What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-06 · 761 added, 464 removed, 2082 unchanged (37% of the section changed)

3 unchanged sentences

(dollars in millions except share data)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $ 51 and $ 42 (amortized cost of $ 7,803 and $ 7,822 )

36 unchanged sentences

(dollars in millions except share data)

Three Months Ended March 31,

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

2022 2021 2022 2021

Net earned premiums $ 82 $ 102 $ 296 $ 205

7 unchanged sentences

Foreign exchange gains (losses) on remeasurement ( 71 ) 5 ( 101 ) 5

Fair value gains (losses) on trading securities ( 18 ) — ( 22 ) —

Other income (loss)

Total revenues 90 196 390 373

Loss and loss adjustment expenses 57 30

Loss and loss adjustment expenses (benefit) ( 11 ) ( 16 ) 46 14

Interest expense 20 23 40 44

10 unchanged sentences

Net income (loss) attributable to Assured Guaranty Ltd.

$ ( 47 ) $ 98 $ 19 $ 109

Earnings per share:

5 unchanged sentences

(in millions)

Three Months Ended March 31,

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

2022 2021 2022 2021

Net income (loss) $ ( 25 ) $ 102 $ 50 $ 117

3 unchanged sentences

Investments with credit impairment, net of tax provision (benefit) of $( 10 ), $ 6 , $( 19 ) and $ 5

( 44 ) 24 ( 83 ) 18

Change in net unrealized gains (losses) on investments ( 286 ) 75 ( 663 ) ( 50 )

8 unchanged sentences

Assured Guaranty Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

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

(dollars in millions, except share data)

For the Three Months Ended March 31, 2022

For the Three Months Ended June 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

4 unchanged sentences

Shareholders’ Equity

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

Net income (loss) — — ( 47 ) — — ( 47 ) 22 ( 25 )

Dividends ($ 0.25 per share)

— — ( 16 ) — — ( 16 ) — ( 16 )

Contributions — — — — — — 35 35

Common shares repurchases ( 2,605,947 ) — ( 151 ) — — ( 151 ) — ( 151 )

Share-based compensation 38,139 — 8 — — 8 — 8

Distributions — — — — — — ( 7 ) ( 7 )

Other comprehensive loss — — — ( 292 ) — ( 292 ) — ( 292 )

Balance at June 30, 2022 62,475,739 $ 1 $ 5,672 $ ( 370 ) $ 1 $ 5,304 $ 243 $ 5,547

For the Three Months Ended June 30, 2021

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Common Shares Outstanding Common

Par Value Retained Earnings Accumulated

Comprehensive Income Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

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

Net income — — 98 — — 98 4 102

Dividends ($ 0.22 per share)

— — ( 17 ) — — ( 17 ) — ( 17 )

Contributions — — — — — — 6 6

Common shares repurchases ( 1,887,531 ) — ( 88 ) — — ( 88 ) — ( 88 )

Share-based compensation 64,703 — 8 — — 8 — 8

Distributions — — — — — — ( 3 ) ( 3 )

Other comprehensive income — — — 72 — 72 — 72

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

Assured Guaranty Ltd.

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

(dollars in millions, except share data)

For the Six Months Ended June 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Common Shares Outstanding Common

Par Value Retained Earnings Accumulated

Comprehensive Income Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

Balance at December 31, 2021 67,518,424 $ 1 $ 5,990 $ 300 $ 1 $ 6,292 $ 186 $ 6,478

7 unchanged sentences

Other comprehensive loss — — — ( 670 ) — ( 670 ) — ( 670 )

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

For the Three Months Ended March 31, 2021

Balance at June 30, 2022 62,475,739 $ 1 $ 5,672 $ ( 370 ) $ 1 $ 5,304 $ 243 $ 5,547

For the Six Months Ended June 30, 2021

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

13 unchanged sentences

Other comprehensive loss — — — ( 53 ) — ( 53 ) — ( 53 )

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

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

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

2 unchanged sentences

(in millions)

Three Months Ended March 31,

Six Months Ended June 30,

Net cash flows provided by (used in) operating activities $ ( 1,794 ) $ ( 949 )

Investing activities

Fixed-maturity securities:

Cash flows from investing activities:

Fixed-maturity securities, available-for-sale:

Purchases ( 180 ) ( 788 )

Sales 353 226

Maturities and paydowns 389 499

3 unchanged sentences

Net sales (purchases) of short-term investments with original maturities of less than three months 379 ( 267 )

Sales of fixed-maturity securities, trading 68 —

Paydowns of financial guaranty variable interest entities’ assets 44 27

3 unchanged sentences

Net cash flows provided by (used in) investing activities 1,058 ( 256 )

Financing activities

Cash flows from financing activities:

Dividends paid ( 33 ) ( 35 )

1 unchanged sentence

Net paydowns of financial guaranty variable interest entities’ liabilities ( 65 ) ( 23 )

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

Paydown of long-term debt — ( 1 )

Other ( 7 ) 6

4 unchanged sentences

Repayment of warehouse financing debt ( 744 ) ( 750 )

Payments under credit facilities ( 1 ) —

Borrowings under credit facilities 1 —

Contributions from noncontrolling interests to consolidated investment vehicles 35 8

2 unchanged sentences

Effect of foreign exchange rate changes ( 2 ) —

Increase (decrease) in cash and restricted cash ( 53 ) 48

Cash and restricted cash at beginning of period 342 298

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

Increase (decrease) in cash and cash equivalents and restricted cash ( 79 ) ( 2 )

Cash and cash equivalents and restricted cash at beginning of period 342 298

Cash and cash equivalents and restricted cash at end of period $ 263 $ 296

(continued on next page)

2 unchanged sentences

(in millions)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information

Income taxes paid (received) $ 97 $ —

Interest paid on long-term debt 38 40

5 unchanged sentences

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

March 31, 2022 March 31, 2021

Contributions from noncontrolling interests 26 1

Distributions to noncontrolling interests 20 1

June 30, 2022 June 30, 2021

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

24 unchanged sentences

Actual results could differ from those estimates.

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

As discussed in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, the three month period ended June 30, 2022 and the six month period ended June 30, 2022 each include two out-of period adjustments, totaling $ 9.0 million and $ 6.9 million in those two periods, respectively, in net income attributable to AGL.

Management has determined these misstatements are not material to prior periods or to the financial statements taken as a whole.

These unaudited interim condensed consolidated financial statements are as of June 30, 2022 and cover the three- month period ended June 30, 2022 (second quarter 2022), the three-month period ended June 30, 2021 (second quarter 2021), the six-month period ended June 30, 2022 (six months 2022) and the six-month period ended June 30, 2021 (six months 2021).

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

4 unchanged sentences

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

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S.

Securities and Exchange Commission (SEC).

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Securities and Exchange Commission (SEC).

The Company’s principal insurance subsidiaries are:

10 unchanged sentences

The Company’s principal asset management subsidiaries are:

• Assured Investment Management LLC;

• Assured Investment Management (London) LLP;

• Assured Healthcare Partners LLC.

• Assured Investment Management LLC, organized in Delaware;

• Assured Investment Management (London) LLP, organized in the U.K.;

• Assured Healthcare Partners LLC, organized in Delaware.

Until April 1, 2021, Municipal Assurance Corp.

1 unchanged sentence

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

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

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

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

17 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Recent Accounting Standards Not Yet Adopted

3 unchanged sentences

The amendments in this ASU:

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

6 unchanged sentences

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

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

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

Segment Information

21 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

• 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.

1 unchanged sentence

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

• 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.

2 unchanged sentences

Segment Information

Three Months Ended March 31,

Second Quarter

Insurance Asset Management Insurance Asset Management

7 unchanged sentences

Segment adjusted operating income (loss) $ 55 $ — $ 152 $ ( 2 )

Insurance Asset Management Insurance Asset Management

(in millions)

Third-party revenues $ 413 $ 46 $ 357 $ 37

Intersegment revenues 4 21 4 4

Segment revenues 417 67 361 41

Segment expenses 163 67 153 53

Segment equity in earnings (losses) of investees ( 35 ) — 67 —

Segment provision (benefit) for income taxes 31 — 44 ( 3 )

Segment adjusted operating income (loss) $ 188 $ — $ 231 $ ( 9 )

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

First Quarter 2022

Three Months Ended June 30, 2022

Equity in Earnings (Losses) of Investees Less:

15 unchanged sentences

Total consolidated $ 90 $ 112 $ — $ 3 $ 22 $ ( 47 )

Reconciliation of Segment Information to Consolidated Information

Three Months Ended June 30, 2021

Equity in Earnings (Losses) of Investees Less:

Net Income (Loss) Attributable to AGL

Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests

(in millions)

Insurance $ 182 $ 47 $ 48 $ 31 $ — $ 152

Asset Management 21 24 — ( 1 ) — ( 2 )

Total segments 203 71 48 30 — 150

Corporate division — 36 — ( 2 ) — ( 34 )

Other 27 4 ( 14 ) 1 4 4

Subtotal 230 111 34 29 4 120

Reconciling items:

Realized gains (losses) on investments 4 — — — — 4

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives ( 37 ) ( 6 ) — — — ( 31 )

Fair value gains (losses) on CCS ( 6 ) — — — — ( 6 )

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves 5 — — — — 5

Tax effect — — — ( 6 ) — 6

Total consolidated $ 196 $ 105 $ 34 $ 23 $ 4 $ 98

Assured Guaranty Ltd.

1 unchanged sentence

Reconciliation of Segment Information to Consolidated Information

First Quarter 2021

Six Months Ended June 30, 2022

Equity in Earnings (Losses) of Investees Less:

15 unchanged sentences

Total consolidated $ 390 $ 308 $ ( 11 ) $ 21 $ 31 $ 19

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2021

Equity in Earnings (Losses) of Investees Less:

Net Income (Loss) Attributable to AGL

Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests

(in millions)

Insurance $ 361 $ 153 $ 67 $ 44 $ — $ 231

Asset Management 41 53 — ( 3 ) — ( 9 )

Total segments 402 206 67 41 — 222

Corporate division — 68 — ( 5 ) — ( 63 )

Other 48 11 ( 24 ) 1 8 4

Subtotal 450 285 43 37 8 163

Reconciling items:

Realized gains (losses) on investments 1 — — — — 1

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives ( 59 ) ( 9 ) — — — ( 50 )

Fair value gains (losses) on CCS ( 25 ) — — — — ( 25 )

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves 6 — — — — 6

Tax effect — — — ( 14 ) — 14

Total consolidated $ 373 $ 276 $ 43 $ 23 $ 8 $ 109

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Outstanding Exposure

14 unchanged sentences

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

11 unchanged sentences

Unless otherwise noted, ratings disclosed herein on the Company’s insured portfolio reflect its internal ratings.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector.

15 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Impact of COVID-19 Pandemic

Variants of COVID-19 continue to spread throughout the world, while the production, acceptance, and distribution of vaccines and therapeutics for it are proceeding unevenly across the globe.

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

11 unchanged sentences

Net par outstanding equals gross par outstanding net of any reinsurance.

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

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

The Company includes in its par outstanding calculation the impact of any

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date.

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

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

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

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

As of June 30, 2022 and December 31, 2021, the Company excluded from net par outstanding $ 1.2 billion and $ 1.3 billion, respectively, attributable to loss mitigation securities.

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

3 unchanged sentences

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

2 unchanged sentences

dollar denominated insured obligations and other factors.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

Debt Service and Par Outstanding

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

As of June 30, 2022 As of December 31, 2021

Gross Net Gross Net

7 unchanged sentences

Total financial guaranty $ 232,994 $ 232,812 $ 236,765 $ 236,392

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

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $ 1,301 million of public finance direct gross par and $ 763 million of structured finance direct gross par as of June 30, 2022.

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

1 unchanged sentence

Financial Guaranty Portfolio by Internal Rating

As of March 31, 2022

As of June 30, 2022

Public Finance

16 unchanged sentences

Total net par outstanding $ 179,648 100.0 % $ 44,447 100.0 % $ 7,935 100.0 % $ 782 100.0 % $ 232,812 100.0 %

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio by Internal Rating

18 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of March 31, 2022

As of June 30, 2022

BIG Net Par Outstanding Net Par

25 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

BIG Net Par Outstanding and Number of Risks

As of March 31, 2022

As of June 30, 2022

Net Par Outstanding Number of Risks (2)

9 unchanged sentences

Total BIG $ 5,327 $ 59 $ 5,386 250 11 261

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

16 unchanged sentences

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 $ 2,237 million net par outstanding as of March 31, 2022, a decrease of $ 1,335 million from the $ 3,572 million net par outstanding as of December 31, 2021.

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 $ 2,227 million net par outstanding as of June 30, 2022, a decrease of $ 1,345 million from the $ 3,572 million net par outstanding as of December 31, 2021.

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

5 unchanged sentences

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

The GO/PBA Plan restructured approximately $ 35 billion of

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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 the pension obligations are insured by the Company), all consistent with the terms of the settlement embodied in a revised plan support agreement (PSA) for GO and PBA entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the FOMB (GO/PBA PSA).

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

As noted below, a confirmation hearing on the plan of adjustment for PRHTA has been set for August 17-18, 2022, while the most recent restructuring support agreement for PREPA was terminated and the parties are currently in mediation.

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

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

Puerto Rico GO and PBA

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

Direct Second-to-Pay Assumed Total

As of June 30, 2022, the Company had remaining $ 37 million of insured net par outstanding of GO bonds and $ 5 million of insured net par outstanding of PBA bonds, consisting of direct exposure and assumed reinsurance exposure.

The Company’s $ 10 million of second-to-pay exposure as of March 31, 2022 was extinguished during second quarter 2022.

Direct Assumed Total

(in millions)

1 unchanged sentence

Total GO and PBA $ 41 $ 1 $ 42

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

Under the GO/PBA Plan and in connection with its direct exposure the Company received (including amounts received in connection with the second election described further below, but excluding amounts received in connection with second-to-pay exposures):

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

1 unchanged sentence

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

any new recovery bonds or CVIs it continues to hold.

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

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

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

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

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

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

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

1 unchanged sentence

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

2 unchanged sentences

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

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

As of June 30, 2022, the net insured par outstanding under the legacy GO and PBA insurance policies was $ 42 million, and constituted all of the Company’s remaining net par exposure to the GO and PBA bonds it had insured.

PRCCDA and PRIFA

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

As of June 30, 2022, the Company had no insured net par outstanding of PRCCDA or PRIFA obligations remaining.

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

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

As of June 30, 2022, the Company had $ 1.3 billion of insured net par outstanding that is covered by a PSA with respect to PRHTA entered into on May 5, 2021, by AGM and AGC and certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA):

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

5 unchanged sentences

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

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

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

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

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

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

Voting on the HTA Plan was completed on July 27, 2022, and the Title III Court has set August 17-18, 2022, for the confirmation hearing on the HTA Plan.

The HTA Plan, similar to the GO/PBA Plan, provides an option for certain bondholders to elect to receive custody receipts that represent an interest in the legacy insurance policy plus Toll Bonds.

On July 8, 2022, the Company received from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA, $ 147 million of cash and $ 668 million original notional of CVI.

Assuming the HTA Plan essentially as currently constituted is confirmed and implemented, the Company also expects to receive additional recoveries.

The HTA Plan is still subject to confirmation by the Title III Court, so there can be no assurance that it will be implemented in its current form, or at all.

As of June 30, 2022, the Company had $ 748 million insured net par outstanding of PREPA obligations.

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

1 unchanged sentence

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

On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order appointing as members of a PREPA mediation team U.S.

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

Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that the mediation would terminate on June 1, 2022.

Judge Swain has since extended the term of such mediation several times, most

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

recently on July 29, 2022 extending the term to August 15, 2022, and granting discretion to the mediation team to further extend the mediation deadline to September 9, 2022 based on its assessment of the progress of the mediation process.

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

2 unchanged sentences

Such exposures comprise:

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

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

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

As of June 30, 2022, the Company had $ 179 million insured net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues.

As of June 30, 2022, the Company had $ 1 million insured net par outstanding of U of PR bonds, which are general obligations of the university and are secured by a subordinate lien on the proceeds, profits and other income of the university, subject to a senior pledge and lien for the benefit of outstanding university system revenue bonds.

As of June 30, 2022, the Company had $ 1 million insured net par outstanding of PRASA obligations.

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

9 unchanged sentences

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

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

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

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

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

• On July 18, 2017, AGM and AGC filed a motion for relief in the Federal District Court of Puerto Rico from the

automatic stay filed in the PREPA Title III Bankruptcy proceeding.

The court denied the motion on September 14,

2017, but on August 8, 2018, the First Circuit vacated and remanded the court’s decision.

On October 3, 2018, AGM

and AGC, together with other bond insurers, filed a motion with the court to lift the automatic stay to commence an

action against PREPA for the appointment of a receiver.

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

2 unchanged sentences

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

this adversary proceeding scheduled for June 3, 2020 be adjourned.

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

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Gross Par Outstanding Gross Debt Service Outstanding

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

June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021

(in millions)

3 unchanged sentences

Net Par Outstanding

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

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Net Par Outstanding and Net Debt Service Outstanding

As of March 31, 2022

As of June 30, 2022

Scheduled Net Par Amortization Scheduled Net Debt Service Amortization

(in millions)

2022 (April 1 - June 30) $ — $ 3

2022 (July 1 - September 30) $ 149 $ 202

7 unchanged sentences

Virgin Islands

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

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

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

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

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

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

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

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

As of June 30, 2022, the Company had $ 187 million insured net par outstanding to the U.S.

Virgin Islands and its related authorities (USVI), of which it rated $ 51 million BIG (down from $ 469 million BIG as of December 31, 2021 and $ 185 million BIG as of March 31, 2022).

In the first half of 2022, $ 256 million of insured net par outstanding of USVI bonds were legally defeased and $ 134 million of insured net par outstanding of USVI bonds were upgraded to investment grade.

The remaining $ 51 million of BIG USVI net par outstanding consisted of bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system.

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

Specialty Insurance and Reinsurance Exposure

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

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

As of both June 30, 2022 and December 31, 2021, gross exposure of $ 144 million and net exposure of $ 84 million of aircraft residual value insurance was BIG.

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

Specialty Insurance and Reinsurance Exposure

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

As of June 30, 2022 As of December 31, 2021

Gross Exposure Net Exposure Gross Exposure Net Exposure

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____________________

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

(1) The life insurance transactions’ net exposure is projected to reach $ 1.1 billion by June 30, 2025.

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

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

The minimum rental income guaranteed by AGRO is significantly below current annual rental income, and further protective provisions are triggered when rental income falls below a certain level.

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

The Company’s maximum potential exposure under the

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

income falls below a certain level.

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

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

guarantee was $ 250 million as of June 30, 2022.

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

11 unchanged sentences

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

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

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

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

9 unchanged sentences

the asset received is prospectively accounted for under the applicable guidance for that instrument.

Economic loss development represents the change in net expected loss to be paid (recovered) attributable to the effects

of changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic

effects of loss mitigation efforts.

Economic loss development represents the change in net expected loss to be paid (recovered) attributable to the effects of changes in the economic performance of insured transactions, changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts.

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

3 unchanged sentences

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

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

insurance, derivative and FG VIE.

The Company has paid and expects to pay future losses and/or recover past losses on policies which fall under each of these accounting models.

Loss Estimation Process

4 unchanged sentences

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the life of the insured transaction.

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

The Company does not use traditional actuarial approaches to determine its estimates of expected losses.

26 unchanged sentences

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

As of First Quarter

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

As of Second Quarter Six Months

Accounting Model June 30, 2022 December 31, 2021 2022 2021 2022 2021

(in millions)

5 unchanged sentences

$ 442 $ 411 $ ( 32 ) $ ( 20 ) $ ( 76 ) $ ( 7 )

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

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

insurance, derivative and FG VIE.

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

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

Expected losses to be paid

dollar denominated obligations that ranged from 1.67 % to 3.41 % with a weighted average of 2.90 % as of June 30, 2022 and 0.00 % to 1.98 % with a weighted average of 1.02 % as of December 31, 2021.

Expected losses to be paid for U.S.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

dollar denominated transactions represented approximately 98.6 % and 97.2 % of the total as of June 30, 2022 and December 31, 2021, respectively.

Net Expected Loss to be Paid (Recovered)

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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Roll Forward by Sector

First Quarter 2022

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

Second Quarter 2022

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

Development (Benefit) Net (Paid)

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

Net Expected Loss to be Paid (Recovered) as of June 30, 2022

(in millions)

8 unchanged sentences

Total $ 432 $ ( 32 ) $ 42 $ 442

Second Quarter 2021

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

Development (Benefit) Net (Paid)

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

(in millions)

Public finance:

public finance $ 228 1 $ ( 8 ) $ 221

public finance 24 ( 1 ) ( 1 ) 22

Public finance 252 — ( 9 ) 243

Structured finance:

RMBS 181 ( 28 ) 25 178

Other structured finance 39 8 ( 2 ) 45

Structured finance 220 ( 20 ) 23 223

Total $ 472 $ ( 20 ) $ 14 $ 466

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

First Quarter 2021

Six Months 2022

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

Development (Benefit) Net (Paid)

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

Net Expected Loss to be Paid (Recovered) as of June 30, 2022

(in millions)

8 unchanged sentences

Total $ 411 $ ( 76 ) $ 107 $ 442

Six Months 2021

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

Development (Benefit) Net (Paid)

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

(in millions)

Public finance:

public finance $ 305 $ 16 $ ( 100 ) $ 221

public finance 36 ( 13 ) ( 1 ) 22

Public finance 341 3 ( 101 ) 243

Structured finance:

RMBS 148 ( 17 ) 47 178

Other structured finance 40 7 ( 2 ) 45

Structured finance 188 ( 10 ) 45 223

Total $ 529 $ ( 7 ) $ ( 56 ) $ 466

____________________

2 unchanged sentences

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

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

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

The tables above include (a) LAE paid of $ 7 million, $ 6 million, $ 20 million and $ 10 million for second quarter 2022, second quarter 2021, six months 2022 and six months 2021, respectively, and (b) expected LAE to be paid of $ 14 million as of June 30, 2022 and $ 26 million as of December 31, 2021.

Ceded expected loss and LAE to be recovered (paid) was $( 3 ) million as of June 30, 2022 and $ 10 million as of December 31, 2021.

Selected U.S.

Public Finance Transactions

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

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

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

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

The fair value of recoveries received under these March Puerto Rico Resolutions (which included cash, new recovery bonds and CVIs) and some of those expected to be received under the HTA Plan were higher than expected.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

As of June 30, 2022, the Company’s net par outstanding subject to the plan consisted of $ 100 million of pension obligation bonds.

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

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

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

public finance exposures as of June 30, 2022, including those mentioned above, to be $ 210 million, compared with $ 197 million as of December 31, 2021.

The economic loss development for U.S.

public finance transactions was $ 8 million during second quarter 2022 and was primarily attributable to Puerto Rico transactions, partially offset by the effect of changes in discount rates.

The economic benefit for U.S.

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

public finance transactions was $ 40 million during six months 2022, which was primarily attributable to changes in discount rates.

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

2 unchanged sentences

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

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

public finance transactions was $ 7 million as of June 30, 2022, compared with $ 12 million as of December 31, 2021.

The economic benefit for non-U.S.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

public finance transactions was $ 2 million and $ 4 million during second quarter 2022 and six months 2022, respectively.

RMBS Loss Projections

5 unchanged sentences

Net Economic Loss Development (Benefit)

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

First lien U.S.

5 unchanged sentences

Alt-A, Prime, Option ARM and Subprime

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

The majority of projected losses in first lien U.S.

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

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

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

First Lien Liquidation Rates

March 31, 2022 December 31, 2021

First Lien U.S.

RMBS Liquidation Rates

June 30, 2022 December 31, 2021

Current but recently delinquent

27 unchanged sentences

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

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

In the base case, the Company assumes the final CDR will be reached 1.00 year after the initial 36 -month CDR plateau period.

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

1 unchanged sentence

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

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

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

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

The Company then assumes that loss severities

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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

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

1 unchanged sentence

First Lien U.S.

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

As of June 30, 2022 As of December 31, 2021

Range Weighted Average Range Weighted Average

25 unchanged sentences

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

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

In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien U.S.

RMBS transactions by varying its assumptions of how fast a recovery is expected to occur.

One of the variables used to model sensitivities was how quickly the CDR returned to its modeled equilibrium, which was defined as 5 % of the initial CDR.

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

The Company probability weighted a total of five scenarios as of June 30, 2022 and December 31, 2021.

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

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

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

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

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

RMBS was $ 195 million and $ 167 million as of June 30, 2022 and December 31, 2021, respectively.

The $ 14 million economic benefit in second quarter 2022 for first lien U.S.

RMBS transactions was primarily attributable changes in discount rates, lower initial severity assumptions and improved performance in certain transactions, partially offset by lower excess spread.

The $ 4 million economic loss development in six months 2022 for first lien U.S.

RMBS transactions was primarily attributable to lower excess spread, partially offset by changes in discount rates, lower initial severity assumptions and improved performance in certain transactions.

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

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

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

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

ICE Benchmark Administration (IBA) and the Financial Conduct Authority (FCA) have announced that LIBOR will be discontinued after June 30, 2023.

The Company believes that the RMBS floating rate debt it insures will, consistent with federal legislation enacted in March 2022, be interpreted to instead reference the Secured Overnight Finance Rate (SOFR) .

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of June 30, 2022 as it used as of December 31, 2021, increasing and decreasing the periods of stress from those used in the base case.

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

4 unchanged sentences

RMBS Loss Projections

Second lien RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages.

Second lien U.S.

RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages.

The Company believes the primary variable affecting its expected losses in second lien RMBS transactions is the amount and timing of future losses or recoveries in the collateral pool supporting the transactions.

Expected losses are also a function of the structure of the transaction, the CPR of the collateral, the interest rate environment and assumptions about loss severity.

In second lien transactions, the projection of near-term defaults from currently delinquent loans is relatively straightforward because loans in second lien transactions are generally “charged off” (treated as defaulted) by the securitization’s servicer once the loan is 180 days past due.

In second lien U.S.

RMBS transactions, the projection of near-term defaults from currently delinquent loans is relatively straightforward because loans are generally “charged off” (treated as defaulted) by the securitization’s servicer once the loan is 180 days past due.

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

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

Similar to first lien U.S.

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

That CDR is then used as the basis for the plateau CDR period that follows the embedded plateau losses.

8 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

The Company assumed, as of June 30, 2022 and December 31, 2021, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time.

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

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

The Company evaluates its assumptions quarterly based on actual

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

5 unchanged sentences

In the base case, an average CPR (based on experience of the past year) is assumed to continue until the end of the plateau before gradually increasing to the final CPR over the same period the CDR decreases.

The final CPR is assumed to be 15 % for second lien transactions (in the base case), which is lower than the historical average but reflects the Company’s continued uncertainty about the projected performance of the borrowers in these transactions.

The final CPR is assumed to be 15 % for second lien U.S.

RMBS transactions (in the base case), which is lower than the historical average but reflects the Company’s continued uncertainty about the projected performance of the borrowers in these transactions.

For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used.

5 unchanged sentences

Key Assumptions in Base Case Expected Loss Estimates

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

As of June 30, 2022 As of December 31, 2021

Range Weighted Average Range Weighted Average

14 unchanged sentences

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

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

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

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

The Company also modeled a scenario with a longer period of elevated defaults and another with a shorter period of elevated defaults.

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

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

RMBS was $ 16 million as of June 30, 2022 and $ 17 million as of December 31, 2021.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

economic development in second quarter 2022 and six months 2022 was a benefit of $ 25 million and $ 36 million, respectively, and was primarily driven by higher recoveries for secured charged-off loans, improved performance in certain transactions and changes in discount rates, partially offset by lower excess spread.

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

The Company also modeled a scenario with a longer period of elevated defaults and another with a shorter period of elevated defaults.

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

On the other hand, in the Company’s least stressful scenario, reducing the CDR plateau to four months and decreasing the length of the CDR ramp-down to 25 months (for a total stress period of 29 months), and lowering the ultimate prepayment rate to 10 % would increase the expected recovery by approximately $ 5 million for HELOC transactions.

Structured Finance Excluding U.S.

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

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

RMBS, as of June 30, 2022 was $ 46 million.

The largest component of these structured finance losses were student loan securitizations issued by private issuers with $ 51 million in BIG net par outstanding.

1 unchanged sentence

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

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

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

RMBS, during First Quarter 2022 was $ 1 million.

The Company also had exposure to troubled life insurance transactions with BIG net par of $ 40 million as of June 30, 2022.

Recovery Litigation

7 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Earned Premiums

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

7 unchanged sentences

____________________

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

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

See Note 3, Outstanding Exposure for additional information.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Gross Premium Receivable,

Net of Commissions Payable on Assumed Business

First Quarter

(in millions)

4 unchanged sentences

Gross premiums received, net of commissions ( 180 ) ( 184 )

Changes in the expected term 8 2

Changes in the expected term and debt service assumptions ( 4 ) 5

Accretion of discount, net of commissions on assumed business 12 10

2 unchanged sentences

Specialty insurance premium receivable 1 1

March 31, $ 1,335 $ 1,359

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

June 30, $ 1,235 $ 1,373

Approximately 76 % and 78 % of gross premiums receivable, net of commissions payable at June 30, 2022 and December 31, 2021, respectively, are denominated in currencies other than the U.S.

dollar, primarily the pound sterling and euro.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

Expected Future Premium Collections and Earnings

As of March 31, 2022

As of June 30, 2022

Future Premiums

2 unchanged sentences

(in millions)

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

2022 (July 1 - September 30) $ 39 $ 72

9 unchanged sentences

____________________

(1) Net of assumed commissions payable.

(1) Net of commissions payable.

(2) Net of reinsurance.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Selected Information for Financial Guaranty Insurance Policies

with Premiums Paid in Installments

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(dollars in millions)

3 unchanged sentences

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

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

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

Losses and Recoveries

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

dollar denominated financial guaranty insurance obligations that ranged from 1.67 % to 3.41 % with a weighted average of 2.90 % as of June 30, 2022 and 0.00 % to 1.98 % with a weighted average of 1.02 % as of December 31, 2021.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Reserve (Salvage) by Sector

Sector March 31, 2022 December 31, 2021

Sector June 30, 2022 December 31, 2021

(in millions)

9 unchanged sentences

Components of Net Reserve (Salvage)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

11 unchanged sentences

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

(i) the contra-paid, which represents the claim payments made and recoveries received that have not yet been recognized in the statements of operations;

(ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid (and therefore recognized in income but not yet received);

and (iii) loss reserves that have already been established (and therefore expensed but not yet paid).

Reconciliation of Net Expected Loss to be Paid (Recovered)

1 unchanged sentence

Financial Guaranty Insurance Contracts

As of March 31, 2022

As of June 30, 2022

(in millions)

7 unchanged sentences

This table excludes amounts related to FG VIEs, which are eliminated in consolidation.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts

As of March 31, 2022

As of June 30, 2022

(in millions)

2022 (April 1 - June 30) $ 5

2022 (July 1 - September 30) $ 4

6 unchanged sentences

Amounts presented are net of reinsurance.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Loss and LAE by Sector

First Quarter

Loss and LAE (Benefit) by Sector

Second Quarter Six Months

Sector 2022 2021 2022 2021

8 unchanged sentences

Structured finance ( 22 ) ( 19 ) ( 20 ) ( 7 )

Loss and LAE $ 57 $ 30

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

public finance loss and LAE was Puerto Rico exposures.

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

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

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

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

Loss and LAE (Benefit) $ ( 11 ) $ ( 16 ) $ 46 $ 14

The largest component of the U.S.

public finance loss expense was Puerto Rico exposures for all periods presented.

The difference between public finance loss expense and economic benefit in six months 2022 was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.

The benefit in U.S.

RMBS in all periods presented is primarily related to second lien transactions.

For additional information on the expected timing of net expected losses to be expensed see Note 4, Expected Loss to be Paid (Recovered).

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of March 31, 2022

As of June 30, 2022

Gross Net Total BIG

14 unchanged sentences

Reserves (salvage) $ ( 303 ) $ 19 $ 491 $ 207 $ 207

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

20 unchanged sentences

(2) Includes amounts related to FG VIEs.

(3) Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlements, excess spread on any underlying collateral and other estimated recoveries.

(3) Represents expected inflows from future payments by obligors pursuant to restructuring agreements, settlements, excess spread on any underlying collateral and other estimated recoveries.

Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Contracts Accounted for as Credit Derivatives

1 unchanged sentence

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

See Note 5, Contracts Accounted for as Insurance for amounts that relate to insurance and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as FG VIEs.

See Note 5, Contracts Accounted for as Insurance for amounts that relate to contracts accounted for as insurance and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that relate to contracts that are accounted for as FG VIEs.

The Company’s credit derivatives (financial guaranty contracts that meet the definition of a derivative in accordance with GAAP) are primarily CDS and also include interest rate swaps.

4 unchanged sentences

Similar to a financial guaranty insurance contract, the Company would be obligated to pay if the obligor failed to make a scheduled payment of principal or interest in full.

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.

In certain transactions the Company also specifically agreed to pay if the obligor were to become bankrupt or if the reference obligation were restructured.

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.

3 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

The estimated remaining weighted average life of credit derivatives was 13.4 years and 13.2 years as of March 31, 2022 and December 31, 2021, respectively.

The estimated remaining weighted average life of credit derivatives was 13.3 years and 13.2 years as of June 30, 2022 and December 31, 2021, respectively.

Credit Derivatives (1)

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

As of June 30, 2022 As of December 31, 2021

Sector Net Par

8 unchanged sentences

____________________

(1) Expected loss to be paid was $ 6 million as of March 31, 2022 and $ 5 million as of December 31, 2021.

(1) Expected loss to be paid was $ 5 million as of both June 30, 2022 and December 31, 2021.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

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

As of June 30, 2022 As of December 31, 2021

Rating Category Net Par

8 unchanged sentences

Credit derivative net par outstanding $ 3,301 100.0 % $ 4,040 100.0 %

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value Gains (Losses) on Credit Derivatives

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

2 unchanged sentences

Fair value gains (losses) on credit derivatives $ 9 $ ( 33 ) $ 6 $ ( 52 )

During First Quarter 2022 unrealized fair value losses were generated primarily as a result of increases in the credit spread of underlying reference obligations, offset in part by the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period.

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

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

During second quarter 2022, unrealized gains were generated primarily as a result of the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period, and changes in discount rates.

These gains were partially offset by an increase in the credit spread of certain underlying reference obligations.

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

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

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

During six months 2022, unreali zed gains were generated primarily as a result of the increased cost to buy protection on AGC and changes in discount rates.

These gains were partially offset by an increase in the credit spread of certain underlying reference obligations.

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

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

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

2 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

CDS Spread on AGC (in basis points)

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

As of June 30, 2022 As of December 31, 2021 As of June 30, 2021 As of December 31, 2020

Five-year CDS spread 103 49 62 132

2 unchanged sentences

and Effect of AGC Credit Spread

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

2 unchanged sentences

Net fair value of credit derivatives $ ( 147 ) $ ( 154 )

The fair value of CDS contracts as of March 31, 2022, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

The fair value of CDS contracts as of June 30, 2022, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Investment Portfolio

7 unchanged sentences

an investment in renewable and clean energy and private equity funds.

The Company had unfunded commitments of $ 96 million as of March 31, 2022 related to certain of the Company’s alternative investments.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company had unfunded commitments of $ 96 million as of June 30, 2022 related to certain of the Company’s alternative investments other than AssuredIM Funds.

Investment Portfolio

Carrying Value

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

10 unchanged sentences

____________________

(1) 7.3 % and 7.5 % of fixed-maturity securities were rated BIG as of March 31, 2022 and December 31, 2021, respectively, consisting primarily of loss mitigation securities.

7.2 % and 0.9 % were not rated, as of March 31, 2022 and December 31, 2021, respectively.

(1) 7.4 % and 7.5 % of fixed-maturity securities were rated BIG as of June 30, 2022 and December 31, 2021, respectively, consisting primarily of loss mitigation securities.

4.1 % and 0.9 % were not rated, as of June 30, 2022 and December 31, 2021, respectively.

(2) Represents new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

2 unchanged sentences

These securities are not rated.

(4) Weighted average credit rating of AAA as of both March 31, 2022 and December 31, 2021, based on the lower of the Moody’s and S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P) classifications.

(4) Weighted average credit rating of AAA as of both June 30, 2022 and December 31, 2021, based on the lower of the Moody’s Investors Service, Inc.

(Moody’s) and S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P) classifications.

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

As of March 31, 2022, the U.S.

Adding inception-to-date distributed gains, the U.S.

Insurance Subsidiaries may invest a total of up to $ 810 million in AssuredIM Funds through AGAS.

As of June 30, 2022, the U.S.

Insurance Subsidiaries had total commitments to AssuredIM Funds of $ 757 million, of which $ 516 million represented net invested capital and $ 241 million was undrawn.

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

As of March 31, 2022 and December 31, 2021, the fair value of AGAS’ interest in AssuredIM Funds was $ 559 million and $ 543 million, respectively.

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

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

Accrued investment income, which is recorded in “other assets,” was $ 77 million as of March 31, 2022 and $ 69 million as of December 31, 2021.

In First Quarter 2022 and First Quarter 2021, the Company did not write off any accrued investment income.

As of June 30, 2022 and December 31, 2021, the fair value of AGAS’ interest in AssuredIM Funds was $ 549 million and $ 543 million, respectively.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

investment vehicles”, with the portion not owned by AGAS and other subsidiaries presented as either redeemable or non-redeemable non-controlling interests.

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

Accrued investment income, which is recorded in “other assets,” was $ 74 million as of June 30, 2022 and $ 69 million as of December 31, 2021.

In six months 2022 and six months 2021, the Company did not write off any accrued investment income.

Available-for-Sale Fixed-Maturity Securities by Security Type

As of March 31, 2022

As of June 30, 2022

Security Type Percent

43 unchanged sentences

(3) Includes securities issued by taxable universities and hospitals.

government-agency obligations were approximately 30 % of mortgage-backed securities as of March 31, 2022 and 31 % as of December 31, 2021 based on fair value.

government-agency obligations were approximately 31 % of mortgage-backed securities as of both June 30, 2022 December 31, 2021 based on fair value.

(5) Accumulated other comprehensive income (AOCI).

3 unchanged sentences

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

As of March 31, 2022

As of June 30, 2022

Less than 12 months 12 months or more Total

37 unchanged sentences

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

The Company has determined that the unrealized losses recorded as of March 31, 2022 and December 31, 2021 were not related to credit quality, and in the case of First Quarter 2022, primarily attributable to rising interest rates.

In addition, as of March 31, 2022 the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value.

As of March 31, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 187 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2021, 23 securities had unrealized

The Company has determined that the unrealized losses recorded as of June 30, 2022 and December 31, 2021 were not related to credit quality, and in the case of six months 2022, primarily attributable to rising interest rates.

In addition, as of June 30, 2022 the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value.

As of June 30, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 435 securities had

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 56 million as of March 31, 2022 and $ 6 million as of December 31, 2021.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of March 31, 2022 are shown below.

unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2021, 23 securities had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 211 million as of June 30, 2022 and $ 6 million as of December 31, 2021.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of June 30, 2022 are shown below.

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

Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity

As of March 31, 2022

As of June 30, 2022

Cost Estimated

6 unchanged sentences

Total $ 7,803 $ 7,396

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $ 229 million as of March 31, 2022 and $ 243 million as of December 31, 2021.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements, in the amounts of $ 1,160 million and $ 1,231 million, based on fair value as of March 31, 2022 and December 31, 2021, respectively.

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 $ 217 million as of June 30, 2022 and $ 243 million as of December 31, 2021.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements, in the amounts of $ 1,149 million and $ 1,231 million, based on fair value as of June 30, 2022 and December 31, 2021, respectively.

Income from Investment Portfolio

1 unchanged sentence

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Income from Investment Portfolio

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

6 unchanged sentences

Net investment income $ 62 $ 68 $ 124 $ 138

Unrealized gain (loss) on trading securities (2) $ ( 4 ) $ —

Fair value gains (losses) on trading securities (2) $ ( 18 ) $ — $ ( 22 ) $ —

Equity in earnings (losses) of investees (3) $ — $ 34 $ ( 11 ) $ 43

1 unchanged sentence

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

(2) Reported in “other income (loss)”.

First Quarter 2022 amount relates to securities still held as of March 31, 2022.

(3) First Quarter 2022 includes $ 3 million related to fair value gains on investments where the fair value option was elected utilizing the net asset value (NAV), as a practical expedient.

In addition, the Company received $ 5 million in dividends related to the same investment.

Fair value losses in First Quarter 2021 were de minimis.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

(2) Fair value losses on trading securities pertaining to securities still held as of June 30, 2022 were $ 12 million for second quarter 2022 and $ 16 million for six months 2022.

(3) Fair value gains on investments where the fair value option (FVO) was elected utilizing the net asset value (NAV), as a practical expedient were $ 3 million in six months 2022 and $ 26 million in both second quarter 2021 and six months 2021.

In addition, the Company received $ 5 million for six months 2022 in dividends related to the same investment.

Realized Investment Gains (Losses)

2 unchanged sentences

Net Realized Investment Gains (Losses)

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

6 unchanged sentences

____________________

(1) Net realized gains in First Quarter 2022 related primarily to the sale of one of the Company’s alternative investments.

(1) Second quarter 2022 and six months 2022 related primarily to sales of bonds received as part of the March Puerto Rico Resolutions.

(2) Net realized gains in six months 2022 related primarily to the sale of one of the Company’s alternative investments.

The proceeds from sales of fixed-maturity securities classified as available-for-sale were $ 296 million in second quarter 2022, $ 106 million in second quarter 2021, $ 353 million in six months 2022 and $ 226 million in six months 2021.

The following table presents the roll forward of the credit losses on available-for-sale fixed-maturity securities for which the Company has recognized an allowance for credit losses in 2022 and 2021.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Credit Losses for Available-for-Sale Fixed-Maturity Securities

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

2 unchanged sentences

Additions (reductions) for credit losses on securities for which credit impairments were previously recognized 4 — 5 2

Reductions for securities sold and other settlements (1) — ( 42 ) — ( 42 )

Balance, end of period $ 51 $ 39 $ 51 $ 39

The Company recorded credit loss expenses of $ 5 million in First Quarter 2022 and $ 3 million in First Quarter 2021.

(1) Primarily attributable to the sale of a security with a $ 42 million credit allowance in second quarter 2021.

The Company recorded credit loss expenses of $ 4 million, $ 9 million and $ 3 million in second quarter 2022, six months 2022, and six months 2021, respectively.

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

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Such excess spread is typically distributed through the transaction’s cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the VIE (thereby, creating additional overcollateralization), or distributed to equity or other investors in the transaction.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The insurance subsidiaries are not primarily liable for the debt obligations issued by the structured finance and other FG VIEs (which excludes the Puerto Rico Trusts described below) they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall.

AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs.

AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the structured finance and other FG VIEs.

Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on structured finance and other FG VIEs’ liabilities.

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The insurance subsidiaries are deemed to be the control party for certain VIEs under GAAP, typically when their protective rights give them the power to both terminate and replace the transaction’s servicer or collateral manager, which are characteristics specific to the Company’s financial guaranty contracts.

If the protective rights that could make the insurance subsidiaries the control party have not been triggered, then the VIE is not consolidated.

If the protective rights that could make the insurance subsidiaries the control party have not been

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

triggered, then the VIE is not consolidated.

If the insurance subsidiaries are deemed no longer to have those protective rights, the VIE is deconsolidated.

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The structured finance and other FG VIEs’ liabilities that are not guaranteed by the insurance subsidiaries are considered to be without recourse, because the payment of principal and interest of these liabilities is wholly dependent on the performance of the FG VIEs’ assets.

The Company has elected the fair value option for all assets and all liabilities of the structured finance and other FG VIEs.

The Company has elected the FVO for all assets and all liabilities of the structured finance and other FG VIEs.

The change in fair value of all structured finance and other FG VIEs assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for the change in fair value attributable to change in instrument-specific credit risk (ISCR) on the structured finance and other FG VIE liabilities, which is reported in other comprehensive income (OCI).

As of March 31, 2022 and December 31, 2021, the Company consolidated 26 and 25 structured finance and other FG VIEs, respectively.

As of both June 30, 2022 and December 31, 2021, the Company consolidated 25 structured finance and other FG VIEs, respectively.

During six months 2022, one FG VIE was consolidated and one FG VIE was deconsolidated.

During six months 2021, one FG VIE was deconsolidated.

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

Puerto Rico Trusts

In First Quarter 2022, the Company consolidated nine custodial trusts established as part of the GO/PBA Plan (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposures to Puerto Rico.

As of June 30, 2022, the Company consolidated nine custodial trusts established as part of the GO/PBA Plan (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposures to Puerto Rico.

With respect to certain insured securities covered by the GO/PBA Plan, insured bondholders were permitted to elect to receive custody receipts that represent an interest in the legacy insurance policy plus cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan.

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The assets within the Puerto Rico Trusts are classified as follows:

new recovery bonds and certain trust certificates as available-for-sale securities ($ 45 million fair value, $ 48 million amortized cost as of March 31, 2022), and CVIs as trading securities ($ 8 million fair value as of March 31, 2022, de minimis unrealized gains on trading securities for the First Quarter 2022).

new recovery bonds and certain trust certificates as available-for-sale securities ($ 34 million fair value, $ 37 million amortized cost as of June 30, 2022), and CVIs as trading securities ($ 7 million fair value as of June 30, 2022, $ 1 million fair value losses on trading securities for both second quarter 2022 and six months 2022).

The new recovery bonds, CVIs, and trust certificates have maturity dates ranging from 2023 to 2049.

For the measurement of liabilities of the Puerto Rico Trusts, the Company elected the fair value option in order to simplify the accounting for these instruments.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Investment income on the new recovery bonds and trust certificates, unrealized gains and losses on the CVIs and the change in fair value of the Puerto Rico Trusts’ liabilities, which are all with recourse, are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of operations.

For the measurement of liabilities of the Puerto Rico Trusts, the Company elected the FVO in order to simplify the accounting for these instruments.

Investment income on the new recovery bonds, unrealized gains and losses on the CVIs and the change in fair value of the Puerto Rico Trusts’ liabilities, which are all with recourse, are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of operations, except for the change in fair value attributable to change in ISCR on the Puerto Rico Trusts’ liabilities, which is reported in OCI.

Unrealized gains and losses on the new recovery bonds and trust certificates are reported in OCI.

During First Quarter 2022, the consolidation of the nine Puerto Rico Trusts resulted in a $ 4 million loss on consolidation, which was also reported in “fair value gains (losses) on FG VIEs.”

During six months 2022, the consolidation of the nine Puerto Rico Trusts resulted in a $ 4 million loss on consolidation, which was also reported in “fair value gains (losses) on FG VIEs.”

Components of FG VIE Assets and Liabilities

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The Company’s estimate of expected loss to be paid (recovered) for FG VIEs is included in Note 4, Expected Loss to be Paid (Recovered).

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Consolidated FG VIEs by Type of Collateral

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

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Total FG VIEs’ liabilities without recourse $ 15 $ 20

The change in the ISCR of the FG VIEs’ assets for which the Company elected the fair value option (FG VIE assets at FVO) held as of March 31, 2022 that was reported in the condensed consolidated statements of operations for First Quarter 2022 was a loss of $ 5 million.

The change in the ISCR of the FG VIEs’ assets at FVO held as of March 31, 2021 was a loss of $ 3 million for First Quarter 2021.

The change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIE assets at FVO) held as of June 30, 2022 that was reported in the condensed consolidated statements of operations for second quarter 2022 and six months 2022 was a gain of $ 1 million and a loss of $ 4 million, respectively.

The change in the ISCR of the FG VIEs’ assets at FVO held as of June 30, 2021 was a gain of $ 7 million and $ 4 million for second quarter 2021 and six months 2021, respectively.

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

The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse (all of which are measured at fair value under the fair value option) attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period.

The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse (all of which are measured at fair value under the FVO) attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period.

In general, if the insurance subsidiaries’ CDS spread tightens, more value will be assigned to insurance subsidiaries’ credit;

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Selected Information for FG VIEs’ Assets and Liabilities

Measured under the Fair Value Option

March 31, 2022 December 31, 2021

Measured under the FVO

June 30, 2022 December 31, 2021

(in millions)

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(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2022 through 2038.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

During second quarter 2022, the Company recorded an out-of-period adjustment totaling $ 7.6 million in pre-tax income and $ 6.0 million in net income attributable to AGL.

The out-of-period adjustment related to the correction of the fair value of FG VIE.

In six months 2022, the out-of-period adjustment was $ 6.6 million in pre-tax income and $ 5.2 million in net income attributable to AGL.

CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses in which the Company is the primary beneficiary.

The table below summarizes the number of consolidated CIVs by type as of March 31, 2022 and December 31, 2021.

The table below summarizes the number of consolidated CIVs by type as of June 30, 2022 and December 31, 2021.

As of both dates, the Company consolidated one CIV that meets the criteria for a voting interest entity, because the Company possesses substantially all of the economics and all of the decision-making of that CIV.

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Number of Consolidated CIVs by Type

CIV Type March 31, 2022 December 31, 2021

CIV Type June 30, 2022 December 31, 2021

CLO warehouses 2 3

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The table below summarizes the change in the number of consolidated CIVs during each of the periods.

During 2022, no consolidated CLO warehouses became CLOs.

During 2021, one consolidated CLO warehouse became a CLO.

During both six months 2022 and six months 2021, two consolidated CLO warehouses were securitized and became CLOs.

Roll Forward of Number of Consolidated CIVs

First Quarter

Beginning of year 20 11

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Deconsolidated (1) ( 1 ) ( 1 )

March 31, 20 12

June 30, 21 15

____________________

(1) During six months 2022 the Company deconsolidated a CLO with assets and liabilities of $ 417 million.

Assured Guaranty Ltd.

1 unchanged sentence

Assets and Liabilities of CIVs

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

8 unchanged sentences

CLO investments:

Loans in CLOs, fair value option 3,865 3,913

Loans in CLO warehouses, fair value option 834 331

Loans in CLOs, FVO 4,160 3,913

Loans in CLO warehouses, FVO 233 331

Short-term investments, at fair value 230 145

1 unchanged sentence

Total assets (1) $ 5,456 $ 5,271

CLO obligations, fair value option (4)

Warehouse financing debt, fair value option (5) 339 126

CLO obligations, FVO (2)

Warehouse financing debt, FVO (3) 157 126

Securities sold short, at fair value — 41

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____________________

(1) Includes investments in AssuredIM Funds and other affiliated entities of $ 200 million and $ 198 million as of March 31, 2022 and December 31, 2021, respectively.

(2) Includes investments in affiliated entities of $ 23 million and $ 25 million as of March 31, 2022 and December 31, 2021, respectively.

(3) Includes assets of a voting interest entity as of March 31, 2022 and December 31, 2021 of $ 17 million and $ 12 million, respectively.

(4) The weighted average maturity of CLO obligations was 6.7 years as of March 31, 2022 and 6.6 years as of December 31, 2021.

The weighted average interest rate of CLO obligations was 1.9 % as of March 31, 2022 and 1.8 % as of December 31, 2021.

(1) Includes investments in AssuredIM Funds and other affiliated entities of $ 358 million and $ 223 million as of June 30, 2022 and December 31, 2021, respectively.

Includes assets of a voting interest entity as of June 30, 2022 and December 31, 2021 of $ 60 million and $ 12 million, respectively.

(2) The weighted average maturity of CLO obligations was 6.7 years as of June 30, 2022 and 6.6 years as of December 31, 2021.

The weighted average interest rate of CLO obligations was 2.8 % as of June 30, 2022 and 1.8 % as of December 31, 2021.

CLO obligations have stated final maturity dates from 2034 to 2035.

(5) The weighted average maturity of warehouse financing debt of CLO warehouses was 0.6 years as of March 31, 2022 and 1.8 years as of December 31, 2021.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 1.3 % as of March 31, 2022 and 1.1 % as of December 31, 2021.

(3) The weighted average maturity of warehouse financing debt of CLO warehouses was 1.2 years as of June 30, 2022 and 1.8 years as of December 31, 2021.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 1.0 % as of June 30, 2022 and 1.1 % as of December 31, 2021.

Warehouse financing debt will mature at various dates from 2023 to 2024.

Noncontrolling Interests in CIVs

The Company has an investment structure, where it invests with other co-investors in a municipal bond feeder fund.

In this structure, the invested capital of one or more feeder funds purchases ownership interests in another fund, referred to as a master fund.

The master fund utilizes this invested capital and, in certain cases, other debt financing, to purchase various classes of assets on behalf of its investors.

The master fund’s investment objective is to generate attractive risk adjusted absolute returns by investing in municipal bonds, both investment grade and high-yield, taxable and tax-exempt as well as related investment and derivative products to hedge interest rate risk.

The Company consolidates the feeder fund, a VIE.

The feeder fund does not consolidate the master fund.

Rather, because the feeder fund is an investment company, specialized industry accounting for investment companies requires it to measure its investments (i.e., limited partnership interests) at fair value through net income.

The Company has elected to apply the net asset value practical expedient to fair value to measure the feeder’s proportionate share of the net assets of the master fund.

The consolidated feeder’s investment in this master fund, totaled $ 124 million as of June 30, 2022 and is included in the

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

table above in the caption “Equity securities and warrants”.

The master fund had gross assets of $ 155 million and gross liabilities of $ 31 million, as of June 30, 2022.

Noncontrolling Interest in CIVs

Noncontrolling interest in CIVs represents the proportion of the consolidated funds not owned by the Company, including third parties, employees, and former employees.

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The table below presents the rollforward of redeemable noncontrolling interest in CIVs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Redeemable Noncontrolling Interests in CIVs

First Quarter

Redeemable Noncontrolling Interest in CIVs

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

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Net income (loss) attributable to the redeemable noncontrolling interest — — ( 1 ) —

March 31, $ 21 $ 21

As of March 31, 2022 the CIVs had commitments to invest $ 345 million.

As of March 31, 2022 and December 31, 2021, the CIVs included derivative contracts with notional amounts totaling $ 68 million and $ 49 million, respectively, and average notional amounts of $ 59 million and $ 34 million, respectively.

Contributions 21 — 21 —

Distributions ( 21 ) — ( 21 ) —

June 30, $ 21 $ 21 $ 21 $ 21

As of June 30, 2022, the CIVs had $ 481 million commitments to invest.

As of June 30, 2022 and December 31, 2021, the CIVs included derivative contracts with notional amounts totaling $ 53 million and $ 49 million, respectively, and average notional amounts of $ 51 million and $ 34 million, respectively.

The fair value of derivative contracts is reported in the “assets of CIVs” or “liabilities of CIVs” in the condensed consolidated balance sheets.

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

The net change in fair value of derivative contracts were gains of $ 4 million and $ 2 million in First Quarter 2022 and First Quarter 2021, respectively.

The net change in fair value of derivative contracts were gains of $ 4 million for second quarter 2022, $ 8 million for six months 2022, and $ 1 million for six months 2021 and losses of $ 1 million for second quarter 2021.

Certain of the CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity during the CLO warehouse stage.

2 unchanged sentences

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

As of March 31, 2022, these credit facilities had varying maturities ranging from April 28, 2022 to September 15, 2023 with the aggregate principal amount not exceeding $ 1.0 billion.

As of June 30, 2022, these credit facilities had varying maturities ranging from September 15, 2023 to May 13, 2024 with the aggregate principal amount not exceeding $ 777 million.

The available commitment was based on the amount of equity contributed to the warehouse which was $ 228 million.

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.

As of June 30, 2022, $ 145 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 100 basis points (bps) to 3-month SOFR plus 130 bps (with a floor on the Euribor rates of zero ).

The CLO warehouses were in compliance with all financial covenants as of June 30, 2022.

As of June 30, 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 $ 110 million jointly and $ 71 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.

As of June 30, 2022, $ 18 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 June 30, 2022.

During second quarter 2022, the Company recorded an out-of-period adjustment totaling $ 4.4 million in pre-tax income and $ 3.4 million in net income attributable to AGL.

The out-of-period adjustments related an incorrect elimination of the foreign exchange remeasurement on the portion of consolidated CLOs that are owned by other Assured Guaranty entities.

In six months 2022, the out-of-period adjustment was $ 2.1 million in pre-tax income and $ 1.7 million in net income attributable to AGL.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Other Consolidated VIEs

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

The largest of these VIEs had assets of $ 92 million and liabilities of $ 12 million as of March 31, 2022, and assets of $ 96 million and liabilities of $ 11 million as of December 31, 2021, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

The largest of these VIEs had assets of $ 89 million and liabilities of $ 12 million as of June 30, 2022, and assets of $ 96 million and liabilities of $ 11 million as of December 31, 2021, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

Non-Consolidated VIEs

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

Of the approximately 16 thousand policies monitored as of March 31, 2022, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

Of the approximately 16 thousand policies monitored as of June 30, 2022, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

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

With respect to structured finance and other FG VIEs, as of March 31, 2022 and December 31, 2021, the Company identified 63 and 69 policies, respectively, that contain provisions and experienced events that may trigger consolidation.

Based on management’s

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

assessment of these potential triggers or events, the Company consolidated 26 and 25 structured finance and other FG VIEs as of March 31, 2022 and December 31, 2021, respectively.

In addition, as of March 31, 2022 the Company consolidated nine Puerto Rico Trusts.

With respect to structured finance and other FG VIEs, as of June 30, 2022 and December 31, 2021, the Company identified 61 and 69 policies, respectively, that contain provisions and experienced events that may trigger consolidation.

Based on management’s assessment of these potential triggers or events, the Company consolidated 25 structured finance and other FG VIEs as of both June 30, 2022 and December 31, 2021.

In addition, as of June 30, 2022 the Company consolidated nine Puerto Rico Trusts.

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

1 unchanged sentence

As such, the Company does not consolidate these entities.

The Company’s equity interests in these entities are reported in “other invested assets” on the condensed consolidated balance sheets.

The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $ 1 million as of both March 31, 2022 and December 31, 2021) as well as foregone future management and performance fees.

The Company’s equity interests, excluding the feeder fund’s investment in the master fund, in these entities are reported in “other invested assets” on the condensed consolidated balance sheets.

The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $ 1 million as of both June 30, 2022 and December 31, 2021) as well as foregone future management and performance fees.

See Note 10, Asset Management Fees, for earnings and receivables from managing funds and CLOs.

10 unchanged sentences

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

During First Quarter 2022, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

During six months 2022, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

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

The use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a materially different estimate of fair value at the reporting date.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The categorization within the fair value hierarchy is determined based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

There was a transfer of a fixed-maturity security in the investment portfolio and securities in the FG VIE asset portfolio from Level 3 to Level 2 during second quarter 2022.

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

Carried at Fair Value

8 unchanged sentences

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

As of March 31, 2022, the Company used models to price 190 securities, including securities that were purchased or obtained for loss mitigation, with a Level 3 fair value of $ 1.1 billion.

As of June 30, 2022, the Company used models to price 184 securities, including securities that were purchased or obtained for loss mitigation, with a Level 3 fair value of $ 1.0 billion.

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

10 unchanged sentences

Securities such as discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Other Invested Assets

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(i) equity securities traded in active markets that are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices;

and (ii) equity method investments for which the Company elected the fair value option using NAV, as a practical expedient, which are excluded from the fair value hierarchy.

and (ii) equity method investments for which the Company elected the FVO using NAV, as a practical expedient, which are excluded from the fair value hierarchy.

Committed Capital Securities

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

The fair value of CCS, which is reported in other assets on the condensed consolidated balance sheets, represents the difference between the present value of remaining expected put option premium payments under AGC’s CCS and AGM’s Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value that the Company would hypothetically have to pay currently for a comparable security.

The fair value of CCS, which is reported in other assets on the condensed consolidated balance sheets, represents the difference between the present value of remaining expected put option premium payments under AGC CCS and AGM’s Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value that the Company would hypothetically have to pay currently for a comparable security.

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

The estimated current cost of the Company’s CCS is based on several factors, including AGM and AGC CDS spreads, LIBOR

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

curve projections, the Company's publicly traded debt and the term the securities are estimated to remain outstanding.

The estimated current cost of the Company’s CCS is based on several factors, including AGM and AGC CDS spreads, LIBOR curve projections, the Company's publicly traded debt and the term the securities are estimated to remain outstanding.

The AGC CCS and AGM CPS are classified as Level 3 in the fair value hierarchy.

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These contracts are classified as Level 3 in the fair value hierarchy as there are multiple unobservable inputs deemed significant to the valuation model, most importantly the Company’s estimate of the value of the non-standard terms and conditions of its credit derivative contracts and how the Company’s own credit spread affects the pricing of its transactions.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The fair value of the Company’s credit derivative contracts represents the difference between the present value of remaining premiums the Company expects to receive and the estimated present value of premiums that a financial guarantor of comparable credit-worthiness would hypothetically charge at the reporting date for the same protection.

2 unchanged sentences

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

Consistent with previous years, market conditions at March 31, 2022 were such that market prices of the Company’s CDS contracts were not available.

Consistent with previous years, market conditions at June 30, 2022 were such that market prices of the Company’s CDS contracts were not available.

Assumptions and Inputs

1 unchanged sentence

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

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

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

1 unchanged sentence

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

It is assumed that a bank would be willing to accept a lower profit on distressed transactions in order to remove these transactions from its financial statements.

Market sources determine credit spreads by reviewing new issuance pricing for specific asset classes and receiving price quotes from trading desks for the specific asset in question.

The Company validates these quotes by cross-referencing quotes received from one market source against quotes received from another market source to ensure reasonableness.

In addition, the Company compares the relative change in price quotes received from one quarter to another with the relative change experienced by published market indices for a specific asset class.

Collateral specific spreads obtained from third-party, independent market sources are unpublished spread quotes from market participants or market traders who are not trustees.

The Company obtains this information as the result of direct communication with these sources as part of the valuation process.

The following spread hierarchy is utilized in determining which source of gross spread to use.

The primary sources of information used to determine gross spread include:

• Actual collateral specific credit spreads (if up-to-date and reliable market-based spreads are available).

2 unchanged sentences

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

The rates used to discount future expected premium cash flows ranged from 0.45 % to 2.93 % at March 31, 2022 and 0.11 % to 1.78 % at December 31, 2021.

The rates used to discount future expected premium cash flows ranged from 2.17 % to 3.56 % at June 30, 2022 and 0.11 % to 1.78 % at December 31, 2021.

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

6 unchanged sentences

This assumption can have the effect of mitigating the amount of unrealized gains that are recognized on certain CDS contracts.

As of March 31, 2022 and December 31, 2021, the use of the minimum premium did not have a significant effect on fair value.

As of June 30, 2022 and December 31, 2021, the use of the minimum premium did not have a significant effect on fair value.

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

4 unchanged sentences

When AGC’s credit spreads widen, the hedging cost of a bank or originator increases.

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

Higher hedging costs reduce the amount of

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

2 unchanged sentences

A credit derivative liability on protection sold is the result of contractual cash inflows on in-force transactions that are lower than what a hypothetical financial guarantor could receive if it sold protection on the same risk as of the reporting date.

If the Company were able to freely exchange these contracts (i.e., assuming its contracts did not contain proscriptions on transfer

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

and there was a viable exchange market), it would realize a loss representing the difference between the lower contractual premiums to which it is entitled and the current market premiums for a similar contract.

If the Company were able to freely exchange these contracts (i.e., assuming its contracts did not contain proscriptions on transfer and there was a viable exchange market), it would realize a loss representing the difference between the lower contractual premiums to which it is entitled and the current market premiums for a similar contract.

The Company determines the fair value of its CDS contracts by applying the difference between the current net spread and the contractual net spread for the remaining duration of each contract to the notional value of such contract and discounting such amounts using the LIBOR corresponding to the weighted average remaining life of the contract.

12 unchanged sentences

FG VIEs’ Assets and Liabilities

The Company elected the fair value option for the structured finance and other FG VIEs’ assets and liabilities and classifies them as Level 3 in the fair value hierarchy.

The Company elected the FVO for the structured finance and other FG VIEs’ assets and liabilities and classifies them as Level 3 in the fair value hierarchy.

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

For the assets in the Puerto Rico Trusts, new recovery bonds are classified as available-for-sale as Level 2 on the fair value hierarchy, CVIs are classified as trading securities as Level 2 on the fair value hierarchy, and trust certificates are classified as available-for-sale as Level 3 on the fair value hierarchy.

The liabilities of the Puerto Rico Trusts are measured under the fair value option as Level 3 on the fair value hierarchy.

For the assets in the Puerto Rico Trusts, new recovery bonds and trust certificates are classified as Level 2 available-for-sale securities, and CVIs are classified as Level 2 trading securities.

The liabilities of the Puerto Rico Trusts are measured under the FVO as Level 3 on the fair value hierarchy.

See “ - Fixed Maturity Securities” above for a description of the fair value methodology for the recovery bonds and CVIs in the Puerto Rico Trusts, which represent the majority of the assets in the Puerto Rico Trusts.

5 unchanged sentences

Significant changes to some of these inputs could have materially changed the market value of the FG VIEs’ assets and the implied collateral losses within the transaction.

In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically could lead to a decrease in the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets.

In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically could lead to a decrease in

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets.

The third party utilizes an internal model to determine an appropriate yield at which to discount the cash flows of the security, by factoring in collateral types, weighted-average lives, and other structural attributes specific to the security being priced.

2 unchanged sentences

For those liabilities insured by the Company, the benefit of the Company’s insurance policy guaranteeing the timely payment of debt service is also taken into account.

The liabilities of

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the Puerto Rico Trusts are priced based on the value of the assets in the Puerto Rico Trusts including the value of the insurance subsidiaries financial guaranty policies.

The liabilities of the Puerto Rico Trusts are priced based on the value of the assets in the Puerto Rico Trusts including the value of the insurance subsidiaries financial guaranty policies.

Significant changes to any of the inputs described above could materially change the timing of expected losses within the insured transaction which is a significant factor in determining the implied benefit of the Company’s insurance policy guaranteeing the timely payment of principal and interest for the insured tranches of debt issued by the FG VIEs.

In general, extending the timing of expected loss payments by the Company into the future typically could lead to a decrease in the value of the Company’s insurance and a decrease in the fair value of the Company’s FG VIEs’ liabilities with recourse, while a shortening of the timing of expected loss payments by the Company typically could lead to an increase in the value of the Company’s insurance and an increase in the fair value of the Company’s FG VIEs’ liabilities with recourse.

The net change in the fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on financial guaranty variable interest entities” in the condensed consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in other comprehensive income (OCI), and the change in fair value of available-for-sale securities, which is reported as a component of the change in unrealized gains (losses) on investments in OCI.

The net change in the fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on financial guaranty variable interest entities” in the condensed consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in OCI, and the change in fair value of available-for-sale securities, which is reported as a component of the change in unrealized gains (losses) on investments in OCI.

Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on financial guaranty variable interest entities”.

1 unchanged sentence

Assets and Liabilities of CIVs

The consolidated CLOs are collateralized financing entities (CFEs), and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured under the fair value option using the CFE practical expedient.

The consolidated CLOs are collateralized financing entities (CFEs), and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured under the FVO using the CFE practical expedient.

Loans in CLOs are priced using a loan pricing service which aggregates quotes from loan market participants.

6 unchanged sentences

Prior to securitization, when loans are warehoused in an investment vehicle, such vehicle is not considered a CFE.

The Company has elected the fair value option to measure the loans held and the debt issued by CLO warehouses to mitigate the accounting mismatch between such assets and liabilities when a CLO warehouse securitizes and becomes a CLO.

The Company has elected the FVO to measure the loans held and the debt issued by CLO warehouses to mitigate the accounting mismatch between such assets and liabilities when a CLO warehouse securitizes and becomes a CLO.

Investments held by CIVs which are listed or quoted on a national securities exchange or market are valued at their last reported sale price on the date of determination.

7 unchanged sentences

(vi) and/or evaluating information provided by management of these investments.

These fair values are generally based on dealer quotes, indications of value or pricing models that consider the time value of money, the current market, contractual prices and potential volatilities of the underlying financial instruments.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Inputs are used in applying the various valuation techniques and broadly refer to the current assumptions that market participants use to make valuation decisions, including assumptions about risk.

3 unchanged sentences

Level 3 assets in the CIVs include the remainder of the invested assets of consolidated funds.

Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the fair value option), securities sold short and derivative liabilities.

Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the FVO), securities sold short and derivative liabilities.

Level 3 liabilities of the CIVs include various tranches of CLO debt, first loss subordinated warehouse financing and securitized borrowing.

Significant changes to any of the inputs described above could have a material effect on the fair value of the consolidated assets and liabilities.

Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of March 31, 2022

As of June 30, 2022

Fair Value Hierarchy

18 unchanged sentences

Equity securities and warrants — 7 258 265

Obligations of state and political subdivisions — 126 — 126

Corporate securities — — 90 90

11 unchanged sentences

Warehouse financing debt — 138 19 157

Securities sold short — 36 — 36

Securitized borrowing — — 21 21

46 unchanged sentences

(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.

Excludes $ 17 million and $ 19 million of equity method investments measured at fair value under the fair value option using the NAV as a practical expedient as of March 31, 2022 and December 31, 2021, respectively.

(2) Excludes $ 6 million as of both March 31, 2022 and December 31, 2021 in investments in AssuredIM Funds for which the Company records a 100% noncontrolling interest.

Excludes $ 16 million and $ 19 million of equity method investments measured at fair value under the FVO using the NAV as a practical expedient as of June 30, 2022 and December 31, 2021, respectively.

(2) Excludes $ 5 million and $ 6 million as of June 30, 2022 and December 31, 2021, respectively, in investments in AssuredIM Funds for which the Company records a 100% noncontrolling interest.

The consolidation of these funds results in a gross up of assets and noncontrolling interest on the consolidated financial statements;

however, it results in no economic equity or net income attributable to AGL.

however, it results in no economic equity or net income attributable

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of June 30, 2022, excludes a $ 124 million investment in the AssuredIM municipal relative value master fund, which is measured using NAV as a practical expedient.

(3) Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse.

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

Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during second quarter 2022, second quarter 2021, six months 2022, and six months 2021.

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Second Quarter 2022

Fixed-Maturity Securities, Available-for-Sale Assets of CIVs

Subdivisions RMBS Asset-

Securities FG VIEs’

Assets Equity Securities and Warrants Corporate Securities Structured Products Other

(in millions)

Fair value as of March 31, 2022 $ 70 $ 200 $ 842 $ 267 $ 243 $ 83 $ — $ 28

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) ( 1 ) (1) 6 (1) ( 3 ) (1) 1 (2) 16 (4) 7 (4) ( 3 ) (4) 10 (3)

Other comprehensive income (loss) ( 3 ) ( 11 ) ( 30 ) — — — — ( 1 )

Purchases — — 10 — 5 — 42 —

Sales — — ( 9 ) — ( 6 ) — ( 21 ) —

Settlements ( 14 ) ( 11 ) ( 5 ) ( 26 ) — — — —

Deconsolidations — — — ( 15 ) — — 20 —

Transfers out of Level 3 ( 1 ) — — ( 4 ) — — — —

Fair value as of June 30, 2022 $ 51 $ 184 $ 805 $ 223 $ 258 $ 90 $ 38 $ 37

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2022 included in:

Earnings $ 2 (2) $ 10 (4) $ 7 (4) $ ( 3 ) (4) $ 10 (3)

OCI $ ( 4 ) $ ( 10 ) $ ( 29 ) $ ( 1 )

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

Second Quarter 2022

Credit Derivative

Asset (Liability),

net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

(in millions)

Fair value as of March 31, 2022 $ ( 156 ) $ ( 335 ) $ ( 3,650 )

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) 9 (6) 11 (2) 250 (4)

Other comprehensive income (loss) — 3 37

Issuances — — ( 1,027 )

Settlements — 24 29

Deconsolidations — 15 374

Fair value as of June 30, 2022 $ ( 147 ) $ ( 282 ) $ ( 3,987 )

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2022 included in:

Earnings $ 8 (6) $ 11 (2) $ 262 (4)

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during First Quarter 2022 and First Quarter 2021.

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

First Quarter 2022

Second Quarter 2021

Fixed-Maturity Securities, Available-for-Sale

Subdivisions Corporate Securities RMBS Asset-

Securities FG VIEs’

Assets Assets of CIVs- Equity Securities Other

(in millions)

Fair value as of March 31, 2021 $ 103 $ 28 $ 246 $ 941 $ 281 $ 1 $ 37

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) 2 (1) — 5 (1) 5 (1) 19 (2) 2 (4) ( 6 ) (3)

Other comprehensive income (loss) 6 20 9 1 — — —

Purchases — — — 117 — 14 —

Sales — ( 48 ) — ( 38 ) — ( 16 ) —

Settlements ( 1 ) — ( 12 ) ( 51 ) ( 13 ) — —

Fair value as of June 30, 2021 $ 110 $ — $ 248 $ 975 $ 287 $ 1 $ 31

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021included in:

Earnings $ 19 (2) $ — $ ( 6 ) (3)

OCI $ 6 $ — $ 9 $ 3

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Second Quarter 2021

Credit Derivative

Asset (Liability),

net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

(in millions)

Fair value as of March 31, 2021 $ ( 120 ) $ ( 318 ) $ ( 1,973 )

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) ( 33 ) (6) ( 10 ) (2) ( 8 ) (4)

Other comprehensive income (loss) — ( 2 ) —

Issuances — — ( 406 )

Settlements ( 1 ) 10 2

Fair value as of June 30, 2021 $ ( 154 ) $ ( 320 ) $ ( 2,385 )

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:

Earnings $ ( 35 ) (6) $ ( 11 ) (2) $ ( 2 ) (4)

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Six Months 2022

Fixed-Maturity Securities, Available-for-Sale Assets of CIVs

1 unchanged sentence

Securities FG VIEs’

Assets Equity Securities and Warrants Corporate Securities Other

Assets Equity Securities and Warrants Corporate Securities Structured Products Other

(in millions)

7 unchanged sentences

Consolidations — — — 15 — — — —

Fair value as of March 31, 2022 $ 70 $ 200 $ 842 $ 267 $ 243 $ 83 $ 28

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:

Deconsolidations — — — ( 15 ) — — 20 —

Fair value as of June 30, 2022 $ 51 $ 184 $ 805 $ 223 $ 258 $ 90 $ 38 $ 37

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2022 included in:

Earnings $ ( 2 ) (2) $ 18 (4) $ 5 (4) $ ( 3 ) (4) $ 11 (3)

1 unchanged sentence

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

First Quarter 2022

Six Months 2022

Credit Derivative

9 unchanged sentences

Consolidations — ( 102 ) —

Fair value as of March 31, 2022 $ ( 156 ) $ ( 335 ) $ ( 3,650 )

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:

Deconsolidations — 15 374

Fair value as of June 30, 2022 $ ( 147 ) $ ( 282 ) $ ( 3,987 )

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2022 included in:

Earnings $ 5 (6) $ 49 (2) $ 303 (4)

2 unchanged sentences

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

First Quarter 2021

Six Months 2021

Fixed-Maturity Securities, Available-for-Sale

11 unchanged sentences

Settlements ( 2 ) — ( 23 ) ( 113 ) ( 27 ) — —

Fair value as of March 31, 2021 $ 103 $ 28 $ 246 $ 941 $ 281 $ 1 $ 37

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2021 included in:

Fair value as of June 30, 2021 $ 110 $ — $ 248 $ 975 $ 287 $ 1 $ 31

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:

Earnings $ 18 (2) $ 3 (4) $ ( 25 ) (3)

1 unchanged sentence

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

First Quarter 2021

Six Months 2021

Credit Derivative

9 unchanged sentences

Settlements ( 2 ) 23 2

Fair value as of March 31, 2021

Fair value as of June 30, 2021

$ ( 154 ) $ ( 320 ) $ ( 2,385 )

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2021 included in:

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:

Earnings $ ( 55 ) (6) $ ( 6 ) (2) $ 4 (4)

13 unchanged sentences

Quantitative Information About Level 3 Fair Value Inputs

As of March 31, 2022

As of June 30, 2022

Financial Instrument Description Fair Value

18 unchanged sentences

Market multiple-enterprise value/revenue 1.00 x

Market multiple-enterprise value/EBITDA (6) 3.00x - 10.50x 9.21x

Market multiple-enterprise value/EBITDA (6) 3.00 x

Market multiple-price to book 1.30 x

Exit multiple-EBITDA 8.00x - 12.00x 10.43x

Exit multiple-price to book 1.30x

Exit multiple 11.00x

Exit cap rate 12.0 %

Market multiple-price to earnings 6.00 x

Terminal growth rate 4.0 %

1 unchanged sentence

Market multiple-enterprise value/EBITDA 3.00 x

Exit multiple-EBITDA 8.00x

Structured products 38 Yield 11.0 % - 27.4 % 16.1 %

Other assets (1) 34 Implied Yield 4.7 % - 5.4 % 5.0 %

8 unchanged sentences

Bank profit (in bps) 53.7 - 292.6 102.9

Internal floor (in bps) 8.8

Internal credit rating AAA - CCC AA

7 unchanged sentences

Securitized borrowing ( 21 ) Discount rate 24.3 %

Market multiple-enterprise value/EBITDA 10.00 x

___________________

29 unchanged sentences

Market multiple-enterprise value/revenue 1.10 x

Market multiple-enterprise value/EBITDA 3.00x - 10.50x 8.95x

Market multiple-enterprise value/EBITDA 3.00 x

Market multiple-price to book 1.85 x

43 unchanged sentences

Other Liabilities

Other liabilities in the table below include $ 36 million and $ 37 million as of March 31, 2022 and December 31, 2021, respectively, for AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5 % of the senior and equity notes issued by certain BlueMountain European CLOs, which was required to comply with its European risk retention obligations.

Other liabilities in the table below include $ 34 million and $ 37 million as of June 30, 2022 and December 31, 2021, respectively, for AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5 % of the senior and equity notes issued by certain BlueMountain European CLOs, which was required to comply with its European risk retention obligations.

The maturity dates are in 2034 and 2035.

AssuredIM’s obligation under the master repurchase agreement is not guaranteed by any Assured Guaranty insurance or holding companies.

The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.

Fair Value of Financial Instruments Not Carried at Fair Value

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

As of June 30, 2022 As of December 31, 2021

Amount Estimated

12 unchanged sentences

Carrying value approximates fair value.

(2) Includes accrued interest, receivable for an unsettled sale of a portion of the Puerto Rico salvage and subrogation recoverable, management fees receivables and receivables for securities sold for which carrying value approximates fair value.

(2) Primarily includes accrued interest, receivable for an unsettled sale of a portion of the Puerto Rico salvage and subrogation recoverable, management fees receivables and receivables for securities sold for which carrying value approximates fair value.

(3) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.

3 unchanged sentences

Asset Management Fees

The following table presents the sources of asset management fees and performance fees on a consolidated basis.

The following table presents the sources of asset management fees on a consolidated basis.

Asset Management Fees

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

Management fees:

$ 8 $ 11 $ 17 $ 22

Opportunity funds and liquid strategies 8 4 12 8

6 unchanged sentences

(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs.

Gross management fees from CLOs, before rebates, we re $ 9 million and $ 14 million for First Quarter 2022 and First Quarter 2021, respectively.

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $ 7 million as of March 31, 2022 and $ 8 million as of December 31, 2021.

Performance fees in First Quarter 2022 were attributable to the healthcare and asset-based funds.

Gross management fees from CLOs, before rebates, were $ 8 million, $ 11 million, $ 17 million and $ 25 million for second quarter 2022, second quarter 2021, six months 2022 and six months 2021, respectively.

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $ 11 million as of June 30, 2022 and $ 8 million as of December 31, 2021.

Performance fees in six months 2022 were attributable to the healthcare and asset-based funds.

Long-Term Debt and Credit Facilities

On May 26, 2021, AGUS issued $ 500 million of 3.15 % Senior Notes due 2031 ( 3.15 % Senior Notes) for net proceeds of $ 494 million.

The net proceeds from the issuance were used for the redemption on July 9, 2021, of all of AGMH’s debt maturing in 2101 and a portion of AGMH debt maturing in 2102, with the balance being used for general corporate purposes, including share repurchases.

See the condensed consolidated statements of cash flows.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Credit Facilities

On February 3, 2022, the Company entered into a secured short-term loan facility with a major financial institution to partially fund gross payments in connection with the resolution of a portion of its Puerto Rico exposures.

3 unchanged sentences

The Company did not borrow any amounts under the six months portion of the facility.

The one month component bore interest at 1.10 % per annum and the six months component would have borne a floating interest rate equal to the forward-looking term Secured Overnight Financing Rate for a tenor of one month provided by CME Group Benchmark Administration Limited, plus 1.10 % per annum.

The one month component bore interest at 1.10 % per annum.

The ability of the Company to borrow under the facility has expired.

17 unchanged sentences

Deferred and Current Tax Assets (Liabilities) (1)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions)

4 unchanged sentences

Valuation Allowance

As of March 31, 2022, and December 31, 2021, the Company had $ 24 million of foreign tax credit (FTC) due to the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years.

As of June 30, 2022, and December 31, 2021, the Company had $ 24 million of foreign tax credit (FTC) due to the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years.

FTCs will expire in 2027.

20 unchanged sentences

Effective Tax Rate Reconciliation

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

1 unchanged sentence

Tax-exempt interest ( 4 ) ( 4 ) ( 7 ) ( 8 )

Noncontrolling interest ( 5 ) ( 1 ) ( 6 ) ( 2 )

State taxes 4 4 8 7

1 unchanged sentence

Stock based compensation 2 — 4 —

Other ( 1 ) 1 — 2

Total provision (benefit) for income taxes $ 3 $ 23 $ 21 $ 23

4 unchanged sentences

Pre-tax Income (Loss) by Tax Jurisdiction

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

$ 25 $ 106 $ 109 $ 102

Bermuda ( 10 ) 16 17 36

( 31 ) 3 ( 45 ) 4

Other ( 6 ) — ( 10 ) ( 2 )

Total $ ( 22 ) $ 125 $ 71 $ 140

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Revenue by Tax Jurisdiction

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions)

$ 106 $ 150 $ 375 $ 284

Bermuda 6 28 39 58

( 18 ) 17 ( 18 ) 30

Other ( 4 ) 1 ( 6 ) 1

Total $ 90 $ 196 $ 390 $ 373

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Pre-tax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.

As of March 31, 2022, AGUS and Assured Guaranty Overseas US Holdings Inc.

As of June 30, 2022, AGUS and Assured Guaranty Overseas US Holdings Inc.

had open tax years with the U.S.

Internal Revenue Service (IRS) for 2018 forward and AGUS is currently under audit for the 2018 and 2019 tax years.

The Company’s U.K.

subsidiaries are not currently under examination and have open tax years of 2020 forward.

In July 2022, Her Majesty’s Revenue & Customs commenced a business risk review of Assured Guaranty.

The Company’s French subsidiary is not currently under examination and has open tax years of 2019 forward.

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Following defaults by LBIE, AGFP properly terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly.

AGFP has calculated that LBIE owes AGFP approximately $ 4 million for the claims which were dismissed and approximately $ 21 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $ 1.4 billion.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $ 1.4 billion.

AGFP filed a motion to dismiss the claims for breach of the implied covenant of good faith in LBIE’s complaint, and on March 15, 2013, the court granted AGFP’s motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions.

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The court dismissed, in its entirety, LBIE’s remaining claim for breach of the implied covenant of good faith and fair dealing and also dismissed LBIE’s claim for breach of contract solely to the extent that it is based upon AGFP’s conduct in connection with the auction.

With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

whether AGFP calculated its loss reasonably and in good faith.

With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the lower court’s ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole remaining claim for breach of contract.

On January 17, 2019, the Appellate Division affirmed the Supreme Court’s decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

The trial was originally scheduled for March 9, 2020, but was postponed due to COVID-19.

On November 3, 2020, LBIE moved to reopen its Chapter 15 case in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) and remove this action to the United States District Court for the Southern District of New York for assignment to the Bankruptcy Court.

On March 22, 2021, the Bankruptcy Court denied the motion and remanded the action to the Supreme Court.

On March 29, 2021, the action was reassigned to Justice Melissa A.

A bench trial was held from October 18, 2021 through November 19, 2021;

a decision is pending subject to post-trial briefing and argument.

A bench trial was held before Justice Melissa A.

Crane of the New York Supreme Court from October 18 through November 19, 2021.

Post-trial briefing was completed on June 21, 2022, and a decision is anticipated in the second half of 2022.

Shareholders’ Equity

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Changes in Accumulated Other Comprehensive Income (Loss) by Component

First Quarter 2022

Second Quarter 2022

Net Unrealized Gains (Losses) on Investments with:

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(in millions)

Balance, December 31, 2021 $ 375 $ ( 24 ) $ ( 21 ) $ ( 36 ) $ 6 $ 300

Balance, March 31, 2022 $ 37 $ ( 63 ) $ ( 21 ) $ ( 37 ) $ 6 $ ( 78 )

Other comprehensive income (loss) before reclassifications ( 261 ) ( 48 ) 2 ( 8 ) — ( 315 )

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Other comprehensive income (loss) ( 242 ) ( 44 ) 2 ( 8 ) — ( 292 )

Balance, June 30, 2022 $ ( 205 ) $ ( 107 ) $ ( 19 ) $ ( 45 ) $ 6 $ ( 370 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Second Quarter 2021

Net Unrealized Gains (Losses) on Investments with:

FG VIEs’ Liabilities with Recourse Cumulative

Adjustment Cash Flow

Hedge Total AOCI

No Credit Impairment Credit Impairment

(in millions)

Balance, March 31, 2021 $ 458 $ ( 36 ) $ ( 21 ) $ ( 35 ) $ 7 $ 373

Other comprehensive income (loss) before reclassifications 54 24 ( 2 ) ( 1 ) — 75

Amounts reclassified from AOCI to:

Net realized investment gains (losses)

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Total before tax

4 — ( 1 ) — — 3

Tax (provision) benefit

( 1 ) — 1 — — —

Total amount reclassified from AOCI, net of tax 3 — — — — 3

Other comprehensive income (loss) 51 24 ( 2 ) ( 1 ) — 72

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2022

Net Unrealized Gains (Losses) on Investments with:

FG VIEs’ Liabilities with Recourse Cumulative

Adjustment Cash Flow

Hedge Total AOCI

No Credit Impairment Credit Impairment

(in millions)

Balance, December 31, 2021 $ 375 $ ( 24 ) $ ( 21 ) $ ( 36 ) $ 6 $ 300

Other comprehensive income (loss) before reclassifications ( 600 ) ( 91 ) 1 ( 9 ) — ( 699 )

Amounts reclassified from AOCI to:

Net realized investment gains (losses)

( 24 ) ( 10 ) — — — ( 34 )

Fair value gains (losses) on FG VIEs

— — ( 2 ) — — ( 2 )

Total before tax

( 24 ) ( 10 ) ( 2 ) — — ( 36 )

Tax (provision) benefit

Total amount reclassified from AOCI, net of tax ( 20 ) ( 8 ) ( 1 ) — — ( 29 )

Other comprehensive income (loss) ( 580 ) ( 83 ) 2 ( 9 ) — ( 670 )

Balance, June 30, 2022 $ ( 205 ) $ ( 107 ) $ ( 19 ) $ ( 45 ) $ 6 $ ( 370 )

Assured Guaranty Ltd.

1 unchanged sentence

Changes in Accumulated Other Comprehensive Income (Loss) by Component

First Quarter 2021

Six Months 2021

Net Unrealized Gains (Losses) on Investments with:

14 unchanged sentences

Tax (provision) benefit

( 1 ) 1 1 — — 1

Total amount reclassified from AOCI, net of tax 3 ( 2 ) ( 1 ) — — —

Other comprehensive income (loss) ( 68 ) 18 ( 3 ) — — ( 53 )

Balance, March 31, 2021 $ 458 $ ( 36 ) $ ( 21 ) $ ( 35 ) $ 7 $ 373

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Share Repurchases

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

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

On August 3, 2022, the Board of Directors (the Board) authorized the repurchase of an additional $ 250 million of its common shares.

Under this and previous authorizations, as of August 3, 2022, the Company was authorized to purchase $ 365 million of its common shares.

The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions.

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2022 (January 1 - March 31) (1) 2,738,223 155 56.62

2022 (April 1 - May 5) 1,007,045 61 59.86

2022 (April 1 - June 30) 2,605,947 151 58.03

2022 (July 1 - August 3) 623,528 35 55.89

Total 2022 5,967,698 $ 341 57.16

____________________

(1) Includes $ 3 million of share repurchases that was prepaid in December 2021 and settled in First Quarter 2022.

(1) Includes $ 3 million of share repurchases that was prepaid in December 2021 and settled in the first quarter of 2022.

Assured Guaranty Ltd.

2 unchanged sentences

Computation of Earnings Per Share

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

(in millions, except per share amounts)

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

What changed 10-Q

Item 1. Financial Statements