What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2021-11-05 · 922 added, 1379 removed, 1624 unchanged (59% of the section changed)

3 unchanged sentences

(dollars in millions except share data)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $ 47 and $ 42 (amortized cost of $ 8,227 and $ 7,822 )

$ 8,156 $ 8,202

Fixed-maturity securities, trading, at fair value 174 —

Short-term investments, at fair value 585 1,225

13 unchanged sentences

Credit derivative liabilities, at fair value 157 156

Financial guaranty variable interest entities’ liabilities with recourse, at fair value 281 316

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

Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $ 316 and $ 269 , without recourse $ 19 and $ 20 )

Liabilities of consolidated investment vehicles (includes $ 3,994 and $ 3,849 , at fair value)

7 unchanged sentences

Retained earnings 5,878 5,990

Accumulated other comprehensive income, net of tax of $ 74 and $ 89

Accumulated other comprehensive income (loss), net of tax of $( 12 ) and $ 60

Deferred equity compensation 1 1

7 unchanged sentences

(dollars in millions except share data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Net earned premiums $ 214 $ 103

7 unchanged sentences

Foreign exchange gains (losses) on remeasurement ( 30 ) —

Commutation gain (losses) — — — 38

Other income (loss)

Total revenues 300 177

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

Loss and loss adjustment expenses 57 30

Interest expense 20 21

Loss on extinguishment of debt 175 — 175 —

Amortization of deferred acquisition costs 4 3

2 unchanged sentences

Total expenses 196 171

Income (loss) before income taxes and equity in earnings of investees ( 18 ) 72 79 236

Equity in earnings of investees 23 7 66 3

Income (loss) before income taxes and equity in earnings (losses) of investees 104 6

Equity in earnings (losses) of investees ( 11 ) 9

Income (loss) before income taxes 93 15

3 unchanged sentences

Net income (loss) attributable to Assured Guaranty Ltd.

$ 17 $ 86 $ 126 $ 214

Earnings per share:

5 unchanged sentences

(in millions)

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

2021 2020 2021 2020

Three Months Ended March 31,

Net income (loss) $ 75 $ 15

3 unchanged sentences

Investments with credit impairment, net of tax provision (benefit) of $( 9 ) and $( 1 )

( 6 ) 8 12 ( 19 )

Change in net unrealized gains (losses) on investments ( 377 ) ( 125 )

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

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

Other, net of tax ( 1 ) 1

Other comprehensive income (loss) ( 378 ) ( 125 )

7 unchanged sentences

(dollars in millions, except share data)

For the Three Months Ended September 30, 2021

Common Shares Outstanding Common

Par Value Retained Earnings Accumulated

Comprehensive Income Deferred

Equity Compensation Total Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Nonredeemable Noncontrolling Interests Total

Shareholders’ Equity

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

Net income — — 17 — — 17 3 20

Dividends ($ 0.22 per share)

— — ( 16 ) — — ( 16 ) — ( 16 )

Contributions — — — — — — 25 25

Common shares repurchases ( 2,918,993 ) — ( 140 ) — — ( 140 ) — ( 140 )

Share-based compensation 48,379 — 7 — — 7 — 7

Distributions — — — — — — ( 2 ) ( 2 )

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

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

For the Three Months Ended September 30, 2020

Common Shares Outstanding Common

Par Value Retained Earnings Accumulated

Comprehensive Income Deferred

Equity Compensation Total Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Nonredeemable Noncontrolling Interests Total

Shareholders’ Equity

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

Net income — — 86 — — 86 2 88

Dividends ($ 0.20 per share)

— — ( 17 ) — — ( 17 ) — ( 17 )

Contributions — — — — — — 3 3

Common shares repurchases ( 1,857,323 ) — ( 40 ) — — ( 40 ) — ( 40 )

Share-based compensation 44,224 — 5 — — 5 — 5

Distributions — — — — — — ( 3 ) ( 3 )

Other comprehensive income — — — 71 — 71 — 71

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

Assured Guaranty Ltd.

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

(dollars in millions, except share data)

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Common Shares Outstanding Common

1 unchanged sentence

Comprehensive Income Deferred

Equity Compensation Total Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Nonredeemable Noncontrolling Interests Total

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

8 unchanged sentences

Other comprehensive loss — — — ( 378 ) — ( 378 ) — ( 378 )

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

For the Nine Months Ended September 30, 2020

Balance at March 31, 2022 65,043,547 $ 1 $ 5,878 $ ( 78 ) $ 1 $ 5,802 $ 193 $ 5,995

For the Three Months Ended March 31, 2021

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Common Shares Outstanding Common

1 unchanged sentence

Comprehensive Income Deferred

Equity Compensation Total Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Nonredeemable Noncontrolling Interests Total

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

3 unchanged sentences

— — ( 17 ) — — ( 17 ) — ( 17 )

Reallocation of ownership interest — — — — — — 10 10

Contributions — — — — — — 3 3

2 unchanged sentences

Distributions — — — — — — ( 6 ) ( 6 )

Other comprehensive income — — — 62 — 62 — 62

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

Other comprehensive loss — — — ( 125 ) — ( 125 ) — ( 125 )

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

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

2 unchanged sentences

(in millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash flows provided by (used in) operating activities $ ( 892 ) $ ( 466 )

2 unchanged sentences

Purchases ( 68 ) ( 396 )

Sales 222 627

Maturities and paydowns 179 225

12 unchanged sentences

Net paydowns of financial guaranty variable interest entities’ liabilities ( 41 ) ( 13 )

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

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

Other ( 10 ) 7

4 unchanged sentences

Repayment of warehouse financing debt — ( 476 )

Payments under credit facilities ( 1 ) —

Contributions from noncontrolling interests to consolidated investment vehicles 3 3

9 unchanged sentences

(in millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information

Cash paid (received) during the period for:

Income taxes $ 1 $ 1

Interest on long-term debt 50 49

September 30, 2021 September 30, 2020

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

Interest paid on long-term debt $ 9 $ 8

Supplemental disclosure of non-cash activities:

Fixed-maturity securities, available-for-sale, received as salvage $ 610 $ —

Fixed-maturity securities, available-for-sale, ceded to a reinsurer 27 —

Fixed-maturity securities, trading, received as salvage 184 —

Fixed-maturity securities, trading, ceded to a reinsurer 6 —

Debt securities of financial guaranty variable interest entities received as salvage 54 —

March 31, 2022 March 31, 2021

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

Cash $ 119 $ 95

Restricted cash (included in other assets) 12 1

Cash of consolidated investment vehicles (Note 9) 138 182

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

Cash and cash equivalents of consolidated investment vehicles (Note 8)

Cash and cash equivalents and restricted cash at the end of period $ 289 $ 346

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

5 unchanged sentences

Through its insurance subsidiaries, the Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments.

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

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

The Company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations.

11 unchanged sentences

Actual results could differ from those estimates.

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

These unaudited interim condensed consolidated financial statements are as of March 31, 2022 and cover the three month period ended March 31, 2022 (First Quarter 2022) and the three month period ended March 31, 2021 (First Quarter 2021).

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

2 unchanged sentences

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

See Note 9, Variable Interest Entities.

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

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

20 unchanged sentences

(MAC) was also a principal insurance subsidiary domiciled in New York.

On February 24, 2021, the Company received the last regulatory approval required to execute a multi-step transaction to merge MAC with and into AGM, with AGM as the surviving company.

As a result, the Company wrote-off the $ 16 million carrying value of MAC’s insurance licenses in the first quarter of 2021, which was recorded in other operating expenses in the Insurance segment.

On April 1, 2021, MAC was merged with and into AGM, with AGM as the surviving company.

As a result, the Company wrote-off the $ 16 million carrying value of MAC’s insurance licenses in First Quarter 2021, which was recorded in other operating expenses in the Insurance segment.

AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S.

Insurance Subsidiaries), jointly own an investment subsidiary, AG Asset Strategies LLC (AGAS), which invests in funds managed by AssuredIM (AssuredIM Funds).

The Company’s organizational structure includes various holding companies, two of which - Assured Guaranty US Holdings Inc.

AGL directly or indirectly owns several holding companies, two of which - Assured Guaranty US Holdings Inc.

(AGUS) and Assured Guaranty Municipal Holdings Inc.

2 unchanged sentences

Recent Accounting Standards Adopted

Simplification of the Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions and clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax expenses and annual effective tax rate calculations.

The ASU was effective for interim and annual periods beginning after December 15, 2020.

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

Reference Rate Reform

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

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848):

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

The Company has identified insurance contracts, derivatives and other financial instruments that are directly or indirectly influenced by LIBOR, and will be applying the accounting relief as relevant contract modifications are made during the Reference Rate Transition Period.

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

Recent Accounting Standards Not Yet Adopted

3 unchanged sentences

The amendments in this ASU:

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

6 unchanged sentences

If early adoption is not elected, the transition date is required to be the beginning of the earliest period presented.

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

The Company does not expect this ASU to have a material effect on its consolidated financial statements.

Segment Information

The Company reports its results of operations in two distinct segments, Insurance and Asset Management, consistent with the manner in which the Company’s chief operating decision maker (CODM) reviews the business to assess performance and allocate resources.

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

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

See Note 9, Variable Interest Entities.

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

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 reports the insurance subsidiaries’ share of earnings from investments in AssuredIM Funds in “equity in earnings of investees.”

The Company reports its results of operations in two segments:

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

The Insurance segment primarily consists of:

(i) the Company’s insurance subsidiaries;

and (ii) AGAS.

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

Insurance Subsidiaries and AGAS.

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

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

Holding Companies.

The 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.

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

See Note 9, Variable Interest Entities.

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

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

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

The Other category primarily includes the effect of consolidating FG VIEs and CIVs, intersegment eliminations and the reclassification of reimbursable fund expenses.

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

The segments differ from the consolidated financial statements in certain respects.

The Insurance segment includes:

(i) premiums and losses from the financial guaranty insurance policies issued by the U.S.

Insurance Subsidiaries which guarantee the FG VIEs’ debt;

and (ii) AGAS’s share of earnings from investments in AssuredIM Funds in “equity in earnings (losses) of investees.” Under GAAP, (i) FG VIEs are consolidated by the U.S.

Insurance Subsidiaries and the premiums and losses associated with their financial guaranty policies associated with the FG VIEs’ debt is eliminated, whereas the reconciliation tables below present the FG VIEs and related eliminations in “Other”, and (ii) CIVs are consolidated by AGUS, a U.S.

holding company, whereas in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’s interest in CIVs are presented in “Other.” In addition, under GAAP, reimbursable fund expenses are shown as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below, they are netted in segment expenses.

The Company analyzes the operating performance of each segment using “segment adjusted operating income.” Results for each segment include specifically identifiable expenses as well as intersegment expense allocations, as applicable, based on time studies and other cost allocation methodologies based on headcount or other metrics.

Segment adjusted operating income is defined as net income (loss) attributable to AGL, adjusted for the following items:

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

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

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

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

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

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

The following tables present the Company’s operations by operating segment.

Segment Information

Third Quarter 2021

Insurance Asset Management Corporate Other Total

(in millions)

Third-party revenues $ 187 $ 17 $ 1 $ 23 $ 228

Intersegment revenues 3 2 — ( 5 ) —

Total revenues 190 19 1 18 228

Total expenses ( 22 ) 29 211 10 228

Income (loss) before income taxes and equity in earnings of investees 212 ( 10 ) ( 210 ) 8 —

Equity in earnings of investees 33 — 1 ( 11 ) 23

Adjusted operating income (loss) before income taxes 245 ( 10 ) ( 209 ) ( 3 ) 23

Provision (benefit) for income taxes 31 ( 3 ) ( 40 ) ( 2 ) ( 14 )

Noncontrolling interests — — — 3 3

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Third Quarter 2020

Insurance Asset Management Corporate Other Total

(in millions)

Third-party revenues $ 186 $ 13 $ 12 $ 21 $ 232

Intersegment revenues 3 1 — ( 4 ) —

Total revenues 189 14 12 17 232

Total expenses 134 29 32 5 200

Income (loss) before income taxes and equity in earnings of investees 55 ( 15 ) ( 20 ) 12 32

Equity in earnings of investees 20 — — ( 13 ) 7

Adjusted operating income (loss) before income taxes 75 ( 15 ) ( 20 ) ( 1 ) 39

Provision (benefit) for income taxes ( 6 ) ( 3 ) ( 2 ) ( 1 ) ( 12 )

Noncontrolling interests — — — 3 3

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

Nine Months 2021

Insurance Asset Management Corporate Other Total

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

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

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

Segment Information

Three Months Ended March 31,

Insurance Asset Management Insurance Asset Management

(in millions)

1 unchanged sentence

Intersegment revenues 2 9 2 2

Total revenues 551 60 1 66 678

Total expenses 131 82 279 21 513

Income (loss) before income taxes and equity in earnings of investees 420 ( 22 ) ( 278 ) 45 165

Equity in earnings of investees 100 — 1 ( 35 ) 66

Adjusted operating income (loss) before income taxes 520 ( 22 ) ( 277 ) 10 231

Provision (benefit) for income taxes 75 ( 6 ) ( 45 ) ( 1 ) 23

Noncontrolling interests — — — 11 11

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

Nine Months 2020

Insurance Asset Management Corporate Other Total

Segment revenues 278 39 179 20

Segment expenses 122 39 106 29

Segment equity in earnings (losses) of investees ( 1 ) — 19 —

Segment provision (benefit) for income taxes 22 — 13 ( 2 )

Segment adjusted operating income (loss) $ 133 $ — $ 79 $ ( 7 )

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

Reconciliation of Segment Information to Consolidated Information

First Quarter 2022

Equity in Earnings (Losses) of Investees Less:

Net Income (Loss) Attributable to AGL

Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests

(in millions)

Third-party revenues $ 623 $ 41 $ 8 $ 44 $ 716

Intersegment revenues 8 3 — ( 11 ) —

Total revenues 631 44 8 33 716

Total expenses 308 81 99 8 496

Income (loss) before income taxes and equity in earnings of investees 323 ( 37 ) ( 91 ) 25 220

Equity in earnings of investees 37 — ( 5 ) ( 29 ) 3

Adjusted operating income (loss) before income taxes 360 ( 37 ) ( 96 ) ( 4 ) 223

Provision (benefit) for income taxes 40 ( 7 ) ( 13 ) ( 2 ) 18

Noncontrolling interests — — — 5 5

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

Insurance $ 278 $ 122 $ ( 1 ) $ 22 $ — $ 133

Asset Management 39 39 — — — —

Total segments 317 161 ( 1 ) 22 — 133

Corporate division 1 34 — — — ( 33 )

Other 14 5 ( 10 ) — 9 ( 10 )

Subtotal 332 200 ( 11 ) 22 9 90

Reconciling items:

Realized gains (losses) on investments 3 — — — — 3

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives ( 7 ) ( 4 ) — — — ( 3 )

Fair value gains (losses) on CCS 1 — — — — 1

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves ( 29 ) — — — — ( 29 )

Tax effect — — — ( 4 ) — 4

Total consolidated $ 300 $ 196 $ ( 11 ) $ 18 $ 9 $ 66

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

Reconciliation of Segment Information to Consolidated Information

First Quarter 2021

Equity in Earnings (Losses) of Investees Less:

Net Income (Loss) Attributable to AGL

Less pre-tax adjustments:

Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests

(in millions)

Insurance $ 179 $ 106 $ 19 $ 13 $ — $ 79

Asset Management 20 29 — ( 2 ) — ( 7 )

Total segments 199 135 19 11 — 72

Corporate division — 32 — ( 3 ) — ( 29 )

Other 21 7 ( 10 ) — 4 —

Subtotal 220 174 9 8 4 43

Reconciling items:

Realized gains (losses) on investments ( 3 ) — — — — ( 3 )

Non-credit impairment unrealized fair value gains (losses) on credit derivatives 9 ( 3 ) ( 41 ) 6

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives ( 22 ) ( 3 ) — — — ( 19 )

Fair value gains (losses) on CCS ( 19 ) — — — — ( 19 )

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves 1 — — — — 1

Total pre-tax adjustments ( 18 ) 40 ( 86 ) 16

Less tax effect on pre-tax adjustments 1 ( 2 ) 15 ( 2 )

Adjusted operating income (loss) $ 34 $ 48 $ 197 $ 200

Tax effect — — — ( 8 ) — 8

Total consolidated $ 177 $ 171 $ 9 $ — $ 4 $ 11

Outstanding Exposure

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The capital and margin requirements applicable under the Dodd-Frank Wall Street Reform and Consumer Protection Act also contributed to the Company not entering into such new CDS in the U.S.

The Company has, however, acquired or reinsured portfolios both before and since 2009 that include financial guaranty contracts in credit derivative form.

The Company also writes specialty insurance and reinsurance that is consistent with its risk profile and benefits from its underwriting experience.

The Company has, however, acquired or reinsured portfolios since 2009 that include financial guaranty contracts in credit derivative form.

The Company also writes specialty insurance and reinsurance that is consistent with its risk profile and benefits from its underwriting experience and other types of financial guarantees not subject to insurance accounting guidance.

The Company seeks to limit its exposure to losses by underwriting obligations that it views to be investment grade at inception, although on occasion it may underwrite new issuances that it views to be below-investment-grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures.

1 unchanged sentence

in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction.

The Company diversifies its insured portfolio across sector and geography and, in the structured finance portfolio, typically requires subordination or collateral to protect it from loss.

The Company diversifies its insured portfolio across sector and geography and, in the structured finance portfolio, generally requires subordination or collateral to protect it from loss.

Reinsurance may be used in order to reduce net exposure to certain insured transactions.

1 unchanged sentence

state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects.

The Company includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, healthcare facilities and government office buildings.

The Company includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

purposes, including utilities, toll roads, healthcare facilities and government office buildings.

The Company also includes within public finance obligations similar obligations issued by territorial and non-U.S.

1 unchanged sentence

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

Some of these VIEs are consolidated as described in Note 9, Variable Interest Entities.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

these VIEs whether or not they are consolidated.

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

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

Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on these VIEs whether or not they are consolidated.

The Company also provides specialty insurance and reinsurance on transactions without special purpose entities but with risk profiles similar to those of its structured finance exposures written in financial guaranty form.

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

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

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

Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid.

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

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

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For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50 % chance that, on a present value basis, it will in the future pay claims on that transaction that will not be fully reimbursed.

The three BIG categories are:

The three BIG surveillance categories are:

• BIG Category 1:

4 unchanged sentences

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

Impact of COVID-19 Pandemic

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Impact of COVID-19 Pandemic

Variants of COVID-19 continue to spread throughout the world, while the production, acceptance, and distribution of vaccines and therapeutics for 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.

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

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

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

From shortly after the pandemic reached the U.S.

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

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

Given significant federal funding in 2021 and the performance it observed, the Company’s surveillance department has reduced these supplemental procedures, but is still monitoring those sectors it identified as most at risk for any developments related to COVID-19 that may impact the ability of issuers to make upcoming debt service payments.

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

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 has paid only relatively small insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19, and has already received reimbursement for most of those claims.

Financial Guaranty Exposure

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

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

The Company typically guarantees the payment of debt service when due.

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

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

mitigate the economic effect of insured losses (loss mitigation securities).

The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid (loss mitigation securities), in order to mitigate the economic effect of insured losses.

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

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

As of March 31, 2022 and December 31, 2021, the Company excluded from net par outstanding $ 1.2 billion and $ 1.3 billion, respectively, attributable to loss mitigation securities.

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity.

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

2 unchanged sentences

Financial Guaranty Portfolio

Debt Service Outstanding

Gross Debt Service Outstanding Net Debt Service Outstanding

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

Debt Service and Par Outstanding

As of March 31, 2022 As of December 31, 2021

Gross Net Gross Net

(in millions)

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Total financial guaranty $ 362,345 $ 361,989 $ 367,770 $ 367,360

Par Outstanding

Public finance $ 224,763 $ 224,463 $ 227,507 $ 227,164

Structured finance 8,946 8,916 9,258 9,228

Total financial guaranty $ 233,709 $ 233,379 $ 236,765 $ 236,392

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

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

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

Financial Guaranty Portfolio by Internal Rating

As of September 30, 2021

As of March 31, 2022

Public Finance

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Total net par outstanding $ 175,957 100.0 % $ 48,506 100.0 % $ 8,101 100.0 % $ 815 100.0 % $ 233,379 100.0 %

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio by Internal Rating

18 unchanged sentences

Total net par outstanding $ 177,219 100.0 % $ 49,945 100.0 % $ 8,374 100.0 % $ 854 100.0 % $ 236,392 100.0 %

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of September 30, 2021

As of March 31, 2022

BIG Net Par Outstanding Net Par

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Total $ 2,443 $ 181 $ 4,732 $ 7,356 $ 236,392

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

BIG Net Par Outstanding and Number of Risks

As of September 30, 2021

As of March 31, 2022

Net Par Outstanding Number of Risks (2)

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Insurance (1) Credit

Derivative Total Financial

Derivatives Total Financial

Insurance (1) Credit

Derivative Total

Derivatives Total

(dollars in millions)

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Total BIG $ 5,579 $ 60 $ 5,639 255 11 266

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

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Insurance (1) Credit

Derivative Total Financial

Derivatives Total Financial

Insurance (1) Credit

Derivative Total

Derivatives Total

(dollars in millions)

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Exposure to Puerto Rico

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

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

The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $ 2,237 million net par outstanding as of March 31, 2022, a decrease of $ 1,335 million from the $ 3,572 million net par outstanding as of December 31, 2021.

All of the Company’s insured exposure to Puerto Rico is rated BIG.

The Company has paid claims as a result of payment defaults on all of its outstanding Puerto Rico exposures except the Municipal Finance Agency (MFA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the University of Puerto Rico (U of PR).

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

PROMESA established a seven-member Financial Oversight and Management Board (FOMB) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico.

PROMESA established a seven-member Financial Oversight and Management Board (the FOMB) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico.

Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under Chapter 9 of the United States Bankruptcy Code (Bankruptcy Code).

On February 22, 2021, AGM and AGC entered into a revised Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) plan support agreement (PSA) (GO/PBA PSA) with certain other stakeholders, the Commonwealth, and the FOMB.

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

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

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

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

With AGM and AGC agreeing to the HTA/CCDA PSA, GO/PBA PSA, and PRIFA PSA, $ 3.4 billion, or 95 % of the Company’s insured net par outstanding of Puerto Rico exposures, is covered by a Support Agreement.

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

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

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

After over five years of negotiations, on March 15, 2022, a substantial portion of the Company’s Puerto Rico exposure was resolved in accordance with three orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico):

• On January 18, 2022, the Federal District Court of Puerto Rico, acting under Title III of PROMESA, entered an order and judgment confirming the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan).

The GO/PBA Plan restructured approximately $ 35 billion of

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Support Agreement.

debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities as well as $ 50 billion in pension obligations (none of the pension obligations are insured by the Company), all consistent with the terms of the settlement embodied in a revised GO and PBA plan support agreement (PSA) entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the FOMB (GO/PBA PSA).

• On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered an order under Title VI of PROMESA (PRCCDA Modification) modifying the debt of the Puerto Rico Convention Center District Authority (PRCCDA).

• On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered another order under Title VI of PROMESA (PRIFA Modification) modifying certain debt of the Puerto Rico Infrastructure Financing Authority (PRIFA).

As a result of the consummation on March 15, 2022, of each of the GO/PBA Plan, PRCCDA Modification and PRIFA Modification (together, the March Puerto Rico Resolutions), including claim payments made by the Company under the March Puerto Rico Resolutions, the Company’s obligations under its insurance policies covering debt of the PRCCDA and PRIFA were extinguished, and its insurance exposure to Puerto Rico GO and PBA was greatly reduced.

The Company is continuing its efforts to resolve two other Puerto Rico insured exposures that are in payment default, the Puerto Rico Highways and Transportation Authority (PRHTA) and the Puerto Rico Electric Power Authority (PREPA).

Both economic and political developments, including those related to the COVID-19 pandemic, may impact any resolution of the Company’s PRHTA and PREPA insured exposures and the value of the consideration the Company has received in connection with the March Puerto Rico Resolutions or may receive in the future in connection with any future resolutions of the Company’s PRHTA and/or PREPA insured exposures.

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

Support Agreements

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

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

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

The Commonwealth and the PBA defaulted on their debt service payments due on July 1, 2016, and the Company has been making claim payments on these bonds since that date.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Puerto Rico GO and PBA

As of March 31, 2022, the Company had remaining $ 47 million of insured net par outstanding of GO bonds and $ 5 million of insured net par outstanding of PBA bonds, consisting of direct exposure, second-to-pay exposure, and assumed reinsurance exposure.

Direct Second-to-Pay Assumed Total

(in millions)

GO $ 36 $ 10 $ 1 $ 47

Total GO and PBA $ 41 $ 10 $ 1 $ 52

Under the GO/PBA Plan the Company received (including amounts received in connection with the second election described further below):

• $ 530 million in cash, net of ceded reinsurance,

• $ 605 million of new recovery bonds (see Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the face value of current interest bonds and the maturity value of capital appreciation bonds, net of ceded reinsurance, and

• $ 258 million of contingent value instruments (CVIs) (see Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the original notional value, net of ceded reinsurance.

The Company expects to receive amounts in addition to the amounts listed above (and to make additional payments) in connection with its $ 1 million in net outstanding par of assumed reinsurance and $ 10 million in net outstanding par of second-to-pay exposure.

The CVIs are intended to provide creditors with additional recoveries tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax (SUT) receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps.

The Company has sold a portion of the new recovery bonds and CVIs it received on March 15, 2022, and may sell in the future

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

HTA/CCDA PSA.

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

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

$ 457 million insured net par outstanding of PRHTA (highway revenue) bonds;

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

any new recovery bonds or CVIs it continues to hold.

The fair value of any new recovery bonds or CVIs the Company retains will fluctuate.

Any gains or losses on sales of new recovery bonds and CVIs relative to their values on March 15, 2022, were and will be reported as realized gains and losses on investments, rather than loss and LAE.

The notional amount of the CVI represents the sum of the maximum distributions the holder could receive under the CVI, subject to the cumulative and annual caps, if the SUT sufficiently exceeds 2020 certified fiscal plan projections, without any discount for time.

In August 2021, the Company exercised certain elections under the GO/PBA Plan that impact the timing of payments under its insurance policies.

In accordance with the terms of the GO/PBA Plan, the payment of the principal of all GO bonds and PBA bonds insured by the Company was accelerated against the Commonwealth and became due and payable as of March 15, 2022.

With respect to certain insured securities covered by the GO/PBA Plan, insured bondholders were permitted to elect either:

(i) to receive on March 15, 2022, 100 % of the then outstanding principal amount of insured bonds plus accrued interest;

or (ii) to receive custody receipts that represent an interest in the legacy insurance policy plus cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan.

For those who made the second election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds.

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

In the case of insured bondholders who elected to receive custody receipts, the Company retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying 100 % of the then outstanding principal amount of insured bonds plus accrued interest.

As of March 31, 2022, the net insured par outstanding under the legacy GO and PBA insurance policies was $ 41 million, and constituted all of the Company’s remaining net par exposure to the GO and PBA bonds it had directly insured.

PRCCDA and PRIFA

As of March 31, 2022, the Company had no insured net par outstanding of PRCCDA or PRIFA obligations remaining.

Under the PRCCDA Modification and the PRIFA Modification, on March 15, 2022, the Company received an aggregate of $ 47 million in cash (net of ceded reinsurance) and $ 98 million in notional amount of CVIs (net of ceded reinsurance).

As of March 31, 2022, the Company had $ 1.3 billion of insured net par outstanding that is covered by a PSA with respect to PRHTA entered into on May 5, 2021, by AGM and AGC and certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA):

$ 799 million insured net par outstanding of PRHTA (transportation revenue) bonds and $ 457 million insured net par outstanding of PRHTA (highway revenue) bonds.

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

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

The PRCCDA bonds are secured by certain hotel tax revenues.

The PRHTA defaulted on the full July 1, 2017 insured debt service payment, and the Company has been making claim payments on these bonds since that date.

The FOMB has filed a petition under Title III of PROMESA with respect to PRHTA.

The PRCCDA defaulted on a portion of its July 1, 2017 debt service payments, and the Company has been making claim payments on these bonds since that date.

The HTA/CCDA PSA provides for payments to AGM and AGC consisting of (i) cash, (ii) in the case of PRHTA, new bonds expected to be backed by toll revenue (Toll Bonds);

The HTA PSA provides for payments to AGM and AGC consisting of:

(ii) new bonds expected to be backed by toll revenue (Toll Bonds);

and (iii) a CVI.

Under the HTA/CCDA PSA, bondholders and bond insurers of PRHTA will receive, in the aggregate, $ 389 million of cash;

$ 1,245 million in Toll Bonds;

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

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

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

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

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

The HTA PSA contemplates a Title III proceeding requiring court approval of a disclosure statement, solicitation and voting process, and a plan confirmation hearing.

On May 2, 2022, the FOMB took the first step in this process by filing with the Title III Court a plan of adjustment for HTA (HTA Plan) which it believes to be consistent with the HTA PSA.

The HTA PSA includes a number of conditions and the HTA Plan is subject to confirmation by the Title III Court, so there can be no assurance that the consensual resolution for PRHTA embodied in the HTA PSA will be achieved in its current form, or at all.

On February 22, 2022, the FOMB certified a revised fiscal plan for PRHTA generally consistent with the HTA PSA.

As of March 31, 2022, the Company had $ 748 million insured net par outstanding of PREPA obligations.

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

The Company has been making claim payments on these bonds since July 1, 2017.

On July 2, 2017, the FOMB commenced proceedings for PREPA under Title III of PROMESA.

The PREPA RSA contemplates the exchange of PREPA’s existing revenue bonds for new securitization bonds issued by a special purpose corporation and secured by a segregated transition charge assessed on electricity bills.

Under the PREPA RSA, the Company has the option to guarantee its allocated share of the securitization exchange bonds, which may then be offered and sold in the capital markets.

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

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

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

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

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

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

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

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

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

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

Other Puerto Rico Exposures

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

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

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

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

On May 3, 2019, AGM and AGC entered into a restructuring support agreement with respect to PREPA with PREPA and other stakeholders, including a group of uninsured PREPA bondholders, the Commonwealth and the FOMB (PREPA RSA).

This agreement was terminated by Puerto Rico on March 8, 2022.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order, in an action initiated by AGM and ACG in 2017, appointing as members of a PREPA mediation team U.S.

Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon.

Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that mediation shall terminate on June 1, 2022, unless extended by the PREPA mediation team to July 1, 2022.

The last revised fiscal plan for PREPA was certified by the FOMB on May 27, 2021.

Other Puerto Rico Exposures

All debt service payments for the Company’s remaining Puerto Rico exposures have been made in full by the obligors as of the date of this filing.

Such exposures comprise:

As of March 31, 2022, the Company had $ 179 million insured net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues.

As of March 31, 2022, the Company had $ 1 million insured net par outstanding of U of PR bonds, which are general obligations of the university and are secured by a subordinate lien on the proceeds, profits and other income of the university, subject to a senior pledge and lien for the benefit of outstanding university system revenue bonds.

As of March 31, 2022, the Company had $ 1 million insured net par outstanding of PRASA obligations.

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

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

Puerto Rico Litigation

The Company has disagreed with a number of the actions taken by the Commonwealth, the FOMB and others with respect to obligations the Company insures, and has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to these matters.

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

The Company has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to Puerto Rico obligations which the Company insures.

In addition, the Commonwealth, the FOMB and others have taken legal action naming the Company as party.

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

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

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

On October 28, 2019, Judge Swain extended the stay until December 31, 2019, and has since stayed the proceedings pending the Court's determination on the Commonwealth’s plan of adjustment.

The Company expects that the issues that remain relevant that were raised in several of the stayed proceedings commenced by the Company or the FOMB, either prior to or following the filing of petitions under Title III of PROMESA, will be addressed either in other subsequently filed adversary proceedings described below or in the proceedings to confirm the plans of adjustment for the Commonwealth, PRHTA or other instrumentalities of the Commonwealth.

Issues that the Company believes remain relevant from these earlier proceedings include (i) whether the clawback of certain excise taxes and revenues pledged to secure payment of bonds issued by PRHTA, PRCCDA and PRIFA should be invalidated, (ii) whether administrative rent claims of the PBA against the Commonwealth should be disallowed, (iii) whether certain later vintage Commonwealth general obligation bonds should be invalidated as having been issued in violation of the Puerto Rico constitutional debt limit, (iv) whether Commonwealth general obligation bonds are secured by consensual or statutory liens, and (v) the validity, enforceability and extent of security interests in PRHTA revenues securing PRHTA bonds.

One of the stayed proceedings concerns a PREPA RSA entered in 2015 that is no longer relevant in light of the PREPA RSA entered into by the FOMB, the Company and other parties in 2019.

For so long as the Company is a party to the Support Agreements, its participation as an adverse party to the FOMB in any PROMESA litigation is to be stayed, with the Company supporting the positions of the FOMB in seeking confirmation of the Commonwealth, PRCCDA and PRHTA plans of adjustment and the approval of the PREPA RSA so long as those plans of adjustment and the PREPA RSA conform to the respective requirements of the Support Agreements.

The Company is involved in three proceedings which have been adjourned indefinitely to permit the FOMB to assess the financial impact of the pandemic on PREPA and its request for approval of the PREPA RSA settlement.

The court has required, and the FOMB has provided, periodic reports.

Issues the Company believes remain relevant from these proceedings include (i) the approval of the PREPA RSA, (ii) whether certain parties that either had advanced funds to PREPA for the purchase of fuel or had succeeded to such claims can obtain declarations that the advances made by such parties are “current expenses” as defined in the trust agreement pursuant to which the PREPA bonds were issued (Current Expenses) and there is no valid lien securing the PREPA bonds unless and until such parties are paid in full, as well as orders subordinating the PREPA bondholders’ lien and claim to such parties’ claims and declaring the PREPA RSA null and void, and (iii) whether the retirement system for PREPA employees (SREAEE) can obtain declarations that amounts owed to SREAEE are Current Expenses, that there is no valid lien securing the PREPA bonds other than on amounts in the sinking funds and that SREAEE is a third-party beneficiary of certain trust agreement provisions, as well as orders subordinating the PREPA bondholders’ lien and claim to the SREAEE claims.

The Company believes these proceedings will resume at some point in the future and the relevant issues resolved in proceedings before the Title III court.

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

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

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Constitution and (b) are preempted by various sections of PROMESA;

and (iv) no Title III plan of adjustment based on the Revised Fiscal Plan can be confirmed under PROMESA.

On August 13, 2018, the court-appointed magistrate judge granted the Commonwealth’s and the FOMB’s motion to stay this adversary proceeding pending a decision by the United States Court of Appeals for the First Circuit (First Circuit) in an appeal by Ambac Assurance Corporation of an unrelated adversary proceeding decision, which the First Circuit rendered on June 24, 2019.

On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters through November 30, 2019, with a mandatory mediation element.

Judge Swain extended the stay until December 31, 2019, and further extended the stay until March 11, 2020.

Pursuant to the request of AGM, AGC and the defendants, Judge Swain ordered on September 6, 2019 that the claims in this complaint be addressed in the Commonwealth plan confirmation process and be subject to her July 24, 2019 stay and mandatory mediation order.

Judge Swain had postponed certain deadlines and hearings, including those related to the plan of adjustment, indefinitely as a result of the COVID-19 pandemic.

Pursuant to the court’s order, the FOMB filed an updated status report on September 9, 2020, as well as a subsequent update on October 25, 2020, regarding the effects of the pandemic on the Commonwealth.

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

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

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

On May 5, 2021, the FOMB announced the execution of the PSA that includes PRHTA and PRCCDA.

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

On January 16, 2020, AGM and AGC along with certain other monoline insurers filed in Federal District Court for Puerto Rico a motion (amending and superseding a motion filed by AGM and AGC on August 23, 2019) for relief from the automatic stay imposed pursuant to Title III of PROMESA to permit AGM and AGC and the other moving parties to enforce in another forum the application of the revenues securing the PRHTA bonds (the PRHTA Revenues) or, in the alternative, for adequate protection for their property interests in PRHTA Revenues.

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

Pursuant to orders issued on July 2, 2020 and September 9, 2020, Judge Swain denied the motion to the extent it sought stay relief or adequate protection with respect to liens or other property interests in PRHTA Revenues that have not been deposited in the related bond resolution funds.

On September 23, 2020, AGM and AGC filed a notice of appeal of this denial and the underlying determinations to the First Circuit, which held oral arguments on February 4, 2021.

On March 3, 2021, the First Circuit issued an opinion, finding that the Federal District Court for Puerto Rico had not abused its discretion in denying lift stay relief.

The First Circuit did not rule on whether movants had a property interest, noting that issue was actively being adjudicated before the Federal District Court for Puerto Rico, which will eventually decide on a final basis, and on a more developed record, whether the insurers have a property interest.

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

On January 16, 2020, the FOMB brought an adversary proceeding in the Federal District Court for Puerto Rico against AGM, AGC and other insurers of PRHTA bonds, objecting to the bond insurers claims in the Commonwealth Title III proceedings and seeking to disallow such claims, among other reasons, as being duplicative of the master claims filed by the trustee, for lack of standing and for any assertions of secured status or property interests with respect to PRHTA Revenues.

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

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

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

On January 16, 2020, the FOMB, on behalf of the PRHTA, brought an adversary proceeding in the Federal District Court for Puerto Rico against AGM, AGC and other insurers of PRHTA bonds, objecting to the bond insurers claims in the PRHTA Title III proceedings and seeking to disallow such claims, among other reasons, as being duplicative of the master claims filed by the trustee and for any assertions of secured status or property interests with respect to PRHTA Revenues .

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

On January 16, 2020, AGM and AGC along with certain other monoline insurers and the trustee for the PRIFA Rum Tax Bonds filed in Federal District Court for Puerto Rico a motion concerning application of the automatic stay to the revenues securing the PRIFA bonds (the PRIFA Revenues), seeking an order lifting the automatic stay so that AGM and AGC and the

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

Pursuant to orders issued on July 2, 2020 and September 9, 2020, Judge Swain denied the motion to the extent it sought stay relief or adequate protection with respect to PRIFA Revenues that have not been deposited in the related sinking fund.

On September 23, 2020, AGM and AGC filed a notice of appeal of this denial and the underlying determinations to the First Circuit, which held oral arguments on February 4, 2021.

On March 3, 2021, the First Circuit issued an opinion, finding that the Federal District Court for Puerto Rico had not abused its discretion in denying lift stay relief.

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

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

On January 16, 2020, the FOMB brought an adversary proceeding in the Federal District Court for Puerto Rico against AGC and other insurers of PRIFA bonds, objecting to the bond insurers claims and seeking to disallow such claims, among other reasons, as being duplicative of the master claims filed by the trustee, for lack of standing and for any assertions of secured status or ownership interests with respect to PRIFA Revenues.

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

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

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

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

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

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

On July 2, 2020, Judge Swain held that a proposed enforcement action by AGM, AGC and other moving parties in another court would be subject to the automatic stay, that such parties have a colorable claim to a security interest in funds deposited in the “Transfer Account” and have shown a reasonable likelihood that a certain account held by Scotiabank is the Transfer Account, but denied the motion to the extent it sought stay relief or adequate protection with respect to PRCCDA Revenues that have not been deposited in the Transfer Account.

Pursuant to a memorandum issued on September 9, 2020, Judge Swain held that the final hearing with respect to the Transfer Account shall be deemed to have occurred when the court issues its final decisions in the PRCCDA Adversary Proceeding concerning the identity of the Transfer Account and the parties' respective rights in the alleged Transfer Account monies.

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

On January 16, 2020, the FOMB brought an adversary proceeding in the Federal District Court for Puerto Rico against AGC and other insurers of PRCCDA bonds, objecting to the bond insurers claims and seeking to disallow such claims, among other reasons, as being duplicative of the master claims filed by the trustee and for any assertions of secured status or property interests with respect to PRCCDA Revenues.

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

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

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

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

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

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

A number of legal actions involving the Company and relating to PRCCDA and PRIFA, as well as claims related to the clawback of certain excise taxes and revenues pledged to secure bonds issued by PRHTA, were resolved on March 15, 2022 in connection with the consummation of the March Puerto Rico Resolutions.

All other proceedings remain stayed pending the Court’s determination on plans of adjustment or other proceedings related to PRHTA and PREPA.

Remaining Stayed Proceedings .

The following Puerto Rico proceedings in which the Company is involved remain stayed:

• On June 26, 2017, AGM and AGC filed a complaint in the Federal District Court of Puerto Rico to compel the FOMB to certify the PREPA RSA for implementation under Title VI of PROMESA.

On July 21, 2017, considering its PREPA Title III petition on July 2, 2017, the FOMB filed a notice of stay under PROMESA.

• On July 18, 2017, AGM and AGC filed a motion for relief in the Federal District Court of Puerto Rico from the automatic stay filed in the PREPA Title III Bankruptcy proceeding.

The court denied the motion on September 14, 2017, but on August 8, 2018, the First Circuit vacated and remanded the court’s decision.

On October 3, 2018, AGM and AGC, together with other bond insurers, filed a motion with the court to lift the automatic stay to commence an action against PREPA for the appointment of a receiver.

On May 3, 2019, AGM and AGC entered into the PREPA RSA, but on March 8, 2022, the Commonwealth and PREPA terminated the PREPA RSA.

Given the termination of the PREPA RSA, the Company is considering several options to enforce its rights in respect of insured PREPA bonds, including, among other things, a renewal of the motion to lift the automatic stay and seek the appointment of a receiver.

On April 8, 2022, Judge Swain issued an order appointing as members of the PREPA mediation team U.S.

Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon.

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

• On May 20, 2019, the FOMB and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court of Puerto Rico challenging the validity, enforceability, and extent of security interests in PRHTA revenues.

On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element;

Judge Swain extended the stay through December 31, 2019, and subsequently extended the stay again pending further order of the court on the understanding that these issues will be resolved in other proceedings.

• On September 30, 2019, certain fuel line lenders filed an amended adversary complaint against the FOMB and other parties, including AGC and AGM, seeking subordination of PREPA bondholder claims to fuel line lender claims.

The FOMB filed a status report on May 15, 2020 regarding PREPA’s financial condition and its request for approval of the PREPA RSA settlement, in which it requested that it be permitted to file an updated report by July 31, 2020, that all proceedings related to the approval of the PREPA RSA settlement continue to be adjourned, and that the hearing in this adversary proceeding scheduled for June 3, 2020 be adjourned.

On May 22, 2020, the Title III Court issued an order to that effect.

• On October 30, 2019, the retirement system for PREPA employees (SREAEE) filed an amended adversary complaint in the Federal District Court of Puerto Rico against the FOMB and other parties, seeking subordination of PREPA bondholder claims to SREAEE claims.

On May 22, 2020, the Title III Court issued an order to that effect.

• On January 16, 2020, the FOMB, on behalf of the PRHTA, brought an adversary proceeding in the Federal District Court of Puerto Rico against AGM and AGC and other insurers of PRHTA bonds, objecting to the bond insurers claims in the PRHTA Title III proceedings and seeking to disallow such claims.

Considering the PSA, on May 25, 2021, Judge Swain stayed the participation of AGM and AGC.

Puerto Rico Par and Debt Service Schedules

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Gross Par Outstanding Gross Debt Service Outstanding

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

March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

(in millions)

Exposure to Puerto Rico $ 2,256 $ 3,629 $ 3,169 $ 5,322

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Par Outstanding

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

Puerto Rico Exposures Subject to a Support Agreement

Puerto Rico Exposures Subject to a Plan or Support Agreement

Commonwealth of Puerto Rico - GO (1)

$ 1,097 $ 1,112

PBA (1) 5 122

Subtotal - GO/PBA PSA 1,219 1,246

Total GO/PBA Plan 52 1,219

PRHTA (Transportation revenue) 799 799

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PRCCDA (2) — 152

Subtotal - HTA/CCDA PSA 1,408 1,462

PREPA (1) 748 776

Subtotal Subject to a Support Agreement 3,391 3,500

Total HTA/CCDA PSA 1,256 1,408

PRIFA (2) — 16

Total Subject to a Plan or Support Agreement 1,308 2,643

Other Puerto Rico Exposures

PREPA 748 748

MFA (3) 179 179

PRASA and U of PR (3) 2 2

Subtotal Other Puerto Rico Exposures 181 225

Total Other Puerto Rico Exposures 929 929

Total net exposure to Puerto Rico $ 2,237 $ 3,572

____________________

(1) As of the date of this filing, the FOMB has certified a filing under Title III of PROMESA for these exposures.

(1) On March 15, 2022, the Modified Eighth Amended Title III Joint Plan of Adjustment, confirmed on January 18, 2022, was consummated, pursuant to which the Company, among other things, fully paid claims on all of its directly insured Puerto Rico GO bonds, other than certain GO bonds whose holders made certain elections.

On the same date and pursuant to the same Plan of Adjustment, the Company fully paid claims on all of its directly insured PBA bonds, other than certain PBA bonds whose holders made certain elections.

(2) On March 15, 2022, the Company fully paid claims on all of its insured PRCCDA and PRIFA bonds, eliminating its exposure to insured PRCCDA and PRIFA bonds, pursuant to Title VI orders entered on January 20, 2022.

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

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

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Amortization Schedule of Puerto Rico Net Par Outstanding

and Net Debt Service Outstanding

As of September 30, 2021

Amortization Schedule of Puerto Rico

Net Par Outstanding and Net Debt Service Outstanding

As of March 31, 2022

Scheduled Net Par Amortization Scheduled Net Debt Service Amortization

(in millions)

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

2022 (January 1 - March 31) — 88

2022 (April 1 - June 30) $ — $ 3

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2037-2041 201 237

2041-2042 49 51

Total $ 2,237 $ 3,146

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Virgin Islands

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

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

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

In 2017, Hurricane Irma caused significant damage in St.

Thomas, while Hurricane Maria made landfall on St.

Croix as a Category 4 hurricane on the Saffir-Simpson scale, causing loss of life and substantial damage to St.

Croix’s businesses and infrastructure, including the power grid.

More recently, the COVID-19 pandemic and evolving governmental and private responses to the pandemic have been impacting the USVI economy, especially the tourism sector.

The USVI is benefiting from the federal response to the 2017 hurricanes and COVID-19 and has made its debt service payments to date, but is experiencing fiscal pressure.

As of March 31, 2022, the Company had $ 443 million insured net par outstanding to the U.S.

Virgin Islands and its related authorities (USVI), of which it rated $ 185 million BIG (down from $ 469 million BIG as of December 31, 2021).

During First Quarter 2022, the Company upgraded $ 256 million insured par net outstanding of USVI bonds in anticipation of a legal defeasance of such bonds, which occurred on April 6, 2022.

The $ 185 million of BIG USVI net par outstanding consisted of:

(i) Public Finance Authority bonds secured by a gross receipts tax and the general obligation, full faith and credit pledge of the USVI;

and (ii) bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system.

The COVID-19 pandemic and evolving governmental and private responses to the pandemic have been impacting the USVI economy, especially the tourism sector.

The USVI continues to benefit from the federal response to the 2017 hurricanes and COVID-19, has seen improvement in portions of the tourism sector, recently took actions to address its pension shortfalls, and has made its debt service payments to date.

Specialty Insurance and Reinsurance Exposure

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

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

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of both March 31, 2022 and December 31, 2021, gross exposure of $ 144 million and net exposure of $ 84 million of aircraft residual value insurance was rated BIG.

All other exposures in the table below are investment-grade quality.

Specialty Insurance and Reinsurance Exposure

Gross Exposure Net Exposure

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

As of March 31, 2022 As of December 31, 2021

Gross Exposure Net Exposure Gross Exposure Net Exposure

(in millions)

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355 200 355 200

$ 1,577 $ 1,484 $ 1,038 $ 928

Total $ 1,616 $ 1,090 $ 1,605 $ 1,071

____________________

(1) The life insurance transactions net exposure is projected to increase to approximately $ 1.1 billion by June 30, 2027.

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

On March 31, 2022, the Company’s subsidiary, AGRO, entered into an agreement (internally rated AA) which guarantees the receipt of a minimum rental income from a multifamily and commercial real estate portfolio.

AGRO’s attachment point is significantly below current annual rental income, and further protective provisions are triggered when rental

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

income falls below a certain level.

In addition, AGRO is entitled to be reimbursed for any claims made on the guarantee from future rental income generated by the portfolio.

The Company’s maximum potential exposure under the guarantee was $ 257 million as of March 31, 2022.

The Company accounts for the guarantee in accordance with Accounting Standards Codification (ASC) 460, Guarantees.

Expected Loss to be Paid (Recovered)

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

LAE payments, net of:

(i) inflows for expected salvage, subrogation and other recoveries;

and (ii) excess spread on underlying

collateral, as applicable.

Cash flows are discounted at current risk-free rates.

The Company updates the discount rates each quarter and reflects the effect of such changes in economic loss development.

Net expected loss to be paid (recovered) is net of amounts ceded to reinsurers.

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

Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about the likelihood of all possible outcomes based on all information available to it.

Those assumptions consider the relevant facts and circumstances and are consistent with the information tracked and monitored through the Company’s risk management activities.

Expected loss to be paid (recovered) is important from a liquidity perspective in that it represents the present value of amounts that the Company expects to pay or recover in future periods for all contracts.

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

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insured portfolio.

Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about

the likelihood of all possible outcomes based on all information available to it.

Those assumptions consider the relevant facts

and circumstances and are consistent with the information tracked and monitored through the Company’s risk management

Expected loss to be paid (recovered) is important from a liquidity perspective in that it represents the present value of

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

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

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

Cash flows are discounted at current risk-free rates.

The Company updates the discount rates each quarter and

reflects the effect of such changes in economic loss development.

Net expected loss to be paid (recovered) is also net of

amounts ceded to reinsurers.

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

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effects of loss mitigation efforts.

The insured portfolio includes policies accounted for under various accounting models depending on the characteristics of the contract and the Company’s control rights.

The three primary models are:

(1) insurance, as described in Note 5, Contracts Accounted for as Insurance;

(2) derivatives, as described in Note 6, Contracts Accounted for as Credit Derivatives and Note 9, Fair Value Measurement;

and (3) FG VIE consolidation, as described in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

The Company has paid and expects to pay future losses and/or recover past losses on policies which fall under the following accounting models :

insurance, derivative and FG VIE.

Loss Estimation Process

2 unchanged sentences

In the case of its assumed business, the Company may conduct its own analysis as just described or, depending on the Company’s view of the potential size of any loss and the information available to the Company, the Company may use loss estimates provided by ceding insurers.

The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the quarter and their view of future performance.

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

7 unchanged sentences

These estimates, assumptions and judgments, and the factors on which they are based, may change materially over a reporting period, and have a material effect on the Company’s financial statements.

Each quarter, the Company may revise its scenarios and update assumptions and probability weightings of its scenarios based on public information as well as nonpublic information obtained through its surveillance and loss mitigation activities.

Each quarter, the Company may revise its scenarios and update its assumptions, including the probability weightings of its scenarios based on public information as well as nonpublic information obtained through its surveillance and loss mitigation activities.

Such information includes management’s view of the potential impact of COVID-19 on its distressed exposures.

Management assesses the possible implications of such information on each insured obligation, considering the unique characteristics of each transaction.

Changes over a reporting period in the Company’s loss estimates for municipal obligations supported by specified revenue streams, such as revenue bonds issued by toll road authorities, municipal utilities or airport authorities, generally will be influenced by factors impacting their revenue levels, such as changes in demand;

changing demographics;

and other economic factors, especially if the obligations do not benefit from financial support from other tax revenues or governmental authorities.

Changes over a reporting period in the Company’s loss estimates for its tax-supported public finance transactions generally will be influenced by factors impacting the public issuer’s ability and willingness to pay, such as changes in the economy and population of the relevant area;

changes in the issuer’s ability or willingness to raise taxes, decrease spending or receive federal assistance;

new legislation;

rating agency actions that affect the issuer’s ability to refinance maturing obligations or issue new debt at a reasonable cost;

changes in the priority or amount of pensions and other obligations owed to workers;

developments in restructuring or settlement negotiations;

and other political and economic factors.

Changes in loss estimates may also be affected by the Company’s loss mitigation efforts and other variables.

Changes in the Company’s loss estimates for structured finance transactions generally will be influenced by factors impacting the performance of the assets supporting those transactions.

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

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

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

In some instances, the terms of the Company’s policy give it the option to pay principal losses that have been recognized in the transaction but which it is not yet required to pay, thereby reducing the amount of guaranteed interest due in the future.

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

The Company has sometimes exercised this option, which uses cash but reduces projected future losses.

The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts under all accounting models (insurance, derivative and FG VIE).

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

by Accounting Model

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

As of First Quarter

Accounting Model March 31, 2022 December 31, 2021 2022 2021

(in millions)

Insurance (see Note 5)

$ 388 $ 364 $ ( 44 ) $ 16

FG VIEs (see Note 8)

38 42 ( 4 ) ( 6 )

Credit derivatives (see Note 6)

$ 432 $ 411 $ ( 44 ) $ 13

The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts under , which are accounted for under one of the following accounting models:

insurance, derivative and FG VIE.

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

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

Expected losses to be paid for U.S.

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

dollar denominated obligations that ranged from 0.00 % to 2.61 % with a weighted average of 2.26 % as of March 31, 2022 and 0.00 % to 1.98 % with a weighted average of 1.02 % as of December 31, 2021.

Expected losses to be paid

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

dollar denominated transactions represented approximately 98.0 % and 97.2 % of the total as of March 31, 2022 and December 31, 2021, respectively.

Net Expected Loss to be Paid (Recovered)

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

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Net expected loss to be paid (recovered), end of period $ 432 $ 472

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector

Third Quarter 2021

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

Development (Benefit) (Paid)

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

(in millions)

Public finance:

public finance $ 221 $ ( 29 ) $ ( 201 ) $ ( 9 )

public finance 22 ( 2 ) ( 1 ) 19

Public finance 243 ( 31 ) ( 202 ) 10

Structured finance:

RMBS 178 ( 65 ) 29 142

Other structured finance 45 2 — 47

Structured finance 223 ( 63 ) 29 189

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

Third Quarter 2020

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

Development (Benefit) (Paid)

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

(in millions)

Public finance:

public finance $ 543 $ 56 $ ( 336 ) $ 263

public finance 29 4 — 33

Public finance 572 60 ( 336 ) 296

Structured finance:

RMBS 128 1 8 137

Other structured finance 35 9 ( 6 ) 38

Structured finance 163 10 2 175

Total $ 735 $ 70 $ ( 334 ) $ 471

Nine Months 2021

First Quarter 2022

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

Development (Benefit) (Paid)

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

Development (Benefit) Net (Paid)

Net Expected Loss to be Paid (Recovered) as of March 31, 2022

(in millions)

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Nine Months 2020

First Quarter 2021

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

Development (Benefit) (Paid)

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

Development (Benefit) Net (Paid)

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

(in millions)

12 unchanged sentences

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

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

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

by Accounting Model

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

As of Third Quarter Nine Months

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

(in millions)

Insurance (see Notes 5 and 7) $ 150 $ 471 $ ( 82 ) $ 65 $ ( 91 ) $ 96

FG VIEs (see Note 9) 43 59 ( 10 ) ( 2 ) ( 17 ) 5

Credit derivatives (see Note 6) 6 ( 1 ) ( 2 ) 7 7 —

$ 199 $ 529 $ ( 94 ) $ 70 $ ( 101 ) $ 101

The tables above include (a) LAE paid of $ 13 million and $ 4 million for First Quarter 2022 and First Quarter 2021, respectively, and (b) expected LAE to be paid of $ 17 million as of March 31, 2022 and $ 26 million as of December 31, 2021.

Ceded expected loss to be recovered (paid) was $( 2 ) million as of March 31, 2022 and $ 10 million as of December 31, 2021.

Selected U.S.

Public Finance Transactions

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

The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $ 2.2 billion net par outstanding as of March 31, 2022, all of which was BIG.

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

On March 15, 2022, the GO/PBA Plan, PRCCDA Modification, and PRIFA Modification were consummated, as described under “Exposure to Puerto Rico” in Note 3, Outstanding Exposure.

The fair value of recoveries received under these March Puerto Rico Resolutions (which included cash, new recovery bonds and CVIs) was higher than expected.

The Company also updated its assumptions for certain other defaulted Puerto Rico credits that have not yet been settled.

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

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

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of March 31, 2022, the Company’s net par outstanding subject to the plan consisted of $ 100 million of pension obligation bonds.

As part of the plan of adjustment, the City will repay claims paid on the pension obligation bonds from certain fixed payments and certain variable payments contingent on the City’s revenue growth.

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

public finance exposures as of March 31, 2022, including those mentioned above, to be $ 181 million, compared with $ 197 million as of December 31, 2021.

The economic benefit for U.S.

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

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

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

public finance transactions was $ 48 million during First Quarter 2022, which was primarily attributable to Puerto Rico exposures and changes in discount rates.

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

Selected Non - U.S.

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

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

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

public finance transactions was $ 10 million as of March 31, 2022, compared with $ 12 million as of December 31, 2021.

The economic benefit for non-U.S.

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

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

public finance transactions was approximately $ 2 million during First Quarter 2022.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

RMBS Loss Projections

5 unchanged sentences

Net Economic Loss Development (Benefit)

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

First Quarter

First lien U.S.

14 unchanged sentences

First Lien Liquidation Rates

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

March 31, 2022 December 31, 2021

Current but recently delinquent

21 unchanged sentences

Real Estate Owned

All 100 100 100

____________________

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

The Company observed that during the COVID-19 pandemic:

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

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

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

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

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

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

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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

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

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

2 unchanged sentences

In the base case, the Company assumes the final CDR will be reached 1.25 years after the initial 36 -month CDR plateau period.

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

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

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

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

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

1 unchanged sentence

Each quarter the Company reviews available data and (if necessary) adjusts its severities based on its observations.

The Company then assumes that loss severities begin returning to levels consistent with underwriting assumptions beginning after the initial 18 -month period, declining to 40 % in the base case over 2.5 years.

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

The Company then assumes that loss severities

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Key Assumptions in Base Case Expected Loss Estimates

First Lien U.S.

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

Range Weighted Average Range Weighted Average Range Weighted Average

As of March 31, 2022 As of December 31, 2021

Range Weighted Average Range Weighted Average

Alt-A and Prime:

18 unchanged sentences

The rate at which the principal amount of loans is voluntarily prepaid may impact both the amount of losses projected (since that amount is a function of the CDR, the loss severity and the loan balance over time) as well as the amount of excess spread (the amount by which the interest paid by the borrowers on the underlying loan exceeds the amount of interest owed on the insured obligations).

The assumption for the voluntary conditional prepayment rate (CPR) follows a similar pattern to that of the CDR.

The assumption for the voluntary conditional prepayment rate (CPR) follows a pattern similar to that of the CDR.

The current level of voluntary prepayments is assumed to continue for the plateau period before gradually increasing over 12 months to the final CPR, which is assumed to be 15 % in the base case.

1 unchanged sentence

These CPR assumptions are the same as those the Company used for December 31, 2021.

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

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

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

The Company incorporates a recovery assumption into its reserving model to reflect observed trends in recoveries of deferred principal balances of modified first lien loans that had been previously written off.

For transactions where the Company has detailed loan information, the Company assumes that 20 % of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans.

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

1 unchanged sentence

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

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

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

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

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

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

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

The Company probability weighted a total of five scenarios as of March 31, 2022 and December 31, 2021.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the change in the recovery assumption on deferred principal balances.

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

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

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

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

RMBS was $ 204 million and $ 167 million as of March 31, 2022 and December 31, 2021, respectively.

T he $ 18 million economic loss development in First Quarter 2022 for first lien U.S.

RMBS transactions was primarily attributable to lower excess spread, offset in part by changes in discount rates.

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

1 unchanged sentence

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

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

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of March 31, 2022 as it used as of December 31, 2021, increasing and decreasing the periods of stress from those used in the base case.

In the Company’s most stressful scenario where loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 15 months, expected loss to be paid would increase from current projections by approximately $ 20 million for all first lien U.S.

9 unchanged sentences

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

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

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

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

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

6 unchanged sentences

This causes the borrower's total monthly payment to increase, sometimes substantially, at the end of the initial interest-only period.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

The Company applies a CDR floor of 1.0 % for the future steady state CDR on all its HELOC transactions.

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

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

The Company assumed, as of March 31, 2022 and December 31, 2021, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time.

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

If the second lien is retained and the value of the home increases, the servicer may be able to use the second lien to increase recoveries, either by arranging for the borrower to resume payments or by realizing value upon the sale of the underlying real estate.

The Company evaluates its assumptions quarterly based on actual recoveries of charged-off loans observed from period to period.

The Company evaluates its assumptions quarterly based on actual

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

recoveries of charged-off loans observed from period to period.

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

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

The Company’s recovery assumption for charged-off loans is 30 %, as shown in the table below, based on recent observed trends.

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

If the recovery rate was increased to 40 %, expected loss to be paid would decrease from current projections by approximately $ 45 million.

If the recovery rate was decreased to 20 % expected loss to be paid would increase from current projections by approximately $ 45 million.

If the recovery rate decreases to 20 %, expected loss to be paid would increase from current projections by approximately $ 40 million.

If the recovery rate increases to 40 %, expected loss to be paid would decrease from current projections by approximately $ 40 million.

The rate at which the principal amount of loans is prepaid may impact both the amount of losses projected as well as the amount of excess spread.

6 unchanged sentences

The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers behind the amount of losses the collateral will likely suffer.

The Company continues to evaluate the assumptions affecting its modeling results.

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

Total expected recovery on all second lien U.S.

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

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Key Assumptions in Base Case Expected Loss Estimates

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

Range Weighted Average Range Weighted Average Range Weighted Average

As of March 31, 2022 As of December 31, 2021

Range Weighted Average Range Weighted Average

Plateau CDR 3.4 % - 35.3 % 15.8 % 6.5 % - 39.6 % 16.4 %

8 unchanged sentences

Real Estate Owned 100 100

Loss severity (2) 98 % 98 % 98 %

Loss severity on future defaults 98 % 98 %

Projected future recoveries on previously charged-off loans 30 % 30 %

___________________

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

The Company observed that during the COVID-19 pandemic:

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

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

(2) Loss severities on future defaults.

The Company continues to evaluate the assumptions affecting its modeling results.

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

Total net expected recovery for all second lien U.S.

RMBS was $ 9 million as of March 31, 2022 and the net expected recovery was $ 17 million as of December 31, 2021.

The economic development in First Quarter 2022 was a benefit of $ 11 million and was primarily driven by improved transaction performance, higher recoveries for previously charged-off loans and changes in discount rates, partially offset by lower excess spread.

The Company’s base case assumed a six-month CDR plateau and a 28 month ramp-down (for a total stress period of 34 months).

1 unchanged sentence

In the Company’s most stressful scenario, increasing the CDR plateau to eight months and increasing the ramp-down by three months to 31 months (for a total stress period of 39 months) would increase the expected loss by approximately $ 5 million for HELOC transactions.

On the other hand, in the Company’s least stressful scenario, reducing the CDR plateau to four months and decreasing the length of the CDR ramp-down to 25 months (for a total stress period of 29 months), and lowering the ultimate prepayment rate to 10 % would decrease the expected loss by approximately $ 8 million for HELOC transactions.

Structured Finance Other Than U.S.

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

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

On the other hand, in the Company’s least stressful scenario, reducing the

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Structured Finance Excluding U.S.

The Company projected that its total net expected loss to be paid across its troubled structured finance exposures, excluding U.S.

RMBS, as of March 31, 2022 was $ 46 million.

The largest component of these structured finance losses were student loan securitizations issued by private issuers with $ 53 million in BIG net par outstanding.

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

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

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

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

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

The Company also had exposure to troubled life insurance transactions with BIG net par of $ 40 million as of March 31, 2022.

The economic benefit across all structured finance transactions, excluding U.S.

RMBS, during First Quarter 2022 was $ 1 million.

Recovery Litigation

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

The impact, if any, of these and

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

3 unchanged sentences

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

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

See Note 6, Contracts Accounted for as Credit Derivatives, for amounts related to CDS and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as consolidated FG VIEs.

Net Earned Premiums

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

Financial guaranty:

Financial guaranty insurance:

Scheduled net earned premiums $ 79 $ 81

5 unchanged sentences

____________________

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

(1) First Quarter 2022 accelerations include $ 104 million related to the March Puerto Rico Resolutions.

See Note 3, Outstanding Exposure for additional information.

Assured Guaranty Ltd.

1 unchanged sentence

Gross Premium Receivable,

Net of Commissions on Assumed Business

Net of Commissions Payable on Assumed Business

First Quarter

(in millions)

7 unchanged sentences

Foreign exchange gain (loss) on remeasurement ( 29 ) —

Expected recovery of premiums previously written off 4 —

Financial guaranty insurance premium receivable 1,334 1,358

Specialty insurance premium receivable 1 1

September 30, $ 1,378 $ 1,321

____________________

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

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

March 31, $ 1,335 $ 1,359

Approximately 77 % and 78 % of gross premiums receivable, net of commissions payable at March 31, 2022 and December 31, 2021, respectively, are denominated in currencies other than the U.S.

dollar, primarily the pound sterling and euro.

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

Expected Collections of

Financial Guaranty Insurance Gross Premiums Receivable,

Net of Commissions on Assumed Business

(Undiscounted)

As of September 30, 2021

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

Financial Guaranty Insurance

Expected Future Premium Collections and Earnings

As of March 31, 2022

Future Premiums

to be Collected (1) Future Net Premiums

to be Earned (2)

(in millions)

2022 (April 1 - June 30) $ 42 $ 76

2022 (July 1 - September 30) 39 75

2022 (October 1 - December 31) 33 73

Subtotal 2022 114 224

2027-2031 352 892

3 unchanged sentences

Total $ 1,592 3,590

____________________

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Scheduled Financial Guaranty Insurance Net Earned Premiums

As of September 30, 2021

(in millions)

2021 (October 1 - December 31) $ 80

2026-2030 963

2031-2035 672

2036-2040 394

After 2040 536

Net deferred premium revenue (1) 3,730

Future accretion 259

1 unchanged sentence

____________________

(1) Excludes net earned premiums on consolidated FG VIEs of $ 40 million.

Selected Information for Financial Guaranty Insurance

Policies with Premiums Paid in Installments

September 30, 2021 December 31, 2020

(1) Net of assumed commissions payable.

(2) Net of reinsurance.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Selected Information for Financial Guaranty Insurance Policies

with Premiums Paid in Installments

March 31, 2022 December 31, 2021

(dollars in millions)

Premiums receivable, net of commissions payable $ 1,334 $ 1,371

Gross deferred premium revenue 1,669 1,664

Deferred premium revenue 1,639 1,663

Weighted-average risk-free rate used to discount premiums 1.6 % 1.6 %

1 unchanged sentence

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

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

dollar denominated financial guaranty insurance obligations that ranged from 0.00 % to 2.61 % with a weighted average of 2.26 % as of March 31, 2022 and 0.00 % to 1.98 % with a weighted average of 1.02 % as of December 31, 2021.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Reserve (Salvage) by Sector

Sector September 30, 2021 December 31, 2020

Sector March 31, 2022 December 31, 2021

(in millions)

8 unchanged sentences

Total $ 188 $ 79

____________________

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

Components of Net Reserve (Salvage)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

7 unchanged sentences

____________________

(1) Recorded as a component of other assets in the condensed consolidated balance sheets.

(2) Recorded as a component of other liabilities in the condensed consolidated balance sheets.

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

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

The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed.

Expected loss to be paid (recovered) for financial guaranty insurance contracts differs from expected loss to be expensed due to:

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Net Expected Loss to be Expensed

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

Reconciliation of Net Expected Loss to be Paid (Recovered)

to Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts

As of September 30, 2021

As of March 31, 2022

(in millions)

1 unchanged sentence

Contra-paid, net 21

Salvage and subrogation recoverable, net, and other recoverable 1,120

Salvage and subrogation recoverable 527

Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance ( 710 )

Net expected loss to be expensed (present value) $ 221

____________________

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

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

3 unchanged sentences

Financial Guaranty Insurance Contracts

As of September 30, 2021

As of March 31, 2022

(in millions)

2022 (April 1 - June 30) $ 5

2022 (July 1 - September 30) 5

2022 (October 1 - December 31) 5

2026-2030 118

Subtotal 2022 15

Net expected loss to be expensed 221

1 unchanged sentence

Total expected future loss and LAE $ 388

The following table presents the loss and LAE recorded in the condensed consolidated statements of operations by sector for insurance contracts.

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

Amounts presented are net of reinsurance.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reported on the Condensed Consolidated Statements of Operations

Loss (Benefit)

Third Quarter Nine Months

Loss and LAE by Sector

First Quarter

Sector 2022 2021

9 unchanged sentences

Loss and LAE $ 57 $ 30

____________________

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

In each of the years presented, the primary component of U.S.

public finance loss and LAE was Puerto Rico exposures.

Loss expense is a function of economic loss development, as well as the amortization of unearned premium reserve.

In First Quarter 2022, the largest component of loss expense was from the public finance sector, which had loss expense of $ 55 million primarily attributable to Puerto Rico exposures.

The public finance sector also had an economic benefit of $ 50 million, which was also primarily attributable to Puerto Rico exposures.

The difference between public finance loss expense and economic benefit was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.

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

1 unchanged sentence

BIG Transaction Loss Summary

As of September 30, 2021

BIG Categories

BIG 1 BIG 2 BIG 3 Total

BIG, Net Effect of

Consolidating

FG VIEs Total

Gross Ceded Gross Ceded Gross Ceded

As of March 31, 2022

Gross Net Total BIG

BIG 1 BIG 2 BIG 3 Total BIG

(dollars in millions)

9 unchanged sentences

Discount 24 ( 3 ) ( 189 ) ( 168 ) ( 167 )

Present value of expected cash flows $ ( 685 ) $ 5 $ 27 $ — $ 837 $ 10 $ 194 $ ( 43 ) $ 151

Expected losses to be paid (recovered) $ ( 298 ) $ 17 $ 664 $ 383 $ 383

Deferred premium revenue $ 71 $ 9 $ 235 $ 315 $ 313

5 unchanged sentences

As of December 31, 2021

BIG Categories

BIG 1 BIG 2 BIG 3 Total

BIG, Net Effect of

Consolidating

FG VIEs Total

Gross Ceded Gross Ceded Gross Ceded

Gross Net Total BIG

BIG 1 BIG 2 BIG 3 Total BIG

(dollars in millions)

9 unchanged sentences

Discount 19 ( 3 ) ( 145 ) ( 129 ) ( 129 )

Present value of expected cash flows $ ( 512 ) $ 19 $ 23 $ — $ 1,002 $ 3 $ 535 $ ( 59 ) $ 476

Expected losses to be paid (recovered) $ ( 526 ) $ 27 $ 846 $ 347 $ 359

Deferred premium revenue $ 85 $ 2 $ 350 $ 437 $ 435

2 unchanged sentences

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

The ceded number of risks represents the number of risks for which the Company ceded a portion of its exposure.

(2) Includes amounts related to FG VIEs.

(3) Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlements or litigation judgments, excess spread on any underlying collateral and other estimated recoveries.

(3) Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlements, excess spread on any underlying collateral and other estimated recoveries.

Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past.

Contracts Accounted for as Credit Derivatives

The Company has a portfolio of financial guaranty contracts that meet the definition of a derivative in accordance with GAAP (primarily CDS).

The credit derivative portfolio also includes interest rate swaps.

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

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

See Note 5, Contracts Accounted for as Insurance for amounts that relate to insurance and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as FG VIEs.

The Company’s credit derivatives (financial guaranty contracts that meet the definition of a derivative in accordance with GAAP) are primarily CDS and also include interest rate swaps.

Credit derivative transactions are governed by International Swaps and Derivatives Association, Inc.

11 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Credit Derivative Net Par Outstanding by Sector

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

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

The estimated remaining weighted average life of credit derivatives was 13.4 years and 13.2 years as of March 31, 2022 and December 31, 2021, respectively.

Credit Derivatives (1)

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

As of March 31, 2022 As of December 31, 2021

Sector Net Par

8 unchanged sentences

____________________

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

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

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

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

As of March 31, 2022 As of December 31, 2021

Rating Category Net Par

8 unchanged sentences

Credit derivative net par outstanding $ 3,574 100.0 % $ 4,040 100.0 %

Fair Value of Credit Derivatives

Fair Value Gains (Losses) on Credit Derivatives

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

Realized gains on credit derivatives $ 2 $ 1 $ 5 $ 4

Net credit derivative losses (paid and payable) recovered and recoverable and other settlements ( 1 ) ( 6 ) ( 1 ) ( 9 )

Realized gains (losses) and other settlements $ ( 1 ) $ 1

1 unchanged sentence

Fair value gains (losses) on credit derivatives $ ( 3 ) $ ( 19 )

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

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

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

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

For those CDS transactions that were pricing at or above

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

These losses were partially offset by the price improvement of the underlying collateral and the termination of certain CDS policies.

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

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

During First Quarter 2022 unrealized fair value losses were generated primarily as a result of increases in the credit spread of underlying reference obligations, offset in part by the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period.

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

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

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

2 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

CDS Spread on AGC (in basis points)

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

As of March 31, 2022 As of December 31, 2021 As of March 31, 2021 As of December 31, 2020

Five-year CDS spread 71 49 97 132

2 unchanged sentences

and Effect of AGC Credit Spread

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

2 unchanged sentences

Net fair value of credit derivatives $ ( 156 ) $ ( 154 )

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

Collateral Posting for Certain Credit Derivative Contracts

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

Eligible collateral is generally cash or U.S.

government or agency securities;

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

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

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

The Company, if required, secures its reinsurance obligations to these Legacy Monoline Insurers, typically by depositing in trust assets with a market value equal to its assumed liabilities calculated on a U.S.

statutory basis.

Substantially all of the Company’s Assumed Business and Ceded Business relates to financial guaranty business, except for a modest amount that relates to AGRO’s specialty business.

The Company historically entered into, and with respect

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

The Company has ceded financial guaranty business to non-affiliated companies to limit its exposure to risk.

The Company remains primarily liable for all risks it directly underwrites and is required to pay all gross claims.

It then seeks reimbursement from the reinsurer for its proportionate share of claims.

The Company may be exposed to risk for this exposure if it were required to pay the gross claims and not be able to collect ceded claims from an assuming company experiencing financial distress.

The Company’s ceded contracts generally allow the Company to recapture ceded financial guaranty business after certain triggering events, such as reinsurer downgrades.

Effect of Reinsurance

The following table presents the components of premiums and losses reported in the condensed consolidated statements of operations and the contribution of the Company’s Assumed and Ceded Businesses (both financial guaranty and specialty).

Effect of Reinsurance on Condensed Consolidated Statements of Operations

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

Premiums Written:

Direct $ 97 $ 122 $ 256 $ 334

Assumed 9 ( 1 ) 21 —

Ceded (1) — 1 — 3

Net $ 106 $ 122 $ 277 $ 337

Premiums Earned:

Direct $ 97 $ 100 $ 287 $ 307

Assumed 6 8 22 28

Ceded ( 1 ) ( 1 ) ( 2 ) ( 4 )

Net $ 102 $ 107 $ 307 $ 331

Loss and LAE:

Direct $ ( 70 ) $ 72 $ ( 37 ) $ 118

Assumed 4 4 2 15

Ceded ( 2 ) ( 3 ) ( 19 ) ( 3 )

Net $ ( 68 ) $ 73 $ ( 54 ) $ 130

____________________

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Ceded Reinsurance (1)

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

(in millions)

Ceded premium payable, net of commissions $ 4 $ 4

Ceded expected loss to be recovered (paid) ( 12 ) ( 23 )

Financial guaranty ceded par outstanding (2) 378 418

Specialty ceded exposure (see Note 3) 539 556

____________________

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

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

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

Commutations of Previously Ceded Business

In Nine Months 2020, the Company reassumed $ 336 million in par, including $ 118 million in net par of Puerto Rico exposures, from its largest remaining legacy third-party financial guaranty reinsurer.

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

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

Investment Portfolio

1 unchanged sentence

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

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

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

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

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

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

The internally managed portfolio primarily consists of the Company’s investments in:

(i) securities acquired for loss mitigation purposes;

(ii) securities managed under an Investment Management Agreement (IMA) with AssuredIM;

(iii) new recovery bonds and CVIs received in connection with the consummation of the March Puerto Rico Resolutions and (iv) other investments including certain fixed-maturity and short-term securities and equity method investments.

Equity method investments primarily consist of generally less liquid alternative investments including:

an investment in renewable and clean energy and private equity funds.

The Company had unfunded commitments of $ 96 million as of March 31, 2022 related to certain of the Company’s alternative investments.

Assured Guaranty Ltd.

2 unchanged sentences

Carrying Value

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

Fixed-maturity securities (1):

Fixed-maturity securities, available-for-sale (1):

Externally managed $ 6,316 $ 6,843

1 unchanged sentence

AssuredIM managed 537 541

Fixed-maturity securities - Puerto Rico (2) 514 —

Fixed-maturity securities - Puerto Rico, trading (3) 174 —

Short-term investments (4) 585 1,225

Other invested assets:

Equity method investments - AssuredIM Funds 102 91

Equity method investments - other 145 107

Equity method investments 145 169

Total $ 9,067 $ 9,608

____________________

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

(1) 7.3 % and 7.5 % of fixed-maturity securities were rated BIG as of March 31, 2022 and December 31, 2021, respectively, consisting primarily of loss mitigation securities.

7.2 % and 0.9 % were not rated, as of March 31, 2022 and December 31, 2021, respectively.

(2) Represents new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

These securities are not rated.

(3) Represents CVIs received in connection with the consummation of the March Puerto Rico Resolutions.

These securities are not rated.

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

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

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

As of March 31, 2022, the U.S.

Insurance Subsidiaries had total commitments to AssuredIM Funds of $ 702 million, of which $ 473 million represented net invested capital and $ 229 million was undrawn.

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

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

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

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

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

See Note 9, Variable Interest Entities.

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

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

As of March 31, 2022 and December 31, 2021, the fair value of AGAS’ interest in AssuredIM Funds was $ 559 million and $ 543 million, respectively.

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

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

Accrued investment income, which is recorded in “other assets,” was $ 77 million as of March 31, 2022 and $ 69 million as of December 31, 2021.

In First Quarter 2022 and First Quarter 2021, the Company did not write off any accrued investment income.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fixed-Maturity Securities and Short-Term Investments

by Security Type

As of September 30, 2021

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

As of March 31, 2022

Security Type Percent

3 unchanged sentences

Value AOCI (5)

with Credit Loss

(dollars in millions)

Fixed-maturity securities:

Obligations of state and political subdivisions 40 % $ 3,550 $ ( 12 ) $ 319 $ ( 4 ) $ 3,853 $ — AA-

Obligations of state and political subdivisions 47 % $ 3,893 $ ( 13 ) $ 115 $ ( 54 ) $ 3,941 $ ( 3 ) A

government and agencies 2 122 — 5 ( 5 ) 122 — AA+

4 unchanged sentences

Asset-backed securities:

CLOs 6 541 — 2 — 543 — AA

CLOs 5 440 — — ( 3 ) 437 — A+

Other 5 422 ( 11 ) 22 ( 3 ) 430 ( 2 ) CCC+

government securities 2 123 — — ( 7 ) 116 ( 1 ) AA-

Total fixed-maturity securities 92 8,188 ( 35 ) 558 ( 48 ) 8,663 ( 23 ) A+

Short-term investments 8 694 — — — 694 — AAA

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

Total available-for-sale fixed-maturity securities 100 % $ 8,227 $ ( 47 ) $ 180 $ ( 204 ) $ 8,156 $ ( 78 ) A-

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fixed-Maturity Securities and Short-Term Investments

by Security Type

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

As of December 31, 2021

3 unchanged sentences

Losses Estimated

Credit Loss Weighted

with Credit Loss Weighted

(dollars in millions)

Fixed-maturity securities:

Obligations of state and political subdivisions 43 % $ 3,386 $ ( 12 ) $ 290 $ ( 4 ) $ 3,660 $ — AA-

2 unchanged sentences

Mortgage-backed securities (4):

RMBS 6 571 ( 19 ) 35 ( 21 ) 566 ( 20 ) A-

RMBS 6 454 ( 17 ) 24 ( 24 ) 437 ( 24 ) BBB+

CMBS 4 332 — 14 — 346 — AAA

3 unchanged sentences

government securities 2 134 — 5 ( 3 ) 136 — AA-

Total fixed-maturity securities 91 8,204 ( 78 ) 698 ( 51 ) 8,773 ( 39 ) A+

Short-term investments 9 851 — — — 851 — AAA

Total 100 % $ 9,055 $ ( 78 ) $ 698 $ ( 51 ) $ 9,624 $ ( 39 ) A+

Total available-for-sale fixed-maturity securities 100 % $ 7,822 $ ( 42 ) $ 478 $ ( 56 ) $ 8,202 $ ( 30 ) A+

____________________

(1) Based on amortized cost.

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

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

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

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

New recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions are not rated.

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

government-agency obligations were approximately 30 % of mortgage-backed securities as of March 31, 2022 and 31 % as of December 31, 2021 based on fair value.

(5) Accumulated other comprehensive income (AOCI).

2 unchanged sentences

Gross Unrealized Loss by Length of Time

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

As of September 30, 2021

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

As of March 31, 2022

Less than 12 months 12 months or more Total

Value Unrealized

Value Gross Unrealized

(dollars in millions)

7 unchanged sentences

CLOs 327 ( 3 ) 54 — 381 ( 3 )

Other 17 ( 1 ) — — 17 ( 1 )

government securities 82 ( 4 ) 12 ( 2 ) 94 ( 6 )

2 unchanged sentences

Gross Unrealized Loss by Length of Time

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

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

As of December 31, 2021

Less than 12 months 12 months or more Total

Value Unrealized

Value Gross Unrealized

(dollars in millions)

4 unchanged sentences

RMBS 4 — — — 4 —

CMBS — — 1 — 1 —

Asset-backed securities:

7 unchanged sentences

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

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

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

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

The Company has determined that the unrealized losses recorded as of March 31, 2022 and December 31, 2021 were not related to credit quality, and in the case of First Quarter 2022, primarily attributable to rising interest rates.

In addition, as of March 31, 2022 the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value.

As of March 31, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 187 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2021, 23 securities had unrealized

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 56 million as of March 31, 2022 and $ 6 million as of December 31, 2021.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of March 31, 2022 are shown below.

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

Distribution of Fixed-Maturity Securities by Contractual Maturity

As of September 30, 2021

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

As of March 31, 2022

Cost Estimated

6 unchanged sentences

Total $ 8,227 $ 8,156

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $ 254 million as of September 30, 2021 and $ 262 million as of December 31, 2020.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements, in the amount of $ 1,236 million and $ 1,511 million, based on fair value as of September 30, 2021 and December 31, 2020, respectively.

Net Investment Income and Equity in Earnings of Investees

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.

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $ 229 million as of March 31, 2022 and $ 243 million as of December 31, 2021.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements, in the amounts of $ 1,160 million and $ 1,231 million, based on fair value as of March 31, 2022 and December 31, 2021, respectively.

Income from Investment Portfolio

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

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

Net Investment Income and Equity in Earnings of Investees

Third Quarter Nine Months

2021 2020 2021 2020

Income from Investment Portfolio

First Quarter

(in millions)

Investment income:

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

Externally managed $ 48 $ 51

Loss mitigation securities and other 11 16

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

Managed by AssuredIM (1) 4 4

Investment income 63 71

1 unchanged sentence

Net investment income $ 62 $ 70

Equity in earnings of investees (2) $ 23 $ 7 $ 66 $ 3

Unrealized gain (loss) on trading securities (2) $ ( 4 ) $ —

Equity in earnings (losses) of investees (3) $ ( 11 ) $ 9

____________________

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

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

(2) Reported in “other income (loss)”.

First Quarter 2022 amount relates to securities still held as of March 31, 2022.

(3) First Quarter 2022 includes $ 3 million related to fair value gains on investments where the fair value option was elected utilizing the net asset value (NAV), as a practical expedient.

In addition, the Company received $ 5 million in dividends related to the same investment.

Fair value losses in First Quarter 2021 were de minimis.

Assured Guaranty Ltd.

4 unchanged sentences

Net Realized Investment Gains (Losses)

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

Gross realized gains on available-for-sale securities $ 3 $ 16 $ 12 $ 39

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

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

Gross realized gains on sales available-for-sale securities $ — $ 1

Gross realized losses on sales available-for-sale securities ( 2 ) ( 2 )

Net foreign currency gains (losses) — 1

Change in credit impairment and intent to sell ( 5 ) ( 4 )

Other net realized gains (losses) (1) 10 1

Net realized investment gains (losses) $ 3 $ ( 3 )

____________________

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

Change in credit impairment in Nine Months 2020 was related primarily to an increase in the allowance for credit loss on loss mitigation securities.

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

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

Foreign currency losses were de minimis in Nine Months 2021.

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

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

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

Roll Forward of Credit Losses in the Investment Portfolio

Third Quarter Nine Months

2021 2020 2021 2020

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

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

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

First Quarter

(in millions)

Balance, beginning of period $ 42 $ 78

Effect of adoption of accounting guidance on credit losses on January 1, 2020 — — — 62

Additions for securities for which credit impairments were not previously recognized 4 1

Reductions for securities sold and other settlements — — ( 42 ) —

Additions (reductions) for credit losses on securities for which credit impairments were previously recognized 1 2

Balance, end of period $ 47 $ 81

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

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

Credit loss expense was de minimis in Third Quarter 2020.

The Company recorded credit loss expenses of $ 5 million in First Quarter 2022 and $ 3 million in First Quarter 2021.

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

Most of the Company’s securities with credit deterioration are loss mitigation or other risk management securities.

Variable Interest Entities

Most of the Company’s securities with credit deterioration are loss mitigation securities.

Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles

Structured Finance and Other FG VIEs

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

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

This financial protection can take several

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

3 unchanged sentences

Such excess spread is typically distributed through the transaction’s cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the VIE (thereby, creating additional overcollateralization), or distributed to equity or other investors in the transaction.

The insurance subsidiaries are not primarily liable for the debt obligations issued by the VIEs they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The insurance subsidiaries are not primarily liable for the debt obligations issued by the structured finance and other FG VIEs (which excludes the Puerto Rico Trusts described below) they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall.

AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs.

Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on FG VIEs’ liabilities.

Net fair value gains and losses on FG VIEs are expected to reverse to zero by maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by the insurance subsidiaries under the financial guaranty insurance contract.

The Company’s estimate of expected loss to be paid (recovered) for FG VIEs is included in Note 4, Expected Loss to be Paid (Recovered).

Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on structured finance and other FG VIEs’ liabilities.

As part of the terms of its financial guaranty contracts, the insurance subsidiaries, under their insurance contracts, obtain certain protective rights with respect to the VIE that give them additional controls over a VIE.

3 unchanged sentences

The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the insurance subsidiaries and, accordingly, where they are obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE.

The insurance subsidiaries are deemed to be the control party for certain VIEs under GAAP, typically when their protective rights give them the power to both terminate and replace the deal servicer, which are characteristics specific to the Company’s financial guaranty contracts.

The insurance subsidiaries are deemed to be the control party for certain VIEs under GAAP, typically when their protective rights give them the power to both terminate and replace the transaction’s servicer or collateral manager, which are characteristics specific to the Company’s financial guaranty contracts.

If the protective rights that could make the insurance subsidiaries the control party have not been triggered, then the VIE is not consolidated.

If the insurance subsidiaries are deemed no longer to have those protective rights, the VIE is deconsolidated.

The FG VIEs’ liabilities that are guaranteed by the insurance subsidiaries are considered to be with recourse, because

they guarantee the payment of principal and interest regardless of the performance of the related FG VIEs’ assets.

liabilities that are not guaranteed by the insurance subsidiaries are considered to be without recourse, because the payment of

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

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

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

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

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

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

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

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

The structured finance and other FG VIEs’ liabilities that are guaranteed by the insurance subsidiaries are considered to be with recourse, because the insurance subsidiaries guarantee the payment of principal and interest regardless of the performance of the related FG VIEs’ assets.

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

The Company has elected the fair value option for all assets and all liabilities of the structured finance and other FG VIEs.

The change in fair value of all structured finance and other FG VIEs assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for the change in fair value attributable to change in instrument-specific credit risk (ISCR) on the structured finance and other FG VIE liabilities, which is reported in other comprehensive income (OCI).

As of March 31, 2022 and December 31, 2021, the Company consolidated 26 and 25 structured finance and other FG VIEs, respectively.

Puerto Rico Trusts

In First Quarter 2022, the Company consolidated nine custodial trusts established as part of the GO/PBA Plan (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposures to Puerto Rico.

With respect to certain insured securities covered by the GO/PBA Plan, insured bondholders were permitted to elect to receive custody receipts that represent an interest in the legacy insurance policy plus cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan.

For those who made this election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds.

In the case of insured bondholders who elected to receive custody receipts, the Company retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying 100% of the then outstanding principal amount of insured bonds plus accrued interest.

The Company consolidated the Puerto Rico Trusts as its insurance subsidiaries are deemed to be the primary beneficiary given their power to collapse these trusts.

The assets within the Puerto Rico Trusts are classified as follows:

new recovery bonds and certain trust certificates as available-for-sale securities ($ 45 million fair value, $ 48 million amortized cost as of March 31, 2022), and CVIs as trading securities ($ 8 million fair value as of March 31, 2022, de minimis unrealized gains on trading securities for the First Quarter 2022).

The new recovery bonds, CVIs, and trust certificates have maturity dates ranging from 2022 to 2046.

For the measurement of liabilities of the Puerto Rico Trusts, the Company elected the fair value option in order to simplify the accounting for these instruments.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Investment income on the new recovery bonds and trust certificates, unrealized gains and losses on the CVIs and the change in fair value of the Puerto Rico Trusts’ liabilities, which are all with recourse, are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of operations.

Unrealized gains and losses on the new recovery bonds and trust certificates are reported in OCI.

During First Quarter 2022, the consolidation of the nine Puerto Rico Trusts resulted in a $ 4 million loss on consolidation, which was also reported in “fair value gains (losses) on FG VIEs.”

Components of FG VIE Assets and Liabilities

The Company’s estimate of expected loss to be paid (recovered) for FG VIEs is included in Note 4, Expected Loss to be Paid (Recovered).

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

Consolidated FG VIEs by Type of Collateral

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

2 unchanged sentences

RMBS second lien 35 39

Puerto Rico securities 53 —

Total FG VIEs’ assets $ 307 $ 260

2 unchanged sentences

RMBS second lien 36 42

Puerto Rico Trust liabilities 56 —

Total FG VIEs’ liabilities with recourse $ 316 $ 269

1 unchanged sentence

RMBS first lien $ 19 $ 20

RMBS second lien — —

Total FG VIEs’ liabilities without recourse $ 19 $ 20

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

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

The change in the ISCR of the FG VIEs’ assets for which the Company elected the fair value option (FG VIE assets at FVO) held as of March 31, 2022 that was reported in the condensed consolidated statements of operations for First Quarter 2022 was a loss of $ 5 million.

The change in the ISCR of the FG VIEs’ assets at FVO held as of March 31, 2021 was a loss of $ 3 million for First Quarter 2021.

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

The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period.

The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse (all of which are measured at fair value under the fair value option) attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period.

In general, if the insurance subsidiaries’ CDS spread tightens, more value will be assigned to insurance subsidiaries’ credit;

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

September 30, 2021 December 31, 2020

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Selected Information for FG VIEs Assets and Liabilities

Measured under the Fair Value Option

March 31, 2022 December 31, 2021

(in millions)

7 unchanged sentences

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

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

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

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

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

Substantially all of the CIVs are VIEs.

The Company consolidates these investment vehicles because it is

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses in which the Company is the primary beneficiary.

The table below summarizes the number of consolidated CIVs by type as of March 31, 2022 and December 31, 2021.

As of both dates, the Company consolidated one CIV that meets the criteria for a voting interest entity, because the Company possesses substantially all of the economics and all of the decision-making of that CIV.

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

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

2 unchanged sentences

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

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

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

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

Number of Consolidated CIVs by Type

CIV Type March 31, 2022 December 31, 2021

CLO warehouses 3 3

Total number of consolidated CIVs 20 20

The table below summarizes the change in the number of consolidated CIVs during each of the periods.

During 2022, no consolidated CLO warehouses became CLOs.

During 2021, one consolidated CLO warehouse became a CLO.

Roll Forward of Number of Consolidated CIVs

First Quarter

Beginning of year 20 11

Consolidated — 2

Deconsolidated — ( 1 )

March 31, 20 12

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Assets and Liabilities of CIVs

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

1 unchanged sentence

Fund investments, at fair value

Equity securities and warrants (1) 255 252

Obligations of state and political subdivisions 126 101

Structured products 53 39

Corporate securities 85 98

Equity securities (1) 43 18

Structured products (2) 74 62

Due from brokers and counterparties 16 49

1 unchanged sentence

CLO investments:

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

Loans in CLOs, fair value option 3,865 3,913

Loans in CLO warehouses, fair value option 834 331

2 unchanged sentences

Total assets (3) $ 5,700 $ 5,271

CLO obligations, fair value option, CFE (3)

CLO obligations, fair value option (4)

Warehouse financing debt, fair value option (5) 339 126

4 unchanged sentences

____________________

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

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

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

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

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

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

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

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

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

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

(4) The weighted average maturity of CLO obligations was 6.7 years as of March 31, 2022 and 6.6 years as of December 31, 2021.

The weighted average interest rate of CLO obligations was 1.9 % as of March 31, 2022 and 1.8 % as of December 31, 2021.

CLO obligations have stated final maturity dates from 2034 to 2035.

(5) The weighted average maturity of warehouse financing debt of CLO warehouses was 0.6 years as of March 31, 2022 and 1.8 years as of December 31, 2021.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 1.3 % as of March 31, 2022 and 1.1 % as of December 31, 2021.

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

Noncontrolling Interests in CIVs

Noncontrolling interest in CIVs represents the proportion of the consolidated funds not owned by the Company, including third parties, employees, and former employees.

The majority of the noncontrolling interest is non-redeemable and presented on the statement of shareholders’ equity.

The table below presents the rollforward of redeemable noncontrolling interest in CIVs.

Assured Guaranty Ltd.

1 unchanged sentence

Redeemable Noncontrolling Interests in CIVs

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

Beginning balance $ 22 $ 21

Reallocation of ownership interests — — — ( 10 )

Contributions to investment vehicles — — — 25

Net income (loss) — 1 — ( 1 )

September 30, $ 21 $ 21 $ 21 $ 21

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

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

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

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

Net income (loss) attributable to the redeemable noncontrolling interest ( 1 ) —

March 31, $ 21 $ 21

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

As of March 31, 2022 and December 31, 2021, the CIVs included derivative contracts with notional amounts totaling $ 68 million and $ 49 million, respectively, and average notional amounts of $ 59 million and $ 34 million, respectively.

The fair value of derivative contracts is reported in the “assets of CIVs” or “liabilities of CIVs” in the condensed consolidated balance sheets.

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

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

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

Certain of the CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity to such CIVs during the CLO warehouse stage.

The net change in fair value of derivative contracts were gains of $ 4 million and $ 2 million in First Quarter 2022 and First Quarter 2021, respectively.

Certain of the CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity during the CLO warehouse stage.

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

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

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

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

As of March 31, 2022, these credit facilities had varying maturities ranging from April 28, 2022 to September 15, 2023 with the aggregate principal amount not exceeding $ 1.0 billion.

The available commitment was based on the amount of equity contributed to the warehouse which was $ 591 million.

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

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

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

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

Effect of Consolidating FG VIEs and CIVs

The effect of consolidating FG VIEs (as opposed to accounting for the related insurance contracts in the Insurance segment) includes (1) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements, (2) eliminating the premiums and losses associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs, and (3) eliminating the investment balances associated with the insurance subsidiaries' purchases of the debt obligations of the FG VIEs.

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

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

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

Increase (Decrease)

September 30, 2021 December 31, 2020

(in millions)

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

Equity method investments (2)

( 363 ) ( 254 )

Other invested assets — ( 2 )

Total investments ( 413 ) ( 288 )

Premiums receivable, net of commissions payable (3) ( 6 ) ( 6 )

Salvage and subrogation recoverable (3) ( 15 ) ( 9 )

FG VIEs’ assets, at fair value 271 296

Assets of CIVs 4,371 1,913

Other assets — ( 3 )

Total assets $ 4,208 $ 1,903

Unearned premium reserve (3) $ ( 36 ) $ ( 38 )

Loss and LAE reserve (3) ( 34 ) ( 41 )

FG VIEs’ liabilities with recourse, at fair value 281 316

FG VIEs’ liabilities without recourse, at fair value 20 17

Liabilities of CIVs

Total liabilities 4,117 1,844

Redeemable noncontrolling interests (4) 21 21

Shareholders’ equity

Retained earnings 22 22

Accumulated other comprehensive income (5) ( 27 ) ( 25 )

Total shareholders’ equity attributable to Assured Guaranty Ltd.

Nonredeemable noncontrolling interests (4) 75 41

Total shareholders’ equity 70 38

Total liabilities, redeemable noncontrolling interests and shareholders’ equity $ 4,208 $ 1,903

____________________

(1) Represents the elimination of investment balances related to the insurance subsidiaries’ purchases of insured FG VIEs’ debt.

(2) Represents the elimination of the equity method investment made by AGAS and other subsidiaries in the consolidated AssuredIM Funds.

(3) Represents the elimination of insurance balances related to the insurance subsidiaries’ guarantee of FG VIEs’ liabilities with recourse.

(4) Represents the proportion of consolidated AssuredIM Funds that is not owned by AGAS or other subsidiaries.

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

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Increase (Decrease)

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

Fair value gains (losses) on FG VIEs (1) $ 5 $ — $ 18 $ ( 8 )

Fair value gains (losses) on CIVs (2) 16 18 53 37

Equity in earnings of investees (3) ( 11 ) ( 13 ) ( 35 ) ( 29 )

Other (4) ( 13 ) ( 6 ) ( 26 ) ( 4 )

Effect on income before tax ( 3 ) ( 1 ) 10 ( 4 )

Tax provision (benefit) ( 2 ) ( 1 ) ( 1 ) ( 2 )

Effect on net income (loss) ( 1 ) — 11 ( 2 )

Effect on noncontrolling interests (5) 3 3 11 5

Effect on net income (loss) attributable to AGL $ ( 4 ) $ ( 3 ) $ — $ ( 7 )

____________________

(1) Changes in fair value of the FG VIEs’ liabilities with recourse that are attributable to factors other than changes in the Company’s own credit risk.

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

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

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

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

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

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

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

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

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

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

As of March 31, 2022, $ 310 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 100 basis points (bps) to 3-month LIBOR plus 100 bps (with a floor on the Euribor/LIBOR rates of zero ).

The CLO warehouses were in compliance with all financial covenants as of March 31, 2022.

As of March 31, 2022, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed $ 80 million jointly and $ 48 million individually for the consolidated healthcare fund.

The available commitment was based on the amount of equity contributed to the funds.

As of March 31, 2022, $ 15 million was drawn down by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime Floor of 3 %).

The fund was in compliance with all financial covenants as of March 31, 2022.

Other Consolidated VIEs

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

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

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

The largest of these VIEs had assets of $ 92 million and liabilities of $ 12 million as of March 31, 2022, and assets of $ 96 million and liabilities of $ 11 million as of December 31, 2021, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

Non-Consolidated VIEs

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

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

Of the approximately 16 thousand policies monitored as of March 31, 2022, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

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

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

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

With respect to structured finance and other FG VIEs, as of March 31, 2022 and December 31, 2021, the Company identified 63 and 69 policies, respectively, that contain provisions and experienced events that may trigger consolidation.

Based on management’s

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

respectively.

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

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

assessment of these potential triggers or events, the Company consolidated 26 and 25 structured finance and other FG VIEs as of March 31, 2022 and December 31, 2021, respectively.

In addition, as of March 31, 2022 the Company consolidated nine Puerto Rico Trusts.

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

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

As such, the Company does not consolidate these entities.

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

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

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

The Company’s equity interests in these entities are reported in “other invested assets” on the condensed consolidated balance sheets.

The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $ 1 million as of both March 31, 2022 and December 31, 2021) as well as foregone future management and performance fees.

See Note 10, Asset Management Fees, for earnings and receivables from managing funds and CLOs.

Fair Value Measurement

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

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

During First Quarter 2022, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

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

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

Carried at Fair Value

Fixed-Maturity Securities

The fair value of fixed-maturity securities in the investment portfolio is generally based on prices received from third-party pricing services or alternative pricing sources with reasonable levels of price transparency.

The fair value of fixed-maturity securities is generally based on prices received from third-party pricing services or alternative pricing sources with reasonable levels of price transparency.

The pricing services prepare estimates of fair value using their pricing models, which take into account:

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The extent of the use of each input is dependent on the asset class and the market conditions.

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

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

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

As of March 31, 2022, the Company used models to price 190 securities, including securities that were purchased or obtained for loss mitigation, with a Level 3 fair value of $ 1.1 billion.

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

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Other Invested Assets

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

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

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

Other invested assets that are carried at fair value primarily include:

(i) equity securities traded in active markets that are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices;

and (ii) equity method investments for which the Company elected the fair value option using NAV, as a practical expedient, which are excluded from the fair value hierarchy.

Committed Capital Securities

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

The fair value of CCS, which is reported in other assets on the condensed consolidated balance sheets, represents the difference between the present value of remaining expected put option premium payments under AGC’s CCS and AGM’s Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value that the Company would hypothetically have to pay currently for a comparable security.

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

The estimated current cost of the Company’s CCS is based on several factors, including AGM and AGC CDS spreads, LIBOR

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

The estimated current cost of the Company’s CCS is based on several factors, including AGC and AGM CDS spreads, LIBOR curve projections, the Company's publicly traded debt and the term the securities are estimated to remain outstanding.

curve projections, the Company's publicly traded debt and the term the securities are estimated to remain outstanding.

The AGC CCS and AGM CPS are classified as Level 3 in the fair value hierarchy.

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The Company classifies assets included in the Company’s various supplemental executive retirement plans as either Level 1 or Level 2.

The fair value of these assets is valued based on the observable published daily values of the underlying mutual fund included in the plans (Level 1) or based upon the NAV of the funds if a published daily value is not available (Level 2).

The fair value of these assets is based on the observable published daily values of the underlying mutual funds included in the plans (Level 1) or based upon the NAV of the funds if a published daily value is not available (Level 2).

The NAVs are based on observable information.

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Contracts Accounted for as Credit Derivatives

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

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

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

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

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

Consistent with previous years, market conditions at March 31, 2022 were such that market prices of the Company’s CDS contracts were not available.

Assumptions and Inputs

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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

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

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This assumption can have the effect of mitigating the amount of unrealized gains that are recognized on certain CDS contracts.

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

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

As of March 31, 2022 and December 31, 2021, the use of the minimum premium did not have a significant effect on fair value.

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

A credit derivative liability on protection sold is the result of contractual cash inflows on in-force transactions that are less than what a hypothetical financial guarantor could receive if it sold protection on the same risk as of the reporting date.

If the Company were able to freely exchange these contracts (i.e., assuming its contracts did not contain proscriptions on transfer and there was a viable exchange market), it would realize a loss representing the difference between the lower contractual premiums to which it is entitled and the current market premiums for a similar contract.

The Company determines the fair value of its CDS contracts by applying the difference between the current net spread and the contractual net spread for the remaining duration of each contract to the notional value of its CDS contracts and taking the present value of such amounts discounted at the LIBOR corresponding to the weighted average remaining life of the contract.

A credit derivative liability on protection sold is the result of contractual cash inflows on in-force transactions that are lower than what a hypothetical financial guarantor could receive if it sold protection on the same risk as of the reporting date.

If the Company were able to freely exchange these contracts (i.e., assuming its contracts did not contain proscriptions on transfer

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

and there was a viable exchange market), it would realize a loss representing the difference between the lower contractual premiums to which it is entitled and the current market premiums for a similar contract.

The Company determines the fair value of its CDS contracts by applying the difference between the current net spread and the contractual net spread for the remaining duration of each contract to the notional value of such contract and discounting such amounts using the LIBOR corresponding to the weighted average remaining life of the contract.

Strengths and Weaknesses of Model

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

Fair Value Option on FG VIEs’ Assets and Liabilities

The Company elected the fair value option for the FG VIEs’ assets and liabilities and classifies them as Level 3 in the fair value hierarchy.

FG VIEs’ Assets and Liabilities

The Company elected the fair value option for the structured finance and other FG VIEs’ assets and liabilities and classifies them as Level 3 in the fair value hierarchy.

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

The net change in the fair value of consolidated FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on financial guaranty variable interest entities” in the condensed consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in other comprehensive income (OCI).

Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on financial guaranty variable interest entities”.

The FG VIEs issued securities typically collateralized by first lien and second lien RMBS.

The fair value of the Company’s FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds;

For the assets in the Puerto Rico Trusts, new recovery bonds are classified as available-for-sale as Level 2 on the fair value hierarchy, CVIs are classified as trading securities as Level 2 on the fair value hierarchy, and trust certificates are classified as available-for-sale as Level 3 on the fair value hierarchy.

The liabilities of the Puerto Rico Trusts are measured under the fair value option as Level 3 on the fair value hierarchy.

See “ - Fixed Maturity Securities” above for a description of the fair value methodology for the recovery bonds and CVIs in the Puerto Rico Trusts, which represent the majority of the assets in the Puerto Rico Trusts.

The fair value of the residential mortgage loan FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds;

estimated default rates (determined on the basis of an analysis of collateral attributes such as:

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In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically could lead to a decrease in the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The third party utilizes an internal model to determine an appropriate yield at which to discount the cash flows of the security, by factoring in collateral types, weighted-average lives, and other structural attributes specific to the security being priced.

The expected yield is further calibrated by utilizing algorithms designed to aggregate market color, received by the independent third party, on comparable bonds.

The models used to price the FG VIEs’ liabilities generally apply the same inputs used in determining fair value of FG VIEs’ assets.

The models used to price the FG VIEs’ liabilities (other than the liabilities of the Puerto Rico Trusts) generally apply the same inputs used in determining fair value of FG VIEs’ assets.

For those liabilities insured by the Company, the benefit of the Company’s insurance policy guaranteeing the timely payment of debt service is also taken into account.

Significant changes to any of the inputs described above could have materially changed the timing of expected losses within the insured transaction which is a significant factor in determining the implied benefit of the Company’s insurance policy guaranteeing the timely payment of principal and interest for the insured tranches of debt issued by the FG VIEs.

The liabilities of

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Significant changes to any of the inputs described above could materially change the timing of expected losses within the insured transaction which is a significant factor in determining the implied benefit of the Company’s insurance policy guaranteeing the timely payment of principal and interest for the insured tranches of debt issued by the FG VIEs.

In general, extending the timing of expected loss payments by the Company into the future typically could lead to a decrease in the value of the Company’s insurance and a decrease in the fair value of the Company’s FG VIEs’ liabilities with recourse, while a shortening of the timing of expected loss payments by the Company typically could lead to an increase in the value of the Company’s insurance and an increase in the fair value of the Company’s FG VIEs’ liabilities with recourse.

The net change in the fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on financial guaranty variable interest entities” in the condensed consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in other comprehensive income (OCI), and the change in fair value of available-for-sale securities, which is reported as a component of the change in unrealized gains (losses) on investments in OCI.

Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on financial guaranty variable interest entities”.

The FG VIEs issued securities that are typically collateralized by first lien and second lien residential mortgage loans, or, in the case of the Puerto Rico Trusts, the Plan Consideration received under the GO/PBA Plan.

Assets and Liabilities of CIVs

The consolidated CLOs, are CFEs, and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured under the fair value option using the CFE practical expedient.

The consolidated CLOs are collateralized financing entities (CFEs), and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured under the fair value option using the CFE practical expedient.

Loans in CLOs are priced using a loan pricing service which aggregates quotes from loan market participants.

The loans are all Level 2 assets, which are more observable than the fair value of the Level 3 debt issued by the consolidated CLOs.

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Under the CFE practical expedient guidance, the loans of consolidated CLOs are measured at fair value and the debt of consolidated CLOs are measured as:

(1) the sum of (a) the fair value of the financial assets, and (b) the carrying value of any nonfinancial assets held temporarily, less (2) the sum of (c) the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services), and (d) the Company’s carrying value of any beneficial interests that represent compensation for services.

(1) the sum of (i) the fair value of the financial assets, and (ii) the carrying value of any nonfinancial assets held temporarily;

less (2) the sum of (iii) the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services), and (iv) the Company’s carrying value of any beneficial interests that represent compensation for services.

The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by the Company).

1 unchanged sentence

The Company has elected the fair value option to measure the loans held and the debt issued by CLO warehouses to mitigate the accounting mismatch between such assets and liabilities when a CLO warehouse securitizes and becomes a CLO.

Investments held by CIVs which are listed or quoted on a national securities exchange or market are valued at their last reported sale price on the date of determination.

Investments held by CIVs which are not listed or quoted on an exchange, but are traded over-the-counter, or are listed on an exchange which has no reported sales, are valued at their fair value as determined by the Company, after giving consideration to third-party data generally at the average between the offer and bid prices.

The methods and procedures to value these investments may include, but are not limited to:

(i) performing comparisons with prices of comparable or similar investments;

(ii) obtaining valuation-related information from issuers;

(iii) calculating the present value of future cash flows;

(iv) assessing other analytical data and information related to the investment that is an indication of value;

(v) obtaining information provided by third parties;

(vi) and/or evaluating information provided by management of these investments.

These fair values are generally based on dealer quotes, indications of value or pricing models that consider the time value of money, the current market, contractual prices and potential volatilities of the underlying financial instruments.

2 unchanged sentences

Investments in private equity funds are generally valued utilizing NAV.

Level 2 assets in the CIVs include assets of the consolidated CLOs, certain assets of the consolidated funds and derivative assets.

Level 2 assets in the CIVs include assets of the consolidated CLOs and certain assets of the consolidated funds.

Level 3 assets in the CIVs include the remainder of the invested assets of consolidated funds.

Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the fair value option), securities sold short and derivative assets or liabilities.

Level 3 liabilities of the CIVs include various tranches of CLO debt and first loss subordinated warehouse financing.

Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the fair value option), securities sold short and derivative liabilities.

Level 3 liabilities of the CIVs include various tranches of CLO debt, first loss subordinated warehouse financing and securitized borrowing.

Significant changes to any of the inputs described above could have a material effect on the fair value of the consolidated assets and liabilities.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of September 30, 2021

As of March 31, 2022

Fair Value Hierarchy

Total Level 1 Level 2 Level 3

Level 1 Level 2 Level 3 Total

(in millions)

Investment portfolio, available-for-sale:

Fixed-maturity securities

Fixed-maturity securities, available-for-sale

Obligations of state and political subdivisions $ — $ 3,871 $ 70 $ 3,941

6 unchanged sentences

government securities — 116 — 116

Total fixed-maturity securities 8,663 — 7,347 1,316

Total fixed-maturity securities, available-for-sale — 7,044 1,112 8,156

Fixed-maturity securities, trading — 174 — 174

Short-term investments 568 17 — 585

3 unchanged sentences

Fund investments:

Equity securities and warrants — 6 243 249

Obligations of state and political subdivisions — 126 — 126

Structured products 53 — 53 —

Corporate securities — 2 83 85

Equity securities 34 — — 34

Other 1 — 1 —

Structured products — 74 — 74

CLOs and CLO warehouse assets:

5 unchanged sentences

Credit derivative liabilities $ — $ — $ 157 $ 157

FG VIEs’ liabilities with recourse 281 — — 281

FG VIEs’ liabilities without recourse 20 — — 20

FG VIEs’ liabilities (3) — — 335 335

Liabilities of CIVs:

2 unchanged sentences

Securities sold short — 36 — 36

Securitized borrowing — — 21 21

Total liabilities of CIVs — 344 3,650 3,994

Other liabilities — 3 — 3

Total liabilities carried at fair value $ — $ 347 $ 4,142 $ 4,489

4 unchanged sentences

Fair Value Hierarchy

Total Level 1 Level 2 Level 3

Level 1 Level 2 Level 3 Total

(in millions)

Investment portfolio, available-for-sale:

Fixed-maturity securities

Fixed-maturity securities, available-for sale

Obligations of state and political subdivisions $ — $ 3,588 $ 72 $ 3,660

6 unchanged sentences

government securities — 136 — 136

Total fixed-maturity securities 8,773 — 7,447 1,326

Total fixed-maturity securities, available-for-sale — 7,051 1,151 8,202

Short-term investments 1,225 — — 1,225

3 unchanged sentences

Fund investments:

Equity securities and warrants — 7 239 246

Obligations of state and political subdivisions — 101 — 101

Structured products 39 — 39 —

Corporate securities — 7 91 98

Equity securities 10 — 8 2

Structured products — 62 — 62

CLOs and CLO warehouse assets:

5 unchanged sentences

Credit derivative liabilities $ — $ — $ 156 $ 156

FG VIEs’ liabilities with recourse 316 — — 316

FG VIEs’ liabilities without recourse 17 — — 17

FG VIEs’ liabilities (3) — — 289 289

Liabilities of CIVs:

2 unchanged sentences

Securities sold short — 41 — 41

Securitized borrowing — — 17 17

Total liabilities of CIVs — 144 3,705 3,849

3 unchanged sentences

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

Excludes $ 119 million and $ 91 million of equity method investments measured at fair value under the fair value option using the NAV as a practical expedient as of September 30, 2021 and December 31, 2020, respectively.

(2) Excludes $ 9 million and $ 8 million as of September 30, 2021 and December 31, 2020, respectively, in AssuredIM Funds carried by certain feeder funders owned by employees that are consolidated, but for which the Company records noncontrolling interest for 100% of the balance.

The consolidation of these funds result in a gross up assets and

Excludes $ 17 million and $ 19 million of equity method investments measured at fair value under the fair value option using the NAV as a practical expedient as of March 31, 2022 and December 31, 2021, respectively.

(2) Excludes $ 6 million as of both March 31, 2022 and December 31, 2021 in investments in AssuredIM Funds for which the Company records a 100% noncontrolling interest.

The consolidation of these funds results in a gross up of assets and noncontrolling interest on the consolidated financial statements;

however, it results in no economic equity or net income attributable to AGL.

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

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

noncontrolling interests on the condensed consolidated financial statements;

however, they result in no economic equity or net income attributable to AGL.

Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during Third Quarter 2021, Third Quarter 2020, Nine Months 2021 and Nine Months 2020.

Roll Forward of Level 3 Assets

At Fair Value on a Recurring Basis

Third Quarter 2021

Fixed-Maturity Securities

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

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

First Quarter 2022

Fixed-Maturity Securities, Available-for-Sale Assets of CIVs

Subdivisions RMBS Asset-

Securities FG VIEs’

Assets Assets of CIVs - Equity Securities Other

(in millions)

Fair value as of June 30, 2021 $ 110 $ 248 $ 975 $ 287 $ 1 $ 31

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) 1 (1) 8 (1) 5 (1) 2 (2) — ( 4 ) (3)

Other comprehensive income (loss) ( 1 ) ( 2 ) 3 — — —

Purchases — — 55 — 33 —

Sales — — — — — —

Settlements — ( 16 ) ( 70 ) ( 18 ) — —

Fair value as of September 30, 2021

$ 110 $ 238 $ 968 $ 271 $ 34 $ 27

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2021

$ 2 (2) $ — $ ( 3 ) (3)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of September 30, 2021

$ ( 1 ) $ ( 2 ) $ 3

Roll Forward of Level 3 Liabilities

At Fair Value on a Recurring Basis

Third Quarter 2021

FG VIEs’ Liabilities

Recourse Without

Recourse Liabilities of CIVs

(in millions)

Fair value as of June 30, 2021 $ ( 154 ) $ ( 296 ) $ ( 24 ) $ ( 2,385 )

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) 21 (6) — (2) 2 (2) 4 (4)

Other comprehensive income (loss) — 2 — —

Issuances — — — ( 989 )

Settlements ( 1 ) 13 2 374

Fair value as of September 30, 2021

$ ( 134 ) $ ( 281 ) $ ( 20 ) $ ( 2,996 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2021

$ 1 (6) $ — (2) $ 2 (2) $ 1 (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of September 30, 2021

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets

At Fair Value on a Recurring Basis

Third Quarter 2020

Fixed-Maturity Securities Assets of CIVs

Subdivisions Corporate Securities RMBS Asset-

Securities FG VIEs’

Assets Corporate Securities Equity Securities and Warrants Structured Products Other

(in millions)

Fair value as of June 30, 2020 $ 97 $ 29 $ 254 $ 714 $ 318 $ 60 $ 53 $ 6 $ 78

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) 2 (1) 1 (1) 5 (1) 7 (1) 8 (2) 2 (4) 6 (4) — ( 10 ) (3)

Other comprehensive income (loss) ( 5 ) — 9 26 — — — — —

Purchases — — — 172 — — 5 — —

Sales — — — ( 19 ) — — ( 21 ) ( 6 ) —

Settlements ( 1 ) — ( 11 ) ( 3 ) ( 12 ) — — — —

Fair value as of September 30, 2020

$ 93 $ 30 $ 257 $ 897 $ 314 $ 62 $ 43 $ — $ 68

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2020

$ 8 (2) $ 2 (4) $ 5 (4) $ — $ ( 10 ) (3)

Change in unrealized

gains (losses) included in OCI related to financial instruments held as of September 30, 2020

$ ( 5 ) $ — $ 9 $ 26

Roll Forward of Level 3 Liabilities

At Fair Value on a Recurring Basis

Third Quarter 2020

FG VIEs’ Liabilities

Recourse Without

Recourse Liabilities of CIVs

(in millions)

Fair value as of June 30, 2020 $ ( 161 ) $ ( 332 ) $ ( 20 ) $ ( 806 )

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) ( 3 ) (6) ( 9 ) (2) ( 1 ) (2) ( 24 ) (4)

Other comprehensive income (loss) — ( 4 ) — —

Issuances — — — —

Settlements 5 9 2 —

Fair value as of September 30, 2020

$ ( 159 ) $ ( 336 ) $ ( 19 ) $ ( 830 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2020

$ 1 (6) $ ( 7 ) (2) $ ( 1 ) (2) $ ( 24 ) (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of September 30, 2020

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets

At Fair Value on a Recurring Basis

Nine Months 2021

Fixed-Maturity Securities

Subdivisions Corporate Securities RMBS Asset-

Securities FG VIEs’

Assets Assets of CIVs - Equity Securities Other

Assets Equity Securities and Warrants Corporate Securities Other

(in millions)

6 unchanged sentences

Settlements ( 1 ) ( 12 ) ( 39 ) ( 18 ) — — —

Fair value as of September 30, 2021 $ 110 $ — $ 238 $ 968 $ 271 $ 34 $ 27

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2021

$ 21 (2) $ 2 (4) $ ( 28 ) (3)

Change in unrealized

gains (losses) included in OCI related to financial instruments held as of September 30, 2021

$ 7 $ — $ 6 $ 9 $ 1

Roll Forward of Level 3 Liabilities

At Fair Value on a Recurring Basis

Nine Months 2021

FG VIEs’ Liabilities

Recourse Without

Recourse Liabilities of CIVs

Consolidations — — — 29 — — —

Fair value as of March 31, 2022 $ 70 $ 200 $ 842 $ 267 $ 243 $ 83 $ 28

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:

Earnings $ ( 3 ) (2) $ 8 (4) $ ( 2 ) (4) $ 1 (3)

OCI $ ( 5 ) $ ( 7 ) $ ( 7 ) $ ( 1 ) $ —

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

First Quarter 2022

Credit Derivative

Asset (Liability),

net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

(in millions)

5 unchanged sentences

Settlements 1 41 372

Fair value as of September 30, 2021 $ ( 134 ) $ ( 281 ) $ ( 20 ) $ ( 2,996 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2021

$ ( 54 ) (6) $ 2 (2) $ ( 6 ) (2) $ 5 (4)

Change in unrealized gains (losses) included in OCI related to financial instruments held as of September 30, 2021

Consolidations — ( 102 ) —

Fair value as of March 31, 2022 $ ( 156 ) $ ( 335 ) $ ( 3,650 )

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:

Earnings $ ( 3 ) (6) $ 38 (2) $ 41 (4)

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets

At Fair Value on a Recurring Basis

Nine Months 2020

Fixed-Maturity Securities Assets of CIVs

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

First Quarter 2021

Fixed-Maturity Securities, Available-for-Sale

Subdivisions Corporate Securities RMBS Asset-

Securities FG VIEs’

Assets Corporate Securities Equity Securities and Warrants Structured Products Other

Assets Assets of CIVs - Equity Securities Other

(in millions)

7 unchanged sentences

Settlements ( 1 ) — ( 11 ) ( 62 ) ( 14 ) — —

VIE consolidations — — — — 18 — — — —

Transfers out of Level 3 — — — ( 1 ) — — — — —

Fair value as of September 30, 2020 $ 93 $ 30 $ 257 $ 897 $ 314 $ 62 $ 43 $ — $ 68

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2020

$ ( 2 ) (2) $ 10 (4) $ 8 (4) $ — $ 13 (3)

Change in unrealized gains (losses) included in OCI related to financial instruments held at September 30, 2020

$ ( 16 ) $ ( 6 ) $ ( 24 ) $ ( 17 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Liabilities

At Fair Value on a Recurring Basis

Nine Months 2020

FG VIEs’ Liabilities

Recourse Without

Recourse Liabilities of CIVs

Fair value as of March 31, 2021 $ 103 $ 28 $ 246 $ 941 $ 281 $ 1 $ 37

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2021 included in:

Earnings $ — (2) $ 3 (4) $ ( 19 ) (3)

OCI $ 2 $ ( 4 ) $ — $ 5 $ 1

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

First Quarter 2021

Credit Derivative

Asset (Liability),

net (5) FG VIEs’ (8) Liabilities of CIVs

(in millions)

6 unchanged sentences

Settlements ( 1 ) 13 —

VIE consolidations — ( 16 ) ( 3 ) —

Fair value as of September 30, 2020

$ ( 159 ) $ ( 336 ) $ ( 19 ) $ ( 830 )

Change in unrealized gains (losses) included in earnings related to financial instruments held as of September 30, 2020

Fair value as of March 31, 2021

$ ( 120 ) $ ( 318 ) $ ( 1,973 )

Change in unrealized gains (losses) included in OCI related to financial instruments held at September 30, 2020

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2021 included in:

Earnings $ ( 20 ) (6) $ 5 (2) $ 6 (4)

____________________

1 unchanged sentence

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

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

(4) Recorded in fair value gains (losses) on CIVs.

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

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

(5) Represents the net position of credit derivatives.

Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheets based on net exposure by transaction.

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

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

(7) Includes CCS and other invested assets.

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

Assured Guaranty Ltd.

2 unchanged sentences

Quantitative Information About Level 3 Fair Value Inputs

At September 30, 2021

Financial Instrument Description Fair Value at September 30, 2021 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Fixed-maturity securities (1):

As of March 31, 2022

Financial Instrument Description Fair Value

(in millions) Significant Unobservable Inputs Range Weighted Average (4)

Fixed-maturity securities available-for-sale (1):

Obligations of state and political subdivisions $ 70 Yield 2.6 % - 27.1 % 6.7 %

12 unchanged sentences

Assets of CIVs (3):

Equity securities (3) 34 (3) (3) (3)

Equity securities and warrants 243 Yield 8.0 %

Discount rate 13.0 % - 24.2 % 21.8 %

Market multiple-enterprise value/revenue 1.10x

Market multiple-enterprise value/EBITDA (6) 3.00x - 10.50x 9.21x

Market multiple-price to book 1.85x

Exit multiple-EBITDA 8.00x - 12.00x 10.43x

Exit multiple-price to book 1.30x

Exit multiple 11.00x

Exit cap rate 12.0 %

Terminal growth rate 4.0 %

Corporate securities 83 Discount rate 21.4 % - 23.7 % 22.3 %

Market multiple-enterprise value/EBITDA 3.00x

Exit multiple-EBITDA 8.00x

Other assets (1) 25 Implied Yield 3.1 % - 3.7 % 3.4 %

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description (1) Fair Value at September 30, 2021 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Financial Instrument Description Fair Value

(in millions) Significant Unobservable Inputs Range Weighted Average (4)

Liabilities (1):

Credit derivative liabilities, net $ ( 156 ) Year 1 loss estimates 0.0 % - 87.0 % 1.9 %

10 unchanged sentences

Warehouse financing debt ( 31 ) Yield 16.2 % - 27.7 % 23.7 %

Securitized borrowing ( 21 ) Discount rate 24.2 %

___________________

1 unchanged sentence

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

(3) Includes an equity investment of $ 33 million acquired in Third Quarter 2021 by a consolidated fund.

Due to this fund’s quarter lag in reporting, the investment’s purchase price represents its fair value of September 30, 2021.

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

(3) The primary valuation technique uses the income and/or market approach;

the key inputs to the valuation are yield/discount rates and market multiples.

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

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

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

Assured Guaranty Ltd.

1 unchanged sentence

Quantitative Information About Level 3 Fair Value Inputs

At December 31, 2020

Financial Instrument Description Fair Value at December 31, 2020 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Fixed-maturity securities (1):

As of December 31, 2021

Financial Instrument Description Fair Value (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Fixed-maturity securities, available-for-sale (1):

Obligations of state and political subdivisions $ 72 Yield 4.4 % - 24.5 % 6.2 %

Corporate security 30 Yield 42.0 %

RMBS 216 CPR 0.0 % - 22.7 % 10.4 %

11 unchanged sentences

Assets of CIVs (3):

Equity securities 2 Yield 9.7 %

Equity securities and warrants 239 Yield 7.7 %

Discount rate 14.7 % - 23.9 % 21.6 %

Market multiple-enterprise value/revenue 1.10x

Market multiple-enterprise value/EBITDA 3.00x - 10.50x 8.95x

Market multiple-price to book 1.85x

Corporate securities 91 Discount rate 14.7 % - 21.4 % 17.8 %

Other assets (1)

1 unchanged sentence

Term (years) 10 years

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description Fair Value at December 31, 2020 (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Liabilities (1):

Credit derivative liabilities, net ( 154 ) Year 1 loss estimates 0.0 % - 85.8 % 0.1 %

9 unchanged sentences

CLO obligations of CFEs (5) ( 3,665 ) Yield 1.6 % - 13.7 % 2.1 %

Warehouse financing debt ( 23 ) Yield 12.6 % - 16.0 % 13.8 %

Securitized borrowing ( 17 ) Discount rate 23.9 %

Market multiple-enterprise value/revenue 10.50x

____________________

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

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

(3) The primary inputs to the valuation are recent market transaction prices, supported by market multiples and yield/discount rates.

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

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Not Carried at Fair Value

7 unchanged sentences

The market conventions utilize market quotations, market transactions for the Company’s comparable instruments, and to a lesser extent, similar instruments in the broader insurance industry.

Due From/To Brokers and Counterparties

Assets and Liabilities of CIVs

Cash equivalents are recorded at cost which approximates fair value.

Due from/to brokers and counterparties primarily consists of cash, margin deposits, and cash collateral with the clearing brokers and various counterparties and the net amounts receivable/payable for securities transactions that had not settled at the balance sheet date.

3 unchanged sentences

The carrying value approximates fair value of these items and are considered Level 1 in the fair value hierarchy.

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

Other Liabilities

Other liabilities in the table below include $ 36 million and $ 37 million as of March 31, 2022 and December 31, 2021, respectively, for AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5 % of the senior and equity notes issued by certain BlueMountain European CLOs, which was required to comply with its European risk retention obligations.

The maturity dates are in 2034 and 2035.

AssuredIM’s obligation under the master repurchase agreement is not guaranteed by any Assured Guaranty insurance or holding companies.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Fair Value of Financial Instruments Not Carried at Fair Value

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

As of March 31, 2022 As of December 31, 2021

Amount Estimated

3 unchanged sentences

Assets (liabilities):

Other invested assets $ — $ 2 $ 1 $ 3

Other assets (1) 91 91 83 83

Assets of CIVs (1) $ 176 $ 176 $ 171 $ 171

Other assets (including other invested assets) (2) 98 99 134 135

Financial guaranty insurance contracts (3) ( 2,422 ) ( 1,677 ) ( 2,394 ) ( 2,315 )

Long-term debt ( 1,673 ) ( 1,677 ) ( 1,673 ) ( 1,832 )

Liabilities of CIVs (4) ( 859 ) ( 859 ) ( 586 ) ( 586 )

Other liabilities (5) ( 61 ) ( 61 ) ( 45 ) ( 45 )

Assets (liabilities) of CIVs:

Due from brokers and counterparties 116 116 52 52

Due to brokers and counterparties ( 642 ) ( 642 ) ( 290 ) ( 290 )

____________________

(1) The Company’s other assets and other liabilities consist of:

accrued interest, repurchase agreement liability, management fees receivables, promissory note receivable, receivables for securities sold and payables for securities purchased, for which the carrying value approximates fair value.

Includes a $ 19 million repurchase agreement liability entered into during Nine Months 2021.

(1) Includes due from brokers and counterparties and cash equivalents.

Carrying value approximates fair value.

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

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

(4) Includes due to brokers and counterparties and fund’s loan payable.

Carrying value approximates fair value.

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

Asset Management Fees

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

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

Asset Management Fees

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

Management fees:

$ 9 $ 4 $ 31 $ 11

Opportunity funds and liquid strategies 4 4

5 unchanged sentences

_____________________

(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance compensation earned from the CLOs.

Gross management fees from CLOs, before rebates, we re $ 11 million, $ 7 million, $ 36 million and $ 24 million for Third Quarter 2021, Third Quarter 2020, Nine Months 2021 and Nine Months 2020, respectively .

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $ 8 million as of September 30, 2021 and $ 5 million as of December 31, 2020.

The Company had no unearned revenues as of September 30, 2021 and December 31, 2020.

(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs.

Gross management fees from CLOs, before rebates, we re $ 9 million and $ 14 million for First Quarter 2022 and First Quarter 2021, respectively.

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $ 7 million as of March 31, 2022 and $ 8 million as of December 31, 2021.

Performance fees in First Quarter 2022 were attributable to the healthcare and asset-based funds.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Credit Facilities

On February 3, 2022, the Company entered into a secured short-term loan facility with a major financial institution to partially fund gross payments in connection with the resolution of a portion of its Puerto Rico exposures.

See Note 3, Outstanding Exposure.

The short-term loan facility permitted the Company to borrow up to $ 550 million for up to thirty days and up to $ 150 million for up to six months .

The Company borrowed $ 400 million under the thirty days portion of this facility on March 14, 2022, and repaid it in full, with interest, on March 16, 2022.

The Company did not borrow any amounts under the six months portion of the facility.

The one month component bore interest at 1.10 % per annum and the six months component would have borne a floating interest rate equal to the forward-looking term Secured Overnight Financing Rate for a tenor of one month provided by CME Group Benchmark Administration Limited, plus 1.10 % per annum.

The ability of the Company to borrow under the facility has expired.

AGL and its Bermuda subsidiaries AG Re, AGRO, and Cedar Personnel Ltd.

(Bermuda Subsidiaries) are not subject to any income, withholding or capital gains taxes under current Bermuda law.

(collectively, the Bermuda Subsidiaries) are not subject to any income, withholding or capital gains taxes under current Bermuda law.

The Company has received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, AGL and its Bermuda Subsidiaries will be exempt from taxation in Bermuda until March 31, 2035.

12 unchanged sentences

file their own consolidated federal income tax return.

The CARES (Coronavirus Aid, Relief, and Economic Security) Act became law on March 27, 2020 and was updated on April 9, 2020.

The CARES Act, among other tax changes, accelerates the ability of companies to receive refunds of alternative minimum tax (AMT) credits related to tax years beginning in 2018 and 2019.

As a result, the Company received a refund for AMT credits in 2020.

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities) (1)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

Deferred tax assets (liabilities) $ ( 53 ) $ ( 100 )

Current tax assets (liabilities) ( 12 ) 21

Net deferred tax assets (liabilities) $ 42 $ ( 33 )

Net current tax assets (liabilities) ( 61 ) ( 43 )

____________________

1 unchanged sentence

Valuation Allowance

The Company has $ 24 million of foreign tax credit (FTC) due to the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years.

As of March 31, 2022, and December 31, 2021, the Company had $ 24 million of foreign tax credit (FTC) due to the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years.

FTCs will expire in 2027.

In analyzing the future realizability of FTCs, the Company notes limitations on future foreign source income due to overall foreign losses as negative evidence.

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the FTC of $ 24 million will not be utilized, and therefore recorded a valuation allowance with respect to this tax attribute.

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the FTC of $ 24 million will not be utilized, and therefore maintained the valuation allowance from December 31, 2021 with respect to this tax attribute.

The Company came to the conclusion that it is more likely than not that the remaining deferred tax assets will be fully realized after weighing all positive and negative evidence available as required under GAAP.

3 unchanged sentences

The Company will continue to analyze the need for a valuation allowance on a quarterly basis.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Provision for Income Taxes

1 unchanged sentence

A discrete calculation of the provision is calculated for each interim period.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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subsidiaries taxed at the U.K.

marginal corporate tax rate of 19 %, French subsidiaries taxed at the French marginal corporate tax rate of 27.5 %, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S.

marginal corporate tax rate of 19 %, the French subsidiary taxed at the French marginal corporate tax rate of 25.0 % in 2022 and 27.5 % in 2021, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S.

tax by election.

2 unchanged sentences

Effective Tax Rate Reconciliation

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

1 unchanged sentence

Tax-exempt interest ( 3 ) ( 4 )

Change in liability for uncertain tax positions — ( 17 ) — ( 17 )

Effect of provision to tax return filing adjustment ( 4 ) ( 7 ) ( 4 ) ( 7 )

State taxes, net of federal benefit ( 2 ) 1 5 2

State taxes 4 3

Foreign taxes 1 2

Taxes on reinsurance ( 4 ) 4 ( 1 ) 3

Other 1 ( 1 ) ( 2 ) ( 1 )

Stock based compensation 2 —

Total provision (benefit) for income taxes $ 18 $ —

4 unchanged sentences

Pre-tax Income (Loss) by Tax Jurisdiction

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

$ ( 10 ) $ 72 $ 92 $ 244

Bermuda 27 20

( 13 ) 21 ( 9 ) ( 3 )

Other ( 4 ) ( 2 )

1 unchanged sentence

Revenue by Tax Jurisdiction

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

$ 181 $ 200 $ 465 $ 606

Bermuda 33 30

( 1 ) 29 29 30

Other ( 2 ) —

Total $ 300 $ 177

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 30, 2021, AGUS and Assured Guaranty Overseas US Holdings Inc.

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

As of March 31, 2022, AGUS and Assured Guaranty Overseas US Holdings Inc.

had open tax years with the U.S.

Internal Revenue Service (IRS) for 2018 forward.

The companies are not currently under audit with the IRS.

Internal Revenue Service (IRS) for 2018 forward and AGUS is currently under audit for the 2018 and 2019 tax years.

The Company’s U.K.

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

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

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

For example, the Company is involved in a number of legal actions in the Federal District Court for Puerto Rico to enforce or defend its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations.

2 unchanged sentences

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

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

On November 28, 2011, Lehman Brothers International (Europe) (in administration) (LBIE) sued AG Financial Products Inc.

1 unchanged sentence

AGC acts as the credit support provider of AGFP under these CDS.

LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the Supreme Court), asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP's termination of 28 other credit derivative transactions between LBIE and AGFP and AGFP's calculation of the termination payment in connection with those 28 other credit derivative transactions.

LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the Supreme Court), asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination in December 2008 of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP’s termination in July 2008 of 28 other credit derivative transactions between LBIE and AGFP and AGFP’s calculation of the termination payment in connection with those 28 other credit derivative transactions.

Following defaults by LBIE, AGFP properly terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly.

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AGFP filed a motion to dismiss the claims for breach of the implied covenant of good faith in LBIE’s complaint, and on March 15, 2013, the court granted AGFP’s motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions.

LBIE’s administrators disclosed in an April 10, 2015 report to LBIE’s unsecured creditors that LBIE’s valuation expert has calculated LBIE’s claim for damages in aggregate for the 28 transactions to range between a minimum of approximately $ 200 million and a maximum of approximately $ 500 million, depending on what adjustment, if any, is made for AGFP's credit risk and excluding any applicable interest.

In addition, LBIE seeks prejudgment interest from the time of termination onwards.

AGFP filed a motion for summary judgment on the remaining causes of action asserted by LBIE and on AGFP’s counterclaims, and on July 2, 2018, the court granted in part and denied in part AGFP’s motion.

The court dismissed, in its entirety, LBIE’s remaining claim for breach of the implied covenant of good faith and fair dealing and also dismissed LBIE’s claim for breach of contract solely to the extent that it is based upon AGFP’s conduct in connection with the auction.

With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the lower court’s ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole

With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

remaining claim for breach of contract.

whether AGFP calculated its loss reasonably and in good faith.

On January 17, 2019, the Appellate Division affirmed the Supreme Court’s decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

3 unchanged sentences

On March 29, 2021, the action was reassigned to Justice Melissa A.

Trial began on October 18, 2021.

Long-Term Debt

The principal and carrying values of the Company’s debt are presented in the table below.

Principal and Carrying Amounts of Debt

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

Principal Carrying

Value Principal Carrying

(in millions)

7% Senior Notes (1) $ 200 $ 197 $ 200 $ 197

5% Senior Notes (1) (4) 330 329 500 498

3.15% Senior Notes (1) 500 494 — —

3.6% Senior Notes (1) 400 395 — —

Series A Enhanced Junior Subordinated Debentures (2) 150 150 150 150

AGUS - long-term debt 1,580 1,565 850 845

AGUS - Intercompany loans 280 280 280 280

Total AGUS 1,860 1,845 1,130 1,125

6 7 / 8 % Quarterly Interest Bonds (1) (4)

6.25% Notes (1) (4) — — 230 145

5.6% Notes (1) (4) — — 100 58

Junior Subordinated Debentures (2) 300 213 300 209

Total AGMH - long-term debt 300 213 730 483

AGM Notes Payable 2 2 3 3

Total AGM - notes payable 2 2 3 3

AGMH's long-term debt purchased by AGUS ( 154 ) ( 109 ) ( 154 ) ( 107 )

Elimination of intercompany loans payable ( 280 ) ( 280 ) ( 280 ) ( 280 )

Total $ 1,728 $ 1,671 $ 1,429 $ 1,224

____________________

(1) AGL fully and unconditionally guarantees these obligations.

(2) Guaranteed by AGL on a junior subordinated basis.

(3) Carrying amounts are different than principal amounts primarily due to fair value adjustments at the date of the AGMH acquisition, which are accreted or amortized into interest expense over the remaining terms of these obligations.

(4) Redeemed or partially redeemed in Third Quarter 2021.

3.15% Senior Notes.

On May 26, 2021, AGUS issued $ 500 million of 3.150 % Senior Notes due 2031 ( 3.15 % Senior Notes) for net proceeds of $ 494 million.

The net proceeds from the issuance were used for the redemption on July 9, 2021, of all of AGMH's debt maturing in 2101 and a portion of AGMH debt maturing in 2102, as described below, with the balance being used for general corporate purposes, including share repurchases.

AGUS may redeem all or part of the 3.15 % Senior Notes at any time or from time to time prior to March 15, 2031 (the date that is three months prior to the maturity of the 3.15 % Senior Notes), at its option, at a redemption price equal to the greater of (i) 100 % of the principal amount of the 3.15 % Senior

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes being redeemed;

or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed (excluding interest accrued to the redemption date) from the redemption date to March 15, 2031 discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30- day months) at a discount rate equal to the Treasury Rate plus 25 bps;

plus, in each case, accrued and unpaid interest on the 3.15 % Senior Notes to be redeemed to, but excluding, the redemption date.

AGUS may redeem all or part of the 3.15 % Senior Notes at any time or from time to time on and after March 15, 2031, at its option, at a redemption price equal to 100 % of the principal amount of the 3.15 % Senior Notes being redeemed, plus accrued and unpaid interest on the 3.15 % Senior Notes to be redeemed to, but excluding, the redemption date.

The 3.15 % Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by AGL.

The 3.15 % Senior Notes are senior unsecured obligations of AGUS and rank equally in right of payment with all of AGUS’s other unsecured and unsubordinated indebtedness outstanding.

The guarantee is a senior unsecured obligation of AGL and ranks equally in right of payment with all of AGL’s other unsecured and unsubordinated indebtedness outstanding.

3.6% Senior Notes.

On August 20, 2021, AGUS issued $ 400 million of 3.600 % Senior Notes due 2051 ( 3.6 % Senior Notes) for net proceeds of $ 395 million.

The net proceeds from the issuance were used for the redemption on September 27, 2021, of all of AGMH’s debt maturing in 2103, the remaining AGMH debt maturing in 2102, and a portion of AGUS’s debt maturing in 2024, as described below.

AGUS may redeem all or part of the 3.6 % Senior Notes at any time or from time to time prior to March 15, 2051 (the date that is six months prior to the maturity of the 3.6 % Senior Notes), at its option, at a redemption price equal to the greater of (i) 100 % of the principal amount of the 3.6 % Senior Notes being redeemed;

or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed (excluding interest accrued to the redemption date) from the redemption date to March 15, 2051 discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30- day months) at a discount rate equal to the Treasury Rate plus 30 bps;

plus, in each case, accrued and unpaid interest on the 3.6 % Senior Notes to be redeemed to, but excluding, the redemption date.

AGUS may redeem all or part of the 3.6 % Senior Notes at any time or from time to time on and after March 15, 2051, at its option, at a redemption price equal to 100 % of the principal amount of the 3.6 % Senior Notes being redeemed, plus accrued and unpaid interest on the 3.6 % Senior Notes to be redeemed to, but excluding, the redemption date.

The 3.6 % Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by AGL.

The 3.6 % Senior Notes are senior unsecured obligations of AGUS and rank equally in right of payment with all of AGUS’s other unsecured and unsubordinated indebtedness outstanding.

The guarantee is a senior unsecured obligation of AGL and ranks equally in right of payment with all of AGL’s other unsecured and unsubordinated indebtedness outstanding.

On July 9, 2021, a portion of the proceeds from the issuance of the 3.15 % Senior Notes was used to redeem $ 200 million of AGMH debt as follows:

all $ 100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, and $ 100 million of the $ 230 million of AGMH’s 6.25% Notes due in 2102.

On September 27, 2021, all of the proceeds from the issuance of the 3.6 % Senior Notes were used to redeem $ 400 million of AGMH and AGUS debt as follows:

all $ 100 million of AGMH's 5.60% Notes due in 2103, the remaining $ 130 million of AGMH 6.25% Notes due in 2102, and $ 170 million of the $ 500 million of AGUS 5% Senior Notes due in 2024.

In Third Quarter 2021, as a result of these redemptions, the Company recognized a loss on extinguishment of debt of approximately $ 175 million on a pre-tax basis ($ 138 million after-tax) which represents the difference between the amount paid to redeem the debt and the carrying value of the debt.

The loss on extinguishment of debt primarily consists of a $ 156 million acceleration of unamortized fair value adjustments that were originally recorded upon the acquisition of AGMH in 2009, and a $ 19 million make-whole payment associated with the redemption of $ 170 million of AGUS 5% Senior Notes.

A bench trial was held from October 18, 2021 through November 19, 2021;

a decision is pending subject to post-trial briefing and argument.

Shareholders’ Equity

Other Comprehensive Income

The following tables present the changes in each component of AOCI and the effect of reclassifications out of AOCI on the respective line items in net income.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Third Quarter 2021

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Change in ISCR on

FG VIEs ’ Liabilities with Recourse

Adjustment Cash Flow

(in millions)

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Other comprehensive income (loss) before reclassifications ( 69 ) ( 2 ) 1 — — ( 70 )

Amounts reclassified from AOCI to:

Net realized investment gains (losses)

( 3 ) 5 — — — 2

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Interest expense — — — — 1 1

Total before tax

( 3 ) 5 ( 1 ) — 1 2

Tax (provision) benefit

— ( 1 ) — — — ( 1 )

Total amount reclassified from AOCI, net of tax ( 3 ) 4 ( 1 ) — 1 1

Net current period other comprehensive income (loss) ( 66 ) ( 6 ) 2 — ( 1 ) ( 71 )

Balance, September 30, 2021

$ 443 $ ( 18 ) $ ( 21 ) $ ( 36 ) $ 6 $ 374

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Third Quarter 2020

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Change in ISCR on

FG VIEs ’ Liabilities with Recourse

Adjustment Cash Flow

(in millions)

Balance, June 30, 2020 $ 427 $ ( 41 ) $ ( 22 ) $ ( 38 ) $ 7 $ 333

Other comprehensive income (loss) before reclassifications 74 12 ( 1 ) — — 85

Amounts reclassified from AOCI to:

Net realized investment gains (losses)

Fair value gains (losses) on FG VIEs

Total before tax

Tax (provision) benefit

( 1 ) ( 1 ) ( 1 ) — — ( 3 )

Total amount reclassified from AOCI, net of tax 7 4 3 — — 14

Net current period other comprehensive income (loss) 67 8 ( 4 ) — — 71

Balance, September 30, 2020

$ 494 $ ( 33 ) $ ( 26 ) $ ( 38 ) $ 7 $ 404

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Nine Months 2021

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Change in ISCR on

FG VIEs ’ Liabilities with Recourse

First Quarter 2022

Net Unrealized Gains (Losses) on Investments with:

FG VIEs’ Liabilities with Recourse Cumulative

Adjustment Cash Flow

Hedge Total AOCI

No Credit Impairment Credit Impairment

(in millions)

3 unchanged sentences

Net realized investment gains (losses)

( 1 ) ( 5 ) — — — ( 6 )

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Interest expense — — — — 1 1

Total before tax

1 unchanged sentence

Tax (provision) benefit

( 1 ) — 1 — — —

Total amount reclassified from AOCI, net of tax ( 1 ) ( 4 ) ( 1 ) — — ( 6 )

Net current period other comprehensive income (loss) ( 134 ) 12 ( 1 ) — ( 1 ) ( 124 )

Balance, September 30, 2021 $ 443 $ ( 18 ) $ ( 21 ) $ ( 36 ) $ 6 $ 374

Other comprehensive income (loss) ( 338 ) ( 39 ) — ( 1 ) — ( 378 )

Balance, March 31, 2022 $ 37 $ ( 63 ) $ ( 21 ) $ ( 37 ) $ 6 $ ( 78 )

Assured Guaranty Ltd.

1 unchanged sentence

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Nine Months 2020

Net Unrealized Gains (Losses) on Investments with no Credit Impairment Net Unrealized Gains (Losses) on Investments with Credit Impairment Change in ISCR on

FG VIEs ’ Liabilities with Recourse

First Quarter 2021

Net Unrealized Gains (Losses) on Investments with:

FG VIEs’ Liabilities with Recourse Cumulative

Adjustment Cash Flow

Hedge Total AOCI

No Credit Impairment Credit Impairment

(in millions)

Balance, December 31, 2020 $ 577 $ ( 30 ) $ ( 20 ) $ ( 36 ) $ 7 $ 498

Effect of adoption of accounting guidance on credit losses 62 ( 62 ) — — — —

Other comprehensive income (loss) before reclassifications ( 119 ) ( 8 ) ( 2 ) 1 — ( 128 )

3 unchanged sentences

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Total before tax

1 unchanged sentence

Tax (provision) benefit

( 4 ) 3 — — — ( 1 )

Total amount reclassified from AOCI, net of tax — ( 2 ) ( 1 ) — — ( 3 )

Net current period other comprehensive income (loss) 80 ( 19 ) 1 — — 62

Balance, September 30, 2020 $ 494 $ ( 33 ) $ ( 26 ) $ ( 38 ) $ 7 $ 404

Other comprehensive income (loss) ( 119 ) ( 6 ) ( 1 ) 1 — ( 125 )

Balance, March 31, 2021 $ 458 $ ( 36 ) $ ( 21 ) $ ( 35 ) $ 7 $ 373

Share Repurchases

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 November 4, 2021, the Company was authorized to purchase $ 220 million of its common shares.

On February 23, 2022, the Board of Directors (the Board) authorized the repurchase of an additional $ 350 million of its common shares.

Under this and previous authorizations, as of May 5, 2022, the Company was authorized to purchase $ 240 million of its common shares.

The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions.

The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors, some of which factors may be impacted by the direct and indirect consequences of the course and duration of the COVID-19 pandemic and evolving governmental and private responses to the pandemic.

The repurchase program may be modified, extended or terminated by the Board at any time.

9 unchanged sentences

2022 (January 1 - March 31) (1) 2,738,223 155 56.62

2021 (April 1 - June 30) 1,887,531 88 46.63

2021 (July 1- September 30) 2,918,993 140 47.76

2021 (October 1 - November 4) 1,498,751 77 51.90

2022 (April 1 - May 5) 1,007,045 61 59.86

Total 2022 3,745,268 $ 216 57.49

____________________

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

Assured Guaranty Ltd.

2 unchanged sentences

Computation of Earnings Per Share

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions, except per share amounts)

15 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements