What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 462 added, 325 removed, 1177 unchanged (40% of the section changed)

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• management’s response to these factors.

The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, as well as the risk factors included in AGL's 2020 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.

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The Company maintains an Internet web site at www.assuredguaranty.com .

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, its Global Code of Ethics, AGL's Bye-Laws and the charters for its Board committees.

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.

In addition, the SEC maintains an Internet site (at www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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The Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer credit protection products to holders of debt instruments and other monetary obligations that protect them from defaults in scheduled payments.

If an obligor defaults on a scheduled payment due on an obligation, including a scheduled debt service payment, the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation.

If an obligor defaults on a scheduled payment due on an obligation, including a scheduled principal and interest (debt service) payment, the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation.

The Company markets its credit protection products directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations.

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Premiums are earned over the contractual lives, or in the case of homogeneous pools of insured obligations, the remaining expected lives, of financial guaranty insurance contracts.

In the Asset Management segment, the Company provides investment advisory services, which include the management of collateralized loan obligations (CLOs), opportunity and liquid asset strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM) has managed structured, public finance and credit investments since 2003.

In the Asset Management segment, the Company provides investment advisory services, which include the management of collateralized loan obligations (CLOs), opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM) have managed structured, public finance and credit investments since 2003.

AssuredIM provides investment advisory services while leveraging a technology-enabled risk platform, which aims to maximize returns for its clients.

The establishment, in the fourth quarter of 2019, of the Asset Management segment diversifies the risk profile and revenue opportunities of the Company.

As of March 31, 2021, AssuredIM had $17.5 billion of assets under management (AUM), including $1.2 billion that is managed on behalf of the Company's insurance subsidiaries.

As of June 30, 2021, AssuredIM had $17.6 billion of assets under management (AUM), including $1.2 billion that is managed on behalf of the Company's insurance subsidiaries.

Fees in respect of investment advisory services are the largest component of revenues for the Asset Management segment.

AssuredIM is compensated for its investment advisory services generally through management fees which are based on AUM, and may also earn performance fees calculated as a percentage of net profits or based on an internal rate of return referencing distributions made to investors, in each case, in respect of funds, CLOs and/or accounts which it advises.

AssuredIM is compensated for its investment advisory services generally through management fees which are based

on AUM, and may also earn performance fees calculated as a percentage of net profits or based on an internal rate of return referencing distributions made to investors, in each case, in respect of funds, CLOs and/or accounts which it advises.

The Corporate division consists primarily of interest expense on the debt of Assured Guaranty US Holdings Inc.

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Holding Companies), as well as other operating expenses attributed to holding company activities, including administrative services performed by operating subsidiaries for the holding companies.

The Company reviews its segment results before giving effect to the consolidation of financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs), intersegment eliminations and certain reclassifications.

Financial Statements, Note 2, Segment Information.

Economic Environment and Impact of COVID-19

The novel coronavirus that emerged in Wuhan, China in late 2019 and which causes the coronavirus disease known as COVID-19 was declared a pandemic by the World Health Organization in early 2020 and continues to spread throughout the world.

Several vaccines have been developed and approved by governments, and distribution of vaccines is proceeding unevenly across the globe.

The emergence of COVID-19 and reactions to it, including various closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets.

While the COVID-19 pandemic has been impacting the global economy and the Company for over a year now, its ultimate size, depth, course and duration, and the effectiveness, acceptance and distribution of vaccines for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve.

The COVID-19 pandemic continues to spread throughout the world.

Several vaccines have been developed and approved by governments, and distribution of the vaccines is proceeding unevenly across the globe.

The emergence of COVID-19 and reactions to it, including various intermittent closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets.

While the COVID-19 pandemic has been impacting the global economy and the Company for well over a year now, its ultimate size, depth, course and duration, and the effectiveness, acceptance and distribution of vaccines for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve.

Consequently, and due to the nature of the Company's business, all of the direct and indirect consequences of COVID-19 on the Company are not yet fully known to the Company, and still may not emerge for some time.

As a consequence of the onset of the COVID-19 pandemic, economic activity in the U.S.

and throughout the world slowed significantly in early to mid-2020, but began to recover later in the year and, at least in the U.S., continued to expand in the three-month period ended March 31, 2021 (First Quarter 2021).

In March 2021, the U.S.

Bureau of Economic Analysis (BEA) reported that real Gross Domestic Product (GDP) increased at an annual rate of 4.3% in the fourth quarter of 2020.

In its initial estimate, the BEA reported that GDP increased 6.4% for First Quarter 2021.

At the end of March 2021, the U.S.

unemployment rate, seasonally adjusted, stood at 6.0%, down from 6.7% at the beginning of the period and a pandemic high of 14.7% in April 2020.

In addition to providing for direct payments to individuals, the $1.9 trillion American Rescue Plan Act of 2021, signed into law on March 11, 2021, allocates $350 billion dollars in emergency funding for state, local, territorial, and tribal governments (including nearly $220 billion for states, the District of Columbia, tribes and territories), $130 billion for local governments and nearly $40 billion for colleges and universities.

Both the expanding economy evidenced by the GDP and unemployment figures above and the funds from the American Rescue Plan Act of 2021 will help, either directly or indirectly, many of the obligors of debt the Company insures, which we expect should reduce the number and size of payment defaults and claims on the Company’s insurance policies.

and throughout the world slowed significantly in early to mid-2020, but began to recover later in the year and, at least in the U.S., continued to expand in the six-month period ended June 30, 2021 (Six Months 2021).

In July 2021, the U.S.

Bureau of Economic Analysis (BEA) reported for its initial estimate that real Gross Domestic Product (GDP) increased at an annual rate of 6.5% in the three-month period ended June 30, 2021 (Second Quarter 2021), slightly up from 6.3% for the first quarter of 2021.

At the end of June 2021, the U.S.

unemployment rate, seasonally adjusted, stood at 5.9%, slightly lower than where it started the period at 6.0%, and down from a pandemic high of 14.7% in April 2020.

The level and direction of interest rates impact the Company in numerous ways.

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public finance.

The 30-year AAA MMD rate started First Quarter 2021 at 1.39% and rose towards the middle of the quarter to end the period at 1.75%.

Despite the increase, the rate averaged 1.56% throughout the quarter, which is one of the lowest quarterly average rates on record.

The Company believes that the policies being pursued by the Federal Reserve are designed to keep general interest rates low.

In its March 2021 meeting, the Federal Open Market Committee (FOMC) decided to keep the target range for the federal funds rate at 0% to 0.25%, noting it “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.” In addition, it stated that “the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” At its April 27-28, 2021 meeting, the FOMC kept the federal funds rates unchanged.

The difference, or spread, between the 30-year A-rated General Obligation (GO) relative to the 30-year AAA MMD remained in a tight range of 36-39 basis points (bps) (with an average of 37.5 bps) for the quarter.

BBB credit spreads measured on the same basis started the year at 108 bps but narrowed throughout the quarter ending at 78 bps.

Both the A and BBB spreads were some of the narrowest levels in over a decade.

A larger credit spread is one factor that may allow the Company to charge higher premiums for its public finance financial guaranty insurance product.

The National Association of Realtors reported that median existing-home sales prices hit a historic high in March 2021 of $329,100, rising by a “record-breaking annual pace of 17.2%”, with all regions posting double-digit price gains.

As of the end of March, housing inventory remained at 1.07 million units, close to a record-low of 1.03 million units seen in February 2021 when it was down by 29.5% year-over-year – a record decline.

Properties typically sold in 18 days, also a record low.

The 30-year AAA MMD rate started Second Quarter 2021 at 1.75% and generally decreased in the weeks that followed reaching 1.39% in early June.

The quarter ended at 1.50% with an average for the quarter of 1.55% - similar to the first quarter of the year.

The Company believes that the policies being pursued by the Federal Reserve are designed to keep interest rates low.

In its June 2021 meeting, the Federal Open Market Committee (FOMC) decided to keep the target range for the federal funds rate at 0% to 0.25%, noting it “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.” In addition, it stated that “the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals.” At its July 27-28, 2021 meeting, the FOMC kept the federal funds rates unchanged.

The difference, or spread, between the 30-year A-rated General Obligation (GO) relative to the 30-year AAA MMD tightened throughout the Second Quarter 2021 from 38 basis points (bps) in early April to 30 bps by the end of the quarter, after having remained in a tight range of 36-39 bps in the first quarter.

Similarly, BBB credit spreads measured on the same basis also contracted throughout the quarter, starting at 78 bps in early April and finishing at 63 bps by the end of Second Quarter 2021 after having started the year at 108 bps.

Both the A and BBB spreads are at their narrowest levels in over a decade.

Generally, wider credit spreads are one factor that may allow the Company to charge higher premiums for its public finance financial guaranty insurance product.

The National Association of Realtors reported that the “median existing-home price for all housing types in June 2021 was $363,300, up 23.4% from June 2020 ($294,400), as every region recorded price increases.

Total housing inventory at the end of June amounted to 1.25 million units, down 18.8% from one year ago (1.54 million).” Properties typically sold in 17 days, also a record low.

The S&P CoreLogic Case-Shiller U.S.

National Home Price NSA Index, covering all nine U.S.

census divisions, reported a 12.0% annual gain in February (the latest data available), up from 11.2% in the previous month.

The 20-City Composite posted an 11.9% year-over-year gain, up from 11.1% in the previous month.

census divisions, reported a 16.6% annual gain in May (the latest data available), up from 14.8% in the previous month.

The 20-City Composite posted a 17.0% year-over-year gain, up from 15.0% in the previous month.

Home prices in the U.S.

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Improved home prices generally result in fewer losses or more reimbursements with respect to the Company's distressed insured RMBS risks.

The Company believes that state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions or an economic downturn, are most at risk for increased claims.

The Company's surveillance department has established supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions and related restrictions or an economic downturn.

In addition, the Company's surveillance department has been in contact with certain of its credits that it believes may be more at risk from COVID-19 and governmental and private responses to COVID-19.

The Company's internal ratings and loss projections for those distressed credits it believes are most likely to be impacted by the COVID-19 pandemic, including RMBS, Puerto Rico and certain other distressed public finance exposures, reflect this augmented surveillance activity.

From shortly after the pandemic reached the U.S.

through early 2021, the Company's surveillance department conducted supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions or an economic downturn.

Given significant federal funding in 2021 and the performance it observed, the Company's surveillance department has reduced the supplemental procedures.

However, it is still monitoring those sectors it identified as most at risk for any developments related to COVID-19 that may impact the ability of issuers to make upcoming debt service payments.

The Company's internal ratings and loss projections, including those for RMBS, Puerto Rico and certain other distressed public finance exposures, reflect its supplemental COVID-19 surveillance activity.

For information about how the COVID-19 pandemic has impacted the Company's loss projections, see Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered).

Through May 6, 2021, the Company has paid only relatively small first-time insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19.

Through August 5, 2021, the Company has paid only relatively small first-time insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19.

The Company currently projects nearly full reimbursement of these relatively small claims.

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The nature of the financial guaranty business model, which requires the Company to pay only any shortfall in interest and principal on scheduled payment dates, along with the Company’s liquidity practices, reduce the need for the Company to sell investment assets in periods of market distress.

As of March 31, 2021, the Company had $ 701 million of short-term investments and $ 95 million of cash.

As of June 30, 2021, the Company had $ 1,087 million of short-term investments and $ 144 million of cash, including proceeds from the issuance of debt in Second Quarter 2021.

See Item 1, Financial Statements, Note 14, Long-Term Debt.

In addition, the Company’s investment portfolio generates cash over time through interest and principal receipts.

The Company began operating remotely in accordance with its business continuity plan in March 2020, instituting mandatory work-from-home policies in its U.S., U.K.

and Bermuda offices.

The Company began operating remotely in accordance with its business continuity plan in March 2020, instituting mandatory work-from-home policies in its Bermuda, U.S., U.K.

and French offices.

While such policies are not currently mandatory in some of the jurisdictions where it has offices, the majority of its workforce is still working remotely.

The Company is providing the services and communications it normally would, and continues to close new insurance transactions and make insurance claim payments and, in its asset management business, make trades and raise funds.

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(1) Insurance, (2) Asset Management and Alternative Investments, and (3) Capital Management.

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

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

Growth of the Insured Portfolio

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On the other hand, the persistently low interest rate environment and relatively tight U.S.

municipal credit spreads have dampened demand for bond insurance compared to the levels before the 2008 financial crisis, and provisions in legislation known as the 2017 Tax Cuts and Jobs Act, such as the reduction in corporate tax rates, have made municipal obligations less attractive to certain institutional investors.

municipal credit spreads have dampened demand for bond insurance compared to the levels before the 2008 financial crisis.

The Company believes that some of the U.S.

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While volatility and dislocation in the municipal finance market in the U.S.

resulted in the Company issuing a reduced number of new insurance policies in late March and into April 2020 compared to the prior year, the Company began writing a higher volume of new insurance business as 2020 progressed, and the trend continued into First Quarter 2021.

The $5.5 billion of municipal new issue par sold with the Company's insurance was the most the Company insured in any first quarter since 2010, and the Company's 65% share of insured municipal par sold was better than the Company's market share in any quarter since 2014.

The $10.8 billion of municipal new issue par sold with the Company's insurance in Six Months 2021 was the most the Company insured in the first half of a year since 2010.

See "— Results of Operations by Segment — Insurance Segment" below.

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Based on Sale Date

First Quarter 2021 First Quarter 2020 Year Ended December 31, 2020

Six Months 2021 Six Months 2020 Year Ended December 31, 2020

(dollars in billions, except number of issues and percent)

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Loss Mitigation

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

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.

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Stockton, California;

and Jefferson County, Alabama financial crises, and more recently by the Company's role in negotiating the Puerto Rico Electric Power Authority (PREPA) restructuring support agreement (RSA) (PREPA RSA) and the Puerto Rico Sales Tax Financing Corporation (COFINA) plan of adjustment.

The Company will also, where appropriate, pursue litigation to enforce its rights, and it has initiated a number of legal actions to enforce its rights with respect to obligations of the Commonwealth of Puerto Rico (Commonwealth) and various obligations of its related authorities and public corporations.

On May 5, 2021, Assured Guaranty Municipal Corp.

and Jefferson County, Alabama 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 (Commonwealth) and various obligations of its related authorities and public corporations.

The Company will also, where appropriate, pursue litigation to enforce its rights.

For example, it initiated a number of legal actions to enforce its rights with respect to obligations of the Commonwealth and various obligations of its related authorities and public corporations.

On February 22, 2021, Assured Guaranty Municipal Corp.

(AGM) and Assured Guaranty Corp.

(AGC) entered into a plan support agreement (HTA/CCDA PSA) with certain other stakeholders, the Commonwealth, and the Financial Oversight and Management Board for Puerto Rico (FOMB) with respect to the Puerto Rico Highways and Transportation Authority (PRHTA) and the Puerto Rico Convention Center District Authority (PRCCDA).

On February 22, 2021, AGM and AGC agreed to support the revised Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) plan support agreement (GO/PBA PSA, and together with the HTA/CCDA PSA and the PREPA RSA, Support Agreements) subject to reaching a satisfactory resolution with respect to the PRHTA and PRCCDA bonds.

With the signing of the HTA/CCDA PSA and the expiration of the related termination rights of AGM and AGC under the GO/PBA PSA, AGM and AGC became bound to the GO/PBA PSA.

As a consequence, 93.5% of Assured Guaranty’s net par outstanding to Puerto Rico credits as of March 31, 2021, is now covered by a Support Agreement.

The closings of the transactions contemplated by each of the Support Agreements are subject to a number of conditions, including approval by the Title III court of the related plans of adjustment and execution of acceptable final documentation, and there can be no assurance that the resolutions contemplated by the

Support Agreements will be achieved, but the Company believes these developments mark a milestone in its Puerto Rico loss mitigation efforts.

(AGC) entered into a revised Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) plan support agreement (PSA) (GO/PBA PSA) with certain other stakeholders, the Commonwealth, and the Financial Oversight and Management Board for Puerto Rico (FOMB).

Then, on May 5, 2021, AGM and AGC entered into a PSA (HTA/CCDA PSA) with certain other stakeholders, the Commonwealth, and the FOMB with respect to the Puerto Rico Highways and Transportation Authority (PRHTA) and the Puerto Rico Convention Center District Authority (PRCCDA).

More recently, on July 28, 2021, AGC joined the PSA (PRIFA PSA) signed on July 27, 2021 by certain other stakeholders, the Commonwealth, and the FOMB with respect to the Puerto Rico Infrastructure Financing Authority (PRIFA).

Previously, on May 3, 2019, AGM and AGC entered into a restructuring support agreement (PREPA RSA;

together with the GO/PBA PSA, HTA/CCDA PSA, and PRIFA PSA, the Support Agreements) with the Puerto Rico Electric Power Authority (PREPA) and other stakeholders, including a group of uninsured PREPA bondholders, the Commonwealth and FOMB, that is intended to, among other things, provide a framework for the consensual resolution of the treatment of the Company’s insured PREPA revenue bonds.

With AGM and AGC agreeing to the HTA/CCDA PSA, GO/PBA PSA, and PRIFA PSA, 94% of Assured Guaranty’s net par outstanding to Puerto Rico credits as of June 30, 2021, is now covered by a Support Agreement.

Each Support Agreement includes a number of conditions and the related debtor’s plan of adjustment must be approved by the Title III court, so there can be no assurance that the consensual resolutions embodied in the Support Agreements will be achieved in their current form, or at all.

Even if the consensual resolutions embodied in the Support Agreements are approved and documented as contemplated, they may be subject to further legal challenge or the parties to the legal documents may not live up to their obligations.

Both economic and political developments, including those related to the COVID-19 pandemic, may impact implementation of the consensual resolutions contemplated by the Support Agreements and the amount the Company realizes under the Support Agreements and related debtors’ plans of adjustment, as well as the performance or resolution of the Puerto Rico exposures not subject to a Support Agreement.

Nevertheless, the Company believes these developments mark a milestone in its Puerto Rico loss mitigation efforts.

For more information about developments in Puerto Rico and related recovery litigation being pursued by the Company, see Item 1, Financial Statements, Note 3, Outstanding Exposure and the Insured Portfolio section below.

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AssuredIM is a diversified asset manager that serves as investment adviser to CLOs, opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

As of March 31, 2021, AssuredIM is a top-twenty five CLO manager by AUM, as published by CreditFlux.

As of June 30, 2021, AssuredIM is a top-twenty five CLO manager by AUM, as published by Creditflux Ltd.

AssuredIM is actively pursuing opportunity strategies focused on healthcare and asset-based lending and liquid strategies relating to municipal obligations.

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The Company is using these allocations to (a) launch new products (CLOs, opportunity funds and liquid strategy funds) on the AssuredIM platform and (b) enhance the returns of its own investment portfolio.

As of March 31, 2021, AG Asset Strategies LLC (AGAS) had committed $587 million to funds managed by AssuredIM (AssuredIM Funds), including $252 million that has yet to be funded.

As of June 30, 2021, AG Asset Strategies LLC (AGAS) had committed $587 million to funds managed by AssuredIM (AssuredIM Funds), including $221 million that has yet to be funded.

This capital was committed to several funds, each dedicated to a single strategy including CLOs, asset-based finance, healthcare structured capital and municipal bonds.

Under the IMA with AssuredIM, AGM and AGC have together allocated $250 million to municipal obligation strategies and $300 million to CLO strategies.

Under the IMA with AssuredIM, AGM and AGC have together invested $250 million to municipal obligation strategies and $300 million to CLO strategies.

All of these strategies are consistent with the investment strengths of AssuredIM and the Company's plans to continue to grow its investment strategies.

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

From 2013 through May 6, 2021, the Company has repurchased 124.1 million common shares for approximately $3,767 million, representing approximately 64% of the total shares outstanding at the beginning of the repurchase program in 2013.

On November 2, 2020, the Board of Directors (the Board) authorized an additional $250 million of share repurchases.

Under this and previous authorizations, as of May 6, 2021, the Company was authorized to purchase $147 million of its common shares.

From 2013 through August 5, 2021, the Company has repurchased 126.6 million common shares for approximately $3,885 million, representing approximately 65% of the total shares outstanding at the beginning of the repurchase program in 2013.

On August 4, 2021, the Board of Directors (the Board) authorized the repurchase of an additional $350 million of

common shares.

Under this and previous authorizations, as of August 5, 2021, the Company was authorized to purchase $379 million of its common shares.

Shares may be repurchased from time to time in the open market or in privately negotiated transactions.

Company's capital position, legal requirements and other factors, some of which factors may be impacted by the direct and indirect consequences of the course and duration of the COVID-19 pandemic and evolving governmental and private responses to the pandemic.

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, some of which factors may be impacted by the direct and indirect consequences of the course and duration of the COVID-19 pandemic and evolving governmental and private responses to the pandemic.

The repurchase program may be modified, extended or terminated by the Board at any time and it does not have an expiration date.

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2021 (First Quarter) 77 2.0 38.83

2021 (through May 6) 28 0.61 45.57

2021 (Second Quarter) 88 1.9 46.63

2021 (through August 5) 58 1.2 47.02

Cumulative repurchases since the beginning of 2013 $ 3,885 $ 126.6 $ 30.68

Accretive Effect of Cumulative Repurchases (1)

First Quarter 2021 As of March 31, 2021

Second Quarter 2021 Six Months 2021

As of June 30, 2021

Net income (loss) attributable to AGL $ 0.66 $ 0.62

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(1) Represents the estimated accretive effect of cumulative repurchases since the beginning of 2013.

The Company also considers the appropriate mix of debt and equity in its capital structure, and may repurchase some of its debt from time to time.

The Company considers the appropriate mix of debt and equity in its capital structure.

On May 26, 2021, the Company issued $500 million of 3.15% Senior Notes, due in 2031 for net proceeds of $494 million.

On July 9, 2021, a portion of the proceeds of the debt issuance was used to redeem the following AGMH debt:

$100 million of 6 7/8% Quarterly Interest Bonds due in 2101, and $100 million of 6.25% Notes due in 2102.

In the third quarter of 2021, the Company will recognize a loss of approximately $66 million on a pre-tax basis ($52 million after-tax) associated with the redemption of AGMH debt, representing the difference between the amount paid to redeem AGMH's debt and the carrying value of the debt.

The carrying value of the debt included the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009.

Since the second quarter of 2017, AGUS has purchased $154 million in principal of AGMH's outstanding Junior Subordinated Debentures.

The Company may choose to make additional purchases of this or other Company debt in the future.

On February 24, 2021, the Company received the last regulatory approval required to merge MAC with and into AGM, with AGM as the surviving company.

The merger was effective on April 1, 2021.

The Company may choose to redeem or make additional purchases of this or other Company debt in the future.

Financial Statements, Note 14, Long-Term Debt.

Municipal Assurance Corp.

On April 1, 2021, Municipal Assurance Corp.

(MAC) merged with and into AGM, with AGM as the surviving company.

Upon the merger all direct insurance policies issued by MAC became direct insurance obligations of AGM.

As a result, the Company wrote off the $16 million carrying value of MAC's insurance licenses in First Quarter 2021.

This restructuring of the Company's U.S.

insurance subsidiaries will simplify the organizational and capital structure, reduce costs, and increase the future dividend capacity of the U.S.

As a result, the Company wrote off the $16 million carrying value of MAC's insurance licenses in the first quarter of 2021.

restructuring of the Company's U.S.

insurance subsidiaries will simplify the organizational and capital structure, reduce costs, and is expected to increase the future dividend capacity of the U.S.

insurance subsidiaries.

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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 AGL's 2020 Annual Report on Form 10-K.

Financial Performance of Assured Guaranty

Financial Results

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions, except per share amounts)

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Weighted average diluted shares 76.0 87.0 76.7 90.2

Segment results

Insurance $ 79 $ 85

Asset Management (7) (9)

Corporate (29) (39)

Components of total adjusted operating income (loss)

Insurance segment $ 152 $ 154 $ 231 $ 239

Asset Management segment (2) (9) (9) (18)

Corporate division (34) (26) (63) (65)

Other 4 — 4 (4)

Adjusted operating income (loss) $ 120 $ 119 $ 163 $ 152

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Present value of new business production (PVP) (1)

81 96 167 147

Gross par written 6,137 6,012 11,609 9,045

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Inflows - intercompany — 687 109 764

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

Amount Per Share Amount Per Share

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Several primary drivers of volatility in net income or loss are not necessarily indicative of credit impairment or improvement, or ultimate economic gains or losses such as:

changes in credit spreads of insured credit derivative obligations,

changes in fair value of assets and liabilities of VIEs and committed capital securities (CCS), changes in fair value of credit derivatives related to the Company's own credit spreads, and changes in risk-free rates used to discount expected losses.

changes in credit spreads of insured credit derivative obligations, changes in fair value of assets and liabilities of VIEs and committed capital securities (CCS), changes in fair value of credit derivatives related to the Company's own credit spreads, and changes in risk-free rates used to discount expected losses/(recoveries).

Other factors that drive volatility in net income include:

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Condensed Consolidated Results of Operations

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net earned premiums $ 102 $ 121 $ 205 $ 224

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Fair value gains (losses) on CCS (6) (25) (25) 23

Fair value gains (losses) on FG VIEs 5 (9)

Fair value gains (losses) on CIVs 16 (12)

Fair value gains (losses) on consolidated investment vehicles (CIVs) 21 31 37 19

Foreign exchange gains (losses) on remeasurement 5 2 5 (60)

Commutation gains (losses) — 38 — 38

Other income (loss) 14 3 19 1

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Effective tax rate 18.5 % 15.4 % 16.5 % 18.5 %

First Quarter 2021 Compared with First Quarter 2020

Net income attributable to AGL for First Quarter 2021 was higher compared to the three-month period ended March 31, 2020 (First Quarter 2020) primarily due to:

• de minimis foreign exchange gains on remeasurement in First Quarter 2021 compared with losses in First Quarter 2020,

• lower fair value losses on credit derivatives in First Quarter 2021 compared with First Quarter 2020, and

• fair value gains on CIVs in First Quarter 2021 compared to losses in First Quarter 2020.

These increases were offset in part by:

• fair value losses on CCS in First Quarter 2021 compared with gains in First Quarter 2020, and

• the write-off of an indefinite lived intangible asset, recorded in other operating expenses, representing the insurance licenses of Municipal Assurance Corp.

(MAC), which was merged with and into AGM on April 1, 2021.

Second Quarter 2021 Compared with Second Quarter 2020

Net income attributable to AGL for Second Quarter 2021 was lower compared with the three-month period ended June 30, 2020 (Second Quarter 2020) primarily due to:

• fair value losses on credit derivatives in Second Quarter 2021 compared with fair value gains in Second Quarter 2020, and

• commutation gains in Second Quarter 2020, that did not recur in Second Quarter 2021.

These decreases were offset in part by:

• a benefit in loss expense in Second Quarter 2021 compared with losses incurred in Second Quarter 2020, and

• equity in earnings of investees in Second Quarter 2021.

Six Months 2021 Compared with Six Months 2020

Net income attributable to AGL for Six Months 2021 was lower compared with the six-month period ended June 30, 2020 (Six Months 2020) primarily due to:

• fair value losses on credit derivatives and CCS in Six Months 2021 compared with fair value gains in Six Months 2020, and

• commutation gains in Six Months 2020 that did not recur in Six Months 2021.

These decreases were offset in part by:

• foreign exchange gains on remeasurement in Six Months 2021 compared with losses in Six Months 2020,

• equity in earnings of investees from AssuredIM funds and other alternative investments gains in Six Months 2021 compared with losses in Six Months 2020, and

• lower loss and loss adjustment expenses in Six Months 2021 compared with Six Months 2020.

The Company’s effective tax rate reflects the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S.

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controlled foreign corporation.

The effective tax rate in First Quarter 2021 was lower than in First Quarter 2020 due primarily to the portion of income in different jurisdictions.

Shareholders' equity attributable to AGL declined, on both a nominal and per-share basis, due mainly to unrealized losses on the fixed-maturity investment portfolio.

Share repurchases and dividends also reduced shareholders' equity attributable to AGL.

Adjusted operating shareholders' equity and adjusted book value decreased on a nominal basis due to share repurchases and dividends, partially offset, in the case of adjusted book value, by net premiums written on new business production.

On a per share basis, adjusted operating shareholders' equity and adjusted book value, benefited from the repurchase of an additional 2.0 million shares in First Quarter 2021.

The effective tax rate in Six Months 2021 was lower than in Six Months 2020 due primarily to the portion of income in different jurisdictions.

As of June 30, 2021, on a per share basis, shareholders' equity attributable to AGL, adjusted operating shareholders' equity and adjusted book value all reached record highs.

See "Accretive Effect of Cumulative Repurchases" table above.

Shareholders' equity attributable to AGL, adjusted operating shareholders' equity and adjusted book value declined, mainly due to share repurchases and dividends, offset in part by income earned, and in the case of adjusted book value, net premiums written.

Other Matters

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On April 6, 2021, New York's governor signed into law legislation that provides, among other things, that any LIBOR based-contracts governed by New York law that contain inadequate fall back language will, by operation of law, use the Secured Overnight Finance Rate (SOFR) as a benchmark replacement when LIBOR ceases to exist (NY Legacy LIBOR Law).

While each exposure is contract-specific, most LIBOR provisions relevant to the Company are governed by New York law, so the NY Legacy LIBOR Law is a helpful development for those contracts relevant to the Company with less robust fallback language and where parties are unlikely to negotiate a new rate.

While each exposure is contract-specific, most LIBOR provisions relevant to the Company are governed by New York law, so

the NY Legacy LIBOR Law is a helpful development for those contracts relevant to the Company with less robust fallback language and where parties are unlikely to negotiate a new rate.

The Company believes that there are still issues to be addressed in substituting SOFR for LIBOR in those contracts relevant to it.

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The following describes the components of each segment, along with the Corporate division and Other categories.

The Insurance and Asset Management segments are presented without giving effect to the consolidation of FG VIEs and those AssuredIM investment vehicles for which the Company is deemed the primary beneficiary (consolidated investment vehicles, or CIVs as described in Note 9, Variable Interest Entities).

The Insurance and Asset Management segments are presented without giving effect to the consolidation of financial guaranty VIEs (FG VIEs) and those AssuredIM investment vehicles (primarily funds and CLOs) for which the Company is deemed to be the primary beneficiary (CIVs).

The Insurance segment primarily consists of the Company's insurance subsidiaries that provide credit protection products to the U.S.

and international public finance (including infrastructure) and structured finance markets.

The Insurance segment is presented without giving effect to the consolidation of FG VIEs and therefore includes premiums and losses of all financial guaranty contracts, whether or not the associated FG VIEs are consolidated, and also includes its share of earnings from AssuredIM Funds in which the Insurance segment invests.

The Asset Management segment consists of AssuredIM, which provides asset management services to outside investors as well as to AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S.

In the case of FG VIEs, the Insurance segment includes premiums and losses of the financial guaranty insurance policies associated with the FG VIEs' debt.

In the case of CIVs, the Insurance segment includes the insurance subsidiaries' share of earnings from its investments in AssuredIM Funds.

The Asset Management segment consists of AssuredIM, which provides asset management services to third party investors as well as to AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S.

Insurance Subsidiaries) and AGAS.

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Other items primarily consist of intersegment eliminations, reclassification of the reimbursement of fund expenses to revenue, and consolidation adjustments, including the effect of consolidating FG VIEs and CIVs.

See Item 1, Financial Statements, Note 9, Variable Interest Entities.

The Company does not report assets by reportable segment as the CODM does not use assets to assess performance and allocate resources and only reviews assets at a consolidated level.

The Company analyzes the operating performance of each segment using "adjusted operating income." See “-- Non-GAAP Financial Measures -- Adjusted Operating Income” below for definition of "adjusted operating income" (formerly known as non-GAAP operating income) and Item 1, Financial Statements, Note 2, Segment Information.

The Company analyzes the operating performance of each segment using "adjusted operating income." See Item 1, Financial Statements, Note 2, Segment Information, and “— Non-GAAP Financial Measures — Adjusted Operating Income” below for definition of "adjusted operating income" (formerly known as non-GAAP operating income).

Results for each segment include specifically identifiable expenses as well as allocations of expenses among legal entities based on time studies and other cost allocation methodologies based on headcount or other metrics.

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The effect of consolidating such entities, including the related

eliminations, is included in "other" in the tables below, which represents the CODM's view, consistent with the management approach guidance for presentation of segment metrics.

eliminations, is included in "other" in the tables below.

The presentation of the segments represents the CODM's view, consistent with the management approach guidance for presentation of segment metrics.

The following table summarizes adjusted operating income from the Company's business segment operations and also provides a reconciliation of the segment measure to net income on a consolidated GAAP basis.

See also Item 1, Financial Statements, Note 2, Segment Information.

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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Corporate (34) (26) (63) (65)

Other 4 — 4 (4)

Adjusted operating income (loss) $ 120 $ 119 $ 163 $ 152

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Insurance Results

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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Net investment income 71 82 144 165

Commutation gains (losses) — 38 — 38

Other income (loss) 5 1 4 7

Total revenues 182 246 361 442

Loss expense 30 18

Loss expense (benefit) (12) 39 18 57

Amortization of DAC 4 4 7 7

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New Business Production

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

Public Finance—U.S.

$ 29 $ 60 $ 108 $ 89

Public Finance—non-U.S.

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Public Finance—U.S.

$ 29 $ 60 $ 110 $ 89

Public Finance—non-U.S.

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Public Finance—non-U.S.

961 557 961 934

Structured Finance—U.S.

460 173 505 188

Structured Finance—non-U.S.

Total gross par written $ 6,137 $ 6,012 $ 11,609 $ 9,045

Average rating on new business written A- BBB+

Average rating on new business written A- A- A- A-

____________________

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See “– Non-GAAP Financial Measures – PVP or Present Value of New Business Production.”

public finance GWP and PVP in First Quarter 2021 both increased over 170% compared with First Quarter 2020, primarily driven by several large transactions as well as an increase in market volume and insured penetration.

Second Quarter 2021

public finance GWP and PVP in Second Quarter 2021 both decreased compared with Second Quarter 2020, when the COVID-19 pandemic generated a significant increase in demand for insurance, particularly in the secondary market.

The average rating of U.S.

public finance par written was A-.

public finance par written in Second Quarter 2021 was A.

The Company's gross par written represented 52% of the total U.S.

municipal market insured issuance in First Quarter 2021.

The Company has consistently written new non-U.S.

public finance business every quarter since the end of 2015.

municipal market insured issuance in Second Quarter 2021.

In Second Quarter 2021, non-U.S.

GWP and PVP was primarily attributable to several large transactions.

Business activity in the international infrastructure and structured finance sectors typically has long lead times and therefore may vary from period to period.

Non-U.S., GWP decreased 46%, while non-U.S.

PVP increased 54%.

Excluding amounts relating to one large long-dated policy written in Second Quarter 2020, for which GWP includes the present value of all contractual future premiums, while PVP includes the present value of only expected future premiums, non-U.S.

GWP and PVP both increased by 91% and 96%, respectively.

Six Months 2021

Six Months 2021 U.S.

public finance GWP increased 21%, compared with Six Months 2020.

Similarly, Six Months 2021 PVP also increased by 24%, compared with Six Months 2020.

The increases in both GWP and PVP were primarily attributable to several large transactions written in the first quarter of 2021.

The average rating of U.S.

public finance par written was A-, and represented 58% of the total U.S.

municipal market insured issuance in Six Months 2021.

Non-U.S., GWP and PVP decreased 57%, and 6% respectively.

Excluding amounts relating to one large long-dated policy written in Six Months 2020, for which GWP includes the present value of all contractual future premiums, while PVP includes the present value of only expected future premiums, non-U.S.

GWP decreased by 14% and PVP increased 3%.

The majority of new business in Six Months 2021 was generated in Second Quarter 2021 as described above.

Net Earned Premiums and Credit Derivative Revenues

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Net earned premiums due to accelerations are attributable to changes in the expected lives of insured obligations driven by (a) refundings of insured obligations or (b) 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 and had been at historically high levels until recently primarily due to the low interest rate environment, which allowed many municipalities and other public finance issuers to refinance their debt obligations at lower rates.

Refundings occur in the public finance market when municipalities and other public finance issuers can refinance their debt obligations at lower rates than they are currently paying.

The premiums associated with the insured obligations of municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured.

When such issuers pay down insured obligations prior to their originally scheduled maturities, the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the nonrefundable deferred premium revenue remaining.

Provisions in the 2017 Tax Cuts and Jobs Act regarding the termination of the tax-exempt status of advance refunding bonds have resulted in fewer refundings.

The amortization of our 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.

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

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Net Earned Premiums and Credit Derivative Revenues

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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Total public finance 86 105 174 190

Structured finance scheduled net earned premiums 15 18

Structured finance

Scheduled net earned premiums 15 16 30 34

Terminations 1 — 1 —

Total structured finance 16 16 31 34

Specialty insurance and reinsurance 1 1 2 2

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Total net earned premiums and credit derivative revenues $ 106 $ 125 $ 213 $ 232

Net earned premiums in First Quarter 2021 were consistent with First Quarter 2020.

Public finance scheduled net earned premiums increased slightly, offsetting the decline in structured finance net earned premiums due to the scheduled decline in structured finance par outstanding.

At March 31, 2021, $3.8 billion of net deferred premium revenue remained to be earned over the life of the insurance contracts.

Net earned premiums and credit derivative revenues in Second Quarter 2021 and Six Months 2021 decreased compared with Second Quarter 2020 and Six Months 2020 primarily due to lower refundings and terminations, as well as the scheduled decline in the insured structured finance portfolio.

As of June 30, 2021, $3.8 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

Net Investment Income and Equity in Earnings of Investees

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The Insurance segment is authorized to invest up to $750 million in AssuredIM Funds.

As of March 31, 2021, the Insurance segment has total commitments to AssuredIM Funds of $587 million of which $335 million represents net invested capital and $252 million is undrawn.

As of June 30, 2021, the Insurance segment had total commitments to AssuredIM Funds of $587 million of which $366 million represented net invested capital and $221 million was undrawn.

Net Investment Income and Equity in Earnings of Investees

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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Managed by third parties $ 51 $ 62 $ 102 $ 124

Internally managed:

AssuredIM 4 —

Loss mitigation and other securities 17 20

Loss mitigation securities 11 14 22 28

Managed by AssuredIM (1) 4 1 8 1

Other internally managed 4 5 10 11

Intercompany loans 3 2 5 5

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AssuredIM Funds $ 37 $ 26 $ 47 $ 16

Other 11 — 20 1

Equity in earnings of investees $ 48 $ 26 $ 67 $ 17

Net investment income for First Quarter 2021 decreased compared to First Quarter 2020, primarily due to lower average balances in the fixed-maturity investment portfolio, which declined due to dividends paid by the insurance subsidiaries that were used for AGL share repurchases, lower reinvestment short-term yields, and lower income on securities purchased for loss mitigation purposes.

The overall pre-tax book yield was 3.23% as of March 31, 2021 and 3.41% as of March 31, 2020.

Excluding the internally managed portfolio, pre-tax book yield was 2.94% as of March 31, 2021 and 3.14% as of March 31, 2020.

Equity in earnings of AssuredIM Funds in First Quarter 2021 was primarily attributable to changes in the NAV of CLO funds.

In First Quarter 2020, equity in earnings of AssuredIM Funds was a loss primarily attributable to CLO and asset-based funds.

In addition to the Insurance segment's investments in AssuredIM Funds, other alternative investments also generated gains of $9 million.

____________________

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

Net investment income for Second Quarter 2021 and Six Months 2021 decreased compared to Second Quarter 2020 and Six Months 2020, primarily due to lower average balances in the fixed-maturity investment portfolio, and lower reinvestment yields on short-term investments.

The fixed-maturity investment portfolio declined mainly due to dividends paid by the insurance subsidiaries that were used for AGL share repurchases.

The overall pre-tax book yield was 3.15% as of June 30, 2021 and 3.33% as of June 30, 2020.

Excluding the internally managed portfolio, pre-tax book yield was 2.92% as of June 30, 2021 and 3.05% as of June 30, 2020.

Equity in earnings of AssuredIM Funds in Second Quarter 2021 and Six Months 2021 was primarily attributable to changes in NAV of the CLO and healthcare funds.

CLO funds' performance was driven by continued tightening of yields.

Healthcare fund performance was driven by improved financial projections for a number of the portfolio companies as well as upward movement in the traded market multiples of comparable public companies.

The fair value gains on investments in AssuredIM Funds in Second Quarter 2020 and Six Months 2020 were driven by the overall market rebounding in the second quarter.

Commutation Gains (Losses)

In Second Quarter 2020, the Company reassumed $336 million in par from its largest remaining legacy third-party financial guaranty reinsurer.

This commutation resulted in an increase of unearned premium reserve of $5 million and a commutation gain of $38 million.

Other Income (Loss)

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Other Income (Loss)

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

Foreign exchange gain (loss) on remeasurement (1) $ — $ — $ — $ (5)

Other 5 1 4 12

Total other income (loss) $ 5 $ 1 $ 4 $ 7

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Range Weighted Average

As of June 30, 2021 0.00 % - 2.14% 0.73 %

As of March 31, 2021 0.00 % 2.49% 0.88 %

As of December 31, 2020 0.00 % - 1.72% 0.60 %

As of June 30, 2020 0.00 % 1.47% 0.57 %

As of March 31, 2020 0.00 % 1.39% 0.64 %

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

As of First Quarter

March 31, 2021 December 31, 2020 2021 2020

As of Second Quarter Six Months

June 30, 2021 December 31, 2020 2021 2020 2021 2020

(in millions)

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Credit derivatives 8 (1) 6 1 9 (7)

$ 472 $ 529 $ 13 $ (3)

Total $ 466 $ 529 $ (20) $ 34 $ (7) $ 31

Net exposure rated below-investment-grade (BIG) $ 7,654 $ 7,988

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

As of First Quarter

March 31, 2021 December 31, 2020 2021 2020

As of Second Quarter Six Months

June 30, 2021 December 31, 2020 2021 2020 2021 2020

(in millions)

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Effect of changes in the risk-free rates included in economic loss development (benefit) $ 15 $ 1 $ (33) $ 32

____________________

(1) The total net expected loss for troubled U.S.

public finance exposures is net of a credit for estimated future recoveries of $994 million as of March 31, 2021 and $1,154 million as of December 31, 2020 for claims already paid.

First Quarter 2021 Net Economic Loss Development

Public Finance Economic Loss Development:

Second Quarter 2021 Net Economic Loss Development

Public Finance:

Public finance expected loss to be paid primarily related to U.S.

exposures, which had BIG net par outstanding of $5.4 billion as of March 31, 2021 compared with $5.4 billion as of December 31, 2020.

The Company projects that its total net expected loss across its troubled U.S.

public finance exposures as of March 31, 2021 will be $228 million compared with $305 million as of December 31, 2020.

exposures, which had BIG net par

outstanding of $5.6 billion as of June 30, 2021 compared with $5.4 billion as of December 31, 2020.

The Company projected

that its total net expected loss across its troubled U.S.

public finance exposures as of June 30, 2021 will be $221 million,

compared with $305 million as of December 31, 2020.

Economic loss development on U.S.

public finance exposures in First Quarter 2021 was $15 million, which was primarily attributable to Puerto Rico exposures.

The economic benefit was approximately $12 million for non-U.S.

public finance exposures during First Quarter 2021 mainly due to the restructuring of certain exposures and the impact of higher Euro Interbank Offered Rate (Euribor).

The economic loss development attributable to U.S.

RMBS was $11 million and was mainly related to a reduction of excess spread of $58 million, partially offset by changes in discount rates, which was a gain of $33 million, and improved performance in certain transactions and higher recoveries for secured charged-off loans.

exposures in Second Quarter 2021

was $1 million, which was primarily attributable to deterioration in a student housing transaction and changes in discount rates, which were partially offset by improvement in certain Puerto Rico exposures.

The economic benefit attributable to U.S.

RMBS was $28 million and was mainly attributable to a $25 million benefit for higher excess spread, a $7 million benefit for higher recoveries received for charged-off loans, and a $7 million benefit for improved performance in certain transactions, partially offset by an $11 million loss for changes in discount rates.

Certain transactions benefit from excess spread when they are supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) but have insured floating rate debt linked to LIBOR.

Lower LIBOR results in higher excess spread.

Other Structured Finance:

The economic loss development attributable to structured finance, excluding U.S.

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

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

First Quarter 2020 Net Economic Loss Development

Second Quarter 2020 Net Economic Loss Development

Public Finance:

Public finance expected loss to be paid primarily related to U.S.

exposures, which had BIG net par outstanding of $5.6 billion as of March 31, 2020 compared with $5.8 billion as of December 31, 2019.

The Company projected that its total net expected loss across its troubled U.S.

public finance exposures as of March 31, 2020 would be $493 million, compared with $531 million as of December 31, 2019.

exposures, which had BIG net par

outstanding of $5.7 billion as of June 30, 2020 compared with $5.8 billion as of December 31, 2019.

The Company projected

that its total net expected loss across its troubled U.S.

public finance exposures as of June 30, 2020 would be $543 million,

compared with $531 million as of December 31, 2019.

Economic loss development on U.S.

exposures in First Quarter 2020 was $56 million, which was primarily attributable to Puerto Rico exposures.

exposures in Second Quarter 2020

was $30 million, which was primarily attributable to Puerto Rico exposures.

The economic loss development was

approximately $2 million for non-U.S.

exposures during Second Quarter 2020 due to the impact of negative European interest

The economic loss development attributable to U.S.

RMBS was $1 million and was mainly related to COVID-19 related forbearances, partially offset by higher excess spread and improved performance in certain transactions and

changes in liquidation rates.

The economic development attributable to changes in discount rates was de minimis in Second Quarter 2020.

Six Months 2021 Net Economic Loss Development

Economic loss development on U.S.

public finance exposures in Six Months 2021 was $16 million, which was

primarily attributable to Puerto Rico exposures and deterioration in a student housing transaction, which were partially offset by changes in discount rates and improved cash flows for a certain transaction.

The economic benefit was approximately $13 million for non-U.S.

public finance exposures due mainly due to the restructuring of certain exposures and the impact of higher Euribor.

The net benefit attributable to U.S.

RMBS was $17 million and was mainly related to a $22 million benefit for changes in discount rates, a $17 million benefit for improvement in certain transactions and an $11 million benefit for higher recoveries received for charged-off loans, partially offset by a $33 million loss for lower excess spread.

The economic loss development attributable to structured finance, excluding U.S.

RMBS, was $7 million, which was primarily attributable to LAE for certain transactions.

Six Months 2020 Net Economic Loss Development

Economic loss development on U.S.

public finance exposures in Six Months 2020 was $86 million, which was

primarily attributable to Puerto Rico exposures.

The economic loss development was approximately $5 million for non-U.S.

exposures during First Quarter 2020 due to the weaker outlook of the performance of a troubled U.K.

public finance exposures during Six Months 2020 due to the impact of negative European interest rates and the weaker outlook of the performance of a troubled U.K.

The net benefit attributable to U.S.

RMBS was $63 million and was mainly related to higher excess spread on certain transactions supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) and with insured floating rate debt linked to LIBOR, which decreased in First Quarter 2020.

The economic development attributable to changes in discount rates was a loss of $32 million in First Quarter 2020.

RMBS was $62 million and was mainly related to higher excess spread, and partially offset by COVID-19 related forbearances.

Insurance Segment Loss and LAE

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(1) considers deferred premium revenue in the calculation of loss reserves and loss and LAE for financial guaranty insurance contracts, (2) eliminates loss and LAE related to consolidated FG VIEs, and (3) does not include estimated losses on credit derivatives.

Loss and LAE reported in the Insurance segment adjusted operating income (i.e., adjusted loss and LAE) includes loss and LAE on financial guaranty insurance contracts without giving effect to eliminations related to consolidation of FG VIEs, and also includes losses on credit derivatives.

For financial guaranty insurance contracts, each transaction’s expected loss to be expensed is compared with the deferred premium revenue of that transaction.

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Loss and LAE (Benefit)

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

2 unchanged sentences

Structured finance

RMBS (22) 6 (10) (38)

Other structured finance 7 — 7 3

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The primary components of the Insurance segment loss and LAE expense were as follows:

• Loss and LAE in First Quarter 2021 was mainly driven by loss expense on certain Puerto Rico transactions and U.S.

RMBS exposures.

For First Quarter 2021, these losses were partially offset by a benefit in certain European exposures.

• Loss and LAE in First Quarter 2020 was mainly driven by higher losses on certain Puerto Rico exposures, partially offset by a benefit on first lien U.S.

RMBS exposures.

• Loss and LAE benefit in Second Quarter 2021 was mainly driven by U.S.

RMBS exposures, partially offset by other structured finance.

Loss and LAE in Six Months 2021 was driven by Puerto Rico and other structured finance, partially offset by a benefit in U.S.

RMBS and certain European exposures.

• Loss and LAE in Second Quarter 2020 and Six Months 2020 was mainly driven by loss expense on certain Puerto Rico transactions.

For Six Months 2020, these losses were partially offset by a benefit in first lien U.S.

RMBS transactions.

For additional information on the expected timing of net expected losses to be expensed see Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Financial Guaranty Insurance Losses.

Other Operating Expenses

The increase in other operating expenses was primarily attributable to the write-off of a $16 million intangible asset attributable to MAC insurance licenses.

The increase in other operating expenses in Six Months 2021 compared with Six Months 2020 was primarily attributable to the write-off of a $16 million intangible asset attributable to MAC insurance licenses.

MAC was merged with and into AGM on April 1, 2021.

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AGC AA (stable) (7/8/21) AA (stable) (10/29/20) (1) —

MAC (2) AA (stable) (7/16/20) AA+ (stable) (10/29/20) — —

AG Re AA (stable )(7/8/21) — — —

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Moody’s continues to rate AGC A3 (stable).

(2) An April 1, 2021, the Company executed a multi-step transaction to merge MAC with and into AGM, with AGM as the surviving company.

See Item 1, Financial Statements, Note 1, Business and Basis of Presentation, for additional information.

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 Item 1, Financial Statements, Note 7, Reinsurance and "--Liquidity and Capital Resources--" section below.

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

Asset Management Segment Results

Asset Management Results

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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CLO fees are the net management fees that AssuredIM retains after rebating the portion of these fees that pertains to the CLO equity that is held directly by AssuredIM Funds.

Management fees from opportunity funds and liquid strategies are mainly attributable to several healthcare funds that ware launched in 2020, in which the Insurance segment’s U.S.

Management fees from opportunity funds and liquid strategies include funds that were launched since the BlueMountain Acquisition, in which the Insurance segment’s U.S.

Insurance Subsidiaries invest, along with two previously established opportunity funds in their harvest periods.

The Company also generates fees from legacy hedge and opportunity funds now subject to an orderly wind-down.

The following table presents management fees for First Quarter 2021 and First Quarter 2020.

Management Fees

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

3 unchanged sentences

Total management fees $ 19 $ 12 $ 38 $ 28

Net CLO fees increased in First Quarter 2021 compared with First Quarter 2020, largely driven by the sale of CLO equity to third parties from legacy funds, the recovery of previously deferred CLO fees, and the issuance of several new CLOs.

The COVID-19 pandemic and downgrades in loan markets had triggered over-collateralization provisions in CLOs in 2020, resulting in the deferral of CLO management fees, the majority which reversed by First Quarter 2021.

CLO inflows of $922 million were mainly due to the issuance of two CLOs during the quarter.

CLO AUM includes CLO Equity that is held by various AssuredIM Funds of $250 million as of March 31, 2021, and $265 million as of December 31, 2020.

This CLO Equity corresponds to the majority of the non-fee earning CLO AUM, as AssuredIM typically rebates the CLO fees back to AssuredIM Funds.

Fee-earning CLO AUM increased 17% in First Quarter 2021.

Management fees from opportunity funds and liquid strategies are mainly attributable to two new healthcare funds launched in 2020, along with fees from previously established funds and other funds created since the establishment of

AssuredIM, and fees from an IMA with the U.S.

Insurance Subsidiaries.

Opportunity funds and liquid strategies' AUM increased to $1,897 million as of March 31, 2021, from $1,869 million as of December 31, 2020 driven by the increase in fund value, and additional commitments, offset by the return of capital in previously established funds in their harvest period.

Management fees from wind down funds declined as distributions to investors continued throughout First Quarter 2021.

The AUM of wind-down funds as of March 31, 2021 was $1,297 million compared with $1,623 million as of December 31, 2020.

Rollforward of

Management fees in Second Quarter 2021 increased by 58% compared with Second Quarter 2020, and 36% in Six Months 2021 compared with Six Months 2020, primarily due to an increase in CLO fees as a result of (i) higher fee-earning CLO assets under management (AUM) due to the sale to third-parties of CLO equity from legacy funds and the issuance of new CLOs, and (ii) the deferral of CLO fees in Second Quarter 2020 that did not recur in Second Quarter 2021.

As of June 30, 2021 substantially all of the CLO equity held by legacy funds has been sold to third parties, which ends the fee rebates made back to

CLO AUM includes CLO equity that is held by various AssuredIM Funds of $163 million as of June 30, 2021, and $265 million as of December 31, 2020.

Fee-earning CLO AUM increased 37% in Six Months 2021 bringing fee-earning CLO AUM to 96% of total CLO AUM.

In addition, the COVID-19 pandemic and downgrades in loan markets had triggered over-collateralization provisions in CLOs in the second and third quarters of 2020, resulting in the deferral of CLO management fees.

As of June 30 2021, there were no CLOs managed by AssuredIM triggering over-collateralization provisions.

The increase in fees from opportunity funds and liquid strategies was mainly attributable to funds created since the Company acquired BlueMountain Capital Management, LLC.

In addition, opportunity funds and liquid strategies also includes fees from municipal bond and asset-based funds created since the establishment of AssuredIM, fees from an IMA with the U.S.

Insurance Subsidiaries, and two previously established funds.

Opportunity funds and liquid strategies' AUM was $1.9 billion as of June 30, 2021 and December 31, 2020.

Outflows from opportunity and liquid strategies were primarily driven by the return of capital in previously established funds in their harvest period.

Management fees from wind-down funds declined as distributions to investors continued throughout Six Months 2021.

The AUM of wind-down funds as of June 30, 2021 was $1,179 million compared with $1,623 million as of December 31, 2020.

While total AUM increased slightly in Second Quarter 2021 from $17.5 billion as of March 31, 2021 to $17.6 billion as of June 30, 2021, fee-earning AUM rose by 13% over the same period, from $14.4 billion to $16.3 billion.

In Six Months 2021, AUM increased from $17.3 billion to $17.6 billion, while fee-earning AUM increased rose by 26% from $12.9 billion as of December 31, 2020 to $16.3 billion as of June 30, 2021.

Roll Forward of

Assets Under Management

First Quarter 2021

Second Quarter 2021

CLOs Opportunity Funds Liquid Strategies Wind-Down Funds Total

(in millions)

AUM, March 31, 2021 $ 14,331 $ 1,513 $ 384 $ 1,297 $ 17,525

Inflows - third party 400 26 — — 426

Inflows - intercompany — — — — —

Redemptions — — — — —

Distributions (227) (157) — (98) (482)

Total outflows (227) (157) — (98) (482)

Net flows 173 (131) — (98) (56)

Change in value 58 81 4 (20) 123

AUM, June 30 , 2021 $ 14,562 $ 1,463 $ 388 $ 1,179 $ 17,592

Roll Forward of

Assets Under Management

Six Months 2021

CLOs Opportunity Funds Liquid Strategies Wind-Down Funds Total

(in millions)

AUM, December 31, 2020 $ 13,856 $ 1,486 $ 383 $ 1,623 $ 17,348

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Change in value (33) 229 5 (17) 184

AUM, March 31, 2021 $ 14,331 $ 1,513 $ 384 $ 1,297 $ 17,525

AUM, June 30 , 2021 $ 14,562 $ 1,463 $ 388 $ 1,179 $ 17,592

Components of

2 unchanged sentences

(in millions)

As of March 31, 2021:

As of June 30, 2021:

Funded AUM $ 14,488 $ 951 $ 388 $ 1,157 $ 16,984

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However, we believe AUM is a useful metric for assessing the relative size and scope of our asset management business.

The Company uses measures of its AUM in its decision making process and intends to use a measure of change in AUM in its calculation of certain components of management compensation.

The Company uses measures of its AUM in its decision making process and intends to use a measure of change in AUM in its calculation of certain components of management

compensation.

Investors also use AUM to evaluate companies that participate in the asset management business.

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• the amount of aggregate collateral balance and principal cash of AssuredIM's CLOs, including CLO equity that may be held by AssuredIM Funds.

This also includes CLO assets managed by BlueMountain Fuji Management, LLC (BM Fuji).

AssuredIM is not the investment manager of BM Fuji-advised CLOs, but rather has entered into a services agreement and a secondment agreement with BM Fuji pursuant to which AssuredIM provides certain services associated with the management of BM Fuji-advised CLOs and acts in the capacity of service provider, and

This also includes CLO assets managed by BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a third party in Second Quarter 2021.

AssuredIM is not the investment manager of BM Fuji-advised CLOs, but following the sale, AssuredIM sub-advises and continues to provide personnel and other services to BM Fuji associated with the management of BM Fuji-advised CLOs pursuant to a sub-advisory agreement and a personnel and services agreement, consistent with past practices, and

• the net asset value of all funds and accounts other than CLOs, plus any unfunded commitments.

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Corporate Results

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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Adjusted operating income (loss) $ (34) $ (26) $ (63) $ (65)

The loss on extinguishment of debt, recorded in other income (loss), is related to AGUS's purchase of a portion of the principal amount of AGMH's outstanding Junior Subordinated Debentures.

The loss represents the difference between the amount paid to purchase AGMH's debt and the carrying value of the debt, which includes the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009.

The Corporate division loss in Second Quarter 2021 increased compared to Second Quarter 2020 primarily due to the interest expense associated with the issuance, on May 26, 2021, of $500 million in AGUS 3.15% Senior Notes due in 2031, as well as higher state and local income tax expense.

On July 9, 2021, a portion of the proceeds of the debt issuance was used to redeem the following AGMH debt:

$100 million of 6 7/8% Quarterly Interest Bonds due in 2101, and $100 million of 6.25% Notes due in 2102.

In the third quarter of 2021, the Company will recognize a loss of approximately $66 million on a pre-tax basis ($52 million after-tax) associated with the redemption of AGMH debt, which represents the difference between the amount paid to redeem AGMH's debt and the carrying value of the debt.

The carrying value of the debt included the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009.

Financial Statements, Note 14, Long-Term Debt.

Interest expense relates to debt issued by the U.S.

Holding Companies.

Intersegment interest expense of $2 million in First Quarter 2021 and $3 million in First Quarter 2020, related primarily to the $250 million AGUS debt to the U.S.

Intersegment interest expense of $3 million in Second Quarter 2021, $2 million in Second Quarter 2020 and $5 million in both Six Months 2021 and Six Months 2020 related primarily to the $250 million AGUS debt to the U.S.

Insurance Subsidiaries, which was borrowed in October 2019 in connection with the BlueMountain Acquisition.

The loss on extinguishment of debt in Six Months 2020, recorded in other income (loss), is related to the AGUS purchase of a portion of the principal amount of AGMH's outstanding Junior Subordinated Debentures.

Compensation and benefits expenses allocated to the Corporate division are based on time studies and represent the costs incurred and time spent on holding company activities, capital management, corporate oversight and governance.

Other expenses include Board of Director expenses, legal fees and other direct or allocated expenses.

Equity in earnings of investees was a loss in First Quarter 2020 due to a write down of AGUS' investment in an investment firm that provides investment banking services in the global infrastructure sector.

Equity in earnings of investees was a loss in Six Months 2020 due to a write-down of AGUS' investment in an investment firm that provides investment banking services in the global infrastructure sector.

Other primarily consists of intersegment eliminations, reclassifications of reimbursable fund expenses to revenue, and consolidation adjustments, including the effect of consolidating FG VIEs and AssuredIM investment vehicles.

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Net Income (Loss) Attributable to AGL

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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VIE consolidation effect $ 4 $ — $ 4 $ (4)

The types of VIEs the Company consolidates when it is deemed to be the primary beneficiary primarily include (1) entities whose debt obligations the insurance subsidiaries insure, and (2) investment vehicles such as collateralized financing entities and AssuredIM Funds.

The Company eliminates the effects of intercompany transactions between its consolidated VIEs and its insurance and asset management subsidiaries, as well as intercompany transactions between CIVs.

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To Adjusted Operating Income (Loss)

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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Net Realized Investment Gains (Losses)

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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Gross realized losses on available-for-sale securities (2) (8) (4) (9)

Credit impairment and intend to sell (4) (11)

Change in credit impairment and intend to sell — (4) (4) (15)

Net realized investment gains (losses) $ 4 $ 4 $ 1 $ (1)

Credit impairment in First Quarter 2021 and First Quarter 2020 was related primarily to an increase in the allowance for credit loss on loss mitigation securities.

Shut-downs due to COVID-19 pandemic restrictions contributed to the increase in the allowance for credit loss in First Quarter 2020.

Change in credit impairment in all periods was related primarily to the allowance for credit loss on loss mitigation securities.

Shut-downs due to COVID-19 pandemic restrictions contributed to the increase in the allowance for credit losses in Six Months 2020.

Non-Credit Impairment Unrealized Fair Value Gains (Losses) on Credit Derivatives

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The models used to determine fair value are primarily developed internally based on market conventions for similar transactions that the Company observed in the past.

There has been very limited new issuance activity in this market since 2009 and as of March 31, 2021, market prices for the Company’s credit derivative contracts were generally not available.

There has been very limited new issuance activity in this market since 2009 and, as of June 30, 2021, 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 10, Fair Value Measurement, for additional information.

During First Quarter 2021, non-credit impairment fair value losses were generated primarily as a result of the decreased cost to buy protection on AGC, as the market cost of AGC's credit protection decreased during the period.

These losses were partially offset by the higher discount rates.

During First Quarter 2020, non-credit impairment fair value losses were generated primarily as a result of wider spreads of the underlying collateral and lower discount rates.

These were partially offset by gains due to the increased cost to

buy protection on AGC, as the market cost of AGC's credit protection increased during the period.

For those CDS transactions that were pricing at or above their floor levels, when the cost of purchasing CDS protection on AGC, which management refers to as the CDS spread on AGC, increased, the implied spreads that the Company would expect to receive on these transactions decreased.

See Item 1, Financial Statements, Note 6, Contracts Accounted for as Credit Derivatives, for additional information.

Second Quarter 2021 and Six Months 2021 non-credit impairment fair value losses on credit derivatives were generated primarily as a result of the tightening of AGC spreads, partially offset by general price improvements of the underlying collateral.

Except for underlying credit impairment, which is recognized as loss expense in the Insurance segment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.

Second Quarter 2020 non-credit impairment fair value gains on credit derivatives were generated primarily as a result of price improvements of the underlying collateral, partially offset by losses due to the tightening of AGC spreads.

During Six Months 2020, non-credit impairment fair value gains were generated primarily as a result of widening of AGC spreads.

These gains were partially offset by the wider spreads of the underlying collateral and lower discount rates.

Sensitivity to Changes in Credit Spread

The following table summarizes the estimated change in fair values on the net balance of the Company’s credit derivative positions assuming an immediate shift in the net spreads assumed by the Company.

The following table summarizes the estimated change in fair value on the net balance of the Company’s credit derivative positions assuming an immediate shift in the net spreads assumed by the Company.

The net spread is affected by the spread of the underlying collateral and the credit spreads on AGC.

Effect of Changes in Credit Spread

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

Credit Spreads (1) Estimated Net

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Fair Value Gains (Losses) on CCS

Fair value losses on CCS in First Quarter 2021 were primarily due to a tightening in market spreads.

Fair value gains on CCS in First Quarter 2020 were primarily due to a widening in market spreads during the quarter.

Fair value losses on CCS in Second Quarter 2021 and Six Months 2021 were primarily due to a tightening in market spreads during the periods.

Fair value losses on CCS in Second Quarter 2020 were caused by the steep reduction in LIBOR during the period.

Fair value gains on CCS in Six Months 2020 were primarily due to a widening in market spreads during the period.

Fair value of CCS is heavily affected by, and in part fluctuates with, changes in market spreads and interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

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The Company provides the effect of VIE 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.

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 of each of the consolidated FG VIEs and CIVs is reflected primarily in the results of the Insurance segment.

Management and the Board of Directors use non-GAAP financial measures further adjusted to remove the effect of VIE 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.

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.

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To Adjusted Book Value

As of March 31, 2021 As of December 31, 2020

After-Tax Per Share After-Tax Per Share

As of June 30, 2021 As of December 31, 2020

Total Per Share Total Per Share

(dollars in millions, except per share amounts)

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Reconciliation of GWP to PVP

First Quarter 2021 First Quarter 2020

Second Quarter 2021 Second Quarter 2020

Public Finance Structured Finance Public Finance Structured Finance

(in millions)

Total GWP $ 79 $ 5 $ 3 $ — $ 87 $ 29 $ 34 $ 1 $ — $ 64

GWP $ 29 $ 44 $ 11 $ — $ 84 $ 60 $ 81 $ 8 $ — $ 149

Installment GWP and other GAAP adjustments (1) — 24 11 — 35 — 81 8 — 89

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Installment premium PVP — 23 9 — 32 — 28 8 — 36

Total PVP $ 81 $ 3 $ 2 $ — $ 86 $ 29 $ 21 $ 1 $ — $ 51

PVP $ 29 $ 43 $ 9 $ — $ 81 $ 60 $ 28 $ 8 $ — $ 96

Six Months 2021 Six Months 2020

Public Finance Structured Finance Public Finance Structured Finance

(in millions)

GWP $ 108 $ 49 $ 14 $ — $ 171 $ 89 $ 115 $ 9 $ — $ 213

Installment GWP and other GAAP adjustments (1) 34 27 12 — 73 — 115 9 — 124

Upfront GWP 74 22 2 — 98 89 — — — 89

Installment premium PVP 36 24 9 — 69 — 49 9 — 58

PVP $ 110 $ 46 $ 11 $ — $ 167 $ 89 $ 49 $ 9 $ — $ 147

___________________

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Net Par Outstanding and Average Internal Rating by Sector

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

Sector Net Par

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Healthcare 9,054 BBB+ 8,691 BBB+

Infrastructure finance 6,342 A- 5,843 A-

Higher education 6,369 A- 6,127 A-

Infrastructure finance 6,325 A- 5,843 A-

Housing revenue 1,092 BBB- 1,149 BBB

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Total public finance—non-U.S.

52,099 A- 53,028 A-

51,966 BBB+ 53,028 A-

Total public finance 225,633 A- 224,625 A-

Structured finance:

RMBS 2,850 BBB- 2,990 BBB-

Life insurance transactions 3,032 AA- 2,581 AA-

Pooled corporate obligations 1,126 AA 1,193 AA

RMBS 2,715 BBB- 2,990 BBB-

Financial products 780 AA- 820 AA-

Pooled corporate obligations 751 AA 1,193 AA

Consumer receivables 673 A 768 A-

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RMBS 345 A 357 A

Other structured finance 204 A+ 219 A+

Other structured finance 190 AA- 219 A+

Total structured finance—non-U.S.

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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 financial guarantor.

The second-to-pay insured par outstanding as of both March 31, 2021 and December 31, 2020 was $5.6

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $90 million and $91 million as of March 31, 2021 and December 31, 2020, respectively.

The second-to-pay insured par outstanding as of June 30, 2021 and December 31, 2020 was $5.3 billion

and $5.6 billion, respectively.

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $89 million and $91 million as of June 30, 2021 and December 31, 2020, respectively.

Exposure to Puerto Rico

The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $3.7 billion net par as of March 31, 2021, 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).

1 unchanged sentence

Exposure to Puerto Rico

As of March 31, 2021

As of June 30, 2021

Net Par Outstanding

14 unchanged sentences

489 71 216 — 776 787

Puerto Rico Infrastructure Financing Authority (PRIFA) — 15 1 — 16 16

Subtotal Subject to a Support Agreement 1,708 1,092 781 (81) 3,500 3,555

1 unchanged sentence

MFA 151 23 49 — 223 232

Puerto Rico Infrastructure Financing Authority (PRIFA) — 15 1 — 16 16

PRASA and U of PR — 2 — — 2 2

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of Net Par of Puerto Rico

As of March 31, 2021

As of June 30, 2021

Scheduled Net Par Amortization

2021 (2Q) 2021 (3Q) 2021 (4Q) 2022 2023 2024 2025 2026 - 2030 2031 - 2035 2036 - 2040 2041 - 2042 Total

2021 (3Q) 2021 (4Q) 2022 2023 2024 2025 2026 - 2030 2031 - 2035 2036 - 2040 2041 - 2042 Total

(in millions)

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PREPA 28 — 28 95 93 68 362 102 — — 776

PRIFA — — — 2 — — — — 10 4 16

Subtotal Subject to a Support Agreement 109 — 133 183 202 205 910 1,204 505 49 3,500

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MFA 43 — 43 23 19 18 77 — — — 223

PRIFA — — — — 2 — — — — 10 4 16

PRASA and U of PR — — — — 1 — — 1 — — 2

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of Net Debt Service of Puerto Rico

As of March 31, 2021

As of June 30, 2021

Scheduled Net Debt Service Amortization

2021 (2Q) 2021 (3Q) 2021 (4Q) 2022 2023 2024 2025 2026 - 2030 2031 - 2035 2036 - 2040 2041 - 2042 Total

2021 (3Q) 2021 (4Q) 2022 2023 2024 2025 2026 - 2030 2031 - 2035 2036 - 2040 2041 - 2042 Total

(in millions)

8 unchanged sentences

PREPA 43 3 62 129 122 91 427 110 — — 987

PRIFA — — 1 3 1 1 4 3 13 4 30

Subtotal Subject to a Support Agreement 195 3 304 349 359 351 1,489 1,556 576 51 5,233

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MFA 49 — 52 29 24 22 86 — — — 262

PRIFA — — — 1 3 1 1 4 3 13 4 30

PRASA and U of PR — — — — 1 — — 1 — — 2

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Distribution of U.S.

RMBS by Year Insured and Type of Exposure as of March 31, 2021

RMBS by Year Insured and Type of Exposure as of June 30, 2021

First Lien Alt-A

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Holding Companies include:

• interest on debt issued by AGUS and AGMH,

• principal and interest on debt issued by AGUS and AGMH,

• dividends on AGL's common shares, and

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• fund acquisitions of new businesses,

• purchase the Company's outstanding debt, or

• in the case of AGL, to repurchase its common shares pursuant to its share repurchase authorization.

• purchase or redeem the Company's outstanding debt, or

• to 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.

8 unchanged sentences

Long-Term Debt and Intercompany Loans

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

(in millions)

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5% Senior Notes 5.00% 2024 500 500

3.15% Senior Notes 3.15% 2031 500 —

Series A Enhanced Junior Subordinated Debentures 3 month LIBOR +2.38% 2066 150 150

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Total AGUS 1,630 1,130

6 7 / 8 % Senior Notes

6 7 / 8 % Quarterly Interest Bonds

6.88% 2101 100 100

6.25% Senior Notes 6.25% 2102 230 230

5.6% Senior Notes 5.60% 2103 100 100

6.25% Notes 6.25% 2102 230 230

5.6% Notes 5.60% 2103 100 100

Junior Subordinated Debentures 1 Month LIBOR +2.215% 2066 300 300

2 unchanged sentences

Holding Company debt $ 2,206 $ 1,706

On May 26, 2021, AGUS issued $500 million in 3.15% coupon debt.

On July 9, 2021, a portion of the proceeds of the debt issuance was used to redeem $200 million in AGMH debt.

Financial Statements, Note 14, Long-Term Debt.

From time to time, AGL and its subsidiaries have entered into intercompany loan facilities.

6 unchanged sentences

AGL has not drawn upon the credit facility.

See the Company's 2020 Annual Report on Form 10-K, Part II.

Financial Statements and Supplementary Data, Note 14, Long-Term Debt and Credit Facilities, for additional information.

For more information, see the Company's 2020 Annual Report on Form 10-K, Part II.

Financial Statements and Supplementary Data, Note 14, Long-Term Debt and Credit Facilities.

Guarantor and U.S.

Holding Companies' Summarized Financial Information

AGL fully and unconditionally guarantees the payment of the principal of, and interest on, the $1,130 million aggregate principal amount of senior notes issued by the U.S.

AGL fully and unconditionally guarantees the payment of the principal of, and interest on, the $1,630 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.

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Holding Companies, excluding their investments in subsidiaries.

As of March 31, 2021

As of June 30, 2021

Holding Companies

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____________________

(1) As of March 31, 2021 weighted average durations of AGL and U.S.

(1) As of June 30, 2021, weighted average durations of AGL's and the U.S.

Holding Companies' fixed-maturity securities (excluding AGUS' investment in AGMH's debt) were 5.1 years and 2.0 years, respectively.

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

First Quarter 2021

Six Months 2021

Holding Companies

3 unchanged sentences

Other expenses 17 2

Income (loss) before provision for income taxes (8) (24)

Income (loss) before provision for income taxes and equity in earnings of investees (16) (51)

Equity in earnings of investees — —

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Significant Cash Flow Items

First Quarter 2021

Six Months 2021

Holding Companies

3 unchanged sentences

Investments in subsidiaries — (15)

Dividends paid to AGL — (115)

Dividends paid (35) —

Repurchases of common shares (1) (165) —

Issuance of debt — 495

____________________

(1) Includes $1 million and $7 million paid by AGUS and AGMH, respectively.

(1) See Item 1, Financial Statements, Note 15, Shareholders' Equity, for additional information about share repurchases and authorizations.

23 unchanged sentences

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.

The Company targets a balance of its most liquid assets including cash and short-term securities, 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.

The Company 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.

The Company intends to hold and has the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

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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.

Direct and indirect consequences of COVID-19 are continuing to cause financial distress to many of the obligors and assets underlying obligations guaranteed by the Company, and may result in further increases in claims and loss reserves.

While it appears to the Company that significant federal funding in 2021 may have mitigated the financial stress from direct and indirect consequences of COVID-19 for most obligors and assets underlying obligations guaranteed by the Company, the pandemic may still result in further increases in claims and loss reserves.

13 unchanged sentences

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 $631 million as of March 31, 2021.

To date, none of the leveraged lease transactions that involve AGM has experienced an early termination due to a lease default and a claim on the AGM policy.

As of March 31, 2021, approximately $1.7 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

As of June 30, 2021, approximately $1.7 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.

6 unchanged sentences

The transaction documentation with one counterparty for $55 million of CDS insured by the Company requires the Company to post collateral, subject to a cap, to secure its obligation to make payments under such contracts.

As of March 31, 2021, AGC did not have to post collateral to satisfy these requirements and the maximum posting requirement was $76 million.

As of June 30, 2021, the Company did not have to post collateral to satisfy these requirements and the maximum posting requirement was $55 million.

Distributions From Insurance Subsidiaries

3 unchanged sentences

Dividend restrictions by insurance subsidiary are as follows:

• The maximum amount available during 2021 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $275 million, none of which is estimated to be available for distribution in the second quarter of 2021.

• The maximum amount available during 2021 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $94 million, of which approximately $24 million is available for distribution in the second quarter of 2021.

• Based on the applicable law and regulations, in 2021 AG Re (a subsidiary of AGL) has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $257 million as of March 31, 2021.

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 $230 million as of March 31, 2021, and (ii) the amount of statutory surplus, which as of March 31, 2021 was $152 million.

• Based on the applicable law and regulations, in 2021 AGRO (an indirect subsidiary of AGRe) 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 $107 million as of March 31, 2021.

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 $402 million as of March 31, 2021, and (ii) the amount of Statutory surplus, which as of March 31, 2021 was $286 million.

• The maximum amount available during 2021 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $294 million, of which approximately $105 million is available for distribution in the third quarter of 2021.

• The maximum amount available during 2021 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $94 million, of which approximately $15 million is available for distribution in the third quarter of 2021.

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 $273 million as of June 30, 2021, and (ii) the amount of statutory surplus, which as of June 30, 2021 was $181 million.

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 $406 million as of June 30, 2021, and (ii) the amount of Statutory surplus, which as of June 30, 2021 was $292 million.

Distributions From / Contributions To

Insurance Company Subsidiaries

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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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 March 31, 2021, 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 $284 million, including $242 million by AGC and $42 million by AG Re.

As of June 30, 2021, 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 $273 million, including $231 million by AGC and $42 million by AG Re.

Committed Capital Securities

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LIBOR may be discontinued.

See "— Executive Summary — Other Matters — LIBOR Sunset" above and the Risk Factor captioned "The Company may be adversely impacted by the transition from LIBOR as a reference rate" under Operational Risks in Part I, Item 1A, Risk Factors in AGL's Annual Report on Form 10-K for the year ended December 31, 2020.

See "— Executive Summary — Other Matters — LIBOR Sunset" above and the Risk Factor captioned "The Company may be adversely impacted by the transition from LIBOR as a reference rate" under Operational Risks in Part I, Item 1A, Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

Investment Portfolio

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Other invested assets includes interest in AssuredIM Funds, and other alternative investments.

For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments see Item 1, Financial Statements, Note 10, Fair Value Measurement and Note 8, Investments and Cash.

The disruption in the financial markets related to COVID-19 contributed to credit impairment losses on certain loss mitigation securities in First Quarter 2020, which were recognized in the condensed consolidated statements of operations.

For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments see Item 1, Financial Statements, Note 8, Investments and Cash and Note 10, Fair Value Measurement.

Investment Portfolio

Carrying Value

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(in millions)

Fixed-maturity securities $ 8,819 $ 8,773

$ 8,687 $ 8,773

Short-term investments 1,087 851

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Total $ 10,143 $ 9,838

The Company’s fixed-maturity securities and short-term investments had a duration of 4.5 years and 4.3 years as of March 31, 2021 and December 31, 2020.

The Company’s fixed-maturity securities and short-term investments had a duration of 4.4 years and 4.3 years as of June 30, 2021 and December 31, 2020, respectively.

Generally, the Company’s fixed-maturity securities are designated as available-for-sale.

For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments see Item 1, Financial Statements, Note 8, Investments and Cash.

Fixed-Maturity Securities By Contractual Maturity

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by Contractual Maturity

As of March 31, 2021

As of June 30, 2021

Cost Estimated

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Mortgage-backed securities:

Commercial mortgage-backed securities (CMBS) 338 360

Total $ 8,266 $ 8,819

Fixed-Maturity Securities By Rating

The following table summarizes the ratings distributions of the Company’s investment portfolio as of March 31, 2021 and December 31, 2020.

The following table summarizes the ratings distributions of the Company’s investment portfolio as of June 30, 2021 and December 31, 2020.

Ratings reflect the lower of Moody’s and S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P) classifications, except for bonds purchased for loss mitigation or other risk management strategies, which use Assured Guaranty’s internal ratings classifications.

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Fixed-Maturity Securities by Rating

Rating March 31, 2021 December 31, 2020

Rating June 30, 2021 December 31, 2020

AAA 14.7 % 15.5 %

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in AssuredIM Funds

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(in millions)

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____________________

(1) Except for certain healthcare amounts of $71 million as of March 31, 2021 and $91 million as of December 31, 2020 that did not meet the criteria for consolidation, these amounts represent the carrying value (NAV) of AGAS's investments in the funds that are consolidated at the AGL reporting level because the Company is also the asset manager of these funds and is deemed the primary beneficiary.

(1) Except for a healthcare fund with a NAV of $90 million as of June 30, 2021 and $91 million as of December 31, 2020 that did not meet the criteria for consolidation, these amounts represent the carrying value (NAV) of AGAS's investments in the funds that are consolidated at the AGL reporting level because the Company deemed to be the primary beneficiary.

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 $257 million and $262 million as of March 31, 2021 and December 31, 2020, 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 $1,271 million and $1,511 million, based on fair value, as of March 31, 2021 and December 31, 2020, respectively.

The Company agreed to purchase up to $125 million of limited partnership interests and other similar investments, of which $91 million was not yet funded as of March 31, 2021.

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 $264 million and $262 million as of June 30, 2021 and December 31, 2020, 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 $1,241 million and $1,511 million, based on fair value, as of June 30, 2021 and December 31, 2020, respectively.

The Company agreed to purchase up to $125 million of limited partnership interests and other similar investments, of which $92 million was not yet funded as of June 30, 2021.

The Company is authorized to invest up to $750 million in AssuredIM Funds.

As of March 31, 2021, the Insurance segment has total commitments to AssuredIM Funds of $587 million of which $335 million represents net invested capital and $252 million is undrawn .

As of June 30, 2021, the Insurance segment had total commitments to AssuredIM Funds of $587 million of which $366 million represented net invested capital and $221 million was undrawn.

Sources and Uses of Funds

AssuredIM's sources of liquidity are (1) net working capital, (2) cash from operations, including management and performance fees (which are unpredictable as to amount and timing), and (3) capital contributions from AGUS (in First Quarter 2021 and First Quarter 2020 $15 million and $30 million, respectively, had been contributed to supplement working capital).

As of March 31, 2021, AssuredIM had $21 million in cash and short-term investments.

AssuredIM's sources of liquidity are (1) net working capital, (2) cash from operations, including management and performance fees (which are unpredictable as to amount and timing), and (3) capital contributions from AGUS (in Six Months 2021 and Six Months 2020 $15 million and $30 million, respectively, had been contributed to supplement working capital).

As of June 30, 2021, AssuredIM had $26 million in cash and short-term investments.

AssuredIM's liquidity needs primarily include (1) paying operating expenses, including compensation, (2) paying dividends or other distributions to AGUS, and (3) capital to support growth and expansion of the asset management business.

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.

During the fourth quarter of 2020, the Company entered into an agreement to sublease additional office in the building where its New York City headquarters is located, for approximately 52,000 square feet to relocate AssuredIM.

This sublease with additional $32 million of future rental payments commenced in First Quarter 2021 and expires in 2032.

During the second quarter of 2021, the Company entered into a renewed lease agreement for its existing Bermuda office space.

This lease, with an additional $2 million of future rental payments, commenced in the second quarter of 2021 and expires in April 2026.

During the fourth quarter of 2020, the Company entered into an agreement to sublease an additional 52,000 square feet of office space in the building where its New York City headquarters is located, in order to relocate AssuredIM.

This sublease with an additional $32 million of future rental payments commenced in Six Months 2021 and expires in 2032.

During Second Quarter 2021, the Company entered into a renewed lease agreement for its existing Bermuda office space.

This lease, with an additional $2 million of future rental payments, commenced in Second Quarter 2021 and expires in April 2026.

Consolidated VIEs

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The primary sources and uses of cash at Assured Guaranty's consolidated VIEs are as follows:

The primary sources of cash in FG VIEs are the collection of principal and interest on the collateral supporting its insured debt obligations, and the primary uses of cash are the payment of principal and interest due on the insured obligations.

The primary sources of cash in FG VIEs are the collection of principal and interest on the collateral supporting insured debt obligations, and the primary uses of cash are the payment of principal and interest due on the insured obligations.

• Investment Vehicles.

The primary sources and uses of cash in the CIVs are raising capital from investors, using capital to make investments, generating cash income from its investments, paying expenses, distributing cash flow to investors and issuing debt or borrowing funds to finance investments (CLOs and warehouses).

The primary sources and uses of cash in the CIVs are raising capital from investors, using capital to make investments, generating cash income from investments, paying expenses, distributing cash flow to investors and issuing debt or borrowing funds to finance investments (CLOs and warehouses).

Credit Facilities of CIVs

On December 23, 2020, BlueMountain CLO XXXI Ltd.

(CLO XXXI), as borrower, entered into a credit facility pursuant to which CLO XXXI may borrow for purposes of purchasing loans during the CLO warehouse stage.

Under the CLO XXXI credit facility, the principal amount may not exceed $360 million.

The current available commitment is determined by an advance rate of 75% based on the amount of equity contributed to the warehouse.

Based on the current advance rate and amount of equity contributed, the available commitment for CLO XXXI as of March 31, 2021 was $90 million.

As of March 31, 2021 CLO XXXI has drawn down $68 million.

The scheduled maturity date under the credit facility is December 22, 2021.

The unpaid principal amounts will bear interest at a rate of 3-month LIBOR plus 130 bps.

Accrued interest on all loans will be paid on the maturity date or the closing date of the CLO, whichever is earlier.

The CLO warehouse was in compliance with all financial covenants under its credit facility as of March 31, 2021.

As of December 31, 2020, €20 million (or $25 million) and €1 million (or $1 million) had been drawn under a BlueMountain EUR 2021-1 CLO DAC (EUR 2021-1) credit facility with counterparties dated August 26, 2020 by EUR 2021-1

and AssuredIM, respectively.

During First Quarter 2021, EUR 2021-1 and AssuredIM repaid the borrowings under this credit facility.

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 the Company.

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 the Company.

As of June 30, 2021, these credit facilities have varying maturities ranging from October 1, 2021 to April 23, 2023 with the aggregate principal amount not exceeding $1,147 million.

The current available commitment is based on the amount of equity contributed to the warehouse and was $199 million.

As of June 30, 2021, $97 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 85 bps to 3-month LIBOR plus 165 bps (with a floor on the LIBOR/Euribor rates of zero).

The CLO warehouses were in compliance with all financial covenants as of June 30, 2021.

As of December 31, 2020, €20 million (or $25 million) and €1 million (or $1 million) had been drawn under a BlueMountain EUR 2021-1 CLO DAC (EUR 2021-1) credit facility dated August 26, 2020 by EUR 2021-1 and AssuredIM, respectively.

During the first quarter of 2021, EUR 2021-1 and AssuredIM repaid the borrowings under this credit facility.

Condensed Consolidated Cash Flows

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Condensed Consolidated Cash Flow Summary

First Quarter

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

4 unchanged sentences

Effect of VIE consolidation (1)

43 178 87 325

Net cash flows provided by (used in) investing activities (381) 344 (256) 733

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Repurchases of common shares (88) (164) (165) (280)

Repurchase of debt — (21)

Issuance of long-term debt, net of issuance costs 495 — 495 —

Repurchase of long-term debt — — — (21)

Net cash flows provided by (used in) financing activities before effect of VIE consolidation (2) (2) (14) (13)

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(2) Claims paid on consolidated FG VIEs are presented in the condensed consolidated cash flow statements as a component of paydowns on FG VIEs' liabilities in financing activities as opposed to operating activities.

Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of $42 million in First Quarter 2021 and an outflow of $97 million in First Quarter 2020.

The decrease in cash outflows during 2021 was primarily due to a $43 million increase in gross premiums received (net of commissions) and as well as lower payments for operating expenses.

Cash flows from operations attributable to the effect of VIE consolidation was negative in 2021 and 2020 due to the inclusion of investing activities of CIVs, which included cash outflows for purchases of investments, offset by sales of investments.

Cash flows from operations, excluding the effect of consolidating VIEs, was an inflow of $46 million in Six Months 2021 and $79 million in Six Months 2020.

The decrease in cash inflows during 2021 was primarily due to cash received from a commutation during 2020, which was partially offset by an increase in gross premiums received (net of commissions).

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 during 2021 was mainly attributable to higher sales of securities in 2020 to fund higher share repurchases and claim payments.

Financing activities primarily consisted of share repurchases, dividends, debt extinguishment and paydowns of FG VIEs’ liabilities.

In First Quarter 2021 it also included issuances of CLOs, bank borrowings and repayment of warehouse financing debt.

From April 1 through May 6, 2021, the Company repurchased an additional 0.6 million of common shares.

As of May 6, 2021, the Company was authorized to purchase $147 million of its common shares.

For m ore information about th e Company's share repurchases and authorizations, see Item 1, Financial Statements, Note 14, Shareholders' Equity.

The decrease in investing cash inflows during 2021 was mainly attributable to higher sales of securities in 2020 to fund higher share repurchases.

Financing activities primarily consist of share repurchases, dividends, debt extinguishment and paydowns of FG VIEs’ liabilities, as well and CLO issuances and CLO warehouse financing activities.

In Six Months 2021 it also included the issuance of 3.15% Senior Notes.

From July 1 through August 5, 2021, the Company repurchased an additional 1.2 million of common shares.

As of August 5, 2021, the Company was authorized to purchase $379 million of its common shares, including a $350 million

additional authorization that was approved by the Board on August 4, 2021.

For more information abou t th e Company's share repurchases and authorizations, see Item 1, Financial Statements, Note 15, Shareholders' Equity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2021, there were no material changes in the market risks that the Company is exposed to since December 31, 2020.

As of June 30, 2021, there were no material changes to the market risks that the Company is exposed to since December 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis