What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-04 · 361 added, 345 removed, 1365 unchanged (34% of the section changed)

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

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

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

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

• changes in inflation, interest rates, the world’s credit markets or segments thereof, credit spreads, foreign exchange rates or general economic conditions, including the possibility of a recession;

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

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

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

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

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

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

The Company routinely posts important information for investors on its web site (under www.assuredguaranty.com/company-statements and, more generally, under the Investor Information tab at www.assuredguaranty.com/investor-information and Businesses tab at www.assuredguaranty.com/businesses ).

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The information contained on, or that may be accessed through, the Company’s web site or social media account is not incorporated by reference into, and is not a part of, this report.

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

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

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

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If an obligor defaults on a scheduled

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

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

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

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

As of June 30, 2022, AssuredIM had $17.9 billion of assets under management (AUM), including $1.3 billion that is managed on behalf of Assured Guaranty Municipal Corp.

As of September 30, 2022, AssuredIM had $17.5 billion of assets under management (AUM), including $1.3 billion that is managed on behalf of Assured Guaranty Municipal Corp.

(AGM) and Assured Guaranty Corp.

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Economic activity in the U.S.

and in Europe showed signs of weakness in the three-month period ended June 30, 2022 (second quarter 2022).

and in Europe showed mixed signals in the three-month period ended September 30, 2022 (third quarter 2022).

According to the U.S.

Bureau of Economic Analysis (BEA), after decreasing 1.6% in the first quarter of 2022, in second quarter 2022 real gross domestic product (GDP) decreased for a second straight quarter, this time at an annual rate of 0.9%.

Two straight quarters of GDP decline is a common definition for a recession.

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

unemployment rate, seasonally adjusted, stood at 3.6%, unchanged from the end of March 2022, and down from a pandemic high of 14.7% in April 2020.

More globally, the Organization for Economic Co-operation and Development (OECD) estimates that GDP in the OECD area increased by 0.7% in the first quarter of 2022 on a quarter-over-quarter basis (the latest data available), with U.K.

GDP estimated to have grown by 0.7% on a quarter-over-quarter basis.

Bureau of Economic Analysis (BEA), the initial estimate for third quarter 2022 real gross domestic product (GDP) was 2.6%.

This return to positive GDP in third quarter 2022 followed two consecutive negative GDP quarters to start 2022, with GDP contracting 1.6% in the first quarter of 2022 and contracting 0.6% in the second quarter of 2022.

Two straight quarters of GDP contraction is commonly recognized as a sign of recession.

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

unemployment rate, seasonally adjusted, stood at 3.5%, relatively unchanged from the end of June 2022 when it stood at 3.6%, and down from a pandemic high of 14.7% in April 2020.

According to the U.K.’s Office for National Statistics (ONS), U.K.

GDP fell by 0.3% in the three months through August compared with the three months through May 2022, the latest data available.

More globally, the Organization for Economic Co-operation and Development (OECD) estimated that GDP in the OECD area increased by 0.4% in the second quarter of 2022 compared to the first quarter of 2022 (the latest data available).

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

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

over the 12-month period ending June 2022, as measured by the consumer price index (CPI) for all urban consumers, rose to 9.1% before seasonal adjustment, the largest 12-month rate since the period ending November 1981.

The energy index rose 41.6% over the 12 months ended June 2022.

The food index rose 10.4% over the same period, the largest 12-month rate since the period ending February 1981.

According to the U.K.’s Office for National Statistics (ONS), the CPI including owner occupiers’ housing costs (CPIH) was 8.2% in the 12 months ending June 2022, up from 7.9% in May 2022 and 6.2% in March 2022.

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

over the 12-month period ending September 2022, as measured by the consumer price index (CPI) for all urban consumers, rose to 8.2% before seasonal adjustment.

The energy index increased 19.8% for the 12 months ending September, a smaller increase than the 41.6% increase over the 12 months ended June 2022.

The food index increased 11.2% over the same period.

According to the U.K.’s ONS, the CPI including owner occupiers’ housing costs (CPIH) was 8.8% in the 12 months ending September 2022, up from 8.6% in August 2022 and 8.2% in June 2022.

Consumer price inflation in the U.K.

increases exposure for certain U.K exposures with approximately $18 billion of net par outstanding as of September 30, 2022, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion of the premium on an installment basis over the term of the exposure.

Consumer price inflation may also impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments or causes interest rates to rise more generally.

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

public finance.

The 30-year AAA MMD rate started second quarter 2022 at 2.53% but rose 65 basis points (bps) to end the quarter at 3.18%.

The 30-year AAA MMD rate started third quarter 2022 at 3.18% but rose 72 basis points (bps) to end the quarter at 3.90%.

The average rate for the quarter was 3.22%, considerably above the 2.00% average for the first quarter of 2022 and 1.54% average for full year 2021.

With the onset of the COVID-19 pandemic, the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate to 0% to 0.25% in March 2020.

However, with the FOMC acknowledging inflationary pressure building, the FOMC decided at its meeting in March 2022 to

start again raising the target range for the federal funds rate, and has continued to do so since then.

In addition, the FOMC has stated that it would reduce its holdings of treasury securities and agency debt and agency mortgage-backed securities.

At the conclusion of its June 14-15, 2022 meeting the FOMC raised the federal funds target rate by 75 basis points to 1.5% to 1.75% .

Then, at the conclusion of its July 26-27, 2022 meeting, the FOMC raised the federal funds rate by another 75 basis points to a target range of 2.25% to 2.50%, indicating that ongoing increases in the target rate would be appropriate.

With the Federal Open Market Committee (FOMC) acknowledging inflationary pressure building, the FOMC decided at its meeting in March 2022 to start again raising the target range for the federal funds rate, and has continued to do so since then.

In addition, the FOMC stated that it would reduce its holdings of treasury securities and agency debt and agency mortgage-backed securities.

At the conclusion of its September 20-21, 2022 meeting, the FOMC raised the federal funds target rate by 75 bps to 3% to 3.25%, stating that it anticipates that ongoing increases in the target range will be appropriate.

At the conclusion of its November 1-2, 2022 meeting, the FOMC raised the federal funds target rate by 75 bps to 3.75% to 4%.

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

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Higher interest rates may also dampen municipal bond issuance and negatively impact the finances of some of the obligors whose payments the Company insures.

The difference, or credit spread, between the 30-year A-rated general obligation relative to the 30-year AAA MMD averaged 56 bps in second quarter 2022, up from 39 bps in the first quarter of 2022 and 33 bps in full year 2021.

BBB credit spreads measured on the same basis averaged 90 bps in second quarter 2022, up from 72 bps in the first quarter of 2022 and 70 bps in full year 2021.

home prices continued their recent surge in second quarter 2022.

According to the National Association of Realtors, the median existing-home price for all housing types in June 2022 was $416,000, a new record high and a 13.4% year-over-year increase.

However, existing home sales declined for the fifth straight month to a seasonally adjusted annual rate of 5.1 million and sales were down 5.4% from May 2022 and 14.2% from one year ago.

The difference, or credit spread, between the 30-year A-rated general obligation relative to the 30-year AAA MMD averaged 56 bps in third quarter 2022, the same as 56 bps in the second quarter of 2022, and 33 bps in full year 2021.

BBB credit spreads measured on the same basis averaged 95 bps in third quarter 2022, up from 90 bps in the second quarter of 2022 and 70 bps in full year 2021.

home prices decreased in third quarter 2022.

According to the National Association of Realtors, the median existing-home price for all housing types in September 2022 was $384,000, a 7.7% decrease.

Existing home sales continued to decline in September 2022, the eighth consecutive month, to a seasonally adjusted rate of 4.71 million, down 23.8% from one year ago.

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

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

census divisions, reported a 19.7% annual gain in May 2022 (the latest data available), down from 20.6% in the previous month.

census divisions, continued to decelerate in August, reporting a 13.0% annual gain in August (the latest data available), down from 15.6% in the previous month.

The 10-City Composite annual increase came in at 12.1%, down from 14.9% in the previous month.

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Impact of COVID-19

Variants of COVID-19 continue to spread throughout the world, while the production, acceptance, and distribution of vaccines and therapeutics for 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 to state and local governments in 2021 and the performance it observed, the Company’s surveillance department has reduced the supplemental procedures.

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

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 it 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.

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

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

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

Key Business Strategies

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Currently, the Company is pursuing the following key business strategies in three areas:

(1) insurance;

(2) asset management and alternative investments;

and (3) capital management.

The Company seeks to grow the insurance business through new business production, acquisitions of remaining legacy monoline insurers or reinsurance of their insured portfolios, and to continue to mitigate losses in its current insured portfolio.

(i) insurance;

(ii) asset management and alternative investments;

and (iii) capital management.

The Company seeks to grow the insurance business through new business production, acquisitions of remaining other monoline financial guaranty companies that currently are in runoff and no longer actively writing new business (legacy monoline insurers) or reinsurance of their insured portfolios, and to continue to mitigate losses in its current insured portfolio.

Growth of the Insured Portfolio

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Based on Sale Date

Six Months 2022 Six Months 2021 Year Ended December 31, 2021

Nine Months 2022 Nine Months 2021 Year Ended December 31, 2021

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

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

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

After over five years of negotiations, 2022 has been a turning point for resolving a substantial portion of the Company’s Puerto Rico exposure in accordance with four orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico):

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

The GO/PBA Plan restructured approximately $35 billion of debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities as well as $50 billion in pension obligations (none of 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 financial oversight and management board (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 financial oversight and management board (the FOMB) (GO/PBA PSA).

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

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

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

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

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

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

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

The fair value of such securities held by the Company as of June 30, 2022, is included in the lines “fixed-maturity securities - Puerto Rico, available-for-sale” and “fixed-maturity securities - Puerto Rico, trading” in the table “Investment Portfolio Carrying Value” of Item 1, Financial Statements, Note 7, Investments.

On May 5, 2021, AGC and AGM entered into a plan support agreement with respect to Puerto Rico Highways and Transportation Authority (PRHTA) with certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA).

On May 2, 2022, the FOMB took the first step in the process of effecting the resolution contemplated in the HTA PSA 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.

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 upon that implementation.

• 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.

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

The Company expects that, upon consummation of the HTA Plan, its exposure to PRHTA also will be greatly reduced.

In the nine-month period ended September 30, 2022 (nine months 2022), the Company has reduced its total Puerto Rico exposure, all rated below-investment-grade (BIG), by $1.5 billion (from $3.6 billion as of December 31, 2021 to $2.1 billion as of September 30, 2022), with a further substantial reduction likely upon implementation of the HTA Plan.

The Company believes the consummation of the March Puerto Rico Resolutions on March 15, 2022, and the consummation of the HTA Plan that will occur on the HTA Effective Date, mark significant milestones in its Puerto Rico loss mitigation efforts.

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

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 in Item 1, Financial Statements, Note 3, Outstanding Exposure, but excluding amounts received in connection with second-to-pay exposures):

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

• $605 million of new recovery bonds (see Item 1, Financial Statements, Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the face value of current interest bonds and the maturity value of capital appreciation bonds, net of ceded reinsurance, and

• $258 million of CVIs (see Item 1, Financial Statements, Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the original notional value, net of ceded reinsurance.

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).

During 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.

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.

The Company has sold some of the new recovery bonds and CVIs it received in connection with the March Puerto Rico Resolutions and the HTA PSA and may continue to sell amounts it still retains, or expects to receive in connection with the consummation of the HTA Plan, subject to market conditions.

The fair value of such securities held by the Company as of September 30, 2022, is included in the lines “fixed-maturity securities - Puerto Rico, available-for-sale” and “fixed-maturity securities - Puerto Rico, trading” in the table “Investment Portfolio Carrying Value” of Item 1, Financial Statements, Note 7, Investments.

The Company continues to work to resolve its remaining unresolved defaulted Puerto Rico exposure, Puerto Rico Electric Power Authority (PREPA).

Currently, the Company is engaged in mediation with respect to the exposure.

For information about PREPA developments, see Item 1, Financial Statements, Note 3, Outstanding Exposure.

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

The Company also purchases attractively priced obligations, including BIG obligations, that it has insured and for which it has expected losses to be paid, in order to mitigate the economic effect of insured losses (loss mitigation securities).

The fair value of loss mitigation securities as of September 30,2022 (excluding the value of the Company's insurance) was $557 million, with a par of $805 million.

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

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

As of June 30, 2022, AssuredIM was a top 25 CLO manager by AUM, as published by Creditflux Ltd.

As of September 30, 2022, AssuredIM was a top 25 CLO manager by AUM, as published by Creditflux Ltd.

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

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These operating metrics include, but are not limited to, funded AUM and unfunded capital commitments (together, AUM) and investment advisory management and performance fees.

The Company considers the categorization of its AUM by product type to be a

useful lens in monitoring the Asset Management segment.

The Company considers the categorization of its AUM by product type to be a useful lens in monitoring the Asset Management segment.

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

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

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

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

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The Company is using these allocations to:

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

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

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

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

Adding inception-to-date distributed gains to the original $750 million allocation, the U.S.

Insurance Subsidiaries may invest a total of up to $810 million in funds managed by AssuredIM (AssuredIM Funds) through their jointly owned investment subsidiary, AG Asset Strategies LLC (AGAS).

As of June 30, 2022, AGAS had committed $757 million to AssuredIM Funds, including $241 million that has yet to be funded.

As of September 30, 2022, AGAS had committed $755 million to AssuredIM Funds, including $219 million that has yet to be funded.

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

Under the IMA with AssuredIM, AGM and AGC have together invested $250 million to municipal obligation strategies and $300 million to CLO strategies.

Under the IMA with AssuredIM, AGM and AGC have together invested $250 million in municipal obligation strategies and $300 million to CLO strategies.

All of these strategies are consistent with the investment strengths of AssuredIM and the Company’s plans to continue to grow its investment strategies.

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

From 2013 through August 3, 2022, the Company has repurchased 138 million common shares for approximately $4.5 billion, representing approximately 71% of the total shares outstanding at the beginning of the repurchase program in 2013.

From 2013 through November 7, 2022, the Company has repurchased 140 million common shares for approximately $4.6 billion, representing approximately 72% of the total shares outstanding at the beginning of the repurchase program in 2013.

On August 3, 2022, the AGL Board of Directors (the Board) authorized the repurchase of an additional $250 million of 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.

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

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2022 (Second Quarter) 151 2.606 58.03

2022 (through August 3) 35 0.623 55.89

2022 (Third Quarter) 97 1.790 53.77

2022 (through November 7) 42 0.786 53.99

Cumulative repurchases since the beginning of 2013 $ 4,603 139.947 32.89

As of June 30, 2022, the estimated accretive effect of the cumulative repurchases of common shares since the beginning of 2013 was approximately:

As of September 30, 2022, the estimated accretive effect of the cumulative repurchases of common shares since the beginning of 2013 was approximately:

$33.62 per share in shareholders’ equity attributable to AGL, $41.17 per share in adjusted operating shareholders’ equity, and $73.18 per share in adjusted book value.

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

On September 27, 2021, all of the proceeds from the issuance of the 3.6% Senior Notes were used to redeem

$400 million of AGMH and AGUS debt as follows:

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;

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and $170 million of the $500 million of AGUS 5% Senior Notes due in 2024.

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

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

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

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

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

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

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

Municipal Assurance Corp.

9 unchanged sentences

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

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

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

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

2 unchanged sentences

Financial Results

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

21 unchanged sentences

Inflows - intercompany 116 73 270 182

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

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

Amount Per Share Amount Per Share

7 unchanged sentences

____________________

(1) In periods where the Company recognized a net loss, the impact of potentially dilutive outstanding stock-based awards was excluded from the calculation of diluted loss per share as their inclusion would have an antidilutive effect.

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

3 unchanged sentences

Condensed Consolidated Results of Operations

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

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

2022 2021 2022 2021

14 unchanged sentences

Interest expense 20 23 60 67

Loss on extinguishment of debt — 175 — 175

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

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Effective tax rate 123.5 % (313.3) % (12.1) % 6.0 %

Second Quarter 2022 Compared with Second Quarter 2021

Net income attributable to AGL was a loss for second quarter 2022 compared with income in the three month period ended June 30, 2021 (second quarter 2021) primarily due to:

• foreign exchange losses on remeasurement in second quarter 2022,

• realized and unrealized losses on the investment portfolio reported in realized gains (losses) on investments and trading gains (losses),

• prior year gains in equity method alternative investments that did not recur, and

• lower net earned premiums.

Third Quarter 2022 Compared with Third Quarter 2021

Net income attributable to AGL decreased in third quarter 2022 compared with the three-month period ended September 30, 2021 (third quarter 2021) primarily due to:

• fair value losses on credit derivatives in third quarter 2022 compared with gains in third quarter 2021,

• higher foreign exchange losses on remeasurement in third quarter 2022,

• losses on equity method alternative investments in third quarter 2022 compared with gains in third quarter 2021, and

• realized and unrealized losses on the investment portfolio reported in realized gains (losses) on investments and fair value gains (losses) on trading securities.

These decreases were offset in part by:

• fair value gains on credit derivatives and CCS in second quarter 2022 compared with losses second quarter 2021.

Six Months 2022 Compared with Six Months 2021

Net income attributable to AGL for the six month period ended June 30, 2022 (six months 2022) was lower compared with the six month period ended June 30, 2021 (six months 2021) primarily due to:

• foreign exchange losses on remeasurement in six months 2022,

• realized and unrealized losses on the investment portfolio reported in realized gains (losses) on investments and trading gains (losses), and

• losses in equity method alternative investments.

• losses on extinguishment of debt of $175 million on a pre-tax basis ($138 million after-tax) related to the redemption of $600 million of long-term debt in third quarter 2021 that did not recur in third quarter 2022.

Nine Months 2022 Compared with Nine Months 2021

Net income attributable to AGL for the nine-month period ended September 30, 2022 (nine months 2022) was lower compared with the nine-month period ended September 30, 2021 (nine months 2021) primarily due to:

• foreign exchange losses on remeasurement in nine months 2022,

• losses on equity method alternative investments in nine months 2022 compared with gains in nine months 2021, and

• realized and unrealized losses on the investment portfolio reported in realized gains (losses) on investments and fair value gains (losses) on trading securities.

These decreases were offset in part by:

• losses on extinguishment of debt in nine months 2021 that did not recur in nine months 2022,

• higher net earned premiums mainly attributable to accelerations on certain Puerto Rico exposures, and

• fair value gains on credit derivatives, FG VIEs and CCS in six months 2022 compared with losses in six months 2021.

• fair value gains on CCS in nine months 2022 compared with losses in nine months 2021.

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

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subsidiaries taxed at the U.K.

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

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

tax by election or as a U.S.

controlled foreign corporation.

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

Adjusted Operating Income

Adjusted operating income in second quarter 2022 was $30 million, compared with $120 million in second quarter 2021.

The decrease was primarily attributable to losses in equity method alternative investments (compared with gains in second quarter 2021), lower net earned premiums, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles.

Adjusted operating income in for six months 2022 was $120 million, compared with $163 million in six months 2021.

The decrease was primarily attributable to losses in equity method alternative investments, higher loss expense, losses on the trading investment portfolio and lower fair value gains on consolidated investment vehicles, which were partially offset by higher net earned premiums due to higher refundings related to the March Puerto Rico Resolutions.

Adjusted operating income in third quarter 2022 was $133 million, compared with $34 million in third quarter 2021.

The increase was primarily attributable to losses on extinguishment of debt in third quarter 2021 that did not recur in third quarter 2022, offset in part by losses in equity method alternative investments in third quarter 2022, compared with gains in third quarter 2021.

Adjusted operating income in nine months 2022 was $253 million, compared with $197 million in nine months 2021.

The increase was primarily attributable to losses on extinguishment of debt in nine months 2021 that did not recur in nine months 2022 and higher net earned premiums in nine months 2022 due to higher refundings related to the March Puerto Rico Resolutions, offset in part by losses in equity method alternative investments.

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

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

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

Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were $84.89, $90.18 and $134.91, respectively as of June 30, 2022.

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

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

Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were $81.17, $91.82 and $137.87, respectively as of September 30, 2022.

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

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

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

In the case of adjusted book value per share, net premiums written and

favorable loss development in the Insurance segment also contributed to the increase compared with December 31, 2021.

See “— Overview — Key Business Strategies”.

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

In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $297 million in net par outstanding as of June 30, 2022, comprising $229 million net par exposure to the sovereign debt of Poland and $68 million net par exposure to a toll road in Hungary.

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

In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $272 million in net par outstanding as of September 30, 2022, comprising $215 million net par exposure to the sovereign debt of Poland and $57 million net par exposure to a toll road in Hungary.

The Company rates the toll road exposure BIG.

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

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

While consumer price inflation does not impact the Company’s primary businesses directly, it may impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and accompanying higher interest rates could impact the Company in several ways.

Increases in the consumer price index (CPI) impacts the Company’s primary businesses directly by increasing exposure and future installment premium for certain periodic paying insured debt.

CPI may also impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and accompanying higher interest rates could impact the Company in several ways.

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

19 unchanged sentences

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

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

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

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

27 unchanged sentences

Insurance Segment Results

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

3 unchanged sentences

Fair value gains (losses) on trading securities (8) — (30) —

Other income (loss) 5 5 5 4

Foreign exchange gains (losses) on remeasurement and other income (loss) (6) 7 (1) 11

Total segment revenues 147 190 564 551

26 unchanged sentences

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

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

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

The Company has not written any new credit default swaps since 2009.

While the Company has in the past and may in the future insure new interest rate swaps or acquire credit derivatives in business combinations or reinsurance agreements, or as part of loss mitigation, the Company expects credit derivative exposure to continue to decline.

Insurance Segment

Net Earned Premiums and Credit Derivative Revenues

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

22 unchanged sentences

(1) Includes accretion of discount.

Net earned premiums and credit derivative revenues decreased in second quarter 2022 compared with second quarter 2021 primarily due to lower refundings and changes in debt service assumptions .

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

Net earned premiums and credit derivative revenues decreased in third quarter 2022 compared with third quarter 2021 primarily due to net earned premiums of $13 million on certain transactions in third quarter 2021 that did not recur, and lower accelerations and updates to debt service assumptions in third quarter 2022.

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

Financial Statements, Note 3, Outstanding Exposure.

As of June 30, 2022, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

As of September 30, 2022, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

New Business Production

1 unchanged sentence

New Business Production

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

24 unchanged sentences

____________________

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

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

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

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

Second Quarter 2022

public finance GWP and PVP in second quarter 2022 was higher than the comparable GWP and PVP in second quarter 2021, primarily due to an increase in secondary market transactions.

Third Quarter 2022

public finance GWP and PVP in third quarter 2022 was higher than the comparable GWP and PVP in third quarter 2021, primarily due to a large transportation revenue transaction in third quarter 2022 and a higher proportion of secondary market business which generally carries a higher premium rate.

public finance primary market, which had lower new issuance in third quarter 2022 compared with third quarter 2021, the ratio of PVP to par written was higher as the coupons on insured transactions increased due to the higher interest rate environment.

The average rating of U.S.

public finance par written was A in both second quarter 2022 and second quarter 2021.

The Company's direct par written represented 54% of the total U.S.

municipal market insured issuance in second quarter 2022, compared with 52% in second quarter 2021, and the Company’s penetration of all municipal issuance was 4.8% in second quarter 2022 compared with 4.5% in second quarter 2021.

In second quarter 2022, non-U.S.

public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor.

Six Months 2022

Six months 2022 U.S.

public finance GWP and PVP were relatively consistent compared with six months 2021.

The Company's direct par written represented 56% of the total U.S.

municipal market insured issuance in six months 2022, compared with 58% in six months 2021, and the Company’s penetration of all municipal issuance was 4.9% in both six months 2022 and six months 2021.

In six months 2022, non-U.S.

public finance GWP and PVP were primarily attributable to a secondary market guarantee for an institutional investor and two U.K.

public finance par written was A- in both third quarter 2022 and third quarter 2021.

The Company’s direct par written in the primary market represented 56% of the total U.S.

municipal market insured issuance in third quarter 2022, compared with 64% in third quarter 2021, and the Company’s penetration of all municipal issuance was 3.2% in third quarter 2022 compared with 5.4% in third quarter 2021.

In third quarter 2022, non-U.S.

public finance GWP and PVP were primarily attributable to a secondary market guarantee of a portfolio of regulated utilities.

Nine Months 2022

Nine months 2022 U.S.

public finance GWP and PVP were relatively consistent compared with nine months 2021, despite a 22% decrease in par written.

Secondary market transactions constituted a larger portion of PVP and GWP in nine months 2022 compared with nine months 2021.

The average rating of U.S.

public finance par written was A- in both nine months 2022 and nine months 2021.

The Company’s direct par written in the primary market represented 56% of the total U.S.

municipal market insured issuance in nine months 2022, compared with 60% in nine months 2021, and the Company’s penetration of all municipal issuance was 4.4% for nine months 2022 and 5.1% for nine months 2021.

In nine months 2022, non-U.S.

public finance GWP and PVP were primarily attributable to secondary market guarantees and two U.K.

water transactions.

2 unchanged sentences

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.

CVIs issued by Puerto Rico and received as part of the March Puerto Rico Resolutions are classified as trading with changes in fair value reported in the consolidated statements on operations.

The fair value of such instruments as of June 30, 2022 was $87 million.

CVIs issued by Puerto Rico and received as part of the March Puerto Rico Resolutions or the HTA PSA are classified as trading with changes in fair value reported in the consolidated statements on operations.

The fair value of such instruments as of September 30, 2022 was $393 million.

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

4 unchanged sentences

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

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.

1 unchanged sentence

Income from Investment Portfolio

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

14 unchanged sentences

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

Net investment income for second quarter 2022 and six months 2022 decreased compared to second quarter 2021 and six months 2021, primarily due to lower average balances in fixed-maturity securities as short term investments were accumulated to meet liquidity needs.

The overall pre-tax book yield was 2.95% as of June 30, 2022 and 3.15% as of June 30, 2021.

Excluding the internally managed portfolio, pre-tax book yield was 2.95% as of June 30, 2022 and 2.92% as of June 30, 2021.

Equity in earnings of AssuredIM Funds in second quarter 2022 and six months 2022 were losses and were primarily attributable to lower valuations of assets held in CLO funds and the dilutive impact of a subsequent close of a healthcare fund.

The fair value gains on investments in AssuredIM Funds in second quarter 2021 and six months 2021 was primarily attributable to changes in the NAV of CLO and healthcare funds.

Equity in earnings of other alternative investments decreased in second quarter 2022 and six months 2022 compared with second quarter 2021 and six months 2021 primarily due to mark to market losses on a specific investment in a private equity fund.

Net investment income was $69 million in both third quarter 2022 and third quarter 2021 and decreased for nine months 2022 compared with nine months 2021, primarily due to lower average balances in fixed-maturity securities as assets were liquidated to meet the liquidity needs of the Company.

The overall pre-tax book yield was 3.21% as of September 30, 2022 and 3.10% as of September 30, 2021.

Excluding the internally managed portfolio, pre-tax book yield was 3.01% as of September 30, 2022 and 2.87% as of September 30, 2021.

Equity in earnings of AssuredIM Funds in third quarter 2022 was a gain primarily attributable to positive income generated from assets held in the CLO fund, and a loss in nine months 2022 primarily attributable to lower valuations of assets held in CLO funds and the dilutive impact of a subsequent close of a healthcare fund.

Equity in earnings of other alternative investments decreased in third quarter 2022 and nine months 2022 compared with third quarter 2021 and nine months 2021 primarily due to mark-to-market losses in a private equity fund.

Economic Loss Development

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and, the effects of other loss mitigation strategies.

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

Assumptions used in the

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

Current risk-free rates are used to discount expected losses at the end of each reporting period and therefore changes in such rates from period to period affect the expected loss estimates reported.

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Dollar Denominated Obligations

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

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

Range 2.98% – 4.18% 1.67% – 3.41% 0.00% – 1.98% 0.00% – 2.13% 0.00% – 2.14% 0.00% – 1.72%

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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)

4 unchanged sentences

Net exposure rated BIG $ 5,869 $ 7,440

____________________

(1) The increase in net expected loss to be paid is due to the receipt in third quarter 2022 of $147 million in cash and $672 million of original notional of CVI from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA.

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

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

As of Second Quarter Six Months

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

As of Third Quarter Nine Months

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

(in millions)

7 unchanged sentences

Effect of changes in the risk-free rates included in economic loss development (benefit) (25) (1) $ (114) $ (34)

Second Quarter 2022 Net Economic Loss Development

Third Quarter 2022 Net Economic Loss Development

Public Finance:

The economic loss development on U.S.

exposures in second quarter 2022 was $8 million, and was primarily attributable to Puerto Rico exposures, partially offset by the effect of changes in discount rate.

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

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

exposures, which had BIG net par outstanding of $3.6 billion as of June 30, 2022 compared with $5.4 billion as of December 31, 2021.

exposures, which had BIG net par outstanding of $4.2 billion as of September 30, 2022 compared with $5.4 billion as of December 31, 2021.

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

1 unchanged sentence

The economic benefit attributable to U.S.

RMBS was $39 million and was primarily attributable to a $23 million benefit related to changes in discount rates, a $17 million benefit related to improved performance in certain transactions, a $14 million benefit related to higher recoveries for secured second lien charged-off loans, and a $11 million benefit related to lower initial severity assumptions for first lien U.S.

RMBS transactions, partially offset by losses of $26 million related to lower excess spread.

RMBS was $95 million and was primarily attributable to a $27 million benefit related to the purchase of a loss mitigation security, a $26 million benefit related to updates in the projected conditional default rate (CDR) curves, a $17 million benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, a $16 million benefit related to improved performance in certain transactions, a $12 million benefit related to changes in discount rates and a $7 million benefit related to higher recoveries for secured second lien charged-off loans, partially offset by losses of $10 million related to lower excess spread.

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

Second Quarter 2021 Net Economic Loss Development

Third Quarter 2021 Net Economic Loss Development

Public Finance:

Expected loss to be paid primarily related to U.S.

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

exposures, which had BIG net par

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

The Company projected

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

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

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

Economic loss development on U.S.

exposures in second quarter 2021

was $1 million, which was primarily attributable to deterioration in a student housing transaction and changes in discount rates,

which were partially offset by improvement in certain Puerto Rico exposures.

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

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

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

The economic benefit on U.S.

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

The economic benefit attributable to U.S.

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

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

Lower LIBOR results in higher excess spread.

Other Structured Finance :

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

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

Six Months 2022 Net Economic Loss Development

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

In third quarter 2021, the Company also refined several assumptions based on consistently observed trends.

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

Nine Months 2022 Net Economic Loss Development

Public Finance:

The economic benefit on U.S.

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

public finance exposures in nine months 2022 was $16 million, 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 net benefit attributable to U.S.

RMBS was $32 million and was mainly related to a $45 million benefit related to changes in discount rates, a $27 million benefit related to improved performance in certain transactions, an $18 million benefit related to higher recoveries for secured second lien charged-off loans, and a $11 million benefit related to lower initial severity assumptions for first lien U.S.

RMBS transactions, partially offset by losses of $69 million related to lower excess spread.

Six Months 2021 Net Economic Loss Development

Economic loss development on U.S.

public finance exposures in six months 2021 was $16 million, which was

primarily attributable to Puerto Rico exposures and deterioration in a student housing transaction, which were partially offset by

changes in discount rates and improved cash flows for a certain transaction.

The economic benefit was approximately $13

million for non-U.S.

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

RMBS was $127 million and was mainly related to a $56 million benefit related to changes in discount rates, a $43 million benefit related to improved performance in certain transactions, a $27 million benefit related to the purchase of a loss mitigation security, a $26 million benefit related to updates in the projected CDR curves, a $25 million benefit related to higher recoveries for secured second lien charged-off loans, a $17 million benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, and an $12 million benefit related to lower severity assumptions, partially offset by losses of $79 million related to lower excess spread.

Nine Months 2021 Net Economic Loss Development

Public Finance :

The economic benefit on U.S.

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

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

public finance exposures mainly due to the impact of higher Euro InterBank Offered Rate (Euribor) and, separately, improved traffic and availability in certain road exposures.

The net benefit attributable to U.S.

RMBS was $17 million and was mainly related to a $22 million benefit for changes

in discount rates, a $17 million benefit for improvement in certain transactions and an $11 million benefit for higher recoveries

received for charged-off loans, partially offset by a $33 million loss for lower excess spread.

The economic loss development

attributable to structured finance, excluding U.S.

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

transactions.

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

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

Other Structured Finance:

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

RMBS, was $9 million, which was primarily attributable to LAE for certain transactions.

Insurance Segment Loss Expense

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

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

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

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

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

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

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

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

7 unchanged sentences

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

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

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

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

The following table presents the Insurance segment loss expense.

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Loss Expense (Benefit)

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

7 unchanged sentences

Total Insurance segment loss expense (benefit) $ (75) $ (78) $ (32) $ (60)

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

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

Other Operating Expenses

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

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

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

19 unchanged sentences

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

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

There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL’s insurance

subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary.

In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment

may request that a rating agency add or drop a rating from certain of its companies.

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

For a discussion of the effects of rating actions on the Company beyond potential effects on the demand for its insurance products, see “— Liquidity and Capital Resources —” section below.

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Asset Management Segment Results

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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Performance fees 2 — 20 1

Other income (loss) (1) 2 1 2

Foreign exchange gains (losses) on remeasurement and other income (loss) 1 2 2 4

Total segment revenues 21 19 88 60

8 unchanged sentences

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

(2) Includes amortization of intangible assets of $3 million in both second quarter 2022 and second quarter 2021 and $6 million in both six months 2022 and six months 2021.

(2) Includes amortization of intangible assets of $2 million for third quarter 2022, $3 million for third quarter 2021, $8 million for nine months 2022, and $9 million for nine months 2021.

Management and Performance Fees

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Management Fees

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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

As of June 30, 2022, AUM of the wind-down funds was $0.3 billion compared with $1.2 billion as of June 30, 2021 and $0.6 billion as of December 31, 2021.

Performance fees and increased compensation expenses in six months 2022 were attributable to the healthcare and asset-based funds.

As of September 30, 2022, AUM of the wind-down funds was $0.2 billion compared with $0.8 billion as of September 30, 2021 and $0.6 billion as of December 31, 2021.

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

Assets Under Management

11 unchanged sentences

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

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

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

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

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Roll Forward of Assets Under Management

Second Quarter 2022

Third Quarter 2022

CLOs (1) Opportunity Funds (2) Liquid Strategies Wind-Down Funds Total

(in millions)

AUM, March 31, 2022 $ 14,282 $ 1,874 $ 375 $ 459 $ 16,990

AUM, June 30, 2022 $ 15,176 $ 2,050 $ 372 $ 339 $ 17,937

Inflows - third party — 1 — — 1

5 unchanged sentences

Change in value (186) 14 (6) (17) (195)

AUM, June 30, 2022

AUM, September 30, 2022

$ 14,951 $ 2,018 $ 367 $ 208 $ 17,544

Roll Forward of Assets Under Management

Six Months 2022

Nine Months 2022

CLOs (1) Opportunity Funds (2) Liquid Strategies (3) Wind-Down Funds Total

8 unchanged sentences

Change in value (451) 92 (23) 15 (367)

AUM, June 30, 2022

AUM, September 30, 2022

$ 14,951 $ 2,018 $ 367 $ 208 $ 17,544

_____________________

(1) Opportunity funds inflows in second quarter 2022 and six months 2022 are primarily related to the healthcare strategy fund.

Distributions from opportunity funds include $26 million and $74 million in second quarter 2022 and six months 2022, respectively, related to the AssuredIM Funds created prior to BlueMountain Acquisition.

As of June 30, 2022, AUM related to these funds was $114 million.

(2) Liquid strategies inflows and outflows in second quarter 2022 and six months 2022 relate to the transfer of assets from an existing municipal bond fund to a new municipal relative value fund.

(1) CLOs inflows and outflows include $105 million in third quarter 2022 and nine months 2022 related to the transfer of assets between two CLO funds.

(2) Opportunity funds inflows in nine months 2022 are primarily related to the healthcare strategy fund.

Distributions from opportunity funds include $41 million and $115 million in third quarter 2022 and nine months 2022, respectively, related to the AssuredIM Funds created prior to BlueMountain Acquisition.

As of September 30, 2022, AUM related to these funds was $74 million.

(3) Liquid strategies inflows and outflows in nine months 2022 relate to the transfer of assets from an existing municipal bond fund to a new municipal relative value fund.

Components of Assets Under Management

1 unchanged sentence

(in millions)

As of June 30, 2022:

As of September 30, 2022:

Funded AUM $ 14,857 $ 1,304 $ 367 $ 186 $ 16,714

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Corporate Division Results

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

2 unchanged sentences

Interest expense 22 25 66 74

Loss on extinguishment of debt — 175 — 175

Employee compensation and benefit expenses 7 5 20 15

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Adjusted operating income (loss) $ (30) $ (169) $ (98) $ (232)

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

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.

Financial Statements, Note 11, Long-Term Debt and Credit Facilities.

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

Holding Companies, and also includes intersegment interest expense of $3 million in both second quarter 2022 and second quarter 2021 and $5 million in both six months 2022 and six months 2021, respectively.

Intersegment interest expense relates primarily to the $250 million AGUS

debt to the U.S.

Holding Companies, and also includes intersegment interest expense of $2 million in both third quarter 2022 and third quarter 2021, and $7 million in both nine months 2022 and nine months 2021.

Intersegment interest expense relates primarily to the $250 million AGUS debt to the U.S.

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

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

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

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

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

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

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

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

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

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

(1) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements;

(2) eliminating the premiums and losses associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs;

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

The effect of consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on assets, liabilities and cash flows, and includes:

(1) the establishment of the assets and liabilities of the CIVs, and related changes in fair value;

(2) eliminating the asset management fees earned by AssuredIM from the CIVs;

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

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

(i) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements;

(ii) eliminating the premiums and losses associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs;

and (iii) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG VIEs.

Consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on assets, liabilities and cash flows, and includes:

(i) the establishment of the assets and liabilities of the CIVs, and related changes in fair value;

(ii) eliminating the asset management fees earned by AssuredIM from the CIVs;

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

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

1 unchanged sentence

The amounts represent:

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

and (2) the consolidation adjustments and eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

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

and (ii) the consolidation adjustments and eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.

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

Increase (Decrease)

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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

The impact of consolidating FG VIEs and CIVs was $10 million in second quarter 2022, compared with $4 million in second quarter 2021 due mainly to the out-of-period adjustments of $9 million (see Item 1, Financial Statements, Note 1, Business and Basis of Presentation), and fair value gains associated with consolidated AssuredIM Funds, mainly the healthcare fund.

Reconciliation to GAAP

1 unchanged sentence

to Adjusted Operating Income (Loss)

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

13 unchanged sentences

Net Realized Investment Gains (Losses)

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

6 unchanged sentences

Net realized investment gains (losses) $ (14) $ 3 $ (39) $ 4

Gross realized losses on sales of available-for-sale securities in second quarter 2022 and six months 2022 were primarily attributable to Puerto Rico recovery bonds.

Other net realized gains in six months 2022 relate primarily to the sale of one of the Company’s alternative investments.

Gross realized losses on sales of available-for-sale securities in third quarter 2022 and nine months 2022 were primarily attributable to sales of Puerto Rico recovery bonds.

Other net realized gains in nine months 2022 relate primarily to the sale of one of the Company’s alternative investments.

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

13 unchanged sentences

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

There has been very limited new issuance activity in this market since 2009 and, as of June 30, 2022, market prices for the Company’s credit derivative contracts were generally not available.

There has been very limited new issuance activity in this market since 2009 and, as of September 30, 2022, market prices for the Company’s credit derivative contracts were generally not available.

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

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

Second quarter 2022 and six months 2022 non-credit impairment-related unrealized fair value gains were generated primarily as a result of the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period, and changes in discount rates.

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

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

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

Third quarter 2022 non-credit impairment unrealized fair value losses were generated primarily as a result of wider asset spreads and a tightening of AGC spreads.

Nine months 2022 non-credit impairment unrealized fair value losses on credit derivatives were generated primarily as a result of wider asset spreads, partially offset by a widening of AGC spreads and changes in discount rates.

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

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

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

Sensitivity to Changes in Credit Spread

2 unchanged sentences

Effect of Changes in Credit Spread

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

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

Credit Spreads (1) Estimated Net

12 unchanged sentences

Fair Value Gains (Losses) on CCS

Fair value gains on CCS in second quarter 2022 and six months 2022 were primarily due to a significant increase in LIBOR.

Fair value losses on CCS in second quarter 2021 and six months 2021 were primarily due to a tightening in market spreads during the periods.

Fair value gains on CCS in third quarter 2022 and nine months 2022 were primarily due to a significant increase in LIBOR.

Fair value losses on CCS in third quarter 2021 and nine months 2021 were primarily due to a tightening in market spreads during the periods.

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

Foreign Exchange Gain (Loss) on Remeasurement

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

Non-GAAP Financial Measures

9 unchanged sentences

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

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

The Company believes this information may also be useful to analysts and investors evaluating Assured

Guaranty’s financial results.

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

38 unchanged sentences

Adjusted book value per share, further adjusted for FG VIE and CIV consolidation (core adjusted book value), is one of the key financial measures used in determining the amount of certain long-term compensation elements to management and employees and used by rating agencies and investors.

Management believes that adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues

net of expected losses.

Management believes that adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues net of expected losses.

Adjusted book value is adjusted operating shareholders’ equity, as defined above, further adjusted for the following:

8 unchanged sentences

to Adjusted Operating Shareholders’ Equity and Adjusted Book Value

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

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

After-Tax Per Share After-Tax Per Share

27 unchanged sentences

Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturity securities such as loss mitigation securities.

The discount rate is recalculated annually and updated as necessary.

discount rate is recalculated annually and updated as necessary.

Under GAAP, financial guaranty installment premiums are discounted at a risk-free rate.

2 unchanged sentences

Reconciliation of GWP to PVP

Second Quarter 2022 Second Quarter 2021

Third Quarter 2022 Third Quarter 2021

Public Finance Structured Finance Public Finance Structured Finance

5 unchanged sentences

PVP $ 57 $ 37 $ 1 $ — $ 95 $ 55 $ 17 $ 21 $ 3 $ 96

Six Months 2022 Six Months 2021

Nine Months 2022 Nine Months 2021

Public Finance Structured Finance Public Finance Structured Finance

6 unchanged sentences

___________________

(1) This includes the present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions and other GAAP adjustments.

(2) This includes the present value of future premiums and fees on new business paid in installments discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturities such as loss mitigation securities.

This also includes the present value of future premiums and fees associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees.

(1) Includes the present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions and other GAAP adjustments.

(2) Includes the present value of future premiums and fees on new business paid in installments discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturities such as loss mitigation securities.

This also includes the present value of future premiums and fees associated with a financial guarantee written by the Company that, under GAAP, is accounted for under Accounting Standards Codification (ASC) 460, Guarantees.

Insured Portfolio

3 unchanged sentences

The following table presents the financial guaranty portfolio by sector, net of cessions to reinsurers.

It includes all financial guaranty contracts outstanding as of the dates presented, regardless of the form written (i.e., credit derivative form or traditional financial guaranty insurance form) or the applicable accounting model (i.e., insurance, derivative or FG VIE consolidation), along with each sector’s average rating.

It includes all financial guaranty contracts outstanding as of the dates presented, regardless of the form written (i.e., credit derivative form or

traditional financial guaranty insurance form) or the applicable accounting model (i.e., insurance, derivative or FG VIE consolidation), along with each sector’s average rating.

Financial Guaranty Portfolio

Net Par Outstanding and Average Internal Rating by Sector

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

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

Sector Net Par

15 unchanged sentences

Renewable energy 183 A- 193 A-

Other public finance 1,072 A- 1,152 A-

Other public finance 1,055 BBB 1,152 A-

public finance 177,842 A- 177,219 A-

11 unchanged sentences

Life insurance transactions 3,272 AA- 3,431 AA-

RMBS 2,171 BB+ 2,391 BB+

Financial products 520 AA- 770 AA-

RMBS 2,006 BBB- 2,391 BB+

Pooled corporate obligations 498 AA+ 534 AA+

Financial products 470 AA- 770 AA-

Consumer receivables 470 A+ 583 A+

9 unchanged sentences

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

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

financial guarantor.

The second-to-pay insured par outstanding as of June 30, 2022 and December 31, 2021 was $4.6 billion and $4.9 billion, respectively.

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $27 million and $43 million as of June 30, 2022 and December 31, 2021, respectively.

The second-to-pay insured par outstanding as of September 30, 2022 and December 31, 2021 was $4.4 billion and $4.9 billion, respectively.

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $27 million and $43 million as of September 30, 2022 and December 31, 2021, respectively.

Exposure to Puerto Rico

The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding as of June 30, 2022, all of which was rated BIG.

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

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

1 unchanged sentence

Exposure to Puerto Rico By Company

As of June 30, 2022

As of September 30, 2022

Net Par Outstanding

9 unchanged sentences

PRHTA (Highway revenue) 344 51 23 — 418 418

Total HTA/CCDA PSA 614 518 203 (79) 1,256 1,256

Total HTA PSA 566 504 198 (79) 1,189 1,189

Total Subject to a Plan or Support Agreement 567 527 204 (80) 1,218 1,218

14 unchanged sentences

Amortization Schedule of Net Par of Puerto Rico

As of June 30, 2022

As of September 30, 2022

Scheduled Net Par Amortization

2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

2022 (4Q) 2023 (1Q) 2023 (2Q) 2023 (3Q) 2023 (4Q) 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

(in millions)

5 unchanged sentences

PRHTA (Highway revenue) — — — 32 — 33 34 1 78 240 — — 418

Total - HTA/CCDA PSA 68 — 65 37 63 25 242 550 201 5 1,256

Total - HTA PSA — — — 66 — 37 63 25 242 550 201 5 1,189

Total Subject to a Plan or Support Agreement — — — 68 — 37 65 27 265 550 201 5 1,218

6 unchanged sentences

Amortization Schedule of Net Debt Service of Puerto Rico

As of June 30, 2022

As of September 30, 2022

Scheduled Net Debt Service Amortization

2022 (3Q) 2022 (4Q) 2023 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

2022 (4Q) 2023 (1Q) 2023 (2Q) 2023 (3Q) 2023 (4Q) 2024 2025 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 Total

(in millions)

5 unchanged sentences

PRHTA (Highway revenue) — 11 — 43 — 53 52 18 159 279 — — 615

Total - HTA/CCDA PSA 100 — 127 94 120 79 482 702 237 5 1,946

Total - HTA PSA — 31 — 96 — 95 119 79 481 702 237 5 1,845

Total Subject to a Plan or Support Agreement — 32 — 100 — 96 122 82 508 702 237 5 1,884

11 unchanged sentences

Distribution of U.S.

RMBS by Year Insured and Type of Exposure as of June 30, 2022

RMBS by Year Insured and Type of Exposure as of September 30, 2022

First Lien Alt-A

49 unchanged sentences

Long-Term Debt and Intercompany Loans

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

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

(in millions)

39 unchanged sentences

Holding Companies, excluding their investments in subsidiaries.

As of June 30, 2022

As of September 30, 2022

Holding Companies

12 unchanged sentences

____________________

(1) As of June 30, 2022, weighted average durations of AGL’s and the U.S.

(1) As of September 30, 2022, weighted average durations of AGL’s and the U.S.

Holding Companies’ fixed-maturity securities (excluding AGUS’ investment in AGMH’s debt) were 6.2 years and 4.8 years, respectively.

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

Six Months 2022

Nine Months 2022

Holding Companies

9 unchanged sentences

Significant Cash Flow Items

Six Months 2022

Nine Months 2022

Holding Companies

3 unchanged sentences

Investments in subsidiaries — (15)

Return of capital from subsidiaries — 9

Dividends paid to AGL — (385)

35 unchanged sentences

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

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

As of June 30, 2022, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

Treasuries, agency RMBS and

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

As of September 30, 2022, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

Beyond the next twelve months, the ability of the operating subsidiaries to declare and pay dividends may be influenced by a variety of factors, including market conditions, general economic conditions, and, in the case of the Company’s insurance subsidiaries, insurance regulations and rating agency capital requirements.

4 unchanged sentences

Payments made in settlement of the Company’s obligations arising from its insured portfolio may, and often do, vary significantly from year to year, depending primarily on the frequency and severity of payment defaults and whether the Company chooses to accelerate its payment obligations in order to mitigate future losses.

While it appears to the Company that significant federal funding in 2021 may have mitigated the financial stress from direct and indirect consequences of COVID-19

for most obligors and assets underlying obligations guaranteed by the Company, the pandemic may still result in further increases in claims and loss reserves.

While it appears to the Company that significant federal funding in 2021 may have mitigated the financial stress from direct and indirect consequences of COVID-19 for most obligors and assets underlying obligations guaranteed by the Company, the pandemic may still result in further increases in claims and loss reserves.

The Company believes that state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various intermittent closures and capacity and travel restrictions or an economic downturn, are most at risk for increased claims.

The size and depth of the COVID-19 pandemic, its course and duration and the direct and indirect consequences of governmental and private responses to it, and the effectiveness and acceptance of vaccines and therapeutics for it, remain unknown, so the Company cannot predict the ultimate size of any increases in claims that may result from the pandemic.

In addition, as of June 30, 2022, the Company has financial guaranty exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding, all of which is rated BIG.

As set forth in Item 1, Financial Statements, Note 3, Outstanding Exposure, its $1.3 billion net outstanding par exposure to PRHTA is subject to a plan of adjustment filed by the FOMB with the Title III Court on May 2, 2022 (HTA Plan).

In addition, as of September 30, 2022, the Company has financial guaranty exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.1 billion net par outstanding, all of which is rated BIG.

As set forth in Item 1, Financial Statements, Note 3, Outstanding Exposure, its $1.2 billion net outstanding par exposure to PRHTA is subject to a plan of adjustment filed by the FOMB with the Federal District Court of Puerto Rico on May 2, 2022 (HTA Plan).

The Company anticipates making substantial claim payments in connection with the consummation of the HTA Plan, should consummation occur, and is taking this into account in projecting its liquidity needs.

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Currently, all the leveraged lease transactions in which AGM acts as strip coverage provider are breaching a rating trigger related to AGM and are subject to early termination.

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

If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately $436 million as of June 30, 2022.

However, early termination of a lease does not result in a draw on

the AGM policy if the tax-exempt entity makes the required termination payment.

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

As of June 30, 2022, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

As of September 30, 2022, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

The consensual terminations have resulted in no claims on AGM.

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Dividend restrictions by insurance subsidiary are as follows:

• The maximum amount available during 2022 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $278 million, of which approximately $77 million is available for distribution in the third quarter of 2022.

• The maximum amount available during 2022 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $207 million, of which approximately $16 million is available for distribution in the third quarter of 2022.

• Based on the applicable law and regulations, in 2022 AG Re (a subsidiary of AGL) has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $236 million as of June 30, 2022.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $199 million as of June 30, 2022, and (ii) the amount of statutory surplus, which as of June 30, 2022 was a deficit of $13 million.

• Based on the applicable law and regulations, in 2022 AGRO (an indirect subsidiary of AG Re) has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $106 million as of June 30, 2022.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $382 million as of June 30, 2022, and (ii) the amount of statutory surplus, which as of June 30, 2022 was $258 million.

• The maximum amount available during 2022 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $266 million, of which approximately $93 million is available for distribution in the fourth quarter of 2022.

• The maximum amount available during 2022 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $207 million, of which approximately $42 million is available for distribution in the fourth quarter of 2022.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $166 million as of September 30, 2022, and (ii) the amount of statutory surplus, which as of September 30, 2022 was a deficit of $45 million.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $369 million as of September 30, 2022, and (ii) the amount of statutory surplus, which as of September 30, 2022 was $248 million.

Distributions From Insurance Company Subsidiaries

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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or (c) upon certain changes of control of the Assuming Subsidiary.

Upon termination due to one of the above events, the Assuming

Subsidiary typically would be required to return to the ceding company unearned premiums (net of ceding commissions) and loss reserves, calculated on a U.S.

Upon termination due to one of the above events, the Assuming Subsidiary typically would be required to return to the ceding company unearned premiums (net of ceding commissions) and loss reserves, calculated on a U.S.

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

As of June 30, 2022, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $267 million, including $233 million by AGC and $34 million by AG Re.

As of September 30, 2022, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $264 million, including $229 million by AGC and $35 million by AG Re.

Committed Capital Securities

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Approximately 66% of the total investment portfolio is managed by external parties.

Each of the three external investment managers must maintain a minimum average rating of A+/A1/A+ by S&P Global Ratings, a division of Standard & Poor's Financial Services LLC, Moody’s and Fitch Ratings Inc., respectively.

Each of the three external investment managers must maintain a minimum average rating of A+/A1/A+ by S&P , Moody’s and Fitch Ratings Inc., respectively.

Changes in interest rates affect the value of the Company’s fixed-maturity securities.

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Carrying Value

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in millions)

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____________________

(1) As of June 30, 2022, fixed maturity securities includes $241 million of new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

(2) Represents CVIs received under the March Puerto Rico Resolutions.

The Company’s available-for-sale fixed-maturity securities had a duration of 4.3 years and 4.7 years as of June 30, 2022 and December 31, 2021, respectively.

(1) As of September 30, 2022, fixed maturity securities includes $64 million of new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

(2) Represents CVIs received under the March Puerto Rico Resolutions and the HTA PSA.

The Company’s available-for-sale fixed-maturity securities had a duration of 4.1 years and 4.7 years as of September 30, 2022 and December 31, 2021, respectively.

Available-for-Sale Fixed-Maturity Securities By Contractual Maturity

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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

Available-for-Sale Fixed-Maturity Securities By Rating

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of June 30, 2022 and December 31, 2021.

Available-for-Sale and Trading Fixed-Maturity Securities By Rating

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of September 30, 2022 and December 31, 2021.

Ratings reflect the lower of Moody’s and S&P classifications, except for bonds purchased for loss mitigation and certain other securities, which use Assured Guaranty’s internal ratings classifications, or are not rated, such as the Puerto Rico securities received under the March Puerto Rico Resolutions.

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

Rating June 30, 2022 December 31, 2021

Rating September 30, 2022 December 31, 2021

AAA 14.8 % 14.6 %

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See Item 1, Financial Statements, Note 7, Investments, for additional information.

(2) As of June 30, 2022, primarily represent new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

(2) As of September 30, 2022, primarily represent new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

The Company also had $393 million in trading fixed-maturity securities as of September 30, 2022 representing CVIs received under the March Puerto Rico Resolutions and the HTA PSA, which are not rated.

Other Investments

Other invested assets reported on the condensed consolidated balance sheets primarily consist of investments in renewable and clean energy and private equity funds managed by a third party.

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

As of June 30, 2022 and December 31, 2021, all of the funds in which AGAS invests are consolidated in the Company’s consolidated financial statements.

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

Other invested assets, which are generally less liquid than fixed-maturity securities managed by external managers and AssuredIM, reported on the condensed consolidated balance sheets primarily consist of investments in renewable and clean energy and private equity funds managed by a third party.

The Insurance segment reports AGAS’ percentage ownership of AssuredIM Funds’ as equity method investments with changes in NAV included in the Insurance segment adjusted operating income.

As of September 30, 2022 and December 31, 2021, all of the funds in which AGAS invests are consolidated in the Company’s consolidated financial statements.

The amounts in the table below represent the fair value of AGAS’ interests in the AssuredIM Funds.

See Commitments below.

Fair Value of AGAS’s Interest in AssuredIM Funds

Strategy June 30, 2022 December 31, 2021

Fair Value of AGAS’ Interest in AssuredIM Funds

Strategy September 30, 2022 December 31, 2021

(in millions)

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Total $ 574 $ 543

Equity in Earnings (Losses) of Investees of AGAS’s Investment in AssuredIM Funds

Second Quarter Six Months

Equity in Earnings (Losses) of Investees of AGAS’ Investment in AssuredIM Funds

Third Quarter Nine Months

Strategy 2022 2021 2022 2021

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Restricted Assets

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $217 million and $243 million as of June 30, 2022 and December 31, 2021, respectively.

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

benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,149 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 and $243 million as of September 30, 2022 and December 31, 2021, respectively.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,174 million and $1,231 million, based on fair value, as of September 30, 2022 and December 31, 2021, respectively.

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

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

As of June 30, 2022, the Insurance segment had total commitments to AssuredIM Funds of $757 million, of which $516 million represented net invested capital and $241 million was undrawn.

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.

As of September 30, 2022, the Insurance segment had total commitments to AssuredIM Funds of $755 million, of which $536 million represented net invested capital and $219 million was undrawn.

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.

Sources and Uses of Funds

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(1) cash from operations, including management and performance fees (which are unpredictable as to amount and timing);

and (2) capital contributions from AGUS ($15 million and $15 million in six months 2022 and six months 2021, respectively, had been contributed to supplement cash from operations).

As of June 30, 2022, AssuredIM had $30 million in cash and short-term investments.

and (2) capital contributions from AGUS ($15 million and $15 million in nine months 2022 and nine months 2021, respectively, had been contributed to supplement cash from operations).

As of September 30, 2022, AssuredIM had $30 million in cash and short-term investments.

AssuredIM’s liquidity needs primarily include:

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and (3) capital to support growth and expansion of the asset management business.

third quarter 2022 and 2021, AssuredIM distributed $8.8 million to AGUS to fund AGUS’s interest payment on its

intercompany debt to the insurance subsidiaries.

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

Lease Obligations

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The primary sources of cash in FG VIEs are the collection of principal and interest on the collateral supporting the debt obligations, and the primary uses of cash are the payment of principal and interest due on the debt obligations.

The insurance subsidiaries are not primarily liable for the debt obligations issued by the VIEs they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall.

The insurance subsidiaries are not primarily liable for the debt obligations issued by the VIEs they insure

and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall.

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

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

As of 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.

As of September 30, 2022, $206 million was drawn under credit facilities with interest rates ranging from 3-month 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.

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 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.

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.

Condensed Consolidated Cash Flows

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Condensed Consolidated Cash Flow Summary

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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

Other 4 (2) (6) (14)

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

Net cash flows provided by (used in) financing activities before effect of VIE consolidation — 2 (6) (12)

Effect of FG VIEs and CIVs consolidation (1) 109 742 1,110 1,664

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

Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of $621 million in six months 2022 and an inflow of $46 million in six months 2021.

The increase in cash outflows during 2022 was primarily due to claim payments made net of cash recoveries received in connection with the March Puerto Rico Resolutions and higher tax payments.

Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of $534 million in nine months 2022 and an outflow of $20 million in nine months 2021.

The increase in cash outflows during 2022 was primarily due to claim payments made net of cash recoveries received pursuant to GO/PBA Plan and the terms of the HTA PSA as well as higher tax payments.

Financial Statements, Note 3, Outstanding Exposure, for additional information.

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

The increase in investing cash inflows during 2022 was mainly attributable to higher sales of short-term investments in 2022 to fund share repurchases and claim payments in connection with the March Puerto Rico Resolutions.

The increase in investing cash inflows during 2022 was mainly attributable to lower purchases and higher disposals of fixed-maturity securities and sales of trading securities in 2022 to fund share repurchases and claim payments in connection with the March Puerto Rico Resolutions.

Financial Statements, Note 3, Outstanding Exposure, for additional information.

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

The slight increase in financing cash flow activity from VIEs was primarily due to the consolidation of an additional CLO and securitization of a previously consolidated CLO warehouse.

Financing activities primarily consist of share repurchases, dividends, and paydowns of FG VIEs’ liabilities, as well and CLO issuances and CLO warehouse financing activities In nine months 2021, it also included the issuance of 3.15% Senior Notes and 3.6% Senior Notes, and redemptions of a portion of AGMH and AGUS debt.

Financial Statements, Note 11, Long-Term Debt and Credit Facilities.

The decrease in financing cash flow activity from VIEs was primarily due to the

decrease in issuances by the consolidated CLOs and CLO warehouses.

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

From July 1 through August 3, 2022, the Company repurchased an additional 0.6 million of common shares.

As of August 3, 2022, the Company was authorized to purchase $365 million of its common shares.

From October 1 through November 7, 2022, the Company repurchased an additional 0.8 million of common shares.

As of November 7, 2022, the Company was authorized to purchase $261 million of its common shares.

For more information abou t th e Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 14, Shareholders’ Equity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2022, there were no material changes to the market risks to which the Company is exposed since December 31, 2021.

As of September 30, 2022, there were no material changes to the market risks to which the Company is exposed since December 31, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis