What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-06 · 389 added, 348 removed, 1291 unchanged (36% of the section changed)

41 unchanged sentences

The Company makes available, free of charge, on its web site (under www.assuredguaranty.com/sec-filings ) the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC.

The Company also makes available, free of charge, through its web site (under www.assuredguaranty.com/governance ) links to the Company's Corporate Governance Guidelines, its Global Code of Ethics, AGL's Bye-Laws and the charters for the committees of its Board of Directors.

The Company also makes available, free of charge, through its web site (under www.assuredguaranty.com/governance ) links to the Company’s Corporate Governance Guidelines, the Company’s Global Code of Ethics, AGL’s Bye-Laws and the charters for the committees of its Board of Directors.

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

10 unchanged sentences

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

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

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

The Company guarantees obligations issued principally in the U.S.

6 unchanged sentences

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

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

As of September 30, 2021, AssuredIM had $17.6 billion of assets under management (AUM), including $1.3 billion that is managed on behalf of the Company’s U.S.

insurance subsidiaries.

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

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

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

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

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

1 unchanged sentence

(AGMH) (the U.S.

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

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

In Third Quarter 2021, it also included a loss on extinguishment of debt.

Financial Statements, Note 2, Segment Information.

Economic Environment and Impact of COVID-19

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

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

The COVID-19 pandemic continues throughout the world, while the production, acceptance, and distribution of vaccines for it are proceeding unevenly across the globe.

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

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

The ultimate size, depth, course and duration of the pandemic, and the effectiveness, acceptance, and distribution of vaccines for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve.

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

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

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

In July 2021, the U.S.

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

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

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

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

In October 2021, the U.S.

Bureau of Economic Analysis (BEA) reported that real Gross Domestic Product (GDP) was estimated to have increased at an annual rate of 2% in the three-month period ended September 30, 2021 (Third Quarter 2021), compared to 6.7% for the three-month period ended June 30, 2021.

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

unemployment rate, seasonally adjusted, stood at 4.8%, lower than where it started the period at 5.9%, and down from a pandemic high of 14.7% in April 2020.

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

5 unchanged sentences

public finance.

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

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

The 30-year AAA MMD rate started Third Quarter 2021 at 1.50% and decreased through the first few weeks of July 2021.

It generally increased in the weeks that followed and reached 1.67% by the end of Third Quarter 2021.

Despite the increase, the average for Third Quarter 2021 was 1.47%, slightly lower than the 1.49% average for the same quarter last year.

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

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

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

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

In its September 2021 meeting, the Federal Open Market Committee (FOMC) decided to

keep the target range for the federal funds rate at 0% to 0.25%, noting it “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.” At its November 2-3, 2021 meeting, the FOMC kept the federal funds rates unchanged.

The difference, or spread, between the 30-year A-rated General Obligation (GO) relative to the 30-year AAA MMD was virtually flat throughout Third Quarter 2021 as it finished the quarter at 29 basis points (bps) after starting the quarter one basis point higher.

This is down from an average of 44.2 bps across the same quarter in 2020.

In addition, BBB credit spreads measured on the same basis also remained steady throughout the quarter, averaging 60.1 bps for Third Quarter 2021.

This is significantly lower than the 148.4 bps average for the same quarter in 2020.

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

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

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

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

The National Association of Realtors (NAR) reported that “existing-home sales on a seasonally adjusted annual rate rose 7% in September from August, with all regions showing an increase.” According to the NAR, the median existing-homes sales price climbed 13.3% year-over-year to $352,800.

Properties typically sold in 17 days in September, remaining at a record low.

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

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

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

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

census divisions, reported a 19.8% annual gain in August 2021 (the latest data available), remaining the same as the previous month.

The 20-City Composite posted a 19.7% year-over-year gain, down from 20.0% in the previous month.

Home prices in the U.S.

3 unchanged sentences

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

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

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

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

1 unchanged sentence

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

Through 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.

The Company believes its financial guaranty business model is particularly well-suited to withstand global economic disruptions.

7 unchanged sentences

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

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

As of September 30, 2021, the Company had $694 million of short-term investments and $101 million of cash, including proceeds from the issuance of debt in 2021.

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

3 unchanged sentences

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

workforce has returned to the office, and the Company is planning for the reopening of all its offices in November 2021.

In response to employee feedback and as part of its commitment to providing a safe and healthy workplace for employees and visitors, the Company intends to implement a hybrid remote and office work model, among other safety measures based on regional governmental guidance and recommended practices for reopening its offices.

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

25 unchanged sentences

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

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

The $17.4 billion of municipal new issue par sold with the Company’s insurance in Nine Months 2021 was the most the Company insured in the first nine months of a year since 2010.

See “— Results of Operations by Segment — Insurance Segment” below.

1 unchanged sentence

Based on Sale Date

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

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

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

33 unchanged sentences

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

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

With AGM and AGC agreeing to the HTA/CCDA PSA, GO/PBA PSA, and (in the case of AGC) PRIFA PSA, 95% of Assured Guaranty’s net par outstanding to Puerto Rico credits as of September 30, 2021, is now covered by a Support Agreement.

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

10 unchanged sentences

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

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

As of September 30, 2021, AssuredIM is a top-25 CLO manager by AUM, as published by Creditflux Ltd.

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

9 unchanged sentences

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

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

As of September 30, 2021, AG Asset Strategies LLC (AGAS) had committed $659 million to funds managed by AssuredIM (AssuredIM Funds), including $279 million that has yet to be funded.

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

3 unchanged sentences

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

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

From 2013 through November 4, 2021, the Company has repurchased 129.8 million common shares for approximately $4,044 million, representing approximately 67% of the total shares outstanding at the beginning of the repurchase program in 2013.

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

common shares.

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

Under this and previous authorizations, as of November 4, 2021, the Company was authorized to purchase $220 million of its common shares.

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

8 unchanged sentences

2021 (Second Quarter) 88 1.9 46.63

2021 (through August 5) 58 1.2 47.02

2021 (Third Quarter) 140 2.9 47.76

2021 (through November 4) 77 1.5 51.90

Cumulative repurchases since the beginning of 2013 $ 4,044 129.8 31.16

Accretive Effect of Cumulative Repurchases (1)

Second Quarter 2021 Six Months 2021

As of June 30, 2021

Third Quarter 2021 Nine Months 2021

As of September 30, 2021

Net income (loss) attributable to AGL $ 0.01 $ 0.66

7 unchanged sentences

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

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

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

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

On July 9, 2021, a portion of the proceeds from the issuance of the 3.15% Senior Notes were 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.

See “— Liquidity and Capital Resources — AGL and its U.S.

Holding Companies” for the U.S.

Holding Companies’ expected debt service for its long-term debt.

On August 20, 2021, the Company issued $400 million of 3.6% Senior Notes, due in 2051 for net proceeds of $395 million.

On September 27, 2021, all of the proceeds from the issuance of the 3.6% Senior Notes were used to redeem $400 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 carrying value of the debt included the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009.

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

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

6 unchanged sentences

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

restructuring of the Company's U.S.

This restructuring of the Company’s U.S.

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

3 unchanged sentences

For a more detailed description of events, trends and uncertainties, as well as the capital, liquidity, credit, operational and market risks and the critical accounting policies and estimates affecting the Company, this Quarterly Report should be read in its entirety and in addition to the Company’s 2020 Annual Report on Form 10-K.

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

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

Other factors that drive volatility in net income include:

changes in expected losses and recoveries, the amount and timing of the refunding and/or termination of insured obligations, realized gains and losses on investments (including credit impairment), changes in foreign exchange rates, the effects of large settlements, commutations, acquisitions, the effects of the Company’s various loss mitigation strategies, and changes in the fair value of investments in AssuredIM Funds.

Changes in the fair value of AssuredIM Funds affect the amount of management and performance fees earned.

Changes in laws and regulations, among other factors, may also have a significant effect on reported net income or loss in a given reporting period.

Financial Performance of Assured Guaranty

Financial Results

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

20 unchanged sentences

Inflows - intercompany 73 167 182 931

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

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

Amount Per Share Amount Per Share

10 unchanged sentences

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

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

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

Other factors that drive volatility in net income include:

changes in expected losses and recoveries, the amount and timing of the refunding and/or termination of insured obligations, realized gains and losses on the investment portfolio (including credit impairment), changes in foreign exchange rates, the effects of large settlements, commutations, acquisitions, the effects of the Company's various loss mitigation strategies, and changes in the fair value of investments in AssuredIM Funds.

Changes in the fair value of AssuredIM Funds affect the amount of management and performance fees earned.

Changes in laws and regulations, among other factors, may also have a significant effect on reported net income or loss in a given reporting period.

Condensed Consolidated Results of Operations

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

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

2021 2020 2021 2020

3 unchanged sentences

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 CCS (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 (CIVs) 16 18 53 37

5 unchanged sentences

Interest expense 23 21 67 64

Loss on extinguishment of debt 175 — 175 —

Amortization of deferred acquisition costs (DAC) 3 4 10 11

10 unchanged sentences

Effective tax rate (313.3) % (12.0) % 6.0 % 8.4 %

Second Quarter 2021 Compared with Second Quarter 2020

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

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

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

These decreases were offset in part by:

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

• equity in earnings of investees in Second Quarter 2021.

Six Months 2021 Compared with Six Months 2020

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

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

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

Third Quarter 2021 Compared with Third Quarter 2020

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

• losses on extinguishment of debt of $175 million on a pre-tax basis ($138 million after-tax) related to the redemption of $600 million of long-term debt in Third Quarter 2021, and

• foreign exchange losses of $27 million in Third Quarter 2021 compared with gains of $40 million in Third Quarter 2020.

These decreases were offset in part by a $68 million benefit in loss expense in Third Quarter 2021 compared with losses incurred of $73 million in Third Quarter 2020.

Nine Months 2021 Compared with Nine Months 2020

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

• losses on extinguishment of debt of $175 million on a pre-tax basis ($138 million after-tax) related to the redemption of $600 million of long-term debt in Nine Months 2021,

• fair value losses on credit derivatives of $31 million in Nine Months 2021 compared with gains of $20 million in Nine Months 2020,

• fair value losses on CCS of $28 million in Nine Months 2021 compared with gains of $13 million in Nine Months 2020, and

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

These decreases were offset in part by:

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

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

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

• benefit in loss expense of $54 million in Nine Months 2021 compared with losses incurred of $130 million Nine Months 2020, and

• higher equity in earnings of investees gains from AssuredIM Funds and other alternative investments in Nine Months 2021 compared with Nine Months 2020.

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

6 unchanged sentences

controlled foreign corporation.

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

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

The effective tax rate in Nine Months 2021 was lower than in Nine Months 2020 due primarily to differences in the portion of income generated by various jurisdictions.

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

See “Accretive Effect of Cumulative Repurchases” table above.

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

Shareholders’ equity attributable to AGL, adjusted operating shareholders’ equity and adjusted book value declined, mainly due to share repurchases and dividends, offset in part, in the case of adjusted book value, by net premiums written and a reduction in expected losses due to positive development.

Other Matters

9 unchanged sentences

(i) issuers of obligations the Company insures have obligations, assets and hedges that reference LIBOR, and some loss mitigation securities held in the investment portfolio reference LIBOR, (ii) debt issued by the U.S.

Holding Companies currently pay, or will convert to, a floating interest rate tied to LIBOR, (iii) CCS from which the Company benefits pay interest tied to LIBOR, and (iv) certain obligations issued by, and certain assets owned by, its CIVs pay interest tied to LIBOR.

certain assets owned by, its CIVs pay interest tied to LIBOR.

While the documents relevant to the CIVs were entered into after the initial LIBOR sunset was announced and generally contain fallback language contemplating the discontinuance of LIBOR, documents relevant to the other three areas were entered into before the initial LIBOR sunset was announced and generally contain less robust fallback language.

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

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

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

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

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

9 unchanged sentences

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 financial guaranty VIEs (FG VIEs) and those AssuredIM investment vehicles (primarily funds and CLOs) for which the Company is deemed to be the primary beneficiary (CIVs).

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

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

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

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

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

Insurance Subsidiaries) and AGAS.

The Asset Management segment includes asset management fees attributable to CIVs and inter-segment asset management fees earned from the U.S.

Insurance Subsidiaries.

The Asset Management segment presents fund expenses and reimbursable fund expenses netted in other operating expenses, whereas on the condensed consolidated statement of operations, reimbursable expenses are shown as a component of asset management fees.

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

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

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

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

1 unchanged sentence

Total adjusted operating income includes the effect of consolidating both FG VIEs and investment vehicles.

The effect of consolidating such entities, including the related

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

The effect of consolidating such entities, including the related eliminations, is included in “other” in the tables below.

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

1 unchanged sentence

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

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

18 unchanged sentences

Insurance Results

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

17 unchanged sentences

New Business Production

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

21 unchanged sentences

Total gross par written $ 8,561 $ 7,432 $ 20,170 $ 16,477

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

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

____________________

1 unchanged sentence

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

Second Quarter 2021

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

Third Quarter 2021

public finance GWP and PVP were $41 million and $44 million, respectively, compared with $93 million in GWP and PVP in Third Quarter 2020.

In Third Quarter 2021 pricing returned to pre-pandemic levels, after the COVID-19 pandemic resulted in increased pricing spreads and an increase in demand for insurance in second and Third Quarter 2020, particularly in the healthcare and private higher education sectors where the Company insured several large transactions.

The Company’s direct par written represented 64% of the total U.S.

municipal market insured issuance in Third Quarter 2021, consistent with Third Quarter 2020, and the Company’s penetration of all municipal issuance increased to 5.43% in Third Quarter 2021 from 5.21% in Third Quarter 2020.

The Company also assumed U.S.

public finance transactions with $833 million in par outstanding in Third Quarter 2021, which generated GWP and PVP of $11 million.

The average rating of U.S.

public finance par written in Second Quarter 2021 was A.

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

municipal market insured issuance in Second Quarter 2021.

In Second Quarter 2021, non-U.S.

GWP and PVP was primarily attributable to several large transactions.

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

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

PVP increased 54%.

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

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

Six Months 2021

Six Months 2021 U.S.

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

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

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

public finance (direct and assumed) par written in Third Quarter 2021 was A-.

In Third Quarter 2021, non-U.S.

public finance GWP and PVP were primarily attributable to a large U.K.

university housing transaction.

Third Quarter 2021 structured finance GWP and PVP were primarily attributable to a large insurance securitization transaction.

Nine Months 2021

public finance GWP and PVP were $149 million and $154 million, respectively, compared with $182 million in GWP and PVP in Nine Months 2020.

In Nine Months 2021 pricing returned to pre-pandemic levels, after the COVID-19 pandemic resulted in increased pricing spreads and an increase in demand for insurance in second and third quarter of 2020, particularly in the healthcare and private higher education sectors where the Company insured several large

transactions.

This was partially offset by several large infrastructure transactions written in the first half of 2021.

The Company’s direct par written represented 60% of the total U.S.

municipal market insured issuance in Nine Months 2021, compared with 59% in Nine Months 2020.

The Company’s penetration of all municipal issuance increased to 5.08% in Nine Months 2021 from 4.56% in Nine Months 2020.

The Company also assumed U.S.

public finance transactions with $833 million in par outstanding in Nine Months 2021, which generated GWP and PVP of $11 million.

The average rating of U.S.

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

municipal market insured issuance in Six Months 2021.

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

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

GWP decreased by 14% and PVP increased 3%.

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

public finance (direct and assumed) par written was A-.

GWP and PVP decreased 48% and 10% respectively.

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

GWP decreased by 12% and PVP decreased 11%.

In addition to Third Quarter 2021 new business as described above, the Company also insured several large European infrastructure finance transactions and insurance securitization transactions in the first half of the year.

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

Net Earned Premiums and Credit Derivative Revenues

12 unchanged sentences

Net Earned Premiums and Credit Derivative Revenues

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

Net earned premiums:

Financial guaranty insurance:

13 unchanged sentences

Credit derivative revenues:

Scheduled net earned premiums 4 3 10 9

Accelerations 7 1 7 1

Total credit derivative revenues 11 4 17 10

Total net earned premiums and credit derivative revenues $ 114 $ 113 $ 327 $ 345

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

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

____________________

(1) Includes accretion.

Net earned premiums and credit derivative revenues in Third Quarter 2021 increased slightly compared with Third Quarter 2020 primarily due to the increase in expected premiums on a legacy structured finance transaction, partially offset by lower refundings and terminations.

Net earned premiums and credit derivative revenues in Nine Months 2021 decreased compared with Nine Months 2020 primarily due to lower refundings and terminations.

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

Net Investment Income and Equity in Earnings of Investees

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

Equity method investments in the Insurance segment include the U.S.

Insurance Subsidiaries' investments in AssuredIM Funds, as well as other alternative investments.

The income (loss) on such investments is presented as a separate line item, "equity in earnings of investees," and typically represents the change in net asset value (NAV) of AssuredIM Funds and the Company's share of earnings of its other investees.

The Insurance segment is 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.

Net investment income is a function of the yield that the Company earns on fixed-maturity securities and short-term investments, and the size of such portfolio.

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

Equity method investments in the Insurance segment include investments AGM, AGC and, until its merger with AGM on April 1, 2021, MAC (collectively, the U.S.

Insurance Subsidiaries) make in AssuredIM Funds, as well as other alternative investments.

The income (loss) on such investments is reported in “equity in earnings of investees,” and typically represents the change in net asset value (NAV) of AssuredIM Funds and the Company’s share of earnings of its other investees.

Insurance Subsidiaries are authorized to invest up to $750 million in AssuredIM Funds.

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.

Net Investment Income and Equity in Earnings of Investees

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

2 unchanged sentences

Managed by third parties $ 52 $ 54 $ 154 $ 178

Loss mitigation securities 11 14 22 28

Loss mitigation securities and other 12 17 44 56

Managed by AssuredIM (1) 4 3 12 4

Other internally managed 4 5 10 11

Intercompany loans 2 3 7 8

8 unchanged sentences

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

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

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

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

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

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

Net investment income for Third Quarter 2021 and Nine Months 2021 decreased compared to Third Quarter 2020 and Nine Months 2020, primarily due to lower reinvestment yields and lower income on securities purchased for loss mitigation purposes.

The overall pre-tax book yield was 3.10% as of September 30, 2021 and 3.40% as of September 30, 2020.

Excluding the internally managed portfolio, pre-tax book yield was 2.87% as of September 30, 2021 and 3.00% as of September 30, 2020.

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

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

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

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

The fair value gains on investments in AssuredIM Funds in Third Quarter 2020 and Nine Months 2020 were attributable to price appreciation in all AssuredIM funds.

Commutation Gains (Losses)

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

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

Other Income (Loss)

Other income (loss) consists of recurring items such as foreign exchange gain (loss) on remeasurement, ancillary fees on financial guaranty policies for commitments and consents, and if applicable, other revenue items on financial guaranty insurance and reinsurance contracts such as loss mitigation recoveries and other non-recurring items.

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

This commutation resulted in an increase of unearned premium reserve of $5 million and a commutation gain of $38 million in Nine Months 2020.

Other Income (Loss)

Second Quarter Six Months

2021 2020 2021 2020

(in millions)

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

Other 5 1 4 12

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

____________________

(1) Primarily related to cash.

Other income (loss) consists of recurring items such as ancillary fees on financial guaranty policies for commitments and consents, foreign exchange gain (loss) on remeasurement, and if applicable, other revenue items on financial guaranty insurance and reinsurance contracts such as loss mitigation recoveries and other non-recurring items.

Economic Loss Development

17 unchanged sentences

Risk-Free Rates

Risk-Free Rates used in Expected Loss for U.S.

Risk-Free Rates used in Expected Loss (Recovery)

Dollar Denominated Obligations

Range Weighted Average

As of September 30, 2021 0.00 % - 2.13% 0.78 %

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

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

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

As of September 30, 2020 0.00 % - 1.52% 0.54 %

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

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

As of December 31, 2019 0.00 % - 2.45% 1.94 %

4 unchanged sentences

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

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

(in millions)

7 unchanged sentences

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

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

(in millions)

7 unchanged sentences

Effect of changes in the risk-free rates included in economic loss development (benefit) $ (1) $ (2) $ (34) $ 30

Second Quarter 2021 Net Economic Loss Development

Third Quarter 2021 Net Economic Loss Development

Public Finance:

1 unchanged sentence

exposures, which had BIG net par

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

The Company projected

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

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

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

Economic loss development on U.S.

exposures in Second Quarter 2021

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

outstanding of $5.4 billion as of both September 30, 2021 and December 31, 2020.

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

public finance exposures as of September 30, 2021 will be $9 million, compared with a net expected loss of $305 million as of December 31, 2020.

The economic benefit on U.S.

exposures in Third Quarter 2021 was $29 million, which was primarily attributable to certain Puerto Rico exposures.

The economic benefit attributable to U.S.

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

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

Lower LIBOR results in higher excess spread.

RMBS was $65 million and was mainly attributable to $56 million benefit for higher recoveries on charged-off second lien loans, and $19 million benefit for increased recoveries on certain deferred principal balances in first lien loans.

In Third Quarter 2021, the Company also refined several assumptions based on consistently observed trends.

The primary change was to include remaining COVID-19 forbearance loans in the relevant delinquency categories rather than applying a separate liquidation rate assumption to these loans.The change in assumption for COVID-19 forbearance loans, changes to the severity, conditional default rates and other assumptions, netted together, partially offset the benefit from recoveries on charged-of loans and deferred principal balances for Third Quarter 2021.

Other Structured Finance:

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

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

RMBS, was $2 million, which was primarily attributable to deterioration of certain aircraft residual value insurance exposures.

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

Second Quarter 2020 Net Economic Loss Development

Third Quarter 2020 Net Economic Loss Development

Public Finance :

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

exposures, which had BIG net par

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

The Company projected

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

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

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

exposures, which had BIG net par outstanding of $5.4 billion as of September 30, 2020 compared with $5.8 billion as of December 31, 2019.

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

public finance exposures as of September 30, 2020 would be $263 million, compared with $531 million as of December 31, 2019.

Economic loss development on U.S.

exposures in Second Quarter 2020

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

The economic loss development was

approximately $2 million for non-U.S.

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

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

The economic loss development was approximately $4 million for non-U.S.

exposures during Third Quarter 2020 mainly due to the impact of lower Euro Interbank

Offered Rate (Euribor).

The economic loss development attributable to U.S.

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

changes in liquidation rates.

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

Six Months 2021 Net Economic Loss Development

Economic loss development on U.S.

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

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

RMBS was $1 million and was mainly related to reduction of excess spread of $6 million, and mostly offset by higher recoveries for secured charged-off loans and changes in

discount rates.

The economic development attributable to changes in discount rates was a gain of $2 million in Third Quarter 2020.

Other Structured Finance:

The economic loss development was approximately $9 million for other structured finance exposures during Third Quarter 2020, which was mainly attributable to loss adjustment expenses for certain transactions.

Nine Months 2021 Net Economic Loss Development

Public Finance :

The economic benefit on U.S.

public finance exposures in Nine Months 2021 was $13 million, which was primarily attributable to changes in discount rates, improved cashflows for certain transactions and improvement in certain Puerto Rico exposures, partially offset by deterioration in a student housing transaction.

The economic benefit was approximately $15 million for non-U.S.

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

public finance exposures mainly due to the impact of higher Euribor and, separately, improved traffic and availability in certain road exposures.

The net benefit attributable to U.S.

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

RMBS was $82 million and was mainly related to a $67 million benefit related to higher recoveries on charged-off second lien loans, a $22 million benefit related to changes in discount rates, and changes in assumptions related to recovery of certain deferred principal balances in first lien loans of $19 million, partially offset by $35 million in lower excess spread.

Additional benefits from transaction improvement, changes to loss severity in certain sectors, and the reduction in the CDR floor were partially offset by higher assumed liquidation rates for remaining COVID-19 related forbearances.

Other Structured Finance:

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

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

Six Months 2020 Net Economic Loss Development

RMBS, was $9 million, which was primarily attributable to loss adjustment expenses for certain transactions.

Nine Months 2020 Net Economic Loss Development

Public Finance :

Economic loss development on U.S.

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

primarily attributable to Puerto Rico exposures.

public finance exposures in Nine Months 2020 was $142 million, which was primarily attributable to Puerto Rico exposures.

The economic loss development was approximately $9 million for non-U.S.

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

public finance exposures during Nine Months 2020 mainly due to the impact of lower Euribor.

The net benefit attributable to U.S.

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

Insurance Segment Loss and LAE

RMBS was $61 million and was mainly related to higher excess spread on certain transactions supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) and with insured floating rate debt linked to LIBOR, which decreased in Nine Months 2020, and partially offset by COVID-19 related forbearances.

The economic development attributable to changes in discount rates was a loss of $30 million in Nine Months 2020.

Insurance Segment Loss Expense (Benefit)

The primary differences between net economic loss development and the amount reported as loss and LAE in the condensed consolidated statements of operations are that loss and LAE:

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

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

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

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

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

6 unchanged sentences

Therefore the largest differences between net economic loss development and loss and LAE on financial guaranty insurance contracts generally relate to those policies.

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

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

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

The following table presents the Insurance segment loss and LAE, net of reinsurance.

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

Insurance Segment

Loss and LAE (Benefit)

Second Quarter Six Months

Loss Expense (Benefit)

Third Quarter Nine Months

2021 2020 2021 2020

6 unchanged sentences

Structured finance (55) 12 (58) (23)

Total loss and LAE (benefit) $ (12) $ 39 $ 18 $ 57

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

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

RMBS exposures, partially offset by other structured finance.

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

RMBS and certain European exposures.

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

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

Total loss expense (benefit) $ (78) $ 76 $ (60) $ 133

The primary components of the Insurance segment loss expense (benefit) were as follows:

• The benefit in Third Quarter 2021 was mainly driven by U.S.

RMBS exposures and certain Puerto Rico exposures.

The benefit in Nine Months 2021 was mainly driven by a benefit in second lien U.S.

RMBS exposures.

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

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

RMBS transactions.

1 unchanged sentence

Other Operating Expenses

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

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

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

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

On October 20, 2021, Kroll Bond Rating Agency upgraded the financial strength rating of AGC from AA to AA+.

Demand for the financial guaranties issued by the Company’s insurance subsidiaries may be impacted by changes in the credit ratings assigned to them by the rating agencies.

The financial strength ratings (or similar ratings) assigned to AGL’s insurance subsidiaries, along with the date of the most recent rating action (or confirmation) by the rating agency assigning the rating, are shown in the table below.

Ratings are subject to continuous rating agency review and revision or withdrawal at any time.

In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment may request that a rating agency add or drop a rating from certain of its companies.

S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC Kroll Bond Rating

11 unchanged sentences

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

Ratings are subject to continuous rating agency review and revision or withdrawal at any time.

There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL’s insurance subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary.

2 unchanged sentences

Asset Management Results

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

17 unchanged sentences

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

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

Insurance Subsidiaries invest, along with

two previously established opportunity funds in their harvest periods.

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

Management Fees

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

4 unchanged sentences

Total management fees $ 17 $ 12 $ 55 $ 40

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

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

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

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

Management fees in Third Quarter 2021 increased to $17 million from $12 million in Third Quarter 2020.

In Nine Months 2021, management fees were $55 million compared with $40 million in Nine Months 2020.

The increase in management fees was primarily due to an increase in CLO fees as a result of (i) higher fee-earning CLO AUM due to the sale to third-parties of CLO equity from legacy funds and the issuance of new CLOs, and (ii) the higher level of deferrals of CLO fees in the prior year that did not recur in the current year.

CLO fee-earning AUM was $14.1 billion, or 96%, of total CLO AUM as of September 30, 2021, compared with $10.2 billion, or 74%, of total CLO AUM as of December 31, 2020 and $8.0 billion, or 60%, of total CLO AUM as of September 30, 2020.

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

CLO AUM includes CLO equity that is held by various AssuredIM Funds of $186 million as of September 30, 2021, and $265 million as of December 31, 2020.

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

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

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

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

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

In addition, opportunity funds and liquid strategies also includes fees from an IMA with the U.S.

Insurance Subsidiaries, and two previously established funds.

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

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

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

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

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

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

Fees from opportunity funds increased as AUM increased to $1.6 billion as of September 30, 2021 from $1.0 billion as of September 30, 2020.

Fees from the wind-down funds decreased as distributions to investors continued.

As of September 30, 2021, AUM of the wind-down funds was $0.8 billion compared with $2.3 billion as of September 30, 2020.

Assets Under Management

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

Roll Forward of

Assets Under Management

Second Quarter 2021

Third Quarter 2021

CLOs Opportunity Funds Liquid Strategies Wind-Down Funds Total

(in millions)

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

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

Inflows - third party 598 245 — — 843

5 unchanged sentences

Change in value (47) 80 — (6) 27

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

AUM, September 30, 2021

$ 14,746 $ 1,634 $ 388 $ 809 $ 17,577

_____________________

(1) Distributions from opportunity funds include $107 million related to the AssuredIM Funds created prior to BlueMountain Acquisition.

Roll Forward of

Assets Under Management

Six Months 2021

Nine Months 2021

CLOs Opportunity Funds Liquid Strategies Wind-Down Funds Total

1 unchanged sentence

AUM, December 31, 2020

$ 13,856 $ 1,486 $ 383 $ 1,623 $ 17,348

Inflows - third party 1,811 271 — — 2,082

5 unchanged sentences

Change in value (80) 309 5 (23) 211

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

AUM, September 30, 2021

$ 14,746 $ 1,634 $ 388 $ 809 $ 17,577

_____________________

(1) Distributions from opportunity funds include $259 million related to the AssuredIM Funds created prior to BlueMountain Acquisition.

Components of

2 unchanged sentences

(in millions)

As of June 30, 2021:

As of September 30, 2021:

Funded AUM $ 14,615 $ 1,071 $ 388 $ 787 $ 16,861

16 unchanged sentences

Management fee revenue is based on a variety of factors and is not perfectly correlated with AUM.

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

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

compensation.

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

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

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

1 unchanged sentence

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

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

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

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

17 unchanged sentences

Corporate Results

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

1 unchanged sentence

Net investment income $ 1 $ — $ 1 $ 1

Loss on extinguishment of debt

Other income (loss)

Total revenues 1 12 1 8

Interest expense 25 24 74 72

Loss on extinguishment of debt

Employee compensation and benefit expenses 5 3 15 11

5 unchanged sentences

Adjusted operating income (loss) $ (169) $ (18) $ (232) $ (83)

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

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

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

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

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

The Corporate division loss in Third Quarter 2021 increased compared with Third Quarter 2020 primarily due to the loss on extinguishment of debt of $175 million on a pre-tax basis ($138 million after-tax) associated with the redemption of AGMH and AGUS debt, 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.

Financial Statements, Note 14, Long-Term Debt.

Other income in Third Quarter 2020 related to a benefit recognized by the Company in connection with the separation of the former Chief Investment Officer and Head of Asset Management.

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

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

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

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

Holding Companies.

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

Intersegment interest expense of $2 million in Third Quarter 2021, $3 million in Third Quarter 2020, $7 million in Nine Months 2021 and $8 million in Nine Months 2020 related primarily to the $250 million AGUS debt to the U.S.

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

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

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

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

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

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

3 unchanged sentences

Net Income (Loss) Attributable to AGL

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

7 unchanged sentences

Generally, the consolidation of the AssuredIM investment vehicles and FG VIEs has a significant gross-up effect on the Company’s assets, liabilities and cash flows.

The majority of the economic interest the Company holds in consolidated AssuredIM Funds is held by the insurance subsidiaries and presented in the Insurance segment.

The majority of the economic interest the Company holds in consolidated AssuredIM Funds is held by the insurance subsidiaries and reported in the Insurance segment.

The ownership interests of the Company’s consolidated AssuredIM Funds to which the Company has no economic rights are reflected as either redeemable or nonredeemable noncontrolling interests in the Company’s condensed consolidated financial statements.

3 unchanged sentences

To Adjusted Operating Income (Loss)

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

10 unchanged sentences

Gain (loss) related to VIE consolidation (net of tax provision (benefit) of $(2), $(1), $(1) and $(2)) included in adjusted operating income

$ (4) $ (3) $ — $ (7)

Net Realized Investment Gains (Losses)

1 unchanged sentence

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 )

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

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

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

Net realized investment gains (losses) $ 3 $ 13 $ 4 $ 12

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.

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 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.

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

13 unchanged sentences

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

There has been very limited new issuance activity in this market since 2009 and, as of June 30, 2021, market prices for the Company’s credit derivative contracts were generally not available.

There has been very limited new issuance activity in this market since 2009 and, as of September 30, 2021, market prices for the Company’s credit derivative contracts were generally not available.

Inputs to the estimate of fair value include various market indices, credit spreads, the Company’s own credit spread, and estimated contractual payments.

See Item 1, Financial Statements, Note 10, Fair Value Measurement, for additional information.

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

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

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

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

Third Quarter 2021 non-credit impairment unrealized fair value gains on credit derivatives were mainly attributable to the termination of several CDS policies, including several trust preferred securities transactions and one RMBS transaction.

Nine Months 2021 non-credit impairment unrealized fair value losses on credit derivatives were generated primarily as a result of the tightening of AGC spreads, partially offset by general price improvements of the underlying collateral and the termination of several CDS policies, including several trust preferred securities transactions and one RMBS transaction.

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

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

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

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

3 unchanged sentences

Effect of Changes in Credit Spread

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

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

Credit Spreads (1) Estimated Net

12 unchanged sentences

Fair Value Gains (Losses) on CCS

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

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

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

Fair value changes on CCS in all periods presented were primarily driven by changes in market spreads during the reporting period.

During Third Quarter 2021, Third Quarter 2020 and Nine Months 2021, there was a tightening of market

however, during Nine Months 2020, market spreads widened.

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

Foreign Exchange Gain (Loss) on Remeasurement

Foreign exchange gains and losses in both periods primarily relate to remeasurement of long-dated premiums receivables, for which the Company records the present value of future installment premiums, and are mainly due to changes in the exchange rate of the pound sterling and euro relative to the U.S.

Foreign exchange gains and losses in all periods primarily relate to remeasurement of long-dated premiums receivables, for which the Company records the present value of future installment premiums, and are mainly due to changes in the exchange rate of the pound sterling and euro relative to the U.S.

Non-GAAP Financial Measures

3 unchanged sentences

The Company believes its presentation of non-GAAP financial measures provides information that is necessary for analysts to calculate their estimates of Assured Guaranty’s financial results in their research reports on Assured Guaranty and for investors, analysts and the financial news media to evaluate Assured Guaranty’s financial results.

GAAP requires the Company to consolidate:

• certain FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and

• certain investment vehicles for which the Company is deemed the primary beneficiary.

GAAP requires the Company to consolidate VIEs where it is deemed to be the primary beneficiary which include:

• FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and

• CIVs in which certain subsidiaries invest and which are managed by AssuredIM.

The Company provides the effect of VIE consolidation that is embedded in each non-GAAP financial measure, as applicable.

1 unchanged sentence

In the case of both the consolidated FG VIEs and the CIVs, the economic effect of each of the consolidated FG VIEs and CIVs is reflected primarily in the results of the Insurance segment.

factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals.

Management and the Board of Directors use non-GAAP financial measures further adjusted to remove the effect of VIE consolidation (which the Company refers to as its core financial measures), as well as GAAP financial measures and other factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals.

The Company uses core financial measures in its decision-making process for and in its calculation of certain components of management compensation.

44 unchanged sentences

To Adjusted Book Value

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

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

Total Per Share Total Per Share

13 unchanged sentences

Adjusted book value $ 8,727 $ 122.50 8,908 114.87

Gain (loss) related to VIE consolidation included in adjusted operating shareholders' equity (net of tax provision of $1 and $0) $ 3 $ 0.05 $ 2 $ 0.03

Gain (loss) related to VIE consolidation included in adjusted operating shareholders' equity (net of tax (provision) benefit of $1 and $0) $ — $ — $ 2 $ 0.03

Gain (loss) related to VIE consolidation included in adjusted book value (net of tax benefit of $3 and $2) $ (9) $ (0.12) $ (8) $ (0.10)

15 unchanged sentences

Reconciliation of GWP to PVP

Second Quarter 2021 Second Quarter 2020

Third Quarter 2021 Third Quarter 2020

Public Finance Structured Finance Public Finance Structured Finance

5 unchanged sentences

PVP $ 55 $ 17 $ 21 $ 3 $ 96 $ 93 $ 24 $ — $ — $ 117

Six Months 2021 Six Months 2020

Nine Months 2021 Nine Months 2020

Public Finance Structured Finance Public Finance Structured Finance

14 unchanged sentences

Net Par Outstanding and Average Internal Rating by Sector

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

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

Sector Net Par

Outstanding Avg.

Outstanding Average

Rating Net Par

Outstanding Avg.

Outstanding Average

(dollars in millions)

32 unchanged sentences

RMBS 332 A 357 A

Pooled corporate obligations 226 AA- — —

Other structured finance 176 AA- 219 A+

3 unchanged sentences

Second-to-pay insured par outstanding represents transactions the Company has insured that are already insured by another financial guaranty insurer and where the Company’s obligation to pay under its insurance of such transactions arises only if both the obligor on the underlying insured obligation and the primary financial guaranty insurer default.

The Company underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary financial guarantor.

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

and $5.6 billion, respectively.

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

financial guarantor.

The second-to-pay insured par outstanding as of September 30, 2021 and December 31, 2020 was $5.1 billion and $5.6 billion, respectively.

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $45 million and $91 million as of September 30, 2021 and December 31, 2020, respectively.

Exposure to Puerto Rico

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

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

1 unchanged sentence

Exposure to Puerto Rico

As of June 30, 2021

As of September 30, 2021

Net Par Outstanding

26 unchanged sentences

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.

In the event that obligors default on their obligations, the Company would only pay the shortfall between the principal and interest due in any given period and the amount paid by the obligors.

event that obligors default on their obligations, the Company would only pay the shortfall between the principal and interest due in any given period and the amount paid by the obligors.

Amortization Schedule

of Net Par of Puerto Rico

As of June 30, 2021

As of September 30, 2021

Scheduled Net Par Amortization

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

2021 (4Q) 2022 (1Q) 2022 (2Q) 2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 - 2030 2031 - 2035 2036 - 2040 2041 - 2042 Total

(in millions)

17 unchanged sentences

of Net Debt Service of Puerto Rico

As of June 30, 2021

As of September 30, 2021

Scheduled Net Debt Service Amortization

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

2021 (4Q) 2022 (1Q) 2022 (2Q) 2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 - 2030 2031 - 2035 2036 - 2040 2041 - 2042 Total

(in millions)

21 unchanged sentences

Distribution of U.S.

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

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

First Lien Alt-A

27 unchanged sentences

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

• to repurchase AGL's common shares pursuant to AGL's share repurchase authorization.

• repurchase AGL’s common shares pursuant to AGL’s share repurchase authorization.

In the ordinary course of business, the Company evaluates its liquidity needs and capital resources in light of holding company expenses and dividend policy, as well as rating agency considerations.

8 unchanged sentences

Long-Term Debt and Intercompany Loans

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

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

(in millions)

4 unchanged sentences

3.15% Senior Notes 3.15% 2031 500 —

3.6% Senior Notes 3.60% 2051 400 —

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

13 unchanged sentences

Holding Company debt $ 2,006 $ 1,706

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

On May 26, 2021, AGUS issued $500 million in 3.15% Senior Notes.

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

On August 20, 2021, AGUS issued $400 million in 3.6% Senior Notes, and on September 27, 2021, the proceeds of the debt issuance were used to redeem $230 million in AGMH debt and $170 million in AGUS debt.

Financial Statements, Note 14, Long-Term Debt.

The following table presents the expected debt service of the Holding Companies’ long term debt as of December 31, 2020, compared with the expected debt service as of September 30, 2021, which reflects the new debt issuances and redemptions that occurred in 2021.

Holding Companies

Expected Debt Service of Long-Term Debt

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

(in millions)

2021 (October 1 - December 31) $ 19 $ 20

2027-2036 1,180 726

2037-2046 298 423

2047-2056 617 418

Thereafter 439 2,098

Total $ 3,216 $ 4,522

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

12 unchanged sentences

Holding Companies, and the $450 million aggregate principal amount of junior subordinated debentures issued by the U.S.

Holding Companies, and the AGC/AGM/MAC intercompany loans.

Holding Companies, and the intercompany loans.

The following tables include summarized financial information for AGL and the U.S.

Holding Companies, excluding their investments in subsidiaries.

As of June 30, 2021

As of September 30, 2021

Holding Companies

11 unchanged sentences

____________________

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

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

Holding Companies' fixed-maturity securities (excluding AGUS’ investment in AGMH’s debt) were 4.9 years and 3.4 years, respectively.

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

Six Months 2021

Nine Months 2021

Holding Companies

2 unchanged sentences

Interest expense — 74

Loss on extinguishment of debt — 175

Other expenses 25 5

6 unchanged sentences

Significant Cash Flow Items

Six Months 2021

Nine Months 2021

Holding Companies

3 unchanged sentences

Investments in subsidiaries — (15)

Return of capital from subsidiaries — 9

Dividends paid to AGL — (275)

1 unchanged sentence

Repurchases of common shares (1) (305) —

Issuance of debt — 495

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

Redemptions of debt, including make-whole — (619)

____________________

24 unchanged sentences

Management believes that the insurance subsidiaries’ liquidity needs for the next twelve months can be met from current cash, short-term investments and operating cash flow, including premium collections and coupon payments as well as scheduled maturities and paydowns from their respective investment portfolios.

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

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

Treasuries, agency RMBS and pre-refunded municipal bonds equal to 1.5 times its projected operating company cash flow needs over the next four quarters.

11 unchanged sentences

Beginning in 2016, the Commonwealth and certain related authorities and public corporations have defaulted on obligations to make payments on its debt.

The Company anticipates potentially making substantial payments in connection with the possible resolution of most of these exposures beginning as early as December 2021 and through 2022 and possibly later, and is taking this into account in projecting its liquidity needs during these periods.

Information regarding the Company’s exposure to the Commonwealth of Puerto Rico and its related authorities and public corporations is set forth in Item 1, Financial Statements, Note 3, Outstanding Exposure, Note 4, Expected Loss to be Paid (Recovered) and Item 2, Management Discussion and Analysis, Insured Portfolio.

9 unchanged sentences

However, early termination of a lease does not result in a draw on the AGM policy if the tax-exempt entity makes the required termination payment.

If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately $621 million as of June 30, 2021.

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

As of June 30, 2021, approximately $1.7 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

As of September 30, 2021, approximately $1.7 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

The consensual terminations have resulted in no claims on AGM.

1 unchanged sentence

in order to provide for payments on a scheduled “pay-as-you-go” basis and to replicate the terms of a traditional financial guaranty insurance policy.

However, the Company may also be required to pay if the obligor becomes bankrupt or if the reference obligation were restructured if, after negotiation, those credit events are specified in the documentation for the credit derivative transactions.

However, the Company may also be required to pay if the obligor becomes bankrupt or if the reference obligation were restructured if, after negotiation, those credit events are

specified in the documentation for the credit derivative transactions.

Furthermore, the Company may be required to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative.

2 unchanged sentences

The transaction documentation with one counterparty for $35 million of CDS insured by the Company requires the Company to post collateral, subject to a cap, to secure its obligation to make payments under such contracts.

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

As of September 30, 2021, the Company did not have to post collateral to satisfy these requirements and the maximum posting requirement was $35 million.

Distributions From Insurance Subsidiaries

3 unchanged sentences

Dividend restrictions by insurance subsidiary are as follows:

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

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

• Based on the applicable law and regulations, in 2021 AG Re (a subsidiary of AGL) has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $257 million as of June 30, 2021.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $273 million as of June 30, 2021, and (ii) the amount of statutory surplus, which as of June 30, 2021 was $181 million.

• Based on the applicable law and regulations, in 2021 AGRO (an indirect subsidiary of AGRe) has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $107 million as of June 30, 2021.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $406 million as of June 30, 2021, and (ii) the amount of Statutory surplus, which as of June 30, 2021 was $292 million.

• The maximum amount available during 2021 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $291 million, of which approximately $105 million is available for distribution in the fourth quarter of 2021.

• The maximum amount available during 2021 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $94 million, of which approximately $42 million is available for distribution in the fourth quarter of 2021.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $284 million as of September 30, 2021, and (ii) the amount of statutory surplus, which as of September 30, 2021 was $201 million.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $405 million as of September 30, 2021, and (ii) the amount of statutory surplus, which as of September 30, 2021 was $289 million.

Distributions From / Contributions To

Insurance Company Subsidiaries

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

2 unchanged sentences

Dividends paid by AGM to AGMH 104 87 186 159

Contributions from AGM to AGE SA — — — (26)

Dividends from AGUK to AGM (1) — 124 — 124

Contributions from AGM to AGE (1) — (97) — (123)

____________________

(1) In 2020, the dividend paid to AGM from Assured Guaranty UK Limited (AGUK) was contributed to Assured Guaranty (Europe) SA (AGE).

Ratings Impact on Financial Guaranty Business

8 unchanged sentences

statutory basis, attributable to the assumed business (plus in certain cases, an additional required amount), after which the Assuming Subsidiary would be released from liability with respect to such business.

As of June 30, 2021, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $273 million, including $231 million by AGC and $42 million by AG Re.

As of September 30, 2021, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $266 million, including $231 million by AGC and $35 million by AG Re.

Committed Capital Securities

12 unchanged sentences

LIBOR may be discontinued.

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

See “— Executive Summary — Other Matters — LIBOR Sunset”

above and the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part I, Item 1A, Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Investment Portfolio

4 unchanged sentences

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

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

Investment Portfolio

Carrying Value

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions)

3 unchanged sentences

Total $ 9,617 $ 9,838

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

The Company’s fixed-maturity securities and short-term investments had a duration of 4.5 years and 4.3 years as of September 30, 2021 and December 31, 2020, respectively.

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

4 unchanged sentences

by Contractual Maturity

As of June 30, 2021

As of September 30, 2021

Cost Estimated

8 unchanged sentences

Fixed-Maturity Securities By Rating

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

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

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

1 unchanged sentence

Fixed-Maturity Securities by Rating

Rating June 30, 2021 December 31, 2020

Rating September 30, 2021 December 31, 2020

AAA 15.0 % 15.5 %

5 unchanged sentences

(1) Includes primarily loss mitigation and other risk management assets.

See Item I, Financial Statements, Note 8, Investments and Cash, for additional information.

See Item I, Financial Statements, Note 8, Investments, for additional information.

Other Invested Assets

Other invested assets primarily consist of equity method investments, including investments in renewable and clean energy and private equity fund managed by a third party, and investments in AssuredIM Funds that are not consolidated.

Other invested assets primarily consist of investments in renewable and clean energy and private equity fund managed by a third party, and investments in AssuredIM Funds that are not consolidated.

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

The Insurance segment accounts for AGAS’s percentage ownership of AssuredIM Funds as equity method investments with changes in NAV presented in the Insurance segment adjusted operating income.

The Insurance segment reports AGAS’s percentage ownership of AssuredIM Funds at NAV in the Insurance segment adjusted operating income.

The table below presents the fair value of AGAS’s interests in the AssuredIM Funds.

See Commitments below.

1 unchanged sentence

in AssuredIM Funds

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions)

6 unchanged sentences

____________________

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

(1) Except for a healthcare fund with a NAV of $102 million as of September 30, 2021 and $91 million as of December 31, 2020 that did not meet the criteria for consolidation, these amounts represent the carrying value (NAV) of AGAS's investments in the funds that are consolidated at the AGL reporting level because the Company deemed to be the primary beneficiary.

Restricted Assets

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $264 million and $262 million as of June 30, 2021 and December 31, 2020, respectively.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,241 million and $1,511 million, based on fair value, as of June 30, 2021 and December 31, 2020, respectively.

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

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

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the

benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,236 million and $1,511 million, based on fair value, as of September 30, 2021 and December 31, 2020, respectively.

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.

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

Sources and Uses of Funds

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

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

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

As of September 30, 2021, AssuredIM had $22 million in cash and short-term investments.

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

In Third Quarter 2021 and 2020, AssuredIM distributed $8.8 million to AGUS to fund AGUS's interest payment on its intercompany debt to the insurance subsidiaries.

That debt was incurred in October 2019 to fund the BlueMountain Acquisition.

The Company has entered into several lease agreements for office space in Bermuda, New York, San Francisco, London, Paris, and other locations with various lease terms.

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

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

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

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

This sublease with an additional $32 million of future rental payments commenced in the first half of 2021 and expires in 2032.

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

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

Consolidated VIEs

9 unchanged sentences

Borrowings are generally secured by the investments purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective vehicle.

When a CIV borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or the Company.

borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or the Company.

Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or the Company.

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

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

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

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

As of 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 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.

3 unchanged sentences

Condensed Consolidated Cash Flow Summary

Second Quarter Six Months

Third Quarter Nine Months

2021 2020 2021 2020

10 unchanged sentences

Issuance of long-term debt, net of issuance costs 394 — 889 —

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

Redemptions and purchases of debt, including make-whole (619) — (619) (21)

Net cash flows provided by (used in) financing activities before effect of VIE consolidation 2 — (12) (13)

7 unchanged sentences

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

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

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

Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of $20 million in Nine Months 2021 and an outflow of $97 million in Nine Months 2020.

The decrease in cash outflows during 2021 was primarily due to lower claims payments compared to the prior period, which were partially offset by cash received from a commutation during 2020.

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

Investing activities primarily consisted of net sales (purchases) of fixed-maturity and short-term investments, and paydowns on and sales of FG VIEs’ assets.

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

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

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

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

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

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

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

In Nine Months 2021, it also included the issuance of 3.15% Senior Notes and 3.6% Senior Notes, and redemptions of a portion of AGMH and AGUS debt.

Financial Statements, Note 14, Long-Term Debt.

This increase in cash flow activity from VIEs was primarily due to the consolidation of additional CLOs.

Financial Statements, Note 9 Variable Interest Entities.

From October 1 through November 4, 2021, the Company repurchased an additional 1.5 million of common shares.

As of November 4, 2021, the Company was authorized to purchase $220 million of its common shares, including a $350 million additional authorization that was approved by the Board on August 4, 2021.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis