance |  | 104 |  |  | 105 |
Total non-U.S structured finance |  | 1,225 |  |  | 931 |
Total structured finance |  | 9,857 |  |  | 9,159 |
Total net par outstanding |  | $ | 249,153 |  |  | $ | 233,258 |
Financial Guaranty Portfolio Expected Amortization of Net Par Outstanding As of December 31, 2023
| Public Finance |  | Structured Finance |  | Total
| (in millions)
0 to 5 years | $ | 49,880 |  |  | $ | 3,688 |  |  | $ | 53,568 |
5 to 10 years | 51,004 |  |  | 3,417 |  |  | 54,421 |
10 to 15 years | 44,051 |  |  | 1,269 |  |  | 45,320 |
15 to 20 years | 32,379 |  |  | 885 |  |  | 33,264 |
20 years and above | 61,982 |  |  | 598 |  |  | 62,580 |
Total net par outstanding | $ | 239,296 |  |  | $ | 9,857 |  |  | $ | 249,153 |
Actual amortization differs from expected maturities because borrowers may have the right to call or prepay certain obligations, terminations and because of management’s assumptions on structured finance amortization. The expected maturities of structured finance obligations are, in general, shorter than the contractual maturities for such obligations. Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of December 31, 2023
| BIG Net Par Outstanding |  | Net Par
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |  | Outstanding
|  |  |  |  | (in millions) |  |  |  |
Public finance: |  |  |  |  |  |  |  |  |
U.S. public finance | $ | 1,257 |  |  | $ | 926 |  |  | $ | 1,088 |  |  | $ | 3,271 |  |  | $ | 190,289 |
Non-U.S. public finance | 1,131 |  |  | — |  |  | — |  |  | 1,131 |  |  | 49,007 |
Public finance | 2,388 |  |  | 926 |  |  | 1,088 |  |  | 4,402 |  |  | 239,296 |
Structured finance: |  |  |  |  |  |  |  |  |
U.S. RMBS | 22 |  |  | 36 |  |  | 883 |  |  | 941 |  |  | 1,774 |
Other structured finance | — |  |  | 27 |  |  | 67 |  |  | 94 |  |  | 8,083 |
Structured finance | 22 |  |  | 63 |  |  | 950 |  |  | 1,035 |  |  | 9,857 |
Total | $ | 2,410 |  |  | $ | 989 |  |  | $ | 2,038 |  |  | $ | 5,437 |  |  | $ | 249,153 |
Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of December 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 | $ | 2,364 |  |  | $ | 108 |  |  | $ | 1,324 |  |  | $ | 3,796 |  |  | $ | 179,636 |
Non-U.S. public finance | 981 |  |  | — |  |  | — |  |  | 981 |  |  | 44,463 |
Public finance | 3,345 |  |  | 108 |  |  | 1,324 |  |  | 4,777 |  |  | 224,099 |
Structured finance: |  |  |  |  |  |  |  |  |
U.S. RMBS | 18 |  |  | 39 |  |  | 953 |  |  | 1,010 |  |  | 1,956 |
Other structured finance | — |  |  | 34 |  |  | 71 |  |  | 105 |  |  | 7,203 |
Structured finance | 18 |  |  | 73 |  |  | 1,024 |  |  | 1,115 |  |  | 9,159 |
Total | $ | 3,363 |  |  | $ | 181 |  |  | $ | 2,348 |  |  | $ | 5,892 |  |  | $ | 233,258 |
Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of December 31, 2023
|  | 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 1 |  | $ | 2,394 |  |  | $ | 16 |  |  | $ | 2,410 |  |  | 95 |  |  | 2 |  |  | 97 |
BIG 2 |  | 979 |  |  | 10 |  |  | 989 |  |  | 13 |  |  | 2 |  |  | 15 |
BIG 3 |  | 2,010 |  |  | 28 |  |  | 2,038 |  |  | 109 |  |  | 7 |  |  | 116 |
Total BIG |  | $ | 5,383 |  |  | $ | 54 |  |  | $ | 5,437 |  |  | 217 |  |  | 11 |  |  | 228 |
Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of December 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 1 |  | $ | 3,357 |  |  | $ | 6 |  |  | $ | 3,363 |  |  | 122 |  |  | 1 |  |  | 123 |
BIG 2 |  | 171 |  |  | 10 |  |  | 181 |  |  | 14 |  |  | 2 |  |  | 16 |
BIG 3 |  | 2,307 |  |  | 41 |  |  | 2,348 |  |  | 111 |  |  | 10 |  |  | 121 |
Total BIG |  | $ | 5,835 |  |  | $ | 57 |  |  | $ | 5,892 |  |  | 247 |  |  | 13 |  |  | 260 |
_____________________ (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. When the Company insures an obligation, it assigns the obligation to a geographic location or locations based on its view of the geographic location of the risk. The Company seeks to maintain a diversified portfolio of insured obligations designed to spread its risk across a number of geographic areas. Financial Guaranty Portfolio Geographic Distribution of Net Par Outstanding As of December 31, 2023
| Number of Risks |  | Net Par Outstanding |  | Percent of Total Net Par Outstanding
| (dollars in millions)
U.S.: |  |  |  |  |
U.S. Public finance: |  |  |  |  |
California | 1,213 |  |  | $ | 36,200 |  |  | 14.5 | %
Texas | 1,077 |  |  | 22,783 |  |  | 9.1 |
New York | 774 |  |  | 17,751 |  |  | 7.1 |
Pennsylvania | 534 |  |  | 16,941 |  |  | 6.8 |
Illinois | 485 |  |  | 12,953 |  |  | 5.2 |
New Jersey | 256 |  |  | 9,255 |  |  | 3.7 |
Florida | 214 |  |  | 8,586 |  |  | 3.5 |
Michigan | 231 |  |  | 5,533 |  |  | 2.2 |
Louisiana | 132 |  |  | 4,758 |  |  | 1.9 |
Alabama | 243 |  |  | 3,819 |  |  | 1.5 |
Other | 1,897 |  |  | 51,710 |  |  | 20.8 |
Total U.S. public finance | 7,056 |  |  | 190,289 |  |  | 76.3 |
U.S. Structured finance (multiple states) | 359 |  |  | 8,632 |  |  | 3.5 |
Total U.S. | 7,415 |  |  | 198,921 |  |  | 79.8 |
Non-U.S.: |  |  |  |  |
United Kingdom | 271 |  |  | 39,394 |  |  | 15.8 |
Canada | 5 |  |  | 1,696 |  |  | 0.7 |
Spain | 9 |  |  | 1,649 |  |  | 0.7 |
France | 7 |  |  | 1,565 |  |  | 0.6 |
Australia | 6 |  |  | 1,518 |  |  | 0.6 |
Other | 41 |  |  | 4,410 |  |  | 1.8 |
Total non-U.S. | 339 |  |  | 50,232 |  |  | 20.2 |
Total | 7,754 |  |  | $ | 249,153 |  |  | 100.0 | %
Exposure to Puerto Rico The Company had insured exposure to the general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and obligations of various authorities and public corporations of Puerto Rico aggregating $1.1 billion net par outstanding as of December 31, 2023, down from $1.4 billion as of December 31, 2022. All of the Company’s insured exposure to Puerto Rico is rated BIG. As of December 31, 2023, the only remaining outstanding insured Puerto Rico exposure subject to a payment default was the Puerto Rico Electric Power Authority (PREPA). As of December 31, 2023, the Company had approximately $109 million of remaining non-defaulting Puerto Rico exposures related primarily to the Municipal Finance Agency (MFA), which are secured by a lien on local tax revenues and remain current on debt service payments. 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. After over five years of negotiations, a substantial portion of the Company’s Puerto Rico exposure was resolved in 2022 in accordance with four orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) related to the Company’s exposure to all insured Puerto Rico credits experiencing payment default in 2022 except PREPA (2022 Puerto Rico Resolutions). As a result of the 2022 Puerto Rico Resolutions, during 2022 the Company’s obligations under its insurance policies covering debt of the Puerto Rico Convention Center District Authority (PRCCDA) and Puerto Rico Infrastructure Authority (PRIFA) were extinguished, and its insurance exposure to Puerto Rico general obligations (GO) bonds, Public Buildings Authority (PBA) bonds and PRHTA bonds was greatly reduced. On August 31, 2023, the Company extinguished its remaining exposure to GO and PBA bonds by satisfying its obligations to insured bondholders holding custody receipts representing interests in legacy insured GO and PBA bonds. Under 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 Company received cash, new general obligation bonds (New GO Bonds) and contingent value instruments (CVIs). In connection with the Modified Fifth Amended Title III Plan of Adjustment for PRHTA (HTA Plan) and related arrangements, the Company received cash and new bonds backed by toll revenues (Toll Bonds, and together with the New GO Bonds, New Recovery Bonds) from the PRHTA and CVIs from the Commonwealth. Cash, New Recovery Bonds and CVIs received pursuant to the 2022 Puerto Rico Resolutions are collectively referred to as Plan Consideration. Upon receipt, Plan Consideration was reported in either cash, investments or FG VIEs’ assets as described below. •Investments and cash. Plan Consideration received in respect of bondholders whose principal of bonds insured by the Company were accelerated and became due and payable under the 2022 Puerto Rico Resolutions, or subsequently matured or extinguished, and the remaining New Recovery Bonds and CVIs were reported as follows: (i) cash, (ii) fixed-maturity, available for sale securities (New Recovery Bonds) and (iii) fixed-maturities, trading securities (CVIs). See Note 7, Investments and Cash, for the fair value of the New Recovery Bonds and CVIs remaining as of December 31, 2023. •FG VIEs’ assets. Plan Consideration received in respect of insured bondholders who elected to receive custody receipts that represent an interest in custodial trusts that hold the legacy insurance policy plus Plan Consideration that constitute distributions under the HTA Plan or the GO/PBA Plan were reported in FG VIEs’ assets at the time of the receipt. 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 or prepay such amounts. On August 31, 2023, after notice to certain holders of custody receipts representing interests in legacy insured GO, PBA and HTA bonds, the Company satisfied its obligations under such legacy insured bonds with respect to $108 million net par outstanding as of August 31, 2023, and the custodial trusts released to AGC and AGM New Recovery Bonds and CVIs with a fair value totaling $73 million as of August 31, 2023. On December 28, 2023, all remaining Toll Bonds were redeemed for cash. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. The Company has sold a portion of New Recovery Bonds and CVIs it received, and may sell in the future any New Recovery Bonds or CVIs it continues to hold. The fair value of any New Recovery Bonds and CVIs that the Company retains will fluctuate from their date of acquisition. Any gains or losses on sales of New Recovery Bonds and CVIs in the investment portfolio are reported as realized gains and losses on investments and fair value gains (losses) on trading securities, respectively, rather than loss and LAE. The CVIs are intended to provide creditors with additional recoveries tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps. As of December 31, 2023, all of the CVIs are reported in fixed-maturity securities, trading. The Company is continuing its efforts to resolve the one remaining Puerto Rico insured exposure that is in payment default, PREPA. Economic, political and legal developments, including inflation and increases in the cost of petroleum products, may impact any resolution of the Company’s PREPA insured exposure and the value of any remaining consideration received in connection with the 2022 Puerto Rico Resolutions or any future resolutions of the Company’s 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 Par and Debt Service Schedules 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 December 31, |  | As of December 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in millions)
Exposure to Puerto Rico | $ | 1,120 |  |  | $ | 1,378 |  |  | $ | 1,526 |  |  | $ | 1,899 |
Puerto Rico Net Par Outstanding
| As of December 31,
| 2023 |  | 2022
| (in millions)
Defaulted Puerto Rico Exposures |  |  |
PREPA | $ | 624 |  |  | $ | 720 |
Total Defaulted | 624 |  |  | 720 |
Resolved Puerto Rico Exposures (1) |  |  |
PRHTA (Transportation revenue) | 244 |  |  | 298 |
PRHTA (Highway revenue) | 128 |  |  | 182 |
Commonwealth of Puerto Rico - GO | — |  |  | 25 |
PBA | — |  |  | 4 |
Total Resolved | 372 |  |  | 509 |
Other Puerto Rico Exposures (2) |  |  |
MFA | 108 |  |  | 131 |
Puerto Rico Aqueduct and Sewer Authority (PRASA) and the University of Puerto Rico (U of PR) | 1 |  |  | 1 |
Total Other | 109 |  |  | 132 |
Total net exposure to Puerto Rico | $ | 1,105 |  |  | $ | 1,361 |
____________________ (1) Resolved pursuant to the 2022 Puerto Rico Resolutions. In January 2024, $144 million of the remaining PRHTA net par was paid down. The remaining liabilities are payable in full by the U.S. Insurance Subsidiaries under their financial guaranty policies and are no longer dependent on the credit of PRHTA. (2) 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 payment 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 December 31, 2023
| Scheduled Net Par Amortization |  | Scheduled Net Debt Service Amortization
| (in millions)
2024 (January 1 - March 31) | $ | — |  |  | $ | 24 |
2024 (April 1 - June 30) | — |  |  | 3 |
2024 (July 1 - September 30) | 110 |  |  | 134 |
2024 (October 1 - December 31) | — |  |  | 3 |
Subtotal 2024 | 110 |  |  | 164 |
2025 | 84 |  |  | 132 |
2026 | 140 |  |  | 185 |
2027 | 120 |  |  | 158 |
2028 | 81 |  |  | 114 |
2029-2033 | 233 |  |  | 353 |
2034-2038 | 220 |  |  | 274 |
2039-2041 | 117 |  |  | 128 |
Total | $ | 1,105 |  |  | $ | 1,508 |
PREPA As of December 31, 2023, the Company had $624 million insured net par outstanding of PREPA obligations. The Company believes that the PREPA bonds are secured by a lien on the revenues of the electric system. On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order 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 the mediation would terminate on June 1, 2022. Judge Swain has since extended the term of such mediation several times, most recently on September 29, 2023 extending the term to March 29, 2024. The FOMB filed an initial plan of adjustment and disclosure statement for PREPA with the Federal District Court of Puerto Rico on December 16, 2022. On March 22, 2023, the Federal District Court of Puerto Rico held that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control but did not have a lien in future revenues until deposited in those funds. The Federal District Court of Puerto Rico also held, however, that PREPA bondholders do have recourse under the PREPA trust agreement in the form of an unsecured net revenue claim. At that time, the Federal District Court of Puerto Rico declined to value the unsecured net revenue claim or the method for its determination. The ultimate value of the claim, according to the Federal District Court of Puerto Rico, should be determined through a claim estimation proceeding. On June 6-8, 2023, the Federal District Court of Puerto Rico held a claim estimation proceeding and, on June 26, 2023, issued an opinion and order estimating the unsecured net revenue claim to be $2.4 billion as of July 3, 2017. This estimate included a determination that PREPA’s discounted cash flows, using the FOMB’s base-case incremental net revenues over a 100-year collection period and a discount rate of 7%, would be $3.0 billion, and should be reduced by an additional 20% for collection risk. PREPA bondholders had sought an unsecured net revenue claim of approximately $8.5 billion. On November 17, 2023, the Federal District Court of Puerto Rico approved the supplemental disclosure statement (Supplemental Disclosure Statement) supporting the PREPA plan of adjustment filed by the FOMB (as amended or modified from time to time). On December 29, 2023, FOMB filed with the Federal District Court of Puerto Rico its most recent plan of adjustment for PREPA, the Fourth Amended Title III Plan of Adjustment (FOMB PREPA Plan). The Supplemental Disclosure Statement and the FOMB PREPA Plan are based on the last revised PREPA fiscal plan certified by the FOMB on June 23, 2023 (2023 PREPA Fiscal Plan). On November 28, 2023, the Federal District Court of Puerto Rico finally adjudicated all claims and counterclaims in the PREPA lien challenge adversary proceeding. On November 30, 2023, the Company filed a notice of appeal with the United States Court of Appeals for the First Circuit (First Circuit) for portions of the March 22, 2023 decision, including the lien scope ruling and the need for a claim estimation proceeding, as well as the June 26, 2023 claim estimation ruling. On January 29, 2024, the First Circuit heard oral arguments for the Company’s appeals. The FOMB PREPA Plan would split bondholders into two groups: one that would settle litigation regarding whether creditor repayment is limited to existing accounts, and another group that would continue litigating whether bondholders are secured by PREPA’s current and future revenue collections. The FOMB PREPA Plan also would further split settling bondholders into two sub-groups: one consisting of certain original settling bondholders that would receive an enhanced recovery (compared to non-settling bondholders) plus other supporting creditor payments, while the second settling sub-group would receive only the enhanced recovery. The FOMB asserts that, other than for pension claims, PREPA’s debt capacity is $2.5 billion, of which approximately $1.4 billion is allocated to settling creditors. The remaining $1.1 billion is allocated to (i) non-settling bondholders, and (ii) general unsecured creditors (GUCs). The most recent revised FOMB PREPA Plan provides for reduced payments to bondholders since lower projected PREPA revenues are included in the 2023 PREPA Fiscal Plan than had been previously anticipated. The FOMB PREPA Plan estimates that non-settling bondholders will receive a recovery of 12.5% of their allowed unsecured net revenue claim. The Company is opposed to the FOMB PREPA Plan and has joined with a group of non-settling bondholders that continue to litigate whether creditor repayments will include future revenue collections. The confirmation hearing for the FOMB PREPA Plan is currently scheduled to occur in March 2024. PRHTA As of December 31, 2023, the Company had $372 million of insured net par outstanding of legacy PRHTA bonds: $244 million insured net par outstanding of PRHTA (transportation revenue) bonds and $128 million insured net par outstanding of PRHTA (highway revenue) bonds. This net par outstanding primarily represents the Company’s exposure in respect of legacy insured PRHTA bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus Plan Consideration. In the fourth quarter of 2023, all of the Toll Bonds in the HTA Puerto Rico Trusts were called, resulting in cash proceeds of $154 million. Such cash proceeds comprise the vast majority of the assets in the Puerto Rico Trusts as of December 31, 2023. In January 2024, such proceeds were used to pay down a portion of the liabilities of the Puerto Rico Trusts. The remaining liabilities of the Puerto Rico Trusts are payable in full by the U.S. Insurance Subsidiaries under their financial guaranty policies and are no longer dependent on the credit of PRHTA. 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 the remaining Puerto Rico obligations it still insures. In addition, the Commonwealth, the FOMB and others have taken legal action naming the Company as party. Certain legal actions involving the Company and relating to the Commonwealth, PRCCDA, PRIFA or PRHTA, were resolved on March 15, 2022, and all remaining legal actions involving the Company and relating to PRHTA were resolved on December 6, 2022, in connection with the consummation of the 2022 Puerto Rico Resolutions. There remains one active proceeding related to PREPA, while there are a number of unresolved proceedings involving the Company and relating to the default by the Commonwealth or its instrumentalities that remain stayed pending the Federal District Court of Puerto Rico’s determination on the PREPA plan of adjustment. The remaining active proceeding was initiated by the FOMB in the Federal District Court of Puerto Rico on July 1, 2019 against U.S. Bank National Association, as trustee for PREPA’s bonds, objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing those bonds and seeking other relief. On September 30, 2022, the FOMB filed an amended complaint against the trustee (i) objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing PREPA’s bonds and (ii) arguing that PREPA bondholders’ recourse was limited to certain deposit accounts held by the trustee. On October 7, 2022, the court approved a stipulation permitting AGM and AGC to intervene as defendants. Summary judgment motions were filed by plaintiffs and defendants on October 24, 2022. On March 22, 2023, the Federal District Court of Puerto Rico granted in part and denied in part each party’s cross-motions for summary judgment. The Federal District Court of Puerto Rico found that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control. The Federal District Court of Puerto Rico also held that the PREPA bondholders do have recourse under the trust agreement in the form of an unsecured net revenue claim. In a June 26, 2023 opinion, the court estimated the PREPA bondholders’ allowed unsecured net revenue claim to be $2.4 billion, which the court calculated by largely adopting the conclusions in the FOMB’s expert report. On May 3, 2023, the court denied PREPA bondholders’ request to certify their interlocutory appeal of the finding that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control. On May 15, 2023, the FOMB filed its motion to dismiss the Trustee’s and bondholders’ counterclaims, which was granted by the court on November 28, 2023. AGM and AGC filed a notice of appeal on November 30, 2023. On January 29, 2024, the First Circuit heard oral arguments for the Company’s appeals. The unresolved proceedings initiated in the Federal District Court of Puerto Rico involving the Company and relating to the default by the Commonwealth or its instrumentalities that remain stayed pending the Federal District Court of Puerto Rico’s determination on the PREPA plan of adjustment are: •AGM and AGC motion to compel the FOMB to certify the PREPA restructuring support agreement executed in May 2019 (PREPA RSA) for implementation under Title VI of PROMESA. •AGM and AGC motion to dismiss PREPA’s Title III Bankruptcy proceeding or, in the alternative, to lift the PROMESA automatic stay to allow for the appointment of a receiver. •Adversary complaint by certain fuel line lenders of PREPA against AGM and AGC, among other parties, including various PREPA bondholders and bond insurers, seeking, among other things, declarations that there is no valid lien securing the PREPA bonds unless and until such lenders are paid in full, as well as orders subordinating the PREPA bondholders’ lien and claims to such lenders’ claims, and declaring the PREPA RSA null and void. •AGM and AGC motion to intervene in lawsuit by the retirement system for PREPA employees against, among others, the FOMB, PREPA, the Commonwealth, and the trustee for PREPA bondholders seeking, among other things, declarations that there is no valid lien securing the PREPA bonds other than on amounts in the sinking funds, and order subordinating the PREPA bondholders’ lien and claim to the PREPA employees’ claims. Specialty Business The Company also guarantees specialty business with risk profiles similar to those of its structured finance exposures written in financial guaranty form. Specialty Business
|  | As of December 31, 2023 |  | As of December 31, 2022
|  | Gross Exposure |  | Net Exposure |  | Gross Exposure |  | Net Exposure
|  | (in millions)
Insurance securitizations (1) |  | $ | 1,370 |  |  | $ | 1,043 |  |  | $ | 1,314 |  |  | $ | 986 |
Aircraft residual value insurance policies |  | 355 |  |  | 200 |  |  | 355 |  |  | 200 |
Other guaranties |  | 2,057 |  |  | 2,057 |  |  | 228 |  |  | 228 |
____________________ (1) Insurance securitizations net exposure is projected to reach $1.2 billion in 2026. All other exposures in the table above are rated investment-grade, except gross exposure of $144 million and net exposure of $84 million of aircraft residual value insurance, as of both December 31, 2023 and December 31, 2022. Other guaranties in specialty business include an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties with an internal rating of AA that matures in 2042. The Company’s maximum potential exposure under this guaranty, which is accounted for in accordance with Accounting Standards Codification (ASC) 460, Guarantees, was $1.6 billion as of December 31, 2023.

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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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