Assured Guaranty Corp. | Assured Guaranty Municipal Corp. 

31 West 52nd Street main 212 974 0100 info@assuredguaranty.com www.assuredguaranty.com 

 New York, NY 10019 fax 212 581 3268 

September 3, 2010 

Gary Gensler 

Chairman 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

Dear Chairman Gensler: 

Thank you for taking the time to meet with us on July 30, 2010 to discuss the impact of Title VII of the 

Dodd-Frank Act on financial guaranty insurers. 

During our conversation on why financial guaranty insurance policies should not be considered swaps or 

security-based swaps, you asked about the key difference between traditional financial guaranty insurance 

policies and “swaps” under the Dodd-Frank Act. 

We have prepared the enclosed comparison to show the clear distinctions between the two. In addition to 

those distinctions, we believe that statements made by legislators during the Dodd-Frank Act debate indicate 

that Title VII’s purpose is to establish a regulatory framework for the previously unregulated over-the-counter 

derivatives market and not to displace the existing state insurance regulatory framework. 

Further, unlike the over-the-counter derivatives markets, the financial guaranty insurance industry is already 

subject to extensive regulation at the state level, most notably by the New York State Insurance Department. 

Those rules include market conduct rules, financial reporting, contingency reserves, single and aggregate risk 

limits, diversified investments and regulatory examinations. 

We hope that you find this comparison useful in recognizing the differences between financial guaranty 

insurance and the scope of “swaps” to be regulated as over-the-counter derivatives. We appreciate the 

opportunity to engage you and your staff in this dialogue, and welcome the chance to continue our 

discussion, including discussing the enclosed in greater detail. 

Sincerely yours, 

James M. Michener 

General Counsel 

Enclosure 

cc: Terry Arbit 

Cyrus Amir-Mokri 

Tim Karpoff 
Traditional Financial Guaranty Insurance Policies 

Should Not be Regulated as Swaps – Key Differences

Financial Guaranty / 

Surety Policies Traditio

Purpose: Core business is the insurance of municipal 

bondsMunicipal bond insurance serves a substantial public purpose by facilitating the ability of municipal issuers to access the capital markets and lowering their borrowing costs

Enables buyers of protexposure with sellers oenables buyers to take obligation without owni

Ownership of Insured Obligation: Beneficiaries of insurance policies are required 

to have an insurable interest

Buyers of protection arthe insured obligation; transaction syntheticalof outstanding swap noprincipal amount outstaobligation

Legal Rights: Insurers typically have direct control, information 

and inspection rights in transaction documents for insured obligations, including opportunities to participate in workouts, as well as rights as third party beneficiaries of representations and warranties and covenants

Sellers of protection dethrough the buyers of p
Traditional Financial Guaranty Insurance Policies 

Should Not be Regulated as Swaps – Key Differences (continued)

Financial Guaranty / 

Surety Policies Traditio

Risk of Acceleration: There can be no acceleration of the payment 

required to be made under a policy except at the sole option of the insurer

Physical settlement of of swap may be requirePay 

Termination Payments: Insurers are not subject to the risk of 

destabilizing mark-to-market termination payments on an insurance policy – concept does not apply

Risk of mark-to-market exists

Accounting Treatment: Financial Accounting Standards Board issued 

separate guidance on accounting for financial guaranty insurance (ASC 944, “Financial Services – Insurance”) and accounting for CDS (ASC 815, “Derivatives and Hedging”)Requirements to apply different methodology, including for premium revenue recognition and claim liability measurement

Market Perception: Market participants do not consider financial 

guaranty insurance policies to be swaps or security-based swaps