What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-06 · 778 added, 564 removed, 2225 unchanged (38% of the section changed)

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Condensed Consolidated Balance Sheets (Unaudited)

(dollars in millions except per share and share amounts)

June 30, 2021 December 31, 2020

Investment portfolio:

Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $ 8,266 and $ 8,204 , net of allowance for credit loss of $ 39 and $ 78 )

(dollars in millions except share data)

September 30, 2021 December 31, 2020

Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $ 35 and $ 78 (amortized cost of $ 8,188 and $ 8,204 )

$ 8,663 $ 8,773

Short-term investments, at fair value 694 851

Other invested assets (includes $ 115 and $ 106 measured at fair value)

Total investment portfolio 10,143 9,838

Other invested assets (includes $ 132 and $ 106 , at fair value)

Total investments 9,617 9,838

Premiums receivable, net of commissions payable 1,378 1,372

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Financial guaranty variable interest entities’ assets, at fair value 271 296

Assets of consolidated investment vehicles (includes $ 3,276 and $ 1,727 measured at fair value)

Assets of consolidated investment vehicles (includes $ 4,116 and $ 1,727 , at fair value)

Goodwill and other intangible assets 178 203

Other assets (includes $ 131 and $ 145 measured at fair value)

Other assets (includes $ 127 and $ 145 , at fair value)

Total assets $ 17,614 $ 15,334

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Financial guaranty variable interest entities’ liabilities without recourse, at fair value 20 17

Liabilities of consolidated investment vehicles (includes $ 2,526 and $ 1,299 measured at fair value)

Liabilities of consolidated investment vehicles (includes $ 3,243 and $ 1,299 , at fair value)

Other liabilities 526 556

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Commitments and contingencies (Note 13)

Redeemable noncontrolling interests (see Note 9) 21 21

Redeemable noncontrolling interests (Note 9) 21 21

Shareholders’ equity

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Total shareholders’ equity attributable to Assured Guaranty Ltd.

Nonredeemable noncontrolling interests (see Note 9) 49 41

Nonredeemable noncontrolling interests (Note 9) 75 41

Total shareholders’ equity 6,375 6,684

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Condensed Consolidated Statements of Operations (Unaudited)

(dollars in millions except per share amounts)

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

(dollars in millions except share data)

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Net realized investment gains (losses) 3 13 4 12

Net change in fair value of credit derivatives ( 33 ) 100 ( 52 ) 23

Fair value gains (losses) on credit derivatives 21 ( 3 ) ( 31 ) 20

Fair value gains (losses) on committed capital securities ( 3 ) ( 10 ) ( 28 ) 13

Fair value gains (losses) on financial guaranty variable interest entities 5 — 18 ( 8 )

Fair value gains (losses) on consolidated investment vehicles 16 18 53 37

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Total revenues 212 268 585 736

Loss and loss adjustment expenses ( 16 ) 37 14 57

Loss and loss adjustment expenses (benefit) ( 68 ) 73 ( 54 ) 130

Interest expense 23 21 67 64

Loss on extinguishment of debt 175 — 175 —

Amortization of deferred acquisition costs 3 4 10 11

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(in millions)

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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Change in net unrealized gains (losses) on investments ( 72 ) 75 ( 122 ) 61

Change in net unrealized gains (losses) on financial guaranty variable interest entities' liabilities with recourse, net of tax ( 2 ) ( 5 ) ( 3 ) 5

Change in instrument-specific credit risk on financial guaranty variable interest entities' liabilities with recourse, net of tax 2 ( 4 ) ( 1 ) 1

Other, net of tax provision (benefit) ( 1 ) — ( 1 ) —

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(dollars in millions, except share data)

For the Three Months Ended June 30, 2021

For the Three Months Ended September 30, 2021

Common Shares Outstanding Common

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Shareholders’ Equity

Balance at March 31, 2021 75,935,382 $ 1 $ 6,055 $ 373 $ 1 $ 6,430 $ 42 $ 6,472

Balance at June 30, 2021 74,112,554 $ 1 $ 6,056 $ 445 $ 1 $ 6,503 $ 49 $ 6,552

Net income — — 17 — — 17 3 20

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Distributions — — — — — — ( 2 ) ( 2 )

Other comprehensive income — — — 72 — 72 — 72

Balance at June 30, 2021 74,112,554 $ 1 $ 6,056 $ 445 $ 1 $ 6,503 $ 49 $ 6,552

For the Three Months Ended June 30, 2020

Other comprehensive loss — — — ( 71 ) — ( 71 ) — ( 71 )

Balance at September 30, 2021 71,241,940 $ 1 $ 5,924 $ 374 $ 1 $ 6,300 $ 75 $ 6,375

For the Three Months Ended September 30, 2020

Common Shares Outstanding Common

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Shareholders’ Equity

Balance at March 31, 2020 89,983,322 $ 1 $ 6,100 $ 138 $ 1 $ 6,240 $ 25 $ 6,265

Balance at June 30, 2020 84,062,384 $ 1 $ 6,109 $ 333 $ 1 $ 6,444 $ 45 $ 6,489

Net income — — 86 — — 86 2 88

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— — ( 17 ) — — ( 17 ) — ( 17 )

Reallocation of ownership interest — — — — — — 8 8

Contributions — — — — — — 3 3

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Other comprehensive income — — — 71 — 71 — 71

Balance at June 30, 2020 84,062,384 $ 1 $ 6,109 $ 333 $ 1 $ 6,444 $ 45 $ 6,489

Balance at September 30, 2020 82,249,285 $ 1 $ 6,143 $ 404 $ 1 $ 6,549 $ 47 $ 6,596

Assured Guaranty Ltd.

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(dollars in millions, except share data)

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

Common Shares Outstanding Common

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Other comprehensive loss — — — ( 124 ) — ( 124 ) — ( 124 )

Balance at June 30, 2021 74,112,554 $ 1 $ 6,056 $ 445 $ 1 $ 6,503 $ 49 $ 6,552

For the Six Months Ended June 30, 2020

Balance at September 30, 2021 71,241,940 $ 1 $ 5,924 $ 374 $ 1 $ 6,300 $ 75 $ 6,375

For the Nine Months Ended September 30, 2020

Common Shares Outstanding Common

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Distributions — — — — — — ( 19 ) ( 19 )

Other comprehensive loss — — — ( 9 ) — ( 9 ) — ( 9 )

Balance at June 30, 2020 84,062,384 $ 1 $ 6,109 $ 333 $ 1 $ 6,444 $ 45 $ 6,489

Other comprehensive income — — — 62 — 62 — 62

Balance at September 30, 2020 82,249,285 $ 1 $ 6,143 $ 404 $ 1 $ 6,549 $ 47 $ 6,596

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

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(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash flows provided by (used in) operating activities $ ( 1,792 ) $ ( 664 )

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Maturities and paydowns 757 642

Short-term investments with maturities of over three months:

Short-term investments with original maturities of over three months:

Purchases — ( 238 )

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Net sales (purchases) of short-term investments with original maturities of less than three months 125 415

Paydowns on financial guaranty variable interest entities’ assets 27 55

Paydowns of financial guaranty variable interest entities’ assets 45 67

Purchases of other invested assets ( 44 ) ( 12 )

Sales and return of capital of other invested assets 54 5

Return of capital from and sales of other invested assets 61 21

Other ( 4 ) 1

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Issuance of long-term debt, net of issuance costs 889 —

Paydown of long-term debt ( 1 ) ( 22 )

Redemptions and purchases of debt, including make-whole ( 620 ) ( 22 )

Other 7 ( 12 )

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Repayment of warehouse financing debt ( 1,061 ) —

Contributions from noncontrolling interests to investment vehicles 8 66

Distributions to noncontrolling interests from investment vehicles ( 8 ) ( 16 )

Contributions from noncontrolling interests to consolidated investment vehicles 33 69

Distributions to noncontrolling interests from consolidated investment vehicles ( 10 ) ( 19 )

Net cash flows provided by (used in) financing activities 1,566 ( 12 )

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(continued on next page)

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

Assured Guaranty Ltd.

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(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information

Cash paid (received) during the period for:

Income taxes $ 1 $ 1

Interest on long-term debt 50 49

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

Reconciliation of cash and restricted cash to the condensed consolidated balance sheets:

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Restricted cash (included in other assets) 1 1

Cash of consolidated investment vehicles (see Note 9) 148 175

Cash of consolidated investment vehicles (Note 9) 138 182

Cash and restricted cash at end of period $ 240 $ 406

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Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2021

Business and Basis of Presentation

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Actual results could differ from those estimates.

These unaudited interim condensed consolidated financial statements are as of June 30, 2021 and cover the three-month period ended June 30, 2021 (Second Quarter 2021), the three-month period ended June 30, 2020 (Second Quarter 2020), the six-month period ended June 30, 2021 (Six Months 2021) and the six-month period ended June 30, 2020

(Six Months 2020).

These unaudited interim condensed consolidated financial statements are as of September 30, 2021 and cover the three-month period ended September 30, 2021 (Third Quarter 2021), the three-month period ended September 30, 2020 (Third Quarter 2020), the nine-month period ended September 30, 2021 (Nine Months 2021) and the nine-month period ended September 30, 2020 (Nine Months 2020).

Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted.

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The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries, and its consolidated financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs).

See Note 9, Variable Interest Entities.

Intercompany accounts and transactions between and among all consolidated entities have been eliminated.

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Securities and Exchange Commission (SEC).

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company’s principal insurance subsidiaries are:

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This ASU did not have an impact on the Company’s consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this ASU only apply to contracts that reference the London Interbank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued due to reference rate reform.

This ASU became effective upon issuance and may be applied prospectively for contract modifications that occur from March 12, 2020 through December 31, 2022 (the Reference Rate Transition Period).

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which clarifies the scope of relief related to ASU 2020-04.

This ASU became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively for contract modifications made on or before December 31, 2022.

The Company adopted the optional relief afforded by these ASUs in Third Quarter 2021 on a prospective basis, and the guidance will be followed until the optional relief terminates on December 31, 2022.

The Company has identified insurance contracts, derivatives and other financial instruments that are directly or indirectly influenced by LIBOR, and will be applying

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the accounting relief as relevant contract modifications are made during the Reference Rate Transition Period.

There was no impact to the Company’s condensed consolidated financial statements upon the initial adoption of these ASUs.

Recent Accounting Standards Not Yet Adopted

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The Company is evaluating when it will adopt this ASU and does not expect this ASU to have a material effect on its consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this ASU only apply to contracts that reference the London Interbank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued due to reference rate reform.

This ASU is effective upon issuance and may be applied prospectively for contract modifications that occur from March 12, 2020 through December 31, 2022.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which clarifies the scope of relief related to ASU 2020-04.

This ASU became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022.

The Company has not yet applied the relief afforded by these standard amendments and is evaluating the effect that these ASUs will have on its consolidated financial statements.

Segment Information

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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 (primarily funds and CLOs) for which the Company is deemed to be the primary beneficiary (CIVs).

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

See Note 9, Variable Interest Entities.

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.

public finance (including infrastructure) and structured finance markets.

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.

In the case of CIVs, the Insurance segment reports the insurance subsidiaries’ share of earnings from investments in AssuredIM Funds in “equity in earnings of investees.”

The Asset Management segment consists of AssuredIM, which provides asset management services to third-party investors as well as to the U.S.

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The Corporate division primarily consists of interest expense on the debt of the U.S.

Holding Companies, as well as other operating expenses attributed to AGL, the U.S.

Holding Companies and other corporate activities, including administrative services performed by operating subsidiaries for the holding companies.

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 Note 9, Variable Interest Entities.

Holding Companies and any losses on extinguishment or repurchases of their debt, as well as other operating expenses attributed to AGL and the U.S.

Holding Companies.

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.

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The effect of consolidating such entities, including the related eliminations, is included in the “other” column in the tables below, which represents the CODM's view, consistent with the management approach guidance for presentation of segment metrics.

The Company analyzes the operating performance of each segment using "adjusted operating income." Results for each segment include specifically identifiable expenses as well as allocations of expenses between legal entities based on time studies and other cost allocation methodologies based on headcount or other metrics.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 Note 9, Variable Interest Entities.

The Company analyzes the operating performance of each segment using “adjusted operating income”.

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

Adjusted operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following:

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Segment Information

Second Quarter 2021

Third Quarter 2021

Insurance Asset Management Corporate Other Total

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Adjusted operating income (loss) $ 214 $ ( 7 ) $ ( 169 ) $ ( 4 ) $ 34

Second Quarter 2020

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Third Quarter 2020

Insurance Asset Management Corporate Other Total

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Adjusted operating income (loss) $ 81 $ ( 12 ) $ ( 18 ) $ ( 3 ) $ 48

Six Months Ended June 30, 2021

Nine Months 2021

Insurance Asset Management Corporate Other Total

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Adjusted operating income (loss) $ 445 $ ( 16 ) $ ( 232 ) $ — $ 197

Six Months Ended June 30, 2020

Nine Months 2020

Insurance Asset Management Corporate Other Total

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Adjusted operating income (loss) $ 320 $ ( 30 ) $ ( 83 ) $ ( 7 ) $ 200

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)

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

Third Quarter Nine Months

2021 2020 2021 2020

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Unless otherwise specified, the outstanding par and principal and interest (debt service) amounts presented in this note include outstanding exposures on

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

these VIEs whether or not they are consolidated.

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Surveillance personnel then assign each BIG transaction to the appropriate BIG surveillance category based upon whether a future loss is expected and whether a claim has been paid.

The Company uses a tax-equivalent yield to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction.

The Company uses the tax-equivalent yield of the relevant insurer’s investment portfolio to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction.

For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss.

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Impact of COVID-19 Pandemic

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.

The coronavirus disease known as COVID-19 was declared a pandemic by the World Health Organization in early 2020 and it (including its variants) 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.

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.

While the COVID-19 pandemic has been impacting the global economy and the Company for

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

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

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The Company’s internal ratings and loss projections reflect its supplemental COVID-19 surveillance activity.

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.

Through November 4, 2021, the Company has paid less than $ 10 million in 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 claims.

Financial Guaranty Exposure

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The Company includes in its par outstanding calculation the impact of any consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date.

Foreign denominated net par outstanding is translated at the spot rate at the end of the reporting period.

The Company purchases securities that it has insured, and for which it has expected losses to be paid, in order to

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The Company excludes amounts attributable to loss mitigation securities from par and debt service outstanding, and instead includes such amounts in the investment portfolio, because the Company manages such securities as investments and not insurance exposure.

As of June 30, 2021 and December 31, 2020, the Company excluded from net par $ 1.3 billion and $ 1.4 billion, respectively, attributable to loss mitigation securities.

As of September 30, 2021 and December 31, 2020, the Company excluded from net par outstanding $ 1.3 billion and $ 1.4 billion, respectively, attributable to loss mitigation securities.

Gross debt service outstanding represents the sum of all estimated future debt service payments on the insured obligations, on an undiscounted basis.

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• for insured obligations that are not supported by homogeneous pools of assets (which category includes most of the Company’s public finance transactions), as the total estimated contractual future debt service due through maturity, regardless of whether the obligations may be called and regardless of whether, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, the Company believes the obligations will be repaid prior to contractual maturity;

• for insured obligations that are supported by homogeneous pools of assets that are contractually permitted to prepay principal (which category includes, for example, residential mortgage-backed securities (RMBS) and CLOs), as the total estimated expected future debt service due on insured obligations through their respective expected terms, which includes the Company's expectations as to whether the obligations may be called and, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity.

• for insured obligations that are supported by homogeneous pools of assets that are contractually permitted to prepay principal (which category includes, for example, residential mortgage-backed securities (RMBS)), as the total estimated expected future debt service due on insured obligations through their respective expected terms, which includes the Company’s expectations as to whether the obligations may be called and, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The calculation of debt service requires the use of estimates, which the Company updates periodically, including estimates for the expected remaining term of insured obligations supported by homogeneous pools of assets, updated interest rates for floating and variable rate insured obligations, behavior of consumer price indices for obligations with consumer price index inflators, foreign exchange rates and other assumptions based on the characteristics of each insured obligation.

anticipated sunset of LIBOR after June, 30, 2023 has introduced another variable into the Company's calculation of future debt service.

Debt service is a measure of the estimated maximum potential exposure to insured obligations before considering the Company’s various legal rights to the underlying collateral and other remedies available to it under its financial guaranty contract.

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Debt Service Outstanding

Gross Debt Service

Outstanding Net Debt Service

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

Gross Debt Service Outstanding Net Debt Service Outstanding

September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

(in millions)

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Total financial guaranty $ 366,788 $ 366,692 $ 366,373 $ 366,233

Financial Guaranty Portfolio

by Internal Rating

As of June 30, 2021

Financial Guaranty Portfolio by Internal Rating

As of September 30, 2021

Public Finance

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Total net par outstanding $ 175,952 100.0 % $ 50,305 100.0 % $ 8,677 100.0 % $ 734 100.0 % $ 235,668 100.0 %

Financial Guaranty Portfolio

by Internal Rating

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2020

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Total net par outstanding $ 171,597 100.0 % $ 53,028 100.0 % $ 8,952 100.0 % $ 576 100.0 % $ 234,153 100.0 %

In addition to amounts shown in the tables above, the Company had outstanding commitments to provide guaranties of $ 1,437 million of public finance gross par and $ 777 million of structured finance gross par as of June 30, 2021.

These commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request.

In addition to amounts shown in the tables above, the Company had outstanding commitments to provide guaranties of $ 1,396 million of public finance gross par and $ 763 million of structured finance gross par as of September 30, 2021.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request.

Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts.

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Components of BIG Net Par Outstanding

As of June 30, 2021

As of September 30, 2021

BIG Net Par Outstanding Net Par

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Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

As of June 30, 2021

BIG Net Par Outstanding and Number of Risks

As of September 30, 2021

Net Par Outstanding Number of Risks (2)

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Total BIG $ 7,284 $ 62 $ 7,346 257 11 268

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

BIG Net Par Outstanding

and Number of Risks

BIG Net Par Outstanding and Number of Risks

As of December 31, 2020

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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 June 30, 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 outstanding Puerto Rico exposures except the Municipal Finance Agency (MFA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the University of Puerto Rico (U of PR).

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 $ 3.6 billion net par outstanding as of September 30, 2021, all of which was rated BIG.

Beginning on January 1, 2016, a number of Puerto Rico exposures defaulted on bond payments, and the Company has now paid claims on all of its outstanding Puerto Rico exposures except the Municipal Finance Agency (MFA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the University of Puerto Rico (U of PR).

On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law.

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On February 22, 2021, AGM and 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 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).

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).

Then, 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, $ 3,500 million, or 94 % of the Company’s insured net par outstanding of Puerto Rico exposures, is covered by a Support Agreement.

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 the 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, $ 3.4 billion, or 95 % of the Company’s insured net par outstanding of Puerto Rico exposures, is 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.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Support Agreement.

The impact of developments relating to Puerto Rico during any quarter or year could be material to the Company’s results of operations and shareholders’ equity.

Support Agreements

As of June 30, 2021, the Company had $ 1,246 million of insured net par outstanding that is now covered by the GO/PBA PSA:

$ 1,112 million insured net par outstanding of GOs and $ 134 million insured net par outstanding of PBA bonds.

As of September 30, 2021, the Company had $ 1,219 million of insured net par outstanding covered by the GO/PBA PSA:

$ 1,097 million insured net par outstanding of GO bonds and $ 122 million insured net par outstanding of PBA bonds.

The GO bonds are supported by the good faith, credit and taxing power of the Commonwealth, while the PBA bonds are supported by a pledge of the rents due under leases of government facilities to departments, agencies, instrumentalities and municipalities of the Commonwealth, and that benefit from a Commonwealth guaranty supported by a pledge of the Commonwealth’s good faith, credit and taxing power.

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The FOMB has filed a petition under Title III of PROMESA with respect to both the Commonwealth and the PBA.

On February 22, 2021, the FOMB entered into the GO/PBA PSA with certain GO and PBA bondholders and insurers (including AGM and AGC) representing approximately $ 11.7 billion, or approximately 62 % of the aggregate amount of general obligation and PBA bond claims.

In general, the GO/PBA PSA provides for lower Commonwealth debt service payments per annum and provides for the distribution to creditors of new recovery bonds, cash, and additional consideration in the form of a contingent value instrument (CVI).

This CVI is intended to provide creditors with additional returns tied to outperformance of the Puerto Rico 5.5% Sales and Use Tax receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps.

The GO/PBA PSA provides for different recoveries based on the bonds’ vintage issuance date, with GO and PBA bonds issued before 2011 (Vintage) receiving higher recoveries than GO and PBA bonds issued in 2011 and thereafter (except that, for purposes of the GO PSA, Series 2011A GO bonds would be treated as Vintage bonds).

On July 27, 2021, the FOMB filed with the Title III court a Sixth Amended Title III Joint Plan of Adjustment of the Commonwealth (Amended POA) that seeks to restructure approximately $ 35 billion of debt (including the GO bonds) and other claims against the government of Puerto Rico and certain entities and $ 50 billion in pension obligations consistent with the terms of the settlements embodied in the GO/PBA PSA and the HTA/CCDA PSA.

This CVI is intended to provide creditors with additional returns tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps.

The GO/PBA PSA provides for different recoveries based on the bonds’ issuance date, with GO and PBA bonds issued before 2011 (Vintage) receiving higher recoveries than GO and PBA bonds issued in 2011 and thereafter (except that, for purposes of the GO PSA, Series 2011A GO bonds would be treated as Vintage bonds).

On July 30, 2021, the FOMB filed with the Title III court a Seventh Amended Title III Joint Plan of Adjustment of the Commonwealth (Amended POA) that seeks to restructure approximately $ 35 billion of debt (including the GO bonds) and other claims against the government of Puerto Rico and certain entities and $ 50 billion in pension obligations consistent with the terms of the settlements embodied in the GO/PBA PSA and the HTA/CCDA PSA.

On July 29, 2021, the Title III court approved the form of disclosure statement for the Amended POA.

The Title III court has indicated that voting on the Amended POA will occur by early October 2021 and that a confirmation hearing on the Amended POA will occur in early November 2021.

Voting on the Amended POA has closed and a confirmation hearing on the Amended POA is scheduled to begin on November 8, 2021.

In August 2021, the Company exercised certain elections under the Amended POA that, assuming the Amended POA is confirmed by the Title III court, would impact the timing of payments under its insurance policies.

In accordance with the terms of the Amended POA, the payment of the principal of all GO bonds and PBA bonds insured by the Company would be accelerated against the Commonwealth and become due and payable as of the effective date of the Amended POA.

In accordance with the terms of its insurance policies, the Company has elected to pay 100 % of the then outstanding principal amount of insured bonds plus accrued interest thereon to the date of payment (Acceleration Price) on the effective date of the Amended POA to holders of insured securities with a net par outstanding of $ 1,116 million as of September 30, 2021.

With respect to the approximately $ 102 million net par outstanding of remaining insured securities covered by the Amended POA, insured bondholders were permitted to elect either (1) to receive the Acceleration Price on the effective date of the Amended POA, or (2) to receive custody receipts that represent an interest in the legacy insurance policy and cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the Amended POA.

Subject to the terms of the final documentation that govern the terms of the custody receipts, distributions of Plan Consideration would be immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and would be applied to make payments and/or prepayments of amounts due under the legacy insured bonds.

To the extent that distributions of Plan Consideration were insufficient to pay principal and interest coming due on the legacy insured bonds after giving effect to the distributions described in the immediately preceding sentence, the Company’s insurance policy would continue to guarantee such payments in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates.

Copies of the documents governing the terms of the custody receipts are expected to be available for review by insured bondholders in connection with the distribution of a supplement to the Amended POA.

Further, in the case of insured bondholders who elected to receive custody receipts, the Company would retain the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying the applicable Acceleration Price.

Retention by the Company of the right to satisfy its obligations under its insurance policy with respect to the relevant insured bonds by paying the Acceleration Price is authorized by the Amended POA and the Company’s rights under its related insurance policies and is expected to be reflected in the applicable custodial trust or escrow documentation.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

HTA/CCDA PSA.

As of June 30, 2021, the Company had $ 1,462 million of insured net par outstanding that is now covered by the HTA/CCDA PSA:

As of September 30, 2021, the Company had $ 1,408 million of insured net par outstanding that is now covered by the HTA/CCDA PSA:

$ 799 million insured net par outstanding of PRHTA (transportation revenue) bonds;

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and $ 152 million insured net par outstanding of PRCCDA bonds.

The transportation revenue bonds are secured by a subordinate gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls, plus a first lien on up to $ 120 million annually of taxes on crude oil, unfinished oil and derivative products.

The transportation revenue bonds are secured by a subordinate gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls, plus a first lien on taxes on crude oil, unfinished oil and derivative products.

The highway revenue bonds are secured by a gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls.

8 unchanged sentences

Under the HTA/CCDA PSA, bondholders and bond insurers of PRCCDA will receive, in the aggregate, $ 112 million in cash and the CVI.

While the Company expects its PRHTA exposure to be resolved under a Title III proceeding requiring court approval of a disclosure statement, voting and a hearing, its PRCCDA exposure may be resolved under Title VI of PROMESA, comprising a simpler procedure for consensual restructuring that could be concluded more quickly.

On May 27, 2021 the FOMB certified a revised fiscal plan for PRHTA.

The revised certified PRHTA fiscal plan will need to be further revised to be consistent with the HTA/CCDA PSA.

As of June 30, 2021, the Company had $ 776 million insured net par outstanding of PREPA obligations subject to the PREPA RSA.

As of September 30, 2021, the Company had $ 748 million insured net par outstanding of PREPA obligations subject to the PREPA RSA.

The PREPA obligations are secured by a lien on the revenues of the electric system.

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The Company believes that the additive value created by attaching its guarantee to the securitization exchange bonds would materially improve its overall recovery under the transaction, as well as generate new insurance premiums;

and therefore that its economic results could differ from those reflected in the PREPA RSA.

and therefore its economic results could differ from those reflected in the PREPA RSA.

On May 27, 2021, the FOMB certified a revised fiscal plan for PREPA.

The revised certified PREPA fiscal plan will need to be further revised to be consistent with the PREPA RSA.

As of June 30, 2021, the Company had $ 16 million insured net par outstanding of PRIFA bonds, which are secured primarily by the return to PRIFA and its bondholders of a portion of federal excise taxes paid on rum.

As of September 30, 2021, the Company had $ 16 million insured net par outstanding of PRIFA bonds, which are secured primarily by the return to PRIFA and its bondholders of a portion of federal excise taxes paid on rum.

The Company has been making claim payments on the PRIFA bonds since January 2016.

The PRIFA PSA provides for payments to AGC consisting of (i) cash, (ii) CVI, and (iii) a contingent value instrument based on potential outperformance of Puerto Rico’s general fund rum tax collections relative to projections in the 2021 certified fiscal plan (Rum Tax CVI).

The PRIFA PSA provides for payments to AGC consisting of (i) cash;

and (iii) a contingent value instrument based on potential outperformance of Puerto Rico’s general fund rum tax collections relative to projections in the 2021 certified fiscal plan (Rum Tax CVI).

Under the PRIFA PSA, bondholders and bond insurers of PRIFA will receive, in the aggregate, $ 204 million in cash, the CVI, and the Rum Tax CVI.

The Company expects its PRIFA exposure to be resolved under Title VI of PROMESA.

Other Puerto Rico Exposures

As of June 30, 2021, the Company had $ 223 million net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues.

The MFA bond accounts contained sufficient funds to make the MFA bond payments due through the date of this filing that were guaranteed by the Company, and those payments were made in full.

As of June 30, 2021, the Company had $ 1 million insured net par outstanding of U of PR bonds, which are general obligations of the university and are secured by a subordinate lien on the proceeds, profits and other income of the university, subject to a senior pledge and lien for the benefit of outstanding university system revenue bonds.

As of September 30, 2021, the Company had $ 179 million net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues.

As of the date of this filing, all debt service payments on MFA bonds insured by the Company have been made in full.

As of September 30, 2021, the Company had $ 1 million insured net par outstanding of U of PR bonds, which are general obligations of the university and are secured by a subordinate lien on the proceeds, profits and other income of the university, subject to a senior pledge and lien for the benefit of outstanding university system revenue bonds.

As of the date of this filing, all debt service payments on U of PR bonds insured by the Company have been made.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

In the fourth quarter of 2020, $ 372 million of PRASA obligations insured by the Company were refunded, reducing the Company’s exposure to such bonds.

As of June 30, 2021, the Company had $ 1 million of insured net par outstanding of PRASA obligations.

As of September 30, 2021, the Company had $ 1 million of insured net par outstanding of PRASA obligations.

The Company’s insured PRASA obligations are secured by a lien on the gross revenues of the water and sewer system.

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Currently, there are numerous legal actions relating to the default by the Commonwealth and certain of its entities on debt service payments, and related matters, and the Company is a party to a number of them.

On July 24, 2019, Judge Laura

Taylor Swain of the United States District Court for the District of Puerto Rico (Federal District Court for Puerto Rico) held an omnibus hearing on litigation matters relating to the Commonwealth.

On July 24, 2019, Judge Laura Taylor Swain of the United States District Court for the District of Puerto Rico (Federal District Court for Puerto Rico) held an omnibus hearing on litigation matters relating to the Commonwealth.

At that hearing, she imposed a stay through November 30, 2019 on a series of adversary proceedings and contested matters amongst the stakeholders and imposed mandatory mediation on all parties through that date.

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On May 23, 2018, AGM and AGC filed an adversary complaint in the Federal District Court for Puerto Rico seeking a judgment declaring that (i) the FOMB lacked authority to develop or approve the new fiscal plan for Puerto Rico which it certified on April 19, 2018 (Revised Fiscal Plan);

(ii) the Revised Fiscal Plan and the Fiscal Plan Compliance Law (Compliance Law) enacted by the Commonwealth to implement the original Commonwealth Fiscal Plan violate various sections of PROMESA;

(ii) the Revised Fiscal Plan and the Fiscal Plan Compliance Law (Compliance Law) enacted by the Commonwealth to implement the original Commonwealth Fiscal Plan violate various sections of

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

(iii) the Revised Fiscal Plan, the Compliance Law and various moratorium laws and executive orders enacted by the Commonwealth to prevent the payment of debt service (a) are unconstitutional and void because they violate the Contracts, Takings and Due Process Clauses of the U.S.

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Subsequently, the court ordered the FOMB to file a further updated report by December 8, 2020 and, no later than February 10, 2021, an amended Commonwealth disclosure statement and plan of adjustment or, at a minimum, a term sheet outlining such amendments necessitated by the COVID-19 pandemic.

February 10, 2021, the FOMB filed a motion to extend the deadline to March 8, 2021 given a recent preliminary agreement with creditors.

On February 10, 2021, the FOMB filed a motion to extend the deadline to March 8, 2021 given a recent preliminary agreement with creditors.

On March 8, 2021, the FOMB filed a disclosure statement and a second amended Commonwealth plan of adjustment intended to implement a PSA dated as of February 22, 2021, to which AGM and AGC had given their support conditioned on the PSA becoming part of a consensually negotiated and comprehensive solution that would include PRHTA and PRCCDA.

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In light of the PSAs, on May 25, 2021, Judge Swain stayed the participation of AGM and AGC.

On January 16, 2020, AGM and AGC along with certain other monoline insurers and the trustee for the PRIFA Rum Tax Bonds filed in Federal District Court for Puerto Rico a motion concerning application of the automatic stay to the revenues securing the PRIFA Bonds (the PRIFA Revenues), seeking an order lifting the automatic stay so that AGM and AGC and the other moving parties can enforce rights respecting the PRIFA Revenues in another forum or, in the alternative, that the Commonwealth must provide adequate protection for such parties’ lien on the PRIFA Revenues.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

other moving parties can enforce rights respecting the PRIFA Revenues in another forum or, in the alternative, that the Commonwealth must provide adequate protection for such parties’ lien on the PRIFA Revenues.

A preliminary hearing on the motion occurred on June 4, 2020.

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Motions for partial summary judgment were filed on April 28, 2020, and a hearing was held on September 23, 2020.

On January 20, 2021, Judge Swain ordered that certain

discovery identified by the insurers was appropriate prior to a determination on the partial summary judgment motion.

On January 20, 2021, Judge Swain ordered that certain discovery identified by the insurers was appropriate prior to a determination on the partial summary judgment motion.

In light of the PSAs, on May 25, 2021, Judge Swain stayed the participation of AGM and AGC.

On July 27, 2021, certain other monoline insurers entered into a PRIFA Related Plan Support Agreement, and on July 28, 2021, AGC executed a joinder to the PRIFA Related Support Agreement.

On July 27, 2021, certain other monoline insurers entered into the PRIFA PSA, and on July 28, 2021, AGC executed a joinder to the PRIFA PSA.

On January 16, 2020, AGM and AGC along with certain other monoline insurers and the trustee for the PRCCDA bonds filed in Federal District Court for Puerto Rico a motion concerning application of the automatic stay to the revenues securing the PRCCDA bonds (the PRCCDA Revenues), seeking an order that an action to enforce rights respecting the PRCCDA Revenues in another forum is not subject to the automatic stay associated with the Commonwealth’s Title III proceeding or, in the alternative, if the court finds that the stay is applicable, lifting the automatic stay so that AGM, AGC and the other moving parties can enforce such rights in another forum or, in the further alternative, if the court finds the automatic stay applicable and does not lift it, that the Commonwealth must provide adequate protection for such parties’ lien on the PRCCDA Revenues.

8 unchanged sentences

On June 26, 2021, the GDB Debt Recovery Authority, through its servicer and collateral monitor and as a holder of PRHTA subordinated debt, brought an adversary proceeding in the Federal District Court for Puerto Rico against AGM, AGC and others challenging the resolution of the PRHTA priority issues set forth in the HTA/CCDA PSA.

A response to the complaint is due August 27, 2021.

On August 26, 2021, AGM and AGC filed a motion to dismiss the complaint filed by the GDB Debt Recovery Authority, as well as answers, defenses and counterclaims to that complaint.

On October 29, 2021, the court granted AGM and AGC’s motion to dismiss the complaint.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Puerto Rico Par and Debt Service Schedules

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Gross Par Outstanding Gross Debt Service Outstanding

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

September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

(in millions)

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Net Par Outstanding

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions)

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The following table shows the scheduled amortization of the insured general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.

The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis.

The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so.

In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Amortization Schedule of Puerto Rico Net Par Outstanding

and Net Debt Service Outstanding

As of June 30, 2021

As of September 30, 2021

Scheduled Net Par Amortization Scheduled Net Debt Service Amortization

(in millions)

2021 (October 1 - December 31) $ — $ 3

2022 (January 1 - March 31) — 88

2022 (April 1 - June 30) — 2

2022 (July 1 - September 30) 176 263

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Virgin Islands

As of June 30, 2021, the Company had $ 478 million insured net par outstanding to the U.S.

Virgin Islands and its related authorities (USVI), of which it rated $ 474 million BIG (up from $ 215 million BIG last quarter).

The BIG USVI net par consisted of (a) bonds secured by a lien on matching fund revenues related to excise taxes on products produced in the USVI and exported to the U.S., primarily rum, (b) Public Finance Authority bonds secured by a gross receipts tax and the general obligation, full faith and credit pledge of the USVI and (c) bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system.

As of September 30, 2021, the Company had $ 477 million insured net par outstanding to the U.S.

Virgin Islands and its related authorities (USVI), of which it rated $ 473 million BIG (up from $ 216 million BIG as of December 31, 2020).

The BIG USVI net par outstanding consisted of (a) bonds secured by a lien on matching fund revenues related to excise taxes on products produced in the USVI and exported to the U.S., primarily rum, (b) Public Finance Authority bonds secured by a gross receipts tax and the general obligation, full faith and credit pledge of the USVI and (c) bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system.

In 2017, Hurricane Irma caused significant damage in St.

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

As of June 30, 2021 and December 31, 2020, $ 5 million and $ 13 million, respectively, of aircraft residual value insurance exposure was rated BIG.

Specialty Insurance and Reinsurance

As of September 30, 2021 and December 31, 2020, $ 84 million and $ 13 million, respectively, of aircraft residual value insurance exposure was rated BIG.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Specialty Insurance and Reinsurance Exposure

Gross Exposure Net Exposure

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

September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

(in millions)

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amounts that the Company expects to pay or recover in future periods for all contracts.

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

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

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

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The financial guaranties issued by the Company insure the credit performance of the guaranteed obligations over an extended period of time, in some cases over 30 years, and in most circumstances the Company has no right to cancel such financial guaranties.

As a result, the Company's estimate of ultimate loss on a policy is subject to significant uncertainty over the life of the insured transaction.

As a result, the Company’s estimate of ultimate loss on a policy is subject to significant uncertainty over

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the life of the insured transaction.

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

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The Company used risk-free rates for U.S.

dollar denominated obligations that ranged from 0.00 % to 2.14 % with a weighted average of 0.73 % as of June 30, 2021 and 0.00 % to 1.72 % with a weighted average of 0.60 % as of December 31, 2020.

Expected losses to be paid for transactions denominated in currencies other than the U.S.

dollar represented approximately 4.7 % and 6.8 % of the total as of June 30, 2021 and December 31, 2020, respectively.

dollar denominated obligations that ranged from 0.00 % to 2.13 % with a weighted average of 0.78 % as of September 30, 2021 and 0.00 % to 1.72 % with a weighted average of 0.60 % as of December 31, 2020.

Expected losses to be paid for U.S.

dollar denominated transactions represented approximately 89.6 % and 93.2 % of the total as of September 30, 2021 and December 31, 2020, respectively.

Net Expected Loss to be Paid (Recovered)

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

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Net expected loss to be paid (recovered), end of period $ 199 $ 471 $ 199 $ 471

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector

Second Quarter 2021

Net Expected Loss to be Paid (Recovered) as of March 31, 2021 Economic Loss

Third Quarter 2021

Sector Net Expected Loss to be Paid (Recovered) as of June 30, 2021 Economic Loss

Development (Benefit) (Paid)

Net Expected Loss to be Paid (Recovered) as of June 30, 2021

Net Expected Loss to be Paid (Recovered) as of September 30, 2021

(in millions)

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Total $ 466 $ ( 94 ) $ ( 173 ) $ 199

Second Quarter 2020

Net Expected Loss to be Paid (Recovered) as of March 31, 2020 Economic Loss

Third Quarter 2020

Sector Net Expected Loss to be Paid (Recovered) as of June 30, 2020 Economic Loss

Development (Benefit) (Paid)

Net Expected Loss to be Paid (Recovered) as of June 30, 2020

Net Expected Loss to be Paid (Recovered) as of September 30, 2020

(in millions)

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Total $ 735 $ 70 $ ( 334 ) $ 471

Six Months 2021

Net Expected Loss to be Paid (Recovered) as of December 31, 2020 Economic Loss

Nine Months 2021

Sector Net Expected Loss to be Paid (Recovered) as of December 31, 2020 Economic Loss

Development (Benefit) (Paid)

Net Expected Loss to be Paid (Recovered) as of June 30, 2021

Net Expected Loss to be Paid (Recovered) as of September 30, 2021

(in millions)

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Total $ 529 $ ( 101 ) $ ( 229 ) $ 199

Six Months 2020

Net Expected Loss to be Paid (Recovered) as of December 31, 2019 Economic Loss

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Nine Months 2020

Sector Net Expected Loss to be Paid (Recovered) as of December 31, 2019 Economic Loss

Development (Benefit) (Paid)

Net Expected Loss to be Paid (Recovered) as of June 30, 2020

Net Expected Loss to be Paid (Recovered) as of September 30, 2020

(in millions)

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Such amounts are recorded as reinsurance recoverable on paid losses in other assets.

The tables above include (1) LAE paid of $ 6 million for both Second Quarter 2021 and 2020, and $ 10 million and $ 9 million for Six Months 2021 and 2020, respectively, and (2) expected LAE to be paid of $ 27 million as of June 30, 2021 and $ 23 million as of December 31, 2020.

The tables above include (1) LAE paid of $ 5 million and $ 11 million for Third Quarter 2021 and Third Quarter 2020 and $ 15 million and $ 20 million for Nine Months 2021 and Nine Months 2020, respectively, and (2) expected LAE to be paid of $ 27 million as of September 30, 2021 and $ 23 million as of December 31, 2020.

Net Expected Loss to be Paid (Recovered) and

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

As of Second Quarter Six Months

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

As of Third Quarter Nine Months

Accounting Model September 30, 2021 December 31, 2020 2021 2020 2021 2020

(in millions)

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Public Finance Transactions

The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $ 3.7 billion net par as of June 30, 2021, all of which was BIG.

The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $ 3.6 billion net par outstanding as of September 30, 2021, all of which was BIG.

For additional information regarding the Company’s Puerto Rico exposure, see “Exposure to Puerto Rico” in Note 3, Outstanding Exposure.

On February 25, 2015, a plan of adjustment resolving the bankruptcy filing of the City of Stockton, California under chapter 9 of the Bankruptcy Code became effective.

As of June 30, 2021, the Company’s net par subject to the plan consisted of $ 104 million of pension obligation bonds.

As of September 30, 2021, the Company’s net par outstanding subject to the plan consisted of $ 100 million of pension obligation bonds.

As part of the plan of adjustment, the City will repay claims paid on the pension obligation bonds from certain fixed payments and certain variable payments contingent on the City’s revenue growth, which will likely be impacted by COVID-19.

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

public finance exposures as of June 30, 2021, including those mentioned above, to be $ 221 million, compared with a net expected loss of $ 305 million as of December 31, 2020.

The Company’s net expected losses incorporate management’s probability weighted estimates of all possible scenarios.

The economic loss development for U.S.

public finance transactions was $ 1 million during Second Quarter 2021 and 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 loss development was $ 16 million during Six Months 2021, an d w as 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 changes attributable to the Company’s Puerto Rico ex posures reflects adjustments the Company made to the assumptions it uses in its scenarios based on the public information as discussed under "Exposure to Puerto Rico" in Note 3, Outstanding Exposure as well as nonpublic information related to its loss mitigation activities during the period.

public finance exposures as of September 30, 2021, including those mentioned above, to be a net expected recovery $ 9 million, compared with a net expected loss of $ 305 million as of December 31, 2020.

The Company’s net expected loss to be paid (recovered) incorporates management’s probability weighted estimates of all possible scenarios.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The economic benefit for U.S.

public finance transactions was $ 29 million during Third Quarter 2021 and was primarily attributable to certain Puerto Rico exposures.

The economic benefit was $ 13 million during Nine Months 2021, and was primarily attributable to changes in discount rates.

The changes attributable to the Company’s Puerto Rico exposures reflect adjustments the Company made to the assumptions it uses in its scenarios based on the public information as discussed under “Exposure to Puerto Rico” in Note 3, Outstanding Exposure as well as nonpublic information related to its loss mitigation activities during the period.

Selected Non - U.S.

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Expected loss to be paid for non-U.S.

public finance transactions was $ 22 million as of June 30, 2021, compared with $ 36 million as of December 31, 2020, primarily consisting of:

public finance transactions was $ 19 million as of September 30, 2021, compared with $ 36 million as of December 31, 2020, primarily consisting of:

(i) an obligation backed by the availability and toll revenues of a major arterial road, which has been underperforming due to higher costs compared with expectations at underwriting, and (ii) an obligation for which the Company has been paying claims because of the impact of negative Euro Interbank Offered Rate (Euribor) on the transaction.

The economic benefit for non-U.S.

public finance transactions, including those mentioned above, was approximately $ 1 million during Second Quarter 2021.

The economic benefit was $ 13 million during Six Months 2021, and was due to the restructuring of certain exposures and the impact of higher Euribor.

public finance transactions, including those mentioned above, was approximately $ 2 million during Third Quarter 2021.

The economic benefit was $ 15 million during Nine Months 2021, and was due to the impact of higher Euribor and, separately, improved traffic and availability in certain road exposures.

RMBS Loss Projections

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Net Economic Loss Development (Benefit)

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

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RMBS Loss Projections:

Alt-A First Lien, Option ARM, Subprime and Prime

The majority of projected losses in first lien RMBS transactions are expected to come from non-performing mortgage loans (those that are or in the past twelve months have been two or more payments behind, have been modified, are in foreclosure, or have been foreclosed upon).

Alt-A, Prime, Option ARM and Subprime

The majority of projected losses in first lien RMBS transactions are expected to come from non-performing mortgage loans (those that are or have recently been two or more payments behind, have been modified, are in foreclosure, or have been foreclosed upon).

Changes in the amount of non-performing loans from the amount projected in the previous period are one of the primary drivers of loss projections in this portfolio.

1 unchanged sentence

The Company arrived at its liquidation rates based on data purchased from a third-party provider and assumptions about how delays in the foreclosure process and loan modifications may ultimately affect the rate at which loans are liquidated.

Each quarter the Company reviews the most recent 12 months of this data and (if necessary) adjusts its liquidation rates based on its observations.

The following table shows liquidation assumptions for various non-performing categories.

Each quarter the Company reviews recent data and (if necessary) adjusts its liquidation rates based on its observations.

The following table shows liquidation assumptions for various non-performing and re-performing categories.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

First Lien Liquidation Rates

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

Delinquent/Modified in the Previous 12 Months

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

Current but recently delinquent (1)

Alt-A and Prime 20 % 20 % 20 %

21 unchanged sentences

All 100 100 100

____________________

(1) Prior to Third Quarter 2021, the Company included current loans that had missed one payment (30 + days delinquent) within the last 12 months in this category.

The Company observed that during the COVID-19 pandemic:

(1) loans that became 60+ days delinquent may have elevated future default risk for longer than a year;

and (2) there may be an increased number of loans that missed only a single payment that should not be considered at elevated risk of default.

Based on this view, in Third Quarter 2021, the Company includes only current loans that had been 60+ days delinquent within the last 24 months in this category, rather than current loans that had been 30+ days delinquent in the past 12 months.

Towards the end of the first quarter of 2020, lenders began offering mortgage borrowers the option to forbear interest and principal payments of their loans due to the COVID-19 pandemic, and to repay such amounts at a later date.

This resulted in an increase in early-stage delinquencies in RMBS transactions during Second Quarter 2020 and late-stage delinquencies during the second half of 2020.

Early stage delinquencies have recovered to pre-pandemic levels, but late stage delinquencies continue to be elevated as many borrowers remain on COVID-19 forbearance plans.

The Company's expected loss estimate assumes that a portion of delinquencies are due to COVID-19 related forbearances, and applies a liquidation rate of 20 % to such loans.

This is the same liquidation rate assumption used when estimating expected losses for current loans modified or delinquent within the last 12 months, as the Company believes this is the category that most resembles the population of new forbearance delinquencies.

While the Company uses liquidation rates as described above to project defaults of non-performing loans (including current loans modified or delinquent within the last 12 months), it projects defaults on presently current loans by applying a conditional default rate (CDR) trend.

The start of that CDR trend is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans.

The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, would be sufficient to produce approximately the amount of defaults that were calculated to emerge from the various delinquency categories.

This resulted in an increase in early-stage delinquencies in RMBS transactions during the second quarter of 2020 and late-stage delinquencies during the second half of 2020.

Until Third Quarter 2021, the Company’s expected loss estimate assumed that a portion of delinquencies were due to COVID-19 related forbearances, and had applied a liquidation rate of 20 % to such loans, which was the same liquidation rate assumption used when estimating expected losses for current loans that were recently modified or delinquent.

Since then, a substantial portion of the loans have resolved favorably, and the Company now expects that the loans that continue to be delinquent will default at a higher rate than the original overall assumption of 20 %.

Therefore, the Company discontinued the segregation of COVID-19 related forbearances and the application of a special 20 % liquidation rate to such COVID-19 forbearances.

Beginning in Third Quarter 2021, the Company includes remaining COVID-19 forbearance loans in the relevant delinquency categories consistent with all other loans.

Assuming all other variables are held constant, applying the higher liquidation rates to the previously forborne loans that remain delinquent, rather than the previous assumption of 20 % that was applied to all COVID-19 forborne loans, did not significantly increase expected losses on this cohort.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

While the Company uses liquidation rates as described above to project defaults of non-performing loans (including current loans that were recently modified or delinquent), it projects defaults on presently current loans by applying a conditional default rate (CDR) curve.

The start of that CDR curve is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans.

The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, would be sufficient to produce approximately the amount of defaults that was calculated to emerge from the various delinquency categories.

The CDR thus calculated individually on the delinquent collateral pool for each RMBS is then used as the starting point for the CDR curve used to project defaults of the presently performing loans.

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that intermediate CDR is held constant and then steps to a final CDR of 5 % of the CDR plateau.

In the base case, the Company

assumes the final CDR will be reached 2 years after the initial 36 -month CDR plateau period.

Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were modified or delinquent in the last 12 months or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36 -month period represent defaults attributable to borrowers that are currently performing or are projected to reperform.

In the base case, the Company assumes the final CDR will be reached 1.75 years after the initial 36 -month CDR plateau period.

Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were recently modified or delinquent, or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36 -month period represent defaults attributable to borrowers that are currently performing or are projected to reperform.

Another important driver of loss projections is loss severity, which is the amount of loss the transaction incurs on a loan after the application of net proceeds from the disposal of the underlying property.

Loss severities experienced in first lien transactions had reached historically high levels during the 2008 financial crisis, and the Company is assuming in the base case that the recent (still elevated) levels generally will continue for another 18 months.

The Company assumes in the base case that recent (still historically elevated) loss severities will improve after loans with accumulated delinquencies and foreclosure costs are liquidated.

The Company is assuming in the base case that the recent levels generally will continue for another 18 months.

The Company determines its initial loss severity based on actual recent experience.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Key Assumptions in Base Case Expected Loss Estimates

First Lien U.S.

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

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

Range Weighted Average Range Weighted Average Range Weighted Average

Alt-A First Lien

Alt-A and Prime:

Plateau CDR 1.0 % - 11.1 % 6.2 % 0.8 % - 9.6 % 5.5 % 0.0 % - 9.7 % 5.3 %

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These CPR assumptions are the same as those the Company used for December 31, 2020.

In Third Quarter 2021, the Company implemented a new recovery assumption into its reserving model to reflect observed trends in recoveries of deferred principal balances of modified first lien loans that had been previously written off.

The Company now assumes that 20 % of the deferred loan balances will eventually be recovered upon sales of the collateral or refinancing of the loans.

The addition of this new assumption resulted in an economic benefit of $ 19 million.

In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien transactions by varying its assumptions of how fast a recovery is expected to occur.

1 unchanged sentence

The Company also stressed CPR and the speed of recovery of loss severity rates.

The Company probability weighted a total of five scenarios as of June 30, 2021 and December 31, 2020.

The Company probability weighted a total of five scenarios as of September 30, 2021 and December 31, 2020.

Total expected loss to be paid on all first lien U.S.

RMBS was $ 160 million and $ 133 million as of June 30, 2021 and December 31, 2020, respectively.

The $ 14 million economic benefit in Second Quarter 2021 for first lien U.S.

RMBS transactions was primarily attributable to higher excess spread in certain transactions, partially offset by changes in discount rates.

The $ 11 million economic loss development in Six Months 2021 for first lien U.S.

RMBS was prima rily attributable to lower excess spread, partially offset by 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 lin ked to LIBOR.

RMBS was $ 160 million and $ 133 million as of September 30, 2021 and December 31, 2020, respectively.

The $ 10 million economic benefit in Third Quarter 2021 for first lien U.S.

RMBS transactions was primarily attributable to the implementation of a recovery assumption for deferred principal balances that had previously been written off.

Lower severity rate assumptions, updates in the delinquency profile of certain transactions, and the removal of the liquidation rate previously applied to COVID-19 forbearances, netted together, partially offset the benefit from

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the change in the recovery assumption on deferred principal balances.

The $ 1 million economic loss development in Nine Months 2021 for first lien U.S.

RMBS was primarily attributable to lower excess spread, which was substantially offset by the implementation of a recovery assumption for deferred principal balances that had previously been written off , and changes in discount rates.

Other changes in assumptions including lower severity assumptions for certain asset classes were offset by updates in the delinquency profile of certain transactions and the removal of the liquidation rate previously applied to the COVID-19 forbearances.

Certain transactions benefit from exc ess 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 lin ked to LIBOR.

An increase in projected LIBOR decreases excess spread, while lower LIBOR results in higher excess spread.

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of June 30, 2021 as it used as of December 31, 2020, increasing and decreasing the periods of stress from those used in the base case.

LIBOR is anticipated to be discontinued after June 30, 2023, and it is not yet clear how this will impact the calculation of the various interest rates in this portfolio refer encing LIBOR.

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of September 30, 2021 as it used as of December 31, 2020, increasing and decreasing the periods of stress from those used in the base case.

In the Company’s most stressful scenario where loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 15 months, expected loss to be paid would increase from current projections by approximately $ 30 million for all first lien U.S.

9 unchanged sentences

The Company estimates the amount of loans that will default over the next six months by calculating current representative liquidation rates.

As in the case of first lien transactions, second lien transactions have seen an increase in delinquencies because of COVID-19 related forbearances.

The Company applies a 20 % liquidation rate to such forborne loans, the same as in first lien RMBS transactions.

Second lien transactions have seen an increase in delinquencies because of COVID-19 related forbearances.

As in the case of first lien transactions, starting in Third Quarter 2021, the Company includes remaining COVID-19 forbearance loans in the relevant delinquency categories consistent with all other loans.

Assuming all other variables are held constant, applying the higher liquidation rates to the previously forborne loans that remain delinquent, rather than the previous assumption of 20 % that was applied to all COVID-19 forborne loans, increased expected losses by approximately $ 14 million for second lien transactions.

Similar to first liens, the Company then calculates a CDR for six months , which is the period over which the currently delinquent collateral is expected to be liquidated.

7 unchanged sentences

In the prior periods, as the HELOC loans underlying the Company’s insured HELOC transactions reached their principal amortization period, the Company incorporated an assumption that a percentage of loans reaching their principal amortization periods would default around the time of the payment increase.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The HELOC loans underlying the Company’s insured HELOC transactions are now past their original interest-only reset date, although a significant number of HELOC loans were modified to extend the original interest-only period.

The Company does not apply a CDR increase when such loans are projected to reach their principal amortization period due to the likelihood that those loans will either prepay or once again have their interest-only periods extended.

As a result, the Company does not apply a CDR increase when such loans reach their principal amortization period.

In addition, based on the average performance history, the Company applies a CDR floor of 2.5 % for the future steady state CDR on all its HELOC transactions.

In addition, based on recent trends, in Third Quarter 2021, the Company reduced the CDR floor from 2.5 % to 1.0 %, as the future steady state CDR on all its HELOC transactions.

When a second lien loan defaults, there is generally a low recovery.

The Company assumed, as of June 30, 2021 and December 31, 2020, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time.

The Company assumed, as of September 30, 2021 and December 31, 2020, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time.

A second lien on the borrower’s home may be retained in the Company’s second lien transactions after the loan is charged off and the loss applied to the transaction, particularly in cases where the holder of the first lien has not foreclosed.

2 unchanged sentences

In instances where the Company is able to obtain information on the lien status of charged-off loans, it assumes there will be a certain level of future recoveries of the balance of the charged-off loans where the second lien is still intact.

The Company projects future recoveries on these charged-off loans at the rate shown in the table below.

In Third Quarter 2021, the Company increased its recovery assumption for charged-off loans from 20 % to 30 %, as shown in the table below, based on recent observed trends, which, together with higher actual recoveries and other information obtained on charged off loans, resulted in a $ 56 million increase in expected recoveries.

Such recoveries are assumed to be received evenly over the next five years .

11 unchanged sentences

The Company believes the most important driver of its projected second lien RMBS losses is the performance of its HELOC transactions.

Total expected loss to be paid on all second lien U.S.

RMBS was $ 18 million as of June 30, 2021 and $ 15 million as of December 31, 2020.

The $ 14 million economic benefit in Second Quarter 2021 and $ 28 million economic benefit in Six Months 2021 were primarily attributable to improved performance in certain transactions and higher actual recoveries received for previously charged-off loans.

Total expected recovery on all second lien U.S.

RMBS was $ 18 million as of September 30, 2021 and net expected loss to be paid was $ 15 million as of December 31, 2020.

The $ 55 million economic benefit in Third Quarter 2021 was primarily attributable to higher recoveries for secured charged-off loans.

Other changes in assumptions and observed trends, including the reduction in the HELOC CDR floor, and improved performance in certain transactions, were partially offset by the removal of the liquidation rate previously applied to the COVID-19 forbearances.

The economic development in Nine Months 2021 was a benefit of $ 83 million and was primarily driven by higher recoveries on previously charged off loans and improved performance in certain transactions.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Key Assumptions in Base Case Expected Loss Estimates

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

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

Range Weighted Average Range Weighted Average Range Weighted Average

2 unchanged sentences

Liquidation rates:

Delinquent/Modified in the Previous 12 Months 20 % 20 % 20 %

Current but recently delinquent (1) 20 % 20 % 20 %

30 – 59 Days Delinquent 30 30 30

7 unchanged sentences

___________________

(1) Prior to Third Quarter 2021, the Company included current loans that had missed one payment (30 + days delinquent) within the last 12 months in this category.

The Company observed that during the COVID-19 pandemic:

(1) loans that became 60+ days delinquent may have elevated future default risk for longer than a year;

and (2) there may be an increased number of loans that missed only a single payment that should not be considered at elevated risk of default.

(2) Loss severities on future defaults.

5 unchanged sentences

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

RMBS structured finance exposures as of June 30, 2021 was $ 45 million and was primarily attributable to student loan securitizations issued by private issuers with $ 63 million in BIG net par outstanding.

In general, the projected losses of these transactions are due to:

RMBS structured finance exposures as of September 30, 2021 was $ 47 million which included student loan securitizations issued by private issuers with $ 60 million in BIG net par outstanding.

In general, the projected losses of these student loan securitizations are due to:

(i) the poor credit performance of private student loan collateral and high loss severities, or (ii) high interest rates on auction rate securities with respect to which the auctions have failed.

The Company also had exposure to troubled life insurance transactions with BIG net par of $ 40 million as of June 30, 2021.

The economic loss development ac ross all non-U.S.

RMBS structured finance transactions during Second Quarter 2021 and Six Months 2021 was $ 8 million and $ 7 million, respectively, which was primarily attributable to LAE for certain transactions.

The Company also had exposure to troubled life insurance transactions with BIG net par of $ 40 million as of September 30, 2021.

The econom ic loss development ac ross all non-U.S.

RMBS structured finance transactions during Third Quarter 2021 and Nine Months 2021 was $ 2 million and $ 9 million, respectively, which was primarily attributable to deterioration of certain aircraft residual value insurance exposures and, for Nine Months 2021, loss adjustment expenses for certain transactions.

Recovery Litigation

In the ordinary course of their respective businesses, certain of AGL’s subsidiaries are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future.

The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company's results of operations in that particular quarter or year.

The impact, if any, of these and

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s results of operations in that particular quarter or year.

The Company has asserted claims in a number of legal proceedings in connection with its exposure to Puerto Rico.

2 unchanged sentences

The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives, and consolidated FG VIEs.

Amounts presented in this note relate only to contracts accounted for as insurance.

Amounts presented in this note relate only to contracts accounted for as insurance, unless otherwise specified.

See Note 6, Contracts Accounted for as Credit Derivatives for amounts that relate to CDS and Note 9, Variable Interest Entities for amounts that are accounted for as consolidated FG VIEs.

Net Earned Premiums

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

8 unchanged sentences

___________________

(1) Excludes $ 1 million for both Second Quarter 2021 and 2020, and $ 2 million for both Six Months 2021 and 2020, related to consolidated FG VIEs.

(1) Excludes $ 1 million and $ 2 million for Third Quarter 2021 and 2020, respectively, and $ 3 million and $ 4 million for Nine Months 2021 and 2020, respectively, related to consolidated FG VIEs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Gross Premium Receivable,

9 unchanged sentences

Foreign exchange gain (loss) on remeasurement ( 22 ) ( 14 )

Expected recovery of premiums previously written off 4 —

Financial guaranty insurance premium receivable (1) 1,377 1,320

Specialty insurance premium receivable 1 1

June 30, $ 1,373 $ 1,294

September 30, $ 1,378 $ 1,321

____________________

(1) Excludes $ 6 million for both June 30, 2021 and June 30, 2020 related to consolidated FG VIEs.

Approximately 79 % and 80 % of gross premiums receivable, net of commissions at June 30, 2021 and December 31, 2020, respectively, are denominated in currencies other than the U.S.

(1) Excludes $ 6 million for both September 30, 2021 and September 30, 2020 related to consolidated FG VIEs, respectively.

Approximately 77 % and 80 % of gross premiums receivable, net of commissions at September 30, 2021 and December 31, 2020, respectively, are denominated in currencies other than the U.S.

dollar, primarily the pound sterling and euro.

4 unchanged sentences

(Undiscounted)

As of June 30, 2021

As of September 30, 2021

(in millions)

2021 (July 1 - September 30) $ 48

2021 (October 1 - December 31) $ 49

Subtotal 2021 81

2026-2030 368

5 unchanged sentences

(1) Excludes expected cash collections on consolidated FG VIEs of $ 7 million.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Scheduled Financial Guaranty Insurance Net Earned Premiums

As of June 30, 2021

As of September 30, 2021

(in millions)

2021 (July 1 - September 30) $ 80

2021 (October 1 - December 31) $ 80

Subtotal 2021 158

2026-2030 963

9 unchanged sentences

Policies with Premiums Paid in Installments

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(dollars in millions)

3 unchanged sentences

Weighted-average period of premiums receivable (in years) 12.7 12.8

Financial Guaranty Insurance Losses

Loss reserves are discounted at risk-free rates for U.S.

dollar denominated financial guaranty insurance obligations that ranged from 0.00 % to 2.14 % with a weighted average of 0.73 % as of June 30, 2021 and 0.00 % to 1.72 % with a weighted average of 0.60 % as of December 31, 2020.

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

dollar denominated financial guaranty insurance obligations that ranged from 0.00 % to 2.13 % with a weighted average of 0.78 % as of September 30, 2021 and 0.00 % to 1.72 % with a weighted average of 0.60 % as of December 31, 2020.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Reserve (Salvage) by Sector

June 30, 2021 December 31, 2020

Sector September 30, 2021 December 31, 2020

(in millions)

9 unchanged sentences

____________________

(1) Excludes net reserves of $ 28 million and $ 32 million as of June 30, 2021 and December 31, 2020, respectively, related to consolidated FG VIEs.

Components of Net Reserves (Salvage)

June 30, 2021 December 31, 2020

(1) Excludes net reserves of $ 19 million and $ 32 million as of September 30, 2021 and December 31, 2020, respectively, related to consolidated FG VIEs.

Components of Net Reserve (Salvage)

September 30, 2021 December 31, 2020

(in millions)

4 unchanged sentences

Salvage and subrogation reinsurance payable (2) 21 33

Salvage and subrogation recoverable, net and other recoverable ( 971 ) ( 958 )

Net reserves (salvage) $ 87 $ 122

Salvage and subrogation recoverable, net ( 1,127 ) ( 958 )

Net reserve (salvage) $ ( 153 ) $ 122

____________________

4 unchanged sentences

(i) the contra-paid, which represents the claim payments made and recoveries received that have not yet been recognized in the statements of operations, (ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid (and therefore recognized in income but not yet received), and (iii) loss reserves that have already been established (and therefore expensed but not yet paid).

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Net Expected Loss to be Paid (Recovered) and

1 unchanged sentence

Financial Guaranty Insurance Contracts

As of June 30, 2021

As of September 30, 2021

(in millions)

5 unchanged sentences

____________________

(1) Excludes $ 28 million as of June 30, 2021 related to consolidated FG VIEs.

(1) Excludes $ 28 million as of September 30, 2021 related to consolidated FG VIEs.

The following table provides a schedule of the expected timing of net expected losses to be expensed.

3 unchanged sentences

Financial Guaranty Insurance Contracts

As of June 30, 2021

As of September 30, 2021

(in millions)

2021 (July 1 - September 30) $ 8

2021 (October 1 - December 31) $ 8

Subtotal 2021 16

2026-2030 118

4 unchanged sentences

Amounts presented are net of reinsurance.

Reported on the

Condensed Consolidated Statements of Operations

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reported on the Condensed Consolidated Statements of Operations

Loss (Benefit)

Second Quarter Six Months

2021 2020 2021 2020

Third Quarter Nine Months

Sector 2021 2020 2021 2020

(in millions)

8 unchanged sentences

Loss and LAE $ ( 68 ) $ 73 $ ( 54 ) $ 130

Second Quarter

____________________

(1) Excludes a benefit of $ 2 million and a loss of $ 2 million for Second Quarter 2021 and 2020, respectively, and a benefit of $ 5 million and a loss of $ 8 million for Six Months 2021 and 2020, respectively, related to consolidated FG VIEs.

(1) Excludes a benefit of $ 8 million and $ 1 million for Third Quarter 2021 and 2020, respectively, and a benefit of $ 13 million and a loss of $ 7 million for Nine Months 2021 and 2020, respectively, related to consolidated FG VIEs.

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

1 unchanged sentence

BIG Transaction Loss Summary

As of June 30, 2021

As of September 30, 2021

BIG Categories

18 unchanged sentences

Reserves (salvage) $ ( 713 ) $ 5 $ 26 $ — $ 538 $ 11 $ ( 133 ) $ ( 19 ) $ ( 152 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

41 unchanged sentences

however, the Company on occasion has mutually agreed with various counterparties to terminate certain CDS transactions.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Credit Derivative Net Par Outstanding by Sector

The components of the Company’s credit derivative net par outstanding are presented in the table below.

The estimated remaining weighted average life of credit derivatives was 12.5 years and 11.9 years as of June 30, 2021 and December 31, 2020, respectively.

The components of the Company’s credit derivative net par outstanding by sector are presented in the table below.

The estimated remaining weighted average life of credit derivatives was 12.7 years and 11.9 years as of September 30, 2021 and December 31, 2020, respectively.

Credit Derivatives (1)

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

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

Sector Net Par

Outstanding Net Fair Value Asset (Liability) Net Par

7 unchanged sentences

____________________

(1) Expected loss to be paid was $ 8 million as of June 30, 2021 and expected recoveries were $ 1 million as of December 31, 2020.

(1) Expected loss to be paid was $ 6 million as of September 30, 2021 and expected recoveries were $ 1 million as of December 31, 2020.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

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

Ratings Net Par

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

Rating Category Net Par

Outstanding % of Total Net Par

8 unchanged sentences

Fair Value of Credit Derivatives

Net Change in Fair Value of Credit Derivative Gains (Losses)

Second Quarter Six Months

Fair Value Gains (Losses) on Credit Derivatives

Third Quarter Nine Months

2021 2020 2021 2020

4 unchanged sentences

Net unrealized gains (losses) 20 2 ( 35 ) 25

Net change in fair value of credit derivatives $ ( 33 ) $ 100 $ ( 52 ) $ 23

During Second Quarter 2021, unrealized losses were generated primarily as a result of the decreased cost to buy protection on AGC, as the market cost of AGC's credit protection decreased during the period.

These losses were partially offset by general price improvements of the underlying collateral.

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, decreased, the implied spreads that the Company (or another comparable entity) would expect to receive on these transactions increased.

During Second Quarter 2020, unrealized gains were generated primarily as a result of price improvements of the

underlying collateral.

These gains were partially offset by losses due to the decreased cost to buy protection on AGC, as the

market cost of AGC's credit protection decreased during the period.

During Six Months 2021 unrealized losses were generated primarily as a result of wider implied net spreads driven by the decreased market cost to buy protection in AGC’s name during the period.

These losses were partially offset by general asset price improvement of the underlying collateral.

During Six Months 2020, unrealized gains were generated primarily as a result of the increased cost to buy protection

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

These gains were partially offset by the

wider spreads of the underlying collateral and lower discount rates.

Fair value gains (losses) on credit derivatives $ 21 $ ( 3 ) $ ( 31 ) $ 20

The fair value gains (losses) on credit derivatives is comprised of realized gains (losses) and other settlements and unrealized gains (losses).

During Third Quarter 2021, unrealized gains were generated primarily as a result of the termination of several CDS policies, primarily trust preferred securities transactions.

During Third Quarter 2020, unrealized gains were generated primarily as a result of price improvements of the underlying collateral.

These gains were partially offset by losses due to the decreased cost to buy protection on AGC, as the market cost of AGC’s credit protection decreased during the period.

For those CDS transactions that were pricing at or above

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

their floor levels, when the cost of purchasing CDS protection on AGC, which management refers to as the CDS spread on AGC, decreased, the implied spreads that the Company (or another comparable entity) would expect to receive on these transactions increased.

During Nine Months 2021 unrealized 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 price improvement of the underlying collateral and the termination of certain CDS policies.

During Nine Months 2020, unrealized gains were generated primarily as a result of the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period.

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

The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time these fair values are determined.

In addition, since each transaction has unique collateral and structural terms, the underlying change in fair value of each transaction may vary considerably.

The fair value of credit derivative contracts also reflects the change in the Company’s own credit cost based on the price to purchase credit protection on AGC.

In addition, since each transaction has unique collateral and structural terms, the change in fair value of each transaction may vary considerably.

The fair value of credit derivative contracts also reflects the Company’s own credit cost based on the price to purchase credit protection on AGC.

The Company determines its own credit risk primarily based on quoted CDS prices traded on AGC at each balance sheet date.

CDS Spread on AGC (in basis points)

As of June 30, 2021 As of March 31, 2021 As of December 31, 2020 As of June 30, 2020 As of March 31, 2020 As of December 31, 2019

As of September 30, 2021 As of June 30, 2021 As of December 31, 2020 As of September 30, 2020 As of June 30, 2020 As of December 31, 2019

Five-year CDS spread 61 62 132 140 159 41

1 unchanged sentence

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC

Credit Spread

June 30, 2021 December 31, 2020

and Effect of AGC Credit Spread

September 30, 2021 December 31, 2020

(in millions)

2 unchanged sentences

Net fair value of credit derivatives $ ( 134 ) $ ( 100 )

The fair value of CDS contracts at June 30, 2021, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

The fair value of CDS contracts at September 30, 2021, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

Collateral Posting for Certain Credit Derivative Contracts

3 unchanged sentences

eligible collateral other than cash is valued at a discount to the face amount.

As of June 30, 2021, the Company did not need to post collateral to satisfy these requirements.

As of September 30, 2021, the Company did not need to post collateral to satisfy these requirements.

The Company assumes exposure (Assumed Business) from third-party insurers, primarily other monoline financial guaranty companies that currently are in runoff and no longer actively writing new business (Legacy Monoline Insurers), and may cede portions of exposure it has insured (Ceded Business) in exchange for premiums, net of any ceding commissions.

3 unchanged sentences

The Company historically entered into, and with respect

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

to new business originated by AGRO continues to enter into, ceded reinsurance contracts in order to obtain greater business diversification and reduce the net potential loss from large risks.

7 unchanged sentences

Effect of Reinsurance on Condensed Consolidated Statements of Operations

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

17 unchanged sentences

(1) Positive ceded premiums written were due to commutations and changes in expected debt service schedules.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Ceded Reinsurance (1)

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

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

(in millions)

4 unchanged sentences

____________________

(1) The total collateral posted by all non-affiliated reinsurers required to post, or that had agreed to post, collateral as of both June 30, 2021 and December 31, 2020 was approximately $ 18 million.

(1) The total collateral posted by all non-affiliated reinsurers required to post, or that had agreed to post, collateral as of both September 30, 2021 and December 31, 2020 was approximately $ 18 million.

Such collateral is posted (i) in the case of certain reinsurers not authorized or “accredited” in the U.S., in order for the Company to receive credit for the liabilities ceded to such reinsurers in statutory financial statements, and (ii) in the case of certain reinsurers authorized in the U.S., on terms negotiated with the Company.

(2) Of the total par ceded to BIG rated reinsurers, $ 74 million was rated BIG as of both June 30, 2021 and December 31, 2020.

In Second Quarter 2020 and Six Months 2020, the Company reassumed $ 336 million in par, including $ 118 million in net par of Puerto Rico exposures, 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.

Investments and Cash

(2) Of the total par ceded to BIG rated reinsurers, $ 66 million and $ 74 million was rated BIG as of September 30, 2021 and December 31, 2020, respectively.

Commutations of Previously Ceded Business

In Nine Months 2020, the Company reassumed $ 336 million in par, including $ 118 million in net par of Puerto Rico exposures, 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 in Nine Months 2020.

Investment Portfolio

The investment portfolio tables shown below include assets managed both externally and internally.

As of June 30, 2021, the majority of the investment portfolio is managed by three outside managers and AssuredIM.

The Company has established detailed guidelines regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector.

The investment portfolio consists of both externally and internally managed portfolios.

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

The externally managed portfolio must maintain a minimum average rating of A+/A1/A+ by S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P), Moody’s Investors Service, Inc.

(Moody’s) or Fitch Ratings Inc., respectively.

The internally managed portfolio primarily consists of the Company's investments in (i) securities acquired for loss mitigation purposes, (ii) securities managed under an Investment Management Agreement (IMA) with AssuredIM, (iii) other fixed-maturity securities, and (iv) other invested assets which primarily consist of alternative investments including:

an equity method investment in one AssuredIM Fund (a healthcare private equity fund) that is not consolidated, an investment in renewable and clean energy, and a private equity fund managed by a third party.

The Company had unfunded commitments of $ 92 million as of June 30, 2021 related to certain limited partnership interests and other similar investments managed by third parties.

(Moody’s) and Fitch Ratings Inc., respectively.

The internally managed portfolio primarily consists of the Company’s investments in (i) securities acquired for loss mitigation purposes, (ii) securities managed under an Investment Management Agreement (IMA) with AssuredIM, (iii) other fixed-maturity securities, and (iv) other invested assets which primarily consist of generally less liquid alternative investments including:

an equity method investment in one AssuredIM healthcare private equity fund, an investment in renewable and clean energy and a private equity fund.

The Company had unfunded commitments of $ 209 million as of September 30, 2021 related to certain of the Company’s other invested assets, including $ 121 million for the AssuredIM healthcare private equity fund.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Investment Portfolio

Carrying Value

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions)

1 unchanged sentence

Externally managed $ 7,214 $ 7,301

Loss mitigation securities 699 690

Loss mitigation securities and other 900 925

AssuredIM managed 549 547

Other 207 235

Short-term investments 694 851

4 unchanged sentences

____________________

(1) 7.8 % and 8.1 % of fixed-maturity securities, related primarily to loss mitigation and other risk management strategies, were rated BIG as of June 30, 2021 and December 31, 2020, respectively.

(1) 7.9 % and 8.1 % of fixed-maturity securities were rated BIG as of September 30, 2021 and December 31, 2020, respectively, consisting primarily of loss mitigation and other risk management strategies.

Insurance Subsidiaries, through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $ 750 million in AssuredIM Funds.

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.

As of September 30, 2021, the U.S.

Insurance Subsidiaries had total commitments to AssuredIM Funds of $ 659 million, of which $ 380 million represented net invested capital and $ 279 million was undrawn.

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

As of June 30, 2021 and December 31, 2020, the fair value of AGAS’s interest in AssuredIM Funds, was $ 433 million and $ 345 million, respectively, although such amounts are not shown on the consolidated balance sheet in the investment portfolio if the AssuredIM Fund is consolidated.

All, but one, of the AssuredIM Funds in which AGAS invests are consolidated.

The Insurance segment presents equity in earnings of investees attributable to AGAS's interest in AssuredIM Funds, regardless of whether or not such AssuredIM Funds are consolidated.

AssuredIM Funds, in which AGAS (primarily) and other subsidiaries invest, and where the Company has been deemed to be the primary beneficiary, are not included in the "investment portfolio" line item on the condensed consolidated balance sheets, but rather, such AssuredIM Funds are consolidated and included in the line items “assets of consolidated investment vehicles” and “liabilities of consolidated investment vehicles”, with the portion not owned by AGAS and other subsidiaries presented as either redeemable or non-redeemable non-controlling interests.

Changes in the fair value of CIVs are also presented in their own line item on the condensed consolidated statements of operations with the portion not owned by AGAS and other subsidiaries presented as non-controlling interests.

As of September 30, 2021 and December 31, 2020, the fair value of AGAS’ interest in AssuredIM Funds was $ 465 million and $ 345 million, respectively, although such amounts are not shown on the consolidated balance sheet in the investment portfolio if the AssuredIM Fund is consolidated.

All of the AssuredIM Funds in which AGAS invests are consolidated, except for the AssuredIM healthcare private equity fund.

AssuredIM Funds, in which AGAS (primarily) and other subsidiaries invest, and where the Company has been deemed to be the primary beneficiary, are not included in the investment portfolio on the condensed consolidated balance sheets, but rather, such AssuredIM Funds are consolidated and included in the line items “assets of consolidated investment vehicles” and “liabilities of consolidated investment vehicles”, with the portion not owned by AGAS and other subsidiaries presented as either redeemable or non-redeemable non-controlling interests.

The change in the fair value of CIVs is presented on a separate line on the condensed consolidated statements of operations with the portion not owned by AGAS and other subsidiaries presented as non-controlling interests.

See Note 9, Variable Interest Entities.

Accrued investment income, which is recorded in other assets, was $ 73 million as of June 30, 2021 and $ 75 million as of December 31, 2020.

In Six Months 2021 and Six Months 2020, the Company did not write off any accrued investment income.

Accrued investment income, which is reported in other assets, was $ 79 million as of September 30, 2021 and $ 75 million as of December 31, 2020.

In Nine Months 2021 and Nine Months 2020, the Company did not write off any accrued investment income.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fixed-Maturity Securities and Short-Term Investments

by Security Type

As of June 30, 2021

As of September 30, 2021

Security Type Percent

18 unchanged sentences

Total 100 % $ 8,882 $ ( 35 ) $ 558 $ ( 48 ) $ 9,357 $ ( 23 ) A+

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fixed-Maturity Securities and Short-Term Investments

23 unchanged sentences

(1) Based on amortized cost.

(2) Accumulated other comprehensive income (AOCI).

(3) Ratings represent the lower of the Moody’s and S&P classifications, except for bonds purchased for loss mitigation or risk management strategies, which use internal ratings classifications.

(2) Ratings represent the lower of the Moody’s and S&P classifications, except for loss mitigation or risk management securities, which use internal ratings classifications.

The Company’s portfolio primarily consists of high-quality, liquid instruments.

government-agency obligations were approximately 33 % of mortgage-backed securities as of June 30, 2021 and 35 % as of December 31, 2020 based on fair value.

Fixed-Maturity Securities

government-agency obligations were approximately 32 % of mortgage-backed securities as of September 30, 2021 and 35 % as of December 31, 2020 based on fair value.

(4) Accumulated other comprehensive income (AOCI).

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Gross Unrealized Loss by Length of Time

For Which an Allowance for Credit Loss was Not Recorded

As of June 30, 2021

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

As of September 30, 2021

Less than 12 months 12 months or more Total

14 unchanged sentences

Number of securities (1) 376 24 398

Fixed-Maturity Securities

Gross Unrealized Loss by Length of Time

For Which an Allowance for Credit Loss was Not Recorded

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

As of December 31, 2020

19 unchanged sentences

The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss.

The Company has determined that the unrealized losses recorded as of June 30, 2021 were not related to credit quality.

The Company has determined that the unrealized losses recorded as of September 30, 2021 were not related to credit quality.

In addition, the Company currently does not intend to and is not required to sell investments in an unrealized loss position prior to expected recovery in value.

As of June 30, 2021, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 14

securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2020, 11 securities had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 8 million as of both June 30, 2021 and December 31, 2020.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of June 30, 2021 are shown below.

As of September 30, 2021, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 20 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2020, 11 securities

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 5 million as of September 30, 2021 and $ 8 million as of December 31, 2020.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of September 30, 2021 are shown below.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Fixed-Maturity Securities

by Contractual Maturity

As of June 30, 2021

Distribution of Fixed-Maturity Securities by Contractual Maturity

As of September 30, 2021

Cost Estimated

6 unchanged sentences

Total $ 8,188 $ 8,663

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 as of June 30, 2021 and $ 262 million as of December 31, 2020.

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.

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 $ 254 million as of September 30, 2021 and $ 262 million as of December 31, 2020.

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 $ 1,236 million and $ 1,511 million, based on fair value as of September 30, 2021 and December 31, 2020, respectively.

Net Investment Income and Equity in Earnings of Investees

1 unchanged sentence

The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the securities in this portfolio.

Net Investment Income

and Equity in Earnings of Investees

Second Quarter Six Months

Net Investment Income and Equity in Earnings of Investees

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

Interest income:

Investment income:

Externally managed fixed-maturity securities $ 52 $ 54 $ 155 $ 178

Loss mitigation securities 10 12 20 25

Loss mitigation securities and other 11 16 41 53

AssuredIM managed fixed-maturity securities (1) 4 3 12 4

Other 4 5 10 12

Interest income 70 80 141 162

Investment income 67 73 208 235

Investment expenses ( 1 ) ( 2 ) ( 4 ) ( 6 )

3 unchanged sentences

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

(2) Includes $ 13 million and $ 39 million for Third Quarter 2021 and Nine Months 2021, respectively, related to fair value gains on investments at fair value option using net asset value (NAV), as a practical expedient.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Realized Investment Gains (Losses)

2 unchanged sentences

Net Realized Investment Gains (Losses)

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

2 unchanged sentences

Gross realized losses on available-for-sale securities ( 6 ) ( 3 ) ( 10 ) ( 12 )

Net realized gains (losses) on other invested assets 1 — 1 —

Change in credit impairment and intent to sell (1) 5 — 1 ( 15 )

1 unchanged sentence

____________________

(1) 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.

(2) Includes foreign currency gains of $ 1 million in Second Quarter 2021, $ 2 million in Six Months 2021 and $ 1 million for Six Months 2020, and foreign currency losses of $ 2 million in Second Quarter 2020.

The proceeds from sales of fixed-maturity securities classified as available-for-sale were $ 106 million in Second Quarter 2021, $ 404 million in Second Quarter 2020, $ 226 million in Six Months 2021 and $ 490 million in Six Months 2020.

(1) Change in credit impairment was a benefit in Third Quarter 2021 and Nine Months 2021 primarily due to lower delinquencies on loss mitigation securities.

Change in credit impairment in Nine Months 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 losses in Nine Months 2020.

(2) Includes foreign currency losses of $ 2 million in Third Quarter 2021 and gains of $ 5 million in Third Quarter 2020 and $ 6 million in Nine Months 2020.

Foreign currency losses were de minimis in Nine Months 2021.

The proceeds from sales of fixed-maturity securities classified as available-for-sale were $ 137 million in Third Quarter 2020, $ 222 million in Nine Months 2021 and $ 627 million in Nine Months 2020.

There were no sales of fixed-maturity securities classified as available-for-sale in Third Quarter 2021.

The following table presents the roll forward of the credit losses on fixed-maturity securities for which the Company has recognized an allowance for credit losses in 2021 and 2020.

Roll Forward of Credit Losses

in the Investment Portfolio

Second Quarter Six Months

Roll Forward of Credit Losses in the Investment Portfolio

Third Quarter Nine Months

2021 2020 2021 2020

6 unchanged sentences

Balance, end of period $ 35 $ 76 $ 35 $ 76

____________________

(1) Primarily attributable to the sale of a security with a $ 42 million credit allowance in Second Quarter 2021 and Six Months 2021.

The company recorded an additional $ 3 million, $ 3 million and $ 14 million in credit loss expense for Second Quarter 2020, Six Months 2021 and Six Months 2020, respectively.

The credit loss was de minimis in Second Quarter 2021.

Credit loss expense included accretion of $ 1 million in Second Quarter 2021 and Second Quarter 2020 and $ 2 million in Six Months 2021 and Six Months 2020.

The Company recorded a benefit in credit losses of $ 4 million for Third Quarter 2021 and $ 1 million for Nine Months 2021.

The Company recorded a credit loss expense of $ 14 million in Nine Months 2020.

Credit loss expense was de minimis in Third Quarter 2020.

The Company did not purchase any securities with credit deterioration during the periods presented.

1 unchanged sentence

Variable Interest Entities

The Company has elected the fair value option for assets and liabilities of FG VIEs because the carrying amount transition method was not practical.

The insurance subsidiaries provide financial guaranties with respect to debt obligations of special purpose entities, including VIEs, but do not act as the servicer or collateral manager for any VIE obligations they guarantee.

The transaction structure generally provides certain financial protection to the insurance subsidiaries.

This financial protection can take several forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread.

This financial protection can take several

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread.

In the case of overcollateralization (i.e., the principal amount of the securitized assets exceeds the principal amount of the structured finance obligations), the structure allows defaults of the securitized assets before a default is experienced on the structured finance obligation guaranteed by the insurance subsidiaries.

20 unchanged sentences

principal and interest of these liabilities is wholly dependent on the performance of the FG VIEs’ assets.

As of June 30, 2021 and December 31, 2020, the Company consolidated 24 and 25 FG VIEs, respectively.

During Six Months 2021 there was one FG VIE that was deconsolidated.

During Six Months 2020 there were two FG VIEs that matured and two FG VIEs that were consolidated.

As of September 30, 2021 and December 31, 2020, the Company consolidated 24 and 25 FG VIEs, respectively.

During Nine Months 2021, there was one FG VIE that was deconsolidated.

During Nine Months 2020, there were two FG VIEs that matured and two FG VIEs that were consolidated.

There were no other consolidations or deconsolidations for the periods presented.

Net loss on consolidation was $ 1 million in Second Quarter 2020 and Six Months 2020 and was recorded in other income.

Net loss on consolidation was $ 1 million in Nine Months 2020 and was recorded in fair value gains (losses) on FG VIEs.

The Company has elected the fair value option for assets and liabilities of FG VIEs because the carrying amount transition method was not practical.

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

Consolidated FG VIEs

By Type of Collateral

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

Assets Liabilities Assets Liabilities

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Consolidated FG VIEs by Type of Collateral

September 30, 2021 December 31, 2020

(in millions)

With recourse:

FG VIEs’ assets:

RMBS first lien $ 227 $ 243

RMBS second lien 44 53

Total with recourse 259 296 279 316

Without recourse 28 24 17 17

Total $ 287 $ 320 $ 296 $ 333

The change in the instrument-specific credit risk (ISCR) of the FG VIEs’ assets held as of June 30, 2021 that was recorded in the condensed consolidated statements of operations for Second Quarter 2021 and Six Months 2021 was a gain of $ 7 million and $ 4 million, respectively.

The change in the ISCR of the FG VIEs’ assets held as of June 30, 2020 was a loss of $ 13 million and $ 16 million for Second Quarter 2020 and Six Months 2020, respectively.

Total FG VIEs’ assets $ 271 $ 296

FG VIEs’ liabilities with recourse:

RMBS first lien $ 235 $ 260

RMBS second lien 46 56

Total FG VIEs’ liabilities with recourse $ 281 $ 316

FG VIEs’ liabilities without recourse:

RMBS first lien $ 20 $ 17

RMBS second lien — —

Total FG VIEs’ liabilities without recourse $ 20 $ 17

The change in the instrument-specific credit risk (ISCR) of the FG VIEs’ assets held as of September 30, 2021 that was recorded in the condensed consolidated statements of operations for Third Quarter 2021 and Nine Months 2021 were gains of $ 5 million and $ 9 million, respectively.

The change in the ISCR of the FG VIEs’ assets held as of September 30, 2020 was a gain of $ 14 million for Third Quarter 2020 and a loss of $ 2 million for Nine Months 2020.

The ISCR amount is determined by using expected cash flows at the original date of consolidation, discounted at the effective yield, less current expected cash flows discounted at that same original effective yield.

2 unchanged sentences

however, if the insurance subsidiaries’ CDS spread widens, less value is assigned to the insurance subsidiaries’ credit.

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions)

6 unchanged sentences

____________________

(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2021 to 2038.

During Six Months 2021, five new CIVs were consolidated and one CIV was deconsolidated.

Two CLO warehouses were securitized and became CLOs during the period.

There were no gains or losses on deconsolidation in Second Quarter 2021 and Six Months 2021.

As of June 30, 2021, the Company's CIVs consist of six AssuredIM Funds, six CLOs and three CLO warehouses.

(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2021 through 2038.

During Nine Months 2021, six new CIVs were consolidated and one CIV was deconsolidated.

Three CLO warehouses were securitized and became CLOs during the period.

There were no gains or losses on deconsolidation in Third Quarter 2021 and Nine Months 2021.

As of September 30, 2021, the Company’s CIVs consist of seven AssuredIM Funds, seven CLOs and two CLO warehouses.

Substantially all of the CIVs are VIEs.

The Company consolidates these investment vehicles because it is deemed to be the primary beneficiary based on its power to direct the most significant activities of each VIE (through AssuredIM) and its level of economic interest in the entities (through the Company's investment in AssuredIM Funds).

The Company consolidates these investment vehicles because it is

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

deemed to be the primary beneficiary based on its power to direct the most significant activities of each VIE (through AssuredIM) and its level of economic interest in the entities (through the Company’s investment in AssuredIM Funds).

The assets and liabilities of the Company’s CIVs are held within separate legal entities.

2 unchanged sentences

Liquidity available at the Company’s CIVs is not available for corporate liquidity needs, except to the extent of the Company’s investment in the funds, subject to redemption provisions.

Assets and Liabilities

June 30, 2021 December 31, 2020

Changes in the fair value of assets and liabilities of CIVs, interest income and expense are recorded in “fair value gains (losses) on consolidated investment vehicles” in the condensed consolidated statements of operations.

Interest income from CLO assets is recorded based on contractual rates.

Assets and Liabilities of CIVs

September 30, 2021 December 31, 2020

(in millions)

1 unchanged sentence

Fund investments, at fair value

Corporate securities — 9

Structured products 53 39

Obligations of state and political subdivisions 93 61

Equity securities and warrants 10 18

Structured products 53 39

Corporate securities 2 9

Equity securities (1) 43 18

Due from brokers and counterparties 25 35

1 unchanged sentence

CLO investments:

Loans in CLOs at fair value, collateralized financing entity (CFE) 2,546 1,291

Loans in CLOs, fair value option, collateralized financing entity (CFE) 3,174 1,291

Loans in CLO warehouses, fair value option 498 170

2 unchanged sentences

Total assets (2) $ 4,371 $ 1,913

CLO obligations, at fair value, CFE (3)

CLO obligations, fair value option, CFE (3)

Warehouse financing debt, fair value option (4) 275 25

4 unchanged sentences

____________________

(1) Includes investment in affiliates of $ 8 million and $ 10 million as of June 30, 2021 and December 31, 2020.

(2) Includes assets of a voting interest entity as of June 30, 2021 and December 31, 2020 of $ 74 million and $ 10 million, respectively.

(3) The weighted average maturity of CLO obligations was 6.1 years as of June 30, 2021 and 5.6 years as of December 31, 2020.

The weighted average interest rate of CLO obligations was 2.0 % as of June 30, 2021 and 2.4 % as of December 31, 2020.

CLO obligations will mature at various dates ranging from 2031 to 2034.

(4) The weighted average maturity of warehouse financing debt of CLO warehouses was 1.4 years as of June 30, 2021 and 1.7 years as of December 31, 2020.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 1.7 % as of June 30, 2021 and 1.7 % as of December 31, 2020.

Warehouse financing debt will mature at various dates ranging from 2022 to 2023.

(1) Represents investments in AssuredIM Funds or other affiliated entities that are held by CIVs.

(2) Includes assets of a voting interest entity as of September 30, 2021 and December 31, 2020 of $ 5 million and $ 10 million, respectively.

(3) The weighted average maturity of CLO obligations was 6.3 years as of September 30, 2021 and 5.6 years as of December 31, 2020.

The weighted average interest rate of CLO obligations was 1.9 % as of September 30, 2021 and 2.4 % as of December 31, 2020.

CLO obligations will mature at various dates from 2032 to 2034.

(4) The weighted average maturity of warehouse financing debt of CLO warehouses was 1.1 years as of September 30, 2021 and 1.7 years as of December 31, 2020.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 1.3 % as of September 30, 2021 and 1.7 % as of December 31, 2020.

Warehouse financing debt will mature at various dates from 2022 to 2023.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Redeemable Noncontrolling Interests in CIVs

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

4 unchanged sentences

Net income (loss) — 1 — ( 1 )

June 30, $ 21 $ 20 $ 21 $ 20

As of June 30, 2021 and December 31, 2020, the CIVs had a commitment to invest $ 7 million and $ 6 million, respectively.

As of June 30, 2021, the CIVs included forward currency contracts and interest rate swaps with a notional of $ 21 million and $ 18 million, respectively, and average notional of $ 16 million and $ 13 million, respectively.

September 30, $ 21 $ 21 $ 21 $ 21

As of September 30, 2021 and December 31, 2020, the CIVs had a commitment to invest $ 17 million and $ 6 million, respectively.

As of September 30, 2021, the CIVs included forward currency contracts and interest rate swaps with a notional of $ 26 million and $ 23 million, respectively, and average notional of $ 19 million and $ 15 million, respectively.

As of December 31, 2020, the CIVs included forward currency contracts and interest rate swaps with a notional of $ 11 million and $ 8 million, respectively, and average notional of $ 6 million and $ 4 million, respectively.

The fair value of the forward contracts and interest rate swaps is recorded in the "assets of CIVs" or "liabilities of CIVs" in the Company's condensed consolidated balance sheets.

The net change in fair value is recorded in the "fair value gains (losses) of CIVs" in the condensed consolidated statements of operations.

The net change in fair value of forward currency contracts and interest rate swaps were losses of $ 1 million in Second Quarter 2021 and gains of $ 1 million in Six Months 2021.

The CIVs did not have such contracts during Six Months 2020.

The following table shows the information for assets and liabilities of the CIVs measured using the fair value option.

June 30, 2021 December 31, 2020

(in millions)

Excess of unpaid principal over fair value of:

Loans in CLO warehouses $ 2 $ 1

Liabilities in CLO warehouses 1 —

Unpaid principal for warehouse financing debt 123 25

The change in the ISCR of the CLO warehouses’ assets held as of June 30, 2021 that was recorded in the condensed consolidated statements of operations for both Second Quarter 2021 and Six Months 2021 was a gain of $ 1 million.

The amount of ISCR on each underlying loan in the CIVs is the difference between (1) the hypothetical price determined using the discount margin at the beginning of the period and (2) the market price.

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.

The fair value of the forward contracts and interest rate swaps is reported in the “assets of CIVs” or “liabilities of CIVs” in the condensed consolidated balance sheets.

The net change in fair value is reported in “fair value gains (losses) on CIVs” in the condensed consolidated statements of operations.

The net change in fair value of forward currency contracts and interest rate swaps were gains of $ 1 million in Nine Months 2021.

The net change in fair value of forward currency contracts was de minimis in Third Quarter 2021, Third Quarter 2020 and Nine Months 2020.

Certain of the 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.

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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 had varying maturities ranging from October 1, 2021 to April 23, 2023 with the aggregate principal amount not exceeding $ 1,147 million.

The available commitment was 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 basis points (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 September 30, 2021, these credit facilities had varying maturities ranging from April 21, 2022 to April 23, 2023 with the aggregate principal amount not exceeding $ 777 million.

The available commitment was based on the amount of equity contributed to the warehouse which was $ 279 million.

As of September 30, 2021, $ 216 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 85 basis points (bps) to 3-month LIBOR plus 120 bps (with a floor on the LIBOR/Euribor rates of zero).

The CLO warehouses were in compliance with all financial covenants as of September 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.

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The effect of consolidating CIVs (as opposed to accounting for them as equity method investments in the Insurance segment) has a significant effect on assets, liabilities and cash flows, and includes (1) the establishment of the assets and liabilities of the CIVs, and related changes in fair value, (2) eliminating the asset management fees earned by AssuredIM from the CIVs, and (3) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings of investees.

The economic effect of the Company's ownership interest in CIVs is presented in the Insurance segment as equity in earnings of investees, and as separate line items on a consolidated basis.

The economic effect of the Company’s ownership interest in CIVs is presented in the Insurance segment as equity in earnings of investees as separate line items on a consolidated basis.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The table below reflects the effect of consolidating FG VIEs and CIVs.

The amounts represent (1) the assets, liabilities, revenues and expenses of the FG VIEs and the CIVs, and (2) the amounts eliminated between consolidated FG VIEs or CIVs and the operating subsidiaries.

Effect of Consolidating FG VIEs and CIVs

on the Condensed Consolidated Balance Sheets

Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Balance Sheets

Increase (Decrease)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions)

Investment portfolio:

Fixed-maturity securities and short-term investments (1) $ ( 50 ) $ ( 32 )

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(5) Represents (a) the fair value of the FG VIEs’ liabilities with recourse that are attributable to changes in the Company’s own credit risk and (b) elimination of the AOCI related to the insurance subsidiaries’ purchases of insured FG VIEs’ debt.

Effect of Consolidating FG VIEs and CIVs

on the Condensed Consolidated Statements of Operations

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Increase (Decrease)

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

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Included in other income (loss) in the condensed consolidated statements of operations.

(2) Represents the elimination of the equity in earnings in investees of AGAS and the other subsidiaries' investments in the consolidated AssuredIM Funds.

(2) Includes a loss of $ 2 million resulting from the extinguishment of debt of one of the Company’s CIVs.

(3) Represents the elimination of the equity in earnings of investees of AGAS and the other subsidiaries' investments in the consolidated AssuredIM Funds.

(4) Includes net earned premiums, net investment income, asset management fees, loss and LAE and other operating expenses.

(5) Represents the proportion of consolidated AssuredIM Funds’ income that is not attributable to AGAS’ or any other subsidiaries’ ownership interest.

The fair value gains on CIVs for Second Quarter 2021 and Six Months 2021 were attributable to realized gains, changes in underlying investment prices and investment interest, net of fees and expenses.

The fair value gains on CIVs for Second Quarter 2020 and Six Months 2020 were attributable to price appreciation on underlying assets.

Fair value gains on FG VIEs in Second Quarter 2021 and Six Months 2021 are primarily due to increases in value on overcollateralized RMBS deals and price appreciation on the underlying collateral of fixed rate bonds.

For Second Quarter 2020, the fair value gains were primarily due to price appreciation due to observed tightening in market credit spreads for the underlying collateral, offset in part by the loss on consolidation of a new structured deal.

The fair value losses for Six Months 2020 were primarily due to price depreciation due to the observed widening in the market credit spreads for the underlying collateral.

The fair value gains on CIVs for Third Quarter 2021 and Nine Months 2021 were attributable to realized gains, changes in underlying investment prices and investment interest, net of fees and expenses.

The fair value gains on CIVs for Third Quarter 2020 and Nine Months 2020 were attributable to price appreciation on underlying assets.

Fair value gains on FG VIEs in Third Quarter 2021 and Nine Months 2021 are primarily due to improvements in the underlying collateral.

For Third Quarter 2020, the fair value gains on FG VIEs were de minimis.

The fair value losses for Nine Months 2020 were primarily due to price depreciation due to the observed widening in the market credit spreads for the underlying collateral.

Other Consolidated VIEs

In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the original insured financial guaranty insurance or credit derivative contract, the Company classifies the assets and liabilities of those VIEs in the line items that most accurately reflect the nature of the items, as opposed to within the FG VIEs’ assets and FG VIEs’ liabilities.

The largest of these VIEs had assets of $ 99 million and liabilities of $ 13 million as of June 30, 2021, and assets of $ 96 million and liabilities of $ 3 million as of December 31, 2020, primarily recorded in the investment portfolio and credit derivative liabilities on the condensed consolidated balance sheets.

The largest of these VIEs had assets of $ 96 million and liabilities of $ 9 million as of September 30, 2021, and assets of $ 96 million and liabilities of $ 3 million as of December 31, 2020, primarily recorded in investments and credit derivative liabilities on the condensed consolidated balance sheets.

Non-Consolidated VIEs

As described in Note 3, Outstanding Exposure, the Company monitors all policies in the insured portfolio.

Of the approximately 17 thousand policies monitored as of June 30, 2021, approximately 15 thousand policies are not within the scope of FASB Accounting Standards Codification (ASC) 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

Of the approximately 17 thousand policies monitored as of September 30, 2021, approximately 15 thousand policies are not within the scope of FASB Accounting Standards Codification (ASC) 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

The majority of the remaining policies involve transactions where the Company is not deemed to currently have control over the FG VIEs’ most significant activities.

As of June 30, 2021 and December 31, 2020, the Company identified 81 and 79 policies, respectively, that contain provisions and experienced events that may trigger consolidation.

Based on management’s assessment of these potential triggers or events, the Company consolidated 24 and 25 FG VIEs as of June 30, 2021 and December 31, 2020, respectively.

Company’s exposure provided through its financial guaranties with respect to debt obligations of FG VIEs is included within net par outstanding in Note 3, Outstanding Exposure.

As of September 30, 2021 and December 31, 2020, the Company identified 80 and 79 policies, respectively, that contain provisions and experienced events that may trigger consolidation.

Based on management’s assessment of these potential triggers or events, the Company consolidated 24 and 25 FG VIEs as of September 30, 2021 and December 31, 2020,

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

respectively.

The Company’s exposure provided through its financial guaranties with respect to debt obligations of FG VIEs is included within net par outstanding in Note 3, Outstanding Exposure.

The Company manages funds and CLOs that have been determined to be VIEs, in which the Company concluded that it is not the primary beneficiary.

As such, the Company does not consolidate these entities.

The Company holds variable interests in a VIE which is not consolidated, as it has been determined that the Company is not the primary beneficiary, but in which it holds a significant variable interest.

This VIE has $ 190 million of assets and $ 50 million of liabilities as of June 30, 2021 and $ 204 million of assets and $ 9 million of liabilities as of December 31, 2020.

As of June 30, 2021, the Company had $ 90 million maximum exposure to losses relating to this VIE, which is limited to the carrying value of this investment.

The Company holds variable interests in a healthcare private equity fund, a VIE which is not consolidated, as it has been determined that the Company is not the primary beneficiary, but in which it holds a significant variable interest.

This VIE has $ 214 million of assets and $ 60 million of liabilities as of September 30, 2021 and $ 204 million of assets and $ 9 million of liabilities as of December 31, 2020.

As of September 30, 2021, the Company had $ 102 million maximum exposure to losses relating to this VIE, which is limited to the carrying value of this investment.

Fair Value Measurement

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As markets and products develop and the pricing for certain products becomes more or less transparent, the Company may refine its methodologies and assumptions.

During Six Months 2021, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

During Nine Months 2021, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

The Company’s methods for calculating fair value produce a fair value that may not be indicative of net realizable value or reflective of future fair values.

13 unchanged sentences

Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

There was a transfer of a fixed-maturity security from Level 3 into Level 2 during Six Months 2020.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

There was a transfer of a fixed-maturity security from Level 3 to Level 2 during Nine Months 2020.

There were no other transfers into or from Level 3 during the periods presented.

9 unchanged sentences

The valuation of fixed-maturity investments is more subjective when markets are less liquid due to the lack of market based inputs.

As of June 30, 2021, the Company used models to price 217 securities, including securities that were purchased or obtained for loss mitigation or other risk management purposes, with a Level 3 fair value of $ 1,333 million.

As of September 30, 2021, the Company used models to price 214 securities, including securities that were purchased or obtained for loss mitigation or other risk management purposes, with a Level 3 fair value of $ 1,316 million.

All Level 3 securities were priced with the assistance of independent third parties.

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Other invested assets that are carried at fair value primarily include equity securities traded in active markets that are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices.

Other invested assets also include equity method investments in an AssuredIM healthcare private equity fund and a distressed opportunity fund managed by a third party asset manager, for which fair value is measured at net asset value (NAV), as a practical expedient and therefore excluded from the fair value hierarchy.

The unfunded commitments for the AssuredIM healthcare private equity fund were $ 121 million as of June 30, 2021.

The fund does not allow redemptions.

Other invested assets also include equity method investments in an AssuredIM healthcare private equity fund and a distressed opportunities fund managed by a third-party asset manager for which the Company elected the fair value option using NAV, as a practical expedient.

Accordingly, these equity method investments are excluded from the fair value hierarchy.

Committed Capital Securities

1 unchanged sentence

Each custodial trust was created for the primary purpose of issuing $ 50 million face amount of CCS, investing the proceeds in high-quality assets and entering into put options with AGC or AGM, as applicable.

The fair value of CCS, which is recorded in other assets on the condensed consolidated balance sheets, represents the difference between the present value of remaining expected put option premium payments under AGC's CCS and AGM’s Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value that the Company would

hypothetically have to pay currently for a comparable security.

The fair value of CCS, which is reported in other assets on the condensed consolidated balance sheets, represents the difference between the present value of remaining expected put option premium payments under AGC’s CCS and AGM’s

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value that the Company would hypothetically have to pay currently for a comparable security.

The change in fair value of the AGC CCS and AGM CPS are recorded in fair value gains (losses) on committed capital securities in the condensed consolidated statements of operations.

5 unchanged sentences

The NAVs are based on observable information.

Change in fair value of these assets is recorded in other operating expenses in the condensed consolidated statements of operations.

The change in fair value of these assets is reported in other operating expenses in the condensed consolidated statements of operations.

Contracts Accounted for as Credit Derivatives

The Company’s credit derivatives in the Insurance segment primarily consist of insured CDS contracts, and also include interest rate swaps that qualify as derivatives under GAAP, which require fair value measurement with changes in fair value recorded in the statements of operations.

The Company did not enter into CDS contracts with the intent to trade these contracts and the Company may not unilaterally terminate a CDS contract absent an event of default or termination event that entitles the Company to terminate such contracts;

13 unchanged sentences

Credit spreads capture the effect of recovery rates and performance of underlying assets of these contracts, among other factors.

Consistent with previous years, market conditions at June 30, 2021 were such that market prices of the Company’s CDS contracts were not available.

Consistent with previous years, market conditions at September 30, 2021 were such that market prices of the Company’s CDS contracts were not available.

Assumptions and Inputs

1 unchanged sentence

the gross spread, the allocation of gross spread among the bank profit, net spread and hedge cost, and the weighted average life which is based on debt service schedules.

The Company obtains gross spreads on its outstanding contracts from market data sources published by third parties (e.g., dealer spread tables for the collateral similar to assets within the Company’s transactions), as well as collateral-specific spreads provided or obtained from market sources.

The Company obtains gross spreads on its outstanding contracts from market data sources published by third parties (e.g., dealer spread tables for the collateral similar to assets within the

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Company’s transactions), as well as collateral-specific spreads provided or obtained from market sources.

The bank profit represents the profit the originator, usually an investment bank, realizes for structuring and funding the transaction;

the net spread represents the premiums paid to the Company for the Company’s credit protection provided;

and the hedge cost

represents the cost of CDS protection purchased by the originator to hedge its counterparty credit risk exposure to the Company.

and the hedge cost represents the cost of CDS protection purchased by the originator to hedge its counterparty credit risk exposure to the Company.

With respect to CDS transactions for which there is an expected claim payment within the next twelve months, the allocation of gross spread reflects a higher allocation to the cost of credit rather than the bank profit component.

10 unchanged sentences

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

The rates used to discount future expected premium cash flows ranged from 0.10 % to 1.91 % at June 30, 2021 and 0.19 % to 1.33 % at December 31, 2020.

The rates used to discount future expected premium cash flows ranged from 0.11 % to 1.98 % at September 30, 2021 and 0.19 % to 1.33 % at December 31, 2020.

The premium the Company receives is referred to as the “net spread.” The Company’s pricing model takes into account not only how credit spreads on risks that it assumes affect pricing, but also how the Company’s own credit spread affects the pricing of its transactions.

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Given market conditions and the Company’s own credit spreads, approximately 51 %, based on fair value, of the Company’s CDS contracts were fair valued using this minimum premium as of December 31, 2020.

As of June 30, 2021, the corresponding percentage was de minimis.

As of September 30, 2021, the corresponding percentage was de minimis.

The percentage of transactions that price using the minimum premiums fluctuates due to changes in AGC’s credit spreads.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The amount of premium a financial guaranty insurance market participant can demand is inversely related to the cost of credit protection on the insurance company as measured by market credit spreads assuming all other assumptions remain constant.

This is because the buyers of credit protection typically hedge a portion of their risk to the financial guarantor, due to

the fact that the contractual terms of the Company's contracts typically do not require the posting of collateral by the guarantor.

This is because the buyers of credit protection typically hedge a portion of their risk to the financial guarantor, due to the fact that the contractual terms of the Company’s contracts typically do not require the posting of collateral by the guarantor.

The extent of the hedge depends on the types of instruments insured and the current market conditions.

17 unchanged sentences

The prices are generally determined with the assistance of an independent third party, based on a discounted cash flow approach.

The net change in the fair value of consolidated FG VIEs’ assets and liabilities is recorded in "other income (loss)" in the condensed consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in other comprehensive income (OCI).

Interest income and interest expense are derived from the trustee reports and also included in "other income (loss)." The FG VIEs issued securities typically collateralized by first lien and second lien RMBS.

The net change in the fair value of consolidated FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on financial guaranty variable interest entities” in the condensed consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in other comprehensive income (OCI).

Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on financial guaranty variable interest entities”.

The FG VIEs issued securities typically collateralized by first lien and second lien RMBS.

The fair value of the Company’s FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds;

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In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically could lead to a decrease in the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets.

The third party utilizes an internal model to determine an appropriate yield at which to discount the cash flows of the security, by factoring in collateral types, weighted-average lives, and other structural attributes specific to the security being

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The expected yield is further calibrated by utilizing algorithms designed to aggregate market color, received by the independent third party, on comparable bonds.

4 unchanged sentences

Assets and Liabilities of CIVs

Due to the fact that AssuredIM manages and AGAS or another AGL subsidiary has an investment in certain AssuredIM Funds, the Company consolidated several AssuredIM Funds, CLOs and CLO warehouses (collectively, the CIVs).

Substantially all assets and liabilities of CIVs are accounted for at fair value.

See Note 9, Variable Interest Entities.

The consolidated CLOs, are CFEs, and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured at fair value under the CFE practical expedient.

The consolidated CLOs, are CFEs, and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured under the fair value option using the CFE practical expedient.

The loans are all Level 2 assets, which are more observable than the fair value of the Level 3 debt issued by the consolidated CLOs.

9 unchanged sentences

Inputs may include dealer price quotations, yield curves, credit curves, forward/CDS/index spreads, prepayments rates, strike and expiry dates, volatility statistics and other factors.

Investments in private equity funds are generally valued utilizing net asset value.

Investments in private equity funds are generally valued utilizing NAV.

Level 2 assets in the CIVs include assets of the consolidated CLOs, certain assets of the consolidated funds and derivative assets.

4 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of June 30, 2021

As of September 30, 2021

Fair Value Hierarchy

Fair Value Level 1 Level 2 Level 3

Total Level 1 Level 2 Level 3

(in millions)

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Short-term investments

1,087 1,082 5 —

Other invested assets (1) 13 6 — 7

2 unchanged sentences

Fund investments:

Equity securities 1 — — 1

Structured products 53 — 53 —

Obligations of state and political subdivisions 93 — 93 —

Structured products 53 — 53 —

Corporate securities 2 — 2 —

Equity securities 34 — — 34

Other 1 — 1 —

9 unchanged sentences

Liabilities of CIVs:

CLO obligations of CFE 2,359 — — 2,359

CLO obligations of CFEs 2,937 — — 2,937

Warehouse financing debt 275 — 216 59

2 unchanged sentences

Total liabilities carried at fair value $ 3,681 $ — $ 247 $ 3,434

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

1 unchanged sentence

Fair Value Hierarchy

Fair Value Level 1 Level 2 Level 3

Total Level 1 Level 2 Level 3

(in millions)

15 unchanged sentences

Fund investments:

Corporate securities 9 — 9 —

Equity securities and warrants 10 — 8 2

Structured products 39 — 39 —

Obligations of state and political subdivisions 61 — 61 —

Structured products 39 — 39 —

Corporate securities 9 — 9 —

Equity securities 10 — 8 2

CLOs and CLO warehouse assets:

8 unchanged sentences

Liabilities of CIVs

CLO obligations of CFE 1,227 — — 1,227

CLO obligations of CFEs 1,227 — — 1,227

Warehouse financing debt 25 — 25 —

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

Excludes $ 102 million and $ 91 million of equity method investments measured at NAV as a practical expedient as of June 30, 2021 and December 31, 2020, respectively.

(2) Excludes $ 9 million and $ 8 million of equity investments measured at NAV as of June 30, 2021 and December 31, 2020, respectively.

Excludes $ 119 million and $ 91 million of equity method investments measured at fair value under the fair value option using the NAV as a practical expedient as of September 30, 2021 and December 31, 2020, respectively.

(2) Excludes $ 9 million and $ 8 million as of September 30, 2021 and December 31, 2020, respectively, in AssuredIM Funds carried by certain feeder funders owned by employees that are consolidated, but for which the Company records noncontrolling interest for 100% of the balance.

The consolidation of these funds result in a gross up assets and

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

noncontrolling interests on the condensed consolidated financial statements;

however, they result in no economic equity or net income attributable to AGL.

Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during Second Quarter 2021, Second Quarter 2020, Six Months 2021 and Six Months 2020.

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during Third Quarter 2021, Third Quarter 2020, Nine Months 2021 and Nine Months 2020.

Roll Forward of Level 3 Assets

At Fair Value on a Recurring Basis

Second Quarter 2021

Third Quarter 2021

Fixed-Maturity Securities

Subdivisions Corporate Securities RMBS Asset-

Subdivisions RMBS Asset-

Securities FG VIEs’

1 unchanged sentence

(in millions)

Fair value as of March 31, 2021 $ 103 $ 28 $ 246 $ 941 $ 281 $ 1 $ 37

Fair value as of June 30, 2021 $ 110 $ 248 $ 975 $ 287 $ 1 $ 31

Total pre-tax realized and unrealized gains (losses) recorded in:

4 unchanged sentences

Settlements — ( 16 ) ( 70 ) ( 18 ) — —

Fair value as of June 30, 2021 $ 110 $ — $ 248 $ 975 $ 287 $ 1 $ 31

Change in unrealized gains (losses) included in earnings related to financial instruments held as of June 30, 2021 $ 19 (2) $ — $ ( 6 ) (3)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of June 30, 2021 $ 6 $ — $ 9 $ 3

Fair value as of September 30, 2021

$ 110 $ 238 $ 968 $ 271 $ 34 $ 27

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2021

$ 2 (2) $ — $ ( 3 ) (3)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of September 30, 2021

$ ( 1 ) $ ( 2 ) $ 3

Roll Forward of Level 3 Liabilities

At Fair Value on a Recurring Basis

Second Quarter 2021

Third Quarter 2021

FG VIEs’ Liabilities

2 unchanged sentences

(in millions)

Fair value as of March 31, 2021 $ ( 120 ) $ ( 301 ) $ ( 17 ) $ ( 1,973 )

Fair value as of June 30, 2021 $ ( 154 ) $ ( 296 ) $ ( 24 ) $ ( 2,385 )

Total pre-tax realized and unrealized gains (losses) recorded in:

3 unchanged sentences

Settlements ( 1 ) 13 2 374

Fair value as of June 30, 2021 $ ( 154 ) $ ( 296 ) $ ( 24 ) $ ( 2,385 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of June 30, 2021 $ ( 35 ) (6) $ ( 3 ) (2) $ ( 8 ) (2) $ ( 2 ) (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of June 30, 2021 $ ( 2 )

Fair value as of September 30, 2021

$ ( 134 ) $ ( 281 ) $ ( 20 ) $ ( 2,996 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2021

$ 1 (6) $ — (2) $ 2 (2) $ 1 (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of September 30, 2021

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets

At Fair Value on a Recurring Basis

Second Quarter 2020

Third Quarter 2020

Fixed-Maturity Securities Assets of CIVs

3 unchanged sentences

(in millions)

Fair value as of March 31, 2020 $ 86 $ 26 $ 253 $ 596 $ 368 $ 52 $ 32 $ 12 $ 103

Fair value as of June 30, 2020 $ 97 $ 29 $ 254 $ 714 $ 318 $ 60 $ 53 $ 6 $ 78

Total pre-tax realized and unrealized gains (losses) recorded in:

4 unchanged sentences

Settlements ( 1 ) — ( 11 ) ( 3 ) ( 12 ) — — — —

VIE consolidations — — — — 18 — — — —

Fair value as of June 30, 2020 $ 97 $ 29 $ 254 $ 714 $ 318 $ 60 $ 53 $ 6 $ 78

Change in unrealized gains (losses) included in earnings related to financial instruments held as of June 30,2020 $ 25 (2) $ 3 (4) $ 7 (4) $ 1 (4) $ ( 25 ) (3)

Fair value as of September 30, 2020

$ 93 $ 30 $ 257 $ 897 $ 314 $ 62 $ 43 $ — $ 68

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2020

$ 8 (2) $ 2 (4) $ 5 (4) $ — $ ( 10 ) (3)

Change in unrealized

gains (losses) included in OCI related to financial instruments held as of June 30, 2020 $ 10 $ 2 $ 11 $ 16 $ —

gains (losses) included in OCI related to financial instruments held as of September 30, 2020

$ ( 5 ) $ — $ 9 $ 26

Roll Forward of Level 3 Liabilities

At Fair Value on a Recurring Basis

Second Quarter 2020

Third Quarter 2020

FG VIEs’ Liabilities

2 unchanged sentences

(in millions)

Fair value as of March 31, 2020 $ ( 262 ) $ ( 312 ) $ ( 82 ) $ ( 426 )

Fair value as of June 30, 2020 $ ( 161 ) $ ( 332 ) $ ( 20 ) $ ( 806 )

Total pre-tax realized and unrealized gains (losses) recorded in:

3 unchanged sentences

Settlements 5 9 2 —

VIE consolidations — ( 16 ) ( 3 ) —

Fair value as of June 30, 2020 $ ( 161 ) $ ( 332 ) $ ( 20 ) $ ( 806 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of June 30, 2020 $ 100 (6) $ ( 11 ) (2) $ ( 11 ) (2) $ ( 18 ) (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of June 30, 2020 $ ( 7 )

Fair value as of September 30, 2020

$ ( 159 ) $ ( 336 ) $ ( 19 ) $ ( 830 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2020

$ 1 (6) $ ( 7 ) (2) $ ( 1 ) (2) $ ( 24 ) (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of September 30, 2020

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets

At Fair Value on a Recurring Basis

Six Months 2021

Nine Months 2021

Fixed-Maturity Securities

10 unchanged sentences

Settlements ( 2 ) — ( 39 ) ( 187 ) ( 45 ) — —

Fair value as of June 30, 2021 $ 110 $ — $ 248 $ 975 $ 287 $ 1 $ 31

Change in unrealized gains (losses) included in earnings related to financial instruments held as of June 30, 2021 $ 18 (2) $ 3 (4) $ ( 25 ) (3)

Fair value as of September 30, 2021 $ 110 $ — $ 238 $ 968 $ 271 $ 34 $ 27

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2021

$ 21 (2) $ 2 (4) $ ( 28 ) (3)

Change in unrealized

gains (losses) included in OCI related to financial instruments held as of June 30, 2021 $ 8 $ — $ 9 $ 8 1

gains (losses) included in OCI related to financial instruments held as of September 30, 2021

$ 7 $ — $ 6 $ 9 $ 1

Roll Forward of Level 3 Liabilities

At Fair Value on a Recurring Basis

Six Months 2021

Nine Months 2021

FG VIEs’ Liabilities

8 unchanged sentences

Settlements ( 3 ) 35 3 376

Fair value as of June 30, 2021 $ ( 154 ) $ ( 296 ) $ ( 24 ) $ ( 2,385 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of June 30, 2021 $ ( 55 ) (6) $ 2 (2) $ ( 8 ) (2) $ 4 (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of June 30, 2021 $ ( 3 )

Fair value as of September 30, 2021 $ ( 134 ) $ ( 281 ) $ ( 20 ) $ ( 2,996 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2021

$ ( 54 ) (6) $ 2 (2) $ ( 6 ) (2) $ 5 (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of September 30, 2021

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets

At Fair Value on a Recurring Basis

Six Months 2020

Nine Months 2020

Fixed-Maturity Securities Assets of CIVs

4 unchanged sentences

Fair value as of December 31, 2019

$ 107 $ 41 $ 308 $ 658 $ 442 $ 47 $ 17 $ — $ 55

Total pre-tax realized and unrealized gains (losses) recorded in:

6 unchanged sentences

Transfers out of Level 3 — — — ( 1 ) — — — — —

Fair value as of June 30, 2020 $ 97 $ 29 $ 254 $ 714 $ 318 $ 60 $ 53 $ 6 $ 78

Change in unrealized gains (losses) included in earnings related to financial instruments held as of June 30, 2020 $ ( 11 ) (2) $ 8 (4) $ 3 (4) $ 1 (4) $ 23 (3)

Change in unrealized gains (losses) included in OCI related to financial instruments held at June 30, 2020 $ ( 11 ) $ ( 6 ) $ ( 34 ) $ ( 41 ) $ —

Fair value as of September 30, 2020 $ 93 $ 30 $ 257 $ 897 $ 314 $ 62 $ 43 $ — $ 68

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2020

$ ( 2 ) (2) $ 10 (4) $ 8 (4) $ — $ 13 (3)

Change in unrealized gains (losses) included in OCI related to financial instruments held at September 30, 2020

$ ( 16 ) $ ( 6 ) $ ( 24 ) $ ( 17 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Liabilities

At Fair Value on a Recurring Basis

Six Months 2020

Nine Months 2020

FG VIEs’ Liabilities

3 unchanged sentences

Fair value as of December 31, 2019

$ ( 185 ) $ ( 367 ) $ ( 102 ) $ ( 481 )

Total pre-tax realized and unrealized gains (losses) recorded in:

4 unchanged sentences

VIE consolidations — ( 16 ) ( 3 ) —

Fair value as of June 30, 2020 $ ( 161 ) $ ( 332 ) $ ( 20 ) $ ( 806 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of June 30, 2020 $ 27 (6) $ 4 (2) $ ( 1 ) (2) $ 37 (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held at June 30, 2020 $ 6

Fair value as of September 30, 2020

$ ( 159 ) $ ( 336 ) $ ( 19 ) $ ( 830 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2020

$ 28 (6) $ ( 3 ) (2) $ ( 2 ) (2) $ 13 (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held at September 30, 2020

____________________

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

(2) Included in other income (loss).

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

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

(4) Recorded in fair value gains (losses) on consolidated investment vehicles.

(4) Recorded in fair value gains (losses) on CIVs.

(5) Represents the net position of credit derivatives.

Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheets based on net exposure by transaction.

(6) Reported in net change in fair value of credit derivatives.

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

(7) Includes CCS and other invested assets.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Level 3 Fair Value Disclosures

Quantitative Information About Level 3 Fair Value Inputs

At June 30, 2021

Financial Instrument Description Fair Value at June 30, 2021 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

At September 30, 2021

Financial Instrument Description Fair Value at September 30, 2021 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Fixed-maturity securities (1):

13 unchanged sentences

Assets of CIVs:

Equity securities 1 Yield 11.8 %

Equity securities (3) 34 (3) (3) (3)

Other assets (1) 23 Implied Yield 2.7 % - 3.3 % 3.0 %

Term (years) 10 years

Financial Instrument Description (1) Fair Value at June 30, 2021 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description (1) Fair Value at September 30, 2021 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Credit derivative liabilities, net $ ( 134 ) Year 1 loss estimates 0.0 % - 85.8 % 0.1 %

8 unchanged sentences

Liabilities of CIVs:

CLO obligations of CFE (5) ( 2,359 ) Yield 1.6 % - 12.8 % 2.3 %

CLO obligations of CFEs (5) ( 2,937 ) Yield 1.6 % - 11.7 % 2.1 %

Warehouse financing debt ( 59 ) Yield 12.7 % - 15.8 % 14.1 %

2 unchanged sentences

(2) Excludes several investments recorded in other invested assets with a fair value of $ 7 million.

(3) The primary inputs to the valuation are recent market transaction prices, supported by yield/discount rates.

(3) Includes an equity investment of $ 33 million acquired in Third Quarter 2021 by a consolidated fund.

Due to this fund’s quarter lag in reporting, the investment’s purchase price represents its fair value of September 30, 2021.

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Quantitative Information About Level 3 Fair Value Inputs

17 unchanged sentences

Assets of CIVs (3):

Equity securities and warrants 2 Yield 9.7 %

Equity securities 2 Yield 9.7 %

Other assets (1)

1 unchanged sentence

Term (years) 10 years

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description Fair Value at December 31, 2020 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

9 unchanged sentences

Liabilities of CIVs:

CLO obligations of CFE (5) ( 1,227 ) Yield 2.2 % - 15.2 % 2.5 %

CLO obligations of CFEs (5) ( 1,227 ) Yield 2.2 % - 15.2 % 2.5 %

____________________

20 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value of Financial Instruments Not Carried at Fair Value

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

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

Amount Estimated

14 unchanged sentences

accrued interest, repurchase agreement liability, management fees receivables, promissory note receivable, receivables for securities sold and payables for securities purchased, for which the carrying value approximates fair value.

Includes a $ 19 million repurchase agreement liability entered into during Six Months 2021.

Includes a $ 19 million repurchase agreement liability entered into during Nine Months 2021.

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

2 unchanged sentences

Asset Management Fees

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

1 unchanged sentence

Management fees:

$ 9 $ 4 $ 31 $ 11

Opportunity funds and liquid strategies 4 1 12 5

6 unchanged sentences

(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance compensation earned from the CLOs.

Gross management fees from CLOs, before rebates, we re $ 11 million, $ 7 million, $ 25 million and $ 17 million for Second Quarter 2021, Second Quarter 2020, Six Months 2021 and Six Months 2020, respectively .

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $ 9 million as of June 30, 2021 and $ 5 million as of December 31, 2020.

The Company had no unearned revenues as of June 30, 2021 and December 31, 2020.

Gross management fees from CLOs, before rebates, we re $ 11 million, $ 7 million, $ 36 million and $ 24 million for Third Quarter 2021, Third Quarter 2020, Nine Months 2021 and Nine Months 2020, respectively .

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $ 8 million as of September 30, 2021 and $ 5 million as of December 31, 2020.

The Company had no unearned revenues as of September 30, 2021 and December 31, 2020.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

AGL and its Bermuda subsidiaries AG Re, AGRO, and Cedar Personnel Ltd.

19 unchanged sentences

Deferred and Current Tax Assets (Liabilities) (1)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions)

4 unchanged sentences

Valuation Allowance

The Company has $ 24 million of foreign tax credit (FTC) due to the 2017 Tax Cuts and Jobs Act (Tax Act) for use against regular tax in future years.

The Company has $ 24 million of foreign tax credit (FTC) due to the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years.

FTCs will expire in 2027.

9 unchanged sentences

A discrete calculation of the provision is calculated for each interim period.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

7 unchanged sentences

Effective Tax Rate Reconciliation

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

2 unchanged sentences

Tax-exempt interest ( 4 ) ( 5 ) ( 12 ) ( 13 )

State taxes 4 — 7 1

Change in liability for uncertain tax positions — ( 17 ) — ( 17 )

Effect of provision to tax return filing adjustment ( 4 ) ( 7 ) ( 4 ) ( 7 )

State taxes, net of federal benefit ( 2 ) 1 5 2

Foreign taxes 4 ( 4 ) 6 3

Taxes on reinsurance ( 4 ) 4 ( 1 ) 3

Other 1 ( 1 ) ( 2 ) ( 1 )

5 unchanged sentences

Pre-tax Income (Loss) by Tax Jurisdiction

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

2 unchanged sentences

Bermuda 31 ( 14 ) 67 1

( 13 ) 21 ( 9 ) ( 3 )

Other ( 3 ) — ( 5 ) ( 3 )

1 unchanged sentence

Revenue by Tax Jurisdiction

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

2 unchanged sentences

Bermuda 32 35 90 94

( 1 ) 29 29 30

Other — 4 1 6

1 unchanged sentence

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

As of June 30, 2021, AGUS and Assured Guaranty Overseas US Holdings Inc.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 30, 2021, AGUS and Assured Guaranty Overseas US Holdings Inc.

had open tax years with the U.S.

25 unchanged sentences

With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the lower court's ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole remaining claim for breach of contract.

On January 17, 2019, the Appellate Division affirmed the Supreme Court's decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss

reasonably and in good faith.

On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the lower court’s ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

remaining claim for breach of contract.

On January 17, 2019, the Appellate Division affirmed the Supreme Court’s decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

The trial was originally scheduled for March 9, 2020, but was postponed due to COVID-19.

2 unchanged sentences

On March 29, 2021, the action was reassigned to Justice Melissa A.

Trial is scheduled to begin on October 18, 2021.

Trial began on October 18, 2021.

Long-Term Debt

1 unchanged sentence

Principal and Carrying Amounts of Debt

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

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

Principal Carrying

4 unchanged sentences

3.15% Senior Notes (1) 500 494 — —

3.6% Senior Notes (1) 400 395 — —

Series A Enhanced Junior Subordinated Debentures (2) 150 150 150 150

3 unchanged sentences

6 7 / 8 % Quarterly Interest Bonds (1) (4)

100 71 100 71

6.25% Notes (1) (4) — — 230 145

11 unchanged sentences

(3) Carrying amounts are different than principal amounts primarily due to fair value adjustments at the date of the AGMH acquisition, which are accreted or amortized into interest expense over the remaining terms of these obligations.

(4) Redeemed or partially redeemed in July 2021.

(4) Redeemed or partially redeemed in Third Quarter 2021.

3.15% Senior Notes.

On May 26, 2021, AGUS issued $ 500 million of 3.150 % Senior Notes due 2031 ( 3.15 % Senior Notes) for net proceeds of $ 494 million.

The net proceeds from the issuance are being used for general corporate purposes, which include the redemption on July 9, 2021, of all of AGMH's debt maturing in 2101 and a portion of its debt maturing in 2102, as described below.

AGUS may redeem all or part of the 3.15 % Senior Notes at any time or from time to time prior to March 15, 2031 (the date that is three months prior to the maturity of the 3.15 % Senior Notes (the Par Call Date)), at its option, at a redemption price equal to the greater of (i) 100 % of the principal amount of the 3.15 % Senior Notes being redeemed;

and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed (excluding interest accrued to the redemption date) from the redemption date to the Par Call Date discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30- day months) at a discount rate equal to the Treasury Rate plus 25 basis points;

The net proceeds from the issuance were used for the redemption on July 9, 2021, of all of AGMH's debt maturing in 2101 and a portion of AGMH debt maturing in 2102, as described below, with the balance being used for general corporate purposes, including share repurchases.

AGUS may redeem all or part of the 3.15 % Senior Notes at any time or from time to time prior to March 15, 2031 (the date that is three months prior to the maturity of the 3.15 % Senior Notes), at its option, at a redemption price equal to the greater of (i) 100 % of the principal amount of the 3.15 % Senior

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes being redeemed;

or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed (excluding interest accrued to the redemption date) from the redemption date to March 15, 2031 discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30- day months) at a discount rate equal to the Treasury Rate plus 25 bps;

plus, in each case, accrued and unpaid interest on the 3.15 % Senior Notes to be redeemed to, but excluding, the redemption date.

AGUS may redeem all or part of the 3.15 % Senior Notes at any time or from

time to time on and after the Par Call Date, at its option, at a redemption price equal to 100 % of the principal amount of the 3.15 % Senior Notes being redeemed, plus accrued and unpaid interest on the 3.15 % Senior Notes to be redeemed to, but excluding, the redemption date.

AGUS may redeem all or part of the 3.15 % Senior Notes at any time or from time to time on and after March 15, 2031, at its option, at a redemption price equal to 100 % of the principal amount of the 3.15 % Senior Notes being redeemed, plus accrued and unpaid interest on the 3.15 % Senior Notes to be redeemed to, but excluding, the redemption date.

The 3.15 % Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by AGL.

1 unchanged sentence

The guarantee is a senior unsecured obligation of AGL and ranks equally in right of payment with all of AGL’s other unsecured and unsubordinated indebtedness outstanding.

3.6% Senior Notes.

On August 20, 2021, AGUS issued $ 400 million of 3.600 % Senior Notes due 2051 ( 3.6 % Senior Notes) for net proceeds of $ 395 million.

The net proceeds from the issuance were used for the redemption on September 27, 2021, of all of AGMH’s debt maturing in 2103, the remaining AGMH debt maturing in 2102, and a portion of AGUS’s debt maturing in 2024, as described below.

AGUS may redeem all or part of the 3.6 % Senior Notes at any time or from time to time prior to March 15, 2051 (the date that is six months prior to the maturity of the 3.6 % Senior Notes), at its option, at a redemption price equal to the greater of (i) 100 % of the principal amount of the 3.6 % Senior Notes being redeemed;

or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed (excluding interest accrued to the redemption date) from the redemption date to March 15, 2051 discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30- day months) at a discount rate equal to the Treasury Rate plus 30 bps;

plus, in each case, accrued and unpaid interest on the 3.6 % Senior Notes to be redeemed to, but excluding, the redemption date.

AGUS may redeem all or part of the 3.6 % Senior Notes at any time or from time to time on and after March 15, 2051, at its option, at a redemption price equal to 100 % of the principal amount of the 3.6 % Senior Notes being redeemed, plus accrued and unpaid interest on the 3.6 % Senior Notes to be redeemed to, but excluding, the redemption date.

The 3.6 % Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by AGL.

The 3.6 % Senior Notes are senior unsecured obligations of AGUS and rank equally in right of payment with all of AGUS’s other unsecured and unsubordinated indebtedness outstanding.

The guarantee is a senior unsecured obligation of AGL and ranks equally in right of payment with all of AGL’s other unsecured and unsubordinated indebtedness outstanding.

On July 9, 2021, a portion of the proceeds from the issuance of the 3.15 % Senior Notes was used to redeem $ 200 million of AGMH debt as follows:

all $ 100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, and $ 100 million of the $ 230 million of AGMH’s 6.25% Notes due in 2102.

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) which represents the difference between the amount paid to redeem AGMH's debt and the carrying value of the AGMH debt.

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

On September 27, 2021, all of the proceeds from the issuance of the 3.6 % Senior Notes were used to redeem $ 400 million of AGMH and AGUS debt as follows:

all $ 100 million of AGMH's 5.60% Notes due in 2103, the remaining $ 130 million of AGMH 6.25% Notes due in 2102, and $ 170 million of the $ 500 million of AGUS 5% Senior Notes due in 2024.

In Third Quarter 2021, as a result of these redemptions, the Company recognized a loss on extinguishment of debt of approximately $ 175 million on a pre-tax basis ($ 138 million after-tax) which represents the difference between the amount paid to redeem the debt and the carrying value of the debt.

The loss on extinguishment of debt primarily consists of a $ 156 million acceleration of unamortized fair value adjustments that were originally recorded upon the acquisition of AGMH in 2009, and a $ 19 million make-whole payment associated with the redemption of $ 170 million of AGUS 5% Senior Notes.

Shareholders’ Equity

1 unchanged sentence

The following tables present the changes in each component of AOCI and the effect of reclassifications out of AOCI on the respective line items in net income.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Second Quarter 2021

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Net Unrealized Gains (Losses) on FG VIEs ’ Liabilities with Recourse due to ISCR

Third Quarter 2021

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Change in ISCR on

FG VIEs ’ Liabilities with Recourse

Adjustment Cash Flow

(in millions)

Balance, March 31, 2021 $ 458 $ ( 36 ) $ ( 21 ) $ ( 35 ) $ 7 $ 373

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Other comprehensive income (loss) before reclassifications ( 69 ) ( 2 ) 1 — — ( 70 )

1 unchanged sentence

Net realized investment gains (losses)

( 3 ) 5 — — — 2

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Interest expense — — — — 1 1

Total before tax

4 unchanged sentences

Net current period other comprehensive income (loss) ( 66 ) ( 6 ) 2 — ( 1 ) ( 71 )

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Balance, September 30, 2021

$ 443 $ ( 18 ) $ ( 21 ) $ ( 36 ) $ 6 $ 374

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Second Quarter 2020

Third Quarter 2020

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Change in ISCR on

FG VIEs ’ Liabilities with Recourse

Adjustment Cash Flow

(in millions)

Balance, March 31, 2020 $ 252 $ ( 66 ) $ ( 17 ) $ ( 38 ) $ 7 $ 138

Balance, June 30, 2020 $ 427 $ ( 41 ) $ ( 22 ) $ ( 38 ) $ 7 $ 333

Other comprehensive income (loss) before reclassifications 74 12 ( 1 ) — — 85

1 unchanged sentence

Net realized investment gains (losses)

12 ( 8 ) — — — 4

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Total before tax

12 ( 8 ) ( 1 ) — — 3

Tax (provision) benefit

2 unchanged sentences

Net current period other comprehensive income (loss) 67 8 ( 4 ) — — 71

Balance, June 30, 2020 $ 427 $ ( 41 ) $ ( 22 ) $ ( 38 ) $ 7 $ 333

Balance, September 30, 2020

$ 494 $ ( 33 ) $ ( 26 ) $ ( 38 ) $ 7 $ 404

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2021

Nine Months 2021

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Change in ISCR on

FG VIEs ’ Liabilities with Recourse

Adjustment Cash Flow

4 unchanged sentences

Net realized investment gains (losses)

4 ( 3 ) — — — 1

Fair value gains (losses) on FG VIEs

— — ( 3 ) — — ( 3 )

Interest expense — — — — 1 1

Total before tax

4 unchanged sentences

Net current period other comprehensive income (loss) ( 134 ) 12 ( 1 ) — ( 1 ) ( 124 )

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Balance, September 30, 2021 $ 443 $ ( 18 ) $ ( 21 ) $ ( 36 ) $ 6 $ 374

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2020

Nine Months 2020

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Change in ISCR on

FG VIEs ’ Liabilities with Recourse

Adjustment Cash Flow

7 unchanged sentences

Fair value gains (losses) on FG VIEs

— — ( 3 ) — — ( 3 )

Total before tax

4 unchanged sentences

Net current period other comprehensive income (loss) 80 ( 19 ) 1 — — 62

Balance, June 30, 2020 $ 427 $ ( 41 ) $ ( 22 ) $ ( 38 ) $ 7 $ 333

Balance, September 30, 2020 $ 494 $ ( 33 ) $ ( 26 ) $ ( 38 ) $ 7 $ 404

Share Repurchases

1 unchanged sentence

common shares.

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

Under this and previous authorizations, as of November 4, 2021, the Company was authorized to purchase $ 220 million of its common shares.

The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions.

12 unchanged sentences

2021 (April 1 - June 30) 1,887,531 88 46.63

2021 (July 1- August 5) 1,226,040 58 47.02

2021 (July 1- September 30) 2,918,993 140 47.76

2021 (October 1 - November 4) 1,498,751 77 51.90

Total 2021 8,291,809 $ 382 $ 46.11

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Earnings Per Share

Computation of Earnings Per Share

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

16 unchanged sentences

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 1. Financial Statements