0001273813us-gaap:~~FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:AssetBackedSecuritiesMemberus-gaap:FixedMaturitiesMember2022-12-31~~FairValueInputsLevel2Memberago:FinancialGuarantyVariableInterestEntitiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-31

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 ~~June~~September 30, 2023


☐						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%~~6.125% Senior Notes due ~~2024~~2028 (and the related guarantee of Registrant)		~~AGO 24~~AGO/28	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 growth 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 ~~August 7,~~November 6, 2023 was ~~58,610,144~~57,256,573 (includes 38,464 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 ~~June~~September 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and ~~Six~~ Nine Months Ended ~~June~~September 30, 2023 and 2022	3
	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Six~~ Nine Months Ended ~~June~~September 30, 2023 and 2022	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	1. Business and Basis of Presentation	8
	2. Segment Information	10
	3. Outstanding Exposure	1514
	4. Expected Loss to be Paid (Recovered)	2625
	5. Contracts Accounted for as Insurance	3534
	6. Contracts Accounted for as Credit Derivatives	4140
	7. Investments	4342
	8. Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles	48
	9. Fair Value Measurement	54
	10. Asset Management Fees	7270

	11. ~~Income Taxes~~Long-Term Debt	7371
	12. Income Taxes	71
	13. Commitments and Contingencies	74
	14. Shareholders’ Equity	75
	~~13. Shareholders’ Equity~~	77
	~~14.~~15. Earnings Per Share	8078
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8179
	Forward Looking Statements	8179
	Available Information	8280
	Overview	8381
	Business	8381
	Economic Environment	8381
	Key Business Strategies	8482
	Executive Summary	8785
	Financial Performance of Assured Guaranty	8886
	Other Matters	9289
	Results of Operations	9289
	Critical Accounting Estimates	9390
	Results of Operations by Segment	9390
	Insurance Segment	9491
	Asset Management Segment	~~104~~101
	Corporate	~~105~~102
	Other	~~105~~102
	Reconciliation to GAAP	~~107~~104
	Non-GAAP Financial Measures	~~109~~106
	Insured Portfolio	~~113~~110
	Liquidity and Capital Resources	~~117~~114
	AGL and its U.S. Holding Companies	~~117~~114
	Insurance Subsidiaries	~~120~~117
	Investment Portfolio	~~124~~
	~~AssuredIM~~	~~126~~121
	Lease Obligations	~~126~~124
	Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles	~~127~~124
	Condensed Consolidated Cash Flows	~~128~~125
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~129~~126
Item 4.	Controls and Procedures	~~129~~126
PART II	Other Information	~~130~~127
Item 1.	Legal Proceedings	~~130~~127
Item 1A.	Risk Factors	~~130~~127
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~131~~128
Item 5 .5.	Other Matters	~~131~~128
Item 6.	Exhibits	~~132~~129

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
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Assets	Assets					Assets
Investments:	Investments:					Investments:
Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $79 and $65 (amortized cost of $7,044 and $7,707)		$	6,488	$	7,119
Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $86 and $65 (amortized cost of $6,971 and $7,707)						Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $86 and $65 (amortized cost of $6,971 and $7,707)	$	6,267	$	7,119
Fixed-maturity securities, trading, at fair value	Fixed-maturity securities, trading, at fair value	340		303		Fixed-maturity securities, trading, at fair value	350		303
Short-term investments, at fair value	Short-term investments, at fair value	1,650		810		Short-term investments, at fair value	1,426		810
Other invested assets (includes $26 and $30, at fair value)		146		133
Other invested assets						Other invested assets	765		133
Total investments	Total investments	8,624		8,365		Total investments	8,808		8,365
Cash	Cash	114		107		Cash	108		107
Premiums receivable, net of commissions payable	Premiums receivable, net of commissions payable	1,417		1,298		Premiums receivable, net of commissions payable	1,376		1,298
Deferred acquisition costs	Deferred acquisition costs	155		147		Deferred acquisition costs	158		147
Salvage and subrogation recoverable	Salvage and subrogation recoverable	266		257		Salvage and subrogation recoverable	282		257
Financial guaranty variable interest entities’ assets (includes $411 and $413, at fair value)		414		416
Assets of consolidated investment vehicles (includes $4,978 and $5,363, at fair value)		5,055		5,493
Financial guaranty variable interest entities’ assets (includes $326 and $413, at fair value)						Financial guaranty variable interest entities’ assets (includes $326 and $413, at fair value)	327		416
Assets of consolidated investment vehicles (includes $318 and $5,363, at fair value)						Assets of consolidated investment vehicles (includes $318 and $5,363, at fair value)	330		5,493
Goodwill and other intangible assets	Goodwill and other intangible assets	6		163		Goodwill and other intangible assets	6		163
Assets held for sale		221		—
Other assets (includes $141 and $148, at fair value)		580		597
Other assets (includes $112 and $148, at fair value)						Other assets (includes $112 and $148, at fair value)	549		597
Total assets	Total assets	$	16,852	$	16,843	Total assets	$	11,944	$	16,843
Liabilities	Liabilities					Liabilities
Unearned premium reserve	Unearned premium reserve	$	3,648	$	3,620	Unearned premium reserve	$	3,600	$	3,620
Loss and loss adjustment expense reserve	Loss and loss adjustment expense reserve	349		296		Loss and loss adjustment expense reserve	361		296
Long-term debt	Long-term debt	1,677		1,675		Long-term debt	1,693		1,675
Credit derivative liabilities, at fair value	Credit derivative liabilities, at fair value	58		163		Credit derivative liabilities, at fair value	50		163
Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $687 and $702, without recourse $12 and $13)		699		715
Liabilities of consolidated investment vehicles (includes $4,326 and $4,431, at fair value)		4,460		4,625
Liabilities held for sale		50		—
Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $531 and $702, without recourse $11 and $13)						Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $531 and $702, without recourse $11 and $13)	542		715
Liabilities of consolidated investment vehicles (includes $0 and $4,431, at fair value)						Liabilities of consolidated investment vehicles (includes $0 and $4,431, at fair value)	4		4,625
Other liabilities	Other liabilities	456		457		Other liabilities	393		457
Total liabilities	Total liabilities	11,397		11,551		Total liabilities	6,643		11,551
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)						Commitments and contingencies (Note 13)
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Common shares ($0.01 par value, 500,000,000 shares authorized; 58,850,144 and 59,013,040 shares issued and outstanding)		1		1
Common shares ($0.01 par value, 500,000,000 shares authorized; 57,819,732 and 59,013,040 shares issued and outstanding)						Common shares ($0.01 par value, 500,000,000 shares authorized; 57,819,732 and 59,013,040 shares issued and outstanding)	1		1
Retained earnings	Retained earnings	5,732		5,577		Retained earnings	5,815		5,577
Accumulated other comprehensive income (loss), net of tax of $(78) and $(84)		(458)		(515)
Accumulated other comprehensive income (loss), net of tax of $(97) and $(84)						Accumulated other comprehensive income (loss), net of tax of $(97) and $(84)	(565)		(515)
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.	5,276		5,064		Total shareholders’ equity attributable to Assured Guaranty Ltd.	5,252		5,064
Nonredeemable noncontrolling interests (Note 8)	Nonredeemable noncontrolling interests (Note 8)	179		228		Nonredeemable noncontrolling interests (Note 8)	49		228
Total shareholders’ equity	Total shareholders’ equity	5,455		5,292		Total shareholders’ equity	5,301		5,292
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	16,852	$	16,843	Total liabilities and shareholders’ equity	$	11,944	$	16,843

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Revenues	Revenues									Revenues
Net earned premiums	Net earned premiums	$	85	$	82	$	166	$	296	Net earned premiums	$	95	$	89	$	261	$	385
Net investment income	Net investment income	89		62		170		124		Net investment income	100		67		270		191
Asset management fees	Asset management fees	27		21		53		55		Asset management fees	—		16		53		71
Net realized investment gains (losses)	Net realized investment gains (losses)	(9)		(28)		(11)		(25)		Net realized investment gains (losses)	(9)		(14)		(20)		(39)
Fair value gains (losses) on credit derivatives	Fair value gains (losses) on credit derivatives	91		9		106		6		Fair value gains (losses) on credit derivatives	9		(48)		115		(42)
Fair value gains (losses) on committed capital securities	Fair value gains (losses) on committed capital securities	1		10		(15)		11		Fair value gains (losses) on committed capital securities	(20)		1		(35)		12
Fair value gains (losses) on financial guaranty variable interest entities	Fair value gains (losses) on financial guaranty variable interest entities	(3)		10		(8)		16		Fair value gains (losses) on financial guaranty variable interest entities	6		11		(2)		27
Fair value gains (losses) on consolidated investment vehicles	Fair value gains (losses) on consolidated investment vehicles	6		3		64		17		Fair value gains (losses) on consolidated investment vehicles	(4)		8		60		25
Foreign exchange gains (losses) on remeasurement	Foreign exchange gains (losses) on remeasurement	28		(71)		48		(101)		Foreign exchange gains (losses) on remeasurement	(39)		(80)		9		(181)
Fair value gains (losses) on trading securities	Fair value gains (losses) on trading securities	40		(18)		38		(22)		Fair value gains (losses) on trading securities	4		(8)		42		(30)
Gain on sale of asset management subsidiaries										Gain on sale of asset management subsidiaries	255		—		255		—
Other income (loss)	Other income (loss)	5		10		32		13		Other income (loss)	6		(1)		38		12
Total revenues	Total revenues	360		90		643		390		Total revenues	403		41		1,046		431
Expenses	Expenses									Expenses
Loss and loss adjustment expenses (benefit)	Loss and loss adjustment expenses (benefit)	55		(11)		59		46		Loss and loss adjustment expenses (benefit)	100		(75)		159		(29)
Interest expense	Interest expense	22		20		43		40		Interest expense	24		20		67		60
Amortization of deferred acquisition costs	Amortization of deferred acquisition costs	3		3		6		7		Amortization of deferred acquisition costs	4		4		10		11
Employee compensation and benefit expenses	Employee compensation and benefit expenses	70		59		152		132		Employee compensation and benefit expenses	47		57		199		189
Other operating expenses	Other operating expenses	71		41		126		83		Other operating expenses	44		37		170		120
Total expenses	Total expenses	221		112		386		308		Total expenses	219		43		605		351
Income (loss) before income taxes and equity in earnings (losses) of investees	Income (loss) before income taxes and equity in earnings (losses) of investees	139		(22)		257		82		Income (loss) before income taxes and equity in earnings (losses) of investees	184		(2)		441		80
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	5		—		7		(11)		Equity in earnings (losses) of investees	18		(20)		25		(31)
Income (loss) before income taxes	Income (loss) before income taxes	144		(22)		264		71		Income (loss) before income taxes	202		(22)		466		49
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	18		3		41		21		Less: Provision (benefit) for income taxes	43		(27)		84		(6)
Net income (loss)	Net income (loss)	126		(25)		223		50		Net income (loss)	159		5		382		55
Less: Noncontrolling interests	Less: Noncontrolling interests	1		22		17		31		Less: Noncontrolling interests	2		(6)		19		25
Net income (loss) attributable to Assured Guaranty Ltd.	Net income (loss) attributable to Assured Guaranty Ltd.	$	125	$	(47)	$	206	$	19	Net income (loss) attributable to Assured Guaranty Ltd.	$	157	$	11	$	363	$	30

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	2.09	$	(0.74)	$	3.46	$	0.29	Basic	$	2.65	$	0.18	$	6.11	$	0.47
Diluted	Diluted	$	2.06	$	(0.74)	$	3.40	$	0.29	Diluted	$	2.60	$	0.18	$	5.99	$	0.46

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Net income (loss)	Net income (loss)	$	126	$	(25)	$	223	$	50	Net income (loss)	$	159	$	5	$	382	$	55
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 $(6), $(37), $8 and $(100)		(30)		(242)		59		(580)
Investments with credit impairment, net of tax provision (benefit) of $(3), $(10), $(2) and $(19)		(10)		(44)		(5)		(83)
Investments with no credit impairment, net of tax provision (benefit) of $(23), $(39), $(15) and $(139)										Investments with no credit impairment, net of tax provision (benefit) of $(23), $(39), $(15) and $(139)	(113)		(277)		(54)		(857)
Investments with credit impairment, net of tax provision (benefit) of $(2), $1, $(4) and $(18)										Investments with credit impairment, net of tax provision (benefit) of $(2), $1, $(4) and $(18)	(8)		2		(13)		(81)
Change in net unrealized gains (losses) on investments	Change in net unrealized gains (losses) on investments	(40)		(286)		54		(663)		Change in net unrealized gains (losses) on investments	(121)		(275)		(67)		(938)
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	2		2		1		2		Change in instrument-specific credit risk on financial guaranty variable interest entities’ liabilities with recourse, net of tax	10		(3)		11		(1)
Other, net of tax	Other, net of tax	—		(8)		2		(9)		Other, net of tax	4		(4)		6		(13)
Other comprehensive income (loss)	Other comprehensive income (loss)	(38)		(292)		57		(670)		Other comprehensive income (loss)	(107)		(282)		(50)		(952)
Comprehensive income (loss)	Comprehensive income (loss)	88		(317)		280		(620)		Comprehensive income (loss)	52		(277)		332		(897)
Less: Comprehensive income (loss) attributable to noncontrolling interests	Less: Comprehensive income (loss) attributable to noncontrolling interests	1		22		17		31		Less: Comprehensive income (loss) attributable to noncontrolling interests	2		(6)		19		25
Comprehensive income (loss) attributable to Assured Guaranty Ltd.	Comprehensive income (loss) attributable to Assured Guaranty Ltd.	$	87	$	(339)	$	263	$	(651)	Comprehensive income (loss) attributable to Assured Guaranty Ltd.	$	50	$	(271)	$	313	$	(922)

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)

(dollars in millions, except share data)

For the Three Months Ended ~~June~~September 30, 2023


			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 (Loss)		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity			Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity
As of March 31, 2023		59,274,112	$	1	$	5,638	$	(420)	$	1	$	5,220	$	195	$	5,415
As of June 30, 2023																	As of June 30, 2023	58,850,144	$	1	$	5,732	$	(458)	$	1	$	5,276	$	179	$	5,455
Net income	Net income	—	—		125		—		—		125		1		126		Net income	—	—		157		—		—		157		2		159
Dividends ($0.28 per share)	Dividends ($0.28 per share)	—	—		(17)		—		—		(17)		—		(17)		Dividends ($0.28 per share)	—	—		(16)		—		—		(16)		—		(16)
Common shares repurchases	Common shares repurchases	(453,942)	—		(24)		—		—		(24)		—		(24)		Common shares repurchases	(1,065,902)	—		(64)		—		—		(64)		—		(64)
Share-based compensation	Share-based compensation	29,974	—		10		—		—		10		—		10		Share-based compensation	35,490	—		6		—		—		6		—		6
Reclassification to liabilities		—	—		—		—		—		—		(16)		(16)
Contributions		—	—		—		—		—		—		17		17
Distributions		—	—		—		—		—		—		(18)		(18)
Other comprehensive loss	Other comprehensive loss	—	—		—		(38)		—		(38)		—		(38)		Other comprehensive loss	—	—		—		(107)		—		(107)		—		(107)
As of June 30, 2023		58,850,144	$	1	$	5,732	$	(458)	$	1	$	5,276	$	179	$	5,455
Deconsolidation of investment vehicles																	Deconsolidation of investment vehicles	—	—		—		—		—		—		(132)		(132)
As of September 30, 2023																	As of September 30, 2023	57,819,732	$	1	$	5,815	$	(565)	$	1	$	5,252	$	49	$	5,301

For the Three Months Ended ~~June~~September 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 (Loss)		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity			Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity
As of March 31, 2022		65,043,547	$	1	$	5,878	$	(78)	$	1	$	5,802	$	193	$	5,995
As of June 30, 2022																	As of June 30, 2022	62,475,739	$	1	$	5,672	$	(370)	$	1	$	5,304	$	243	$	5,547
Net income (loss)	Net income (loss)	—	—		(47)		—		—		(47)		22		(25)		Net income (loss)	—	—		11		—		—		11		(6)		5
Dividends ($0.25 per share)	Dividends ($0.25 per share)	—	—		(16)		—		—		(16)		—		(16)		Dividends ($0.25 per share)	—	—		(16)		—		—		(16)		—		(16)
Common shares repurchases	Common shares repurchases	(2,605,947)	—		(151)		—		—		(151)		—		(151)		Common shares repurchases	(1,790,395)	—		(97)		—		—		(97)		—		(97)
Share-based compensation	Share-based compensation	38,139	—		8		—		—		8		—		8		Share-based compensation	34,087	—		9		—		—		9		—		9
Contributions	Contributions	—	—		—		—		—		—		35		35		Contributions	—	—		—		—		—		—		23		23
Distributions	Distributions	—	—		—		—		—		—		(7)		(7)		Distributions	—	—		—		—		—		—		(36)		(36)
Other comprehensive loss	Other comprehensive loss	—	—		—		(292)		—		(292)		—		(292)		Other comprehensive loss	—	—		—		(282)		—		(282)		—		(282)
As of June 30, 2022		62,475,739	$	1	$	5,672	$	(370)	$	1	$	5,304	$	243	$	5,547
As of September 30, 2022																	As of September 30, 2022	60,719,431	$	1	$	5,579	$	(652)	$	1	$	4,929	$	224	$	5,153

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Assured Guaranty Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(dollars in millions, except share data)

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2023


			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 (Loss)		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity			Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity
As of December 31, 2022	As of December 31, 2022	59,013,040	$	1	$	5,577	$	(515)	$	1	$	5,064	$	228	$	5,292	As of December 31, 2022	59,013,040	$	1	$	5,577	$	(515)	$	1	$	5,064	$	228	$	5,292
Net income	Net income	—	—		206		—		—		206		17		223		Net income	—	—		363		—		—		363		19		382
Dividends ($0.56 per share)		—	—		(35)		—		—		(35)		—		(35)
Dividends ($0.84 per share)																	Dividends ($0.84 per share)	—	—		(51)		—		—		(51)		—		(51)
Common shares repurchases	Common shares repurchases	(490,311)	—		(26)		—		—		(26)		—		(26)		Common shares repurchases	(1,556,213)	—		(90)		—		—		(90)		—		(90)
Share-based compensation	Share-based compensation	327,415	—		10		—		—		10		—		10		Share-based compensation	362,905	—		16		—		—		16		—		16
Reclassification to liabilities	Reclassification to liabilities	—	—		—		—		—		—		(16)		(16)		Reclassification to liabilities	—	—		—		—		—		—		(16)		(16)
Contributions	Contributions	—	—		—		—		—		—		20		20		Contributions	—	—		—		—		—		—		20		20
Distributions	Distributions	—	—		—		—		—		—		(70)		(70)		Distributions	—	—		—		—		—		—		(70)		(70)
Other comprehensive income		—	—		—		57		—		57		—		57
As of June 30, 2023		58,850,144	$	1	$	5,732	$	(458)	$	1	$	5,276	$	179	$	5,455
Other comprehensive loss																	Other comprehensive loss	—	—		—		(50)		—		(50)		—		(50)
Deconsolidation of investment vehicles																	Deconsolidation of investment vehicles	—	—		—		—		—		—		(132)		(132)
As of September 30, 2023																	As of September 30, 2023	57,819,732	$	1	$	5,815	$	(565)	$	1	$	5,252	$	49	$	5,301

For the ~~Six~~Nine Months Ended ~~June~~September 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 (Loss)		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity			Common Shares Outstanding	Common Shares Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Deferred Equity Compensation		Total		Nonredeemable Noncontrolling Interests		Shareholders’ Equity
As of December 31, 2021	As of December 31, 2021	67,518,424	$	1	$	5,990	$	300	$	1	$	6,292	$	186	$	6,478	As of December 31, 2021	67,518,424	$	1	$	5,990	$	300	$	1	$	6,292	$	186	$	6,478
Net income	Net income	—	—		19		—		—		19		32		51		Net income	—	—		30		—		—		30		26		56
Dividends ($0.50 per share)		—	—		(33)		—		—		(33)		—		(33)
Dividends ($0.75 per share)																	Dividends ($0.75 per share)	—	—		(49)		—		—		(49)		—		(49)
Common shares repurchases	Common shares repurchases	(5,344,170)	—		(306)		—		—		(306)		—		(306)		Common shares repurchases	(7,134,565)	—		(403)		—		—		(403)		—		(403)
Share-based compensation	Share-based compensation	301,485	—		2		—		—		2		—		2		Share-based compensation	335,572	—		11		—		—		11		—		11
Contributions	Contributions	—	—		—		—		—		—		40		40		Contributions	—	—		—		—		—		—		63		63
Distributions	Distributions	—	—		—		—		—		—		(15)		(15)		Distributions	—	—		—		—		—		—		(51)		(51)
Other comprehensive loss	Other comprehensive loss	—	—		—		(670)		—		(670)		—		(670)		Other comprehensive loss	—	—		—		(952)		—		(952)		—		(952)
As of June 30, 2022		62,475,739	$	1	$	5,672	$	(370)	$	1	$	5,304	$	243	$	5,547
As of September 30, 2022																	As of September 30, 2022	60,719,431	$	1	$	5,579	$	(652)	$	1	$	4,929	$	224	$	5,153

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)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2023		2022			2023		2022
Net cash flows provided by (used in) operating activities	Net cash flows provided by (used in) operating activities	$	436	$	(1,794)	Net cash flows provided by (used in) operating activities	$	258	$	(1,848)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Fixed-maturity securities, available-for-sale:	Fixed-maturity securities, available-for-sale:					Fixed-maturity securities, available-for-sale:
Purchases	Purchases	(290)		(180)		Purchases	(458)		(279)
Sales	Sales	694		353		Sales	767		560
Maturities and paydowns	Maturities and paydowns	298		389		Maturities and paydowns	528		585
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	(13)		(28)		Purchases	(16)		(42)
Sales	Sales	4		—		Sales	4		—
Maturities and paydowns	Maturities and paydowns	15		9		Maturities and paydowns	35		23
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	(845)		379		Net sales (purchases) of short-term investments with original maturities of less than three months	(638)		64
Sales of fixed-maturity securities, trading	Sales of fixed-maturity securities, trading	—		68		Sales of fixed-maturity securities, trading	—		121
Paydowns of financial guaranty variable interest entities’ assets	Paydowns of financial guaranty variable interest entities’ assets	14		44		Paydowns of financial guaranty variable interest entities’ assets	88		74
Purchases of other invested assets	Purchases of other invested assets	(15)		(8)		Purchases of other invested assets	(128)		(11)
Sales and return of capital of other invested assets	Sales and return of capital of other invested assets	11		34		Sales and return of capital of other invested assets	16		35
Sale of asset management subsidiaries, net of cash						Sale of asset management subsidiaries, net of cash	(14)		—
Other	Other	(1)		(2)		Other	(1)		(2)
Net cash flows provided by (used in) investing activities	Net cash flows provided by (used in) investing activities	(128)		1,058		Net cash flows provided by (used in) investing activities	183		1,128
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Dividends paid	Dividends paid	(35)		(33)		Dividends paid	(51)		(49)
Repurchases of common shares	Repurchases of common shares	(26)		(303)		Repurchases of common shares	(90)		(400)
Net paydowns of financial guaranty variable interest entities’ liabilities	Net paydowns of financial guaranty variable interest entities’ liabilities	(14)		(65)		Net paydowns of financial guaranty variable interest entities’ liabilities	(141)		(92)
Issuance of long-term debt, net of issuance costs						Issuance of long-term debt, net of issuance costs	345		—
Redemption of debt						Redemption of debt	(330)		—
Other	Other	(15)		(7)		Other	(15)		(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	—		1,372		Proceeds from issuance of collateralized loan obligations	—		1,372
Repayment of collateralized loan obligations	Repayment of collateralized loan obligations	(1)		(372)		Repayment of collateralized loan obligations	(1)		(373)
Proceeds from issuance of warehouse financing debt	Proceeds from issuance of warehouse financing debt	—		791		Proceeds from issuance of warehouse financing debt	—		882
Repayment of warehouse financing debt	Repayment of warehouse financing debt	(166)		(744)		Repayment of warehouse financing debt	(166)		(758)
Borrowing (payment) under credit facilities	Borrowing (payment) under credit facilities	(4)		1		Borrowing (payment) under credit facilities	(4)		46
Contributions from noncontrolling interests to consolidated investment vehicles	Contributions from noncontrolling interests to consolidated investment vehicles	—		35		Contributions from noncontrolling interests to consolidated investment vehicles	—		52
Distributions to noncontrolling interests from consolidated investment vehicles	Distributions to noncontrolling interests from consolidated investment vehicles	(72)		(16)		Distributions to noncontrolling interests from consolidated investment vehicles	(80)		(19)
Net cash flows provided by (used in) financing activities	Net cash flows provided by (used in) financing activities	(333)		659		Net cash flows provided by (used in) financing activities	(533)		655
Effect of foreign exchange rate changes	Effect of foreign exchange rate changes	2		(2)		Effect of foreign exchange rate changes	—		(6)
Increase (decrease) in cash and cash equivalents and restricted cash	Increase (decrease) in cash and cash equivalents and restricted cash	(23)		(79)		Increase (decrease) in cash and cash equivalents and restricted cash	(92)		(71)
Cash and cash equivalents and restricted cash at beginning of period	Cash and cash equivalents and restricted cash at beginning of period	207		342		Cash and cash equivalents and restricted cash at beginning of period	207		342
Cash and cash equivalents and restricted cash at end of period	Cash and cash equivalents and restricted cash at end of period	$	184	$	263	Cash and cash equivalents and restricted cash at end of period	$	115	$	271

(continued on next page)

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Assured Guaranty Ltd.

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

(in millions)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2023		2022			2023		2022
Supplemental cash flow information	Supplemental cash flow information					Supplemental cash flow information
Income taxes paid (received)	Income taxes paid (received)	$	2	$	97	Income taxes paid (received)	$	3	$	97
Interest paid on long-term debt	Interest paid on long-term debt	41		38		Interest paid on long-term debt	55		47

Supplemental disclosure of non-cash activities:	Supplemental disclosure of non-cash activities:					Supplemental disclosure of non-cash activities:
Puerto Rico Plan Consideration (see Note 3)	Puerto Rico Plan Consideration (see Note 3)					Puerto Rico Plan Consideration (see Note 3)
Fixed-maturity securities, available-for-sale, received as salvage	Fixed-maturity securities, available-for-sale, received as salvage	$	1	$	610	Fixed-maturity securities, available-for-sale, received as salvage	$	1	$	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	—		183		Fixed-maturity securities, trading, received as salvage	—		550
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	20		26		Contributions from noncontrolling interests	20		32
Distributions to noncontrolling interests	Distributions to noncontrolling interests	20		20		Distributions to noncontrolling interests	27		53
Sale of asset management subsidiaries (see Note 1)						Sale of asset management subsidiaries (see Note 1)
Assets acquired						Assets acquired	444		—
Assets transferred						Assets transferred	241		—
Liabilities transferred						Liabilities transferred	66		—

		As of					As of
		June 30, 2023		June 30, 2022			September 30, 2023		September 30, 2022
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	$	114	$	138	Cash	$	108	$	131
Restricted cash (included in other assets)	Restricted cash (included in other assets)	1		—		Restricted cash (included in other assets)	—		1
Cash and cash equivalents of consolidated investment vehicles (See Note 8)	Cash and cash equivalents of consolidated investment vehicles (See Note 8)	49		125		Cash and cash equivalents of consolidated investment vehicles (See Note 8)	7		139
Cash (included in assets held for sale)		20		—
Cash and cash equivalents and restricted cash at the end of period	Cash and cash equivalents and restricted cash at the end of period	$	184	$	263	Cash and cash equivalents and restricted cash at the end of period	$	115	$	271

The accompanying notes are an integral part of these condensed consolidated financial ~~statements.-~~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 wholly-owned operating subsidiaries, credit protection products to the United States (U.S.) and non-U.S. public finance (including infrastructure) and structured finance markets. Assured Guaranty also participates in the asset management business, as described below.

Insurance

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. The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposure`s written in financial guaranty form.

Asset Management

Until July 1, 2023, the Company served as an investment advisor to collateralized loan obligations (CLOs) and opportunity funds, as well as certain legacy hedge and opportunity funds subject to an orderly wind-down, through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM). Beginning July 1, 2023, the Company participates in the asset management business through its ownership interest in Sound Point Capital Management, LP (Sound Point), as described below.

On July 1, 2023, Assured Guaranty contributed to Sound Point most of its asset management business, other than that conducted by Assured Healthcare Partners LLC (AssuredIM Contributed Business), as contemplated by the transaction agreement entered into with Sound Point on April 5, 2023 (Transaction Agreement). In addition, in accordance with the terms of a letter agreement (Letter Agreement), effective July 1, 2023 Assured Guaranty Municipal Corp. and Assured Guaranty Corp. (collectively, the U.S. Insurance Subsidiaries) (i) engaged Sound Point as their sole alternative credit manager and (ii) transitioned to Sound Point the management of certain existing alternative investments and related commitments. The Letter Agreement also provides that, in the first two years of Sound Point’s engagement, the U.S. Insurance Subsidiaries would, subject to regulatory approval, make new investments in funds, other vehicles and separately managed accounts managed by Sound Point which, when aggregated with the alternative investments and commitments transitioned from AssuredIM, will total $1 billion. See Note 7, Investments. Assured Guaranty received, subject to certain potential post-closing adjustments, common interests in Sound Point representing a 30% participation percentage in Sound Point, and certain other interests in related Sound Point entities (the transactions contemplated under the Transaction Agreement and the Letter Agreement, the Sound Point Transaction).

In July 2023, Assured Guaranty sold all of its equity interests in Assured Healthcare Partners LLC (AHP), which manages healthcare funds, to an entity owned and controlled by the managing partner of AHP (AHP Transaction). In connection with the AHP Transaction, the Company agreed to remain a strategic investor in certain AHP investment vehicles, is retaining certain carried interest in AHP entities and received other consideration.

~~Assets and Liabilities Held For Sale~~

AsUpon closing of ~~June 30, 2023, the AssuredIM assets and liabilities subject to~~ the Sound Point Transaction and the AHP Transaction ~~were~~the Company deconsolidated most of the corresponding AssuredIM entities (which had previously been classified as ~~held~~held-for-sale) and reported an investment in Sound Point that is accounted for ~~sale. The results of~~under the equity method. In connection with the Sound Point Transaction and AHP Transaction, the Company reevaluated its consolidation conclusion for each consolidated investment vehicle (CIV) and deconsolidated all ~~of the AssuredIM entities that are classified as held for sale are reported in the Asset Management segment.~~but three CIVs. See Note ~~2, Segment Information. The Company also designated certain other assets~~8, Financial Guaranty Variable Interest Entities and ~~liabilities supporting the Insurance segment as held for sale in the first quarter of 2023 and expects the sale to be completed in 2024.~~Consolidated Investment Vehicles.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The following table presents the calculation of the gain associated with the Sound Point Transaction and AHP Transaction.

Gain on Sound Point Transaction and AHP Transaction


	(in millions)
Fair value of investment in Sound Point	$	419
Fair value of other consideration	25
Total consideration	444
Less net asset carrying value of transferred AssuredIM subsidiaries (1)	189
Gain on sale of asset management subsidiaries (2)	$	255

____________________

(1) Consists primarily of goodwill and intangible assets of $155 million.

(2) Consists of a $248 million gain on the Sound Point Transaction, and a $7 million gain on the AHP Transaction, which were both reported in the corporate division.

The Company’s interest in Sound Point is reported in other invested assets on the consolidated balance sheet. On the date of acquisition, the Company’s cost basis of its investment in Sound Point is the fair value of the Company’s ownership in Sound Point, and certain other interests in related Sound Point entities (collectively, Sound Point entities). The acquisition date cost basis includes a basis difference, which is the excess of the fair value of the Company’s ownership interest in Sound Point entities of $419 million, over the Company’s proportionate share of the equity of the Sound Point entities. The basis difference must be allocated between identifiable assets and liabilities. The carrying value on the date of acquisition is periodically adjusted for the Company’s share in the comprehensive income or loss of Sound Point entities (on a one-quarter lag), distributions, contributions and the amortization of definite-lived intangible assets. As of the filing of this report, the Company has not finalized the calculation of the basis difference or the allocation of such basis difference. The equity method investment in Sound Point is subject to a periodic other-than-temporary-impairment (OTTI) analysis.

The Company recognized expenses of $14 million and $46 million during the three-month period ended September 30, 2023 (third quarter 2023) and the nine-month period ended September 30, 2023 (nine months 2023), respectively, associated with the Sound Point Transaction and AHP Transaction.

Assets and Liabilities Held For Sale

The Company designated certain assets and liabilities supporting the Insurance segment as held for sale in the first quarter of 2023 and expects the sale of such assets to be completed in 2024. A disposal group is measured at the lower of carrying amount or fair value less any costs associated with the transaction. The Company assessed the disposal ~~groups~~group for impairment and determined no impairment existed as of ~~June~~September 30, 2023. Upon classification of the disposal group as held for sale, the Company ceased depreciating held for sale fixed assets and amortizing held for sale intangibles. ~~Each of the components~~Assets held for sale ~~will be accounted for as dispositions of businesses.~~

~~The Company is still evaluating the effect of the Sound Point Transaction and the AHP Transaction on its third quarter of 2023 financial statements. The table below shows the components of assets~~were $28 million and liabilities held for ~~sale.~~

~~Assets and Liabilities Held For Sale~~

Assale were $2 million as of ~~June 30, 2023~~


	~~(in millions)~~
~~Assets~~
~~Short-term investments~~	$	1
~~Cash~~	20
~~Goodwill and other intangible assets~~	~~156~~
~~Other assets~~
~~Deferred tax assets~~	3
~~Other~~	41
~~Total assets held for sale~~	$	~~221~~
~~Liabilities~~
~~Other liabilities~~	$	50
~~Total liabilities held for sale~~	$	50

Revenues and expenses attributable to all businesses held for sale relate primarily to the AssuredIM entities in the asset management segment, which results are presented in Note 2, Segment Information. Substantially all of the entities in the asset management segment are held for sale.

Upon closing of the Sound Point Transaction and the AHP Transaction the Company will deconsolidate the corresponding AssuredIM management companies. The Company will account for its investment in Sound Point as an equity method investment. In light of the Sound Point Transaction and the AHP Transaction, the Company is evaluating whether it will continue to consolidate each of its consolidated investment vehicles (CIVs).

~~The Company recognized expenses of $24 million and $31 million during the three-month period ended June~~September 30, 2023 ~~(second quarter 2023)~~ and ~~the six-month period ended June 30, 2023 (six months 2023), respectively, associated with the Sound Point Transaction~~were reported in “other assets” and ~~AHP Transaction.~~“other liabilities,” respectively.

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.

These unaudited interim condensed consolidated financial statements are as of ~~June~~September 30, 2023 and cover ~~second~~third quarter 2023, the three-month period ended ~~June~~September 30, 2022 ~~(second~~(third quarter 2022), ~~six~~nine months 2023 and the ~~six-month~~nine-month period ended ~~June~~September 30, 2022 ~~(six~~(nine months 2022). 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~~

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 period’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 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.

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, 2022 filed with the U.S. Securities and Exchange Commission (SEC).

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.

~~Until July 2023, the Company’s principal asset management subsidiaries were:~~

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

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

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

The U.S. Insurance Subsidiaries jointly own an investment subsidiary, AG Asset Strategies LLC (AGAS), which invests in funds managed by ~~AssuredIM (AssuredIM Funds). Effective~~Sound Point, AHP, and, prior to July 1, 2023, ~~the~~ AssuredIM ~~Funds are managed by Sound~~(Sound Point ~~or AHP. Following the closing~~and AHP funds, some of ~~the Sound Point Transaction, AGAS has also begun to invest in funds managed by Sound Point.~~which were formerly known as AssuredIM funds).

AGL directly or indirectly owns several holding companies, two of which - Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH and, together with AGUS, the U.S. Holding Companies) - have public debt outstanding. See Note 11, Long-Term Debt.

Recent Accounting Standards Adopted

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The Company’s adoption of this ASU on January 1, 2023 did not have any effect on the Company’s consolidated financial statements.

2. Segment Information

The Company reports its results of operations in two 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. ~~As of June 30,~~Prior to July 1, 2023, the Asset Management segment consisted of AssuredIM, which provided asset management services to third-party investors as well as to the U.S. Insurance Subsidiaries and AGAS. Beginning in July 2023, the Company participates in the asset management business through its investment in Sound Point as described in Note 1, Business and Basis of Presentation. Beginning in third quarter 2023, the Asset Management segment primarily includes the results of the Company’s equity method investment in Sound Point entities, which are reported on a one-quarter lag.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

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 any gains and losses and other operating expenses attributed to the corporate activities of AGL and the U.S. Holding ~~Companies.~~Companies, including the gain associated with the Sound Point Transaction and the AHP Transaction.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 segment results 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’ share of earnings from investments in ~~AssuredIM Funds~~Sound Point and AHP 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/recoveries associated with the financial guaranty policies associated with the FG VIEs’ debt are eliminated (the reconciliation tables below present the FG VIEs and related eliminations in “other”,) and (ii) CIVs are consolidated by either AGUS or AGAS (in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’ ownership interest in CIVs are presented in ~~“other.”~~“other”) ~~In addition,~~. Until July 1, 2023, under GAAP, reimbursable fund expenses ~~are~~were shown as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below these expenses ~~are~~were netted in “segment ~~expenses”.~~expenses.”

The Company analyzes the operating performance of each segment using “segment adjusted operating income (loss).” 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”,~~AGL,” adjusted for the following ~~items:~~items, which primarily affect the Insurance segment and corporate division:

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

•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.

•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 assess performance and allocate resources based on assets.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

The following table presents information for the Company’s operating segments. Intersegment revenues include transactions between and among the segments, the corporate division and other.

Segment Information


		Second Quarter									Third Quarter
		2023				2022					2023				2022
		Insurance		Asset Management		Insurance		Asset Management			Insurance		Asset Management		Insurance		Asset Management
		(in millions)									(in millions)
Third-party revenues	Third-party revenues	$	221	$	19	$	137	$	16	Third-party revenues	$	206	$	—	$	145	$	13
Intersegment revenues	Intersegment revenues	3		11		2		12		Intersegment revenues	2		—		2		8
Segment revenues	Segment revenues	224		30		139		28		Segment revenues	208		—		147		21
Segment expenses	Segment expenses	110		33		41		28		Segment expenses	165		—		(16)		24
Segment equity in earnings (losses) of investees	Segment equity in earnings (losses) of investees	5		—		(34)		—		Segment equity in earnings (losses) of investees	25		—		(11)		—
Less: Segment provision (benefit) for income taxes	Less: Segment provision (benefit) for income taxes	13		(1)		9		—		Less: Segment provision (benefit) for income taxes	9		—		(7)		—
Segment adjusted operating income (loss)	Segment adjusted operating income (loss)	$	106	$	(2)	$	55	$	—	Segment adjusted operating income (loss)	$	59	$	—	$	159	$	(3)

Six Months
2023 2022
Insurance Asset Management Insurance Asset Management
(in millions)
Third-party revenues $ 409 $ 44 $ 413 $ 46
Intersegment revenues 5 27 4 21
Segment revenues 414 71 417 67
Segment expenses 189 75 163 67
Segment equity in earnings (losses) of investees 35 — (35) —
Less: Segment provision (benefit) for income taxes 37 (1) 31 —
Segment adjusted operating income (loss) $ 223 $ (3) $ 188 $ —

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued


	Nine Months
	2023				2022
	Insurance		Asset Management		Insurance		Asset Management
	(in millions)
Third-party revenues	$	615	$	44	$	558	$	59
Intersegment revenues	7		27		6		29
Segment revenues	622		71		564		88
Segment expenses	354		75		147		91
Segment equity in earnings (losses) of investees	60		—		(46)		—
Less: Segment provision (benefit) for income taxes	46		(1)		24		—
Segment adjusted operating income (loss)	$	282	$	(3)	$	347	$	(3)

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

Reconciliation of Segment Information to Consolidated Information

Three Months Ended ~~June~~September 30, 2023


						Equity in Earnings (Losses) of Investees		Less:				Net Income (Loss) Attributable to AGL							Equity in Earnings (Losses) of Investees		Less:				Net Income (Loss) Attributable to AGL
		Revenues		Expenses				Provision (Benefit) for Income Taxes		Noncontrolling Interests					Revenues		Expenses				Provision (Benefit) for Income Taxes		Noncontrolling Interests
		(in millions)													(in millions)
Segments:	Segments:													Segments:
Insurance	Insurance	$	224	$	110	$	5	$	13	$	—	$	106	Insurance	$	208	$	165	$	25	$	9	$	—	$	59
Asset Management	Asset Management	30		33		—		(1)		—		(2)		Asset Management	—		—		—		—		—		—
Total segments	Total segments	254		143		5		12		—		104		Total segments	208		165		25		9		—		59
Corporate division	Corporate division	2		60		—		(8)		—		(50)		Corporate division	259		57		—		47		—		155
Other	Other	(3)		19		—		(5)		1		(18)		Other	(4)		(3)		(7)		(2)		2		(8)
Subtotal	Subtotal	253		222		5		(1)		1		36		Subtotal	463		219		18		54		2		206
Reconciling items:	Reconciling items:													Reconciling items:
Realized gains (losses) on investments	Realized gains (losses) on investments	(9)		—		—		—		—		(9)		Realized gains (losses) on investments	(9)		—		—		—		—		(9)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	89		(1)		—		—		—		90		Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	6		—		—		—		—		6
Fair value gains (losses) on CCS	Fair value gains (losses) on CCS	1		—		—		—		—		1		Fair value gains (losses) on CCS	(20)		—		—		—		—		(20)
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	26		—		—		—		—		26		Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(37)		—		—		—		—		(37)
Tax effect	Tax effect	—		—		—		19		—		(19)		Tax effect	—		—		—		(11)		—		11
Total consolidated	Total consolidated	$	360	$	221	$	5	$	18	$	1	$	125	Total consolidated	$	403	$	219	$	18	$	43	$	2	$	157

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

Three Months Ended September 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	$	147	$	(16)	$	(11)	$	(7)	$	—	$	159
Asset Management	21		24		—		—		—		(3)
Total segments	168		8		(11)		(7)		—		156
Corporate division	1		34		—		(3)		—		(30)
Other	13		2		(9)		1		(6)		7
Subtotal	182		44		(20)		(9)		(6)		133
Reconciling items:
Realized gains (losses) on investments	(14)		—		—		—		—		(14)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(50)		(1)		—		—		—		(49)
Fair value gains (losses) on CCS	1		—		—		—		—		1
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(78)		—		—		—		—		(78)
Tax effect	—		—		—		(18)		—		18
Total consolidated	$	41	$	43	$	(20)	$	(27)	$	(6)	$	11

Reconciliation of Segment Information to Consolidated Information

Nine Months Ended September 30, 2023


					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	$	622	$	354	$	60	$	46	$	—	$	282
Asset Management	71		75		—		(1)		—		(3)
Total segments	693		429		60		45		—		279
Corporate division	263		165		—		37		—		61
Other	28		12		(35)		(8)		19		(30)
Subtotal	984		606		25		74		19		310
Reconciling items:
Realized gains (losses) on investments	(20)		—		—		—		—		(20)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	108		(1)		—		—		—		109
Fair value gains (losses) on CCS	(35)		—		—		—		—		(35)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	9		—		—		—		—		9
Tax effect	—		—		—		10		—		(10)
Total consolidated	$	1,046	$	605	$	25	$	84	$	19	$	363

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

~~Three~~Nine Months Ended ~~June~~September 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 — — — — 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~~

~~Six Months Ended June 30, 2023~~

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 $ 414 $ 189 $ 35 $ 37 $ — $ 223
Asset Management 71 75 — (1) — (3)
Total segments 485 264 35 36 — 220
Corporate division 4 108 — (10) — (94)
Other 32 15 (28) (6) 17 (22)
Subtotal 521 387 7 20 17 104
Reconciling items:
Realized gains (losses) on investments (11) — — — — (11)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives 102 (1) — — — 103
Fair value gains (losses) on CCS (15) — — — — (15)
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves 46 — — — — 46
Tax effect — — — 21 — (21)
Total consolidated $ 643 $ 386 $ 7 $ 41 $ 17 $ 206

~~Table of Contents~~

~~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							Equity in Earnings (Losses) of Investees		Less:				Net Income (Loss) Attributable to AGL
		Revenues		Expenses				Provision (Benefit) for Income Taxes		Noncontrolling Interests					Revenues		Expenses				Provision (Benefit) for Income Taxes		Noncontrolling Interests
		(in millions)													(in millions)
Segments:	Segments:													Segments:
Insurance	Insurance	$	417	$	163	$	(35)	$	31	$	—	$	188	Insurance	$	564	$	147	$	(46)	$	24	$	—	$	347
Asset Management	Asset Management	67		67		—		—		—		—		Asset Management	88		91		—		—		—		(3)
Total segments	Total segments	484		230		(35)		31		—		188		Total segments	652		238		(46)		24		—		344
Corporate division	Corporate division	2		70		—		—		—		(68)		Corporate division	3		104		—		(3)		—		(98)
Other	Other	21		12		24		2		31		—		Other	34		14		15		3		25		7
Subtotal	Subtotal	507		312		(11)		33		31		120		Subtotal	689		356		(31)		24		25		253
Reconciling items:	Reconciling items:													Reconciling items:
Realized gains (losses) on investments	Realized gains (losses) on investments	(25)		—		—		—		—		(25)		Realized gains (losses) on investments	(39)		—		—		—		—		(39)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(1)		(4)		—		—		—		3		Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	(51)		(5)		—		—		—		(46)
Fair value gains (losses) on CCS	Fair value gains (losses) on CCS	11		—		—		—		—		11		Fair value gains (losses) on CCS	12		—		—		—		—		12
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	(102)		—		—		—		—		(102)		Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(180)		—		—		—		—		(180)
Tax effect	Tax effect	—		—		—		(12)		—		12		Tax effect	—		—		—		(30)		—		30
Total consolidated	Total consolidated	$	390	$	308	$	(11)	$	21	$	31	$	19	Total consolidated	$	431	$	351	$	(31)	$	(6)	$	25	$	30

3. Outstanding Exposure

The Company sells credit protection primarily in financial guaranty insurance form. The Company may also sell credit protection by issuing policies that guarantee payment obligations under credit default swaps (CDS). The Company’s contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts.

The Company seeks to limit its exposure to losses by underwriting obligations that it views to be investment grade at inception, although on occasion it may underwrite new issuances that it views to be below-investment-grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures. The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies or providing reinsurance on a portfolio of insurance; in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction. The Company diversifies its insured portfolio across sector and geography and, in the structured finance portfolio, generally requires subordination or collateral to protect it from loss. Reinsurance may be used in order to reduce net exposure to certain insured transactions.

Public finance obligations insured by the Company primarily consist of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, healthcare facilities and government office buildings. The Company also includes within public finance obligations similar obligations issued by U.S. and non-U.S. sovereign and sub-sovereign issuers and governmental authorities.

Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations.

Some of these VIEs are consolidated as described in Note 8, Financial Guaranty Variable Interest Entities and

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~Some of these VIEs are consolidated as described in Note 8, Financial Guaranty Variable Interest Entities and~~ Consolidated Investment Vehicles. Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on these VIEs whether or not they are consolidated.

The Company also writes specialty business that is consistent with its risk profile and benefits from its underwriting experience and other types of financial guaranties.

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.

The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector. Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled. For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating.

Exposures identified as BIG are subjected to further review to determine the probability of a loss. See Note 4, Expected Loss to be Paid (Recovered). Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid. The Company uses the pre-tax book yield of the relevant subsidiary’s investment portfolio to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction. For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss.

More extensive monitoring and intervention are employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will in the future pay claims on that transaction that will not be fully reimbursed. The three BIG surveillance categories are:

•BIG Category 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected.

•BIG Category 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year) have yet been paid.

•BIG Category 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid.

Financial Guaranty Exposure

The Company measures its financial guaranty exposure in terms of (i) gross and net par outstanding and (ii) gross and net debt service.

The Company typically guarantees the payment of debt service when due. Since most of these payments are due in the future, the Company generally uses gross and net par outstanding as a proxy for its financial guaranty exposure. Gross par outstanding generally represents the principal amount of the insured obligation at a point in time. Net par outstanding equals gross par outstanding net of any reinsurance. The Company includes in its par outstanding calculation the impact of any

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~gross par outstanding net of any reinsurance. The Company includes in its par outstanding calculation the impact of any~~ consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date. ~~Foreign~~Non-U.S. dollar denominated par outstanding is translated at the spot rate at the end of the reporting period.

The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities). The Company excludes amounts attributable to Loss Mitigation Securities from par and debt service outstanding and instead reports Loss Mitigation Securities in the investment portfolio. The Company manages such securities as investments and not insurance exposure. As of ~~both June~~September 30, 2023 and December 31, 2022, the Company excluded net par outstanding of $1.2 billion and $1.3 billion, respectively, primarily 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 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 June 30, 2023				As of December 31, 2022					As of September 30, 2023				As of December 31, 2022
		Gross		Net		Gross		Net			Gross		Net		Gross		Net
		(in millions)									(in millions)
Debt Service	Debt Service									Debt Service
Public finance	Public finance	$	375,955	$	375,751	$	359,899	$	359,703	Public finance	$	372,908	$	372,711	$	359,899	$	359,703
Structured finance	Structured finance	11,190		11,165		10,273		10,248		Structured finance	11,290		11,265		10,273		10,248
Total financial guaranty	Total financial guaranty	$	387,145	$	386,916	$	370,172	$	369,951	Total financial guaranty	$	384,198	$	383,976	$	370,172	$	369,951

Par Outstanding	Par Outstanding									Par Outstanding
Public finance	Public finance	$	234,136	$	233,981	$	224,254	$	224,099	Public finance	$	231,871	$	231,721	$	224,254	$	224,099
Structured finance	Structured finance	10,057		10,032		9,184		9,159		Structured finance	10,138		10,112		9,184		9,159
Total financial guaranty	Total financial guaranty	$	244,193	$	244,013	$	233,438	$	233,258	Total financial guaranty	$	242,009	$	241,833	$	233,438	$	233,258

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of ~~$2.0~~$1.5 billion of public finance direct gross par and $1.3 billion of structured finance direct gross par as of ~~June~~September 30, 2023. These commitments are contingent on the satisfaction of all conditions set forth in the guaranties and may expire unused or be canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts.

Financial Guaranty Portfolio by Internal Rating

As of ~~June~~September 30, 2023


		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	$	212	0.1	%	$	2,038	4.3	%	$	884	10.0	%	$	474	39.3	%	$	3,608	1.5	%	AAA	$	212	0.1	%	$	2,004	4.4	%	$	860	9.6	%	$	457	40.2	%	$	3,533	1.5	%
AA	AA	17,452		9.4		3,442		7.2		4,580		51.9		12		1.0		25,486		10.5		AA	16,994		9.1		3,298		7.2		4,545		50.7		12		1.0		24,849		10.3
A	A	100,267		53.8		11,005		23.1		1,684		19.1		613		50.9		113,569		46.5		A	101,243		54.5		10,545		23.1		1,932		21.5		568		50.0		114,288		47.2
BBB	BBB	64,852		34.8		30,147		63.2		611		6.9		106		8.8		95,716		39.2		BBB	64,220		34.5		29,083		63.5		586		6.5		100		8.8		93,989		38.9
BIG	BIG	3,540		1.9		1,026		2.2		1,068		12.1		—		—		5,634		2.3		BIG	3,304		1.8		818		1.8		1,052		11.7		—		—		5,174		2.1
Total net par outstanding	Total net par outstanding	$	186,323	100.0	%	$	47,658	100.0	%	$	8,827	100.0	%	$	1,205	100.0	%	$	244,013	100.0	%	Total net par outstanding	$	185,973	100.0	%	$	45,748	100.0	%	$	8,975	100.0	%	$	1,137	100.0	%	$	241,833	100.0	%

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2022


	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S				Structured Finance Non-U.S				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in millions)
AAA	$	222	0.1	%	$	1,967	4.4	%	$	926	11.2	%	$	469	50.4	%	$	3,584	1.5	%
AA	16,241		9.1		3,497		7.9		4,633		56.3		12		1.3		24,383		10.5
A	96,807		53.9		9,271		20.9		1,075		13.1		340		36.5		107,493		46.1
BBB	62,570		34.8		28,747		64.6		479		5.8		110		11.8		91,906		39.4
BIG	3,796		2.1		981		2.2		1,115		13.6		—		—		5,892		2.5
Total net par outstanding	$	179,636	100.0	%	$	44,463	100.0	%	$	8,228	100.0	%	$	931	100.0	%	$	233,258	100.0	%

1817

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of ~~June~~September 30, 2023


		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	$	1,289	$	931	$	1,320	$	3,540	$	186,323	U.S. public finance	$	1,290	$	926	$	1,088	$	3,304	$	185,973
Non-U.S. public finance	Non-U.S. public finance	1,026		—		—		1,026		47,658		Non-U.S. public finance	818		—		—		818		45,748
Public finance	Public finance	2,315		931		1,320		4,566		233,981		Public finance	2,108		926		1,088		4,122		231,721
Structured finance:	Structured finance:											Structured finance:
U.S. RMBS	U.S. RMBS	11		37		922		970		1,863		U.S. RMBS	23		36		897		956		1,817
Other structured finance	Other structured finance	—		31		67		98		8,169		Other structured finance	—		28		68		96		8,295
Structured finance	Structured finance	11		68		989		1,068		10,032		Structured finance	23		64		965		1,052		10,112
Total	Total	$	2,326	$	999	$	2,309	$	5,634	$	244,013	Total	$	2,131	$	990	$	2,053	$	5,174	$	241,833

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of December 31, 2022


	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
					(in millions)
Public finance:
U.S. public finance	$	2,364	$	108	$	1,324	$	3,796	$	179,636
Non-U.S. public finance	981		—		—		981		44,463
Public finance	3,345		108		1,324		4,777		224,099
Structured finance:
U.S. RMBS	18		39		953		1,010		1,956
Other structured finance	—		34		71		105		7,203
Structured finance	18		73		1,024		1,115		9,159
Total	$	3,363	$	181	$	2,348	$	5,892	$	233,258

Financial Guaranty Portfolio

BIG Net Par Outstanding and Number of Risks

As of ~~June~~September 30, 2023


		Net Par Outstanding						Number of Risks (2)				Net Par Outstanding						Number of Risks (2)
Description	Description	Financial Guaranty Insurance (1)		Credit Derivatives		Total		Financial Guaranty Insurance (1)	Credit Derivatives	Total	Description	Financial Guaranty Insurance (1)		Credit Derivatives		Total		Financial Guaranty Insurance (1)	Credit Derivatives	Total
		(dollars in millions)										(dollars in millions)
BIG 1	BIG 1	$	2,320	$	6	$	2,326	107	1	108	BIG 1	$	2,115	$	16	$	2,131	102	2	104
BIG 2	BIG 2	989		10		999		16	2	18	BIG 2	980		10		990		13	2	15
BIG 3	BIG 3	2,269		40		2,309		109	8	117	BIG 3	2,024		29		2,053		109	7	116
Total BIG	Total BIG	$	5,578	$	56	$	5,634	232	11	243	Total BIG	$	5,119	$	55	$	5,174	224	11	235

1918

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

BIG Net Par Outstanding and Number of Risks

As of December 31, 2022


	Net Par Outstanding						Number of Risks (2)
Description	Financial Guaranty Insurance (1)		Credit Derivatives		Total		Financial Guaranty Insurance (1)	Credit Derivatives	Total
	(dollars in millions)
BIG 1	$	3,357	$	6	$	3,363	122	1	123
BIG 2	171		10		181		14	2	16
BIG 3	2,307		41		2,348		111	10	121
Total BIG	$	5,835	$	57	$	5,892	247	13	260

_____________________

(1) Includes FG VIEs.

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

Exposure to Puerto Rico

The Company had insured exposure to obligations of various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) as well as its general obligation bonds aggregating ~~$1.3~~$1.1 billion and $1.4 billion net par outstanding as of ~~June~~September 30, 2023 and December 31, 2022, respectively. 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), each of which has continued to make timely debt service payments.

On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. PROMESA established a seven-member Financial Oversight and Management Board (the FOMB) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico. Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under Chapter 9 of the United States Bankruptcy Code.

After over five years of negotiations, a substantial portion of the Company’s Puerto Rico exposure was resolved in 2022 in accordance with four orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) related to the Company’s exposure to all insured Puerto Rico credits experiencing payment default in 2022 except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions). As a result of the 2022 Puerto Rico Resolutions, during 2022 the Company’s obligations under its insurance policies covering debt of the Puerto Rico Convention Center District Authority (PRCCDA) and Puerto Rico Infrastructure Authority (PRIFA) were extinguished, and its insurance exposure to Puerto Rico general obligations (GO) bonds, Public Buildings Authority (PBA) bonds and Puerto Rico Highway and Transportation Authority (PRHTA) bonds was greatly reduced. As described below, on August 31, 2023, the Company extinguished its remaining exposure to GO and PBA bonds by satisfying its obligations to insured bondholders holding custody receipts representing interests in legacy insured GO and PBA bonds.

Under the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan), the Company received cash, new general obligation bonds (New GO Bonds) and contingent value instruments (CVIs). In connection with the Modified Fifth Amended Title III Plan of Adjustment for PRHTA (HTA Plan) and related arrangements, the Company received cash and new bonds backed by toll revenues (Toll Bonds, and together with the New GO Bonds, New Recovery Bonds) from the PRHTA and CVIs from the Commonwealth. Cash, New Recovery Bonds and CVIs received pursuant to the 2022 Puerto Rico Resolutions are collectively referred to as Plan Consideration.

Plan Consideration is reported in either cash, investments or FG VIEs’ assets as described below.

•Investments and cash. Plan Consideration received in respect of bondholders whose principal of bonds insured by the Company were accelerated against the Commonwealth and became due and payable under the 2022 Puerto Rico

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Resolutions are reported in Cash and Investments. See Note 7, Investments, for the fair value of the New Recovery Bonds and CVIs remaining as of ~~June~~September 30, 2023.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

•FG VIEs’ assets. Plan Consideration received in respect of insured bondholders who elected to receive custody receipts that represent an interest in custodial trusts that hold the legacy insurance policy plus Plan Consideration that constitute distributions under the HTA Plan or the GO/PBA Plan are reported in FG VIEs’ assets. The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates to the extent that distributions of Plan Consideration are insufficient to pay or prepay such amounts. On ~~July 28,~~August 31, 2023, ~~the Company directed the trustee~~after notice to ~~notify~~ certain holders of custody receipts representing interests in legacy insured GO, PBA and HTA bonds, ~~of its intent to satisfy on August 31, 2023~~the Company satisfied its obligations under ~~the~~such legacy insured bonds with respect to $108 million net par outstanding as of ~~July 28,~~August 31, 2023, and ~~following payment of such obligations,~~the custodial trusts released to AGC and AGM ~~will receive the~~ New Recovery Bonds ~~and/or~~and CVIs with ~~notional amounts and maturity values~~a fair value totaling ~~$94~~$73 million as of ~~July 28, 2023 held as collateral with respect to the custodial trusts.~~August 31, 2023. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for the fair value of New Recovery Bonds remaining as of ~~June~~September 30, 2023.

The Company has sold a portion of ~~the~~ New Recovery Bonds and CVIs it received and may sell in the future any New Recovery Bonds or CVIs it continues to hold. The fair value of any New Recovery Bonds and CVIs that the Company retains will fluctuate from their date of acquisition. Any gains or losses on sales of New Recovery Bonds and CVIs in the investment portfolio are reported as realized gains and losses on investments and fair value gains (losses) on trading securities, respectively, rather than loss and LAE.

The CVIs are intended to provide creditors with additional recoveries tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax (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. ~~Substantially~~As of September 30, 2023, all of the CVIs are reported in ~~investments, rather than FG VIEs’ assets.~~investments.

The Company is continuing its efforts to resolve the one remaining Puerto Rico insured exposure that is in payment default, PREPA. Economic, political and legal developments, including inflation and increases in the cost of petroleum products, may impact any resolution of the Company’s PREPA insured exposure and the value of any remaining consideration received in connection with the 2022 Puerto Rico Resolutions or any future resolutions of the Company’s PREPA insured exposures. The impact of developments relating to Puerto Rico during any quarter or year could be material to the Company’s results of operations and shareholders’ equity.

Puerto Rico Par and Debt Service Schedules

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
June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022
(in millions)
Exposure to Puerto Rico $ 1,365 $ 1,378 $ 1,849 $ 1,899


	Gross Par Outstanding				Gross Debt Service Outstanding
	As of				As of
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
	(in millions)
Exposure to Puerto Rico	$	1,121	$	1,378	$	1,529	$	1,899

2120

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Puerto Rico

Net Par Outstanding


		As of					As of
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(in millions)					(in millions)
Defaulted Puerto Rico Exposures	Defaulted Puerto Rico Exposures					Defaulted Puerto Rico Exposures
PREPA	PREPA	$	720	$	720	PREPA	$	624	$	720
Total Defaulted	Total Defaulted	720		720		Total Defaulted	624		720
Resolved Puerto Rico Exposures	Resolved Puerto Rico Exposures					Resolved Puerto Rico Exposures
PRHTA (Transportation revenue) (1)	PRHTA (Transportation revenue) (1)	293		298		PRHTA (Transportation revenue) (1)	244		298
PRHTA (Highway revenue) (1)	PRHTA (Highway revenue) (1)	182		182		PRHTA (Highway revenue) (1)	128		182
Commonwealth of Puerto Rico - GO (1)	Commonwealth of Puerto Rico - GO (1)	25		25		Commonwealth of Puerto Rico - GO (1)	—		25
PBA (1)	PBA (1)	4		4		PBA (1)	—		4
Total Resolved	Total Resolved	504		509		Total Resolved	372		509
Other Puerto Rico Exposures	Other Puerto Rico Exposures					Other Puerto Rico Exposures
MFA (2)	MFA (2)	124		131		MFA (2)	108		131
PRASA and U of PR (2)	PRASA and U of PR (2)	1		1		PRASA and U of PR (2)	1		1
Total Other	Total Other	125		132		Total Other	109		132
Total net exposure to Puerto Rico	Total net exposure to Puerto Rico	$	1,349	$	1,361	Total net exposure to Puerto Rico	$	1,105	$	1,361

____________________

(1) Resolved pursuant to the 2022 Puerto Rico Resolutions.

(2) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company.

The following table shows the scheduled amortization of the insured general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations. The Company guarantees payment of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors.

Amortization Schedule of Puerto Rico

Net Par Outstanding and Net Debt Service Outstanding

As of ~~June~~September 30, 2023


		Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization			Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization
		(in millions)					(in millions)
2023 (July 1 - September 30)		$	124	$	154
2023 (October 1 - December 31)	2023 (October 1 - December 31)	—		3		2023 (October 1 - December 31)	$	—	$	3
Subtotal 2023		124		157
2024		110		170

2024 (January 1 - March 31)						2024 (January 1 - March 31)	—		24
2024 (April 1 - June 30)						2024 (April 1 - June 30)	—		3
2024 (July 1 - September 30)						2024 (July 1 - September 30)	110		134
2024 (October 1 - December 31)						2024 (October 1 - December 31)	—		3
Subtotal 2024						Subtotal 2024	110		164
2025	2025	94		149		2025	84		132
2026	2026	149		200		2026	140		185
2027	2027	124		168		2027	120		158
2028-2032	2028-2032	378		528		2028-2032	293		427
2033-2037	2033-2037	240		309		2033-2037	235		302
2038-2041	2038-2041	130		148		2038-2041	123		140
Total	Total	$	1,349	$	1,829	Total	$	1,105	$	1,511

~~PREPA~~

As of June 30, 2023, the Company had $720 million insured net par outstanding of PREPA obligations. The Company believes that the PREPA obligations are secured by a lien on the revenues of the electric system. On May 3, 2019, AGM and

2221

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~AGC entered into~~PREPA

As of September 30, 2023, the Company had $624 million insured net par outstanding of PREPA obligations. The Company believes that the PREPA bonds are secured by a ~~restructuring support agreement with PREPA and other stakeholders, including a group~~lien on the revenues of ~~uninsured PREPA bondholders,~~ the ~~Commonwealth and the FOMB (PREPA RSA). This agreement was terminated by Puerto Rico on March 8, 2022.~~electric system.

On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order appointing as members of a PREPA mediation team U.S. Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon. Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that the mediation would terminate on June 1, 2022. Judge Swain has since extended the term of such mediation several times, most recently on ~~July 25,~~September 29, 2023 extending the term to ~~October 30, 2023.~~March 29, 2024. The FOMB ~~initially~~ filed aan initial plan of adjustment and disclosure statement for PREPA with the Federal District Court of Puerto Rico on December 16, 2022, and filed an amended version on February 9, 2023 (FOMB PREPA Plan). The Company expects that a confirmation hearing for the FOMB PREPA Plan will be held in fourth quarter 2023 or first quarter 2024. The FOMB PREPA Plan would split bondholders into two groups: one that would settle litigation regarding whether that creditor repayment is limited to existing accounts, and another group that would continue litigating that bondholders have a right to PREPA’s current and future revenue collections. The FOMB PREPA Plan provides for lower recoveries to bondholders than did previous agreements the FOMB reached with bondholders. The Federal District Court of Puerto Rico approved the PREPA disclosure statement on February 28, 2023, which allowed bondholder solicitation on the FOMB PREPA Plan to begin.

On March 22, 2023, the Federal District Court of Puerto Rico held that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control but did not have a lien in future revenues until deposited in those funds. The Federal District Court of Puerto Rico also held, however, that PREPA bondholders do have recourse under the PREPA trust agreement in the form of an unsecured net revenue claim. At that time, the Federal District Court of Puerto Rico declined to value the unsecured net revenue claim or the method for its determination. The ultimate value of the claim, according to the Federal District Court of Puerto Rico, should be determined through a claim estimation proceeding.

On June 6-8, 2023, the Federal District Court of Puerto Rico held a claim estimation proceeding and, on June 26, 2023, issued an opinion and order estimating the unsecured net revenue claim to be $2.4 billion as of July 3, 2017. This estimate included a determination that PREPA’s discounted cash flows, using FOMB’s base-case incremental net revenues over a 100-year collection period and a discount rate of 7%, would be $3.0 billion, and should be reduced by an additional 20% for ~~“risk of success in achieving the projected cash flow through the actions of a receiver and other equitable remedies appropriate”.~~collection risk. PREPA bondholders had sought an unsecured net revenue claim of approximately $8.5 billion.

The Company expects to appeal portions of the March 22, 2023 decision, including the lien scope ruling and the need for a claim estimation proceeding, as well as the June 26, 2023 claim ~~estimate~~estimation ruling, upon final adjudication by the Federal District Court of Puerto Rico of all claims and counterclaims in the PREPA lien challenge ~~proceedings.~~adversary proceeding.

~~The~~On October 27, 2023, the FOMB filed with the Federal District Court of Puerto Rico the third modified third amended plan of adjustment for PREPA and supporting supplemental disclosure statement (FOMB PREPA Plan) based on the last revised PREPA fiscal plan ~~for PREPA was~~ certified by the FOMB on June 23, 2023 (2023 PREPA Fiscal Plan). InThe FOMB PREPA Plan would split bondholders into two groups: one that would settle litigation regarding whether creditor repayment is limited to existing accounts, and another group that would continue litigating whether bondholders are secured by PREPA’s current and future revenue collections. The FOMB PREPA Plan also would further split settling bondholders into two sub-groups: one consisting of certain original settling bondholders that would receive an enhanced recovery (compared to non-settling bondholders) plus other supporting creditor payments, while the ~~2023 PREPA Fiscal Plan,~~second settling sub-group would receive only the enhanced recovery. The FOMB asserts that, other than for pension claims, PREPA’s debt capacity is $2.5 billion, of which approximately $1.4 billion is allocated to settling creditors. The remaining $1.1 billion is allocated pro rata to (i) non-settling bondholders, and (ii) general unsecured creditors (GUCs). The Federal District Court of Puerto Rico extended to August 11, 2023 the deadline for FOMB to file a further amended FOMB PREPA Plan based on the 2023 PREPA Fiscal Plan. The Company believes that a furthermost recent revised FOMB PREPA Plan ~~would provide~~provides for reduced payments to bondholders since lower projected PREPA revenues are included in the 2023 PREPA Fiscal Plan than had been previously anticipated. ~~Since the Federal District Court of Puerto Rico’s estimated unsecured net revenue claim exceeds the $1.1 billion available to non-settling bondholders and GUCs under the 2023~~The FOMB PREPA ~~Fiscal~~ Plan ~~the unsecured net revenue claim may be subject to further impairment. The 2023 PREPA Fiscal Plan contemplates~~estimates that non-settling bondholders will receive ~~at least~~a recovery of 12.5% of their allowed ~~claim~~unsecured net revenue claim. The Company is opposed to the FOMB PREPA Plan and has joined with a group of non-settling bondholders that continue to litigate whether creditor repayments will include future revenue collections.

The supplemental disclosure statement hearing for the FOMB PREPA Plan is scheduled for November 14, 2023. The confirmation hearing for the FOMB PREPA Plan is currently scheduled to occur in ~~the form of restructuring bonds, as well as two CVIs allocated based on their allowed claim.~~March 2024.

PRHTA

As of ~~June~~September 30, 2023, the Company had ~~$475~~$372 million of insured net par outstanding of PRHTA bonds: ~~$293~~$244 million insured net par outstanding of PRHTA (transportation revenue) bonds and ~~$182~~$128 million insured net par outstanding of PRHTA (highway revenue) bonds. PRHTA net par outstanding primarily represents the Company’s exposure in respect of insured bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus Toll Bonds that constitute distributions under the HTA Plan.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Puerto Rico GO and PBA

AsThe Company’s exposure to GO bonds and PBA bonds was extinguished on August 31, 2023, and, therefore, as of ~~June~~September 30, 2023, the Company had no remaining ~~$25 million of~~ insured net par outstanding of GO bonds and ~~$4 million of insured net par outstanding of~~ PBA bonds. GO/PBA net par outstanding represents the Company’s exposure in respect of insured bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus cash, New GO Bonds and CVIs that constitute distributions under the GO/PBA Plan.

Other Puerto Rico Exposures

All debt service payments for the Company’s remaining Puerto Rico exposures of ~~$125~~$109 million insured net par outstanding have been made in full by the obligors as of the date of this filing. These exposures consist primarily of ~~$124~~$108 million net par outstanding of MFA bonds, which are secured by a lien on local tax revenues.

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 the Commonwealth, 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, and all remaining legal actions involving the Company and relating to PRHTA were resolved on December 6, 2022, which together comprised the consummation of the 2022 Puerto Rico Resolutions. Except for one proceeding related to PREPA, all proceedings involving the Company and relating to the default by the Commonwealth or its instrumentalities remain stayed pending the Federal District Court of Puerto Rico's determination on plans of adjustment or other proceedings.

The following Puerto Rico proceeding in which the Company is involved is no longer stayed:

•On July 1, 2019, the FOMB initiated an adversary proceeding against U.S. Bank National Association, as trustee for PREPA’s bonds, objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing those bonds and seeking other relief. On September 30, 2022, the FOMB filed an amended complaint against the trustee (i) objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing PREPA’s bonds and (ii) arguing that PREPA bondholders’ recourse was limited to certain deposit accounts held by the trustee. On October 7, 2022, the court approved a stipulation permitting AGM and AGC to intervene as defendants. Summary judgment motions were filed by plaintiffs and defendants on October 24, 2022. As noted above, on March 22, 2023, the Federal District Court of Puerto Rico granted in part and denied in part each party’s cross-motions for summary judgment. The Federal District Court of Puerto Rico found that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control. The Federal District Court of Puerto Rico also held that the PREPA bondholders do have recourse under the trust agreement in the form of an unsecured net revenue claim, but declined to value the unsecured net revenue claim. On April 13, 2023, the court issued an order proposing procedures to estimate the value of the unsecured net revenue claim arising from the Trustee’s ability to exercise remedies to obtain specific performance of PREPA’s covenants to fund the sinking fund, which must be done under the Bankruptcy Code for purposes of allowance. The order also set a discovery and expert report schedule, and directed the parties to engage in good faith mediation. A claim estimation hearing was held June 6-8, 2023, and in a June 26, 2023 opinion, the court estimated the PREPA bondholders’ allowed unsecured net revenue claim to be $2.4 billion, which the court calculated by largely adopting the conclusions in the FOMB’s expert report. On May 3, 2023, the court denied PREPA bondholders’ request to certify their interlocutory appeal of the finding that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control. On May 15, 2023, the FOMB filed its motion to dismiss the Trustee’s and bondholders’ counterclaims. Unless mediation or a confirmed plan of adjustment leads to an acceptable outcome, AGM and AGC expect to appeal portions of the court’s decision, including the lien scope ruling and the result of the claim estimation proceeding, upon final adjudication by the court.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 United States Court of Appeals for 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. Following termination of mediation without a resolution and the filing of a motion to dismiss PREPA’s Title III case or to lift the automatic stay to allow for the appointment of a receiver, the court effectively stayed this matter until termination of the plan confirmation process.

•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. Relatedly, 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. These matters are currently stayed. On October 12, 2022, the court entered an order and judgment confirming the amended plan of adjustment for PRHTA filed by the FOMB with the court on September 6, 2022 (HTA Confirmation Order), and which provides that these adversary proceeding must be dismissed with prejudice within five business days of the HTA Confirmation Order becoming a final order, which should occur after all appeals of the HTA Confirmation Order have been resolved.

•On September 30, 2019, certain parties that either had advanced funds to PREPA for the purchase of fuel or had succeeded to such claims (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 Lenders’ claims. On November 12, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint. On September 29, 2022, the court entered an order terminating the motion to dismiss without prejudice and indicating that the issues in the adversary proceeding will only be addressed, if necessary, after issues related to security and recourse of the PREPA bonds have been resolved or, if necessary, in connection with the confirmation of a plan of adjustment for PREPA.

•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. On November 7, 2019, the court granted a motion to intervene by AGC and AGM. On November 13, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint. On September 29, 2022, the court entered an order terminating the motion to dismiss without prejudice, and indicating that the issues in the adversary proceeding will only be addressed, if necessary, after issues related to security and recourse of the PREPA bonds have been resolved or, if necessary, in connection with the confirmation of a plan of adjustment for PREPA.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Specialty Business

The Company also guarantees specialty business with risk profiles similar to those of its structured finance exposures written in financial guaranty form.

Specialty ~~Insurance, Reinsurance and Guaranties~~Business


		As of June 30, 2023				As of December 31, 2022					As of September 30, 2023				As of December 31, 2022
		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)	$	1,326	$	992	$	1,314	$	986	Life insurance transactions (1)	$	1,325	$	1,003	$	1,314	$	986
Aircraft residual value insurance policies	Aircraft residual value insurance policies	355		200		355		200		Aircraft residual value insurance policies	355		200		355		200
Other guaranties	Other guaranties	1,643		1,643		228		228		Other guaranties	2,090		2,090		228		228

____________________

(1) The life insurance transactions net exposure is projected to reach $1.1 billion in ~~2025.~~2024.

As of both ~~June~~September 30, 2023 and December 31, 2022, gross exposure of $144 million and net exposure of $84 million of aircraft residual value insurance was internally rated BIG. All other exposures in the table above are rated investment-grade.

~~The Company’s subsidiary, AGRO, also guarantees other specialty~~Specialty business ~~included in other guaranties in the table above, including~~includes an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties with an internal rating of ~~AA. This guaranty~~AA that matures in 2042. The Company’s maximum potential exposure under this guaranty, ~~was $1.6 billion as of June 30, 2023. The Company accounts~~which is accounted for ~~such guaranties~~ in accordance with Accounting Standards Codification (ASC) 460, ~~Guarantees.~~Guarantees, was $1.6 billion as of September 30, 2023.

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 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 the Company. Those assumptions consider the relevant facts and circumstances and are consistent with the information tracked and monitored through the Company’s surveillance and risk management functions. Expected loss to be paid (recovered) is important in that it represents the present value of amounts that the Company expects to pay or recover in future periods for all contracts.

In circumstances where the Company 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. Insured obligations with expected losses that were purchased by the Company are referred to as Loss Mitigation Securities and are recorded in the investment portfolio at fair value, excluding the value of the Company’s insurance. For Loss Mitigation Securities, the difference between the purchase price of the insured obligation and the fair value excluding the value of the Company’s insurance (on the date of acquisition) is treated as a paid loss. See Note 7, Investments, and Note 9, Fair Value Measurement.

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.

In order to effectively evaluate and manage the economics and liquidity of the entire insured portfolio, management 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. The ~~insured portfolio~~exposure reported in Note 3, Outstanding Exposure 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~~

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 each of these accounting models. This note provides information regarding expected claim payments to be made and/or recovered under all contracts in the insured portfolio.

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 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.

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.

Changes over a reporting period in the Company’s loss estimates for public finance 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 and general obligation 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.

Net economic loss development (benefit) over a reporting period may be attributable to a number of interrelated factors such as changes in discount rates, improvement or deterioration of transaction performance, charge-offs, loss mitigation activity, changes to projected default curves, severity rates and dispute resolution. Actual losses will ultimately depend on future events, transaction performance or other 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.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 results in an acceleration of cash outflows but reduces overall losses paid.

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				Second Quarter				Six Months					As of				Third Quarter				Nine Months
Accounting Model	Accounting Model	June 30, 2023		December 31, 2022		2023		2022		2023		2022		Accounting Model	September 30, 2023		December 31, 2022		2023		2022		2023		2022
		(in millions)													(in millions)
Insurance (see Note 5)	Insurance (see Note 5)	$	262	$	205	$	62	$	(26)	$	68	$	(70)	Insurance (see Note 5)	$	252	$	205	$	92	$	(67)	$	160	$	(137)
FG VIEs (see Note 8) (1)	FG VIEs (see Note 8) (1)	295		314		(14)		(6)		(9)		(10)		FG VIEs (see Note 8) (1)	235		314		(6)		(6)		(15)		(16)
Credit derivatives (see Note 6)	Credit derivatives (see Note 6)	3		3		1		—		1		4		Credit derivatives (see Note 6)	3		3		1		1		2		5
Total	Total	$	560	$	522	$	49	$	(32)	$	60	$	(76)	Total	$	490	$	522	$	87	$	(72)	$	147	$	(148)

____________________

(1) The net expected loss to be paid for FG VIEs primarily relates to trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts) that were consolidated.

The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts, 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 ~~3.73%~~4.51% to ~~5.37%~~5.45% with a weighted average of ~~4.34%~~4.80% as of ~~June~~September 30, 2023 and 3.82% to 4.69% with a weighted average of 4.08% as of December 31, 2022. ~~Expected~~Net expected losses to be paid for U.S. dollar denominated transactions represented approximately ~~98.3%~~98.2% and 98.5% of the total as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

Net Expected Loss to be Paid (Recovered)

Roll Forward


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Net expected loss to be paid (recovered), beginning of period	Net expected loss to be paid (recovered), beginning of period	$	517	$	432	$	522	$	411	Net expected loss to be paid (recovered), beginning of period	$	560	$	442	$	522	$	411
Economic loss development (benefit) due to:	Economic loss development (benefit) due to:									Economic loss development (benefit) due to:
Accretion of discount	Accretion of discount	4		3		9		5		Accretion of discount	6		3		15		8
Changes in discount rates	Changes in discount rates	(6)		(42)		4		(89)		Changes in discount rates	(12)		(25)		(8)		(114)
Changes in timing and assumptions	Changes in timing and assumptions	51		7		47		8		Changes in timing and assumptions	93		(50)		140		(42)
Total economic loss development (benefit)	Total economic loss development (benefit)	49		(32)		60		(76)		Total economic loss development (benefit)	87		(72)		147		(148)
Net (paid) recovered losses (1)	Net (paid) recovered losses (1)	(6)		42		(22)		107		Net (paid) recovered losses (1)	(157)		357		(179)		464
Net expected loss to be paid (recovered), end of period	Net expected loss to be paid (recovered), end of period	$	560	$	442	$	560	$	442	Net expected loss to be paid (recovered), end of period	$	490	$	727	$	490	$	727

____________________

(1) Net (paid) recovered losses in 2023 include recoveries related to various Puerto Rico securities transferred to the Company's investment portfolio upon the maturity and extinguishment of certain GO, PBA and HTA insured exposure. Net (paid) recovered losses in 2022 include the net amounts received pursuant to the ~~portion of the~~ 2022 Puerto Rico Resolutions, ~~related to PRCCDA, PRIFA and GO/PBA exposures,~~ as described in Note 3, Outstanding Exposure.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector


		Second Quarter 2023									Third Quarter 2023
Sector	Sector	Net Expected Loss to be Paid (Recovered) as of March 31, 2023		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of June 30, 2023		Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2023		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2023
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	380	$	57	$	(4)	$	433	U.S. public finance	$	433	$	135	$	(169)	$	399
Non-U.S. public finance	Non-U.S. public finance	13		(3)		—		10		Non-U.S. public finance	10		(1)		—		9
Public finance	Public finance	393		54		(4)		443		Public finance	443		134		(169)		408
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	82		(9)		—		73		U.S. RMBS	73		(48)		13		38
Other structured finance	Other structured finance	42		4		(2)		44		Other structured finance	44		1		(1)		44
Structured finance	Structured finance	124		(5)		(2)		117		Structured finance	117		(47)		12		82
Total	Total	$	517	$	49	$	(6)	$	560	Total	$	560	$	87	$	(157)	$	490


		Second Quarter 2022									Third Quarter 2022
Sector	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		Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2022		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	181	$	8	$	21	$	210	U.S. public finance	$	210	$	24	$	392	$	626
Non-U.S. public finance	Non-U.S. public finance	10		(2)		(1)		7		Non-U.S. public finance	7		(2)		1		6
Public finance	Public finance	191		6		20		217		Public finance	217		22		393		632
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	195		(39)		23		179		U.S. RMBS	179		(95)		(32)		52
Other structured finance	Other structured finance	46		1		(1)		46		Other structured finance	46		1		(4)		43
Structured finance	Structured finance	241		(38)		22		225		Structured finance	225		(94)		(36)		95
Total	Total	$	432	$	(32)	$	42	$	442	Total	$	442	$	(72)	$	357	$	727


		Six Months 2023									Nine Months 2023
Sector	Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2022		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of June 30, 2023		Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2022		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2023
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	403	$	58	$	(28)	$	433	U.S. public finance	$	403	$	193	$	(197)	$	399
Non-U.S. public finance	Non-U.S. public finance	9		1		—		10		Non-U.S. public finance	9		—		—		9
Public finance	Public finance	412		59		(28)		443		Public finance	412		193		(197)		408
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	66		(4)		11		73		U.S. RMBS	66		(52)		24		38
Other structured finance	Other structured finance	44		5		(5)		44		Other structured finance	44		6		(6)		44
Structured finance	Structured finance	110		1		6		117		Structured finance	110		(46)		18		82
Total	Total	$	522	$	60	$	(22)	$	560	Total	$	522	$	147	$	(179)	$	490

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued


		Six Months 2022									Nine Months 2022
Sector	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		Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2021		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	197	$	(40)	$	53	$	210	U.S. public finance	$	197	$	(16)	$	445	$	626
Non-U.S. public finance	Non-U.S. public finance	12		(4)		(1)		7		Non-U.S. public finance	12		(6)		—		6
Public finance	Public finance	209		(44)		52		217		Public finance	209		(22)		445		632
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	150		(32)		61		179		U.S. RMBS	150		(127)		29		52
Other structured finance	Other structured finance	52		—		(6)		46		Other structured finance	52		1		(10)		43
Structured finance	Structured finance	202		(32)		55		225		Structured finance	202		(126)		19		95
Total	Total	$	411	$	(76)	$	107	$	442	Total	$	411	$	(148)	$	464	$	727

____________________

(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”.~~assets.”

The tables above include (i) net LAE paid of $9 million, $5 million, ~~$7 million, $8~~$17 million and ~~$20~~$25 million for ~~second~~third quarter 2023, ~~second~~third quarter 2022, ~~six~~nine months 2023 and ~~six~~nine months 2022, respectively, and (ii) net expected LAE to be paid of $29 million and $11 million as of ~~both June~~September 30, 2023 and December 31, ~~2022.~~2022, respectively.

Public Finance

The largest component of public finance net expected losses to be paid (recovered) and net economic loss development (benefit) are U.S. exposures, including Puerto Rico exposures, which are discussed in Note 3, Outstanding Exposure.

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 (e.g., 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 reviews the assumptions it uses to make RMBS loss projections with consideration of updates on 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. To the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a more prolonged 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


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
First lien U.S. RMBS	First lien U.S. RMBS	$	—	$	(14)	$	—	$	4	First lien U.S. RMBS	$	(12)	$	(38)	$	(12)	$	(34)
Second lien U.S. RMBS	Second lien U.S. RMBS	(9)		(25)		(4)		(36)		Second lien U.S. RMBS	(36)		(57)		(40)		(93)

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 two 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

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are one of the primary drivers of loss projections in this portfolio. In order to project the number of defaults arising 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.

First Lien U.S. RMBS Liquidation Rates


		As of			As of
		June 30, 2023	December 31, 2022		September 30, 2023	December 31, 2022
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, results in the projection of the defaults that are expected 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 scenario), after the 36-month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to a final CDR of 5% of the plateau CDR. In the base scenario, the Company assumes the final CDR will be reached one year after the 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

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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 scenario 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 scenario that the recent levels generally will continue for another 18 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 begin returning to levels consistent with underwriting assumptions beginning after the initial 18-month period, declining to 40% in the base scenario 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 Scenario Expected Loss Estimates~~

~~First Lien U.S. RMBS~~

As of June 30, 2023 As of December 31, 2022
Range Weighted Average Range Weighted Average
Alt-A and Prime:
Plateau CDR 0.7 % - 10.3% 3.9% 1.6 % - 11.5% 5.1%
Final CDR 0.0 % - 0.5% 0.2% 0.1 % - 0.6% 0.3%
Initial loss severity:
2005 and prior 50% 50%
2006 50% 50%
2007+ 50% 50%
Option ARM:
Plateau CDR 0.0 % - 9.6% 3.4% 2.0 % - 7.7% 4.3%
Final CDR 0.0 % - 0.5% 0.2% 0.1 % - 0.4% 0.2%
Initial loss severity:
2005 and prior 50% 50%
2006 50% 50%
2007+ 50% 50%
Subprime:
Plateau CDR 1.6 % - 9.0% 4.9% 2.7 % - 9.7% 5.6%
Final CDR 0.1 % - 0.4% 0.2% 0.1 % - 0.5% 0.3%
Initial loss severity:
2005 and prior 50% 50%
2006 50% 50%
2007+ 50% 50%

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 scenario. 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, 2022.

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

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, in the base scenario, that 20% of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans. In the first quarter of 2023, in light of recent volatility in interest rates, the mortgage market and home prices, the Company also began incorporating a 10% recovery of deferred principal balances in the most stressful scenario and a 50% recovery in the least stressful scenario. The effect on expected losses of this refinement in methodology was less than $1 million.

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 plateau CDR. The Company also stressed CPR and the speed of recovery of loss severity rates. The Company probability weighted a total of five scenarios as of June 30, 2023 and December 31, 2022.

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 London Interbank Offered Rate (LIBOR). An increase in projected LIBOR decreases excess spread, while lower LIBOR results in higher excess spread. As previously announced by the ICE Benchmark Administration and the Financial Conduct Authority, publication of LIBOR was discontinued after June 30, 2023. The Company believes that the reference to LIBOR in such floating rate RMBS debt has been, or will be, replaced, by operation of law in accordance with federal legislation enacted in March 2022, with a rate based on the Secured Overnight Finance Rate (SOFR).

The Company used a similar approach to establish its scenarios as of June 30, 2023 as it used as of December 31, 2022, increasing and decreasing the periods of stress from those used in the base scenario, but, as mentioned above, it updated the assumed recovery for deferred principal balances for the most stressful and least stressful scenarios (to 10% and 50%, respectively) compared to December 31, 2022 (when 20% was assumed in all scenarios). In the Company’s most stressful scenario where 10% of deferred principal balances were recovered, 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 16 months, expected loss to be paid would increase from current projections by approximately $22 million for all first lien U.S. RMBS transactions. In the Company’s least stressful scenario where 50% of deferred principal balances are assumed to be recovered, 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 eight months), expected loss to be paid would decrease from current projections by approximately $31 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 (including recoveries from previously charged-off loans). Expected losses are also a function of the structure of the transaction, the prepayment speeds of the collateral, the interest rate environment and assumptions about loss severity.

The Company estimates the amount of loans that will default over the next several years by first calculating expected liquidation rates for delinquent loans, and applying liquidation rates to currently delinquent loans in order to arrive at an expected dollar amount of defaults from currently delinquent collateral (plateau period defaults).

~~Similar to first lien U.S. RMBS transactions, the Company then calculates a CDR that will cause the targeted amount of liquidations to occur during the plateau period.~~

For the base scenario, the CDR (the plateau CDR) is held constant for 36 months. Once the plateau period ends, the CDR is assumed to trend down in uniform increments for one year to its final long-term steady state CDR (5% of original plateau).

HELOC loans generally permitted 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. A substantial number of loans in the Company’s insured transactions had been modified to extend the interest-only period to 15

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

~~years. The majority of the modified loans had reset to fully amortizing by the end of 2022, and most of the remaining loans will reset over the next several years.~~

Recently, the Company has observed the performance of the modified loans that have finally reset to full amortization (which represent the majority of extended loans), and noted low levels of delinquency, even with substantial increases in monthly payments. This observed performance lowers the level of uncertainty regarding this modified cohort as the remainder continue to reset.

When a second lien loan defaults, there is generally a low recovery. The Company assumed, as of June 30, 2023 and December 31, 2022, 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 recoveries of charged-off loans observed from period to period and reasonable expectations of future recoveries. 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 base scenario recovery assumption for charged-off loans is 30%, as shown in the table below, based on observed trends and reasonable expectations of future recoveries. Such recoveries are assumed to be received evenly over the next five years. In the first quarter of 2023, in light of recent volatility in interest rates, the mortgage market and home prices, as with the first lien deferred principal balances detailed earlier, the Company also began incorporating a 10% recovery of charged-off loan balances in the most stressful scenario and a 50% recovery in the least stressful scenario. The effect on expected losses of this refinement in methodology was less than $1 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 scenario, 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 scenario), 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, 2022. To the extent that prepayments differ from projected levels, the Company’s projected excess spread and losses could materially change.

In estimating expected losses, the Company modeled and probability weighted five 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 of 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.

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

Key Assumptions in Base Scenario Expected Loss Estimates

First Lien U.S. RMBS


	As of September 30, 2023					As of December 31, 2022
	Range				Weighted Average	Range				Weighted Average
Alt-A and Prime:
Plateau CDR	0.3	%	-	9.7%	3.8%	1.6	%	-	11.5%	5.1%
Final CDR	0.0	%	-	0.5%	0.2%	0.1	%	-	0.6%	0.3%
Initial loss severity:
2005 and prior	50%					50%
2006	50%					50%
2007+	50%					50%
Option ARM:
Plateau CDR	0.0	%	-	9.2%	3.6%	2.0	%	-	7.7%	4.3%
Final CDR	0.0	%	-	0.5%	0.2%	0.1	%	-	0.4%	0.2%
Initial loss severity:
2005 and prior	50%					50%
2006	50%					50%
2007+	50%					50%
Subprime:
Plateau CDR	0.2	%	-	9.6%	4.7%	2.7	%	-	9.7%	5.6%
Final CDR	0.0	%	-	0.5%	0.2%	0.1	%	-	0.5%	0.3%
Initial loss severity:
2005 and prior	50%					50%
2006	50%					50%
2007+	50%					50%

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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, in the base scenario, that 30% of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans. In the first quarter of 2023, in light of volatility in interest rates, the mortgage market and home prices, the Company began incorporating a 10% recovery of deferred principal balances in the most stressful scenario and a 50% recovery in the least stressful scenario. Additionally, in third quarter 2023, due to home prices reaching all time highs and high equity levels, the Company increased its scenario based recovery assumptions such that the weighted average recovery percentage increased from 20% to approximately 30%. The effect of these updated assumptions on expected losses was a benefit of $7 million.

The Company used a similar approach to establish its scenarios as of September 30, 2023 as it used as of December 31, 2022, increasing and decreasing the periods of stress from those used in the base scenario, except as described above with regards to the increase in deferred principal recoveries. In the Company’s most stressful scenario where 10% of deferred principal balances were recovered, 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 16 months, expected loss to be paid would increase from current projections by approximately $28 million for all first lien U.S. RMBS transactions. In the Company’s least stressful scenario where 50% of deferred principal balances are assumed to be recovered, 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 eight months), expected loss to be paid would decrease from current projections by approximately $20 million for all first lien U.S. RMBS transactions.

Second Lien U.S. RMBS Loss Projections

Similar to first lien U.S. RMBS transactions, the Company then calculates a CDR that will cause the targeted amount of liquidations to occur during the plateau period.

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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 September 30, 2023 and December 31, 2022, 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 recoveries of charged-off loans observed from period to period and reasonable expectations of future recoveries. 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 base scenario recovery assumption for charged-off loans is 40% (up from 30% in the prior quarters), as shown in the table below, based on observed trends and reasonable expectations of future recoveries. Such recoveries are assumed to be received evenly over the next five years. In the first quarter of 2023, in light of volatility in interest rates, the mortgage market and home prices, as with the first lien deferred principal balances detailed earlier, the Company also expanded the range of potential recoveries as a percentage of charged off loan balances. In third quarter 2023, this range was further expanded to represent a potential for greater future recoveries due to home prices reaching new record highs. The assumptions for the current quarter ranged from a 10% recovery of charged-off loan balances in the most stressful scenario and an 80% recovery in the least stressful scenario. The effect of these updated assumptions on expected loss to be paid (recovered) was a benefit of $31 million.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Key Assumptions in Base Scenario Expected Loss Estimates

HELOCs


		As of June 30, 2023					As of December 31, 2022						As of September 30, 2023					As of December 31, 2022
		Range				Weighted Average	Range				Weighted Average		Range				Weighted Average	Range				Weighted Average
Plateau CDR	Plateau CDR	0.9	%	-	5.8%	3.0%	0.4	%	-	8.4%	3.5%	Plateau CDR	0.4	%	-	8.7%	2.7%	0.4	%	-	8.4%	3.5%
Final CDR trended down to	Final CDR trended down to	0.0	%	-	0.3%	0.1%	0.0	%	-	0.4%	0.2%	Final CDR trended down to	0.0	%	-	0.4%	0.1%	0.0	%	-	0.4%	0.2%
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	40%					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.

The Company modeled scenarios with a longer period of elevated defaults and others with a shorter period of elevated defaults. In the Company’s most stressful scenario, assuming 10% recoveries on charged-off loans, increasing the CDR plateau to 42 months and increasing the ramp-down by four months to 16 months (for a total stress period of 58 months) would decrease the expected recovery by approximately ~~$62~~$89 million for HELOC transactions. On the other hand, in the Company’s least stressful scenario, assuming ~~50%~~80% recoveries on charged-off loans, reducing the CDR plateau to 30 months and decreasing the length of the CDR ramp-down to eight months (for a total stress period of 38 months) and lowering the ultimate prepayment rate to 10% would increase the expected recovery by approximately ~~$63~~$120 million for HELOC transactions.

Recovery Litigation and Dispute Resolution

In the ordinary course of their respective businesses, certain of AGL’s subsidiaries are involved in litigation or other dispute resolution with third parties to recover insurance losses paid or return benefits received 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 ultimately 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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Premiums

Net Earned Premiums


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Financial guaranty insurance:	Financial guaranty insurance:									Financial guaranty insurance:
Scheduled net earned premiums	Scheduled net earned premiums	$	70	$	70	$	139	$	149	Scheduled net earned premiums	$	73	$	70	$	212	$	219
Accelerations from refundings and terminations (1)	Accelerations from refundings and terminations (1)	8		5		12		133		Accelerations from refundings and terminations (1)	14		12		26		145
Accretion of discount on net premiums receivable	Accretion of discount on net premiums receivable	6		6		13		12		Accretion of discount on net premiums receivable	7		6		20		18
Financial guaranty insurance net earned premiums	Financial guaranty insurance net earned premiums	84		81		164		294		Financial guaranty insurance net earned premiums	94		88		258		382
Specialty net earned premiums	Specialty net earned premiums	1		1		2		2		Specialty net earned premiums	1		1		3		3
Net earned premiums	Net earned premiums	$	85	$	82	$	166	$	296	Net earned premiums	$	95	$	89	$	261	$	385

____________________

(1) ~~Six~~Nine months 2022 accelerations included $104 million related to PRCCDA, PRIFA and GO/PBA exposures. See Note 3, Outstanding Exposure.

Gross Premium Receivable,

Net of Commissions Payable on Assumed Business

Roll Forward


		Six Months					Nine Months
		2023		2022			2023		2022
		(in millions)					(in millions)
Beginning of year	Beginning of year	$	1,298	$	1,372	Beginning of year	$	1,298	$	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	1,297		1,371		Financial guaranty insurance premiums receivable	1,297		1,371
Gross written premiums on new business, net of commissions	Gross written premiums on new business, net of commissions	171		137		Gross written premiums on new business, net of commissions	215		232
Gross premiums received, net of commissions	Gross premiums received, net of commissions	(120)		(180)		Gross premiums received, net of commissions	(170)		(258)
Adjustments:	Adjustments:					Adjustments:
Changes in the expected term and debt service assumptions	Changes in the expected term and debt service assumptions	9		(4)		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	13		12		Accretion of discount, net of commissions on assumed business	20		18
Foreign exchange gain (loss) on remeasurement	Foreign exchange gain (loss) on remeasurement	46		(102)		Foreign exchange gain (loss) on remeasurement	9		(181)
Financial guaranty insurance premium receivable ~~(1)~~	Financial guaranty insurance premium receivable ~~(1)~~	1,416		1,234		Financial guaranty insurance premium receivable ~~(1)~~	1,375		1,177
Specialty insurance premium receivable	Specialty insurance premium receivable	1		1		Specialty insurance premium receivable	1		1
June 30,		$	1,417	$	1,235
September 30,						September 30,	$	1,376	$	1,178

Approximately ~~72%~~70% and 74% of gross premiums receivable, net of commissions payable, at ~~June~~September 30, 2023 and December 31, 2022, 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 the consumer price indices, changes in expected lives and new business.

3635

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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, 2023					As of September 30, 2023
		Future Gross Premiums to be Collected (1)		Future Net Premiums to be Earned (2)			Future Gross Premiums to be Collected (1)		Future Net Premiums to be Earned (2)
		(in millions)					(in millions)
2023 (July 1 - September 30)		$	51	$	73
2023 (October 1 - December 31)	2023 (October 1 - December 31)	30		72		2023 (October 1 - December 31)	$	45	$	72
Subtotal 2023		81		145
2024	2024	121		276		2024	134		277
2025	2025	104		258		2025	104		259
2026	2026	101		241		2026	100		243
2027	2027	97		227		2027	97		230
2028-2032	2028-2032	404		947		2028-2032	402		958
2033-2037	2033-2037	270		633		2033-2037	264		635
2038-2042	2038-2042	187		386		2038-2042	182		390
After 2042	After 2042	374		536		After 2042	360		537
Total	Total	$	1,739	3,649		Total	$	1,688	3,601
Future accretion	Future accretion			323		Future accretion			313
Total future net earned premiums	Total future net earned premiums			$	3,972	Total future net earned premiums			$	3,914

____________________

(1) Net of assumed commissions payable.

(2) Net of reinsurance.

Selected Information for Financial Guaranty Insurance Policies with Premiums Paid in Installments


		As of					As of
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(dollars in millions)					(dollars in millions)
Premiums receivable, net of commissions payable	Premiums receivable, net of commissions payable	$	1,416	$	1,297	Premiums receivable, net of commissions payable	$	1,375	$	1,297
Deferred premium revenue	Deferred premium revenue	1,721		1,663		Deferred premium revenue	1,702		1,663
Weighted-average risk-free rate used to discount premiums	Weighted-average risk-free rate used to discount premiums	1.9%		1.8%		Weighted-average risk-free rate used to discount premiums	1.9%		1.8%
Weighted-average period of premiums receivable (in years)	Weighted-average period of premiums receivable (in years)	12.4		12.9		Weighted-average period of premiums receivable (in years)	12.2		12.9

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 ~~3.73%~~4.51% to ~~5.37%~~5.45% with a weighted average of ~~4.36%~~4.86% as of ~~June~~September 30, 2023 and 3.82% to 4.69% with a weighted average of 4.15% as of December 31, 2022.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Net Reserve (Salvage) by Sector


		As of					As of
Sector	Sector	June 30, 2023		December 31, 2022		Sector	September 30, 2023		December 31, 2022
		(in millions)					(in millions)
Public finance:	Public finance:					Public finance:
U.S. public finance	U.S. public finance	$	105	$	71	U.S. public finance	$	123	$	71
Non-U.S. public finance	Non-U.S. public finance	1		1		Non-U.S. public finance	1		1
Public finance	Public finance	106		72		Public finance	124		72
Structured finance:	Structured finance:					Structured finance:
U.S. RMBS	U.S. RMBS	(67)		(77)		U.S. RMBS	(89)		(77)
Other structured finance	Other structured finance	41		42		Other structured finance	42		42
Structured finance	Structured finance	(26)		(35)		Structured finance	(47)		(35)
Total	Total	$	80	$	37	Total	$	77	$	37

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; (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 (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 ~~June~~September 30, 2023
	(in millions)
Net expected loss to be paid (recovered) - financial guaranty insurance	$	~~259~~249
Contra-paid, net	2221
Salvage and subrogation recoverable, net	~~266~~281
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	~~(343)~~(355)
Net expected loss to be expensed (present value)	$	~~204~~196

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts


		As of June 30, 2023			As of September 30, 2023
		(in millions)			(in millions)
2023 (July 1 - September 30)		$	4
2023 (October 1 - December 31)	2023 (October 1 - December 31)	3		2023 (October 1 - December 31)	$	2
Subtotal 2023		7
2024	2024	14		2024	13
2025	2025	13		2025	12
2026	2026	17		2026	15
2027	2027	15		2027	16
2028-2032	2028-2032	61		2028-2032	63
2033-2037	2033-2037	50		2033-2037	49
2038-2042	2038-2042	13		2038-2042	13
After 2042	After 2042	14		After 2042	13
Net expected loss to be expensed	Net expected loss to be expensed	204		Net expected loss to be expensed	196
Future accretion	Future accretion	30		Future accretion	39
Total expected future loss and LAE	Total expected future loss and LAE	$	234	Total expected future loss and LAE	$	235

The following table presents the loss and LAE (benefit) 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					Third Quarter				Nine Months
Sector	Sector	2023		2022		2023		2022		Sector	2023		2022		2023		2022
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	56	$	11	$	52	$	66	U.S. public finance	$	134	$	1	$	186	$	67
Non-U.S. public finance	Non-U.S. public finance	—		—		—		—		Non-U.S. public finance	—		—		—		—
Public finance	Public finance	56		11		52		66		Public finance	134		1		186		67
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	(2)		(22)		$	4	$	(19)	U.S. RMBS	(35)		(78)		$	(31)	$	(97)
Other structured finance	Other structured finance	1		—		3		(1)		Other structured finance	1		2		4		1
Structured finance	Structured finance	(1)		(22)		7		(20)		Structured finance	(34)		(76)		(27)		(96)
Loss and LAE (benefit)	Loss and LAE (benefit)	$	55	$	(11)	$	59	$	46	Loss and LAE (benefit)	$	100	$	(75)	$	159	$	(29)

3938

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of ~~June~~September 30, 2023


		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)	107		16		109		232		232		Number of risks (1)	102		13		109		224		224
Remaining weighted-average period (in years)	Remaining weighted-average period (in years)	9.2		16.3		7.2		9.6		9.7		Remaining weighted-average period (in years)	9.8		16.1		7.7		10.2		10.2

Outstanding exposure:	Outstanding exposure:											Outstanding exposure:
Par	Par	$	2,326	$	989	$	2,280	$	5,595	$	5,578	Par	$	2,121	$	980	$	2,033	$	5,134	$	5,119
Interest	Interest	1,191		923		872		2,986		2,983		Interest	1,125		922		824		2,871		2,867
Total (2)	Total (2)	$	3,517	$	1,912	$	3,152	$	8,581	$	8,561	Total (2)	$	3,246	$	1,902	$	2,857	$	8,005	$	7,986

Expected cash outflows (inflows)	Expected cash outflows (inflows)	$	110	$	182	$	1,702	$	1,994	$	1,982	Expected cash outflows (inflows)	$	113	$	180	$	1,621	$	1,914	$	1,903
Potential recoveries (3)	Potential recoveries (3)	(296)		(79)		(1,329)		(1,704)		(1,693)		Potential recoveries (3)	(324)		(78)		(1,223)		(1,625)		(1,615)
Subtotal	Subtotal	(186)		103		373		290		289		Subtotal	(211)		102		398		289		288
Discount	Discount	49		(23)		(56)		(30)		(30)		Discount	60		(25)		(74)		(39)		(39)
Expected losses to be paid (recovered)	Expected losses to be paid (recovered)	$	(137)	$	80	$	317	$	260	$	259	Expected losses to be paid (recovered)	$	(151)	$	77	$	324	$	250	$	249

Deferred premium revenue	Deferred premium revenue	$	106	$	65	$	151	$	322	$	322	Deferred premium revenue	$	96	$	64	$	146	$	306	$	306
Reserves (salvage)	Reserves (salvage)	$	(163)	$	39	$	202	$	78	$	77	Reserves (salvage)	$	(178)	$	37	$	215	$	74	$	74

4039

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of December 31, 2022


	Gross								Net Total BIG
	BIG 1		BIG 2		BIG 3		Total BIG
	(dollars in millions)
Number of risks (1)	122		14		111		247		247
Remaining weighted-average period (in years)	11.3		8.7		7.6		9.8		9.8

Outstanding exposure:
Par	$	3,363	$	171	$	2,318	$	5,852	$	5,835
Interest	2,177		77		894		3,148		3,144
Total (2)	$	5,540	$	248	$	3,212	$	9,000	$	8,979

Expected cash outflows (inflows)	$	128	$	121	$	1,771	$	2,020	$	2,008
Potential recoveries (3)	(294)		(79)		(1,364)		(1,737)		(1,725)
Subtotal	(166)		42		407		283		283
Discount	35		(13)		(104)		(82)		(82)
Expected losses to be paid (recovered)	$	(131)	$	29	$	303	$	201	$	201

Deferred premium revenue	$	170	$	15	$	160	$	345	$	345
Reserves (salvage)	$	(174)	$	21	$	186	$	33	$	33

____________________

(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 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.

6. Contracts Accounted for as Credit Derivatives

Amounts presented in this note relate only to contracts accounted for as derivatives. The Company’s credit derivatives ~~(financial guaranty contracts~~(contracts that meet the definition of a derivative in accordance with GAAP) are primarily CDS and also include interest rate swaps.

~~Credit derivative transactions, including CDS,~~The Company’s credit derivatives are generally 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 CDS 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. In certain credit derivative transactions, the Company also specifically agreed to pay if the obligor were to become bankrupt or if the reference obligation were restructured. Furthermore, in certain credit derivative transactions, 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 credit derivative contract; however, the Company on occasion has mutually agreed with various counterparties to terminate certain CDS transactions.

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 ~~12.6~~11.4 years and 12.8 years as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Credit Derivatives (1)


		As of June 30, 2023				As of December 31, 2022					As of September 30, 2023				As of December 31, 2022
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	$	1,131	$	(17)	$	1,175	$	(79)	U.S. public finance	$	1,074	$	(15)	$	1,175	$	(79)
Non-U.S. public finance	Non-U.S. public finance	1,611		(22)		1,565		(58)		Non-U.S. public finance	1,478		(19)		1,565		(58)
U.S. structured finance	U.S. structured finance	336		(16)		342		(22)		U.S. structured finance	327		(13)		342		(22)
Non-U.S. structured finance	Non-U.S. structured finance	127		(2)		121		(3)		Non-U.S. structured finance	610		(2)		121		(3)
Total	Total	$	3,205	$	(57)	$	3,203	$	(162)	Total	$	3,489	$	(49)	$	3,203	$	(162)

____________________

(1) Expected loss to be paid was $3 million as of both ~~June~~September 30, 2023 and December 31, 2022.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

As of June 30, 2023 As of December 31, 2022
Rating Category Net Par
Outstanding % of Total Net Par
Outstanding % of Total
(dollars in millions)
AAA $ 1,307 40.8 % $ 1,260 39.3 %
AA 1,048 32.7 1,064 33.2
A 228 7.1 232 7.2
BBB 566 17.7 590 18.5
BIG
56 1.7 57 1.8
Credit derivative net par outstanding $ 3,205 100.0 % $ 3,203 100.0 %


	As of September 30, 2023				As of December 31, 2022
Rating Category	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total
	(dollars in millions)
AAA	$	1,255	36.0	%	$	1,260	39.3	%
AA	1,020		29.2		1,064		33.2
A	689		19.7		232		7.2
BBB	470		13.5		590		18.5
BIG	55		1.6		57		1.8
Credit derivative net par outstanding	$	3,489	100.0	%	$	3,203	100.0	%

Fair Value Gains (Losses) on Credit Derivatives


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Realized gains (losses) and other settlements	Realized gains (losses) and other settlements	$	—	$	—	$	1	$	(1)	Realized gains (losses) and other settlements	$	—	$	(1)	$	1	$	(2)
Net unrealized gains (losses)	Net unrealized gains (losses)	91		9		105		7		Net unrealized gains (losses)	9		(47)		114		(40)
Fair value gains (losses) on credit derivatives	Fair value gains (losses) on credit derivatives	$	91	$	9	$	106	$	6	Fair value gains (losses) on credit derivatives	$	9	$	(48)	$	115	$	(42)

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 generally 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.

CDS Spread on AGC (in basis points)


		As of June 30, 2023	As of December 31, 2022	As of June 30, 2022	As of December 31, 2021		As of September 30, 2023	As of December 31, 2022	As of September 30, 2022	As of December 31, 2021
Five-year CDS spread	Five-year CDS spread	99	63	103	49	Five-year CDS spread	98	63	70	49
One-year CDS spread	One-year CDS spread	39	26	41	16	One-year CDS spread	41	26	28	16

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC Credit Spread


		As of					As of
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(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	$	(93)	$	(207)	Fair value of credit derivatives before effect of AGC credit spread	$	(80)	$	(207)
Plus: Effect of AGC credit spread	Plus: Effect of AGC credit spread	36		45		Plus: Effect of AGC credit spread	31		45
Net fair value of credit derivatives	Net fair value of credit derivatives	$	(57)	$	(162)	Net fair value of credit derivatives	$	(49)	$	(162)

The fair value of CDS contracts as of ~~June~~September 30, 2023, 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.

7. Investments

The majority of the investment portfolio comprises investment grade fixed-maturity securities managed by three outside managers. The Company has established investment guidelines for these investment managers regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector.

The remainder of the investment portfolio primarily consists of (i) Loss Mitigation Securities; (ii) New Recovery Bonds and CVIs received in connection with the consummation of the 2022 Puerto Rico Resolutions; (iii) ~~other~~equity method investments; (iv) short-term investments ~~including certain fixed-maturity and short-term securities,~~ and (iv) ~~equity method~~other investments. Equity method investments primarily ~~consist~~consists of ~~generally less liquid alternative investments including an~~the investment in ~~renewable~~Sound Point and ~~clean energy and private equity funds.~~fund investments across a variety of strategies.

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Investment Portfolio

Carrying Value


		As of					As of
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(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 (2)	Externally managed (2)	$	5,551	$	5,824	Externally managed (2)	$	5,316	$	5,824
Loss Mitigation Securities	Loss Mitigation Securities	509		548		Loss Mitigation Securities	495		548
Puerto Rico, New Recovery Bonds (3)	Puerto Rico, New Recovery Bonds (3)	36		358		Puerto Rico, New Recovery Bonds (3)	78		358
Other (4)	Other (4)	392		389		Other (4)	378		389
Fixed-maturity securities, trading - Puerto Rico, CVIs (3)	Fixed-maturity securities, trading - Puerto Rico, CVIs (3)	340		303		Fixed-maturity securities, trading - Puerto Rico, CVIs (3)	350		303
Short-term investments ~~(5)~~	Short-term investments ~~(5)~~	1,650		810		Short-term investments ~~(5)~~	1,426		810
Other invested assets:	Other invested assets:					Other invested assets:
Equity method investments (6)		130		123
Equity method investments:						Equity method investments:
Sound Point						Sound Point	419		—
Alternative investments (5)						Alternative investments (5)	331		123
Other	Other	16		10		Other	15		10
Total	Total	$	8,624	$	8,365	Total	$	8,808	$	8,365

____________________

(1) ~~7.5%~~7.6% and 7.4% of fixed-maturity securities were rated BIG as of ~~June~~September 30, 2023 and December 31, 2022, respectively, consisting primarily of Loss Mitigation Securities. ~~1.7%~~2.4% and 5.9% were not rated, as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

(2) As of ~~June~~September 30, 2023 and December 31, 2022 amounts include ~~$292~~$294 million and $305 million, respectively, of CLOs that had been managed internally by AssuredIM under an investment management agreement until it transitioned to an external manager in June ~~20,~~ 2023.

(3) These securities are not rated. On August 31, 2023, the Company satisfied its obligations under certain Puerto Rico Trusts and as a result $68 million, at fair value, of Puerto Rico New Recovery Bonds and $5 million, at fair value, of CVIs were transferred from the consolidated Puerto Rico Trusts to AGC and AGM’s investment portfolios. See Note 3, Outstanding Exposure.

(4) As of ~~June~~September 30, 2023 and December 31, 2022, amounts include ~~$221~~$214 million and $232 million, respectively, of municipal bonds that had been managed by AssuredIM under an investment management agreement until June ~~20, 2023.~~2023, and are now managed by the U.S. Insurance Subsidiaries for their own accounts.

(5) Weighted average credit rating of AAA as of both June 30, 2023 and December 31, 2022, 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.

~~(6)~~ Excludes certain investments in ~~AssuredIM Funds which~~funds that are consolidated and accounted for as CIVs.

~~Table of Contents~~

~~Assured~~ See Note 8, Financial Guaranty ~~Ltd.~~

~~Notes to Condensed~~Variable Interest Entities and Consolidated ~~Financial Statements (Unaudited), Continued~~

Investment Vehicles.

Upon closing of the Sound Point Transaction and the AHP Transaction in July, the Company has increased the aggregate amount it has agreed to invest in alternative investments to $1.5 billion, including the $1 billion with Sound Point, subject to regulatory approval, which includes ~~$510~~$630 million of ~~investment~~invested capital (at fair value), and ~~$991~~$890 million in unfunded ~~commitments.~~commitments (of which $332 million is committed to specific funds). See Note 1, Business and Basis of Presentation for a description of the Sound Point Transaction.

Of the $1.5 billion ~~to be invested,~~mentioned above, the U.S. Insurance Subsidiaries through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $750 million plus previously distributed gains of ~~$114~~$132 million for a total of ~~$864~~$882 million as of ~~June~~September 30, 2023. As of ~~July 1,~~September 30, 2023, AGAS commitments to Sound Point and AHP funds ~~previously managed by AssuredIM~~ were ~~$553~~$703 million (of which ~~$333~~$446 million was funded with a net asset value (NAV) of ~~$350~~$469 million). This capital was committed to several funds, each dedicated to a single strategy, including CLOs, asset-based finance and healthcare structured ~~capital and are managed by Sound Point or by AHP.~~capital. As of ~~June~~September 30, 2023, ~~all~~three of the six funds in which AGAS invests are accounted for as CIVs. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

Accrued investment income, which is reported in “other assets,” was ~~$73~~$78 million as of ~~June~~September 30, 2023 and $71 million as of December 31, 2022. In ~~six~~nine months 2023 and ~~six~~nine months 2022, the Company did not write off any accrued investment income.

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

~~As of June 30, 2023~~

Security Type Percent
of
Total (1) Amortized
Cost Allowance for Credit Losses Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
Weighted
Average
Credit
Rating (2)
(dollars in millions)
Obligations of state and political subdivisions 42 % $ 2,973 $ (14) $ 27 $ (110) $ 2,876 AA-
U.S. government and agencies 1 69 — 1 (6) 64 AA+
Corporate securities (3) 33 2,330 (6) 3 (261) 2,066 A
Mortgage-backed securities (4):
RMBS 6 440 (20) 3 (71) 352 BBB+
Commercial mortgage-backed securities (CMBS) 3 214 — — (10) 204 AAA
Asset-backed securities:
CLOs 7 468 — — (14) 454 A+
Other 6 432 (39) 17 (36) 374 CCC+
Non-U.S. government securities 2 118 — — (20) 98 AA-
Total available-for-sale fixed-maturity securities 100 % $ 7,044 $ (79) $ 51 $ (528) $ 6,488 A

4443

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

As of September 30, 2023


Security Type	Percent of Total (1)		Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(dollars in millions)
Obligations of state and political subdivisions	42	%	$	2,938	$	(14)	$	20	$	(178)	$	2,766
U.S. government and agencies	1		65		—		—		(7)		58
Corporate securities (2)	33		2,321		(6)		1		(307)		2,009
Mortgage-backed securities (3):
RMBS	6		430		(20)		2		(82)		330
Commercial mortgage-backed securities (CMBS)	3		198		—		—		(10)		188
Asset-backed securities:
CLOs	7		463		—		1		(10)		454
Other	6		440		(46)		6		(31)		369
Non-U.S. government securities	2		116		—		—		(23)		93
Total available-for-sale fixed-maturity securities	100	%	$	6,971	$	(86)	$	30	$	(648)	$	6,267

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

As of December 31, 2022


Security Type	Security Type	Percent of Total (1)		Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		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
		(dollars in millions)														(dollars in millions)
Obligations of state and political subdivisions	Obligations of state and political subdivisions	45	%	$	3,509	$	(14)	$	37	$	(138)	$	3,394	A	Obligations of state and political subdivisions	45	%	$	3,509	$	(14)	$	37	$	(138)	$	3,394
U.S. government and agencies	U.S. government and agencies	2		118		—		1		(8)		111		AA+	U.S. government and agencies	2		118		—		1		(8)		111
Corporate securities ~~(3)~~(2)	Corporate securities ~~(3)~~(2)	31		2,387		(6)		2		(299)		2,084		A	Corporate securities ~~(3)~~(2)	31		2,387		(6)		2		(299)		2,084
Mortgage-backed securities (4):
Mortgage-backed securities (3):															Mortgage-backed securities (3):
RMBS	RMBS	5		418		(19)		3		(62)		340		BBB	RMBS	5		418		(19)		3		(62)		340
CMBS	CMBS	4		282		—		—		(11)		271		AAA	CMBS	4		282		—		—		(11)		271
Asset-backed securities:	Asset-backed securities:														Asset-backed securities:
CLOs	CLOs	6		449		—		—		(21)		428		A+	CLOs	6		449		—		—		(21)		428
Other	Other	5		423		(26)		22		(26)		393		CCC+	Other	5		423		(26)		22		(26)		393
Non-U.S. government securities	Non-U.S. government securities	2		121		—		—		(23)		98		AA-	Non-U.S. government securities	2		121		—		—		(23)		98
Total available-for-sale fixed-maturity securities	Total available-for-sale fixed-maturity securities	100	%	$	7,707	$	(65)	$	65	$	(588)	$	7,119	A	Total available-for-sale fixed-maturity securities	100	%	$	7,707	$	(65)	$	65	$	(588)	$	7,119

____________________

(1)Based on amortized cost.

(2)Ratings represent the lower of the Moody’s and S&P classifications, except for Loss Mitigation Securities 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 2022 Puerto Rico Resolutions are not rated.

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

~~(4)~~(3)U.S. government-agency obligations were approximately 38% and 30% of mortgage-backed securities as of ~~June~~September 30, 2023 and December 31, 2022, respectively, based on fair value.

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Assured Guaranty Ltd.

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 ~~June~~September 30, 2023


		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	$	1,357	$	(18)	$	622	$	(89)	$	1,979	$	(107)	Obligations of state and political subdivisions	$	1,610	$	(39)	$	899	$	(136)	$	2,509	$	(175)
U.S. government and agencies	U.S. government and agencies	9		—		32		(6)		41		(6)		U.S. government and agencies	21		—		32		(7)		53		(7)
Corporate securities	Corporate securities	473		(13)		1,253		(202)		1,726		(215)		Corporate securities	381		(14)		1,396		(236)		1,777		(250)
Mortgage-backed securities:	Mortgage-backed securities:													Mortgage-backed securities:
RMBS	RMBS	127		(6)		56		(5)		183		(11)		RMBS	55		(3)		122		(14)		177		(17)
CMBS	CMBS	21		(1)		183		(9)		204		(10)		CMBS	3		—		184		(10)		187		(10)
Asset-backed securities:	Asset-backed securities:													Asset-backed securities:
CLOs	CLOs	1		—		415		(14)		416		(14)		CLOs	18		(2)		402		(8)		420		(10)
Other	Other	10		—		18		(2)		28		(2)		Other	1		—		26		(2)		27		(2)
Non-U.S. government securities	Non-U.S. government securities	—		—		94		(20)		94		(20)		Non-U.S. government securities	4		—		89		(23)		93		(23)
Total	Total	$	1,998	$	(38)	$	2,673	$	(347)	$	4,671	$	(385)	Total	$	2,093	$	(58)	$	3,150	$	(436)	$	5,243	$	(494)
Number of securities (1)	Number of securities (1)			778				1,079				1,830		Number of securities (1)			795				1,308				2,079

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~~Assured Guaranty Ltd.~~

~~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 December 31, 2022


	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	$	1,763	$	(79)	$	163	$	(56)	$	1,926	$	(135)
U.S. government and agencies	32		—		52		(8)		84		(8)
Corporate securities	1,276		(95)		519		(147)		1,795		(242)
Mortgage-backed securities:
RMBS	147		(9)		3		(1)		150		(10)
CMBS	270		(11)		—		—		270		(11)
Asset-backed securities:
CLOs	171		(7)		250		(14)		421		(21)
Other	27		(2)		—		—		27		(2)
Non-U.S. government securities	65		(10)		30		(13)		95		(23)
Total	$	3,751	$	(213)	$	1,017	$	(239)	$	4,768	$	(452)
Number of securities (1)			1,340				466				1,776

___________________

(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.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 ~~June~~September 30, 2023 and December 31, 2022 were primarily related to higher interest rates rather than credit quality. As of ~~June~~September 30, 2023, 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 ~~June~~September 30, 2023, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, ~~508~~641 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2022, 567 securities had unrealized losses in excess of 10% of their carrying value. The total unrealized loss for these securities was ~~$269~~$351 million as of ~~June~~September 30, 2023 and $329 million as of December 31, 2022.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of ~~June~~September 30, 2023 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 ~~June~~September 30, 2023


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
		(in millions)					(in millions)
Due within one year	Due within one year	$	286	$	280	Due within one year	$	248	$	239
Due after one year through five years	Due after one year through five years	1,537		1,430		Due after one year through five years	1,526		1,406
Due after five years through 10 years	Due after five years through 10 years	1,696		1,597		Due after five years through 10 years	1,760		1,629
Due after 10 years	Due after 10 years	2,871		2,625		Due after 10 years	2,809		2,475
Mortgage-backed securities:	Mortgage-backed securities:					Mortgage-backed securities:
RMBS	RMBS	440		352		RMBS	430		330
CMBS	CMBS	214		204		CMBS	198		188
Total	Total	$	7,044	$	6,488	Total	$	6,971	$	6,267

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

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 ~~$230~~$224 million as of ~~June~~September 30, 2023 and $222 million as of December 31, 2022. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or are otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amounts of ~~$1,149~~$1,107 million and $1,169 million based on fair value as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

Income from Investments

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.

Puerto Rico CVIs in the investment portfolio are classified as trading securities. Equity in earnings (losses) of investees represents the Company’s interest in the earnings of its equity method investments.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Income from Investments


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Investment income:	Investment income:									Investment income:
Fixed-maturity securities, available-for-sale:	Fixed-maturity securities, available-for-sale:									Fixed-maturity securities, available-for-sale:
Externally managed (1)	Externally managed (1)	$	53	$	50	$	105	$	100	Externally managed (1)	$	51	$	50	$	156	$	150
Loss Mitigation Securities	Loss Mitigation Securities	12		6		22		15		Loss Mitigation Securities	24		9		46		24
Puerto Rico, New Recovery Bonds	Puerto Rico, New Recovery Bonds	1		3		4		4		Puerto Rico, New Recovery Bonds	1		1		5		5
Other (2)	Other (2)	4		4		7		7		Other (2)	5		4		12		11
Short-term investments	Short-term investments	18		1		32		1		Short-term investments	21		4		53		5
Other invested assets	Other invested assets	2		—		2		—		Other invested assets	—		—		2		—
Investment income	Investment income	90		64		172		127		Investment income	102		68		274		195
Investment expenses	Investment expenses	(1)		(2)		(2)		(3)		Investment expenses	(2)		(1)		(4)		(4)
Net investment income	Net investment income	$	89	$	62	$	170	$	124	Net investment income	$	100	$	67	$	270	$	191

Fair value gains (losses) on trading securities (3)	Fair value gains (losses) on trading securities (3)	$	40	$	(18)	$	38	$	(22)	Fair value gains (losses) on trading securities (3)	$	4	$	(8)	$	42	$	(30)
Equity in earnings (losses) of investees (4)	Equity in earnings (losses) of investees (4)	$	5	$	—	$	7	$	(11)	Equity in earnings (losses) of investees (4)	18		(20)		25		(31)

____________________

(1) Amounts for 2022 include income on the portion of the CLO portfolio that was previously managed by AssuredIM.

(2) Amounts for 2022 include income on the portion of the municipal bond portfolio that was previously managed by AssuredIM.

(3) Fair value gains on trading securities pertaining to securities still held as of ~~June~~September 30, 2023 were ~~$40~~$4 million for ~~second~~third quarter 2023 and ~~$38~~$42 million for ~~six~~nine months ~~2023, respectively.~~2023. Fair value losses on trading securities pertaining to securities still held as of ~~June~~September 30, 2022 were ~~$12~~$2 million for ~~second~~third quarter 2022 and ~~$16~~$18 million for ~~six months 2022, respectively.~~

(4) Fair value gains (losses) on investments where the fair value option (FVO) was elected utilizing the NAV as a practical expedient were $1 million in second quarter 2023, $2 million in six months 2023, and $3 million in sixnine months 2022.

(4) Beginning in the fourth quarter of 2023, equity in earnings (losses) will include the Company’s share of the earnings of the Sound Point entities, which is reported on a one-quarter lag.

~~Table of Contents~~

~~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)


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Gross realized gains on sales of available-for-sale securities (1)	Gross realized gains on sales of available-for-sale securities (1)	$	7	$	—	$	19	$	—	Gross realized gains on sales of available-for-sale securities (1)	$	2	$	—	$	21	$	—
Gross realized losses on sales of available-for-sale securities (1)	Gross realized losses on sales of available-for-sale securities (1)	(6)		(21)		(15)		(23)		Gross realized losses on sales of available-for-sale securities (1)	(1)		(10)		(16)		(33)
Net foreign currency gains (losses)	Net foreign currency gains (losses)	—		(3)		—		(3)		Net foreign currency gains (losses)	(1)		—		(1)		(3)
Change in allowance for credit losses and intent to sell	Change in allowance for credit losses and intent to sell	(10)		(4)		(15)		(9)		Change in allowance for credit losses and intent to sell	(8)		(4)		(23)		(13)
Other net realized gains (losses)	Other net realized gains (losses)	—		—		—		10		Other net realized gains (losses)	(1)		—		(1)		10
Net realized investment gains (losses)	Net realized investment gains (losses)	$	(9)	$	(28)	$	(11)	$	(25)	Net realized investment gains (losses)	$	(9)	$	(14)	$	(20)	$	(39)

____________________

(1) Gross realized gains and losses on sales in all periods related primarily to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

The proceeds from sales of fixed-maturity securities classified as available-for-sale were ~~$239~~$73 million in ~~second~~third quarter 2023, ~~$296~~$207 million in ~~second~~third quarter 2022, ~~$694~~$767 million in ~~six~~nine months 2023 and ~~$353~~$560 million in ~~six~~nine months 2022.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The following table presents the roll forward of allowance for the credit losses on available-for-sale fixed-maturity securities.

Roll Forward of Allowance for

Credit Losses for Available-for-Sale Fixed-Maturity Securities


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Balance, beginning of period	Balance, beginning of period	$	69	$	47	$	65	$	42	Balance, beginning of period	$	79	$	51	$	65	$	42
Additions for securities for which credit losses were not previously recognized	Additions for securities for which credit losses were not previously recognized	—		—		—		4		Additions for securities for which credit losses were not previously recognized	—		1		—		4

Additions for purchases of securities accounted for as purchased financial assets with credit deterioration										Additions for purchases of securities accounted for as purchased financial assets with credit deterioration	—		2		—		2
Additions (reductions) for securities for which credit losses were previously recognized	Additions (reductions) for securities for which credit losses were previously recognized	10		4		14		5		Additions (reductions) for securities for which credit losses were previously recognized	7		3		21		9

Balance, end of period	Balance, end of period	$	79	$	51	$	79	$	51	Balance, end of period	$	86	$	57	$	86	$	57

During third quarter 2022, the Company purchased a loss mitigation security with a fair value of $22 million that was accounted for as a purchased security with credit deterioration. At acquisition, this security had an unpaid principal on remaining collateral of $31 million, an allowance for credit losses of $2 million, and a non-credit related discount of $7 million. The Company did not purchase any securities with credit deterioration during ~~the periods presented.~~third quarter 2023 and nine months 2023. 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

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

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.

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 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

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 triggered, then the VIE is not consolidated. If the insurance subsidiaries are deemed to no longer 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 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 VIEs’ liabilities, which is reported in other comprehensive income (OCI). As of both ~~June~~September 30, 2023 and December 31, 2022, the Company consolidated 25 structured finance and other FG VIEs.

Puerto Rico Trusts

As of June 30, 2023 and December 31, 2022, the Company consolidated 45 custodial trusts established as part of the 2022 Puerto Rico Resolutions discussed in Note 3, Outstanding Exposure, Exposure to Puerto Rico. With respect to certain insured securities covered by the 2022 Puerto Rico Resolutions, 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/or CVIs that constitute distributions under the 2022 Puerto Rico Resolutions. (At least one separate custodial trust was set up for each legacy insured bond, and the trusts are deconsolidated as they are paid off.) 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 or prepay 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.

On ~~July 28,~~August 31, 2023, ~~the Company directed the trustee~~after notice to ~~notify~~ certain holders of custody receipts representing interests in legacy insured GO, PBA and HTA bonds, the Company satisfied its obligations under such legacy insured bonds with respect to $108 million net par outstanding as of ~~its intent~~August 31, 2023, and the custodial trusts released to ~~satisfy on~~AGC and AGM New Recovery Bonds and/or CVIs with a fair value totaling $73 million as of August 31, 2023. As of September 30, 2023 and December 31, 2022, respectively, the Company consolidated 24 and 45 custodial trusts established as part of the 2022 Puerto Rico Resolutions discussed in Note 3, Outstanding Exposure, Exposure to Puerto Rico.

New Recovery Bonds

Reported in FG VIEs’ Assets

Available-for-Sale


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(dollars in millions)
As of September 30, 2023	$	136	$	10	$	—	$	146
As of December 31, 2022	204		4		(4)		204

As of September 30, 2023, no New Recovery Bonds in the Puerto Rico Trusts were in a gross unrealized loss position. As of December 31, 2022, 14 New Recovery Bonds in the Puerto Rico Trusts were in a gross unrealized loss position totaling $4 million and had a fair value of $110 million, all of which were in a continuous unrealized loss position for less than 12

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

31, 2023 its obligations under the legacy insured bonds with respect to $108 million net par outstanding as of July 28, 2023 and, following payment of such obligations, AGC and AGM will receive the New Recovery Bonds and/or CVIs with notional amounts and maturity values totaling $94 million as of July 28, 2023 held as collateral with respect to the custodial trusts. The Company consolidated the Puerto Rico Trusts as its insurance subsidiaries are deemed to be the primary beneficiary given its power to collapse these trusts.

~~Puerto Rico Trusts~~

~~Carrying Value~~

As of
June 30, 2023 December 31, 2022
(in millions)
New Recovery Bonds, available-for-sale $ 218 $ 204
CVIs, trading 5 5

~~New Recovery Bonds~~

~~Reported in FG VIEs’ Assets~~

~~Available-for-Sale~~

Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
(dollars in millions)
As of June 30, 2023 $ 205 $ 15 $ (2) $ 218
As of December 31, 2022 204 4 (4) 204

As of June 30, 2023, 11 securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $2 million and had a fair value of $21 million. All of these securities were in a continuous unrealized loss position for more than 12 months. As of December 31, 2022, 14 securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $4 million and had a fair value of $110 million. All of these securities were in a continuous unrealized loss position for less than 12 months. 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 ~~June 30, 2023 and~~ December 31, 2022 were primarily attributable to the change in interest rates, rather than credit quality. ~~As of June 30, 2023 and December 31, 2022, the~~The Company did not intend to and was not required to sell these investments prior to an expected recovery in value. As of ~~June 30, 2023 and~~ December 31, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, ~~three and~~ eight securities ~~respectively,~~ had unrealized losses in excess of 10% of their carrying value. The total unrealized loss for these securities was ~~$1 million and~~ $3 ~~million as of June 30, 2023 and December 31, 2022, respectively.~~million.

The amortized cost and estimated fair value of available-for-sale New Recovery Bonds by contractual maturity as of ~~June~~September 30, 2023 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.

New Recovery Bonds, Available-for-Sale

Reported in FG VIEs’ Assets

~~Available-for-Sale~~

Distribution by Contractual Maturity

As of ~~June~~September 30, 2023


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
		(in millions)					(in millions)
Due within one year		$	1	$	1
Due after one year through five years		6		6
Due after five years through 10 years	Due after five years through 10 years	42		44		Due after five years through 10 years	$	28	$	30
Due after 10 years	Due after 10 years	156		167		Due after 10 years	108		116
Total	Total	$	205	$	218	Total	$	136	$	146

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

Components of FG VIEs’ Assets and Liabilities

Net fair value gains and losses on FG VIEs are expected to reverse to zero by the maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by the insurance subsidiaries under the financial guaranty insurance contracts. 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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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The table below shows the carrying value of FG VIEs’ assets and liabilities segregated by type of collateral.

Consolidated FG VIEs by Type of Collateral


		As of					As of
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(in millions)					(in millions)
FG VIEs’ assets:	FG VIEs’ assets:					FG VIEs’ assets:
U.S. RMBS first lien	U.S. RMBS first lien	$	154	$	167	U.S. RMBS first lien	$	146	$	167
U.S. RMBS second lien	U.S. RMBS second lien	27		30		U.S. RMBS second lien	27		30
Puerto Rico Trusts’ assets (includes $223 and $209 at fair value) (1)		226		212
Puerto Rico Trusts’ assets (includes $146 and $209 at fair value) (1)						Puerto Rico Trusts’ assets (includes $146 and $209 at fair value) (1)	147		212
Other	Other	7		7		Other	7		7
Total FG VIEs’ assets	Total FG VIEs’ assets	$	414	$	416	Total FG VIEs’ assets	$	327	$	416
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	$	165	$	176	U.S. RMBS first lien	$	156	$	176
U.S. RMBS second lien	U.S. RMBS second lien	22		24		U.S. RMBS second lien	20		24
Puerto Rico Trusts’ liabilities	Puerto Rico Trusts’ liabilities	493		495		Puerto Rico Trusts’ liabilities	347		495
Other	Other	7		7		Other	8		7
Total FG VIEs’ liabilities with recourse	Total FG VIEs’ liabilities with recourse	$	687	$	702	Total FG VIEs’ liabilities with recourse	$	531	$	702
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	$	12	$	13	U.S. RMBS first lien	$	11	$	13
Total FG VIEs’ liabilities without recourse	Total FG VIEs’ liabilities without recourse	$	12	$	13	Total FG VIEs’ liabilities without recourse	$	11	$	13

____________________

(1) Includes $2 million of cash as of December 31, 2022.

The change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIEs’ assets at FVO) held as of ~~June~~September 30, 2023 that was reported in the condensed consolidated statements of operations for ~~second~~third quarter 2023 and ~~six~~nine months 2023 were ~~losses~~gains of $1$3 million and $2$1 million, respectively. The change in the ISCR of the FG VIEs’ assets at FVO held as of ~~June~~September 30, 2022 ~~was a gain~~were gains of $1$15 million and ~~a loss of $4~~$11 million for ~~second~~third quarter 2022 and ~~six~~nine months 2022, 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 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.

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

Selected Information for FG VIEs’ Assets and Liabilities

Measured under the FVO


		As of					As of
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(in millions)					(in millions)
Excess of unpaid principal over fair value of:	Excess of unpaid principal over fair value of:					Excess of unpaid principal over fair value of:
FG VIEs’ assets	FG VIEs’ assets	$	266	$	265	FG VIEs’ assets	$	266	$	265
FG VIEs’ liabilities with recourse	FG VIEs’ liabilities with recourse	23		21		FG VIEs’ liabilities with recourse	51		21
FG VIEs’ liabilities without recourse	FG VIEs’ liabilities without recourse	16		15		FG VIEs’ liabilities without recourse	16		15
Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due	Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due	30		34		Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due	29		34
Unpaid principal for FG VIEs’ liabilities with recourse (1)	Unpaid principal for FG VIEs’ liabilities with recourse (1)	710		723		Unpaid principal for FG VIEs’ liabilities with recourse (1)	582		723

____________________

(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2023 through 2041.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

CIVs

In connection with the Sound Point Transaction and AHP Transaction the Company reevaluated its consolidation conclusion for each CIV and deconsolidated all but three CIVs. As of ~~June~~September 30, 2023, CIVs consist of certain ~~AssuredIM Funds, CLOs and CLO warehouses for which the Company was the primary beneficiary or has a controlling interest.~~funds managed by Sound Point, that were previously managed by AssuredIM. 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. ~~In light~~

As a result of the Sound Point Transaction and ~~the~~ AHP Transaction, during third quarter 2023 and nine months 2023, the Company deconsolidated CIV assets of $4.7 billion and CIV liabilities of $4.4 billion. The Company recognized a loss on deconsolidation of $16 million, which is ~~evaluating whether it will continue to consolidate each~~reported in “fair value gains (losses) on CIVs”. During nine months 2022, the Company deconsolidated a CLO with assets and liabilities of ~~its consolidated investment vehicles (CIVs).~~$417 million.

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, and gains and losses on consolidation and deconsolidation of CIVs are reported in “fair value gains (losses) on ~~consolidated investment vehicles”~~CIVs” 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	June 30, 2023	December 31, 2022	CIV Type	September 30, 2023	December 31, 2022
Funds ~~(1)~~	Funds ~~(1)~~	6	8	Funds ~~(1)~~	3	8
CLOs ~~(2)~~	CLOs ~~(2)~~	10	10	CLOs ~~(2)~~	—	10
CLO warehouses ~~(3)~~	CLO warehouses ~~(3)~~	2	4	CLO warehouses ~~(3)~~	—	4
Total number of consolidated CIVs ~~(4)~~(1)	Total number of consolidated CIVs ~~(4)~~(1)	18	22	Total number of consolidated CIVs ~~(4)~~(1)	3	22

____________________

(1) ~~Two funds were deconsolidated in six months 2023. One fund was consolidated in six months 2022.~~

~~(2) During six months 2022, the Company deconsolidated a CLO with assets and liabilities of $417 million.~~

~~(3) Two CLO warehouses were deconsolidated in six months 2023. One CLO warehouse was consolidated in six months 2022~~

~~(4)~~ As of ~~June 30, 2023 and~~ December 31, 2022, ~~one and~~ two ~~respectively, CIV~~CIVs were voting interest entities (VOEs). ~~Certain funds~~Funds meet the criteria for consolidating a VOE ~~because~~when the Company possesses substantially all of the economics and all of the decision-making authority.

~~During six months 2023, no consolidated CLO warehouses became CLOs. During six months 2022, two consolidated CLO warehouses became CLOs.~~

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Assets and Liabilities of CIVs


		As of					As of
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(in millions)					(in millions)
Assets:	Assets:					Assets:
Fund assets:	Fund assets:					Fund assets:
Cash and cash equivalents	Cash and cash equivalents	$	28	$	59	Cash and cash equivalents	$	7	$	59
Fund investments, at fair value	Fund investments, at fair value					Fund investments, at fair value
Equity securities and warrants	Equity securities and warrants	299		434		Equity securities and warrants	79		434
Structured products						Structured products	239		128
Corporate securities	Corporate securities	84		96		Corporate securities	—		96
Structured products		74		128
Due from brokers and counterparties		3		—
Other	Other	—		1		Other	5		1
CLO and CLO warehouse assets:	CLO and CLO warehouse assets:					CLO and CLO warehouse assets:
Cash	Cash	21		38		Cash	—		38
CLO investments:	CLO investments:					CLO investments:
Loans in CLOs, FVO		4,283		4,202
Loans in CLO warehouses, FVO		169		368
Loans in CLOs and CLO warehouses, FVO						Loans in CLOs and CLO warehouses, FVO	—		4,570
Short-term investments, at fair value	Short-term investments, at fair value	69		135		Short-term investments, at fair value	—		135
Due from brokers and counterparties	Due from brokers and counterparties	25		32		Due from brokers and counterparties	—		32
Total assets (1)	Total assets (1)	$	5,055	$	5,493	Total assets (1)	$	330	$	5,493
Liabilities:	Liabilities:					Liabilities:
CLO obligations, FVO (2)	CLO obligations, FVO (2)	4,138		4,090		CLO obligations, FVO (2)	—		4,090
Warehouse financing debt, FVO (3)	Warehouse financing debt, FVO (3)	157		313		Warehouse financing debt, FVO (3)	—		313
Due to brokers and counterparties	Due to brokers and counterparties	60		112		Due to brokers and counterparties	4		112
Other liabilities		105		110
Other liabilities (4)						Other liabilities (4)	—		110
Total liabilities	Total liabilities	$	4,460	$	4,625	Total liabilities	$	4	$	4,625

____________________

(1) Includes investments in AssuredIM ~~Funds~~funds and other affiliated entities of ~~$267 million and~~ $392 million as of ~~June 30, 2023 and~~ December 31, ~~2022, respectively.~~2022. Includes ~~assets of a VOE of $24 million as of June 30, 2023, and~~ assets and liabilities of a VOE of $58 million and $1 million, respectively, as of December 31, 2022.

(2) ~~The~~As of December 31, 2022, the weighted average maturity of CLO obligations was ~~5.8 years as of June 30, 2023 and~~ 6.2 years ~~as of December 31, 2022. The~~and the weighted average interest rate of CLO obligations was ~~6.6% as of June 30, 2023 and~~ 5.3% ~~as of December 31, 2022. CLO obligations have stated final maturity dates from 2034 to 2035.~~.

(3) The weighted average maturity of warehouse financing debt of CLO warehouses was ~~0.3 years as of June 30, 2023 and~~ 1.9 years as of December 31, 2022. The weighted average interest rate of warehouse financing debt of CLO warehouses was ~~5.3% as of June 30, 2023 and~~ 4.5% as of December 31, 2022. ~~Warehouse financing debt will mature at various dates from 2023 to 2024.~~

~~The “equity securities and warrants” category in the table above includes $127 million as~~(4) As of December 31, 2022, related to a consolidated feeder’s investment in a municipal master fund that was unwound in January 2023 based on its December 31, 2022 valuation. On January 31, 2023, the fund distributed substantially all of its available cash to AGAS and other investors in the fund. As of June 30, 2023 and December 31, 2022, other liabilities in the table above includeincludes redeemable noncontrolling interests (NCI).

As of ~~June~~September 30, 2023, the CIVs had unfunded commitments to invest of ~~$452~~$143 million.

As of ~~June~~September 30, 2023 and December 31, 2022, the CIVs included derivative contracts with notional amounts totaling ~~$39~~$36 million and $46 million, respectively, and average notional amounts of ~~$42~~$41 million and $47 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$7 million for ~~second quarter 2022 and $8 million for six~~nine months 2022.

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

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 June 30, 2023, these credit facilities had varying maturities ranging from 2023 to 2024 with the aggregate principal amount not exceeding $820 million. The available commitments were based on the amount of equity contributed to the warehouses which was $217 million. As of June 30, 2023, $134 million was drawn under credit facilities with interest rate Euro InterBank Offered Rate (Euribor) plus 300 basis points (bps) (with a floor on Euribor of zero). The CLO warehouses were in compliance with all financial covenants as of June 30, 2023.

As of June 30, 2023, 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 $110 million jointly and $71 million individually for the consolidated healthcare fund. The available commitment was based on the capital committed to the funds. As of June 30, 2023, $54 million was drawn 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 June 30, 2023.

NCI in CIVs

NCI represents the proportion of the consolidated funds not owned by the Company and includes ownership interests of third parties, employees, and former employees. The NCI is non-redeemable and presented on the statement of shareholders’ equity.

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 obligations under the original financial guaranty insurance or insured credit derivative contract, the Company classifies the assets and liabilities of that VIE in the line items that most accurately reflect the

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 ~~$89~~$87 million and liabilities of $9$7 million as of ~~June~~September 30, 2023, and assets of $86 million and liabilities of $12 million as of December 31, 2022, 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 15 thousand policies monitored as of ~~June~~September 30, 2023, 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. As of ~~both June~~September 30, 2023 and December 31, 2022, the Company identified 66 and 85, respectively, policies that contain provisions and experienced events that may trigger consolidation.

The Company ~~manages funds and CLOs that have been determined to be~~holds variable interests in non-FG VIEs in which are not consolidated, as the Company ~~concluded that it~~ is not the primary ~~beneficiary because it lacks a controlling financial interest.~~beneficiary. As ~~such,~~of September 30, 2023, the ~~Company does not consolidate these entities. The~~ Company’s ~~equity interests in these entities are reported in “other invested assets” on the condensed consolidated balance sheets. The~~ maximum exposure to ~~loss~~losses relating to these non-FG VIEs was $251 million, which is limited to the ~~Company’s investment in equity interests (which is less than $1~~carrying value of these investments of $239 million asand other assets of ~~both June 30, 2023 and December 31, 2022) as well as foregone future management and performance fees. See Note 10, Asset Management Fees, for earnings and receivables from managing funds and CLOs.~~$12 million.

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

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

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 ~~six~~nine months 2023, 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 valuation methods produce fair values that may not be indicative of net realizable value or 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.

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, with Level 1 being the highest and Level 3 the lowest. An asset’s or liability’s categorization within the hierarchy 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.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

There was a transfer of a fixed-maturity security in the investment ~~portfolio and securities in the FG VIEs’ asset~~ portfolio from Level 3 to Level 2 during ~~second~~third quarter ~~2022.~~2023 and nine months 2023. 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

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

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 ~~June~~September 30, 2023, the Company used models to price ~~193~~189 securities. 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 as Level 1 as their value is based on quoted market prices. Securities such as discount notes are classified as Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

~~Other Invested Assets~~

Other invested assets that are carried at fair value primarily include equity method investments for which the Company elected the FVO using NAV, as a practical expedient, and, therefore, are excluded from the fair value hierarchy.

Other Assets

Committed Capital Securities

Each of AGC and AGM have entered into put agreements with four 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 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, the

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

Supplemental Executive Retirement Plans

The Company classified 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.

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~~Assured Guaranty Ltd.~~

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

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 from time-to-time mutually agreed with various counterparties to terminate certain CDS transactions. In transactions where the counterparty does not have the right to terminate, such transactions were generally terminated for an amount that approximated 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.

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 ~~June~~September 30, 2023 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.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The primary sources of information used to determine gross spread 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.

~~Table~~•Credit spreads provided by the counterparty of ~~Contents~~the CDS.

~~Assured Guaranty Ltd.~~

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

The rates used to discount future expected premium cash flows ranged from ~~2.94%~~3.62% to ~~5.48%~~5.41% at ~~June~~September 30, 2023 and 2.78% to 5.08% at December 31, 2022.

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 limiting the amount of unrealized gains that are recognized on certain CDS contracts. Given market conditions and the Company’s own credit spreads, approximately ~~10.6%~~11.2%, based on fair value, of the Company’s CDS contracts were fair valued using this minimum premium as of ~~June~~September 30, 2023. As of December 31, 2022, 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 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 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 applicable discount rate 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.

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

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~~Assured Guaranty Ltd.~~

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

•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

FG VIEs include Puerto Rico Trusts and structured finance and other FG VIEs. Assets in the Puerto Rico Trusts, which consist of New Recovery Bonds and CVIs, are classified as Level 2. The Company elected the FVO for the Puerto Rico Trusts’ liabilities and they are classified as Level 3. See “ - Fixed Maturity Securities” above for a description of the fair value methodology for the New Recovery Bonds and CVIs in the Puerto Rico Trusts. ~~For structured~~Structured finance and other FG VIEs’ assets and liabilities ~~the Company elected~~are carried at fair value under the FVO and ~~they~~ are classified as Level 3.

The prices are generally determined with the assistance of an independent third party, based on a discounted cash flow approach. The Company records the fair value of structured finance and other FG VIEs’ assets and liabilities based on modeled prices. 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 fair value of the FG VIEs’ assets and the implied collateral losses within these transactions. 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 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 prices of the assets and liabilities of the FG VIEs are generally determined with the assistance of an independent third party, based on a discounted cash flow approach. The third party pricing service 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 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 an 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 change in fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for (i) the change in fair value attributable to change in ISCR on FG

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

VIEs’ liabilities, and (ii) unrealized gains and losses on the New Recovery Bonds in the Puerto Rico Trusts, which are reported in OCI. Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on FG VIEs.” Investment income on the New Recovery Bonds and changes in fair value on the CVIs in the Puerto Rico Trusts are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of operations.

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 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

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~~Assured Guaranty Ltd.~~

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

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 underlying financial liabilities to 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 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 (vi) 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 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.

Until July 1, 2023, the consolidated CLOs were collateralized financing entities (CFEs), and therefore, the debt issued by, and loans held by, the consolidated CLOs were measured under the FVO using the CFE practical expedient. Loans in CLOs were priced using a loan pricing service which aggregated quotes from loan market participants. The loans were 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 was measured on the basis of the more observable CLO loans. Under the CFE practical expedient guidance, the loans of consolidated CLOs were measured at fair value and the debt of consolidated CLOs were 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 was allocated to the individual financial liabilities (other than the underlying financial liabilities to the beneficial interests retained by the Company).

Prior to securitization, when loans were warehoused in an investment vehicle, such vehicle was not considered a CFE. The Company had elected the 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 securitized and became a CLO.

As of December 31, 2022, Level 2 assets in the CIVs ~~include~~included assets of the consolidated CLOs and certain assets of the consolidated funds. Level 3 assets in the CIVs ~~include~~included the remainder of the invested assets of consolidated funds. Level 2 liabilities in the CIVs ~~include~~included senior warehouse financing debt used to fund a CLO warehouse (measured under the FVO). Level 3 liabilities of the CIVs ~~include~~included 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.

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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 ~~June~~September 30, 2023


		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:
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	$	—	$	2,830	$	46	$	2,876	Obligations of state and political subdivisions	$	—	$	2,764	$	2	$	2,766
U.S. government and agencies	U.S. government and agencies	—		64		—		64		U.S. government and agencies	—		58		—		58
Corporate securities	Corporate securities	—		2,066		—		2,066		Corporate securities	—		2,009		—		2,009
Mortgage-backed securities:	Mortgage-backed securities:									Mortgage-backed securities:
RMBS	RMBS	—		190		162		352		RMBS	—		177		153		330
CMBS	CMBS	—		204		—		204		CMBS	—		188		—		188
Asset-backed securities	Asset-backed securities	—		28		800		828		Asset-backed securities	—		27		796		823
Non-U.S. government securities	Non-U.S. government securities	—		98		—		98		Non-U.S. government securities	—		93		—		93
Total fixed-maturity securities, available-for-sale	Total fixed-maturity securities, available-for-sale	—		5,480		1,008		6,488		Total fixed-maturity securities, available-for-sale	—		5,316		951		6,267
Fixed-maturity securities, trading	Fixed-maturity securities, trading	—		340		—		340		Fixed-maturity securities, trading	—		350		—		350
Short-term investments	Short-term investments	1,629		21		—		1,650		Short-term investments	1,418		8		—		1,426
Other invested assets (1)	Other invested assets (1)	—		—		3		3		Other invested assets (1)	—		—		3		3
FG VIEs’ assets	FG VIEs’ assets	—		223		188		411		FG VIEs’ assets	—		146		180		326
Assets of CIVs (2):
Fund investments:
Assets of CIVs:										Assets of CIVs:
Equity securities and warrants	Equity securities and warrants	—		4		290		294		Equity securities and warrants	—		4		75		79
Corporate securities		—		—		84		84
Structured products	Structured products	—		74		—		74		Structured products	—		66		173		239
CLOs and CLO warehouse assets:
Loans		—		4,452		—		4,452
Short-term investments		69		—		—		69
Total assets of CIVs	Total assets of CIVs	69		4,530		374		4,973		Total assets of CIVs	—		70		248		318
Assets held for sale		1		—		—		1
Other assets	Other assets	59		49		33		141		Other assets	51		48		13		112
Total assets carried at fair value	Total assets carried at fair value	$	1,758	$	10,643	$	1,606	$	14,007	Total assets carried at fair value	$	1,469	$	5,938	$	1,395	$	8,802
Liabilities:	Liabilities:									Liabilities:
Credit derivative liabilities	Credit derivative liabilities	$	—	$	—	$	58	$	58	Credit derivative liabilities	$	—	$	—	$	50	$	50
FG VIEs’ liabilities (3)	FG VIEs’ liabilities (3)	—		—		699		699		FG VIEs’ liabilities (3)	—		—		542		542
Liabilities of CIVs:
CLO obligations of CFEs		—		—		4,138		4,138
Warehouse financing debt		—		127		30		157
Securitized borrowing		—		—		31		31

Total liabilities of CIVs		—		127		4,199		4,326
Liabilities held for sale		—		7		—		7

Total liabilities carried at fair value	Total liabilities carried at fair value	$	—	$	134	$	4,956	$	5,090	Total liabilities carried at fair value	$	—	$	—	$	592	$	592

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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, 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:
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	$	—	$	3,347	$	47	$	3,394	Obligations of state and political subdivisions	$	—	$	3,347	$	47	$	3,394
U.S. government and agencies	U.S. government and agencies	—		111		—		111		U.S. government and agencies	—		111		—		111
Corporate securities	Corporate securities	—		2,084		—		2,084		Corporate securities	—		2,084		—		2,084
Mortgage-backed securities:	Mortgage-backed securities:									Mortgage-backed securities:
RMBS	RMBS	—		161		179		340		RMBS	—		161		179		340
CMBS	CMBS	—		271		—		271		CMBS	—		271		—		271
Asset-backed securities	Asset-backed securities	—		27		794		821		Asset-backed securities	—		27		794		821
Non-U.S. government securities	Non-U.S. government securities	—		98		—		98		Non-U.S. government securities	—		98		—		98
Total fixed-maturity securities, available-for-sale	Total fixed-maturity securities, available-for-sale	—		6,099		1,020		7,119		Total fixed-maturity securities, available-for-sale	—		6,099		1,020		7,119
Fixed-maturity securities, trading	Fixed-maturity securities, trading	—		303		—		303		Fixed-maturity securities, trading	—		303		—		303
Short-term investments	Short-term investments	771		39		—		810		Short-term investments	771		39		—		810
Other invested assets (1)	Other invested assets (1)	2		—		5		7		Other invested assets (1)	2		—		5		7
FG VIEs’ assets	FG VIEs’ assets	—		209		204		413		FG VIEs’ assets	—		209		204		413
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	—		5		297		302		Equity securities and warrants	—		5		297		302
Corporate securities	Corporate securities	—		—		96		96		Corporate securities	—		—		96		96
Structured products	Structured products	—		82		46		128		Structured products	—		82		46		128
CLOs and CLO warehouse assets:	CLOs and CLO warehouse assets:									CLOs and CLO warehouse assets:
Loans	Loans	—		4,570		—		4,570		Loans	—		4,570		—		4,570
Short-term investments	Short-term investments	135		—		—		135		Short-term investments	135		—		—		135
Total assets of CIVs	Total assets of CIVs	135		4,657		439		5,231		Total assets of CIVs	135		4,657		439		5,231
Other assets	Other assets	54		46		48		148		Other assets	54		46		48		148
Total assets carried at fair value	Total assets carried at fair value	$	962	$	11,353	$	1,716	$	14,031	Total assets carried at fair value	$	962	$	11,353	$	1,716	$	14,031
Liabilities:	Liabilities:									Liabilities:
Credit derivative liabilities	Credit derivative liabilities	$	—	$	—	$	163	$	163	Credit derivative liabilities	$	—	$	—	$	163	$	163
FG VIEs’ liabilities (3)	FG VIEs’ liabilities (3)	—		—		715		715		FG VIEs’ liabilities (3)	—		—		715		715
Liabilities of CIVs:	Liabilities of CIVs:									Liabilities of CIVs:
CLO obligations of CFEs	CLO obligations of CFEs	—		—		4,090		4,090		CLO obligations of CFEs	—		—		4,090		4,090
Warehouse financing debt	Warehouse financing debt	—		277		36		313		Warehouse financing debt	—		277		36		313
Securitized borrowing	Securitized borrowing	—		—		28		28		Securitized borrowing	—		—		28		28
Total liabilities of CIVs	Total liabilities of CIVs	—		277		4,154		4,431		Total liabilities of CIVs	—		277		4,154		4,431
Other liabilities	Other liabilities	—		7		—		7		Other liabilities	—		7		—		7
Total liabilities carried at fair value	Total liabilities carried at fair value	$	—	$	284	$	5,032	$	5,316	Total liabilities carried at fair value	$	—	$	284	$	5,032	$	5,316

___________________

(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis. ~~Excludes $23 million~~

(2) As of ~~equity method investments measured at fair value under the FVO using the NAV as a practical expedient as of both June 30, 2023 and~~ December 31, ~~2022.~~

~~(2) Excludes~~2022, excludes $5 million ~~as of both June 30, 2023 and December 31, 2022,~~ in investments in AssuredIM ~~Funds~~funds for which the Company ~~records~~recorded a 100% NCI. The consolidation of these funds ~~results~~resulted in a gross up of assets and NCI on the consolidated financial statements; however, it ~~results~~resulted in no economic equity or net income attributable to AGL. ~~As of December 31, 2022, excludes $127 million investment in the AssuredIM municipal relative value master fund, which is measured using NAV as a practical expedient.~~

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

(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.

Table of Contents

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 ~~second~~third quarter 2023, ~~second~~third quarter 2022, ~~six~~nine months 2023 and ~~six~~nine months 2022.

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

~~Second~~Third Quarter 2023


		Fixed-Maturity Securities, Available-for-Sale												Assets of CIVs												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)				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)																								(in millions)
Fair value as of March 31, 2023		$	47		$	174		$	795		$	197		$	329		$	93		$	17	$	34
Fair value as of June 30, 2023																									Fair value as of June 30, 2023	$	46	$	162		$	800		$	188		$	290		$	84	$	—		$	33
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)	1		(1)	4		(1)	(3)		(1)	(2)		(2)	7		(4)	(1)		(4)	—		3		(3)	Net income (loss)	—		4		(1)	13		(1)	1		(2)	5		(4)	—		7		(4)	(20)		(3)
Other comprehensive income (loss)	Other comprehensive income (loss)	(1)			(7)			(5)			—			—			—			—		—			Other comprehensive income (loss)	(3)		(6)			(2)			—			—			—		—			—
Purchases	Purchases	—			—			18			—			34			2			—		—			Purchases	—		—			—			—			3			—		—			—
Sales	Sales	—			—			(2)			—			(80)			(10)			(17)		—			Sales	—		—			—			—			(4)			—		—			—
Settlements	Settlements	(1)			(9)			(3)			(7)			—			—			—		(4)			Settlements	(1)		(7)			(15)			(9)			—			—		—			—

Fair value as of June 30, 2023		$	46		$	162		$	800		$	188		$	290		$	84		$	—	$	33
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2023 included in:
Consolidations																									Consolidations	—		—			—			—			—			—		—			—
Deconsolidations																									Deconsolidations	—		—			—			—			(219)			(84)		166			—
Transfers out of Level 3																									Transfers out of Level 3	(40)		—			—			—			—			—		—			—
Fair value as of September 30, 2023																									Fair value as of September 30, 2023	$	2	$	153		$	796		$	180		$	75		$	—	$	173		$	13
Change in unrealized gains (losses) related to financial instruments held as of September 30, 2023 included in:																									Change in unrealized gains (losses) related to financial instruments held as of September 30, 2023 included in:
Earnings	Earnings										$	(3)	(2)	$	(33)	(4)	$	—		$	—	$	3	(3)	Earnings									$	—		$	6	(4)	$	—	$	7	(4)	$	(20)	(3)
OCI	OCI	$	(1)		$	(7)		$	(4)													$	—		OCI	$	—	$	(6)		$	3													$	—

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

~~Second~~Third Quarter 2023


		Credit Derivative Liability, net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs				Credit Derivative Liability, net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs
		(in millions)										(in millions)
Fair value as of March 31, 2023		$	(148)		$	(704)		$	(4,220)
Fair value as of June 30, 2023											Fair value as of June 30, 2023	$	(57)		$	(699)		$	(4,199)
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)	91		(6)	(2)		(2)	17		(4)	Net income (loss)	9		(6)	17		(2)	—
Other comprehensive income (loss)	Other comprehensive income (loss)	—			2			(5)			Other comprehensive income (loss)	—			13			—

Settlements	Settlements	—			5			9			Settlements	(1)			127			—

Fair value as of June 30, 2023		$	(57)		$	(699)		$	(4,199)
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2023 included in:
Deconsolidations											Deconsolidations	—			—			4,199
Fair value as of September 30, 2023											Fair value as of September 30, 2023	$	(49)		$	(542)		$	—
Change in unrealized gains (losses) related to financial instruments held as of September 30, 2023 included in:											Change in unrealized gains (losses) related to financial instruments held as of September 30, 2023 included in:
Earnings	Earnings	$	91	(6)	$	4	(2)	$	(2)	(4)	Earnings	$	9	(6)	$	9	(2)	$	—
OCI	OCI				$	2		$	(5)		OCI				$	13		$	—

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Third 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			Structured Products			Other (7)
	(in millions)
Fair value as of June 30, 2022	$	51	$	184		$	805		$	223		$	258		$	90		$	38		$	37
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	—		3		(1)	2		(1)	3		(2)	(11)		(4)	(2)		(4)	(3)		(4)	1		(3)
Other comprehensive income (loss)	(3)		(8)			1			—			—			—			—			—
Purchases	—		22			4			—			52			1			8			—
Sales	—		—			(1)			—			(2)			(2)			—			—
Settlements	—		(9)			(5)			(16)			—			—			—			—
Fair value as of September 30, 2022	$	48	$	192		$	806		$	210		$	297		$	87		$	43		$	38
Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:
Earnings									$	3	(2)	$	(11)	(4)	$	(2)	(4)	$	(3)	(4)	$	1	(3)
OCI	$	(3)	$	(8)		$	1														$	—

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

Third Quarter 2022


	Credit Derivative Liability, net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs
	(in millions)
Fair value as of June 30, 2022	$	(147)		$	(282)		$	(3,987)
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)	(48)		(6)	8		(2)	(31)		(4)
Other comprehensive income (loss)	—			(4)			41
Issuances	—			—			(8)
Sales	—			—			2
Settlements	1			27			—
Consolidations	—			—			(26)
Fair value as of September 30, 2022	$	(194)		$	(251)		$	(4,009)
Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:
Earnings	$	(46)	(6)	$	8	(2)	$	(13)	(4)
OCI				$	(4)		$	41

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

~~Second Quarter 2022~~Nine Months 2023


		Fixed-Maturity Securities, Available-for-Sale												Assets of CIVs													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)				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)																									(in millions)
Fair value as of March 31, 2022		$	70		$	200		$	842		$	267		$	243		$	83		$	—		$	28
Fair value as of December 31, 2022																										Fair value as of December 31, 2022	$	47		$	179		$	794		$	204		$	297		$	96		$	46		$	50
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)	(1)		(1)	6		(1)	(3)		(1)	1		(2)	16		(4)	7		(4)	(3)		(4)	10		(3)	Net income (loss)	1		(1)	11		(1)	13		(1)	—			45		(4)	(3)		(4)	9		(4)	(33)		(3)
Other comprehensive income (loss)	Other comprehensive income (loss)	(3)			(11)			(30)			—			—			—			—			(1)			Other comprehensive income (loss)	(3)			(14)			(10)			—			—			—			—			—
Purchases	Purchases	—			—			10			—			5			—			42			—			Purchases	—			—			23			—			41			6			—			—
Sales	Sales	—			—			(9)			—			(6)			—			(21)			—			Sales	—			—			(2)			—			(89)			(15)			(48)			—
Settlements	Settlements	(14)			(11)			(5)			(26)			—			—			—			—			Settlements	(3)			(23)			(22)			(24)			—			—			—			(4)

Deconsolidations	Deconsolidations	—			—			—			(15)			—			—			20			—			Deconsolidations	—			—			—			—			(219)			(84)			166			—
Transfers out of Level 3	Transfers out of Level 3	(1)			—			—			(4)			—			—			—			—			Transfers out of Level 3	(40)			—			—			—			—			—			—			—
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:
Fair value as of September 30, 2023																										Fair value as of September 30, 2023	$	2		$	153		$	796		$	180		$	75		$	—		$	173		$	13
Change in unrealized gains (losses) related to financial instruments held as of September 30, 2023 included in:																										Change in unrealized gains (losses) related to financial instruments held as of September 30, 2023 included in:
Earnings	Earnings										$	2	(2)	$	10	(4)	$	7	(4)	$	(3)	(4)	$	10	(3)	Earnings										$	(3)	(2)	$	6	(4)	$	—		$	7	(4)	$	(33)	(3)
OCI	OCI	$	(4)		$	(10)		$	(29)														$	(1)		OCI	$	—		$	(13)		$	—														$	—

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

~~Second Quarter 2022~~Nine Months 2023


		Credit Derivative Liability, net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs				Credit Derivative Liability, net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs
		(in millions)										(in millions)
Fair value as of March 31, 2022		$	(156)		$	(335)		$	(3,650)
Fair value as of December 31, 2022											Fair value as of December 31, 2022	$	(162)		$	(715)		$	(4,154)
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)	9		(6)	11		(2)	250		(4)	Net income (loss)	115		(6)	18		(2)	(45)		(4)
Other comprehensive income (loss)	Other comprehensive income (loss)	—			3			37			Other comprehensive income (loss)	—			14			(13)
Issuances		—			—			(1,027)

Settlements	Settlements	—			24			29			Settlements	(2)			141			13

Deconsolidations	Deconsolidations	—			15			374			Deconsolidations	—			—			4,199
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:
Fair value as of September 30, 2023											Fair value as of September 30, 2023	$	(49)		$	(542)		$	—
Change in unrealized gains (losses) related to financial instruments held as of September 30, 2023 included in:											Change in unrealized gains (losses) related to financial instruments held as of September 30, 2023 included in:
Earnings	Earnings	$	8	(6)	$	11	(2)	$	262	(4)	Earnings	$	114	(6)	$	11	(2)	$	—
OCI	OCI				$	3		$	37		OCI				$	14		$	—

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

~~Six~~Nine Months ~~2023~~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, 2022 $ 47 $ 179 $ 794 $ 204 $ 297 $ 96 $ 46 $ 50
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss) 1 (1) 7 (1) — (1) (2) 40 (4) (3) (4) 2 (4) (13) (3)
Other comprehensive income (loss) — (8) (8) — — — — —
Purchases — — 23 — 38 6 — —
Sales — — (2) — (85) (15) (48) —
Settlements (2) (16) (7) (15) — — — (4)
Fair value as of June 30, 2023 $ 46 $ 162 $ 800 $ 188 $ 290 $ 84 $ — $ 33
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2023 included in:
Earnings $ (3) (2) $ (1) (4) $ (3) (4) $ — $ (13) (3)
OCI $ — $ (8) $ (7) $ —

~~Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis~~

~~Six Months 2023~~


		Credit Derivative Liability, net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs				Fixed-Maturity Securities, Available-for-Sale											Assets of CIVs
		(in millions)										Obligations of State and Political Subdivisions		RMBS			Asset- Backed Securities			FG VIEs’ Assets			Equity Securities			Corporate Securities			Structured Products			Other (7)
Fair value as of December 31, 2022		$	(162)		$	(715)		$	(4,154)
												(in millions)
Fair value as of December 31, 2021											Fair value as of December 31, 2021	$	72	$	216		$	863		$	260		$	239		$	91		$	—		$	27
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)	106		(6)	1		(2)	(45)		(4)	Net income (loss)	—		13		(1)	2		(1)	—			15		(4)	4		(4)	(6)		(4)	12		(3)
Other comprehensive income (loss)	Other comprehensive income (loss)	—			1			(13)			Other comprehensive income (loss)	(11)		(27)			(36)			—			—			—			—			(1)

Purchases											Purchases	—		22			39			—			57			2			50			—
Sales											Sales	—		—			(13)			—			(14)			(10)			(21)			—
Settlements	Settlements	(1)			14			13			Settlements	(13)		(32)			(49)			(50)			—			—			—			—

Fair value as of June 30, 2023		$	(57)		$	(699)		$	(4,199)
Change in unrealized gains (losses) related to financial instruments held as of June 30, 2023 included in:
Consolidations											Consolidations	—		—			—			15			—			—			—			—
Deconsolidations											Deconsolidations	—		—			—			(15)			—			—			20			—
Fair value as of September 30, 2022											Fair value as of September 30, 2022	$	48	$	192		$	806		$	210		$	297		$	87		$	43		$	38
Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:											Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:
Earnings	Earnings	$	105	(6)	$	2	(2)	$	(67)	(4)	Earnings									$	1	(2)	$	7	(4)	$	3	(4)	$	(6)	(4)	$	12	(3)
OCI	OCI				$	1		$	(13)		OCI	$	(13)	$	(25)		$	(35)														$	(1)

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets (Liabilities) 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 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)

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

~~Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis~~

~~Six~~Nine Months 2022


		Credit Derivative Liability, net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs				Credit Derivative Liability, net (5)			FG VIEs’ Liabilities (8)			Liabilities of CIVs
		(in millions)										(in millions)
Fair value as of December 31, 2021	Fair value as of December 31, 2021	$	(154)		$	(289)		$	(3,705)		Fair value as of December 31, 2021	$	(154)		$	(289)		$	(3,705)
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)	6		(6)	26		(2)	295		(4)	Net income (loss)	(42)		(6)	34		(2)	264		(4)
Other comprehensive income (loss)	Other comprehensive income (loss)	—			3			56			Other comprehensive income (loss)	—			(1)			97
Issuances	Issuances	—			—			(1,408)			Issuances	—			—			(1,416)
Sales											Sales	—			—			2
Settlements	Settlements	1			65			401			Settlements	2			92			401
Consolidations	Consolidations	—			(102)			—			Consolidations	—			(102)			(26)
Deconsolidations	Deconsolidations	—			15			374			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:
Fair value as of September 30, 2022											Fair value as of September 30, 2022	$	(194)		$	(251)		$	(4,009)
Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:											Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:
Earnings	Earnings	$	5	(6)	$	49	(2)	$	303	(4)	Earnings	$	(41)	(6)	$	57	(2)	$	289	(4)
OCI	OCI				$	3		$	56		OCI				$	(1)		$	97

____________________

(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 (loss).”

(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 ~~June~~September 30, 2023
Financial Instrument Description Fair Value Assets (Liabilities)
(in millions) Significant Unobservable Inputs Range Weighted Average (4)
Investments (2):
Fixed-maturity securities, available-for-sale (1):
Obligations of state and political subdivisions $ 46 Yield 7.3 % - 20.0% 8.8%
RMBS 162 CPR 1.0 % - 15.1% 4.2%
CDR 1.5 % - 16.0% 5.8%
Loss severity 50.0 % - 125.0% 82.6%
Yield 7.5 % - 11.8% 9.0%
Asset-backed securities:
Life insurance transactions 326 Yield 8.1%
CLOs 454 Discount margin 1.5 % - 3.9% 2.6%
Others 20 Yield 7.0 % - 12.8% 12.7%
FG VIEs’ assets (1) 188 CPR 0.4 % - 22.1% 8.3%
CDR 1.3 % - 41.0% 9.3%
Loss severity 45.0 % - 100.0% 82.5%
Yield 8.0 % - 11.1% 9.5%
Assets of CIVs (3):
Equity securities and warrants 290 Yield 8.7%
Discount rate 17.1 % - 27.4% 23.6%
Market multiple-enterprise value/revenue 0.95x - 0.99x 0.97x
Market multiple-enterprise value/EBITDA (6) 2.50x - 11.50x 10.66x
Market multiple-price to book 1.00x
Market multiple-price to earnings 5.25x
Terminal growth rate 3.0 % - 4.0% 3.4%
Exit multiple-EBITDA 11.00x - 12.00x 11.29x
Exit multiple-price to book 1.10x
Exit multiple-price to earnings 5.25x
Cost 1.00x
Sale scenario - discount rate 4.7 % - 4.8% 4.8%
Haircut to Holdback 30.0 % - 95.0% 62.5%
Corporate securities 84 Discount rate 17.1%
Yield 16.3%
Cost 1.00x
Market multiple-enterprise value/EBITDA 2.50x - 2.75x 2.63x
Other assets (1) 32 Implied Yield 8.1 % - 8.7% 8.4%
Term (years) 10 years

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

Financial Instrument Description Fair Value Assets (Liabilities)
(in millions) Significant Unobservable Inputs Range Weighted Average (4)
Credit derivative liabilities, net (1) $ (57) Hedge cost (in bps) 17.2 - 39.5 24.2
Bank profit (in bps) 115.9 - 298.8 178.0
Internal floor (in bps) 10.0
Internal credit rating AAA - CCC AA
FG VIEs’ liabilities (1) (699) CPR 0.4 % - 22.1% 8.3%
CDR 1.3 % - 41.0% 9.3%
Loss severity 45.0 % - 100.0% 82.5%
Yield 4.5 % - 11.1% 5.5%
Liabilities of CIVs (1):
CLO obligations of CFEs (5) (4,138) Yield 4.8 % - 24.1% 7.0%
Warehouse financing debt (30) Yield 0.0 % - 9.3% 9.3%
Securitized borrowing (31) Discount rate 24.3%
Terminal growth rate 3.0%
Exit multiple-EBITDA 11.00x
Market multiple-enterprise value/EBITDA 10.50x - 11.50x 11.00x


Financial Instrument Description	Fair Value Assets (Liabilities) (in millions)		Significant Unobservable Inputs	Range				Weighted Average (4)
Investments (2):
Fixed-maturity securities, available-for-sale (1):
Obligations of state and political subdivisions	$	2	Yield	8.8	%	-	21.5%	9.1%
RMBS	153		CPR	0.0	%	-	15.0%	3.9%
			CDR	1.4	%	-	16.0%	5.7%
			Loss severity	50.0	%	-	125.0%	82.6%
			Yield	8.2	%	-	11.9%	9.7%
Asset-backed securities:
Life insurance transactions	331		Yield	8.1%
CLOs	454		Discount margin	1.3	%	-	7.8%	2.7%
Others	11		Yield	6.3	%	-	12.3%	12.1%
FG VIEs’ assets (1)	180		CPR	0.1	%	-	21.2%	8.0%
			CDR	1.3	%	-	41.0%	9.3%
			Loss severity	45.0	%	-	100.0%	82.6%
			Yield	8.1	%	-	11.5%	10.1%
Assets of CIVs (3):
Equity securities and warrants	75		Discount rate	20.9%
			Market multiple-price to book	1.10x
			Market multiple-price to earnings	5.25x
			Terminal growth rate	4.0%
			Exit multiple-price to book	1.10x
			Exit multiple-price to earnings	5.25x
Structured products	173		Yield	7.5	%	-	28.1%	17.9%
Other assets (1)	12		Implied Yield	7.7	%	-	8.2%	7.9%
			Term (years)	10 years
Credit derivative liabilities, net (1)	(49)		Hedge cost (in bps)	17.2		-	39.2	24.1
			Bank profit (in bps)	115.5		-	293.2	155.7
			Internal floor (in bps)	10.0
			Internal credit rating	AAA		-	CCC	A
FG VIEs’ liabilities (1)	(542)		CPR	0.1	%	-	21.2%	8.0%
			CDR	1.3	%	-	41.0%	9.3%
			Loss severity	45.0	%	-	100.0%	82.6%
			Yield	5.5	%	-	11.5%	6.5%

___________________

(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 $3 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).~~

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Quantitative Information About Level 3 Fair Value Inputs

As of December 31, 2022


Financial Instrument Description	Financial Instrument Description	Fair Value Assets (Liabilities) (in millions)			Significant Unobservable Inputs			Range						Weighted Average (4)	Financial Instrument Description			Fair Value Assets (Liabilities) (in millions)			Significant Unobservable Inputs				Range										Weighted Average (4)
Investments (2):	Investments (2):														Investments (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	$	47		Yield			7.4	%	-		13.5%		9.4%	Obligations of state and political subdivisions			$	47		Yield				7.4	%	-			13.5%					9.4%
RMBS	RMBS	179			CPR			3.8	%	-		16.1%		8.2%	RMBS			179			CPR				3.8	%	-			16.1%					8.2%
				CDR		1.5	%	-		12.0%			5.9%				CDR				1.5	%	-		12.0%					5.9%
				Loss severity		50.0	%	-		125.0%			82.5%				Loss severity				50.0	%	-		125.0%					82.5%
				Yield		7.5	%	-		11.3%			9.0%				Yield				7.5	%	-		11.3%					9.0%
Asset-backed securities:	Asset-backed securities:															Asset-backed securities:
Life insurance transactions	Life insurance transactions			342		Yield				11.3%							Life insurance transactions			342				Yield				11.3%
CLOs	CLOs			428		Discount margin				1.8	%	-	4.1%			3.0%			CLOs		428				Discount margin					1.8		%	-		4.1%			3.0%
Others	Others			24		Yield				7.4	%	-	12.9%			12.8%			Others		24				Yield					7.4		%	-		12.9%			12.8%
FG VIEs’ assets (1)	FG VIEs’ assets (1)	204			CPR			0.9	%	-		21.9%		12.9%	FG VIEs’ assets (1)			204			CPR				0.9	%	-			21.9%					12.9%
				CDR		1.3	%	-		41.0%			7.6%				CDR				1.3	%	-		41.0%					7.6%
				Loss severity		45.0	%	-		100.0%			81.0%				Loss severity				45.0	%	-		100.0%					81.0%
				Yield		6.6	%	-		10.9%			7.5%				Yield				6.6	%	-		10.9%					7.5%
Assets of CIVs (3):	Assets of CIVs (3):															Assets of CIVs (3):
Equity securities and warrants	Equity securities and warrants			297		Yield				10.0%							Equity securities and warrants			297				Yield				10.0%
					Discount rate			19.8%		-		25.1%		22.7%								Discount rate				19.8%			-			25.1%				22.7%
					Market multiple-enterprise value/revenue			1.05x		-		1.10x		1.08x								Market multiple-enterprise value/revenue				1.05x			-			1.10x				1.08x
					Market multiple-enterprise value/EBITDA			2.50x		-		11.00x		10.25x							Market multiple-enterprise value/EBITDA (6)				2.50x		-			11.00x					10.25x
					Market multiple-price to book			1.15x													Market multiple-price to book				1.15x
					Market multiple-price to earnings			4.50x													Market multiple-price to earnings				4.50x
					Terminal growth rate			3.0%		-		4.0%		3.5%							Terminal growth rate				3.0%		-			4.0%					3.5%
					Exit multiple-EBITDA			8.00x		-		12.00x		10.53x							Exit multiple-EBITDA				8.00x		-			12.00x					10.53x
					Exit multiple-price to book			1.30x													Exit multiple-price to book				1.30x
					Exit multiple-price to earnings			5.50x													Exit multiple-price to earnings				5.50x
					Cost			1.00x													Cost				1.00x
Corporate securities	Corporate securities			96		Discount rate				20.8	%	-	23.8%		21.7%		Corporate securities			96				Discount rate				20.8		%	-			23.8%			21.7%
					Yield			16.3%													Yield				16.3%
					Exit multiple-EBITDA			8.00x													Exit multiple-EBITDA				8.00x
					Cost			1.00x													Cost				1.00x
					Market multiple-enterprise value/EBITDA			2.50x		-		2.75x		2.63x							Market multiple-enterprise value/EBITDA				2.50x		-			2.75x					2.63x
Structured products	Structured products			46		Yield				12.8	%	-	37.1%		18.9%		Structured products			46				Yield				12.8		%	-			37.1%			18.9%
Other assets (1)	Other assets (1)	47			Implied Yield			7.7	%	-		8.4%		8.1%	Other assets (1)			47			Implied Yield				7.7	%	-			8.4%					8.1%
					Term (years)			10 years													Term (years)				10 years

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued


Financial Instrument Description	Fair Value Assets (Liabilities) (in millions)	Significant Unobservable Inputs	Range				Weighted Average (4)
Credit derivative liabilities, net (1)	(162)	Year 1 loss estimates	11.5	%	-	25.2%	15.7%
		Bank profit (in bps)	51.0		-	270.5	109.4
		Internal credit rating	AAA		-	CCC	AA
FG VIEs’ liabilities (1)	(715)	CPR	0.9	%	-	21.9%	6.3%
		CDR	1.3	%	-	41.0%	3.7%
		Loss severity	45.0	%	-	100.0%	39.9%
		Yield	4.8	%	-	10.9%	5.9%
Liabilities of CIVs (1):
CLO obligations of CFEs (5)	(4,090)	Yield	3.0	%	-	27.4%	5.5%
Warehouse financing debt	(36)	Yield	11.7	%	-	16.9%	12.9%
Securitized borrowing	(28)	Discount rate	20.9%
		Terminal growth rate	3.0%
		Exit multiple-EBITDA	11.00x
		Market multiple-enterprise value/EBITDA	10.00x		-	11.00x	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 $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).

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, 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 represents 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.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Other Liabilities

As of ~~June 30, 2023 and~~ December 31, 2022, ~~$36 million and~~ $35 million ~~respectively,~~ of AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5% of the senior and equity notes issued by certain consolidated European CLOs, which was required to comply with its European risk retention obligations, were included in ~~“liabilities held for sale” and~~ “other ~~liabilities,~~liabilities.” ~~respectively. 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.~~

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

Fair Value of Financial Instruments Not Carried at Fair Value


		As of June 30, 2023				As of December 31, 2022					As of September 30, 2023				As of December 31, 2022
		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)	$	47	$	47	$	46	$	46	Assets of CIVs (1)	$	21	$	21	$	46	$	46
Assets held for sale		10		10		—		—
Other assets (including other invested assets) (2)	Other assets (including other invested assets) (2)	130		131		92		93		Other assets (including other invested assets) (2)	106		107		92		93
Financial guaranty insurance contracts (3)	Financial guaranty insurance contracts (3)	(2,291)		(1,901)		(2,335)		(986)		Financial guaranty insurance contracts (3)	(2,280)		(1,712)		(2,335)		(986)
Long-term debt	Long-term debt	(1,677)		(1,491)		(1,675)		(1,477)		Long-term debt	(1,693)		(1,477)		(1,675)		(1,477)
Liabilities of CIVs (4)	Liabilities of CIVs (4)	(114)		(114)		(170)		(170)		Liabilities of CIVs (4)	(4)		(4)		(170)		(170)
Liabilities held for sale		(36)		(36)		—		—
Other liabilities (5)	Other liabilities (5)	(66)		(66)		(43)		(43)		Other liabilities (5)	(17)		(17)		(43)		(43)

____________________

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

(2) Primarily includes accrued interest, ~~management fees receivables for December 31, 2022,~~ a participation loan, and receivables for securities sold, for which carrying value approximates fair value. Also includes note receivable from Sound Point as of September 30, 2023 and management fees receivables as of December 31, 2022.

(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, as of December 31, 2022, fund’s loan payable. Carrying value approximates fair value.

(5) Primarily includes accrued interest, repurchase agreement liability as of December 31, 2022, 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 on a consolidated ~~basis.~~basis through the end of June 30, 2023. Upon closing of the Sound Point Transaction and the AHP Transaction, the Company ~~will account for~~deconsolidated the transferred AssuredIM subsidiaries and reports its investment in Sound Point as an equity method investment ~~rather than as~~(on a one-quarter lag). As a result, the Company no longer has asset management fee revenues on its consolidated ~~asset manager.~~statement of operations.

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

Asset Management Fees

Second Quarter Six Months
2023 2022 2023 2022
(in millions)
Management fees:
CLOs (1) $ 9 $ 8 $ 17 $ 17
Opportunity funds and liquid strategies 1 8 4 12
Wind-down funds — — — 1
Total management fees 10 16 21 30
Performance fees 6 1 18 15
Reimbursable fund expenses 11 4 14 10
Total asset management fees $ 27 $ 21 $ 53 $ 55


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Management fees	$	—	$	11	$	21	$	41
Performance fees	—		2		18		17
Reimbursable fund expenses	—		3		14		13
Total asset management fees	$	—	$	16	$	53	$	71

~~_____________________~~

(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.

Table of Contents

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

11. Long-Term Debt

The ~~Company had management~~principal and ~~performance fees receivable~~carrying values of ~~$10~~the Company’s debt are presented in the table below.

Principal and Carrying Amounts of Long-Term Debt


	As of September 30, 2023				As of December 31, 2022
	Principal		Carrying Value		Principal		Carrying Value
	(in millions)
AGUS 5% Senior Notes	$	—	$	—	$	330	$	329
AGUS 6.125% Senior Notes	350		345		—		—
AGUS 3.15% Senior Notes	500		495		500		495
AGUS 7% Senior Notes	200		198		200		198
AGUS 3.6% Senior Notes	400		395		400		395
AGUS Series A Enhanced Junior Subordinated Debentures	150		150		150		150
AGMH Junior Subordinated Debentures (1)	146		110		146		108
Total	$	1,746	$	1,693	$	1,726	$	1,675

____________________

(1) Carrying amounts are different than principal amounts primarily due to fair value adjustments at the date of the AGMH acquisition, which are accreted into interest expense over the remaining terms of these obligations. Net of AGMH’s long-term debt purchased by AGUS.

6.125% Senior Notes. On August 21, 2023, AGUS issued $350 million as of ~~both June 30,~~6.125% Senior Notes due 2028 (6.125% Senior Notes) for net proceeds of $345 million. The net proceeds from the issuance were used for the redemption on September 25, 2023, of $330 million of AGUS’s debt maturing in 2024. AGUS may redeem all or part of the 6.125% Senior Notes at any time or from time to time prior to August 15, 2028 (the date that is one month prior to the maturity of the 6.125% Senior Notes), at its option, at a redemption price equal to the greater of: (i) 100% of the principal amount of the 6.125% Senior Notes being redeemed; and ~~December 31, 2022. These balances are in “assets held for sale”~~(ii) the sum of the present values of the remaining scheduled payments of principal and ~~“other assets”~~interest on the ~~condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively. Performance fees were attributable~~6.125% Senior Notes being redeemed (excluding interest accrued to the ~~healthcare~~redemption date) from the redemption date to August 15, 2028 discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the treasury rate plus 30 bps; plus, in each case, accrued and ~~asset-based funds.~~unpaid interest on the 6.125% Senior Notes to be redeemed to, but excluding, the redemption date. AGUS may redeem all or part of the 6.125% Senior Notes at any time or from time to time on and after August 15, 2028, at its option, at a redemption price equal to 100% of the principal amount of the 6.125% Senior Notes being redeemed, plus accrued and unpaid interest on the 6.125% Senior Notes to be redeemed to, but excluding, the redemption date. The 6.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by AGL. The 6.125% Senior Notes are senior unsecured obligations of AGUS and rank equally in right of payment with all of AGUS’s other unsecured and unsubordinated indebtedness outstanding. The guarantee is a senior unsecured obligation of AGL and ranks equally in right of payment with all of AGL’s other unsecured and unsubordinated indebtedness outstanding.

~~11.~~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 to be taxed as a U.S. domestic corporation.

AGL is a 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)~~

As of
June 30, 2023 December 31, 2022
(in millions)
Net deferred tax assets (liabilities) $ 101 $ 114
Net current tax assets (liabilities) 35 63

~~Valuation Allowance~~

As of June 30, 2023 and December 31, 2022, the Company had $5 million in foreign tax credits (FTCs) due to the 2017 Tax Cuts and Jobs Act 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

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~that~~In July of 2023, the ~~remaining FTCs~~U.K. government passed legislation to implement the Organization for Economic Co-Operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Pillar Two income inclusion rule. This includes a multinational top-up tax which will apply to large multinational corporations for accounting periods beginning on or after December 31, 2023. It is expected this will apply to AGL and subsidiaries, requiring a minimum effective rate of 15% in all jurisdictions in which it operates.

In addition, in August of 2023 the Bermuda government released the first of two public consultations for the introduction of a corporate income tax in Bermuda in response to the Pillar II initiatives. The Bermuda tax is expected to be enacted in 2023 to be effective in 2025. According to a second public consultation paper issued by the Ministry of Finance of the Bermuda Government, the Government of Bermuda believes it is reasonable and proportionate for any new Bermuda corporate income tax regime to supersede any existing tax assurances given to companies such as AGL and its Bermuda subsidiaries.

The Company is assessing the impact of both the U.K. legislation and the Bermuda proposal.

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities)


	As of
	September 30, 2023		December 31, 2022
	(in millions)
Net deferred tax assets (liabilities)	$	82	$	114
Net current tax assets (liabilities)	34		63

Valuation Allowance

During 2023, the Company recorded a return to provision adjustment, which included the utilization of $3 million in foreign tax credits, thereby reducing the Company’s foreign tax credits (FTC) from $5 million ~~will not be utilized, and therefore maintained the valuation allowance from~~as of December 31, 2022 ~~with respect~~ to ~~this~~$2 million as of September 30, 2023. As of September 30, 2023, the Company believes that the weight of the positive evidence outweighs the negative evidence regarding the realization of the Company’s foreign tax ~~attribute.~~credits, resulting in the release of the corresponding valuation allowance.

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.

Changes in market conditions during 2023 and 2022, including rising interest rates, resulted in the recording of deferred tax assets related to net unrealized tax capital losses. When assessing recoverability of these deferred tax assets, the Company considers the ability and intent to hold the underlying securities to recovery in value, if necessary, as well as other factors as noted above. As of ~~June~~September 30, 2023 and December 31, 2022, based on all available evidence, including capital loss carryback capacity, the Company concluded that the deferred tax assets related to the unrealized tax capital losses on the available-for-sale securities portfolios are, more likely than not, expected to be realized.

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 2023. 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% and the French subsidiary 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. For the periods between April 1, 2017 and March 31, 2023, the U.K. corporation tax rate was 19%. For periods

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

subsequent to April 1, 2023, the U.K. corporation tax rate has been increased to 25%. For the full year 2023, the U.K. subsidiaries will be taxed at the U.K. blended marginal corporate tax rate of 23.5%. 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


		Second Quarter						Six Months							Third Quarter						Nine Months
		2023			2022			2023			2022				2023			2022			2023			2022
		(in millions)													(in millions)
Expected tax provision (benefit)	Expected tax provision (benefit)	$	23		$	(2)		$	43		$	12		Expected tax provision (benefit)	$	45		$	(6)		$	88		$	6
Tax-exempt interest	Tax-exempt interest	(3)			(4)			(6)			(7)			Tax-exempt interest	(3)			(3)			(9)			(10)
NCI	NCI	—			(5)			(3)			(6)			NCI	(1)			1			(4)			(5)
Return to provision adjustment														Return to provision adjustment	(6)			(20)			(6)			(20)
State taxes	State taxes	4			4			7			8			State taxes	1			2			8			10
Foreign taxes	Foreign taxes	(4)			9			1			10			Foreign taxes	7			(1)			8			9
Taxes on reinsurance														Taxes on reinsurance	(1)			—			(1)			(1)
Stock based compensation	Stock based compensation	(1)			2			—			4			Stock based compensation	2			—			2			4
Other	Other	(1)			(1)			(1)			—			Other	(1)			—			(2)			1
Total provision (benefit) for income taxes	Total provision (benefit) for income taxes	$	18		$	3		$	41		$	21		Total provision (benefit) for income taxes	$	43		$	(27)		$	84		$	(6)
Effective tax rate	Effective tax rate	12.6		%	(12.9)		%	15.6		%	30.3		%	Effective tax rate	21.4		%	123.5		%	18.1		%	(12.1)		%

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.

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~~Assured Guaranty Ltd.~~

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

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

Pre-tax Income (Loss) by Tax Jurisdiction


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
U.S.	U.S.	$	117	$	25	$	225	$	109	U.S.	$	233	$	3	$	458	$	112
Bermuda	Bermuda	33		(10)		58		17		Bermuda	(17)		10		41		27
U.K.	U.K.	(4)		(31)		(15)		(45)		U.K.	(10)		(30)		(25)		(75)
Other	Other	(2)		(6)		(4)		(10)		Other	(4)		(5)		(8)		(15)
Total	Total	$	144	$	(22)	$	264	$	71	Total	$	202	$	(22)	$	466	$	49

Revenue by Tax Jurisdiction


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
U.S.	U.S.	$	293	$	106	$	528	$	375	U.S.	$	373	$	60	$	901	$	435
Bermuda	Bermuda	58		6		93		39		Bermuda	30		4		123		43
U.K.	U.K.	8		(18)		21		(18)		U.K.	1		(21)		22		(39)
Other	Other	1		(4)		1		(6)		Other	(1)		(2)		—		(8)
Total	Total	$	360	$	90	$	643	$	390	Total	$	403	$	41	$	1,046	$	431

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

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Audits

As of ~~June~~September 30, 2023, AGUS had open tax years with the U.S. Internal Revenue Service (IRS) for 2018 forward and is currently under audit for the 2018 and 2019 tax years. As of ~~June~~September 30, 2023, Assured Guaranty Overseas US Holdings Inc. had open tax years with the IRS for 2019 forward and is not currently under audit with the IRS. In September 2022, His Majesty’s Revenue & Customs completed a business risk review of Assured Guaranty that commenced in July 2022 and assigned a low-risk rating for corporate taxes in the U.K. The Company’s French subsidiary is not currently under examination and has open tax years of 2019 forward.

~~12.~~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, 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 or liquidity 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 of 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 the “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 affiliates 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

~~Table of Contents~~

~~Assured Guaranty Ltd.~~

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

year. In the first quarter of 2023, the Company reduced its previously recorded accrual of $20 million to zero in connection with developments in litigation.

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 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 nine 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 2009 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 had terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and properly calculated that LBIE owes AGFP approximately $4 million for the claims which were dismissed (as described below) and approximately $21 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $1.4 billion. On March 15, 2013, the Court granted AGFP’s motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions. Following a bench trial, on March 8, 2023, the Court rendered its decision and found in favor of AGFP. On ~~May 17, 2023, the Court issued an order holding that AGFP is entitled to interest on its damages award at a rate of 8% simple and directing the clerk to enter judgment in favor of AGFP. On~~ June 30, 2023, the clerk entered judgment in favor of AGFP in the amount of approximately $54 million ~~for damages and~~plus prejudgment simple interest ~~on AGFP’s counterclaims and, on July 10,~~at an annual rate of 8%. On September 22, 2023, LBIE ~~filed a notice of appeal of that~~appealed this judgment. On July 1, 2023, AGFP moved the Court to award it approximately $58 million for attorneys’ fees and expenses AGFP incurred through March 2023. The parties reached a confidential settlement with respect to this motion for attorneys’ fees, and AGFP withdrew the motion without prejudice on October 30, 2023. The Company ~~has~~did not ~~accrued for either of these amounts~~accrue in its financial ~~statements.~~statements for the judgment it was awarded or the attorneys’ fees it sought.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~13.~~14. Shareholders’ Equity

Other Comprehensive Income

The following tables present the changes in each component of accumulated other comprehensive income (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

~~Second~~Third Quarter 2023


		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, March 31, 2023		$	(254)	$	(105)			$	(24)						$	(43)			$	6			$	(420)
Balance, June 30, 2023																				Balance, June 30, 2023	$	(284)			$	(115)		$	(22)		$	(42)		$	5		$	(458)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(30)		(18)		1				1			—				(46)			Other comprehensive income (loss) before reclassifications	(115)				(14)		10			(1)			—			(120)
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		(10)		—				—			—				(9)			Net realized investment gains (losses)	(2)				(7)		—			—			—			(9)
Fair value gains (losses) on FG VIEs		—		—		(1)				—			—				(1)
Interest expense		—		—		—				—			1				1

Fair value gains (losses) on CIVs																				Fair value gains (losses) on CIVs	—				—		—			(6)			—			(6)

Total before tax	Total before tax	1		(10)		(1)				—			1				(9)			Total before tax	(2)				(7)		—			(6)			—			(15)
Tax (provision) benefit	Tax (provision) benefit	(1)		2		—							—				1			Tax (provision) benefit	—				1		—			1			—			2
Total amount reclassified from AOCI, net of tax	Total amount reclassified from AOCI, net of tax	—		(8)		(1)				—			1				(8)			Total amount reclassified from AOCI, net of tax	(2)				(6)		—			(5)			—			(13)
Other comprehensive income (loss)	Other comprehensive income (loss)	(30)		(10)		2				1			(1)				(38)			Other comprehensive income (loss)	(113)				(8)		10			4			—			(107)
Balance, June 30, 2023		$	(284)	$	(115)	$	(22)			$	(42)		$	5			$	(458)
Balance, September 30, 2023																				Balance, September 30, 2023	$	(397)			$	(123)	$	(12)		$	(38)		$	5		$	(565)

Changes in Accumulated Other Comprehensive Income (Loss) by Component

~~Second~~Third 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, March 31, 2022		$	37	$	(63)			$	(21)						$	(37)			$	6			$	(78)
Balance, June 30, 2022																				Balance, June 30, 2022	$	(205)			$	(107)		$	(19)		$	(45)		$	6		$	(370)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(261)		(48)		2				(8)			—				(315)			Other comprehensive income (loss) before reclassifications	(286)				(1)		(3)			(4)			—			(294)
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)	(23)		(5)		—				—			—				(28)			Net realized investment gains (losses)	(11)				(3)		—			—			—			(14)
Fair value gains (losses) on FG VIEs		—		—		(1)				—			—				(1)

Total before tax	Total before tax	(23)		(5)		(1)				—			—				(29)			Total before tax	(11)				(3)		—			—			—			(14)
Tax (provision) benefit	Tax (provision) benefit	4		1		1				—			—				6			Tax (provision) benefit	2				—		—			—			—			2
Total amount reclassified from AOCI, net of tax	Total amount reclassified from AOCI, net of tax	(19)		(4)		—				—			—				(23)			Total amount reclassified from AOCI, net of tax	(9)				(3)		—			—			—			(12)
Other comprehensive income (loss)	Other comprehensive income (loss)	(242)		(44)		2				(8)			—				(292)			Other comprehensive income (loss)	(277)				2		(3)			(4)			—			(282)
Balance, June 30, 2022		$	(205)	$	(107)	$	(19)			$	(45)		$	6			$	(370)
Balance, September 30, 2022																				Balance, September 30, 2022	$	(482)			$	(105)	$	(22)		$	(49)		$	6		$	(652)

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

~~Six~~Nine Months 2023


		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, 2022	Balance, December 31, 2022	$	(343)	$	(110)			$	(23)						$	(45)			$	6			$	(515)	Balance, December 31, 2022		$	(343)			$	(110)			$	(23)			$	(45)			$	6	$	(515)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	61		(17)		(1)				3			—				46			Other comprehensive income (loss) before reclassifications	(54)				(31)					9				2				—				(74)
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)	4		(15)		—				—			—				(11)			Net realized investment gains (losses)	2				(22)				—				—				—				(20)
Fair value gains (losses) on FG VIEs	Fair value gains (losses) on FG VIEs	—		—		(2)				—			—				(2)			Fair value gains (losses) on FG VIEs	—				—				(2)				—				—				(2)
Fair value gains (losses) on CIVs																				Fair value gains (losses) on CIVs	—				—				—				(6)				—				(6)
Interest expense	Interest expense	—		—		—				—			1				1			Interest expense	—				—				—				—				1				1
Total before tax	Total before tax	4		(15)		(2)				—			1				(12)			Total before tax	2				(22)				(2)				(6)				1				(27)
Tax (provision) benefit	Tax (provision) benefit	(2)		3		—							—				1			Tax (provision) benefit	(2)				4				—				1				—				3
Total amount reclassified from AOCI, net of tax	Total amount reclassified from AOCI, net of tax	2		(12)		(2)				—			1				(11)			Total amount reclassified from AOCI, net of tax	—				(18)				(2)				(5)				1				(24)
Other comprehensive income (loss)	Other comprehensive income (loss)	59		(5)		1				3			(1)				57			Other comprehensive income (loss)	(54)				(13)				11				7				(1)				(50)
Balance, June 30, 2023		$	(284)	$	(115)	$	(22)			$	(42)		$	5			$	(458)
Balance, September 30, 2023																				Balance, September 30, 2023	$	(397)			$	(123)			$	(12)			$	(38)			$	5			$	(565)

Changes in Accumulated Other Comprehensive Income (Loss) by Component

~~Six~~Nine Months 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	Balance, December 31, 2021	$	375	$	(24)			$	(21)						$	(36)			$	6			$	300	Balance, December 31, 2021		$	375			$	(24)			$	(21)			$	(36)			$	6	$	300
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(600)		(91)		1				(9)			—				(699)			Other comprehensive income (loss) before reclassifications	(886)				(92)					(2)				(13)				—				(993)
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)	(24)		(10)		—				—			—				(34)			Net realized investment gains (losses)	(35)				(13)				—				—				—				(48)
Fair value gains (losses) on FG VIEs	Fair value gains (losses) on FG VIEs	—		—		(2)				—			—				(2)			Fair value gains (losses) on FG VIEs	—				—				(2)				—				—				(2)
Total before tax	Total before tax	(24)		(10)		(2)				—			—				(36)			Total before tax	(35)				(13)				(2)				—				—				(50)
Tax (provision) benefit	Tax (provision) benefit	4		2		1				—			—				7			Tax (provision) benefit	6				2				1				—				—				9
Total amount reclassified from AOCI, net of tax	Total amount reclassified from AOCI, net of tax	(20)		(8)		(1)				—			—				(29)			Total amount reclassified from AOCI, net of tax	(29)				(11)				(1)				—				—				(41)
Other comprehensive income (loss)	Other comprehensive income (loss)	(580)		(83)		2				(9)			—				(670)			Other comprehensive income (loss)	(857)				(81)				(1)				(13)				—				(952)
Balance, June 30, 2022		$	(205)	$	(107)	$	(19)			$	(45)		$	6			$	(370)
Balance, September 30, 2022																				Balance, September 30, 2022	$	(482)			$	(105)			$	(22)			$	(49)			$	6			$	(652)

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~Share Repurchases~~

As of August 8, 2023, the Company was authorized to purchase $158 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 of Directors 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
2022 (January 1 - March 31) 2,738,223 $ 155 $ 56.62
2022 (April 1 - June 30) 2,605,947 151 58.03
2022 (July 1- September 30) 1,790,395 97 53.77
2022 (October 1- December 31) 1,713,416 100 58.34
Total 2022 8,847,981 $ 503 56.79
2023 (January 1 - March 31) 36,369 2 62.23
2023 (April 1 - June 30) 453,942 24 53.08
2023 (July 1 - August 8) 320,646 19 58.32
Total 2023 810,957 $ 45 55.56

On November 1, 2023, the Board of Directors (the Board) authorized the repurchase of an additional $300 million of its common shares. Under this and previous authorizations, as of November 7, 2023, the Company was authorized to purchase $372 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
2022 (January 1 - March 31)	2,738,223	$	155	$	56.62
2022 (April 1 - June 30)	2,605,947	151		58.03
2022 (July 1- September 30)	1,790,395	97		53.77
2022 (October 1- December 31)	1,713,416	100		58.34
Total 2022	8,847,981	$	503	56.79
2023 (January 1 - March 31)	36,369	2		62.23
2023 (April 1 - June 30)	453,942	24		53.08
2023 (July 1 - September 30)	1,065,902	64		59.67
2023 (October 1 - November 7)	682,676	42		61.17
Total 2023	2,238,889	$	132	58.83

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

~~14.~~15. Earnings Per Share

Computation of Earnings Per Share


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(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	$	125	$	(47)	$	206	$	19	Net income (loss) attributable to AGL	$	157	$	11	$	363	$	30
Less: Distributed and undistributed income (loss) available to nonvested shareholders	Less: Distributed and undistributed income (loss) available to nonvested shareholders	1		—		1		—		Less: Distributed and undistributed income (loss) available to nonvested shareholders	2		—		3		—
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	$	124	$	(47)	$	205	$	19	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	155	$	11	$	360	$	30
Basic shares	Basic shares	59.2		63.8		59.1		65.0		Basic shares	58.5		61.7		58.9		63.9
Basic EPS	Basic EPS	$	2.09	$	(0.74)	$	3.46	$	0.29	Basic EPS	$	2.65	$	0.18	$	6.11	$	0.47

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	$	124	$	(47)	$	205	$	19	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic	$	155	$	11	$	360	$	30
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	$	124	$	(47)	$	205	$	19	Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted	$	155	$	11	$	360	$	30
Basic shares	Basic shares	59.2		63.8		59.1		65.0		Basic shares	58.5		61.7		58.9		63.9
Dilutive securities:	Dilutive securities:									Dilutive securities:
Restricted stock awards	Restricted stock awards	0.9		—		1.2		1.2		Restricted stock awards	1.1		1.2		1.1		1.2
Diluted shares	Diluted shares	60.1		63.8		60.3		66.2		Diluted shares	59.6		62.9		60.0		65.1
Diluted EPS	Diluted EPS	$	2.06	$	(0.74)	$	3.40	$	0.29	Diluted EPS	$	2.60	$	0.18	$	5.99	$	0.46
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		2.1		0.1		1.2		Potentially dilutive securities excluded from computation of EPS because of antidilutive effect	0.1		0.1		0.1		0.8

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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:

•significant changes in inflation, interest rates, the world’s credit markets or segments thereof, credit spreads, foreign exchange rates or general economic conditions, including the possibility of a ~~recession;~~recession or stagflation;

•geopolitical risk, including ~~United States (U.S.)-China strategic competition and technology decoupling,~~ Russia’s invasion of Ukraine and the resulting economic sanctions, ~~fragmentation of global supply chains,~~ volatility in energy prices, potential for increased cyberattacks, and risk of intentional or accidental escalation between The North Atlantic Treaty Organization (NATO) and ~~Russia;~~Russia, conflict in the Middle East, confrontation over Iran’s nuclear program, and United States (U.S.) – China strategic competition and the pursuit of technological independence;

•the possibility of a U.S. government shutdown, payment defaults on the debt of the U.S. government or instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities, and downgrades to their credit ratings;

•public health crises, including pandemics and endemics, and the governmental and private actions taken in response to such events;

•developments in the world’s financial and capital markets, including stresses in the financial condition of banking institutions in the U.S., that adversely affect repayment rates related to commercial real estate, municipalities and other insured obligors, Assured Guaranty’s insurance loss or recovery experience, or investments of Assured Guaranty;

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

•the risk that the Company’s investments in funds managed by Sound Point Capital Management, LP (Sound Point) do not result in the benefits anticipated or subject Assured Guaranty to negative consequences;

•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, including losses with respect to related legal proceedings, 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 final resolution of Assured Guaranty’s remaining Puerto Rico exposures or the amounts recovered on securities received in connection with the resolution of Puerto Rico exposures already resolved;

•the impact of the Company satisfying its obligations under insurance policies with respect to legacy insured Puerto Rico bonds;

•increased competition, including from new entrants into the financial guaranty industry, nonpayment insurance and other forms of capital saving or risk syndication available to banks and insurers;

•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 other negative or unanticipated consequences;

•the impacts of the completion of Assured Guaranty’s transactions with Sound Point Capital Management, LP (Sound Point) and/or Assured Healthcare Partners LLC (AHP) on Assured Guaranty and its relationships with its shareholders, regulators, rating agencies, employees and the obligors it insures and on the ~~AssuredIM Contributed Business~~asset management business contributed to Sound Point and on the business of AHP and their relationships with their respective clients and employees;

•the possibility that strategic transactions made by Assured Guaranty, including the consummation of the transactions with Sound Point and/or AHP, do not result in the benefits anticipated or subject Assured Guaranty to negative consequences;

•the inability to control the business, management or policies of entities in which the Company holds a minority interest;

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•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,~~accounted for as derivatives, 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;

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

•loss of key personnel;

•the effects of mergers, acquisitions and divestitures;

•natural or man-made catastrophes or pandemics;

•the impact of climate change on Assured Guaranty’s business and regulatory actions taken related to such risk;

•other risk factors identified in AGL’s filings with the U.S. Securities and Exchange Commission (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 and risk factors that are included in this Form 10-Q, as well as the risk factors included in the Company’s 2022 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 a web 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.

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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 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 non-U.S. public finance (including infrastructure) and structured finance markets. Until July 1, 2023, the Company served as investment advisor to collateralized loan obligations (CLOs) and opportunity funds, ~~as well as certain legacy hedge and opportunity funds subject to an orderly wind-down,~~ through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM). Beginning July 1, 2023, the Company participates in the asset management business through its ownership interest in Sound Point as described below.

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.

Asset Management Transactions

On July 1, 2023, Assured Guaranty contributed to Sound Point most of its asset management business, other than that conducted by Assured Healthcare Partners LLC (AssuredIM Contributed Business), as contemplated by the transaction agreement entered into with Sound Point on April 5, 2023 (Transaction Agreement). In addition, in accordance with the terms of a letter agreement (Letter Agreement), effective July 1, 2023, Assured Guaranty Municipal Corp. (AGM) and Assured Guaranty Corp. (AGC) (collectively, the U.S. Insurance Subsidiaries) (i) engaged Sound Point as their sole alternative credit manager, and (ii) transitioned to Sound Point the management of certain existing alternative investments and related commitments. The Letter Agreement also provides that, in the first two years of Sound Point’s engagement, the U.S. Insurance Subsidiaries would, subject to regulatory approval, make new investments in funds, other vehicles and separately managed accounts managed by Sound Point which, when aggregated with the alternative investments and commitments transitioned from AssuredIM, will total $1 billion. See Note 7, Investments. Assured Guaranty received, subject to certain potential post-closing adjustments, common interests in Sound Point representing a 30% participation percentage in Sound Point, and certain other interests in related Sound Point entities (the transactions contemplated under the Transaction Agreement and the Letter Agreement, the Sound Point Transaction).

~~Based on the combined assets under management (AUM)~~ As of ~~AssuredIM and Sound Point as of March 31,~~September 30, 2023, Sound Point ~~would be~~is the fifth largest CLO manager by ~~AUM~~assets under management (AUM) in the world (based on ~~March 31,~~September 30, 2023 CreditFlux CLO manager rankings).

Economic Environment

Real gross domestic product (GDP) increased ~~2.4%~~at an annual rate of 4.9% in the three-month period ended ~~June~~September 30, 2023 ~~(second~~(third quarter 2023), compared to an increase of ~~2.0%~~2.1% in the ~~first~~second quarter of 2023, according to the advance estimate released by the U.S. Bureau of Economic Analysis (BEA). At the end of ~~June~~September 2023, the U.S. unemployment rate, seasonally adjusted, stood at ~~3.6%~~3.8%, ~~nearly unchanged~~up slightly from the 3.6% rate where it had started the quarter, and down from the COVID-19 pandemic high of 14.7% in April 2020. 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 (BLS), the inflation rate in the U.S. before seasonal adjustment for the 12-month period ending ~~June~~September 2023, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), was ~~3.0%~~3.7%, as compared to ~~5.0%~~3.0% for the 12-month period ending ~~March~~June 2023. ~~The BLS reports that the 3.0% increase for the 12 months ending June 2023 was the smallest 12-month increase since the period ending March 2021.~~ According to the United

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Kingdom’s (U.K.) Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was 6.3% for the 12 months through September 2023, down from 7.3% for the 12 months toended June ~~2023, down from 8.9% for the 12 months ended March~~ 2023. Consumer price inflation 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. In addition, consumer price inflation in the U.K. increases reported net par outstanding for certain U.K

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exposures with approximately ~~$22.0~~$21.2 billion of net par outstanding as of ~~June~~September 30, 2023, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion of the premium on an installment basis over the term of the exposure.

With the Federal Open Market Committee (FOMC) acknowledging the need to combat inflation, ~~the FOMC decided at its meeting~~ in March 2022 ~~to start~~the FOMC began again raising the target range for the federal funds rate and ~~has continued to do so since then. In addition, the FOMC~~ stated that it would reduce its holdings of treasury securities and agency debt and agency mortgage-backed securities. From March 2022 through July 26, 2023, the FOMC raised the target range for the federal funds rate ~~11 times,~~ from a range of 0% to 0.25% where it started 2022 to a range of 5.25% to 5.50% at its July 25-26, 2023 ~~meeting, stating~~meeting. The FOMC has repeatedly declared that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the FOMC indicated that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. Since its July 25-26, 2023 meeting, the FOMC has maintained the federal funds rate at 5.25% to 5.50%, including through its most recent meeting held October 31 – November 1, 2023, stating that it would continue to assess additional information and its implications for monetary policy.

The level and direction of interest rates and credit spreads impact the Company in numerous ways. On the one hand, higher interest rates may reduce the fair value of fixed-maturity securities currently held in the Company’s investment portfolio, dampen municipal bond issuance and negatively impact the finances of some of the obligors whose payments the Company insures.

On the other hand, higher interest rates are often accompanied by wider spreads, which may make the Company’s credit enhancement products more attractive in the U.S. municipal bond market and increase the level of premiums it can charge for those products.

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 MMD rate averaged 3.77% for the quarter ended September 2023, higher than the 3.41% average for the quarter ended June 2023, ~~slightly~~and higher than the ~~3.37%~~3.22% average for the quarter ended ~~March 2023, and higher than the 3.05% average for the quarter ended June~~September 2022. Meanwhile, the difference, or credit spread, between the 30-year BBB-rated general obligation relative to the 30-year AAA MMD averaged 101 basis points (bps) in the quarter ended ~~June~~September 2023, which is the same spread as the quarter ended ~~March~~June 2023, but wider than the 9095 bps average for the quarter ended ~~June~~September 2022. The Company believes that, over time, wider spreads could permit it to increase its premium rates on new business, and higher interest rates may also increase the amount the Company can earn on its largely fixed-maturity securities.

Additionally, the Company believes that higher interest rates are discouraging homeowners from moving as many are locked into lower mortgage interest rates at the homes in which they reside, which, in turn, is restricting housing inventory and leading to an increase in home prices as demand outpaces supply. The increase in housing prices may benefit distressed residential mortgage-backed securities (RMBS) the Company insures. ~~The~~According to the National Association of Realtors reported ~~existing-home~~that existing home sales declined ~~18.9%~~15.4% in ~~June~~September 2023 from one year ~~ago with fewer Americans on the move.~~ago. The median existing-home price for all housing types in September 2023 was $394,300, a decrease of 3.9% from June 2023 ~~was $410,200, an increase of 9.2% from March 2023~~ ($~~375,700)~~410,200).

Key Business Strategies

The Company continually evaluates its business strategies and is currently pursuing key business strategies in three areas: (i) insurance; (ii) asset management and alternative investments; and (iii) capital management.

Insurance

The Company seeks to grow the insurance business through new business production, acquisitions of monoline financial guaranty companies that currently are in runoff and no longer actively writing new business (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 financial guaranty insurance portfolio through new business production in each of its markets: public finance (including infrastructure) and 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

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guarantees, it undertakes the tasks of credit selection, analysis, negotiation of terms, surveillance and, if necessary, loss mitigation. The Company believes that its insurance: (i) encourages retail investors, who typically have fewer resources than the

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Company for analyzing municipal bonds, to purchase such bonds; (ii) enables institutional investors to operate more efficiently; and (iii) allows smaller, less well-known issuers to gain market access on a more cost-effective basis.

The low interest rate environment and tight U.S. municipal credit spreads from when the financial crisis began in 2008 through early 2020 dampened demand for bond insurance compared to the levels before the financial crisis. After the onset of the COVID-19 pandemic in early 2020, credit spreads initially widened as a result of market concerns about the impact of the COVID-19 pandemic on some municipal credits, thereby improving demand for financial guaranty insurance even in a low interest rate environment, before narrowing again in 2022. The Company believes that, over time, wider credit spreads may improve demand for bond insurance.

In certain segments of the 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 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 infrastructure and structured finance sectors is influenced by typically long lead times and therefore may vary from period to period.

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

Based on Sale Date


		Six Months 2023			Six Months 2022			Year Ended December 31, 2022				Nine Months 2023			Nine Months 2022			Year Ended December 31, 2022
		(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	$	172.5		$	200.8		$	359.7		New municipal bonds issued	$	266.2		$	292.2		$	359.7
Total insured	Total insured	$	15.6		$	17.6		$	28.8		Total insured	$	22.6		$	22.9		$	28.8
Insured by Assured Guaranty	Insured by Assured Guaranty	$	9.8		$	9.9		$	17.0		Insured by Assured Guaranty	$	14.1		$	12.9		$	17.0
Number of issues:	Number of issues:										Number of issues:
New municipal bonds issued	New municipal bonds issued	3,525			4,682			7,902			New municipal bonds issued	5,393			6,420			7,902
Total insured	Total insured	622			840			1,420			Total insured	1,000			1,146			1,420
Insured by Assured Guaranty	Insured by Assured Guaranty	290			378			648			Insured by Assured Guaranty	467			529			648
Bond insurance market penetration based on:	Bond insurance market penetration based on:										Bond insurance market penetration based on:
Par	Par	9.0		%	8.8		%	8.0		%	Par	8.5		%	7.8		%	8.0		%
Number of issues	Number of issues	17.6		%	17.9		%	18.0		%	Number of issues	18.5		%	17.9		%	18.0		%
Single A par sold	Single A par sold	36.8		%	35.7		%	30.2		%	Single A par sold	34.3		%	29.9		%	30.2		%
Single A transactions sold	Single A transactions sold	62.3		%	59.0		%	59.0		%	Single A transactions sold	61.4		%	58.8		%	59.0		%
$25 million and under par sold	$25 million and under par sold	22.3		%	21.6		%	21.9		%	$25 million and under par sold	24.1		%	21.6		%	21.9		%
$25 million and under transactions sold	$25 million and under transactions sold	21.2		%	20.8		%	21.4		%	$25 million and under transactions sold	22.7		%	21.0		%	21.4		%

____________________

(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

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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

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its related authorities and public corporations. The Company will also, where appropriate, pursue litigation to enforce its rights. For example, itthe Company 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.

After over five years of negotiations, 2022 was a turning point for resolving a substantial portion of the Company’s Puerto Rico exposure in accordance with four orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) related to the Company’s exposure to all defaulting Puerto Rico credits except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions) as discussed in Item 1, Financial Statements, Note 3, Outstanding Exposure—Exposure to Puerto Rico.

As a result of the 2022 Puerto Rico Resolutions, the Company’s obligations under its insurance policies covering debt of the Puerto Rico Convention Center District Authority (PRCCDA) and Puerto Rico Infrastructure Authority (PRIFA) were extinguished, and its insurance exposure to Puerto Rico general obligations (GO) bonds, Public Buildings Authority (PBA) bonds and Puerto Rico Highway and Transportation Authority (PRHTA) bonds was greatly reduced. The Company believes the 2022 Puerto Rico Resolutions mark significant milestones in its Puerto Rico loss mitigation efforts. In connection with the 2022 Puerto Rico Resolutions, the Company received substantial amounts of cash, new general obligation bonds (New GO Bonds) and new bonds backed by toll revenues (Toll Bonds, and together with New GO Bonds, New Recovery Bonds) and contingent value instruments (CVIs) associated with its direct exposures. The Company has sold some of the New Recovery Bonds and CVIs it had received in connection with the 2022 Puerto Rico Resolutions and may continue to sell amounts it still retains, subject to market conditions. The Company continues to work to resolve its remaining unresolved defaulted Puerto Rico exposure, PREPA. 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.

The Company is, and ~~has~~ for several years has 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.

The Company also purchases attractively priced obligations, including below-investment-grade (BIG) obligations, that it has insured and for which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities). The fair value of Loss Mitigation Securities as of ~~June~~September 30, 2023 (excluding the value of the Company’s insurance) was ~~$463~~$448 million, with a par of ~~$761~~$745 million.

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

Until July 1, 2023, the Company pursued its asset management strategy through AssuredIM. With the consummation of the Sound Point Transaction and AHP Transaction, effective as of July 1, 2023, the Company ~~will participate~~participates in the asset management business through its ownership interest in Sound Point, and will no longer directly manage investments for third ~~parties through its subsidiaries.~~parties.

The Company’s ownership interest in Sound Point furthers its strategy of participating in a fee-based earnings stream independent of the risk-based premiums generated by its financial guaranty business. The Sound Point business was strengthened by the addition of AssuredIM’s AUM (excluding AUM relating to AHP).

The Company also expects its relationship with Sound Point to enhance its alternative investment opportunities. Upon closing of the Sound Point Transaction and the AHP Transaction in July, the Company has increased the aggregate amount it has agreed to invest in alternative investments to $1.5 billion, including the $1 billion with Sound Point, subject to regulatory approval. See Note 1, Business and Basis of Presentation, for a description of the Sound Point Transaction. Of the $1.5 billion, ~~to be invested,~~ the U.S. Insurance Subsidiaries through their jointly owned investment subsidiary, ~~AGAS,~~AG Asset Strategies LLC (AGAS), are authorized to invest up to $750 million plus previously distributed gains of ~~$114~~$132 million for a total of ~~$864~~$882 million as of ~~June~~September 30, 2023. As of ~~July 1,~~September 30, 2023, AGAS commitments to funds ~~previously managed by AssuredIM of $553 million are~~ managed by Sound Point, ~~or by AHP.~~AHP, and, prior to July 1, 2023, AssuredIM (Sound Point and AHP funds, some of which were formerly known as AssuredIM funds) were $703 million.

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Capital Management

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

From 2013 through ~~August 8,~~November 7, 2023, the Company has repurchased ~~142~~143 million common shares for approximately ~~$4.7~~$4.8 billion, representing approximately ~~73%~~74% of the total shares outstanding at the beginning of the repurchase program in 2013. AsOn November 1, 2023, the AGL Board of ~~August 8,~~Directors (the Board) authorized the repurchase of an additional $300 million of common shares. Under this and previous authorizations, as of November 7, 2023, the Company was authorized to purchase ~~$158~~$372 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 ~~of Directors~~ at any time and it does not have an expiration date. See Item 1, Financial Statements, Note ~~13,~~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 - 2022	2013 - 2022	$	4,661	140.875		$	33.09	2013 - 2022	$	4,661	140.875	$	33.09
2023 (First Quarter)	2023 (First Quarter)	2		0.036		62.23		2023 (First Quarter)	2		0.036	62.23
2023 (Second Quarter)	2023 (Second Quarter)	24		0.454		53.08		2023 (Second Quarter)	24		0.454	53.08
2023 (through August 8)		19		0.321		58.32
2023 (Third Quarter)								2023 (Third Quarter)	64		1.066	59.67
2023 (through November 7)								2023 (through November 7)	42		0.683	61.17
Cumulative repurchases since the beginning of 2013	Cumulative repurchases since the beginning of 2013	$	4,706	$	141.686	33.21		Cumulative repurchases since the beginning of 2013	$	4,793	143.114	33.49

As of ~~June~~September 30, 2023, the estimated accretive effect of the cumulative repurchases of common shares since the beginning of 2013 was approximately: ~~$39.94~~$40.71 per share in shareholders’ equity attributable to AGL, ~~$44.15~~$46.65 per share in adjusted operating shareholders’ equity and ~~$78.42~~$81.29 per share in adjusted book value.

The Company considers the appropriate mix of debt and equity in its capital structure. In ~~2021,~~2023, the Company issued ~~$500~~$350 million ~~of 3.15%~~in 6.125% Senior Notes due in ~~2031~~2028, and ~~$400 million of 3.6% Senior Notes, due in 2051. The~~used the proceeds ~~from these issuances were used~~primarily to redeem ~~$100~~$330 million of ~~AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, $230 million of AGMH’s 6.25% Notes due in 2102, $100 million of AGMH’s 5.60% Notes due in 2103, and $170 million of the $500 million of AGUS~~ 5% Senior Notes due in 2024. In 2021, the Company also redeemed $600 million in long-dated high coupon debt using proceeds from the issuance of $900 million in shorter-dated, lower coupon debt. Proceeds from the debt issuances that were not used to redeem debt were used for general corporate purposes, including share repurchases. Since the second quarter of 2017, AGUS has also purchased $154 million in principal of AGMH’s outstanding Junior Subordinated Debentures.

The Company may choose to redeem or make additional purchases of this or other Company debt in the future. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies” for the U.S. Holding Companies’ long-term debt.

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 2022 Annual Report on Form 10-K.

The primary drivers of volatility in the Company’s net income include: loss and loss adjustment expense (LAE changes in fair value of credit derivatives, FG VIEs, CIVs and committed capital securities (CCS), as well as ~~loss and loss adjustment expense (LAE),~~ foreign exchange gains (losses), the level of refundings of insured obligations, changes in the value of the Company’s alternative investments, the effects of any large settlements, commutations and loss mitigation strategies, among other factors. 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


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions, except per share amounts)									(in millions, except per share amounts)
GAAP	GAAP									GAAP
Net income (loss) attributable to AGL	Net income (loss) attributable to AGL	$	125	$	(47)	$	206	$	19	Net income (loss) attributable to AGL	$	157	$	11	$	363	$	30
Net income (loss) attributable to AGL per diluted share	Net income (loss) attributable to AGL per diluted share	$	2.06	$	(0.74)	$	3.40	$	0.29	Net income (loss) attributable to AGL per diluted share	$	2.60	$	0.18	$	5.99	$	0.46
Weighted average diluted shares ~~(1)~~	Weighted average diluted shares ~~(1)~~	60.1		63.8		60.3		66.2		Weighted average diluted shares ~~(1)~~	59.6		62.9		60.0		65.1

Non-GAAP	Non-GAAP									Non-GAAP
Adjusted operating income (loss) ~~(2)~~(1)	Adjusted operating income (loss) ~~(2)~~(1)	$	36	$	30	$	104	$	120	Adjusted operating income (loss) ~~(2)~~(1)	$	206	$	133	$	310	$	253
Adjusted operating income per diluted share	Adjusted operating income per diluted share	$	0.60	$	0.46	$	1.72	$	1.81	Adjusted operating income per diluted share	$	3.42	$	2.11	$	5.12	$	3.88
Weighted average diluted shares	Weighted average diluted shares	60.1		65.0		60.3		66.2		Weighted average diluted shares	59.6		62.9		60.0		65.1

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	$	(18)	$	10	$	(22)	$	—	Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income	$	(8)	$	7	$	(30)	$	7
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	$	(0.30)	$	0.15	$	(0.35)	$	—	Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share	$	(0.13)	$	0.12	$	(0.49)	$	0.11

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	$	106	$	55	$	223	$	188	Insurance segment	$	59	$	159	$	282	$	347
Asset Management segment	Asset Management segment	(2)		—		(3)		—		Asset Management segment	—		(3)		(3)		(3)
Corporate division	Corporate division	(50)		(35)		(94)		(68)		Corporate division	155		(30)		61		(98)
Other ~~(3)~~(2)	Other ~~(3)~~(2)	(18)		10		(22)		—		Other ~~(3)~~(2)	(8)		7		(30)		7
Adjusted operating income (loss)	Adjusted operating income (loss)	$	36	$	30	$	104	$	120	Adjusted operating income (loss)	$	206	$	133	$	310	$	253

Insurance Segment	Insurance Segment									Insurance Segment
Gross written premiums (GWP)	Gross written premiums (GWP)	$	95	$	65	$	181	$	135	Gross written premiums (GWP)	$	40	$	94	$	221	$	229
Present value of new business production (PVP) ~~(2)~~(1)	Present value of new business production (PVP) ~~(2)~~(1)	91		76		203		145		Present value of new business production (PVP) ~~(2)~~(1)	46		95		249		240
Gross par written	Gross par written	8,974		6,695		14,337		11,166		Gross par written	5,948		3,846		20,285		15,012

Asset Management Segment
AUM (4)
Inflows - third party		$	2	$	1,270	$	3	$	1,361
Inflows - intercompany		—		154		—		154

~~Table of Contents~~


		As of June 30, 2023				As of December 31, 2022					As of September 30, 2023				As of December 31, 2022
		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	$	5,276	$	89.65	$	5,064	$	85.80	Shareholders’ equity attributable to AGL	$	5,252	$	90.84	$	5,064	$	85.80
Adjusted operating shareholders' equity ~~(2)~~(1)	Adjusted operating shareholders' equity ~~(2)~~(1)	5,628		95.64		5,543		93.92		Adjusted operating shareholders' equity ~~(2)~~(1)	5,735		99.18		5,543		93.92
Adjusted book value ~~(2)~~(1)	Adjusted book value ~~(2)~~(1)	8,487		144.21		8,379		141.98		Adjusted book value ~~(2)~~(1)	8,559		148.03		8,379		141.98
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	(3)		(0.04)		17		0.28		Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating shareholders’ equity	4		0.06		17		0.28
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	(7)		(0.12)		11		0.19		Gain (loss) related to FG VIE and CIV consolidation included in adjusted book value	(2)		(0.03)		11		0.19
Common shares outstanding ~~(5)~~(3)	Common shares outstanding ~~(5)~~(3)	58.9				59.0				Common shares outstanding ~~(5)~~(3)	57.8				59.0

____________________

(1) In periods where the Company recognized a net loss, the impact of 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)~~(2) Relates to the effect of consolidating FG VIEs and CIVs.

(4) The Company was limited in its ability to raise third party AUM in 2023 as a result of the pending Sound Point Transaction and AHP Transaction due to regulatory and practical considerations.

~~(5)~~(3) See “— ~~Overview—~~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 June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022				2023			2022			2023			2022
		(in millions)													(in millions)
Revenues:	Revenues:													Revenues:
Net earned premiums	Net earned premiums	$	85		$	82		$	166		$	296		Net earned premiums	$	95		$	89		$	261		$	385
Net investment income	Net investment income	89			62			170			124			Net investment income	100			67			270			191
Asset management fees	Asset management fees	27			21			53			55			Asset management fees	—			16			53			71
Net realized investment gains (losses)	Net realized investment gains (losses)	(9)			(28)			(11)			(25)			Net realized investment gains (losses)	(9)			(14)			(20)			(39)
Fair value gains (losses) on credit derivatives	Fair value gains (losses) on credit derivatives	91			9			106			6			Fair value gains (losses) on credit derivatives	9			(48)			115			(42)
Fair value gains (losses) on CCS	Fair value gains (losses) on CCS	1			10			(15)			11			Fair value gains (losses) on CCS	(20)			1			(35)			12
Fair value gains (losses) on FG VIEs	Fair value gains (losses) on FG VIEs	(3)			10			(8)			16			Fair value gains (losses) on FG VIEs	6			11			(2)			27
Fair value gains (losses) on CIVs	Fair value gains (losses) on CIVs	6			3			64			17			Fair value gains (losses) on CIVs	(4)			8			60			25
Foreign exchange gains (losses) on remeasurement	Foreign exchange gains (losses) on remeasurement	28			(71)			48			(101)			Foreign exchange gains (losses) on remeasurement	(39)			(80)			9			(181)
Fair value gains (losses) on trading securities	Fair value gains (losses) on trading securities	40			(18)			38			(22)			Fair value gains (losses) on trading securities	4			(8)			42			(30)
Gain on sale of asset management subsidiaries														Gain on sale of asset management subsidiaries	255			—			255			—
Other income (loss)	Other income (loss)	5			10			32			13			Other income (loss)	6			(1)			38			12
Total revenues	Total revenues	360			90			643			390			Total revenues	403			41			1,046			431
Expenses:	Expenses:													Expenses:
Loss and LAE (benefit)	Loss and LAE (benefit)	55			(11)			59			46			Loss and LAE (benefit)	100			(75)			159			(29)
Interest expense	Interest expense	22			20			43			40			Interest expense	24			20			67			60
Amortization of deferred acquisition cost (DAC)	Amortization of deferred acquisition cost (DAC)	3			3			6			7			Amortization of deferred acquisition cost (DAC)	4			4			10			11
Employee compensation and benefit expenses	Employee compensation and benefit expenses	70			59			152			132			Employee compensation and benefit expenses	47			57			199			189
Other operating expenses	Other operating expenses	71			41			126			83			Other operating expenses	44			37			170			120
Total expenses	Total expenses	221			112			386			308			Total expenses	219			43			605			351
Income (loss) before income taxes and equity in earnings (losses) of investees	Income (loss) before income taxes and equity in earnings (losses) of investees	139			(22)			257			82			Income (loss) before income taxes and equity in earnings (losses) of investees	184			(2)			441			80
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	5			—			7			(11)			Equity in earnings (losses) of investees	18			(20)			25			(31)
Income (loss) before income taxes	Income (loss) before income taxes	144			(22)			264			71			Income (loss) before income taxes	202			(22)			466			49
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	18			3			41			21			Less: Provision (benefit) for income taxes	43			(27)			84			(6)
Net income (loss)	Net income (loss)	126			(25)			223			50			Net income (loss)	159			5			382			55
Less: Noncontrolling interests	Less: Noncontrolling interests	1			22			17			31			Less: Noncontrolling interests	2			(6)			19			25
Net income (loss) attributable to Assured Guaranty Ltd.	Net income (loss) attributable to Assured Guaranty Ltd.	$	125		$	(47)		$	206		$	19		Net income (loss) attributable to Assured Guaranty Ltd.	$	157		$	11		$	363		$	30

Effective tax rate	Effective tax rate	12.6		%	(12.9)		%	15.6		%	30.3		%	Effective tax rate	21.4		%	123.5		%	18.1		%	(12.1)		%

~~Second~~Third Quarter 2023 Compared with ~~Second~~Third Quarter 2022

The increase in net income attributable to AGL in ~~second~~third quarter 2023 compared with the three-month period ended ~~June~~September 30, 2022 ~~(second~~(third quarter 2022) was primarily due to:

•~~foreign exchange gains on remeasurement in second quarter 2023, compared~~the gain associated with ~~losses in second quarter 2022,~~

•~~higher fair value gains on credit derivatives in second quarter 2023,~~the Sound Point Transaction and AHP Transaction, net of transaction expenses, of $241 million (pre-tax),

•fair value gains on ~~trading portfolio~~credit derivatives in ~~second~~third quarter 2023, compared with losses in ~~second~~third quarter 2022,

•lower foreign exchange losses on remeasurement, and

•higher ~~net~~income from the fixed-maturity and alternative investment ~~income.~~

portfolio.

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These increases were offset in part by losses and LAE in third quarter 2023 compared with a benefit in third quarter 2022.

Nine Months 2023 Compared with Nine Months 2022

Net income attributable to AGL for the six-month period ended September 30, 2023 (nine months 2023) was higher compared with the nine-month period ended September 30, 2022 (nine months 2022) primarily due to:

•the gain associated with the Sound Point Transaction and AHP Transaction, net of transaction expenses, of $215 million (pre-tax),

•foreign exchange gains on remeasurement in nine months 2023, compared with losses in nine months 2022,

•fair value gains on credit derivatives in nine months 2023, compared with losses in nine months 2022, and

•higher income from the fixed-maturity and alternative investment portfolio.

These increases were offset in part by:

•losses and LAE in ~~second quarter~~nine months 2023 compared with a benefit in ~~second quarter 2022, and~~

•~~higher operating expenses, primarily due to expenses of $24 million associated with the Sound Point Transaction and AHP Transaction.~~

~~Six Months 2023 Compared with Six Months 2022~~

~~Net income attributable to AGL for the six-month period ended June 30, 2023 (six months 2023) was higher compared with the six-month period ended June 30, 2022 (six months 2022) primarily due to:~~

•~~foreign exchange gains on remeasurement in six months 2023, compared with losses in six~~nine months 2022,

•~~higher fair value gains on credit derivatives in six months 2023,~~

•~~fair value gains on trading portfolio in six months 2023, compared with losses in six months 2022,~~

•~~higher fair value gains on CIVs, and~~

•~~higher net investment income.~~

~~These increases were offset in part by:~~

•lower net earned premiums in ~~six~~nine months 2023 compared with ~~six~~nine months 2022 which benefited from premium accelerations related to the 2022 Puerto Rico Resolutions, and

•higher operating expenses in ~~six~~nine months 2023 primarily due to $46 million in expenses ~~of $31 million~~ associated with the Sound Point Transaction and AHP Transaction.

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% prior to March 31, 2023 and 25% after April 1 2023, the French subsidiary 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. See Item 1. Financial Statements, Note 12, Income Taxes.

Adjusted Operating Income

Adjusted operating income in ~~second~~third quarter 2023 was ~~$36~~$206 million, compared with ~~$30~~$133 million in ~~second~~third quarter 2022. The increase was primarily due to ~~fair value gains on~~ the ~~trading portfolio~~gain associated with the Sound Point Transaction and ~~higher net investment income,~~AHP Transaction, offset in part by higher ~~losses and transaction expenses related~~loss expense. Adjusted operating income in nine months 2023 was $310 million, compared with $253 million in nine months 2022. The increase was primarily due to the gain associated with the Sound Point Transaction and ~~the~~ AHP ~~transaction. Adjusted operating income~~Transaction, offset in ~~six months 2023 was $104 million, compared with $120 million in six months 2022. The decrease was primarily due to~~part by higher loss expense and lower net earned premiums in ~~six~~nine months 2023, compared with ~~six~~nine months 2022 which included premium accelerations of $104 million related to the 2022 Puerto Rico ~~Resolutions, and higher operating expenses, partially offset by fair value gains on the trading portfolio and CIVs.~~Resolutions. See “— Results of Operations — Reconciliation to GAAP” for the reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

Book Value and Adjusted Book Value

Shareholders’ equity attributable to AGL as of ~~June~~September 30, 2023 increased compared with December 31, 2022, asdue to net income, ~~and other comprehensive income were~~which was partially offset by dividends, share repurchases, and ~~share repurchases.~~unrealized losses on investments. Adjusted operating shareholders’ equity and adjusted book value increased primarily due to operating income components of $310 million offset in part by dividends and share repurchases of $141 million, and in the case of adjusted book value, the increase was also primarily due to ~~new business production.~~gross written premiums of $221 million, which was partially offset by economic loss development of $147 million. 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

Inflation

By some key measures, consumer price inflation in the U.S. and the U.K. was higher in recent years than it has been in decades, and interest rates generally increased. Consumer price inflation in the U.K. impacts the Company directly by increasing exposure for certain index-linked U.K. debt with par that accretes with increasing inflation, and also increasing projected future installment premiums on the portion of such exposure that pays at least some of the premium on an installment basis over the term of the exposure. Consumer price inflation may also impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and may be accompanied by higher interest rates that could impact the Company in several ways.

After acknowledging the need to combat inflation, the FOMC of the Federal Reserve Board decided at its March 2022 meeting to start again raising the target federal funds rate, and raised the rate 11 times from March 2022 through July 26, 2023. At its July 25-26, 2023 meeting, the FOMC raised the federal funds target rate by 25 bps to 5.25% to 5.5%, and stated that its decision to raise the target range of the federal funds rate was in support of its goals of achieving maximum employment and inflation at the rate of 2% over the longer run. In determining the extent to which additional federal funds target rate increases are needed to return inflation to 2% over time, the FOMC indicated it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

Higher interest rates impact the Company in numerous other ways. For example, higher interest rates are often accompanied by wider credit spreads, which 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. Despite the recent increases in interest rates insince 2022, ~~and first half of 2023,~~ the pace of credit spread widening was more modest and market penetration of municipal bond insurance in the U.S. public finance market remained relatively flat compared to ~~2021.~~2021 when interest rates were lower. Over time, higher interest rates also increase the amount the Company can earn on its largely fixed-maturity investment portfolio. However, higher interest rates may, in turn, reduce the fair value of its largely fixed-rate fixed-maturity investment portfolio, dampen municipal bond issuance and negatively impact the finances of some insured obligors.

See “Overview — Economic Environment”.

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 cannot predict all of the potential effects 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 ~~$271~~$249 million in net par outstanding as of ~~June~~September 30, 2023, comprising ~~$216~~$208 million net par exposure to the sovereign debt of Poland and ~~$55~~$41 million net par exposure to a toll road in Hungary. The Company rates all such exposure investment grade.

Middle East Conflict

In light of recent events in the ~~toll road~~Middle East, the Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, for exposures to the Middle East. After review, the Company’s surveillance and treasury functions have identified no material direct exposure ~~BIG.~~to such area. The Company’s direct insurance exposure to the Middle East is generally is limited to approximately $49 million in net par outstanding as of September 30, 2023, comprised of funded commitments to subscription finance facilities; however, such exposure may increase to a total of approximately $94 million to the extent all unfunded commitments under the facilities are ultimately funded. The Company rates all such insurance exposure investment grade.

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 company. 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~~Company is continuing to ~~be evaluated.~~evaluate the proposed regulations. See Note 12, Income Taxes.

~~Results of Operations~~

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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. Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the condensed 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 different in the future to reflect changes in these estimates and assumptions from time to time.

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 2022 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 2022 Annual Report on Form 10-K, for further details regarding sensitivity ~~analysis.~~analyses.

•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~~derivatives;

•Credit impairment of financial ~~instruments~~instruments;

•Other-than-temporary-impairment of equity method investments;

•Revenue ~~recognition~~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					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022

Segment revenues	Segment revenues									Segment revenues
Net earned premiums and credit derivative revenues	Net earned premiums and credit derivative revenues	$	88	$	86	$	172	$	305	Net earned premiums and credit derivative revenues	$	99	$	92	$	271	$	397
Net investment income	Net investment income	90		66		172		129		Net investment income	101		69		273		198
Fair value gains (losses) on trading securities	Fair value gains (losses) on trading securities	40		(18)		38		(22)		Fair value gains (losses) on trading securities	4		(8)		42		(30)
Foreign exchange gains (losses) on remeasurement and other income (loss)	Foreign exchange gains (losses) on remeasurement and other income (loss)	6		5		32		5		Foreign exchange gains (losses) on remeasurement and other income (loss)	4		(6)		36		(1)
Total segment revenues	Total segment revenues	224		139		414		417		Total segment revenues	208		147		622		564
Segment expenses	Segment expenses									Segment expenses
Loss expense (benefit)	Loss expense (benefit)	44		(17)		53		43		Loss expense (benefit)	101		(75)		154		(32)
Interest expense	Interest expense	—		—		—		1		Interest expense	—		—		—		1
Amortization of DAC	Amortization of DAC	3		3		6		7		Amortization of DAC	4		4		10		11
Employee compensation and benefit expenses	Employee compensation and benefit expenses	36		35		75		73		Employee compensation and benefit expenses	37		34		112		107
Other operating expenses	Other operating expenses	27		20		55		39		Other operating expenses	23		21		78		60
Total segment expenses	Total segment expenses	110		41		189		163		Total segment expenses	165		(16)		354		147
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	5		(34)		35		(35)		Equity in earnings (losses) of investees	25		(11)		60		(46)
Segment adjusted operating income (loss) before income taxes	Segment adjusted operating income (loss) before income taxes	119		64		260		219		Segment adjusted operating income (loss) before income taxes	68		152		328		371
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	13		9		37		31		Less: Provision (benefit) for income taxes	9		(7)		46		24
Segment adjusted operating income (loss)	Segment adjusted operating income (loss)	$	106	$	55	$	223	$	188	Segment adjusted operating income (loss)	$	59	$	159	$	282	$	347

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, or books of business acquired in business combinations. 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 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 policies under the 2022 Puerto Rico Resolutions.

Terminations are generally negotiated agreements with beneficiaries resulting in the extinguishment of the Company’s insurance obligation. Terminations have been 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.

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Insurance Segment

Net Earned Premiums and Credit Derivative Revenues


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(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)	$	61	$	63	$	123	$	134	Scheduled net earned premiums (1)	$	65	$	62	$	188	$	196
Accelerations:	Accelerations:									Accelerations:
Refundings	Refundings	8		5		12		133		Refundings	14		12		26		145
Terminations		—		—		—		—

Total accelerations	Total accelerations	8		5		12		133		Total accelerations	14		12		26		145
Total public finance	Total public finance	69		68		135		267		Total public finance	79		74		214		341
Structured finance scheduled net earned premiums (1)	Structured finance scheduled net earned premiums (1)	16		14		31		29		Structured finance scheduled net earned premiums (1)	16		15		47		44
Specialty insurance and reinsurance	Specialty insurance and reinsurance	1		1		2		2		Specialty insurance and reinsurance	1		1		3		3
Total net earned premiums	Total net earned premiums	86		83		168		298		Total net earned premiums	96		90		264		388

Credit derivative revenues:	Credit derivative revenues:									Credit derivative revenues:
Scheduled net earned premiums	Scheduled net earned premiums	2		3		4		5		Scheduled net earned premiums	2		2		6		7
Accelerations	Accelerations	—		—		—		2		Accelerations	1		—		1		2
Total credit derivative revenues	Total credit derivative revenues	2		3		4		7		Total credit derivative revenues	3		2		7		9
Total net earned premiums and credit derivative revenues	Total net earned premiums and credit derivative revenues	$	88	$	86	$	172	$	305	Total net earned premiums and credit derivative revenues	$	99	$	92	$	271	$	397

____________________

(1) Includes accretion of discount.

Net earned premiums and credit derivative revenues increased in ~~second~~third quarter 2023 compared with ~~second~~third quarter 2022 primarily due to higher ~~refundings.~~refundings in third quarter 2023 and updates to debt service assumptions in third quarter 2022. Net earned premiums and credit derivative revenues decreased in ~~six~~nine months 2023 compared with ~~six~~nine months 2022 primarily due to refundings of $104 million related to the resolution of PRCCDA, PRIFA and GO/PBA exposures ~~that occurred in March 2022~~ discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure. As of ~~June~~September 30, 2023, ~~$3.7~~$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
2023 2022 2023 2022
(in millions)
GWP
Public Finance—U.S. $ 78 $ 57 $ 100 $ 106
Public Finance—non-U.S. 9 6 45 22
Structured Finance—U.S. 5 1 33 6
Structured Finance—non-U.S. 3 1 3 1
Total GWP $ 95 $ 65 $ 181 $ 135
PVP (1):
Public Finance—U.S. $ 77 $ 57 $ 99 $ 106
Public Finance—non-U.S. 6 18 36 30
Structured Finance—U.S. 3 — 30 2
Structured Finance—non-U.S. (2) 5 1 38 7
Total PVP $ 91 $ 76 $ 203 $ 145
Gross Par Written (1):
Public Finance—U.S. $ 7,747 $ 6,429 $ 10,654 $ 10,360
Public Finance—non-U.S. 249 207 609 430
Structured Finance—U.S. 252 16 834 76
Structured Finance—non-U.S. (2) 726 43 2,240 300
Total gross par written $ 8,974 $ 6,695 $ 14,337 $ 11,166
Average rating on new business written A- A A A-


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
GWP (1)
Public finance—U.S.	$	29	$	54	$	129	$	160
Public finance—non-U.S.	(5)		44		40		66
Structured finance—U.S.	15		(2)		48		4
Structured finance—non-U.S.	1		(2)		4		(1)
Total GWP	$	40	$	94	$	221	$	229
PVP (1):
Public finance—U.S.	$	30	$	57	$	129	$	163
Public finance—non-U.S.	2		37		38		67
Structured finance—U.S.	12		1		42		3
Structured finance—non-U.S. (2)	2		—		40		7
Total PVP	$	46	$	95	$	249	$	240
Gross Par Written (1):
Public finance—U.S.	$	5,098	$	3,622	$	15,752	$	13,982
Public finance—non-U.S.	61		194		670		624
Structured finance—U.S.	267		30		1,101		106
Structured finance—non-U.S. (2)	522		—		2,762		300
Total gross par written	$	5,948	$	3,846	$	20,285	$	15,012

____________________

(1) 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.” GWP may be negative due to changes in debt service assumptions.

(2) ~~Six~~Nine months 2023 and 2022 PVP and gross par written include the present value of future gross revenues and exposure, respectively, associated with a financial guaranty written by the Company that, under GAAP, is accounted for under Accounting Standards Codification (ASC) 460, Guarantees.

~~Second~~Third Quarter 2023

U.S. public finance GWP and PVP in ~~second~~third quarter 2023 were ~~higher~~lower than the comparable GWP and PVP in ~~second~~third quarter 2022, due to ~~$47 million~~a large transportation revenue transaction in ~~assumed GWP and $46 million~~third quarter 2022 that did not recur in assumed PVP in second quarter 2023. These were offset in part by lower direct GWP and PVP of $31 million, primarily due to a decrease in secondary market business in second quarter 2023. The average rating of U.S. public finance par written was A- in secondthird quarter 2023, and Ahigher credit quality new business that carry lower premium rates in ~~second~~third quarter 2023, compared with third quarter 2022. The Company’s direct par written represented ~~64%~~61% of the total U.S. municipal market insured issuance in ~~second~~third quarter 2023, compared with ~~54%~~56% in ~~second~~third quarter 2022, and the Company’s penetration of all municipal issuance was ~~6.5%~~4.6% in ~~second~~third quarter 2023 compared with ~~4.8%~~3.2% in ~~second~~third quarter 2022.

~~In non-U.S. infrastructure markets, the Company wrote a guaranty on a U.K. regulated utility~~Structured finance GWP and PVP in ~~the structured finance asset class, the Company wrote several subscription finance guaranties in second~~third quarter ~~2023.~~2023 primarily includes an insurance securitization.

~~Six~~Nine Months 2023

U.S. public finance GWP and PVP in ~~six~~nine months 2023 were lower than the comparable to GWP and PVP in ~~six~~nine months 2022 ~~with higher assumed business offsetting lower direct business that was~~ primarily due to ~~a decrease in~~fewer secondary market ~~business~~transactions in ~~six months 2023. The average rating of U.S. public finance par written was A- in both six~~nine months 2023, ~~and six~~compared with nine months 2022. The Company’s direct par written represented ~~63%~~62% of the total U.S. municipal market insured issuance in ~~six~~nine months 2023, compared with 56% in ~~six~~nine months 2022, and the Company’s penetration of all municipal issuance was ~~5.7%~~5.3% in ~~six~~nine months 2023 compared with ~~4.9%~~4.4% in ~~six~~nine months 2022.

~~Table of Contents~~

In ~~six~~nine months 2023, non-U.S. public finance GWP and PVP were ~~higher~~lower than GWP and PVP in ~~six~~nine months 2022 due to a large amount of secondary market transactions in nine months 2022. In ~~six~~nine months 2023, new business primarily included the guaranty of a long-term sale and leaseback transaction with Glasgow City Council and several regulated utility transactions.

Table of Contents

In ~~six~~nine months 2023, structured finance GWP and PVP were ~~$36~~$52 million and ~~$68~~$82 million, respectively, compared with GWP and PVP of $7$3 million and $9$10 million, respectively, in ~~six~~nine months 2022. Structured finance GWP and PVP in ~~six~~nine months 2023 includes an insurance securitization and several subscription finance guaranties, as well as an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties for which no GWP was reported under GAAP because it is not accounted for as insurance.

Business activity in the non-U.S. public finance and structured finance sectors typically has long lead times and therefore may vary from period to period.

Income from Investments

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 on fixed-maturity securities 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.

CVIs issued by Puerto Rico and received as part of the 2022 Puerto Rico Resolutions are classified as trading with changes in fair value reported in “fair value gains (losses) on trading securities” in the condensed consolidated statements on operations. The fair value of such instruments as of ~~June~~September 30, 2023 was ~~$340~~$350 million.

Equity method investments in the Insurance segment include investments that the U.S. Insurance Subsidiaries make in ~~AssuredIM Funds, as well as other~~certain alternative ~~investments.~~investments, primarily Sound Point and AHP funds. 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~~these funds and the Company’s share of earnings of its other investees.

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Insurance Segment

Income from Investments


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Net investment income	Net investment income									Net investment income
Fixed-maturity securities, available-for-sale:	Fixed-maturity securities, available-for-sale:									Fixed-maturity securities, available-for-sale:
Externally managed (1)	Externally managed (1)	$	53	$	49	$	105	$	98	Externally managed (1)	$	51	$	49	$	156	$	147
Loss Mitigation Securities	Loss Mitigation Securities	12		7		24		17		Loss Mitigation Securities	24		10		48		27
Puerto Rico, New Recovery Bonds	Puerto Rico, New Recovery Bonds	1		3		4		4		Puerto Rico, New Recovery Bonds	1		1		5		5
Other (2)	Other (2)	4		4		7		7		Other (2)	5		4		12		11
Short-term investments	Short-term investments	16		1		28		1		Short-term investments	19		4		47		5
Intercompany loans	Intercompany loans	3		3		5		5		Intercompany loans	2		2		7		7
Other investment assets	Other investment assets	2		—		2		—		Other investment assets	—		1		2		1
Investment income	Investment income	91		67		175		132		Investment income	102		71		277		203
Investment expenses	Investment expenses	(1)		(1)		(3)		(3)		Investment expenses	(1)		(2)		(4)		(5)
Net investment income	Net investment income	$	90	$	66	$	172	$	129	Net investment income	$	101	$	69	$	273	$	198

Fair value gains (losses) on trading securities	Fair value gains (losses) on trading securities	$	40	$	(18)	$	38	$	(22)	Fair value gains (losses) on trading securities	$	4	$	(8)	$	42	$	(30)

Equity in earnings (losses) of investees	Equity in earnings (losses) of investees									Equity in earnings (losses) of investees
AssuredIM Funds		$	—	$	(33)	$	28	$	(22)
Asset managers (3)										Asset managers (3)	$	—	$	—	$	—	$	—
CLOs										CLOs	7		6		23		(10)
Asset-based										Asset-based	—		—		3		7
Healthcare										Healthcare	12		3		21		(6)
Other	Other	5		(1)		7		(13)		Other	6		(20)		13		(37)
Equity in earnings (losses) of investees	Equity in earnings (losses) of investees	$	5	$	(34)	$	35	$	(35)	Equity in earnings (losses) of investees	$	25	$	(11)	$	60	$	(46)

____________________

(1) Amounts for 2022 include income on the portion of the CLO portfolio that was previously managed by AssuredIM.

(2) Amounts for 2022 include income on the portion of the municipal bond portfolio that was previously managed by AssuredIM.

(3) The Company acquired its investment in Sound Point on July 1, 2023 and reports its equity in earnings on this investment on a one quarter lag.

Net investment income for ~~second~~third quarter 2023 increased compared to third quarter 2022 primarily due to higher income from loss mitigation securities and ~~six~~the increase in short-term rates and higher average short-term balances. Net investment income for nine months 2023 increased compared to ~~second quarter 2022 and six~~nine months 2022, primarily due to the increase in short-term rates and higher average short-term balances, ~~as well as higher income on floating rate CLO investments.~~and loss mitigation securities. The overall pre-tax book yield of available-for-sale fixed-maturity securities and short-term investments was ~~3.89%~~4.04% as of ~~June~~September 30, 2023 and ~~2.95%~~3.01% as of ~~June~~September 30, 2022.

Equity in earnings of AssuredIM Funds were gains in six months 2023 and were primarily attributable to higher valuations of assets held in the CLO and healthcare funds. 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 the subsequent close of a healthcare fund.

Foreign Exchange Gains (Losses) on Remeasurement and Other Income (Loss)

The ~~increase~~gain in “foreign exchange gains (losses) on remeasurement and other income (loss)” in ~~six~~nine months 2023 compared with ~~six~~nine months 2022 was primarily attributable to the reversal of a previously recorded litigation accrual of $20 ~~million.~~million in nine months 2023, and foreign exchange gain on remeasurement of $1 million in nine months 2023, compared with a loss of $7 million in nine months 2022. See Item 1, Financial Statements, Note ~~12,~~13, Commitments and Contingencies, for additional information.

Table of Contents

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 and significant estimates for expected loss to be paid (recovered), see Part II, Item 8, Financial Statements and Supplementary Data, Note 4, Expected Loss to be Paid (Recovered), of the Company’s 2022 Annual Report on Form 10-K. The GAAP accounting policies for measurement and recognition for each type of contract are described in the notes listed below in Part II, Item 8, Financial Statements and Supplementary Data, of the Company’s 2022 Annual Report on Form 10-K:

~~Table of Contents~~

•Note 5 for contracts accounted for as insurance;

•Note 6 for contracts accounted for as credit derivatives;

•Note 8 for FG VIEs; and

•Note 9 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, 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. Therefore, changes in such rates from period to period affect economic loss development and loss and LAE. However, the effect of changes in discount rates is not indicative of actual credit impairment or improvement in the period. The weighted average discount rates used to discount expected losses (recoveries) were ~~4.34%~~4.80% and 4.08% as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

The composition of economic loss development (benefit) by accounting model and by sector is 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						Second Quarter				Six Months					As of						Third Quarter				Nine Months
Accounting Model	Accounting Model	June 30, 2023			December 31, 2022			2023		2022		2023		2022		Accounting Model	September 30, 2023			December 31, 2022			2023		2022		2023		2022
		(in millions)															(in millions)
Insurance	Insurance	$	262		$	205		$	62	$	(26)	$	68	$	(70)	Insurance	$	252		$	205		$	92	$	(67)	$	160	$	(137)
FG VIEs	FG VIEs	295		(1)	314		(1)	(14)		(6)		(9)		(10)		FG VIEs	235		(1)	314		(1)	(6)		(6)		(15)		(16)
Credit derivatives	Credit derivatives	3			3			1		—		1		4		Credit derivatives	3			3			1		1		2		5
Total	Total	$	560		$	522		$	49	$	(32)	$	60	$	(76)	Total	$	490		$	522		$	87	$	(72)	$	147	$	(148)

Net exposure rated BIG	Net exposure rated BIG	$	5,718		$	5,976										Net exposure rated BIG	$	5,258		$	5,976

____________________

(1) The expected loss to be paid for FG VIEs primarily relates to trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts). See Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered).

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Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector


		Second Quarter 2023									Third Quarter 2023
Sector	Sector	Net Expected Loss to be Paid (Recovered) as of March 31, 2023		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of June 30, 2023		Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2023		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2023
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	380	$	57	$	(4)	$	433	U.S. public finance	$	433	$	135	$	(169)	$	399
Non-U.S. public finance	Non-U.S. public finance	13		(3)		—		10		Non-U.S. public finance	10		(1)		—		9
Public finance	Public finance	393		54		(4)		443		Public finance	443		134		(169)		408
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	82		(9)		—		73		U.S. RMBS	73		(48)		13		38
Other structured finance	Other structured finance	42		4		(2)		44		Other structured finance	44		1		(1)		44
Structured finance	Structured finance	124		(5)		(2)		117		Structured finance	117		(47)		12		82
Total	Total	$	517	$	49	$	(6)	$	560	Total	$	560	$	87	$	(157)	$	490


		Second Quarter 2022									Third Quarter 2022
Sector	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		Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2022		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	181	$	8	$	21	$	210	U.S. public finance	$	210	$	24	$	392	$	626
Non-U.S. public finance	Non-U.S. public finance	10		(2)		(1)		7		Non-U.S. public finance	7		(2)		1		6
Public finance	Public finance	191		6		20		217		Public finance	217		22		393		632
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	195		(39)		23		179		U.S. RMBS	179		(95)		(32)		52
Other structured finance	Other structured finance	46		1		(1)		46		Other structured finance	46		1		(4)		43
Structured finance	Structured finance	241		(38)		22		225		Structured finance	225		(94)		(36)		95
Total	Total	$	432	$	(32)	$	42	$	442	Total	$	442	$	(72)	$	357	$	727


		Six Months 2023									Nine Months 2023
Sector	Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2022		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of June 30, 2023		Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2022		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2023
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	403	$	58	$	(28)	$	433	U.S. public finance	$	403	$	193	$	(197)	$	399
Non-U.S. public finance	Non-U.S. public finance	9		1		—		10		Non-U.S. public finance	9		—		—		9
Public finance	Public finance	412		59		(28)		443		Public finance	412		193		(197)		408
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	66		(4)		11		73		U.S. RMBS	66		(52)		24		38
Other structured finance	Other structured finance	44		5		(5)		44		Other structured finance	44		6		(6)		44
Structured finance	Structured finance	110		1		6		117		Structured finance	110		(46)		18		82
Total	Total	$	522	$	60	$	(22)	$	560	Total	$	522	$	147	$	(179)	$	490

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		Six Months 2022									Nine Months 2022
Sector	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		Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2021		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
		(in millions)									(in millions)
Public finance:	Public finance:									Public finance:
U.S. public finance	U.S. public finance	$	197	$	(40)	$	53	$	210	U.S. public finance	$	197	$	(16)	$	445	$	626
Non-U.S. public finance	Non-U.S. public finance	12		(4)		(1)		7		Non-U.S. public finance	12		(6)		—		6
Public finance	Public finance	209		(44)		52		217		Public finance	209		(22)		445		632
Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	150		(32)		61		179		U.S. RMBS	150		(127)		29		52
Other structured finance	Other structured finance	52		—		(6)		46		Other structured finance	52		1		(10)		43
Structured finance	Structured finance	202		(32)		55		225		Structured finance	202		(126)		19		95
Total	Total	$	411	$	(76)	$	107	$	442	Total	$	411	$	(148)	$	464	$	727

____________________

~~Second~~Third Quarter 2023 Net Economic Loss Development

Public Finance: The economic loss development on U.S. exposures in ~~second~~third quarter 2023 ~~was $57~~of $135 million ~~and~~ was primarily attributable to ~~$78 million for certain Puerto Rico and healthcare exposures, partially offset by higher projected recoveries of $21 million in other municipal exposures.~~PREPA.

U.S. RMBS: The economic benefit attributable to U.S. RMBS ~~was $9~~of $48 million ~~and~~ was primarily attributable to a $7$37 million benefit related to higher recoveries for secured second lien charged-off loans, ~~a $5 million benefit related to improved performance in certain transactions, and $3~~an $11 million benefit related to changes in discount rates, and a $6 million benefit related to higher assumed recoveries for deferred principal in first lien transactions, partially offset by losses ~~of $6 million~~ related to lower excess spread.

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

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

Public Finance: The economic loss development on U.S. exposures in ~~second~~third quarter 2022 was $8$24 million, and was primarily attributable to healthcare and Puerto Rico exposures, partially offset by the effect of changes in discount ~~rate.~~rates. Public finance expected loss to be paid primarily related to U.S. exposures, which had BIG net par outstanding of ~~$3.6~~$4.2 billion as of ~~June~~September 30, 2022 compared with $5.4 billion as of December 31, 2021. The reduction in net par was primarily due to ~~PRCCDA, PRIFA and GO/PBA.~~2022 Puerto Rico Resolutions.

U.S. RMBS: The economic benefit attributable to U.S. RMBS was ~~$39~~$95 million and was primarily attributable to a ~~$23~~$27 million benefit related to ~~changes~~the purchase of a loss mitigation security, a $26 million benefit related to updates in ~~discount rates,~~the projected conditional default rate (CDR) curves, a $17 million benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, a $16 million benefit related to improved performance in certain transactions, a ~~$14~~$12 million benefit related to changes in discount rates and a $7 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~~$10 million related to lower excess spread.

~~Six~~Nine Months 2023 Net Economic Loss Development

Public Finance:The economic loss development on U.S. public finance exposures in ~~six~~nine months 2023 was ~~$58~~$193 million, which was primarily attributable to ~~$81 million for certain Puerto Rico~~PREPA and healthcare exposures, partially offset by higher projected recoveries ~~of $23 million~~ in other municipal exposures.

U.S. RMBS: The net benefit attributable to U.S. RMBS was $4$52 million and was mainly attributable to a $14 million benefit related to higher recoveries for second lien charged-off loans, and a $9 million benefit related to improved performance in certain transactions, partially offset by a $15 million loss related to the return of certain funds previously received, a $2 million loss related to changes in discount rates and a $2 million loss related to lower excess spread.

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~~Six Months 2022 Net 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$50 million benefit related to higher recoveries for secured second lien charged-off loans, ~~and a~~an $11 million benefit related to improved performance in certain transactions, a $9 million benefit related to changes in discount rates, and a $6 million benefit related to higher assumed recoveries for deferred principal in first lien transactions. These benefits were partially offset by a $18 million loss development related to the return of certain funds previously received and $6 million related to lower ~~initial~~excess spread.

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Nine Months 2022 Net Economic Loss Development

Public Finance: The economic benefit on U.S. public finance exposures in nine months 2022 was $16 million, which was primarily attributable to changes in discount rates and higher projected revenues for certain exposures, partially offset by healthcare and Puerto Rico exposures.

U.S. RMBS: The net benefit attributable to U.S. RMBS was $127 million and was mainly related to a $56 million benefit related to changes in discount rates, a $43 million benefit related to improved performance in certain transactions, a $27 million benefit related to the purchase of a loss mitigation security, a $26 million benefit related to updates in the projected CDR curves, a $25 million benefit related to higher recoveries for secured second lien charged-off loans, a $17 million benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, and an $12 million benefit related to lower severity assumptions, ~~for first lien U.S. RMBS transactions,~~ partially offset by losses of ~~$69~~$79 million related to lower excess spread.

Insurance Segment Loss Expense

The primary differences between net economic loss development and the amount reported as “loss and LAE (benefit)” in the consolidated statements of operations are that loss and LAE (benefit): (i) considers deferred premium revenue in the calculation of loss reserves for financial guaranty insurance contracts; (ii) eliminates loss and LAE related to FG VIEs; and (iii) 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.

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~~combinations 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.

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.

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. The following table presents the Insurance segment loss expense (benefit).

Insurance Segment

Loss Expense (Benefit)


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
U.S. public finance	U.S. public finance	$	45	$	11	$	46	$	66	U.S. public finance	$	138	$	4	$	184	$	70

Structured finance:	Structured finance:									Structured finance:
U.S. RMBS	U.S. RMBS	(3)		(28)		3		(22)		U.S. RMBS	(38)		(82)		(35)		(104)
Other structured finance	Other structured finance	2		—		4		(1)		Other structured finance	1		3		5		2
Structured finance	Structured finance	(1)		(28)		7		(23)		Structured finance	(37)		(79)		(30)		(102)
Total Insurance segment loss expense (benefit)	Total Insurance segment loss expense (benefit)	$	44	$	(17)	$	53	$	43	Total Insurance segment loss expense (benefit)	$	101	$	(75)	$	154	$	(32)

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The difference between public finance loss expense and economic benefit in ~~six~~nine months 2022 was primarily attributable to the release of unearned premium reserve related to PRCCDA, PRIFA and GO/PBA exposures. As a result, the Company recognized loss and LAE expense that had not previously been reported in the statement of operations, and corresponding net earned premiums were recognized for the remaining deferred premium revenue on the extinguished Puerto

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Rico exposures. 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.

Employee Compensation and Benefit Expenses and Other Operating Expenses

The increase in ~~“other operating expenses” in six~~nine months 2023 compared with ~~six~~nine months 2022 was primarily attributable to an increase in value added taxes and increases in certain employee benefit related costs.

Financial Strength Ratings

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) (7/13/23)

AA+ (stable) (10/~~21/22)~~20/23)

A1 (stable) (3/18/22)

—

AGC

AA (stable) (7/13/23)

AA+ (stable) (10/~~21/22)~~20/23)

(1)

—

Assured Guaranty Re Ltd. (AG Re)

AA (stable) (7/13/23)

—

Assured Guaranty Re Overseas Ltd. (AGRO)

AA (stable) (7/13/23)

—

A+ (stable) (7/21/23)

Assured Guaranty UK Limited (AGUK)

AA (stable) (7/13/23)

AA+ (stable) (10/~~21/22)~~20/23)

A1 (stable) (3/18/22)

—

Assured Guaranty (Europe) SA (AGE)

AA (stable) (7/13/23)

AA+ (stable) (10/~~21/22)~~20/23)

—

____________________

(1) AGC requested that Moody’s withdraw its financial strength ratings of AGC in January 2017, but Moody’s denied that request. Moody's rates AGC A2 (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 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 — Insurance Subsidiaries” section below.

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Asset Management Segment Results

Second Quarter Six Months
2023 2022 2023 2022
(in millions)
Segment revenues
Management fees (1) 18 27 35 48
Performance fees 9 2 29 18
Foreign exchange gains (losses) on remeasurement and other income (loss) 3 (1) 7 1
Total segment revenues 30 28 71 67
Segment expenses
Interest expense 1 — 1 —
Employee compensation and benefit expenses 25 17 59 46
Other operating expenses (1) (2) 7 11 15 21
Total segment expenses 33 28 75 67
Segment adjusted operating income (loss) before income taxes (3) — (4) —
Less: Provision (benefit) for income taxes (1) — (1) —
Segment adjusted operating income (loss) $ (2) $ — $ (3) $ —

~~_____________________~~

(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 for second quarter 2022, $2 million for six months 2023 and $6 million for six months 2022. The Company ceased amortizing the intangible assets when the asset management assets and liabilities were reclassified to held-for-sale.


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Segment revenues
Management fees	$	—	$	18	$	35	$	66
Performance fees	—		2		29		20
Foreign exchange gains (losses) on remeasurement and other income (loss)	—		1		7		2
Total segment revenues	—		21		71		88
Segment expenses
Interest expense	—		—		1		—
Employee compensation and benefit expenses	—		16		59		62
Other operating expenses	—		8		15		29
Total segment expenses	—		24		75		91
Segment adjusted operating income (loss) before income taxes	—		(3)		(4)		(3)
Less: Provision (benefit) for income taxes	—		—		(1)		—
Segment adjusted operating income (loss)	$	—	$	(3)	$	(3)	$	(3)

~~Management and Performance Fees~~

~~Management fees in second quarter~~In the first half of 2023, were primarily generated by CLOs, opportunity funds and liquid strategies. CLO fees represented the net management fees that AssuredIM retained after rebating the portion of these fees that pertained to the CLO equity that was held directly by AssuredIM Funds.

~~Management Fees~~

Second Quarter Six Months
2023 2022 2023 2022
(in millions)
CLOs $ 13 $ 12 $ 25 $ 24
Opportunity funds and liquid strategies 5 15 10 23
Wind-down funds — — — 1
Total management fees $ 18 $ 27 $ 35 $ 48

~~Performance fees and related compensation expenses relate to tax distributions from the healthcare and asset-based funds.~~

~~Expenses~~

~~Employee compensation and benefit expenses increased in second quarter 2023 and six months 2023 primarily due to expenses related~~prior to the Sound Point Transaction and ~~higher compensation due to~~ the ~~increase~~AHP Transaction, the Company owned and consolidated AssuredIM and reported asset management fees (primarily from CLOs and opportunity funds) in ~~performance fees.~~revenues. Since July 1, 2023, the Company reports its ownership interest in Sound Point through equity in earnings of investees (on a one quarter lag).

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Assets Under Management

In the first half of 2023, while the Sound Point Transaction and AHP Transaction were pending, the Company was limited in its ability to raise third party AUM due to regulatory and practical considerations. AUM as of June 30, 2023 was $16.4 billion. As of July 1, 2023, the management of approximately $15.1 billion of AUM (of which $385 million was attributable to the Company) was transferred to Sound Point. Also in July 2023, the management of approximately $1.3 billion in remaining AUM (of which $185 million was attributable to the Company) was transferred with the sale of AHP to an entity owned and controlled by its managing ~~partner, and~~partner. AHP will continue to manage the healthcare funds. ~~See Note 1, Business and Basis of Presentation.~~

In the second quarter of 2023, (i) the management of approximately $159 ~~billion~~million in AUM in respect of certain wind-down and opportunity funds in their harvest period were transferred to a third party liquidator and (ii) management of approximately $513 million at fair value in investment grade municipal bonds and CLOs under an IMA was transferred to an internal manager and to one of the Company’s external fixed-maturity security managers. Effective with the Sound Point Transaction and the AHP Transaction, the Company no longer has any AUM. See Note 1, Business and Basis of Presentation.

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Corporate Division Results


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Revenues	Revenues	$	2	$	1	$	4	$	2	Revenues
Gain on sale of asset management subsidiaries										Gain on sale of asset management subsidiaries	$	255	$	—	$	255	$	—
Other										Other	4		1		8		3
Total revenues										Total revenues	259		1		263		3
Expenses	Expenses									Expenses
Interest expense	Interest expense	24		23		47		44		Interest expense	26		22		73		66
Employee compensation and benefit expenses	Employee compensation and benefit expenses	9		7		18		13		Employee compensation and benefit expenses	10		7		28		20
Other operating expenses	Other operating expenses	27		6		43		13		Other operating expenses	21		5		64		18
Total expenses	Total expenses	60		36		108		70		Total expenses	57		34		165		104
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	(58)		(35)		(104)		(68)		Adjusted operating income (loss) before income taxes	202		(33)		98		(101)
Less: Provision (benefit) for income taxes	Less: Provision (benefit) for income taxes	(8)		—		(10)		—		Less: Provision (benefit) for income taxes	47		(3)		37		(3)
Adjusted operating income (loss)	Adjusted operating income (loss)	$	(50)	$	(35)	$	(94)	$	(68)	Adjusted operating income (loss)	$	155	$	(30)	$	61	$	(98)

Gain on sale of asset management subsidiaries relates to the Sound Point Transaction and AHP Transaction. See Item 1. Financial Statements, Note 1, Business and Basis of Presentation.

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 2023 and second quarter 2022, and $5 million in both six months 2023 and six months 2022,~~ related primarily to the $250 million AGUS debt issued to the U.S. Insurance Subsidiaries. On August 21, 2023, AGUS issued $350 million of 6.125% Senior Notes due 2028. On September 25, 2023, AGUS used the proceeds of this issuance to redeem $330 million of 5% Senior Notes due 2024. Third quarter 2023 and nine months 2023 interest expense was higher than the comparable periods in 2022 due to additional interest expense on the 6.125% Senior Notes and higher interest on the variable rate AGMH Series A Enhanced Junior debentures. See Item 1. Financial Statements, Note 11, Long-Term Debt.

Corporate division employee compensation and benefits expenses are an allocation of expenses based on time studies and represent the costs incurred and time spent on holding company activities, capital management, corporate oversight and governance including Board of Director expenses, legal fees and other direct or allocated expenses. In ~~second~~third quarter 2023 and ~~six~~nine months 2023, operating expenses also include expenses related to the Sound Point Transaction and AHP Transaction, and for ~~six~~nine months 2023 a higher charge for value added taxes. Transaction related expenses in the corporate division for Sound Point and AHP were ~~$21~~$14 million for ~~second~~third quarter 2023 and $40 million for nine months 2023, consisting primarily of $25 million ~~for six months 2023.~~advisory and consent fees and $8 million legal fees.

Other (Effect of Consolidating 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.

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consummation of the 2022 Puerto Rico Resolutions; and (iii) investment vehicles such as (a) collateralized financing entities, CLO warehouses until July 1, 2023, and ~~AssuredIM Funds.~~(b) Sound Point and AHP 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.

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: (i) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements; (ii) eliminating the

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premiums and losses/recoveries associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs; and (iii) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG VIEs.

Consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on assets, liabilities and cash flows, and includes: (i) the establishment of the assets and liabilities of the CIVs, and related changes in fair value; (ii) eliminating the asset management fees earned by AssuredIM from the ~~CIVs;~~CIVs (prior to July 1, 2023); (iii) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees; and (iv) establishing noncontrolling 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 (“fair value gains (losses) on consolidated investment vehicles” and “noncontrolling interest) on a consolidated basis. As a result of the Sound Point Transaction and AHP Transaction, the Company deconsolidated CIV assets of $4.7 billion and CIV liabilities of $4.4 billion. The Company recognized a loss on deconsolidation of $16 million, which is reported in “fair value gains (losses) on CIVs”. See Item. 1, Financial Statements, Note 1, Business and Basis of Presentation and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

The table below reflects the effect of consolidating FG VIEs and CIVs on the condensed consolidated statements of operations. The amounts represent: (i) the revenues and expenses of the FG VIEs and the CIVs; and (ii) the consolidation adjustments and eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations

Increase (Decrease)


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
Effect on Financial Statement Line Item	Effect on Financial Statement Line Item	(in millions)								Effect on Financial Statement Line Item	(in millions)
Fair value gains (losses) on FG VIEs (1)	Fair value gains (losses) on FG VIEs (1)	$	(3)	$	10	$	(8)	$	16	Fair value gains (losses) on FG VIEs (1)	$	6	$	11	$	(2)	$	27
Fair value gains (losses) on CIVs	Fair value gains (losses) on CIVs	6		3		64		17		Fair value gains (losses) on CIVs	(4)		8		60		25
Equity in earnings (losses) of investees (2)	Equity in earnings (losses) of investees (2)	—		34		(28)		24		Equity in earnings (losses) of investees (2)	(7)		(9)		(35)		15
Other (3)	Other (3)	(25)		(13)		(39)		(24)		Other (3)	(3)		(8)		(42)		(32)
Effect on income before tax	Effect on income before tax	(22)		34		(11)		33		Effect on income before tax	(8)		2		(19)		35
Less: Tax provision (benefit)	Less: Tax provision (benefit)	(5)		2		(6)		2		Less: Tax provision (benefit)	(2)		1		(8)		3
Effect on net income (loss)	Effect on net income (loss)	(17)		32		(5)		31		Effect on net income (loss)	(6)		1		(11)		32
Less: Effect on noncontrolling interests (4)	Less: Effect on noncontrolling interests (4)	1		22		17		31		Less: Effect on noncontrolling interests (4)	2		(6)		19		25
Effect on net income (loss) attributable to AGL	Effect on net income (loss) attributable to AGL	$	(18)	$	10	$	(22)	$	—	Effect on net income (loss) attributable to AGL	$	(8)	$	7	$	(30)	$	7

By Type of VIE	By Type of VIE									By Type of VIE
FG VIEs	FG VIEs	$	(13)	$	1	$	(15)	$	3	FG VIEs	$	2	$	6	$	(13)	$	9
CIVs	CIVs	(5)		9		(7)		(3)		CIVs	(10)		1		(17)		(2)
Effect on net income (loss) attributable to AGL	Effect on net income (loss) attributable to AGL	$	(18)	$	10	$	(22)	$	—	Effect on net income (loss) attributable to AGL	$	(8)	$	7	$	(30)	$	7

____________________

(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.~~certain alternative investments, primarily Sound Point and AHP funds.

(3) Includes net earned premiums, net investment income, asset management fees, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE (benefit) and other operating expenses.

(4) Represents the proportion of consolidated funds managed by Sound Point and prior to July 1, 2023, AssuredIM ~~Funds’~~funds’ income that is not attributable to AGAS’ or any other subsidiaries’ ownership interest.

~~106~~103

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Reconciliation to GAAP

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Net income (loss) attributable to AGL	Net income (loss) attributable to AGL	$	125	$	(47)	$	206	$	19	Net income (loss) attributable to AGL	$	157	$	11	$	363	$	30
Less pre-tax adjustments:	Less pre-tax adjustments:									Less pre-tax adjustments:
Realized gains (losses) on investments	Realized gains (losses) on investments	(9)		(28)		(11)		(25)		Realized gains (losses) on investments	(9)		(14)		(20)		(39)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	90		6		103		3		Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	6		(49)		109		(46)
Fair value gains (losses) on CCS	Fair value gains (losses) on CCS	1		10		(15)		11		Fair value gains (losses) on CCS	(20)		1		(35)		12
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	26		(73)		46		(102)		Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(37)		(78)		9		(180)
Total pre-tax adjustments	Total pre-tax adjustments	108		(85)		123		(113)		Total pre-tax adjustments	(60)		(140)		63		(253)
Less tax effect on pre-tax adjustments	Less tax effect on pre-tax adjustments	(19)		8		(21)		12		Less tax effect on pre-tax adjustments	11		18		(10)		30
Adjusted operating income (loss)	Adjusted operating income (loss)	$	36	$	30	$	104	$	120	Adjusted operating income (loss)	$	206	$	133	$	310	$	253

Gain (loss) related to FG VIE and CIV consolidation (net of tax provision (benefit) of $(5), $2, $(6) and $2) included in adjusted operating income		$	(18)	$	10	$	(22)	$	—
Gain (loss) related to FG VIE and CIV consolidation (net of tax provision (benefit) of $(2), $1, $(8) and $3) included in adjusted operating income										Gain (loss) related to FG VIE and CIV consolidation (net of tax provision (benefit) of $(2), $1, $(8) and $3) included in adjusted operating income	$	(8)	$	7	$	(30)	$	7

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					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Gross realized gains on sales of available-for-sale securities	Gross realized gains on sales of available-for-sale securities	$	7	$	—	$	19	$	—	Gross realized gains on sales of available-for-sale securities	$	2	$	—	$	21	$	—
Gross realized losses on sales of available-for-sale securities	Gross realized losses on sales of available-for-sale securities	(6)		(21)		(15)		(23)		Gross realized losses on sales of available-for-sale securities	(1)		(10)		(16)		(33)
Net foreign currency gains (losses)	Net foreign currency gains (losses)	—		(3)		—		(3)		Net foreign currency gains (losses)	(1)		—		(1)		(3)
Change in allowance for credit losses and intent to sell	Change in allowance for credit losses and intent to sell	(10)		(4)		(15)		(9)		Change in allowance for credit losses and intent to sell	(8)		(4)		(23)		(13)
Other net realized gains (losses)	Other net realized gains (losses)	—		—		—		10		Other net realized gains (losses)	(1)		—		(1)		10
Net realized investment gains (losses)	Net realized investment gains (losses)	$	(9)	$	(28)	$	(11)	$	(25)	Net realized investment gains (losses)	$	(9)	$	(14)	$	(20)	$	(39)

Gross realized gains and losses on sales in all periods primarily ~~related~~relate to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

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. 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.

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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~~credit default swaps (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. 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~~September 30, 2023, 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~~Third quarter 2023 ~~and six months 2023~~ non-credit impairment-related unrealized fair value gains were primarily generated by lower collateral asset spreads. For six months 2023, the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period, also contributed to the gain.

~~Second quarter 2022 and six months 2022 non-credit impairment-related~~impairment unrealized fair value gains were generated primarily as a result of ~~the increased cost to buy protection~~generally lower collateral asset spreads. Nine months 2023 non-credit impairment unrealized fair value gains on credit derivatives were generated primarily as a result of generally lower collateral asset spreads and a widening of AGC spreads.

Third quarter 2022 non-credit impairment unrealized fair value losses were generated primarily as ~~the market cost~~a result of ~~AGC’s~~wider asset spreads and a tightening of AGC spreads. Nine months 2022 non-credit impairment unrealized fair value losses on credit ~~protection increased during the period,~~derivatives were generated primarily as a result of wider asset spreads, partially offset by a widening of AGC spreads and changes in discount rates. ~~These gains were partially offset by an increase in the credit spread of certain underlying reference obligations.~~

~~Sensitivity~~Adjusted Operating Income

Adjusted operating income in third quarter 2023 was $206 million, compared with $133 million in third quarter 2022. The increase was primarily due to ~~Changes~~the gain associated with the Sound Point Transaction and AHP Transaction, offset in ~~Credit Spread~~part by higher loss expense. Adjusted operating income in nine months 2023 was $310 million, compared with $253 million in nine months 2022. The increase was primarily due to the gain associated with the Sound Point Transaction and AHP Transaction, offset in part by higher loss expense and lower net earned premiums in nine months 2023, compared with nine months 2022 which included premium accelerations of $104 million related to the 2022 Puerto Rico Resolutions. See “— Results of Operations — Reconciliation to GAAP” for the reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

~~The following table summarizes~~Book Value and Adjusted Book Value

Shareholders’ equity attributable to AGL as of September 30, 2023 increased compared with December 31, 2022, due to net income, which was partially offset by dividends, share repurchases, and unrealized losses on investments. Adjusted operating shareholders’ equity and adjusted book value increased primarily due to operating income components of $310 million offset in part by dividends and share repurchases of $141 million, and in the ~~estimated change~~case of adjusted book value, the increase was also primarily due to gross written premiums of $221 million, which was partially offset by economic loss development of $147 million. 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

Inflation

By some key measures, consumer price inflation in ~~fair value~~the U.S. and the U.K. was higher in recent years than it has been in decades, and interest rates generally increased. Consumer price inflation in the U.K. impacts the Company directly by increasing exposure for certain index-linked U.K. debt with par that accretes with increasing inflation, and also increasing projected future installment premiums on the ~~net balance~~portion of such exposure that pays at least some of the premium on an installment basis over the term of the exposure. Consumer price inflation may also impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and may be accompanied by higher interest rates that could impact the Company in several ways.

Higher interest rates impact the Company in numerous other ways. For example, higher interest rates are often accompanied by wider credit spreads, which may make the Company’s credit ~~derivative positions assuming an immediate shift~~enhancement products more attractive in the ~~net spreads assumed by~~market and increase the ~~Company. The net~~level of premiums it can charge for that product. Despite the recent increases in interest rates since 2022, the pace of credit spread ~~is affected by~~widening was more modest and market penetration of municipal bond insurance in the ~~spread~~U.S. public finance market remained relatively flat compared to 2021 when interest rates were lower. Over time, higher interest rates also increase the amount the Company can earn on its largely fixed-maturity investment portfolio. However, higher interest rates may, in turn, reduce the fair value of its largely fixed-rate fixed-maturity investment portfolio, dampen municipal bond issuance and negatively impact the ~~underlying collateral and the credit spreads on AGC.~~finances of some insured obligors.

~~Effect of Changes in Credit Spread~~

As of June 30, 2023 As of December 31, 2022
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 $ (126) $ (69) $ (233) $ (71)
Base Scenario (57) — (162) —
Decrease of 25 bps (40) 17 (99) 63
All transactions priced at floor (20) 37 (27) 135

~~____________________~~

~~(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~~See “Overview — Economic Environment”.

~~Fair value losses~~Russia’s Invasion of Ukraine

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 $249 million in ~~six months~~net par outstanding as of September 30, 2023, ~~were primarily due~~comprising $208 million net par exposure to the sovereign debt of Poland and $41 million net par exposure to a ~~tightening~~toll road in ~~market spreads. Fair value gains on CCS~~Hungary. The Company rates all such exposure investment grade.

Middle East Conflict

In light of recent events in ~~second quarter 2022~~the Middle East, the Company’s surveillance and ~~six months 2022 were primarily due~~treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, for exposures to the Middle East. After review, the Company’s surveillance and treasury functions have identified no material direct exposure to such area. The Company’s direct insurance exposure to the Middle East is generally is limited to approximately $49 million in net par outstanding as of September 30, 2023, comprised of funded commitments to subscription finance facilities; however, such exposure may increase to a ~~significant increase~~total of approximately $94 million to the extent all unfunded commitments under the facilities are ultimately funded. The Company rates all such insurance exposure investment grade.

Income Taxes

The U.S. Internal Revenue Service and Department of the Treasury issued final and proposed regulations in ~~London Interbank Offered Rate (LIBOR). Fair value gains (losses)~~October 2020 relating to the tax treatment of ~~CCS are heavily affected by, and in part fluctuate with, changes in market spreads and interest rates, credit spreads and other market factors and~~passive foreign investment company. The final regulations are not expected to ~~result in an economic gain~~have a material impact to the Company’s business operation or ~~loss.~~its shareholders and the Company is continuing to evaluate the proposed regulations. See Note 12, Income Taxes.

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~~Foreign Exchange Gain (Loss)~~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 ~~Remeasurement~~available information, that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements. Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the condensed 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;

•Credit impairment of financial instruments;

•Other-than-temporary-impairment of equity method investments;

•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


	Third Quarter				Nine Months
	2023		2022		2023		2022

Segment revenues
Net earned premiums and credit derivative revenues	$	99	$	92	$	271	$	397
Net investment income	101		69		273		198
Fair value gains (losses) on trading securities	4		(8)		42		(30)
Foreign exchange gains (losses) on remeasurement and other income (loss)	4		(6)		36		(1)
Total segment revenues	208		147		622		564
Segment expenses
Loss expense (benefit)	101		(75)		154		(32)
Interest expense	—		—		—		1
Amortization of DAC	4		4		10		11
Employee compensation and benefit expenses	37		34		112		107
Other operating expenses	23		21		78		60
Total segment expenses	165		(16)		354		147
Equity in earnings (losses) of investees	25		(11)		60		(46)
Segment adjusted operating income (loss) before income taxes	68		152		328		371
Less: Provision (benefit) for income taxes	9		(7)		46		24
Segment adjusted operating income (loss)	$	59	$	159	$	282	$	347

Net Earned Premiums and Credit Derivative Revenues

~~Foreign exchange gains~~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 ~~losses~~makes prospective adjustments for such changes in ~~all periods primarily relate~~expected lives. Scheduled net earned premiums decrease each year unless replaced by a higher amount of new business, or books of business acquired in business combinations. See Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Premiums, for additional information.

Net earned premiums due to ~~remeasurement~~accelerations are attributable to changes in the expected lives of ~~long-dated~~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 ~~receivable, for which~~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 ~~records~~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 policies under the 2022 Puerto Rico Resolutions.

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Insurance Segment

Net Earned Premiums and Credit Derivative Revenues


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Net earned premiums:
Financial guaranty insurance:
Public finance
Scheduled net earned premiums (1)	$	65	$	62	$	188	$	196
Accelerations:
Refundings	14		12		26		145

Total accelerations	14		12		26		145
Total public finance	79		74		214		341
Structured finance scheduled net earned premiums (1)	16		15		47		44
Specialty insurance and reinsurance	1		1		3		3
Total net earned premiums	96		90		264		388

Credit derivative revenues:
Scheduled net earned premiums	2		2		6		7
Accelerations	1		—		1		2
Total credit derivative revenues	3		2		7		9
Total net earned premiums and credit derivative revenues	$	99	$	92	$	271	$	397

____________________

(1) Includes accretion of discount.

Net earned premiums and credit derivative revenues increased in third quarter 2023 compared with third quarter 2022 primarily due to higher refundings in third quarter 2023 and updates to debt service assumptions in third quarter 2022. Net earned premiums and credit derivative revenues decreased in nine months 2023 compared with nine months 2022 primarily due to refundings of $104 million related to the resolution of PRCCDA, PRIFA and GO/PBA exposures discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure. As of September 30, 2023, $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


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
GWP (1)
Public finance—U.S.	$	29	$	54	$	129	$	160
Public finance—non-U.S.	(5)		44		40		66
Structured finance—U.S.	15		(2)		48		4
Structured finance—non-U.S.	1		(2)		4		(1)
Total GWP	$	40	$	94	$	221	$	229
PVP (1):
Public finance—U.S.	$	30	$	57	$	129	$	163
Public finance—non-U.S.	2		37		38		67
Structured finance—U.S.	12		1		42		3
Structured finance—non-U.S. (2)	2		—		40		7
Total PVP	$	46	$	95	$	249	$	240
Gross Par Written (1):
Public finance—U.S.	$	5,098	$	3,622	$	15,752	$	13,982
Public finance—non-U.S.	61		194		670		624
Structured finance—U.S.	267		30		1,101		106
Structured finance—non-U.S. (2)	522		—		2,762		300
Total gross par written	$	5,948	$	3,846	$	20,285	$	15,012

____________________

(2) Nine months 2023 and 2022 PVP and gross par written include the present value of future ~~installment premiums,~~gross revenues and ~~are mainly due to changes in the exchange rate of the pound sterling and, to~~exposure, respectively, associated with a lesser extent, the euro relative to the U.S. dollar. Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves were gains of $26 million and $46 million in second quarter 2023 and six months 2023, respectively, and losses of $73 million and $102 million in second quarter 2022 and six months 2022, respectively. Approximately 72% and 74% of gross premiums receivable, net of commissions payable at June 30, 2023 and December 31, 2022, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro. Premiums on European infrastructure and structured finance transactions typically are paid, in whole or in part, on an installment basis, whereas premiums on U.S. public finance transactions are often paid upfront.

~~The following table presents the foreign exchange rates as of the balance sheet dates.~~

~~Foreign Exchange Rates~~

~~U.S. Dollar Per Foreign Currency~~

As of June 30, 2023 As of December 31, 2022 As of June 30, 2022 As of December 31, 2021
Pound sterling $1.270 $1.208 $1.218 $1.353
Euro $1.091 $1.071 $1.048 $1.137

~~Non-GAAP Financial Measures~~

~~The Company discloses both: (i)~~ financial measures determined in accordance with GAAP; and (ii) 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~~guaranty written by the Company ~~to consolidate entities where it~~that, under GAAP, is ~~deemed to be the primary beneficiary which include:~~

•accounted for under Accounting Standards Codification (ASC) 460, ~~FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and~~

•Guarantees~~CIVs in which certain subsidiaries invest.~~.

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.Third Quarter 2023

~~Management~~U.S. public finance GWP and PVP in third quarter 2023 were lower than the comparable GWP and PVP in third quarter 2022, due to a large transportation revenue transaction in third quarter 2022 that did not recur in third quarter 2023, and higher credit quality new business that carry lower premium rates in third quarter 2023, compared with third quarter 2022. The Company’s direct par written represented 61% of the ~~Company~~total U.S. municipal market insured issuance in third quarter 2023, compared with 56% in third quarter 2022, 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~~penetration of ~~operations, financial condition~~all municipal issuance was 4.6% in third quarter 2023 compared with 3.2% in third quarter 2022.

Structured finance GWP and ~~progress towards long-term goals.~~PVP in third quarter 2023 primarily includes an insurance securitization.

Nine Months 2023

U.S. public finance GWP and PVP in nine months 2023 were lower than the comparable GWP and PVP in nine months 2022 primarily due to fewer secondary market transactions in nine months 2023, compared with nine months 2022. 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; and (4) PVP.

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 manyCompany’s direct par written represented 62% of the ~~Company’s fixed income investors also use adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE~~total U.S. municipal market insured issuance in nine months 2023, compared with 56% in nine months 2022, and ~~CIV consolidation, to evaluate~~ the Company’s ~~capital adequacy.~~penetration of all municipal issuance was 5.3% in nine months 2023 compared with 4.4% in nine months 2022.

In nine months 2023, non-U.S. public finance GWP and PVP were lower than GWP and PVP in nine months 2022 due to a large amount of secondary market transactions in nine months 2022. In nine months 2023, new business primarily included the guaranty of a long-term sale and leaseback transaction with Glasgow City Council and several regulated utility transactions.

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~~Adjusted operating~~In nine months 2023, structured finance GWP and PVP were $52 million and $82 million, respectively, compared with GWP and PVP of $3 million and $10 million, respectively, in nine months 2022. Structured finance GWP and PVP in nine months 2023 includes an insurance securitization and several subscription finance guaranties, as well as an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties for which no GWP was reported under GAAP because it is not accounted for as insurance.

Business activity in the non-U.S. public finance and structured finance sectors typically has long lead times and therefore may vary from period to period.

Income from Investments

Net investment income ~~further adjusted~~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 on fixed-maturity securities 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.

Equity method investments in the Insurance segment include investments that the U.S. Insurance Subsidiaries make in certain alternative investments, primarily Sound Point and AHP funds. 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 these funds and the Company’s share of earnings of its other investees.

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Insurance Segment

Income from Investments


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Net investment income
Fixed-maturity securities, available-for-sale:
Externally managed (1)	$	51	$	49	$	156	$	147
Loss Mitigation Securities	24		10		48		27
Puerto Rico, New Recovery Bonds	1		1		5		5
Other (2)	5		4		12		11
Short-term investments	19		4		47		5
Intercompany loans	2		2		7		7
Other investment assets	—		1		2		1
Investment income	102		71		277		203
Investment expenses	(1)		(2)		(4)		(5)
Net investment income	$	101	$	69	$	273	$	198

Fair value gains (losses) on trading securities	$	4	$	(8)	$	42	$	(30)

Equity in earnings (losses) of investees
Asset managers (3)	$	—	$	—	$	—	$	—
CLOs	7		6		23		(10)
Asset-based	—		—		3		7
Healthcare	12		3		21		(6)
Other	6		(20)		13		(37)
Equity in earnings (losses) of investees	$	25	$	(11)	$	60	$	(46)

____________________

(1) Amounts for 2022 include income on the portion of the CLO portfolio that was previously managed by AssuredIM.

(2) Amounts for 2022 include income on the portion of the municipal bond portfolio that was previously managed by AssuredIM.

(3) The Company acquired its investment in Sound Point on July 1, 2023 and reports its equity in earnings on this investment on a one quarter lag.

Net investment income for third quarter 2023 increased compared to third quarter 2022 primarily due to higher income from loss mitigation securities and the increase in short-term rates and higher average short-term balances. Net investment income for nine months 2023 increased compared to nine months 2022, primarily due to the increase in short-term rates and higher average short-term balances, and loss mitigation securities. The overall pre-tax book yield of available-for-sale fixed-maturity securities and short-term investments was 4.04% as of September 30, 2023 and 3.01% as of September 30, 2022.

Foreign Exchange Gains (Losses) on Remeasurement and Other Income (Loss)

The gain in “foreign exchange gains (losses) on remeasurement and other income (loss)” in nine months 2023 compared with nine months 2022 was primarily attributable to the reversal of a previously recorded litigation accrual of $20 million in nine months 2023, and foreign exchange gain on remeasurement of $1 million in nine months 2023, compared with a loss of $7 million in nine months 2022. See Item 1, Financial Statements, Note 13, Commitments and Contingencies, for additional information.

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Economic Loss Development

•Note 5 for contracts accounted for as insurance;

•Note 6 for contracts accounted for as credit derivatives;

•Note 8 for FG VIEs; and

•Note 9 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. Therefore, changes in such rates from period to period affect economic loss development and loss and LAE. However, the effect of changes in discount rates is not indicative of actual credit impairment or improvement in the period. The weighted average discount rates used to discount expected losses (recoveries) were 4.80% and 4.08% as of September 30, 2023 and December 31, 2022, respectively.

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						Third Quarter				Nine Months
Accounting Model	September 30, 2023			December 31, 2022			2023		2022		2023		2022
	(in millions)
Insurance	$	252		$	205		$	92	$	(67)	$	160	$	(137)
FG VIEs	235		(1)	314		(1)	(6)		(6)		(15)		(16)
Credit derivatives	3			3			1		1		2		5
Total	$	490		$	522		$	87	$	(72)	$	147	$	(148)

Net exposure rated BIG	$	5,258		$	5,976

____________________

(1) The expected loss to be paid for FG ~~VIE~~VIEs primarily relates to trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts). See Item 1, Financial Statements, Note 3, Outstanding Exposure, and ~~CIV~~Note 4, Expected Loss to be Paid (Recovered).

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Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector


	Third Quarter 2023
Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2023		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2023
	(in millions)
Public finance:
U.S. public finance	$	433	$	135	$	(169)	$	399
Non-U.S. public finance	10		(1)		—		9
Public finance	443		134		(169)		408
Structured finance:
U.S. RMBS	73		(48)		13		38
Other structured finance	44		1		(1)		44
Structured finance	117		(47)		12		82
Total	$	560	$	87	$	(157)	$	490


	Third Quarter 2022
Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2022		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
	(in millions)
Public finance:
U.S. public finance	$	210	$	24	$	392	$	626
Non-U.S. public finance	7		(2)		1		6
Public finance	217		22		393		632
Structured finance:
U.S. RMBS	179		(95)		(32)		52
Other structured finance	46		1		(4)		43
Structured finance	225		(94)		(36)		95
Total	$	442	$	(72)	$	357	$	727


	Nine Months 2023
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2022		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2023
	(in millions)
Public finance:
U.S. public finance	$	403	$	193	$	(197)	$	399
Non-U.S. public finance	9		—		—		9
Public finance	412		193		(197)		408
Structured finance:
U.S. RMBS	66		(52)		24		38
Other structured finance	44		6		(6)		44
Structured finance	110		(46)		18		82
Total	$	522	$	147	$	(179)	$	490

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	Nine Months 2022
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2021		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
	(in millions)
Public finance:
U.S. public finance	$	197	$	(16)	$	445	$	626
Non-U.S. public finance	12		(6)		—		6
Public finance	209		(22)		445		632
Structured finance:
U.S. RMBS	150		(127)		29		52
Other structured finance	52		1		(10)		43
Structured finance	202		(126)		19		95
Total	$	411	$	(148)	$	464	$	727

____________________

Third Quarter 2023 Net Economic Loss Development

Public Finance: The economic loss development on U.S. exposures in third quarter 2023 of $135 million was primarily attributable to PREPA.

U.S. RMBS: The economic benefit attributable to U.S. RMBS of $48 million was primarily attributable to a $37 million benefit related to higher recoveries for secured second lien charged-off loans, an $11 million benefit related to changes in discount rates, and a $6 million benefit related to higher assumed recoveries for deferred principal in first lien transactions, partially offset by losses related to lower excess spread.

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

Third Quarter 2022 Net Economic Loss Development

Public Finance: The economic loss development on U.S. exposures in third quarter 2022 was $24 million, and was primarily attributable to healthcare and Puerto Rico exposures, partially offset by the effect of changes in discount rates. Public finance expected loss to be paid primarily related to U.S. exposures, which had BIG net par outstanding of $4.2 billion as of September 30, 2022 compared with $5.4 billion as of December 31, 2021. The reduction in net par was primarily due to 2022 Puerto Rico Resolutions.

U.S. RMBS: The economic benefit attributable to U.S. RMBS was $95 million and was primarily attributable to a $27 million benefit related to the purchase of a loss mitigation security, a $26 million benefit related to updates in the projected conditional default rate (CDR) curves, a $17 million benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, a $16 million benefit related to improved performance in certain transactions, a $12 million benefit related to changes in discount rates and a $7 million benefit related to higher recoveries for secured second lien charged-off loans, partially offset by losses of $10 million related to lower excess spread.

Nine Months 2023Net Economic Loss Development

Public Finance: The economic loss development on U.S. public finance exposures in nine months 2023 was $193 million, which was primarily attributable to PREPA and healthcare exposures, partially offset by higher projected recoveries in other municipal exposures.

U.S. RMBS: The net benefit attributable to U.S. RMBS was $52 million and was mainly attributable to a $50 million benefit related to higher recoveries for secured second lien charged-off loans, an $11 million benefit related to improved performance in certain transactions, a $9 million benefit related to changes in discount rates, and a $6 million benefit related to higher assumed recoveries for deferred principal in first lien transactions. These benefits were partially offset by a $18 million loss development related to the return of certain funds previously received and $6 million related to lower excess spread.

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Nine Months 2022 Net Economic Loss Development

U.S. RMBS: The net benefit attributable to U.S. RMBS was $127 million and was mainly related to a $56 million benefit related to changes in discount rates, a $43 million benefit related to improved performance in certain transactions, a $27 million benefit related to the purchase of a loss mitigation security, a $26 million benefit related to updates in the projected CDR curves, a $25 million benefit related to higher recoveries for secured second lien charged-off loans, a $17 million benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, and an $12 million benefit related to lower severity assumptions, partially offset by losses of $79 million related to lower excess spread.

Insurance Segment Loss Expense

For financial guaranty insurance contracts, each transaction’s expected loss to ~~evaluate~~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 ~~financial results~~projection of incurred losses that will be recognized in ~~comparison~~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 ~~consensus analyst estimates distributed publicly by~~timing of the actual credit impairment or improvement reported in net economic loss development. Transactions (particularly BIG transactions) acquired in business combinations or seasoned portfolios assumed from legacy financial ~~databases.~~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.

Insurance Segment

Loss Expense (Benefit)


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
U.S. public finance	$	138	$	4	$	184	$	70

Structured finance:
U.S. RMBS	(38)		(82)		(35)		(104)
Other structured finance	1		3		5		2
Structured finance	(37)		(79)		(30)		(102)
Total Insurance segment loss expense (benefit)	$	101	$	(75)	$	154	$	(32)

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The difference between public finance loss expense and economic benefit in nine months 2022 was primarily attributable to the release of unearned premium reserve related to PRCCDA, PRIFA and GO/PBA exposures. As a result, the Company recognized loss and LAE expense that had not previously been reported in the statement of operations, and corresponding net earned premiums were recognized for the remaining deferred premium revenue on the extinguished Puerto Rico exposures. 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.

Employee Compensation and Benefit Expenses and Other Operating Expenses

The ~~following paragraphs define each non-GAAP~~increase in nine months 2023 compared with nine months 2022 was primarily attributable to an increase in value added taxes and increases in certain employee benefit related costs.

Financial Strength Ratings

Demand for the financial ~~measure disclosed~~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) (7/13/23)

AA+ (stable) (10/20/23)

A1 (stable) (3/18/22)

—

AGC

AA (stable) (7/13/23)

AA+ (stable) (10/20/23)

(1)

—

Assured Guaranty Re Ltd. (AG Re)

AA (stable) (7/13/23)

—

Assured Guaranty Re Overseas Ltd. (AGRO)

AA (stable) (7/13/23)

—

A+ (stable) (7/21/23)

Assured Guaranty UK Limited (AGUK)

AA (stable) (7/13/23)

AA+ (stable) (10/20/23)

A1 (stable) (3/18/22)

—

Assured Guaranty (Europe) SA (AGE)

AA (stable) (7/13/23)

AA+ (stable) (10/20/23)

—

____________________

(1) AGC requested that Moody’s withdraw its financial strength ratings of AGC in January 2017, but Moody’s denied that request. Moody's rates AGC A2 (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 ~~describe why~~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 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.

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Asset Management Segment Results


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Segment revenues
Management fees	$	—	$	18	$	35	$	66
Performance fees	—		2		29		20
Foreign exchange gains (losses) on remeasurement and other income (loss)	—		1		7		2
Total segment revenues	—		21		71		88
Segment expenses
Interest expense	—		—		1		—
Employee compensation and benefit expenses	—		16		59		62
Other operating expenses	—		8		15		29
Total segment expenses	—		24		75		91
Segment adjusted operating income (loss) before income taxes	—		(3)		(4)		(3)
Less: Provision (benefit) for income taxes	—		—		(1)		—
Segment adjusted operating income (loss)	$	—	$	(3)	$	(3)	$	(3)

In the first half of 2023, prior to the Sound Point Transaction and the AHP Transaction, the Company owned and consolidated AssuredIM and reported asset management fees (primarily from CLOs and opportunity funds) in revenues. Since July 1, 2023, the Company reports its ownership interest in Sound Point through equity in earnings of investees (on a one quarter lag).

Assets Under Management

Until July 1, 2023, the effective date of the Sound Point Transaction and the AHP Transaction, the Company used AUM as one of the metrics to measure progress in its Asset Management segment. AUM refers to the assets managed, advised or serviced by AssuredIM. AUM as of June 30, 2023 was $16.4 billion. As of July 1, 2023, the management of approximately $15.1 billion of AUM (of which $385 million was attributable to the Company) was transferred to Sound Point. Also in July 2023, the management of approximately $1.3 billion in remaining AUM (of which $185 million was attributable to the Company) was transferred with the sale of AHP to an entity owned and controlled by its managing partner. AHP will continue to manage the healthcare funds. In the second quarter of 2023, (i) the management of approximately $159 million in AUM in respect of certain wind-down and opportunity funds in their harvest period were transferred to a third party liquidator and (ii) management of approximately $513 million at fair value in investment grade municipal bonds and CLOs under an IMA was transferred to an internal manager and to one of the Company’s external fixed-maturity security managers. Effective with the Sound Point Transaction and the AHP Transaction, the Company no longer has any AUM. See Note 1, Business and Basis of Presentation.

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Corporate Division Results


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Revenues
Gain on sale of asset management subsidiaries	$	255	$	—	$	255	$	—
Other	4		1		8		3
Total revenues	259		1		263		3
Expenses
Interest expense	26		22		73		66
Employee compensation and benefit expenses	10		7		28		20
Other operating expenses	21		5		64		18
Total expenses	57		34		165		104
Equity in earnings (losses) of investees	—		—		—		—
Adjusted operating income (loss) before income taxes	202		(33)		98		(101)
Less: Provision (benefit) for income taxes	47		(3)		37		(3)
Adjusted operating income (loss)	$	155	$	(30)	$	61	$	(98)

Gain on sale of asset management subsidiaries relates to the Sound Point Transaction and AHP Transaction. See Item 1. Financial Statements, Note 1, Business and Basis of Presentation.

Corporate division interest expense primarily relates to debt issued by the U.S. Holding Companies, and also includes intersegment interest expense related primarily to the $250 million AGUS debt issued to the U.S. Insurance Subsidiaries. On August 21, 2023, AGUS issued $350 million of 6.125% Senior Notes due 2028. On September 25, 2023, AGUS used the proceeds of this issuance to redeem $330 million of 5% Senior Notes due 2024. Third quarter 2023 and nine months 2023 interest expense was higher than the comparable periods in 2022 due to additional interest expense on the 6.125% Senior Notes and higher interest on the variable rate AGMH Series A Enhanced Junior debentures. See Item 1. Financial Statements, Note 11, Long-Term Debt.

Corporate division employee compensation and benefits expenses are an allocation of expenses based on time studies and represent the costs incurred and time spent on holding company activities, capital management, corporate oversight and governance including Board of Director expenses, legal fees and other direct or allocated expenses. In third quarter 2023 and nine months 2023, operating expenses also include expenses related to the Sound Point Transaction and AHP Transaction, and for nine months 2023 a higher charge for value added taxes. Transaction related expenses in the corporate division for Sound Point and AHP were $14 million for third quarter 2023 and $40 million for nine months 2023, consisting primarily of $25 million advisory and consent fees and $8 million legal fees.

Other (Effect of Consolidating FG VIEs and CIVs)

The types of entities the Company consolidates when it is ~~useful. To~~deemed to be the ~~extent there is a directly comparable GAAP financial measure, a reconciliation~~primary beneficiary primarily include: (i) entities whose debt obligations the insurance subsidiaries insure; (ii) custodial trusts established in connection with the consummation of the ~~non-GAAP~~2022 Puerto Rico Resolutions; and (iii) investment vehicles such as (a) collateralized financing entities, CLO warehouses until July 1, 2023, and (b) Sound Point and AHP 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.

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 ~~measure~~statements, and includes: (i) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements; (ii) eliminating the

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premiums and losses/recoveries associated with the financial guaranty insurance contracts between the insurance subsidiaries and the ~~most directly comparable GAAP financial measure~~FG VIEs; and (iii) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG VIEs.

Consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on assets, liabilities and cash flows, and includes: (i) the establishment of the assets and liabilities of the CIVs, and related changes in fair value; (ii) eliminating the asset management fees earned by AssuredIM from the CIVs (prior to July 1, 2023); (iii) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees; and (iv) establishing noncontrolling interest for amounts not owned by the Company. The economic effect of the U.S Insurance Subsidiaries’ ownership interests in CIVs is presented ~~below.~~in the Insurance segment as equity in earnings (losses) of investees, while the effect of CIVs is presented as separate line items (“fair value gains (losses) on consolidated investment vehicles” and “noncontrolling interest) on a consolidated basis. As a result of the Sound Point Transaction and AHP Transaction, the Company deconsolidated CIV assets of $4.7 billion and CIV liabilities of $4.4 billion. The Company recognized a loss on deconsolidation of $16 million, which is reported in “fair value gains (losses) on CIVs”. See Item. 1, Financial Statements, Note 1, Business and Basis of Presentation and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations

Increase (Decrease)


	Third Quarter				Nine Months
	2023		2022		2023		2022
Effect on Financial Statement Line Item	(in millions)
Fair value gains (losses) on FG VIEs (1)	$	6	$	11	$	(2)	$	27
Fair value gains (losses) on CIVs	(4)		8		60		25
Equity in earnings (losses) of investees (2)	(7)		(9)		(35)		15
Other (3)	(3)		(8)		(42)		(32)
Effect on income before tax	(8)		2		(19)		35
Less: Tax provision (benefit)	(2)		1		(8)		3
Effect on net income (loss)	(6)		1		(11)		32
Less: Effect on noncontrolling interests (4)	2		(6)		19		25
Effect on net income (loss) attributable to AGL	$	(8)	$	7	$	(30)	$	7

By Type of VIE
FG VIEs	$	2	$	6	$	(13)	$	9
CIVs	(10)		1		(17)		(2)
Effect on net income (loss) attributable to AGL	$	(8)	$	7	$	(30)	$	7

____________________

(2) Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’ investments in certain alternative investments, primarily Sound Point and AHP funds.

(4) Represents the proportion of consolidated funds managed by Sound Point and prior to July 1, 2023, 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)


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Net income (loss) attributable to AGL	$	157	$	11	$	363	$	30
Less pre-tax adjustments:
Realized gains (losses) on investments	(9)		(14)		(20)		(39)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	6		(49)		109		(46)
Fair value gains (losses) on CCS	(20)		1		(35)		12
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(37)		(78)		9		(180)
Total pre-tax adjustments	(60)		(140)		63		(253)
Less tax effect on pre-tax adjustments	11		18		(10)		30
Adjusted operating income (loss)	$	206	$	133	$	310	$	253

Gain (loss) related to FG VIE and CIV consolidation (net of tax provision (benefit) of $(2), $1, $(8) and $3) included in adjusted operating income	$	(8)	$	7	$	(30)	$	7

Net Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses).

Net Realized Investment Gains (Losses)


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Gross realized gains on sales of available-for-sale securities	$	2	$	—	$	21	$	—
Gross realized losses on sales of available-for-sale securities	(1)		(10)		(16)		(33)
Net foreign currency gains (losses)	(1)		—		(1)		(3)
Change in allowance for credit losses and intent to sell	(8)		(4)		(23)		(13)
Other net realized gains (losses)	(1)		—		(1)		10
Net realized investment gains (losses)	$	(9)	$	(14)	$	(20)	$	(39)

Gross realized gains and losses on sales in all periods primarily relate to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

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 credit default swaps (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. 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 September 30, 2023, 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.

Third quarter 2023 non-credit impairment unrealized fair value gains were generated primarily as a result of generally lower collateral asset spreads. Nine months 2023 non-credit impairment unrealized fair value gains on credit derivatives were generated primarily as a result of generally lower collateral asset spreads and a widening of AGC spreads.

Third quarter 2022 non-credit impairment unrealized fair value losses were generated primarily as a result of wider asset spreads and a tightening of AGC spreads. Nine months 2022 non-credit impairment unrealized fair value losses on credit derivatives were generated primarily as a result of wider asset spreads, partially offset by a widening of AGC spreads and changes in discount rates.

Adjusted Operating Income

Adjusted operating income in third quarter 2023 was $206 million, compared with $133 million in third quarter 2022. The increase was primarily due to the gain associated with the Sound Point Transaction and AHP Transaction, offset in part by higher loss expense. Adjusted operating income in nine months 2023 was $310 million, compared with $253 million in nine months 2022. The increase was primarily due to the gain associated with the Sound Point Transaction and AHP Transaction, offset in part by higher loss expense and lower net earned premiums in nine months 2023, compared with nine months 2022 which included premium accelerations of $104 million related to the 2022 Puerto Rico Resolutions. See “— Results of Operations — Reconciliation to GAAP” for the reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

Book Value and Adjusted Book Value

Shareholders’ equity attributable to AGL as of September 30, 2023 increased compared with December 31, 2022, due to net income, which was partially offset by dividends, share repurchases, and unrealized losses on investments. Adjusted operating shareholders’ equity and adjusted book value increased primarily due to operating income components of $310 million offset in part by dividends and share repurchases of $141 million, and in the case of adjusted book value, the increase was also primarily due to gross written premiums of $221 million, which was partially offset by economic loss development of $147 million. 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

Inflation

Higher interest rates impact the Company in numerous other ways. For example, higher interest rates are often accompanied by wider credit spreads, which 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. Despite the recent increases in interest rates since 2022, the pace of credit spread widening was more modest and market penetration of municipal bond insurance in the U.S. public finance market remained relatively flat compared to 2021 when interest rates were lower. Over time, higher interest rates also increase the amount the Company can earn on its largely fixed-maturity investment portfolio. However, higher interest rates may, in turn, reduce the fair value of its largely fixed-rate fixed-maturity investment portfolio, dampen municipal bond issuance and negatively impact the finances of some insured obligors.

See “Overview — Economic Environment”.

Russia’s Invasion of Ukraine

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 $249 million in net par outstanding as of September 30, 2023, comprising $208 million net par exposure to the sovereign debt of Poland and $41 million net par exposure to a toll road in Hungary. The Company rates all such exposure investment grade.

Middle East Conflict

In light of recent events in the Middle East, the Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, for exposures to the Middle East. After review, the Company’s surveillance and treasury functions have identified no material direct exposure to such area. The Company’s direct insurance exposure to the Middle East is generally is limited to approximately $49 million in net par outstanding as of September 30, 2023, comprised of funded commitments to subscription finance facilities; however, such exposure may increase to a total of approximately $94 million to the extent all unfunded commitments under the facilities are ultimately funded. The Company rates all such insurance exposure investment grade.

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 company. The final regulations are not expected to have a material impact to the Company’s business operation or its shareholders and the Company is continuing to evaluate the proposed regulations. See Note 12, Income Taxes.

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Results of Operations

Critical Accounting Estimates

•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;

•Credit impairment of financial instruments;

•Other-than-temporary-impairment of equity method investments;

•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


	Third Quarter				Nine Months
	2023		2022		2023		2022

Segment revenues
Net earned premiums and credit derivative revenues	$	99	$	92	$	271	$	397
Net investment income	101		69		273		198
Fair value gains (losses) on trading securities	4		(8)		42		(30)
Foreign exchange gains (losses) on remeasurement and other income (loss)	4		(6)		36		(1)
Total segment revenues	208		147		622		564
Segment expenses
Loss expense (benefit)	101		(75)		154		(32)
Interest expense	—		—		—		1
Amortization of DAC	4		4		10		11
Employee compensation and benefit expenses	37		34		112		107
Other operating expenses	23		21		78		60
Total segment expenses	165		(16)		354		147
Equity in earnings (losses) of investees	25		(11)		60		(46)
Segment adjusted operating income (loss) before income taxes	68		152		328		371
Less: Provision (benefit) for income taxes	9		(7)		46		24
Segment adjusted operating income (loss)	$	59	$	159	$	282	$	347

Net Earned Premiums and Credit Derivative Revenues

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Insurance Segment

Net Earned Premiums and Credit Derivative Revenues


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Net earned premiums:
Financial guaranty insurance:
Public finance
Scheduled net earned premiums (1)	$	65	$	62	$	188	$	196
Accelerations:
Refundings	14		12		26		145

Total accelerations	14		12		26		145
Total public finance	79		74		214		341
Structured finance scheduled net earned premiums (1)	16		15		47		44
Specialty insurance and reinsurance	1		1		3		3
Total net earned premiums	96		90		264		388

Credit derivative revenues:
Scheduled net earned premiums	2		2		6		7
Accelerations	1		—		1		2
Total credit derivative revenues	3		2		7		9
Total net earned premiums and credit derivative revenues	$	99	$	92	$	271	$	397

____________________

(1) Includes accretion of discount.

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New Business Production

Gross Written Premiums and

New Business Production


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
GWP (1)
Public finance—U.S.	$	29	$	54	$	129	$	160
Public finance—non-U.S.	(5)		44		40		66
Structured finance—U.S.	15		(2)		48		4
Structured finance—non-U.S.	1		(2)		4		(1)
Total GWP	$	40	$	94	$	221	$	229
PVP (1):
Public finance—U.S.	$	30	$	57	$	129	$	163
Public finance—non-U.S.	2		37		38		67
Structured finance—U.S.	12		1		42		3
Structured finance—non-U.S. (2)	2		—		40		7
Total PVP	$	46	$	95	$	249	$	240
Gross Par Written (1):
Public finance—U.S.	$	5,098	$	3,622	$	15,752	$	13,982
Public finance—non-U.S.	61		194		670		624
Structured finance—U.S.	267		30		1,101		106
Structured finance—non-U.S. (2)	522		—		2,762		300
Total gross par written	$	5,948	$	3,846	$	20,285	$	15,012

____________________

(2) Nine months 2023 and 2022 PVP and gross par written include the present value of future gross revenues and exposure, respectively, associated with a financial guaranty written by the Company that, under GAAP, is accounted for under Accounting Standards Codification (ASC) 460, Guarantees.

Third Quarter 2023

U.S. public finance GWP and PVP in third quarter 2023 were lower than the comparable GWP and PVP in third quarter 2022, due to a large transportation revenue transaction in third quarter 2022 that did not recur in third quarter 2023, and higher credit quality new business that carry lower premium rates in third quarter 2023, compared with third quarter 2022. The Company’s direct par written represented 61% of the total U.S. municipal market insured issuance in third quarter 2023, compared with 56% in third quarter 2022, and the Company’s penetration of all municipal issuance was 4.6% in third quarter 2023 compared with 3.2% in third quarter 2022.

Structured finance GWP and PVP in third quarter 2023 primarily includes an insurance securitization.

Nine Months 2023

U.S. public finance GWP and PVP in nine months 2023 were lower than the comparable GWP and PVP in nine months 2022 primarily due to fewer secondary market transactions in nine months 2023, compared with nine months 2022. The Company’s direct par written represented 62% of the total U.S. municipal market insured issuance in nine months 2023, compared with 56% in nine months 2022, and the Company’s penetration of all municipal issuance was 5.3% in nine months 2023 compared with 4.4% in nine months 2022.

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In nine months 2023, structured finance GWP and PVP were $52 million and $82 million, respectively, compared with GWP and PVP of $3 million and $10 million, respectively, in nine months 2022. Structured finance GWP and PVP in nine months 2023 includes an insurance securitization and several subscription finance guaranties, as well as an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties for which no GWP was reported under GAAP because it is not accounted for as insurance.

Business activity in the non-U.S. public finance and structured finance sectors typically has long lead times and therefore may vary from period to period.

Income from Investments

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Insurance Segment

Income from Investments


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Net investment income
Fixed-maturity securities, available-for-sale:
Externally managed (1)	$	51	$	49	$	156	$	147
Loss Mitigation Securities	24		10		48		27
Puerto Rico, New Recovery Bonds	1		1		5		5
Other (2)	5		4		12		11
Short-term investments	19		4		47		5
Intercompany loans	2		2		7		7
Other investment assets	—		1		2		1
Investment income	102		71		277		203
Investment expenses	(1)		(2)		(4)		(5)
Net investment income	$	101	$	69	$	273	$	198

Fair value gains (losses) on trading securities	$	4	$	(8)	$	42	$	(30)

Equity in earnings (losses) of investees
Asset managers (3)	$	—	$	—	$	—	$	—
CLOs	7		6		23		(10)
Asset-based	—		—		3		7
Healthcare	12		3		21		(6)
Other	6		(20)		13		(37)
Equity in earnings (losses) of investees	$	25	$	(11)	$	60	$	(46)

____________________

(1) Amounts for 2022 include income on the portion of the CLO portfolio that was previously managed by AssuredIM.

(2) Amounts for 2022 include income on the portion of the municipal bond portfolio that was previously managed by AssuredIM.

(3) The Company acquired its investment in Sound Point on July 1, 2023 and reports its equity in earnings on this investment on a one quarter lag.

Foreign Exchange Gains (Losses) on Remeasurement and Other Income (Loss)

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Economic Loss Development

•Note 5 for contracts accounted for as insurance;

•Note 6 for contracts accounted for as credit derivatives;

•Note 8 for FG VIEs; and

•Note 9 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. Therefore, changes in such rates from period to period affect economic loss development and loss and LAE. However, the effect of changes in discount rates is not indicative of actual credit impairment or improvement in the period. The weighted average discount rates used to discount expected losses (recoveries) were 4.80% and 4.08% as of September 30, 2023 and December 31, 2022, respectively.

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						Third Quarter				Nine Months
Accounting Model	September 30, 2023			December 31, 2022			2023		2022		2023		2022
	(in millions)
Insurance	$	252		$	205		$	92	$	(67)	$	160	$	(137)
FG VIEs	235		(1)	314		(1)	(6)		(6)		(15)		(16)
Credit derivatives	3			3			1		1		2		5
Total	$	490		$	522		$	87	$	(72)	$	147	$	(148)

Net exposure rated BIG	$	5,258		$	5,976

____________________

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Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector


	Third Quarter 2023
Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2023		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2023
	(in millions)
Public finance:
U.S. public finance	$	433	$	135	$	(169)	$	399
Non-U.S. public finance	10		(1)		—		9
Public finance	443		134		(169)		408
Structured finance:
U.S. RMBS	73		(48)		13		38
Other structured finance	44		1		(1)		44
Structured finance	117		(47)		12		82
Total	$	560	$	87	$	(157)	$	490


	Third Quarter 2022
Sector	Net Expected Loss to be Paid (Recovered) as of June 30, 2022		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
	(in millions)
Public finance:
U.S. public finance	$	210	$	24	$	392	$	626
Non-U.S. public finance	7		(2)		1		6
Public finance	217		22		393		632
Structured finance:
U.S. RMBS	179		(95)		(32)		52
Other structured finance	46		1		(4)		43
Structured finance	225		(94)		(36)		95
Total	$	442	$	(72)	$	357	$	727


	Nine Months 2023
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2022		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2023
	(in millions)
Public finance:
U.S. public finance	$	403	$	193	$	(197)	$	399
Non-U.S. public finance	9		—		—		9
Public finance	412		193		(197)		408
Structured finance:
U.S. RMBS	66		(52)		24		38
Other structured finance	44		6		(6)		44
Structured finance	110		(46)		18		82
Total	$	522	$	147	$	(179)	$	490

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	Nine Months 2022
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2021		Net Economic Loss Development (Benefit)		Net (Paid) Recovered Losses (1)		Net Expected Loss to be Paid (Recovered) as of September 30, 2022
	(in millions)
Public finance:
U.S. public finance	$	197	$	(16)	$	445	$	626
Non-U.S. public finance	12		(6)		—		6
Public finance	209		(22)		445		632
Structured finance:
U.S. RMBS	150		(127)		29		52
Other structured finance	52		1		(10)		43
Structured finance	202		(126)		19		95
Total	$	411	$	(148)	$	464	$	727

____________________

Third Quarter 2023 Net Economic Loss Development

Public Finance: The economic loss development on U.S. exposures in third quarter 2023 of $135 million was primarily attributable to PREPA.

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

Third Quarter 2022 Net Economic Loss Development

Nine Months 2023Net Economic Loss Development

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Nine Months 2022 Net Economic Loss Development

U.S. RMBS: The net benefit attributable to U.S. RMBS was $127 million and was mainly related to a $56 million benefit related to changes in discount rates, a $43 million benefit related to improved performance in certain transactions, a $27 million benefit related to the purchase of a loss mitigation security, a $26 million benefit related to updates in the projected CDR curves, a $25 million benefit related to higher recoveries for secured second lien charged-off loans, a $17 million benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, and an $12 million benefit related to lower severity assumptions, partially offset by losses of $79 million related to lower excess spread.

Insurance Segment Loss Expense

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 business combinations 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.

Insurance Segment

Loss Expense (Benefit)


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
U.S. public finance	$	138	$	4	$	184	$	70

Structured finance:
U.S. RMBS	(38)		(82)		(35)		(104)
Other structured finance	1		3		5		2
Structured finance	(37)		(79)		(30)		(102)
Total Insurance segment loss expense (benefit)	$	101	$	(75)	$	154	$	(32)

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Employee Compensation and Benefit Expenses and Other Operating Expenses

The increase in nine months 2023 compared with nine months 2022 was primarily attributable to an increase in value added taxes and increases in certain employee benefit related costs.

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) (7/13/23)

AA+ (stable) (10/20/23)

A1 (stable) (3/18/22)

—

AGC

AA (stable) (7/13/23)

AA+ (stable) (10/20/23)

(1)

—

Assured Guaranty Re Ltd. (AG Re)

AA (stable) (7/13/23)

—

Assured Guaranty Re Overseas Ltd. (AGRO)

AA (stable) (7/13/23)

—

A+ (stable) (7/21/23)

Assured Guaranty UK Limited (AGUK)

AA (stable) (7/13/23)

AA+ (stable) (10/20/23)

A1 (stable) (3/18/22)

—

Assured Guaranty (Europe) SA (AGE)

AA (stable) (7/13/23)

AA+ (stable) (10/20/23)

—

____________________

(1) AGC requested that Moody’s withdraw its financial strength ratings of AGC in January 2017, but Moody’s denied that request. Moody's rates AGC A2 (stable).

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Asset Management Segment Results


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Segment revenues
Management fees	$	—	$	18	$	35	$	66
Performance fees	—		2		29		20
Foreign exchange gains (losses) on remeasurement and other income (loss)	—		1		7		2
Total segment revenues	—		21		71		88
Segment expenses
Interest expense	—		—		1		—
Employee compensation and benefit expenses	—		16		59		62
Other operating expenses	—		8		15		29
Total segment expenses	—		24		75		91
Segment adjusted operating income (loss) before income taxes	—		(3)		(4)		(3)
Less: Provision (benefit) for income taxes	—		—		(1)		—
Segment adjusted operating income (loss)	$	—	$	(3)	$	(3)	$	(3)

Assets Under Management

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Corporate Division Results


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Revenues
Gain on sale of asset management subsidiaries	$	255	$	—	$	255	$	—
Other	4		1		8		3
Total revenues	259		1		263		3
Expenses
Interest expense	26		22		73		66
Employee compensation and benefit expenses	10		7		28		20
Other operating expenses	21		5		64		18
Total expenses	57		34		165		104
Equity in earnings (losses) of investees	—		—		—		—
Adjusted operating income (loss) before income taxes	202		(33)		98		(101)
Less: Provision (benefit) for income taxes	47		(3)		37		(3)
Adjusted operating income (loss)	$	155	$	(30)	$	61	$	(98)

Gain on sale of asset management subsidiaries relates to the Sound Point Transaction and AHP Transaction. See Item 1. Financial Statements, Note 1, Business and Basis of Presentation.

Corporate division employee compensation and benefits expenses are an allocation of expenses based on time studies and represent the costs incurred and time spent on holding company activities, capital management, corporate oversight and governance including Board of Director expenses, legal fees and other direct or allocated expenses. In third quarter 2023 and nine months 2023, operating expenses also include expenses related to the Sound Point Transaction and AHP Transaction, and for nine months 2023 a higher charge for value added taxes. Transaction related expenses in the corporate division for Sound Point and AHP were $14 million for third quarter 2023 and $40 million for nine months 2023, consisting primarily of $25 million advisory and consent fees and $8 million legal fees.

Other (Effect of Consolidating FG VIEs and CIVs)

The types of entities the Company consolidates when it is deemed to be the primary beneficiary primarily include: (i) entities whose debt obligations the insurance subsidiaries insure; (ii) custodial trusts established in connection with the consummation of the 2022 Puerto Rico Resolutions; and (iii) investment vehicles such as (a) collateralized financing entities, CLO warehouses until July 1, 2023, and (b) Sound Point and AHP 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.

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Consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on assets, liabilities and cash flows, and includes: (i) the establishment of the assets and liabilities of the CIVs, and related changes in fair value; (ii) eliminating the asset management fees earned by AssuredIM from the CIVs (prior to July 1, 2023); (iii) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees; and (iv) establishing noncontrolling 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 (“fair value gains (losses) on consolidated investment vehicles” and “noncontrolling interest) on a consolidated basis. As a result of the Sound Point Transaction and AHP Transaction, the Company deconsolidated CIV assets of $4.7 billion and CIV liabilities of $4.4 billion. The Company recognized a loss on deconsolidation of $16 million, which is reported in “fair value gains (losses) on CIVs”. See Item. 1, Financial Statements, Note 1, Business and Basis of Presentation and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations

Increase (Decrease)


	Third Quarter				Nine Months
	2023		2022		2023		2022
Effect on Financial Statement Line Item	(in millions)
Fair value gains (losses) on FG VIEs (1)	$	6	$	11	$	(2)	$	27
Fair value gains (losses) on CIVs	(4)		8		60		25
Equity in earnings (losses) of investees (2)	(7)		(9)		(35)		15
Other (3)	(3)		(8)		(42)		(32)
Effect on income before tax	(8)		2		(19)		35
Less: Tax provision (benefit)	(2)		1		(8)		3
Effect on net income (loss)	(6)		1		(11)		32
Less: Effect on noncontrolling interests (4)	2		(6)		19		25
Effect on net income (loss) attributable to AGL	$	(8)	$	7	$	(30)	$	7

By Type of VIE
FG VIEs	$	2	$	6	$	(13)	$	9
CIVs	(10)		1		(17)		(2)
Effect on net income (loss) attributable to AGL	$	(8)	$	7	$	(30)	$	7

____________________

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Reconciliation to GAAP

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Net income (loss) attributable to AGL	$	157	$	11	$	363	$	30
Less pre-tax adjustments:
Realized gains (losses) on investments	(9)		(14)		(20)		(39)
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	6		(49)		109		(46)
Fair value gains (losses) on CCS	(20)		1		(35)		12
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	(37)		(78)		9		(180)
Total pre-tax adjustments	(60)		(140)		63		(253)
Less tax effect on pre-tax adjustments	11		18		(10)		30
Adjusted operating income (loss)	$	206	$	133	$	310	$	253

Gain (loss) related to FG VIE and CIV consolidation (net of tax provision (benefit) of $(2), $1, $(8) and $3) included in adjusted operating income	$	(8)	$	7	$	(30)	$	7

Net Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses).

Net Realized Investment Gains (Losses)


	Third Quarter				Nine Months
	2023		2022		2023		2022
	(in millions)
Gross realized gains on sales of available-for-sale securities	$	2	$	—	$	21	$	—
Gross realized losses on sales of available-for-sale securities	(1)		(10)		(16)		(33)
Net foreign currency gains (losses)	(1)		—		(1)		(3)
Change in allowance for credit losses and intent to sell	(8)		(4)		(23)		(13)
Other net realized gains (losses)	(1)		—		(1)		10
Net realized investment gains (losses)	$	(9)	$	(14)	$	(20)	$	(39)

Gross realized gains and losses on sales in all periods primarily relate to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

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 credit default swaps (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. 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 September 30, 2023, 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.

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 September 30, 2023				As of December 31, 2022
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	$	(112)	$	(63)	$	(233)	$	(71)
Base Scenario	(49)		—		(162)		—
Decrease of 25 bps	(33)		16		(99)		63
All transactions priced at floor	(19)		30		(27)		135

____________________

(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 losses on CCS in third quarter 2023 and nine months 2023 were primarily due to a tightening in market spreads. Fair value gains on CCS in third quarter 2022 and nine months 2022 were primarily due to a significant increase in London Interbank Offered Rate (LIBOR). Fair value gains (losses) of CCS are heavily affected by, and in part fluctuate 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 receivable, 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, to a lesser extent, the euro relative to the U.S. dollar. Approximately 70% and 74% of gross premiums receivable, net of commissions payable as of September 30, 2023 and December 31, 2022, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro. Premiums on European infrastructure and structured finance transactions typically are paid, in whole or in part, on an installment basis, whereas premiums on U.S. public finance transactions are often paid upfront.

The following table presents the foreign exchange rates as of the balance sheet dates.

Foreign Exchange Rates

U.S. Dollar Per Foreign Currency


	As of September 30, 2023	As of December 31, 2022	As of September 30, 2022	As of December 31, 2021
Pound sterling	$1.220	$1.208	$1.117	$1.353
Euro	$1.057	$1.071	$0.980	$1.137

Non-GAAP Financial Measures

The Company discloses both: (i) financial measures determined in accordance with GAAP; and (ii) 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.

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.

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; and (4) PVP.

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 many of the Company’s fixed income investors also use adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation, to evaluate the Company’s capital adequacy.

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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:

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.

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.

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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.

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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~~to remove the effect of 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 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.

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.

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Reconciliation of Shareholders’ Equity Attributable to AGL

to Adjusted Operating Shareholders’ Equity and Adjusted Book Value


		As of June 30, 2023				As of December 31, 2022					As of September 30, 2023				As of December 31, 2022
		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	$	5,276	$	89.65	$	5,064	$	85.80	Shareholders’ equity attributable to AGL	$	5,252	$	90.84	$	5,064	$	85.80
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	31		0.52		(71)		(1.21)		Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives	38		0.66		(71)		(1.21)
Fair value gains (losses) on CCS	Fair value gains (losses) on CCS	32		0.54		47		0.80		Fair value gains (losses) on CCS	12		0.21		47		0.80
Unrealized gain (loss) on investment portfolio	Unrealized gain (loss) on investment portfolio	(463)		(7.88)		(523)		(8.86)		Unrealized gain (loss) on investment portfolio	(609)		(10.52)		(523)		(8.86)
Less taxes	Less taxes	48		0.83		68		1.15		Less taxes	76		1.31		68		1.15
Adjusted operating shareholders’ equity	Adjusted operating shareholders’ equity	5,628		95.64		5,543		93.92		Adjusted operating shareholders’ equity	5,735		99.18		5,543		93.92
Pre-tax adjustments:	Pre-tax adjustments:									Pre-tax adjustments:
Less: Deferred acquisition costs	Less: Deferred acquisition costs	155		2.63		147		2.48		Less: Deferred acquisition costs	158		2.73		147		2.48
Plus: Net present value of estimated net future revenue	Plus: Net present value of estimated net future revenue	192		3.27		157		2.66		Plus: Net present value of estimated net future revenue	190		3.28		157		2.66
Plus: Net deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed	Plus: Net deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed	3,445		58.53		3,428		58.10		Plus: Net deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed	3,404		58.88		3,428		58.10
Plus taxes	Plus taxes	(623)		(10.60)		(602)		(10.22)		Plus taxes	(612)		(10.58)		(602)		(10.22)
Adjusted book value	Adjusted book value	$	8,487	$	144.21	8,379		141.98		Adjusted book value	$	8,559	$	148.03	8,379		141.98

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 $(1) and $4)		$	(3)	$	(0.04)	$	17	$	0.28
Adjusted book value (net of tax provision (benefit) of $(3) and $3)		(7)		(0.12)		11		0.19
Adjusted operating shareholders’ equity (net of tax provision (benefit) of $1 and $4)										Adjusted operating shareholders’ equity (net of tax provision (benefit) of $1 and $4)	$	4	$	0.06	$	17	$	0.28
Adjusted book value (net of tax provision (benefit) of $(1) and $3)										Adjusted book value (net of tax provision (benefit) of $(1) and $3)	(2)		(0.03)		11		0.19

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.

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 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

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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


		Second Quarter 2023										Second Quarter 2022											Third Quarter 2023										Third Quarter 2022
		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	$	78	$	9	$	5	$	3	$	95	$	57	$	6	$	1	$	1	$	65	GWP	$	29	$	(5)	$	15	$	1	$	40	$	54	$	44	$	(2)	$	(2)	$	94
Less: Installment GWP and other GAAP adjustments (1)	Less: Installment GWP and other GAAP adjustments (1)	41		9		5		3		58		—		6		1		1		8		Less: Installment GWP and other GAAP adjustments (1)	6		(5)		15		1		17		—		44		(3)		(2)		39
Upfront GWP	Upfront GWP	37		—		—		—		37		57		—		—		—		57		Upfront GWP	23		—		—		—		23		54		—		1		—		55
Plus: Installment premiums and other (2)	Plus: Installment premiums and other (2)	40		6		3		5		54		—		18		—		1		19		Plus: Installment premiums and other (2)	7		2		12		2		23		3		37		—		—		40
PVP	PVP	$	77	$	6	$	3	$	5	$	91	$	57	$	18	$	—	$	1	$	76	PVP	$	30	$	2	$	12	$	2	$	46	$	57	$	37	$	1	$	—	$	95


		Six Months 2023										Six Months 2022											Nine Months 2023										Nine Months 2022
		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	$	100	$	45	$	33	$	3	$	181	$	106	$	22	$	6	$	1	$	135	GWP	$	129	$	40	$	48	$	4	$	221	$	160	$	66	$	4	$	(1)	$	229
Less: Installment GWP and other GAAP adjustments (1)	Less: Installment GWP and other GAAP adjustments (1)	49		42		33		3		127		—		22		4		1		27		Less: Installment GWP and other GAAP adjustments (1)	55		37		48		4		144		—		66		1		(1)		66
Upfront GWP	Upfront GWP	51		3		—		—		54		106		—		2		—		108		Upfront GWP	74		3		—		—		77		160		—		3		—		163
Plus: Installment premiums and other (2)	Plus: Installment premiums and other (2)	48		33		30		38		149		—		30		—		7		37		Plus: Installment premiums and other (2)	55		35		42		40		172		3		67		—		7		77
PVP	PVP	$	99	$	36	$	30	$	38	$	203	$	106	$	30	$	2	$	7	$	145	PVP	$	129	$	38	$	42	$	40	$	249	$	163	$	67	$	3	$	7	$	240

___________________

(1) 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) 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. ~~Six~~Nine months 2023 and 2022 also include the present value of future premiums and fees associated with other guaranties written by the Company that, under GAAP, are accounted for under Accounting Standards Codification (ASC) 460, Guarantees.

Insured Portfolio

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.~~.

Financial Guaranty Portfolio

Net Par Outstanding by Sector


	As of September 30, 2023		As of December 31, 2022

Sector	(dollars in millions)
Public finance:
U.S. public finance:
General obligation	$	73,322	$	71,868
Tax backed	32,982		33,752
Municipal utilities	28,541		26,436
Transportation	20,602		19,688
Healthcare	11,842		11,304
Infrastructure finance	8,808		6,955
Higher education	7,256		7,137
Housing revenue	1,141		959
Investor-owned utilities	329		332
Renewable energy	171		180
Other public finance	979		1,025
Total U.S. public finance	185,973		179,636
Non-U.S public finance:
Regulated utilities	19,207		17,855
Infrastructure finance	14,031		13,915
Sovereign and sub-sovereign	9,403		9,526
Renewable energy	2,021		2,086
Pooled infrastructure	1,086		1,081
Total non-U.S. public finance	45,748		44,463
Total public finance	231,721		224,099
Structured finance:
U.S. structured finance:
Life insurance transactions	4,663		3,879
RMBS	1,817		1,956
Pooled corporate obligations	595		625
Financial products	447		453
Consumer receivables	342		437
Other structured finance	1,111		878
Total U.S. structured finance	8,975		8,228
Non-U.S. structured finance:
Pooled corporate obligations	339		344
RMBS	248		263
Other structured finance	550		324
Total non-U.S. structured finance	1,137		931
Total structured finance	10,112		9,159
Total net par outstanding	$	241,833	$	233,258

~~113~~111

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~~Financial Guaranty Portfolio~~

~~Net Par Outstanding and Average Internal Rating by Sector~~

As of June 30, 2023 As of December 31, 2022
Sector Net Par
Outstanding Average
Rating Net Par
Outstanding Average
Rating
(dollars in millions)
Public finance:
U.S. public finance:
General obligation $ 74,874 A- $ 71,868 A-
Tax backed 32,911 A- 33,752 A-
Municipal utilities 28,185 A- 26,436 A-
Transportation 20,317 A- 19,688 A-
Healthcare 11,661 BBB+ 11,304 BBB+
Infrastructure finance 8,667 A- 6,955 A-
Higher education 7,237 A- 7,137 A-
Housing revenue 937 BBB- 959 BBB-
Investor-owned utilities 331 A- 332 A-
Renewable energy 171 A- 180 A-
Other public finance 1,032 BBB 1,025 BBB
Total U.S. public finance 186,323 A- 179,636 A-
Non-U.S public finance:
Regulated utilities 19,836 BBB+ 17,855 BBB+
Infrastructure finance 14,756 BBB 13,915 BBB
Sovereign and sub-sovereign 9,862 A+ 9,526 A+
Renewable energy 2,073 A- 2,086 A-
Pooled infrastructure 1,131 AAA 1,081 AAA
Total non-U.S. public finance 47,658 BBB+ 44,463 BBB+
Total public finance 233,981 A- 224,099 A-
Structured finance:
U.S. structured finance:
Life insurance transactions 4,406 AA- 3,879 AA-
RMBS 1,863 BBB- 1,956 BBB-
Pooled corporate obligations 606 AAA 625 AAA
Financial products 450 AA- 453 AA-
Consumer receivables 373 A 437 A
Other structured finance 1,129 BBB+ 878 BBB+
Total U.S. structured finance 8,827 A 8,228 A
Non-U.S. structured finance:
Pooled corporate obligations 352 AAA 344 AAA
RMBS 263 A- 263 A-
Other structured finance 590 A+ 324 AA-
Total non-U.S. structured finance 1,205 AA- 931 AA
Total structured finance 10,032 A 9,159 A
Total net par outstanding $ 244,013 A- $ 233,258 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 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

~~114~~

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financial guarantor. The second-to-pay insured par outstanding as of ~~both June~~September 30, 2023 and December 31, 2022 was $4.2 billion and $4.3 ~~billion.~~billion, respectively. The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were not investment grade was $16 million and $19 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

Exposure to Puerto Rico

The Company had insured exposure to obligations of various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) as well as its general obligation bonds aggregating ~~$1.3~~$1.1 billion net par outstanding as of ~~June~~September 30, 2023, 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 ~~June~~September 30, 2023


		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)
Defaulted Puerto Rico Exposures	Defaulted Puerto Rico Exposures													Defaulted Puerto Rico Exposures
PREPA	PREPA	$	446	$	69	$	205	$	—	$	720	$	730	PREPA	$	377	$	67	$	180	$	—	$	624	$	634
Total Defaulted	Total Defaulted	446		69		205		—		720		730		Total Defaulted	377		67		180		—		624		634
Resolved Puerto Rico Exposures	Resolved Puerto Rico Exposures													Resolved Puerto Rico Exposures
PRHTA (Transportation revenue) (2)	PRHTA (Transportation revenue) (2)	49		181		105		(42)		293		293		PRHTA (Transportation revenue) (2)	14		157		87		(14)		244		244
PRHTA (Highway revenue) (2)	PRHTA (Highway revenue) (2)	140		30		12		—		182		182		PRHTA (Highway revenue) (2)	109		11		8		—		128		128
Commonwealth of Puerto Rico - GO (2)		—		19		6		—		25		25
PBA (2)		1		4		—		(1)		4		4
Total Resolved	Total Resolved	190		234		123		(43)		504		504		Total Resolved	123		168		95		(14)		372		372
Other Puerto Rico Exposures	Other Puerto Rico Exposures													Other Puerto Rico Exposures
MFA (3)	MFA (3)	96		6		22		—		124		130		MFA (3)	84		6		18		—		108		114
PRASA and U of PR (3)	PRASA and U of PR (3)	—		1		—		—		1		1		PRASA and U of PR (3)	—		1		—		—		1		1
Total Other	Total Other	96		7		22		—		125		131		Total Other	84		7		18		—		109		115
Total exposure to Puerto Rico	Total exposure to Puerto Rico	$	732	$	310	$	350	$	(43)	$	1,349	$	1,365	Total exposure to Puerto Rico	$	584	$	242	$	293	$	(14)	$	1,105	$	1,121

___________________

(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) Resolved pursuant to the 2022 Puerto Rico Resolutions. Consideration received under the ~~GO/PBA and~~ HTA ~~Plans~~Plan related to the remaining insured exposure is reported in FG VIEs’ assets (see Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles).

(3) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company.

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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 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.

Amortization Schedule of Net Par of Puerto Rico

As of ~~June~~September 30, 2023


		Scheduled Net Par Amortization																					Scheduled Net Par Amortization
		2023 (3Q)		2023 (4Q)		2024		2025		2026		2027		2028 - 2032		2033 - 2037		2038 - 2041		Total			2023 (4Q)		2024 (1Q)		2024 (2Q)		2024 (3Q)		2024 (4Q)		2025		2026		2027		2028 - 2032		2033 - 2037		2038 - 2041		Total
		(in millions)																					(in millions)
Defaulted Puerto Rico Exposures	Defaulted Puerto Rico Exposures																					Defaulted Puerto Rico Exposures
PREPA	PREPA	$	95	$	—	$	93	$	68	$	105	$	105	$	241	$	13	$	—	$	720	PREPA	$	—	$	—	$	—	$	93	$	—	$	68	$	105	$	105	$	240	$	13	$	—	$	624
Total Defaulted	Total Defaulted	95		—		93		68		105		105		241		13		—		720		Total Defaulted	—		—		—		93		—		68		105		105		240		13		—		624
Resolved Puerto Rico Exposures	Resolved Puerto Rico Exposures																					Resolved Puerto Rico Exposures
PRHTA (Transportation revenue)	PRHTA (Transportation revenue)	10		—		—		8		7		—		12		126		130		293		PRHTA (Transportation revenue)	—		—		—		—		—		—		—		—		—		121		123		244
PRHTA (Highway revenue)	PRHTA (Highway revenue)	—		—		—		—		—		—		81		101		—		182		PRHTA (Highway revenue)	—		—		—		—		—		—		—		—		27		101		—		128
Commonwealth of Puerto Rico - GO		—		—		—		—		2		4		19		—		—		25
PBA		2		—		—		2		—		—		—		—		—		4
Total Resolved	Total Resolved	12		—		—		10		9		4		112		227		130		504		Total Resolved	—		—		—		—		—		—		—		—		27		222		123		372
Other Puerto Rico Exposures	Other Puerto Rico Exposures																					Other Puerto Rico Exposures
MFA	MFA	17		—		16		16		35		15		25		—		—		124		MFA	—		—		—		16		—		16		35		15		26		—		—		108
PRASA and U of PR	PRASA and U of PR	—		—		1		—		—		—		—		—		—		1		PRASA and U of PR	—		—		—		1		—		—		—		—		—		—		—		1
Total Other Puerto Rico Exposures	Total Other Puerto Rico Exposures	17		—		17		16		35		15		25		—		—		125		Total Other Puerto Rico Exposures	—		—		—		17		—		16		35		15		26		—		—		109

Total	Total	$	124	$	—	$	110	$	94	$	149	$	124	$	378	$	240	$	130	$	1,349	Total	$	—	$	—	$	—	$	110	$	—	$	84	$	140	$	120	$	293	$	235	$	123	$	1,105

Amortization Schedule of Net Debt Service of Puerto Rico

As of ~~June~~September 30, 2023


		Scheduled Net Debt Service Amortization																					Scheduled Net Debt Service Amortization
		2023 (3Q)		2023 (4Q)		2024		2025		2026		2027		2028 - 2032		2033 - 2037		2038 - 2041		Total			2023 (4Q)		2024 (1Q)		2024 (2Q)		2024 (3Q)		2024 (4Q)		2025		2026		2027		2028 - 2032		2033 - 2037		2038 - 2041		Total
		(in millions)																					(in millions)
Defaulted Puerto Rico Exposures	Defaulted Puerto Rico Exposures																					Defaulted Puerto Rico Exposures
PREPA	PREPA	$	109	$	3	$	122	$	92	$	126	$	122	$	275	$	14	$	—	$	863	PREPA	$	3	$	12	$	3	$	105	$	3	$	92	$	126	$	122	$	273	$	14	$	—	$	753
Total Defaulted	Total Defaulted	109		3		122		92		126		122		275		14		—		863		Total Defaulted	3		12		3		105		3		92		126		122		273		14		—		753
Resolved Puerto Rico Exposures	Resolved Puerto Rico Exposures																					Resolved Puerto Rico Exposures
PRHTA (Transportation revenue)	PRHTA (Transportation revenue)	17		—		15		23		22		14		80		180		148		499		PRHTA (Transportation revenue)	—		6		—		6		—		13		13		12		65		173		140		428
PRHTA (Highway revenue)	PRHTA (Highway revenue)	5		—		9		10		10		10		124		115		—		283		PRHTA (Highway revenue)	—		3		—		3		—		7		7		7		61		115		—		203
Commonwealth of Puerto Rico - GO		1		—		1		1		3		6		21		—		—		33
PBA		2		—		—		3		—		—		—		—		—		5
Total Resolved	Total Resolved	25		—		25		37		35		30		225		295		148		820		Total Resolved	—		9		—		9		—		20		20		19		126		288		140		631
Other Puerto Rico Exposures	Other Puerto Rico Exposures																					Other Puerto Rico Exposures
MFA	MFA	20		—		22		20		39		16		28		—		—		145		MFA	—		3		—		19		—		20		39		17		28		—		—		126
PRASA and U of PR	PRASA and U of PR	—		—		1		—		—		—		—		—		—		1		PRASA and U of PR	—		—		—		1		—		—		—		—		—		—		—		1
Total Other Puerto Rico Exposures	Total Other Puerto Rico Exposures	20		—		23		20		39		16		28		—		—		146		Total Other Puerto Rico Exposures	—		3		—		20		—		20		39		17		28		—		—		127

Total	Total	$	154	$	3	$	170	$	149	$	200	$	168	$	528	$	309	$	148	$	1,829	Total	$	3	$	24	$	3	$	134	$	3	$	132	$	185	$	158	$	427	$	302	$	140	$	1,511

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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 (Recovered). U.S. RMBS exposures represent 0.8% of the total net par outstanding, and BIG U.S. RMBS represent ~~17.2%~~18.5% of total BIG net par outstanding as of ~~June~~September 30, 2023.

Distribution of U.S. RMBS by Year Insured and Type of Exposure as of ~~June~~September 30, 2023


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	$	9	$	8	$	—	$	321	$	11	$	349	2004 and prior	$	8	$	7	$	—	$	311	$	10	$	336
2005	2005	21		116		15		181		47		380		2005	21		112		14		180		44		371
2006	2006	23		24		1		40		101		189		2006	22		23		1		38		96		180
2007	2007	—		187		16		571		141		915		2007	—		184		16		562		138		900
2008	2008	—		—		—		30		—		30		2008	—		—		—		30		—		30
Total exposures	Total exposures	$	53	$	335	$	32	$	1,143	$	300	$	1,863	Total exposures	$	51	$	326	$	31	$	1,121	$	288	$	1,817

Exposures rated BIG	Exposures rated BIG	$	32	$	200	$	15	$	614	$	109	$	970	Exposures rated BIG	$	31	$	195	$	14	$	610	$	106	$	956

Liquidity and Capital Resources

AGL and its U.S. Holding Companies

AGL directly owns (i) AG Re, an insurance company domiciled in Bermuda; and (ii) AGUS, a U.S. holding company with public ~~debt.~~debt outstanding. AGUS directly owns: (i) AGC, an insurance company domiciled in Maryland; and (ii) AGMH, a U.S. 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 and other distributions from their operating subsidiaries (see — Insurance Subsidiaries — Distributions from Insurance Subsidiaries below for a description of dividend and other capital distribution 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 and a half times 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.

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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 12, Long-Term Debt and Credit Facilities, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and — Guarantor and U.S. Holding Companies' Summarized Financial Information,, below.

U.S. Holding Companies

Long-Term Debt and Intercompany Loans


				As of June 30, 2023		As of December 31, 2022					As of September 30, 2023		As of December 31, 2022
				(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
5% Senior Notes								5% Senior Notes	5.00%	2024	$	—	$	330
6.125% Senior Notes								6.125% Senior Notes	6.125%	2028	350		—
3.15% Senior Notes								3.15% Senior Notes	3.15%	2031	500		500
7% Senior Notes	7% Senior Notes	6.40%	2034	$	200	$	200	7% Senior Notes	6.40%	2034	200		200
5% Senior Notes		5.00%	2024	330		330
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 (1)	Series A Enhanced Junior Subordinated Debentures (1)	3 month LIBOR +2.38%	2066	150		150		Series A Enhanced Junior Subordinated Debentures (1)	3 month CME Term SOFR +2.64%	2066	150		150
AGUS long-term debt	AGUS long-term debt			1,580		1,580		AGUS long-term debt			1,600		1,580
AGUS - intercompany loans from:	AGUS - intercompany loans from:							AGUS - intercompany loans from:
AGC and AGM	AGC and AGM	3.50%	2029	250		250		AGC and AGM	3.50%	2029	250		250
AGRO (2)	AGRO (2)	5.00%	2028	20		20		AGRO (2)	5.00%	2028	20		20
AGUS intercompany loans	AGUS intercompany loans			270		270		AGUS intercompany loans			270		270
Total AGUS long-term debt and intercompany loans	Total AGUS long-term debt and intercompany loans			1,850		1,850		Total AGUS long-term debt and intercompany loans			1,870		1,850
AGMH	AGMH							AGMH
Junior Subordinated Debentures (3)	Junior Subordinated Debentures (3)	6.40%	2066	300		300		Junior Subordinated Debentures (3)	6.40%	2066	300		300
Total AGMH long-term debt	Total AGMH long-term debt			300		300		Total AGMH long-term debt			300		300
AGMH’s long-term debt purchased by AGUS (4)	AGMH’s long-term debt purchased by AGUS (4)			(154)		(154)		AGMH’s long-term debt purchased by AGUS (4)			(154)		(154)
U.S. Holding Company long-term debt	U.S. Holding Company long-term debt			$	1,996	$	1,996	U.S. Holding Company long-term debt			$	2,016	$	1,996

____________________

(1) Until June 30, 2023, the Series A Enhanced Junior Subordinated Debentures paid interest based on LIBOR. The reference to LIBOR in such debentures has been replaced with a rate based on Three-Month Chicago Mercantile Exchange (CME) Term Secured Overnight Finance Rate (SOFR).

(2) In the second quarter of 2023, the final maturity of the AGRO loan was extended from 2023 to 2028 and the floating rate interest rate was converted to a fixed rate of 5%.

(3) 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~~One-Month CME Term SOFR plus ~~2.215%~~2.33%.

(4) Represents principal amount of Junior Subordinated Debentures issued by AGMH that has been purchased by AGUS.

On August 21, 2023, AGUS issued $350 million of 6.125% Senior Notes due 2028. On September 25, 2023, AGUS redeemed $330 million of 5% Senior Notes due 2024. See Item 1. Financial Statements, Note 11, Long-Term Debt.

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~~2033 (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

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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 2022 Annual Report on Form 10-K, Part II, Item 8. Financial Statements and Supplementary Data, Note 12, Long-Term Debt and Credit Facilities.

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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~~$1,450 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.


		As of June 30, 2023					As of September 30, 2023
		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)	$	21	$	4	Fixed-maturity securities (1)	$	20	$	4
Investment in Sound Point						Investment in Sound Point	—		419
Short-term investments, other invested assets and cash	Short-term investments, other invested assets and cash	35		73		Short-term investments, other invested assets and cash	23		56
Receivables from affiliates (2)	Receivables from affiliates (2)	57		—		Receivables from affiliates (2)	69		95
Receivable from U.S. Holding Companies	Receivable from U.S. Holding Companies	27		—		Receivable from U.S. Holding Companies	70		—
Other assets	Other assets	5		42		Other assets	3		64
Liabilities	Liabilities					Liabilities
Long-term debt	Long-term debt	—		1,677		Long-term debt	—		1,693
Loans payable to affiliates	Loans payable to affiliates	—		270		Loans payable to affiliates	—		270
Payable to affiliates (2)	Payable to affiliates (2)	12		13		Payable to affiliates (2)	13		40
Payable to AGL	Payable to AGL	—		27		Payable to AGL	—		70
Other liabilities	Other liabilities	10		56		Other liabilities	6		123

____________________

(1) As of ~~June~~September 30, 2023, weighted average durations of AGL’s and the U.S. Holding Companies’ fixed-maturity securities (excluding AGUS’s investment in AGMH’s debt) were ~~9.6~~9.2 years and ~~4.2~~4.1 years, respectively.

(2) Represents receivable and payables with non-guarantor subsidiaries.


		Six Months 2023				Nine Months 2023
		AGL		U.S. Holding Companies		AGL		U.S. Holding Companies
		(in millions)				(in millions)
Revenues	Revenues	$	1	2	Revenues
Gain on sale of asset management subsidiaries (1)					Gain on sale of asset management subsidiaries (1)	$	—	$	258
Other income					Other income	1		6
Expenses	Expenses				Expenses
Interest expense	Interest expense	—		47	Interest expense	—		73
Other expenses	Other expenses	27		31	Other expenses	35		51
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	(26)		(76)	Income (loss) before provision for income taxes and equity in earnings (losses) of investees	(34)		140
Net income (loss)	Net income (loss)	(26)		(65)	Net income (loss)	(34)		105

____________________

(1) Excludes a $3 million write off of goodwill reported by a subsidiary of AGUS.

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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

Selected Cash Flow Items


		Six Months 2023					Nine Months 2023
		AGL		U.S. Holding Companies			AGL		U.S. Holding Companies
		(in millions)					(in millions)
Dividends received from subsidiaries (1)	Dividends received from subsidiaries (1)	$	112	$	93	Dividends received from subsidiaries (1)	$	193	$	153
Interest paid	Interest paid	—		(41)		Interest paid	—		(55)
Investments in subsidiaries	Investments in subsidiaries	—		(12)		Investments in subsidiaries	—		(13)
Dividends paid to AGL	Dividends paid to AGL	—		(83)		Dividends paid to AGL	—		(140)
Dividends paid	Dividends paid	(35)		—		Dividends paid	(51)		—
Repurchases of common shares (2)	Repurchases of common shares (2)	(26)		—		Repurchases of common shares (2)	(90)		—
Issuance of long-term debt, net of issuance costs						Issuance of long-term debt, net of issuance costs	—		345
Redemption of debt						Redemption of debt	—		(330)

____________________

(1) AGL’s dividends include dividends from AGUS.

(2) See Item 1, Financial Statements, Note ~~13,~~14, Shareholders’ Equity, for additional information about share repurchases and authorizations.

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 12, Long-Term Debt and Credit Facilities, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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, 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 parent,

•reinsurance premiums,

•principal of, and interest on, surplus notes, where applicable, and

•capital investments in their own subsidiaries and in alternative investments, where appropriate.

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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

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short-term loan facilities with financial institutions to provide short-term liquidity for the payment of insurance claims it ~~anticipates making~~may make 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 ~~June~~September 30, 2023, 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. For example, the Company made substantial claim payments in 2022 in connection with the resolution of certain Puerto Rico credits. The Company is continuing its efforts to resolve the one remaining unresolved Puerto Rico insured exposure that is in payment default, PREPA. The Company had ~~$720~~$624 million net par outstanding to PREPA on ~~June~~September 30, 2023. As described in Item 1, Financial Statements, Note 3, Outstanding Exposure, in connection with the implementation of the GO/PBA Plan and the HTA Plan, certain insured bondholders elected to receive custody receipts that represent an interest in the legacy insurance policy plus cash, New Recovery Bonds and CVIs, as relevant, that constitute distributions under the GO/PBA Plan or HTA Plan. For those who made the election, distributions under the GO/PBA Plan and HTA Plan 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 under the GO/PBA Plan or HTA Plan, as applicable, are insufficient to pay or prepay 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

On August 31, 2023, after notice to certain holders of ~~June~~custody receipts representing interests in legacy insured GO, PBA and HTA bonds, the Company satisfied its obligations under such legacy insured bonds with respect to $108 million net par outstanding as of August 31, 2023, and the custodial trusts released to AGC and AGM New Recovery Bonds and/or CVIs with a fair value totaling $73 million as of August 31, 2023. Consequently, as of September 30, 2023, the ~~Company’s~~Company had extinguished its exposure to Puerto Rico GO/PBA and had remaining net par outstanding for ~~HTA and GO/PBA~~ Puerto Rico ~~exposures was $504~~HTA of $372 million, which consisted of bonds where the holders elected to receive custody receipts and exposures assumed from a third-party financial guarantors. On July 28, 2023, the Company directed the trustee to notify certain holders of custody receipts representing interests in legacy insured GO, PBA and HTA bonds of its intent to satisfy on August 31, 2023 its obligations under the legacy insured bonds with respect to $108 million net par outstanding as of July 28, 2023 and, following payment of such obligations, AGC and AGM will receive the New Recovery Bonds and/or CVIs with notional amounts and maturity values totaling $94 million as of July 28, 2023 held as collateral with respect to the custodial trusts.guarantor.

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.~~business (described below). 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,

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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.

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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 ~~$398~~$393 million as of ~~June~~September 30, 2023. 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 ~~June~~September 30, 2023, 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.

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 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 15, Insurance Company Regulatory Requirements, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 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 2023 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is ~~estimated to be~~ approximately ~~$270 million, of which approximately $61~~$257 million. Approximately $157 million is available for distribution in the ~~third~~fourth quarter of ~~2023.~~2023, of which $77 million was paid in October 2023

•The maximum amount available during 2023 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $102 million. Approximately $58 million ~~of which none~~ is available for distribution in the ~~third~~fourth quarter of 2023, of which $16 million was paid in October 2023.

•Based on the applicable law and regulations, in 2023 AG Re (a subsidiary of AGL) paid dividends of ~~$29~~$53 million in the first ~~half~~nine months of the year and 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 $209 million as of ~~June~~September 30, 2023. 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 ~~$167~~$117 million as of ~~June~~September 30, 2023, and (ii) the amount of statutory surplus, which as of ~~June~~September 30, 2023 was ~~$25~~a deficit of $41 million.

•Based on the applicable law and regulations, in 2023 AGRO (an indirect subsidiary of 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 $98 million as of ~~June~~September 30, 2023. 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 ~~$394~~

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$364 million as of ~~June~~September 30, 2023, and (ii) the amount of statutory surplus, which as of ~~June~~September 30, 2023 was ~~$265~~$259 million.

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Distributions From Insurance Company Subsidiaries


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Dividends paid by AGC to AGUS	Dividends paid by AGC to AGUS	$	24	$	24	$	44	$	149	Dividends paid by AGC to AGUS	$	—	$	16	$	44	$	165
Dividends paid by AGM to AGMH	Dividends paid by AGM to AGMH	—		—		40		96		Dividends paid by AGM to AGMH	60		77		100		173
Dividends paid by AG Re to AGL	Dividends paid by AG Re to AGL	29		—		29		—		Dividends paid by AG Re to AGL	24		—		53		—
Dividends from AGUK to AGM	Dividends from AGUK to AGM	127		—		127		—		Dividends from AGUK to AGM	—		—		127		—

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 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Insurance Subsidiaries, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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 (i) if the Assuming Subsidiary fails to meet certain financial and regulatory criteria; (ii) if the Assuming Subsidiary fails to maintain a specified minimum financial strength rating; or (iii) upon certain changes of control of the Assuming Subsidiary. Upon termination due to one of the above events, the Assuming 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.

As of ~~June~~September 30, 2023, 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 ~~$267~~$264 million, including ~~$241~~$237 million by AGC and ~~$26~~$27 million by AG Re.

Committed Capital Securities

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. ~~Until June 30,~~As of July 2023, the annualized rate on the AGC CCS ~~was~~is one-month ~~LIBOR~~CME Term SOFR plus ~~250~~261 bps, and the annualized rate on the AGM Committed Preferred Trust Securities ~~was~~is one-month ~~LIBOR~~CME Term SOFR plus ~~200~~211 bps. ~~In July 2023, the reference to LIBOR in such CCS was replaced with a rate based on SOFR.~~

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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 ~~62%~~61% of the total investment portfolio is managed by external parties. In accordance with the Company’s investment guidelines, each of the three external investment managers is required to maintain the Company’s investment portfolio with an overall credit quality rated at a minimum of A+/A1/A+ by S&P/Moody’s/Fitch 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, which are generally less liquid. 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.

Investment Portfolio

Carrying Value


		As of					As of
		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(in millions)					(in millions)
Fixed-maturity securities, available-for-sale (1)	Fixed-maturity securities, available-for-sale (1)	$	6,488	$	7,119	Fixed-maturity securities, available-for-sale (1)	$	6,267	$	7,119
Fixed-maturity securities, trading (2)	Fixed-maturity securities, trading (2)	340		303		Fixed-maturity securities, trading (2)	350		303
Short-term investments	Short-term investments	1,650		810		Short-term investments	1,426		810
Other invested assets	Other invested assets	146		133		Other invested assets	765		133
Total	Total	$	8,624	$	8,365	Total	$	8,808	$	8,365

____________________

(1) As of ~~June~~September 30, 2023 and December 31, 2022, includes ~~$36~~$78 million and $358 million, respectively, of New Recovery Bonds received in connection with the consummation of the 2022 Puerto Rico Resolutions.

(2) Represents CVIs received under the 2022 Puerto Rico Resolutions.

The Company’s available-for-sale fixed-maturity securities had a duration of ~~3.9~~4.1 years and 4.4 years as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

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 ~~June~~September 30, 2023


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
		(in millions)					(in millions)
Due within one year	Due within one year	$	286	$	280	Due within one year	$	248	$	239
Due after one year through five years	Due after one year through five years	1,537		1,430		Due after one year through five years	1,526		1,406
Due after five years through 10 years	Due after five years through 10 years	1,696		1,597		Due after five years through 10 years	1,760		1,629
Due after 10 years	Due after 10 years	2,871		2,625		Due after 10 years	2,809		2,475
Mortgage-backed securities:	Mortgage-backed securities:					Mortgage-backed securities:
RMBS	RMBS	440		352		RMBS	430		330
Commercial mortgage-backed securities	Commercial mortgage-backed securities	214		204		Commercial mortgage-backed securities	198		188
Total	Total	$	7,044	$	6,488	Total	$	6,971	$	6,267

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Available-for-Sale and Trading Fixed-Maturity Securities By Rating

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of ~~June~~September 30, 2023 and December 31, 2022. Ratings generally reflect the lower of Moody’s and S&P classifications, except for (i) Loss Mitigation Securities, which use Assured Guaranty’s internal ratings classifications, or (ii) Puerto Rico securities received under the 2022 Puerto Rico Resolutions, which are not rated.

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


		As of					As of
Rating	Rating	June 30, 2023		December 31, 2022		Rating	September 30, 2023		December 31, 2022
AAA	AAA	13.9	%	14.2	%	AAA	13.8	%	14.2	%
AA	AA	38.6		37.1		AA	38.4		37.1
A	A	26.9		24.4		A	26.2		24.4
BBB	BBB	11.4		11.0		BBB	11.6		11.0
BIG (1)	BIG (1)	7.5		7.4		BIG (1)	7.6		7.4
Not rated (2)	Not rated (2)	1.7		5.9		Not rated (2)	2.4		5.9
Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%

____________________

(1)Includes primarily Loss Mitigation Securities. See Item 1, Financial Statements, Note 7, Investments, for additional information.

(2)Primarily includes New Recovery Bonds received in connection with the consummation of the 2022 Puerto Rico Resolutions.

The Company also had ~~$340~~$350 million and $303 million in trading fixed-maturity securities as of ~~June~~September 30, 2023 and December 31, 2022, respectively, representing CVIs received under the 2022 Puerto Rico Resolutions, which are not rated.

Other Investments

Other invested assets, which are generally less liquid than fixed-maturity securities primarily consist of the investment in Sound Point and fund investments ~~in renewable and clean energy and private equity funds managed by~~across a ~~third party.~~variety of strategies.

The Insurance segment reports AGAS’ percentage ownership of ~~AssuredIM Funds’~~Sound Point and AHP funds’ as equity method investments with changes in NAV included in the Insurance segment adjusted operating income. As of ~~June~~September 30, 2023, three of the funds in which AGAS invests are consolidated and the remaining are accounted as equity method investments in the Company’s condensed consolidated financial statements. As of December 31, 2022, all of the funds in which AGAS directly ~~invests are~~invested were consolidated in the Company’s condensed consolidated financial statements. ~~In July~~See — Commitments below.

Investment in Assets Managers and Alternative Investments by Strategy

As of September 30, 2023


	Investments		Eliminations		Consolidated
	(in millions)
Sound Point (1)	$	419	$	—	$	419
Alternative investments:
CLOs (2)	246		(184)		62
Asset-based	132		(88)		44
Healthcare	103		—		103
Other	149		—		149
Total	$	1,049	$	(272)	$	777

____________________

(1) The investment in Sound Point is carried at the ~~management of~~acquisition date fair value. On a one quarter lag, the ~~CLO fund and asset-based funds was transferred from AssuredIM to Sound Point. The amounts~~acquisition date fair value will be adjusted for the Company’s interest in the ~~table below present the fair value~~earnings of ~~AGAS’ interests~~Sound Point and amortization of intangible assets.

(2) Represents primarily investments in the ~~AssuredIM Funds. See~~ equity of U.S. and European CLOs as well as the first loss equity of CLOs.

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~~Commitments~~ ~~below.~~Table of Contents

~~Fair Value~~Alternative Investments by Strategy

As of ~~AGAS’ Interest in AssuredIM Funds~~December 31, 2022

~~Insurance Segment~~


		As of					Investments		Eliminations		Consolidated
Strategy		June 30, 2023		December 31, 2022
		(in millions)					(in millions)
CLOs	CLOs	$	189	$	272	CLOs	$	272	$	(272)	$	—
Asset-based						Asset-based	101		(101)		—
Healthcare						Healthcare	91		(91)		—
Municipal bonds (1)	Municipal bonds (1)	—		105		Municipal bonds (1)	105		(105)		—
Healthcare		74		91
Asset-based		87		101
Other						Other	133		—		133
Total	Total	$	350	$	569	Total	$	702	$	(569)	$	133

____________________

(1) In the first quarter of 2023, the fund distributed substantially all of its available cash to AGAS and other investors in the fund.

~~125~~

~~Table~~Change in Fair Value of ~~Contents~~Alternative Investments by Strategy

Nine Months Ended September 30, 2023


	Investments		Eliminations		Consolidated
	(in millions)
CLOs	$	21	$	(23)	$	(2)
Asset-based	3		(3)		—
Healthcare	21		(9)		12
Other	13		—		13
Total	$	58	$	(35)	$	23

Change in Fair Value of Alternative Investments by Strategy

~~Equity in Earnings (Losses) of Investees of AGAS’ Investment in AssuredIM Funds~~Nine Months Ended September 30, 2022

~~Insurance Segment~~


		Second Quarter				Six Months					Investments		Eliminations		Consolidated
Strategy		2023		2022		2023		2022
		(in millions)									(in millions)
CLOs	CLOs	$	(3)	$	(23)	$	16	$	(16)	CLOs	$	(10)	$	10	$	—
Asset-based										Asset-based	7		(7)		—
Healthcare										Healthcare	(6)		8		2
Municipal bonds	Municipal bonds	—		—		—		(4)		Municipal bonds	(4)		4		—
Healthcare		1		(12)		9		(9)
Asset-based		2		2		3		7
Other										Other	(34)		—		(34)
Total	Total	$	—	$	(33)	$	28	$	(22)	Total	$	(47)	$	15	$	(32)

Beginning in ~~the~~ third quarter of 2023, the Company ~~will record~~records an equity method investment in Sound Point pursuant to the Sound Point Transaction described in Item 1, Financial Statements, Note 1, Business and Basis of Presentation

Restricted Assets

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 ~~$230~~$224 million and $222 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively. 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 amount of ~~$1,149~~$1,107 million and $1,169 million, based on fair value, as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

Commitments

Upon closing of the Sound Point Transaction and the AHP Transaction in July, the Company has increased the aggregate amount it has agreed to invest in alternative investments to $1.5 billion, including the $1 billion with Sound Point, subject to regulatory approval, which includes ~~$510~~$630 million of ~~investment~~invested capital (at fair value), and ~~$991~~$890 million in unfunded commitments. See Item 1, Financial Statements, Note 1, Business and Basis of Presentation, for a description of the Sound Point Transaction.

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Of the $1.5 billion ~~to be invested,~~mentioned above, the U.S. Insurance Subsidiaries through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $750 million plus previously distributed gains of ~~$114~~$132 million for a total of ~~$864~~$882 million as of ~~June~~September 30, 2023. As of ~~July 1,~~September 30, 2023, AGAS commitments to Sound Point and AHP funds ~~previously managed by AssuredIM~~ were ~~$553~~$703 million (of which ~~$333~~$446 million was funded with a ~~net asset value (NAV)~~NAV of ~~$350~~$469 million). This capital was committed to several funds, each dedicated to a single strategy, including CLOs, asset-based finance and healthcare structured ~~capital and are managed by Sound Point or by AHP.~~capital. As of ~~June~~September 30, 2023, ~~all~~three of the six funds in which AGAS invests are accounted for as CIVs.

~~AssuredIM~~

~~Sources and Uses of Funds~~

AssuredIM’s sources of liquidity were: (i) cash from operations, including management and performance fees (which are unpredictable as to amount and timing); and (ii) capital contributions from AGUS ($10 million and $15 million in six months 2023 and six months 2022, respectively, had been contributed to supplement cash from operations). As of June 30, 2023 and December 31, 2022, AssuredIM had $21 million and $41 million, respectively, in cash and short-term investments.

AssuredIM’s liquidity needs primarily include: (i) paying operating expenses including compensation; (ii) paying dividends or other distributions to AGUS; and (iii) capital to support growth and expansion of the asset management business.

~~See “ - Overview, Business.” for a discussion of Sound Point Transaction and AHP Transaction.~~

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 17, Leases, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for a table of minimum lease obligations and other lease commitments.

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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 condensed 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 CLO warehouses).~~investments. 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.

~~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 other Assured Guaranty subsidiaries.

As of June 30, 2023, these credit facilities had varying maturities ranging from 2023 to 2024 with the aggregate principal amount not exceeding $820 million. The available commitments were based on the amount of equity contributed to the warehouses which was $217 million. As of June 30, 2023, $134 million was drawn under credit facilities with an interest rate of Euro InterBank Offered Rate (Euribor) plus 300 bps (with a floor on Euribor of zero). The CLO warehouses were in compliance with all financial covenants as of June 30, 2023.

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Condensed Consolidated Cash Flows

The summarized condensed consolidated statements of cash flows in the table below present the cash flow effect for the aggregate of the Insurance and Asset Management business and holding companies, separately from the aggregate effect of consolidating FG VIEs and CIVs. In third quarter 2023, as a result of the Sound Point Transaction and AHP Transaction, the Company deconsolidated all CLOs and CLO warehouses and certain funds. As a result, beginning July 1, 2023, the Company’s cash flow statements will no longer include all the operating, investing and financing cash flow activity of the deconsolidated CIVs. See Item 1. Financial Statements, Note 1, Business and Basis of Presentation, and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

Summarized Condensed Consolidated Cash Flows


		Second Quarter				Six Months					Third Quarter				Nine Months
		2023		2022		2023		2022			2023		2022		2023		2022
		(in millions)									(in millions)
Net cash flows provided by (used in) operating activities, before effect of FG VIEs and CIVs consolidation		$	27	$	19	$	(7)	$	(621)
Effect of FG VIEs and CIVs consolidation		97		(921)		443		(1,173)
Net cash flows provided by (used in) operating activities, excluding FG VIEs and CIVs operating cash flows										Net cash flows provided by (used in) operating activities, excluding FG VIEs and CIVs operating cash flows	$	(210)	$	87	$	(217)	$	(534)
FG VIEs and CIVs operating cash flows										FG VIEs and CIVs operating cash flows	32		(141)		475		(1,314)
Net cash flows provided by (used in) operating activities	Net cash flows provided by (used in) operating activities	124		(902)		436		(1,794)		Net cash flows provided by (used in) operating activities	(178)		(54)		258		(1,848)

Net cash flows provided by (used in) investing activities, before effect of FG VIEs and CIVs consolidation		6		150		108		981
Effect of FG VIEs and CIVs consolidation		(40)		58		(236)		77
Net cash flows provided by (used in) investing activities, excluding FG VIEs and CIVs investing cash flows										Net cash flows provided by (used in) investing activities, excluding FG VIEs and CIVs investing cash flows	250		25		358		1,006
FG VIEs and CIVs investing cash flows										FG VIEs and CIVs investing cash flows	61		45		(175)		122
Net cash flows provided by (used in) investing activities	Net cash flows provided by (used in) investing activities	(34)		208		(128)		1,058		Net cash flows provided by (used in) investing activities	311		70		183		1,128

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, excluding FG VIEs and CIVs financing cash flows										Net cash flows provided by (used in) financing activities, excluding FG VIEs and CIVs financing cash flows
Dividends paid	Dividends paid	(17)		(16)		(35)		(33)		Dividends paid	(16)		(16)		(51)		(49)
Repurchases of common shares	Repurchases of common shares	(24)		(151)		(26)		(303)		Repurchases of common shares	(64)		(97)		(90)		(400)
Issuance of long-term debt, net of issuance costs										Issuance of long-term debt, net of issuance costs	345		—		345		—
Redemption of debt										Redemption of debt	(330)		—		(330)		—
Other	Other	—		4		(15)		(6)		Other	—		—		(15)		(6)
Effect of FG VIEs and CIVs consolidation		4		832		(257)		1,001
FG VIEs and CIVs financing cash flows										FG VIEs and CIVs financing cash flows	(135)		109		(392)		1,110
Net cash flows provided by (used in) financing activities (1)	Net cash flows provided by (used in) financing activities (1)	(37)		669		(333)		659		Net cash flows provided by (used in) financing activities (1)	(200)		(4)		(533)		655

Effect of exchange rate changes, before effect of FG VIEs and CIVs consolidation		1		(1)		2		(2)
Effect of FG VIEs and CIVs consolidation		—		—		—		—
Effect of exchange rate changes,excluding FG VIEs and CIVs										Effect of exchange rate changes,excluding FG VIEs and CIVs	(2)		(4)		—		(6)
Effect of exchange rate changes for FG VIEs and CIVs										Effect of exchange rate changes for FG VIEs and CIVs	—		—		—		—
Effect of exchange rate changes	Effect of exchange rate changes	1		(1)		2		(2)		Effect of exchange rate changes	(2)		(4)		—		(6)
Increase (decrease) in cash and cash equivalents and restricted cash	Increase (decrease) in cash and cash equivalents and restricted cash	54		(26)		(23)		(79)		Increase (decrease) in cash and cash equivalents and restricted cash	(69)		8		(92)		(71)
Cash and cash equivalents and restricted cash at beginning of period	Cash and cash equivalents and restricted cash at beginning of period	130		289		207		342		Cash and cash equivalents and restricted cash at beginning of period	184		263		207		342
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	$	184	$	263	$	184	$	263	Cash and cash equivalents and restricted cash at the end of the period	$	115	$	271	$	115	$	271

____________________

(1) 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~~ FG VIEs and CIVs, ~~was~~were an outflow of $7$217 million in ~~six~~nine months 2023 and an outflow of ~~$621~~$534 million in ~~six~~nine months 2022. The decrease in outflows during ~~six~~nine months 2023 was primarily due to a ~~$579~~$362 million decrease in net claim payments, primarily due to the 2022 Puerto Rico Resolutions, as well as a decrease of ~~$95~~$94 million in tax payments. Cash flows from operations attributable to ~~the effect of~~ FG VIE and CIV ~~consolidation~~ were inflows in ~~six~~nine months 2023 and outflows in ~~six~~nine months ~~2022.~~2022, primarily because all the CLOs and CLO warehouses, which generally reported significant operating cash flows, had limited operating activities and new issuances in the first half of 2023 pending the closing of the Sound Point Transaction and AHP Transaction, at which point the CLOs and CLO warehouses were deconsolidated. The

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condensed consolidated statements of cash flows present the investing activities of the consolidated Sound Point funds, which were formerly known as AssuredIM ~~Funds~~funds, AssuredIM funds and CLOs as cash flows from operations. The increase in inflows in ~~six~~nine months 2023 compared with ~~six~~nine months 2022 iswas mainly due to a decrease of ~~$2,104~~$2,714 million in investment purchases, partially offset by a decrease of investment sales, maturities and paydowns of ~~$570~~$850 million.

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 decrease in investing cash inflows in ~~six~~nine months 2023 compared with ~~six~~nine months 2022 was mainly attributable to an increase in short-term investments in ~~six~~nine months 2023 compared to net sales of ~~short term~~short-term and ~~fixed maturity~~fixed-maturity investments in ~~six~~nine months 2022. In ~~six~~nine months 2022, investing inflows were used to fund claim

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payments under the 2022 Puerto Rico Resolutions and share repurchases. See Item 1. Financial Statements, Condensed Consolidated Statements of Cash Flows, and Note 3, Outstanding Exposure, for additional information.

Financing activities primarily consist of (i) AGL share repurchases and dividends, ~~and~~(ii) paydowns of FG VIEs’ liabilities, ~~as well as~~and (iii) CLO issuances and CLO warehouse financing activities. The CIVs’ financing cash flows mainly ~~include~~included issuances and repayments of CLOs and CLO warehouse financing debt. The decrease in financing cash flow activity from VIEs was primarily due to a decrease of ~~$2,163~~$2,254 million in issuances, partially offset by a decrease in repayments of ~~$949~~$964 million by the previously consolidated CLOs and CLO warehouses. The proceeds from CLO issuances and CLO warehouse borrowings ~~are~~were used to fund the purchases of loans. FG VIEs’ cash flows relate to the paydowns of FG VIEs’ liabilities. See Item 1. Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

From ~~July~~October 1, 2023 through ~~August 8,~~November 7, 2023, the Company repurchased an additional ~~320,646~~682,676 of common shares. As of ~~August 8,~~November 7, 2023, the Company was authorized to purchase ~~$158~~$372 million of its common shares. For more information about the Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note ~~13,~~14, Shareholders’ Equity.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of ~~June~~September 30, 2023, there were no material changes to the market risks to which the Company is exposed since December 31, 2022.

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 ~~June~~September 30, 2023. Based on their evaluation as of ~~June~~September 30, 2023 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 ~~second~~third quarter 2023 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 Part I, Item 1, Financial Statements, Note ~~12,~~13, Commitments and Contingencies – Legal Proceedings and the “PREPA” and “Puerto Rico Litigation” sections of Note 3, Outstanding Exposure and the “Recovery Litigation and Dispute Resolution” section of Note 4, Expected Loss to be Paid (Recovered) contained in this Form 10-Q and is incorporated by reference herein. For additional information see the “Legal Proceedings” and “Litigation” sections of Part II, Item 8, Financial Statements and Supplementary Data, Note 18, Commitments and Contingencies, the “Recovery Litigation” section of Note 4, Expected Loss to be Paid (Recovered), and the “Puerto Rico Litigation” section of Note 3, Outstanding Exposure, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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, ~~2022.~~2022 (2022 Annual Report) and Part II, “Item 1A. Risk Factors” for the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (Q2 Quarterly Report). Except for the risk factors entitled, “Expansion of the categories and types of the Company’s investments (including those accounted for as CIVs) may expose it to increased credit, interest rate, liquidity and other risks” and “AGL, AG Re and AGRO may become subject to taxes in Bermuda after March 2035, which may adversely affect the Company’s future results of operations and on an investment in the Company,” set forth in the 2022 Annual Report, which are removed and replaced in their entirety as set forth below, there have been no material changes to the risk factors disclosed in ~~such~~the 2022 Annual Report ~~on Form 10-K~~ or ~~Part II, “Item 1A. Risk Factors” of~~ the ~~Company’s~~Q2 Quarterly Report ~~on Form 10-Q for~~during the ~~quarter~~nine months ended ~~March 31,~~September 30, 2023.

~~From July 1, 2023,~~Expansion of the categories and types of the Company’s ~~interest in Sound Point is subject~~investments (including those accounted for as CIVs), including allocations of investments to ~~the risks normally associated with a minority interest.~~

Since the Company holds a minority interest in Sound Point after the closing of the Sound Point Transaction, it is unable to control the business, management or policies of Sound Point. For example, the Company is not be able to control the timing or amount of distributions from Sound Point and ~~is not involved on a day-to-day basis~~exclusivity arrangement with Sound ~~Point’s operations or its decision-making with respect~~Point may expose it to ~~its investment, reporting, internal control, legal, compliance or risk functions. In most cases, the Company will be bound by the decisions made by the Managing Partner~~increased credit, interest rate, liquidity and ~~Chief Investment Officer,~~ other members of management and the Board of Managers of Sound Point. In the event that the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point have interests, objectives and incentives that differ from those of the Company, there can be no assurance that the decisions they make will be aligned with the interests of the Company. Decisions made by the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point not in the Company’s interest could have a material adverse effect on the Company’s interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.

risks.

~~An inability to obtain accurate and timely financial information from Sound Point or AHP may impair the Company’s ability to comply with reporting obligations under federal securities law.~~

The Company ~~will be reliant on~~is using Sound Point’s investment knowledge and experience to expand the categories and types of its alternative investments (including those accounted for as CIVs) by: (a) allocating $1 billion of capital in Sound Point managed funds; (b) redeploying initial amounts allocated to Sound Point in future Sound Point funds; and (c) having Sound Point serve as the U.S. Insurance Subsidiaries’ sole alternative credit manager. This expansion of categories and types of investments, allocations to Sound Point and ~~AHP to provide accurate and timely financial reporting that will allow the Company to timely prepare and file its own financial statements in accordance~~exclusivity arrangement with ~~GAAP and in compliance with SEC regulations and New York Stock Exchange listing rules.~~

~~As private companies,~~ Sound Point may increase the credit, interest rate and ~~AHP~~liquidity risk in the Company’s investments (including those accounted for as CIVs). In addition, the fair value of most of these assets are ~~not subject to~~reported in results of operations and may be more volatile than other investments made by the ~~reporting requirements~~Company. As a result of the ~~Exchange Act~~Company’s expansion of the categories and ~~historically have not been required to prepare their financial statements in accordance with generally accepted accounting principles in~~types of its investments, as of September 30, 2023, the ~~United States or in compliance with the SEC’s accounting regulations. The Company expects to report its~~U.S. Insurance Subsidiaries had investments in Sound Point managed funds with a fair value of $378 million. In addition, the Company had $252 million of other non-Sound Point alternative investments reported in the consolidated financial statements. This expansion also has resulted in the Company investing a portion of its portfolio in assets that are less liquid than some of its other investments, and so may increase the risks described under “— Operational Risks — The ability of AGL and its subsidiaries to meet their liquidity needs may be limited”. Expanding the categories and types of Company investments (including those accounted for as CIVs), allocations to Sound Point ~~funds~~ and ~~AHP funds on a one-quarter lag. While each of~~exclusivity arrangement with Sound Point ~~AHP and their respective related parties have agreed to provide to~~may also expose the Company ~~all financial information necessary~~ to ~~complete~~other types of risks, including reputational risks.

AGL, AG Re and ~~file its periodic SEC reports on a timely basis, any failure by Sound Point, AHP or their respective related parties~~AGRO may become subject to ~~provide the Company with accurate and timely financial information could result~~taxes in ~~a delay in~~Bermuda, which may adversely affect the Company’s ~~timely reporting of its~~future results of operations ~~for any period or it not filing one or more periodic reports with~~and an investment in the ~~SEC on time or inaccuracies in its financial statements.~~Company.

The ~~Company’s investments~~Bermuda Minister of Finance, under Bermuda’s Exempted Undertakings Tax Protection Act 1966, as amended, has given AGL, AG Re and AGRO an assurance that if any legislation is enacted in ~~Sound Point are~~Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then subject to certain limitations the ~~risks~~imposition of ~~Sound Point’s business.~~any such tax will not be applicable to AGL, AG Re or AGRO, or any of AGL’s or its subsidiaries’ operations, stocks, debentures or other obligations until March 31, 2035. Given the limited duration of the Minister of Finance’s assurance, the Company cannot be certain that it will not be subject to Bermuda tax after March 31, 2035.

~~Sound Point’s business operates in highly competitive markets. Sound Point competes with many other firms in every aspect~~Further, on August 8, 2023, the Bermuda Government issued the first of the asset management industry, including raising funds, seeking investments, and hiring and retaining professionals. Sound Point’s ability to increase and retain AUM is directly related to the performancea series of ~~the assets it manages~~public consultation papers as ~~measured against market averages and the performance~~part of its ~~competitors. Some~~considerations on the introduction of ~~Sound Point’s competitors may have~~ a ~~lower cost of~~corporate income tax that would be taken into account in calculating the effective

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~~funds~~tax rate of Bermuda businesses under the OECD’s global anti-base erosion (GloBE) rules. The second public consultation paper issued October 8, 2023, indicates that the Bermuda Government believes it is reasonable and access to funding and other resources that are not available to Sound Point. In addition, some of Sound Point’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than Sound Point does. Furthermore, Sound Point may lose investment opportunities if it does not match its competitors’ pricing, terms and structure. The loss of such investment opportunities may limit Sound Point’s ability to grow or cause it to have to shrink the size of its portfolio, which could decrease its earnings. If Sound Point matches its competitors’ pricing, terms and structure, it may experience decreased earnings and increased risk of investment losses.

Sound Point is dependent on certain key personnel, including Sound Point’s Managing Partner and Chief Investment Officer, and its future success depends on their continued service. The departure of any of Sound Point’s key personnelproportionate for any ~~reason~~new Bermuda corporate income tax regime to supersede any existing tax assurance certificates held by entities within the scope of the new Bermuda corporate income tax. Under the current proposal, Bermuda corporate income tax would apply only to large multinational enterprises (MNEs), as defined in the GloBE rules, with EUR 750 million or more in total global revenue in at least two of the previous four accounting periods. The proposed Bermuda corporate income tax legislation is currently anticipated to be effective for tax years beginning on or after January 1, 2025. The Bermuda Government is considering if amendments are necessary to the existing tax assurance certificate regime to ensure that tax may be collected in Bermuda from entities which are subject to the proposed Bermuda corporate income tax regime. Although we cannot predict when or if any new Bermuda corporate income tax law will be adopted or will become effective, the imposition of a Bermuda corporate income tax could, if applicable to the Company (or any Bermuda incorporated subsidiary of the Company), have ~~a material~~an adverse effect on ~~Sound Point’s business,~~the Company's financial condition orand results of ~~operations and, consequently, the Company’s interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.~~

Sound Point operates in a highly regulated industry and, as a registered investment adviser, is subject to the provisions of the Investment Advisers Act of 1940, as amended. Sound Point is, from time to time, subject to formal and informal examinations, investigations, inquiries, audits and reviews from numerous regulatory authorities both in response to issues and questions raised in such examinations or investigations and in connection with the changing priorities of the applicable regulatory authorities across the market in general. As a result, there can be no assurance that Sound Point will not become subject to possible enforcement actions. Sound Point and its principals and employees could also be named as defendants in, or otherwise become involved in, a regulatory action or litigation. Any such regulatory action or litigation could be disruptive, time-consuming, expensive and lead to negative financial and reputational consequences that have a material adverse effect on Sound Point’s business, financial condition or results of operations and, consequently, the Company’s interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.operations.

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 ~~second~~third quarter 2023.

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 — $ — — $ 201,040,120
May 1 - May 31 177,741 $ 52.27 168,000 $ 192,263,706
June 1 - June 30 285,942 $ 53.57 285,942 $ 176,946,450
Total 463,683 $ 53.07 453,942


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)
July 1 - July 31	257,066	$	57.64	257,066	$	162,128,831
August 1 - August 31	264,107	$	59.73	261,580	$	146,509,723
September 1 - September 30	547,256	$	60.61	547,256	$	113,343,260
Total	1,068,429	$	59.67	1,065,902

____________________

(1) After giving effect to repurchases since the Board first authorized the repurchase program on January 18, 2013, through ~~August 8,~~November 7, 2023, the Company has repurchased a total of ~~142~~143 million common shares for approximately ~~$4.7~~$4.8 billion, excluding commissions, at an average price of ~~$33.21~~$33.49 per share. On November 1, 2023, the Company announced that the Board of Directors had authorized an additional $300 million of share repurchases. As of ~~August 8,~~November 7, 2023, the remaining authorization the Company was authorized to purchase was ~~$158~~$372 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.

ITEM 5. OTHER MATTERS

10b5-1 Trading Plans

During ~~second~~third quarter 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act).

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ITEM 6.EXHIBITS

The following exhibits are filed with this report:


Exhibit Number						Description of Document
~~2.1~~4.1						Transaction agreement, dated April 5, 2023, between Assured Guaranty US Holdings Inc., Assured Investment Management LLC, Assured Investment Management GP Holdings LLC, Sound Point Capital Management, L.P. and Sound Point GP Parent, LLCForm of Officer’s Certificate related to 6.125% Senior Notes due 2028, containing Form of 6.125% Senior Notes due 2028 as Exhibit A (Incorporated by reference to Exhibit ~~2.1~~4.1 to Form 8-K filed on ~~April 5, 2023)~~August 21, 2023 )
10.1						Separation Agreement, dated as of July 7, 2023, between the Company and David A. Buzen*
22.0						Subsidiary Companies and Issuers of Guaranteed Securities ~~(Incorporated by reference to Exhibit 22.0 to Form 10-K for the year ended December 31, 2021)~~
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 ~~June~~September 30, 2023 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2023 and December 31, 2022; (ii) Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022; (iv) Condensed Consolidated Statements of Shareholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022; (v) Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022; 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 ~~June~~September 30, 2023 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 ~~August 9,~~November 8, 2023	By:	/s/ ROBERT A. BAILENSON

		Robert A. Bailenson Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

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