0001273813us-gaap:~~FairValueMeasurementsRecurringMemberago:SecuritiesSoldShortMemberus-gaap:FairValueInputsLevel2Member2022-03-31~~VariableInterestEntityPrimaryBeneficiaryMemberago:LiabilitiesofConsolidatedInvestmentVehiclesMemberago:CollateralizedLoanObligationsAtFairValueMember2022-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒						QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~March 31,~~June 30, 2022


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition Period from to

Commission File No. 001-32141

ASSURED GUARANTY LTD.

(Exact name of registrant as specified in its charter)


Bermuda						98-0429991
(State or other jurisdiction of incorporation)						(I.R.S. employer identification no.)

30 Woodbourne Avenue

Hamilton HM 08, Bermuda

(Address of principal executive offices)

(441) 279-5700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:		Trading Symbol(s)	Name of exchange on which registered
Common Shares	$0.01 par value per share	AGO	New York Stock Exchange
Assured Guaranty US Holdings Inc. 5.000% Senior Notes due 2024 (and the related guarantee of Registrant)		AGO 24	New York Stock Exchange
Assured Guaranty US Holdings Inc. 3.150% Senior Notes due 2031 (and the related guarantee of Registrant)		AGO/31	New York Stock Exchange
Assured Guaranty US Holdings Inc. 3.600% Senior Notes due 2051 (and the related guarantee of Registrant)		AGO/51	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of registrant’s Common Shares ($0.01 par value) outstanding as of ~~May 4,~~August 2, 2022 was ~~64,130,598~~61,942,843 (includes 36,403 unvested restricted shares).

Table of Contents

ASSURED GUARANTY LTD.

INDEX TO FORM 10-Q


		Page
PART I	Financial Information	1
Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets (Unaudited) as of ~~March 31,~~June 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021	56
	Notes to Condensed Consolidated Financial Statements (Unaudited)	78
	1. Business and Basis of Presentation	78
	2. Segment Information	910
	3. Outstanding Exposure	1114
	4. Expected Loss to be Paid (Recovered)	2326
	5. Contracts Accounted for as Insurance	3235
	6. Contracts Accounted for as Credit Derivatives	3741
	7. Investments	3943
	8. Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles	4549
	9. Fair Value Measurement	5155
	10. Asset Management Fees	6572
	11. Long-Term Debt and Credit Facilities	6672
	12. Income Taxes	6673
	13. Commitments and Contingencies	6875
	14. Shareholders’ Equity	6976
	15. Earnings Per Share	7179
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7280
	Forward Looking Statements	7280
	Available Information	7381
	Overview	7381
	Business	7381
	Economic Environment	7482
	Impact of COVID-19	7583
	Key Business Strategies	7684
	Executive Summary	8088
	Financial Performance of Assured Guaranty	8189
	Other Matters	8393
	Results of Operations	8494
	Critical Accounting Estimates	8594
	Results of Operations by Segment	8594
	Insurance Segment	8695
	Asset Management Segment	94103
	Corporate	97106
	Other	97107
	Reconciliation to GAAP	99109
	Non-GAAP Financial Measures	~~101~~111
	Insured Portfolio	~~104~~115
	Liquidity and Capital Resources	~~108~~119
	AGL and its U.S. Holding Companies	~~108~~119
	Insurance Subsidiaries	~~111~~122
	Investment Portfolio	~~114~~125
	AssuredIM	~~117~~128
	Lease Obligations	~~117~~128
	Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles	~~117~~128
	Condensed Consolidated Cash Flows	~~118~~129
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~120~~131
Item 4.	Controls and Procedures	~~120~~131
PART II	Other Information	~~121~~132
Item 1.	Legal Proceedings	~~121~~132
Item 1A.	Risk Factors	~~121~~132
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~121~~132
Item 6.	Exhibits	~~122~~133

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Assured Guaranty Ltd.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in millions except share data)


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Assets	Assets					Assets
Investments:	Investments:					Investments:
Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $47 and $42 (amortized cost of $8,227 and $7,822)		$	8,156	$	8,202
Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $51 and $42 (amortized cost of $7,803 and $7,822)						Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $51 and $42 (amortized cost of $7,803 and $7,822)	$	7,396	$	8,202
Fixed-maturity securities, trading, at fair value	Fixed-maturity securities, trading, at fair value	174		—		Fixed-maturity securities, trading, at fair value	87		—
Short-term investments, at fair value	Short-term investments, at fair value	585		1,225		Short-term investments, at fair value	863		1,225
Other invested assets (includes $24 and $31, at fair value)		152		181
Other invested assets (includes $23 and $31, at fair value)						Other invested assets (includes $23 and $31, at fair value)	150		181
Total investments	Total investments	9,067		9,608		Total investments	8,496		9,608
Cash	Cash	119		120		Cash	138		120
Premiums receivable, net of commissions payable	Premiums receivable, net of commissions payable	1,335		1,372		Premiums receivable, net of commissions payable	1,235		1,372
Deferred acquisition costs	Deferred acquisition costs	135		131		Deferred acquisition costs	139		131
Salvage and subrogation recoverable	Salvage and subrogation recoverable	529		801		Salvage and subrogation recoverable	502		801
Financial guaranty variable interest entities’ assets, at fair value	Financial guaranty variable interest entities’ assets, at fair value	307		260		Financial guaranty variable interest entities’ assets, at fair value	264		260
Assets of consolidated investment vehicles (includes $5,404 and $4,902, at fair value)		5,700		5,271
Assets of consolidated investment vehicles (includes $5,234 and $4,902, at fair value)						Assets of consolidated investment vehicles (includes $5,234 and $4,902, at fair value)	5,456		5,271
Goodwill and other intangible assets	Goodwill and other intangible assets	172		175		Goodwill and other intangible assets	169		175
Other assets (includes $132 and $132, at fair value)		481		470
Other assets (includes $130 and $132, at fair value)						Other assets (includes $130 and $132, at fair value)	561		470
Total assets	Total assets	$	17,845	$	18,208	Total assets	$	16,960	$	18,208
Liabilities	Liabilities					Liabilities
Unearned premium reserve	Unearned premium reserve	$	3,596	$	3,716	Unearned premium reserve	$	3,585	$	3,716
Loss and loss adjustment expense reserve	Loss and loss adjustment expense reserve	718		869		Loss and loss adjustment expense reserve	716		869
Long-term debt	Long-term debt	1,673		1,673		Long-term debt	1,674		1,673
Credit derivative liabilities, at fair value	Credit derivative liabilities, at fair value	157		156		Credit derivative liabilities, at fair value	148		156
Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $316 and $269, without recourse $19 and $20)		335		289
Liabilities of consolidated investment vehicles (includes $3,994 and $3,849, at fair value)		4,854		4,436
Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $267 and $269, without recourse $15 and $20)						Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $267 and $269, without recourse $15 and $20)	282		289
Liabilities of consolidated investment vehicles (includes $4,125 and $3,849, at fair value)						Liabilities of consolidated investment vehicles (includes $4,125 and $3,849, at fair value)	4,568		4,436
Other liabilities	Other liabilities	496		569		Other liabilities	419		569
Total liabilities	Total liabilities	11,829		11,708		Total liabilities	11,392		11,708

Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)	0		0		Commitments and contingencies (Note 13)	0		0
Redeemable noncontrolling interests (Note 8)	Redeemable noncontrolling interests (Note 8)	21		22		Redeemable noncontrolling interests (Note 8)	21		22

Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Common shares ($0.01 par value, 500,000,000 shares authorized; 65,043,547 and 67,518,424 shares issued and outstanding)		1		1
Common shares ($0.01 par value, 500,000,000 shares authorized; 62,475,739 and 67,518,424 shares issued and outstanding)						Common shares ($0.01 par value, 500,000,000 shares authorized; 62,475,739 and 67,518,424 shares issued and outstanding)	1		1
Retained earnings	Retained earnings	5,878		5,990		Retained earnings	5,672		5,990
Accumulated other comprehensive income (loss), net of tax of $(12) and $60		(78)		300
Accumulated other comprehensive income (loss), net of tax of $(61) and $60						Accumulated other comprehensive income (loss), net of tax of $(61) and $60	(370)		300
Deferred equity compensation	Deferred equity compensation	1		1		Deferred equity compensation	1		1
Total shareholders’ equity attributable to Assured Guaranty Ltd.	Total shareholders’ equity attributable to Assured Guaranty Ltd.	5,802		6,292		Total shareholders’ equity attributable to Assured Guaranty Ltd.	5,304		6,292
Nonredeemable noncontrolling interests (Note 8)	Nonredeemable noncontrolling interests (Note 8)	193		186		Nonredeemable noncontrolling interests (Note 8)	243		186
Total shareholders’ equity	Total shareholders’ equity	5,995		6,478		Total shareholders’ equity	5,547		6,478
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	17,845	$	18,208	Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	16,960	$	18,208

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Assured Guaranty Ltd.

Condensed Consolidated Statements of Operations (Unaudited)

(dollars in millions except share data)


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021			2022		2021		2022		2021
Revenues	Revenues					Revenues
Net earned premiums	Net earned premiums	$	214	$	103	Net earned premiums	$	82	$	102	$	296	$	205
Net investment income	Net investment income	62		70		Net investment income	62		68		124		138
Asset management fees	Asset management fees	34		24		Asset management fees	21		21		55		45
Net realized investment gains (losses)	Net realized investment gains (losses)	3		(3)		Net realized investment gains (losses)	(28)		4		(25)		1
Fair value gains (losses) on credit derivatives	Fair value gains (losses) on credit derivatives	(3)		(19)		Fair value gains (losses) on credit derivatives	9		(33)		6		(52)
Fair value gains (losses) on committed capital securities	Fair value gains (losses) on committed capital securities	1		(19)		Fair value gains (losses) on committed capital securities	10		(6)		11		(25)
Fair value gains (losses) on financial guaranty variable interest entities	Fair value gains (losses) on financial guaranty variable interest entities	6		5		Fair value gains (losses) on financial guaranty variable interest entities	10		8		16		13
Fair value gains (losses) on consolidated investment vehicles	Fair value gains (losses) on consolidated investment vehicles	14		16		Fair value gains (losses) on consolidated investment vehicles	3		21		17		37
Foreign exchange gains (losses) on remeasurement	Foreign exchange gains (losses) on remeasurement	(30)		—		Foreign exchange gains (losses) on remeasurement	(71)		5		(101)		5
Fair value gains (losses) on trading securities						Fair value gains (losses) on trading securities	(18)		—		(22)		—
Other income (loss)	Other income (loss)	(1)		—		Other income (loss)	10		6		13		6
Total revenues	Total revenues	300		177		Total revenues	90		196		390		373
Expenses	Expenses					Expenses
Loss and loss adjustment expenses		57		30
Loss and loss adjustment expenses (benefit)						Loss and loss adjustment expenses (benefit)	(11)		(16)		46		14
Interest expense	Interest expense	20		21		Interest expense	20		23		40		44
Amortization of deferred acquisition costs	Amortization of deferred acquisition costs	4		3		Amortization of deferred acquisition costs	3		4		7		7
Employee compensation and benefit expenses	Employee compensation and benefit expenses	73		60		Employee compensation and benefit expenses	59		54		132		114
Other operating expenses	Other operating expenses	42		57		Other operating expenses	41		40		83		97
Total expenses	Total expenses	196		171		Total expenses	112		105		308		276
Income (loss) before income taxes and equity in earnings (losses) of investees	Income (loss) before income taxes and equity in earnings (losses) of investees	104		6		Income (loss) before income taxes and equity in earnings (losses) of investees	(22)		91		82		97
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	(11)		9		Equity in earnings (losses) of investees	—		34		(11)		43
Income (loss) before income taxes	Income (loss) before income taxes	93		15		Income (loss) before income taxes	(22)		125		71		140
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	18		—		Less: Provision (benefit) for income taxes	3		23		21		23
Net income (loss)	Net income (loss)	75		15		Net income (loss)	(25)		102		50		117
Less: Noncontrolling interests	Less: Noncontrolling interests	9		4		Less: Noncontrolling interests	22		4		31		8
Net income (loss) attributable to Assured Guaranty Ltd.	Net income (loss) attributable to Assured Guaranty Ltd.	$	66	$	11	Net income (loss) attributable to Assured Guaranty Ltd.	$	(47)	$	98	$	19	$	109

Earnings per share:	Earnings per share:					Earnings per share:
Basic	Basic	$	1.00	$	0.14	Basic	$	(0.74)	$	1.31	$	0.29	$	1.44
Diluted	Diluted	$	0.98	$	0.14	Diluted	$	(0.74)	$	1.29	$	0.29	$	1.42

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Assured Guaranty Ltd.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(in millions)


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021			2022		2021		2022		2021
Net income (loss)	Net income (loss)	$	75	$	15	Net income (loss)	$	(25)	$	102	$	50	$	117
Change in net unrealized gains (losses) on:	Change in net unrealized gains (losses) on:					Change in net unrealized gains (losses) on:
Investments with no credit impairment, net of tax provision (benefit) of $(63) and $(20)		(338)		(119)
Investments with credit impairment, net of tax provision (benefit) of $(9) and $(1)		(39)		(6)
Investments with no credit impairment, net of tax provision (benefit) of $(37), $10, $(100) and $(10)						Investments with no credit impairment, net of tax provision (benefit) of $(37), $10, $(100) and $(10)	(242)		51		(580)		(68)
Investments with credit impairment, net of tax provision (benefit) of $(10), $6, $(19) and $5						Investments with credit impairment, net of tax provision (benefit) of $(10), $6, $(19) and $5	(44)		24		(83)		18
Change in net unrealized gains (losses) on investments	Change in net unrealized gains (losses) on investments	(377)		(125)		Change in net unrealized gains (losses) on investments	(286)		75		(663)		(50)
Change in instrument-specific credit risk on financial guaranty variable interest entities’ liabilities with recourse, net of tax	Change in instrument-specific credit risk on financial guaranty variable interest entities’ liabilities with recourse, net of tax	—		(1)		Change in instrument-specific credit risk on financial guaranty variable interest entities’ liabilities with recourse, net of tax	2		(2)		2		(3)
Other, net of tax	Other, net of tax	(1)		1		Other, net of tax	(8)		(1)		(9)		—
Other comprehensive income (loss)	Other comprehensive income (loss)	(378)		(125)		Other comprehensive income (loss)	(292)		72		(670)		(53)
Comprehensive income (loss)	Comprehensive income (loss)	(303)		(110)		Comprehensive income (loss)	(317)		174		(620)		64
Less: Comprehensive income (loss) attributable to noncontrolling interests	Less: Comprehensive income (loss) attributable to noncontrolling interests	9		4		Less: Comprehensive income (loss) attributable to noncontrolling interests	22		4		31		8
Comprehensive income (loss) attributable to Assured Guaranty Ltd.	Comprehensive income (loss) attributable to Assured Guaranty Ltd.	$	(312)	$	(114)	Comprehensive income (loss) attributable to Assured Guaranty Ltd.	$	(339)	$	170	$	(651)	$	56

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Assured Guaranty Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) - (Continued)

(dollars in millions, except share data)

For the Three Months Ended ~~March 31,~~June 30, 2022


			Shareholders’ Equity Attributable to Assured Guaranty Ltd.																Shareholders’ Equity Attributable to Assured Guaranty Ltd.
		Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity			Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity
Balance at December 31, 2021		67,518,424	$	1	$	5,990	$	300	$	1	$	6,292	$	186	$	6,478
Net income		—	—		66		—		—		66		10		76
Balance at March 31, 2022																	Balance at March 31, 2022	65,043,547	$	1	$	5,878	$	(78)	$	1	$	5,802	$	193	$	5,995
Net income (loss)																	Net income (loss)	—	—		(47)		—		—		(47)		22		(25)
Dividends ($0.25 per share)	Dividends ($0.25 per share)	—	—		(17)		—		—		(17)		—		(17)		Dividends ($0.25 per share)	—	—		(16)		—		—		(16)		—		(16)
Contributions	Contributions	—	—		—		—		—		—		5		5		Contributions	—	—		—		—		—		—		35		35
Common shares repurchases	Common shares repurchases	(2,738,223)	—		(155)		—		—		(155)		—		(155)		Common shares repurchases	(2,605,947)	—		(151)		—		—		(151)		—		(151)
Share-based compensation	Share-based compensation	263,346	—		(6)		—		—		(6)		—		(6)		Share-based compensation	38,139	—		8		—		—		8		—		8
Distributions	Distributions	—	—		—		—		—		—		(8)		(8)		Distributions	—	—		—		—		—		—		(7)		(7)
Other comprehensive loss	Other comprehensive loss	—	—		—		(378)		—		(378)		—		(378)		Other comprehensive loss	—	—		—		(292)		—		(292)		—		(292)
Balance at March 31, 2022		65,043,547	$	1	$	5,878	$	(78)	$	1	$	5,802	$	193	$	5,995
Balance at June 30, 2022																	Balance at June 30, 2022	62,475,739	$	1	$	5,672	$	(370)	$	1	$	5,304	$	243	$	5,547

For the Three Months Ended ~~March 31,~~June 30, 2021


			Shareholders’ Equity Attributable to Assured Guaranty Ltd.																Shareholders’ Equity Attributable to Assured Guaranty Ltd.
		Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity			Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity
Balance at December 31, 2020		77,546,896	$	1	$	6,143	$	498	$	1	$	6,643	$	41	$	6,684
Balance at March 31, 2021																	Balance at March 31, 2021	75,935,382	$	1	$	6,055	$	373	$	1	$	6,430	$	42	$	6,472
Net income	Net income	—	—		11		—		—		11		4		15		Net income	—	—		98		—		—		98		4		102
Dividends ($0.22 per share)	Dividends ($0.22 per share)	—	—		(17)		—		—		(17)		—		(17)		Dividends ($0.22 per share)	—	—		(17)		—		—		(17)		—		(17)
Contributions	Contributions	—	—		—		—		—		—		3		3		Contributions	—	—		—		—		—		—		6		6
Common shares repurchases	Common shares repurchases	(1,986,534)	—		(77)		—		—		(77)		—		(77)		Common shares repurchases	(1,887,531)	—		(88)		—		—		(88)		—		(88)
Share-based compensation	Share-based compensation	375,020	—		(5)		—		—		(5)		—		(5)		Share-based compensation	64,703	—		8		—		—		8		—		8
Distributions	Distributions	—	—		—		—		—		—		(6)		(6)		Distributions	—	—		—		—		—		—		(3)		(3)
Other comprehensive loss		—	—		—		(125)		—		(125)		—		(125)
Balance at March 31, 2021		75,935,382	$	1	$	6,055	$	373	$	1	$	6,430	$	42	$	6,472
Other comprehensive income																	Other comprehensive income	—	—		—		72		—		72		—		72
Balance at June 30, 2021																	Balance at June 30, 2021	74,112,554	$	1	$	6,056	$	445	$	1	$	6,503	$	49	$	6,552

Table of Contents

Assured Guaranty Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) - (Continued)

(dollars in millions, except share data)

For the Six Months Ended June 30, 2022


		Shareholders’ Equity Attributable to Assured Guaranty Ltd.
	Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity
Balance at December 31, 2021	67,518,424	$	1	$	5,990	$	300	$	1	$	6,292	$	186	$	6,478
Net income	—	—		19		—		—		19		32		51
Dividends ($0.50 per share)	—	—		(33)		—		—		(33)		—		(33)
Contributions	—	—		—		—		—		—		40		40
Common shares repurchases	(5,344,170)	—		(306)		—		—		(306)		—		(306)
Share-based compensation	301,485	—		2		—		—		2		—		2
Distributions	—	—		—		—		—		—		(15)		(15)
Other comprehensive loss	—	—		—		(670)		—		(670)		—		(670)
Balance at June 30, 2022	62,475,739	$	1	$	5,672	$	(370)	$	1	$	5,304	$	243	$	5,547

For the Six Months Ended June 30, 2021


		Shareholders’ Equity Attributable to Assured Guaranty Ltd.
	Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity
Balance at December 31, 2020	77,546,896	$	1	$	6,143	$	498	$	1	$	6,643	$	41	$	6,684
Net income	—	—		109		—		—		109		8		117
Dividends ($0.44 per share)	—	—		(34)		—		—		(34)		—		(34)
Contributions	—	—		—		—		—		—		9		9
Common shares repurchases	(3,874,065)	—		(165)		—		—		(165)		—		(165)
Share-based compensation	439,723	—		3		—		—		3		—		3
Distributions	—	—		—		—		—		—		(9)		(9)
Other comprehensive loss	—	—		—		(53)		—		(53)		—		(53)
Balance at June 30, 2021	74,112,554	$	1	$	6,056	$	445	$	1	$	6,503	$	49	$	6,552

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Assured Guaranty Ltd.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in millions)


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Net cash flows provided by (used in) operating activities	Net cash flows provided by (used in) operating activities	$	(892)	$	(466)	Net cash flows provided by (used in) operating activities	$	(1,794)	$	(949)
Investing activities
Fixed-maturity securities:
Cash flows from investing activities:						Cash flows from investing activities:
Fixed-maturity securities, available-for-sale:						Fixed-maturity securities, available-for-sale:
Purchases	Purchases	(68)		(396)		Purchases	(180)		(788)
Sales	Sales	57		120		Sales	353		226
Maturities and paydowns	Maturities and paydowns	179		225		Maturities and paydowns	389		499
Short-term investments with original maturities of over three months:	Short-term investments with original maturities of over three months:					Short-term investments with original maturities of over three months:
Purchases	Purchases	(17)		—		Purchases	(28)		—
Maturities and paydowns	Maturities and paydowns	—		30		Maturities and paydowns	9		30
Net sales (purchases) of short-term investments with original maturities of less than three months	Net sales (purchases) of short-term investments with original maturities of less than three months	656		120		Net sales (purchases) of short-term investments with original maturities of less than three months	379		(267)
Sales of fixed-maturity securities, trading						Sales of fixed-maturity securities, trading	68		—
Paydowns of financial guaranty variable interest entities’ assets	Paydowns of financial guaranty variable interest entities’ assets	18		14		Paydowns of financial guaranty variable interest entities’ assets	44		27
Purchases of other invested assets	Purchases of other invested assets	(5)		(32)		Purchases of other invested assets	(8)		(35)
Return of capital from and sales of other invested assets	Return of capital from and sales of other invested assets	31		45		Return of capital from and sales of other invested assets	34		54
Other	Other	(1)		(1)		Other	(2)		(2)
Net cash flows provided by (used in) investing activities	Net cash flows provided by (used in) investing activities	850		125		Net cash flows provided by (used in) investing activities	1,058		(256)
Financing activities
Cash flows from financing activities:						Cash flows from financing activities:
Dividends paid	Dividends paid	(17)		(18)		Dividends paid	(33)		(35)
Repurchases of common shares	Repurchases of common shares	(152)		(77)		Repurchases of common shares	(303)		(165)
Net paydowns of financial guaranty variable interest entities’ liabilities	Net paydowns of financial guaranty variable interest entities’ liabilities	(41)		(13)		Net paydowns of financial guaranty variable interest entities’ liabilities	(65)		(23)
Issuance of long-term debt, net of issuance costs						Issuance of long-term debt, net of issuance costs	—		495
Paydown of long-term debt						Paydown of long-term debt	—		(1)
Other	Other	(10)		7		Other	(7)		6
Cash flows from consolidated investment vehicles:	Cash flows from consolidated investment vehicles:					Cash flows from consolidated investment vehicles:
Proceeds from issuance of collateralized loan obligations	Proceeds from issuance of collateralized loan obligations	371		752		Proceeds from issuance of collateralized loan obligations	1,372		1,132
Repayment of collateralized loan obligations	Repayment of collateralized loan obligations	(372)		—		Repayment of collateralized loan obligations	(372)		(2)
Proceeds from issuance of warehouse financing debt	Proceeds from issuance of warehouse financing debt	215		217		Proceeds from issuance of warehouse financing debt	791		546
Repayment of warehouse financing debt	Repayment of warehouse financing debt	—		(476)		Repayment of warehouse financing debt	(744)		(750)
Payments under credit facilities		(1)		—
Borrowings under credit facilities						Borrowings under credit facilities	1		—
Contributions from noncontrolling interests to consolidated investment vehicles	Contributions from noncontrolling interests to consolidated investment vehicles	3		3		Contributions from noncontrolling interests to consolidated investment vehicles	35		8
Distributions to noncontrolling interests from consolidated investment vehicles	Distributions to noncontrolling interests from consolidated investment vehicles	(6)		(6)		Distributions to noncontrolling interests from consolidated investment vehicles	(16)		(8)
Net cash flows provided by (used in) financing activities	Net cash flows provided by (used in) financing activities	(10)		389		Net cash flows provided by (used in) financing activities	659		1,203
Effect of foreign exchange rate changes	Effect of foreign exchange rate changes	(1)		—		Effect of foreign exchange rate changes	(2)		—
Increase (decrease) in cash and restricted cash		(53)		48
Cash and restricted cash at beginning of period		342		298
Cash and restricted cash at end of period		$	289	$	346
Increase (decrease) in cash and cash equivalents and restricted cash						Increase (decrease) in cash and cash equivalents and restricted cash	(79)		(2)
Cash and cash equivalents and restricted cash at beginning of period						Cash and cash equivalents and restricted cash at beginning of period	342		298
Cash and cash equivalents and restricted cash at end of period						Cash and cash equivalents and restricted cash at end of period	$	263	$	296

(continued on next page)

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Assured Guaranty Ltd.

Condensed Consolidated Statements of Cash Flows (Unaudited) - (Continued)

(in millions)


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Supplemental cash flow information	Supplemental cash flow information					Supplemental cash flow information
Income taxes paid (received)						Income taxes paid (received)	$	97	$	—
Interest paid on long-term debt	Interest paid on long-term debt	$	9	$	8	Interest paid on long-term debt	38		40

Supplemental disclosure of non-cash activities:	Supplemental disclosure of non-cash activities:					Supplemental disclosure of non-cash activities:
Fixed-maturity securities, available-for-sale, received as salvage	Fixed-maturity securities, available-for-sale, received as salvage	$	610	$	—	Fixed-maturity securities, available-for-sale, received as salvage	$	610	$	—
Fixed-maturity securities, available-for-sale, ceded to a reinsurer	Fixed-maturity securities, available-for-sale, ceded to a reinsurer	27		—		Fixed-maturity securities, available-for-sale, ceded to a reinsurer	27		—
Fixed-maturity securities, trading, received as salvage	Fixed-maturity securities, trading, received as salvage	184		—		Fixed-maturity securities, trading, received as salvage	183		—
Fixed-maturity securities, trading, ceded to a reinsurer	Fixed-maturity securities, trading, ceded to a reinsurer	6		—		Fixed-maturity securities, trading, ceded to a reinsurer	6		—
Debt securities of financial guaranty variable interest entities received as salvage	Debt securities of financial guaranty variable interest entities received as salvage	54		—		Debt securities of financial guaranty variable interest entities received as salvage	54		—
Contributions from noncontrolling interests						Contributions from noncontrolling interests	26		1
Distributions to noncontrolling interests						Distributions to noncontrolling interests	20		1

		As of					As of
		March 31, 2022		March 31, 2021			June 30, 2022		June 30, 2021
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets:	Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets:					Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash	Cash	$	119	$	95	Cash	$	138	$	144
Restricted cash (included in other assets)	Restricted cash (included in other assets)	12		1		Restricted cash (included in other assets)	—		4
Cash and cash equivalents of consolidated investment vehicles (Note 8)	Cash and cash equivalents of consolidated investment vehicles (Note 8)	158		250		Cash and cash equivalents of consolidated investment vehicles (Note 8)	125		148
Cash and cash equivalents and restricted cash at the end of period	Cash and cash equivalents and restricted cash at the end of period	$	289	$	346	Cash and cash equivalents and restricted cash at the end of period	$	263	$	296

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Business and Basis of Presentation

Business

Assured Guaranty Ltd. (AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the United States (U.S.) and international public finance (including infrastructure) and structured finance markets, as well as asset management services.

Through its insurance subsidiaries, the Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. If an obligor defaults on a scheduled payment due on an obligation, including a scheduled principal or interest payment (collectively, debt service), the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The Company guarantees obligations issued principally in the U.S. and the United Kingdom (U.K.), and also guarantees obligations issued in other countries and regions, including Western Europe, Canada and Australia. 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.

Through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM), the Company significantly increased its participation in the asset management business with the completion on October 1, 2019, of its acquisition of all of the outstanding equity interests in BlueMountain Capital Management, LLC (BlueMountain, now known as Assured Investment Management LLC) and its associated entities. AssuredIM is a diversified asset manager that serves as investment advisor to collateralized loan obligations (CLOs), opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down. AssuredIM has managed structured and public finance, credit and special situation investments since 2003. AssuredIM provides investment advisory services while leveraging a technology-enabled risk platform, which aims to maximize returns for its clients.

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In management’s opinion, all material adjustments necessary for a fair statement of the financial condition, results of operations and cash flows of the Company, including its consolidated variable interest entities (VIEs), are reflected in the periods presented and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As discussed in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, the three month period ended June 30, 2022 and the six month period ended June 30, 2022 each include two out-of period adjustments, totaling $9.0 million and $6.9 million in those two periods, respectively, in net income attributable to AGL. Management has determined these misstatements are not material to prior periods or to the financial statements taken as a whole.

These unaudited interim condensed consolidated financial statements are as of ~~March 31,~~June 30, 2022 and cover the ~~three~~three- month period ended ~~March 31,~~June 30, 2022 ~~(First Quarter~~(second quarter 2022), the three-month period ended June 30, 2021 (second quarter 2021), the six-month period ended June 30, 2022 (six months 2022) and the ~~three month~~six-month period ended ~~March 31,~~June 30, 2021 ~~(First Quarter~~(six months 2021). Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain prior year balances have been reclassified to conform to the current year’s presentation.

The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries, and its consolidated financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs). See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Intercompany accounts and transactions between and among all consolidated entities have been eliminated.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (SEC).

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

The Company’s principal insurance subsidiaries are:

•Assured Guaranty Municipal Corp. (AGM), domiciled in New York;

•Assured Guaranty Corp. (AGC), domiciled in Maryland;

•Assured Guaranty UK Limited (AGUK), organized in the U.K.;

•Assured Guaranty (Europe) SA (AGE), organized in France;

•Assured Guaranty Re Ltd. (AG Re), domiciled in Bermuda; and

•Assured Guaranty Re Overseas Ltd. (AGRO), domiciled in Bermuda.

The Company’s principal asset management subsidiaries are:

•Assured Investment Management ~~LLC;~~LLC, organized in Delaware;

•Assured Investment Management (London) ~~LLP;~~LLP, organized in the U.K.; and

•Assured Healthcare Partners ~~LLC.~~LLC, organized in Delaware.

Until April 1, 2021, Municipal Assurance Corp. (MAC) was also a principal insurance subsidiary domiciled in New York. On April 1, 2021, MAC was merged with and into AGM, with AGM as the surviving company. As a result, the Company wrote-off the $16 million carrying value of MAC’s insurance licenses in ~~First Quarter~~the first quarter of 2021, which was recorded in other operating expenses in the Insurance segment.

AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S. Insurance Subsidiaries), jointly own an investment subsidiary, AG Asset Strategies LLC (AGAS), which invests in funds managed by AssuredIM (AssuredIM Funds).

AGL directly or indirectly owns several holding companies, 2 of which - Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH) (collectively, the U.S. Holding Companies) - have public debt outstanding.

Recent Accounting Standards Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU only apply to contracts that reference the London Interbank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued due to reference rate reform. This ASU became effective upon issuance and may be applied prospectively for contract modifications that occur from March 12, 2020 through December 31, 2022 (the Reference Rate Transition Period).

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies the scope of relief related to ASU 2020-04. This ASU became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively for contract modifications made on or before December 31, 2022.

The Company adopted the optional relief afforded by these ASUs in the third quarter of 2021 on a prospective basis, and the guidance will be followed until the optional relief terminates on December 31, 2022. The Company has identified insurance contracts, derivatives and other financial instruments that are directly or indirectly influenced by LIBOR, and will be applying the accounting relief as relevant contract modifications are made during the Reference Rate Transition Period. There was no impact to the Company’s consolidated financial statements upon the initial adoption of these ASUs.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Recent Accounting Standards Not Yet Adopted

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The amendments in this ASU:

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

•improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows,

•simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,

•simplify the amortization of deferred acquisition costs (DAC), and

•improve the effectiveness of the required disclosures.

This ASU does not affect the Company’s financial guaranty insurance contracts, but may affect its accounting for certain specialty (non-financial guaranty) insurance contracts. In November 2020, the FASB deferred the effective date of this ASU to January 1, 2023 with early adoption permitted. If early adoption is elected, there is transition relief allowing for the transition date to be either the beginning of the prior period presented or the beginning of the earliest period presented. If early adoption is not elected, the transition date is required to be the beginning of the earliest period presented. The Company does not currently expect this ASU to have a material effect on its consolidated financial statements.

2. Segment Information

The Company reports its results of operations in 2 segments: Insurance and Asset Management, separate from its Corporate division and the effects of consolidating FG VIEs and CIVs, which is consistent with the manner in which the Company’s chief operating decision maker (CODM) reviews the business to assess performance and allocate resources.

The Insurance segment primarily consists of: (i) the Company’s insurance subsidiaries; and (ii) AGAS. The Asset Management segment consists of AssuredIM, which provides asset management services to third-party investors as well as to the U.S. Insurance Subsidiaries and AGAS.

The Corporate division primarily consists of interest expense on the debt of the U.S. Holding Companies and any losses on extinguishment or repurchases of their debt, as well as other operating expenses attributed to the corporate activities of AGL and the U.S. Holding Companies.

The Other category primarily includes the effect of consolidating FG VIEs and CIVs, intersegment eliminations and the reclassification of reimbursable fund expenses. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

The segments differ from the consolidated financial statements in certain respects. The Insurance segment includes: (i) premiums and losses from the financial guaranty insurance policies issued by the U.S. Insurance Subsidiaries which guarantee the FG VIEs’ debt; and (ii) AGAS’s share of earnings from investments in AssuredIM Funds in “equity in earnings (losses) of investees.” Under GAAP, (i) FG VIEs are consolidated by the U.S. Insurance Subsidiaries and the premiums and losses associated with their financial guaranty policies associated with the FG VIEs’ debt is eliminated, whereas the reconciliation tables below present the FG VIEs and related eliminations in “Other”, and (ii) CIVs are consolidated by AGUS, a U.S. holding company, whereas in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’s interest in CIVs are presented in “Other.” In addition, under GAAP, reimbursable fund expenses are shown as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below, they are netted in segment expenses.

The Company analyzes the operating performance of each segment using “segment adjusted operating income.” Results for each segment include specifically identifiable expenses as well as intersegment expense allocations, as applicable, based on time studies and other cost allocation methodologies based on headcount or other metrics. Segment adjusted operating income is defined as net income (loss) attributable to AGL, adjusted for the following items:

•Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

•Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments.

•Elimination of fair value gains (losses) on the Company’s committed capital securities (CCS) that are recognized in net income.

•Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and loss adjustment expense (LAE) reserves that are recognized in net income.

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

•Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

The Company does not report assets by reportable segment as the CODM does not use assets to assess performance and allocate resources.

The following table presents information for the Company’s operating segments.

Segment Information

Three Months Ended March 31,
2022 2021
Insurance Asset Management Insurance Asset Management
(in millions)
Third-party revenues $ 276 $ 30 $ 177 $ 18
Intersegment revenues 2 9 2 2
Segment revenues 278 39 179 20
Segment expenses 122 39 106 29
Segment equity in earnings (losses) of investees (1) — 19 —
Less: Segment provision (benefit) for income taxes 22 — 13 (2)
Segment adjusted operating income (loss) $ 133 $ — $ 79 $ (7)


	Second Quarter
	2022				2021
	Insurance		Asset Management		Insurance		Asset Management
	(in millions)
Third-party revenues	$	137	$	16	$	180	$	19
Intersegment revenues	2		12		2		2
Segment revenues	139		28		182		21
Segment expenses	41		28		47		24
Segment equity in earnings (losses) of investees	(34)		—		48		—
Less: Segment provision (benefit) for income taxes	9		—		31		(1)
Segment adjusted operating income (loss)	$	55	$	—	$	152	$	(2)


	Six Months
	2022				2021
	Insurance		Asset Management		Insurance		Asset Management
	(in millions)
Third-party revenues	$	413	$	46	$	357	$	37
Intersegment revenues	4		21		4		4
Segment revenues	417		67		361		41
Segment expenses	163		67		153		53
Segment equity in earnings (losses) of investees	(35)		—		67		—
Less: Segment provision (benefit) for income taxes	31		—		44		(3)
Segment adjusted operating income (loss)	$	188	$	—	$	231	$	(9)

The tables below present a reconciliation of significant components of segment information to the comparable consolidated amounts.

~~Reconciliation of Segment Information to Consolidated Information~~

~~First Quarter 2022~~

Equity in Earnings (Losses) of Investees Less: Net Income (Loss) Attributable to AGL
Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests
(in millions)
Segments:
Insurance $ 278 $ 122 $ (1) $ 22 $ — $ 133
Asset Management 39 39 — — — —
Total segments 317 161 (1) 22 — 133
Corporate division 1 34 — — — (33)
Other 14 5 (10) — 9 (10)
Subtotal 332 200 (11) 22 9 90
Reconciling items:
Realized gains (losses) on investments 3 — — — — 3
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives (7) (4) — — — (3)
Fair value gains (losses) on CCS 1 — — — — 1
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves (29) — — — — (29)
Tax effect — — — (4) — 4
Total consolidated $ 300 $ 196 $ (11) $ 18 $ 9 $ 66

1011

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

~~First Quarter~~Three Months Ended June 30, 2022


					Equity in Earnings (Losses) of Investees		Less:				Net Income (Loss) Attributable to AGL
	Revenues		Expenses				Provision (Benefit) for Income Taxes		Noncontrolling Interests
	(in millions)
Segments:
Insurance	$	139	$	41	$	(34)	$	9	$	—	$	55
Asset Management	28		28		—		—		—		—
Total segments	167		69		(34)		9		—		55
Corporate division	1		36		—		—		—		(35)
Other	7		7		34		2		22		10
Subtotal	175		112		—		11		22		30
Reconciling items:
Realized gains (losses) on investments	(28)		—		—		—		—		(28)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	6		—		—		—		—		6
Fair value gains (losses) on CCS	10		0		0		0		0		10
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(73)		—		—		—		—		(73)
Tax effect	—		—		—		(8)		—		8
Total consolidated	$	90	$	112	$	—	$	3	$	22	$	(47)

Reconciliation of Segment Information to Consolidated Information

Three Months Ended June 30, 2021

Equity in Earnings (Losses) of Investees Less: Net Income (Loss) Attributable to AGL
Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests
(in millions)
Segments:
Insurance $ 179 $ 106 $ 19 $ 13 $ — $ 79
Asset Management 20 29 — (2) — (7)
Total segments 199 135 19 11 — 72
Corporate division — 32 — (3) — (29)
Other 21 7 (10) — 4 —
Subtotal 220 174 9 8 4 43
Reconciling items:
Realized gains (losses) on investments (3) — — — — (3)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives (22) (3) — — — (19)
Fair value gains (losses) on CCS (19) — — — — (19)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves 1 — — — — 1
Tax effect — — — (8) — 8
Total consolidated $ 177 $ 171 $ 9 $ — $ 4 $ 11


					Equity in Earnings (Losses) of Investees		Less:				Net Income (Loss) Attributable to AGL
	Revenues		Expenses				Provision (Benefit) for Income Taxes		Noncontrolling Interests
	(in millions)
Segments:
Insurance	$	182	$	47	$	48	$	31	$	—	$	152
Asset Management	21		24		—		(1)		—		(2)
Total segments	203		71		48		30		—		150
Corporate division	—		36		—		(2)		—		(34)
Other	27		4		(14)		1		4		4
Subtotal	230		111		34		29		4		120
Reconciling items:
Realized gains (losses) on investments	4		—		—		—		—		4
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(37)		(6)		—		—		—		(31)
Fair value gains (losses) on CCS	(6)		—		—		—		—		(6)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	5		—		—		—		—		5
Tax effect	—		—		—		(6)		—		6
Total consolidated	$	196	$	105	$	34	$	23	$	4	$	98

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2022


					Equity in Earnings (Losses) of Investees		Less:				Net Income (Loss) Attributable to AGL
	Revenues		Expenses				Provision (Benefit) for Income Taxes		Noncontrolling Interests
	(in millions)
Segments:
Insurance	$	417	$	163	$	(35)	$	31	$	—	$	188
Asset Management	67		67		—		—		—		—
Total segments	484		230		(35)		31		—		188
Corporate division	2		70		—		—		—		(68)
Other	21		12		24		2		31		—
Subtotal	507		312		(11)		33		31		120
Reconciling items:
Realized gains (losses) on investments	(25)		—		—		—		—		(25)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(1)		(4)		—		—		—		3
Fair value gains (losses) on CCS	11		0		—		—		—		11
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(102)		—		—		—		—		(102)
Tax effect	—		—		—		(12)		—		12
Total consolidated	$	390	$	308	$	(11)	$	21	$	31	$	19

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2021


					Equity in Earnings (Losses) of Investees		Less:				Net Income (Loss) Attributable to AGL
	Revenues		Expenses				Provision (Benefit) for Income Taxes		Noncontrolling Interests
	(in millions)
Segments:
Insurance	$	361	$	153	$	67	$	44	$	—	$	231
Asset Management	41		53		—		(3)		—		(9)
Total segments	402		206		67		41		—		222
Corporate division	—		68		—		(5)		—		(63)
Other	48		11		(24)		1		8		4
Subtotal	450		285		43		37		8		163
Reconciling items:
Realized gains (losses) on investments	1		—		—		—		—		1
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(59)		(9)		—		—		—		(50)
Fair value gains (losses) on CCS	(25)		—		—		—		—		(25)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	6		—		—		—		—		6
Tax effect	—		—		—		(14)		—		14
Total consolidated	$	373	$	276	$	43	$	23	$	8	$	109

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3. 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

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

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.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

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 itCOVID-19 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

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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,~~June 30, 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

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

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.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

Debt Service and Par Outstanding


		As of March 31, 2022				As of December 31, 2021					As of June 30, 2022				As of December 31, 2021
		Gross		Net		Gross		Net			Gross		Net		Gross		Net
		(in millions)									(in millions)
Debt Service	Debt Service									Debt Service
Public finance	Public finance	$	352,611	$	352,285	$	357,694	$	357,314	Public finance	$	353,431	$	353,251	$	357,694	$	357,314
Structured finance	Structured finance	9,734		9,704		10,076		10,046		Structured finance	9,606		9,581		10,076		10,046
Total financial guaranty	Total financial guaranty	$	362,345	$	361,989	$	367,770	$	367,360	Total financial guaranty	$	363,037	$	362,832	$	367,770	$	367,360

Par Outstanding	Par Outstanding									Par Outstanding
Public finance	Public finance	$	224,763	$	224,463	$	227,507	$	227,164	Public finance	$	224,252	$	224,095	$	227,507	$	227,164
Structured finance	Structured finance	8,946		8,916		9,258		9,228		Structured finance	8,742		8,717		9,258		9,228
Total financial guaranty	Total financial guaranty	$	233,709	$	233,379	$	236,765	$	236,392	Total financial guaranty	$	232,994	$	232,812	$	236,765	$	236,392

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of ~~$1,174~~$1,301 million of public finance direct gross par and ~~$860~~$763 million of structured finance direct gross par as of ~~March 31,~~June 30, 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,~~June 30, 2022


		Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total					Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
		(dollars in millions)																					(dollars in millions)
AAA	AAA	$	270	0.2	%	$	2,102	4.3	%	$	757	9.3	%	$	482	59.1	%	$	3,611	1.5	%	AAA	$	260	0.1	%	$	2,016	4.4	%	$	824	10.4	%	$	457	58.5	%	$	3,557	1.5	%
AA	AA	16,472		9.4		3,975		8.2		4,633		57.2		21		2.7		25,101		10.8		AA	17,042		9.5		3,671		8.3		4,554		57.4		12		1.5		25,279		10.9
A	A	94,442		53.6		10,382		21.4		801		9.9		156		19.1		105,781		45.3		A	96,931		54.0		9,633		21.7		813		10.2		183		23.4		107,560		46.2
BBB	BBB	61,039		34.7		31,486		64.9		566		7.0		156		19.1		93,247		40.0		BBB	61,845		34.4		28,606		64.4		449		5.7		130		16.6		91,030		39.1
BIG	BIG	3,734		2.1		561		1.2		1,344		16.6		—		—		5,639		2.4		BIG	3,570		2.0		521		1.2		1,295		16.3		—		—		5,386		2.3
Total net par outstanding	Total net par outstanding	$	175,957	100.0	%	$	48,506	100.0	%	$	8,101	100.0	%	$	815	100.0	%	$	233,379	100.0	%	Total net par outstanding	$	179,648	100.0	%	$	44,447	100.0	%	$	7,935	100.0	%	$	782	100.0	%	$	232,812	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	%

1417

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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,~~June 30, 2022


		BIG Net Par Outstanding								Net Par			BIG Net Par Outstanding								Net Par
		BIG 1		BIG 2		BIG 3		Total BIG		Outstanding			BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
						(in millions)											(in millions)
Public finance:	Public finance:											Public finance:
U.S. public finance	U.S. public finance	$	1,462	$	116	$	2,156	$	3,734	$	175,957	U.S. public finance	$	1,294	$	130	$	2,146	$	3,570	$	179,648
Non-U.S. public finance	Non-U.S. public finance	518		—		43		561		48,506		Non-U.S. public finance	482		—		39		521		44,447
Public finance	Public finance	1,980		116		2,199		4,295		224,463		Public finance	1,776		130		2,185		4,091		224,095
Structured finance:	Structured finance:											Structured finance:
U.S. RMBS	U.S. RMBS	53		81		1,095		1,229		2,277		U.S. RMBS	45		77		1,063		1,185		2,171
Other structured finance	Other structured finance	—		39		76		115		6,639		Other structured finance	—		37		73		110		6,546
Structured finance	Structured finance	53		120		1,171		1,344		8,916		Structured finance	45		114		1,136		1,295		8,717
Total	Total	$	2,033	$	236	$	3,370	$	5,639	$	233,379	Total	$	1,821	$	244	$	3,321	$	5,386	$	232,812

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 June 30, 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	$	1,814	$	7	$	1,821	107	1	108
Category 2	234		10		244		20	2	22
Category 3	3,279		42		3,321		123	8	131
Total BIG	$	5,327	$	59	$	5,386	250	11	261

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~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~~$2,227 million net par outstanding as of ~~March 31,~~June 30, 2022, a decrease of ~~$1,335~~$1,345 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

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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) for GO and PBA 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).

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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). As noted below, a confirmation hearing on the plan of adjustment for PRHTA has been set for August 17-18, 2022, while the most recent restructuring support agreement for PREPA was terminated and the parties are currently in mediation. Both economic and political developments, including those related to the COVID-19 pandemic and increases in the cost of petroleum products, 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 has received 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,~~June 30, 2022, the Company had remaining ~~$47~~$37 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. The Company’s $10 million of second-to-pay exposure as of March 31, 2022 was extinguished during second quarter 2022.


		Direct		Second-to-Pay		Assumed		Total			Direct		Assumed		Total
		(in millions)									(in millions)
GO	GO	$	36	$	10	$	1	$	47	GO	$	36	$	1	$	37
PBA	PBA	5		—		—		5		PBA	5		—		5
Total GO and PBA	Total GO and PBA	$	41	$	10	$	1	$	52	Total GO and PBA	$	41	$	1	$	42

Under the GO/PBA Plan and in connection with its direct exposure the Company received (including amounts received in connection with the second election described further ~~below)~~below, but excluding amounts received in connection with second-to-pay exposures):

•$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 notional amount of a 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.

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

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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 and fair value gains (losses) on trading securities, 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

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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,~~June 30, 2022, the net insured par outstanding under the legacy GO and PBA insurance policies was ~~$41~~$42 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,~~June 30, 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,~~June 30, 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~~PRHTA (HTA Plan) which it believes to be consistent with the HTA PSA. ~~The HTA PSA includes a number of conditions and~~Voting on the HTA Plan was completed on July 27, 2022, and the Title III Court has set August 17-18, 2022, for the confirmation hearing on the HTA Plan. The HTA Plan, similar to the GO/PBA Plan, provides an option for certain bondholders to elect to receive custody receipts that represent an interest in the legacy insurance policy plus Toll Bonds.

On July 8, 2022, the Company received from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA, $147 million of cash and $668 million original notional of CVI. Assuming the HTA Plan essentially as currently constituted is confirmed and implemented, the Company also expects to receive additional recoveries.

The HTA Plan is still 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~~it will be ~~achieved~~implemented 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,~~June 30, 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.

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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 the mediation ~~shall~~would terminate on June 1, 2022. Judge Swain has since extended the term of such mediation several times, most

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recently on July 29, 2022 ~~unless extended by~~extending the ~~PREPA~~term to August 15, 2022, and granting discretion to the mediation team to ~~July 1, 2022.~~further extend the mediation deadline to September 9, 2022 based on its assessment of the progress of the mediation process.

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,~~June 30, 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,~~June 30, 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,~~June 30, 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.

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•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

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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


	Gross Par Outstanding				Gross Debt Service Outstanding
	As of				As of
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
	(in millions)
Exposure to Puerto Rico	$	2,246	$	3,629	$	3,156	$	5,322

2023

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Puerto Rico

Net Par Outstanding


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(in millions)					(in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement	Puerto Rico Exposures Subject to a Plan or Support Agreement					Puerto Rico Exposures Subject to a Plan or Support Agreement
Commonwealth of Puerto Rico - GO (1)	Commonwealth of Puerto Rico - GO (1)	$	47	$	1,097	Commonwealth of Puerto Rico - GO (1)	$	37	$	1,097
PBA (1)	PBA (1)	5		122		PBA (1)	5		122
Total GO/PBA Plan	Total GO/PBA Plan	52		1,219		Total GO/PBA Plan	42		1,219
PRHTA (Transportation revenue)	PRHTA (Transportation revenue)	799		799		PRHTA (Transportation revenue)	799		799
PRHTA (Highway revenue)	PRHTA (Highway revenue)	457		457		PRHTA (Highway revenue)	457		457
PRCCDA (2)	PRCCDA (2)	—		152		PRCCDA (2)	—		152
Total HTA/CCDA PSA	Total HTA/CCDA PSA	1,256		1,408		Total HTA/CCDA PSA	1,256		1,408
PRIFA (2)	PRIFA (2)	—		16		PRIFA (2)	—		16
Total Subject to a Plan or Support Agreement	Total Subject to a Plan or Support Agreement	1,308		2,643		Total Subject to a Plan or Support Agreement	1,298		2,643
Other Puerto Rico Exposures	Other Puerto Rico Exposures					Other Puerto Rico Exposures
PREPA	PREPA	748		748		PREPA	748		748
MFA (3)	MFA (3)	179		179		MFA (3)	179		179
PRASA and U of PR (3)	PRASA and U of PR (3)	2		2		PRASA and U of PR (3)	2		2
Total Other Puerto Rico Exposures	Total Other Puerto Rico Exposures	929		929		Total Other Puerto Rico Exposures	929		929
Total net exposure to Puerto Rico	Total net exposure to Puerto Rico	$	2,237	$	3,572	Total net exposure to Puerto Rico	$	2,227	$	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.

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Amortization Schedule of Puerto Rico

Net Par Outstanding and Net Debt Service Outstanding

As of ~~March 31,~~June 30, 2022


		Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization			Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization
		(in millions)					(in millions)
2022 (April 1 - June 30)		$	—	$	3
2022 (July 1 - September 30)	2022 (July 1 - September 30)	159		213		2022 (July 1 - September 30)	$	149	$	202
2022 (October 1 - December 31)	2022 (October 1 - December 31)	—		3		2022 (October 1 - December 31)	—		3
Subtotal 2022	Subtotal 2022	159		219		Subtotal 2022	149		205
2023	2023	186		289		2023	186		289
2024	2024	149		243		2024	149		243
2025	2025	151		237		2025	151		237
2026	2026	170		249		2026	170		249
2027-2031	2027-2031	639		935		2027-2031	639		936
2032-2036	2032-2036	577		732		2032-2036	577		732
2037-2041	2037-2041	201		237		2037-2041	201		237
2042	2042	5		5		2042	5		5
Total	Total	$	2,237	$	3,146	Total	$	2,227	$	3,133

Exposure to the U.S. Virgin Islands

As of ~~March 31,~~June 30, 2022, the Company had ~~$443~~$187 million insured net par outstanding to the U.S. Virgin Islands and its related authorities (USVI), of which it rated ~~$185~~$51 million BIG (down from $469 million BIG as of December 31, ~~2021)~~2021 and $185 million BIG as of March 31, 2022). ~~During First Quarter~~In the first half of 2022, ~~the Company upgraded~~ $256 million of insured net par ~~net~~ outstanding of USVI bonds ~~in anticipation~~were legally defeased and $134 million of ~~a legal defeasance~~insured net par outstanding of ~~such~~USVI bonds ~~which occurred on April 6, 2022.~~were upgraded to investment grade. The ~~$185~~remaining $51 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,~~June 30, 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					As of June 30, 2022				As of December 31, 2021
		Gross Exposure		Net Exposure		Gross Exposure		Net Exposure			Gross Exposure		Net Exposure		Gross Exposure		Net Exposure
		(in millions)									(in millions)
Life insurance transactions (1)	Life insurance transactions (1)	$	1,261	$	890	$	1,250	$	871	Life insurance transactions (1)	$	1,270	$	919	$	1,250	$	871
Aircraft residual value insurance policies	Aircraft residual value insurance policies	355		200		355		200		Aircraft residual value insurance policies	355		200		355		200
Total	Total	$	1,616	$	1,090	$	1,605	$	1,071	Total	$	1,625	$	1,119	$	1,605	$	1,071

____________________

(1) The life insurance transactions’ net exposure is projected to reach $1.1 billion by ~~March 31, 2026.~~June 30, 2025.

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~~The minimum rental income guaranteed by AGRO is significantly below current annual rental income, and further protective provisions are triggered when rental

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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

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guarantee was ~~$257~~$250 million as of ~~March 31,~~June 30, 2022. The Company accounts for the guarantee in accordance with Accounting Standards Codification (ASC) 460, Guarantees.

4. Expected Loss to be Paid (Recovered)

Expected loss to be paid (recovered) is equal to the present value of expected future cash outflows for loss and

LAE payments, net of: (i) inflows for expected salvage, subrogation and other recoveries; and (ii) excess spread on underlying

collateral, as applicable. Cash flows are discounted at current risk-free rates. The Company updates the discount rates each quarter and reflects the effect of such changes in economic loss development. Net expected loss to be paid (recovered) is net of amounts ceded to reinsurers. The Company’s net expected loss to be paid (recovered) incorporates management’s probability weighted estimates of all possible scenarios.

Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about the likelihood of all possible outcomes based on all information available to it. Those assumptions consider the relevant facts and circumstances and are consistent with the information tracked and monitored through the Company’s risk management activities. Expected loss to be paid (recovered) is important ~~from a liquidity perspective~~ in that it represents the present value of amounts that the Company expects to pay or recover in future periods for all contracts.

Management compiles and analyzes loss information for all exposures on a consistent basis, in order to effectively

evaluate and manage the economics and liquidity of the entire insured portfolio. The Company monitors and assigns ratings and

calculates expected loss to be paid (recovered) in the same manner for all its exposures regardless of form or differing

accounting models. This note provides information regarding expected claim payments to be made under all contracts in the

insured portfolio.

In circumstances where the Company has purchased its own insured obligations that had expected losses, and in cases

where issuers of insured obligations elected or the Company and an issuer mutually agreed as part of a negotiation to deliver the

underlying collateral, insured obligation or a new security to the Company, expected loss to be paid (recovered) is reduced and

the asset received is prospectively accounted for under the applicable guidance for that instrument.

Economic loss development represents the change in net expected loss to be paid (recovered) attributable to the effects

of changes in the economic performance of insured transactions, changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic

effects of loss mitigation efforts.

The insured portfolio includes policies accounted for under various accounting models depending on the characteristics of the contract and the Company’s control rights. The three primary models are: (1) insurance, as described in Note 5, Contracts Accounted for as Insurance; (2) derivatives, as described in Note 6, Contracts Accounted for as Credit Derivatives and Note 9, Fair Value Measurement; and (3) FG VIE consolidation, as described in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. The Company has paid and expects to pay future losses and/or recover past losses on policies which fall under ~~the following~~each of these accounting ~~models : insurance, derivative and FG VIE.~~models.

Loss Estimation Process

The Company’s loss reserve committees estimate expected loss to be paid (recovered) for all contracts by reviewing analyses that consider various scenarios with corresponding probabilities assigned to them. Depending upon the nature of the risk, the Company’s view of the potential size of any loss and the information available to the Company, that analysis may be based upon individually developed cash flow models, internal credit rating assessments, sector-driven loss severity assumptions and/or judgmental assessments. In the case of its assumed business, the Company may conduct its own analysis as just described or, depending on the Company’s view of the potential size of any loss and the information available to the Company, the Company may use loss estimates provided by ceding insurers. The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the period and their view of future performance.

The financial guaranties issued by the Company insure the credit performance of the guaranteed obligations over an extended period of time, in some cases over 30 years, and in most circumstances the Company has no right to cancel such financial guaranties. As a result, the Company’s estimate of ultimate loss on a policy is subject to significant uncertainty over

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~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

the life of the insured transaction. Credit performance can be adversely affected by economic, fiscal and financial market variability over the life of most contracts.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company does not use traditional actuarial approaches to determine its estimates of expected losses. The determination of expected loss to be paid (recovered) is an inherently subjective process involving numerous estimates, assumptions and judgments by management, using both internal and external data sources with regard to frequency, severity of loss, economic projections, governmental actions, negotiations, recovery rates, delinquency and prepayment rates (with respect to RMBS), timing of cash flows, and other factors that affect credit performance. These estimates, assumptions and judgments, and the factors on which they are based, may change materially over a reporting period, and have a material effect on the Company’s financial statements. Each quarter, the Company may revise its scenarios and update its assumptions, including the probability weightings of its scenarios based on public information as well as nonpublic information obtained through its surveillance and loss mitigation activities. Such information includes management’s view of the potential impact of COVID-19 on its distressed exposures. Management assesses the possible implications of such information on each insured obligation, considering the unique characteristics of each transaction.

Changes over a reporting period in the Company’s loss estimates for municipal obligations supported by specified revenue streams, such as revenue bonds issued by toll road authorities, municipal utilities or airport authorities, generally will be influenced by factors impacting their revenue levels, such as changes in demand; changing demographics; and other economic factors, especially if the obligations do not benefit from financial support from other tax revenues or governmental authorities. Changes over a reporting period in the Company’s loss estimates for its tax-supported public finance transactions generally will be influenced by factors impacting the public issuer’s ability and willingness to pay, such as changes in the economy and population of the relevant area; changes in the issuer’s ability or willingness to raise taxes, decrease spending or receive federal assistance; new legislation; rating agency actions that affect the issuer’s ability to refinance maturing obligations or issue new debt at a reasonable cost; changes in the priority or amount of pensions and other obligations owed to workers; developments in restructuring or settlement negotiations; and other political and economic factors. Changes in loss estimates may also be affected by the Company’s loss mitigation efforts and other variables.

Changes in the Company’s loss estimates for structured finance transactions generally will be influenced by factors impacting the performance of the assets supporting those transactions. For example, changes over a reporting period in the Company’s loss estimates for its RMBS transactions may be influenced by factors such as the level and timing of loan defaults experienced, changes in housing prices, results from the Company’s loss mitigation activities, and other variables.

Actual losses will ultimately depend on future events or transaction performance and may be influenced by many

interrelated factors that are difficult to predict. As a result, the Company’s current projections of losses may be subject to

considerable volatility and may not reflect the Company’s ultimate claims paid.

In some instances, the terms of the Company’s policy or the terms of certain workout orders and resolutions give it the option to pay principal losses that have been recognized in the transaction but which it is not yet required to pay, thereby reducing the amount of guaranteed interest due in the future. The Company has sometimes exercised this option, which uses cash but reduces projected future losses.

Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

by Accounting Model


		Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)					Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
		As of				First Quarter					As of				Second Quarter				Six Months
Accounting Model	Accounting Model	March 31, 2022		December 31, 2021		2022		2021		Accounting Model	June 30, 2022		December 31, 2021		2022		2021		2022		2021
		(in millions)									(in millions)
Insurance (see Note 5)	Insurance (see Note 5)	$	388	$	364	$	(44)	$	16	Insurance (see Note 5)	$	405	$	364	$	(26)	$	(25)	$	(70)	$	(9)
FG VIEs (see Note 8)	FG VIEs (see Note 8)	38		42		(4)		(6)		FG VIEs (see Note 8)	32		42		(6)		(1)		(10)		(7)
Credit derivatives (see Note 6)	Credit derivatives (see Note 6)	6		5		4		3		Credit derivatives (see Note 6)	5		5		—		6		4		9
Total	Total	$	432	$	411	$	(44)	$	13	Total	$	442	$	411	$	(32)	$	(20)	$	(76)	$	(7)

The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts, ~~under ,~~ which are accounted for under one of the following accounting models: insurance, derivative and FG VIE. The Company used risk-free rates for U.S. dollar denominated obligations that ranged from ~~0.00%~~1.67% to ~~2.61%~~3.41% with a weighted average of ~~2.26%~~2.90% as of ~~March 31,~~June 30, 2022 and 0.00% to 1.98% with a weighted average of 1.02% as of December 31, 2021. Expected losses to be paid for U.S.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~for U.S.~~ dollar denominated transactions represented approximately ~~98.0%~~98.6% and 97.2% of the total as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

Net Expected Loss to be Paid (Recovered)

Roll Forward


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Net expected loss to be paid (recovered), beginning of period	Net expected loss to be paid (recovered), beginning of period	$	411	$	529	Net expected loss to be paid (recovered), beginning of period	$	432	$	472	$	411	$	529
Economic loss development (benefit) due to:	Economic loss development (benefit) due to:					Economic loss development (benefit) due to:
Accretion of discount	Accretion of discount	2		1		Accretion of discount	3		2		5		3
Changes in discount rates	Changes in discount rates	(47)		(48)		Changes in discount rates	(42)		15		(89)		(33)
Changes in timing and assumptions	Changes in timing and assumptions	1		60		Changes in timing and assumptions	7		(37)		8		23
Total economic loss development (benefit)	Total economic loss development (benefit)	(44)		13		Total economic loss development (benefit)	(32)		(20)		(76)		(7)
Net (paid) recovered losses	Net (paid) recovered losses	65		(70)		Net (paid) recovered losses	42		14		107		(56)
Net expected loss to be paid (recovered), end of period	Net expected loss to be paid (recovered), end of period	$	432	$	472	Net expected loss to be paid (recovered), end of period	$	442	$	466	$	442	$	466

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector


	Second Quarter 2022
Sector	Net Expected Loss to be Paid (Recovered) as of March 31, 2022		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of June 30, 2022
	(in millions)
Public finance:
U.S. public finance	$	181	$	8	$	21	$	210
Non-U.S. public finance	10		(2)		(1)		7
Public finance	191		6		20		217
Structured finance:
U.S. RMBS	195		(39)		23		179
Other structured finance	46		1		(1)		46
Structured finance	241		(38)		22		225
Total	$	432	$	(32)	$	42	$	442

First Quarter 2022
Sector Net Expected Loss to be Paid (Recovered) as of December 31, 2021 Economic Loss
Development (Benefit)
Net (Paid)
Recovered
Losses (1)
Net Expected Loss to be Paid (Recovered) as of March 31, 2022
(in millions)
Public finance:
U.S. public finance $ 197 $ (48) $ 32 $ 181
Non-U.S. public finance 12 (2) — 10
Public finance 209 (50) 32 191
Structured finance:
U.S. RMBS 150 7 38 195
Other structured finance 52 (1) (5) 46
Structured finance 202 6 33 241
Total $ 411 $ (44) $ 65 $ 432


	Second Quarter 2021
Sector	Net Expected Loss to be Paid (Recovered) as of March 31, 2021		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of June 30, 2021
	(in millions)
Public finance:
U.S. public finance	$	228	1		$	(8)	$	221
Non-U.S. public finance	24		(1)		(1)		22
Public finance	252		—		(9)		243
Structured finance:
U.S. RMBS	181		(28)		25		178
Other structured finance	39		8		(2)		45
Structured finance	220		(20)		23		223
Total	$	472	$	(20)	$	14	$	466

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued


		First Quarter 2021									Six Months 2022
Sector	Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2020		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of March 31, 2021		Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2021		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of June 30, 2022
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	305	$	15	$	(92)	$	228	U.S. public finance	$	197	$	(40)	$	53	$	210
Non-U.S. public finance	Non-U.S. public finance	36		(12)		—		24		Non-U.S. public finance	12		(4)		(1)		7
Public finance	Public finance	341		3		(92)		252		Public finance	209		(44)		52		217
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	148		11		22		181		U.S. RMBS	150		(32)		61		179
Other structured finance	Other structured finance	40		(1)		—		39		Other structured finance	52		—		(6)		46
Structured finance	Structured finance	188		10		22		220		Structured finance	202		(32)		55		225
Total	Total	$	529	$	13	$	(70)	$	472	Total	$	411	$	(76)	$	107	$	442


	Six Months 2021
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2020		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of June 30, 2021
	(in millions)
Public finance:
U.S. public finance	$	305	$	16	$	(100)	$	221
Non-U.S. public finance	36		(13)		(1)		22
Public finance	341		3		(101)		243
Structured finance:
U.S. RMBS	148		(17)		47		178
Other structured finance	40		7		(2)		45
Structured finance	188		(10)		45		223
Total	$	529	$	(7)	$	(56)	$	466

____________________

(1) Net of ceded paid losses, whether or not such amounts have been settled with reinsurers. Ceded paid losses are typically settled 45 days after the end of the reporting period. Such amounts are recorded as reinsurance recoverable on paid losses in other assets.

The tables above include (a) LAE paid of ~~$13~~$7 million, $6 million, $20 million and $4$10 million for ~~First Quarter~~second quarter 2022, second quarter 2021, six months 2022 and ~~First Quarter~~six months 2021, respectively, and (b) expected LAE to be paid of ~~$17~~$14 million as of ~~March 31,~~June 30, 2022 and $26 million as of December 31, 2021. Ceded expected loss and LAE to be recovered (paid) was ~~$(2)~~$(3) million as of ~~March 31,~~June 30, 2022 and $10 million as of December 31, 2021.

Selected U.S. Public Finance Transactions

The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding as of ~~March 31,~~June 30, 2022, all of which was BIG. For additional information regarding the Company’s Puerto Rico exposure, see “Exposure to Puerto Rico” in Note 3, Outstanding Exposure.

On March 15, 2022, the GO/PBA Plan, PRCCDA Modification, and PRIFA Modification were consummated, as described under “Exposure to Puerto Rico” in Note 3, Outstanding Exposure. The fair value of recoveries received under these March Puerto Rico Resolutions (which included cash, new recovery bonds and CVIs) ~~was~~and some of those expected to be received under the HTA Plan were higher than expected. The Company also updated its assumptions for certain other defaulted Puerto Rico credits that have not yet been settled.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

On February 25, 2015, a plan of adjustment resolving the bankruptcy filing of the City of Stockton, California under chapter 9 of the Bankruptcy Code became effective. As of ~~March 31,~~June 30, 2022, the Company’s net par outstanding subject to the plan consisted of $100 million of pension obligation bonds. As part of the plan of adjustment, the City will repay claims paid on the pension obligation bonds from certain fixed payments and certain variable payments contingent on the City’s revenue growth.

The Company projects its total net expected loss to be paid across its troubled U.S. public finance exposures as of ~~March 31,~~June 30, 2022, including those mentioned above, to be ~~$181~~$210 million, compared with $197 million as of December 31, 2021. The economic loss development for U.S. public finance transactions was $8 million during second quarter 2022 and was primarily attributable to Puerto Rico transactions, partially offset by the effect of changes in discount rates. The economic benefit for U.S. public finance transactions was ~~$48~~$40 million during ~~First Quarter~~six months 2022, which was primarily attributable to ~~Puerto Rico exposures and~~ changes in discount rates. The changes attributable to the Company’s Puerto Rico exposures reflect adjustments the Company made to the assumptions it used in its scenarios and valuation of certain recovery components based on the public information as discussed under “Exposure to Puerto Rico” in Note 3, Outstanding Exposure as well as nonpublic information related to its loss mitigation activities during the period.

Selected Non - U.S. Public Finance Transactions

Expected loss to be paid for non-U.S. public finance transactions was ~~$10~~$7 million as of ~~March 31,~~June 30, 2022, compared with $12 million as of December 31, 2021. The economic benefit for non-U.S. public finance transactions was ~~approximately~~ $2 million and $4 million during ~~First Quarter 2022.~~second quarter 2022 and six months 2022, respectively.

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

U.S. RMBS Loss Projections

The Company projects losses on its insured U.S. RMBS on a transaction-by-transaction basis by projecting the performance of the underlying pool of mortgages over time and then applying the structural features (i.e., payment priorities and tranching) of the RMBS and any expected representation and warranty (R&W) recoveries/payables to the projected performance of the collateral over time. The resulting projected claim payments or reimbursements are then discounted using risk-free rates.

Each period the Company makes a judgment as to whether to change the assumptions it uses to make RMBS loss projections based on its observation during the period of the performance of its insured transactions (including early-stage delinquencies, late-stage delinquencies and loss severity) as well as the residential property market and economy in general, and, to the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a trend. The assumptions that the Company uses to project RMBS losses are shown in the sections below.

Net Economic Loss Development (Benefit)

U.S. RMBS


		First Quarter					Second Quarter			Six Months
		2022		2021			2022		2021	2022		2021

First lien U.S. RMBS	First lien U.S. RMBS	$	18	$	25	First lien U.S. RMBS	$	(14)	(14)	$	4	$	11
Second lien U.S. RMBS	Second lien U.S. RMBS	(11)		(14)		Second lien U.S. RMBS	(25)		(14)	(36)		(28)

First Lien U.S. RMBS Loss Projections: Alt-A, Prime, Option ARM and Subprime

The majority of projected losses in first lien U.S. RMBS transactions are expected to come from non-performing mortgage loans (those that are or have recently been 2 or more payments behind, have been modified, are in foreclosure, or have been foreclosed upon). Changes in the amount of non-performing loans from the amount projected in the previous period are one of the primary drivers of loss projections in this portfolio. In order to determine the number of defaults resulting from these delinquent and foreclosed loans, the Company applies a liquidation rate assumption to loans in each of various non-performing categories. The Company arrived at its liquidation rates based on data purchased from a third-party provider and assumptions about how delays in the foreclosure process and loan modifications may ultimately affect the rate at which loans are liquidated. Each quarter the Company reviews recent data and (if necessary) adjusts its liquidation rates based on its observations. The following table shows liquidation assumptions for various non-performing and re-performing categories.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

First Lien U.S. RMBS Liquidation Rates


		As of			As of
		March 31, 2022	December 31, 2021		June 30, 2022	December 31, 2021
Current but recently delinquent	Current but recently delinquent			Current but recently delinquent
Alt-A and Prime	Alt-A and Prime	20%	20%	Alt-A and Prime	20%	20%
Option ARM	Option ARM	20	20	Option ARM	20	20
Subprime	Subprime	20	20	Subprime	20	20
30 – 59 Days Delinquent	30 – 59 Days Delinquent			30 – 59 Days Delinquent
Alt-A and Prime	Alt-A and Prime	35	35	Alt-A and Prime	35	35
Option ARM	Option ARM	35	35	Option ARM	35	35
Subprime	Subprime	30	30	Subprime	30	30
60 – 89 Days Delinquent	60 – 89 Days Delinquent			60 – 89 Days Delinquent
Alt-A and Prime	Alt-A and Prime	40	40	Alt-A and Prime	40	40
Option ARM	Option ARM	45	45	Option ARM	45	45
Subprime	Subprime	40	40	Subprime	40	40
90+ Days Delinquent	90+ Days Delinquent			90+ Days Delinquent
Alt-A and Prime	Alt-A and Prime	55	55	Alt-A and Prime	55	55
Option ARM	Option ARM	60	60	Option ARM	60	60
Subprime	Subprime	45	45	Subprime	45	45
Bankruptcy	Bankruptcy			Bankruptcy
Alt-A and Prime	Alt-A and Prime	45	45	Alt-A and Prime	45	45
Option ARM	Option ARM	50	50	Option ARM	50	50
Subprime	Subprime	40	40	Subprime	40	40
Foreclosure	Foreclosure			Foreclosure
Alt-A and Prime	Alt-A and Prime	60	60	Alt-A and Prime	60	60
Option ARM	Option ARM	65	65	Option ARM	65	65
Subprime	Subprime	55	55	Subprime	55	55
Real Estate Owned	Real Estate Owned			Real Estate Owned
All	All	100	100	All	100	100

While the Company uses the liquidation rates above to project defaults of non-performing loans (including current loans that were recently modified or delinquent), it projects defaults on presently current loans by applying a conditional default rate (CDR) curve. The start of that CDR curve is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans. The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, would be sufficient to produce approximately the amount of defaults that were calculated to emerge from the various delinquency categories. The CDR thus calculated individually on the delinquent collateral pool for each RMBS is then used as the starting point for the CDR curve used to project defaults of the presently performing loans.

In the most heavily weighted scenario (the base case), after the initial 36-month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to an intermediate CDR (calculated as 20% of its CDR plateau); that intermediate CDR is held constant and then steps to a final CDR of 5% of the CDR plateau. In the base case, the Company assumes the final CDR will be reached ~~1.25 years~~1.00 year after the initial 36-month CDR plateau period. Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were recently modified or delinquent, or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36-month period represent defaults attributable to borrowers that are currently performing or are projected to re-perform.

Another important driver of loss projections is loss severity, which is the amount of loss the transaction incurs on a loan after the application of net proceeds from the disposal of the underlying property. The Company assumes in the base case that recent (still historically elevated) loss severities will improve after loans with accumulated delinquencies and foreclosure cost are liquidated. The Company is assuming in the base case that the recent levels generally will continue for another 18

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

months. The Company determines its initial loss severity based on actual recent experience. Each quarter the Company reviews available data and (if necessary) adjusts its severities based on its observations. The Company then assumes that loss severities

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~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

begin returning to levels consistent with underwriting assumptions beginning after the initial 18-month period, declining to 40% in the base case over 2.5 years.

The following table shows the range as well as the average, weighted by outstanding net insured par, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 first lien U.S. RMBS.

Key Assumptions in Base Case Expected Loss Estimates

First Lien U.S. RMBS


		As of March 31, 2022					As of December 31, 2021						As of June 30, 2022					As of December 31, 2021
		Range				Weighted Average	Range				Weighted Average		Range				Weighted Average	Range				Weighted Average
Alt-A and Prime:	Alt-A and Prime:											Alt-A and Prime:
Plateau CDR	Plateau CDR	1.7	%	-	14.0%	6.1%	0.9	%	-	11.6%	5.9%	Plateau CDR	1.9	%	-	14.5%	6.0%	0.9	%	-	11.6%	5.9%
Final CDR	Final CDR	0.1	%	-	0.7%	0.3%	0.0	%	-	0.6%	0.3%	Final CDR	0.1	%	-	0.7%	0.3%	0.0	%	-	0.6%	0.3%
Initial loss severity:	Initial loss severity:											Initial loss severity:
2005 and prior	2005 and prior	60%					60%					2005 and prior	50%					60%
2006	2006	60%					60%					2006	50%					60%
2007+	2007+	60%					60%					2007+	50%					60%
Option ARM:	Option ARM:											Option ARM:
Plateau CDR	Plateau CDR	1.2	%	-	11.1%	5.3%	1.8	%	-	11.9%	5.6%	Plateau CDR	0.9	%	-	11.0%	5.2%	1.8	%	-	11.9%	5.6%
Final CDR	Final CDR	0.1	%	-	0.6%	0.3%	0.1	%	-	0.6%	0.3%	Final CDR	0.0	%	-	0.5%	0.3%	0.1	%	-	0.6%	0.3%
Initial loss severity:	Initial loss severity:											Initial loss severity:
2005 and prior	2005 and prior	60%					60%					2005 and prior	50%					60%
2006	2006	60%					60%					2006	50%					60%
2007+	2007+	60%					60%					2007+	50%					60%
Subprime:	Subprime:											Subprime:
Plateau CDR	Plateau CDR	2.5	%	-	9.8%	6.1%	2.9	%	-	10.0%	6.0%	Plateau CDR	2.8	%	-	9.8%	6.0%	2.9	%	-	10.0%	6.0%
Final CDR	Final CDR	0.1	%	-	0.5%	0.3%	0.1	%	-	0.5%	0.3%	Final CDR	0.1	%	-	0.5%	0.3%	0.1	%	-	0.5%	0.3%
Initial loss severity:	Initial loss severity:											Initial loss severity:
2005 and prior	2005 and prior	60%					60%					2005 and prior	50%					60%
2006	2006	60%					60%					2006	50%					60%
2007+	2007+	60%					60%					2007+	50%					60%

The rate at which the principal amount of loans is voluntarily prepaid may impact both the amount of losses projected (since that amount is a function of the CDR, the loss severity and the loan balance over time) as well as the amount of excess spread (the amount by which the interest paid by the borrowers on the underlying loan exceeds the amount of interest owed on the insured obligations). The assumption for the voluntary conditional prepayment rate (CPR) follows a pattern similar to that of the CDR. The current level of voluntary prepayments is assumed to continue for the plateau period before gradually increasing over 12 months to the final CPR, which is assumed to be 15% in the base case. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. These CPR assumptions are the same as those the Company used for December 31, 2021.

The Company incorporates a recovery assumption into its reserving model to reflect observed trends in recoveries of deferred principal balances of modified first lien loans that had been previously written off. For transactions where the Company has detailed loan information, the Company assumes that 20% of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans.

In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien U.S. RMBS transactions by varying its assumptions of how fast a recovery is expected to occur. One of the variables used to model sensitivities was how quickly the CDR returned to its modeled equilibrium, which was defined as 5% of the initial CDR. The

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Company also stressed CPR and the speed of recovery of loss severity rates. The Company probability weighted a total of 5 scenarios as of ~~March 31,~~June 30, 2022 and December 31, 2021.

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Total expected loss to be paid on all first lien U.S. RMBS was ~~$204~~$195 million and $167 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. T~~he $18~~The $14 million economic benefit in second quarter 2022 for first lien U.S. RMBS transactions was primarily attributable changes in discount rates, lower initial severity assumptions and improved performance in certain transactions, partially offset by lower excess spread. The $4 million economic loss development in ~~First Quarter~~six months 2022 for first lien U.S. RMBS transactions was primarily attributable to lower excess spread, partially offset ~~in part~~ by changes in discount rates, lower initial severity assumptions and improved performance in certain transactions. Certa ~~discount rates. Certain~~in transactions benefit from excess spread when they are supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) but have insured floating rate debt linked to LIBOR. An increase in projected LIBOR decreases excess spread, while lower LIBOR results in higher excess spread. ICE Benchmark Administration (IBA) and the Financial Conduct Authority (FCA) have announced that LIBOR ~~is anticipated to~~will be discontinued after June 30, ~~2023, and~~2023. The Company believes that the RMBS floating rate debt it ~~is not yet clear how this~~insures will, ~~impact~~consistent with federal legislation enacted in March 2022, be interpreted to instead reference the ~~calculation of the various interest rates in this portfolio refer~~Secured Overnight Finance Rate (SOFR)~~encing LIBOR.~~.

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of ~~March 31,~~June 30, 2022 as it used as of December 31, 2021, increasing and decreasing the periods of stress from those used in the base case. In the Company’s most stressful scenario where loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 15 months, expected loss to be paid would increase from current projections by approximately ~~$20~~$15 million for all first lien U.S. RMBS transactions. In the Company’s least stressful scenario where the CDR plateau was six months shorter (30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over nine months), expected loss to be paid would decrease from current projections by approximately ~~$12~~$11 million for all first lien U.S. RMBS transactions.

Second Lien U.S. RMBS Loss Projections

Second lien U.S. RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages. The Company believes the primary variable affecting its expected losses in second lien RMBS transactions is the amount and timing of future losses or recoveries in the collateral pool supporting the transactions. Expected losses are also a function of the structure of the transaction, the CPR of the collateral, the interest rate environment and assumptions about loss severity.

In second lien U.S. RMBS transactions, the projection of near-term defaults from currently delinquent loans is relatively straightforward because loans ~~in second lien transactions~~ are generally “charged off” (treated as defaulted) by the securitization’s servicer once the loan is 180 days past due. The Company estimates the amount of loans that will default over the next six months by calculating current representative liquidation rates.

Similar to first ~~liens,~~lien U.S. RMBS transactions, the Company then calculates a CDR for six months, which is the period over which the currently delinquent collateral is expected to be liquidated. That CDR is then used as the basis for the plateau CDR period that follows the embedded plateau losses.

For the base case scenario, the CDR (the plateau CDR) was held constant for six months. Once the plateau period has ended, the CDR is assumed to gradually trend down in uniform increments to its final long-term steady state CDR. (The long-term steady state CDR is calculated as the constant CDR that would have yielded the amount of losses originally expected at underwriting.) In the base case scenario, the time over which the CDR trends down to its final CDR is 28 months. Therefore, the total stress period for second lien transactions is 34 months, representing six months of delinquent loan liquidations, followed by 28 months of decrease to the steady state CDR, the same as of December 31, 2021.

HELOC loans generally permit the borrower to pay only interest for an initial period (often ten years) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment. This causes the borrower's total monthly payment to increase, sometimes substantially, at the end of the initial interest-only period.

The HELOC loans underlying the Company’s insured HELOC transactions are now past their original interest-only reset date, although a significant number of HELOC loans were modified to extend the original interest-only period. The Company does not apply a CDR increase when such loans are projected to reach their principal amortization period due to the likelihood that those loans will either prepay or once again have their interest-only periods extended. The Company applies a CDR floor of 1.0% for the future steady state CDR on all its HELOC transactions.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

When a second lien loan defaults, there is generally a low recovery. The Company assumed, as of ~~March 31,~~June 30, 2022 and December 31, 2021, that it will generally recover 2% of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time. A second lien on the borrower’s home may be retained in the Company’s second lien transactions after the loan is charged off and the loss applied to the transaction, particularly in cases where the holder of the first lien has not foreclosed. If the second lien is retained and the value of the home increases, the servicer may be able to use the second lien to increase recoveries, either by arranging for the borrower to resume payments or by realizing value upon the sale of the underlying real estate. The Company evaluates its assumptions quarterly based on actual

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

recoveries of charged-off loans observed from period to period. In instances where the Company is able to obtain information on the lien status of charged-off loans, it assumes there will be a certain level of future recoveries of the balance of the charged-off loans where the second lien is still intact. The Company’s recovery assumption for charged-off loans is 30%, as shown in the table below, based on recent observed trends. Such recoveries are assumed to be received evenly over the next five years. If the recovery rate decreases to 20%, expected loss to be paid would increase from current projections by approximately $40 million. If the recovery rate increases to 40%, expected loss to be paid would decrease from current projections by approximately $40 million.

The rate at which the principal amount of loans is prepaid may impact both the amount of losses projected as well as the amount of excess spread. In the base case, an average CPR (based on experience of the past year) is assumed to continue until the end of the plateau before gradually increasing to the final CPR over the same period the CDR decreases. The final CPR is assumed to be 15% for second lien U.S. RMBS transactions (in the base case), which is lower than the historical average but reflects the Company’s continued uncertainty about the projected performance of the borrowers in these transactions. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. This pattern is consistent with how the Company modeled the CPR as of December 31, 2021. To the extent that prepayments differ from projected levels it could materially change the Company’s projected excess spread and losses.

In estimating expected losses, the Company modeled and probability weighted 5 scenarios, each with a different CDR curve applicable to the period preceding the return to the long-term steady state CDR. The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers behind the amount of losses the collateral will likely suffer.

The following table shows the range as well as the average, weighted by net par outstanding, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 HELOCs.

Key Assumptions in Base Case Expected Loss Estimates

HELOCs


		As of March 31, 2022					As of December 31, 2021						As of June 30, 2022					As of December 31, 2021
		Range				Weighted Average	Range				Weighted Average		Range				Weighted Average	Range				Weighted Average
Plateau CDR	Plateau CDR	3.4	%	-	35.3%	15.8%	6.5	%	-	39.6%	16.4%	Plateau CDR	3.8	%	-	36.7%	15.2%	6.5	%	-	39.6%	16.4%
Final CDR trended down to	Final CDR trended down to	1.0%					1.0%					Final CDR trended down to	1.0%					1.0%
Liquidation rates:	Liquidation rates:											Liquidation rates:
Current but recently delinquent	Current but recently delinquent	20%					20%					Current but recently delinquent	20%					20%
30 – 59 Days Delinquent	30 – 59 Days Delinquent	30					30					30 – 59 Days Delinquent	30					30
60 – 89 Days Delinquent	60 – 89 Days Delinquent	40					40					60 – 89 Days Delinquent	40					40
90+ Days Delinquent	90+ Days Delinquent	60					60					90+ Days Delinquent	60					60
Bankruptcy	Bankruptcy	55					55					Bankruptcy	55					55
Foreclosure	Foreclosure	55					55					Foreclosure	55					55
Real Estate Owned	Real Estate Owned	100					100					Real Estate Owned	100					100
Loss severity on future defaults	Loss severity on future defaults	98%					98%					Loss severity on future defaults	98%					98%
Projected future recoveries on previously charged-off loans	Projected future recoveries on previously charged-off loans	30%					30%					Projected future recoveries on previously charged-off loans	30%					30%

The Company continues to evaluate the assumptions affecting its modeling results. The Company believes the most important driver of its projected second lien RMBS losses is the performance of its HELOC transactions. Total net expected recovery for all second lien U.S. RMBS was $9$16 million as of ~~March 31,~~June 30, 2022 and ~~the net expected recovery was~~ $17 million as of December 31, 2021. The

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

economic development in ~~First Quarter~~second quarter 2022 and six months 2022 was a benefit of ~~$11~~$25 million and $36 million, respectively, and was primarily driven by ~~improved transaction performance,~~ higher recoveries for ~~previously~~secured charged-off loans, improved performance in certain transactions and changes in discount rates, partially offset by lower excess spread.

The Company’s base case assumed a six-month CDR plateau and a 28 month ramp-down (for a total stress period of 34 months). The Company also modeled a scenario with a longer period of elevated defaults and another with a shorter period of elevated defaults. In the Company’s most stressful scenario, increasing the CDR plateau to eight months and increasing the ramp-down by three months to 31 months (for a total stress period of 39 months) would ~~increase~~decrease the expected ~~loss~~recovery by approximately $5 million for HELOC transactions. On the other hand, in the Company’s least stressful scenario, reducing the

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

CDR plateau to four months and decreasing the length of the CDR ramp-down to 25 months (for a total stress period of 29 months), and lowering the ultimate prepayment rate to 10% would ~~decrease~~increase the expected ~~loss~~recovery by approximately $6$5 million for HELOC transactions.

Structured Finance Excluding U.S. RMBS

The Company projected that its total net expected loss to be paid across its troubled structured finance exposures, excluding U.S. RMBS, as of ~~March 31,~~June 30, 2022 was $46 million. The largest component of these structured finance losses were student loan securitizations issued by private issuers with ~~$53~~$51 million in BIG net par outstanding. In general, the projected losses of these student loan securitizations are due to: (i) the poor credit performance of private student loan collateral and high loss severities, or (ii) high interest rates on auction rate securities with respect to which the auctions have failed. The Company also had exposure to troubled life insurance transactions with BIG net par of $40 million as of ~~March 31,~~June 30, 2022. ~~Theeconomic benefit across all structured finance transactions, excluding U.S. RMBS, during First Quarter 2022 was $1 million.~~

Recovery Litigation

In the ordinary course of their respective businesses, certain of AGL’s subsidiaries are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future. The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s financial statements.

The Company has asserted claims in a number of legal proceedings in connection with its exposure to Puerto Rico. See Note 3, Outstanding Exposure, for a discussion of the Company’s exposure to Puerto Rico and related recovery litigation being pursued by the Company.

5. Contracts Accounted for as Insurance

The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives, and consolidated FG VIEs. Amounts presented in this note relate only to contracts accounted for as insurance, unless otherwise specified. See Note 6, Contracts Accounted for as Credit Derivatives, for amounts related to CDS and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as consolidated FG VIEs.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Premiums

Net Earned Premiums


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Financial guaranty insurance:	Financial guaranty insurance:					Financial guaranty insurance:
Scheduled net earned premiums	Scheduled net earned premiums	$	79	$	81	Scheduled net earned premiums	70		80		$	149	$	161
Accelerations from refundings and terminations (1)	Accelerations from refundings and terminations (1)	128		16		Accelerations from refundings and terminations (1)	5		15		133		31
Accretion of discount on net premiums receivable	Accretion of discount on net premiums receivable	6		5		Accretion of discount on net premiums receivable	6		6		12		11
Financial guaranty insurance net earned premiums	Financial guaranty insurance net earned premiums	213		102		Financial guaranty insurance net earned premiums	81		101		294		203
Specialty net earned premiums	Specialty net earned premiums	1		1		Specialty net earned premiums	1		1		2		2
Net earned premiums	Net earned premiums	$	214	$	103	Net earned premiums	$	82	$	102	$	296	$	205

____________________

(1) ~~First Quarter~~Six months 2022 accelerations include $104 million related to the March Puerto Rico Resolutions. See Note 3, Outstanding Exposure for additional information.

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~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Gross Premium Receivable,

Net of Commissions Payable on Assumed Business

Roll Forward


		First Quarter					Six Months
		2022		2021			2022		2021
		(in millions)					(in millions)
Beginning of year	Beginning of year	$	1,372	$	1,372	Beginning of year	$	1,372	$	1,372
Less: Specialty insurance premium receivable	Less: Specialty insurance premium receivable	1		1		Less: Specialty insurance premium receivable	1		1
Financial guaranty insurance premiums receivable	Financial guaranty insurance premiums receivable	1,371		1,371		Financial guaranty insurance premiums receivable	1,371		1,371
Gross written premiums on new business, net of commissions	Gross written premiums on new business, net of commissions	61		84		Gross written premiums on new business, net of commissions	137		165
Gross premiums received, net of commissions	Gross premiums received, net of commissions	(83)		(103)		Gross premiums received, net of commissions	(180)		(184)
Adjustments:	Adjustments:					Adjustments:
Changes in the expected term		8		2
Changes in the expected term and debt service assumptions						Changes in the expected term and debt service assumptions	(4)		5
Accretion of discount, net of commissions on assumed business	Accretion of discount, net of commissions on assumed business	6		4		Accretion of discount, net of commissions on assumed business	12		10
Foreign exchange gain (loss) on remeasurement	Foreign exchange gain (loss) on remeasurement	(29)		—		Foreign exchange gain (loss) on remeasurement	(102)		5
Financial guaranty insurance premium receivable	Financial guaranty insurance premium receivable	1,334		1,358		Financial guaranty insurance premium receivable	1,234		1,372
Specialty insurance premium receivable	Specialty insurance premium receivable	1		1		Specialty insurance premium receivable	1		1
March 31,		$	1,335	$	1,359
June 30,						June 30,	$	1,235	$	1,373

Approximately ~~77%~~76% and 78% of gross premiums receivable, net of commissions payable at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro.

The timing and cumulative amount of actual collections and net earned premiums may differ from those of expected collections and of expected net earned premiums in the table below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations, restructurings, changes in expected lives and new business.

~~Financial Guaranty Insurance~~

~~Expected Future Premium Collections and Earnings~~

As of March 31, 2022
Future Premiums
to be Collected (1) Future Net Premiums
to be Earned (2)
(in millions)
2022 (April 1 - June 30) $ 42 $ 76
2022 (July 1 - September 30) 39 75
2022 (October 1 - December 31) 33 73
Subtotal 2022 114 224
2023 108 279
2024 99 257
2025 88 233
2026 84 217
2027-2031 352 892
2032-2036 246 617
2037-2041 162 366
After 2041 339 505
Total $ 1,592 3,590
Future accretion 259
Total future net earned premiums $ 3,849

~~____________________~~

~~(1) Net of assumed commissions payable.~~

~~(2) Net of reinsurance.~~

3336

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

Expected Future Premium Collections and Earnings


	As of June 30, 2022
	Future Premiums to be Collected (1)		Future Net Premiums to be Earned (2)
	(in millions)
2022 (July 1 - September 30)	$	39	$	72
2022 (October 1 - December 31)	36		71
Subtotal 2022	75		143
2023	89		272
2024	87		255
2025	84		237
2026	81		221
2027-2031	342		914
2032-2036	242		637
2037-2041	160		381
After 2041	320		519
Total	$	1,481	3,579
Future accretion			247
Total future net earned premiums			$	3,826

____________________

(1) Net of commissions payable.

(2) Net of reinsurance.

Selected Information for Financial Guaranty Insurance Policies

with Premiums Paid in Installments


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(dollars in millions)					(dollars in millions)
Premiums receivable, net of commissions payable	Premiums receivable, net of commissions payable	$	1,334	$	1,371	Premiums receivable, net of commissions payable	$	1,234	$	1,371
Deferred premium revenue	Deferred premium revenue	1,639		1,663		Deferred premium revenue	1,613		1,663
Weighted-average risk-free rate used to discount premiums	Weighted-average risk-free rate used to discount premiums	1.6%		1.6%		Weighted-average risk-free rate used to discount premiums	1.6%		1.6%
Weighted-average period of premiums receivable (in years)	Weighted-average period of premiums receivable (in years)	12.6		12.7		Weighted-average period of premiums receivable (in years)	12.7		12.7

Losses and Recoveries

Loss reserves and salvage are discounted at risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from ~~0.00%~~1.67% to ~~2.61%~~3.41% with a weighted average of ~~2.26%~~2.90% as of ~~March 31,~~June 30, 2022 and 0.00% to 1.98% with a weighted average of 1.02% as of December 31, 2021.

The following tables provide information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Reserve (Salvage) by Sector


		As of					As of
Sector	Sector	March 31, 2022		December 31, 2021		Sector	June 30, 2022		December 31, 2021
		(in millions)					(in millions)
Public finance:	Public finance:					Public finance:
U.S. public finance	U.S. public finance	$	127	$	60	U.S. public finance	$	154	$	60
Non-U.S. public finance	Non-U.S. public finance	1		1		Non-U.S. public finance	1		1
Public finance	Public finance	128		61		Public finance	155		61
Structured finance:	Structured finance:					Structured finance:
U.S. RMBS	U.S. RMBS	18		(24)		U.S. RMBS	16		(24)
Other structured finance	Other structured finance	42		42		Other structured finance	41		42
Structured finance	Structured finance	60		18		Structured finance	57		18
Total	Total	$	188	$	79	Total	$	212	$	79

Components of Net Reserve (Salvage)


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(in millions)					(in millions)
Loss and LAE reserve	Loss and LAE reserve	$	718	$	869	Loss and LAE reserve	$	716	$	869
Reinsurance recoverable on unpaid losses (1)	Reinsurance recoverable on unpaid losses (1)	(3)		(5)		Reinsurance recoverable on unpaid losses (1)	(3)		(5)
Loss and LAE reserve, net	Loss and LAE reserve, net	715		864		Loss and LAE reserve, net	713		864
Salvage and subrogation recoverable	Salvage and subrogation recoverable	(529)		(801)		Salvage and subrogation recoverable	(502)		(801)
Salvage and subrogation reinsurance payable (2)	Salvage and subrogation reinsurance payable (2)	2		16		Salvage and subrogation reinsurance payable (2)	1		16
Salvage and subrogation recoverable, net	Salvage and subrogation recoverable, net	(527)		(785)		Salvage and subrogation recoverable, net	(501)		(785)
Net reserve (salvage)	Net reserve (salvage)	$	188	$	79	Net reserve (salvage)	$	212	$	79

____________________

(1) Reported in “other assets” on the condensed consolidated balance sheets.

(2) Reported in “other liabilities” on the condensed consolidated balance sheets.

The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed. Expected loss to be paid (recovered) for financial guaranty insurance contracts differs from expected loss to be expensed due to: (i) the contra-paid, which represents the claim payments made and recoveries received that have not yet been recognized in the statements of ~~operations,~~operations; (ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

~~(and~~ (and therefore recognized in income but not yet received),; and (iii) loss reserves that have already been established (and therefore expensed but not yet paid).

Reconciliation of Net Expected Loss to be Paid (Recovered)

to Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts


	As of ~~March 31,~~June 30, 2022
	(in millions)
Net expected loss to be paid (recovered) - financial guaranty insurance	$	~~383~~400
Contra-paid, net	2119
Salvage and subrogation recoverable	~~527~~501
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	~~(710)~~(708)
Net expected loss to be expensed (present value)	$	~~221~~212

The following table provides a schedule of the expected timing of net expected losses to be expensed. The amount and timing of actual loss and LAE may differ from the estimates shown below due to factors such as accelerations, commutations, changes in expected lives and updates to loss estimates. This table excludes amounts related to FG VIEs, which are eliminated in consolidation.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts


		As of March 31, 2022			As of June 30, 2022
		(in millions)			(in millions)
2022 (April 1 - June 30)		$	5
2022 (July 1 - September 30)	2022 (July 1 - September 30)	5		2022 (July 1 - September 30)	$	4
2022 (October 1 - December 31)	2022 (October 1 - December 31)	5		2022 (October 1 - December 31)	5
Subtotal 2022	Subtotal 2022	15		Subtotal 2022	9
2023	2023	19		2023	18
2024	2024	18		2024	17
2025	2025	17		2025	16
2026	2026	20		2026	19
2027-2031	2027-2031	73		2027-2031	72
2032-2036	2032-2036	47		2032-2036	48
2037-2041	2037-2041	9		2037-2041	10
After 2041	After 2041	3		After 2041	3
Net expected loss to be expensed	Net expected loss to be expensed	221		Net expected loss to be expensed	212
Future accretion	Future accretion	167		Future accretion	216
Total expected future loss and LAE	Total expected future loss and LAE	$	388	Total expected future loss and LAE	$	428

The following table presents the loss and LAE reported in the condensed consolidated statements of operations by sector for insurance contracts. Amounts presented are net of reinsurance.

Loss and LAE (Benefit) by Sector


	Second Quarter				Six Months
Sector	2022		2021		2022		2021
	(in millions)
Public finance:
U.S. public finance	11		4		$	66	$	30
Non-U.S. public finance	—		(1)		—		(9)
Public finance	11		3		66		21
Structured finance:
U.S. RMBS	(22)		(18)		$	(19)	$	(6)
Other structured finance	—		(1)		(1)		(1)
Structured finance	(22)		(19)		(20)		(7)
Loss and LAE (Benefit)	$	(11)	$	(16)	$	46	$	14

The largest component of the U.S. public finance loss expense was Puerto Rico exposures for all periods presented. The difference between public finance loss expense and economic benefit in six months 2022 was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses. The benefit in U.S. RMBS in all periods presented is primarily related to second lien transactions. For additional information on the expected timing of net expected losses to be expensed see Note 4, Expected Loss to be Paid (Recovered).

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~Loss and LAE by Sector~~

First Quarter
Sector 2022 2021
(in millions)
Public finance:
U.S. public finance $ 55 $ 26
Non-U.S. public finance — (8)
Public finance 55 18
Structured finance:
U.S. RMBS $ 3 $ 12
Other structured finance (1) —
Structured finance 2 12
Loss and LAE $ 57 $ 30

In each of the years presented, the primary component of U.S. public finance loss and LAE was Puerto Rico exposures. Loss expense is a function of economic loss development, as well as the amortization of unearned premium reserve. In First Quarter 2022, the largest component of loss expense was from the public finance sector, which had loss expense of $55 million primarily attributable to Puerto Rico exposures. The public finance sector also had an economic benefit of $50 million, which was also primarily attributable to Puerto Rico exposures. The difference between public finance loss expense and economic benefit was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.

~~The following tables provide information on financial guaranty insurance contracts categorized as BIG.~~

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of ~~March 31,~~June 30, 2022


		Gross								Net Total BIG			Gross								Net Total BIG
		BIG 1		BIG 2		BIG 3		Total BIG					BIG 1		BIG 2		BIG 3		Total BIG
		(dollars in millions)											(dollars in millions)
Number of risks (1)	Number of risks (1)	108		20		127		255		255		Number of risks (1)	107		20		123		250		250
Remaining weighted-average period (in years)	Remaining weighted-average period (in years)	7.6		7.9		8.3		8.1		8.1		Remaining weighted-average period (in years)	8.0		7.8		8.2		8.1		8.1

Outstanding exposure:	Outstanding exposure:											Outstanding exposure:
Par	Par	$	2,035	$	225	$	3,347	$	5,607	$	5,579	Par	$	1,822	$	234	$	3,298	$	5,354	$	5,327
Interest	Interest	867		41		1,173		2,081		2,077		Interest	752		60		1,227		2,039		2,035
Total (2)	Total (2)	$	2,902	$	266	$	4,520	$	7,688	$	7,656	Total (2)	$	2,574	$	294	$	4,525	$	7,393	$	7,362

Expected cash outflows (inflows)	Expected cash outflows (inflows)	$	72	$	68	$	3,326	$	3,466	$	3,453	Expected cash outflows (inflows)	$	64	$	68	$	3,396	$	3,528	$	3,515
Potential recoveries (3)	Potential recoveries (3)	(394)		(48)		(2,473)		(2,915)		(2,903)		Potential recoveries (3)	(381)		(38)		(2,492)		(2,911)		(2,899)
Subtotal	Subtotal	(322)		20		853		551		550		Subtotal	(317)		30		904		617		616
Discount	Discount	24		(3)		(189)		(168)		(167)		Discount	30		(6)		(240)		(216)		(216)
Expected losses to be paid (recovered)	Expected losses to be paid (recovered)	$	(298)	$	17	$	664	$	383	$	383	Expected losses to be paid (recovered)	$	(287)	$	24	$	664	$	401	$	400

Deferred premium revenue	Deferred premium revenue	$	71	$	9	$	235	$	315	$	313	Deferred premium revenue	$	60	$	12	$	226	$	298	$	296
Reserves (salvage)	Reserves (salvage)	$	(317)	$	15	$	484	$	182	$	183	Reserves (salvage)	$	(303)	$	19	$	491	$	207	$	207

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2021


	Gross								Net Total BIG
	BIG 1		BIG 2		BIG 3		Total BIG
	(dollars in millions)
Number of risks (1)	117		16		129		262		262
Remaining weighted-average period (in years)	7.6		8.9		8.9		8.5		8.5

Outstanding exposure:
Par	$	2,437	$	177	$	4,745	$	7,359	$	7,293
Interest	1,000		36		1,942		2,978		2,962
Total (2)	$	3,437	$	213	$	6,687	$	10,337	$	10,255

Expected cash outflows (inflows)	$	111	$	40	$	4,820	$	4,971	$	4,918
Potential recoveries (3)	(656)		(10)		(3,829)		(4,495)		(4,430)
Subtotal	(545)		30		991		476		488
Discount	19		(3)		(145)		(129)		(129)
Expected losses to be paid (recovered)	$	(526)	$	27	$	846	$	347	$	359

Deferred premium revenue	$	85	$	2	$	350	$	437	$	435
Reserves (salvage)	$	(549)	$	25	$	584	$	60	$	74

____________________

(1) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.

(2)Includes amounts related to FG VIEs.

(3)Represents expected inflows ~~for~~from future payments by obligors pursuant to restructuring agreements, settlements, excess spread on any underlying collateral and other estimated recoveries. Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

6. Contracts Accounted for as Credit Derivatives

The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives, and FG VIEs. Amounts presented in this note relate only to contracts accounted for as derivatives. See Note 5, Contracts Accounted for as Insurance for amounts that relate to contracts accounted for as insurance and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that relate to contracts that are accounted for as FG VIEs. The Company’s credit derivatives (financial guaranty contracts that meet the definition of a derivative in accordance with GAAP) are primarily CDS and also include interest rate swaps.

Credit derivative transactions are governed by International Swaps and Derivatives Association, Inc. documentation and have certain characteristics that differ from financial guaranty insurance contracts. For example, the Company’s control rights with respect to a reference obligation under a credit derivative may be more limited than when the Company issues a financial guaranty insurance contract. In addition, there are more circumstances under which the Company may be obligated to make payments. Similar to a financial guaranty insurance contract, the Company would be obligated to pay if the obligor failed to make a scheduled payment of principal or interest in full. ~~However,~~In certain transactions the Company ~~may~~ also ~~be required~~specifically agreed to pay if the obligor ~~becomes~~were to become bankrupt or if the reference obligation were ~~restructured if, after negotiation, those credit events are specified in the documentation for the credit derivative transactions.~~restructured. Furthermore, the Company may be required to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the non-defaulting or the non-affected party, which may be either the Company or the counterparty, depending upon the circumstances, may decide to terminate a credit derivative prior to maturity. In that case, the Company may be required to make a termination payment to its swap counterparty upon such termination. Absent such an event of default or termination event, the Company may not unilaterally terminate a CDS contract; however, the Company on occasion has mutually agreed with various counterparties to terminate certain CDS transactions.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

The components of the Company’s credit derivative net par outstanding by sector are presented in the table below. The estimated remaining weighted average life of credit derivatives was ~~13.4~~13.3 years and 13.2 years as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

Credit Derivatives (1)


		As of March 31, 2022				As of December 31, 2021					As of June 30, 2022				As of December 31, 2021
Sector	Sector	Net Par Outstanding		Net Fair Value Asset (Liability)		Net Par Outstanding		Net Fair Value Asset (Liability)		Sector	Net Par Outstanding		Net Fair Value Asset (Liability)		Net Par Outstanding		Net Fair Value Asset (Liability)
		(in millions)									(in millions)
U.S. public finance	U.S. public finance	$	1,487	$	(81)	$	1,705	$	(72)	U.S. public finance	$	1,348	$	(80)	$	1,705	$	(72)
Non-U.S. public finance	Non-U.S. public finance	1,586		(46)		1,800		(48)		Non-U.S. public finance	1,476		(42)		1,800		(48)
U.S. structured finance	U.S. structured finance	370		(27)		400		(32)		U.S. structured finance	355		(22)		400		(32)
Non-U.S. structured finance	Non-U.S. structured finance	131		(2)		135		(2)		Non-U.S. structured finance	122		(3)		135		(2)
Total	Total	$	3,574	$	(156)	$	4,040	$	(154)	Total	$	3,301	$	(147)	$	4,040	$	(154)

____________________

(1) Expected loss to be paid was $6$5 million as of ~~March 31,~~both June 30, 2022 and ~~$5 million as of~~ December 31, 2021.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating


		As of March 31, 2022				As of December 31, 2021					As of June 30, 2022				As of December 31, 2021
Rating Category	Rating Category	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total		Rating Category	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total
		(dollars in millions)									(dollars in millions)
AAA	AAA	$	1,359	38.0	%	$	1,503	37.2	%	AAA	$	1,317	39.9	%	$	1,503	37.2	%
AA	AA	1,217		34.1		1,283		31.8		AA	1,116		33.8		1,283		31.8
A	A	407		11.4		514		12.7		A	329		10.0		514		12.7
BBB	BBB	531		14.8		677		16.7		BBB	480		14.5		677		16.7
BIG	BIG	60		1.7		63		1.6		BIG	59		1.8		63		1.6
Credit derivative net par outstanding	Credit derivative net par outstanding	$	3,574	100.0	%	$	4,040	100.0	%	Credit derivative net par outstanding	$	3,301	100.0	%	$	4,040	100.0	%

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value Gains (Losses) on Credit Derivatives


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Realized gains (losses) and other settlements	Realized gains (losses) and other settlements	$	(1)	$	1	Realized gains (losses) and other settlements	$	—	$	2	$	(1)	$	3
Net unrealized gains (losses)	Net unrealized gains (losses)	(2)		(20)		Net unrealized gains (losses)	9		(35)		7		(55)
Fair value gains (losses) on credit derivatives	Fair value gains (losses) on credit derivatives	$	(3)	$	(19)	Fair value gains (losses) on credit derivatives	$	9	$	(33)	$	6	$	(52)

During ~~First Quarter~~second quarter 2022, unrealized ~~fair value losses~~gains were generated primarily as a result of ~~increases in the credit spread of underlying reference obligations, offset in part by~~ the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the ~~period.~~period, and changes in discount rates. These gains were partially offset by an increase in the credit spread of certain underlying reference obligations. For those CDS transactions that were pricing at or above their floor levels, when the cost of purchasing CDS protection on AGC, which management refers to as the CDS spread on AGC, increased, the implied spreads that the Company (or another comparable entity) would expect to receive on these transactions ~~all else being held equal,~~ decreased.

During ~~First Quarter~~second quarter 2021, unrealized ~~fair value~~ losses were generated primarily as a result of the decreased cost to buy protection on AGC, as the market cost of AGC’s credit protection decreased during the period. These losses were partially offset by general price improvements of the underlying collateral.

During six months 2022, unrealized gains were generated primarily as a result of the increased cost to buy protection on AGC and changes in discount rates. These gains were partially offset by an increase in the credit spread of certain underlying reference obligations.

During six months 2021, unrealized losses were generated primarily as a result of wider implied net spreads driven by the decreased market cost to buy protection in AGC’s name during the period. These losses were partially offset by general asset price improvement of the underlying collateral.

The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time these fair values are determined. In addition, since each transaction has unique collateral and structural terms, the change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts also reflects the Company’s own credit cost based on the price to purchase credit protection on AGC. The Company determines its own credit risk primarily based on quoted CDS prices traded on AGC at each balance sheet date.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

CDS Spread on AGC (in basis points)


		As of March 31, 2022	As of December 31, 2021	As of March 31, 2021	As of December 31, 2020		As of June 30, 2022	As of December 31, 2021	As of June 30, 2021	As of December 31, 2020
Five-year CDS spread	Five-year CDS spread	71	49	97	132	Five-year CDS spread	103	49	62	132
One-year CDS spread	One-year CDS spread	26	16	19	36	One-year CDS spread	41	16	16	36

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC Credit Spread


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(in millions)					(in millions)
Fair value of credit derivatives before effect of AGC credit spread	Fair value of credit derivatives before effect of AGC credit spread	$	(229)	$	(225)	Fair value of credit derivatives before effect of AGC credit spread	$	(223)	$	(225)
Plus: Effect of AGC credit spread	Plus: Effect of AGC credit spread	73		71		Plus: Effect of AGC credit spread	76		71
Net fair value of credit derivatives	Net fair value of credit derivatives	$	(156)	$	(154)	Net fair value of credit derivatives	$	(147)	$	(154)

The fair value of CDS contracts as of ~~March 31,~~June 30, 2022, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

7. Investments

Investment Portfolio

The investment portfolio consists of both externally and internally managed portfolios. The majority of the investment portfolio is managed by 3 outside managers and AssuredIM, for which the Company has established investment guidelines regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector.

The internally managed portfolio primarily consists of the Company’s investments in: (i) securities acquired for loss mitigation purposes; (ii) securities managed under an Investment Management Agreement (IMA) with AssuredIM; (iii) new recovery bonds and CVIs received in connection with the consummation of the March Puerto Rico Resolutions and (iv) other investments including certain fixed-maturity and short-term securities, and equity method investments. Equity method investments primarily consist of generally less liquid alternative investments including: an investment in renewable and clean energy and private equity funds. The Company had unfunded commitments of $96 million as of ~~March 31,~~June 30, 2022 related to certain of the Company’s alternative ~~investments.~~investments other than AssuredIM Funds.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Investment Portfolio

Carrying Value


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(in millions)					(in millions)
Fixed-maturity securities, available-for-sale (1):	Fixed-maturity securities, available-for-sale (1):					Fixed-maturity securities, available-for-sale (1):
Externally managed	Externally managed	$	6,316	$	6,843	Externally managed	$	5,894	$	6,843
Loss mitigation securities and other	Loss mitigation securities and other	789		818		Loss mitigation securities and other	735		818
AssuredIM managed	AssuredIM managed	537		541		AssuredIM managed	526		541
Fixed-maturity securities - Puerto Rico (2)	Fixed-maturity securities - Puerto Rico (2)	514		—		Fixed-maturity securities - Puerto Rico (2)	241		—
Fixed-maturity securities - Puerto Rico, trading (3)	Fixed-maturity securities - Puerto Rico, trading (3)	174		—		Fixed-maturity securities - Puerto Rico, trading (3)	87		—
Short-term investments (4)	Short-term investments (4)	585		1,225		Short-term investments (4)	863		1,225
Other invested assets:	Other invested assets:					Other invested assets:
Equity method investments	Equity method investments	145		169		Equity method investments	140		169
Other	Other	7		12		Other	10		12
Total	Total	$	9,067	$	9,608	Total	$	8,496	$	9,608

____________________

(1) ~~7.3%~~7.4% and 7.5% of fixed-maturity securities were rated BIG as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, consisting primarily of loss mitigation securities. ~~7.2%~~4.1% and 0.9% were not rated, as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

(2) Represents new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions. These securities are not rated.

(3) Represents CVIs received in connection with the consummation of the March Puerto Rico Resolutions. These securities are not rated.

(4) Weighted average credit rating of AAA as of both ~~March 31,~~June 30, 2022 and December 31, 2021, based on the lower of the Moody’s Investors Service, Inc. (Moody’s) and S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P) classifications.

The U.S. Insurance Subsidiaries, through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $750 million in AssuredIM Funds. Adding inception-to-date distributed gains, the U.S. Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds through AGAS. As of ~~March 31,~~June 30, 2022, the U.S. Insurance Subsidiaries had total commitments to AssuredIM Funds of ~~$702~~$757 million, of which ~~$473~~$516 million represented net invested capital and ~~$229~~$241 million was undrawn. This capital was committed to several funds, each dedicated to a single strategy, including CLOs, asset-based finance, healthcare structured capital and municipal bonds. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the fair value of AGAS’ interest in AssuredIM Funds was ~~$559~~$549 million and $543 million, respectively.

AssuredIM Funds, in which AGAS (primarily) and other subsidiaries invest, and where the Company has been deemed to be the primary beneficiary, are not reported in “investments” on the condensed consolidated balance sheets, but rather, such AssuredIM Funds are consolidated and reported in “assets of consolidated investment vehicles” and “liabilities of consolidated

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

investment vehicles”, with the portion not owned by AGAS and other subsidiaries presented as either redeemable or non-redeemable non-controlling interests. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

Accrued investment income, which is recorded in “other assets,” was ~~$77~~$74 million as of ~~March 31,~~June 30, 2022 and $69 million as of December 31, 2021. In ~~First Quarter~~six months 2022 and ~~First Quarter~~six months 2021, the Company did not write off any accrued investment income.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Available-for-Sale Fixed-Maturity Securities by Security Type

As of ~~March 31,~~June 30, 2022


Security Type	Security Type	Percent of Total (1)		Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		AOCI (5) Pre-tax Gain (Loss) on Securities with Credit Loss		Weighted Average Credit Rating (2)	Security Type	Percent of Total (1)		Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		AOCI (5) Pre-tax Gain (Loss) on Securities with Credit Loss		Weighted Average Credit Rating (2)
		(dollars in millions)																(dollars in millions)
Obligations of state and political subdivisions	Obligations of state and political subdivisions	47	%	$	3,893	$	(13)	$	115	$	(54)	$	3,941	$	(3)	A	Obligations of state and political subdivisions	45	%	$	3,542	$	(14)	$	57	$	(101)	$	3,484	$	(5)	A+
U.S. government and agencies	U.S. government and agencies	2		122		—		5		(5)		122		—		AA+	U.S. government and agencies	2		122		—		3		(6)		119		—		AA+
Corporate securities (3)	Corporate securities (3)	30		2,469		(5)		26		(102)		2,388		(44)		A	Corporate securities (3)	31		2,434		(4)		3		(239)		2,194		(78)		A
Mortgage-backed securities (4):	Mortgage-backed securities (4):																Mortgage-backed securities (4):
RMBS	RMBS	5		437		(18)		10		(29)		400		(28)		BBB+	RMBS	5		419		(15)		5		(40)		369		(35)		BBB+
Commercial mortgage-backed securities (CMBS)	Commercial mortgage-backed securities (CMBS)	4		321		—		2		(1)		322		—		AAA	Commercial mortgage-backed securities (CMBS)	4		303		—		—		(5)		298		—		AAA
Asset-backed securities:	Asset-backed securities:																Asset-backed securities:
CLOs	CLOs	5		440		—		—		(3)		437		—		A+	CLOs	6		442		—		—		(21)		421		—		A+
Other	Other	5		422		(11)		22		(3)		430		(2)		CCC+	Other	5		419		(18)		20		(13)		408		(12)		CCC+
Non-U.S. government securities	Non-U.S. government securities	2		123		—		—		(7)		116		(1)		AA-	Non-U.S. government securities	2		122		—		—		(19)		103		(2)		AA-
Total available-for-sale fixed-maturity securities	Total available-for-sale fixed-maturity securities	100	%	$	8,227	$	(47)	$	180	$	(204)	$	8,156	$	(78)	A-	Total available-for-sale fixed-maturity securities	100	%	$	7,803	$	(51)	$	88	$	(444)	$	7,396	$	(132)	A

4144

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Available-for-Sale Fixed-Maturity Securities by Security Type

As of December 31, 2021


Security Type	Percent of Total (1)		Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		AOCI Pre-tax Gain (Loss) on Securities with Credit Loss		Weighted Average Credit Rating (2)
	(dollars in millions)
Obligations of state and political subdivisions	43	%	$	3,386	$	(12)	$	290	$	(4)	$	3,660	$	—	AA-
U.S. government and agencies	2		123		—		7		(2)		128		—		AA+
Corporate securities (3)	32		2,516		(1)		111		(21)		2,605		(4)		A
Mortgage-backed securities (4):
RMBS	6		454		(17)		24		(24)		437		(24)		BBB+
CMBS	4		332		—		14		—		346		—		AAA
Asset-backed securities:
CLOs	6		457		—		1		—		458		—		AA-
Other	5		420		(12)		26		(2)		432		(2)		CCC+
Non-U.S. government securities	2		134		—		5		(3)		136		—		AA-
Total available-for-sale fixed-maturity securities	100	%	$	7,822	$	(42)	$	478	$	(56)	$	8,202	$	(30)	A+

____________________

(1)Based on amortized cost.

(2)Ratings represent the lower of the Moody’s and S&P classifications, except for loss mitigation and certain other securities, which use internal ratings classifications. The Company’s portfolio primarily consists of high-quality, liquid instruments. New recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions are not rated.

(3)Includes securities issued by taxable universities and hospitals.

(4)U.S. government-agency obligations were approximately ~~30%~~31% of mortgage-backed securities as of ~~March 31,~~both June 30, 2022 ~~and 31% as of~~ December 31, 2021 based on fair value.

(5)Accumulated other comprehensive income (AOCI).

4245

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Gross Unrealized Loss by Length of Time

for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded

As of ~~March 31,~~June 30, 2022


		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
		(dollars in millions)													(dollars in millions)
Obligations of state and political subdivisions	Obligations of state and political subdivisions	$	849	$	(47)	$	28	$	(4)	$	877	$	(51)	Obligations of state and political subdivisions	$	1,398	$	(91)	$	16	$	(5)	$	1,414	$	(96)
U.S. government and agencies	U.S. government and agencies	26		(1)		32		(4)		58		(5)		U.S. government and agencies	40		(1)		38		(5)		78		(6)
Corporate securities	Corporate securities	825		(50)		49		(8)		874		(58)		Corporate securities	1,510		(138)		92		(23)		1,602		(161)
Mortgage-backed securities:	Mortgage-backed securities:													Mortgage-backed securities:
RMBS	RMBS	74		(1)		—		—		74		(1)		RMBS	149		(5)		1		—		150		(5)
CMBS	CMBS	100		(1)		—		—		100		(1)		CMBS	275		(5)		—		—		275		(5)
Asset-backed securities:	Asset-backed securities:													Asset-backed securities:
CLOs	CLOs	327		(3)		54		—		381		(3)		CLOs	312		(15)		107		(6)		419		(21)
Other	Other	17		(1)		—		—		17		(1)		Other	22		(1)		—		—		22		(1)
Non-U.S. government securities	Non-U.S. government securities	82		(4)		12		(2)		94		(6)		Non-U.S. government securities	88		(12)		13		(5)		101		(17)
Total	Total	$	2,300	$	(108)	$	175	$	(18)	$	2,475	$	(126)	Total	$	3,794	$	(268)	$	267	$	(44)	$	4,061	$	(312)
Number of securities (1)	Number of securities (1)			740				81				814		Number of securities (1)			1,353				115				1,455

Gross Unrealized Loss by Length of Time

for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded

As of December 31, 2021


	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(dollars in millions)
Obligations of state and political subdivisions	$	117	$	(3)	$	10	$	(1)	$	127	$	(4)
U.S. government and agencies	26		—		32		(2)		58		(2)
Corporate securities	407		(12)		70		(5)		477		(17)
Mortgage-backed securities:
RMBS	4		—		—		—		4		—
Asset-backed securities:
CLOs	226		—		—		—		226		—
Non-U.S. government securities	24		(2)		8		(1)		32		(3)
Total	$	804	$	(17)	$	120	$	(9)	$	924	$	(26)
Number of securities (1)			355				60				410

___________________

(1) The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.

The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company has determined that the unrealized losses recorded as of ~~March 31,~~June 30, 2022 and December 31, 2021 were not related to credit quality, and in the case of ~~First Quarter~~six months 2022, primarily attributable to rising interest rates. In addition, as of ~~March 31,~~June 30, 2022 the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value. As of ~~March 31,~~June 30, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, ~~187~~435 securities had ~~unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2021, 23 securities had unrealized~~

4346

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2021, 23 securities had unrealized losses in excess of 10% of their carrying value. The total unrealized loss for these securities was ~~$56~~$211 million as of ~~March 31,~~June 30, 2022 and $6 million as of December 31, 2021.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of ~~March 31,~~June 30, 2022 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity

As of ~~March 31,~~June 30, 2022


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
		(in millions)					(in millions)
Due within one year	Due within one year	$	202	$	203	Due within one year	$	186	$	184
Due after one year through five years	Due after one year through five years	1,956		1,948		Due after one year through five years	1,902		1,815
Due after five years through 10 years	Due after five years through 10 years	1,869		1,853		Due after five years through 10 years	1,739		1,656
Due after 10 years	Due after 10 years	3,442		3,430		Due after 10 years	3,254		3,074
Mortgage-backed securities:	Mortgage-backed securities:					Mortgage-backed securities:
RMBS	RMBS	437		400		RMBS	419		369
CMBS	CMBS	321		322		CMBS	303		298
Total	Total	$	8,227	$	8,156	Total	$	7,803	$	7,396

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled ~~$229~~$217 million as of ~~March 31,~~June 30, 2022 and $243 million as of December 31, 2021. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements, in the amounts of ~~$1,160~~$1,149 million and $1,231 million, based on fair value as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

Income from Investment Portfolio

Net investment income is a function of the yield that the Company earns on available-for-sale fixed-maturity securities and short-term investments, and the size of such portfolio. The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the securities in this portfolio.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Income from Investment Portfolio


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Investment income:	Investment income:					Investment income:
Externally managed	Externally managed	$	48	$	51	Externally managed	$	47	$	52	$	95	$	103
Loss mitigation securities and other	Loss mitigation securities and other	11		16		Loss mitigation securities and other	12		14		23		30
Managed by AssuredIM (1)	Managed by AssuredIM (1)	4		4		Managed by AssuredIM (1)	5		4		9		8
Investment income	Investment income	63		71		Investment income	64		70		127		141
Investment expenses	Investment expenses	(1)		(1)		Investment expenses	(2)		(2)		(3)		(3)
Net investment income	Net investment income	$	62	$	70	Net investment income	$	62	$	68	$	124	$	138

Unrealized gain (loss) on trading securities (2)		$	(4)	$	—
Fair value gains (losses) on trading securities (2)						Fair value gains (losses) on trading securities (2)	$	(18)	$	—	$	(22)	$	—
Equity in earnings (losses) of investees (3)	Equity in earnings (losses) of investees (3)	$	(11)	$	9	Equity in earnings (losses) of investees (3)	$	—	$	34	$	(11)	$	43

____________________

(1) Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.

(2) ~~Reported in “other income (loss)”. First Quarter 2022 amount relates~~Fair value losses on trading securities pertaining to securities still held as of ~~March 31,~~June 30, 2022 were $12 million for second quarter 2022 and $16 million for six months 2022.

(3) ~~First Quarter 2022 includes $3 million related to fair~~Fair value gains on investments where the fair value option (FVO) was elected utilizing the net asset value (NAV), as a practical ~~expedient.~~expedient were $3 million in six months 2022 and $26 million in both second quarter 2021 and six months 2021. In addition, the Company received $5 million for six months 2022 in dividends related to the same investment. ~~Fair value losses in First Quarter 2021 were de minimis.~~

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses). Realized gains and losses on sales of investments are determined using the specific identification method.

Net Realized Investment Gains (Losses)


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Gross realized gains on sales available-for-sale securities	Gross realized gains on sales available-for-sale securities	$	—	$	1	Gross realized gains on sales available-for-sale securities	$	—	$	1	$	—	$	2
Gross realized losses on sales available-for-sale securities(1)	Gross realized losses on sales available-for-sale securities(1)	(2)		(2)		Gross realized losses on sales available-for-sale securities(1)	(21)		—		(23)		(2)
Net foreign currency gains (losses)	Net foreign currency gains (losses)	—		1		Net foreign currency gains (losses)	(3)		1		(3)		2
Change in credit impairment and intent to sell	Change in credit impairment and intent to sell	(5)		(4)		Change in credit impairment and intent to sell	(4)		—		(9)		(4)
Other net realized gains (losses) ~~(1)~~(2)	Other net realized gains (losses) ~~(1)~~(2)	10		1		Other net realized gains (losses) ~~(1)~~(2)	—		2		10		3
Net realized investment gains (losses)	Net realized investment gains (losses)	$	3	$	(3)	Net realized investment gains (losses)	$	(28)	$	4	$	(25)	$	1

____________________

(1) Second quarter 2022 and six months 2022 related primarily to sales of bonds received as part of the March Puerto Rico Resolutions.

(2) Net realized gains in ~~First Quarter~~six months 2022 related primarily to the sale of one of the Company’s alternative investments.

The proceeds from sales of fixed-maturity securities classified as available-for-sale were $296 million in second quarter 2022, $106 million in second quarter 2021, $353 million in six months 2022 and $226 million in six months 2021.

The following table presents the roll forward of the credit losses on available-for-sale fixed-maturity securities for which the Company has recognized an allowance for credit losses in 2022 and 2021.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Credit Losses for Available-for-Sale Fixed-Maturity Securities


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Balance, beginning of period	Balance, beginning of period	$	42	$	78	Balance, beginning of period	$	47	$	81	$	42	$	78
Additions for securities for which credit impairments were not previously recognized	Additions for securities for which credit impairments were not previously recognized	4		1		Additions for securities for which credit impairments were not previously recognized	—		—		4		1
Additions (reductions) for credit losses on securities for which credit impairments were previously recognized	Additions (reductions) for credit losses on securities for which credit impairments were previously recognized	1		2		Additions (reductions) for credit losses on securities for which credit impairments were previously recognized	4		—		5		2
Reductions for securities sold and other settlements (1)						Reductions for securities sold and other settlements (1)	—		(42)		—		(42)
Balance, end of period	Balance, end of period	$	47	$	81	Balance, end of period	$	51	$	39	$	51	$	39

(1) Primarily attributable to the sale of a security with a $42 million credit allowance in second quarter 2021.

The Company recorded credit loss expenses of $5$4 million, ~~in First Quarter 2022~~$9 million and $3 million in ~~First Quarter 2021.~~second quarter 2022, six months 2022, and six months 2021, respectively. The Company did not purchase any securities with credit deterioration during the periods presented. Most of the Company’s securities with credit deterioration are loss mitigation securities.

8. Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles

FG VIEs

Structured Finance and Other FG VIEs

The insurance subsidiaries provide financial guaranties with respect to debt obligations of special purpose entities, including VIEs, but do not act as the servicer or collateral manager for any VIE obligations they guarantee. The transaction structure generally provides certain financial protection to the insurance subsidiaries. This financial protection can take several forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread. In the case of overcollateralization (i.e., the principal amount of the securitized assets exceeds the principal amount of the structured finance obligations), the structure allows defaults of the securitized assets before a default is experienced on the structured finance obligation guaranteed by the insurance subsidiaries. In the case of first loss, the insurance subsidiaries’ financial guaranty insurance policy only covers a senior layer of losses experienced by multiple obligations issued by the VIEs. The first loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors. In the case of excess spread, the financial assets contributed to VIEs generate interest income that is in excess of the interest payments on the debt issued by the VIE. Such excess spread is typically distributed through the transaction’s cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the VIE (thereby, creating additional overcollateralization), or distributed to equity or other investors in the transaction.

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~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

The insurance subsidiaries are not primarily liable for the debt obligations issued by the structured finance and other FG VIEs (which excludes the Puerto Rico Trusts described below) they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall. AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the structured finance and other FG VIEs. Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on structured finance and other FG VIEs’ liabilities.

As part of the terms of its financial guaranty contracts, the insurance subsidiaries, under their insurance contracts, obtain certain protective rights with respect to the VIE that give them additional controls over a VIE. These protective rights are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager’s financial condition. At deal inception, the insurance subsidiaries typically are not deemed to control the VIE; however, once a trigger event occurs, the insurance subsidiaries’ control of the VIE typically increases. The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the insurance subsidiaries and, accordingly, where they are obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE. The insurance subsidiaries are deemed to be the control party for certain VIEs under GAAP, typically when their protective rights give them the power to both terminate and replace the transaction’s servicer or collateral manager, which are characteristics specific to the Company’s financial guaranty contracts. If the protective rights that could make the insurance subsidiaries the control party have not been

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

triggered, then the VIE is not consolidated. If the insurance subsidiaries are deemed no longer to have those protective rights, the VIE is deconsolidated.

The structured finance and other FG VIEs’ liabilities that are guaranteed by the insurance subsidiaries are considered to be with recourse, because the insurance subsidiaries guarantee the payment of principal and interest regardless of the performance of the related FG VIEs’ assets. The structured finance and other FG VIEs’ liabilities that are not guaranteed by the insurance subsidiaries are considered to be without recourse, because the payment of principal and interest of these liabilities is wholly dependent on the performance of the FG VIEs’ assets.

The Company has elected the ~~fair value option~~FVO for all assets and all liabilities of the structured finance and other FG VIEs. The change in fair value of all structured finance and other FG VIEs assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for the change in fair value attributable to change in instrument-specific credit risk (ISCR) on the structured finance and other FG VIE liabilities, which is reported in other comprehensive income (OCI). As of ~~March 31,~~both June 30, 2022 and December 31, 2021, the Company consolidated ~~26 and~~ 25 structured finance and other FG VIEs, respectively. During six months 2022, 1 FG VIE was consolidated and 1 FG VIE was deconsolidated. During six months 2021, 1 FG VIE was deconsolidated. There were no other consolidations or deconsolidations for the periods presented.

Puerto Rico Trusts

~~In First Quarter~~As of June 30, 2022, the Company consolidated 9 custodial trusts established as part of the GO/PBA Plan (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposures to Puerto Rico. With respect to certain insured securities covered by the GO/PBA Plan, insured bondholders were permitted to elect 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 this 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. The Company consolidated the Puerto Rico Trusts as its insurance subsidiaries are deemed to be the primary beneficiary given their power to collapse these trusts.

The assets within the Puerto Rico Trusts are classified as follows: new recovery bonds and certain trust certificates as available-for-sale securities ($4534 million fair value, ~~$48~~$37 million amortized cost as of ~~March 31,~~June 30, 2022), and CVIs as trading securities ($87 million fair value as of ~~March 31,~~June 30, 2022, ~~de minimis unrealized gains~~$1 million fair value losses on trading securities for ~~the First Quarter~~both second quarter 2022 and six months 2022). The new recovery bonds, CVIs, and trust certificates have maturity dates ranging from ~~2022~~2023 to ~~2046.~~2049. For the measurement of liabilities of the Puerto Rico Trusts, the Company elected the ~~fair value option~~FVO in order to simplify the accounting for these instruments.

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Investment income on the new recovery bonds, ~~and trust certificates,~~ unrealized gains and losses on the CVIs and the change in fair value of the Puerto Rico Trusts’ liabilities, which are all with recourse, are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of ~~operations.~~operations, except for the change in fair value attributable to change in ISCR on the Puerto Rico Trusts’ liabilities, which is reported in OCI. Unrealized gains and losses on the new recovery bonds and trust certificates are reported in OCI. During ~~First Quarter~~six months 2022, the consolidation of the 9 Puerto Rico Trusts resulted in a $4 million loss on consolidation, which was also reported in “fair value gains (losses) on FG VIEs.”

Components of FG VIE Assets and Liabilities

Net fair value gains and losses on FG VIEs are expected to reverse to zero by maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by the insurance subsidiaries under the financial guaranty insurance contract. The Company’s estimate of expected loss to be paid (recovered) for FG VIEs is included in Note 4, Expected Loss to be Paid (Recovered).

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The table below shows the carrying value of all of the consolidated FG VIEs’ assets and liabilities in the condensed consolidated balance sheets, segregated by the types of assets that collateralize the respective debt obligations for FG VIEs’ liabilities.

Consolidated FG VIEs by Type of Collateral


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(in millions)					(in millions)
FG VIEs’ assets:	FG VIEs’ assets:					FG VIEs’ assets:
U.S. RMBS first lien	U.S. RMBS first lien	$	204	$	221	U.S. RMBS first lien	$	185	$	221
U.S. RMBS second lien	U.S. RMBS second lien	35		39		U.S. RMBS second lien	38		39
Puerto Rico securities	Puerto Rico securities	53		—		Puerto Rico securities	41		—
Other		15		—
Total FG VIEs’ assets	Total FG VIEs’ assets	$	307	$	260	Total FG VIEs’ assets	$	264	$	260

FG VIEs’ liabilities with recourse:	FG VIEs’ liabilities with recourse:					FG VIEs’ liabilities with recourse:
U.S. RMBS first lien	U.S. RMBS first lien	$	209	$	227	U.S. RMBS first lien	$	192	$	227
U.S. RMBS second lien	U.S. RMBS second lien	36		42		U.S. RMBS second lien	30		42
Puerto Rico Trust liabilities	Puerto Rico Trust liabilities	56		—		Puerto Rico Trust liabilities	45		—
Other		15		—
Total FG VIEs’ liabilities with recourse	Total FG VIEs’ liabilities with recourse	$	316	$	269	Total FG VIEs’ liabilities with recourse	$	267	$	269

FG VIEs’ liabilities without recourse:	FG VIEs’ liabilities without recourse:					FG VIEs’ liabilities without recourse:
U.S. RMBS first lien	U.S. RMBS first lien	$	19	$	20	U.S. RMBS first lien	$	15	$	20
Total FG VIEs’ liabilities without recourse	Total FG VIEs’ liabilities without recourse	$	19	$	20	Total FG VIEs’ liabilities without recourse	$	15	$	20

The change in the ISCR of the FG VIEs’ assets for which the Company elected the ~~fair value option~~FVO (FG VIE assets at FVO) held as of ~~March 31,~~June 30, 2022 that was reported in the condensed consolidated statements of operations for ~~First Quarter~~second quarter 2022 and six months 2022 was a gain of $1 million and a loss of ~~$5 million.~~$4 million, respectively. The change in the ISCR of the FG VIEs’ assets at FVO held as of ~~March 31,~~June 30, 2021 was a ~~loss~~gain of $3$7 million and $4 million for ~~First Quarter 2021.~~second quarter 2021 and six months 2021, respectively. The ISCR amount is determined by using expected cash flows at the original date of consolidation, discounted at the effective yield, less current expected cash flows discounted at that same original effective yield.

The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse (all of which are measured at fair value under the ~~fair value option)~~FVO) attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period. In general, if the insurance subsidiaries’ CDS spread tightens, more value will be assigned to insurance subsidiaries’ credit; however, if the insurance subsidiaries’ CDS spread widens, less value is assigned to the insurance subsidiaries’ credit.

Selected Information for FG VIEs’ Assets and Liabilities

Measured under the FVO


	As of
	June 30, 2022		December 31, 2021
	(in millions)
Excess of unpaid principal over fair value of:
FG VIEs’ assets	$	264	$	255
FG VIEs’ liabilities with recourse	30		12
FG VIEs’ liabilities without recourse	15		15
Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due	43		52
Unpaid principal for FG VIEs’ liabilities with recourse (1)	297		281

____________________

(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2022 through 2038.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~Selected Information for~~During second quarter 2022, the Company recorded an out-of-period adjustment totaling $7.6 million in pre-tax income and $6.0 million in net income attributable to AGL. The out-of-period adjustment related to the correction of the fair value of FG ~~VIEs Assets~~VIE. In six months 2022, the out-of-period adjustment was $6.6 million in pre-tax income and ~~Liabilities~~

~~Measured under the Fair Value Option~~

As of
March 31, 2022 December 31, 2021
(in millions)
Excess of unpaid principal over fair value of:
FG VIEs’ assets $ 260 $ 255
FG VIEs’ liabilities with recourse 17 12
FG VIEs’ liabilities without recourse 15 15
Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due 47 52
Unpaid principal for FG VIEs’ liabilities with recourse (1)
333 281

~~____________________~~

~~(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2022 through 2038.~~$5.2 million in net income attributable to AGL.

CIVs

CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses in which the Company is the primary beneficiary. The table below summarizes the number of consolidated CIVs by type as of ~~March 31,~~June 30, 2022 and December 31, 2021. As of both dates, the Company consolidated 1 CIV that meets the criteria for a voting interest entity, because the Company possesses substantially all of the economics and all of the decision-making of that CIV.

The Company consolidates investment vehicles when it is deemed to be the primary beneficiary, based on its power to direct the most significant activities of each VIE and its level of economic interest in the entities.

The assets and liabilities of the Company’s CIVs are held within separate legal entities. The assets of the CIVs are not available to creditors of the Company, other than creditors of the applicable CIVs. In addition, creditors of the CIVs have no recourse against the assets of the Company, other than the assets of such applicable CIVs. Liquidity available at the Company’s CIVs is not available for corporate liquidity needs, except to the extent of the Company’s investment in the funds, subject to redemption provisions. Changes in the fair value of assets and liabilities of CIVs, interest income and expense are reported in “fair value gains (losses) on consolidated investment vehicles” in the condensed consolidated statements of operations. Interest income from CLO assets is recorded based on contractual rates.

Number of Consolidated CIVs by Type


		As of			As of
CIV Type	CIV Type	March 31, 2022	December 31, 2021	CIV Type	June 30, 2022	December 31, 2021
Funds	Funds	8	8	Funds	9	8
CLOs	CLOs	9	9	CLOs	10	9
CLO warehouses	CLO warehouses	3	3	CLO warehouses	2	3
Total number of consolidated CIVs	Total number of consolidated CIVs	20	20	Total number of consolidated CIVs	21	20

The table below summarizes the change in the number of consolidated CIVs during each of the periods. During both six months 2022 noand six months 2021, 2 consolidated CLO warehouses were securitized and became CLOs. ~~During 2021, 1 consolidated CLO warehouse became a CLO.~~

Roll Forward of Number of Consolidated CIVs


		First Quarter			Six Months
		2022	2021		2022	2021
Beginning of year	Beginning of year	20	11	Beginning of year	20	11
Consolidated	Consolidated	—	2	Consolidated	2	5
Deconsolidated(1)	Deconsolidated(1)	—	(1)	Deconsolidated(1)	(1)	(1)
March 31,		20	12
June 30,				June 30,	21	15

____________________

(1) During six months 2022 the Company deconsolidated a CLO with assets and liabilities of $417 million.

4852

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Assets and Liabilities of CIVs


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(in millions)					(in millions)
Assets:	Assets:					Assets:
Fund assets:	Fund assets:					Fund assets:
Cash and cash equivalents	Cash and cash equivalents	$	68	$	64	Cash and cash equivalents	$	49	$	64
Fund investments, at fair value	Fund investments, at fair value					Fund investments, at fair value
Equity securities and warrants ~~(1)~~	Equity securities and warrants ~~(1)~~	255		252		Equity securities and warrants ~~(1)~~	394		252
Obligations of state and political subdivisions	Obligations of state and political subdivisions	126		101		Obligations of state and political subdivisions	—		101
Corporate securities	Corporate securities	85		98		Corporate securities	90		98
Structured products ~~(2)~~	Structured products ~~(2)~~	74		62		Structured products ~~(2)~~	127		62
Due from brokers and counterparties	Due from brokers and counterparties	16		49		Due from brokers and counterparties	6		49
Other	Other	1		1		Other	—		1
CLO and CLO warehouse assets:	CLO and CLO warehouse assets:					CLO and CLO warehouse assets:
Cash	Cash	90		156		Cash	76		156
CLO investments:	CLO investments:					CLO investments:
Loans in CLOs, fair value option		3,865		3,913
Loans in CLO warehouses, fair value option		834		331
Loans in CLOs, FVO						Loans in CLOs, FVO	4,160		3,913
Loans in CLO warehouses, FVO						Loans in CLO warehouses, FVO	233		331
Short-term investments, at fair value	Short-term investments, at fair value	165		145		Short-term investments, at fair value	230		145
Due from brokers and counterparties	Due from brokers and counterparties	121		99		Due from brokers and counterparties	91		99
Total assets ~~(3)~~(1)	Total assets ~~(3)~~(1)	$	5,700	$	5,271	Total assets ~~(3)~~(1)	$	5,456	$	5,271
Liabilities:	Liabilities:					Liabilities:
CLO obligations, fair value option (4)		3,598		3,665
Warehouse financing debt, fair value option (5)		339		126
CLO obligations, FVO (2)						CLO obligations, FVO (2)	3,947		3,665
Warehouse financing debt, FVO (3)						Warehouse financing debt, FVO (3)	157		126
Securities sold short, at fair value	Securities sold short, at fair value	36		41		Securities sold short, at fair value	—		41
Due to brokers and counterparties	Due to brokers and counterparties	844		570		Due to brokers and counterparties	424		570
Other liabilities	Other liabilities	37		34		Other liabilities	40		34
Total liabilities	Total liabilities	$	4,854	$	4,436	Total liabilities	$	4,568	$	4,436

____________________

(1) Includes investments in AssuredIM Funds and other affiliated entities of ~~$200~~$358 million and ~~$198~~$223 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

~~(2) Includes investments in affiliated entities of $23 million and $25 million as of March 31, 2022 and December 31, 2021, respectively.~~

~~(3)~~ Includes assets of a voting interest entity as of ~~March 31,~~June 30, 2022 and December 31, 2021 of ~~$17~~$60 million and $12 million, respectively.

~~(4)~~(2) The weighted average maturity of CLO obligations was 6.7 years as of ~~March 31,~~June 30, 2022 and 6.6 years as of December 31, 2021. The weighted average interest rate of CLO obligations was ~~1.9%~~2.8% as of ~~March 31,~~June 30, 2022 and 1.8% as of December 31, 2021. CLO obligations have stated final maturity dates from 2034 to 2035.

~~(5)~~(3) The weighted average maturity of warehouse financing debt of CLO warehouses was ~~0.6~~1.2 years as of ~~March 31,~~June 30, 2022 and 1.8 years as of December 31, 2021. The weighted average interest rate of warehouse financing debt of CLO warehouses was ~~1.3%~~1.0% as of ~~March 31,~~June 30, 2022 and 1.1% as of December 31, 2021. Warehouse financing debt will mature at various dates from 2023 to 2024.

The Company has an investment structure, where it invests with other co-investors in a municipal bond feeder fund. In this structure, the invested capital of one or more feeder funds purchases ownership interests in another fund, referred to as a master fund. The master fund utilizes this invested capital and, in certain cases, other debt financing, to purchase various classes of assets on behalf of its investors. The master fund’s investment objective is to generate attractive risk adjusted absolute returns by investing in municipal bonds, both investment grade and high-yield, taxable and tax-exempt as well as related investment and derivative products to hedge interest rate risk.

The Company consolidates the feeder fund, a VIE. The feeder fund does not consolidate the master fund. Rather, because the feeder fund is an investment company, specialized industry accounting for investment companies requires it to measure its investments (i.e., limited partnership interests) at fair value through net income. The Company has elected to apply the net asset value practical expedient to fair value to measure the feeder’s proportionate share of the net assets of the master fund. The consolidated feeder’s investment in this master fund, totaled $124 million as of June 30, 2022 and is included in the

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Notes to ~~2023.~~Condensed Consolidated Financial Statements (Unaudited), Continued

table above in the caption “Equity securities and warrants”. The master fund had gross assets of $155 million and gross liabilities of $31 million, as of June 30, 2022.

Noncontrolling ~~Interests~~Interest in CIVs

Noncontrolling interest in CIVs represents the proportion of the consolidated funds not owned by the Company, including third parties, employees, and former employees. The majority of the noncontrolling interest is non-redeemable and presented on the statement of shareholders’ equity. The table below presents the rollforward of redeemable noncontrolling interest in CIVs.

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~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Redeemable Noncontrolling ~~Interests~~Interest in CIVs


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Beginning balance	Beginning balance	$	22	$	21	Beginning balance	$	21	$	21	$	22	$	21
Net income (loss) attributable to the redeemable noncontrolling interest	Net income (loss) attributable to the redeemable noncontrolling interest	(1)		—		Net income (loss) attributable to the redeemable noncontrolling interest	—		—		(1)		—
March 31,		$	21	$	21
Contributions						Contributions	21		—		21		—
Distributions						Distributions	(21)		—		(21)		—
June 30,						June 30,	$	21	$	21	$	21	$	21

As of ~~March 31,~~June 30, 2022, the CIVs had $481 million commitments to ~~invest $345 million.~~invest.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the CIVs included derivative contracts with notional amounts totaling ~~$68~~$53 million and $49 million, respectively, and average notional amounts of ~~$59~~$51 million and $34 million, respectively. The fair value of derivative contracts is reported in the “assets of CIVs” or “liabilities of CIVs” in the condensed consolidated balance sheets. The net change in fair value is reported in “fair value gains (losses) on CIVs” in the condensed consolidated statements of operations. The net change in fair value of derivative contracts were gains of $4 million ~~and $2~~for second quarter 2022, $8 million ~~in First Quarter~~for six months 2022, and ~~First Quarter~~$1 million for six months 2021 ~~respectively.~~and losses of $1 million for second quarter 2021.

Certain of the CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity during the CLO warehouse stage. Borrowings are generally secured by the investments purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective vehicle. When a CIV borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or other Assured Guaranty subsidiaries. Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or other Assured Guaranty subsidiaries.

As of ~~March 31,~~June 30, 2022, these credit facilities had varying maturities ranging from ~~April 28, 2022 to~~ September 15, 2023 to May 13, 2024 with the aggregate principal amount not exceeding ~~$1.0 billion.~~$777 million. The available commitment was based on the amount of equity contributed to the warehouse which was ~~$591~~$228 million. As of ~~March 31,~~June 30, 2022, ~~$310~~$145 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 100 basis points (bps) to 3-month ~~LIBOR~~SOFR plus ~~100~~130 bps (with a floor on the ~~Euribor/LIBOR~~Euribor rates of zero). The CLO warehouses were in compliance with all financial covenants as of ~~March 31,~~June 30, 2022.

As of ~~March 31,~~June 30, 2022, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed ~~$80~~$110 million jointly and ~~$48~~$71 million individually for the consolidated healthcare fund. The available commitment was based on the amount of equity contributed to the funds. As of ~~March 31,~~June 30, 2022, ~~$15~~$18 million was drawn down by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime Floor of 3%). The fund was in compliance with all financial covenants as of ~~March 31,~~June 30, 2022.

During second quarter 2022, the Company recorded an out-of-period adjustment totaling $4.4 million in pre-tax income and $3.4 million in net income attributable to AGL. The out-of-period adjustments related an incorrect elimination of the foreign exchange remeasurement on the portion of consolidated CLOs that are owned by other Assured Guaranty entities. In six months 2022, the out-of-period adjustment was $2.1 million in pre-tax income and $1.7 million in net income attributable to AGL.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Other Consolidated VIEs

In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the original insured financial guaranty insurance or credit derivative contract, the Company classifies the assets and liabilities of that VIE in the line items that most accurately reflect the nature of such assets and liabilities, as opposed to within FG VIEs’ assets and FG VIEs’ liabilities. The largest of these VIEs had assets of ~~$92~~$89 million and liabilities of $12 million as of ~~March 31,~~June 30, 2022, and assets of $96 million and liabilities of $11 million as of December 31, 2021, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

Non-Consolidated VIEs

As described in Note 3, Outstanding Exposure, the Company monitors all policies in the insured portfolio. Of the approximately 16 thousand policies monitored as of ~~March 31,~~June 30, 2022, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization. The majority of the remaining policies involve transactions where the Company is not deemed to currently have control over the FG VIEs’ most significant activities. With respect to structured finance and other FG VIEs, as of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company identified 6361 and 69 policies, respectively, that contain provisions and experienced events that may trigger consolidation. Based on management’s

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~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

assessment of these potential triggers or events, the Company consolidated ~~26 and~~ 25 structured finance and other FG VIEs as of ~~March 31,~~both June 30, 2022 and December 31, ~~2021, respectively.~~2021. In addition, as of ~~March 31,~~June 30, 2022 the Company consolidated 9 Puerto Rico Trusts. The Company’s exposure through its financial guaranties with respect to debt obligations of FG VIEs is included within net par outstanding in Note 3, Outstanding Exposure.

The Company manages funds and CLOs that have been determined to be VIEs, in which the Company concluded that it is not the primary beneficiary, because it lacks a controlling financial interest. As such, the Company does not consolidate these entities. The Company’s equity interests, excluding the feeder fund’s investment in the master fund, in these entities are reported in “other invested assets” on the condensed consolidated balance sheets. The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $1 million as of both ~~March 31,~~June 30, 2022 and December 31, 2021) as well as foregone future management and performance fees. See Note 10, Asset Management Fees, for earnings and receivables from managing funds and CLOs.

9. Fair Value Measurement

The Company carries a significant portion of its assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). The price represents the price available in the principal market for the asset or liability. If there is no principal market, then the price is based on a hypothetical market that maximizes the value received for an asset or minimizes the amount paid for a liability (i.e., the most advantageous market).

Fair value is based on quoted market prices, where available. If listed prices or quotes are not available, fair value is based on either internally developed models that primarily use, as inputs, market-based or independently sourced market parameters, including but not limited to yield curves, interest rates and debt prices or with the assistance of an independent third party using a discounted cash flow approach and the third party’s proprietary pricing models. In addition to market information, models also incorporate transaction details, such as maturity of the instrument and contractual features designed to reduce the Company’s credit exposure, such as collateral rights as applicable.

Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, the Company’s creditworthiness and constraints on liquidity. As markets and products develop and the pricing for certain products becomes more or less transparent, the Company may refine its methodologies and assumptions. During ~~First Quarter~~six months 2022, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

The Company’s methods for calculating fair value produce a fair value that may not be indicative of net realizable value or reflective of future fair values. The use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a materially different estimate of fair value at the reporting date.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The categorization within the fair value hierarchy is determined based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company estimates of market assumptions. The fair value hierarchy prioritizes model inputs into three broad levels as follows, with Level 1 being the highest and Level 3 the lowest. An asset’s or liability’s categorization is based on the lowest level of significant input to its valuation.

Level 1—Quoted prices for identical instruments in active markets. The Company generally defines an active market as a market in which trading occurs at significant volumes. Active markets generally are more liquid and have a lower bid-ask spread than an inactive market.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and observable inputs other than quoted prices, such as interest rates or yield curves and other inputs derived from or corroborated by observable market inputs.

Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

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~~Notes~~a fixed-maturity security in the investment portfolio and securities in the FG VIE asset portfolio from Level 3 to ~~Condensed Consolidated Financial Statements (Unaudited), Continued~~

Level 2 during second quarter 2022. There were no other transfers from or into Level 3 during the periods presented.

Carried at Fair Value

Fixed-Maturity Securities

The fair value of fixed-maturity securities is generally based on prices received from third-party pricing services or alternative pricing sources with reasonable levels of price transparency. The pricing services prepare estimates of fair value using their pricing models, which take into account: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, industry and economic events and sector groupings. Additional valuation factors that can be taken into account are nominal spreads and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news.

Benchmark yields have in many cases taken priority over reported trades for securities that trade less frequently or those that are distressed trades, and therefore may not be indicative of the market. The extent of the use of each input is dependent on the asset class and the market conditions. The valuation of fixed-maturity securities is more subjective when markets are less liquid due to the lack of market-based inputs.

As of ~~March 31,~~June 30, 2022, the Company used models to price ~~190~~184 securities, including securities that were purchased or obtained for loss mitigation, with a Level 3 fair value of ~~$1.1~~$1.0 billion. All Level 3 securities were priced with the assistance of independent third parties. The pricing is based on a discounted cash flow approach using the third party’s proprietary pricing models. The models use inputs such as projected prepayment speeds; severity assumptions; recovery lag assumptions; estimated default rates (determined on the basis of an analysis of collateral attributes, historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); home price appreciation/depreciation rates based on macroeconomic forecasts and recent trading activity. The yield used to discount the projected cash flows is determined by reviewing various attributes of the security including collateral type, weighted average life, sensitivity to losses, vintage, and convexity, in conjunction with market data on comparable securities. Significant changes to any of these inputs could have materially changed the expected timing of cash flows within these securities which is a significant factor in determining the fair value of the securities.

Short-Term Investments

Short-term investments that are traded in active markets are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices. Securities such as discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Other Invested Assets

Other invested assets that are carried at fair value primarily include: (i) equity securities traded in active markets that are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices; and (ii) equity method investments for which the Company elected the ~~fair value option~~FVO using NAV, as a practical expedient, which are excluded from the fair value hierarchy.

Other Assets

Committed Capital Securities

Each of AGC and AGM have entered into put agreements with 4 separate custodial trusts allowing each of AGC and AGM to issue an aggregate of $200 million of non-cumulative redeemable perpetual preferred securities to the trusts in exchange for cash. Each custodial trust was created for the primary purpose of issuing $50 million face amount of CCS, investing the proceeds in high-quality assets and entering into put options with AGC or AGM, as applicable.

The fair value of CCS, which is reported in other assets on the condensed consolidated balance sheets, represents the difference between the present value of remaining expected put option premium payments under ~~AGC’s~~AGC CCS and AGM’s Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value that the Company would hypothetically have to pay currently for a comparable security. The change in fair value of the AGC CCS and AGM CPS are reported in “fair value gains (losses) on committed capital securities” in the condensed consolidated statements of operations. The estimated current cost of the Company’s CCS is based on several factors, including AGM and AGC CDS spreads, LIBOR

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~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

curve projections, the Company's publicly traded debt and the term the securities are estimated to remain outstanding. The AGC CCS and AGM CPS are classified as Level 3 in the fair value hierarchy.

Supplemental Executive Retirement Plans

The Company classifies assets included in the Company’s various supplemental executive retirement plans as either Level 1 or Level 2. The fair value of these assets is based on the observable published daily values of the underlying mutual funds included in the plans (Level 1) or based upon the NAV of the funds if a published daily value is not available (Level 2). The NAVs are based on observable information. The change in fair value of these assets is reported in “other operating expenses” in the condensed consolidated statements of operations.

Contracts Accounted for as Credit Derivatives

The Company’s credit derivatives in the Insurance segment primarily consist of insured CDS contracts, and also include interest rate swaps that qualify as derivatives under GAAP, which require fair value measurement with changes in the fair value reported in the condensed consolidated statements of operations. The Company did not enter into CDS contracts with the intent to trade these contracts and the Company may not unilaterally terminate a CDS contract absent an event of default or termination event that entitles the Company to terminate such contracts; however, the Company has mutually agreed with various counterparties to terminate certain CDS transactions. In transactions where the counterparty does not have the right to terminate, such transactions are generally terminated for an amount that approximates the present value of future premiums or for a negotiated amount, rather than at fair value.

The terms of the Company’s CDS contracts differ from more standardized credit derivative contracts sold by companies outside the financial guaranty industry. The non-standard terms generally include the absence of collateral support agreements or immediate settlement provisions. In addition, the Company employs relatively high attachment points and does not exit derivatives it sells, except under specific circumstances such as mutual agreements with counterparties. Management considers the non-standard terms of the Company’s credit derivative contracts in determining the fair value of these contracts.

Due to the lack of quoted prices and other observable inputs for its instruments or for similar instruments, the Company determines the fair value of its credit derivative contracts primarily through internally developed, proprietary models that use both observable and unobservable market data inputs. There is no established market where financial guaranty insured credit derivatives are actively traded; therefore, management has determined that the exit market for the Company’s credit derivatives is a hypothetical one based on its entry market. These contracts are classified as Level 3 in the fair value hierarchy as there are multiple unobservable inputs deemed significant to the valuation model, most importantly the Company’s estimate of the value of the non-standard terms and conditions of its credit derivative contracts and how the Company’s own credit spread affects the pricing of its transactions.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The fair value of the Company’s credit derivative contracts represents the difference between the present value of remaining premiums the Company expects to receive and the estimated present value of premiums that a financial guarantor of comparable credit-worthiness would hypothetically charge at the reporting date for the same protection. The fair value of the Company’s credit derivatives depends on a number of factors, including notional amount of the contract, expected term, credit spreads, changes in interest rates, the credit ratings of referenced entities, the Company’s own credit risk and remaining contractual cash flows. The expected remaining contractual premium cash flows are the most readily observable inputs since they are based on the CDS contractual terms. Credit spreads capture the effect of recovery rates and performance of underlying assets of these contracts, among other factors. Consistent with previous years, market conditions at ~~March 31,~~June 30, 2022 were such that market prices of the Company’s CDS contracts were not available.

Assumptions and Inputs

The various inputs and assumptions that are key to the measurement of the Company’s fair value for CDS contracts are as follows: the gross spread, the allocation of gross spread among the bank profit, net spread and hedge cost, and the weighted average life which is based on debt service schedules. The Company obtains gross spreads on its outstanding contracts from market data sources published by third parties (e.g., dealer spread tables for the collateral similar to assets within the Company’s transactions), as well as collateral-specific spreads provided by or obtained from market sources. The bank profit represents the profit the originator, usually an investment bank, realizes for structuring and funding the transaction; the net spread represents the premiums paid to the Company for the Company’s credit protection provided; and the hedge cost represents the cost of CDS protection purchased by the originator to hedge its counterparty credit risk exposure to the Company.

~~Table~~The primary sources of ~~Contents~~

~~Assured Guaranty Ltd.~~

~~Notes~~information used to ~~Condensed Consolidated Financial Statements (Unaudited), Continued~~

~~With respect to CDS transactions for which there is an expected claim payment within the next twelve months, the allocation of~~determine gross spread reflects a higher allocation to the cost of credit rather than the bank profit component. It is assumed that a bank would be willing to accept a lower profit on distressed transactions in order to remove these transactions from its financial statements.

Market sources determine credit spreads by reviewing new issuance pricing for specific asset classes and receiving price quotes from trading desks for the specific asset in question. The Company validates these quotes by cross-referencing quotes received from one market source against quotes received from another market source to ensure reasonableness. In addition, the Company compares the relative change in price quotes received from one quarter to another with the relative change experienced by published market indices for a specific asset class. Collateral specific spreads obtained from third-party, independent market sources are unpublished spread quotes from market participants or market traders who are not trustees. The Company obtains this information as the result of direct communication with these sources as part of the valuation process. The following spread hierarchy is utilized in determining which source of gross spread to use.include:

•Actual collateral specific credit spreads (if up-to-date and reliable market-based spreads are available).

•Transactions priced or closed during a specific quarter within a specific asset class and specific rating.

•Credit spreads interpolated based upon market indices adjusted to reflect the non-standard terms of the Company’s CDS contracts.

•Credit spreads extrapolated based upon transactions of similar asset classes, similar ratings, and similar time to maturity.

The rates used to discount future expected premium cash flows ranged from ~~0.45%~~2.17% to ~~2.93%~~3.56% at ~~March 31,~~June 30, 2022 and 0.11% to 1.78% at December 31, 2021.

The premium the Company receives is referred to as the “net spread.” The Company’s pricing model takes into account not only how credit spreads on risks that it assumes affect pricing, but also how the Company’s own credit spread affects the pricing of its transactions. The Company’s own credit risk is factored into the determination of net spread based on the impact of changes in the quoted market price for credit protection bought on the Company, as reflected by quoted market prices on CDS referencing AGC. Due to the relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts. The Company obtains the quoted price of CDS contracts traded on AGC from market data sources published by third parties. The cost to acquire CDS protection referencing AGC affects the amount of spread on CDS transactions that the Company retains and, hence, their fair value. As the cost to acquire CDS protection referencing AGC increases, the amount of premium the Company retains on a transaction generally decreases.

In the Company’s valuation model, the premium the Company captures is not permitted to go below the minimum rate that the Company would currently charge to assume similar risks. This assumption can have the effect of mitigating the amount of unrealized gains that are recognized on certain CDS contracts. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the use of the minimum premium did not have a significant effect on fair value. The percentage of transactions that price using the minimum premiums fluctuates due to changes in AGC’s credit spreads. In general, when AGC’s credit spreads narrow, the cost to hedge AGC’s name declines and more transactions price above previously established floor levels. Meanwhile, when AGC’s credit spreads widen, the cost to hedge AGC’s name increases causing more transactions to price at established floor levels. The Company corroborates the assumptions in its fair value model, including the portion of exposure to AGC hedged by its counterparties, with independent third parties periodically. The implied credit risk of AGC, indicated by the trading level of AGC’s own credit spread, is a significant factor in the amount of exposure to AGC that a bank or transaction hedges. When AGC’s credit spreads widen, the hedging cost of a bank or originator increases. Higher hedging costs reduce the amount of

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

contractual cash flows AGC can capture as premium for selling its protection, while lower hedging costs increase the amount of contractual cash flows AGC can capture.

The amount of premium a financial guaranty insurance market participant can demand is inversely related to the cost of credit protection on the insurance company as measured by market credit spreads assuming all other assumptions remain constant. This is because the buyers of credit protection typically hedge a portion of their risk to the financial guarantor, due to the fact that the contractual terms of the Company’s contracts typically do not require the posting of collateral by the guarantor. The extent of the hedge depends on the types of instruments insured and the current market conditions.

A credit derivative liability on protection sold is the result of contractual cash inflows on in-force transactions that are lower than what a hypothetical financial guarantor could receive if it sold protection on the same risk as of the reporting date. If the Company were able to freely exchange these contracts (i.e., assuming its contracts did not contain proscriptions on transfer

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~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

and there was a viable exchange market), it would realize a loss representing the difference between the lower contractual premiums to which it is entitled and the current market premiums for a similar contract. The Company determines the fair value of its CDS contracts by applying the difference between the current net spread and the contractual net spread for the remaining duration of each contract to the notional value of such contract and discounting such amounts using the LIBOR corresponding to the weighted average remaining life of the contract.

Strengths and Weaknesses of Model

The Company’s credit derivative valuation model, like any financial model, has certain strengths and weaknesses.

The primary strengths of the Company’s CDS modeling techniques are:

•The model takes into account the transaction structure and the key drivers of market value.

•The model maximizes the use of market-driven inputs whenever they are available.

•The model is a consistent approach to valuing positions.

The primary weaknesses of the Company’s CDS modeling techniques are:

•There is no exit market or any actual exit transactions; therefore, the Company’s exit market is a hypothetical one based on the Company’s entry market.

•There is a very limited market in which to validate the reasonableness of the fair values developed by the Company’s model.

•The markets for the inputs to the model are highly illiquid, which impacts their reliability.

•Due to the non-standard terms under which the Company enters into derivative contracts, the fair value of its credit derivatives may not reflect the same prices observed in an actively traded market of credit derivatives that do not contain terms and conditions similar to those observed in the financial guaranty market.

FG VIEs’ Assets and Liabilities

The Company elected the ~~fair value option~~FVO for the structured finance and other FG VIEs’ assets and liabilities and classifies them as Level 3 in the fair value hierarchy. The prices are generally determined with the assistance of an independent third party, based on a discounted cash flow approach.

For the assets in the Puerto Rico Trusts, new recovery bonds ~~are classified as available-for-sale as Level 2 on the fair value hierarchy, CVIs are classified as trading securities as Level 2 on the fair value hierarchy,~~ and trust certificates are classified as Level 2 available-for-sale securities, and CVIs are classified as Level ~~3 on the fair value hierarchy.~~2 trading securities. The liabilities of the Puerto Rico Trusts are measured under the ~~fair value option~~FVO as Level 3 on the fair value hierarchy. See “ - Fixed Maturity Securities” above for a description of the fair value methodology for the recovery bonds and CVIs in the Puerto Rico Trusts, which represent the majority of the assets in the Puerto Rico Trusts.

The fair value of the residential mortgage loan FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds; estimated default rates (determined on the basis of an analysis of collateral attributes such as: historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); yields implied by market prices for similar securities; and, as applicable, house price depreciation/appreciation rates based on macroeconomic forecasts. Significant changes to some of these inputs could have materially changed the market value of the FG VIEs’ assets and the implied collateral losses within the transaction. In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically could lead to a decrease in

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets.

The third party utilizes an internal model to determine an appropriate yield at which to discount the cash flows of the security, by factoring in collateral types, weighted-average lives, and other structural attributes specific to the security being priced. The expected yield is further calibrated by utilizing algorithms designed to aggregate market color, received by the independent third party, on comparable bonds.

The models used to price the FG VIEs’ liabilities (other than the liabilities of the Puerto Rico Trusts) generally apply the same inputs used in determining fair value of FG VIEs’ assets. For those liabilities insured by the Company, the benefit of the Company’s insurance policy guaranteeing the timely payment of debt service is also taken into account. The liabilities of

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

the Puerto Rico Trusts are priced based on the value of the assets in the Puerto Rico Trusts including the value of the insurance subsidiaries financial guaranty policies.

Significant changes to any of the inputs described above could materially change the timing of expected losses within the insured transaction which is a significant factor in determining the implied benefit of the Company’s insurance policy guaranteeing the timely payment of principal and interest for the insured tranches of debt issued by the FG VIEs. In general, extending the timing of expected loss payments by the Company into the future typically could lead to a decrease in the value of the Company’s insurance and a decrease in the fair value of the Company’s FG VIEs’ liabilities with recourse, while a shortening of the timing of expected loss payments by the Company typically could lead to an increase in the value of the Company’s insurance and an increase in the fair value of the Company’s FG VIEs’ liabilities with recourse.

The net change in the fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on financial guaranty variable interest entities” in the condensed consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in ~~other comprehensive income (OCI),~~OCI, and the change in fair value of available-for-sale securities, which is reported as a component of the change in unrealized gains (losses) on investments in OCI. Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on financial guaranty variable interest entities”. The FG VIEs issued securities that are typically collateralized by first lien and second lien residential mortgage loans, or, in the case of the Puerto Rico Trusts, the Plan Consideration received under the GO/PBA Plan.

Assets and Liabilities of CIVs

The consolidated CLOs are collateralized financing entities (CFEs), and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured under the ~~fair value option~~FVO using the CFE practical expedient. Loans in CLOs are priced using a loan pricing service which aggregates quotes from loan market participants. The loans are all Level 2 assets, which are more observable than the fair value of the Level 3 debt issued by the consolidated CLOs. As a result, the less observable CLO debt is measured on the basis of the more observable CLO loans. Under the CFE practical expedient guidance, the loans of consolidated CLOs are measured at fair value and the debt of consolidated CLOs are measured as: (1) the sum of (i) the fair value of the financial assets, and (ii) the carrying value of any nonfinancial assets held temporarily; less (2) the sum of (iii) the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services), and (iv) the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by the Company).

Prior to securitization, when loans are warehoused in an investment vehicle, such vehicle is not considered a CFE. The Company has elected the ~~fair value option~~FVO to measure the loans held and the debt issued by CLO warehouses to mitigate the accounting mismatch between such assets and liabilities when a CLO warehouse securitizes and becomes a CLO.

Investments held by CIVs which are listed or quoted on a national securities exchange or market are valued at their last reported sale price on the date of determination. Investments held by CIVs which are not listed or quoted on an exchange, but are traded over-the-counter, or are listed on an exchange which has no reported sales, are valued at their fair value as determined by the Company, after giving consideration to third-party data generally at the average between the offer and bid prices. The methods and procedures to value these investments may include, but are not limited to: (i) performing comparisons with prices of comparable or similar investments; (ii) obtaining valuation-related information from issuers; (iii) calculating the present value of future cash flows; (iv) assessing other analytical data and information related to the investment that is an indication of value; (v) obtaining information provided by third parties; (vi) and/or evaluating information provided by management of these investments. These fair values are generally based on dealer quotes, indications of value or pricing models that consider the time value of money, the current market, contractual prices and potential volatilities of the underlying financial

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

instruments. Inputs are used in applying the various valuation techniques and broadly refer to the current assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include dealer price quotations, yield curves, credit curves, forward/CDS/index spreads, prepayments rates, strike and expiry dates, volatility statistics and other factors. Investments in private equity funds are generally valued utilizing NAV.

Level 2 assets in the CIVs include assets of the consolidated CLOs and certain assets of the consolidated funds. Level 3 assets in the CIVs include the remainder of the invested assets of consolidated funds. Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the ~~fair value option)~~FVO), securities sold short and derivative liabilities. Level 3 liabilities of the CIVs include various tranches of CLO debt, first loss subordinated warehouse financing and securitized borrowing. Significant changes to any of the inputs described above could have a material effect on the fair value of the consolidated assets and liabilities.

Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.~~

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of ~~March 31,~~June 30, 2022


		Fair Value Hierarchy									Fair Value Hierarchy
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(in millions)									(in millions)
Assets:	Assets:									Assets:
Investments:	Investments:									Investments:
Fixed-maturity securities, available-for-sale	Fixed-maturity securities, available-for-sale									Fixed-maturity securities, available-for-sale
Obligations of state and political subdivisions	Obligations of state and political subdivisions	$	—	$	3,871	$	70	$	3,941	Obligations of state and political subdivisions	$	—	$	3,433	$	51	$	3,484
U.S. government and agencies	U.S. government and agencies	—		122		—		122		U.S. government and agencies	—		119		—		119
Corporate securities	Corporate securities	—		2,388		—		2,388		Corporate securities	—		2,194		—		2,194
Mortgage-backed securities:	Mortgage-backed securities:									Mortgage-backed securities:
RMBS	RMBS	—		200		200		400		RMBS	—		185		184		369
CMBS	CMBS	—		322		—		322		CMBS	—		298		—		298
Asset-backed securities	Asset-backed securities	—		25		842		867		Asset-backed securities	—		24		805		829
Non-U.S. government securities	Non-U.S. government securities	—		116		—		116		Non-U.S. government securities	—		103		—		103
Total fixed-maturity securities, available-for-sale	Total fixed-maturity securities, available-for-sale	—		7,044		1,112		8,156		Total fixed-maturity securities, available-for-sale	—		6,356		1,040		7,396
Fixed-maturity securities, trading	Fixed-maturity securities, trading	—		174		—		174		Fixed-maturity securities, trading	—		87		—		87
Short-term investments	Short-term investments	568		17		—		585		Short-term investments	844		19		—		863
Other invested assets (1)	Other invested assets (1)	2		—		5		7		Other invested assets (1)	2		—		5		7
FG VIEs’ assets	FG VIEs’ assets	—		40		267		307		FG VIEs’ assets	—		41		223		264
Assets of CIVs (2):	Assets of CIVs (2):									Assets of CIVs (2):
Fund investments:	Fund investments:									Fund investments:
Equity securities and warrants	Equity securities and warrants	—		6		243		249		Equity securities and warrants	—		7		258		265
Obligations of state and political subdivisions		—		126		—		126
Corporate securities	Corporate securities	—		2		83		85		Corporate securities	—		—		90		90
Structured products	Structured products	—		74		—		74		Structured products	—		89		38		127
CLOs and CLO warehouse assets:	CLOs and CLO warehouse assets:									CLOs and CLO warehouse assets:
Loans	Loans	—		4,699		—		4,699		Loans	—		4,393		—		4,393
Short-term investments	Short-term investments	165		—		—		165		Short-term investments	230		—		—		230
Total assets of CIVs	Total assets of CIVs	165		4,907		326		5,398		Total assets of CIVs	230		4,489		386		5,105
Other assets	Other assets	55		51		26		132		Other assets	50		45		35		130
Total assets carried at fair value	Total assets carried at fair value	$	790	$	12,233	$	1,736	$	14,759	Total assets carried at fair value	$	1,126	$	11,037	$	1,689	$	13,852
Liabilities:	Liabilities:									Liabilities:
Credit derivative liabilities	Credit derivative liabilities	$	—	$	—	$	157	$	157	Credit derivative liabilities	$	—	$	—	$	148	$	148
FG VIEs’ liabilities (3)	FG VIEs’ liabilities (3)	—		—		335		335		FG VIEs’ liabilities (3)	—		—		282		282
Liabilities of CIVs:	Liabilities of CIVs:									Liabilities of CIVs:
CLO obligations of CFEs	CLO obligations of CFEs	—		—		3,598		3,598		CLO obligations of CFEs	—		—		3,947		3,947
Warehouse financing debt	Warehouse financing debt	—		308		31		339		Warehouse financing debt	—		138		19		157
Securities sold short		—		36		—		36
Securitized borrowing	Securitized borrowing	—		—		21		21		Securitized borrowing	—		—		21		21
Total liabilities of CIVs	Total liabilities of CIVs	—		344		3,650		3,994		Total liabilities of CIVs	—		138		3,987		4,125
Other liabilities	Other liabilities	—		3		—		3		Other liabilities	—		7		—		7
Total liabilities carried at fair value	Total liabilities carried at fair value	$	—	$	347	$	4,142	$	4,489	Total liabilities carried at fair value	$	—	$	145	$	4,417	$	4,562

5762

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of December 31, 2021


	Fair Value Hierarchy
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Investments:
Fixed-maturity securities, available-for sale
Obligations of state and political subdivisions	$	—	$	3,588	$	72	$	3,660
U.S. government and agencies	—		128		—		128
Corporate securities	—		2,605		—		2,605
Mortgage-backed securities:
RMBS	—		221		216		437
CMBS	—		346		—		346
Asset-backed securities	—		27		863		890
Non-U.S. government securities	—		136		—		136
Total fixed-maturity securities, available-for-sale	—		7,051		1,151		8,202
Short-term investments	1,225		—		—		1,225
Other invested assets (1)	6		—		6		12
FG VIEs’ assets	—		—		260		260
Assets of CIVs (2):
Fund investments:
Equity securities and warrants	—		7		239		246
Obligations of state and political subdivisions	—		101		—		101
Corporate securities	—		7		91		98
Structured products	—		62		—		62
CLOs and CLO warehouse assets:
Loans	—		4,244		—		4,244
Short-term investments	145		—		—		145
Total assets of CIVs	145		4,421		330		4,896
Other assets	53		54		25		132
Total assets carried at fair value	$	1,429	$	11,526	$	1,772	$	14,727
Liabilities:
Credit derivative liabilities	$	—	$	—	$	156	$	156
FG VIEs’ liabilities (3)	—		—		289		289
Liabilities of CIVs:
CLO obligations of CFEs	—		—		3,665		3,665
Warehouse financing debt	—		103		23		126
Securities sold short	—		41		—		41
Securitized borrowing	—		—		17		17
Total liabilities of CIVs	—		144		3,705		3,849
Other liabilities	—		1		—		1
Total liabilities carried at fair value	$	—	$	145	$	4,150	$	4,295

___________________

(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis. Excludes ~~$17~~$16 million and $19 million of equity method investments measured at fair value under the ~~fair value option~~FVO using the NAV as a practical expedient as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

(2) Excludes $5 million and $6 million as of ~~both March 31,~~June 30, 2022 and December 31, 2021, respectively, in investments in AssuredIM Funds for which the Company records a 100% noncontrolling interest. The consolidation of these funds results in a gross up of assets and noncontrolling interest on the consolidated financial statements; however, it results in no economic equity or net income attributable

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

to AGL. As of June 30, 2022, excludes a $124 million investment in the AssuredIM municipal relative value master fund, which is measured using NAV as a practical expedient.

(3) Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during ~~First Quarter~~second quarter 2022, second quarter 2021, six months 2022, and ~~First Quarter~~six months 2021.

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

~~First~~Second Quarter 2022

Fixed-Maturity Securities, Available-for-Sale Assets of CIVs
Obligations
of State and
Political
Subdivisions RMBS Asset-
Backed
Securities FG VIEs’
Assets Equity Securities and Warrants Corporate Securities Other
(7)
(in millions)
Fair value as of December 31, 2021 $ 72 $ 216 $ 863 $ 260 $ 239 $ 91 $ 27
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss) — 4 (1) 3 (1) (3) (2) 10 (4) (1) (4) 1 (3)
Other comprehensive income (loss) (5) (8) (7) (1) — — —
Purchases 4 — 25 — — 1 —
Sales — — (3) — (6) (8) —
Settlements (1) (12) (39) (18) — — —
Consolidations — — — 29 — — —
Fair value as of March 31, 2022 $ 70 $ 200 $ 842 $ 267 $ 243 $ 83 $ 28
Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:
Earnings $ (3) (2) $ 8 (4) $ (2) (4) $ 1 (3)
OCI $ (5) $ (7) $ (7) $ (1) $ —


	Fixed-Maturity Securities, Available-for-Sale												Assets of CIVs
	Obligations of State and Political Subdivisions			RMBS			Asset- Backed Securities			FG VIEs’ Assets			Equity Securities and Warrants			Corporate Securities			Structured Products			Other (7)
	(in millions)
Fair value as of March 31, 2022	$	70		$	200		$	842		$	267		$	243		$	83		$	—		$	28
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	(1)		(1)	6		(1)	(3)		(1)	1		(2)	16		(4)	7		(4)	(3)		(4)	10		(3)
Other comprehensive income (loss)	(3)			(11)			(30)			—			—			—			—			(1)
Purchases	—			—			10			—			5			—			42			—
Sales	—			—			(9)			—			(6)			—			(21)			—
Settlements	(14)			(11)			(5)			(26)			—			—			—			—
Deconsolidations	—			—			—			(15)			—			—			20			—
Transfers out of Level 3	(1)			—			—			(4)			—			—			—			—
Fair value as of June 30, 2022	$	51		$	184		$	805		$	223		$	258		$	90		$	38		$	37
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2022 included in:
Earnings										$	2	(2)	$	10	(4)	$	7	(4)	$	(3)	(4)	$	10	(3)
OCI	$	(4)		$	(10)		$	(29)														$	(1)

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

~~First~~Second Quarter 2022

Credit Derivative
Asset (Liability),
net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs
(in millions)
Fair value as of December 31, 2021 $ (154) $ (289) $ (3,705)
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss) (3) (6) 15 (2) 64 (4)
Other comprehensive income (loss) — — —
Issuances — — (381)
Settlements 1 41 372
Consolidations — (102) —
Fair value as of March 31, 2022 $ (156) $ (335) $ (3,650)
Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:
Earnings $ (3) (6) $ 38 (2) $ 41 (4)
OCI $ —


	Credit Derivative Asset (Liability), net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs
	(in millions)
Fair value as of March 31, 2022	$	(156)		$	(335)		$	(3,650)
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	9		(6)	11		(2)	250		(4)
Other comprehensive income (loss)	—			3			37
Issuances	—			—			(1,027)
Settlements	—			24			29
Deconsolidations	—			15			374
Fair value as of June 30, 2022	$	(147)		$	(282)		$	(3,987)
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2022 included in:
Earnings	$	8	(6)	$	11	(2)	$	262	(4)
OCI				$	3		$	37

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

~~First~~Second Quarter 2021

Fixed-Maturity Securities, Available-for-Sale
Obligations
of State and
Political
Subdivisions Corporate Securities RMBS Asset-
Backed
Securities FG VIEs’
Assets Assets of CIVs - Equity Securities Other
(7)
(in millions)
Fair value as of December 31, 2020 $ 101 $ 30 $ 255 $ 940 $ 296 $ 2 $ 54
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss) 1 (1) 2 (1) 2 (1) 6 (1) (1) (2) 2 (4) (18) (3)
Other comprehensive income (loss) 2 (4) — 5 — — 1
Purchases — — — 94 — 8 —
Sales — — — (42) — (11) —
Settlements (1) — (11) (62) (14) — —
Fair value as of March 31, 2021 $ 103 $ 28 $ 246 $ 941 $ 281 $ 1 $ 37
Change in unrealized gains (losses) related to financial instruments held as of March 31, 2021 included in:
Earnings $ — (2) $ 3�� (4) $ (19) (3)
OCI $ 2 $ (4) $ — $ 5 $ 1


	Fixed-Maturity Securities, Available-for-Sale
	Obligations of State and Political Subdivisions			Corporate Securities		RMBS			Asset- Backed Securities			FG VIEs’ Assets			Assets of CIVs- Equity Securities			Other (7)
	(in millions)
Fair value as of March 31, 2021	$	103		$	28	$	246		$	941		$	281		$	1		$	37
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	2		(1)	—		5		(1)	5		(1)	19		(2)	2		(4)	(6)		(3)
Other comprehensive income (loss)	6			20		9			1			—			—			—
Purchases	—			—		—			117			—			14			—
Sales	—			(48)		—			(38)			—			(16)			—
Settlements	(1)			—		(12)			(51)			(13)			—			—
Fair value as of June 30, 2021	$	110		$	—	$	248		$	975		$	287		$	1		$	31
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021included in:
Earnings												$	19	(2)	$	—		$	(6)	(3)
OCI	$	6		$	—	$	9		$	3

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Second Quarter 2021


	Credit Derivative Asset (Liability), net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs
	(in millions)
Fair value as of March 31, 2021	$	(120)		$	(318)		$	(1,973)
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	(33)		(6)	(10)		(2)	(8)		(4)
Other comprehensive income (loss)	—			(2)			—
Issuances	—			—			(406)
Settlements	(1)			10			2
Fair value as of June 30, 2021	$	(154)		$	(320)		$	(2,385)
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:
Earnings	$	(35)	(6)	$	(11)	(2)	$	(2)	(4)
OCI				$	(2)

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Six Months 2022


	Fixed-Maturity Securities, Available-for-Sale										Assets of CIVs
	Obligations of State and Political Subdivisions		RMBS			Asset- Backed Securities		FG VIEs’ Assets			Equity Securities and Warrants			Corporate Securities			Structured Products			Other (7)
	(in millions)
Fair value as of December 31, 2021	$	72	$	216		$	863	$	260		$	239		$	91		$	—		$	27
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	—		10		(1)	—		(3)		(2)	26		(4)	6		(4)	(3)		(4)	11		(3)
Other comprehensive income (loss)	(8)		(19)			(37)		—			—			—			—			(1)
Purchases	—		—			35		—			5			1			42			—
Sales	—		—			(12)		—			(12)			(8)			(21)			—
Settlements	(13)		(23)			(44)		(34)			—			—			—			—
Consolidations	—		—			—		15			—			—			—			—
Deconsolidations	—		—			—		(15)			—			—			20			—
Fair value as of June 30, 2022	$	51	$	184		$	805	$	223		$	258		$	90		$	38		$	37
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2022 included in:
Earnings								$	(2)	(2)	$	18	(4)	$	5	(4)	$	(3)	(4)	$	11	(3)
OCI	$	(10)	$	(17)		$	(36)													$	(1)

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

~~First Quarter~~Six Months 2022


	Credit Derivative Asset (Liability), net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs
	(in millions)
Fair value as of December 31, 2021	$	(154)		$	(289)		$	(3,705)
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	6		(6)	26		(2)	295		(4)
Other comprehensive income (loss)	—			3			56
Issuances	—			—			(1,408)
Settlements	1			65			401
Consolidations	—			(102)			—
Deconsolidations	—			15			374
Fair value as of June 30, 2022	$	(147)		$	(282)		$	(3,987)
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2022 included in:
Earnings	$	5	(6)	$	49	(2)	$	303	(4)
OCI				$	3		$	56

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Six Months 2021


	Fixed-Maturity Securities, Available-for-Sale
	Obligations of State and Political Subdivisions			Corporate Securities			RMBS			Asset- Backed Securities			FG VIEs’ Assets			Assets of CIVs - Equity Securities			Other (7)
	(in millions)
Fair value as of December 31, 2020	$	101		$	30		$	255		$	940		$	296		$	2		$	54
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	3		(1)	2		(1)	7		(1)	11		(1)	18		(2)	4		(4)	(24)		(3)
Other comprehensive income (loss)	8			16			9			6			—			—			1
Purchases	—			—			—			211			—			22			—
Sales	—			(48)			—			(80)			—			(27)			—
Settlements	(2)			—			(23)			(113)			(27)			—			—
Fair value as of June 30, 2021	$	110		$	—		$	248		$	975		$	287		$	1		$	31
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:
Earnings													$	18	(2)	$	3	(4)	$	(25)	(3)
OCI	$	8		$	—		$	9		$	8								$	1

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

Six Months 2021


		Credit Derivative Asset (Liability), net (5)			FG VIEs’ (8)			Liabilities of CIVs				Credit Derivative Asset (Liability), net (5)			FG VIEs’ (8)			Liabilities of CIVs
		(in millions)										(in millions)
Fair value as of December 31, 2020	Fair value as of December 31, 2020	$	(100)		$	(333)		$	(1,227)		Fair value as of December 31, 2020	$	(100)		$	(333)		$	(1,227)
Total pre-tax realized and unrealized gains (losses) recorded in:	Total pre-tax realized and unrealized gains (losses) recorded in:										Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	Net income (loss)	(19)		(6)	3		(2)	6		(4)	Net income (loss)	(52)		(6)	(7)		(2)	(2)		(4)
Other comprehensive income (loss)	Other comprehensive income (loss)	—			(1)			—			Other comprehensive income (loss)	—			(3)			—
Issuances	Issuances	—			—			(752)			Issuances	—			—			(1,158)
Settlements	Settlements	(1)			13			—			Settlements	(2)			23			2
Fair value as of March 31, 2021		$	(120)		$	(318)		$	(1,973)
Change in unrealized gains (losses) related to financial instruments held as of March 31, 2021 included in:
Fair value as of June 30, 2021											Fair value as of June 30, 2021	$	(154)		$	(320)		$	(2,385)
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:											Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:
Earnings	Earnings	$	(20)	(6)	$	5	(2)	$	6	(4)	Earnings	$	(55)	(6)	$	(6)	(2)	$	4	(4)
OCI	OCI				$	(1)					OCI				$	(3)

____________________

(1)Included in “net realized investment gains (losses)” and “net investment income”.

(2)Included in “fair value gains (losses) on FG VIEs”.

(3)Reported in “fair value gains (losses) on CCS”, “net investment income” and “other income”.

(4)Reported in “fair value gains (losses) on CIVs”.

(5)Represents the net position of credit derivatives. Credit derivative assets (reported in “other assets”) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheets based on net exposure by transaction.

(6)Reported in “fair value gains (losses) on credit derivatives”.

(7)Includes CCS and other invested assets.

(8)Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Level 3 Fair Value Disclosures

Quantitative Information About Level 3 Fair Value Inputs

As of ~~March 31,~~June 30, 2022


Financial Instrument Description	Financial Instrument Description	Fair Value (in millions)			Significant Unobservable Inputs			Range						Weighted Average (4)	Financial Instrument Description			Fair Value (in millions)				Significant Unobservable Inputs					Range											Weighted Average (4)
Assets (2):	Assets (2):														Assets (2):
Fixed-maturity securities available-for-sale (1):
Fixed-maturity securities, available-for-sale (1):															Fixed-maturity securities, available-for-sale (1):
Obligations of state and political subdivisions	Obligations of state and political subdivisions	$	70		Yield			2.6	%	-		27.1%		6.7%	Obligations of state and political subdivisions			$	51			Yield					6.9		%	-			32.1%					9.4%
RMBS	RMBS	200			CPR			0.0	%	-		22.5%		11.0%	RMBS			184				CPR					0.0		%	-			22.2%					11.1%
				CDR		1.6	%	-		12.0%			5.8%				CDR					1.5		%	-		12.0%						5.6%
				Loss severity		50.0	%	-		125.0%			85.0%				Loss severity					50.0		%	-		125.0%						85.2%
				Yield		4.8	%	-		6.4%			5.6%				Yield					4.6		%	-		7.6%						6.8%
Asset-backed securities:	Asset-backed securities:															Asset-backed securities:
Life insurance transactions	Life insurance transactions			370		Yield				6.0%							Life insurance transactions				357					Yield					8.8%
CLOs	CLOs			437		Discount margin				1.0	%	-	3.1%			2.1%			CLOs			420					Discount Margin						1.8		%	-		4.0%					2.9%
Others	Others			35		Yield				5.0	%	-	10.3%			10.2%			Others			28					Yield						6.4		%	-		13.7%					13.6%
FG VIEs’ assets (1)	FG VIEs’ assets (1)	267			CPR			0.9	%	-		25.5%		13.2%	FG VIEs’ assets (1)			223				CPR					0.9		%	-			25.9%					14.3%
				CDR		1.0	%	-		26.9%			7.2%				CDR					1.0		%	-		41.0%						7.6%
				Loss severity		45.0	%	-		100.0%			77.1%				Loss severity					45.0		%	-		100.0%						82.2%
				Yield		1.7	%	-		8.6%			5.4%				Yield					2.9		%	-		8.8%						5.6%
Assets of CIVs (3):	Assets of CIVs (3):															Assets of CIVs (3):
Equity securities and warrants	Equity securities and warrants			243		Yield				8.0%							Equity securities and warrants				258					Yield					8.8%
					Discount rate			13.0	%	-		24.2%		21.8%										Discount rate					19.8		%	-			24.3%					22.6%
					Cost			1.00x																Market multiple-enterprise value/revenue					1.00x			-			1.10x					1.05x
					Market multiple-enterprise value/revenue			1.10x														Market multiple-enterprise value/EBITDA (6)					3.00x			-			12.00x					10.34x
					Market multiple-enterprise value/EBITDA (6)			3.00x		-		10.50x		9.21x								Market multiple-price to book					1.30x			-			1.65x					1.48x
					Market multiple-price to book			1.85x														Market multiple-price to earnings					6.00x
					Exit multiple-EBITDA			8.00x		-		12.00x		10.43x								Terminal growth rate					4.0%
					Exit multiple-price to book			1.30x														Cost					1.0x
					Exit multiple			11.00x
					Exit cap rate			12.0%
					Terminal growth rate			4.0%
Corporate securities	Corporate securities			83		Discount rate				21.4	%	-	23.7%		22.3%		Corporate securities				90					Discount rate					20.8		%	-			23.9%					22.0%
					Yield			17.2%														Yield					16.3%
					Cost			1.00x														Cost					1.00x
					Market multiple-enterprise value/EBITDA			3.00x														Market multiple-enterprise value/EBITDA					3.00x			-			8.00x					4.95x
					Exit multiple-EBITDA			8.00x
Structured products															Structured products				38				Yield					11.0		%	-			27.4%					16.1%
Other assets (1)	Other assets (1)			25		Implied Yield				3.1	%	-	3.7%		3.4%		Other assets (1)			34					Implied Yield					4.7		%	-			5.4%					5.0%
					Term (years)			10 years											Term (years)						10 years

6168

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued


Financial Instrument Description	Financial Instrument Description	Fair Value (in millions)			Significant Unobservable Inputs		Range						Weighted Average (4)	Financial Instrument Description			Fair Value (in millions)						Significant Unobservable Inputs				Range											Weighted Average (4)
Liabilities (1):	Liabilities (1):													Liabilities (1):
Credit derivative liabilities, net		$	(156)		Year 1 loss estimates		0.0	%	-		87.0%		1.9%
				Hedge cost (in bps)		11.9	-		53.2			21.8	Credit derivative liabilities, net		$	(147)				Year 1 loss estimates				0.0		%	-			92.5%						2.6%
				Bank profit (in bps)		0.0	-		211.3			72.2					Hedge cost (in bps)						17.9	-			41.4						25.6
				Internal floor (in bps)		8.8											Bank profit (in bps)						53.7	-			292.6						102.9
				Internal credit rating		AAA	-		CCC			AA					Internal credit rating						AAA	-			CCC						AA
FG VIEs’ liabilities	FG VIEs’ liabilities			(335)		CPR			0.9	%	-	25.5%		12.3%			FG VIEs’ liabilities					(282)				CPR						0.9		%	-		25.9%		13.2%
					CDR		1.0	%	-		26.9%		6.7%						CDR							1.0		%	-			41.0%					7.0%
					Loss severity		45.0	%	-		100.0%		72.0%						Loss severity							45.0		%	-			100.0%					75.6%
					Yield		0.6	%	-		7.8%		4.4%						Yield							1.5		%	-			8.8%					5.2%
Liabilities of CIVs:	Liabilities of CIVs:													Liabilities of CIVs:
CLO obligations of CFEs (5)	CLO obligations of CFEs (5)			(3,598)		Yield			1.6	%	-	14.2%		2.2%				CLO obligations of CFEs (5)					(3,947)				Yield						1.6		%	-		24.1%		3.2%
Warehouse financing debt	Warehouse financing debt			(31)		Yield			16.2	%	-	27.7%		23.7%		Warehouse financing debt					(19)				Yield						16.0%
Securitized borrowing	Securitized borrowing			(21)		Discount rate			24.2%							Securitized borrowing				(21)				Discount rate						24.3%
																							Market multiple-enterprise value/EBITDA				10.00x			-			11.00x					10.67x

___________________

(1) Discounted cash flow is used as the primary valuation technique.

(2) Excludes several investments recorded in “other invested assets” with a fair value of $5 million.

(3) The primary valuation technique uses the income and/or market approach; the key inputs to the valuation are yield/discount rates and market multiples.

(4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, for which it is calculated as a percentage of fair value.

(5) See CFE fair value methodology described above for consolidated CLOs.

(6) Earnings before interest, taxes, depreciation, and amortization (EBITDA).

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Quantitative Information About Level 3 Fair Value Inputs

As of December 31, 2021


Financial Instrument Description	Financial Instrument Description	Fair Value (in millions)			Significant Unobservable Inputs			Range						Weighted Average (4)	Financial Instrument Description			Fair Value (in millions)				Significant Unobservable Inputs				Range										Weighted Average (4)
Assets (2):	Assets (2):														Assets (2):
Fixed-maturity securities, available-for-sale (1):	Fixed-maturity securities, available-for-sale (1):														Fixed-maturity securities, available-for-sale (1):
Obligations of state and political subdivisions	Obligations of state and political subdivisions	$	72		Yield			4.4	%	-		24.5%		6.2%	Obligations of state and political subdivisions			$	72			Yield				4.4	%	-			24.5%					6.2%
RMBS	RMBS	216			CPR			0.0	%	-		22.7%		10.4%	RMBS			216				CPR				0.0	%	-			22.7%					10.4%
				CDR		1.4	%	-		12.0%			5.9%				CDR					1.4	%	-		12.0%					5.9%
				Loss severity		50.0	%	-		125.0%			84.9%				Loss severity					50.0	%	-		125.0%					84.9%
				Yield		3.8	%	-		5.6%			4.5%				Yield					3.8	%	-		5.6%					4.5%
Asset-backed securities:	Asset-backed securities:															Asset-backed securities:
Life insurance transactions	Life insurance transactions			367		Yield				5.0%							Life insurance transactions				367				Yield				5.0%
CLOs	CLOs			458		Discount margin				0.0	%	-	2.9%			1.8%			CLOs			458				Discount margin					0.0		%	-		2.9%			1.8%
Others	Others			38		Yield				3.2	%	-	7.9%			7.9%			Others			38				Yield					3.2		%	-		7.9%			7.9%
FG VIEs’ assets (1)	FG VIEs’ assets (1)	260			CPR			0.9	%	-		24.5%		13.3%	FG VIEs’ assets (1)			260				CPR				0.9	%	-			24.5%					13.3%
				CDR		1.4	%	-		26.9%			7.6%				CDR					1.4	%	-		26.9%					7.6%
				Loss severity		45.0	%	-		100.0%			81.6%				Loss severity					45.0	%	-		100.0%					81.6%
				Yield		1.4	%	-		8.0%			4.6%				Yield					1.4	%	-		8.0%					4.6%
Assets of CIVs (3):	Assets of CIVs (3):															Assets of CIVs (3):
Equity securities and warrants	Equity securities and warrants			239		Yield				7.7%							Equity securities and warrants				239				Yield				7.7%
					Discount rate			14.7	%	-		23.9%		21.6%									Discount rate				14.7		%	-			23.9%				21.6%
					Market multiple-enterprise value/revenue			1.10x															Market multiple-enterprise value/revenue				1.10x
					Market multiple-enterprise value/EBITDA			3.00x		-		10.50x		8.95x								Market multiple-enterprise value/EBITDA				3.00x					10.50x					8.95x
					Market multiple-price to book			1.85x														Market multiple-price to book				1.85x
Corporate securities	Corporate securities			91		Discount rate				14.7	%	-	21.4%		17.8%		Corporate securities				91				Discount rate				14.7		%	-			21.4%			17.8%
					Yield			16.4%														Yield				16.4%
Other assets (1)	Other assets (1)			23		Implied Yield				2.7	%	-	3.3%		3.0%		Other assets (1)				23				Implied Yield				2.7		%	-			3.3%			3.0%
					Term (years)			10 years														Term (years)				10 years
Liabilities (1):	Liabilities (1):														Liabilities (1):
Credit derivative liabilities, net	Credit derivative liabilities, net	(154)			Year 1 loss estimates			0.0	%	-		85.8%		0.1%	Credit derivative liabilities, net			(154)				Year 1 loss estimates				0.0	%	-			85.8%					0.1%
				Hedge cost (in bps)		8.0		-		37.1			12.6				Hedge cost (in bps)					8.0		-		37.1					12.6
				Bank profit (in bps)		0.0		-		187.8			67.9				Bank profit (in bps)					0.0		-		187.8					67.9
				Internal floor (in bps)		8.8											Internal floor (in bps)					8.8
				Internal credit rating		AAA		-		CCC			AA				Internal credit rating					AAA		-		CCC					AA
FG VIEs’ liabilities	FG VIEs’ liabilities			(289)		CPR				0.9	%	-	24.5%			13.3%			FG VIEs’ liabilities			(289)				CPR					0.9		%	-		24.5%			13.3%
					CDR			1.4	%	-		26.9%		7.6%						CDR						1.4	%	-			26.9%					7.6%
					Loss severity			45.0	%	-		100.0%		81.6%						Loss severity						45.0	%	-			100.0%					81.6%
					Yield			1.4	%	-		8.0%		3.7%						Yield						1.4	%	-			8.0%					3.7%
Liabilities of CIVs:	Liabilities of CIVs:														Liabilities of CIVs:
CLO obligations of CFEs (5)	CLO obligations of CFEs (5)			(3,665)		Yield				1.6	%	-	13.7%		2.1%		CLO obligations of CFEs (5)					(3,665)				Yield					1.6		%	-		13.7%			2.1%
Warehouse financing debt	Warehouse financing debt			(23)		Yield				12.6	%	-	16.0%		13.8%		Warehouse financing debt					(23)				Yield					12.6		%	-		16.0%			13.8%
Securitized borrowing	Securitized borrowing			(17)		Discount rate				23.9%							Securitized borrowing					(17)				Discount rate					23.9%
					Market multiple-enterprise value/revenue			10.50x														Market multiple-enterprise value/revenue				10.50x

____________________

(1) Discounted cash flow is used as the primary valuation technique.

(2) Excludes several investments reported in “other invested assets” with a fair value of $6 million.

(3) The primary valuation technique uses the income and/or market approach, the key inputs to the valuation are yield/discount rates and market multiples.

(4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, for which it is calculated as a percentage of fair value.

(5) See CFE fair value methodology described above for consolidated CLOs.

6370

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Not Carried at Fair Value

Financial Guaranty Insurance Contracts

Fair value is based on management’s estimate of what a similarly rated financial guaranty insurance company would demand to acquire the Company’s in-force book of financial guaranty insurance business. It is based on a variety of factors that may include pricing assumptions management has observed for portfolio transfers, commutations, and acquisitions that have occurred in the financial guaranty market, and also includes adjustments for stressed losses, ceding commissions and return on capital. The Company classified the fair value of financial guaranty insurance contracts as Level 3.

Long-Term Debt

Long-term debt issued by the U.S. Holding Companies is valued by broker-dealers using third party independent pricing sources and standard market conventions and classified as Level 2 in the fair value hierarchy. The market conventions utilize market quotations, market transactions for the Company’s comparable instruments, and to a lesser extent, similar instruments in the broader insurance industry.

Assets and Liabilities of CIVs

Cash equivalents are recorded at cost which approximates fair value. Due from/to brokers and counterparties primarily consists of cash, margin deposits, and cash collateral with the clearing brokers and various counterparties and the net amounts receivable/payable for securities transactions that had not settled at the balance sheet date. Due from/to brokers and counterparties represent balances on a net-by counterparty basis on the condensed consolidated balance sheets where a contractual right of offset exists under an enforceable netting arrangement. The cash at brokers is partially related to collateral for securities sold short and derivative contracts; its use is therefore restricted until the securities are purchased or the derivative contracts are closed. The carrying value approximates fair value of these items and are considered Level 1 in the fair value hierarchy.

Other Liabilities

Other liabilities in the table below include ~~$36~~$34 million and $37 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, for AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5% of the senior and equity notes issued by certain BlueMountain European CLOs, which was required to comply with its European risk retention obligations. The maturity dates are in 2034 and 2035. AssuredIM’s obligation under the master repurchase agreement is not guaranteed by any Assured Guaranty insurance or holding companies.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value of Financial Instruments Not Carried at Fair Value


		As of March 31, 2022				As of December 31, 2021					As of June 30, 2022				As of December 31, 2021
		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
		(in millions)									(in millions)
Assets (liabilities):	Assets (liabilities):									Assets (liabilities):
Assets of CIVs (1)	Assets of CIVs (1)	$	176	$	176	$	171	$	171	Assets of CIVs (1)	$	118	$	118	$	171	$	171
Other assets (including other invested assets) (2)	Other assets (including other invested assets) (2)	98		99		134		135		Other assets (including other invested assets) (2)	102		103		134		135
Financial guaranty insurance contracts (3)	Financial guaranty insurance contracts (3)	(2,422)		(1,677)		(2,394)		(2,315)		Financial guaranty insurance contracts (3)	(2,537)		(1,595)		(2,394)		(2,315)
Long-term debt	Long-term debt	(1,673)		(1,677)		(1,673)		(1,832)		Long-term debt	(1,674)		(1,539)		(1,673)		(1,832)
Liabilities of CIVs (4)	Liabilities of CIVs (4)	(859)		(859)		(586)		(586)		Liabilities of CIVs (4)	(442)		(442)		(586)		(586)
Other liabilities (5)	Other liabilities (5)	(61)		(61)		(45)		(45)		Other liabilities (5)	(48)		(50)		(45)		(45)

____________________

(1) Includes due from brokers and counterparties and cash equivalents. Carrying value approximates fair value.

(2) ~~Includes~~Primarily includes accrued interest, receivable for an unsettled sale of a portion of the Puerto Rico salvage and subrogation recoverable, management fees receivables and receivables for securities sold for which carrying value approximates fair value.

(3) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.

(4) Includes due to brokers and counterparties and fund’s loan payable. Carrying value approximates fair value.

(5) Includes accrued interest, repurchase agreement liability and payables for securities purchased for which carrying value approximates fair value.

10. Asset Management Fees

The following table presents the sources of asset management fees ~~and performance fees~~ on a consolidated basis.

Asset Management Fees


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Management fees:	Management fees:					Management fees:
CLOs (1)	CLOs (1)	$	9	$	11	CLOs (1)	$	8	$	11	$	17	$	22
Opportunity funds and liquid strategies	Opportunity funds and liquid strategies	4		4		Opportunity funds and liquid strategies	8		4		12		8
Wind-down funds	Wind-down funds	1		3		Wind-down funds	—		1		1		4
Total management fees	Total management fees	14		18		Total management fees	16		16		30		34
Performance fees	Performance fees	14		1		Performance fees	1		—		15		1
Reimbursable fund expenses	Reimbursable fund expenses	6		5		Reimbursable fund expenses	4		5		10		10
Total asset management fees	Total asset management fees	$	34	$	24	Total asset management fees	$	21	$	21	$	55	$	45

_____________________

(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs. Gross management fees from CLOs, before rebates, we~~re $9~~were $8 million, $11 million, $17 million and ~~$14~~$25 million for ~~First Quarter~~second quarter 2022, second quarter 2021, six months 2022 and ~~First Quarter~~six months 2021, respectively.

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $7$11 million as of ~~March 31,~~June 30, 2022 and $8 million as of December 31, 2021. Performance fees in ~~First Quarter~~six months 2022 were attributable to the healthcare and asset-based funds.

11. Long-Term Debt and Credit Facilities

On May 26, 2021, AGUS issued $500 million of 3.15% Senior Notes due 2031 (3.15% Senior Notes) for net proceeds of $494 million. The net proceeds from the issuance were used for the redemption on July 9, 2021, of all of AGMH’s debt maturing in 2101 and a portion of AGMH debt maturing in 2102, with the balance being used for general corporate purposes, including share repurchases. See the condensed consolidated statements of cash flows.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~11. Credit Facilities~~

On February 3, 2022, the Company entered into a secured short-term loan facility with a major financial institution to partially fund gross payments in connection with the resolution of a portion of its Puerto Rico exposures. See Note 3, Outstanding Exposure. The short-term loan facility permitted the Company to borrow up to $550 million for up to thirty days and up to $150 million for up to six months. The Company borrowed $400 million under the thirty days portion of this facility on March 14, 2022, and repaid it in full, with interest, on March 16, 2022. The Company did not borrow any amounts under the six months portion of the facility. The one month component bore interest at 1.10% per annum and the six months component would have borne a floating interest rate equal to the forward-looking term Secured Overnight Financing Rate for a tenor of one month provided by CME Group Benchmark Administration Limited, plus 1.10% per annum. The ability of the Company to borrow under the facility has expired.

12. Income Taxes

Overview

AGL and its Bermuda subsidiaries AG Re, AGRO, and Cedar Personnel Ltd. (collectively, the Bermuda Subsidiaries) are not subject to any income, withholding or capital gains taxes under current Bermuda law. The Company has received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, AGL and its Bermuda Subsidiaries will be exempt from taxation in Bermuda until March 31, 2035. AGL’s U.S., U.K. and French subsidiaries are subject to income taxes imposed by U.S., U.K. and French authorities, respectively, and file applicable tax returns. In addition, AGRO, a Bermuda domiciled company, has elected under Section 953(d) of the U.S. Internal Revenue Code (the Code) to be taxed as a U.S. domestic corporation.

AGL is tax resident in the U.K. although it remains a Bermuda-based company and its administrative and head office functions continue to be carried on in Bermuda.

AGUS files a consolidated federal income tax return with all of its U.S. subsidiaries. Assured Guaranty Overseas US Holdings Inc. and its subsidiaries AGRO and AG Intermediary Inc. file their own consolidated federal income tax return.

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities) (1)


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(in millions)					(in millions)
Net deferred tax assets (liabilities)	Net deferred tax assets (liabilities)	$	42	$	(33)	Net deferred tax assets (liabilities)	$	110	$	(33)
Net current tax assets (liabilities)	Net current tax assets (liabilities)	(61)		(43)		Net current tax assets (liabilities)	19		(43)

____________________

(1) Included in “other assets” or “other liabilities” on the condensed consolidated balance sheets.

Valuation Allowance

As of ~~March 31,~~June 30, 2022, and December 31, 2021, the Company had $24 million of foreign tax credit (FTC) due to the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years. FTCs will expire in 2027. In analyzing the future realizability of FTCs, the Company notes limitations on future foreign source income due to overall foreign losses as negative evidence. After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the FTC of $24 million will not be utilized, and therefore maintained the valuation allowance from December 31, 2021 with respect to this tax attribute.

The Company came to the conclusion that it is more likely than not that the remaining deferred tax assets will be fully realized after weighing all positive and negative evidence available as required under GAAP. The positive evidence that was considered included the cumulative income the Company has earned over the last three years, and the significant unearned premium income to be included in taxable income. The positive evidence outweighs any negative evidence that exists. As such, the Company believes that no valuation allowance is necessary in connection with the remaining deferred tax assets. The Company will continue to analyze the need for a valuation allowance on a quarterly basis.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Provision for Income Taxes

The Company’s provision for income taxes for interim financial periods is not based on an estimated annual effective rate due, for example, to the variability in loss reserves, fair value of its credit derivatives and VIEs, and foreign exchange gains and losses which prevents the Company from projecting a reliable estimated annual effective tax rate and pre-tax income for the full year ~~2021.~~2022. A discrete calculation of the provision is calculated for each interim period.

The effective tax rates reflect the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19%, the French subsidiary taxed at the French marginal corporate tax rate of 25.0% in 2022 and 27.5% in 2021, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S. tax by election. The Company’s overall effective tax rate fluctuates based on the distribution of income across jurisdictions.

A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below.

Effective Tax Rate Reconciliation


		First Quarter							Second Quarter						Six Months
		2022			2021				2022			2021			2022			2021
		(in millions)							(in millions)
Expected tax provision (benefit)	Expected tax provision (benefit)	$	14		$	(1)		Expected tax provision (benefit)	$	(2)		$	23		$	12		$	22
Tax-exempt interest	Tax-exempt interest	(3)			(4)			Tax-exempt interest	(4)			(4)			(7)			(8)
Noncontrolling interest								Noncontrolling interest	(5)			(1)			(6)			(2)
State taxes	State taxes	4			3			State taxes	4			4			8			7
Foreign taxes	Foreign taxes	1			2			Foreign taxes	9			—			10			2
Stock based compensation	Stock based compensation	2			—			Stock based compensation	2			—			4			—
Other								Other	(1)			1			—			2
Total provision (benefit) for income taxes	Total provision (benefit) for income taxes	$	18		$	—		Total provision (benefit) for income taxes	$	3		$	23		$	21		$	23
Effective tax rate	Effective tax rate	20.0		%	(0.9)		%	Effective tax rate	(12.9)		%	18.5		%	30.3		%	16.5		%

The expected tax provision (benefit) is calculated as the sum of pre-tax income in each jurisdiction multiplied by the statutory tax rate of the jurisdiction by which it will be taxed. Where there is a pre-tax loss in one jurisdiction and pre-tax income in another, the total combined expected tax rate may be higher or lower than any of the individual statutory rates.

The following tables present pre-tax income and revenue by jurisdiction.

Pre-tax Income (Loss) by Tax Jurisdiction


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
U.S.	U.S.	$	84	$	(4)	U.S.	$	25	$	106	$	109	$	102
Bermuda	Bermuda	27		20		Bermuda	(10)		16		17		36
U.K.	U.K.	(14)		1		U.K.	(31)		3		(45)		4
Other	Other	(4)		(2)		Other	(6)		—		(10)		(2)
Total	Total	$	93	$	15	Total	$	(22)	$	125	$	71	$	140

~~Revenue by Tax Jurisdiction~~

First Quarter
2022 2021
(in millions)
U.S. $ 269 $ 134
Bermuda 33 30
U.K. — 13
Other (2) —
Total $ 300 $ 177

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Revenue by Tax Jurisdiction


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
U.S.	$	106	$	150	$	375	$	284
Bermuda	6		28		39		58
U.K.	(18)		17		(18)		30
Other	(4)		1		(6)		1
Total	$	90	$	196	$	390	$	373

Pre-tax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.

Audits

As of ~~March 31,~~June 30, 2022, AGUS and Assured Guaranty Overseas US Holdings Inc. had open tax years with the U.S. Internal Revenue Service (IRS) for 2018 forward and AGUS is currently under audit for the 2018 and 2019 tax years. ~~The Company’s U.K. subsidiaries are not currently under examination and have open tax years~~In July 2022, Her Majesty’s Revenue & Customs commenced a business risk review of ~~2020 forward.~~Assured Guaranty. The Company’s French subsidiary is not currently under examination and has open tax years of 2019 forward.

13. Commitments and Contingencies

Legal Proceedings

Lawsuits arise in the ordinary course of the Company’s business. It is the opinion of the Company’s management, based upon the information available, that the expected outcome of litigation against the Company, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position or liquidity, although an adverse resolution of litigation against the Company in a fiscal quarter or year could have a material adverse effect on the Company’s results of operations in a particular quarter or year.

In addition, in the ordinary course of their respective businesses, certain of AGL’s insurance subsidiaries are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future. For example, the Company is involved in a number of legal actions in the Federal District Court for Puerto Rico to enforce or defend its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations. See “Exposure to Puerto Rico” section of Note 3, Outstanding Exposure, for a description of such actions. Also in the ordinary course of their respective business, certain of AGL’s investment management subsidiaries are involved in litigation with third parties regarding fees, appraisals, or portfolio companies. The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s results of operations in that particular quarter or year.

The Company also receives subpoenas and interrogatories from regulators from time to time.

Litigation

On November 28, 2011, Lehman Brothers International (Europe) (in administration) (LBIE) sued AG Financial Products Inc. (AGFP), an affiliate of AGC which in the past had provided credit protection to counterparties under CDS. AGC acts as the credit support provider of AGFP under these CDS. LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the Supreme Court), asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination in December 2008 of 9 credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP’s termination in July 2008 of 28 other credit derivative transactions between LBIE and AGFP and AGFP’s calculation of the termination payment in connection with those 28 other credit derivative transactions. Following defaults by LBIE, AGFP properly terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly. AGFP has calculated that LBIE owes AGFP approximately $4 million for the claims which were dismissed and approximately $21 million in connection with the termination of the other credit derivative transactions, whereas

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $1.4 billion. AGFP filed a motion to dismiss the claims for breach of the implied covenant of good faith in LBIE’s complaint, and on March 15, 2013, the court granted AGFP’s motion to dismiss in respect of the count relating to the 9 credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions. LBIE’s administrators disclosed in an April 10, 2015 report to LBIE’s unsecured creditors that LBIE’s valuation expert has calculated LBIE’s claim for damages in aggregate for the 28 transactions to range between a minimum of approximately $200 million and a maximum of approximately $500 million, depending on what adjustment, if any, is made for AGFP's credit risk. In addition, LBIE seeks prejudgment interest from the time of termination onwards. AGFP filed a motion for summary judgment on the remaining causes of action asserted by LBIE and on AGFP’s counterclaims, and on July 2, 2018, the court granted in part and denied in part AGFP’s motion. The court dismissed, in its entirety, LBIE’s remaining claim for breach of the implied covenant of good faith and fair dealing and also dismissed LBIE’s claim for breach of contract solely to the extent that it is based upon AGFP’s conduct in connection with the auction. With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding

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~~Assured Guaranty Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited), Continued~~

whether AGFP calculated its loss reasonably and in good faith. On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the lower court’s ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole remaining claim for breach of contract. On January 17, 2019, the Appellate Division affirmed the Supreme Court’s decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith. The trial was originally scheduled for March 9, 2020, but was postponed due to COVID-19. On November 3, 2020, LBIE moved to reopen its Chapter 15 case in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) and remove this action to the United States District Court for the Southern District of New York for assignment to the Bankruptcy Court. On March 22, 2021, the Bankruptcy Court denied the motion and remanded the action to the Supreme Court. On March 29, 2021, the action was reassigned to Justice Melissa A. Crane. A bench trial was held before Justice Melissa A. Crane of the New York Supreme Court from October 18 ~~2021~~ through November 19, ~~2021;~~2021. Post-trial briefing was completed on June 21, 2022, and a decision is ~~pending subject to post-trial briefing and argument.~~anticipated in the second half of 2022.

14. Shareholders’ Equity

Other Comprehensive Income

The following tables present the changes in each component of AOCI and the effect of reclassifications out of AOCI into the respective lines in the condensed consolidated statements of operations.

Changes in Accumulated Other Comprehensive Income (Loss) by Component

~~First~~Second Quarter 2022


		Net Unrealized Gains (Losses) on Investments with:				ISCR on FG VIEs’ Liabilities with Recourse				Cumulative Translation Adjustment			Cash Flow Hedge				Total AOCI				Net Unrealized Gains (Losses) on Investments with:						ISCR on FG VIEs’ Liabilities with Recourse			Cumulative Translation Adjustment			Cash Flow Hedge			Total AOCI
		No Credit Impairment		Credit Impairment								No Credit Impairment								Credit Impairment
		(in millions)																			(in millions)
Balance, December 31, 2021		$	375	$	(24)			$	(21)						$	(36)			$	6			$	300
Balance, March 31, 2022																				Balance, March 31, 2022	$	37			$	(63)		$	(21)		$	(37)		$	6		$	(78)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(339)		(43)		(1)				(1)			—				(384)			Other comprehensive income (loss) before reclassifications	(261)				(48)		2			(8)			—			(315)
Less: Amounts reclassified from AOCI to:	Less: Amounts reclassified from AOCI to:																			Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	Net realized investment gains (losses)	(1)		(5)		—				—			—				(6)			Net realized investment gains (losses)	(23)				(5)		—			—			—			(28)
Fair value gains (losses) on FG VIEs	Fair value gains (losses) on FG VIEs	—		—		(1)				—			—				(1)			Fair value gains (losses) on FG VIEs	—				—		(1)			—			—			(1)
Total before tax	Total before tax	(1)		(5)		(1)				—			—				(7)			Total before tax	(23)				(5)		(1)			—			—			(29)
Tax (provision) benefit	Tax (provision) benefit	—		1		—				—			—				1			Tax (provision) benefit	4				1		1			—			—			6
Total amount reclassified from AOCI, net of tax	Total amount reclassified from AOCI, net of tax	(1)		(4)		(1)				—			—				(6)			Total amount reclassified from AOCI, net of tax	(19)				(4)		—			—			—			(23)
Other comprehensive income (loss)	Other comprehensive income (loss)	(338)		(39)		—				(1)			—				(378)			Other comprehensive income (loss)	(242)				(44)		2			(8)			—			(292)
Balance, March 31, 2022		$	37	$	(63)	$	(21)			$	(37)		$	6			$	(78)
Balance, June 30, 2022																				Balance, June 30, 2022	$	(205)			$	(107)	$	(19)		$	(45)		$	6		$	(370)

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

~~First~~Second Quarter 2021


		Net Unrealized Gains (Losses) on Investments with:				ISCR on FG VIEs’ Liabilities with Recourse				Cumulative Translation Adjustment			Cash Flow Hedge				Total AOCI				Net Unrealized Gains (Losses) on Investments with:						ISCR on FG VIEs’ Liabilities with Recourse			Cumulative Translation Adjustment			Cash Flow Hedge			Total AOCI
		No Credit Impairment		Credit Impairment								No Credit Impairment								Credit Impairment
		(in millions)																			(in millions)
Balance, December 31, 2020		$	577	$	(30)			$	(20)						$	(36)			$	7			$	498
Balance, March 31, 2021																				Balance, March 31, 2021	$	458			$	(36)		$	(21)		$	(35)		$	7		$	373
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(119)		(8)		(2)				1			—				(128)			Other comprehensive income (loss) before reclassifications	54				24		(2)			(1)			—			75
Less: Amounts reclassified from AOCI to:	Less: Amounts reclassified from AOCI to:																			Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	Net realized investment gains (losses)	—		(3)		—				—			—				(3)			Net realized investment gains (losses)	4				—		—			—			—			4
Fair value gains (losses) on FG VIEs	Fair value gains (losses) on FG VIEs	—		—		(1)				—			—				(1)			Fair value gains (losses) on FG VIEs	—				—		(1)			—			—			(1)
Total before tax	Total before tax	—		(3)		(1)				—			—				(4)			Total before tax	4				—		(1)			—			—			3
Tax (provision) benefit	Tax (provision) benefit	—		1		—				—			—				1			Tax (provision) benefit	(1)				—		1			—			—			—
Total amount reclassified from AOCI, net of tax	Total amount reclassified from AOCI, net of tax	—		(2)		(1)				—			—				(3)			Total amount reclassified from AOCI, net of tax	3				—		—			—			—			3
Other comprehensive income (loss)	Other comprehensive income (loss)	(119)		(6)		(1)				1			—				(125)			Other comprehensive income (loss)	51				24		(2)			(1)			—			72
Balance, March 31, 2021		$	458	$	(36)	$	(21)			$	(35)		$	7			$	373
Balance, June 30, 2021																				Balance, June 30, 2021	$	509			$	(12)	$	(23)		$	(36)		$	7		$	445

~~Share Repurchases~~Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2022

On February 23, 2022, the Board of Directors (the Board) authorized the repurchase of an additional $350 million of its common shares. Under this and previous authorizations, as of May 5, 2022, the Company was authorized to purchase $240 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time. It does not have an expiration date.


	Net Unrealized Gains (Losses) on Investments with:				ISCR on FG VIEs’ Liabilities with Recourse		Cumulative Translation Adjustment		Cash Flow Hedge		Total AOCI
	No Credit Impairment		Credit Impairment
	(in millions)
Balance, December 31, 2021	$	375	$	(24)	$	(21)	$	(36)	$	6	$	300
Other comprehensive income (loss) before reclassifications	(600)		(91)		1		(9)		—		(699)
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	(24)		(10)		—		—		—		(34)
Fair value gains (losses) on FG VIEs	—		—		(2)		—		—		(2)
Total before tax	(24)		(10)		(2)		—		—		(36)
Tax (provision) benefit	4		2		1		—		—		7
Total amount reclassified from AOCI, net of tax	(20)		(8)		(1)		—		—		(29)
Other comprehensive income (loss)	(580)		(83)		2		(9)		—		(670)
Balance, June 30, 2022	$	(205)	$	(107)	$	(19)	$	(45)	$	6	$	(370)

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2021


	Net Unrealized Gains (Losses) on Investments with:				ISCR on FG VIEs’ Liabilities with Recourse		Cumulative Translation Adjustment		Cash Flow Hedge		Total AOCI
	No Credit Impairment		Credit Impairment
	(in millions)
Balance, December 31, 2020	$	577	$	(30)	$	(20)	$	(36)	$	7	$	498
Other comprehensive income (loss) before reclassifications	(65)		16		(4)		—		—		(53)
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)	4		(3)		—		—		—		1
Fair value gains (losses) on FG VIEs	—		—		(2)		—		—		(2)
Total before tax	4		(3)		(2)		—		—		(1)
Tax (provision) benefit	(1)		1		1		—		—		1
Total amount reclassified from AOCI, net of tax	3		(2)		(1)		—		—		—
Other comprehensive income (loss)	(68)		18		(3)		—		—		(53)
Balance, June 30, 2021	$	509	$	(12)	$	(23)	$	(36)	$	7	$	445

Share Repurchases

Period Number of Shares Repurchased Total Payments
(in millions) Average Price Paid Per Share
2021 (January 1 - March 31) 1,986,534 $ 77 $ 38.83
2021 (April 1 - June 30) 1,887,531 88 46.63
2021 (July 1- September 30) 2,918,993 140 47.76
2021 (October 1 - December 31) 3,725,982 191 51.47
Total 2021 10,519,040 $ 496 47.19
2022 (January 1 - March 31) (1) 2,738,223 155 56.62
2022 (April 1 - May 5) 1,007,045 61 59.86
Total 2022 3,745,268 $ 216 57.49

On August 3, 2022, the Board of Directors (the Board) authorized the repurchase of an additional $250 million of its common shares. Under this and previous authorizations, as of August 3, 2022, the Company was authorized to purchase $365 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time. It does not have an expiration date.

Share Repurchases


Period	Number of Shares Repurchased	Total Payments (in millions)		Average Price Paid Per Share
2021 (January 1 - March 31)	1,986,534	$	77	$	38.83
2021 (April 1 - June 30)	1,887,531	88		46.63
2021 (July 1- September 30)	2,918,993	140		47.76
2021 (October 1 - December 31)	3,725,982	191		51.47
Total 2021	10,519,040	$	496	47.19
2022 (January 1 - March 31) (1)	2,738,223	155		56.62
2022 (April 1 - June 30)	2,605,947	151		58.03
2022 (July 1 - August 3)	623,528	35		55.89
Total 2022	5,967,698	$	341	57.16

____________________

(1) Includes $3 million of share repurchases that was prepaid in December 2021 and settled in ~~First Quarter~~the first quarter of 2022.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

15. Earnings Per Share

Computation of Earnings Per Share


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions, except per share amounts)					(in millions, except per share amounts)
Basic Earnings Per Share (EPS):	Basic Earnings Per Share (EPS):					Basic Earnings Per Share (EPS):
Net income (loss) attributable to AGL	Net income (loss) attributable to AGL	$	66	$	11	Net income (loss) attributable to AGL	$	(47)	$	98	$	19	$	109
Less: Distributed and undistributed income (loss) available to nonvested shareholders	Less: Distributed and undistributed income (loss) available to nonvested shareholders	—		—		Less: Distributed and undistributed income (loss) available to nonvested shareholders	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	66	$	11	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	(47)	$	98	$	19	$	109
Basic shares	Basic shares	66.3		76.7		Basic shares	63.8		75.2		65.0		75.9
Basic EPS	Basic EPS	$	1.00	$	0.14	Basic EPS	$	(0.74)	$	1.31	$	0.29	$	1.44

Diluted EPS:	Diluted EPS:					Diluted EPS:
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	66	$	11	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	(47)	$	98	$	19	$	109
Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries	Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries	—		—		Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries	—		—		—		—
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	$	66	$	11	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	$	(47)	$	98	$	19	$	109
Basic shares	Basic shares	66.3		76.7		Basic shares	63.8		75.2		65.0		75.9
Dilutive securities:	Dilutive securities:					Dilutive securities:
Options and restricted stock awards	Options and restricted stock awards	1.1		0.8		Options and restricted stock awards	—		0.8		1.2		0.8
Diluted shares	Diluted shares	67.4		77.5		Diluted shares	63.8		76.0		66.2		76.7
Diluted EPS	Diluted EPS	$	0.98	$	0.14	Diluted EPS	$	(0.74)	$	1.29	$	0.29	$	1.42
Potentially dilutive securities excluded from computation of EPS because of antidilutive effect	Potentially dilutive securities excluded from computation of EPS because of antidilutive effect	0.2		0.3		Potentially dilutive securities excluded from computation of EPS because of antidilutive effect	2.1		—		1.2		0.2

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Form 10-Q contains information that includes or is based upon forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements give the expectations or forecasts of future events of Assured Guaranty Ltd. (AGL) and its subsidiaries (collectively with AGL, Assured Guaranty or the Company). These statements can be identified by the fact that they do not relate strictly to historical or current facts and relate to future operating or financial performance.

Any or all of Assured Guaranty’s forward looking statements herein are based on current expectations and the current economic environment and may turn out to be incorrect. Assured Guaranty’s actual results may vary materially. Among factors that could cause actual results to differ adversely are:

•changes in inflation, interest rates, the world’s credit markets or segments thereof, credit spreads or general economic conditions;

•consequences of the conflict in Ukraine, including economic sanctions, volatility in energy prices, and the potential for increased cyberattacks;

•the development, course and duration of the COVID-19 pandemic and the governmental and private actions taken in response, the effectiveness, acceptance and distribution of COVID-19 vaccines and therapeutics, and the global consequences of the pandemic and such actions, including their impact on the factors listed ~~below;~~

•~~consequences of the conflict~~ in ~~Ukraine, including economic sanctions, volatility in energy prices, and the potential for increased cyberattacks;~~

•~~changes in the world’s credit markets, segments thereof, interest rates, inflation, credit spreads or general economic conditions;~~this section;

•developments in the world’s financial and capital markets that adversely affect insured obligors’ repayment rates, Assured Guaranty’s insurance loss or recovery experience, investments of Assured Guaranty or assets it manages;

•reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty’s insurance;

•the loss of investors in Assured Guaranty’s asset management strategies or the failure to attract new investors to Assured Guaranty’s asset management business;

•the possibility that budget or pension shortfalls or other factors will result in credit losses or impairments on obligations of state, territorial and local governments and their related authorities and public corporations that Assured Guaranty insures or reinsures;

•insured losses in excess of those expected by Assured Guaranty or the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the failure to resolve Assured Guaranty’s exposures to Puerto Rico ~~exposures~~(Puerto Rico or the Commonwealth) in a manner substantially consistent with the support agreements signed to date;

•increased competition, including from new entrants into the financial guaranty industry;

•poor performance of Assured Guaranty’s asset management strategies compared to the performance of the asset management strategies of Assured Guaranty’s competitors;

•the possibility that investments made by Assured Guaranty for its investment portfolio, including alternative investments and investments it manages, do not result in the benefits anticipated or subject Assured Guaranty to reduced liquidity at a time it requires liquidity, or to unanticipated consequences;

•the impact of market volatility on the mark-to-market of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, most of its financial guaranty contracts written in credit default swap (CDS) form, and certain consolidated variable interest entities (VIEs);

•rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its insurance subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL’s insurance subsidiaries have insured;

•the inability of Assured Guaranty to access external sources of capital on acceptable terms;

•changes in applicable accounting policies or practices;

•changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions;

•the possibility that acquisitions made by Assured Guaranty, including its acquisition of BlueMountain Capital Management LLC (BlueMountain, now known as Assured Investment Management LLC) and its associated entities (BlueMountain Acquisition), do not result in the benefits anticipated or subject Assured Guaranty to unanticipated consequences;

•difficulties with the execution of Assured Guaranty’s business strategy;

•loss of key personnel;

•the effects of mergers, acquisitions and divestitures;

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•natural or man-made catastrophes or pandemics;

•other risk factors identified in AGL’s filings with the United States (U.S.) Securities and Exchange Commission ~~(the SEC)~~(SEC);

•other risks and uncertainties that have not been identified at this time; and

•management’s response to these factors.

The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, as well as the risk factors included in the Company’s 2021 Annual Report on Form 10-K. The Company undertakes no obligation to update publicly or review any forward looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Investors are advised, however, to consult any further disclosures the Company makes on related subjects in the Company’s reports filed with the SEC.

If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, actual results may vary materially from what the Company projected. Any forward looking statements in this Form 10-Q reflect the Company’s current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to its operations, results of operations, growth strategy and liquidity.

For these statements, the Company claims the protection of the safe harbor for forward looking statements contained in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).

Available Information

The Company maintains an internet web site at www.assuredguaranty.com. The Company makes available, free of charge, on its web site (under www.assuredguaranty.com/sec-filings) the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC. The Company also makes available, free of charge, through its web site (under www.assuredguaranty.com/governance) links to the Company’s Corporate Governance Guidelines, the Company’s Global Code of Ethics, AGL’s Bye-Laws and the charters for the committees of its Board of Directors. In addition, the SEC maintains an Internet site (at www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The Company routinely posts important information for investors on its web site (under www.assuredguaranty.com/company-statements and, more generally, under the Investor Information tab at www.assuredguaranty.com/investor-information and Businesses tab at www.assuredguaranty.com/businesses). The Company also maintains a social media account on LinkedIn (www.linkedin.com/company/assured-guaranty/). The Company uses its web site and may use its social media account as a means of disclosing material information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Company Statements, Investor Information and Businesses portions of the Company’s web site as well as the Company’s social media account on LinkedIn, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts.

The information contained on, or that may be accessed through, the Company’s web site or social media account is not incorporated by reference into, and is not a part of, this report.

Overview

Business

The Company reports its results of operations in two distinct segments, Insurance and Asset Management, consistent with the manner in which the Company’s chief operating decision maker (CODM) reviews the business to assess performance and allocate resources. The Company’s Corporate division and other activities (including financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs)) are presented separately.

In the Insurance segment, the Company provides credit protection products to the U.S. and international public finance (including infrastructure) and structured finance markets. The Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer credit protection products to holders of debt instruments and other monetary obligations that protect them from defaults in scheduled payments. If an obligor defaults on a scheduled

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payment due on an obligation, including a debt service payment, the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company markets its credit protection products directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The Company guarantees obligations issued principally in the U.S. and the United Kingdom (U.K.), and also guarantees obligations issued in other countries and regions, including Western Europe, Canada and Australia. The Company also provides other forms of insurance that are consistent with its risk profile and benefit from its underwriting experience, which are referred to as the specialty insurance and reinsurance business. Premiums are earned over the contractual lives, or in the case of homogeneous pools of insured obligations, the remaining expected lives, of financial guaranty insurance contracts.

In the Asset Management segment, the Company provides investment advisory services, which include the management of ~~CLOs,~~collateralized loan obligations (CLOs), opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down. Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM) have managed structured, public finance and credit investments since 2003. AssuredIM provides investment advisory services while leveraging a technology-enabled risk platform, which aims to maximize returns for its clients. The establishment, in the fourth quarter of 2019, of the Asset Management segment diversifies the risk profile and revenue opportunities of the Company. As of ~~March 31,~~June 30, 2022, AssuredIM had ~~$17.0~~$17.9 billion of assets under management (AUM), including ~~$1.4~~$1.3 billion that is managed on behalf of Assured Guaranty Municipal Corp. (AGM) and Assured Guaranty Corp. (AGC).

Fees in respect of investment advisory services are the largest component of revenues for the Asset Management segment. AssuredIM is compensated for its investment advisory services generally through management fees which are based on AUM, and may also earn performance fees calculated as a percentage of net profits or based on an internal rate of return referencing distributions made to investors, in each case, in respect of funds, ~~collateralized loan obligations (CLOs)~~CLOs and/or accounts which it advises.

The Corporate division consists primarily of interest expense on the debt of Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH) (the U.S. Holding Companies), as well as other operating expenses attributed to holding company activities, including administrative services performed by certain subsidiaries for the holding companies. Other activities include the effect of consolidating FG VIEs and CIVs (FG VIE and CIV consolidation). See Item 1, Financial Statements, Note 2, Segment Information.

Economic Environment

Economic activity in the U.S. and ~~throughout the world expanded~~ in ~~2021 and~~Europe showed signs of weakness in the ~~three month~~three-month period ended ~~March 31,~~June 30, 2022 ~~(First Quarter~~(second quarter 2022). According to ~~the advance estimate released by~~ the U.S. Bureau of Economic Analysis (BEA), after decreasing 1.6% in the first quarter of 2022, in second quarter 2022 real gross domestic product (GDP) ~~increased~~decreased for a second straight quarter, this time at an annual rate of ~~6.9% in the fourth quarter~~0.9%. Two straight quarters of ~~2021. Although an advance estimate released by the BEA showed that~~ GDP ~~decreased 1.4% in First Quarter 2022, the primary reason was reported to be as~~decline is a ~~result of trade, since net imports increased as supply chains improved and businesses continued to restock. More granular measures were positive, with~~common definition for a ~~4.7% increase in consumer spending and a 5.7% increase in business investment.~~recession. At the end of ~~March~~June 2022, the U.S. unemployment rate, seasonally adjusted, stood at 3.6%, ~~lower than where it started~~unchanged from the ~~quarter at 3.9%,~~end of March 2022, and down from a pandemic high of 14.7% in April 2020. More globally, the Organization for Economic Co-operation and Development (OECD) estimates that GDP in the OECD area increased by ~~5.1% during 2021,~~0.7% in the first quarter of 2022 on a quarter-over-quarter basis (the latest data available), with U.K. GDP estimated to have grown by ~~6.9% for the year, in each case after experiencing material contraction in 2020.~~0.7% on a quarter-over-quarter basis. The Company believes a more robust economy makes it less likely that obligors whose obligations it guarantees will default.

According to the U.S. Bureau of Labor Statistics, the inflation rate in the U.S. over the 12-month period ending ~~March~~June 2022, ~~(the latest data available),~~ as measured by the consumer price index (CPI) for all urban consumers, rose to ~~8.5%~~9.1% before seasonal adjustment, the ~~highest~~largest 12-month rate since ~~December of~~the period ending November 1981. The energy index rose ~~32% and~~41.6% over the 12 months ended June 2022. The food index ~~8.8%~~rose 10.4% over the same ~~12-month~~ period, the ~~most~~largest 12-month rate since the period ending ~~May~~February 1981. According to the U.K.’s Office for National Statistics (ONS), the ~~Consumer Prices Index~~CPI including owner occupiers’ housing costs (CPIH) ~~rose by 6.2%~~was 8.2% in the 12 months ending ~~March~~June 2022, up from ~~5.5%~~7.9% in ~~the 12 months ending February~~May 2022 and ~~1.0%~~6.2% in ~~the 12 months ending~~ March ~~2021.~~2022. Consumer price inflation does not impact the Company’s primary businesses directly, but may impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments or causes interest rates to rise more generally.

The 30-year AAA Municipal Market Data (MMD) rate is a measure of interest rates in the Company’s largest financial guaranty insurance market, U.S. public finance. The 30-year AAA MMD rate started ~~First Quarter~~second quarter 2022 at ~~1.49%~~2.53% but rose ~~more than 100~~65 basis points (bps) to end the quarter at ~~2.53%~~3.18%. The average rate for the quarter was ~~2.00%~~3.05%, considerably above the 2.00% average for the first quarter of 2022 and 1.54% average for full year 2021. With the onset of the COVID-19 pandemic, the Federal Open Market Committee (FOMC) lowered the target range

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for the federal funds rate to 0% to 0.25% in March 2020. However, with the FOMC acknowledging inflationary pressure building, the FOMC decided at ~~the FOMC’s~~its meeting in March 2022 ~~the FOMC decided~~ to ~~raise~~

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start again raising the target range for the federal funds rate, and has continued to ~~0.25% to 0.50%, stating that it anticipated that ongoing increases in the target range will be appropriate.~~do so since then. In addition, the FOMC ~~said~~has stated that it ~~expected to begin reducing~~would reduce its holdings of treasury securities and agency debt and agency mortgage-backed ~~securities at a coming meeting.~~securities. At the conclusion of its ~~May 3-4,~~June 14-15, 2022 meeting the FOMC ~~again~~ raised the federal funds target rate by 75 basis points to 1.5% to 1.75% . Then, at the conclusion of its July 26-27, 2022 meeting, the FOMC raised the federal funds rate by another 75 basis points to a target range ~~this time~~of 2.25% to ~~0.75% to 1%~~2.50%, ~~reiterating that it anticipated~~indicating that ongoing increases in the target ~~range~~rate would be appropriate. ~~In addition, the FOMC announced that it would begin reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities on June 1, 2022.~~ The level and direction of interest rates and credit spreads impact the Company in numerous ways. For example, higher interest rates (when accompanied by wider spreads) may make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for ~~that product,~~those products, and, over time, also increase the amount the Company can earn on its largely fixed-income investment portfolio. Specifically, the level of interest rates and spreads on the U.S. municipal bonds the Company enhances influences how high a premium the Company can charge for its public finance financial guaranty insurance product, with higher interest rates and spreads generally increasing the premium rates the Company may charge. On the other hand, high interest rates decrease the amount of excess spread available to support the distressed residential mortgage-backed securities (RMBS) the Company insures and reduce the market value of its largely fixed rate fixed-maturity securities in the investment portfolio. ~~The Company believes further increases in~~Higher interest rates may also dampen municipal bond issuance and ~~spreads in 2022, should it occur, could increase demand for insurance and permit it to increase its premium rates on new business.~~negatively impact the finances of some of the obligors whose payments the Company insures.

The difference, or credit spread, between the 30-year A-rated general obligation relative to the 30-year AAA MMD averaged 56 bps in second quarter 2022, up from 39 bps in ~~First Quarter~~the first quarter of 2022 ~~up from~~and 33 bps in ~~2021 but still below the 42 bps in 2020.~~full year 2021. BBB credit spreads measured on the same basis averaged 90 bps in second quarter 2022, up from 72 bps in ~~First Quarter~~the first quarter of 2022 ~~up modestly from the~~and 70 bps in full year 2021. The level of credit spreads also influences how high a premium the Company can charge for its financial guaranty insurance product, with tighter credit spreads generally lowering the premium rates the Company may charge.

~~Home~~U.S. home prices continued their recent surge in ~~the First Quarter of~~second quarter 2022. According to the National Association of Realtors, the median existing-home price for all housing types in ~~March~~June 2022 was ~~$375,300,~~$416,000, a ~~15%~~new record high and a 13.4% year-over-year ~~increase and up from $358,000 in December 2021. Existing~~increase. However, existing home sales declined for the fifth straight month to a seasonally adjusted annual rate of 5.1 million and sales were ~~5.8 million in March~~down 5.4% from May 2022 ~~up 4.5%~~and 14.2% from one year ~~over year.~~ago. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported ~~an 19.8% annualized~~a 19.7% annual gain in ~~February~~May 2022 (the latest data available), ~~compared to 19.1%~~down from 20.6% in the previous month. The 10-City Composite annual increase came in at ~~18.6%~~19.0%, ~~compared to 17.3%~~down from 19.6% in the previous month. The 20-City Composite posted ~~an 20.2%~~a 20.5% year-over-year gain, ~~compared to 18.9%~~down from 21.2% in the previous month. Home prices in the U.S. impact the performance of the Company's insured RMBS portfolio. Improved home prices generally result in fewer losses or more reimbursements with respect to the Company's distressed insured RMBS risks, and may impact the amount of losses or reimbursements it projects for its distressed legacy RMBS insured portfolio.

Impact of COVID-19

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 to state and local governments in 2021 and the performance it observed, the Company’s surveillance department has reduced the supplemental procedures. However, it 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.

The Company began operating remotely in accordance with its business continuity plan in March 2020 in response to the COVID-19 pandemic, instituting mandatory remote work policies in its offices in Bermuda, U.S., U.K. and France. By the end of February 2022, the Company had reopened all of its offices, choosing a hybrid remote and office work model in response to employee feedback and as part of its commitment to providing a safe and healthy workplace. Whether its

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employees are working remotely or in a hybrid remote and office work model, the Company continues to provide the services and communications it normally would.

Key Business Strategies

The Company continually evaluates its business strategies. For example, with the establishment of AssuredIM the Company has increased its focus on asset management and alternative investments. Currently, the Company is pursuing the following key business strategies in three areas: (1) ~~insurance,~~insurance; (2) asset management and alternative ~~investments,~~investments; and (3) capital management.

Insurance

The Company seeks to grow the insurance business through new business production, acquisitions of remaining legacy monoline insurers or reinsurance of their insured portfolios, and to continue to mitigate losses in its current insured portfolio.

Growth of the Insured Portfolio

The Company seeks to grow its insurance portfolio through new business production in each of its three markets: U.S. public finance, international infrastructure and global structured finance. The Company believes high-profile defaults by municipal obligors, such as Puerto Rico, Detroit, Michigan and Stockton, California as well as events such as the COVID-19 pandemic have led to increased awareness of the value of bond insurance and stimulated demand for the product. The Company believes there will be continued demand for its insurance in this market because, for those exposures that the Company guarantees, it undertakes the tasks of credit selection, analysis, negotiation of terms, surveillance and, if necessary, loss mitigation. The Company believes that its insurance:

•encourages retail investors, who typically have fewer resources than the Company for analyzing municipal bonds, to purchase such bonds;

•enables institutional investors to operate more efficiently; and

•allows smaller, less well-known issuers to gain market access on a more cost-effective basis.

~~On the other hand, the persistently~~The low interest rate environment and ~~relatively~~ tight U.S. municipal credit spreads ~~have~~from when the financial crisis began in 2008 through early 2020 dampened demand for bond insurance compared to the levels before the financial crisis that began in 2008. More recently, uncertainty related to the COVID-19 pandemic and then rising interest rates improved demand for financial guaranty insurance. The Company believes that, if interest rates and credit spreads further increase in 2022, demand for bond insurance may improve.

In certain segments of the global infrastructure and structured finance markets the Company believes its financial guaranty product is competitive with other financing options. For example, certain investors may receive advantageous capital requirement treatment with the addition of the Company’s guaranty. The Company considers its involvement in both international infrastructure and structured finance transactions to be beneficial because such transactions diversify both the Company’s business opportunities and its risk profile beyond U.S. public finance. The timing of new business production in the international infrastructure and structured finance sectors is influenced by typically long lead times and therefore may vary from period to period.

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U.S. Municipal Market Data and Bond Insurance Penetration Rates (1)

Based on Sale Date


		First Quarter 2022			First Quarter 2021			Year Ended December 31, 2021				Six Months 2022			Six Months 2021			Year Ended December 31, 2021
		(dollars in billions, except number of issues and percentages)										(dollars in billions, except number of issues and percentages)
Par:	Par:										Par:
New municipal bonds issued	New municipal bonds issued	$	96.8		$	104.5		$	456.7		New municipal bonds issued	$	200.8		$	221.5		$	456.7
Total insured	Total insured	$	8.2		$	8.5		$	37.5		Total insured	$	17.6		$	18.7		$	37.5
Insured by Assured Guaranty	Insured by Assured Guaranty	$	4.8		$	5.5		$	22.6		Insured by Assured Guaranty	$	9.9		$	10.8		$	22.6
Number of issues:	Number of issues:										Number of issues:
New municipal bonds issued	New municipal bonds issued	2,288			2,698			11,819			New municipal bonds issued	4,682			6,149			11,819
Total insured	Total insured	408			514			2,198			Total insured	840			1,162			2,198
Insured by Assured Guaranty	Insured by Assured Guaranty	168			252			1,076			Insured by Assured Guaranty	378			546			1,076
Bond insurance market penetration based on:	Bond insurance market penetration based on:										Bond insurance market penetration based on:
Par	Par	8.5		%	8.1		%	8.2		%	Par	8.8		%	8.4		%	8.2		%
Number of issues	Number of issues	17.8		%	19.1		%	18.6		%	Number of issues	17.9		%	18.9		%	18.6		%
Single A par sold	Single A par sold	36.5		%	27.0		%	26.6		%	Single A par sold	35.7		%	29.2		%	26.6		%
Single A transactions sold	Single A transactions sold	57.7		%	56.7		%	56.6		%	Single A transactions sold	59.0		%	56.9		%	56.6		%
$25 million and under par sold	$25 million and under par sold	20.8		%	21.3		%	21.3		%	$25 million and under par sold	21.6		%	21.8		%	21.3		%
$25 million and under transactions sold	$25 million and under transactions sold	20.7		%	21.9		%	21.7		%	$25 million and under transactions sold	20.8		%	22.0		%	21.7		%

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(1) Source: The amounts in the table are those reported by Thomson Reuters. The table excludes Corporate-CUSIP transactions insured by Assured Guaranty, which the Company also considers to be public finance business.

The Company also considers opportunities to acquire financial guaranty portfolios, whether by acquiring financial guarantors who are no longer actively writing new business or their insured portfolios, generally through reinsurance. These transactions enable the Company to improve its future earnings and deploy excess capital.

Loss Mitigation

In an effort to avoid, reduce or recover losses and potential losses in its insurance portfolio, the Company employs a number of strategies.

In the public finance area, the Company believes its experience and the resources it is prepared to deploy, as well as its ability to provide bond insurance or other contributions as part of a solution, result in more favorable outcomes in distressed public finance situations than would be the case without its participation. This has been illustrated by the Company’s role in the Detroit, Michigan and Stockton, California financial crises, and more recently by the Company’s role in negotiating various agreements in connection with the restructuring of obligations of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations. The Company will also, where appropriate, pursue litigation to enforce its rights. For example, it initiated a number of legal actions to enforce its rights with respect to obligations of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations.

•On January 18, 2022, the Federal District Court of Puerto Rico, acting under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (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 ~~which~~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) for GO and PBA entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the financial oversight and management board (the FOMB) (GO/PBA PSA).

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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 PRCCDA and PRIFA were extinguished, and its insurance exposure to Puerto Rico GO and PBA was greatly reduced. The Company believes the consummation of the March Puerto Rico Resolutions on March 15, 2022, mark a milestone in its Puerto Rico loss mitigation efforts. For more information about developments in Puerto Rico and related recovery litigation being pursued by the Company, see Item 1, Financial Statements, Note 3, Outstanding Exposure and the Insured Portfolio section below.

In connection with the consummation of the March Puerto Rico Resolutions the Company received substantial amounts of new recovery bonds and contingent value instruments (CVIs). The Company has sold some of the new recovery bonds and CVIs it received and may continue to sell amounts it still retains, subject to market conditions. The fair value of such securities held by the Company as of ~~March 31,~~June 30, 2022, is included in the lines “fixed-maturity securities - Puerto Rico, available-for-sale” and “fixed-maturity securities - Puerto Rico, trading” in the table “Investment Portfolio Carrying Value” of Item 1, Financial Statements, Note 7, Investments.

On May 5, 2021, AGC and AGM entered into a plan support agreement with respect to Puerto Rico Highways and Transportation Authority (PRHTA) with certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA). On May 2, 2022, the FOMB took the first step in the process of effecting the resolution contemplated in the HTA PSA by filing with the Title III Court a plan of adjustment for PRHTA (HTA Plan) which it believes to be consistent with the HTA PSA. Voting on the HTA Plan was completed on July 27, 2022, and the Title III Court has set August 17 – 18, 2022 for the confirmation hearing on the HTA Plan. On July 8, 2022, the Company received from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA, $147 million of cash and $668 million original notional of CVI. Assuming the HTA Plan essentially as currently constituted is confirmed and implemented, the Company also expects to receive additional recoveries upon that implementation.

The Company continues to work to resolve its remaining unresolved defaulted Puerto Rico exposure, Puerto Rico Electric Power Authority (PREPA). Currently, the Company is engaged in mediation with respect to the exposure.

The Company is and has for several years been working with the servicers of some of the RMBS transactions it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS.

In some instances, the terms of the Company’s policy give it the option to pay principal on an accelerated basis on an obligation on which it has paid a claim, thereby reducing the amount of guaranteed interest due in the future. The Company has at times exercised this option, which uses cash but reduces projected future losses. The Company may also facilitate the issuance of refunding bonds, by either providing insurance on the refunding bonds or purchasing refunding bonds, or both. Refunding bonds may provide the issuer with payment relief.

Asset Management and Alternative Investments

AssuredIM is a diversified asset manager that serves as investment adviser to CLOs, opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down. As of ~~March 31,~~June 30, 2022, AssuredIM was a top 25 CLO manager by AUM, as published by Creditflux Ltd. AssuredIM is actively pursuing opportunity strategies focused on healthcare and asset-based lending and liquid strategies relating to municipal obligations.

Over time, the Company seeks to broaden and further diversify its Asset Management segment leading to increased AUM and a fee-generating platform. The Company intends to leverage the AssuredIM infrastructure and platform to grow its Asset Management segment both organically and through strategic combinations.

The Company monitors certain operating metrics that are common to the asset management industry. These operating metrics include, but are not limited to, funded AUM and unfunded capital commitments (together, AUM) and investment advisory management and performance fees. The Company considers the categorization of its AUM by product type to be a

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useful lens in monitoring the Asset Management segment. AUM by product type assists in measuring the duration of AUM for which the Asset Management segment has the potential to earn management fees and performance fees. For a discussion of the metric AUM, see “— Results of Operations by Segment — Asset Management Segment.”

Additionally, the Company believes that AssuredIM provides the Company an opportunity to deploy excess capital at attractive returns improving the risk-adjusted return on a portion of the investment portfolio and potentially increasing the amount of dividends certain of its insurance subsidiaries are permitted to pay under applicable regulations. The Company allocated $750 million of capital to invest in funds managed by AssuredIM, plus $550 million aggregate of ~~the~~investment assets of AGM, AGC and, until its merger with AGM on April 1, 2021, ~~MAC,~~Municipal Assurance Corp. (MAC), (collectively, the U.S. Insurance Subsidiaries) ~~invested assets now~~to be managed by AssuredIM under an Investment Management Agreement (IMA). The Company is using these allocations to: (a) launch new products (CLOs, opportunity funds and liquid strategy funds) on the AssuredIM platform; and (b) enhance the returns of its own investment portfolio.

~~Table~~Adding inception-to-date distributed gains to the original $750 million allocation, the U.S. Insurance Subsidiaries may invest a total of ~~Contents~~

~~As of March 31, 2022, AG Asset Strategies LLC (AGAS) had committed $702~~up to $810 million toin funds managed by AssuredIM (AssuredIM Funds), through their jointly owned investment subsidiary, AG Asset Strategies LLC (AGAS). As of June 30, 2022, AGAS had committed $757 million to AssuredIM Funds, including ~~$229~~$241 million that has yet to be funded. This capital was committed to several funds, each dedicated to a single strategy including CLOs, asset-based finance, healthcare structured capital and municipal bonds.

Under the IMA with AssuredIM, AGM and AGC have together invested $250 million to municipal obligation strategies and $300 million to CLO strategies. All of these strategies are consistent with the investment strengths of AssuredIM and the Company’s plans to continue to grow its investment strategies.

Capital Management

The Company has developed strategies to efficiently manage capital within the Assured Guaranty group.

From 2013 through ~~May 5,~~August 3, 2022, the Company has repurchased ~~135.8~~138 million common shares for approximately ~~$4,374 million,~~$4.5 billion, representing approximately ~~70.0%~~71% of the total shares outstanding at the beginning of the repurchase program in 2013. On ~~February 23,~~August 3, 2022, the AGL Board of Directors (the Board) authorized the repurchase of an additional ~~$350~~$250 million of common shares. Under this and previous authorizations, as of ~~May 5,~~August 3, 2022, the Company was authorized to purchase ~~$240~~$365 million of its common shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time and it does not have an expiration date. See Item 1, Financial Statements, Note 14, Shareholders’ Equity, for additional information about the Company’s repurchases of its common shares.

Summary of Share Repurchases


		Amount		Number of Shares	Average price per share			Amount		Number of Shares	Average price per share
		(in millions, except per share data)						(in millions, except per share data)
2013 - 2021	2013 - 2021	$	4,158	132.0	$	31.50	2013 - 2021	$	4,158	132.027	$	31.50
2022 (First Quarter)	2022 (First Quarter)	155		2.7	56.62		2022 (First Quarter)	155		2.738	56.62
2022 (through May 5)		61		1.0	59.86
2022 (Second Quarter)							2022 (Second Quarter)	151		2.606	58.03
2022 (through August 3)							2022 (through August 3)	35		0.623	55.89
Cumulative repurchases since the beginning of 2013	Cumulative repurchases since the beginning of 2013	$	4,374	135.8	32.21		Cumulative repurchases since the beginning of 2013	$	4,499	137.994	32.61

~~Accretive Effect~~As of ~~Cumulative Repurchases (1)~~


	~~First Quarter~~June 30, 2022,		~~As of March 31, 2022~~
	~~(per share)~~
~~Net income (loss) attributable to AGL~~	$	~~0.51~~
~~Adjusted operating income~~	~~0.75~~
~~Shareholders’ equity attributable to AGL~~			$	~~38.45~~
~~Adjusted operating shareholders' equity~~			~~39.16~~
~~Adjusted book value~~			~~68.20~~

~~_________________~~

~~(1) Represents~~ the estimated accretive effect of the cumulative repurchases of common shares since the beginning of ~~2013.~~2013 was approximately: $35.92 per share in shareholders’ equity attributable to AGL, $39.69 per share in adjusted operating shareholders’ equity, and $70.39 per share in adjusted book value.

The Company considers the appropriate mix of debt and equity in its capital structure. On May 26, 2021, the Company issued $500 million of 3.15% Senior Notes, due in 2031 for net proceeds of $494 million. On July 9, 2021, a portion of the proceeds from the issuance of the 3.15% Senior Notes ~~were~~was used to redeem $200 million of AGMH debt as follows: all $100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, and $100 million of the $230 million of AGMH’s 6.25% Notes due in 2102. On August 20, 2021, the Company issued $400 million of 3.6% Senior Notes, due in 2051 for net proceeds of $395 million. On September 27, 2021, all of the proceeds from the issuance of the 3.6% Senior Notes were used to redeem ~~$400~~

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$400 million of AGMH and AGUS debt as follows: all $100 million of AGMH’s 5.60% Notes due in 2103; the remaining $130 million of AGMH 6.25% Notes due in 2102; and $170 million of the $500 million of AGUS 5% Senior Notes due in 2024. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies” for the U.S. Holding Companies’ long-term debt.

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In 2021, as a result of these redemptions, the Company recognized a loss on extinguishment of debt of approximately $175 million on a pre-tax basis ($138 million after-tax) which represents the difference between the amount paid to redeem the debt and the carrying value of the debt. The carrying value of the debt included the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009.

Proceeds from the debt issuances that were not used to redeem debt were used for general corporate purposes, including share repurchases.

The Company may choose to redeem or make additional purchases of this or other Company debt in the future. Since the second quarter of 2017, AGUS has purchased $154 million in principal of AGMH’s outstanding Junior Subordinated Debentures.

Municipal Assurance Corp. Merger

On April 1, 2021, ~~Municipal Assurance Corp. (MAC)~~MAC merged with and into AGM, with AGM as the surviving company. Upon the merger all direct insurance policies issued by MAC became direct insurance obligations of AGM. As a result, the Company wrote off the $16 million carrying value of MAC’s insurance licenses in the first quarter of 2021. This restructuring of the Company’s U.S. Insurance Subsidiaries simplified the organizational and capital structure, reduced costs, and increased the future dividend capacity of the U.S. Insurance Subsidiaries.

Executive Summary

This executive summary of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Quarterly Report. For a more detailed description of events, trends and uncertainties, as well as the capital, liquidity, credit, operational and market risks and the critical accounting policies and estimates affecting the Company, this Quarterly Report should be read in its entirety and in addition to the Company’s 2021 Annual Report on Form 10-K.

The primary drivers of volatility in the Company’s net income include: changes in fair value of credit derivatives, FG VIEs, CIVs, and committed capital securities (CCS), loss and loss adjustment expense (LAE), foreign exchange gains (losses), the level of refundings of insured obligations, and changes in the value of the Company’s alternative investments, as well as the effects of any large settlements, commutations and loss mitigation strategies, among other factors. Changes in the fair value of AssuredIM Funds affect the amount of management and performance fees earned. Changes in laws and regulations, among other factors, may also have a significant effect on reported net income or loss in a given reporting period.

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Financial Performance of Assured Guaranty

Financial Results


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions, except per share amounts)
GAAP	GAAP					GAAP
Net income (loss) attributable to AGL	Net income (loss) attributable to AGL	$	66	$	11	Net income (loss) attributable to AGL	$	(47)	$	98	$	19	$	109
Net income (loss) attributable to AGL per diluted share	Net income (loss) attributable to AGL per diluted share	$	0.98	$	0.14	Net income (loss) attributable to AGL per diluted share	$	(0.74)	$	1.29	$	0.29	$	1.42
Weighted average diluted shares(1)	Weighted average diluted shares(1)	67.4		77.5		Weighted average diluted shares(1)	63.8		76.0		66.2		76.7

Non-GAAP	Non-GAAP					Non-GAAP
Adjusted operating income (loss) (2)	Adjusted operating income (loss) (2)	$	90	$	43	Adjusted operating income (loss) (2)	$	30	$	120	$	120	$	163
Adjusted operating income per diluted share	Adjusted operating income per diluted share	$	1.34	$	0.55	Adjusted operating income per diluted share	$	0.46	$	1.59	$	1.81	$	2.13
Weighted average diluted shares	Weighted average diluted shares	67.4		77.5		Weighted average diluted shares	65.0		76.0		66.2		76.7

Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income	Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income	$	(10)	$	—	Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income	$	10	$	4	$	—	$	4
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share	Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share	$	(0.14)	$	—	Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share	$	0.15	$	0.05	$	—	$	0.05

Components of total adjusted operating income (loss)	Components of total adjusted operating income (loss)					Components of total adjusted operating income (loss)
Insurance segment	Insurance segment	$	133	$	79	Insurance segment	$	55	$	152	$	188	$	231
Asset Management segment	Asset Management segment	—		(7)		Asset Management segment	—		(2)		—		(9)
Corporate division	Corporate division	(33)		(29)		Corporate division	(35)		(34)		(68)		(63)
Other ~~(1)~~(3)	Other ~~(1)~~(3)	(10)		—		Other ~~(1)~~(3)	10		4		—		4
Adjusted operating income (loss)	Adjusted operating income (loss)	$	90	$	43	Adjusted operating income (loss)	$	30	$	120	$	120	$	163

Insurance Segment	Insurance Segment					Insurance Segment
Gross written premiums (GWP)	Gross written premiums (GWP)	$	70	$	87	Gross written premiums (GWP)	$	65	$	84	$	135	$	171
Present value of new business production (PVP) (2)	Present value of new business production (PVP) (2)	69		86		Present value of new business production (PVP) (2)	76		81		145		167
Gross par written	Gross par written	4,471		5,472		Gross par written	6,695		6,137		11,166		11,609

Asset Management Segment	Asset Management Segment					Asset Management Segment
AUM	AUM					AUM
Inflows - third party	Inflows - third party	$	91	$	873	Inflows - third party	$	1,270	$	426	$	1,361	$	1,239
Inflows - intercompany	Inflows - intercompany	—		145		Inflows - intercompany	154		—		154		109

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		As of March 31, 2022				As of December 31, 2021					As of June 30, 2022				As of December 31, 2021
		Amount		Per Share		Amount		Per Share			Amount		Per Share		Amount		Per Share
		(in millions, except per share amounts)									(in millions, except per share amounts)
Shareholders’ equity attributable to AGL	Shareholders’ equity attributable to AGL	$	5,802	$	89.20	$	6,292	$	93.19	Shareholders’ equity attributable to AGL	$	5,304	$	84.89	$	6,292	$	93.19
Adjusted operating shareholders' equity (2)	Adjusted operating shareholders' equity (2)	5,860		90.09		5,991		88.73		Adjusted operating shareholders' equity (2)	5,634		90.18		5,991		88.73
Adjusted book value (2)	Adjusted book value (2)	8,665		133.21		8,823		130.67		Adjusted book value (2)	8,428		134.91		8,823		130.67
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating shareholders’ equity	Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating shareholders’ equity	22		0.34		32		0.47		Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating shareholders’ equity	26		0.42		32		0.47
Gain (loss) related to FG VIE and CIV consolidation included in adjusted book value	Gain (loss) related to FG VIE and CIV consolidation included in adjusted book value	13		0.19		23		0.34		Gain (loss) related to FG VIE and CIV consolidation included in adjusted book value	18		0.29		23		0.34
Common shares outstanding ~~(3)~~(4)	Common shares outstanding ~~(3)~~(4)	65.0				67.5				Common shares outstanding ~~(3)~~(4)	62.5				67.5

____________________

(1) ~~Relates to~~In periods where the ~~effect~~Company recognized a net loss, the impact of ~~consolidating FG VIEs and CIVs.~~potentially dilutive outstanding stock-based awards was excluded from the calculation of diluted loss per share as their inclusion would have an antidilutive effect.

(2) See “—Non-GAAP Financial Measures” for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the United States of America (GAAP), a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure, if available, and for additional details.

(3) Relates to the effect of consolidating FG VIEs and CIVs.

(4) See “— Overview— Key Business Strategies – Capital Management” above for information on common share repurchases.

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Condensed Consolidated Results of Operations


		Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
		2022			2021				2022			2021			2022			2021
		(in millions)							(in millions)
Revenues:	Revenues:							Revenues:
Net earned premiums	Net earned premiums	$	214		$	103		Net earned premiums	$	82		$	102		$	296		$	205
Net investment income	Net investment income	62			70			Net investment income	62			68			124			138
Asset management fees	Asset management fees	34			24			Asset management fees	21			21			55			45
Net realized investment gains (losses)	Net realized investment gains (losses)	3			(3)			Net realized investment gains (losses)	(28)			4			(25)			1
Fair value gains (losses) on credit derivatives	Fair value gains (losses) on credit derivatives	(3)			(19)			Fair value gains (losses) on credit derivatives	9			(33)			6			(52)
Fair value gains (losses) on CCS	Fair value gains (losses) on CCS	1			(19)			Fair value gains (losses) on CCS	10			(6)			11			(25)
Fair value gains (losses) on FG VIEs	Fair value gains (losses) on FG VIEs	6			5			Fair value gains (losses) on FG VIEs	10			8			16			13
Fair value gains (losses) on CIVs	Fair value gains (losses) on CIVs	14			16			Fair value gains (losses) on CIVs	3			21			17			37
Foreign exchange gains (losses) on remeasurement	Foreign exchange gains (losses) on remeasurement	(30)			—			Foreign exchange gains (losses) on remeasurement	(71)			5			(101)			5
Fair value gains (losses) on trading securities								Fair value gains (losses) on trading securities	(18)			—			(22)			—
Other income (loss)	Other income (loss)	(1)			—			Other income (loss)	10			6			13			6
Total revenues	Total revenues	300			177			Total revenues	90			196			390			373
Expenses:	Expenses:							Expenses:
Loss and LAE		57			30
Loss and LAE (benefit)								Loss and LAE (benefit)	(11)			(16)			46			14
Interest expense	Interest expense	20			21			Interest expense	20			23			40			44
Amortization of deferred acquisition costs (DAC)	Amortization of deferred acquisition costs (DAC)	4			3			Amortization of deferred acquisition costs (DAC)	3			4			7			7
Employee compensation and benefit expenses	Employee compensation and benefit expenses	73			60			Employee compensation and benefit expenses	59			54			132			114
Other operating expenses	Other operating expenses	42			57			Other operating expenses	41			40			83			97
Total expenses	Total expenses	196			171			Total expenses	112			105			308			276
Income (loss) before income taxes and equity in earnings (losses) of investees	Income (loss) before income taxes and equity in earnings (losses) of investees	104			6			Income (loss) before income taxes and equity in earnings (losses) of investees	(22)			91			82			97
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	(11)			9			Equity in earnings (losses) of investees	—			34			(11)			43
Income (loss) before income taxes	Income (loss) before income taxes	93			15			Income (loss) before income taxes	(22)			125			71			140
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	18			—			Less: Provision (benefit) for income taxes	3			23			21			23
Net income (loss)	Net income (loss)	75			15			Net income (loss)	(25)			102			50			117
Less: Noncontrolling interests	Less: Noncontrolling interests	9			4			Less: Noncontrolling interests	22			4			31			8
Net income (loss) attributable to Assured Guaranty Ltd.	Net income (loss) attributable to Assured Guaranty Ltd.	$	66		$	11		Net income (loss) attributable to Assured Guaranty Ltd.	$	(47)		$	98		$	19		$	109

Effective tax rate	Effective tax rate	20.0		%	(0.9)		%	Effective tax rate	(12.9)		%	18.5		%	30.3		%	16.5		%

Second Quarter 2022 Compared with Second Quarter 2021

Net income attributable to AGL was a loss for second quarter 2022 compared with income in the three month period ended June 30, 2021 (second quarter 2021) primarily due to:

•foreign exchange losses on remeasurement in second quarter 2022,

•realized and unrealized losses on the investment portfolio reported in realized gains (losses) on investments and trading gains (losses),

•prior year gains in equity method alternative investments that did not recur, and

•lower net earned premiums.

These decreases were offset in part by:

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~~Net income attributable to AGL for First Quarter 2022 was higher compared with the three month period ended March 31, 2021 (First Quarter 2021) primarily due to:~~

•~~higher net earned premiums of $214 million in First Quarter 2022 compared with $103 million in First Quarter 2021,~~

•fair value gains on credit derivatives and CCS in ~~First Quarter~~second quarter 2022 compared with losses ~~in First Quarter 2021, and~~

•~~lower fair value losses on credit derivatives in First Quarter 2022 compared with First Quarter~~second quarter 2021.

~~These increases were offset in part by:~~Six Months 2022 Compared with Six Months 2021

Net income attributable to AGL for the six month period ended June 30, 2022 (six months 2022) was lower compared with the six month period ended June 30, 2021 (six months 2021) primarily due to:

•foreign exchange losses on remeasurement in ~~First Quarter~~six months 2022,

•~~higher loss expense~~realized and unrealized losses on the investment portfolio reported in ~~First Quarter 2022 compared First Quarter 2021,~~realized gains (losses) on investments and trading gains (losses), and

•losses in equity method alternative investments.

These decreases were offset in part by:

•higher net earned premiums mainly attributable to accelerations on certain Puerto Rico exposures, and

•fair value gains on credit derivatives, FG VIEs and CCS in six months 2022 compared with losses in six months 2021.

The Company’s effective tax rate reflects the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries generally taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19%, French subsidiaries taxed at the French marginal corporate tax rate of 25%, and no taxes for the Company’s Bermuda subsidiaries, unless subject to U.S. tax by election or as a U.S. controlled foreign corporation. The effective tax rate in ~~First Quarter~~six months 2022 was higher than in ~~First Quarter~~six months 2021 due primarily to differences in the portion of income generated by various jurisdictions.

Adjusted Operating Income

Adjusted operating income in ~~First Quarter~~second quarter 2022was ~~$90~~$30 million, compared with ~~$43~~$120 million in ~~First Quarter~~second quarter 2021. The ~~increase~~decrease was primarily attributable to ~~higher insurance segment adjusted~~losses in equity method alternative investments (compared with gains in second quarter 2021), lower net earned premiums, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles. Adjusted operating income in for six months 2022 was $120 million, compared with $163 million in six months 2021. The decrease was primarily attributable to losses in equity method alternative investments, higher loss expense, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles, which were partially offset by higher net earned premiums due to higher refundings related to the March Puerto Rico Resolutions. See “— Results of Operations — Reconciliation to GAAP” below.

Book Value and Adjusted Book Value

Shareholders’ equity attributable to AGL declined mainly due to unrealized losses on the available-for-sale fixed-maturity investment portfolio that were ~~a result of~~caused by higher interest rates, and share repurchases. Adjusted operating shareholders’ equity and adjusted book value declined from December 31, 2021, mainly due to share repurchases and dividends, partially offset, in the case of adjusted book value, by net written premiums on new business production.

Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were ~~$89.20, $90.09~~$84.89, $90.18 and ~~$133.21,~~$134.91, respectively as of ~~March 31,~~June 30, 2022. Shareholders’ equity per share declined primarily due to unrealized losses on the available-for-sale fixed maturity portfolio. The increase in adjusted operating shareholders’ equity per share and adjusted book value per share was primarily due to the accretive effect of the share repurchase program. In the case of adjusted book value per share, net premiums written in the Insurance segment also contributed to the increase compared with December 31, 2021. See “— Overview — Key Business ~~Strategies , Accretive Effect of Cumulative Repurchases” table above.~~Strategies.. See “— Non-GAAP Financial Measures” below for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and adjusted book value.

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Other Matters

Russia’s Invasion of Ukraine

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Inflation

As described above under "Overview -- Economic Environment", by some key measures consumer inflation in the U.S. and the U.K. has been higher in the last few months than it has been in decades, and interest rates generally have increased. The Federal Reserve Board has raised interest rates a few times and communicated its intention to further raise them in the future. Concerns have been expressed in the financial press about inflation taking hold in the economy. ~~Inflation~~While consumer price inflation does not impact the Company’s primary businesses directly, it may impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and accompanying higher interest rates could impact the Company in ~~numerous~~several ways. For example, higher interest rates might make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-maturity investment portfolio. On the other hand, high interest rates ~~would~~ decrease the amount of excess spread available to support the distressed RMBS the Company insures ~~would~~and reduce the market value of its largely fixed rate fixed maturity investment portfolio and may make it more difficult for obligors to repay obligations the Company guarantees. The Federal Reserve Board has communicated its intention to raise interest rates, and the Company believes further increases in interest rates and spreads in 2022, should they occur, could increase demand for insurance and permit the Company to increase its premium rates on new business, although there can be no assurance that this would occur.portfolios.

LIBOR Sunset

ICE Benchmark Administration (IBA) and U.K. Financial Conduct Authority (FCA) first announced in 2017 that the publication of London Interbank Offered Rate (LIBOR) would cease at the end of 2021. Many legal documents entered into prior to that time did not include robust fallback language contemplating the permanent suspension of the publication of LIBOR. On March 5, 2021, IBA and FCA confirmed a representative panel of banks will continue setting 1, 3, 6 and 12-month U.S. Dollar LIBOR through June 2023, rather than December 31, 2021 as originally announced. The Company believes that the continued publication of U.S. Dollar LIBOR on the current basis after June 2023 is unlikely. The publication of all sterling LIBOR rates ceased on December 31, 2021, as originally announced.

The Company has exposure to LIBOR in the following areas: (i) issuers of obligations the Company insures have obligations, assets and hedges that reference LIBOR, and some loss mitigation securities held in the investment portfolio reference LIBOR, (ii) debt issued by the U.S. Holding Companies currently pay or will convert to, a floating interest rate tied to LIBOR, (iii) CCS from which the Company benefits pay interest tied to LIBOR, and (iv) certain obligations issued by, and certain assets owned by, the Company’s CIVs pay interest tied to LIBOR.

U.S. Dollar LIBOR. On March 15, 2022, the U.S. president signed into law the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) which provides, among other things, a transition to the Secured Overnight Finance Rate (SOFR) as a benchmark replacement for LIBOR-based contracts that do not have adequate fallback language or a replacement rate is not selected by a determining person. The LIBOR Act eliminates the need to seek amendments to ~~our~~ LIBOR-based contracts that do not contain adequate fallback language. New York and other states have also passed legislation similar to the LIBOR Act.

Sterling LIBOR. The Company is cooperating with the relevant parties to amend the relevant documents referencing sterling LIBOR in its insured portfolio to instead reference Sterling Overnight Interbank Average Rate (SONIA), and the Company believes such amendments will be completed by year end 2022. In the meantime, the FCA has authorized temporary use of synthetic sterling LIBOR, which approximates what sterling LIBOR might have been.

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Income Taxes

The U.S. Internal Revenue Service and Department of the Treasury issued final and proposed regulations in October 2020 relating to the tax treatment of passive foreign investment companies (PFIC). The final regulations are not expected to have a material impact to the Company’s business operation or its shareholders and the proposed regulations are continuing to be evaluated.

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Results of Operations

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment and require the Company to make estimates and assumptions, based on available information, that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements. The inputs into ~~our~~the Company’s estimates and assumptions consider the economic implications of COVID-19. Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the Consolidated Financial Statements.

Critical estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time.

The accounting policies that the Company believes are ~~the~~ most dependent on the application of judgment, estimates and assumptions are listed below. See Part II. Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, of the Company’s 2021 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the applicable note where further details regarding the significant estimates and assumptions are provided, as well as Part II. Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2021 Annual Report on Form 10-K, for further details regarding sensitivity analysis.

•Expected loss to be paid (recovered)

•Fair value of certain assets and liabilities, primarily:

▪Investments

▪Assets and liabilities of CIVs

▪Assets and liabilities of FG VIEs

▪Credit derivatives

•Recoverability of goodwill and other intangible assets

•Credit impairment of financial instruments

•Revenue recognition

•Income tax assets and liabilities, including the recoverability of deferred tax assets (liabilities)

In addition, the valuation of AUM, which is the basis for calculating certain asset management fees, is based on estimates and assumptions. AUM valuations are often performed by independent pricing services based on observable and unobservable inputs. AUM may be impacted by a wide range of factors, including the condition of the global economy and financial markets, the relative attractiveness of the investment strategies of AssuredIM, and regulatory or other governmental policies or actions. For an explanation of how the Company defines and uses the AUM metric and why it provides useful information to investors, see “— Results of Operations by Segment — Asset Management Segment”.

Results of Operations by Segment

The Company analyzes the operating performance of each segment using each segment’s adjusted operating income as described in Item 1, Financial Statements, Note 2, Segment Information.

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Insurance Segment Results


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)
Segment revenues	Segment revenues					Segment revenues
Net earned premiums and credit derivative revenues	Net earned premiums and credit derivative revenues	$	219	$	107	Net earned premiums and credit derivative revenues	$	86	$	106	$	305	$	213
Net investment income	Net investment income	63		73		Net investment income	66		71		129		144
Fair value gains (losses) on trading securities						Fair value gains (losses) on trading securities	(18)		—		(22)		—
Other income (loss)	Other income (loss)	(4)		(1)		Other income (loss)	5		5		5		4
Total segment revenues	Total segment revenues	278		179		Total segment revenues	139		182		417		361
Segment expenses	Segment expenses					Segment expenses
Loss expense		60		30
Loss expense (benefit)						Loss expense (benefit)	(17)		(12)		43		18
Interest expense	Interest expense	1		—		Interest expense	—		—		1		—
Amortization of DAC	Amortization of DAC	4		3		Amortization of DAC	3		4		7		7
Employee compensation and benefit expenses	Employee compensation and benefit expenses	38		36		Employee compensation and benefit expenses	35		34		73		70
Other operating expenses	Other operating expenses	19		37		Other operating expenses	20		21		39		58
Total segment expenses	Total segment expenses	122		106		Total segment expenses	41		47		163		153
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	(1)		19		Equity in earnings (losses) of investees	(34)		48		(35)		67
Segment adjusted operating income (loss) before income taxes	Segment adjusted operating income (loss) before income taxes	155		92		Segment adjusted operating income (loss) before income taxes	64		183		219		275
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	22		13		Less: Provision (benefit) for income taxes	9		31		31		44
Segment adjusted operating income (loss)	Segment adjusted operating income (loss)	$	133	$	79	Segment adjusted operating income (loss)	$	55	$	152	$	188	$	231

Net Earned Premiums and Credit Derivative Revenues

Premiums are earned over the contractual lives, or in the case of insured obligations backed by homogeneous pools of assets, the remaining expected lives, of financial guaranty insurance contracts. The Company periodically estimates remaining expected lives of its insured obligations backed by homogeneous pools of assets and makes prospective adjustments for such changes in expected lives. Scheduled net earned premiums decrease each year unless replaced by a higher amount of new business, books of business acquired in a business combination or reassumptions of previously ceded business. See Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Premiums, for additional information.

Net earned premiums due to accelerations are attributable to changes in the expected lives of insured obligations driven by: (i) refundings of insured obligations; or (ii) terminations of insured obligations either through negotiated agreements or the exercise of the Company’s contractual rights to make claim payments on an accelerated basis.

Refundings occur in the public finance market when municipalities and other public finance issuers pay down insured obligations prior to their originally scheduled maturities. Refundings tend to increase when issuers can refinance their debt obligations at lower rates than they are currently paying. The premiums associated with the insured obligations of municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured. When ~~such~~ issuers pay down insured obligations, ~~prior to their originally scheduled maturities,~~ the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the remaining nonrefundable deferred premium revenue. The amortization of ~~our~~the Company’s outstanding book of business along with the previously high levels of refunding activity has led to a lower volume of refunding opportunities over the last several years, except for refundings of Puerto Rico polices under the March Puerto Rico Resolutions.

Terminations are generally negotiated agreements with beneficiaries resulting in the extinguishment of the Company’s insurance obligation. Terminations are more common in the structured finance asset class, but may also occur in the public finance asset class. While each termination may have different terms, they all result in the expiration of the Company’s insurance risk, the acceleration of the recognition of the associated deferred premium revenue and the reduction of any remaining premiums receivable.

The Company has not written any new credit derivatives since 2009. Other than credit derivatives that may be acquired in business combinations and reinsurance agreements, or as part of loss mitigation strategies, credit derivative exposure is expected to decline.

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Insurance Segment

Net Earned Premiums and Credit Derivative Revenues


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Net earned premiums:	Net earned premiums:					Net earned premiums:
Financial guaranty insurance:	Financial guaranty insurance:					Financial guaranty insurance:
Public finance	Public finance					Public finance
Scheduled net earned premiums (1)	Scheduled net earned premiums (1)	$	71	$	72	Scheduled net earned premiums (1)	$	63	$	72	$	134	$	144
Accelerations:	Accelerations:					Accelerations:
Refundings	Refundings	128		16		Refundings	5		13		133		29
Terminations	Terminations	—		—		Terminations	—		1		—		1
Total accelerations	Total accelerations	128		16		Total accelerations	5		14		133		30
Total public finance	Total public finance	199		88		Total public finance	68		86		267		174
Structured finance scheduled net earned premiums (1)		15		15
Structured finance						Structured finance
Scheduled net earned premiums (1)						Scheduled net earned premiums (1)	14		15		29		30
Terminations						Terminations	—		1		—		1
Total structured finance						Total structured finance	14		16		29		31
Specialty insurance and reinsurance	Specialty insurance and reinsurance	1		1		Specialty insurance and reinsurance	1		1		2		2
Total net earned premiums	Total net earned premiums	215		104		Total net earned premiums	83		103		298		207

Credit derivative revenues:	Credit derivative revenues:					Credit derivative revenues:
Scheduled net earned premiums	Scheduled net earned premiums	2		3		Scheduled net earned premiums	3		3		5		6
Accelerations	Accelerations	2		—		Accelerations	—		—		2		—
Total credit derivative revenues	Total credit derivative revenues	4		3		Total credit derivative revenues	3		3		7		6
Total net earned premiums and credit derivative revenues	Total net earned premiums and credit derivative revenues	$	219	$	107	Total net earned premiums and credit derivative revenues	$	86	$	106	$	305	$	213

____________________

(1) Includes accretion of discount.

Net earned premiums and credit derivative revenues decreased in ~~First Quarter~~second quarter 2022 ~~increased~~ compared with ~~First Quarter~~second quarter 2021 primarily due to lower refundings and changes in debt service assumptions . Net earned premiums and credit derivative revenues increased in six months 2022 compared with six months 2021 primarily due to refundings of $104 million associated with the March Puerto Rico Resolutions as discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure. As of ~~March 31,~~June 30, 2022, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

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New Business Production

Gross Written Premiums and

New Business Production


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
GWP	GWP					GWP
Public Finance—U.S.	Public Finance—U.S.	$	49	$	79	Public Finance—U.S.	$	57	$	29	$	106	$	108
Public Finance—non-U.S.	Public Finance—non-U.S.	16		5		Public Finance—non-U.S.	6		44		22		49
Structured Finance—U.S.	Structured Finance—U.S.	5		3		Structured Finance—U.S.	1		11		6		14
Structured Finance—non-U.S.	Structured Finance—non-U.S.	—		—		Structured Finance—non-U.S.	1		—		1		—
Total GWP	Total GWP	$	70	$	87	Total GWP	$	65	$	84	$	135	$	171
PVP (1):	PVP (1):					PVP (1):
Public Finance—U.S.	Public Finance—U.S.	$	49	$	81	Public Finance—U.S.	$	57	$	29	$	106	$	110
Public Finance—non-U.S.	Public Finance—non-U.S.	12		3		Public Finance—non-U.S.	18		43		30		46
Structured Finance—U.S.	Structured Finance—U.S.	2		2		Structured Finance—U.S.	—		9		2		11
Structured Finance—non-U.S. (1)	Structured Finance—non-U.S. (1)	6		—		Structured Finance—non-U.S. (1)	1		—		7		—
Total PVP	Total PVP	$	69	$	86	Total PVP	$	76	$	81	$	145	$	167
Gross Par Written (2):	Gross Par Written (2):					Gross Par Written (2):
Public Finance—U.S.	Public Finance—U.S.	$	3,931	$	5,427	Public Finance—U.S.	$	6,429	$	4,716	$	10,360	$	10,143
Public Finance—non-U.S.	Public Finance—non-U.S.	223		—		Public Finance—non-U.S.	207		961		430		961
Structured Finance—U.S.	Structured Finance—U.S.	60		45		Structured Finance—U.S.	16		460		76		505
Structured Finance—non-U.S. (1)	Structured Finance—non-U.S. (1)	257		—		Structured Finance—non-U.S. (1)	43		—		300		—
Total gross par written	Total gross par written	$	4,471	$	5,472	Total gross par written	$	6,695	$	6,137	$	11,166	$	11,609
Average rating on new business written	Average rating on new business written	A-		A-		Average rating on new business written	A		A-		A-		A-

____________________

(1) ~~First Quarter~~Six months 2022 PVP and gross par written includes the present value of future premiums and exposure, respectively, associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees.

(2) PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles. See “– Non-GAAP Financial Measures – PVP or Present Value of New Business Production.”

Second Quarter 2022

U.S. public finance GWP and PVP in ~~First Quarter~~second quarter 2022 was ~~lower~~higher than the comparable GWP and PVP in ~~First Quarter~~second quarter 2021, primarily due to ~~a large transaction closed~~an increase in ~~First Quarter 2021 that did not recur.~~secondary market transactions. The average rating of U.S. public finance par written was A-A in ~~First Quarter~~both second quarter 2022 ~~which is consistent with the average rating in First Quarter~~and second quarter 2021. The Company's direct par written represented ~~58%~~54% of the total U.S. municipal market insured issuance in ~~First Quarter~~second quarter 2022, compared with ~~65%~~52% in ~~First Quarter~~second quarter 2021, and the Company’s penetration of all municipal issuance was 4.8% in second quarter 2022 compared with 4.5% in second quarter 2021.

In second quarter 2022, non-U.S. public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor.

Six Months 2022

Six months 2022 U.S. public finance GWP and PVP were relatively consistent compared with six months 2021. The Company's direct par written represented 56% of the total U.S. municipal market insured issuance in six months 2022, compared with 58% in six months 2021, and the Company’s penetration of all municipal issuance was 4.9% in ~~First Quarter~~both six months 2022 ~~compared with 5.3% in First Quarter~~and six months 2021.

In ~~First Quarter~~six months 2022, non-U.S. public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor and two U.K. water ~~liquidity guarantee and a restructuring of an existing U.K. water transaction.~~transactions.

~~In First Quarter 2022, structured finance GWP is primarily attributable to U.S. credits. Non-U.S. structured finance PVP primarily includes guarantees~~

Table of ~~rental income cash flows, for which no GWP is reported under GAAP.~~Contents

Income from Investment Portfolio

CVIs issued by Puerto Rico and received as part of the March Puerto Rico Resolutions are classified as trading with changes in fair value reported in the consolidated statements on operations. The fair value of such instruments as of June 30, 2022 was $87 million.

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to invest up to $750 million in AssuredIM Funds. Adding inception-to-date distributed gains, the U.S. Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds. As of ~~March 31,~~June 30, 2022, the U.S. Insurance Subsidiaries had total commitments to AssuredIM Funds of ~~$702~~$757 million, of which ~~$473~~$516 million represented net invested capital and ~~$229~~$241 million was undrawn.

Insurance Segment

Income from Investment Portfolio


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)
Net investment income	Net investment income					Net investment income
Externally managed	Externally managed	$	47	$	51	Externally managed	$	46	$	51	$	93	$	102
Loss mitigation securities and other	Loss mitigation securities and other	12		17		Loss mitigation securities and other	13		15		25		32
Managed by AssuredIM (1)	Managed by AssuredIM (1)	4		4		Managed by AssuredIM (1)	5		4		9		8
Intercompany loans	Intercompany loans	2		2		Intercompany loans	3		3		5		5
Investment income	Investment income	65		74		Investment income	67		73		132		147
Investment expenses	Investment expenses	(2)		(1)		Investment expenses	(1)		(2)		(3)		(3)
Net investment income	Net investment income	$	63	$	73	Net investment income	$	66	$	71	$	129	$	144

Other income:
Unrealized gain (loss) on trading securities		$	(4)	$	—
Fair value gains (losses) on trading securities						Fair value gains (losses) on trading securities	$	(18)	$	—	$	(22)	$	—

Equity in earnings (losses) of investees	Equity in earnings (losses) of investees					Equity in earnings (losses) of investees
AssuredIM Funds	AssuredIM Funds	$	11	$	10	AssuredIM Funds	$	(33)	$	37	$	(22)	$	47
Other	Other	(12)		9		Other	(1)		11		(13)		20
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	$	(1)	$	19	Equity in earnings (losses) of investees	$	(34)	$	48	$	(35)	$	67

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(1) Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.

Net investment income for ~~First Quarter~~second quarter 2022 and six months 2022 decreased compared to ~~First Quarter~~second quarter 2021 and six months 2021, primarily due to lower average balances in fixed-maturity securities as short term investments were accumulated to meet liquidity ~~needs as a result of the consummation of the March Puerto Rico Resolutions on March 15, 2022.~~needs. The overall pre-tax book yield was 2.95% as of June 30, 2022 and 3.15% as of ~~March 31, 2022 and 3.23% as of March 31,~~June 30, 2021. Excluding the internally managed portfolio, pre-tax book yield was ~~2.93%~~2.95% as of ~~March 31,~~June 30, 2022 and ~~2.94%~~2.92% as of ~~March 31,~~June 30, 2021.

Equity in earnings of AssuredIM Funds in ~~First Quarter~~second quarter 2022 ~~was~~and six months 2022 were losses and were primarily attributable to ~~higher~~lower valuations of assets held in CLO funds and the dilutive impact of a subsequent close of a healthcare ~~and asset-based funds.~~fund. The fair value gains on investments in AssuredIM Funds in ~~First Quarter~~second quarter 2021 and six months 2021 was primarily attributable to changes in the NAV of CLO and healthcare funds. Equity in earnings of other alternative investments decreased in ~~First Quarter~~second quarter 2022 and six months 2022 compared with ~~First Quarter~~second quarter 2021 and six months 2021 primarily due to ~~a stock price decline~~mark to market losses on a specific investment in a private equity fund.

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CVIs issued by Puerto Rico and received as part of the March Puerto Rico Resolutions are classified as trading with changes in fair value reported in other income. The fair value of such instruments as of March 31, 2022 was $174 million.

~~Other Income (Loss)~~

Other income (loss) consists of recurring items such as ancillary fees on financial guaranty policies for commitments and consents, foreign exchange gain (loss) on remeasurement, and if applicable, other revenue items on financial guaranty insurance and reinsurance contracts such as loss mitigation recoveries. Beginning in First Quarter 2022, other income (loss) also included unrealized gain (loss) on the portfolio of trading securities.

Economic Loss Development

The insured portfolio includes policies accounted for under ~~three separate~~several different accounting models depending on the characteristics of the contract and the Company’s control rights. For a discussion of methodologies used in estimating the expected loss to be paid (recovered) for all contracts and the accounting policies for measurement and recognition under GAAP

~~Table of Contents~~

for each type of contract, see the notes listed below in Part II. Item 8, Financial Statements and Supplementary Data, of the Company’s 2021 Annual Report on Form 10-K:

•Note 6 for contracts accounted for as insurance;

•Note 7 for contracts accounted for as credit derivatives;

•Note 9 for FG VIEs; and

•Note 10 for fair value methodologies for credit derivatives and FG VIEs’ assets and liabilities.

In order to efficiently evaluate and manage the economics of the entire insured portfolio, management compiles and analyzes expected loss information for all policies on a consistent basis. The discussion of losses that follows encompasses expected losses on all contracts in the insured portfolio regardless of accounting model, unless otherwise specified. Net expected loss to be paid (recovered) primarily consists of the present value of future: expected claim and LAE payments; expected recoveries from issuers or excess spread; cessions to reinsurers; expected recoveries/payables stemming from breaches of representation and warranties (R&W); and, the effects of other loss mitigation strategies. Assumptions used in the determination of the net expected loss to be paid (recovered) such as delinquency, severity, and discount rates and expected time frames to recovery were consistent by sector regardless of the accounting model used.

Current risk-free rates are used to discount expected losses at the end of each reporting period and therefore changes in such rates from period to period affect the expected loss estimates reported. Changes in risk-free rates used to discount losses affect economic loss development, and loss and LAE; however, the effect of changes in discount rates are not indicative of actual credit impairment or improvement in the period. The following table presents the range and weighted average discount rates used to discount expected losses (recoveries).

Risk-Free Rates Used in Expected Loss (Recovery) for

U.S. Dollar Denominated Obligations


		As of March 31, 2022				As of December 31, 2021				As of March 31, 2021				As of December 31, 2020					As of June 30, 2022			As of March 31, 2022			As of December 31, 2021			As of June 30, 2021			As of March 31, 2021			As of December 31, 2020
Range	Range	0.00	%	–	2.61%	0.00	%	–	1.98%	0.00	%	–	2.49%	0.0	%	–	1.72%	Range	1.67%	–	3.41%	0.00%	–	2.61%	0.00%	–	1.98%	0.00%	–	2.14%	0.00%	–	2.49%	0.00%	–	1.72%
Weighted average	Weighted average	2.26%				1.02%				0.88%				0.60%				Weighted average	2.9%			2.26%			1.02%			0.73%			0.88%			0.60%

The composition of economic loss development (benefit) by accounting model and by sector are presented in the tables that follow, and the drivers of economic loss development (benefit) are discussed below.

Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

by Accounting Model


		Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)					Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
		As of				First Quarter					As of				Second Quarter				Six Months
Accounting Model	Accounting Model	March 31, 2022		December 31, 2021		2022		2021		Accounting Model	June 30, 2022		December 31, 2021		2022		2021		2022		2021
		(in millions)									(in millions)
Insurance	Insurance	$	388	$	364	$	(44)	$	16	Insurance	$	405	$	364	(26)		(25)		$	(70)	$	(9)
FG VIEs	FG VIEs	38		42		(4)		(6)		FG VIEs	32		42		(6)		(1)		(10)		(7)
Credit derivatives	Credit derivatives	6		5		4		3		Credit derivatives	5		5		—		6		4		9
Total	Total	$	432	$	411	$	(44)	$	13	Total	$	442	$	411	$	(32)	$	(20)	$	(76)	$	(7)

Net exposure rated below-investment-grade (BIG)		$	5,783	$	7,440
Net exposure rated BIG										Net exposure rated BIG	$	5,470	$	7,440

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Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

By Sector


		Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)					Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
		As of				First Quarter					As of				Second Quarter				Six Months
Sector	Sector	March 31, 2022		December 31, 2021		2022		2021		Sector	June 30, 2022		December 31, 2021		2022		2021		2022		2021
		(in millions)									(in millions)
U.S. public finance	U.S. public finance	$	181	$	197	$	(48)	$	15	U.S. public finance	$	210	$	197	$	8	$	1	$	(40)	$	16
Non-U.S. public finance	Non-U.S. public finance	10		12		(2)		(12)		Non-U.S. public finance	7		12		(2)		(1)		(4)		(13)
Structured finance	Structured finance									Structured finance
U.S. RMBS	U.S. RMBS	195		150		7		11		U.S. RMBS	179		150		(39)		(28)		(32)		(17)
Other structured finance	Other structured finance	46		52		(1)		(1)		Other structured finance	46		52		1		8		—		7
Structured finance	Structured finance	241		202		6		10		Structured finance	225		202		(38)		(20)		(32)		(10)
Total	Total	$	432	$	411	$	(44)	$	13	Total	$	442	$	411	$	(32)	$	(20)	$	(76)	$	(7)

Effect of changes in the risk-free rates included in economic loss development (benefit)	Effect of changes in the risk-free rates included in economic loss development (benefit)					$	(47)	$	(48)	Effect of changes in the risk-free rates included in economic loss development (benefit)					(42)		15		$	(89)	$	(33)

~~First~~Second Quarter 2022 Net Economic Loss Development

Public Finance: The economic ~~benefit~~loss development on U.S. exposures in ~~First Quarter~~second quarter 2022 was ~~$48~~$8 million, and was primarily attributable to Puerto Rico exposures, ~~and~~partially offset by the effect of changes in discount ~~rates.~~rate. Public finance expected loss to be paid primarily related to U.S. exposures, which had BIG net par outstanding of ~~$3.7~~$3.6 billion as of ~~March 31,~~June 30, 2022 compared with $5.4 billion as of December 31, 2021. The reduction in net par was primarily due to the March Puerto Rico Resolutions discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure. The Company projected that its total net expected loss to be paid across its troubled U.S. public finance exposures as of March 31, 2022 is $181 million, compared with $197 million as of December 31, 2021.

U.S. RMBS: The economic ~~loss development~~benefit attributable to U.S. RMBS was $7$39 million and was ~~mainly~~primarily attributable to a ~~$43 million loss related to lower excess spread, partially offset by a $22~~$23 million benefit related to changes in discount rates, ~~and an $11~~a $17 million benefit related to improved performance in certain ~~transactions.~~transactions, a $14 million benefit related to higher recoveries for secured second lien charged-off loans, and a $11 million benefit related to lower initial severity assumptions for first lien U.S. RMBS transactions, partially offset by losses of $26 million related to lower excess spread.

See Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered) for additional information.

~~First~~Second Quarter 2021 Net Economic Loss Development

Public Finance: ~~Public finance expected~~Expected loss to be paid primarily related to U.S. exposures, which had BIG net par

outstanding of ~~$5.4~~$5.6 billion as of ~~March 31,~~June 30, 2021 compared with $5.4 billion as of December 31, 2020. The Company projected

that its total net expected loss across its troubled U.S. public finance exposures as of ~~March 31,~~June 30, 2021 ~~was $228~~would be $221 million,

compared with $305 million as of December 31, 2020. Economic loss development on U.S. ~~public finance~~ exposures in ~~First Quarter~~second quarter 2021

was ~~$15~~$1 million, which was primarily attributable to deterioration in a student housing transaction and changes in discount rates,

which were partially offset by improvement in certain Puerto Rico exposures.

U.S. RMBS: The economic benefit attributable to U.S. RMBS was $28 million and was mainly attributable to a $25 million benefit for higher excess spread, a $7 million benefit for higher recoveries received for charged-off loans, and a $7 million benefit for improved performance in certain transactions, partially offset by an $11 million loss for changes in discount rates. Certain transactions benefit from excess spread when they are supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) but have insured floating rate debt linked to LIBOR. Lower LIBOR results in higher excess spread.

Other Structured Finance: The economic loss development attributable to structured finance, excluding U.S. RMBS,

was $8 million, which was primarily attributable to LAE for certain transactions.

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Six Months 2022Net Economic Loss Development

The economic benefit on U.S. public finance exposures in six months 2022 was $40 million, which was primarily attributable to changes in discount rates. The net benefit attributable to U.S. RMBS was $32 million and was mainly related to a $45 million benefit related to changes in discount rates, a $27 million benefit related to improved performance in certain transactions, an $18 million benefit related to higher recoveries for secured second lien charged-off loans, and a $11 million benefit related to lower initial severity assumptions for first lien U.S. RMBS transactions, partially offset by losses of $69 million related to lower excess spread.

Six Months 2021 Net Economic Loss Development

Economic loss development on U.S. public finance exposures in six months 2021 was $16 million, which was

primarily attributable to Puerto Rico exposures and deterioration in a student housing transaction, which were partially offset by

changes in discount rates and improved cash flows for a certain transaction. The economic benefit was approximately ~~$12~~ $13

million for non-U.S. public finance exposures ~~during First Quarter 2021~~due mainly due to the restructuring of certain exposures and the impact of higher ~~Euro Interbank Offered Rate (Euribor).~~

~~U.S. RMBS:~~ Euribor. The ~~economic loss development~~net benefit attributable to U.S. RMBS was ~~$11~~$17 million and was mainly related to a ~~reduction of excess spread of $58~~$22 million ~~partially offset by~~benefit for changes

in discount rates, ~~which was~~ a ~~gain of $33~~$17 million ~~and improved performance~~benefit for improvement in certain transactions and an $11 million benefit for higher recoveries

received for ~~secured~~ charged-off ~~loans.~~loans, partially offset by a $33 million loss for lower excess spread. The economic loss development

attributable to structured finance, excluding U.S. RMBS, was $7 million, which was primarily attributable to LAE for certain

transactions.

Insurance Segment Loss Expense

The primary differences between net economic loss development and the amount reported as “loss and LAE” in the consolidated statements of operations are that loss and LAE: (1) considers deferred premium revenue in the calculation of loss reserves for financial guaranty insurance contracts; (2) eliminates loss and LAE related to FG VIEs; and (3) does not include estimated losses on credit derivatives.

Insurance segment loss expense includes loss and LAE on financial guaranty insurance contracts and losses on credit derivatives, without giving effect to eliminations related to the consolidation of FG VIEs.

~~Table of Contents~~

For financial guaranty insurance contracts, each transaction’s expected loss to be expensed is compared with the deferred premium revenue of that transaction. Expected loss to be expensed represents past or expected future net claim payments that have not yet been expensed. Such amounts will be expensed in future periods as deferred premium revenue amortizes into income on financial guaranty insurance policies. Expected loss to be expensed is the Company’s projection of incurred losses that will be recognized in future periods, excluding accretion of discount. When the expected loss to be expensed exceeds the deferred premium revenue, a loss is recognized in income for the amount of such excess. Therefore, the timing of loss recognition in income does not necessarily coincide with the timing of the actual credit impairment or improvement reported in net economic loss development. Transactions (particularly BIG transactions) acquired in a business combination or seasoned portfolios assumed from legacy financial guaranty insurers generally have the largest deferred premium revenue balances. Therefore, the largest differences between net economic loss development and loss and LAE on financial guaranty insurance contracts generally relate to those policies.

The amount of Insurance segment loss expense, which includes all policies regardless of form, is a function of the amount of economic loss development discussed above and the deferred premium revenue amortization in a given period, on a contract-by-contract basis.

While expected loss to be paid (recovered) is an important ~~liquidity~~ measure that provides the present value of amounts that the Company expects to pay or recover in future periods on all contracts, expected loss to be expensed is important because it presents the Company’s projection of net expected losses that will be recognized in the consolidated statement of operations in future periods as deferred premium revenue amortizes into income for financial guaranty insurance policies.

Loss expense (benefit) is a function of economic loss development (benefit), as well as the amortization of unearned premium reserve. The following table presents the Insurance segment loss expense.

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Insurance Segment

Loss Expense (Benefit)


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
U.S. public finance	U.S. public finance	$	55	$	26	U.S. public finance	$	11	$	4	$	66	$	30
Non-U.S. public finance	Non-U.S. public finance	—		(8)		Non-U.S. public finance	—		(1)		—		(9)
Structured finance	Structured finance					Structured finance
U.S. RMBS	U.S. RMBS	6		12		U.S. RMBS	(28)		(22)		(22)		(10)
Other structured finance	Other structured finance	(1)		—		Other structured finance	—		7		(1)		7
Structured finance	Structured finance	5		12		Structured finance	(28)		(15)		(23)		(3)
Total Insurance segment loss expense		$	60	$	30
Total Insurance segment loss expense (benefit)						Total Insurance segment loss expense (benefit)	$	(17)	$	(12)	$	43	$	18

~~Loss expense is a function of economic loss development, as well as the amortization of unearned premium reserve. In First Quarter 2022, the~~The largest component of the U.S. public finance loss expense was ~~from the public finance sector, which had loss expense of $55 million primarily attributable to~~ Puerto Rico ~~exposures. The public finance sector also had an economic benefit of $50 million, which was also primarily attributable to Puerto Rico exposures.~~exposures for all periods presented. The difference between public finance loss expense and economic benefit in six months 2022 was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.

~~Loss expense~~ The benefit in ~~First Quarter 2021 was mainly driven by certain Puerto Rico transactions and~~ U.S. RMBS ~~exposures. For First Quarter 2021, these losses were partially offset by a benefit~~ in ~~certain European exposures.~~

all periods presented is primarily related to second lien transactions. For additional information on the expected timing of net expected losses to be expensed see Item 1, Financial Statements, Note ~~5, Contracts Accounted for as Insurance, Losses.~~4, Expected Loss to be Paid (Recovered).

Other Operating Expenses

The decrease in other operating expenses in ~~First Quarter~~six months 2022 compared with ~~First Quarter~~six months 2021 was primarily attributable to the write-off of a $16 million intangible asset attributable to MAC insurance licenses in ~~First Quarter~~the first quarter of 2021. MAC was merged with and into AGM on April 1, 2021. See Item 1, Financial Statements, Note 1, Business and Basis of Presentation, for additional information.

~~Table of Contents~~

Financial Strength Ratings

~~On March 18, 2022, Moody’s Investors Service, Inc. (Moody’s) upgraded the financial strength rating of AGM and AGUK to A1 (stable) from A2 (stable).~~

Demand for the financial guaranties issued by the Company’s insurance subsidiaries may be impacted by changes in the credit ratings assigned to them by the rating agencies. The financial strength ratings (or similar ratings) assigned to AGL’s insurance subsidiaries, along with the date of the most recent rating action (or confirmation) by the rating agency assigning the rating, are shown in the table below.

S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P)

Kroll Bond Rating
Agency

Moody’s Investors Service, Inc. (Moody’s)

A.M. Best Company,
Inc.

AGM

AA (stable) (7/8/~~21)~~22)

AA+ (stable) (10/20/21)

A1 (stable) (3/18/22)

—

AGC

AA (stable) (7/8/~~21)~~22)

AA+ (stable) (10/20/21)

(1)

—

Assured Guaranty Re Ltd. (AG Re)

AA (stable) (7/8/~~21)~~22)

—

Assured Guaranty Re Overseas Ltd. (AGRO)

AA (stable) (7/8/~~21)~~22)

—

A+ (stable) (7/~~15/21)~~22/22)

Assured Guaranty UK Limited (AGUK)

AA (stable) (7/8/~~21)~~22)

AA+ (stable) (10/20/21)

A1 (stable) (3/18/22)

—

Assured Guaranty (Europe) SA (AGE)

AA (stable) (7/8/~~21)~~22)

AA+ (stable) (10/20/21)

—

____________________

(1) AGC requested that Moody’s withdraw its financial strength ratings of AGC in January 2017, but Moody’s denied that request. On March 18, 2022, Moody’s upgraded the financial strength rating of AGC to A2 (stable) from A3 (stable).

Ratings are subject to continuous rating agency review and revision or withdrawal at any time. In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment may request that a rating agency add or drop a rating from certain of its companies. There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL’s insurance

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subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary.

For a discussion of the effects of rating actions on the Company beyond potential effects on the demand for its insurance products, see “— Liquidity and Capital Resources —” section below.

~~Table of Contents~~

Asset Management Segment Results


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Segment revenues	Segment revenues					Segment revenues
Management fees (1)	Management fees (1)	$	21	$	19	Management fees (1)	$	27	19		48		38
Performance fees	Performance fees	16		1		Performance fees	2		—		18		1
Other income (loss)	Other income (loss)	2		—		Other income (loss)	(1)		2		1		2
Total segment revenues	Total segment revenues	39		20		Total segment revenues	28		21		67		41
Segment expenses	Segment expenses					Segment expenses
Employee compensation and benefit expenses	Employee compensation and benefit expenses	29		19		Employee compensation and benefit expenses	17		15		46		34
Other operating expenses (1) (2)	Other operating expenses (1) (2)	10		10		Other operating expenses (1) (2)	11		9		21		19
Total segment expenses	Total segment expenses	39		29		Total segment expenses	28		24		67		53
Segment adjusted operating income (loss) before income taxes	Segment adjusted operating income (loss) before income taxes	—		(9)		Segment adjusted operating income (loss) before income taxes	—		(3)		—		(12)
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	—		(2)		Less: Provision (benefit) for income taxes	—		(1)		—		(3)
Segment adjusted operating income (loss)	Segment adjusted operating income (loss)	$	—	$	(7)	Segment adjusted operating income (loss)	$	—	$	(2)	$	—	$	(9)

_____________________

(1) The Asset Management segment presents reimbursable fund expenses netted in other operating expenses, whereas on the condensed consolidated statement of operations such reimbursable expenses are shown gross as revenues.

(2) Includes amortization of intangible assets of $3 million in both ~~First Quarter~~second quarter 2022 and ~~First Quarter~~second quarter 2021 and $6 million in both six months 2022 and six months 2021.

Management and Performance Fees

Management fees are generated by CLOs, opportunity funds, liquid strategies, and the wind-down funds. CLO fees are the net management fees that AssuredIM retains after rebating the portion of these fees that pertains to the CLO Equity that is held directly by AssuredIM Funds. Management fees from opportunity funds and liquid strategies include funds that were launched since the BlueMountain Acquisition in which the Insurance segment’s U.S. Insurance Subsidiaries invest along with two previously established opportunity funds in their harvest periods. ~~The Company also generates fees from legacy hedge and opportunity funds now subject to an orderly wind-down.~~

Management Fees


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
CLOs	CLOs	$	12	$	12	CLOs	$	12	$	12	$	24	$	24
Opportunity funds and liquid strategies	Opportunity funds and liquid strategies	8		4		Opportunity funds and liquid strategies	15		5		23		9
Wind-down funds	Wind-down funds	1		3		Wind-down funds	—		2		1		5
Total management fees	Total management fees	$	21	$	19	Total management fees	$	27	$	19	$	48	$	38

Fees from opportunity funds increased primarily due to higher third party AUM ~~of $1.9 billion March 31, 2022 compared with $1.5 billion as of March 31, 2021.~~in healthcare funds. Fees from the wind-down funds decreased as distributions to investors continued. As of ~~March 31,~~June 30, 2022, AUM of the wind-down funds was ~~$0.5~~$0.3 billion compared with ~~$1.3~~$1.2 billion as of ~~March 31,~~June 30, 2021 and $0.6 billion as of December ~~31, 2021. CLO fee-earning AUM was $13.9 billion, or 97%, of total CLO AUM as of March 31, 2022, compared with $12.0 billion, or 83%, of total CLO AUM as of March~~ 31, 2021.

Performance fees and increased compensation expenses in ~~First Quarter~~six months 2022 were attributable to the ~~performance of the~~ healthcare and asset-based funds.

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Assets Under Management

~~Table of Contents~~

metric for assessing the relative size and scope of ~~our~~the Company’s asset management business. The Company uses measures of its AUM in its decision-making process and uses a measure of change in AUM in its calculation of certain components of management compensation. Investors also use AUM to evaluate companies that participate in the asset management business. AUM refers to the assets managed, advised or serviced by the Asset Management segment and equals the sum of the following:

•the amount of aggregate collateral balance and principal cash of AssuredIM’s CLOs, including CLO Equity that may be held by AssuredIM Funds. This also includes CLO assets managed by BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a third party in ~~the~~ second quarter of 2021. AssuredIM is not the investment manager of BM Fuji-advised CLOs, but following the sale, AssuredIM sub-advises and continues to provide personnel and other services to BM Fuji associated with the management of BM Fuji-advised CLOs pursuant to a sub-advisory agreement and a personnel and services agreement, consistent with past practices; and

•the net asset value of all funds and accounts other than CLOs, plus any unfunded commitments. Changes in NAV attributable to movements in fund value of certain private equity funds are reported on a quarter lag.

The Company’s calculation of AUM may differ from the calculation employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment managers. The calculation also differs from the manner in which AssuredIM affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways.

The Company also uses several other measurements of AUM to understand and measure its AUM in more detail and for various purposes, including its relative position in the market and its income and income potential:

“Third-party AUM” refers to the assets AssuredIM manages or advises on behalf of third-party investors. This includes current and former employee investments in AssuredIM Funds. For CLOs, this also includes CLO Equity that may be held by AssuredIM Funds.

“Intercompany AUM” refers to the assets AssuredIM manages or advises on behalf of the Company. This includes investments from affiliates of Assured Guaranty along with general partners’ investments of AssuredIM (or its affiliates) into the AssuredIM Funds.

“Funded AUM” refers to assets that have been deployed or invested into the funds or CLOs.

“Unfunded AUM” refers to unfunded capital commitments from closed-end funds and CLO warehouse funds.

“Fee earning AUM” refers to assets where AssuredIM collects fees and has elected not to waive or rebate fees to investors.

“Non-fee earning AUM” refers to assets where AssuredIM does not collect fees or has elected to waive or rebate fees to investors. AssuredIM reserves the right to waive some or all fees for certain investors, including investors affiliated with AssuredIM and/or the Company. Further, to the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs to the extent such fees are attributable to the wind-down and opportunity funds’ holdings of CLOs also managed by AssuredIM.

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Roll Forward of Assets Under Management

~~First~~Second Quarter 2022


		CLOs		Opportunity Funds		Liquid Strategies		Wind-Down Funds		Total			CLOs		Opportunity Funds (1)		Liquid Strategies (2)		Wind-Down Funds		Total
		(in millions)											(in millions)
AUM, December 31, 2021		$	14,699	$	1,824	$	389	$	582	$	17,494
AUM, March 31, 2022												AUM, March 31, 2022	$	14,282	$	1,874	$	375	$	459	$	16,990
Inflows - third party ~~(1)~~	Inflows - third party ~~(1)~~	—		91		—		—		91		Inflows - third party ~~(1)~~	1,049		200		21		—		1,270
Inflows - intercompany	Inflows - intercompany	—		—		—		—		—		Inflows - intercompany	50		—		104		—		154
Outflows:	Outflows:											Outflows:
Redemptions	Redemptions	—		—		—		—		—		Redemptions	—		—		—		—		—
Distributions ~~(2)~~	Distributions ~~(2)~~	(335)		(104)		—		(135)		(574)		Distributions ~~(2)~~	(22)		(39)		(125)		(140)		(326)
Total outflows	Total outflows	(335)		(104)		—		(135)		(574)		Total outflows	(22)		(39)		(125)		(140)		(326)
Net flows	Net flows	(335)		(13)		—		(135)		(483)		Net flows	1,077		161		—		(140)		1,098
Change in value	Change in value	(82)		63		(14)		12		(21)		Change in value	(183)		15		(3)		20		(151)
AUM, March 31, 2022		$	14,282	$	1,874	$	375	$	459	$	16,990
AUM, June 30, 2022												AUM, June 30, 2022	$	15,176	$	2,050	$	372	$	339	$	17,937

Roll Forward of Assets Under Management

Six Months 2022


	CLOs		Opportunity Funds (1)		Liquid Strategies (2)		Wind-Down Funds		Total
	(in millions)
AUM, December 31, 2021	$	14,699	$	1,824	$	389	$	582	$	17,494
Inflows - third party	1,049		291		21		—		1,361
Inflows - intercompany	50		—		104		—		154
Outflows:
Redemptions	—		—		—		—		—
Distributions	(357)		(143)		(125)		(275)		(900)
Total outflows	(357)		(143)		(125)		(275)		(900)
Net flows	742		148		—		(275)		615
Change in value	(265)		78		(17)		32		(172)
AUM, June 30, 2022	$	15,176	$	2,050	$	372	$	339	$	17,937

_____________________

(1) Opportunity funds inflows in ~~First Quarter~~second quarter 2022 isand six months 2022 are primarily related to the healthcare strategy fund.

~~(2)~~ Distributions from opportunity funds include ~~$48~~$26 million and $74 million in second quarter 2022 and six months 2022, respectively, related to the AssuredIM Funds created prior to BlueMountain Acquisition. As of ~~March 31,~~June 30, 2022, AUM related to these funds was ~~$128~~$114 million.

(2) Liquid strategies inflows and outflows in second quarter 2022 and six months 2022 relate to the transfer of assets from an existing municipal bond fund to a new municipal relative value fund.

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Components of Assets Under Management


		CLOs (1)		Opportunity Funds		Liquid Strategies		Wind-Down Funds		Total			CLOs (1)		Opportunity Funds		Liquid Strategies		Wind-Down Funds		Total
		(in millions)											(in millions)
As of March 31, 2022:
As of June 30, 2022:												As of June 30, 2022:
Funded AUM	Funded AUM	$	14,172	$	1,265	$	375	$	437	$	16,249	Funded AUM	$	15,069	$	1,288	$	372	$	317	$	17,046
Unfunded AUM	Unfunded AUM	110		609		—		22		741		Unfunded AUM	107		762		—		22		891

Fee-earning AUM	Fee-earning AUM	$	13,889	$	1,597	$	375	$	280	$	16,141	Fee-earning AUM	$	14,773	$	1,801	$	372	$	202	$	17,148
Non-fee earning AUM	Non-fee earning AUM	393		277		—		179		849		Non-fee earning AUM	403		249		—		137		789

Intercompany AUM	Intercompany AUM											Intercompany AUM
Funded AUM	Funded AUM	$	557	$	212	$	355	$	—	$	1,124	Funded AUM	$	562	$	187	$	351	$	—	$	1,100
Unfunded AUM	Unfunded AUM	108		121		—		—		229		Unfunded AUM	106		135		—		—		241

As of December 31, 2021:	As of December 31, 2021:											As of December 31, 2021:
Funded AUM	Funded AUM	$	14,575	$	1,297	$	389	$	560	$	16,821	Funded AUM	$	14,575	$	1,297	$	389	$	560	$	16,821
Unfunded AUM	Unfunded AUM	124		527		—		22		673		Unfunded AUM	124		527		—		22		673

Fee-earning AUM	Fee-earning AUM	$	14,252	$	1,527	$	389	$	408	$	16,576	Fee-earning AUM	$	14,252	$	1,527	$	389	$	408	$	16,576
Non-fee earning AUM	Non-fee earning AUM	447		297		—		174		918		Non-fee earning AUM	447		297		—		174		918

Intercompany AUM	Intercompany AUM											Intercompany AUM
Funded AUM	Funded AUM	$	541	$	217	$	368	$	—	$	1,126	Funded AUM	$	541	$	217	$	368	$	—	$	1,126
Unfunded AUM	Unfunded AUM	123		121		—		—		244		Unfunded AUM	123		121		—		—		244

_____________________

(1) CLO AUM includes CLO Equity that is held by various AssuredIM Funds. This CLO Equity corresponds to the majority of the non-fee earning CLO AUM, as AssuredIM typically rebates the CLO fees back to AssuredIM Funds.

~~Table of Contents~~

Corporate Division Results


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Revenues	Revenues	$	1	$	—	Revenues	$	1	—		2		—
Expenses	Expenses					Expenses
Interest expense	Interest expense	21		23		Interest expense	23		26		44		49
Employee compensation and benefit expenses	Employee compensation and benefit expenses	6		5		Employee compensation and benefit expenses	7		5		13		10
Other operating expenses	Other operating expenses	7		4		Other operating expenses	6		5		13		9
Total expenses	Total expenses	34		32		Total expenses	36		36		70		68
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	—		—		Equity in earnings (losses) of investees	—		—		—		—
Adjusted operating income (loss) before income taxes	Adjusted operating income (loss) before income taxes	(33)		(32)		Adjusted operating income (loss) before income taxes	(35)		(36)		(68)		(68)
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	—		(3)		Less: Provision (benefit) for income taxes	—		(2)		—		(5)
Adjusted operating income (loss)	Adjusted operating income (loss)	$	(33)	$	(29)	Adjusted operating income (loss)	$	(35)	$	(34)	$	(68)	$	(63)

Corporate division interest expense primarily relates to debt issued by the U.S. Holding Companies, and also includes intersegment interest expense of $2$3 million in both ~~First Quarter~~second quarter 2022 and ~~First Quarter~~second quarter 2021 ~~related~~and $5 million in both six months 2022 and six months 2021, respectively. Intersegment interest expense relates primarily to the $250 million AGUS

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debt to the U.S. Insurance Subsidiaries, which was borrowed in October 2019 in connection with the BlueMountain Acquisition.

Corporate division employee compensation and benefits expenses are based on time studies and represent the costs incurred and time spent on holding company activities, capital management, corporate oversight and governance. Other expenses include Board of Director expenses, legal fees and other direct or allocated expenses.

Other (Effect of FG VIEs and CIVs)

The effect of consolidating FG VIEs and CIVs, intersegment eliminations, and reclassifications of reimbursable fund expenses to revenue are presented in “Other.” See Item 1, Financial Statements, Note 2, Segment Information.

The types of entities the Company consolidates when it is deemed to be the primary beneficiary primarily include: (1) entities whose debt obligations the insurance subsidiaries insure; (2) custodial trusts established in connection with the consummation of the March Puerto Rico Resolutions; and (3) investment vehicles such as collateralized financing entities, CLO warehouses and AssuredIM Funds. The Company eliminates the effects of intercompany transactions between its FG VIEs and CIVs, and its insurance and asset management subsidiaries, as well as intercompany transactions between CIVs.

The effect of consolidating FG VIEs (as opposed to accounting for the related insurance contracts in the Insurance segment), has a significant gross-up effect on the consolidated financial statements, and includes: (1) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements; (2) eliminating the premiums and losses associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs; and (3) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG ~~VIEs, and establishing the noncontrolling interests.~~VIEs.

The effect of consolidating CIVs (as opposed to accounting for them as equity method ~~investments in the Insurance segment)~~investments) has a significant effect on assets, liabilities and cash flows, and includes: (1) the establishment of the assets and liabilities of the CIVs, and related changes in fair value; (2) eliminating the asset management fees earned by AssuredIM from the CIVs; (3) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees and (4) establishing non-controlling interest for amounts not owned by the Company. The economic effect of the ~~Company’s~~U.S Insurance Subsidiaries’ ownership ~~interest~~interests in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, ~~and~~while the effect of CIVs is presented as separate line items (“assets of CIVs,” “liabilities of CIVs,” and redeemable and non-redeemable non-controlling interest) on a consolidated basis.

The table below reflects the effect of consolidating FG VIEs and CIVs on the condensed consolidated statements of operations. The amounts represent: (1) the revenues and expenses of the FG VIEs and the CIVs; and (2) the ~~amounts eliminated~~consolidation adjustments and eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

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Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations

Increase (Decrease)

First Quarter
2022 2021
Effect on Financial Statement Line Item (in millions)
Fair value gains (losses) on FG VIEs (1) $ 6 $ 5
Fair value gains (losses) on CIVs 14 16
Equity in earnings (losses) of investees (2) (10) (10)
Other (3) (11) (7)
Effect on income before tax (1) 4
Less: Tax provision (benefit) — —
Effect on net income (loss) (1) 4
Less: Effect on noncontrolling interests (4) 9 4
Effect on net income (loss) attributable to AGL $ (10) $ —
By Type of VIE
FG VIEs $ 2 $ —
CIVs (12) —
Effect on net income (loss) attributable to AGL $ (10) $ —


	Second Quarter				Six Months
	2022		2021		2022		2021
Effect on Financial Statement Line Item	(in millions)
Fair value gains (losses) on FG VIEs (1)	$	10	$	8	$	16	$	13
Fair value gains (losses) on CIVs	3		21		17		37
Equity in earnings (losses) of investees (2)	34		(14)		24		(24)
Other (3)	(13)		(6)		(24)		(13)
Effect on income before tax	34		9		33		13
Less: Tax provision (benefit)	2		1		2		1
Effect on net income (loss)	32		8		31		12
Less: Effect on noncontrolling interests (4)	22		4		31		8
Effect on net income (loss) attributable to AGL	$	10	$	4	$	—	$	4

By Type of VIE
FG VIEs	$	1	$	3	$	3	$	3
CIVs	9		1		(3)		1
Effect on net income (loss) attributable to AGL	$	10	$	4	$	—	$	4

____________________

(1) Changes in fair value of the FG VIEs’ assets and liabilities that are attributable to factors other than (i) changes in the Company’s own credit risk on FG VIE liabilities with recourse, and (ii) unrealized gains and losses on available-for-sale fixed maturity securities.

(2) Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’ investments in the consolidated AssuredIM Funds.

(3) Includes net earned premiums, net investment income, asset management fees, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE and other operating expenses.

(4) Represents the proportion of consolidated AssuredIM Funds’ income that is not attributable to AGAS’ or any other subsidiaries’ ownership interest.

~~Fair~~The impact of consolidating FG VIEs and CIVs was $10 million in second quarter 2022, compared with $4 million in second quarter 2021 due mainly to the out-of-period adjustments of $9 million (see Item 1, Financial Statements, Note 1, Business and Basis of Presentation), and fair value gains ~~on CIVs in First Quarter 2022 and First Quarter 2021 were attributable to realized gains or losses, changes in underlying investment prices and investment interest, net of fees and expenses.~~associated with consolidated AssuredIM Funds, mainly the healthcare fund.

Fair value gains on FG VIEs for First Quarter 2022 were attributable to price depreciation on insured fixed rate debt that were negatively impacted due to the increase in interest rates. Fair value gains on FG VIEs for First Quarter 2021 were attributable to price depreciation on insured fixed rate debt that were negatively impacted due to the assumptions in forward interest rates.

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Reconciliation to GAAP

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Net income (loss) attributable to AGL	Net income (loss) attributable to AGL	$	66	$	11	Net income (loss) attributable to AGL	$	(47)	$	98	$	19	$	109
Less pre-tax adjustments:	Less pre-tax adjustments:					Less pre-tax adjustments:
Realized gains (losses) on investments	Realized gains (losses) on investments	3		(3)		Realized gains (losses) on investments	(28)		4		(25)		1
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(3)		(19)		Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	6		(31)		3		(50)
Fair value gains (losses) on CCS	Fair value gains (losses) on CCS	1		(19)		Fair value gains (losses) on CCS	10		(6)		11		(25)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(29)		1		Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(73)		5		(102)		6
Total pre-tax adjustments	Total pre-tax adjustments	(28)		(40)		Total pre-tax adjustments	(85)		(28)		(113)		(68)
Less tax effect on pre-tax adjustments	Less tax effect on pre-tax adjustments	4		8		Less tax effect on pre-tax adjustments	8		6		12		14
Adjusted operating income (loss)	Adjusted operating income (loss)	$	90	$	43	Adjusted operating income (loss)	$	30	$	120	$	120	$	163

Gain (loss) related to FG VIE and CIV consolidation, net of tax, included in adjusted operating income	Gain (loss) related to FG VIE and CIV consolidation, net of tax, included in adjusted operating income	$	(10)	$	—	Gain (loss) related to FG VIE and CIV consolidation, net of tax, included in adjusted operating income	$	10	$	4	$	—	$	4

Net Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses).

Net Realized Investment Gains (Losses)


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Gross realized gains on sales available-for-sale securities	Gross realized gains on sales available-for-sale securities	$	—	$	1	Gross realized gains on sales available-for-sale securities	$	—	$	1	$	—	$	2
Gross realized losses on sales available-for-sale securities	Gross realized losses on sales available-for-sale securities	(2)		(2)		Gross realized losses on sales available-for-sale securities	(21)		—		(23)		(2)
Net foreign currency gains (losses)	Net foreign currency gains (losses)	—		1		Net foreign currency gains (losses)	(3)		1		(3)		2
Change in credit impairment and intent to sell	Change in credit impairment and intent to sell	(5)		(4)		Change in credit impairment and intent to sell	(4)		—		(9)		(4)
Other net realized gains (losses)	Other net realized gains (losses)	10		1		Other net realized gains (losses)	—		2		10		3
Net realized investment gains (losses)	Net realized investment gains (losses)	$	3	$	(3)	Net realized investment gains (losses)	$	(28)	$	4	$	(25)	$	1

O~~ther~~Gross realized losses on sales of available-for-sale securities in second quarter 2022 and six months 2022 were primarily attributable to Puerto Rico recovery bonds. Other net realized gains in ~~First Quarter~~six months 2022 ~~related~~relate primarily to the sale of one of the Company’s alternative investments.

Non-Credit Impairment-Related Unrealized Fair Value Gains (Losses) on Credit Derivatives

Changes in the fair value of credit derivatives occur because of changes in the Company’s own credit rating and credit spreads, collateral credit spreads, notional amounts, credit ratings of the referenced entities, expected terms, realized gains (losses) and other settlements, interest rates, and other market factors. The components of changes in fair value of credit derivatives related to credit derivative revenues and changes in expected losses are included in Insurance segment results. Non-credit impairment-related changes in unrealized fair value gains and losses on credit derivatives are not included in the Insurance segment measure of adjusted operating income because they do not represent actual claims or losses and are expected to reverse to zero as the exposure approaches its maturity date. Changes in the fair value of the Company’s credit derivatives that do not reflect actual or expected claims or credit losses have no impact on the Company’s statutory claims-paying resources, rating agency capital or regulatory capital positions. Unrealized gains (losses) on credit derivatives may fluctuate significantly in future periods.

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relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts. The Company determines its own credit risk based on quoted CDS prices traded on AGC at each balance sheet date. Generally, a widening of credit spreads of the underlying obligations results in unrealized losses and the tightening of credit spreads of the underlying obligations results in unrealized gains. A widening of the CDS prices traded on AGC has an effect of offsetting unrealized losses that result from widening general market credit spreads, while a narrowing of the CDS prices traded on AGC has an effect of offsetting unrealized gains that result from narrowing general market credit spreads.

The valuation of the Company’s credit derivative contracts requires the use of models that contain significant, unobservable inputs, and are classified as Level 3 in the fair value hierarchy. The models used to determine fair value are primarily developed internally based on market conventions for similar transactions that the Company observed in the past. There has been very limited new issuance activity in this market since 2009 and, as of ~~March 31,~~June 30, 2022, market prices for the Company’s credit derivative contracts were generally not available. Inputs to the estimate of fair value include various market indices, credit spreads, the Company’s own credit spread, and estimated contractual payments. See Item 1, Financial Statements, Note 9, Fair Value Measurement, for additional information.

~~First Quarter~~Second quarter 2022 and six months 2022 non-credit impairment-related unrealized fair value ~~losses~~gains were generated primarily as a result of ~~increases in the credit spread of underlying reference obligations, offset in part by~~ the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the ~~period. First Quarter~~period, and changes in discount rates. These gains were partially offset by an increase in the credit spread of certain underlying reference obligations. Except for underlying credit impairment, which is recognized as loss expense in the Insurance segment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.

Second quarter 2021 and six months 2021 non-credit ~~impairment-related unrealized~~impairment fair value losses on credit derivatives were generated primarily as a result of the ~~decreased cost to buy protection on~~tightening of AGC ~~as the market cost of AGC's credit protection decreased during the period. These losses were~~spreads, partially offset by general price improvements of the ~~higher discount rates.~~underlying collateral.

Sensitivity to Changes in Credit Spread

The following table summarizes the estimated change in fair value on the net balance of the Company’s credit derivative positions assuming an immediate shift in the net spreads assumed by the Company. The net spread is affected by the spread of the underlying collateral and the credit spreads on AGC.

~~Effect of Changes in Credit Spread~~

As of March 31, 2022 As of December 31, 2021
Credit Spreads (1) Estimated Net
Fair Value
(Pre-Tax) Estimated Change
in Gain (Loss)
(Pre-Tax) Estimated Net
Fair Value
(Pre-Tax) Estimated Change
in Gain (Loss)
(Pre-Tax)
(in millions)
Increase of 25 bps $ (241) $ (85) $ (250) $ (96)
Base Scenario (156) — (154) —
Decrease of 25 bps (86) 70 (83) 71
All transactions priced at floor (32) 124 (37) 117

~~____________________~~

~~(1)Includes the effects of spreads on both the underlying asset classes and the Company’s own credit spread.~~

~~Fair Value Gains (Losses) on CCS~~Adjusted Operating Income

~~Fair~~Adjusted operating income in second quarter 2022was $30 million, compared with $120 million in second quarter 2021. The decrease was primarily attributable to losses in equity method alternative investments (compared with gains in second quarter 2021), lower net earned premiums, losses on the trading investment portfolio and lower fair value gains on ~~CCS~~consolidated investment vehicles. Adjusted operating income in ~~First Quarter~~for six months 2022 was $120 million, compared with $163 million in six months 2021. The decrease was primarily attributable to losses in equity method alternative investments, higher loss expense, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles, which were partially offset by higher net earned premiums due to higher refundings related to the March Puerto Rico Resolutions. See “— Results of Operations — Reconciliation to GAAP” below.

Book Value and Adjusted Book Value

Shareholders’ equity attributable to AGL declined mainly due to unrealized losses on the available-for-sale fixed-maturity investment portfolio that were caused by higher interest rates, and share repurchases. Adjusted operating shareholders’ equity and adjusted book value declined from December 31, 2021, mainly due to share repurchases and dividends, partially offset, in the case of adjusted book value, by net written premiums on new business production.

Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were $84.89, $90.18 and $134.91, respectively as of June 30, 2022. Shareholders’ equity per share declined primarily due to ~~a significant~~unrealized losses on the available-for-sale fixed maturity portfolio. The increase in ~~LIBOR. Fair~~adjusted operating shareholders’ equity per share and adjusted book value ~~losses on CCS in First Quarter 2021 were~~per share was primarily due to ~~a tightening in market spreads. Fair~~the accretive effect of the share repurchase program. In the case of adjusted book value of CCS is heavily affected by, and in part fluctuates with, changes in market spreads and interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

~~Foreign Exchange Gain (Loss) on Remeasurement~~

~~Foreign exchange gains and losses in all periods primarily relate to remeasurement of long-dated~~per share, net premiums ~~receivables, for which the Company records the present value of future installment premiums, and are mainly due to changes~~written in the ~~exchange rate of the pound sterling and euro relative~~Insurance segment also contributed to the ~~U.S. dollar.~~increase compared with December 31, 2021. See “— Overview — Key Business Strategies.. See “— Non-GAAP Financial Measures” below for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and adjusted book value.

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~~Non-GAAP Financial Measures~~Other Matters

Russia’s Invasion of Ukraine

Russia’s invasion of Ukraine has led to the imposition of economic sanctions by many western countries against Russia and certain Russian individuals, dislocation in global energy markets, massive refugee movements, and payment default by certain Russian credits. The economic sanctions imposed by western governments, along with decisions by private companies regarding their presence in Russia, continue to reduce western economic ties to Russia and to reshape global economic and political ties more generally, and the Company discloses both: (a) financial measures determined in accordance with GAAP; and (b) financial measures not determined in accordance with GAAP (non-GAAP financial measures). Financial measures identified as non-GAAP should not be considered substitutes for GAAP financial measures. The primary limitationcannot predict all of ~~non-GAAP financial measures is~~ the potential ~~lack~~effects of ~~comparability to financial measures of other companies, whose definitions of non-GAAP financial measures may differ from those of~~the conflict on the world or on the Company.

The Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, and have identified no material direct exposure to Ukraine or Russia. In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $297 million in net par outstanding as of June 30, 2022, comprising $229 million net par exposure to the sovereign debt of Poland and $68 million net par exposure to a toll road in Hungary. The Company believes its presentation of non-GAAP financial measures provides information that is necessary for analysts to calculate their estimates of Assured Guaranty’s financial results in their research reports on Assured Guaranty and for investors, analysts andrates the ~~financial news media to evaluate Assured Guaranty’s financial results.~~toll road exposure below-investment-grade (BIG).

~~GAAP requires~~Inflation

•~~FG VIEs, which~~make their debt payments, and accompanying higher interest rates could impact the Company ~~does~~in several ways. For example, higher interest rates might make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-maturity investment portfolio. On the other hand, high interest rates decrease the amount of excess spread available to support the distressed RMBS the Company insures and reduce the market value of its largely fixed rate fixed maturity investment portfolios.

LIBOR Sunset

ICE Benchmark Administration (IBA) and U.K. Financial Conduct Authority (FCA) first announced in 2017 that the publication of London Interbank Offered Rate (LIBOR) would cease at the end of 2021. Many legal documents entered into prior to that time did not ~~own~~include robust fallback language contemplating the permanent suspension of the publication of LIBOR. On March 5, 2021, IBA and ~~where its exposure~~FCA confirmed a representative panel of banks will continue setting 1, 3, 6 and 12-month U.S. Dollar LIBOR through June 2023, rather than December 31, 2021 as originally announced. The Company believes that the continued publication of U.S. Dollar LIBOR on the current basis after June 2023 is ~~limited to its obligation under the financial guaranty insurance contract, and~~

•~~CIVs in which certain subsidiaries invest and which are managed by AssuredIM.~~unlikely. The publication of all sterling LIBOR rates ceased on December 31, 2021, as originally announced.

The Company ~~discloses~~has exposure to LIBOR in the following areas: (i) issuers of obligations the Company insures have obligations, assets and hedges that reference LIBOR, and some loss mitigation securities held in the investment portfolio reference LIBOR, (ii) debt issued by the U.S. Holding Companies currently pay or will convert to, a floating interest rate tied to LIBOR, (iii) CCS from which the Company benefits pay interest tied to LIBOR, and (iv) certain obligations issued by, and certain assets owned by, the Company’s CIVs pay interest tied to LIBOR.

U.S. Dollar LIBOR. On March 15, 2022, the U.S. president signed into law the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) which provides, among other things, a transition to the Secured Overnight Finance Rate (SOFR) as a benchmark replacement for LIBOR-based contracts that do not have adequate fallback language or a replacement rate is not selected by a determining person. The LIBOR Act eliminates the need to seek amendments to LIBOR-based contracts that do not contain adequate fallback language. New York and other states have also passed legislation similar to the LIBOR Act.

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Income Taxes

Results of Operations

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment and require the Company to make estimates and assumptions, based on available information, that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements. The inputs into the Company’s estimates and assumptions consider the economic implications of COVID-19. Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the Consolidated Financial Statements.

The accounting policies that the Company believes are most dependent on the application of judgment, estimates and assumptions are listed below. See Part II. Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, of the Company’s 2021 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the applicable note where further details regarding the significant estimates and assumptions are provided, as well as Part II. Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2021 Annual Report on Form 10-K, for further details regarding sensitivity analysis.

•Expected loss to be paid (recovered)

•Fair value of certain assets and liabilities, primarily:

▪Investments

▪Assets and liabilities of CIVs

▪Assets and liabilities of FG VIEs

▪Credit derivatives

•Recoverability of goodwill and other intangible assets

•Credit impairment of financial instruments

•Revenue recognition

•Income tax assets and liabilities, including the recoverability of deferred tax assets (liabilities)

Results of Operations by Segment

The Company analyzes the operating performance of each segment using each segment’s adjusted operating income as described in Item 1, Financial Statements, Note 2, Segment Information.

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Insurance Segment Results


	Second Quarter				Six Months
	2022		2021		2022		2021

Segment revenues
Net earned premiums and credit derivative revenues	$	86	$	106	$	305	$	213
Net investment income	66		71		129		144
Fair value gains (losses) on trading securities	(18)		—		(22)		—
Other income (loss)	5		5		5		4
Total segment revenues	139		182		417		361
Segment expenses
Loss expense (benefit)	(17)		(12)		43		18
Interest expense	—		—		1		—
Amortization of DAC	3		4		7		7
Employee compensation and benefit expenses	35		34		73		70
Other operating expenses	20		21		39		58
Total segment expenses	41		47		163		153
Equity in earnings (losses) of investees	(34)		48		(35)		67
Segment adjusted operating income (loss) before income taxes	64		183		219		275
Less: Provision (benefit) for income taxes	9		31		31		44
Segment adjusted operating income (loss)	$	55	$	152	$	188	$	231

Net Earned Premiums and Credit Derivative Revenues

Refundings occur in the public finance market when municipalities and other public finance issuers pay down insured obligations prior to their originally scheduled maturities. Refundings tend to increase when issuers can refinance their debt obligations at lower rates than they are currently paying. The premiums associated with the insured obligations of municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured. When issuers pay down insured obligations, the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the remaining nonrefundable deferred premium revenue. The amortization of the Company’s outstanding book of business along with the previously high levels of refunding activity has led to a lower volume of refunding opportunities over the last several years, except for refundings of Puerto Rico polices under the March Puerto Rico Resolutions.

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Insurance Segment

Net Earned Premiums and Credit Derivative Revenues


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Net earned premiums:
Financial guaranty insurance:
Public finance
Scheduled net earned premiums (1)	$	63	$	72	$	134	$	144
Accelerations:
Refundings	5		13		133		29
Terminations	—		1		—		1
Total accelerations	5		14		133		30
Total public finance	68		86		267		174
Structured finance
Scheduled net earned premiums (1)	14		15		29		30
Terminations	—		1		—		1
Total structured finance	14		16		29		31
Specialty insurance and reinsurance	1		1		2		2
Total net earned premiums	83		103		298		207

Credit derivative revenues:
Scheduled net earned premiums	3		3		5		6
Accelerations	—		—		2		—
Total credit derivative revenues	3		3		7		6
Total net earned premiums and credit derivative revenues	$	86	$	106	$	305	$	213

____________________

(1) Includes accretion of discount.

Net earned premiums and credit derivative revenues decreased in second quarter 2022 compared with second quarter 2021 primarily due to lower refundings and changes in debt service assumptions . Net earned premiums and credit derivative revenues increased in six months 2022 compared with six months 2021 primarily due to refundings of $104 million associated with the March Puerto Rico Resolutions discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure. As of June 30, 2022, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

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New Business Production

Gross Written Premiums and

New Business Production


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
GWP
Public Finance—U.S.	$	57	$	29	$	106	$	108
Public Finance—non-U.S.	6		44		22		49
Structured Finance—U.S.	1		11		6		14
Structured Finance—non-U.S.	1		—		1		—
Total GWP	$	65	$	84	$	135	$	171
PVP (1):
Public Finance—U.S.	$	57	$	29	$	106	$	110
Public Finance—non-U.S.	18		43		30		46
Structured Finance—U.S.	—		9		2		11
Structured Finance—non-U.S. (1)	1		—		7		—
Total PVP	$	76	$	81	$	145	$	167
Gross Par Written (2):
Public Finance—U.S.	$	6,429	$	4,716	$	10,360	$	10,143
Public Finance—non-U.S.	207		961		430		961
Structured Finance—U.S.	16		460		76		505
Structured Finance—non-U.S. (1)	43		—		300		—
Total gross par written	$	6,695	$	6,137	$	11,166	$	11,609
Average rating on new business written	A		A-		A-		A-

____________________

(1) Six months 2022 PVP and gross par written includes the present value of future premiums and exposure, respectively, associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees.

Second Quarter 2022

U.S. public finance GWP and PVP in second quarter 2022 was higher than the comparable GWP and PVP in second quarter 2021, primarily due to an increase in secondary market transactions. The average rating of U.S. public finance par written was A in both second quarter 2022 and second quarter 2021. The Company's direct par written represented 54% of the total U.S. municipal market insured issuance in second quarter 2022, compared with 52% in second quarter 2021, and the Company’s penetration of all municipal issuance was 4.8% in second quarter 2022 compared with 4.5% in second quarter 2021.

In second quarter 2022, non-U.S. public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor.

Six Months 2022

In six months 2022, non-U.S. public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor and two U.K. water transactions.

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Income from Investment Portfolio

Equity method investments in the Insurance segment include investments that the U.S. Insurance Subsidiaries make in AssuredIM Funds, as well as other alternative investments. The income (loss) on such investments is reported in “equity in earnings (losses) of investees” and typically represents the change in net asset value (NAV) of AssuredIM Funds and the Company’s share of earnings of its other equity method alternative investments. The U.S. Insurance Subsidiaries are authorized to invest up to $750 million in AssuredIM Funds. Adding inception-to-date distributed gains, the U.S. Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds. As of June 30, 2022, the U.S. Insurance Subsidiaries had total commitments to AssuredIM Funds of $757 million, of which $516 million represented net invested capital and $241 million was undrawn.

Insurance Segment

Income from Investment Portfolio


	Second Quarter				Six Months
	2022		2021		2022		2021

Net investment income
Externally managed	$	46	$	51	$	93	$	102
Loss mitigation securities and other	13		15		25		32
Managed by AssuredIM (1)	5		4		9		8
Intercompany loans	3		3		5		5
Investment income	67		73		132		147
Investment expenses	(1)		(2)		(3)		(3)
Net investment income	$	66	$	71	$	129	$	144

Fair value gains (losses) on trading securities	$	(18)	$	—	$	(22)	$	—

Equity in earnings (losses) of investees
AssuredIM Funds	$	(33)	$	37	$	(22)	$	47
Other	(1)		11		(13)		20
Equity in earnings (losses) of investees	$	(34)	$	48	$	(35)	$	67

____________________

(1) Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.

Net investment income for second quarter 2022 and six months 2022 decreased compared to second quarter 2021 and six months 2021, primarily due to lower average balances in fixed-maturity securities as short term investments were accumulated to meet liquidity needs. The overall pre-tax book yield was 2.95% as of June 30, 2022 and 3.15% as of June 30, 2021. Excluding the internally managed portfolio, pre-tax book yield was 2.95% as of June 30, 2022 and 2.92% as of June 30, 2021.

Equity in earnings of AssuredIM Funds in second quarter 2022 and six months 2022 were losses and were primarily attributable to lower valuations of assets held in CLO funds and the dilutive impact of a subsequent close of a healthcare fund. The fair value gains on investments in AssuredIM Funds in second quarter 2021 and six months 2021 was primarily attributable to changes in the NAV of CLO and healthcare funds. Equity in earnings of other alternative investments decreased in second quarter 2022 and six months 2022 compared with second quarter 2021 and six months 2021 primarily due to mark to market losses on a specific investment in a private equity fund.

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Economic Loss Development

The insured portfolio includes policies accounted for under several different accounting models depending on the characteristics of the contract and the Company’s control rights. For a discussion of methodologies used in estimating the expected loss to be paid (recovered) for all contracts and the accounting policies for measurement and recognition under GAAP for each type of contract, see the notes listed below in Part II. Item 8, Financial Statements and Supplementary Data, of the Company’s 2021 Annual Report on Form 10-K:

•Note 6 for contracts accounted for as insurance;

•Note 7 for contracts accounted for as credit derivatives;

•Note 9 for FG VIEs; and

•Note 10 for fair value methodologies for credit derivatives and FG VIEs’ assets and liabilities.

Current risk-free rates are used to discount expected losses at the end of each reporting period and therefore changes in such rates from period to period affect the expected loss estimates reported. Changes in risk-free rates used to discount losses affect economic loss development, and loss and LAE; however, the effect of ~~FG VIE~~changes in discount rates are not indicative of actual credit impairment or improvement in the period. The following table presents the range and ~~CIV consolidation~~weighted average discount rates used to discount expected losses (recoveries).

Risk-Free Rates Used in Expected Loss (Recovery) for

U.S. Dollar Denominated Obligations


	As of June 30, 2022			As of March 31, 2022			As of December 31, 2021			As of June 30, 2021			As of March 31, 2021			As of December 31, 2020
Range	1.67%	–	3.41%	0.00%	–	2.61%	0.00%	–	1.98%	0.00%	–	2.14%	0.00%	–	2.49%	0.00%	–	1.72%
Weighted average	2.9%			2.26%			1.02%			0.73%			0.88%			0.60%

The composition of economic loss development (benefit) by accounting model and by sector are presented in the tables that ~~is embedded~~follow, and the drivers of economic loss development (benefit) are discussed below.

Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

by Accounting Model


	Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
	As of				Second Quarter				Six Months
Accounting Model	June 30, 2022		December 31, 2021		2022		2021		2022		2021
	(in millions)
Insurance	$	405	$	364	(26)		(25)		$	(70)	$	(9)
FG VIEs	32		42		(6)		(1)		(10)		(7)
Credit derivatives	5		5		—		6		4		9
Total	$	442	$	411	$	(32)	$	(20)	$	(76)	$	(7)

Net exposure rated BIG	$	5,470	$	7,440

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Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

By Sector


	Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
	As of				Second Quarter				Six Months
Sector	June 30, 2022		December 31, 2021		2022		2021		2022		2021
	(in millions)
U.S. public finance	$	210	$	197	$	8	$	1	$	(40)	$	16
Non-U.S. public finance	7		12		(2)		(1)		(4)		(13)
Structured finance
U.S. RMBS	179		150		(39)		(28)		(32)		(17)
Other structured finance	46		52		1		8		—		7
Structured finance	225		202		(38)		(20)		(32)		(10)
Total	$	442	$	411	$	(32)	$	(20)	$	(76)	$	(7)

Effect of changes in the risk-free rates included in economic loss development (benefit)					(42)		15		$	(89)	$	(33)

Second Quarter 2022 Net Economic Loss Development

Public Finance: The economic loss development on U.S. exposures in ~~each non-GAAP financial measure,~~second quarter 2022 was $8 million, and was primarily attributable to Puerto Rico exposures, partially offset by the effect of changes in discount rate. Public finance expected loss to be paid primarily related to U.S. exposures, which had BIG net par outstanding of $3.6 billion as ~~applicable.~~of June 30, 2022 compared with $5.4 billion as of December 31, 2021. The reduction in net par was primarily due to the March Puerto Rico Resolutions discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure.

U.S. RMBS: The economic benefit attributable to U.S. RMBS was $39 million and was primarily attributable to a $23 million benefit related to changes in discount rates, a $17 million benefit related to improved performance in certain transactions, a $14 million benefit related to higher recoveries for secured second lien charged-off loans, and a $11 million benefit related to lower initial severity assumptions for first lien U.S. RMBS transactions, partially offset by losses of $26 million related to lower excess spread.

See Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered) for additional information.

Second Quarter 2021 Net Economic Loss Development

Public Finance: Expected loss to be paid primarily related to U.S. exposures, which had BIG net par

outstanding of $5.6 billion as of June 30, 2021 compared with $5.4 billion as of December 31, 2020. The Company ~~believes this information may also~~projected

that its total net expected loss across its troubled U.S. public finance exposures as of June 30, 2021 would be ~~useful~~$221 million,

compared with $305 million as of December 31, 2020. Economic loss development on U.S. exposures in second quarter 2021

was $1 million, which was primarily attributable to ~~analysts~~deterioration in a student housing transaction and ~~investors evaluating Assured Guaranty’s financial results. In~~changes in discount rates,

which were partially offset by improvement in certain Puerto Rico exposures.

Other Structured Finance: The economic loss development attributable to structured finance, excluding U.S. RMBS,

was $8 million, which was primarily attributable to LAE for certain transactions.

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Six Months 2022Net Economic Loss Development

Six Months 2021 Net Economic Loss Development

Economic loss development on U.S. public finance exposures in six months 2021 was $16 million, which was

primarily attributable to Puerto Rico exposures and deterioration in a student housing transaction, which were partially offset by

changes in discount rates and improved cash flows for a certain transaction. The economic benefit was approximately $13

million for non-U.S. public finance exposures due mainly due to the ~~case~~restructuring of ~~both~~certain exposures and the impact of higher

Euribor. The net benefit attributable to U.S. RMBS was $17 million and was mainly related to a $22 million benefit for changes

in discount rates, a $17 million benefit for improvement in certain transactions and an $11 million benefit for higher recoveries

received for charged-off loans, partially offset by a $33 million loss for lower excess spread. The economic loss development

attributable to structured finance, excluding U.S. RMBS, was $7 million, which was primarily attributable to LAE for certain

transactions.

Insurance Segment Loss Expense

The primary differences between net economic loss development and the amount reported as “loss and LAE” in the consolidated statements of operations are that loss and LAE: (1) considers deferred premium revenue in the calculation of loss reserves for financial guaranty insurance contracts; (2) eliminates loss and LAE related to FG ~~VIEs~~VIEs; and (3) does not include estimated losses on credit derivatives.

The amount of Insurance segment loss expense, which includes all policies regardless of form, is a function of the amount of economic loss development discussed above and the ~~CIVs,~~deferred premium revenue amortization in a given period, on a contract-by-contract basis.

While expected loss to be paid (recovered) is an important measure that provides the present value of amounts that the Company expects to pay or recover in future periods on all contracts, expected loss to be expensed is important because it presents the Company’s projection of net expected losses that will be recognized in the consolidated statement of operations in future periods as deferred premium revenue amortizes into income for financial guaranty insurance policies.

Loss expense (benefit) is a function of economic ~~effect~~loss development (benefit), as well as the amortization of unearned premium reserve. The following table presents the Insurance segment loss expense.

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Insurance Segment

Loss Expense (Benefit)


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
U.S. public finance	$	11	$	4	$	66	$	30
Non-U.S. public finance	—		(1)		—		(9)
Structured finance
U.S. RMBS	(28)		(22)		(22)		(10)
Other structured finance	—		7		(1)		7
Structured finance	(28)		(15)		(23)		(3)
Total Insurance segment loss expense (benefit)	$	(17)	$	(12)	$	43	$	18

Other Operating Expenses

The decrease in other operating expenses in six months 2022 compared with six months 2021 was primarily attributable to the write-off of a $16 million intangible asset attributable to MAC insurance licenses in the first quarter of 2021. MAC was merged with and into AGM on April 1, 2021. See Item 1, Financial Statements, Note 1, Business and Basis of Presentation, for additional information.

Financial Strength Ratings

S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P)

Kroll Bond Rating
Agency

Moody’s Investors Service, Inc. (Moody’s)

A.M. Best Company,
Inc.

AGM

AA (stable) (7/8/22)

AA+ (stable) (10/20/21)

A1 (stable) (3/18/22)

—

AGC

AA (stable) (7/8/22)

AA+ (stable) (10/20/21)

(1)

—

Assured Guaranty Re Ltd. (AG Re)

AA (stable) (7/8/22)

—

Assured Guaranty Re Overseas Ltd. (AGRO)

AA (stable) (7/8/22)

—

A+ (stable) (7/22/22)

Assured Guaranty UK Limited (AGUK)

AA (stable) (7/8/22)

AA+ (stable) (10/20/21)

A1 (stable) (3/18/22)

—

Assured Guaranty (Europe) SA (AGE)

AA (stable) (7/8/22)

AA+ (stable) (10/20/21)

—

____________________

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subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary.

For a discussion of the effects of rating actions on the Company beyond potential effects on the demand for its insurance products, see “— Liquidity and Capital Resources —” section below.

Asset Management Segment Results


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Segment revenues
Management fees (1)	$	27	19		48		38
Performance fees	2		—		18		1
Other income (loss)	(1)		2		1		2
Total segment revenues	28		21		67		41
Segment expenses
Employee compensation and benefit expenses	17		15		46		34
Other operating expenses (1) (2)	11		9		21		19
Total segment expenses	28		24		67		53
Segment adjusted operating income (loss) before income taxes	—		(3)		—		(12)
Less: Provision (benefit) for income taxes	—		(1)		—		(3)
Segment adjusted operating income (loss)	$	—	$	(2)	$	—	$	(9)

_____________________

(1) The Asset Management segment presents reimbursable fund expenses netted in other operating expenses, whereas on the condensed consolidated statement of ~~each~~operations such reimbursable expenses are shown gross as revenues.

(2) Includes amortization of intangible assets of $3 million in both second quarter 2022 and second quarter 2021 and $6 million in both six months 2022 and six months 2021.

Management and Performance Fees

Management fees are generated by CLOs, opportunity funds, liquid strategies, and the ~~consolidated FG VIEs~~wind-down funds. CLO fees are the net management fees that AssuredIM retains after rebating the portion of these fees that pertains to the CLO Equity that is held directly by AssuredIM Funds. Management fees from opportunity funds and ~~CIVs is reflected primarily~~liquid strategies include funds that were launched since the BlueMountain Acquisition in ~~the results of~~which the Insurance ~~segment.~~segment’s U.S. Insurance Subsidiaries invest along with two previously established opportunity funds in their harvest periods.

Management Fees


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
CLOs	$	12	$	12	$	24	$	24
Opportunity funds and liquid strategies	15		5		23		9
Wind-down funds	—		2		1		5
Total management fees	$	27	$	19	$	48	$	38

Fees from opportunity funds increased primarily due to higher third party AUM in healthcare funds. Fees from the wind-down funds decreased as distributions to investors continued. As of June 30, 2022, AUM of the ~~Company~~wind-down funds was $0.3 billion compared with $1.2 billion as of June 30, 2021 and ~~AGL’s Board~~$0.6 billion as of ~~Directors use non-GAAP financial measures further adjusted~~December 31, 2021.

Performance fees and increased compensation expenses in six months 2022 were attributable to ~~remove~~ the ~~effect~~healthcare and asset-based funds.

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Table of FG VIE and CIV consolidation (which the Company refers to as its core financial measures), as well as GAAP financial measures and other factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals. Contents

Assets Under Management

The Company uses ~~core financial~~AUM as a metric to measure progress in its Asset Management segment. Management fee revenue is based on a variety of factors and is not perfectly correlated with AUM. However, the Company believes that AUM is a useful metric for assessing the relative size and scope of the Company’s asset management business. The Company uses measures of its AUM in its decision-making process ~~for~~ and uses a measure of change in AUM in its calculation of certain components of management compensation. ~~The financial measures~~Investors also use AUM to evaluate companies that participate in the ~~Company uses~~asset management business. AUM refers to ~~help determine compensation are: (1) adjusted operating income, further adjusted to remove~~ the ~~effect of FG VIE~~assets managed, advised or serviced by the Asset Management segment and ~~CIV consolidation; (2) adjusted operating shareholders’ equity, further adjusted to remove~~equals the ~~effect of FG VIE and CIV consolidation; (3) adjusted book value per share, further adjusted to remove the effect of FG VIE and CIV consolidation; (4) PVP, and (5) gross third-party assets raised.~~

Management believes that many investors, analysts and financial news reporters use adjusted operating shareholders’ equity and/or adjusted book value, each further adjusted to remove the effect of FG VIE and CIV consolidation, as the principal financial measures for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares. Management also believes that manysum of the following:

•the amount of aggregate collateral balance and principal cash of AssuredIM’s CLOs, including CLO Equity that may be held by AssuredIM Funds. This also includes CLO assets managed by BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a third party in second quarter 2021. AssuredIM is not the investment manager of BM Fuji-advised CLOs, but following the sale, AssuredIM sub-advises and continues to provide personnel and other services to BM Fuji associated with the management of BM Fuji-advised CLOs pursuant to a sub-advisory agreement and a personnel and services agreement, consistent with past practices; and

The Company’s ~~fixed income investors~~calculation of AUM may differ from the calculation employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment managers. The calculation also ~~use adjusted operating shareholders’ equity, further adjusted to remove~~differs from the ~~effect of FG VIE~~manner in which AssuredIM affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and ~~CIV consolidation, to evaluate the Company’s capital adequacy.~~Form PF in various ways.

~~Adjusted operating~~The Company also uses several other measurements of AUM to understand and measure its AUM in more detail and for various purposes, including its relative position in the market and its income ~~further adjusted~~and income potential:

“Funded AUM” refers to assets that have been deployed or invested into the funds or CLOs.

“Unfunded AUM” refers to unfunded capital commitments from closed-end funds and CLO warehouse funds.

“Fee earning AUM” refers to assets where AssuredIM collects fees and has elected not to waive or rebate fees to investors.

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Roll Forward of Assets Under Management

Second Quarter 2022


	CLOs		Opportunity Funds (1)		Liquid Strategies (2)		Wind-Down Funds		Total
	(in millions)
AUM, March 31, 2022	$	14,282	$	1,874	$	375	$	459	$	16,990
Inflows - third party	1,049		200		21		—		1,270
Inflows - intercompany	50		—		104		—		154
Outflows:
Redemptions	—		—		—		—		—
Distributions	(22)		(39)		(125)		(140)		(326)
Total outflows	(22)		(39)		(125)		(140)		(326)
Net flows	1,077		161		—		(140)		1,098
Change in value	(183)		15		(3)		20		(151)
AUM, June 30, 2022	$	15,176	$	2,050	$	372	$	339	$	17,937

Roll Forward of Assets Under Management

Six Months 2022


	CLOs		Opportunity Funds (1)		Liquid Strategies (2)		Wind-Down Funds		Total
	(in millions)
AUM, December 31, 2021	$	14,699	$	1,824	$	389	$	582	$	17,494
Inflows - third party	1,049		291		21		—		1,361
Inflows - intercompany	50		—		104		—		154
Outflows:
Redemptions	—		—		—		—		—
Distributions	(357)		(143)		(125)		(275)		(900)
Total outflows	(357)		(143)		(125)		(275)		(900)
Net flows	742		148		—		(275)		615
Change in value	(265)		78		(17)		32		(172)
AUM, June 30, 2022	$	15,176	$	2,050	$	372	$	339	$	17,937

_____________________

(1) Opportunity funds inflows in second quarter 2022 and six months 2022 are primarily related to the healthcare strategy fund. Distributions from opportunity funds include $26 million and $74 million in second quarter 2022 and six months 2022, respectively, related to the AssuredIM Funds created prior to BlueMountain Acquisition. As of June 30, 2022, AUM related to these funds was $114 million.

(2) Liquid strategies inflows and outflows in second quarter 2022 and six months 2022 relate to the transfer of assets from an existing municipal bond fund to a new municipal relative value fund.

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Components of Assets Under Management


	CLOs (1)		Opportunity Funds		Liquid Strategies		Wind-Down Funds		Total
	(in millions)
As of June 30, 2022:
Funded AUM	$	15,069	$	1,288	$	372	$	317	$	17,046
Unfunded AUM	107		762		—		22		891

Fee-earning AUM	$	14,773	$	1,801	$	372	$	202	$	17,148
Non-fee earning AUM	403		249		—		137		789

Intercompany AUM
Funded AUM	$	562	$	187	$	351	$	—	$	1,100
Unfunded AUM	106		135		—		—		241

As of December 31, 2021:
Funded AUM	$	14,575	$	1,297	$	389	$	560	$	16,821
Unfunded AUM	124		527		—		22		673

Fee-earning AUM	$	14,252	$	1,527	$	389	$	408	$	16,576
Non-fee earning AUM	447		297		—		174		918

Intercompany AUM
Funded AUM	$	541	$	217	$	368	$	—	$	1,126
Unfunded AUM	123		121		—		—		244

_____________________

Corporate Division Results


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Revenues	$	1	—		2		—
Expenses
Interest expense	23		26		44		49
Employee compensation and benefit expenses	7		5		13		10
Other operating expenses	6		5		13		9
Total expenses	36		36		70		68
Equity in earnings (losses) of investees	—		—		—		—
Adjusted operating income (loss) before income taxes	(35)		(36)		(68)		(68)
Less: Provision (benefit) for income taxes	—		(2)		—		(5)
Adjusted operating income (loss)	$	(35)	$	(34)	$	(68)	$	(63)

Corporate division interest expense primarily relates to debt issued by the U.S. Holding Companies, and also includes intersegment interest expense of $3 million in both second quarter 2022 and second quarter 2021 and $5 million in both six months 2022 and six months 2021, respectively. Intersegment interest expense relates primarily to the $250 million AGUS

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debt to the U.S. Insurance Subsidiaries, which was borrowed in October 2019 in connection with the BlueMountain Acquisition.

Other (Effect of FG VIEs and CIVs)

The effect of consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on assets, liabilities and cash flows, and includes: (1) the establishment of the assets and liabilities of the CIVs, and related changes in fair value; (2) eliminating the asset management fees earned by AssuredIM from the CIVs; (3) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees and (4) establishing non-controlling interest for amounts not owned by the Company. The economic effect of the U.S Insurance Subsidiaries’ ownership interests in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, while the effect of CIVs is presented as separate line items (“assets of CIVs,” “liabilities of CIVs,” and redeemable and non-redeemable non-controlling interest) on a consolidated basis.

The table below reflects the effect of consolidating FG VIEs and CIVs on the condensed consolidated statements of operations. The amounts represent: (1) the revenues and expenses of the FG VIEs and the CIVs; and (2) the consolidation adjustments and eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

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Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations

Increase (Decrease)


	Second Quarter				Six Months
	2022		2021		2022		2021
Effect on Financial Statement Line Item	(in millions)
Fair value gains (losses) on FG VIEs (1)	$	10	$	8	$	16	$	13
Fair value gains (losses) on CIVs	3		21		17		37
Equity in earnings (losses) of investees (2)	34		(14)		24		(24)
Other (3)	(13)		(6)		(24)		(13)
Effect on income before tax	34		9		33		13
Less: Tax provision (benefit)	2		1		2		1
Effect on net income (loss)	32		8		31		12
Less: Effect on noncontrolling interests (4)	22		4		31		8
Effect on net income (loss) attributable to AGL	$	10	$	4	$	—	$	4

By Type of VIE
FG VIEs	$	1	$	3	$	3	$	3
CIVs	9		1		(3)		1
Effect on net income (loss) attributable to AGL	$	10	$	4	$	—	$	4

____________________

(1) Changes in fair value of the FG VIEs’ assets and liabilities that are attributable to factors other than (i) changes in the Company’s own credit risk on FG VIE liabilities with recourse, and ~~CIV consolidation enables investors~~(ii) unrealized gains and ~~analysts~~losses on available-for-sale fixed maturity securities.

(2) Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’ investments in the consolidated AssuredIM Funds.

(3) Includes net earned premiums, net investment income, asset management fees, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE and other operating expenses.

(4) Represents the proportion of consolidated AssuredIM Funds’ income that is not attributable to ~~evaluate~~AGAS’ or any other subsidiaries’ ownership interest.

The impact of consolidating FG VIEs and CIVs was $10 million in second quarter 2022, compared with $4 million in second quarter 2021 due mainly to the out-of-period adjustments of $9 million (see Item 1, Financial Statements, Note 1, Business and Basis of Presentation), and fair value gains associated with consolidated AssuredIM Funds, mainly the healthcare fund.

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Reconciliation to GAAP

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Net income (loss) attributable to AGL	$	(47)	$	98	$	19	$	109
Less pre-tax adjustments:
Realized gains (losses) on investments	(28)		4		(25)		1
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	6		(31)		3		(50)
Fair value gains (losses) on CCS	10		(6)		11		(25)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(73)		5		(102)		6
Total pre-tax adjustments	(85)		(28)		(113)		(68)
Less tax effect on pre-tax adjustments	8		6		12		14
Adjusted operating income (loss)	$	30	$	120	$	120	$	163

Gain (loss) related to FG VIE and CIV consolidation, net of tax, included in adjusted operating income	$	10	$	4	$	—	$	4

Net Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses).

Net Realized Investment Gains (Losses)


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Gross realized gains on sales available-for-sale securities	$	—	$	1	$	—	$	2
Gross realized losses on sales available-for-sale securities	(21)		—		(23)		(2)
Net foreign currency gains (losses)	(3)		1		(3)		2
Change in credit impairment and intent to sell	(4)		—		(9)		(4)
Other net realized gains (losses)	—		2		10		3
Net realized investment gains (losses)	$	(28)	$	4	$	(25)	$	1

Gross realized losses on sales of available-for-sale securities in second quarter 2022 and six months 2022 were primarily attributable to Puerto Rico recovery bonds. Other net realized gains in six months 2022 relate primarily to the sale of one of the Company’s ~~financial~~alternative investments.

Non-Credit Impairment-Related Unrealized Fair Value Gains (Losses) on Credit Derivatives

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The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time fair values are determined. In addition, since each transaction has unique collateral and structural terms, the underlying change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts also reflects the change in the Company’s own credit cost based on the price to purchase credit protection on AGC. Due to the relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts. The Company determines its own credit risk based on quoted CDS prices traded on AGC at each balance sheet date. Generally, a widening of credit spreads of the underlying obligations results in ~~comparison with~~unrealized losses and the ~~consensus analyst estimates distributed publicly~~tightening of credit spreads of the underlying obligations results in unrealized gains. A widening of the CDS prices traded on AGC has an effect of offsetting unrealized losses that result from widening general market credit spreads, while a narrowing of the CDS prices traded on AGC has an effect of offsetting unrealized gains that result from narrowing general market credit spreads.

The valuation of the Company’s credit derivative contracts requires the use of models that contain significant, unobservable inputs, and are classified as Level 3 in the fair value hierarchy. The models used to determine fair value are primarily developed internally based on market conventions for similar transactions that the Company observed in the past. There has been very limited new issuance activity in this market since 2009 and, as of June 30, 2022, market prices for the Company’s credit derivative contracts were generally not available. Inputs to the estimate of fair value include various market indices, credit spreads, the Company’s own credit spread, and estimated contractual payments. See Item 1, Financial Statements, Note 9, Fair Value Measurement, for additional information.

Second quarter 2022 and six months 2022 non-credit impairment-related unrealized fair value gains were generated primarily as a result of the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period, and changes in discount rates. These gains were partially offset by ~~financial databases.~~an increase in the credit spread of certain underlying reference obligations. Except for underlying credit impairment, which is recognized as loss expense in the Insurance segment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.

Second quarter 2021 and six months 2021 non-credit impairment fair value losses on credit derivatives were generated primarily as a result of the tightening of AGC spreads, partially offset by general price improvements of the underlying collateral.

Sensitivity to Changes in Credit Spread

The following ~~paragraphs define each non-GAAP financial measure disclosed~~table summarizes the estimated change in fair value on the net balance of the Company’s credit derivative positions assuming an immediate shift in the net spreads assumed by the ~~Company and describe why it~~Company. The net spread is ~~useful. To~~affected by the ~~extent there is a directly comparable GAAP financial measure, a reconciliation~~spread of the ~~non-GAAP financial measure~~underlying collateral and the ~~most directly comparable GAAP financial measure is presented below.~~credit spreads on AGC.

Adjusted Operating Income

Adjusted operating income in second quarter 2022was $30 million, compared with $120 million in second quarter 2021. The decrease was primarily attributable to losses in equity method alternative investments (compared with gains in second quarter 2021), lower net earned premiums, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles. Adjusted operating income in for six months 2022 was $120 million, compared with $163 million in six months 2021. The decrease was primarily attributable to losses in equity method alternative investments, higher loss expense, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles, which were partially offset by higher net earned premiums due to higher refundings related to the March Puerto Rico Resolutions. See “— Results of Operations — Reconciliation to GAAP” below.

Book Value and Adjusted Book Value

Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were $84.89, $90.18 and $134.91, respectively as of June 30, 2022. Shareholders’ equity per share declined primarily due to unrealized losses on the available-for-sale fixed maturity portfolio. The increase in adjusted operating shareholders’ equity per share and adjusted book value per share was primarily due to the accretive effect of the share repurchase program. In the case of adjusted book value per share, net premiums written in the Insurance segment also contributed to the increase compared with December 31, 2021. See “— Overview — Key Business Strategies.. See “— Non-GAAP Financial Measures” below for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and adjusted book value.

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Other Matters

Russia’s Invasion of Ukraine

Inflation

As described above under "Overview -- Economic Environment", by some key measures consumer inflation in the U.S. and the U.K. has been higher in the last few months than it has been in decades, and interest rates generally have increased. The Federal Reserve Board has raised interest rates a few times and communicated its intention to further raise them in the future. Concerns have been expressed in the financial press about inflation taking hold in the economy. While consumer price inflation does not impact the Company’s primary businesses directly, it may impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and accompanying higher interest rates could impact the Company in several ways. For example, higher interest rates might make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-maturity investment portfolio. On the other hand, high interest rates decrease the amount of excess spread available to support the distressed RMBS the Company insures and reduce the market value of its largely fixed rate fixed maturity investment portfolios.

LIBOR Sunset

U.S. Dollar LIBOR. On March 15, 2022, the U.S. president signed into law the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) which provides, among other things, a transition to the Secured Overnight Finance Rate (SOFR) as a benchmark replacement for LIBOR-based contracts that do not have adequate fallback language or a replacement rate is not selected by a determining person. The LIBOR Act eliminates the need to seek amendments to LIBOR-based contracts that do not contain adequate fallback language. New York and other states have also passed legislation similar to the LIBOR Act.

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Income Taxes

Results of Operations

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment and require the Company to make estimates and assumptions, based on available information, that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements. The inputs into the Company’s estimates and assumptions consider the economic implications of COVID-19. Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the Consolidated Financial Statements.

•Expected loss to be paid (recovered)

•Fair value of certain assets and liabilities, primarily:

▪Investments

▪Assets and liabilities of CIVs

▪Assets and liabilities of FG VIEs

▪Credit derivatives

•Recoverability of goodwill and other intangible assets

•Credit impairment of financial instruments

•Revenue recognition

•Income tax assets and liabilities, including the recoverability of deferred tax assets (liabilities)

Results of Operations by Segment

The Company analyzes the operating performance of each segment using each segment’s adjusted operating income as described in Item 1, Financial Statements, Note 2, Segment Information.

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Insurance Segment Results


	Second Quarter				Six Months
	2022		2021		2022		2021

Segment revenues
Net earned premiums and credit derivative revenues	$	86	$	106	$	305	$	213
Net investment income	66		71		129		144
Fair value gains (losses) on trading securities	(18)		—		(22)		—
Other income (loss)	5		5		5		4
Total segment revenues	139		182		417		361
Segment expenses
Loss expense (benefit)	(17)		(12)		43		18
Interest expense	—		—		1		—
Amortization of DAC	3		4		7		7
Employee compensation and benefit expenses	35		34		73		70
Other operating expenses	20		21		39		58
Total segment expenses	41		47		163		153
Equity in earnings (losses) of investees	(34)		48		(35)		67
Segment adjusted operating income (loss) before income taxes	64		183		219		275
Less: Provision (benefit) for income taxes	9		31		31		44
Segment adjusted operating income (loss)	$	55	$	152	$	188	$	231

Net Earned Premiums and Credit Derivative Revenues

Refundings occur in the public finance market when municipalities and other public finance issuers pay down insured obligations prior to their originally scheduled maturities. Refundings tend to increase when issuers can refinance their debt obligations at lower rates than they are currently paying. The premiums associated with the insured obligations of municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured. When issuers pay down insured obligations, the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the remaining nonrefundable deferred premium revenue. The amortization of the Company’s outstanding book of business along with the previously high levels of refunding activity has led to a lower volume of refunding opportunities over the last several years, except for refundings of Puerto Rico polices under the March Puerto Rico Resolutions.

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Insurance Segment

Net Earned Premiums and Credit Derivative Revenues


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Net earned premiums:
Financial guaranty insurance:
Public finance
Scheduled net earned premiums (1)	$	63	$	72	$	134	$	144
Accelerations:
Refundings	5		13		133		29
Terminations	—		1		—		1
Total accelerations	5		14		133		30
Total public finance	68		86		267		174
Structured finance
Scheduled net earned premiums (1)	14		15		29		30
Terminations	—		1		—		1
Total structured finance	14		16		29		31
Specialty insurance and reinsurance	1		1		2		2
Total net earned premiums	83		103		298		207

Credit derivative revenues:
Scheduled net earned premiums	3		3		5		6
Accelerations	—		—		2		—
Total credit derivative revenues	3		3		7		6
Total net earned premiums and credit derivative revenues	$	86	$	106	$	305	$	213

____________________

(1) Includes accretion of discount.

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New Business Production

Gross Written Premiums and

New Business Production


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
GWP
Public Finance—U.S.	$	57	$	29	$	106	$	108
Public Finance—non-U.S.	6		44		22		49
Structured Finance—U.S.	1		11		6		14
Structured Finance—non-U.S.	1		—		1		—
Total GWP	$	65	$	84	$	135	$	171
PVP (1):
Public Finance—U.S.	$	57	$	29	$	106	$	110
Public Finance—non-U.S.	18		43		30		46
Structured Finance—U.S.	—		9		2		11
Structured Finance—non-U.S. (1)	1		—		7		—
Total PVP	$	76	$	81	$	145	$	167
Gross Par Written (2):
Public Finance—U.S.	$	6,429	$	4,716	$	10,360	$	10,143
Public Finance—non-U.S.	207		961		430		961
Structured Finance—U.S.	16		460		76		505
Structured Finance—non-U.S. (1)	43		—		300		—
Total gross par written	$	6,695	$	6,137	$	11,166	$	11,609
Average rating on new business written	A		A-		A-		A-

____________________

Second Quarter 2022

In second quarter 2022, non-U.S. public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor.

Six Months 2022

In six months 2022, non-U.S. public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor and two U.K. water transactions.

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Income from Investment Portfolio

Insurance Segment

Income from Investment Portfolio


	Second Quarter				Six Months
	2022		2021		2022		2021

Net investment income
Externally managed	$	46	$	51	$	93	$	102
Loss mitigation securities and other	13		15		25		32
Managed by AssuredIM (1)	5		4		9		8
Intercompany loans	3		3		5		5
Investment income	67		73		132		147
Investment expenses	(1)		(2)		(3)		(3)
Net investment income	$	66	$	71	$	129	$	144

Fair value gains (losses) on trading securities	$	(18)	$	—	$	(22)	$	—

Equity in earnings (losses) of investees
AssuredIM Funds	$	(33)	$	37	$	(22)	$	47
Other	(1)		11		(13)		20
Equity in earnings (losses) of investees	$	(34)	$	48	$	(35)	$	67

____________________

(1) Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.

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Economic Loss Development

•Note 6 for contracts accounted for as insurance;

•Note 7 for contracts accounted for as credit derivatives;

•Note 9 for FG VIEs; and

•Note 10 for fair value methodologies for credit derivatives and FG VIEs’ assets and liabilities.

Risk-Free Rates Used in Expected Loss (Recovery) for

U.S. Dollar Denominated Obligations


	As of June 30, 2022			As of March 31, 2022			As of December 31, 2021			As of June 30, 2021			As of March 31, 2021			As of December 31, 2020
Range	1.67%	–	3.41%	0.00%	–	2.61%	0.00%	–	1.98%	0.00%	–	2.14%	0.00%	–	2.49%	0.00%	–	1.72%
Weighted average	2.9%			2.26%			1.02%			0.73%			0.88%			0.60%

Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

by Accounting Model


	Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
	As of				Second Quarter				Six Months
Accounting Model	June 30, 2022		December 31, 2021		2022		2021		2022		2021
	(in millions)
Insurance	$	405	$	364	(26)		(25)		$	(70)	$	(9)
FG VIEs	32		42		(6)		(1)		(10)		(7)
Credit derivatives	5		5		—		6		4		9
Total	$	442	$	411	$	(32)	$	(20)	$	(76)	$	(7)

Net exposure rated BIG	$	5,470	$	7,440

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Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

By Sector


	Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
	As of				Second Quarter				Six Months
Sector	June 30, 2022		December 31, 2021		2022		2021		2022		2021
	(in millions)
U.S. public finance	$	210	$	197	$	8	$	1	$	(40)	$	16
Non-U.S. public finance	7		12		(2)		(1)		(4)		(13)
Structured finance
U.S. RMBS	179		150		(39)		(28)		(32)		(17)
Other structured finance	46		52		1		8		—		7
Structured finance	225		202		(38)		(20)		(32)		(10)
Total	$	442	$	411	$	(32)	$	(20)	$	(76)	$	(7)

Effect of changes in the risk-free rates included in economic loss development (benefit)					(42)		15		$	(89)	$	(33)

Second Quarter 2022 Net Economic Loss Development

Public Finance: The economic loss development on U.S. exposures in second quarter 2022 was $8 million, and was primarily attributable to Puerto Rico exposures, partially offset by the effect of changes in discount rate. Public finance expected loss to be paid primarily related to U.S. exposures, which had BIG net par outstanding of $3.6 billion as of June 30, 2022 compared with $5.4 billion as of December 31, 2021. The reduction in net par was primarily due to the March Puerto Rico Resolutions discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure.

See Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered) for additional information.

Second Quarter 2021 Net Economic Loss Development

Public Finance: Expected loss to be paid primarily related to U.S. exposures, which had BIG net par

outstanding of $5.6 billion as of June 30, 2021 compared with $5.4 billion as of December 31, 2020. The Company projected

that its total net expected loss across its troubled U.S. public finance exposures as of June 30, 2021 would be $221 million,

compared with $305 million as of December 31, 2020. Economic loss development on U.S. exposures in second quarter 2021

was $1 million, which was primarily attributable to deterioration in a student housing transaction and changes in discount rates,

which were partially offset by improvement in certain Puerto Rico exposures.

Other Structured Finance: The economic loss development attributable to structured finance, excluding U.S. RMBS,

was $8 million, which was primarily attributable to LAE for certain transactions.

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Six Months 2022Net Economic Loss Development

Six Months 2021 Net Economic Loss Development

Economic loss development on U.S. public finance exposures in six months 2021 was $16 million, which was

primarily attributable to Puerto Rico exposures and deterioration in a student housing transaction, which were partially offset by

changes in discount rates and improved cash flows for a certain transaction. The economic benefit was approximately $13

million for non-U.S. public finance exposures due mainly due to the restructuring of certain exposures and the impact of higher

Euribor. The net benefit attributable to U.S. RMBS was $17 million and was mainly related to a $22 million benefit for changes

in discount rates, a $17 million benefit for improvement in certain transactions and an $11 million benefit for higher recoveries

received for charged-off loans, partially offset by a $33 million loss for lower excess spread. The economic loss development

attributable to structured finance, excluding U.S. RMBS, was $7 million, which was primarily attributable to LAE for certain

transactions.

Insurance Segment Loss Expense

Loss expense (benefit) is a function of economic loss development (benefit), as well as the amortization of unearned premium reserve. The following table presents the Insurance segment loss expense.

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Insurance Segment

Loss Expense (Benefit)


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
U.S. public finance	$	11	$	4	$	66	$	30
Non-U.S. public finance	—		(1)		—		(9)
Structured finance
U.S. RMBS	(28)		(22)		(22)		(10)
Other structured finance	—		7		(1)		7
Structured finance	(28)		(15)		(23)		(3)
Total Insurance segment loss expense (benefit)	$	(17)	$	(12)	$	43	$	18

Other Operating Expenses

Financial Strength Ratings

S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P)

Kroll Bond Rating
Agency

Moody’s Investors Service, Inc. (Moody’s)

A.M. Best Company,
Inc.

AGM

AA (stable) (7/8/22)

AA+ (stable) (10/20/21)

A1 (stable) (3/18/22)

—

AGC

AA (stable) (7/8/22)

AA+ (stable) (10/20/21)

(1)

—

Assured Guaranty Re Ltd. (AG Re)

AA (stable) (7/8/22)

—

Assured Guaranty Re Overseas Ltd. (AGRO)

AA (stable) (7/8/22)

—

A+ (stable) (7/22/22)

Assured Guaranty UK Limited (AGUK)

AA (stable) (7/8/22)

AA+ (stable) (10/20/21)

A1 (stable) (3/18/22)

—

Assured Guaranty (Europe) SA (AGE)

AA (stable) (7/8/22)

AA+ (stable) (10/20/21)

—

____________________

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subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary.

For a discussion of the effects of rating actions on the Company beyond potential effects on the demand for its insurance products, see “— Liquidity and Capital Resources —” section below.

Asset Management Segment Results


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Segment revenues
Management fees (1)	$	27	19		48		38
Performance fees	2		—		18		1
Other income (loss)	(1)		2		1		2
Total segment revenues	28		21		67		41
Segment expenses
Employee compensation and benefit expenses	17		15		46		34
Other operating expenses (1) (2)	11		9		21		19
Total segment expenses	28		24		67		53
Segment adjusted operating income (loss) before income taxes	—		(3)		—		(12)
Less: Provision (benefit) for income taxes	—		(1)		—		(3)
Segment adjusted operating income (loss)	$	—	$	(2)	$	—	$	(9)

_____________________

(2) Includes amortization of intangible assets of $3 million in both second quarter 2022 and second quarter 2021 and $6 million in both six months 2022 and six months 2021.

Management and Performance Fees

Management Fees


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
CLOs	$	12	$	12	$	24	$	24
Opportunity funds and liquid strategies	15		5		23		9
Wind-down funds	—		2		1		5
Total management fees	$	27	$	19	$	48	$	38

Fees from opportunity funds increased primarily due to higher third party AUM in healthcare funds. Fees from the wind-down funds decreased as distributions to investors continued. As of June 30, 2022, AUM of the wind-down funds was $0.3 billion compared with $1.2 billion as of June 30, 2021 and $0.6 billion as of December 31, 2021.

Performance fees and increased compensation expenses in six months 2022 were attributable to the healthcare and asset-based funds.

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Assets Under Management

The Company uses AUM as a metric to measure progress in its Asset Management segment. Management fee revenue is based on a variety of factors and is not perfectly correlated with AUM. However, the Company believes that AUM is a useful metric for assessing the relative size and scope of the Company’s asset management business. The Company uses measures of its AUM in its decision-making process and uses a measure of change in AUM in its calculation of certain components of management compensation. Investors also use AUM to evaluate companies that participate in the asset management business. AUM refers to the assets managed, advised or serviced by the Asset Management segment and equals the sum of the following:

•the amount of aggregate collateral balance and principal cash of AssuredIM’s CLOs, including CLO Equity that may be held by AssuredIM Funds. This also includes CLO assets managed by BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a third party in second quarter 2021. AssuredIM is not the investment manager of BM Fuji-advised CLOs, but following the sale, AssuredIM sub-advises and continues to provide personnel and other services to BM Fuji associated with the management of BM Fuji-advised CLOs pursuant to a sub-advisory agreement and a personnel and services agreement, consistent with past practices; and

“Funded AUM” refers to assets that have been deployed or invested into the funds or CLOs.

“Unfunded AUM” refers to unfunded capital commitments from closed-end funds and CLO warehouse funds.

“Fee earning AUM” refers to assets where AssuredIM collects fees and has elected not to waive or rebate fees to investors.

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Roll Forward of Assets Under Management

Second Quarter 2022


	CLOs		Opportunity Funds (1)		Liquid Strategies (2)		Wind-Down Funds		Total
	(in millions)
AUM, March 31, 2022	$	14,282	$	1,874	$	375	$	459	$	16,990
Inflows - third party	1,049		200		21		—		1,270
Inflows - intercompany	50		—		104		—		154
Outflows:
Redemptions	—		—		—		—		—
Distributions	(22)		(39)		(125)		(140)		(326)
Total outflows	(22)		(39)		(125)		(140)		(326)
Net flows	1,077		161		—		(140)		1,098
Change in value	(183)		15		(3)		20		(151)
AUM, June 30, 2022	$	15,176	$	2,050	$	372	$	339	$	17,937

Roll Forward of Assets Under Management

Six Months 2022


	CLOs		Opportunity Funds (1)		Liquid Strategies (2)		Wind-Down Funds		Total
	(in millions)
AUM, December 31, 2021	$	14,699	$	1,824	$	389	$	582	$	17,494
Inflows - third party	1,049		291		21		—		1,361
Inflows - intercompany	50		—		104		—		154
Outflows:
Redemptions	—		—		—		—		—
Distributions	(357)		(143)		(125)		(275)		(900)
Total outflows	(357)		(143)		(125)		(275)		(900)
Net flows	742		148		—		(275)		615
Change in value	(265)		78		(17)		32		(172)
AUM, June 30, 2022	$	15,176	$	2,050	$	372	$	339	$	17,937

_____________________

(2) Liquid strategies inflows and outflows in second quarter 2022 and six months 2022 relate to the transfer of assets from an existing municipal bond fund to a new municipal relative value fund.

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Components of Assets Under Management


	CLOs (1)		Opportunity Funds		Liquid Strategies		Wind-Down Funds		Total
	(in millions)
As of June 30, 2022:
Funded AUM	$	15,069	$	1,288	$	372	$	317	$	17,046
Unfunded AUM	107		762		—		22		891

Fee-earning AUM	$	14,773	$	1,801	$	372	$	202	$	17,148
Non-fee earning AUM	403		249		—		137		789

Intercompany AUM
Funded AUM	$	562	$	187	$	351	$	—	$	1,100
Unfunded AUM	106		135		—		—		241

As of December 31, 2021:
Funded AUM	$	14,575	$	1,297	$	389	$	560	$	16,821
Unfunded AUM	124		527		—		22		673

Fee-earning AUM	$	14,252	$	1,527	$	389	$	408	$	16,576
Non-fee earning AUM	447		297		—		174		918

Intercompany AUM
Funded AUM	$	541	$	217	$	368	$	—	$	1,126
Unfunded AUM	123		121		—		—		244

_____________________

Corporate Division Results


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Revenues	$	1	—		2		—
Expenses
Interest expense	23		26		44		49
Employee compensation and benefit expenses	7		5		13		10
Other operating expenses	6		5		13		9
Total expenses	36		36		70		68
Equity in earnings (losses) of investees	—		—		—		—
Adjusted operating income (loss) before income taxes	(35)		(36)		(68)		(68)
Less: Provision (benefit) for income taxes	—		(2)		—		(5)
Adjusted operating income (loss)	$	(35)	$	(34)	$	(68)	$	(63)

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debt to the U.S. Insurance Subsidiaries, which was borrowed in October 2019 in connection with the BlueMountain Acquisition.

Other (Effect of FG VIEs and CIVs)

The table below reflects the effect of consolidating FG VIEs and CIVs on the condensed consolidated statements of operations. The amounts represent: (1) the revenues and expenses of the FG VIEs and the CIVs; and (2) the consolidation adjustments and eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

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Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations

Increase (Decrease)


	Second Quarter				Six Months
	2022		2021		2022		2021
Effect on Financial Statement Line Item	(in millions)
Fair value gains (losses) on FG VIEs (1)	$	10	$	8	$	16	$	13
Fair value gains (losses) on CIVs	3		21		17		37
Equity in earnings (losses) of investees (2)	34		(14)		24		(24)
Other (3)	(13)		(6)		(24)		(13)
Effect on income before tax	34		9		33		13
Less: Tax provision (benefit)	2		1		2		1
Effect on net income (loss)	32		8		31		12
Less: Effect on noncontrolling interests (4)	22		4		31		8
Effect on net income (loss) attributable to AGL	$	10	$	4	$	—	$	4

By Type of VIE
FG VIEs	$	1	$	3	$	3	$	3
CIVs	9		1		(3)		1
Effect on net income (loss) attributable to AGL	$	10	$	4	$	—	$	4

____________________

(2) Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’ investments in the consolidated AssuredIM Funds.

(3) Includes net earned premiums, net investment income, asset management fees, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE and other operating expenses.

(4) Represents the proportion of consolidated AssuredIM Funds’ income that is not attributable to AGAS’ or any other subsidiaries’ ownership interest.

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Reconciliation to GAAP

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Net income (loss) attributable to AGL	$	(47)	$	98	$	19	$	109
Less pre-tax adjustments:
Realized gains (losses) on investments	(28)		4		(25)		1
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	6		(31)		3		(50)
Fair value gains (losses) on CCS	10		(6)		11		(25)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(73)		5		(102)		6
Total pre-tax adjustments	(85)		(28)		(113)		(68)
Less tax effect on pre-tax adjustments	8		6		12		14
Adjusted operating income (loss)	$	30	$	120	$	120	$	163

Gain (loss) related to FG VIE and CIV consolidation, net of tax, included in adjusted operating income	$	10	$	4	$	—	$	4

Net Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses).

Net Realized Investment Gains (Losses)


	Second Quarter				Six Months
	2022		2021		2022		2021
	(in millions)
Gross realized gains on sales available-for-sale securities	$	—	$	1	$	—	$	2
Gross realized losses on sales available-for-sale securities	(21)		—		(23)		(2)
Net foreign currency gains (losses)	(3)		1		(3)		2
Change in credit impairment and intent to sell	(4)		—		(9)		(4)
Other net realized gains (losses)	—		2		10		3
Net realized investment gains (losses)	$	(28)	$	4	$	(25)	$	1

Non-Credit Impairment-Related Unrealized Fair Value Gains (Losses) on Credit Derivatives

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The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time fair values are determined. In addition, since each transaction has unique collateral and structural terms, the underlying change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts also reflects the change in the Company’s own credit cost based on the price to purchase credit protection on AGC. Due to the relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts. The Company determines its own credit risk based on quoted CDS prices traded on AGC at each balance sheet date. Generally, a widening of credit spreads of the underlying obligations results in unrealized losses and the tightening of credit spreads of the underlying obligations results in unrealized gains. A widening of the CDS prices traded on AGC has an effect of offsetting unrealized losses that result from widening general market credit spreads, while a narrowing of the CDS prices traded on AGC has an effect of offsetting unrealized gains that result from narrowing general market credit spreads.

The valuation of the Company’s credit derivative contracts requires the use of models that contain significant, unobservable inputs, and are classified as Level 3 in the fair value hierarchy. The models used to determine fair value are primarily developed internally based on market conventions for similar transactions that the Company observed in the past. There has been very limited new issuance activity in this market since 2009 and, as of June 30, 2022, market prices for the Company’s credit derivative contracts were generally not available. Inputs to the estimate of fair value include various market indices, credit spreads, the Company’s own credit spread, and estimated contractual payments. See Item 1, Financial Statements, Note 9, Fair Value Measurement, for additional information.

Second quarter 2022 and six months 2022 non-credit impairment-related unrealized fair value gains were generated primarily as a result of the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period, and changes in discount rates. These gains were partially offset by an increase in the credit spread of certain underlying reference obligations. Except for underlying credit impairment, which is recognized as loss expense in the Insurance segment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.

Sensitivity to Changes in Credit Spread

Effect of Changes in Credit Spread


	As of June 30, 2022				As of December 31, 2021
Credit Spreads (1)	Estimated Net Fair Value (Pre-Tax)		Estimated Change in Gain (Loss) (Pre-Tax)		Estimated Net Fair Value (Pre-Tax)		Estimated Change in Gain (Loss) (Pre-Tax)
	(in millions)
Increase of 25 bps	$	(222)	$	(75)	$	(250)	$	(96)
Base Scenario	(147)		—		(154)		—
Decrease of 25 bps	(83)		64		(83)		71
All transactions priced at floor	(29)		118		(37)		117

____________________

(1)Includes the effects of spreads on both the underlying asset classes and the Company’s own credit spread.

Fair Value Gains (Losses) on CCS

Fair value gains on CCS in second quarter 2022 and six months 2022 were primarily due to a significant increase in LIBOR. Fair value losses on CCS in second quarter 2021 and six months 2021 were primarily due to a tightening in market spreads during the periods. Fair value of CCS is heavily affected by, and in part fluctuates with, changes in market spreads and interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

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Foreign Exchange Gain (Loss) on Remeasurement

Foreign exchange gains and losses in all periods primarily relate to remeasurement of long-dated premiums receivables, for which the Company records the present value of future installment premiums, and are mainly due to changes in the exchange rate of the pound sterling and euro relative to the U.S. dollar.

Non-GAAP Financial Measures

The Company discloses both: (a) financial measures determined in accordance with GAAP; and (b) financial measures not determined in accordance with GAAP (non-GAAP financial measures). Financial measures identified as non-GAAP should not be considered substitutes for GAAP financial measures. The primary limitation of non-GAAP financial measures is the potential lack of comparability to financial measures of other companies, whose definitions of non-GAAP financial measures may differ from those of the Company.

The Company believes its presentation of non-GAAP financial measures provides information that is necessary for analysts to calculate their estimates of Assured Guaranty’s financial results in their research reports on Assured Guaranty and for investors, analysts and the financial news media to evaluate Assured Guaranty’s financial results.

GAAP requires the Company to consolidate entities where it is deemed to be the primary beneficiary which include:

•FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and

•CIVs in which certain subsidiaries invest and which are managed by AssuredIM.

The Company discloses the effect of FG VIE and CIV consolidation that is embedded in each non-GAAP financial measure, as applicable. The Company believes this information may also be useful to analysts and investors evaluating Assured Guaranty’s financial results. In the case of both the consolidated FG VIEs and the CIVs, the economic effect on the Company of each of the consolidated FG VIEs and CIVs is reflected primarily in the results of the Insurance segment.

Management of the Company and AGL’s Board of Directors use non-GAAP financial measures further adjusted to remove the effect of FG VIE and CIV consolidation (which the Company refers to as its core financial measures), as well as GAAP financial measures and other factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals. The Company uses core financial measures in its decision-making process for and in its calculation of certain components of management compensation. The financial measures that the Company uses to help determine compensation are: (1) adjusted operating income, further adjusted to remove the effect of FG VIE and CIV consolidation; (2) adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation; (3) adjusted book value per share, further adjusted to remove the effect of FG VIE and CIV consolidation; (4) PVP; and (5) gross third-party assets raised.

Adjusted operating income, further adjusted for the effect of FG VIE and CIV consolidation enables investors and analysts to evaluate the Company’s financial results in comparison with the consensus analyst estimates distributed publicly by financial databases.

The following paragraphs define each non-GAAP financial measure disclosed by the Company and describe why it is useful. To the extent there is a directly comparable GAAP financial measure, a reconciliation of the non-GAAP financial measure and the most directly comparable GAAP financial measure is presented below.

Adjusted Operating Income

Management believes that adjusted operating income is a useful measure because it clarifies the understanding of the operating results of the Company. Adjusted operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following:

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1) Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading. The timing of realized gains and losses, which depends largely on market credit cycles, can vary considerably across periods. The timing of sales is largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax and capital profile.

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2) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, the Company’s credit spreads, and other market factors and are not expected to result in an economic gain or loss.

3) Elimination of fair value gains (losses) on the Company’s CCS that are recognized in net income. Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt, and other market factors and are not expected to result in an economic gain or loss.

4) Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and LAE reserves that are recognized in net income. Long-dated receivables and loss and LAE reserves represent the present value of future contractual or expected cash flows. Therefore, the current period’s foreign exchange remeasurement gains (losses) are not necessarily indicative of the total foreign exchange gains (losses) that the Company will ultimately recognize.

5) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

See “— Results of Operations — Reconciliation to GAAP”, for a reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

Adjusted Operating Shareholders’ Equity and Adjusted Book Value

Management believes that adjusted operating shareholders’ equity is a useful measure because it excludes the fair value adjustments on investments, credit derivatives and CCS that are not expected to result in economic gain or loss.

Adjusted operating shareholders’ equity is defined as shareholders’ equity attributable to AGL, as reported under GAAP, adjusted for the following:

1) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

2) Elimination of fair value gains (losses) on the Company’s CCS. Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt, and other market factors and are not expected to result in an economic gain or loss.

3) Elimination of unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (AOCI). The AOCI component of the fair value adjustment on the investment portfolio is not deemed economic because the Company generally holds these investments to maturity and therefore would not recognize an economic gain or loss.

4) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

Management uses adjusted book value, further adjusted for FG VIE and CIV consolidation, to measure the intrinsic value of the Company, excluding franchise value. Adjusted book value per share, further adjusted for FG VIE and CIV consolidation (core adjusted book value), is one of the key financial measures used in determining the amount of certain long-term compensation elements to management and employees and used by rating agencies and investors. Management believes that adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues

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net of expected losses. Adjusted book value is adjusted operating shareholders’ equity, as defined above, further adjusted for the following:

1) Elimination of deferred acquisition costs, net. These amounts represent net deferred expenses that have already been paid or accrued and will be expensed in future accounting periods.

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2) Addition of the net present value of estimated net future revenue. See below.

3) Addition of the deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed, net of reinsurance. This amount represents the present value of the expected future net earned premiums, net of the present value of expected losses to be expensed, which are not reflected in GAAP equity.

4) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

The unearned premiums and revenues included in adjusted book value will be earned in future periods, but actual earnings may differ materially from the estimated amounts used in determining current adjusted book value due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults and other factors.

Reconciliation of Shareholders’ Equity Attributable to AGL

to Adjusted Operating Shareholders’ Equity and Adjusted Book Value


		As of March 31, 2022				As of December 31, 2021					As of June 30, 2022				As of December 31, 2021
		After-Tax		Per Share		After-Tax		Per Share			After-Tax		Per Share		After-Tax		Per Share
		(dollars in millions, except share amounts)									(dollars in millions, except share amounts)
Shareholders’ equity attributable to AGL	Shareholders’ equity attributable to AGL	$	5,802	$	89.20	$	6,292	$	93.19	Shareholders’ equity attributable to AGL	$	5,304	$	84.89	$	6,292	$	93.19
Less pre-tax adjustments:	Less pre-tax adjustments:									Less pre-tax adjustments:
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(57)		(0.88)		(54)		(0.80)		Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(51)		(0.82)		(54)		(0.80)
Fair value gains (losses) on CCS	Fair value gains (losses) on CCS	24		0.38		23		0.34		Fair value gains (losses) on CCS	34		0.55		23		0.34
Unrealized gain (loss) on investment portfolio excluding foreign exchange effect	Unrealized gain (loss) on investment portfolio excluding foreign exchange effect	(26)		(0.41)		404		5.99		Unrealized gain (loss) on investment portfolio excluding foreign exchange effect	(359)		(5.75)		404		5.99
Less taxes	Less taxes	1		0.02		(72)		(1.07)		Less taxes	46		0.73		(72)		(1.07)
Adjusted operating shareholders’ equity	Adjusted operating shareholders’ equity	5,860		90.09		5,991		88.73		Adjusted operating shareholders’ equity	5,634		90.18		5,991		88.73
Pre-tax adjustments:	Pre-tax adjustments:									Pre-tax adjustments:
Less: Deferred acquisition costs	Less: Deferred acquisition costs	135		2.07		131		1.95		Less: Deferred acquisition costs	139		2.22		131		1.95
Plus: Net present value of estimated net future revenue	Plus: Net present value of estimated net future revenue	164		2.52		160		2.37		Plus: Net present value of estimated net future revenue	161		2.57		160		2.37
Plus: Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed	Plus: Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed	3,369		51.79		3,402		50.40		Plus: Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed	3,366		53.89		3,402		50.40
Plus taxes	Plus taxes	(593)		(9.12)		(599)		(8.88)		Plus taxes	(594)		(9.51)		(599)		(8.88)
Adjusted book value	Adjusted book value	$	8,665	$	133.21	8,823		130.67		Adjusted book value	$	8,428	$	134.91	8,823		130.67

Gain (loss) related to FG VIE and CIV consolidation included in:	Gain (loss) related to FG VIE and CIV consolidation included in:									Gain (loss) related to FG VIE and CIV consolidation included in:
Adjusted operating shareholders’ equity (net of tax provision (benefit) of $5 and $5)		$	22	$	0.34	$	32	$	0.47
Adjusted book value (net of tax provision (benefit) of $3 and $3)		13		0.19		23		0.34
Adjusted operating shareholders’ equity (net of tax provision of $6 and $5)										Adjusted operating shareholders’ equity (net of tax provision of $6 and $5)	$	26	$	0.42	$	32	$	0.47
Adjusted book value (net of tax provision of $3 and $3)										Adjusted book value (net of tax provision of $3 and $3)	18		0.29		23		0.34

Net Present Value of Estimated Net Future Revenue

Management believes that this amount is a useful measure because it enables an evaluation of the present value of estimated net future revenue for non-financial guaranty insurance contracts. This amount represents the net present value of estimated future revenue from these contracts (other than credit derivatives with net expected losses), net of reinsurance, ceding commissions and premium taxes.

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Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than loss mitigation securities. The discount rate is recalculated annually and updated as necessary. Net present value of estimated future revenue for an obligation may change from period to period due to a change in the discount rate or due to a change in estimated net future revenue for the obligation, which may change due to

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changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation. There is no corresponding GAAP financial measure.

PVP or Present Value of New Business Production

Management believes that PVP is a useful measure because it enables the evaluation of the value of new business production in the Insurance segment by taking into account the value of estimated future installment premiums on all new contracts underwritten in a reporting period as well as additional installment premiums and fees on existing contracts (which may result from supplements or fees or from the issuer not calling an insured obligation the Company projected would be called), regardless of form, which management believes GAAP gross written premiums and changes in fair value of credit derivatives do not adequately measure. PVP in respect of contracts written in a specified period is defined as gross upfront and installment premiums received and the present value of gross estimated future installment premiums.

Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturity securities such as loss mitigation securities. The discount rate is recalculated annually and updated as necessary. Under GAAP, financial guaranty installment premiums are discounted at a risk-free rate. Additionally, under GAAP, management records future installment premiums on financial guaranty insurance contracts covering non-homogeneous pools of assets based on the contractual term of the transaction, whereas for PVP purposes, management records an estimate of the future installment premiums the Company expects to receive, which may be based upon a shorter period of time than the contractual term of the transaction.

Actual installment premiums may differ from those estimated in the Company’s PVP calculation due to factors including, but not limited to, changes in foreign exchange rates, prepayment speeds, terminations, credit defaults, or other factors that affect par outstanding or the ultimate maturity of an obligation.

Reconciliation of GWP to PVP


		First Quarter 2022										First Quarter 2021											Second Quarter 2022										Second Quarter 2021
		Public Finance				Structured Finance						Public Finance				Structured Finance							Public Finance				Structured Finance						Public Finance				Structured Finance
		U.S.		Non - U.S.		U.S.		Non - U.S.		Total		U.S.		Non - U.S.		U.S.		Non - U.S.		Total			U.S.		Non - U.S.		U.S.		Non - U.S.		Total		U.S.		Non - U.S.		U.S.		Non - U.S.		Total
		(in millions)																					(in millions)
GWP	GWP	$	49	$	16	$	5	$	—	$	70	$	79	$	5	$	3	$	—	$	87	GWP	$	57	$	6	$	1	$	1	$	65	$	29	$	44	$	11	$	—	$	84
Less: Installment GWP and other GAAP adjustments (1)	Less: Installment GWP and other GAAP adjustments (1)	—		16		3		—		19		34		3		1		—		38		Less: Installment GWP and other GAAP adjustments (1)	—		6		1		1		8		—		24		11		—		35
Upfront GWP	Upfront GWP	49		—		2		—		51		45		2		2		—		49		Upfront GWP	57		—		—		—		57		29		20		—		—		49
Plus: Installment premiums and other (2)	Plus: Installment premiums and other (2)	—		12		—		6		18		36		1		—		—		37		Plus: Installment premiums and other (2)	—		18		—		1		19		—		23		9		—		32
PVP	PVP	$	49	$	12	$	2	$	6	$	69	$	81	$	3	$	2	$	—	$	86	PVP	$	57	$	18	$	—	$	1	$	76	$	29	$	43	$	9	$	—	$	81

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	Six Months 2022										Six Months 2021
	Public Finance				Structured Finance						Public Finance				Structured Finance
	U.S.		Non - U.S.		U.S.		Non - U.S.		Total		U.S.		Non - U.S.		U.S.		Non - U.S.		Total
	(in millions)
GWP	$	106	$	22	$	6	$	1	$	135	$	108	$	49	$	14	$	—	$	171
Less: Installment GWP and other GAAP adjustments (1)	—		22		4		1		27		34		27		12		—		73
Upfront GWP	106		—		2		—		108		74		22		2		—		98
Plus: Installment premiums and other (2)	—		30		—		7		37		36		24		9		—		69
PVP	$	106	$	30	$	2	$	7	$	145	$	110	$	46	$	11	$	—	$	167

___________________

(1) This includes the present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions and other GAAP adjustments.

(2) This includes the present value of future premiums and fees on new business paid in installments discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturities such as loss mitigation securities. This also includes the present value of future premiums and fees associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees.

Insured Portfolio

The Company’s financial guaranty and specialty exposures, as well as a guarantee are described in Item 1, Financial Statements, Note 3, Outstanding Exposure.

Financial Guaranty Exposure

The following tables present information in respect of the financial guaranty insured portfolio to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure.

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The following table presents the financial guaranty portfolio by sector, net of cessions to reinsurers. It includes all financial guaranty contracts outstanding as of the dates presented, regardless of the form written (i.e., credit derivative form or traditional financial guaranty insurance form) or the applicable accounting model (i.e., insurance, derivative or FG VIE consolidation), along with each sector’s average rating.

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Financial Guaranty Portfolio

Net Par Outstanding and Average Internal Rating by Sector

As of March 31, 2022

As of December 31, 2021

As of June 30, 2022

As of December 31, 2021

Sector

Net Par
Outstanding

Average
Rating

Net Par
Outstanding

Average
Rating

Sector

Net Par
Outstanding

Average
Rating

Net Par
Outstanding

Average
Rating

(dollars in millions)

Public finance:

U.S. public finance:

General obligation

71,993

A-

72,896

A-

General obligation

72,741

A-

72,896

A-

Tax backed

34,698

A-

35,726

A-

Tax backed

34,853

A-

35,726

A-

Municipal utilities

25,238

A-

25,556

A-

Municipal utilities

26,487

A-

25,556

A-

Transportation

18,252

BBB+

17,241

BBB+

Transportation

18,916

BBB+

17,241

BBB+

Healthcare

9,780

BBB+

9,588

BBB+

Healthcare

10,660

BBB+

9,588

BBB+

Higher education

6,871

A-

6,927

A-

Higher education

6,904

A-

6,927

A-

Infrastructure finance

6,298

A-

6,329

A-

Infrastructure finance

6,343

A-

6,329

A-

Housing revenue

999

BBB-

1,000

BBB-

Housing revenue

980

BBB-

1,000

BBB-

Investor-owned utilities

509

A-

611

A-

Investor-owned utilities

509

A-

611

A-

Renewable energy

183

A-

193

A-

Renewable energy

183

A-

193

A-

Other public finance

1,136

A-

1,152

A-

Other public finance

1,072

A-

1,152

A-

Total U.S. public finance

175,957

A-

177,219

A-

Total U.S. public finance

179,648

A-

177,219

A-

Non-U.S public finance:

Regulated utilities

18,732

BBB+

18,814

BBB+

Regulated utilities

17,666

BBB+

18,814

BBB+

Infrastructure finance

15,723

BBB

16,475

BBB

Infrastructure finance

13,721

BBB

16,475

BBB

Sovereign and sub-sovereign

10,574

A+

10,886

A+

Sovereign and sub-sovereign

9,806

A+

10,886

A+

Renewable energy

2,231

A-

2,398

A-

Renewable energy

2,104

A-

2,398

A-

Pooled infrastructure

1,246

AAA

1,372

AAA

Pooled infrastructure

1,150

AAA

1,372

AAA

Total non-U.S. public finance

48,506

BBB+

49,945

BBB+

Total non-U.S. public finance

44,447

BBB+

49,945

BBB+

Total public finance

224,463

A-

227,164

A-

Total public finance

224,095

A-

227,164

A-

Structured finance:

U.S. structured finance:

Life insurance transactions

3,443

AA-

3,431

AA-

Life insurance transactions

3,518

AA-

3,431

AA-

RMBS

2,277

BB+

2,391

BB+

RMBS

2,171

BB+

2,391

BB+

Financial products

600

AA-

770

AA-

Financial products

520

AA-

770

AA-

Pooled corporate obligations

510

AA+

534

AA+

Consumer receivables

545

A+

583

A+

Consumer receivables

505

A+

583

A+

Pooled corporate obligations

518

AA+

534

AA+

Other structured finance

718

BBB+

665

BBB+

Other structured finance

711

BBB+

665

BBB+

Total U.S. structured finance

8,101

8,374

Total U.S. structured finance

7,935

8,374

Non-U.S. structured finance:

Pooled corporate obligations

342

AAA

351

AAA

Pooled corporate obligations

322

AAA

351

AAA

RMBS

310

325

RMBS

276

A-

325

Other structured finance

163

178

Other structured finance

184

178

Total non-U.S structured finance

815

854

Total non-U.S structured finance

782

854

Total structured finance

8,916

9,228

Total structured finance

8,717

9,228

Total net par outstanding

233,379

A-

236,392

A-

Total net par outstanding

232,812

A-

236,392

A-

Second-to-pay insured par outstanding represents transactions the Company has insured that are already insured by another financial guaranty insurer and where the Company’s obligation to pay under its insurance of such transactions arises only if both the obligor on the underlying insured obligation and the primary financial guaranty insurer default. The Company

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underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary

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financial guarantor. The second-to-pay insured par outstanding as of ~~March 31,~~June 30, 2022 and December 31, 2021 was ~~$4.7~~$4.6 billion and $4.9 billion, respectively. The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was ~~$39~~$27 million and $43 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

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 $2.2 billion net par outstanding as of ~~March 31,~~June 30, 2022, all of which was rated BIG. Beginning on January 1, 2016, a number of Puerto Rico exposures have defaulted on bond payments, and the Company has now paid claims on all of its 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).

The following tables present information in respect of the Puerto Rico exposures to supplement the disclosures and discussions provided in Item 1, Financial Statements, Note 3, Outstanding Exposure.

Exposure to Puerto Rico By Company

As of ~~March 31,~~June 30, 2022


		Net Par Outstanding													Net Par Outstanding
		AGM		AGC		AG Re		Eliminations (1)		Total Net Par Outstanding		Gross Par Outstanding			AGM		AGC		AG Re		Eliminations (1)		Total Net Par Outstanding		Gross Par Outstanding
		(in millions)													(in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement	Puerto Rico Exposures Subject to a Plan or Support Agreement													Puerto Rico Exposures Subject to a Plan or Support Agreement
Commonwealth of Puerto Rico - GO (2)	Commonwealth of Puerto Rico - GO (2)	$	6	$	28	$	13	$	—	$	47	$	47	Commonwealth of Puerto Rico - GO (2)	$	6	$	20	$	11	$	—	$	37	$	37
PBA (2)	PBA (2)	1		5		—		(1)		5		5		PBA (2)	1		5		—		(1)		5		5
Total GO/PBA Plan	Total GO/PBA Plan	7		33		13		(1)		52		52		Total GO/PBA Plan	7		25		11		(1)		42		42
Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue)		233		467		178		(79)		799		799
PRHTA (Transportation revenue)														PRHTA (Transportation revenue)	233		467		178		(79)		799		799
PRHTA (Highway revenue)	PRHTA (Highway revenue)	381		51		25		—		457		457		PRHTA (Highway revenue)	381		51		25		—		457		457
Total HTA/CCDA PSA	Total HTA/CCDA PSA	614		518		203		(79)		1,256		1,256		Total HTA/CCDA PSA	614		518		203		(79)		1,256		1,256
Total Subject to a Plan or Support Agreement	Total Subject to a Plan or Support Agreement	621		551		216		(80)		1,308		1,308		Total Subject to a Plan or Support Agreement	621		543		214		(80)		1,298		1,298

Other Puerto Rico Exposures	Other Puerto Rico Exposures													Other Puerto Rico Exposures
PREPA	PREPA	469		69		210		—		748		759		PREPA	469		69		210		—		748		759
MFA (3)	MFA (3)	126		16		37		—		179		187		MFA (3)	126		16		37		—		179		187
PRASA and U of PR (3)	PRASA and U of PR (3)	—		2		—		—		2		2		PRASA and U of PR (3)	—		2		—		—		2		2
Total Other Puerto Rico Exposures	Total Other Puerto Rico Exposures	595		87		247		—		929		948		Total Other Puerto Rico Exposures	595		87		247		—		929		948
Total exposure to Puerto Rico	Total exposure to Puerto Rico	$	1,216	$	638	$	463	$	(80)	$	2,237	$	2,256	Total exposure to Puerto Rico	$	1,216	$	630	$	461	$	(80)	$	2,227	$	2,246

___________________

(1) Net par outstanding eliminations relate to second-to-pay policies under which an Assured Guaranty insurance subsidiary guarantees an obligation already insured by another Assured Guaranty insurance subsidiary.

(2) 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.

(3) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company.

The following tables show the scheduled amortization of the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations insured by the Company. The Company guarantees payments of debt service when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. In the event

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that obligors default on their obligations, the Company would only pay the shortfall between the debt service due in any given period and the amount paid by the obligors.

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Amortization Schedule of Net Par of Puerto Rico

As of ~~March 31,~~June 30, 2022


		Scheduled Net Par Amortization																									Scheduled Net Par Amortization
		2022 (2Q)		2022 (3Q)		2022 (4Q)		2023		2024		2025		2026		2027 - 2031		2032 - 2036		2037 - 2041		2042		Total			2022 (3Q)		2022 (4Q)		2023		2024		2025		2026		2027 - 2031		2032 - 2036		2037 - 2041		2042		Total
		(in millions)																									(in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement	Puerto Rico Exposures Subject to a Plan or Support Agreement																									Puerto Rico Exposures Subject to a Plan or Support Agreement
Commonwealth of Puerto Rico - GO	Commonwealth of Puerto Rico - GO	$	—	$	20	$	—	$	—	$	—	$	—	$	2	$	25	$	—	$	—	$	—	$	47	Commonwealth of Puerto Rico - GO	$	10	$	—	$	—	$	—	$	—	$	2	$	25	$	—	$	—	$	—	$	37
PBA	PBA	—		—		—		3		—		2		—		—		—		—		—		5		PBA	—		—		3		—		2		—		—		—		—		—		5
Total - GO/PBA Plan	Total - GO/PBA Plan	—		20		—		3		—		2		2		25		—		—		—		52		Total - GO/PBA Plan	10		—		3		—		2		2		25		—		—		—		42
PRHTA (Transportation revenue)	PRHTA (Transportation revenue)	—		28		—		34		4		29		24		164		310		201		5		799		PRHTA (Transportation revenue)	28		—		34		4		29		24		164		310		201		5		799
PRHTA (Highway revenue)	PRHTA (Highway revenue)	—		40		—		31		33		34		1		78		240		—		—		457		PRHTA (Highway revenue)	40		—		31		33		34		1		78		240		—		—		457
Total - HTA/CCDA PSA	Total - HTA/CCDA PSA	—		68		—		65		37		63		25		242		550		201		5		1,256		Total - HTA/CCDA PSA	68		—		65		37		63		25		242		550		201		5		1,256
Total Subject to a Plan or Support Agreement	Total Subject to a Plan or Support Agreement	—		88		—		68		37		65		27		267		550		201		5		1,308		Total Subject to a Plan or Support Agreement	78		—		68		37		65		27		267		550		201		5		1,298

Other Puerto Rico Exposures	Other Puerto Rico Exposures																									Other Puerto Rico Exposures
PREPA	PREPA	—		28		—		95		93		68		106		332		26		—		—		748		PREPA	28		—		95		93		68		106		332		26		—		—		748
MFA	MFA	—		43		—		23		18		18		37		40		—		—		—		179		MFA	43		—		23		18		18		37		40		—		—		—		179
PRASA and U of PR	PRASA and U of PR	—		—		—		—		1		—		—		—		1		—		—		2		PRASA and U of PR	—		—		—		1		—		—		—		1		—		—		2
Total Other Puerto Rico Exposures	Total Other Puerto Rico Exposures	—		71		—		118		112		86		143		372		27		—		—		929		Total Other Puerto Rico Exposures	71		—		118		112		86		143		372		27		—		—		929

Total	Total	$	—	$	159	$	—	$	186	$	149	$	151	$	170	$	639	$	577	$	201	$	5	$	2,237	Total	$	149	$	—	$	186	$	149	$	151	$	170	$	639	$	577	$	201	$	5	$	2,227

Amortization Schedule of Net Debt Service of Puerto Rico

As of ~~March 31,~~June 30, 2022


		Scheduled Net Debt Service Amortization																									Scheduled Net Debt Service Amortization
		2022 (2Q)		2022 (3Q)		2022 (4Q)		2023		2024		2025		2026		2027 - 2031		2032 - 2036		2037 - 2041		2042		Total			2022 (3Q)		2022 (4Q)		2023		2024		2025		2026		2027 - 2031		2032 - 2036		2037 - 2041		2042		Total
		(in millions)																									(in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement	Puerto Rico Exposures Subject to a Plan or Support Agreement																									Puerto Rico Exposures Subject to a Plan or Support Agreement
Commonwealth of Puerto Rico - GO	Commonwealth of Puerto Rico - GO	$	—	$	22	$	—	$	2	$	2	$	1	$	3	$	28	$	—	$	—	$	—	$	58	Commonwealth of Puerto Rico - GO	$	11	$	—	$	2	$	2	$	1	$	3	$	28	$	—	$	—	$	—	$	47
PBA	PBA	—		—		—		3		—		2		—		—		—		—		—		5		PBA	—		—		3		—		2		—		—		—		—		—		5
Total - GO/PBA Plan	Total - GO/PBA Plan	—		22		—		5		2		3		3		28		—		—		—		63		Total - GO/PBA Plan	11		—		5		2		3		3		28		—		—		—		52
PRHTA (Transportation revenue)	PRHTA (Transportation revenue)	—		48		—		73		42		67		61		323		423		237		5		1,279		PRHTA (Transportation revenue)	48		—		73		42		67		61		323		423		237		5		1,279
PRHTA (Highway revenue)	PRHTA (Highway revenue)	—		52		—		54		52		53		18		159		279		—		—		667		PRHTA (Highway revenue)	52		—		54		52		53		18		159		279		—		—		667
Total - HTA/CCDA PSA	Total - HTA/CCDA PSA	—		100		—		127		94		120		79		482		702		237		5		1,946		Total - HTA/CCDA PSA	100		—		127		94		120		79		482		702		237		5		1,946
Total Subject to a Plan or Support Agreement	Total Subject to a Plan or Support Agreement	—		122		—		132		96		123		82		510		702		237		5		2,009		Total Subject to a Plan or Support Agreement	111		—		132		96		123		82		510		702		237		5		1,998

Other Puerto Rico Exposures	Other Puerto Rico Exposures																									Other Puerto Rico Exposures
PREPA	PREPA	3		43		3		128		122		92		126		380		29		—		—		926		PREPA	43		3		128		122		92		126		381		29		—		—		924
MFA	MFA	—		48		—		29		24		22		41		45		—		—		—		209		MFA	48		—		29		24		22		41		45		—		—		—		209
PRASA and U of PR	PRASA and U of PR	—		—		—		—		1		—		—		—		1		—		—		2		PRASA and U of PR	—		—		—		1		—		—		—		1		—		—		2
Total Other Puerto Rico Exposures	Total Other Puerto Rico Exposures	3		91		3		157		147		114		167		425		30		—		—		1,137		Total Other Puerto Rico Exposures	91		3		157		147		114		167		426		30		—		—		1,135

Total	Total	$	3	$	213	$	3	$	289	$	243	$	237	$	249	$	935	$	732	$	237	$	5	$	3,146	Total	$	202	$	3	$	289	$	243	$	237	$	249	$	936	$	732	$	237	$	5	$	3,133

Financial Guaranty Exposure to U.S. RMBS

The following table presents information in respect of the U.S. RMBS exposures to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid

~~107~~

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(Recovered). U.S. RMBS exposures represent ~~1.0%~~0.9% of the total net par outstanding, and BIG U.S. RMBS represent ~~21.8%~~22.0% of total BIG net par outstanding.

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Distribution of U.S. RMBS by Year Insured and Type of Exposure as of ~~March 31,~~June 30, 2022


Year insured:	Year insured:	Prime First Lien		Alt-A First Lien		Option ARMs		Subprime First Lien		Second Lien		Total Net Par Outstanding		Year insured:	Prime First Lien		Alt-A First Lien		Option ARMs		Subprime First Lien		Second Lien		Total Net Par Outstanding
		(in millions)													(in millions)
2004 and prior	2004 and prior	$	11	$	10	$	—	$	384	$	20	$	425	2004 and prior	$	10	$	9	$	—	$	367	$	17	$	403
2005	2005	25		136		16		191		69		437		2005	23		129		16		188		60		416
2006	2006	29		29		1		54		127		240		2006	28		27		1		48		117		221
2007	2007	—		215		18		737		172		1,142		2007	—		205		17		716		160		1,098
2008	2008	—		—		—		33		—		33		2008	—		—		—		33		—		33
Total exposures	Total exposures	$	65	$	390	$	35	$	1,399	$	388	$	2,277	Total exposures	$	61	$	370	$	34	$	1,352	$	354	$	2,171

Exposures rated BIG	Exposures rated BIG	$	43	$	226	$	16	$	807	$	137	$	1,229	Exposures rated BIG	$	41	$	217	$	16	$	791	$	120	$	1,185

Liquidity and Capital Resources

AGL and its U.S. Holding Companies

AGL directly owns (i) AG Re, an insurance company domiciled in ~~Bermuda,~~Bermuda; and (ii) AGUS, a U.S. ~~Holding Company~~holding company with public debt. AGUS directly owns: (i) AGC, an insurance company domiciled in Maryland; and (ii) AGMH, a U.S. ~~Holding Company~~holding company with public debt outstanding. AGMH directly owns AGM, an insurance subsidiary domiciled in New York. AGUS and AGMH are collectively referred to as the U.S. Holding Companies.

Sources and Uses of Funds

The liquidity of AGL and its U.S. Holding Companies is largely dependent on dividends from their operating subsidiaries (see Insurance Subsidiaries, Distributions from Insurance Subsidiaries below for a description of dividend restrictions) and their access to external financing. The operating liquidity requirements of AGL and the U.S. Holding Companies include:

•principal and interest on debt issued by AGUS and AGMH;

•dividends on AGL’s common shares; and

•the payment of operating expenses.

AGL and its U.S. Holding Companies may also require liquidity to:

•make capital investments in their operating subsidiaries;

•fund acquisitions of new businesses;

•purchase or redeem the Company’s outstanding debt; or

•repurchase AGL’s common shares pursuant to AGL’s share repurchase authorization.

In the ordinary course of business, the Company evaluates its liquidity needs and capital resources in light of holding company expenses and dividend policy, as well as rating agency considerations. The Company also subjects its cash flow projections and its assets to a stress test, maintaining a liquid asset balance of one time its stressed operating company net cash flows. Management believes that AGL will have sufficient liquidity to satisfy its needs over the next twelve months. See “— Overview— Key Business Strategies, Capital Management” above for information on common share repurchases.

Long-Term Debt Obligations

The Company has outstanding long-term debt issued by the U.S. Holding Companies. See Part II, Item 8, Financial Statements and Supplementary Data, Note 13, Long-Term Debt and Credit Facilities of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and Guarantor and U.S. Holding Companies' Summarized Financial Information, below.

~~108~~119

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U.S. Holding Companies

Long-Term Debt and Intercompany Loans


				As of March 31, 2022		As of December 31, 2021					As of June 30, 2022		As of December 31, 2021
				(in millions)							(in millions)
		Effective Interest Rate	Final Maturity	Principal Amount					Effective Interest Rate	Final Maturity	Principal Amount
AGUS - long-term debt	AGUS - long-term debt							AGUS - long-term debt
7% Senior Notes	7% Senior Notes	6.40%	2034	$	200	$	200	7% Senior Notes	6.40%	2034	$	200	$	200
5% Senior Notes	5% Senior Notes	5.00%	2024	330		330		5% Senior Notes	5.00%	2024	330		330
3.15% Senior Notes	3.15% Senior Notes	3.15%	2031	500		500		3.15% Senior Notes	3.15%	2031	500		500
3.6% Senior Notes	3.6% Senior Notes	3.60%	2051	400		400		3.6% Senior Notes	3.60%	2051	400		400
Series A Enhanced Junior Subordinated Debentures	Series A Enhanced Junior Subordinated Debentures	3 month LIBOR +2.38%	2066	150		150		Series A Enhanced Junior Subordinated Debentures	3 month LIBOR +2.38%	2066	150		150
AGUS long-term debt subtotal	AGUS long-term debt subtotal			1,580		1,580		AGUS long-term debt subtotal			1,580		1,580
AGUS - intercompany loans from insurance subsidiaries	AGUS - intercompany loans from insurance subsidiaries							AGUS - intercompany loans from insurance subsidiaries
AGC and AGM	AGC and AGM	3.50%	2030	250		250		AGC and AGM	3.50%	2030	250		250
AGRO	AGRO	6 month LIBOR +3.00%	2023	20		20		AGRO	6 month LIBOR +3.00%	2023	20		20
AGUS intercompany loans subtotal	AGUS intercompany loans subtotal			270		270		AGUS intercompany loans subtotal			270		270
Total AGUS	Total AGUS			1,850		1,850		Total AGUS			1,850		1,850
AGMH	AGMH							AGMH
Junior Subordinated Debentures	Junior Subordinated Debentures	6.40%	2066	300		300		Junior Subordinated Debentures	6.40%	2066	300		300
Total AGMH	Total AGMH			300		300		Total AGMH			300		300
AGMH’s long-term debt purchased by AGUS (1)	AGMH’s long-term debt purchased by AGUS (1)			(154)		(154)		AGMH’s long-term debt purchased by AGUS (1)			(154)		(154)
U.S. Holding Company debt	U.S. Holding Company debt			$	1,996	$	1,996	U.S. Holding Company debt			$	1,996	$	1,996

____________________

(1) Represents principal amount of Junior Subordinated Debentures issued by AGMH that has been purchased by AGUS.

The Series A Enhanced Junior Subordinated Debentures pay interest based on LIBOR. If the AGMH Junior Subordinated Debentures are outstanding after December 15, 2036, then the principal amount of the outstanding debentures will bear interest at one-month LIBOR plus 2.215%. The continuation of LIBOR on the current basis will not be guaranteed after June 2023. See the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part 1, Item 1A, Risk Factors, of the Company’s 2021 Annual Report on Form 10-K.

From time to time, AGL and its subsidiaries have entered into intercompany loan facilities. For example, on October 25, 2013, AGL, as borrower, and AGUS, as lender, entered into a revolving credit facility pursuant to which AGL may, from time to time, borrow for general corporate purposes. Under the credit facility, AGUS committed to lend a principal amount not exceeding $225 million in the aggregate. The commitment under the revolving credit facility terminates on October 25, 2023 (the loan commitment termination date). The unpaid principal amount of each loan will bear semi-annual interest at a fixed rate equal to 100% of the then applicable interest rate as determined under Internal Revenue Code Section 1274(d). Accrued interest on all loans will be paid on the last day of each June and December and at maturity. AGL must repay the then unpaid principal amounts of the loans, if any, by the third anniversary of the loan commitment termination date. AGL has not drawn upon the credit facility.

For more information, see the Company’s 2021 Annual Report on Form 10-K, Part II. Item 8. Financial Statements and Supplementary Data, Note 13, Long-Term Debt and Credit Facilities.

Guarantor and U.S. Holding Companies’ Summarized Financial Information

AGL fully and unconditionally guarantees the payment of the principal of, and interest on, the $1,430 million aggregate principal amount of notes issued by the U.S. Holding Companies, and the $450 million aggregate principal amount of junior subordinated debentures issued by the U.S. Holding Companies, and the intercompany loans. The following tables include summarized financial information for AGL and the U.S. Holding Companies, excluding their investments in subsidiaries.

~~109~~120

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		As of March 31, 2022					As of June 30, 2022
		AGL		U.S. Holding Companies			AGL		U.S. Holding Companies
		(in millions)					(in millions)
Assets	Assets					Assets
Fixed-maturity securities (1)	Fixed-maturity securities (1)	$	83	$	4	Fixed-maturity securities (1)	$	78	$	4
Short-term investments, other invested assets and cash	Short-term investments, other invested assets and cash	59		305		Short-term investments, other invested assets and cash	46		86
Receivables from affiliates (2)	Receivables from affiliates (2)	35		—		Receivables from affiliates (2)	33		—
Receivable from U.S. Holding Companies	Receivable from U.S. Holding Companies	50		—		Receivable from U.S. Holding Companies	45		—
Other assets	Other assets	1		34		Other assets	5		51
Liabilities	Liabilities					Liabilities
Long-term debt	Long-term debt	—		1,671		Long-term debt	—		1,672
Loans payable to affiliates	Loans payable to affiliates	—		270		Loans payable to affiliates	—		270
Payable to affiliates (2)	Payable to affiliates (2)	16		11		Payable to affiliates (2)	8		23
Payable to AGL	Payable to AGL	—		50		Payable to AGL	—		45
Other liabilities	Other liabilities	4		102		Other liabilities	5		52

____________________

(1) As of ~~March 31,~~June 30, 2022, weighted average durations of AGL’s and the U.S. Holding Companies' fixed-maturity securities (excluding AGUS’ investment in AGMH’s debt) were ~~6.3~~5.9 years and 5.0 years, respectively.

(2) Represents receivable and payables with non-guarantor subsidiaries.


		First Quarter 2022					Six Months 2022
		AGL		U.S. Holding Companies			AGL		U.S. Holding Companies
		(in millions)					(in millions)
Revenues	Revenues	$	1	$	—	Revenues	$	2	$	—
Expenses	Expenses					Expenses
Interest expense	Interest expense	—		21		Interest expense	—		44
Other expenses	Other expenses	11		2		Other expenses	22		4
Income (loss) before provision for income taxes and equity in earnings (losses) of investees	Income (loss) before provision for income taxes and equity in earnings (losses) of investees	(10)		(23)		Income (loss) before provision for income taxes and equity in earnings (losses) of investees	(20)		(48)
Net income (loss)	Net income (loss)	(10)		(20)		Net income (loss)	(20)		(44)

The following table presents significant cash flow items for AGL and the U.S. Holding Companies (other than investment income, operating expenses and taxes) related to distributions from subsidiaries and outflows for debt service, dividends and other capital management activities.

AGL and U.S. Holding Companies

Significant Cash Flow Items


		First Quarter 2022					Six Months 2022
		AGL		U.S. Holding Companies			AGL		U.S. Holding Companies
		(in millions)					(in millions)
Dividends received from subsidiaries (1)	Dividends received from subsidiaries (1)	$	135	$	224	Dividends received from subsidiaries (1)	$	300	$	248
Interest paid	Interest paid	—		(9)		Interest paid	—		(38)
Investments in subsidiaries	Investments in subsidiaries	—		(15)		Investments in subsidiaries	—		(15)
Dividends paid to AGL	Dividends paid to AGL	—		(135)		Dividends paid to AGL	—		(300)
Dividends paid	Dividends paid	(17)		—		Dividends paid	(33)		—
Repurchases of common shares (2)	Repurchases of common shares (2)	(152)		—		Repurchases of common shares (2)	(303)		—

____________________

(1) AGL’s dividends include dividends from AGUS.

(2) See Item 1, Financial Statements, Note 14, Shareholders’ Equity, for additional information about share repurchases and authorizations.

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Generally, dividends paid by a U.S. company to a Bermuda holding company are subject to a 30% withholding tax. After AGL became tax resident in the U.K., it became subject to the tax rules applicable to companies resident in the U.K., including the benefits afforded by the U.K.’s tax treaties. The income tax treaty between the U.K. and the U.S. reduces or eliminates the U.S. withholding tax on certain U.S. sourced investment income (to 5% or 0%), including dividends from U.S. subsidiaries to U.K. resident persons entitled to the benefits of the treaty.

For more information, see also Part II, Item 8. Financial Statements and Supplementary Data, Note 13, Long-Term Debt and Credit Facilities of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

External Financing

From time to time, AGL and its subsidiaries have sought external debt or equity financing in order to meet their obligations. External sources of financing may or may not be available to the Company, and if available, the cost of such financing may not be acceptable to the Company.

Insurance Subsidiaries

The Company has several insurance subsidiaries. The U.S. Insurance Subsidiaries consist of AGM and AGC. AGM owns: (i) AGUK, an insurance subsidiary domiciled in the U.K; and (ii) AGE SA, an insurance company domiciled in France. AGUK and AGE are collectively referred to as the European Insurance Subsidiaries. AG Re is an insurance company domiciled in Bermuda, which owns AGRO, an insurance subsidiary, also domiciled in Bermuda.

Sources and Uses of Funds

Liquidity of the insurance subsidiaries is primarily used to pay for:

•operating expenses,

•claims on the insured portfolio,

•dividends or other distributions to AGL, AGUS and/or AGMH, as applicable,

•reinsurance premiums,

•principal of, and interest on, surplus notes, where applicable, and

•capital investments in their own subsidiaries, where appropriate.

Management believes that the insurance subsidiaries’ liquidity needs for the next twelve months can be met from current cash, short-term investments and operating cash flow, including premium collections and coupon payments as well as scheduled maturities and paydowns from their respective investment portfolios, although the Company may enter into secured short-term loan facilities with financial institutions, as described below, to provide short-term liquidity for the payment of insurance claims it anticipates making in connection with the future resolutions of other Puerto Rico exposures. The Company generally targets a balance of its most liquid assets including cash and short-term securities, U.S. Treasuries, agency RMBS and pre-refunded municipal bonds equal to 1.5 times its projected operating company cash flow needs over the next four quarters. As of ~~March 31,~~June 30, 2022, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

Beyond the next twelve months, the ability of the operating subsidiaries to declare and pay dividends may be influenced by a variety of factors, including market conditions, general economic conditions, and, in the case of the Company’s insurance subsidiaries, insurance regulations and rating agency capital requirements.

Financial Guaranty Policies

Insurance policies issued provide, in general, that payments of principal, interest and other amounts insured may not be accelerated by the holder of the obligation. Amounts paid by the Company therefore are typically in accordance with the obligation’s original payment schedule, unless the Company accelerates such payment schedule, at its sole option. Premiums received on financial guaranty contracts are paid either upfront or in installments over the life of the insured obligations.

Payments made in settlement of the Company’s obligations arising from its insured portfolio may, and often do, vary significantly from year to year, depending primarily on the frequency and severity of payment defaults and whether the Company chooses to accelerate its payment obligations in order to mitigate future losses. While it appears to the Company that significant federal funding in 2021 may have mitigated the financial stress from direct and indirect consequences of COVID-19

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for most obligors and assets underlying obligations guaranteed by the Company, the pandemic may still result in further

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increases in claims and loss reserves. The Company believes that 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, are most at risk for increased claims. The size and depth of the COVID-19 pandemic, its course and duration and the direct and indirect consequences of governmental and private responses to it, and the effectiveness and acceptance of vaccines and therapeutics for it, remain unknown, so the Company cannot predict the ultimate size of any increases in claims that may result from the pandemic.

In addition, as of ~~March 31,~~June 30, 2022, the Company has financial guaranty exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding, all of which is rated BIG. As set forth in Item 1, Financial Statements, Note 3, Outstanding Exposure, its $1.3 billion net outstanding par exposure to PRHTA is subject to a plan of adjustment filed by the FOMB with the Title III Court on May 2, 2022 (HTA Plan). The Company anticipates making substantial claim payments in connection with the consummation of the HTA Plan, should consummation occur, and is taking this into account in projecting its liquidity needs.

While the Company has the capacity to generate sufficient liquidity internally to fund the full amount of the gross claim payments it would be required to pay under the HTA Plan, the Company may enter into a secured short-term loan facility to partially fund such gross claim payments until it sells the securities it expects to receive under the HTA Plan. See Item 1. Financial Statements Note 11, Long-Term Debt and Credit Facilities, for a description of the secured short-term facility it used to partially fund the claim payments it made in connection with the consummation of the March Puerto Rico Resolutions in March 2022.

In connection with the acquisition of AGMH, AGM agreed to retain the risks relating to the debt and strip policy portions of the leveraged lease business. In a leveraged lease transaction, a tax-exempt entity (such as a transit agency) transfers tax benefits to a tax-paying entity by transferring ownership of a depreciable asset, such as subway cars. The tax-exempt entity then leases the asset back from its new owner.

If the lease is terminated early, the tax-exempt entity must make an early termination payment to the lessor. A portion of this early termination payment is funded from monies that were pre-funded and invested at the closing of the leveraged lease transaction (along with earnings on those invested funds). The tax-exempt entity is obligated to pay the remaining, unfunded portion of this early termination payment (known as the strip coverage) from its own sources. AGM issued financial guaranty insurance policies (known as strip policies) that guaranteed the payment of these unfunded strip coverage amounts to the lessor, in the event that a tax-exempt entity defaulted on its obligation to pay this portion of its early termination payment. Following such events, AGM can then seek reimbursement of its strip policy payments from the tax-exempt entity, and can also sell the transferred depreciable asset and reimburse itself from the sale proceeds.

Currently, all the leveraged lease transactions in which AGM acts as strip coverage provider are breaching a rating trigger related to AGM and are subject to early termination. However, early termination of a lease does not result in a draw on the AGM policy if the tax-exempt entity makes the required termination payment. If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately ~~$446~~$436 million as of ~~March 31,~~June 30, 2022. To date, none of the leveraged lease transactions that involve AGM has experienced an early termination due to a lease default and a claim on the AGM policy. As of ~~March 31,~~June 30, 2022, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis. The consensual terminations have resulted in no claims on AGM.

The terms of the Company’s CDS contracts generally are modified from standard CDS contract forms approved by International Swaps and Derivatives Association, Inc. in order to provide for payments on a scheduled “pay-as-you-go” basis and to replicate the terms of a traditional financial guaranty insurance policy. The documentation for certain CDS were negotiated to require the Company to also pay if the obligor becomes bankrupt or if the reference obligation were restructured. Furthermore, some CDS documentation requires the Company to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the Company may be required to make a cash termination payment to its swap counterparty upon such termination. Any such payment would probably occur prior to the maturity of the reference obligation and be in an amount larger than the amount due for that period on a “pay-as-you-go” basis.

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Distributions From Insurance Subsidiaries

The Company anticipates that, for the next twelve months, amounts paid by AGL’s direct and indirect insurance subsidiaries as dividends or other distributions will be a major source of the holding companies’ liquidity. The insurance subsidiaries’ ability to pay dividends depends upon their financial condition, results of operations, cash requirements, other

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potential uses for such funds, and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their states of domicile. For more information, see Part II, Item 8, Financial Statements and Supplementary Data, Note 16, Insurance Company Regulatory Requirements, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for a complete discussion of the Company’s dividend restrictions applicable to AGC, AGM, AG Re and AGRO.

Dividend restrictions by insurance subsidiary are as follows:

•The maximum amount available during 2022 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately ~~$291~~$278 million, ~~but none~~of which approximately $77 million is available for distribution in the ~~second~~third quarter of 2022.

•The maximum amount available during 2022 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $207 million, of which approximately ~~$25~~$16 million is available for distribution in the ~~second~~third quarter of 2022.

•Based on the applicable law and regulations, in 2022 AG Re (a subsidiary of AGL) has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $236 million as of ~~March 31,~~June 30, 2022. Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately ~~$146~~$199 million as of ~~March 31,~~June 30, 2022, and (ii) the amount of statutory surplus, which as of ~~March 31,~~June 30, 2022 was ~~$42~~a deficit of $13 million.

•Based on the applicable law and regulations, in ~~2021~~2022 AGRO (an indirect subsidiary of ~~AGRe)~~AG Re) has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $106 million as of ~~March 31,~~June 30, 2022. Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately ~~$396~~$382 million as of ~~March 31,~~June 30, 2022, and (ii) the amount of statutory surplus, which as of ~~March 31,~~June 30, 2022 was ~~$270~~$258 million.

Distributions From Insurance Company Subsidiaries


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Dividends paid by AGC to AGUS	Dividends paid by AGC to AGUS	$	125	$	13	Dividends paid by AGC to AGUS	$	24	$	24	$	149	$	37
Dividends paid by AGM to AGMH	Dividends paid by AGM to AGMH	96		82		Dividends paid by AGM to AGMH	—		—		96		82

Ratings Impact on Financial Guaranty Business

A downgrade of one of AGL’s insurance subsidiaries may result in increased claims under financial guaranties issued by the Company if counterparties exercise contractual rights triggered by the downgrade against insured obligors, and the insured obligors are unable to pay. See Part II, Item 8, Financial Statements and Supplementary Data, Note 6, Contracts Accounted for as Insurance, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Assumed Reinsurance

Some of the Company’s insurance subsidiaries (Assuming Subsidiaries) assumed financial guaranty insurance from legacy third-party bond insurers. The agreements under which such Assuming Subsidiaries assumed such business are generally subject to termination at the option of the ceding company (a) if the Assuming Subsidiary fails to meet certain financial and regulatory criteria; (b) if the Assuming Subsidiary fails to maintain a specified minimum financial strength rating; or (c) upon certain changes of control of the Assuming Subsidiary. Upon termination due to one of the above events, the Assuming

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Subsidiary typically would be required to return to the ceding company unearned premiums (net of ceding commissions) and loss reserves, calculated on a U.S. statutory basis, attributable to the assumed business (plus in certain cases, an additional required amount), after which the Assuming Subsidiary would be released from liability with respect to such business.

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As of ~~March 31,~~June 30, 2022, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately ~~$268~~$267 million, including ~~$237~~$233 million by AGC and ~~$31~~$34 million by AG Re.

Committed Capital Securities

Each of AGC and AGM have entered into put agreements with four separate custodial trusts allowing each of AGC and AGM, respectively, to issue an aggregate of $200 million of non-cumulative redeemable perpetual preferred securities to the trusts in exchange for cash. Each custodial trust was created for the primary purpose of issuing $50 million face amount of CCS, investing the proceeds in high-quality assets and entering into put options with AGC or AGM, as applicable. The Company is not the primary beneficiary of the trusts and therefore the trusts are not consolidated in Assured Guaranty’s financial statements.

The trusts provide AGC and AGM access to new equity capital at their respective sole discretion through the exercise of the put options. Upon AGC’s or AGM’s exercise of its put option, the relevant trust will liquidate its portfolio of eligible assets and use the proceeds to purchase AGC or AGM preferred stock, as applicable. AGC or AGM may use the proceeds from its sale of preferred stock to the trusts for any purpose, including the payment of claims. The put agreements have no scheduled termination date or maturity. However, each put agreement will terminate if (subject to certain grace periods) specified events occur. Both AGC and AGM continue to have the ability to exercise their respective put options and cause the related trusts to purchase their preferred stock.

Prior to 2008 or 2007, the amounts paid on the CCS were established through an auction process. All of those auctions failed in 2008 or 2007, and the rates paid on the CCS increased to their respective maximums. The annualized rate on the AGC CCS is one-month LIBOR plus 250 bps, and the annualized rate on the AGM Committed Preferred Trust Securities is one-month LIBOR plus 200 bps. LIBOR may be discontinued. See “— Executive Summary — Other Matters — LIBOR Sunset” above and the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part I, Item 1A, Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Investment Portfolio

The Company’s principal objectives in managing its investment portfolio are to support the highest possible ratings for each operating company, to manage investment risk within the context of the underlying portfolio of insurance risk, to maintain sufficient liquidity to cover unexpected stress in the insurance portfolio, and to maximize after-tax net investment income. Approximately ~~71%~~70% of the total investment portfolio is managed by external parties. Each of the three external investment managers must maintain a minimum average rating of A+/A1/A+ by S&P Global Ratings, a division of Standard & Poor's Financial Services LLC, ~~(S&P),~~ Moody’s and Fitch Ratings Inc., respectively.

Changes in interest rates affect the value of the Company’s fixed-maturity securities. As interest rates fall, the fair value of fixed-maturity securities generally increases and as interest rates rise, the fair value of fixed-maturity securities generally decreases. The Company’s portfolio of fixed-maturity securities primarily consists of investment-grade, liquid instruments. Other invested assets include other alternative investments. For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments, see Item 1, Financial Statements, Note 7, Investments and Note 9, Fair Value Measurement.

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Investment Portfolio

Carrying Value


		As of					As of
		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(in millions)					(in millions)
Fixed-maturity securities, available-for-sale (1)	Fixed-maturity securities, available-for-sale (1)	$	8,156	$	8,202	Fixed-maturity securities, available-for-sale (1)	$	7,396	$	8,202
Fixed-maturity securities - Puerto Rico, trading		174		—
Fixed-maturity securities, trading (2)						Fixed-maturity securities, trading (2)	87		—
Short-term investments	Short-term investments	585		1,225		Short-term investments	863		1,225
Other invested assets	Other invested assets	152		181		Other invested assets	150		181
Total	Total	$	9,067	$	9,608	Total	$	8,496	$	9,608

____________________

(1) ~~Include $514~~As of June 30, 2022, fixed maturity securities includes $241 million of new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

(2) Represents CVIs received under the March Puerto Rico Resolutions.

The Company’s available-for-sale fixed-maturity securities had a duration of 4.3 years and 4.7 years as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. ~~Generally, the Company’s fixed-maturity securities are designated as available-for-sale, except for CVIs received under the March Puerto Rico Resolutions, which are classified as trading.~~

Available-for-Sale Fixed-Maturity Securities By Contractual Maturity

The amortized cost and estimated fair value of the Company’s available-for-sale fixed-maturity securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity

As of ~~March 31,~~June 30, 2022


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
		(in millions)					(in millions)
Due within one year	Due within one year	$	202	$	203	Due within one year	$	186	$	184
Due after one year through five years	Due after one year through five years	1,956		1,948		Due after one year through five years	1,902		1,815
Due after five years through 10 years	Due after five years through 10 years	1,869		1,853		Due after five years through 10 years	1,739		1,656
Due after 10 years	Due after 10 years	3,442		3,430		Due after 10 years	3,254		3,074
Mortgage-backed securities:	Mortgage-backed securities:					Mortgage-backed securities:
RMBS	RMBS	437		400		RMBS	419		369
Commercial mortgage-backed securities (CMBS)	Commercial mortgage-backed securities (CMBS)	321		322		Commercial mortgage-backed securities (CMBS)	303		298
Total	Total	$	8,227	$	8,156	Total	$	7,803	$	7,396

Available-for-Sale Fixed-Maturity Securities By Rating

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of ~~March 31,~~June 30, 2022 and December 31, 2021. Ratings reflect the lower of Moody’s and S&P classifications, except for bonds purchased for loss mitigation and certain other securities, which use Assured Guaranty’s internal ratings classifications, or are not rated, such as the Puerto Rico securities received under the March Puerto Rico Resolutions.

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Distribution of Available-for-Sale Fixed-Maturity Securities by Rating


		As of					As of
Rating	Rating	March 31, 2022		December 31, 2021		Rating	June 30, 2022		December 31, 2021
AAA	AAA	13.8	%	14.6	%	AAA	14.6	%	14.6	%
AA	AA	36.0		38.2		AA	38.1		38.2
A	A	23.6		25.1		A	24.0		25.1
BBB	BBB	12.1		13.7		BBB	11.8		13.7
BIG (1)	BIG (1)	7.3		7.5		BIG (1)	7.4		7.5
Not rated (2)	Not rated (2)	7.2		0.9		Not rated (2)	4.1		0.9
Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%

____________________

(1)Includes primarily loss mitigation securities. See Item I,1, Financial Statements, Note 7, Investments, for additional information.

(2)As of ~~March 31,~~June 30, 2022, primarily represent new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

Other Investments

Other invested assets reported on the condensed consolidated balance sheets primarily consist of investments in renewable and clean energy and private equity funds managed by a third party.

The Insurance segment reports AGAS’s percentage ownership of AssuredIM Funds’ as equity method investments with changes in NAV included in the Insurance segment adjusted operating income. As of ~~March 31,~~June 30, 2022 and December 31, 2021, all of the funds in which AGAS invests are consolidated in the Company’s consolidated financial statements. The amounts in the table below represent the fair value of AGAS’s interests in the AssuredIM Funds. See Commitments below.

Fair Value of AGAS’s Interest in AssuredIM Funds


		As of					As of
Strategy	Strategy	March 31, 2022		December 31, 2021		Strategy	June 30, 2022		December 31, 2021
		(in millions)					(in millions)
CLOs	CLOs	$	245	$	228	CLOs	$	262	$	228
Municipal bonds	Municipal bonds	103		107		Municipal bonds	103		107
Healthcare	Healthcare	103		115		Healthcare	74		115
Asset-based	Asset-based	108		93		Asset-based	110		93
Total	Total	$	559	$	543	Total	$	549	$	543

Equity in Earnings (Losses) of Investees of AGAS’s Investment in AssuredIM Funds


		First Quarter					Second Quarter				Six Months
Strategy	Strategy	2022		2021		Strategy	2022		2021		2022		2021
		(in millions)					(in millions)
CLOs	CLOs	$	7	$	7	CLOs	$	(23)	$	11	$	(16)	$	18
Municipal bonds	Municipal bonds	(4)		1		Municipal bonds	—		1		(4)		2
Healthcare	Healthcare	3		—		Healthcare	(12)		23		(9)		23
Asset-based	Asset-based	5		2		Asset-based	2		2		7		4
Total	Total	$	11	$	10	Total	$	(33)	$	37	$	(22)	$	47

Restricted Assets

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benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of ~~$1,160~~$1,149 million and $1,231 million, based on fair value, as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

Commitments

The ~~Company is~~U.S. Insurance Subsidiaries are authorized to invest up to $750 million in AssuredIM Funds. Adding inception-to-date distributed gains, the U.S. Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds. As of ~~March 31,~~June 30, 2022, the Insurance segment had total commitments to AssuredIM Funds of ~~$702~~$757 million, of which ~~$473~~$516 million represented net invested capital and ~~$229~~$241 million was undrawn. The Company had unfunded commitments of $96 million as of ~~March 31,~~June 30, 2022 related to certain of the Company’s alternative investments other ~~alternative investments.~~than AssuredIM Funds.

AssuredIM

Sources and Uses of Funds

AssuredIM’s sources of liquidity are: (1) cash from operations, including management and performance fees (which are unpredictable as to amount and timing); and (2) capital contributions from AGUS ($15 million and $15 million in ~~First Quarter~~six months 2022 and ~~First Quarter~~six months 2021, respectively, had been contributed to supplement cash from operations). As of ~~March 31,~~June 30, 2022, AssuredIM had ~~$24~~$30 million in cash and short-term investments.

AssuredIM’s liquidity needs primarily include: (1) paying operating expenses including compensation; (2) paying dividends or other distributions to AGUS; and (3) capital to support growth and expansion of the asset management business.

Lease Obligations

The Company has entered into several lease agreements for office space in Bermuda, New York, San Francisco,

London, Paris, and other locations with various lease terms. See Part II, Item 8, Financial Statements and Supplementary Data, Note 18, Leases, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for a table of minimum lease obligations and other lease commitments.

FG VIEs and CIVs

The Company manages its liquidity needs by evaluating cash flows without the effect of consolidating FG VIEs and CIVs; however, the Company’s consolidated financial statements include the effect of consolidating FG VIEs and CIVs. The primary sources and uses of cash at Assured Guaranty’s FG VIEs and CIVs are as follows:

•FG VIEs. The primary sources of cash in FG VIEs are the collection of principal and interest on the collateral supporting the debt obligations, and the primary uses of cash are the payment of principal and interest due on the debt obligations. The insurance subsidiaries are not primarily liable for the debt obligations issued by the VIEs they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall. AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs. For the Puerto Rico Trusts, the primary source of cash is the collection of debt service on the assets in the trusts and the primary use of cash is the payment of the trusts debt obligations.

•CIVs. The primary sources and uses of cash in the CIVs are raising capital from investors, using capital to make investments, generating cash income from investments, paying expenses, distributing cash flow to investors and issuing debt or borrowing funds to finance investments (CLOs and warehouses). The assets and liabilities of the Company’s CIVs are held within separate legal entities. The assets of the CIVs are not available to creditors of the Company, other than creditors of the applicable CIVs. In addition, creditors of the CIVs have no recourse against the assets of the Company, other than the assets of such applicable CIVs. Liquidity available at the Company’s CIVs is not available for corporate liquidity needs, except to the extent of the Company’s investment in the funds, subject to redemption provisions.

See Item. 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

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Credit Facilities of CIVs

Certain of the Company’s CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity to such CIVs during the CLO warehouse stage. Borrowings are generally secured by the investments purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective vehicle. When a CIV borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or Assured Guaranty subsidiaries. Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or Assured Guaranty subsidiaries.

Condensed Consolidated Cash Flows

The summarized condensed consolidated statements of cash flow in the table below presents the cash flow effect for the aggregate of the Insurance and Asset Management business and holding companies, separately from the aggregate effect of FG VIEs and CIVs.

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Condensed Consolidated Cash Flow Summary


		First Quarter					Second Quarter				Six Months
		2022		2021			2022		2021		2022		2021
		(in millions)					(in millions)
Net cash flows provided by (used in) operating activities, before effect of FG VIEs and CIVs consolidation	Net cash flows provided by (used in) operating activities, before effect of FG VIEs and CIVs consolidation	$	(640)	$	(42)	Net cash flows provided by (used in) operating activities, before effect of FG VIEs and CIVs consolidation	$	19	$	88	$	(621)	$	46
Effect of FG VIEs and CIVs consolidation (1)	Effect of FG VIEs and CIVs consolidation (1)	(252)		(424)		Effect of FG VIEs and CIVs consolidation (1)	(921)		(571)		(1,173)		(995)
Net cash flows provided by (used in) operating activities	Net cash flows provided by (used in) operating activities	(892)		(466)		Net cash flows provided by (used in) operating activities	(902)		(483)		(1,794)		(949)

Net cash flows provided by (used in) investing activities, before effect of FG VIEs and CIVs consolidation	Net cash flows provided by (used in) investing activities, before effect of FG VIEs and CIVs consolidation	831		81		Net cash flows provided by (used in) investing activities, before effect of FG VIEs and CIVs consolidation	150		(424)		981		(343)
Effect of FG VIEs and CIVs consolidation (1)	Effect of FG VIEs and CIVs consolidation (1)	19		44		Effect of FG VIEs and CIVs consolidation (1)	58		43		77		87
Net cash flows provided by (used in) investing activities	Net cash flows provided by (used in) investing activities	850		125		Net cash flows provided by (used in) investing activities	208		(381)		1,058		(256)

Net cash flows provided by (used in) financing activities, before effect of FG VIEs and CIVs consolidation	Net cash flows provided by (used in) financing activities, before effect of FG VIEs and CIVs consolidation					Net cash flows provided by (used in) financing activities, before effect of FG VIEs and CIVs consolidation
Dividends paid	Dividends paid	(17)		(18)		Dividends paid	(16)		(17)		(33)		(35)
Repurchases of common shares	Repurchases of common shares	(152)		(77)		Repurchases of common shares	(151)		(88)		(303)		(165)
Issuance of long-term debt, net of issuance costs						Issuance of long-term debt, net of issuance costs	—		495		—		495
Other	Other	(10)		(12)		Other	4		(2)		(6)		(14)
Effect of FG VIEs and CIVs consolidation (1)	Effect of FG VIEs and CIVs consolidation (1)	169		496		Effect of FG VIEs and CIVs consolidation (1)	832		426		1,001		922
Net cash flows provided by (used in) financing activities (2)	Net cash flows provided by (used in) financing activities (2)	(10)		389		Net cash flows provided by (used in) financing activities (2)	669		814		659		1,203

Effect of exchange rate changes	Effect of exchange rate changes	(1)		—		Effect of exchange rate changes	(1)		—		(2)		—
Increase (decrease) in cash and cash equivalents and restricted cash	Increase (decrease) in cash and cash equivalents and restricted cash	(53)		48		Increase (decrease) in cash and cash equivalents and restricted cash	(26)		(50)		(79)		(2)
Cash and cash equivalents and restricted cash at beginning of period	Cash and cash equivalents and restricted cash at beginning of period	342		298		Cash and cash equivalents and restricted cash at beginning of period	289		346		342		298
Cash and cash equivalents and restricted cash at the end of the period	Cash and cash equivalents and restricted cash at the end of the period	$	289	$	346	Cash and cash equivalents and restricted cash at the end of the period	$	263	$	296	$	263	$	296

____________________

(1) This includes the effects of consolidating FG VIEs and CIVs.

(2) Claims paid on consolidated FG VIEs are presented in the condensed consolidated statements of cash flows as a component of paydowns on FG VIEs’ liabilities in financing activities as opposed to operating activities.

Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of ~~$640~~$621 million in ~~First Quarter~~six months 2022 and an ~~outflow~~inflow of ~~$42~~$46 million in ~~First Quarter~~six months 2021. The increase in cash outflows during 2022 was primarily due to claim payments made net of cash recoveries received in connection with the March Puerto Rico ~~Resolutions.~~Resolutions and higher tax payments. See Item 1. Financial Statements, Note 3, Outstanding Exposure, for additional information. Cash flows from operations attributable to the effect of VIE consolidation was negative in 2022 and 2021 due to the inclusion of investing activities of CIVs, which included cash outflows for purchases of investments, offset in part by sales of investments.

Investing activities primarily consisted of net sales (purchases) of fixed-maturity and short-term investments, and paydowns on and sales of FG VIEs’ assets. The increase in investing cash inflows during 2022 was mainly attributable to higher sales of short-term investments in 2022 to fund share repurchases and claim payments in connection with the March Puerto Rico Resolutions. See Item 1. Financial Statements, Note 3, Outstanding Exposure, for additional information.

Financing activities primarily consist of share repurchases, dividends, and paydowns of FG VIEs’ liabilities, as well and CLO issuances and CLO warehouse financing activities. The ~~decrease~~slight increase in financing cash flow activity from VIEs was primarily due to ~~First Quarter 2021 including~~ the consolidation of an additional CLO and securitization of a previously consolidated CLO warehouse. See Item 1. Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

From ~~March~~July 1 through ~~May 5,~~August 3, 2022, the Company repurchased an additional ~~1.0~~0.6 million of common shares. As of ~~May 5,~~August 3, 2022, the Company was authorized to purchase ~~$240~~$365 million of its common shares. For more information about the Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 14, Shareholders’ Equity.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of ~~March 31,~~June 30, 2022, there were no material changes to the market risks to which the Company is exposed since December 31, 2021.

ITEM 4. CONTROLS AND PROCEDURES

Assured Guaranty’s management, with the participation of AGL’s President and Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are effective in recording, processing, summarizing and reporting, within the time periods specified in the Securities and Exchange Commission’s rules and forms, information required to be disclosed by AGL in the reports that it files or submits under the Exchange Act and ensuring that such information is accumulated and communicated to management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Management of the Company, with the participation of its President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~March 31,~~June 30, 2022. Based on their evaluation as of ~~March 31,~~June 30, 2022 covered by this Form 10-Q, the Company’s President and Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective.

There were no changes in the Company’s internal control over financial reporting during ~~First Quarter~~second quarter 2022 which were identified in connection with the evaluation required pursuant to Rules 13a-15 or 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

The Company is subject to legal proceedings and claims, as described ~~in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and~~ in Part I, Item 1, Financial Statements, Note 13, Commitments and Contingencies – Legal Proceedings contained in this Form 10-Q. For additional information see the “Legal Proceedings” and “Litigation” sections of Part II, Item 8, Financial Statements and Supplementary Data, Note 19, Commitments and Contingencies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 1A.RISK FACTORS

See the risk factors set forth in Part I, “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to the risk factors disclosed in such Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer’s Purchases of Equity Securities

The following table reflects purchases of AGL common shares made by the Company during ~~First Quarter~~second quarter 2022.

Period Total
Number of
Shares
Purchased Average
Price Paid
Per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Program (1) Maximum Number
(or Approximate Dollar Value) of Shares that May Yet Be
Purchased
Under the Program (2)
January 1 - January 31 940,333 $ 52.80 940,333 $ 56,124,501
February 1 - February 28 1,051,645 $ 57.55 836,967 $ 359,035,582
March 1 - March 31 961,259 $ 60.66 960,923 $ 300,749,261
Total 2,953,237 $ 57.05 2,738,223


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program (2)
April 1 - April 30	861,529	$	60.38	861,529	$	248,731,472
May 1 - May 31	877,534	$	56.59	866,566	$	199,709,568
June 1 - June 30	877,852	$	57.15	877,852	$	149,536,960
Total	2,616,915	$	58.02	2,605,947

____________________

(1) After giving effect to repurchases since the Board first authorized the repurchase program on January 18, 2013, through ~~May 5,~~August 3, 2022, the Company has repurchased a total of ~~135.8~~138 million common shares for approximately ~~$4,374 million,~~$4.5 billion, excluding commissions, at an average price of ~~$32.21~~$32.61 per share. On ~~February 24,~~August 3, 2022, the Company announced that the Board of Directors had authorized an additional ~~$350~~$250 million of share repurchases. As of ~~May 5,~~August 3, 2022, the remaining authorization the Company was authorized to purchase was ~~$240~~$365 million of its common shares, on a settlement basis. The repurchase program has no expiration date and the Board has previously increased the authorization periodically.

(2) Excludes commissions.

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ITEM 6.EXHIBITS

The following exhibits are filed with this report:


Exhibit Number						Description of Document
~~10.1~~22.0						~~2022~~Subsidiary Companies and Issuers of Guaranteed Securities (Incorporated by reference to Exhibit 22.0 to Form ~~of Executive TSR Performance Based Restricted Stock Unit Agreement under~~10-K for the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
~~10.2~~						year ended December 31, 2022 Form of Executive ABV Performance Based Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
~~10.3~~						2022 Form of Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
~~10.4~~						~~2022 Form of Executive Non-Equity Incentive Award Agreement under the Assured Guaranty L~~td). 2004 Long-Term Incentive Plan*
~~10.5~~						2022 Form of Non-Executive Performance Retention Award under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
~~10.6~~						2022 Form of Non-Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
~~10.7~~						Form of Restricted Stock Agreement for Outside Directors under Assured Guaranty Ltd. 2004 Long-Term Incentive Plan, as in effect for awards commencing in 2022*
~~10.8~~						Form of Indemnification Agreement between the Company and its executive officers and directors*
31.1						Certification of CEO Pursuant to Exchange Act Rules 13A-14 and 15D-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of CFO Pursuant to Exchange Act Rules 13A-14 and 15D-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
32.2						Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
101.1						The following financial information from Assured Guaranty Ltd.’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2022 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets ~~at March 31,~~as of June 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Statements of Operations for the ~~Three Months~~three and six months ended ~~March 31,~~June 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Comprehensive Income for the ~~Three Months~~three and six months ended ~~March 31,~~June 30, 2022 and 2021; (iv) Condensed Consolidated Statements of Shareholders’ Equity for the ~~Three Months~~three and six months ended ~~March 31,~~June 30, 2022 and 2021; (v) Condensed Consolidated Statements of Cash Flows for the ~~Three Months~~six months ended ~~March 31,~~June 30, 2022 and 2021; and (vi) Notes to Condensed Consolidated Financial Statements.
104.1						The Cover Page Interactive Data File from Assured Guaranty Ltd.’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2022 formatted, in Inline XBRL (the cover page XBRL tags are embedded in the Inline XBRL document and included in Exhibit 101).

* Management contract or compensatory plan

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


	ASSURED GUARANTY LTD. (Registrant)

Dated ~~May 6,~~August 4, 2022	By:	/s/ ROBERT A. BAILENSON

		Robert A. Bailenson Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

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