What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-04 · 556 added, 529 removed, 2314 unchanged (32% of the section changed)

3 unchanged sentences

(dollars in millions except share data)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $ 57 and $ 42 (amortized cost of $ 7,506 and $ 7,822 )

36 unchanged sentences

(dollars in millions except share data)

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

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

2022 2021 2022 2021

10 unchanged sentences

Other income (loss)

( 1 ) 9 12 15

Total revenues 41 212 431 585

1 unchanged sentence

Interest expense 20 23 60 67

Loss on extinguishment of debt — 175 — 175

Amortization of deferred acquisition costs 4 3 11 10

17 unchanged sentences

(in millions)

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

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

2022 2021 2022 2021

15 unchanged sentences

Assured Guaranty Ltd.

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

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(dollars in millions, except share data)

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

1 unchanged sentence

Par Value Retained Earnings Accumulated

Comprehensive Income Deferred

Comprehensive Income (Loss) Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

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

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

Net income (loss) — — 11 — — 11 ( 6 ) 5

6 unchanged sentences

Other comprehensive loss — — — ( 282 ) — ( 282 ) — ( 282 )

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

Balance at September 30, 2022 60,719,431 $ 1 $ 5,579 $ ( 652 ) $ 1 $ 4,929 $ 224 $ 5,153

For the Three Months Ended September 30, 2021

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

1 unchanged sentence

Par Value Retained Earnings Accumulated

Comprehensive Income Deferred

Comprehensive Income (Loss) 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

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

Net income — — 17 — — 17 3 20

5 unchanged sentences

Distributions — — — — — — ( 2 ) ( 2 )

Other comprehensive income — — — 72 — 72 — 72

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

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

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

Assured Guaranty Ltd.

1 unchanged sentence

(dollars in millions, except share data)

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

1 unchanged sentence

Par Value Retained Earnings Accumulated

Comprehensive Income Deferred

Comprehensive Income (Loss) Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

9 unchanged sentences

Other comprehensive loss — — ( 952 ) — ( 952 ) — ( 952 )

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

Balance at September 30, 2022 60,719,431 $ 1 $ 5,579 $ ( 652 ) $ 1 $ 4,929 $ 224 $ 5,153

For the Nine Months Ended September 30, 2021

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

1 unchanged sentence

Par Value Retained Earnings Accumulated

Comprehensive Income Deferred

Comprehensive Income (Loss) Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

9 unchanged sentences

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

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

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

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

2 unchanged sentences

(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash flows provided by (used in) operating activities $ ( 1,848 ) $ ( 1,792 )

19 unchanged sentences

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

Paydown of long-term debt — ( 1 )

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

Other ( 6 ) 7

16 unchanged sentences

(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information

9 unchanged sentences

Distributions to noncontrolling interests 53 1

June 30, 2022 June 30, 2021

September 30, 2022 September 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.

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.

As discussed in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, the nine month period ended September 30, 2022 include two out-of period adjustments, totaling $ 6.9 million 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).

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

79 unchanged sentences

Insurance Subsidiaries which guarantee the FG VIEs’ debt;

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

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

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

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

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

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

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

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

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

8 unchanged sentences

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

Intersegment revenues include transactions between and among the segments, the corporate division and other.

Segment Information

Second Quarter

Third Quarter

Insurance Asset Management Insurance Asset Management

20 unchanged sentences

Reconciliation of Segment Information to Consolidated Information

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Equity in Earnings (Losses) of Investees Less:

16 unchanged sentences

Reconciliation of Segment Information to Consolidated Information

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Equity in Earnings (Losses) of Investees Less:

18 unchanged sentences

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Equity in Earnings (Losses) of Investees Less:

16 unchanged sentences

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Equity in Earnings (Losses) of Investees Less:

19 unchanged sentences

The Company sells credit protection primarily in financial guaranty insurance form.

Until 2009, the Company also sold credit protection by issuing policies that guaranteed payment obligations under credit derivatives, primarily credit default swaps (CDS).

Until 2009, the Company also sold credit protection by issuing policies that guaranteed payment obligations under credit default swaps (CDS).

The Company’s contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts.

3 unchanged sentences

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

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

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

11 unchanged sentences

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

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

Surveillance Categories

5 unchanged sentences

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

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.

Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled.

every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled.

For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating.

14 unchanged sentences

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 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.

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

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

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

From shortly after the pandemic reached the U.S.

Due to the nature of the Company’s business, COVID-19 and its global impact, directly and indirectly affected certain sectors in the insured portfolio.

Shortly after the pandemic reached the U.S.

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

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

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

However, the Company is still monitoring those sectors it identified as most at risk for any developments related to COVID-19.

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

5 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

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.

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 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 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.

The Company excludes amounts

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

As of both September 30, 2022 and December 31, 2021, the Company excluded from net par outstanding $ 1.3 billion 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.

8 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 June 30, 2022 As of December 31, 2021

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

Gross Net Gross Net

7 unchanged sentences

Total financial guaranty $ 227,243 $ 227,071 $ 236,765 $ 236,392

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.

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $ 893 million of public finance direct gross par and $ 741 million of structured finance direct gross par as of September 30, 2022.

These commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

at the counterparty’s request.

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

Financial Guaranty Portfolio by Internal Rating

As of June 30, 2022

As of September 30, 2022

Public Finance

36 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 June 30, 2022

As of September 30, 2022

BIG Net Par Outstanding Net Par

10 unchanged sentences

Total $ 2,471 $ 198 $ 3,116 $ 5,785 $ 227,071

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

15 unchanged sentences

BIG Net Par Outstanding and Number of Risks

As of June 30, 2022

As of September 30, 2022

Net Par Outstanding Number of Risks (2)

9 unchanged sentences

Total BIG $ 5,727 $ 58 $ 5,785 244 11 255

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

15 unchanged sentences

(2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 $ 2,227 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.

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 $ 2.1 billion net par outstanding as of September 30, 2022, a decrease of $ 1.5 billion from the $ 3.6 billion 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 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).

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), and the Company believes its terms are 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).

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.

On October 12, 2022, the Federal District Court of Puerto Rico, acting under Title III of PROMESA, entered an order and judgment confirming the amended plan of adjustment for the Puerto Rico Highways and Transportation Authority (PRHTA) filed by the FOMB with the Federal District Court of Puerto Rico on September 6, 2022 (HTA Plan).

The HTA Plan restructures approximately $ 6.4 billion of debt (including the PRHTA bonds insured by the Company), and the Company believes its terms are consistent with the terms of the settlement embodied in the PRHTA PSA entered into on May 5, 2021, by AGM and AGC and certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA).

The FOMB will set the effective date of the HTA Plan (HTA Effective Date) and, as of November 7, 2022, the expected HTA Effective Date had not yet been announced.

The Company is continuing its efforts to resolve the one remaining Puerto Rico insured exposure that is in payment default, the Puerto Rico Electric Power Authority (PREPA).

Economic, political and legal developments, including inflation, increases in the cost of petroleum products and developments related to the COVID-19 pandemic, may impact any resolution of the Company’s PREPA insured exposure 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 the HTA PSA or HTA Plan or

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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).

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.

any future resolutions of the Company’s 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 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)

GO $ 36 $ 1 $ 37

Total GO and PBA $ 41 $ 1 $ 42

As of September 30, 2022, the Company had remaining $ 25 million of insured net par outstanding of GO bonds and $ 4 million of insured net par outstanding of PBA bonds.

