FGIC UK Limited. Company Profile

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2 Company Profile (or the Company ), a wholly owned United Kingdom insurance subsidiary of Financial Guaranty Insurance Company ( FGIC ), is an insurance company subject to regulation by the Financial Services Authority ( FSA ). was authorized to write financial guaranty business in the United Kingdom and had passport rights to write business in other European Economic Area member countries. This Operating Review should be read in conjunction with the 2012 Director's report and financial statements of filed with Companies House. The report can be accessed at Company Contact Information c/o Mazars LLP, London Tower Bridge House St Katharine's Way London E1W 1DD United Kingdom Financial Guaranty Insurance Company 125 Park Avenue New York, NY U.S.A. Phone: or Fax:

3 Table of Contents Annual Financial and Statistical Data Selected Financial Information Future Premium Collection Investment Portfolio Provision for Outstanding Claims Guaranteed Portfolio by Bond Type Guaranteed Portfolio by Issuer Net Debt Service Amortization

4 ANNUAL FINANCIAL AND STATISTICAL DATA (1) ( in Thousands) (2) 2010 Summary of Profit and Loss Account Gross premiums written (5,305) (411) (3,547) Earned premiums, net of reinsurance ,721 (76,860) 1,080 Claims incurred, net of reinsurance (271) (1,137) - Net operating expenses (2,415) 47, Investment income , ,032 Unrealised gains/(losses) on investments (36) 1, Realised gains/(losses) on investments Other income and charges (54) 1,416 (282) Retained profit (loss) for the financial period ,142 (27,526) 2,745 Summary of Balance Sheet: Investments ,672 33,037 28,984 Provision for unearned premiums, reinsurers' share ,073 Debtors , , ,707 Deferred acquisition costs ,411 10,061 11,094 Prepayments and accrued income Total Assets , , ,401 Profit and loss account (61,896) (69,038) (41,512) Other reserve ,855 47,855 47,855 Total shareholder's funds attributable to equity interests ,406 (3,736) 23,790 Total Liabilities , , ,611 (1) Certain prior year amounts have been reclassified to conform to the 2012 presentation. (2) Termination of the and FGIC Reinsurance Agreements In June 2011, FGIC and entered into a Deed of Termination pursuant to which they mutually agreed to terminate the Reinsurance Agreement dated 31 March 2004 and the Excess of Loss Reinsurance Agreement dated 31 March 2004 under which FGIC had provided reinsurance on financial guarantees or policies written by, and to release each other from all present and future claims and liabilities under or in connection with such agreements. Pursuant to the Deed of Termination, FGIC was relieved of its reinsurance obligations in respect of approximately 4.9 billion of par exposure and was permitted to retain 100% of all premiums (net of ceding commissions) previously paid to FGIC. The termination of the reinsurance agreements discussed above resulted in a net charge of 33,690 to the profit and loss account for The net charge during 2011 is made up of the following items: 1) amortisation of the remaining reinsurer s share of unearned premium of 168,994, 2) write back of the creditor relating to amounts due to FGIC under the reinsurance arrangements of 84,409 and 3) write back of the deferred reinsurance commissions, reflected as a component of Net Operating Expenses, in the amount of 50,895. 1

5 SELECTED FINANCIAL INFORMATION (1) ( in Thousands) Six Months Ended Six Months Ended 30 June June 2012 Profit and Loss Account Gross premiums written (6,777) Outward reinsurance premiums Change in the gross provision for unearned premiums ,164 11,706 Change in the provision for unearned premiums, reinsurers' share Earned premiums, net of reinsurance ,482 4,928 Claims and claims related expense incurred, gross (157) (101) Change in provision for claims Claims and claims related expense incurred, net of reinsurance (157) (101) Net operating expenses (825) (1,386) Balance on the technical account - general business ,500 3,441 Investment income Unrealised (losses) gains on investments (1,620) 55 Realised gains/(losses) on investments Other income and charges ,416 Profit on ordinary activities before tax 1,641 5,417 Taxation on loss on ordinary activities Retained profit for the financial period ,641 5,417 Balance Sheet: Assets: Investments ,187 36,216 Debtors , ,881 Other assets ,454 1,510 Deferred acquisition costs ,225 9,672 Other prepayments and accrued income Total assets , ,786 Liabilities: Called up share capital Share premium account ,272 17,272 Profit and loss account (60,257) (63,621) Other reserve ,855 47,855 Total shareholder's funds attributable to equity interests ,045 1,681 Provision for unearned premiums , ,859 Provision for outstanding claims Creditors arising out of direct insurance operations Other creditors including taxation and social security Accruals and deferred income Total liabilities , ,105 (1) Certain prior year amounts have been reclassified to conform to the 2013 presentation. 2

6 (1) (2) FUTURE PREMIUMS TO BE COLLECTED ( in Thousands) Premium Expected to be collected as of 30 June 2013 Six months ended: 31 December ,401 Twelve months ended: 31 December December ,735 4,616 Five years ended: 31 December December December December December December December December ,458 22,314 20,571 18,184 12,506 4,797 2,329 1,024 (1) (2) The present value of the premium stream detailed above totals 61,475 as of 30 June The Company's expected premium reflects the impact of transactions closed prior to 30 June 2013; however it does not reflect the potential impact, if any, of ongoing commutation, settlement and restructuring efforts by the Company subsequent to 30 June

7 INVESTMENT PORTFOLIO ( in Thousands) 30 June 31 December Investments: (1) Shares and other variable yield securities Debt securities and other fixed income securities 39,740 39,210 Units in collective investment schemes Total ,187 39,672 (1) Investment values reflect market/current value. With the exception of the units in collective investment schemes, all amounts included above are in respect of listed investments. 30 June 31 December Rating (2) AAA % 80.1% AA % 7.7% A % 11.3% BBB % 0.9% 100.0% 100.0% (2) Ratings represent S&P classifications. If unavailable, Moody's ratings are used. 4

8 PROVISION FOR OUTSTANDING CLAIMS ( in Thousands) 30 June 31 December Provision For Outstanding Claims, Net Balance At Beginning Of Period (120) Incurred Related To Current Period Claims Current Period Claims Related Expenses Prior Periods Claims Prior Periods Claims Related Expenses (157) (150) Total Incurred (157) (150) Paid (Recoveries) Related To Current Period Claims Current Period Claims Related Expenses Prior Periods Claims Prior Periods Claims Related Expenses Total Paid (Recoveries) Provision For Outstanding Claims, Net Balance At End Of Period

9 GUARANTEED PORTFOLIO BY BOND TYPE Guaranteed Portfolio by Bond Type: (1) Par Outstanding 30 June 2013 in millions % of Total Financial Guaranty Credit Default Swaps Infrastructure Project Finance , % 1, Utility , % 1, Transportation % Structured Finance Pooled Aircraft % Total , % 4, (1) GBP equivalent using 30 June 2013 exchange rates. 6

10 GUARANTEED EXPOSURES (1) ( in Millions) 30 June 2013 AADS (2) Par Outstanding Revenue Stream Name Amount Amount % of Total (3) Reliance Rail Finance Pty Limited % Channel Link Enterprises Finance PLC (CLEF) % Northern Gas Networks plc % Thames Water Utilities Limited % Consort Healthcare (Birmingham) Limited % Peterborough (Progress Health) plc % Consort Healthcare (Mid Yorkshire) Funding plc % RASPRO Trust % Yorkshire Water Services Plc % National Grid Gas Plc % BBI (DBCT) Finance Pty Ltd % Anglian Water Company Plc % Scottish Hydro-Electric Power Distribution plc % Severn Trent Water Limited % United Utilities Water Company plc % Autoroutes du Sud de la France (ASF) % National Grid Company plc % Novacare Solution Partnership (Mater Hospital) % Western Power Distribution (South West) Plc % London Pwr Network (EDF Energy Neworks (LPN) PLC) % Total , % (1) The Company's exposure reflects the impact of transactions closed prior to 30 June 2013; however it does not reflect the potential impact, if any, of ongoing commutation, settlement and restructuring efforts by the company subsequent to 30 June (2) Represents the average annual debt service for which would be responsible in the event of a default. (3) Represents percentage of total par outstanding. 7

11 DEBT SERVICE AMORTIZATION (1) ( in Millions) 30 June 2013 Scheduled Ending Debt Service Debt Service Amortization Outstanding , , , , , , , , , , , , , , , , , ,131.6 After , Total ,200.6 (1) Depicts expected amortization of the total guaranteed portfolio (principal and interest), assuming no refundings or calls through the contractual maturity date as of 30 June