What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-05 · 740 added, 815 removed, 865 unchanged (64% of the section changed)

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Among factors that could cause actual results to differ adversely are:

• the development, course and duration of the COVID-19 pandemic and the governmental and private actions taken in response, the effectiveness, acceptance and distribution of COVID-19 vaccines, and the global consequences of the pandemic and such actions, including their impact on the factors listed below;

• changes in the world’s credit markets, segments thereof, interest rates, credit spreads or general economic conditions;

• the development, course and duration of the COVID-19 pandemic and the governmental and private actions taken in response, the effectiveness, acceptance and distribution of COVID-19 vaccines and therapeutics, and the global consequences of the pandemic and such actions, including their impact on the factors listed below;

• consequences of the conflict in Ukraine, including economic sanctions, volatility in energy prices, and the potential for increased cyberattacks;

• changes in the world’s credit markets, segments thereof, interest rates, inflation, credit spreads or general economic conditions;

• developments in the world’s financial and capital markets that adversely affect insured obligors’ repayment rates, Assured Guaranty’s insurance loss or recovery experience, investments of Assured Guaranty or assets it manages;

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• the possibility that budget or pension shortfalls or other factors will result in credit losses or impairments on obligations of state, territorial and local governments and their related authorities and public corporations that Assured Guaranty insures or reinsures;

• insured losses in excess of those expected by Assured Guaranty or the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the failure to resolve Assured Guaranty's Puerto Rico exposure in a manner substantially consistent with the support agreements signed to date;

• insured losses in excess of those expected by Assured Guaranty or the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the failure to resolve Assured Guaranty’s Puerto Rico exposures in a manner substantially consistent with the support agreements signed to date;

• increased competition, including from new entrants into the financial guaranty industry;

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• the possibility that investments made by Assured Guaranty for its investment portfolio, including alternative investments and investments it manages, do not result in the benefits anticipated or subject Assured Guaranty to reduced liquidity at a time it requires liquidity, or to unanticipated consequences;

• the impact of market volatility on the mark-to-market of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, most of its contracts written in credit default swap (CDS) form, and variable interest entities (VIEs) as well as on the mark-to-market of assets Assured Guaranty manages;

• the impact of market volatility on the mark-to-market of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, most of its financial guaranty contracts written in credit default swap (CDS) form, and certain consolidated variable interest entities (VIEs);

• rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its insurance subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL’s insurance subsidiaries have insured;

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• changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions;

• the failure of Assured Guaranty to successfully integrate the business of BlueMountain Capital Management, LLC (BlueMountain, now known as Assured Investment Management LLC) and its associated entities;

• the possibility that acquisitions made by Assured Guaranty, including its acquisition of BlueMountain (BlueMountain Acquisition), do not result in the benefits anticipated or subject Assured Guaranty to unanticipated consequences;

• the possibility that acquisitions made by Assured Guaranty, including its acquisition of BlueMountain Capital Management LLC (BlueMountain, now known as Assured Investment Management LLC) and its associated entities (BlueMountain Acquisition), do not result in the benefits anticipated or subject Assured Guaranty to unanticipated consequences;

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

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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 Company’s Corporate division activities are presented separately.

The Company’s Corporate division and other activities (including financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs)) are presented separately.

In the Insurance segment, the Company provides credit protection products to the U.S.

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

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

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

If an obligor defaults on a scheduled

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

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

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

and the United Kingdom (U.K.), and also guarantees obligations issued in other countries and regions, including Western Europe, Canada and Australia.

The Company also provides other forms of insurance that are consistent with its risk profile and benefit from its underwriting experience.

The Company also provides other forms of insurance that are consistent with its risk profile and benefit from its underwriting experience, which are referred to as the specialty insurance and reinsurance business.

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

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

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

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

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

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

insurance subsidiaries.

As of March 31, 2022, AssuredIM had $17.0 billion of assets under management (AUM), including $1.4 billion that is managed on behalf of Assured Guaranty Municipal Corp.

(AGM) and Assured Guaranty Corp.

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

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

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

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

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

Financial Statements, Note 2, Segment Information.

Economic Environment and Impact of COVID-19

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

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

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

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

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

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

In October 2021, the U.S.

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

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

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

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

For example, low interest rates may make the Company’s credit enhancement products less attractive in the market and reduce the level of premiums it can charge for that product, and, over time, also reduce the amount the Company can earn on its largely fixed-income investment portfolio.

Specifically, the level of interest rates on the U.S.

municipal bonds the Company enhances influences how high a premium the Company can charge for its public finance financial guaranty insurance product, with lower interest rates generally lowering the premium rates the Company may charge.

On the other hand, low interest rates increase the amount of excess spread available to support the distressed residential-mortgage-backed securities the Company insures.

Other activities include the effect of consolidating FG VIEs and CIVs (FG VIE and CIV consolidation).

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

Economic Environment

Economic activity in the U.S.

and throughout the world expanded in 2021 and in the three month period ended March 31, 2022 (First Quarter 2022).

According to the advance estimate released by the U.S.

Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 6.9% in the fourth quarter of 2021.

Although an advance estimate released by the BEA showed that GDP decreased 1.4% in First Quarter 2022, the primary reason was reported to be as a result of trade, since net imports increased as supply chains improved and businesses continued to restock.

More granular measures were positive, with a 4.7% increase in consumer spending and a 5.7% increase in business investment.

At the end of March 2022, the U.S.

unemployment rate, seasonally adjusted, stood at 3.6%, lower than where it started the quarter at 3.9%, and down from a pandemic high of 14.7% in April 2020.

More globally, the Organization for Economic Co-operation and Development (OECD) estimates that GDP in the OECD area increased by 5.1% during 2021, with U.K.

GDP estimated to have grown by 6.9% for the year, in each case after experiencing material contraction in 2020.

The Company believes a more robust economy makes it less likely that obligors whose obligations it guarantees will default.

According to the U.S.

Bureau of Labor Statistics, the inflation rate in the U.S.

over the 12-month period ending March 2022 (the latest data available), as measured by the consumer price index for all urban consumers, rose to 8.5% before seasonal adjustment, the highest since December of 1981.

The energy index rose 32% and the food index 8.8% over the same 12-month period, the most since the period ending May 1981.

According to the U.K.’s Office for National Statistics (ONS), the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.2% in the 12 months ending March 2022, up from 5.5% in the 12 months ending February 2022 and 1.0% in the 12 months ending March 2021.

Consumer price inflation does not impact the Company’s primary businesses directly, but may impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments or causes interest rates to rise more generally.

The 30-year AAA Municipal Market Data (MMD) rate is a measure of interest rates in the Company’s largest financial guaranty insurance market, U.S.

public finance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The 30-year AAA MMD rate started First Quarter 2022 at 1.49% but rose more than 100 basis points (bps) to end the quarter at 2.53%.

The average rate for the quarter was 2.00%, above the 1.54% average for 2021.

With the onset of the COVID-19 pandemic, the Federal Open Market Committee (FOMC) lowered the target range

for the federal funds rate to 0% to 0.25% in March 2020.

However, at the FOMC’s meeting in March 2022, the FOMC decided to raise the target range for the federal funds rate to 0.25% to 0.50%, stating that it anticipated that ongoing increases in the target range will be appropriate.

In addition, the FOMC said that it expected to begin reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.

At the conclusion of its May 3-4, 2022 meeting, the FOMC again raised the federal funds target range, this time to 0.75% to 1%, reiterating that it anticipated that ongoing increases in the target range would be appropriate.

In addition, the FOMC announced that it would begin reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities on June 1, 2022.

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

For example, higher interest rates may make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-income investment portfolio.

Specifically, the level of interest rates on the U.S.

municipal bonds the Company enhances influences how high a premium the Company can charge for its public finance financial guaranty insurance product, with higher interest rates generally increasing the premium rates the Company may charge.

On the other hand, high interest rates decrease the amount of excess spread available to support the distressed residential mortgage-backed securities (RMBS) the Company insures and reduce the market value of its largely fixed rate fixed-maturity securities in the investment portfolio.

The Company believes further increases in interest rates and spreads in 2022, should it occur, could increase demand for insurance and permit it to increase its premium rates on new business.

The difference, or credit spread, between the 30-year A-rated general obligation relative to the 30-year AAA MMD averaged 39 bps in First Quarter 2022 up from 33 bps in 2021 but still below the 42 bps in 2020.

BBB credit spreads measured on the same basis averaged 72 bps in First Quarter 2022, up modestly from the 70 bps in full year 2021.

The level of credit spreads also influences how high a premium the Company can charge for its financial guaranty insurance product, with tighter credit spreads generally lowering the premium rates the Company may charge.

Home prices continued their recent surge in the First Quarter of 2022.

According to the National Association of Realtors, the median existing-home price for all housing types in March 2022 was $375,300, a 15% year-over-year increase and up from $358,000 in December 2021.

Existing home sales were 5.8 million in March 2022, up 4.5% year over year.

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

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

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

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

census divisions, reported an 19.8% annualized gain in February 2022 (the latest data available), compared to 19.1% in the previous month.

The 10-City Composite annual increase came in at 18.6%, compared to 17.3% in the previous month.

The 20-City Composite posted an 20.2% year-over-year gain, compared to 18.9% in the previous month.

Home prices in the U.S.

impact the performance of the Company's insured residential mortgage-backed securities (RMBS) portfolio.

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

impact the performance of the Company's insured RMBS portfolio.

Improved home prices generally result in fewer losses or more reimbursements with respect to the Company's distressed insured RMBS risks, and may impact the amount of losses or reimbursements it projects for its distressed legacy RMBS insured portfolio.

Impact of COVID-19

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.

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

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

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

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

Through November 4, 2021, the Company has paid less than $10 million in first-time insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19.

The Company currently projects nearly full reimbursement of these claims.

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

If an insured obligor defaults, the Company is required to pay only any shortfall in interest and principal on scheduled payment dates;

the Company’s policies forbid acceleration of its obligations without its consent.

In addition, many of the obligations the Company insures benefit from debt service reserve funds or other funding sources from which interest and principal may be paid during limited periods of stress, providing the obligor with an opportunity to recover.

While the Company believes its guaranty may support the market value of an insured obligation in comparison to a similar uninsured obligation, the Company’s ultimate loss on a defaulted insured obligation is not a function of that underlying obligation’s market price.

Rather, the Company’s ultimate loss is the sum of all principal and interest payments it makes under its policy less the sum of all reimbursements, subrogation payments and other recoveries it receives from the obligor or any other sources in connection with the obligation.

For contracts accounted for as insurance, its expected losses equal the discounted value of all claim payments it projects making less the discounted value of all recoveries it expects to receive, on a probability-weighted basis.

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

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

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

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

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

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

and French offices.

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

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

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

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

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.

The Company began operating remotely in accordance with its business continuity plan in March 2020 in response to the COVID-19 pandemic, instituting mandatory remote work policies in its offices in Bermuda, U.S., U.K.

By the end of February 2022, the Company had reopened all of its offices, choosing a hybrid remote and office work model in response to employee feedback and as part of its commitment to providing a safe and healthy workplace.

employees are working remotely or in a hybrid remote and office work model, the Company continues to provide the services and communications it normally would.

Key Business Strategies

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

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

The Company believes that some of the U.S.

federal tax increases recently proposed could, if enacted, make municipal obligations more attractive to both institutional and retail investors.

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

The Company believes that if interest rates further increase in 2022, demand for bond insurance may improve.

In certain segments of the global infrastructure and structured finance markets the Company believes its financial guaranty product is competitive with other financing options.

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The timing of new business production in the international infrastructure and structured finance sectors is influenced by typically long lead times and therefore may vary from period to period.

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

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

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

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

Municipal Market Data and Bond Insurance Penetration Rates (1)

Based on Sale Date

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

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

First Quarter 2022 First Quarter 2021 Year Ended December 31, 2021

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

New municipal bonds issued $ 96.8 $ 104.5 $ 456.7

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The table excludes Corporate-CUSIP transactions insured by Assured Guaranty, which the Company also considers to be public finance business.

The Company also considers opportunities to acquire financial guaranty portfolios, whether by acquiring financial guarantors who are no longer actively writing new business or their insured portfolios.

These transactions enable the Company to improve its future earnings and deploy excess capital.

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In the public finance area, the Company believes its experience and the resources it is prepared to deploy, as well as its ability to provide bond insurance or other contributions as part of a solution, result in more favorable outcomes in distressed public finance situations than would be the case without its participation.

This has been illustrated by the Company’s role in the Detroit, Michigan;

Stockton, California;

and Jefferson County, Alabama financial crises, and more recently by the Company’s role in negotiating various agreements in connection with the restructuring of obligations of the Commonwealth of Puerto Rico (Commonwealth) and various obligations of its related authorities and public corporations.

This has been illustrated by the Company’s role in the Detroit, Michigan and Stockton, California financial crises, and more recently by the Company’s role in negotiating various agreements in connection with the restructuring of obligations of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations.

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

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

On February 22, 2021, Assured Guaranty Municipal Corp.

(AGM) and Assured Guaranty Corp.

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

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

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

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

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

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

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

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

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

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

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

After over five years of negotiations, 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 the Puerto Rico Oversight, Management and Economic Stability Act (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 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 which 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 financial oversight and management board (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 PRCCDA and PRIFA were extinguished, and its insurance exposure to Puerto Rico GO and PBA was greatly reduced.

The Company believes the consummation of the March Puerto Rico Resolutions on March 15, 2022, mark a milestone in its Puerto Rico loss mitigation efforts.

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

The Company is currently working with the servicers of some of the RMBS it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS.

In connection with the consummation of the March Puerto Rico Resolutions the Company received substantial amounts of new recovery bonds and contingent value instruments (CVIs).

The Company has sold some of the new recovery bonds and CVIs it received and may continue to sell amounts it still retains, subject to market conditions.

The fair value of such securities held by the Company as of March 31, 2022, is included in the lines “fixed-maturity securities - Puerto Rico, available-for-sale” and “fixed-maturity securities - Puerto Rico, trading” in the table “Investment Portfolio Carrying Value” of Item 1, Financial Statements, Note 7, Investments.

The Company is and has for several years been working with the servicers of some of the RMBS it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS.

In some instances, the terms of the Company’s policy give it the option to pay principal on an accelerated basis on an obligation on which it has paid a claim, thereby reducing the amount of guaranteed interest due in the future.

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

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

As of March 31, 2022, AssuredIM was a top 25 CLO manager by AUM, as published by Creditflux Ltd.

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

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AUM by product type assists in measuring the duration of AUM for which the Asset Management segment has the potential to earn management fees and performance fees.

For a discussion of the metric AUM, please see “— Results of Operations by Segment — Asset Management Segment.”

For a discussion of the metric AUM, see “— Results of Operations by Segment — Asset Management Segment.”

Additionally, the Company believes that AssuredIM provides the Company an opportunity to deploy excess capital at attractive returns improving the risk-adjusted return on a portion of the investment portfolio and potentially increasing the amount of dividends certain of its insurance subsidiaries are permitted to pay under applicable regulations.

The Company allocated $750 million of capital to invest in funds managed by AssuredIM plus $550 million of general account assets now managed by AssuredIM under an Investment Management Agreement (IMA).

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

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

The Company allocated $750 million of capital to invest in funds managed by AssuredIM plus $550 million of the AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S.

Insurance Subsidiaries) invested assets now managed by AssuredIM under an Investment Management Agreement (IMA).

The Company is using these allocations to:

(a) launch new products (CLOs, opportunity funds and liquid strategy funds) on the AssuredIM platform;

and (b) enhance the returns of its own investment portfolio.

As of March 31, 2022, AG Asset Strategies LLC (AGAS) had committed $702 million to funds managed by AssuredIM (AssuredIM Funds), including $229 million that has yet to be funded.

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

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

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

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

common shares.

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

From 2013 through May 5, 2022, the Company has repurchased 135.8 million common shares for approximately $4,374 million, representing approximately 70.0% of the total shares outstanding at the beginning of the repurchase program in 2013.

On February 23, 2022, the AGL Board of Directors (the Board) authorized the repurchase of an additional $350 million of common shares.

Under this and previous authorizations, as of May 5, 2022, the Company was authorized to purchase $240 million of its common shares.

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

The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors, some of which factors may be impacted by the direct and indirect consequences of the course and duration of the COVID-19 pandemic and evolving governmental and private responses to the pandemic.

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

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2022 (First Quarter) 155 2.7 56.62

2021 (Second Quarter) 88 1.9 46.63

2021 (Third Quarter) 140 2.9 47.76

2021 (through November 4) 77 1.5 51.90

2022 (through May 5) 61 1.0 59.86

Cumulative repurchases since the beginning of 2013 $ 4,374 135.8 32.21

Accretive Effect of Cumulative Repurchases (1)

Third Quarter 2021 Nine Months 2021

As of September 30, 2021

First Quarter 2022 As of March 31, 2022

Net income (loss) attributable to AGL $ 0.51

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all $100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, and $100 million of the $230 million of AGMH’s 6.25% Notes due in 2102.

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

Holding Companies” for the U.S.

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

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

On September 27, 2021, all of the proceeds from the issuance of the 3.6% Senior Notes were used to redeem $400 million of AGMH and AGUS debt as follows:

all $100 million of AGMH's 5.60% Notes due in 2103, the remaining $130 million of AGMH 6.25% Notes due in 2102, and $170 million of the $500 million of AGUS 5% Senior Notes due in 2024.

In Third Quarter 2021, as a result of these redemptions, the Company recognized a loss on extinguishment of debt of approximately $175 million on a pre-tax basis ($138 million after-tax) which represents the difference between the amount paid

to redeem the debt and the carrying value of the debt.

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.

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

Holding Companies” for the U.S.

Holding Companies’ long-term debt.

In 2021, as a result of these redemptions, the Company recognized a loss on extinguishment of debt of approximately $175 million on a pre-tax basis ($138 million after-tax) which represents the difference between the amount paid to redeem the debt and the carrying value of the debt.

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

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

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

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

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

Financial Statements, Note 14, Long-Term Debt.

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

Municipal Assurance Corp.

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This restructuring of the Company’s U.S.

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

Insurance Subsidiaries simplified the organizational and capital structure, reduced costs, and increased the future dividend capacity of the U.S.

Insurance Subsidiaries.

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For a more detailed description of events, trends and uncertainties, as well as the capital, liquidity, credit, operational and market risks and the critical accounting policies and estimates affecting the Company, this Quarterly Report should be read in its entirety and in addition to the Company’s 2021 Annual Report on Form 10-K.

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

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

Other factors that drive volatility in net income include:

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

The primary drivers of volatility in the Company’s net income include:

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

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

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Financial Results

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions, except per share amounts)

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Weighted average diluted shares 67.4 77.5

Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income $ (10) $ —

Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share $ (0.14) $ —

Components of total adjusted operating income (loss)

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Present value of new business production (PVP) (2)

96 117 263 264

Gross par written 4,471 5,472

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Inflows - intercompany — 145

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

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

Amount Per Share Amount Per Share

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Adjusted book value (2) 8,665 133.21 8,823 130.67

Gain (loss) related to the effect of consolidating VIEs (VIE consolidation) included in adjusted operating shareholders' equity — — 2 0.03

Gain (loss) related to VIE consolidation included in adjusted book value (9) (0.12) (8) (0.10)

Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating shareholders’ equity 22 0.34 32 0.47

Gain (loss) related to FG VIE and CIV consolidation included in adjusted book value 13 0.19 23 0.34

Common shares outstanding (3) 65.0 67.5

____________________

(1) Relates to the effect of consolidating FG VIEs and CIVs.

(2) See “—Non-GAAP Financial Measures” for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the United States of America (GAAP), a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure, if available, and for additional details.

(2) “Adjusted operating income” is the Company’s segment measure.

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

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Condensed Consolidated Results of Operations

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

2021 2020 2021 2020

Three Months Ended March 31,

(in millions)

Net earned premiums $ 214 $ 103

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Fair value gains (losses) on CCS 1 (19)

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

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

Fair value gains (losses) on FG VIEs 6 5

Fair value gains (losses) on CIVs 14 16

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

Commutation gains (losses) — — — 38

Other income (loss) (1) —

Total revenues 300 177

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

Loss and LAE 57 30

Interest expense 20 21

Loss on extinguishment of debt 175 — 175 —

Amortization of deferred acquisition costs (DAC) 4 3

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Total expenses 196 171

Income (loss) before provision for 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

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Noncontrolling interests 9 4

Net income (loss) attributable to AGL $ 17 $ 86 $ 126 $ 214

Net income (loss) attributable to Assured Guaranty Ltd.

Effective tax rate 20.0 % (0.9) %

Third Quarter 2021 Compared with Third Quarter 2020

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

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

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

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

Nine Months 2021 Compared with Nine Months 2020

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

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

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

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

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

These decreases were offset in part by:

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

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

Net income attributable to AGL for First Quarter 2022 was higher compared with the three month period ended March 31, 2021 (First Quarter 2021) primarily due to:

• higher net earned premiums of $214 million in First Quarter 2022 compared with $103 million in First Quarter 2021,

• fair value gains on CCS in First Quarter 2022 compared with losses in First Quarter 2021, and

• lower fair value losses on credit derivatives in First Quarter 2022 compared with First Quarter 2021.

These increases were offset in part by:

• foreign exchange losses on remeasurement in First Quarter 2022,

• higher loss expense in First Quarter 2022 compared First Quarter 2021, and

• losses in equity method alternative investments.

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

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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 Assured Guaranty Re Ltd (AG Re), Assured Guaranty Re Overseas Ltd.

(AGRO) and Cedar Personnel Ltd., unless subject to U.S.

marginal corporate tax rate of 19%, French subsidiaries taxed at the French marginal corporate tax rate of 25%, and no taxes for the Company’s Bermuda subsidiaries, unless subject to U.S.

tax by election or as a U.S.

controlled foreign corporation.

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

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

See “Accretive Effect of Cumulative Repurchases” table above.

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

The effective tax rate in First Quarter 2022 was higher than in First Quarter 2021 due primarily to differences in the portion of income generated by various jurisdictions.

Adjusted Operating Income

Adjusted operating income in First Quarter 2022 was $90 million, compared with $43 million in First Quarter 2021.

The increase was primarily attributable to higher insurance segment adjusted operating income due to the March Puerto Rico Resolutions.

See “— Results of Operations — Reconciliation to GAAP” below.

Book Value and Adjusted Book Value

Shareholders’ equity attributable to AGL declined mainly due to unrealized losses on the available-for-sale fixed-maturity investment portfolio that were a result of higher interest rates and share repurchases.

Adjusted operating shareholders’ equity and adjusted book value declined from December 31, 2021, mainly due to share repurchases and dividends, partially offset, in the case of adjusted book value, by net written premiums on new business production.

Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were $89.20, $90.09 and $133.21, respectively as of March 31, 2022.

Shareholders’ equity per share declined primarily due to unrealized losses on the available-for-sale fixed maturity portfolio.

The increase in adjusted operating shareholders’ equity per share and adjusted book value per share was primarily due to the accretive effect of the share repurchase program.

In the case of adjusted book value per share, net premiums written in the Insurance segment also contributed to the increase compared with December 31, 2021.

See “— Overview — Key Business Strategies , Accretive Effect of Cumulative Repurchases” table above.

See “— Non-GAAP Financial Measures” below for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and adjusted book value.

Other Matters

In 2017, the U.K.’s Financial Conduct Authority (FCA) announced that after 2021 it would no longer compel banks to submit the rates required to calculate London Interbank Offered Rate (LIBOR).

On November 30, 2020, ICE Benchmark Administration (IBA), the administrator of U.S.

Dollar LIBOR, announced that it would cease the publication of the overnight and 1, 3, 6 and 12-month U.S.

Dollar LIBOR settings immediately following the LIBOR publication on June 30, 2023, rather than at the end of 2021.

Russia’s Invasion of Ukraine

Russia’s invasion of Ukraine has led to the imposition of economic sanctions by many western countries against Russia and certain Russian individuals, dislocation in global energy markets, massive refugee movements, and probable default by certain Russian credits.

The economic sanctions imposed by western governments, along with decisions by private companies regarding their presence in Russia, continue to reduce western economic ties to Russia and to reshape global economic and political ties more generally, and the Company cannot predict all of the potential effects of the conflict on the world or on the Company.

The Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, and have identified no material direct exposure to Ukraine or Russia.

In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $327 million in net par outstanding as of March 31, 2022, comprising $255 million net par exposure to the sovereign debt of Poland and $72 million net par exposure to a toll road in Hungary.

The Company rates the toll road exposure below-investment-grade (BIG).

As described above under "Overview -- Economic Environment", by some measures consumer inflation in the U.S.

has been higher in the last few months than it has been in decades, and interest rates generally have increased.

Concerns have been expressed in the financial press about inflation taking hold in the economy.

Inflation and higher interest rates could impact the Company in numerous ways.

For example, higher interest rates might make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-maturity investment portfolio.

On the other hand, high interest rates would decrease the amount of excess spread available to support the distressed RMBS the Company insures, would reduce the market value of its largely fixed rate fixed maturity investment portfolio and may make it more difficult for obligors to repay obligations the Company guarantees.

The Federal Reserve Board has communicated its intention to raise interest rates, and the Company believes further increases in interest rates and spreads in 2022, should they occur, could increase demand for insurance and permit the Company to increase its premium rates on new business, although there can be no assurance that this would occur.

ICE Benchmark Administration (IBA) and U.K.

Financial Conduct Authority (FCA) first announced in 2017 that the publication of London Interbank Offered Rate (LIBOR) would cease at the end of 2021.

Many legal documents entered into prior to that time did not include robust fallback language contemplating the permanent suspension of the publication of LIBOR.

On March 5, 2021, IBA and FCA confirmed a representative panel of banks will continue setting 1, 3, 6 and 12-month U.S.

Dollar LIBOR through June 2023.

Dollar LIBOR through June 2023, rather than December 31, 2021 as originally announced.

The Company believes that the continued publication of U.S.

Dollar LIBOR on the current basis after that date is unlikely.

The Company has exposure to LIBOR in four areas of its operations:

Dollar LIBOR on the current basis after June 2023 is unlikely.

The publication of all sterling LIBOR rates ceased on December 31, 2021, as originally announced.

The Company has exposure to LIBOR in the following areas:

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

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

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

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

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

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

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

For example, at present SOFR lacks a forward-looking term structure, which presents an operational challenge as the applicable interest rate will not be known until a period ends.

On April 20, 2021, the Alternative Reference Rates Committee announced they are working toward recommending a forward-looking SOFR term rate.

The Company has initiated a dialogue with relevant trustees, calculation agents, auction agents, servicers and other parties responsible for implementing the rate change in these transactions.

Most have not yet committed to a course of action.

Internal Revenue Service and Department of the Treasury issued final and proposed regulations in October 2020 relating to the tax treatment of passive foreign investment companies (PFICs).

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

Dollar LIBOR.

On March 15, 2022, the U.S.

president signed into law the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) which provides, among other things, a transition to the Secured Overnight Finance Rate (SOFR) as a benchmark replacement for LIBOR-based contracts that do not have adequate fallback language or a replacement rate is not selected by a determining person.

The LIBOR Act eliminates the need to seek amendments to our LIBOR-based contracts that do not contain adequate fallback language.

New York and other states have also passed legislation similar to the LIBOR Act.

Sterling LIBOR .

The Company is cooperating with the relevant parties to amend the relevant documents referencing sterling LIBOR in its insured portfolio to instead reference Sterling Overnight Interbank Average Rate (SONIA), and the Company believes such amendments will be completed by year end 2022.

In the meantime, the FCA has authorized temporary use of synthetic sterling LIBOR, which approximates what sterling LIBOR might have been.

Internal Revenue Service and Department of the Treasury issued final and proposed regulations in October 2020 relating to the tax treatment of passive foreign investment companies (PFIC).

The final regulations are not expected to have a material impact to the Company’s business operation or its shareholders and the proposed regulations are continuing to be evaluated.

Results of Operations

Business Segments

The Company reports its results of operations in two distinct segments, Insurance and Asset Management, consistent with the manner in which the Company’s 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 financial guaranty VIEs (FG VIEs) and those AssuredIM investment vehicles (primarily funds and CLOs) for which the Company is deemed to be the primary beneficiary (CIVs).

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

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

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

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

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

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

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

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

Adjusted operating income (loss) by segment:

Insurance $ 214 $ 81 $ 445 $ 320

Asset management (7) (12) (16) (30)

Corporate (169) (18) (232) (83)

Other (4) (3) — (7)

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

Reconciliation to net income (loss) attributable to AGL:

Plus pre-tax adjustments:

Realized gains (losses) on investments $ 3 $ 13 $ 4 $ 12

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

Fair value gains (losses) on CCS (3) (10) (28) 13

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves (27) 40 (21) (15)

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

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

Net income (loss) attributable to AGL $ 17 $ 86 $ 126 $ 214

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment and require the Company to make estimates and assumptions, based on available information, that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements.

The inputs into our estimates and assumptions consider the economic implications of COVID-19.

Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the Consolidated Financial Statements.

Critical estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances.

There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time.

The accounting policies that the Company believes are the most dependent on the application of judgment, estimates and assumptions are listed below.

Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, of the Company’s 2021 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the note where further details regarding the significant estimates and assumptions are provided, as well as Part II.

Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2021 Annual Report on Form 10-K, for further details regarding sensitivity analysis.

• Expected loss to be paid (recovered)

• Fair value of certain assets and liabilities, primarily:

▪ Investments

▪ Assets and liabilities of CIVs

▪ Assets and liabilities of FG VIEs

▪ Credit derivatives

• Recoverability of goodwill and other intangible assets

• Credit impairment of financial instruments

• Revenue recognition

• Income tax assets and liabilities, including the recoverability of deferred tax assets (liabilities)

In addition, the valuation of AUM, which is the basis for calculating certain asset management fees, is based on estimates and assumptions.

AUM valuations are often performed by independent pricing services based on observable and unobservable inputs.

AUM may be impacted by a wide range of factors, including the condition of the global economy and financial markets, the relative attractiveness of the investment strategies of AssuredIM, and regulatory or other governmental policies or actions.

For an explanation of how the Company defines and uses the AUM metric and why it provides useful information to investors, see “— Results of Operations by Segment — Asset Management Segment”.

Results of Operations by Segment

The Company analyzes the operating performance of each segment using each segment’s adjusted operating income as described in Item 1, Financial Statements, Note 2, Segment Information.

Insurance Segment Results

Insurance Results

Third Quarter Nine Months

2021 2020 2021 2020

Insurance Segment Results

First Quarter

(in millions)

Segment revenues

Net earned premiums and credit derivative revenues $ 219 $ 107

Net investment income 63 73

Commutation gains (losses) — — — 38

Other income (loss) (4) (1)

Total revenues 190 189 551 631

Loss expense (benefit) (78) 76 (60) 133

Total segment revenues 278 179

Segment expenses

Loss expense 60 30

Interest expense 1 —

Amortization of DAC 4 3

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Other operating expenses 19 37

Total expenses (22) 134 131 308

Equity in earnings of investees 33 20 100 37

Adjusted operating income (loss) before income taxes 245 75 520 360

Total segment expenses 122 106

Equity in earnings (losses) of investees (1) 19

Segment adjusted operating income (loss) before income taxes 155 92

Provision (benefit) for income taxes 22 13

Adjusted operating income (loss) $ 214 $ 81 $ 445 $ 320

Insurance New Business Production

Gross Written Premiums and

New Business Production

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

Public Finance—U.S.

$ 52 $ 93 $ 160 $ 182

Public Finance—non-U.S.

Structured Finance—U.S.

Structured Finance—non-U.S.

Total GWP $ 106 $ 121 $ 277 $ 334

Public Finance—U.S.

$ 55 $ 93 $ 165 $ 182

Public Finance—non-U.S.

Structured Finance—U.S.

Structured Finance—non-U.S.

Total PVP $ 96 $ 117 $ 263 $ 264

Gross Par Written (1):

Public Finance—U.S.

$ 7,703 $ 6,932 $ 17,846 $ 14,855

Public Finance—non-U.S.

156 500 1,117 1,434

Structured Finance—U.S.

436 — 941 188

Structured Finance—non-U.S.

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

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

____________________

(1) PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles.

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

Third Quarter 2021

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

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

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

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

The Company also assumed U.S.

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

The average rating of U.S.

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

In Third Quarter 2021, non-U.S.

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

university housing transaction.

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

Nine Months 2021

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

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

transactions.

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

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

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

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

The Company also assumed U.S.

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

The average rating of U.S.

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

GWP and PVP decreased 48% and 10% respectively.

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

GWP decreased by 12% and PVP decreased 11%.

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

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

Segment adjusted operating income (loss) $ 133 $ 79

Net Earned Premiums and Credit Derivative Revenues

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The Company periodically estimates remaining expected lives of its insured obligations backed by homogeneous pools of assets and makes prospective adjustments for such changes in expected lives.

Scheduled net earned premiums decrease each year unless replaced by a higher amount of new business, reassumptions of previously ceded business or books of business acquired in a business combination.

See Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Financial Guaranty Insurance Premiums, for additional information.

Net earned premiums due to accelerations are attributable to changes in the expected lives of insured obligations driven by (a) refundings of insured obligations or (b) terminations of insured obligations either through negotiated agreements or the exercise of the Company’s contractual rights to make claim payments on an accelerated basis.

Scheduled net earned premiums decrease each year unless replaced by a higher amount of new business, books of business acquired in a business combination or reassumptions of previously ceded business.

See Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Premiums, for additional information.

Net earned premiums due to accelerations are attributable to changes in the expected lives of insured obligations driven by:

(i) refundings of insured obligations;

or (ii) terminations of insured obligations either through negotiated agreements or the exercise of the Company’s contractual rights to make claim payments on an accelerated basis.

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

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

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

The amortization of our outstanding book of business along with the previously high levels of refunding activity has led to a lower volume of refunding opportunities over the last several years.

The amortization of our outstanding book of business along with the previously high levels of refunding activity has led to a lower volume of refunding opportunities over the last several years, except for refundings of Puerto Rico polices under the March Puerto Rico Resolutions.

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

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While each termination may have different terms, they all result in the expiration of the Company’s insurance risk, the acceleration of the recognition of the associated deferred premium revenue and the reduction of any remaining premiums receivable.

The Company has not written any new credit derivatives since 2009.

Other than credit derivatives that may be acquired in business combinations and reinsurance agreements, or as part of loss mitigation strategies, credit derivative exposure is expected to decline.

Insurance Segment

Net Earned Premiums and Credit Derivative Revenues

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

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Total public finance 199 88

Structured finance

Scheduled net earned premiums (1) 22 17 52 51

Terminations — — 1 —

Total structured finance 22 17 53 51

Structured finance scheduled net earned premiums (1) 15 15

Specialty insurance and reinsurance 1 1

6 unchanged sentences

____________________

(1) Includes accretion.

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

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

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

Net Investment Income and Equity in Earnings of Investees

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

(1) Includes accretion of discount.

Net earned premiums and credit derivative revenues in First Quarter 2022 increased compared with First Quarter 2021 primarily due to refundings of $104 million associated with the March Puerto Rico Resolutions as discussed in Item 1.

Financial Statements, Note 3, Outstanding Exposure.

As of March 31, 2022, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

New Business Production

Gross Written Premiums and

New Business Production

First Quarter

(in millions)

Public Finance—U.S.

Public Finance—non-U.S.

Structured Finance—U.S.

Structured Finance—non-U.S.

Total GWP $ 70 $ 87

Public Finance—U.S.

Public Finance—non-U.S.

Structured Finance—U.S.

Structured Finance—non-U.S.

Total PVP $ 69 $ 86

Gross Par Written (2):

Public Finance—U.S.

$ 3,931 $ 5,427

Public Finance—non-U.S.

Structured Finance—U.S.

Structured Finance—non-U.S.

Total gross par written $ 4,471 $ 5,472

Average rating on new business written A- A-

____________________

(1) First Quarter 2022 PVP and gross par written includes the present value of future premiums and exposure, respectively, associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees .

(2) PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles.

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

public finance GWP and PVP in First Quarter 2022 was lower than the comparable GWP and PVP in First Quarter 2021, primarily due to a large transaction closed in First Quarter 2021 that did not recur.

The average rating of U.S.

public finance par written was A- in First Quarter 2022, which is consistent with the average rating in First Quarter 2021.

The Company's direct par written represented 58% of the total U.S.

municipal market insured issuance in First Quarter 2022, compared with 65% in First Quarter 2021, and the Company’s penetration of all municipal issuance was 4.9% in First Quarter 2022 compared with 5.3% in First Quarter 2021.

In First Quarter 2022, non-U.S.

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

water liquidity guarantee and a restructuring of an existing U.K.

water transaction.

In First Quarter 2022, structured finance GWP is primarily attributable to U.S.

structured finance PVP primarily includes guarantees of rental income cash flows, for which no GWP is reported under GAAP.

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.

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

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

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

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

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

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

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

Insurance Subsidiaries are authorized

to invest up to $750 million in AssuredIM Funds.

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.

Net Investment Income and Equity in Earnings of Investees

Third Quarter Nine Months

2021 2020 2021 2020

Insurance Segment

Income from Investment Portfolio

First Quarter

(in millions)

Net investment income

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

Externally managed $ 47 $ 51

Loss mitigation securities and other 12 17

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Intercompany loans 2 2

Gross investment income 70 77 217 246

Investment income 65 74

Investment expenses (2) (1)

Net investment income $ 63 $ 73

Equity in earnings of investees

Other income:

Unrealized gain (loss) on trading securities $ (4) $ —

Equity in earnings (losses) of investees

AssuredIM Funds $ 11 $ 10

Other 10 7 30 8

Equity in earnings of investees $ 33 $ 20 $ 100 $ 37

Equity in earnings (losses) of investees $ (1) $ 19

____________________

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

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

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

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

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

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

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

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

Commutation Gains (Losses)

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

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

Net investment income for First Quarter 2022 decreased compared to First Quarter 2021, primarily due to lower average balances in fixed-maturity securities as short term investments were accumulated to meet liquidity needs as a result of the consummation of the March Puerto Rico Resolutions on March 15, 2022.

The overall pre-tax book yield was 3.15% as of March 31, 2022 and 3.23% as of March 31, 2021.

Excluding the internally managed portfolio, pre-tax book yield was 2.93% as of March 31, 2022 and 2.94% as of March 31, 2021.

Equity in earnings of AssuredIM Funds in First Quarter 2022 was primarily attributable to higher valuations of assets held in CLO, healthcare and asset-based funds.

The fair value gains on investments in AssuredIM Funds in First Quarter 2021 was primarily attributable to changes in the NAV of CLO funds.

Equity in earnings of other investments decreased in First Quarter 2022 compared with First Quarter 2021 primarily due to a stock price decline on a specific investment in a private equity fund.

CVIs issued by Puerto Rico and received as part of the March Puerto Rico Resolutions are classified as trading with changes in fair value reported in other income.

The fair value of such instruments as of March 31, 2022 was $174 million.

Other Income (Loss)

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

Beginning in First Quarter 2022, other income (loss) also included unrealized gain (loss) on the portfolio of trading securities.

Economic Loss Development

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

For a discussion of methodologies used in estimating the expected loss to be paid (recovered) for all contracts and the accounting policies for measurement and recognition under GAAP for each type of contract, see the notes listed below in Part II.

For a discussion of methodologies used in estimating the expected loss to be paid (recovered) for all contracts and the accounting policies for measurement and recognition under GAAP

for each type of contract, see the notes listed below in Part II.

Item 8, Financial Statements and Supplementary Data, of the Company’s 2021 Annual Report on Form 10-K:

• Note 5 for expected loss to be paid (recovered)

• Note 6 for contracts accounted for as insurance;

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Net expected loss to be paid (recovered) primarily consists of the present value of future:

expected claim and LAE payments, expected recoveries from issuers or excess spread, cessions to reinsurers, expected recoveries/payables for breaches of representations and warranties, and the effects of other loss mitigation strategies.

expected claim and LAE payments;

expected recoveries from issuers or excess spread;

cessions to reinsurers;

expected recoveries/payables stemming from breaches of representation and warranties (R&W);

and, the effects of other loss mitigation strategies.

Assumptions used in the determination of the net expected loss to be paid (recovered) such as delinquency, severity, and discount rates and expected time frames to recovery were consistent by sector regardless of the accounting model used.

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The following table presents the range and weighted average discount rates used to discount expected losses (recoveries).

Risk-Free Rates

Risk-Free Rates used in Expected Loss (Recovery)

Risk-Free Rates Used in Expected Loss (Recovery) for

Dollar Denominated Obligations

Range Weighted Average

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

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

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

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

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

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

The primary components of economic loss development are presented in the tables that follow and the drivers of economic loss development are discussed below.

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

As of March 31, 2022 As of December 31, 2021 As of March 31, 2021 As of December 31, 2020

Range 0.00 % – 2.61% 0.00 % – 1.98% 0.00 % – 2.49% 0.0 % – 1.72%

Weighted average 2.26% 1.02% 0.88% 0.60%

The composition of economic loss development (benefit) by accounting model and by sector are presented in the tables that follow, and the drivers of economic loss development (benefit) are discussed below.

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

by Accounting Model

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

As of Third Quarter Nine Months

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

As of First Quarter

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

(in millions)

4 unchanged sentences

Net exposure rated below-investment-grade (BIG) $ 5,783 $ 7,440

Net Expected Loss to be Paid (Recovered) and

Net Economic Loss Development (Benefit)

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

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

As of Third Quarter Nine Months

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

As of First Quarter

Sector March 31, 2022 December 31, 2021 2022 2021

(in millions)

7 unchanged sentences

Effect of changes in the risk-free rates included in economic loss development (benefit) $ (47) $ (48)

Third Quarter 2021 Net Economic Loss Development

First Quarter 2022 Net Economic Loss Development

Public Finance:

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

exposures, which had BIG net par

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

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

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

The economic benefit on U.S.

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

The economic benefit attributable to U.S.

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

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

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

Other Structured Finance:

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

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

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

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

exposures, which had BIG net par outstanding of $3.7 billion as of March 31, 2022 compared with $5.4 billion as of December 31, 2021.

The reduction in net par was primarily due to the March Puerto Rico Resolutions discussed in Item 1.

Financial Statements, Note 3, Outstanding Exposure.

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

public finance exposures as of March 31, 2022 is $181 million, compared with $197 million as of December 31, 2021.

The economic loss development attributable to U.S.

RMBS was $7 million and was mainly attributable to a $43 million loss related to lower excess spread, partially offset by a $22 million benefit related to changes in discount rates and an $11 million benefit related to improved performance in certain transactions.

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

Third Quarter 2020 Net Economic Loss Development

First Quarter 2021 Net Economic Loss Development

Public Finance:

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

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

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

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

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

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

Economic loss development on U.S.

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

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

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

Offered Rate (Euribor).

The economic loss development attributable to U.S.

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

discount rates.

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

Other Structured Finance:

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

Nine Months 2021 Net Economic Loss Development

Public Finance :

The economic benefit on U.S.

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

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

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

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

The net benefit attributable to U.S.

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

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

Other Structured Finance:

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

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

Nine Months 2020 Net Economic Loss Development

Public Finance :

Economic loss development on U.S.

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

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

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

The net benefit attributable to U.S.

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

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

Insurance Segment Loss Expense (Benefit)

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

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

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

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

The economic loss development attributable to U.S.

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

Insurance Segment Loss Expense

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

(1) considers deferred premium revenue in the calculation of loss reserves for financial guaranty insurance contracts;

(2) eliminates loss and LAE related to FG VIEs;

and (3) does not include estimated losses on credit derivatives.

Insurance segment loss expense includes loss and LAE on financial guaranty insurance contracts and losses on credit derivatives, without giving effect to eliminations related to consolidation of FG VIEs.

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

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

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

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

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

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

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

The following table presents the Insurance segment loss expense.

Insurance Segment

Loss Expense (Benefit)

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

2 unchanged sentences

Structured finance

RMBS (58) 6 (68) (32)

Other structured finance (1) —

Structured finance 5 12

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

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

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

RMBS exposures and certain Puerto Rico exposures.

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

Total Insurance segment loss expense $ 60 $ 30

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.

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

RMBS exposures.

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

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

RMBS transactions.

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

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

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

Other Operating Expenses

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

The decrease in other operating expenses in First Quarter 2022 compared with First Quarter 2021 was primarily attributable to the write-off of a $16 million intangible asset attributable to MAC insurance licenses in First Quarter 2021.

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

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

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

Financial Strength Ratings

On March 18, 2022, Moody’s Investors Service, Inc.

(Moody’s) upgraded the financial strength rating of AGM and AGUK to A1 (stable) from A2 (stable).

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

5 unchanged sentences

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

Assured Guaranty Re Ltd.

(AG Re) AA (stable) (7/8/21) — — —

Assured Guaranty Re Overseas Ltd.

(AGRO) AA (stable) (7/8/21) — — A+ (stable) (7/15/21)

2 unchanged sentences

____________________

(1) AGC requested that Moody’s Investors Service, Inc.

(Moody’s) withdraw its financial strength ratings of AGC in January 2017, but Moody’s denied that request.

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

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

On March 18, 2022, Moody’s upgraded the financial strength rating of AGC to A2 (stable) from A3 (stable).

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

3 unchanged sentences

Asset Management Segment Results

Asset Management Results

Third Quarter Nine Months

2021 2020 2021 2020

Asset Management Segment Results

First Quarter

(in millions)

Segment revenues

Management fees (1) $ 21 $ 19

Performance fees 16 1

Other income 2 2 4 4

Total revenues 19 14 60 44

Other income (loss) 2 —

Total segment revenues 39 20

Segment expenses

Employee compensation and benefit expenses 29 19

Amortization of intangible assets 3 3 9 9

Other operating expenses (1) (2) 10 10

Total expenses 29 29 82 81

Adjusted operating income (loss) before income taxes (10) (15) (22) (37)

Total segment expenses 39 29

Segment adjusted operating income (loss) before income taxes — (9)

Provision (benefit) for income taxes — (2)

Adjusted operating income (loss) $ (7) $ (12) $ (16) $ (30)

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

_____________________

(1) The Asset Management segment presents reimbursable fund expenses netted in other operating expenses, whereas on the condensed consolidated statement of operations such reimbursable expenses are shown gross as revenues.

Asset Management Fees

(2) Includes amortization of intangible assets of $3 million in both First Quarter 2022 and First Quarter 2021.

Management and Performance Fees

Management fees are generated by CLOs, opportunity funds, liquid strategies, and the wind-down funds.

1 unchanged sentence

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

Insurance Subsidiaries invest, along with

two previously established opportunity funds in their harvest periods.

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

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

Management Fees

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

3 unchanged sentences

Total management fees $ 21 $ 19

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

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

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

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

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

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

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

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

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

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

Insurance Subsidiaries, and two previously established funds.

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

Fees from opportunity funds increased primarily due to higher AUM of $1.9 billion March 31, 2022 compared with $1.5 billion as of March 31, 2021.

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

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

Assets Under Management

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

Roll Forward of

Assets Under Management

Third Quarter 2021

CLOs Opportunity Funds Liquid Strategies Wind-Down Funds Total

(in millions)

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

Inflows - third party 598 245 — — 843

Inflows - intercompany 57 16 — — 73

Redemptions — — — — —

Distributions (1) (424) (170) — (364) (958)

Total outflows (424) (170) — (364) (958)

Net flows 231 91 — (364) (42)

Change in value (47) 80 — (6) 27

AUM, September 30, 2021

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

_____________________

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

Roll Forward of

As of March 31, 2022, AUM of the wind-down funds was $0.5 billion compared with $1.3 billion as of March 31, 2021 and $0.6 billion as of December 31, 2021.

CLO fee-earning AUM was $13.9 billion, or 97%, of total CLO AUM as of March 31, 2022, compared with $12.0 billion, or 83%, of total CLO AUM as of March 31, 2021.

Performance fees and increased compensation expenses in First Quarter 2022 were attributable to the performance of the healthcare and asset-based funds.

Assets Under Management

Nine Months 2021

The Company uses AUM as a metric to measure progress in its Asset Management segment.

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

However, the Company believes that AUM is a useful

metric for assessing the relative size and scope of our asset management business.

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

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

AUM refers to the assets managed, advised or serviced by the Asset Management segment and equals the sum of the following:

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

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

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

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

Changes in NAV attributable to movements in fund value of certain private equity funds are reported on a quarter lag.

The Company’s calculation of AUM may differ from the calculation employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment managers.

The calculation also differs from the manner in which AssuredIM affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways.

The Company also uses several other measurements of AUM to understand and measure its AUM in more detail and for various purposes, including its relative position in the market and its income and income potential:

“Third-party AUM” refers to the assets AssuredIM manages or advises on behalf of third-party investors.

This includes current and former employee investments in AssuredIM Funds.

For CLOs, this also includes CLO Equity that may be held by AssuredIM Funds.

“Intercompany AUM” refers to the assets AssuredIM manages or advises on behalf of the Company.

This includes investments from affiliates of Assured Guaranty along with general partners’ investments of AssuredIM (or its affiliates) into the AssuredIM Funds.

“Funded AUM” refers to assets that have been deployed or invested into the funds or CLOs.

“Unfunded AUM” refers to unfunded capital commitments from closed-end funds and CLO warehouse funds.

“Fee earning AUM” refers to assets where AssuredIM collects fees and has elected not to waive or rebate fees to investors.

“Non-fee earning AUM” refers to assets where AssuredIM does not collect fees or has elected to waive or rebate fees to investors.

AssuredIM reserves the right to waive some or all fees for certain investors, including investors affiliated with AssuredIM and/or the Company.

Further, 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 to the extent such fees are attributable to the wind-down and opportunity funds’ holdings of CLOs also managed by AssuredIM.

Roll Forward of Assets Under Management

First Quarter 2022

CLOs Opportunity Funds Liquid Strategies Wind-Down Funds Total

1 unchanged sentence

AUM, December 31, 2021 $ 14,699 $ 1,824 $ 389 $ 582 $ 17,494

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

Inflows - third party (1) — 91 — — 91

5 unchanged sentences

Change in value (82) 63 (14) 12 (21)

AUM, September 30, 2021

AUM, March 31, 2022

$ 14,282 $ 1,874 $ 375 $ 459 $ 16,990

_____________________

(1) Opportunity funds inflows in First Quarter 2022 is primarily related to the healthcare strategy fund.

(2) Distributions from opportunity funds include $48 million related to the AssuredIM Funds created prior to BlueMountain Acquisition.

Components of

Assets Under Management

As of March 31, 2022, AUM related to these funds was $128 million.

Components of Assets Under Management

CLOs (1) Opportunity Funds Liquid Strategies Wind-Down Funds Total

(in millions)

As of September 30, 2021:

As of March 31, 2022:

Funded AUM $ 14,172 $ 1,265 $ 375 $ 437 $ 16,249

13 unchanged sentences

Unfunded AUM 123 121 — — 244

Assets Under Management

The Company uses AUM as a metric to measure progress in its Asset Management segment.

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

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

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

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

AUM refers to the assets managed, advised or serviced by the Asset Management segment and equals the sum of the following:

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

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

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

Changes in NAV attributable to movements in fund value of certain private equity funds are reported on a quarter lag.

The calculation also differs from the manner in which AssuredIM affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways.

“Third-party AUM” refers to the assets AssuredIM manages or advises on behalf of third-party investors.

This includes current and former employee investments in AssuredIM Funds.

For CLOs, this also includes CLO equity that may be held by AssuredIM Funds.

“Intercompany AUM” refers to the assets AssuredIM manages or advises on behalf of the Company.

This includes investments from affiliates of Assured Guaranty along with general partners’ investments of AssuredIM (or its affiliates) into the AssuredIM Funds.

“Funded AUM” refers to assets that have been deployed or invested into the funds or CLOs.

“Unfunded AUM” refers to unfunded capital commitments from closed-end funds and CLO warehouse funds.

“Fee-earning AUM” refers to assets where AssuredIM collects fees and has elected not to waive or rebate fees to investors.

“Non-fee earning AUM” refers to assets where AssuredIM does not collect fees or has elected to waive or rebate fees to investors.

AssuredIM reserves the right to waive some or all fees for certain investors, including investors affiliated with AssuredIM and/or the Company.

Further, 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 to the extent such fees are attributable to the wind-down and opportunity funds’ holdings of CLOs also managed by AssuredIM.

Corporate Division Results

Corporate Results

Third Quarter Nine Months

_____________________

(1) CLO AUM includes CLO Equity that is held by various AssuredIM Funds.

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

Corporate Division Results

First Quarter

(in millions)

Net investment income $ 1 $ — $ 1 $ 1

Other income (loss)

Total revenues 1 12 1 8

Revenues $ 1 $ —

Interest expense 21 23

Loss on extinguishment of debt

Employee compensation and benefit expenses 6 5

1 unchanged sentence

Total expenses 34 32

Equity in earnings of investees 1 — 1 (5)

Equity in earnings (losses) of investees — —

Adjusted operating income (loss) before income taxes (33) (32)

1 unchanged sentence

Adjusted operating income (loss) $ (33) $ (29)

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

The loss on extinguishment of debt primarily consists of a $156 million acceleration of unamortized fair value adjustments that were originally recorded upon the acquisition of AGMH in 2009, and a $19 million make-whole payment associated with the redemption of $170 million of AGUS 5% Senior Notes.

Financial Statements, Note 14, Long-Term Debt.

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

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

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

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

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

Holding Companies.

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

Corporate division interest expense primarily relates to debt issued by the U.S.

Holding Companies, and also includes intersegment interest expense of $2 million in both First Quarter 2022 and First Quarter 2021 related primarily to the $250 million AGUS debt to the U.S.

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

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

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

The net effect on adjusted operating income (loss) of these items is presented in the table below.

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

VIE Consolidation Effect on

Net Income (Loss) Attributable to AGL

Third Quarter Nine Months

2021 2020 2021 2020

(in millions)

Effect of consolidating:

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

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

Other (Effect of FG VIEs and CIVs)

The effect of consolidating FG VIEs and CIVs, intersegment eliminations, and reclassifications of reimbursable fund expenses to revenue are presented in “Other.” See Item 1, Financial Statements, Note 2, Segment Information.

The types of entities the Company consolidates when it is deemed to be the primary beneficiary primarily include:

(1) entities whose debt obligations the insurance subsidiaries insure;

(2) custodial trusts established in connection with the consummation of the March Puerto Rico Resolutions;

and (3) investment vehicles such as collateralized financing entities, CLO warehouses and AssuredIM Funds.

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

The effect of consolidating FG VIEs (as opposed to accounting for the related insurance contracts in the Insurance segment), has a significant gross-up effect on the consolidated financial statements, and includes:

(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;

(3) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG VIEs, and establishing the noncontrolling interests.

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;

(3) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees and (4) establishing non-controlling interest for amounts not owned by the Company.

The economic effect of the Company’s ownership interest in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, and as separate line items (“assets of CIVs,” “liabilities of CIVs,” and redeemable and non-redeemable non-controlling interest) on a consolidated basis.

The table below reflects the effect of consolidating FG VIEs and CIVs on the condensed consolidated statements of operations.

The amounts represent:

(1) the revenues and expenses of the FG VIEs and the CIVs;

and (2) the amounts eliminated between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

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

Increase (Decrease)

First Quarter

Effect on Financial Statement Line Item (in millions)

Fair value gains (losses) on FG VIEs (1) $ 6 $ 5

Fair value gains (losses) on CIVs 14 16

Equity in earnings (losses) of investees (2) (10) (10)

Other (3) (11) (7)

Effect on income before tax (1) 4

Tax provision (benefit) — —

Effect on net income (loss) (1) 4

Effect on noncontrolling interests (4) 9 4

Effect on net income (loss) attributable to AGL $ (10) $ —

By Type of VIE

FG VIEs $ 2 $ —

Investment vehicles — — 1 —

VIE consolidation effect $ (4) $ (3) $ — $ (7)

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

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

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

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

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

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

Effect on net income (loss) attributable to AGL $ (10) $ —

____________________

(1) Changes in fair value of the FG VIEs’ assets and liabilities that are attributable to factors other than (i) changes in the Company’s own credit risk on FG VIE liabilities with recourse, and (ii) unrealized gains and losses on available-for-sale fixed maturity securities.

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

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

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

Fair value gains on CIVs in First Quarter 2022 and First Quarter 2021 were attributable to realized gains or losses, changes in underlying investment prices and investment interest, net of fees and expenses.

Fair value gains on FG VIEs for First Quarter 2022 were attributable to price depreciation on insured fixed rate debt that were negatively impacted due to the increase in interest rates.

Fair value gains on FG VIEs for First Quarter 2021 were attributable to price depreciation on insured fixed rate debt that were negatively impacted due to the assumptions in forward interest rates.

Reconciliation to GAAP

1 unchanged sentence

to Adjusted Operating Income (Loss)

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

2 unchanged sentences

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 (3) (19)

Fair value gains (losses) on CCS 1 (19)

3 unchanged sentences

Adjusted operating income (loss) $ 90 $ 43

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

$ (4) $ (3) $ — $ (7)

Gain (loss) related to FG VIE and CIV consolidation, net of tax, included in adjusted operating income $ (10) $ —

Net Realized Investment Gains (Losses)

1 unchanged sentence

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) 10 1

Net realized investment gains (losses) $ 3 $ (3)

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

Change in credit impairment in Nine Months 2020 was related primarily to the allowance for credit loss on loss mitigation securities.

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

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

O ther net realized gains in First Quarter 2022 related primarily to the sale of one of the Company’s alternative investments.

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

Changes in the fair value of credit derivatives occur because of changes in the Company’s own credit rating and credit spreads, collateral credit spreads, notional amounts, credit ratings of the referenced entities, expected terms, realized gains (losses) and other settlements, interest rates, and other market factors.

The components of changes in fair value of credit derivatives related to credit derivative revenues and changes in expected losses are included in Insurance segment results.

Non-economic changes in unrealized fair value gains and losses on credit derivatives are not included in the Insurance segment measure of adjusted operating income because they do not represent actual claims or losses and are expected to reverse to zero as the exposure approaches its maturity date.

Non-credit impairment-related changes in unrealized fair value gains and losses on credit derivatives are not included in the Insurance segment measure of adjusted operating income because they do not represent actual claims or losses and are expected to reverse to zero as the exposure approaches its maturity date.

Changes in the fair value of the Company’s credit derivatives that do not reflect actual or expected claims or credit losses have no impact on the Company’s statutory claims-paying resources, rating agency capital or regulatory capital positions.

3 unchanged sentences

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

relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts.

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

1 unchanged sentence

A widening of the CDS prices traded on AGC has an effect of offsetting unrealized losses that result from widening general market credit spreads, while a narrowing of the CDS prices traded on AGC has an effect of offsetting unrealized gains that result from narrowing general market credit spreads.

Due to the relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts.

The valuation of the Company’s credit derivative contracts requires the use of models that contain significant, unobservable inputs, and are classified as Level 3 in the fair value hierarchy.

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

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

There has been very limited new issuance activity in this market since 2009 and, as of March 31, 2022, market prices for the Company’s credit derivative contracts were generally not available.

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

See Item 1, Financial Statements, Note 9, Fair Value Measurement, for additional information.

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

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

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

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

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

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

First Quarter 2022 non-credit impairment-related 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 protection increased during the period.

First Quarter 2021 non-credit impairment-related 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.

These losses were partially offset by the higher discount rates.

Sensitivity to Changes in Credit Spread

2 unchanged sentences

Effect of Changes in Credit Spread

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

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

Credit Spreads (1) Estimated Net

10 unchanged sentences

____________________

(1) Includes the effects of changes in the net spreads assumed by the Company.

(1) Includes the effects of spreads on both the underlying asset classes and the Company’s own credit spread.

Fair Value Gains (Losses) on CCS

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

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

however, during Nine Months 2020, market spreads widened.

Fair value gains on CCS in First Quarter 2022 were primarily due to a significant increase in LIBOR.

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

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

2 unchanged sentences

Non-GAAP Financial Measures

The Company discloses both (a) financial measures determined in accordance with GAAP and (b) financial measures not determined in accordance with GAAP (non-GAAP financial measures).

The Company discloses both:

(a) financial measures determined in accordance with GAAP;

and (b) financial measures not determined in accordance with GAAP (non-GAAP financial measures).

Financial measures identified as non-GAAP should not be considered substitutes for GAAP financial measures.

1 unchanged sentence

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

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

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

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

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

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

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

The Company believes this information may also be useful to analysts and investors evaluating Assured Guaranty’s financial results.

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

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

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

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

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

The core financial measures that the Company uses to help determine compensation are:

(1) adjusted operating income, further adjusted to remove the effect of VIE consolidation, (2) adjusted operating shareholders' equity, further adjusted to remove the effect of VIE consolidation, (3) growth in adjusted book value per share, further adjusted to remove the effect of VIE consolidation, and (4) PVP.

Management believes that many investors, analysts and financial news reporters use adjusted operating shareholders’ equity and/or adjusted book value, each further adjusted to remove the effect of VIE consolidation, as the principal financial measures for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares.

Management also believes that many of the Company’s fixed income investors also use adjusted operating shareholders' equity, further adjusted to remove the effect of VIE consolidation to evaluate the Company’s capital adequacy.

Adjusted operating income, further adjusted for the effect of VIE consolidation enables investors and analysts to evaluate the Company’s financial results in comparison with the consensus analyst estimates distributed publicly by financial databases.

The financial measures that the Company uses to help determine compensation are:

(1) adjusted operating income, further adjusted to remove the effect of FG VIE and CIV consolidation;

(2) adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation;

(3) adjusted book value per share, further adjusted to remove the effect of FG VIE and CIV consolidation;

(4) PVP, and (5) gross third-party assets raised.

Management believes that many investors, analysts and financial news reporters use adjusted operating shareholders’ equity and/or adjusted book value, each further adjusted to remove the effect of FG VIE and CIV consolidation, as the principal financial measures for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares.

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

Adjusted operating income, further adjusted for the effect of FG VIE and CIV consolidation enables investors and analysts to evaluate the Company’s financial results in comparison with the consensus analyst estimates distributed publicly by financial databases.

The following paragraphs define each non-GAAP financial measure disclosed by the Company and describe why it is useful.

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The timing of sales is largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax and capital profile.

2) Elimination of non-credit-impairment 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.

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

Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, the Company’s credit spreads, and other market factors and are not expected to result in an economic gain or loss.

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

See “— Results of Operations by Segment — Reconciliation to GAAP”, for a reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

See “— Results of Operations — Reconciliation to GAAP”, for a reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

Adjusted Operating Shareholders’ Equity and Adjusted Book Value

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Adjusted operating shareholders’ equity is defined as shareholders’ equity attributable to AGL, as reported under GAAP, adjusted for the following:

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

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

Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

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Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt, and other market factors and are not expected to result in an economic gain or loss.

3) Elimination of unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (AOCI) (excluding foreign exchange remeasurement).

The AOCI component of the fair value adjustment on the investment portfolio is not deemed economic because the Company generally holds these investments to maturity and therefore should not recognize an economic gain or loss.

3) Elimination of unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (AOCI).

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

Management uses adjusted book value, further adjusted for VIE consolidation, to measure the intrinsic value of the Company, excluding franchise value.

Growth in adjusted book value per share, further adjusted for VIE consolidation (core adjusted book value), is one of the key financial measures used in determining the amount of certain long-term compensation elements to management and employees and used by rating agencies and investors.

Management uses adjusted book value, further adjusted for FG VIE and CIV consolidation, to measure the intrinsic value of the Company, excluding franchise value.

Adjusted book value per share, further adjusted for FG VIE and CIV consolidation (core adjusted book value), is one of the key financial measures used in determining the amount of certain long-term compensation elements to management and employees and used by rating agencies and investors.

Management believes that adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues net of expected losses.

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Reconciliation of Shareholders’ Equity Attributable to AGL

To Adjusted Book Value

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

Total Per Share Total Per Share

(dollars in millions, except per share amounts)

to Adjusted Operating Shareholders’ Equity and Adjusted Book Value

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

After-Tax Per Share After-Tax Per Share

(dollars in millions, except share amounts)

Shareholders’ equity attributable to AGL $ 5,802 $ 89.20 $ 6,292 $ 93.19

Less pre-tax adjustments:

Non-credit impairment unrealized fair value gains (losses) on credit derivatives (32) (0.44) 9 0.12

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives (57) (0.88) (54) (0.80)

Fair value gains (losses) on CCS 24 0.38 23 0.34

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Adjusted book value $ 8,665 $ 133.21 8,823 130.67

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

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

Gain (loss) related to FG VIE and CIV consolidation included in:

Adjusted operating shareholders’ equity (net of tax provision (benefit) of $5 and $5) $ 22 $ 0.34 $ 32 $ 0.47

Adjusted book value (net of tax provision (benefit) of $3 and $3) 13 0.19 23 0.34

Net Present Value of Estimated Net Future Revenue

Management believes that this amount is a useful measure because it enables an evaluation of the value of the present value of estimated net future revenue for contracts other than financial guaranty insurance contracts (such as specialty insurance and reinsurance contracts and credit derivatives).

Management believes that this amount is a useful measure because it enables an evaluation of the present value of estimated net future revenue for non-financial guaranty insurance contracts.

This amount represents the net present value of estimated future revenue from these contracts (other than credit derivatives with net expected losses), net of reinsurance, ceding commissions and premium taxes.

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The discount rate is recalculated annually and updated as necessary.

Net present value of estimated future revenue for an obligation may change from period to period due to a change in the discount rate or due to a change in estimated net future revenue for the obligation, which may change due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation.

changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation.

There is no corresponding GAAP financial measure.

PVP or Present Value of New Business Production

Management believes that PVP is a useful measure because it enables the evaluation of the value of new business production for the Company by taking into account the value of estimated future installment premiums on all new contracts underwritten in a reporting period as well as additional installment premium on existing contracts (which may result from supplements or fees or from the issuer not calling an insured obligation the Company projected would be called), whether in insurance or credit derivative contract form, which management believes GAAP gross written premiums and changes in fair value of credit derivatives do not adequately measure.

Management believes that PVP is a useful measure because it enables the evaluation of the value of new business production in the Insurance segment by taking into account the value of estimated future installment premiums on all new contracts underwritten in a reporting period as well as additional installment premiums and fees on existing contracts (which may result from supplements or fees or from the issuer not calling an insured obligation the Company projected would be called), regardless of form, which management believes GAAP gross written premiums and changes in fair value of credit derivatives do not adequately measure.

PVP in respect of contracts written in a specified period is defined as gross upfront and installment premiums received and the present value of gross estimated future installment premiums.

Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than loss mitigation securities.

Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturity securities such as loss mitigation securities.

The discount rate is recalculated annually and updated as necessary.

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Reconciliation of GWP to PVP

Third Quarter 2021 Third Quarter 2020

Public Finance Structured Finance Public Finance Structured Finance

(in millions)

GWP $ 52 $ 21 $ 29 $ 4 $ 106 $ 93 $ 28 $ 1 $ (1) $ 121

Installment GWP and other GAAP adjustments (1) (1) 22 27 4 52 — 28 1 (1) 28

Upfront GWP 53 (1) 2 — 54 93 — — — 93

Installment premium PVP 2 18 19 3 42 — 24 — — 24

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

Nine Months 2021 Nine Months 2020

First Quarter 2022 First Quarter 2021

Public Finance Structured Finance Public Finance Structured Finance

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Upfront GWP 49 — 2 — 51 45 2 2 — 49

Installment premium PVP 38 42 28 3 111 — 73 9 — 82

Installment premiums and other (2) — 12 — 6 18 36 1 — — 37

PVP $ 49 $ 12 $ 2 $ 6 $ 69 $ 81 $ 3 $ 2 $ — $ 86

___________________

(1) Includes present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions, and other GAAP adjustments.

(1) This includes the present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions and other GAAP adjustments.

(2) This includes the present value of future premiums and fees on new business paid in installments discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturities such as loss mitigation securities.

This also includes the present value of future premiums and fees associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees.

Insured Portfolio

The Company’s financial guaranty and specialty exposures, as well as a guarantee are described in Item 1, Financial Statements, Note 3, Outstanding Exposure.

Financial Guaranty Exposure

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The following table presents the financial guaranty portfolio by sector, net of cessions to reinsurers.

It includes all financial guaranty contracts outstanding as of the dates presented, regardless of the form written (i.e., credit derivative form or traditional financial guaranty insurance form) or the applicable accounting model (i.e., insurance, derivative or VIE consolidation) along with each sector’s average rating.

It includes all financial guaranty contracts outstanding as of the dates presented, regardless of the form written (i.e., credit derivative form or traditional financial guaranty insurance form) or the applicable accounting model (i.e., insurance, derivative or FG VIE consolidation), along with each sector’s average rating.

Financial Guaranty Portfolio

Net Par Outstanding and Average Internal Rating by Sector

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

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

Sector Net Par

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Public finance:

public finance:

General obligation $ 71,993 A- $ 72,896 A-

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Renewable energy 183 A- 193 A-

Other public finance-U.S.

1,177 A- 1,417 A-

Total public finance—U.S.

175,952 A- 171,597 A-

Other public finance 1,136 A- 1,152 A-

public finance 175,957 A- 177,219 A-

Non-U.S public finance:

Regulated utilities 18,732 BBB+ 18,814 BBB+

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Pooled infrastructure 1,246 AAA 1,372 AAA

Total public finance—non-U.S.

50,305 BBB+ 53,028 A-

Total non-U.S.

public finance 48,506 BBB+ 49,945 BBB+

Total public finance 224,463 A- 227,164 A-

Structured finance:

structured finance:

Life insurance transactions 3,443 AA- 3,431 AA-

RMBS 2,510 BBB- 2,990 BBB-

RMBS 2,277 BB+ 2,391 BB+

Financial products 600 AA- 770 AA-

Pooled corporate obligations 685 AA 1,193 AA

Consumer receivables 545 A+ 583 A+

Other structured finance 649 A- 600 A-

Total structured finance—U.S.

8,677 A 8,952 A

Pooled corporate obligations 518 AA+ 534 AA+

Other structured finance 718 BBB+ 665 BBB+

structured finance 8,101 A 8,374 A

structured finance:

Pooled corporate obligations 342 AAA 351 AAA

RMBS 310 A 325 A

Pooled corporate obligations 226 AA- — —

Other structured finance 176 AA- 219 A+

Total structured finance—non-U.S.

Other structured finance 163 AA 178 AA

Total non-U.S structured finance 815 AA 854 AA

Total structured finance 8,916 A 9,228 A

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

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

financial guarantor.

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

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

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

The second-to-pay insured par outstanding as of March 31, 2022 and December 31, 2021 was $4.7 billion and $4.9 billion, respectively.

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $39 million and $43 million as of March 31, 2022 and December 31, 2021, respectively.

Exposure to Puerto Rico

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

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

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

The following tables present information in respect of the Puerto Rico exposures to supplement the disclosures and discussions provided in Item 1, Financial Statements, Note 3, Outstanding Exposure.

Exposure to Puerto Rico

As of September 30, 2021

Exposure to Puerto Rico By Company

As of March 31, 2022

Net Par Outstanding

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(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 (2) $ 6 $ 28 $ 13 $ — $ 47 $ 47

$ 574 $ 170 $ 353 $ — $ 1,097 $ 1,135

PBA (2) 1 5 — (1) 5 5

Subtotal - GO/PBA PSA 576 292 353 (2) 1,219 1,257

PRHTA (Transportation revenue) (2) 233 467 178 (79) 799 799

Total GO/PBA Plan 7 33 13 (1) 52 52

Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue) 233 467 178 (79) 799 799

PRHTA (Highway revenue) 381 51 25 — 457 457

381 51 25 — 457 457

PRCCDA — 152 — — 152 152

Subtotal - HTA/CCDA PSA 614 670 203 (79) 1,408 1,408

469 69 210 — 748 759

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

Subtotal Subject to a Support Agreement 1,659 1,046 767 (81) 3,391 3,440

Total HTA/CCDA PSA 614 518 203 (79) 1,256 1,256

Total Subject to a Plan or Support Agreement 621 551 216 (80) 1,308 1,308

Other Puerto Rico Exposures

PREPA 469 69 210 — 748 759

MFA (3) 126 16 37 — 179 187

PRASA and U of PR (3) — 2 — — 2 2

Subtotal Other Puerto Rico Exposures 126 18 37 — 181 189

Total Other Puerto Rico Exposures 595 87 247 — 929 948

Total exposure to Puerto Rico $ 1,216 $ 638 $ 463 $ (80) $ 2,237 $ 2,256

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(1) Net par outstanding eliminations relate to second-to-pay policies under which an Assured Guaranty insurance subsidiary guarantees an obligation already insured by another Assured Guaranty insurance subsidiary.

(2) As of the date of this filing, the seven-member financial oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) has certified a filing under Title III of PROMESA for these exposures.

(2) 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.

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

The following tables show the scheduled amortization of the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations insured by the Company.

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

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

Amortization Schedule

of Net Par of Puerto Rico

As of September 30, 2021

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

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

Amortization Schedule of Net Par of Puerto Rico

As of March 31, 2022

Scheduled Net Par Amortization

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

2022 (2Q) 2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

(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 $ — $ 20 $ — $ — $ — $ — $ 2 $ 25 $ — $ — $ — $ 47

PBA — — — 3 — 2 — — — — — 5

Subtotal - GO/PBA PSA — — — 37 — 21 73 74 323 529 162 — 1,219

Total - GO/PBA Plan — 20 — 3 — 2 2 25 — — — 52

PRHTA (Transportation revenue) — 28 — 34 4 29 24 164 310 201 5 799

PRHTA (Highway revenue) — 40 — 31 33 34 1 78 240 — — 457

PRCCDA — — — — — — — — 19 104 29 — 152

Subtotal - HTA/CCDA PSA — — — 68 — 65 36 63 226 573 332 45 1,408

PREPA — — — 28 — 95 93 68 362 102 — — 748

PRIFA — — — — — 2 — — — — 10 4 16

Subtotal Subject to a Support Agreement — — — 133 — 183 202 205 911 1,204 504 49 3,391

Total - HTA/CCDA PSA — 68 — 65 37 63 25 242 550 201 5 1,256

Total Subject to a Plan or Support Agreement — 88 — 68 37 65 27 267 550 201 5 1,308

Other Puerto Rico Exposures

PREPA — 28 — 95 93 68 106 332 26 — — 748

MFA — 43 — 23 18 18 37 40 — — — 179

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

Subtotal Other Puerto Rico Exposures — — — 43 — 23 20 18 76 1 — — 181

Total Other Puerto Rico Exposures — 71 — 118 112 86 143 372 27 — — 929

Total $ — $ 159 $ — $ 186 $ 149 $ 151 $ 170 $ 639 $ 577 $ 201 $ 5 $ 2,237

Amortization Schedule

of Net Debt Service of Puerto Rico

As of September 30, 2021

Amortization Schedule of Net Debt Service of Puerto Rico

As of March 31, 2022

Scheduled Net Debt Service Amortization

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

2022 (2Q) 2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

(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 $ — $ 22 $ — $ 2 $ 2 $ 1 $ 3 $ 28 $ — $ — $ — $ 58

PBA — — — 3 — 2 — — — — — 5

Subtotal - GO/PBA PSA — 32 — 68 — 83 134 132 550 672 178 — 1,849

Total - GO/PBA Plan — 22 — 5 2 3 3 28 — — — 63

PRHTA (Transportation revenue) — 48 — 73 42 67 61 323 423 237 5 1,279

PRHTA (Highway revenue) — 52 — 54 52 53 18 159 279 — — 667

PRCCDA — 3 — 4 — 7 7 7 51 127 30 — 236

Subtotal - HTA/CCDA PSA — 36 — 104 — 134 102 127 508 771 385 47 2,214

PREPA 3 15 2 43 3 129 121 91 427 110 — — 944

PRIFA — — — — — 3 1 1 4 3 13 4 29

Subtotal Subject to a Support Agreement 3 83 2 215 3 349 358 351 1,489 1,556 576 51 5,036

Total - HTA/CCDA PSA — 100 — 127 94 120 79 482 702 237 5 1,946

Total Subject to a Plan or Support Agreement — 122 — 132 96 123 82 510 702 237 5 2,009

Other Puerto Rico Exposures

PREPA 3 43 3 128 122 92 126 380 29 — — 926

MFA — 48 — 29 24 22 41 45 — — — 209

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

Subtotal Other Puerto Rico Exposures — 5 — 48 — 29 25 22 86 1 — — 216

Total Other Puerto Rico Exposures 3 91 3 157 147 114 167 425 30 — — 1,137

Total $ 3 $ 213 $ 3 $ 289 $ 243 $ 237 $ 249 $ 935 $ 732 $ 237 $ 5 $ 3,146

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The following table presents information in respect of the U.S.

RMBS exposures to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered).

RMBS exposures to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid

RMBS exposures represent 1.0% of the total net par outstanding, and BIG U.S.

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Distribution of U.S.

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

RMBS by Year Insured and Type of Exposure as of March 31, 2022

First Lien Alt-A

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Holding Companies

AGL directly owns (i) AG Re, an insurance company domiciled in Bermuda, and (ii) AGUS, a U.S.

Holding Company with public debt.

AGUS directly owns:

(i) AGC, an insurance company domiciled in Maryland;

and (ii) AGMH, a U.S.

Holding Company with public debt outstanding.

AGMH directly owns AGM, an insurance subsidiary domiciled in New York.

AGUS and AGMH are collectively referred to as the U.S.

Holding Companies.

Sources and Uses of Funds

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

• dividends on AGL’s common shares, and

• dividends on AGL’s common shares;

• the payment of operating expenses.

3 unchanged sentences

• fund acquisitions of new businesses;

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

• purchase or redeem the Company’s outstanding debt;

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

2 unchanged sentences

Management believes that AGL will have sufficient liquidity to satisfy its needs over the next twelve months.

See “— Overview— Key Business Strategies, Capital Management” above for information on common share repurchases.

Long-Term Debt Obligations

5 unchanged sentences

Long-Term Debt and Intercompany Loans

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

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

(in millions)

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AGUS - intercompany loans from insurance subsidiaries

AGC/AGM/MAC 3.50% 2030 250 250

AGC and AGM 3.50% 2030 250 250

AGRO 6 month LIBOR +3.00% 2023 20 20

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Total AGUS 1,850 1,850

6 7 / 8 % Quarterly Interest Bonds

6.88% 2101 — 100

6.25% Notes 6.25% 2102 — 230

5.6% Notes 5.60% 2103 — 100

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

Junior Subordinated Debentures 6.40% 2066 300 300

Total AGMH 300 300

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Holding Company debt $ 1,996 $ 1,996

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

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

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

Financial Statements, Note 14, Long-Term Debt.

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

Holding Companies

Expected Debt Service of Long-Term Debt

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

(in millions)

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

____________________

2037-2046 298 423

2047-2056 617 418

Thereafter 439 2,098

Total $ 3,216 $ 4,522

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

The Series A Enhanced Junior Subordinated Debentures pay interest based on LIBOR.

If the AGMH Junior Subordinated Debentures are outstanding after December 15, 2036, then the principal amount of the outstanding debentures will bear interest at one-month LIBOR plus 2.215%.

The continuation of LIBOR on the current basis will not be guaranteed after June 2023.

See the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part 1, Item 1A, Risk Factors, of the Company’s 2021 Annual Report on Form 10-K.

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

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Holding Companies, excluding their investments in subsidiaries.

As of September 30, 2021

As of March 31, 2022

Holding Companies

(in millions)

Investments and cash (1) $ 91 $ 296

Fixed-maturity securities (1) $ 83 $ 4

Short-term investments, other invested assets and cash 59 305

Receivables from affiliates (2) 35 —

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Long-term debt — 1,671

Loans payable to affiliate — 280

Loans payable to affiliates — 270

Payable to affiliates (2) 16 11

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____________________

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

(1) As of March 31, 2022, weighted average durations of AGL’s and the U.S.

Holding Companies' fixed-maturity securities (excluding AGUS’ investment in AGMH’s debt) were 6.3 years and 5.0 years, respectively.

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

Nine Months 2021

First Quarter 2022

Holding Companies

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Interest expense — 21

Loss on extinguishment of debt — 175

Other expenses 11 2

Income (loss) before provision for income taxes and equity in earnings of investees (24) (254)

Equity in earnings of investees — 1

Income (loss) before provision for income taxes and equity in earnings (losses) of investees (10) (23)

Net income (loss) (10) (20)

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Significant Cash Flow Items

Nine Months 2021

First Quarter 2022

Holding Companies

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Investments in subsidiaries — (15)

Return of capital from subsidiaries — 9

Dividends paid to AGL — (135)

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Repurchases of common shares (2) (152) —

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

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

____________________

(1) AGL’s dividends include dividends from AGUS.

(2) See Item 1, Financial Statements, Note 14, Shareholders’ Equity, for additional information about share repurchases and authorizations.

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Insurance Subsidiaries

The Company has several insurance subsidiaries.

Insurance Subsidiaries consist of AGM and AGC.

(i) AGUK, an insurance subsidiary domiciled in the U.K;

and (ii) AGE SA, an insurance company domiciled in France.

AGUK and AGE are collectively referred to as the European Insurance Subsidiaries.

AG Re is an insurance company domiciled in Bermuda, which owns AGRO, an insurance subsidiary, also domiciled in Bermuda.

Sources and Uses of Funds

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• capital investments in their own subsidiaries, where appropriate.

Management believes that the insurance subsidiaries’ liquidity needs for the next twelve months can be met from current cash, short-term investments and operating cash flow, including premium collections and coupon payments as well as scheduled maturities and paydowns from their respective investment portfolios, although the Company may enter into secured short-term loan facilities with financial institutions, as described below, to provide short-term liquidity for the payment of insurance claims it anticipates making in connection with the future resolutions of other Puerto Rico exposures.

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

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

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

As of March 31, 2022, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

Beyond the next twelve months, the ability of the operating subsidiaries to declare and pay dividends may be influenced by a variety of factors, including market conditions, general economic conditions, and, in the case of the Company’s insurance subsidiaries, insurance regulations and rating agency capital requirements.

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Payments made in settlement of the Company’s obligations arising from its insured portfolio may, and often do, vary significantly from year to year, depending primarily on the frequency and severity of payment defaults and whether the Company chooses to accelerate its payment obligations in order to mitigate future losses.

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

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

The size and depth of the COVID-19 pandemic, its course and duration and the direct and indirect consequences of governmental and private responses to it, and the effectiveness and acceptance of vaccines for it, remain unknown, so the Company cannot predict the ultimate size of any increases in claims that may result from the pandemic.

In addition, the Company has net par exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $3.6 billion, all of which is rated BIG.

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

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

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

increases in claims and loss reserves.

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

The size and depth of the COVID-19 pandemic, its course and duration and the direct and indirect consequences of governmental and private responses to it, and the effectiveness and acceptance of vaccines and therapeutics for it, remain unknown, so the Company cannot predict the ultimate size of any increases in claims that may result from the pandemic.

In addition, as of March 31, 2022, the Company has financial guaranty exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding, all of which is rated BIG.

As set forth in Item 1, Financial Statements, Note 3, Outstanding Exposure, its $1.3 billion net outstanding par exposure to PRHTA is subject to a plan of adjustment filed by the FOMB with the Title III Court on May 2, 2022 (HTA Plan).

The Company anticipates making substantial claim payments in connection with the consummation of the HTA Plan, should consummation occur, and is taking this into account in projecting its liquidity needs.

While the Company has the capacity to generate sufficient liquidity internally to fund the full amount of the gross claim payments it would be required to pay under the HTA Plan, the Company may enter into a secured short-term loan facility to partially fund such gross claim payments until it sells the securities it expects to receive under the HTA Plan.

Financial Statements Note 11, Credit Facilities, for a description of the secured short-term facility it used to partially fund the claim payments it made in connection with the consummation of the March Puerto Rico Resolutions in March 2022.

In connection with the acquisition of AGMH, AGM agreed to retain the risks relating to the debt and strip policy portions of the leveraged lease business.

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

If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately $612 million as of September 30, 2021.

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

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

As of March 31, 2022, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

The consensual terminations have resulted in no claims on AGM.

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

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

specified in the documentation for the credit derivative transactions.

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

The documentation for certain CDS were negotiated to require the Company to also pay if the obligor becomes bankrupt or if the reference obligation were restructured.

Furthermore, some CDS documentation requires the Company to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative.

If events of default or termination events specified in the credit derivative documentation were to occur, the Company may be required to make a cash termination payment to its swap counterparty upon such termination.

Any such payment would probably occur prior to the maturity of the reference obligation and be in an amount larger than the amount due for that period on a “pay-as-you-go” basis.

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

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

Distributions From Insurance Subsidiaries

The Company anticipates that, for the next twelve months, amounts paid by AGL’s direct and indirect insurance subsidiaries as dividends or other distributions will be a major source of the holding companies’ liquidity.

The insurance subsidiaries’ ability to pay dividends depends upon their financial condition, results of operations, cash requirements, other potential uses for such funds, and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their states of domicile.

The insurance subsidiaries’ ability to pay dividends depends upon their financial condition, results of operations, cash requirements, other

potential uses for such funds, and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their states of domicile.

For more information, see Part II, Item 8, Financial Statements and Supplementary Data, Note 16, Insurance Company Regulatory Requirements, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for a complete discussion of the Company’s dividend restrictions applicable to AGC, AGM, AG Re and AGRO.

Dividend restrictions by insurance subsidiary are as follows:

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

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

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

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

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

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

Distributions From / Contributions To

Insurance Company Subsidiaries

Third Quarter Nine Months

2021 2020 2021 2020

• The maximum amount available during 2022 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $291 million, but none is available for distribution in the second quarter of 2022.

• The maximum amount available during 2022 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $207 million, of which approximately $25 million is available for distribution in the second quarter of 2022.

• Based on the applicable law and regulations, in 2022 AG Re (a subsidiary of AGL) has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $236 million as of March 31, 2022.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $146 million as of March 31, 2022, and (ii) the amount of statutory surplus, which as of March 31, 2022 was $42 million.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $396 million as of March 31, 2022, and (ii) the amount of statutory surplus, which as of March 31, 2022 was $270 million.

Distributions From Insurance Company Subsidiaries

First Quarter

(in millions)

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Dividends paid by AGM to AGMH 96 82

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

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

____________________

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

Ratings Impact on Financial Guaranty Business

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

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

As of March 31, 2022, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $268 million, including $237 million by AGC and $31 million by AG Re.

Committed Capital Securities

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LIBOR may be discontinued.

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

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

See “— Executive Summary — Other Matters — LIBOR Sunset” above and the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part I, Item 1A, Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Investment Portfolio

The Company’s principal objectives in managing its investment portfolio are to support the highest possible ratings for each operating company, to manage investment risk within the context of the underlying portfolio of insurance risk, to maintain sufficient liquidity to cover unexpected stress in the insurance portfolio, and to maximize after-tax net investment income.

Changes in interest rates affect the value of the Company’s fixed-maturity portfolio.

Approximately 71% of the total investment portfolio is managed by external parties.

Each of the three external investment managers 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 and Fitch Ratings Inc., respectively.

Changes in interest rates affect the value of the Company’s fixed-maturity securities.

As interest rates fall, the fair value of fixed-maturity securities generally increases and as interest rates rise, the fair value of fixed-maturity securities generally decreases.

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

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

The Company’s portfolio of fixed-maturity securities primarily consists of investment-grade, liquid instruments.

Other invested assets include other alternative investments.

For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments, see Item 1, Financial Statements, Note 7, Investments and Note 9, Fair Value Measurement.

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Carrying Value

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in millions)

Fixed-maturity securities $ 8,663 $ 8,773

Fixed-maturity securities, available-for-sale (1) $ 8,156 $ 8,202

Fixed-maturity securities - Puerto Rico, trading 174 —

Short-term investments 585 1,225

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Total $ 9,067 $ 9,608

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

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

Fixed-Maturity Securities By Contractual Maturity

____________________

(1) Include $514 million of new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

The Company’s available-for-sale fixed-maturity securities had a duration of 4.3 years and 4.7 years as of March 31, 2022 and December 31, 2021, respectively.

Generally, the Company’s fixed-maturity securities are designated as available-for-sale, except for CVIs received under the March Puerto Rico Resolutions, which are classified as trading.

Available-for-Sale Fixed-Maturity Securities By Contractual Maturity

The amortized cost and estimated fair value of the Company’s available-for-sale fixed-maturity securities, by contractual maturity, are shown below.

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

Distribution of 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

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Total $ 8,227 $ 8,156

Fixed-Maturity Securities By Rating

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

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

Distribution of

Fixed-Maturity Securities by Rating

Rating September 30, 2021 December 31, 2020

Available-for-Sale Fixed-Maturity Securities By Rating

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of March 31, 2022 and December 31, 2021.

Ratings reflect the lower of Moody’s and S&P classifications, except for bonds purchased for loss mitigation and certain other securities, which use Assured Guaranty’s internal ratings classifications, or are not rated, such as the Puerto Rico securities received under the March Puerto Rico Resolutions.

Distribution of Available-for-Sale Fixed-Maturity Securities by Rating

Rating March 31, 2022 December 31, 2021

AAA 13.8 % 14.6 %

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____________________

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

(1) Includes primarily loss mitigation securities.

See Item I, Financial Statements, Note 7, Investments, for additional information.

Other Invested Assets

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

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

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

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

(2) As of March 31, 2022, primarily represent new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

Other Investments

Other invested assets reported on the condensed consolidated balance sheets primarily consist of investments in renewable and clean energy and private equity funds managed by a third party.

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

As of March 31, 2022 and December 31, 2021, all of the funds in which AGAS invests are consolidated in the Company’s consolidated financial statements.

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

See Commitments below.

Fair Value of AGAS’s Interest

in AssuredIM Funds

September 30, 2021 December 31, 2020

Fair Value of AGAS’s Interest in AssuredIM Funds

Strategy March 31, 2022 December 31, 2021

(in millions)

AssuredIM Funds by strategy (1)

CLOs $ 245 $ 228

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Total $ 559 $ 543

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

Equity in Earnings (Losses) of Investees of AGAS’s Investment in AssuredIM Funds

First Quarter

Strategy 2022 2021

(in millions)

Municipal bonds (4) 1

Healthcare 3 —

Asset-based 5 2

Total $ 11 $ 10

Restricted Assets

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $254 million and $262 million as of September 30, 2021 and December 31, 2020, respectively.

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $229 million and $243 million as of March 31, 2022 and December 31, 2021, respectively.

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

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

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

benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,160 million and $1,231 million, based on fair value, as of March 31, 2022 and December 31, 2021, respectively.

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

As of September 30, 2021, the Insurance segment had total commitments to AssuredIM Funds of $659 million, of which $380 million represented net invested capital and $279 million was undrawn.

As of March 31, 2022, the Insurance segment had total commitments to AssuredIM Funds of $702 million, of which $473 million represented net invested capital and $229 million was undrawn.

The Company had unfunded commitments of $96 million as of March 31, 2022 related to certain of the Company’s other alternative investments.

Sources and Uses of Funds

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

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

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

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

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

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

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

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

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

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

Consolidated VIEs

The Company manages its liquidity needs by evaluating cash flows without the effect of consolidated VIEs;

however, the Company’s condensed consolidated financial statements reflect the financial position of Assured Guaranty as well as Assured Guaranty's consolidated VIEs.

1, Financial Statements, Note 9, Variable Interest Entities, for additional information.

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

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

• Investment Vehicles.

AssuredIM’s sources of liquidity are:

(1) cash from operations, including management and performance fees (which are unpredictable as to amount and timing);

and (2) capital contributions from AGUS ($15 million and $15 million in First Quarter 2022 and First Quarter 2021, respectively, had been contributed to supplement cash from operations).

As of March 31, 2022, AssuredIM had $24 million in cash and short-term investments.

AssuredIM’s liquidity needs primarily include:

(1) paying operating expenses including compensation;

(2) paying dividends or other distributions to AGUS;

and (3) capital to support growth and expansion of the asset management business.

Lease Obligations

The Company has entered into several lease agreements for office space in Bermuda, New York, San Francisco,

London, Paris, and other locations with various lease terms.

See Part II, Item 8, Financial Statements and Supplementary Data, Note 18, Leases, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for a table of minimum lease obligations and other lease commitments.

FG VIEs and CIVs

The Company manages its liquidity needs by evaluating cash flows without the effect of consolidating FG VIEs and CIVs;

however, the Company’s consolidated financial statements include the effect of consolidating FG VIEs and CIVs.

The primary sources and uses of cash at Assured Guaranty’s FG VIEs and CIVs are as follows:

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

The insurance subsidiaries are not primarily liable for the debt obligations issued by the VIEs they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall.

AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs.

For the Puerto Rico Trusts, the primary source of cash is the collection of debt service on the assets in the trusts and the primary use of cash is the payment of the trusts debt obligations.

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

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

The assets of the CIVs are not available to creditors of the Company, other than creditors of the applicable CIVs.

In addition, creditors of the CIVs have no recourse against the assets of the Company, other than the assets of such applicable CIVs.

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

1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

Credit Facilities of CIVs

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

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 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 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 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.

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.

Condensed Consolidated Cash Flows

The condensed consolidated statements of cash flow include the cash flows of the Insurance and Asset Management subsidiaries and holding companies as well as the cash flows of the consolidated FG VIEs and CIVs.

The summarized condensed consolidated statements of cash flow in the table below presents the cash flow effect for the aggregate of the Insurance and Asset Management business and holding companies, separately from the aggregate effect of FG VIEs and CIVs.

Condensed Consolidated Cash Flow Summary

Third Quarter Nine Months

2021 2020 2021 2020

First Quarter

(in millions)

Net cash flows provided by (used in) operating activities before effect of VIE consolidation $ (66) $ (176) $ (20) $ (97)

Effect of VIE consolidation (1) (777) (43) (1,772) (567)

Net cash flows provided by (used in) operating activities, before effect of FG VIEs and CIVs consolidation $ (640) $ (42)

Effect of FG VIEs and CIVs consolidation (1) (252) (424)

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

Net cash flows provided by (used in) investing activities before effect of VIE consolidation 400 158 57 566

Effect of VIE consolidation (1)

25 15 112 340

Net cash flows provided by (used in) investing activities, before effect of FG VIEs and CIVs consolidation 831 81

Effect of FG VIEs and CIVs consolidation (1) 19 44

Net cash flows provided by (used in) investing activities 850 125

Net cash flows provided by (used in) financing activities, before effect of FG VIEs and CIVs consolidation

Dividends paid (17) (18)

Repurchases of common shares (152) (77)

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

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

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

Effect of VIE consolidation (1) 742 35 1,664 395

Other (10) (12)

Effect of FG VIEs and CIVs consolidation (1) 169 496

Net cash flows provided by (used in) financing activities (2) (10) 389

Effect of exchange rate changes (1) —

Cash and restricted cash at beginning of period 296 473 298 183

Total cash and restricted cash at the end of the period $ 240 $ 406 $ 240 $ 406

Increase (decrease) in cash and cash equivalents and restricted cash (53) 48

Cash and cash equivalents and restricted cash at beginning of period 342 298

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

____________________

(1) VIE consolidation includes the effects of FG VIEs and CIVs.

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

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

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

(1) This includes the effects of consolidating FG VIEs and CIVs.

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

Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of $640 million in First Quarter 2022 and an outflow of $42 million in First Quarter 2021.

The increase in cash outflows during 2022 was primarily due to claim payments made net of cash recoveries received in connection with the March Puerto Rico Resolutions.

Financial Statements, Note 3, Outstanding Exposure, for additional information.

Cash flows from operations attributable to the effect of VIE consolidation was negative in 2022 and 2021 due to the inclusion of investing activities of CIVs, which included cash outflows for purchases of investments, offset in part by sales of investments.

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

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

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

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

Financial Statements, Note 14, Long-Term Debt.

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

Financial Statements, Note 9 Variable Interest Entities.

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

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

The increase in investing cash inflows during 2022 was mainly attributable to higher sales of short-term investments in 2022 to fund share repurchases and claim payments in connection with the March Puerto Rico Resolutions.

Financial Statements, Note 3, Outstanding Exposure, for additional information.

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

The decrease in financing cash flow activity from VIEs was primarily due to First Quarter 2021 including the consolidation of an additional CLO and securitization of a previously consolidated CLO warehouse.

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

From March 1 through May 5, 2022, the Company repurchased an additional 1.0 million of common shares.

As of May 5, 2022, the Company was authorized to purchase $240 million of its common shares.

For more information abou t th e Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 14, Shareholders’ Equity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

As of March 31, 2022, there were no material changes to the market risks to which the Company is exposed since December 31, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis