The largest adjustment to get to the adjusted book as adding the unearned premium reserve (net of expected losses). It gives you a picture of what AGO would expect to earn in the future if it stopped writing new business. Basically, if AGO stopped operating today, you could still expected to earn $45 or $50 per share over the remaining life of it's book.
Adjusted book value ignores any losses that have not already been reserved. ABV only materializes if there are no credit losses on the $600B of credits that are not yet impaired.
I know you understand the basic idea, but your math is not quite right. If there are no credit losses beyond losses that have already been recognized, the present value of future earnings would be less than $45-$50, it would be $25-$30 ($45-$50 ABV - current BV of around $20).
I see, meaning if they went into run off they would earn less but have higher book value. Thanks. And how do expected put backs on violated representations and warranties contribute to the discrepancy? Do put backs widen the discrepancy?