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):

4 unchanged sentences

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 Company has sold most 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 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.

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Insured holders of noncallable insured bonds covered by the GO/PBA Plan (representing $ 102 million of net par outstanding as of December 31, 2021) were permitted to elect either:

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

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

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 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.

As of September 30, 2022, the net insured par outstanding under the legacy GO and PBA insurance policies was $ 29 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 June 30, 2022, the Company had no insured net par outstanding of PRCCDA or PRIFA obligations remaining.

As of September 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 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):

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 30, 2022, the Company had $ 1.2 billion of insured net par outstanding that is covered by the HTA PSA:

$ 771 million insured net par outstanding of PRHTA (transportation revenue) bonds and $ 418 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 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.

On September 6, 2022, the FOMB filed an amended HTA Plan with the Federal District Court of Puerto Rico, which the Company believes to be consistent with the HTA PSA, and on October 12, 2022, the court approved the amended HTA Plan.

The HTA Plan, similar to the GO/PBA Plan, provides an option for holders of noncallable bonds insured by the Company (representing $ 788 million of net par outstanding as of September 30, 2022) to elect to receive custody receipts that represent an interest in the legacy insurance policy plus Toll Bonds, and insured bondholders representing $ 451 million net par outstanding as of September 30, 2022 have elected this option.

The FOMB will set the effective date of the HTA Plan (HTA Effective Date) and, as of November 7, 2022, the expected HTA Effective Date had not yet been announced.

During third quarter 2022, the Company received, pursuant to the GO/PBA Plan and the terms of the HTA PSA, $ 147 million of cash and $ 672 million original notional of CVI.

The Company has sold a portion of those CVIs.

On the HTA Effective Date, the Company also expects to receive additional recoveries in the form of cash and Toll Bonds.

As of September 30, 2022, the Company had $ 720 million insured net par outstanding of PREPA obligations.

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

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

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

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

2 unchanged sentences

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

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.

Judge Swain has since extended the term of such mediation several times, most recently on September 8, 2022 extending the term to September 16, 2022.

After mediation terminated, Judge Swain issued an order on September 29, 2022 that (i) directs the FOMB to file a plan of adjustment and disclosure statement by December 1, 2022, (ii) sets a schedule for litigating bondholders’ lien status, and (iii) directs a new round of mediation that would terminate on December 31, 2022, but granting discretion to the mediation team to further extend the mediation deadline to January 31, 2023 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 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.

As of September 30, 2022, the Company had $ 131 million insured net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues.

As of September 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 September 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.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Puerto Rico Litigation

11 unchanged sentences

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.

2017, but on August 8, 2018, the United States Court of Appeals for 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.

1 unchanged sentence

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

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

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

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.

• On September 30, 2019, certain parties that either had advanced funds to PREPA for the purchase of fuel or had succeeded to such claims (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 Lenders’ claims.

On November 12, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint.

On May 22, 2020, the Federal District Court of Puerto Rico issued an order to that effect.

On September 29, 2022, the court entered an order terminating the motion to dismiss without prejudice, and indicating that the issues in the adversary proceeding will only be addressed, if necessary, after issues related to security and recourse of the PREPA bonds have been resolved or, if necessary, in connection with the confirmation of a plan of adjustment for PREPA.

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

On November 7, 2019, the court granted a motion to intervene by AGC and AGM.

On November 13, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint.

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

On May 22, 2020, the Federal District Court of Puerto Rico issued an order to that effect.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

• On July 1, 2019, the FOMB initiated an adversary proceeding against U.S.

Bank National Association, as trustee for PREPA’s bonds, objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing those bonds and seeking other relief.

On September 30, 2022, the FOMB filed an amended complaint against the trustee (i) objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing PREPA’s bonds and (ii) arguing that PREPA bondholders’ recourse was limited to certain deposit accounts held by the trustee.

On October 7, 2022, the court approved a stipulation permitting AGM and AGC to intervene as defendants.

Puerto Rico Par and Debt Service Schedules

3 unchanged sentences

Gross Par Outstanding Gross Debt Service Outstanding

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

September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

(in millions)

3 unchanged sentences

Net Par Outstanding

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

6 unchanged sentences

PRCCDA (2) — 152

Total HTA/CCDA PSA 1,256 1,408

Total HTA PSA 1,189 1,408

PRIFA (2) — 16

18 unchanged sentences

Net Par Outstanding and Net Debt Service Outstanding

As of June 30, 2022

As of September 30, 2022

Scheduled Net Par Amortization Scheduled Net Debt Service Amortization

(in millions)

2022 (October 1 - December 31) $ — $ 3

2023 (January 1 - March 31) — 49

2023 (April 1 - June 30) — 2

2023 (July 1 - September 30) 181 230

7 unchanged sentences

Virgin Islands

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.

As of September 30, 2022, the Company had $ 183 million insured net par outstanding to the U.S.

Virgin Islands and its related authorities (USVI), of which it rated $ 47 million BIG (down from $ 469 million BIG as of December 31, 2021).

In nine months 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 $ 47 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.

2 unchanged sentences

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 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.

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

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

Gross Exposure Net Exposure Gross Exposure Net Exposure

7 unchanged sentences

(1) The life insurance transactions’ net exposure is projected to reach $ 1.1 billion by June 30, 2024.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

1 unchanged sentence

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

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

The Company’s maximum potential exposure under the guarantee was $ 232 million as of September 30, 2022.

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

34 unchanged sentences

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

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

The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the period and their view of future performance.

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

1 unchanged sentence

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

23 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

1 unchanged sentence

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

As of Second Quarter Six Months

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

As of Third Quarter Nine Months

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

(in millions)

5 unchanged sentences

4 5 1 ( 2 ) 5 7

$ 727 $ 411 $ ( 72 ) $ ( 94 ) $ ( 148 ) $ ( 101 )

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:

1 unchanged sentence

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

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.

dollar denominated obligations that ranged from 2.98 % to 4.18 % with a weighted average of 3.97 % as of September 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 98.6 % and 97.2 % of the total as of June 30, 2022 and December 31, 2021, respectively.

dollar denominated transactions represented approximately 99.3 % and 97.2 % of the total as of September 30, 2022 and December 31, 2021, respectively.

Net Expected Loss to be Paid (Recovered)

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

8 unchanged sentences

Net expected loss to be paid (recovered), end of period $ 727 $ 199 $ 727 $ 199

____________________

(1) In third quarter 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 $ 672 million original notional of CVI.

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector

Second Quarter 2022

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

Third Quarter 2022

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

Development (Benefit) Net (Paid)

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

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

(in millions)

8 unchanged sentences

Total $ 442 $ ( 72 ) $ 357 $ 727

Second Quarter 2021

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Third Quarter 2021

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

Development (Benefit) Net (Paid)

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

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

(in millions)

8 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Six Months 2022

Nine 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 June 30, 2022

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

(in millions)

8 unchanged sentences

Total $ 411 $ ( 148 ) $ 464 $ 727

Six Months 2021

Nine 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

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

(in millions)

12 unchanged sentences

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

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.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The tables above include (a) LAE paid of $ 5 million, $ 5 million, $ 25 million and $ 15 million for third quarter 2022, third quarter 2021, nine months 2022 and nine months 2021, respectively, and (b) expected LAE to be paid of $ 11 million as of September 30, 2022 and $ 26 million as of December 31, 2021.

Ceded expected loss and LAE to be recovered (paid) was $( 2 ) million as of September 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 June 30, 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.

The primary components of expected loss to be paid (recovered) and/or economic loss development (benefit) as of September 30, 2022 and for the three and nine months ended 2022 are discussed below.

The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $ 2.1 billion net par outstanding as of September 30, 2022, all of which was BIG.

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) 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 July 8, 2022, the Company received from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA, additional cash and CVIs.

On the HTA Effective Date, the Company also expects to receive additional recoveries in the form of cash and Toll Bonds.

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

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

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

As of September 30, 2022, the Company’s net par outstanding subject to the plan consisted of $ 96 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 insures a large integrated healthcare system with net par of $ 820 million which was downgraded to BIG in third quarter 2022 due to its weak operating results and liquidity position.

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

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.

public finance exposures as of September 30, 2022, including those mentioned above, to be $ 626 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.

public finance transactions was $ 24 million during third quarter 2022 and was primarily attributable to healthcare and Puerto Rico exposures, partially offset by the effect of changes in discount rates.

The economic benefit for U.S.

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

public finance transactions was $ 16 million during nine months 2022, which was primarily attributable to changes in discount rates and higher projected revenues for certain exposures, partially offset by healthcare and Puerto Rico exposures.

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

Selected Non - U.S.

Public Finance Transactions

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

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 $ 2 million and $ 4 million during second quarter 2022 and six months 2022, respectively.

RMBS Loss Projections

4 unchanged sentences

The assumptions that the Company uses to project RMBS losses are shown in the sections below.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Economic Loss Development (Benefit)

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

(in millions)

First lien U.S.

12 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

First Lien U.S.

RMBS Liquidation Rates

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current but recently delinquent

21 unchanged sentences

Real Estate Owned

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

2 unchanged sentences

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

In the most heavily weighted scenario (the base case), after the initial 36 -month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to an intermediate CDR (calculated as 20 % of its CDR plateau);

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 1.00 year after the initial 36 -month CDR plateau period.

In the most heavily weighted scenario (the base scenario), after the 36 -month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to a final CDR of 5 % of the plateau CDR.

In the base scenario, the Company assumes the final CDR will be reached 1.00 year after the 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.

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

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

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

The Company assumes in the base scenario 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 scenario 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 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.

Key Assumptions in Base Case Expected Loss Estimates

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Key Assumptions in Base Scenario Expected Loss Estimates

First Lien U.S.

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

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

Range Weighted Average Range Weighted Average

20 unchanged sentences

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

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

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

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.

4 unchanged sentences

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.

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 plateau 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 September 30, 2022 and December 31, 2021.

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

RMBS was $ 110 million and $ 167 million as of September 30, 2022 and December 31, 2021, respectively.

The $ 38 million economic benefit in third quarter 2022 for first lien U.S.

RMBS transactions was primarily attributable to the purchase of a loss mitigation security (see Note 7, Investments), changes in discount rates, a benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, and improved transaction performance, partially offset by lower excess spread.

The $ 34 million economic benefit in nine months 2022 for first lien U.S.

RMBS transactions was primarily attributable to changes in discount rates, the purchase of

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 $ 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.

a loss mitigation security, lower assumed initial severity, improved performance in certain transactions and a benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, partially offset by lower excess spread.

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

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

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.

The Company believes that the reference to LIBOR in such floating rate RMBS debt will be replaced, by operation of law in accordance with federal legislation enacted in March 2022, with a rate based on the Secured Overnight Finance Rate (SOFR).

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

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 16 months, expected loss to be paid would increase from current projections by approximately $ 13 million for all first lien U.S.

RMBS transactions.

In the Company’s least stressful scenario where the CDR plateau was six months shorter ( 30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over nine months ), expected loss to be paid would decrease from current projections by approximately $ 11 million for all first lien U.S.

In the Company’s least stressful scenario where the CDR plateau was six months shorter ( 30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over eight months ), expected loss to be paid would decrease from current projections by approximately $ 8 million for all first lien U.S.

RMBS transactions.

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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 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.

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

The Company estimates the amount of loans that will default over the next several years by first calculating expected liquidation rates for delinquent loans, and applying liquidation rates to currently delinquent loans in order to arrive at an expected dollar amount of defaults from currently delinquent collateral (plateau period defaults).

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.

For the base case scenario, the CDR (the plateau CDR) was held constant for six months .

Once the plateau period has ended, the CDR is assumed to gradually trend down in uniform increments to its final long-term steady state CDR.

(The long-term steady state CDR is calculated as the constant CDR that would have yielded the amount of losses originally expected at underwriting.) In the base case scenario, the time over which the CDR trends down to its final CDR is 28 months.

Therefore, the total stress period for second lien transactions is 34 months, representing six months of delinquent loan liquidations, followed by 28 months of decrease to the steady state CDR, the same as of December 31, 2021.

HELOC loans generally permit the borrower to pay only interest for an initial period (often ten years ) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment.

RMBS transactions, the Company then calculates a CDR that will cause the targeted amount of liquidations to occur during the plateau period.

Prior to third quarter 2022, for the base scenario, the CDR (the plateau CDR) was held constant for six months .

Once the plateau period had ended, the CDR was assumed to gradually trend down in uniform increments to its final long-term steady state CDR.

(The long-term steady state CDR was calculated as the constant CDR that would have yielded the amount of losses originally expected at underwriting, subject to a floor.) In the base scenario, the time over which the CDR trended down to its final CDR was 28 months.

Therefore, the total stress period for second lien transactions was 34 months.

The Company has observed lower than expected default rates and longer liquidation timelines due to significant home price appreciation and special servicing activity which now favors modifications and foreclosure actions rather than charge-offs at 180 days delinquent.

In the third quarter 2022, the Company extended the time over which a portion of the delinquent loans default from six months to 36 months in the base scenario (conforming to the methodology used for first lien U.S.

RMBS transactions).

After the plateau period, as with first lien U.S.

RMBS transactions, the CDR trends down over one year to 5 % of the plateau CDR.

These changes in the shape of the CDR curve result in a longer period of stress defaults ( 48 months in the base scenario), but at lower default levels leading to lower overall levels of expected losses.

HELOC loans generally permitted the borrower to pay only interest for an initial period (often ten years ) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment.

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

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

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

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

A substantial number of loans in the Company’s insured transactions had been modified to extend the interest-only period to 15 years (mostly to 2022-2023), and there was uncertainty regarding the performance of these loans as they reset to full amortization.

Recently, the Company has observed the performance of the modified loans that have finally reset to full amortization (which represent the majority of extended loans), and noted low levels of delinquency, even with substantial increases in

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

monthly payments.

This observed performance lowers the level of uncertainty regarding this modified cohort as the remainder continue to reset.

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

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.

The Company assumed, as of September 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 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 and reasonable expectations of future recoveries.

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

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

The Company’s recovery assumption for charged-off loans is 30 %, as shown in the table below, based on observed trends and reasonable expectations of future recoveries.

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

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

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.

In the base scenario, 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 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.

RMBS transactions (in the base scenario), 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.

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

Key Assumptions in Base Case Expected Loss Estimates

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

Key Assumptions in Base Scenario Expected Loss Estimates

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

Range Weighted Average Range Weighted Average

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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.

RMBS was $ 58 million as of September 30, 2022 and $ 17 million as of December 31, 2021.

The economic benefit in third quarter 2022 was a benefit of $ 57 million, which was primarily driven by updates in the projected CDR curves, a benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, improved performance of certain transactions, and higher recoveries for secured charged-off loans.

The economic benefit in nine months 2022 was $ 93 million, and was primarily due to improved performance of certain transactions, updates in the projected CDR curves, higher recoveries for secured charged-off loans, a benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, and changes in discount rates, partially offset by lower excess spread.

The Company updated its assumptions related to the CDR plateau and ramp-down during the third quarter 2022.

The Company’s base scenario assumed a 36 -month CDR plateau and a 12 -month ramp-down (for a total stress period of 48 months), compared to a six-month CDR plateau and a 28 -month ramp-down (for a total stress period of 34 months) as of December 31, 2021.

The Company modeled scenarios with a longer period of elevated defaults and others with a shorter period of elevated defaults.

In the Company’s most stressful scenario, increasing the CDR plateau to 42 months and increasing the ramp-down by four months to 16 months (for a total stress period of 58 months) would decrease the expected recovery by approximately $ 1 million for HELOC transactions.

On the other hand, in the Company’s least stressful scenario, reducing the CDR plateau to 30 months and decreasing the length of the CDR ramp-down to eight months (for a total stress period of 38 months), and lowering the ultimate prepayment rate to 10 % would increase the expected recovery by approximately $ 2 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 June 30, 2022 was $ 46 million.

RMBS, as of September 30, 2022 was $ 43 million.

The largest component of these structured finance losses were student loan securitizations issued by private issuers with $ 49 million in BIG net par outstanding.

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

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

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

Recovery Litigation

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Net Earned Premiums

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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____________________

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

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

See Note 3, Outstanding Exposure for additional information.

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Foreign exchange gain (loss) on remeasurement ( 181 ) ( 22 )

Expected recovery of premiums previously written off — 4

Financial guaranty insurance premium receivable (1) 1,177 1,377

Specialty insurance premium receivable 1 1

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.

September 30, $ 1,178 $ 1,378

Approximately 76 % and 78 % of gross premiums receivable, net of commissions payable at September 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.

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Expected Future Premium Collections and Earnings

As of June 30, 2022

Future Premiums

As of September 30, 2022

Future Gross Premiums

to be Collected (1) Future Net Premiums

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(in millions)

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

2022 (October 1 - December 31) $ 27 $ 71

Subtotal 2022 75 143

2027-2031 328 927

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with Premiums Paid in Installments

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(dollars in millions)

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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.

dollar denominated financial guaranty insurance obligations that ranged from 2.98 % to 4.18 % with a weighted average of 3.97 % as of September 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.

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Net Reserve (Salvage) by Sector

Sector June 30, 2022 December 31, 2021

Sector September 30, 2022 December 31, 2021

(in millions)

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Components of Net Reserve (Salvage)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

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Financial Guaranty Insurance Contracts

As of June 30, 2022

As of September 30, 2022

(in millions)

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Contra-paid, net 18

Salvage and subrogation recoverable 501

Salvage and subrogation recoverable, net 384

Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance ( 875 )

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Financial Guaranty Insurance Contracts

As of June 30, 2022

As of September 30, 2022

(in millions)

2022 (July 1 - September 30) $ 4

2022 (October 1 - December 31) $ 3

Subtotal 2022 9

Net expected loss to be expensed 218

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Loss and LAE (Benefit) by Sector

Second Quarter Six Months

Third Quarter Nine Months

Sector 2022 2021 2022 2021

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Loss and LAE (Benefit) $ ( 75 ) $ ( 68 ) $ ( 29 ) $ ( 54 )

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 primary difference between net economic loss development and the amount reported as “loss and LAE” in the consolidated statements of operations are that loss and LAE (benefit):

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

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

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

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

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

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BIG Transaction Loss Summary

As of June 30, 2022

As of September 30, 2022

Gross Net Total BIG

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

Credit derivative transactions are governed by International Swaps and Derivatives Association, Inc.

Credit derivative transactions, including CDS, are governed by International Swaps and Derivatives Association, Inc.

documentation and have certain characteristics that differ from financial guaranty insurance contracts.

For example, the Company’s control rights with respect to a reference obligation under a credit derivative may be more limited than when the Company issues a financial guaranty insurance contract.

For example, the Company’s control rights with respect to a reference obligation under a CDS may be more limited than when the Company issues a financial guaranty insurance contract.

In addition, there are more circumstances under which the Company may be obligated to make payments.

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.

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.

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

Furthermore, in certain credit derivative transactions 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.

If events of default or termination events specified in the credit derivative documentation were to occur, the non-defaulting or the non-affected party, which may be either the Company or the counterparty, depending upon the circumstances, may decide to terminate a credit derivative prior to maturity.

In that case, the Company may be required to make a termination payment to its swap counterparty upon such termination.

Absent such an event of default or termination event, the Company may not unilaterally terminate a CDS contract;

Absent such an event of default or termination event, the Company may not unilaterally terminate a credit derivative contract;

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

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 13.3 years and 13.2 years as of June 30, 2022 and December 31, 2021, respectively.

The estimated remaining weighted average life of credit derivatives was 12.9 years and 13.2 years as of September 30, 2022 and December 31, 2021, respectively.

Credit Derivatives (1)

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

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

Sector Net Par

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____________________

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

(1) Expected loss to be paid was $ 4 million and $ 5 million as of September 30, 2022 and December 31, 2021, respectively.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

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

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

Rating Category Net Par

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Credit derivative net par outstanding $ 3,117 100.0 % $ 4,040 100.0 %

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value Gains (Losses) on Credit Derivatives

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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Fair value gains (losses) on credit derivatives $ ( 48 ) $ 21 $ ( 42 ) $ ( 31 )

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.

During third quarter 2022, unrealized losses were generated primarily as a result of the wider asset spreads and decreased cost to buy protection on AGC, as the market cost of AGC’s credit protection decreased during the period.

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

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

During nine months 2022, unrealized losses were generated primarily as a result of the wider asset spreads, partially offset by the increased cost to buy protection on AGC, changes in discount rates, decreases in exposures and payment of amounts related to certain structured finance exposures.

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

These losses were partially offset by the price improvement of the underlying collateral and the termination of certain CDS policies.

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.

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CDS Spread on AGC (in basis points)

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

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

Five-year CDS spread 70 49 61 132

One-year CDS spread 28 16 20 36

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC Credit Spread

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

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Net fair value of credit derivatives $ ( 194 ) $ ( 154 )

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

The fair value of CDS contracts as of September 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.

Investment Portfolio

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

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

The majority of the investment portfolio is managed by three outside managers and AssuredIM.

The Company has established investment guidelines for its investment managers regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector.

The internally managed portfolio primarily consists of the Company’s investments in:

(i) securities acquired for loss mitigation purposes;

(i) loss mitigation securities;

(ii) securities managed under an Investment Management Agreement (IMA) with AssuredIM;

(iii) new recovery bonds and CVIs received in connection with the consummation of the March Puerto Rico Resolutions and (iv) other investments including certain fixed-maturity and short-term securities, and equity method investments.

(iii) new recovery bonds and CVIs received in connection with the consummation of the March Puerto Rico Resolutions and the HTA PSA and (iv) other investments including certain fixed-maturity and short-term securities, and equity method investments.

Equity method investments primarily consist of generally less liquid alternative investments including:

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

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

The Company had unfunded commitments of $ 92 million as of September 30, 2022 related to certain of the Company’s alternative investments other than AssuredIM Funds.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Investment Portfolio

Carrying Value

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

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____________________

(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.

(1) 8.3 % and 7.5 % of fixed-maturity securities were rated BIG as of September 30, 2022 and December 31, 2021, respectively, consisting primarily of loss mitigation securities.

1.8 % and 0.9 % were not rated, as of September 30, 2022 and December 31, 2021, respectively.

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

These securities are not rated.

(3) Represents CVIs received in connection with the consummation of the March Puerto Rico Resolutions.

(3) Represents CVIs received in connection with the consummation of the March Puerto Rico Resolutions and the HTA PSA.

These securities are not rated.

(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.

(4) Weighted average credit rating of AAA as of both September 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.

2 unchanged sentences

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

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

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

Insurance Subsidiaries had total commitments to AssuredIM Funds of $ 755 million, of which $ 536 million represented net invested capital and $ 219 million was undrawn.

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

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

As of September 30, 2022 and December 31, 2021, the fair value of AGAS’ interest in AssuredIM Funds was $ 574 million and $ 543 million, respectively.

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

Accrued investment income, which is reported in “other assets,” was $ 72 million as of September 30, 2022 and $ 69 million as of December 31, 2021.

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

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 June 30, 2022

As of September 30, 2022

Security Type Percent

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(dollars in millions)

Obligations of state and political subdivisions 45 % $ 3,542 $ ( 14 ) $ 57 $ ( 101 ) $ 3,484 $ ( 5 ) A+

Obligations of state and political subdivisions 43 % $ 3,264 $ ( 13 ) $ 23 $ ( 173 ) $ 3,101 $ ( 3 ) AA-

government and agencies 2 122 — 2 ( 9 ) 115 — AA+

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

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

government-agency obligations were approximately 29 % and 31 % of mortgage-backed securities as of September 30, 2022 and December 31, 2021, respectively, based on fair value.

(5) Accumulated other comprehensive income (AOCI).

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

As of June 30, 2022

As of September 30, 2022

Less than 12 months 12 months or more Total

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If a security appears in both categories, it is counted only once in the total column.

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

The Company has determined that the unrealized losses recorded as of June 30, 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

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.

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

In addition, as of September 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 September 30, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 687 securities had 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 $ 450 million as of September 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 September 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 June 30, 2022

As of September 30, 2022

Cost Estimated

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Total $ 7,506 $ 6,780

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.

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 $ 211 million as of September 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 $ 1,174 million and $ 1,231 million, based on fair value as of September 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.

Puerto Rico CVIs are classified as trading with changes in fair value reported in the condensed consolidated statements of operations.

Equity in earnings (losses) of investees represents the Company’s interest in the earnings of its equity method investments.

Assured Guaranty Ltd.

1 unchanged sentence

Income from Investment Portfolio

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

11 unchanged sentences

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

(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.

(2) Fair value losses on trading securities pertaining to securities still held as of September 30, 2022 were $ 2 million for third quarter 2022 and $ 18 million for nine months 2022.

(3) Fair value gains (losses) on investments where the fair value option (FVO) was elected utilizing the net asset value (NAV) as a practical expedient were $ 13 million in third quarter 2021, $( 3 ) million in nine months 2022, and $ 39 million in nine months 2021.

Realized Investment Gains (Losses)

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Net Realized Investment Gains (Losses)

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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____________________

(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.

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

(2) Net realized gains in nine 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 $ 207 million in third quarter 2022, $ 560 million in nine months 2022 and $ 222 million in nine months 2021.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

1 unchanged sentence

Balance, beginning of period $ 51 $ 39 $ 42 $ 78

Additions for securities for which credit impairments were not previously recognized — — 4 1

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

Additions on securities for which credit impairments were not previously recognized 1 — 4 1

Additions from purchases of securities accounted for as purchased financial assets with credit deterioration 2 — 2 —

Additions (reductions) on securities for which credit impairments were previously recognized 3 ( 4 ) 9 ( 2 )

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

Balance, end of period $ 57 $ 35 $ 57 $ 35

(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.

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

The Company recorded credit loss expenses of $ 4 million and $ 13 million in third quarter 2022 and nine months 2022, respectively.

The Company recorded a benefit in credit loss of $ 4 million and $ 1 million in third quarter 2021 and nine months 2021, respectively.

During third quarter 2022, the Company purchased a loss mitigation security with a fair value of $ 22 million that was accounted for as a purchased security with credit deterioration.

At acquisition, this security had an unpaid principal on remaining collateral of $ 31 million, an allowance for credit losses of $ 2 million, and a non-credit related discount of $ 7 million.

The Company did not purchase any securities with credit deterioration in the first half of 2022 or nine months 2021.

Most of the Company’s securities with credit deterioration are loss mitigation securities.

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As part of the terms of its financial guaranty contracts, the insurance subsidiaries, under their insurance contracts, obtain certain protective rights with respect to the VIE that give them additional controls over a VIE.

These protective rights are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager’s financial condition.

These protective rights are

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager’s financial condition.

At deal inception, the insurance subsidiaries typically are not deemed to control the VIE;

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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

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.

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

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

The structured finance and other FG VIEs’ liabilities that are guaranteed by the insurance subsidiaries are considered to be with recourse, because the insurance subsidiaries guarantee the payment of principal and interest regardless of the performance of the related FG VIEs’ assets.

2 unchanged sentences

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 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.

As of September 30, 2022 and December 31, 2021, the Company consolidated 24 and 25 structured finance and other FG VIEs, respectively.

During nine months 2022, one FG VIE was consolidated and two FG VIEs were deconsolidated.

During nine months 2021, one FG VIE was deconsolidated.

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

Puerto Rico Trusts

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.

As of September 30, 2022, the Company consolidated six 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.

4 unchanged sentences

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

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.

new recovery bonds as available-for-sale securities ($ 21 million fair value, $ 24 million amortized cost as of September 30, 2022) and CVIs as trading securities ($ 6 million fair value as of September 30, 2022, $ 1 million fair value losses on trading securities for nine months 2022).

The new recovery bonds and CVIs have maturity dates ranging from 2023 to 2046.

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 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.”

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

During nine months 2022, the consolidation of the nine Puerto Rico Trusts resulted in a $ 4 million loss on consolidation and the deconsolidation of three Puerto Rico Trusts resulted in a $ 1 million loss, which were also reported in “fair value gains (losses) on FG VIEs.”

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

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RMBS second lien 33 39

Puerto Rico securities 41 —

Puerto Rico Trusts’ securities 26 —

Total FG VIEs’ assets $ 236 $ 260

2 unchanged sentences

RMBS second lien 25 42

Puerto Rico Trust liabilities 45 —

Puerto Rico Trusts’ liabilities 31 —

Total FG VIEs’ liabilities with recourse $ 238 $ 269

2 unchanged sentences

Total FG VIEs’ liabilities without recourse $ 13 $ 20

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 change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIEs’ assets at FVO) held as of September 30, 2022 that was reported in the condensed consolidated statements of operations for third quarter 2022 and nine months 2022 were gains of $ 15 million and $ 11 million, respectively.

The change in the ISCR of the FG VIEs’ assets at FVO held as of September 30, 2021 were gains of $ 5 million and $ 9 million for third quarter 2021 and nine 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.

2 unchanged sentences

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 FVO

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

7 unchanged sentences

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

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.

During nine months 2022, the Company recorded an out-of-period adjustment totaling $ 6.6 million in pre-tax income and $ 5.2 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 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.

The Company consolidates investment vehicles when it is deemed to be the primary beneficiary, based on its power to direct the most significant activities of each VIE and its level of economic interest in the entities.

6 unchanged sentences

Number of Consolidated CIVs by Type

CIV Type June 30, 2022 December 31, 2021

CIV Type September 30, 2022 December 31, 2021

CLO warehouses 4 3

Total number of consolidated CIVs (1) 22 20

____________________

(1) As of September 30, 2022 two CIVs were voting interest entities, and as of December 31, 2021 one CIV was a voting interest entity.

Certain funds meet the criteria for a voting interest entity because the Company possesses substantially all of the economics and all of the decision-making authority.

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

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

During nine months 2022 and nine months 2021, two and three , respectively, consolidated CLO warehouses were securitized and became CLOs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Number of Consolidated CIVs

2 unchanged sentences

Deconsolidated (1) ( 2 ) ( 1 )

June 30, 21 15

September 30, 22 16

____________________

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Assets and Liabilities of CIVs

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

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____________________

(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.

(1) Includes investments in AssuredIM Funds and other affiliated entities of $ 394 million and $ 223 million as of September 30, 2022 and December 31, 2021, respectively.

Includes assets and liabilities of voting interest entities as of September 30, 2022 of $ 69 million and $ 2 million, respectively, and assets of $ 12 million as of December 31, 2021.

(2) The weighted average maturity of CLO obligations was 6.5 years as of September 30, 2022 and 6.6 years as of December 31, 2021.

The weighted average interest rate of CLO obligations was 3.9 % as of September 30, 2022 and 1.8 % as of December 31, 2021.

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

(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.

(3) The weighted average maturity of warehouse financing debt of CLO warehouses was 1.5 years as of September 30, 2022 and 1.8 years as of December 31, 2021.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 2.6 % as of September 30, 2022 and 1.1 % as of December 31, 2021.

Warehouse financing debt will mature at various dates from 2023 to 2031.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

5 unchanged sentences

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.

The Company has elected to apply the NAV practical expedient to fair value measurement 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 $ 125 million as of September 30, 2022 and is included in the table above in the caption “equity securities and warrants”.

The master fund had gross assets of $ 150 million and gross liabilities of $ 26 million, as of September 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.

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

The majority of the noncontrolling interest is non-redeemable and presented on the statement of shareholders’ equity.

1 unchanged sentence

Redeemable Noncontrolling Interest in CIVs

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

4 unchanged sentences

Distributions — — ( 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.

September 30, $ 21 $ 21 $ 21 $ 21

As of September 30, 2022, the CIVs had $ 442 million commitments to invest.

As of September 30, 2022 and December 31, 2021, the CIVs included derivative contracts with notional amounts totaling $ 45 million and $ 49 million, respectively, and average notional amounts of $ 47 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 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.

The net change in fair value of derivative contracts were gains of $ 7 million for nine months 2022, and $ 1 million for nine months 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 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.

As of September 30, 2022, these credit facilities had varying maturities ranging from 2023 to 2031 with the aggregate principal amount not exceeding $ 1.5 billion.

The available commitment was based on the amount of equity contributed to the warehouse which was $ 337 million.

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 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.

As of September 30, 2022, $ 206 million was drawn under credit facilities with interest rates ranging from 3-month Euro Interbank Offered Rate (Euribor) plus 150 basis points (bps) to 3-month SOFR plus 150 bps (with a floor on Euribor of zero ).

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 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 September 30, 2022, $ 62 million was drawn 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 September 30, 2022.

During nine months 2022, the Company recorded an out-of-period adjustment totaling $ 2.1 million in pre-tax income and $ 1.7 million in net income attributable to AGL.

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

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 $ 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.

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 financial guaranty insurance or insured 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 $ 85 million and liabilities of $ 14 million as of September 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 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.

Of the approximately 16 thousand policies monitored as of September 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 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.

With respect to structured finance and other FG VIEs, as of September 30, 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 assessment of these potential triggers or events, the Company consolidated 24 and 25 structured finance and other FG VIEs as of September 30, 2022 and December 31, 2021, respectively.

In addition, as of September 30, 2022 the Company consolidated six 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.

2 unchanged sentences

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.

The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $ 1 million as of both September 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.

7 unchanged sentences

In addition to market information, models also incorporate transaction details, such as maturity of the instrument and contractual features designed to reduce the Company’s credit exposure, such as collateral rights as applicable.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.

1 unchanged sentence

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

During six months 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 nine 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.

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.

There were no 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 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.

As of September 30, 2022, the Company used models to price 188 securities, including loss mitigation securities, with a Level 3 fair value of $ 1.0 billion.

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

5 unchanged sentences

home price appreciation/depreciation rates based on macroeconomic forecasts and recent trading activity.

The yield used to discount the projected cash flows is determined by reviewing various attributes of the security including collateral type, weighted average life, sensitivity to losses, vintage, and convexity, in conjunction with market data on comparable securities.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

market data on comparable securities.

Significant changes to any of these inputs could have materially changed the expected timing of cash flows within these securities which is a significant factor in determining the fair value of the securities.

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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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Management considers the non-standard terms of the Company’s credit derivative contracts in determining the fair value of these contracts.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Due to the lack of quoted prices and other observable inputs for its instruments or for similar instruments, the Company determines the fair value of its credit derivative contracts primarily through internally developed, proprietary models that use both observable and unobservable market data inputs.

2 unchanged sentences

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 June 30, 2022 were such that market prices of the Company’s CDS contracts were not available.

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

Assumptions and Inputs

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

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

The rates used to discount future expected premium cash flows ranged from 2.49 % to 4.62 % at September 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.

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

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

As of September 30, 2022 and December 31, 2021, the use of

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the minimum premium did not have a significant effect on fair value.

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

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

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.

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.

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

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The 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 and trust certificates are classified as Level 2 available-for-sale securities, and CVIs are classified as Level 2 trading securities.

For the assets in the Puerto Rico Trusts, new recovery bonds 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.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The fair value of the residential mortgage loan FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds;

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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

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.

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

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

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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.

Significant changes to any of the inputs described above could materially change the timing of expected losses within an 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 OCI, and the change in fair value of available-for-sale securities, which is reported as a component of the change in unrealized gains (losses) on investments in OCI.

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

The FG VIEs issued securities that are typically collateralized by first lien and second lien residential mortgage loans, or, in the case of the Puerto Rico Trusts, the Plan Consideration received under the GO/PBA Plan.

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 the 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.” The FG VIEs issued securities that are typically collateralized by first lien and second lien U.S.

residential mortgage loans, or, in the case of the Puerto Rico Trusts, the Plan Consideration received under the GO/PBA Plan.

Assets and Liabilities of CIVs

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

Investments held by CIVs which are not listed or quoted on an exchange, but are traded over-the-counter, or are listed on an exchange which has no reported sales, are valued at their fair value as determined by the Company, after giving consideration to third-party data generally at the average between the offer and bid prices.

Investments held by CIVs which are not listed or quoted on an exchange, but are traded over-the-counter, or are listed on an exchange which has no reported sales, are valued at their fair value as

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

determined by the Company, after giving consideration to third-party data generally at the average between the offer and bid prices.

The methods and procedures to value these investments may include, but are not limited to:

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(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

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.

10 unchanged sentences

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of June 30, 2022

As of September 30, 2022

Fair Value Hierarchy

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Securitized borrowing — — 22 22

Other — 1 — 1

Total liabilities of CIVs — 200 4,009 4,209

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

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

Excludes $ 17 million and $ 19 million of equity method investments measured at fair value under the FVO using the NAV as a practical expedient as of September 30, 2022 and December 31, 2021, respectively.

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.

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

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

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

As of September 30, 2022, excludes a $ 125 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.

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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.

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

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

Second Quarter 2022

Third Quarter 2022

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

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(in millions)

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

Fair value as of June 30, 2022 $ 51 $ 184 $ 805 $ 223 $ 258 $ 90 $ 38 $ 37

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

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Settlements — ( 9 ) ( 5 ) ( 16 ) — — — —

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:

Fair value as of September 30, 2022 $ 48 $ 192 $ 806 $ 210 $ 297 $ 87 $ 43 $ 38

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:

Earnings $ 3 (2) $ ( 11 ) (4) $ ( 2 ) (4) $ ( 3 ) (4) $ 1 (3)

OCI $ ( 3 ) $ ( 8 ) $ 1 $ —

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Second Quarter 2022

Third Quarter 2022

Credit Derivative

Asset (Liability),

net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

Liability, net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

(in millions)

Fair value as of March 31, 2022 $ ( 156 ) $ ( 335 ) $ ( 3,650 )

Fair value as of June 30, 2022 $ ( 147 ) $ ( 282 ) $ ( 3,987 )

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

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Settlements 1 27 —

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:

Consolidations — — ( 26 )

Fair value as of September 30, 2022 $ ( 194 ) $ ( 251 ) $ ( 4,009 )

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:

Earnings $ ( 46 ) (6) $ 8 (2) $ ( 13 ) (4)

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

OCI $ ( 4 ) $ 41

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

Second Quarter 2021

Third Quarter 2021

Fixed-Maturity Securities, Available-for-Sale

Subdivisions Corporate Securities RMBS Asset-

Subdivisions RMBS Asset-

Securities FG VIEs’

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(in millions)

Fair value as of March 31, 2021 $ 103 $ 28 $ 246 $ 941 $ 281 $ 1 $ 37

Fair value as of June 30, 2021 $ 110 $ 248 $ 975 $ 287 $ 1 $ 31

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

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Settlements — ( 16 ) ( 70 ) ( 18 ) — —

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:

Fair value as of September 30, 2021 $ 110 $ 238 $ 968 $ 271 $ 34 $ 27

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2021included in:

Earnings $ 2 (2) $ — $ ( 3 ) (3)

OCI $ ( 1 ) $ ( 2 ) $ 3

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Second Quarter 2021

Third Quarter 2021

Credit Derivative

Asset (Liability),

net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

Liability, net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

(in millions)

Fair value as of March 31, 2021 $ ( 120 ) $ ( 318 ) $ ( 1,973 )

Fair value as of June 30, 2021 $ ( 154 ) $ ( 320 ) $ ( 2,385 )

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

3 unchanged sentences

Settlements ( 1 ) 15 374

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:

Fair value as of September 30, 2021 $ ( 134 ) $ ( 301 ) $ ( 2,996 )

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2021 included in:

Earnings $ 1 (6) $ 2 (2) $ 1 (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

Nine Months 2022

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

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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:

Fair value as of September 30, 2022 $ 48 $ 192 $ 806 $ 210 $ 297 $ 87 $ 43 $ 38

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:

Earnings $ 1 (2) $ 7 (4) $ 3 (4) $ ( 6 ) (4) $ 12 (3)

OCI $ ( 13 ) $ ( 25 ) $ ( 35 ) $ ( 1 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Six Months 2022

Nine Months 2022

Credit Derivative

Asset (Liability),

net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

Liability, net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

(in millions)

7 unchanged sentences

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:

Fair value as of September 30, 2022 $ ( 194 ) $ ( 251 ) $ ( 4,009 )

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:

Earnings $ ( 41 ) (6) $ 57 (2) $ 289 (4)

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

OCI $ ( 1 ) $ 97

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

Six Months 2021

Nine Months 2021

Fixed-Maturity Securities, Available-for-Sale

11 unchanged sentences

Settlements ( 2 ) — ( 39 ) ( 187 ) ( 45 ) — —

Fair value as of June 30, 2021 $ 110 $ — $ 248 $ 975 $ 287 $ 1 $ 31

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:

Fair value as of September 30, 2021 $ 110 $ — $ 238 $ 968 $ 271 $ 34 $ 27

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2021 included in:

Earnings $ 21 (2) $ 2 (4) $ ( 28 ) (3)

OCI $ 7 $ — $ 6 $ 9 $ 1

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Six Months 2021

Nine Months 2021

Credit Derivative

Asset (Liability),

net (5) FG VIEs’ (8) Liabilities of CIVs

Liability, net (5) FG VIEs’

Liabilities (8) Liabilities of CIVs

(in millions)

6 unchanged sentences

Settlements ( 3 ) 38 376

Fair value as of June 30, 2021

Fair value as of September 30, 2021

$ ( 134 ) $ ( 301 ) $ ( 2,996 )

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2021 included in:

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2021 included in:

Earnings $ ( 54 ) (6) $ ( 4 ) (2) $ 5 (4)

2 unchanged sentences

(2) Included in “fair value gains (losses) on FG VIEs”.

(3) Reported in “fair value gains (losses) on CCS”, “net investment income” and “other income”.

(3) Reported in “fair value gains (losses) on CCS”, “net investment income” and “other income (loss)”.

(4) Reported in “fair value gains (losses) on CIVs”.

8 unchanged sentences

Quantitative Information About Level 3 Fair Value Inputs

As of June 30, 2022

As of September 30, 2022

Financial Instrument Description Fair Value

32 unchanged sentences

Liabilities (1):

Credit derivative liabilities, net $ ( 147 ) Year 1 loss estimates 0.0 % - 92.5 % 2.6 %

Hedge cost (in bps) 17.9 - 41.4 25.6

Credit derivative liabilities, net $ ( 194 ) Hedge cost (in bps) 12.8 - 28.0 17.5

Bank profit (in bps) 57.7 - 260.0 121.6

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Long-term debt issued by the U.S.

Holding Companies is valued by broker-dealers using third party independent pricing sources and standard market conventions and classified as Level 2 in the fair value hierarchy.

Holding Companies is valued by broker-dealers using third-party independent pricing sources and standard market conventions and is classified as Level 2 in the fair value hierarchy.

The market conventions utilize market quotations, market transactions for the Company’s comparable instruments, and to a lesser extent, similar instruments in the broader insurance industry.

2 unchanged sentences

Due from/to brokers and counterparties primarily consists of cash, margin deposits, and cash collateral with the clearing brokers and various counterparties and the net amounts receivable/payable for securities transactions that had not settled at the balance sheet date.

Due from/to brokers and counterparties represent balances on a net-by counterparty basis on the condensed consolidated balance sheets where a contractual right of offset exists under an enforceable netting arrangement.

Due from/to brokers and counterparties represents balances on a net-by counterparty basis on the condensed consolidated balance sheets where a contractual right of offset exists under an enforceable netting arrangement.

The cash at brokers is partially related to collateral for securities sold short and derivative contracts;

2 unchanged sentences

Other Liabilities

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.

Other liabilities in the table below include $ 32 million and $ 37 million as of September 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 June 30, 2022 As of December 31, 2021

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

Amount Estimated

16 unchanged sentences

Carrying value approximates fair value.

(5) Includes accrued interest, repurchase agreement liability and payables for securities purchased for which carrying value approximates fair value.

(5) Primarily includes accrued interest, repurchase agreement liability and payables for securities purchased for which carrying value approximates fair value.

Asset Management Fees

1 unchanged sentence

Asset Management Fees

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

1 unchanged sentence

Management fees:

$ 8 $ 11 $ 17 $ 22

CLOs $ 8 $ 9 $ 25 $ 31

Opportunity funds and liquid strategies 2 4 14 12

4 unchanged sentences

Total asset management fees $ 16 $ 20 $ 71 $ 65

_____________________

(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, 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.

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $ 10 million as of September 30, 2022 and $ 8 million as of December 31, 2021.

Performance fees in nine months 2022 were attributable to the healthcare and asset-based funds.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

On August 20, 2021, AGUS issued $ 400 million of 3.600 % Senior Notes due 2051 ( 3.6 % Senior Notes) for net proceeds of $ 395 million.

On July 9, 2021, a portion of the proceeds from the issuance of the 3.15 % Senior Notes was used to redeem $ 200 million of AGMH debt as follows:

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

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

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

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

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

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.

14 unchanged sentences

domestic corporation.

AGL is tax resident in the U.K.

AGL is a tax resident in the U.K.

although it remains a Bermuda-based company and its administrative and head office functions continue to be carried on in Bermuda.

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file their own consolidated federal income tax return.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022 (the IRA), which, among other things, implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases that occur after December 31, 2022, and several tax incentives to promote clean energy.

Currently, we do not believe that this new minimum tax nor the other income tax provisions of the IRA will have a material impact on our consolidated financial statements.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities) (1)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

4 unchanged sentences

Valuation Allowance

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.

During third quarter 2022, the Company recorded a return to provision adjustment, which included the utilization of $ 19 million in foreign tax credits, thereby reducing the Company's foreign tax credits (FTC) from $ 24 million as of December 31, 2021 to $ 5 million as of September 30, 2022.

FTCs were established under the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years, and will expire in 2027.

In analyzing the future realizability of FTCs, the Company notes limitations on future foreign source income due to overall foreign losses as negative evidence.

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the FTC of $ 24 million will not be utilized, and therefore maintained the valuation allowance from December 31, 2021 with respect to this tax attribute.

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the remaining FTC of $ 5 million will not be utilized, and therefore maintained a valuation allowance with respect to this tax attribute, resulting in a decrease in the valuation allowance from $ 24 million as of December 31, 2021 to $ 5 million as of September 30, 2022.

The Company came to the conclusion that it is more likely than not that the remaining deferred tax assets will be fully realized after weighing all positive and negative evidence available as required under GAAP.

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The Company will continue to analyze the need for a valuation allowance on a quarterly basis.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Provision for Income Taxes

8 unchanged sentences

The Company’s overall effective tax rate fluctuates based on the distribution of income across jurisdictions.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below.

Effective Tax Rate Reconciliation

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

3 unchanged sentences

Noncontrolling interest 1 — ( 5 ) ( 2 )

Return to provision adjustment ( 20 ) ( 4 ) ( 20 ) ( 4 )

State taxes 2 ( 2 ) 10 5

Foreign taxes ( 1 ) 4 9 6

Taxes on reinsurance — ( 4 ) ( 1 ) ( 1 )

Stock based compensation — 1 4 1

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Pre-tax Income (Loss) by Tax Jurisdiction

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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Total $ ( 22 ) $ 5 $ 49 $ 145

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Revenue by Tax Jurisdiction

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

6 unchanged sentences

Pre-tax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.

As of June 30, 2022, AGUS and Assured Guaranty Overseas US Holdings Inc.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 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.

In July 2022, Her Majesty’s Revenue & Customs commenced a business risk review of Assured Guaranty.

In September 2022, Her Majesty's Revenue & Customs completed a business risk review of Assured Guaranty that commenced in July 2022 and assigned a low-risk rating for corporate taxes.

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.

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 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.

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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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 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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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.

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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.

Post-trial briefing was completed on June 21, 2022, and a decision is anticipated in the fourth quarter of 2022.

Shareholders’ Equity

2 unchanged sentences

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Second Quarter 2022

Third Quarter 2022

Net Unrealized Gains (Losses) on Investments with:

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(in millions)

Balance, March 31, 2022 $ 37 $ ( 63 ) $ ( 21 ) $ ( 37 ) $ 6 $ ( 78 )

Balance, June 30, 2022 $ ( 205 ) $ ( 107 ) $ ( 19 ) $ ( 45 ) $ 6 $ ( 370 )

Other comprehensive income (loss) before reclassifications ( 286 ) ( 1 ) ( 3 ) ( 4 ) — ( 294 )

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Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Total before tax

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Other comprehensive income (loss) ( 277 ) 2 ( 3 ) ( 4 ) — ( 282 )

Balance, June 30, 2022 $ ( 205 ) $ ( 107 ) $ ( 19 ) $ ( 45 ) $ 6 $ ( 370 )

Balance, September 30, 2022 $ ( 482 ) $ ( 105 ) $ ( 22 ) $ ( 49 ) $ 6 $ ( 652 )

Assured Guaranty Ltd.

1 unchanged sentence

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Second Quarter 2021

Third Quarter 2021

Net Unrealized Gains (Losses) on Investments with:

4 unchanged sentences

(in millions)

Balance, March 31, 2021 $ 458 $ ( 36 ) $ ( 21 ) $ ( 35 ) $ 7 $ 373

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Other comprehensive income (loss) before reclassifications ( 69 ) ( 2 ) 1 — — ( 70 )

1 unchanged sentence

Net realized investment gains (losses)

( 3 ) 5 — — — 2

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Interest expense — — — — 1 1

Total before tax

4 unchanged sentences

Other comprehensive income (loss) ( 66 ) ( 6 ) 2 — ( 1 ) ( 71 )

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Balance, September 30, 2021 $ 443 $ ( 18 ) $ ( 21 ) $ ( 36 ) $ 6 $ 374

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2022

Nine Months 2022

Net Unrealized Gains (Losses) on Investments with:

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Other comprehensive income (loss) ( 857 ) ( 81 ) ( 1 ) ( 13 ) — ( 952 )

Balance, June 30, 2022 $ ( 205 ) $ ( 107 ) $ ( 19 ) $ ( 45 ) $ 6 $ ( 370 )

Balance, September 30, 2022 $ ( 482 ) $ ( 105 ) $ ( 22 ) $ ( 49 ) $ 6 $ ( 652 )

Assured Guaranty Ltd.

1 unchanged sentence

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2021

Nine Months 2021

Net Unrealized Gains (Losses) on Investments with:

8 unchanged sentences

Net realized investment gains (losses)

4 ( 3 ) — — — 1

Fair value gains (losses) on FG VIEs

— — ( 3 ) — — ( 3 )

Interest expense — — — — 1 1

Total before tax

4 unchanged sentences

Other comprehensive income (loss) ( 134 ) 12 ( 1 ) — ( 1 ) ( 124 )

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Balance, September 30, 2021 $ 443 $ ( 18 ) $ ( 21 ) $ ( 36 ) $ 6 $ 374

Share Repurchases

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.

Under this and previous authorizations, as of November 7, 2022, the Company was authorized to purchase $ 261 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 (April 1 - June 30) 2,605,947 151 58.03

2022 (July 1 - August 3) 623,528 35 55.89

2022 (July 1 - September 30) 1,790,395 97 53.77

2022 (October 1 - November 7) 785,863 42 53.99

Total 2022 7,920,428 $ 445 56.18

5 unchanged sentences

Computation of Earnings Per Share

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

16 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements