What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-08 · 449 added, 615 removed, 1111 unchanged (49% 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, 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;

• significant 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;

• geopolitical risk, including United States (U.S.)-China strategic competition and technology decoupling, Russia’s invasion of Ukraine and the resulting economic sanctions, fragmentation of global supply chains, volatility in energy prices, potential for increased cyberattacks, and risk of intentional or accidental escalation between NATO and Russia;

• the possibility of a U.S.

government shutdown, payment defaults on the debt of the U.S.

government or instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities, and downgrades to their credit ratings;

• 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;

• developments in the world’s financial and capital markets, including stresses in the financial condition of banking institutions in the U.S., that adversely affect repayment rates related to commercial real estate, municipalities and other insured obligors, Assured Guaranty’s insurance loss or recovery experience, investments of Assured Guaranty or assets it manages;

• reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty’s insurance;

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

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

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

• insured losses, including losses with respect to related legal proceedings, in excess of those expected by Assured Guaranty or the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the final resolution of Assured Guaranty’s remaining Puerto Rico exposures or the amounts recovered on securities received in connection with the resolution of Puerto Rico exposures already resolved;

• increased competition, including from new entrants into the financial guaranty industry, nonpayment insurance and other forms of capital saving or risk syndication available to banks and insurers;

• poor performance of Assured Guaranty’s asset management strategies compared to the performance of the asset management strategies of Assured Guaranty’s competitors;

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

• the possibility that Assured Guaranty’s planned transactions pursuant to which Assured Guaranty will contribute to Sound Point Capital Management, LP (Sound Point) most of its asset management business, other than that conducted by Assured HealthCare Partners LLC (AssuredIM Contributed Business) and receive an ownership interest in Sound Point, fail to close or are delayed due to the failure to fulfill or waive certain customary closing conditions, which include the receipt of certain consents and regulatory approval, or due to other reasons;

• the impacts of the announcement and the completion of Assured Guaranty’s planned transactions with Sound Point on Assured Guaranty and its relationships with its shareholders, regulators, rating agencies, employees and the obligors it insures and on the AssuredIM Contributed Business and on the business of Assured Healthcare Partners LLC and their relationships with their respective clients and employees;

• the possibility that strategic transactions made by Assured Guaranty, including the consummation of the planned transactions with Sound Point, do not result in the benefits anticipated or subject Assured Guaranty to negative consequences;

• the inability to control the business, management or policies of entities in which the Company holds a minority interest;

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

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

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

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

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• natural or man-made catastrophes or pandemics;

• other risk factors identified in AGL’s filings with the United States (U.S.) Securities and Exchange Commission (SEC);

• the impact of climate change on our business and regulatory actions taken related to such risk;

• other risk factors identified in AGL’s filings with the U.S.

Securities and Exchange Commission (SEC);

• other risks and uncertainties that have not been identified at this time;

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The Company uses its web site and may use its social media account as a means of disclosing material information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure).

Accordingly, investors should monitor the Company Statements, Investor Information and Businesses portions of the Company’s web site as well as the Company’s social media account on LinkedIn, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts.

Accordingly, investors should monitor the Company Statements, Investor Information and Businesses portions of

the Company’s web site as well as the Company’s social media account on LinkedIn, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts.

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.

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

and international public finance (including infrastructure) and structured finance markets.

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

If an obligor defaults on a scheduled

payment due on an obligation, including a scheduled principal 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.

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

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

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

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

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

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

AssuredIM provides investment advisory services while leveraging a technology-enabled risk platform, which aims to maximize returns for its clients.

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

As of September 30, 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.

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

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

public finance (including infrastructure) and structured finance markets.

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

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

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

Transaction with Sound Point

On April 5, 2023, Assured Guaranty entered into a transaction agreement (Transaction Agreement) pursuant to which it agreed to contribute to Sound Point the AssuredIM Contributed Business.

In addition, AGM and AGC (U.S.

Insurance Subsidiaries) entered into a letter agreement (Letter Agreement) pursuant to which they agreed that, after the closing of the transactions contemplated by the Transaction Agreement, they would (a) engage Sound Point as their sole alternative credit manager, (b) transition to Sound Point the management of certain existing alternative investments and related commitments, and (c) subject to regulatory approval, over time make new investments in funds, other vehicles and separately managed accounts managed by Sound Point which, when aggregated with the transitioned alternative investments and commitments, will total $1 billion.

See Note 7, Investments.

Assured Guaranty will receive, subject to certain potential post-closing adjustments, common interests in Sound Point representing a 30% participation percentage in Sound Point, and certain other interests in related Sound Point entities (the transactions contemplated under the Transaction Agreement and the Letter Agreement, the Sound Point Transaction).

AssuredIM anticipates transferring assets under management (AUM) of approximately $15.2 billion, including management of approximately $14.5 billion of collateralized loan obligations (CLOs), as of December 31, 2022, to Sound Point as part of the Sound Point Transaction, subject to the receipt of certain consents and regulatory approval.

As a result, Sound Point, which had approximately $21.4 billion in CLO AUM and $32 billion in total AUM as of December 31, 2022, would become the fifth largest CLO manager by AUM in the world based on December 31, 2022 CreditFlux CLO manager rankings.

The Sound Point Transaction is expected to be completed in the third quarter of 2023, subject to certain customary closing conditions, including the receipt of certain consents and regulatory approval.

Economic Environment

Economic activity in the U.S.

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), 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).

Real gross domestic product (GDP) increased 1.1% in the first quarter of 2023, compared to an increase of 2.6% in the fourth quarter of 2022, according to the advance estimate released by the U.S.

Bureau of Economic Analysis (BEA).

At the end of March 2023, the U.S.

unemployment rate, seasonally adjusted, stood at 3.5%, unchanged from where it had started the quarter, and down from the COVID-19 pandemic high of 14.7% in April 2020.

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

According to the U.S.

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

over the 12-month period ending 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.

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

before seasonal adjustment for the 12-month period ending March 2023, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), was 5.0%, as compared to 6.5% for the 12-month period ending December 2022.

The BLS reports that the 5.0% increase for the 12

months ending March 2023 was the smallest 12-month increase since the period ending May 2021.

According to the United Kingdom’s (U.K.) Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was 8.9% for the 12 months to March 2023, down from 9.2% for the 12 months ended December 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.

increases reported net par outstanding for certain U.K exposures with approximately $20.7 billion of net par outstanding as of March 31, 2023, 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 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 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.

With the Federal Open Market Committee (FOMC) acknowledging the need to combat inflation, 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%.

From March 2022 through May 3, 2023, the FOMC raised the target range for the federal funds rate nine times, from 0% to 0.25% where it started 2022 to 5.0% to 5.25% at its May 2-3, 2023 meeting, stating that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run.

In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the FOMC indicated that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

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

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

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

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

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

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 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, 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.

The 20-City Composite posted a 13.1% year-over-year gain, down from 16.0% in the previous month .

Home prices in the U.S.

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

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

Impact of COVID-19

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.

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 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.

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

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

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.

On the one hand, higher interest rates may present a more challenging environment for distressed residential mortgage-backed securities (RMBS) the Company insures to the extent they cause housing prices to decline.

The National Association of Realtors (NAR) reported existing-home sales declined 22.0% in March 2023 from one year ago as home sales are trying to recover and are highly sensitive to changes in mortgage rates.

The median existing-home price for all housing types in March 2023 was $375,700, a decline of 0.9% from March 2022 ($379,300).

Higher interest rates may also reduce the fair value of fixed-maturity securities currently held in the Company’s investment portfolio, dampen municipal bond issuance and negatively impact the finances of some of the obligors whose payments the Company insures.

On the other hand, higher interest rates are often accompanied by wider spreads, which may make the Company’s credit enhancement products more attractive in the U.S.

municipal bond market and increase the level of premiums it can charge for those products.

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 MMD rate averaged 3.37% for the quarter ended March 2023, lower than the 3.71% average for the quarter ended December 2022, but considerably higher than the 2.00% average for the quarter ended March 2022.

Meanwhile, the difference, or credit spread, between the 30-year BBB-rated general obligation relative to the 30-year AAA MMD averaged 101 bps in the quarter ended March 2023, near the 103 bps average for the quarter ended December 2022, but significantly wider than the 72 bps average for the quarter ended March 2022.

The Company believes that a further widening of credit spreads in 2023, should it occur, could permit it to increase its premium rates on new business.

In addition, the Company believes that over time, higher interest rates may also increase the amount the Company can earn on its largely fixed-maturity securities.

Key Business Strategies

The Company continually evaluates its business strategies.

For example, with the establishment of AssuredIM the Company has increased its focus on asset management and alternative investments.

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

The Company continually evaluates its business strategies and is currently pursuing key business strategies in three areas:

(i) insurance;

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Growth of the Insured Portfolio

The Company seeks to grow its insurance portfolio through new business production in each of its three markets:

public finance, international infrastructure and global structured finance.

The Company seeks to grow its financial guaranty insurance portfolio through new business production in each of its markets:

public finance (including infrastructure) and structured finance.

The Company believes high-profile defaults by municipal obligors, such as Puerto Rico, Detroit, Michigan and Stockton, California as well as events such as the COVID-19 pandemic have led to increased awareness of the value of bond insurance and stimulated demand for the product.

The Company believes there will be continued demand for its insurance in this market because, for those exposures that the Company guarantees, it undertakes the tasks of credit selection, analysis, negotiation of terms, surveillance and, if necessary, loss mitigation.

The Company believes that its insurance:

• encourages retail investors, who typically have fewer resources than the Company for analyzing municipal bonds, to purchase such bonds;

• enables institutional investors to operate more efficiently;

• allows smaller, less well-known issuers to gain market access on a more cost-effective basis.

(i) encourages retail investors, who typically have fewer resources than the Company for analyzing municipal bonds, to purchase such bonds;

(ii) enables institutional investors to operate more efficiently;

and (iii) allows smaller, less well-known issuers to gain market access on a more cost-effective basis.

The low interest rate environment and tight U.S.

municipal credit spreads from when the financial crisis began in 2008 through early 2020 dampened demand for bond insurance compared to the levels before the financial crisis that began in 2008.

More recently, uncertainty related to the COVID-19 pandemic and then rising interest rates improved demand for financial guaranty insurance.

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

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

After the onset of the COVID-19 pandemic in early 2020, credit spreads initially widened as a result of market concerns about the impact of the COVID-19 pandemic on some municipal credits, thereby improving demand for financial guaranty insurance even in a low interest rate environment, before narrowing again in 2022.

The Company believes that if credit spreads widen in 2023 demand for bond insurance may improve.

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

For example, certain investors may receive advantageous capital requirement treatment with the addition of the Company’s guaranty.

The Company considers its involvement in both international infrastructure and structured finance transactions to be beneficial because such transactions diversify both the Company’s business opportunities and its risk profile beyond U.S.

The Company considers its involvement in both infrastructure and structured finance transactions to be beneficial because such transactions diversify both the Company’s business opportunities and its risk profile beyond U.S.

public finance.

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

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

Municipal Market Data and Bond Insurance Penetration Rates (1)

Based on Sale Date

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

First Quarter 2023 First Quarter 2022 Year Ended December 31, 2022

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

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

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

This has been illustrated by the Company’s role in the Detroit, Michigan and Stockton, California financial crises, and more recently by the Company’s role in negotiating various

agreements in connection with the restructuring of obligations of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations.

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

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

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), 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).

• 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).

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

After over five years of negotiations, 2022 was 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) related to the Company’s exposure to all defaulting Puerto Rico credits except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions) as discussed in Item 1.

Financial Statements,Note 3, Outstanding Exposure—Exposure to Puerto Rico.

As a result of the 2022 Puerto Rico Resolutions the Company’s obligations under its insurance policies covering debt of the Puerto Rico Convention Center District Authority (PRCCDA) and Puerto Rico Infrastructure Authority (PRIFA) were extinguished, and its insurance exposure to Puerto Rico general obligations (GO) bonds, Public Buildings Authority (PBA) bonds and Puerto Rico Highway and Transportation Authority (PRHTA) bonds was greatly reduced.

The Company believes the 2022 Puerto Rico Resolutions mark significant milestones in its Puerto Rico loss mitigation efforts.

In connection with the 2022 Puerto Rico Resolutions, the Company received substantial amounts of cash, new general obligation bonds (New GO Bonds) and new bonds backed by toll revenues (Toll Bonds, and together with New GO Bonds, New Recovery Bonds) and contingent value instruments (CVIs) associated with its direct exposures.

The Company has sold some of the New Recovery Bonds and CVIs it had received in connection with the 2022 Puerto Rico Resolutions and may continue to sell amounts it still retains, subject to market conditions.

The Company continues to work to resolve its remaining unresolved defaulted Puerto Rico exposure, PREPA.

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

The Company is 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.

The Company also purchases attractively priced obligations, including below-investment-grade (BIG) obligations, that it has insured and for which it had 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 March 31, 2023 (excluding the value of the Company’s insurance) was $497 million, with a par of $769 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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Asset Management and Alternative Investments

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

As of September 30, 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.

Over time, the Company seeks to broaden and further diversify its Asset Management segment leading to increased AUM and a fee-generating platform.

The Company intends to leverage the AssuredIM infrastructure and platform to grow its Asset Management segment both organically and through strategic combinations.

The Company monitors certain operating metrics that are common to the asset management industry.

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.

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 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.

The Company allocated $750 million of capital to invest in funds managed by AssuredIM, plus $550 million aggregate of investment assets of AGM, AGC and, until its merger with AGM on April 1, 2021, Municipal Assurance Corp.

(MAC), (collectively, the U.S.

Insurance Subsidiaries) to be managed by AssuredIM under an Investment Management Agreement (IMA).

The Company is using these allocations to:

(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 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 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.

As discussed above, on April 5, 2023, the Company announced the Sound Point Transaction, which further advances two of the objectives the Company has been pursuing since the BlueMountain Acquisition.

The first objective was to establish a fee-based earnings stream independent of the risk-based premiums generated by the financial guaranty business.

The Company’s 30% investment in the combined firm will advance this earnings diversification.

The second objective was to enhance the alternative investment opportunities for our financial guaranty subsidiaries’ investment portfolios.

The combined business, managed by Sound Point, will be strengthened by the addition of AssuredIM’s AUM.

The Company believes that the Sound Point Transaction provides 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.

Adding distributed gains from inception through March 31, 2023 to the original $750 million allocation, the U.S.

Insurance Subsidiaries may invest a total of up to $853 million in in affiliated alternative investment funds through their jointly owned investment subsidiary, AG Asset Strategies LLC (AGAS).

As of March 31, 2023, AGAS had committed $613 million to AssuredIM Funds, including $247 million that has yet to be funded.

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

Capital Management

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

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

From 2013 through May 9, 2023, the Company has repurchased 141 million common shares for approximately $4.7 billion, representing approximately 73% of the total shares outstanding at the beginning of the repurchase program in 2013.

As of May 9, 2023, the Company was authorized to purchase $201 million of its common shares.

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

The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors.

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

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

See Item 1, Financial Statements, Note 13, Shareholders’ Equity, for additional information about the Company’s repurchases of its common shares.

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2013 - 2022 $ 4,661 140.875 $ 33.09

2022 (First Quarter) 155 2.738 56.62

2022 (Second Quarter) 151 2.606 58.03

2022 (Third Quarter) 97 1.790 53.77

2022 (through November 7) 42 0.786 53.99

2023 (January 1 - May 9) 2 0.036 62.23

Cumulative repurchases since the beginning of 2013 $ 4,663 140.911 33.09

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

As of March 31, 2023, the estimated accretive effect of the cumulative repurchases of common shares since the beginning of 2013 was approximately:

$38.70 per share in shareholders’ equity attributable to AGL, $43.35 per share in adjusted operating shareholders’ equity and $77.44 per share in adjusted book value.

The Company considers the appropriate mix of debt and equity in its capital structure.

On May 26, 2021, the Company issued $500 million of 3.15% Senior Notes, due in 2031 for net proceeds of $494 million.

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

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

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

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

all $100 million of AGMH’s 5.60% Notes due in 2103;

the remaining $130 million of AGMH 6.25% Notes due in 2102;

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

In 2021, the Company issued $500 million of 3.15% Senior Notes, due in 2031 and $400 million of 3.6% Senior Notes, due in 2051.

The proceeds from these issuances were used to redeem $100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, $230 million of AGMH’s 6.25% Notes due in 2102, $100 million of AGMH’s 5.60% Notes due in 2103, 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.

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Holding Companies’ long-term debt.

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

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

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.

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

Upon the merger all direct insurance policies issued by MAC became direct insurance obligations of AGM.

As a result, the Company wrote off the $16 million carrying value of MAC’s insurance licenses in the first quarter of 2021.

This restructuring of the Company’s U.S.

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

Insurance Subsidiaries.

Executive Summary

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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.

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

Changes in laws and regulations, among other factors, may also have a significant effect on reported net income or loss in a given reporting period.

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Financial Results

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions, except per share amounts)

Net income (loss) attributable to AGL $ 81 $ 66

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Present value of new business production (PVP) (1)

95 96 240 263

Gross par written 5,363 4,471

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Inflows - intercompany — —

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

As of March 31, 2023 As of December 31, 2022

Amount Per Share Amount Per Share

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

(3) The Company was limited in its ability to raise third party AUM as a result of the pending Sound Point Transaction due to regulatory and practical considerations.

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

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Condensed Consolidated Results of Operations

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

2022 2021 2022 2021

Three Months Ended March 31,

(in millions)

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Interest expense 21 20

Loss on extinguishment of debt — 175 — 175

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

Amortization of deferred acquisition cost (DAC) 3 4

Employee compensation and benefit expenses 82 73

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Net income (loss) attributable to Assured Guaranty Ltd.

$ 11 $ 17 $ 30 $ 126

Effective tax rate 19.1 % 20.0 %

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:

• 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 CCS in nine months 2022 compared with losses in nine months 2021.

First Quarter 2023 Compared with First Quarter 2022

Net income attributable to AGL for the three-month period ended March 31, 2023 (first quarter 2023) was higher compared with the three-month period ended March 31, 2022 (first quarter 2022) primarily due to:

• lower losses and LAE due primarily to higher losses on Puerto Rico exposures in first quarter 2022,

• foreign exchange gains on remeasurement in first quarter 2023 compared with losses in first quarter 2022,

• higher fair value gains on CIVs, and

• higher net investment income, and other income.

These increases were primarily offset in part by:

• lower net earned premiums mainly attributable to accelerations on certain Puerto Rico exposures in first quarter 2022, and

• fair value losses on CCS in first quarter 2023 compared with gains in first quarter 2022.

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 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.

marginal corporate tax rate of 19%, the 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.

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Adjusted Operating Income

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.

Adjusted operating income in first quarter 2023 was $68 million, compared with $90 million in first quarter 2022.

The decrease was primarily due to a benefit in first quarter 2022 of $63 million (after-tax) associated with the now extinguished exposures covered by the 2022 Puerto Rico Resolutions (which benefit consisted of premium accelerations, offset in part by recognition of loss expense that was previously embedded in unearned premium reserve).

The benefit associated with the 2022 Puerto Rico Resolutions was offset in part by gains on alternative investments, higher net investment income and the release a litigation accrual reported in other income in 2023.

See “— Results of Operations — Reconciliation to GAAP” for the reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).

Book Value and Adjusted Book Value

Shareholders’ equity attributable to AGL declined mainly due to unrealized losses on the available-for-sale fixed-maturity investment portfolio that were 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, 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 and

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

See “— Overview — Key Business Strategies”.

Shareholders’ equity attributable to AGL as of March 31, 2023 increased compared with December 31, 2022, as net income and other comprehensive income were partially offset by dividends.

Adjusted operating shareholders’ equity and adjusted book value increased primarily due to operating income offset in part by dividends, and in the case of adjusted book value, new business production in 2023, partially offset by dividends.

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

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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 $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.

In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $289 million in net par outstanding as of March 31, 2023, comprising $234 million net par exposure to the sovereign debt of Poland and $55 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.

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

The Federal Reserve Board has raised interest rates a few times and communicated its intention to further raise them in the future.

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

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.

On the other hand, high interest rates decrease the amount of excess spread available to support the distressed RMBS the Company insures and reduce the market value of its largely fixed rate fixed maturity investment portfolios.

ICE Benchmark Administration (IBA) and U.K.

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

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

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

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

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

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

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

The Company has exposure to LIBOR in the following areas:

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

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

Dollar LIBOR.

On March 15, 2022, the U.S.

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

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

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

Sterling LIBOR .

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

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

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

By some key measures, consumer price inflation in the U.S.

was higher in recent years than it has been in decades, and interest rates generally increased.

Consumer price inflation in the U.K.

impacts the Company directly by increasing exposure for certain index-linked U.K.

debt with par that accretes with increasing inflation, and also increasing projected future installment premiums on the portion of such exposure that pays at least some 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, and may be accompanied by higher interest rates that could impact the Company in several ways.

After acknowledging the need to combat inflation, the FOMC of the Federal Reserve Board decided at its March 2022 meeting to start again raising the target federal funds rate, and raised the rate nine times from March 2022 through May 3, 2023.

At its May 2-3, 2023 meeting, the FOMC raised the federal funds target rate by 25 bps to 5.0% to 5.25%, its ninth consecutive increase, and stated that its decision to raise the target range of the federal funds rate was in support of its goals of achieving maximum employment and inflation at the rate of 2% over the longer run.

In determining the extent to which additional federal

funds target rate increases are needed to return inflation to 2% over time, the FOMC indicated it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

Higher interest rates impact the Company in numerous other ways.

For example, higher interest rates are often accompanied by wider credit spreads, which may make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product.

However, despite the increases in interest rates in 2022 and first quarter 2023, the pace of credit spread widening was more modest and market penetration of municipal bond insurance in the U.S.

public finance market remained relatively flat compared to 2021.

Over time, higher interest rates also increase the amount the Company can earn on its largely fixed-maturity investment portfolio.

Higher interest rates may present a more challenging environment for distressed RMBS the Company insures to the extent they cause housing prices to decline, reduce the fair value of its largely fixed-rate fixed-maturity investment portfolio, dampen municipal bond issuance and negatively impact the finances of some insured obligors.

See “Overview — Economic Environment”.

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 company (PFICs).

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.

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

The inputs into the Company’s estimates and assumptions consider the economic implications of COVID-19.

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

Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the condensed consolidated financial statements.

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

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

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

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

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

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

AUM may be impacted by a wide range of factors, including the condition of the global economy and

financial markets, the relative attractiveness of the investment strategies of AssuredIM, and regulatory or other governmental policies or actions.

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

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Insurance Segment Results

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

Segment revenues

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

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

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

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

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

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

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

Terminations are more common in the structured finance asset class, but may also occur in the public finance asset class.

Terminations have been more common in the structured finance asset class, but may also occur in the public finance asset class.

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 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

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

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Total public finance 66 199

Structured finance

Scheduled net earned premiums (1) 15 22 44 52

Terminations — — — 1

Total structured finance 15 22 44 53

Structured finance scheduled net earned premiums (1) 15 15

Specialty insurance and reinsurance 1 1

7 unchanged sentences

(1) Includes accretion of discount.

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.

Net earned premiums and credit derivative revenues decreased in first quarter 2023 compared with first quarter 2022 primarily due to refundings of $104 million related to the resolution of PRCCDA, PRIFA and GO/PBA exposures that occurred in March 2022 discussed in Item 1.

Financial Statements, Note 3, Outstanding Exposure.

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.

As of March 31, 2023, $3.7 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

New Business Production

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New Business Production

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

Public Finance—U.S.

$ 54 $ 52 $ 160 $ 160

Public Finance—non-U.S.

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Public Finance—U.S.

$ 57 $ 55 $ 163 $ 165

Public Finance—non-U.S.

6 unchanged sentences

Public Finance—non-U.S.

194 156 624 1,117

Structured Finance—U.S.

30 436 106 941

Structured Finance—non-U.S.

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Total gross par written $ 5,363 $ 4,471

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

Average rating on new business written A A-

____________________

(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 .

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

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

Third Quarter 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 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.

(2) First quarter 2023 and 2022 PVP and gross par written include the present value of future gross revenues and exposure, respectively, associated with a financial guaranty written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees .

In first quarter 2023, structured finance GWP was almost six times GWP in first quarter 2022, and PVP was over seven times PVP in first quarter 2022.

First quarter 2023 structured finance GWP primarily includes a large insurance securitization transaction.

Structured finance PVP in first quarter 2023 includes the insurance securitization, as well as an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties for which no GWP was reported under GAAP because it is not accounted for as insurance.

In first quarter 2023, non-U.S.

public finance GWP and PVP were more than double the GWP and PVP in first quarter 2022.

In first quarter 2023, new business primarily included the guaranty of a long-term sale and leaseback transaction with Glasgow City Council and several regulated utility transactions.

public finance GWP and PVP in first quarter 2023 were lower than the comparable GWP and PVP in first quarter 2022, primarily due to reduced market issuance and fewer secondary market transactions in first quarter 2023.

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.

Income from Investment Portfolio

public finance par written was A- in first quarter 2023 and first quarter 2022.

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

municipal market insured issuance in first quarter 2023, compared with 58% in first quarter 2022, and the Company’s penetration of all municipal issuance was 4.6% in first quarter 2023 compared with 4.9% in first quarter 2022.

Business activity in the infrastructure (reported in non-US public finance) and structured finance sectors typically has long lead times and therefore may vary from period to period.

Income from Investments

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

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

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.

The investment yield on fixed-maturity securities 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 2022 Puerto Rico Resolutions are classified as trading with changes in fair value reported in “fair value gains (losses) on trading securities” in the consolidated statements on operations.

The fair value of such instruments as of March 31, 2023 was $300 million.

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

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

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

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

Insurance Subsidiaries are authorized to invest up to $750 million in affiliated alternative investment funds.

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

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

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

Insurance Subsidiaries may invest a total of up to $853 million in affiliated alternative investment funds.

As of March 31, 2023, the U.S.

Insurance Subsidiaries had total commitments to AssuredIM Funds of $613 million, of which $366 million represented net invested capital and $247 million was undrawn.

Insurance Segment

Income from Investment Portfolio

Third Quarter Nine Months

2022 2021 2022 2021

Income from Investments

First Quarter

(in millions)

Net investment income

Externally managed $ 48 $ 47

Loss mitigation securities and other 17 12 42 44

Internally managed:

Loss Mitigation Securities 10 9

Managed by AssuredIM (1) 8 4

Short-term 10 —

Intercompany loans 3 2

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AssuredIM Funds $ 28 $ 11

Other (20) 10 (33) 30

Equity in earnings (losses) of investees $ 30 $ (1)

____________________

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

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.

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

Net investment income increased to $82 million in first quarter 2023 compared with $63 million in first quarter 2022, primarily due to the increase in short-term rates and higher average short-term balances, as well as higher income on floating rate CLO investments.

The overall pre-tax book yield of available-for-sale fixed-maturity securities and short-term investments was 3.82% as of March 31, 2023 and 3.15% as of March 31, 2022.

Excluding the internally managed portfolio and portfolio managed by AssuredIM, pre-tax book yield was 3.17% as of March 31, 2023 and 2.93% as of March 31, 2022.

Equity in earnings of AssuredIM Funds were gains in first quarter 2023 and first quarter 2022 primarily attributable to higher valuations of assets held in the CLO and healthcare funds.

Other Income (Loss)

The increase in “other income (loss)” in first quarter 2023 compared with first quarter 2022 was primarily attributable to the reversal of a previously recorded litigation accrual of $20 million.

See Item 1, Financial Statements, Note 12, Commitments and Contingencies, for additional information.

Economic Loss Development

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

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

For a discussion of methodologies and significant estimates for expected loss to be paid (recovered), see Part II.

Item 8, Financial Statements and Supplementary Data, Note 4, Expected Loss to be Paid (Recovered), of the Company’s 2022 Annual Report on Form 10-K.

For the accounting policies for measurement and recognition under GAAP for each type of contract, see the notes listed below in Part II.

Item 8, Financial Statements and Supplementary Data, of the Company’s 2022 Annual Report on Form 10-K:

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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, 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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however, the effect of changes in discount rates are not indicative of actual credit impairment or improvement in the period.

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

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

Dollar Denominated Obligations

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%

Weighted average 3.97% 2.90% 1.02% 0.78% 0.73% 0.60%

The weighted average discount rates used to discount expected losses (recoveries) were 3.75% and 4.08% as of March 31, 2023 and December 31, 2022, respectively.

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

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

As of Third Quarter Nine Months

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

As of First Quarter

Accounting Model March 31, 2023 December 31, 2022 2023 2022

(in millions)

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____________________

(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 Third Quarter Nine Months

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

(1) The expected loss to be paid for FG VIEs primarily relates to Puerto Rico Trusts that were consolidated as a result of the 2022 Puerto Rico Resolutions.

See Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered).

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector

First Quarter 2023

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

Development (Benefit) Net (Paid)

Net Expected Loss to be Paid (Recovered) as of March 31, 2023

(in millions)

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public finance $ 403 $ 1 $ (24) $ 380

public finance 9 4 — 13

Public finance 412 5 (24) 393

Structured finance:

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Total $ 522 $ 11 $ (16) $ 517

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

Third Quarter 2022 Net Economic Loss Development

First Quarter 2022

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

Development (Benefit) Net (Paid)

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

(in millions)

Public finance:

The economic loss development on U.S.

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 $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.

Financial Statements, Note 3, Outstanding Exposure.

The economic benefit attributable to U.S.

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.

Third Quarter 2021 Net Economic Loss Development

public finance $ 197 $ (48) $ 32 $ 181

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

exposures, which had BIG net par

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

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

public finance exposures as of September 30, 2021 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 $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 12 (2) — 10

The economic benefit on U.S.

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 $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 209 (50) 32 191

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 $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.

Structured finance:

RMBS 150 7 38 195

Other structured finance 52 (1) (5) 46

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

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

Structured finance 202 6 33 241

Total $ 411 $ (44) $ 65 $ 432

____________________

(1) Net of ceded paid losses, whether or not such amounts have been settled with reinsurers.

Ceded paid losses are typically settled 45 days after the end of the reporting period.

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

First Quarter 2023 Net Economic Loss Development

Economic loss development of $11 million was primarily due to changes in discount rates of $10 million.

First Quarter 2022 Net Economic Loss Development

Public Finance:

The economic benefit on U.S.

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

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

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

The reduction in net par was primarily due to for PRCCDA, PRIFA and GO/PBA exposures.

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

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

The economic loss development attributable to U.S.

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

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:

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

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

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Loss Expense (Benefit)

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

2 unchanged sentences

Structured finance:

RMBS (82) (58) (104) (68)

Other structured finance 2 (1)

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Total Insurance segment loss expense (benefit) $ 9 $ 60

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.

The difference between public finance loss expense and economic development in first quarter 2022 was primarily attributable to the release of unearned premium reserve related to PRCCDA, PRIFA and GO/PBA exposures.

As a result, the Company recognized loss and LAE expense that had not previously been reported in the statement of operations, and corresponding net earned premiums were recognized for the remaining deferred premium revenue on the extinguished Puerto Rico exposures.

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

Other Operating Expenses

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.

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

The increase in “other operating expenses” in first quarter 2023 compared with first quarter 2022 was primarily attributable to an increase in value added taxes.

Financial Strength Ratings

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

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

Moody's rates AGC A2 (stable).

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.

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.

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 — Insurance Subsidiaries” section below.

Asset Management Segment Results

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

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(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 $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.

(2) Includes amortization of intangible assets of $2 million for first quarter 2023 and $3 million for first quarter 2022.

Management and Performance Fees

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

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

CLO fees are the net management fees that AssuredIM retains after rebating the portion of these fees that pertains to the CLO Equity that is held directly by AssuredIM Funds.

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

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

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

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

Management Fees

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

3 unchanged sentences

Total management fees $ 17 $ 21

Fees from opportunity funds increased primarily due to higher third party AUM in healthcare funds.

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

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.

Performance fees and related compensation expenses in first quarter 2023 and first quarter 2022 related to tax distributions from the healthcare and asset-based funds.

Assets Under Management

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

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

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

1 unchanged sentence

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

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

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

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

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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 Securities and Exchange Commission (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 U.S.

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

Third Quarter 2022

First Quarter 2023

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

(in millions)

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

AUM, December 31, 2022 $ 15,150 $ 1,884 $ 248 $ 182 $ 17,464

Inflows - third party — 1 — — 1

5 unchanged sentences

Change in value 54 24 5 (1) 82

AUM, September 30, 2022

AUM, March 31, 2023

$ 15,140 $ 1,776 $ 253 $ 133 $ 17,302

_____________________

(1) As of March 31, 2023, AUM related to the AssuredIM Funds created prior to BlueMountain Acquisition was $67 million.

Roll Forward of Assets Under Management

Nine Months 2022

First Quarter 2022

CLOs Opportunity Funds Liquid Strategies Wind-Down Funds Total

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

AUM, September 30, 2022

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

AUM, March 31, 2022

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

(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 September 30, 2022:

As of March 31, 2023:

Funded AUM $ 15,008 $ 1,112 $ 253 $ 111 $ 16,484

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_____________________

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

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

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

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Corporate Division Results

Third Quarter Nine Months

2022 2021 2022 2021

(in millions)

Revenues $ 1 1 3 1

First Quarter

Interest expense 23 21

Loss on extinguishment of debt — 175 — 175

Employee compensation and benefit expenses 9 6

5 unchanged sentences

Adjusted operating income (loss) $ (44) $ (33)

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 $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.

Holding Companies, and also includes intersegment interest expense of $2 million in both first quarter 2023 and first quarter 2022, related primarily to the $250 million AGUS debt issued to the U.S.

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

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

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

Other (Effect of FG VIEs and CIVs)

Corporate division employee compensation and benefits expenses are an allocation of expenses based on time studies and represent the costs incurred and time spent on holding company activities, capital management, corporate oversight and governance including Board of Director expenses, legal fees and other direct or allocated expenses.

In first quarter 2023, operating expenses also include expenses related to the Sound Point Transaction, and a higher charge for value added taxes.

Other (Effect of Consolidating FG VIEs and CIVs)

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

1 unchanged sentence

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

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

(ii) custodial trusts established in connection with the consummation of the 2022 Puerto Rico Resolutions;

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

7 unchanged sentences

(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.

(iii) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees;

and (iv) establishing noncontrolling interest for amounts not owned by the Company.

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

4 unchanged sentences

Increase (Decrease)

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

Effect on Financial Statement Line Item (in millions)

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

(3) Includes net earned premiums, net investment income, asset management fees, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE and other operating expenses.

(3) Includes net earned premiums, net investment income, asset management fees, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE (benefit) and other operating expenses.

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

2 unchanged sentences

to Adjusted Operating Income (Loss)

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

8 unchanged sentences

Adjusted operating income (loss) $ 68 $ 90

Gain (loss) related to FG VIE and CIV consolidation, net of tax, included in adjusted operating income $ 7 $ (4) $ 7 $ —

Gain (loss) related to FG VIE and CIV consolidation (net of tax provision (benefit) of $(1) and $0) included in adjusted operating income $ (4) $ (10)

Net Realized Investment Gains (Losses)

1 unchanged sentence

Net Realized Investment Gains (Losses)

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

Gross realized gains on sales available-for-sale securities $ — $ — $ — $ 2

Gross realized losses on sales available-for-sale securities (10) — (33) (2)

Net foreign currency gains (losses) — (2) (3) —

Change in credit impairment and intent to sell (4) 5 (13) 1

Gross realized gains on sales of available-for-sale securities $ 12 $ —

Gross realized losses on sales of available-for-sale securities (9) (2)

Change in allowance for credit losses and intent to sell (5) (5)

Other net realized gains (losses) — 10

Net realized investment gains (losses) $ (2) $ 3

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.

Gross realized gains on sales of available-for-sale securities in first quarter 2023 were primarily attributable to sales of New Recovery Bonds received pursuant to the 2022 Puerto Rico Resolutions.

Gross realized losses on sales of available-for-sale securities in first quarter 2023 were primarily attributable to sales in externally managed portfolio and of New Recovery Bonds received pursuant to the 2022 Puerto Rico Resolutions.

Other net realized gains in first quarter 2022 related primarily to the sale of one of the Company’s alternative investments.

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

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

There has been very limited new issuance activity in this market since 2009 and, as of September 30, 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 March 31, 2023, market prices for the Company’s credit derivative contracts were generally not available.

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

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

Third quarter 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.

During first quarter 2023, 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.

For those CDS transactions that were pricing at or above their floor levels, when the cost of purchasing CDS protection

on AGC, which management refers to as the CDS spread on AGC, increased, the implied spreads that the Company (or another comparable entity) would expect to receive on these transactions decreased.

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

Sensitivity to Changes in Credit Spread

2 unchanged sentences

Effect of Changes in Credit Spread

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

As of March 31, 2023 As of December 31, 2022

Credit Spreads (1) Estimated Net

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Fair Value Gains (Losses) on CCS

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.

Fair value losses on CCS in first quarter 2023 were primarily due to a tightening in market spreads.

Fair value gains on CCS in first quarter 2022 were primarily due to a significant increase in London Interbank Offered Rate (LIBOR).

Fair value gains (losses) of CCS are heavily affected by, and in part fluctuate 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, to a lesser extent, the euro relative to the U.S.

Foreign exchange gains and losses in all periods primarily relate to remeasurement of long-dated premiums receivable, 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, to a lesser extent, the euro relative to the U.S.

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves were gains of $20 million and losses of $29 million in first quarter 2023 and first quarter 2022, respectively.

Approximately 73% and 74% of gross premiums receivable, net of commissions payable at March 31, 2023 and December 31, 2022, respectively,, are denominated in currencies other than the U.S.

dollar, primarily the pound sterling and euro.

Premiums on European infrastructure and structured finance transactions typically are paid, in whole or in part , on an installment basis, whereas premiums on U.S.

public finance transactions are often paid upfront.

The following table presents the foreign exchange rates as of balance sheet dates.

Foreign Exchange Rates

Dollar Per Foreign Currency

As of March 31, 2023 As of December 31, 2022 As of March 31, 2022 As of December 31, 2021

Pound sterling $1.234 $1.208 $1.314 $1.353

Euro $1.084 $1.071 $1.107 $1.137

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.

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

and (5) gross third-party assets raised.

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

9 unchanged sentences

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

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

value of the expected estimated economic credit losses, and non-economic payments.

Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, the Company’s credit spreads, and other market factors and are not expected to result in an economic gain or loss.

29 unchanged sentences

to Adjusted Operating Shareholders’ Equity and Adjusted Book Value

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

As of March 31, 2023 As of December 31, 2022

After-Tax Per Share After-Tax Per Share

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Fair value gains (losses) on CCS 32 0.53 47 0.80

Unrealized gain (loss) on investment portfolio excluding foreign exchange effect (672) (11.07) 404 5.99

Unrealized gain (loss) on investment portfolio (413) (6.97) (523) (8.86)

Less taxes 54 0.92 68 1.15

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Net present value of estimated net future revenue 196 3.30 157 2.66

Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed 3,373 55.54 3,402 50.40

Net deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed 3,436 57.97 3,428 58.10

Plus taxes (609) (10.26) (602) (10.22)

14 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.

discount rate is recalculated annually and updated as necessary.

The 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

Third Quarter 2022 Third Quarter 2021

Public Finance Structured Finance Public Finance Structured Finance

(in millions)

GWP $ 54 $ 44 $ (2) $ (2) $ 94 $ 52 $ 21 $ 29 $ 4 $ 106

Installment GWP and other GAAP adjustments (1) — 44 (3) (2) 39 (1) 22 27 4 52

Upfront GWP 54 — 1 — 55 53 (1) 2 — 54

Installment premiums and other (2) 3 37 — — 40 2 18 19 3 42

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

Nine Months 2022 Nine Months 2021

First Quarter 2023 First Quarter 2022

Public Finance Structured Finance Public Finance Structured Finance

8 unchanged sentences

(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.

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

Insured Portfolio

The Company’s financial guaranty and specialty exposures, as well as a guarantee are described in Item 1, Financial Statements, Note 3, Outstanding Exposure.

Financial Guaranty Exposure

1 unchanged sentence

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 September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Sector Net Par

8 unchanged sentences

Municipal utilities 27,009 A- 26,436 A-

Transportation 19,204 BBB+ 17,241 BBB+

Transportation 20,140 A- 19,688 A-

Healthcare 11,641 BBB+ 11,304 BBB+

4 unchanged sentences

Renewable energy 171 A- 180 A-

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

Other public finance 1,013 BBB 1,025 BBB

public finance 180,837 A- 179,636 A-

11 unchanged sentences

Life insurance transactions 4,378 AA- 3,879 AA-

RMBS 2,006 BBB- 2,391 BB+

Pooled corporate obligations 498 AA+ 534 AA+

RMBS 1,910 BBB- 1,956 BBB-

Pooled corporate obligations 617 AAA 625 AAA

Financial products 452 AA- 453 AA-

11 unchanged sentences

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

The second-to-pay insured par outstanding as of September 30, 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.

The second-to-pay insured par outstanding as of both March 31, 2023 and December 31, 2022 was $4.3 billion.

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were not investment grade was $16 million and $19 million as of March 31, 2023 and December 31, 2022, 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 $2.1 billion net par outstanding as of September 30, 2022, all of which was rated BIG.

The Company had insured exposure to obligations of various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) as well as its general obligation bonds aggregating $1.4 billion net par outstanding as of March 31, 2023, 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 September 30, 2022

As of March 31, 2023

Net Par Outstanding

3 unchanged sentences

(in millions)

Puerto Rico Exposures Subject to a Plan or Support Agreement

Commonwealth of Puerto Rico - GO (2) $ — $ 19 $ 6 $ — $ 25 $ 25

PBA (2) 1 4 — (1) 4 4

Total GO/PBA Plan 1 23 6 (1) 29 29

Defaulted Puerto Rico Exposures

PREPA (2) $ 446 $ 69 $ 205 $ — $ 720 $ 730

Total Defaulted 446 69 205 — 720 730

Resolved Puerto Rico Exposures

PRHTA (Transportation revenue) (2) 49 181 107 (42) 295 295

PRHTA (Highway revenue) (2) 140 30 12 — 182 182

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

Commonwealth of Puerto Rico - GO (2) — 19 6 — 25 25

PBA (2) 1 4 — (1) 4 4

Total Resolved 190 234 125 (43) 506 506

Other Puerto Rico Exposures

PREPA 446 69 205 — 720 730

MFA (3) 96 6 22 — 124 130

PRASA and U of PR (3) — 1 — — 1 1

Total Other Puerto Rico Exposures 547 77 229 — 853 870

Total Other 96 7 22 — 125 131

Total exposure to Puerto Rico $ 732 $ 310 $ 352 $ (43) $ 1,351 $ 1,367

1 unchanged sentence

(1) Net par outstanding eliminations relate to second-to-pay policies under which an Assured Guaranty insurance subsidiary guarantees an obligation already insured by another Assured Guaranty insurance subsidiary.

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

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

(2) Resolved pursuant to the 2022 Puerto Rico Resolutions.

Consideration received under the GO/PBA and HTA Plans related to the remaining insured exposure is reported in FG VIE assets (see Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles).

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

3 unchanged sentences

Amortization Schedule of Net Par of Puerto Rico

As of September 30, 2022

As of March 31, 2023

Scheduled Net Par Amortization

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

2023 (2Q) 2023 (3Q) 2023 (4Q) 2024 2025 2026 2027 2028 - 2032 2033 - 2037 2038 - 2041 Total

(in millions)

Puerto Rico Exposures Subject to a Plan or Support Agreement

Commonwealth of Puerto Rico - GO $ — $ — $ — $ — $ — $ — $ — $ 2 $ 23 $ — $ — $ — $ 25

PBA — — — 2 — — 2 — — — — — 4

Total - GO/PBA Plan — — — 2 — — 2 2 23 — — — 29

Defaulted Puerto Rico Exposures

PREPA $ — $ 95 $ — $ 93 $ 68 $ 105 $ 105 $ 241 $ 13 $ — $ 720

Total Defaulted — 95 — 93 68 105 105 241 13 — 720

Resolved Puerto Rico Exposures

PRHTA (Transportation revenue) — 10 — — 8 7 — 12 126 132 295

PRHTA (Highway revenue) — — — — — — — 81 101 — 182

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

Commonwealth of Puerto Rico - GO — — — — — 2 4 19 — — 25

PBA — 2 — — 2 — — — — — 4

Total Resolved — 12 — — 10 9 4 112 227 132 506

Other Puerto Rico Exposures

PREPA — — — 95 — 93 68 106 332 26 — — 720

MFA — 17 — 16 16 35 15 25 — — 124

3 unchanged sentences

Amortization Schedule of Net Debt Service of Puerto Rico

As of September 30, 2022

As of March 31, 2023

Scheduled Net Debt Service Amortization

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

2023 (2Q) 2023 (3Q) 2023 (4Q) 2024 2025 2026 2027 2028 - 2032 2033 - 2037 2038 - 2041 Total

(in millions)

Puerto Rico Exposures Subject to a Plan or Support Agreement

Commonwealth of Puerto Rico - GO $ — $ 1 $ — $ 1 $ — $ 1 $ 1 $ 3 $ 27 $ — $ — $ — $ 34

PBA — — — 3 — — 2 — — — — — 5

Total - GO/PBA Plan — 1 — 4 — 1 3 3 27 — — — 39

Defaulted Puerto Rico Exposures

PREPA $ 3 $ 109 $ 3 $ 122 $ 92 $ 126 $ 122 $ 274 $ 14 $ — $ 865

Total Defaulted 3 109 3 122 92 126 122 274 14 — 865

Resolved Puerto Rico Exposures

PRHTA (Transportation revenue) — 17 — 15 23 22 14 81 181 150 503

PRHTA (Highway revenue) — 5 — 9 9 10 10 124 116 — 283

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

Commonwealth of Puerto Rico - GO — 1 — 1 1 3 6 21 — — 33

PBA — 2 — — 3 — — — — — 5

Total Resolved — 25 — 25 36 35 30 226 297 150 824

Other Puerto Rico Exposures

PREPA 3 14 2 109 3 122 92 126 381 29 — — 881

MFA — 20 — 22 20 39 16 28 — — 145

6 unchanged sentences

RMBS exposures represent 0.8% of the total net par outstanding, and BIG U.S.

RMBS represent 17.8% of total BIG net par outstanding.

RMBS represent 16.8% of total BIG net par outstanding as of March 31, 2023.

Distribution of U.S.

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

RMBS by Year Insured and Type of Exposure as of March 31, 2023

First Lien Alt-A

39 unchanged sentences

In the ordinary course of business, the Company evaluates its liquidity needs and capital resources in light of holding company expenses and dividend policy, as well as rating agency considerations.

The Company also subjects its cash flow projections and its assets to a stress test, maintaining a liquid asset balance of one time its stressed operating company net cash flows.

The Company also subjects its cash flow projections and its assets to a stress test, maintaining a liquid asset balance of one and a half times its stressed operating company net cash flows.

Management believes that AGL will have sufficient liquidity to satisfy its needs over the next twelve months.

7 unchanged sentences

Long-Term Debt and Intercompany Loans

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

As of March 31, 2023 As of December 31, 2022

(in millions)

6 unchanged sentences

Series A Enhanced Junior Subordinated Debentures 3 month LIBOR +2.38% 2066 150 150

AGUS long-term debt subtotal 1,580 1,580

AGUS - intercompany loans from insurance subsidiaries

AGUS long-term debt 1,580 1,580

AGUS - intercompany loans from:

AGC and AGM 3.50% 2030 250 250

AGRO 6 month LIBOR +3.00% 2023 20 20

AGUS intercompany loans subtotal 270 270

Total AGUS 1,850 1,850

AGUS intercompany loans 270 270

Total AGUS long-term debt and intercompany loans 1,850 1,850

Junior Subordinated Debentures 6.40% 2066 300 300

Total AGMH 300 300

Total AGMH long-term debt 300 300

AGMH’s long-term debt purchased by AGUS (1) (154) (154)

Holding Company debt $ 1,996 $ 1,996

Holding Company long-term debt $ 1,996 $ 1,996

____________________

2 unchanged sentences

If the AGMH Junior Subordinated Debentures are outstanding after December 15, 2036, then the principal amount of the outstanding debentures will bear interest at one-month LIBOR plus 2.215%.

The continuation of LIBOR on the current basis will not be guaranteed after June 2023.

See the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part 1, Item 1A, Risk Factors, of the Company’s 2021 Annual Report on Form 10-K.

The Company believes that after June 2023 the reference to LIBOR will be replaced, by operation of law in accordance with federal legislation enacted in March 2022, with a rate based on SOFR.

From time to time, AGL and its subsidiaries have entered into intercompany loan facilities.

15 unchanged sentences

Holding Companies, excluding their investments in subsidiaries.

As of September 30, 2022

As of March 31, 2023

Holding Companies

3 unchanged sentences

Receivables from affiliates (2) 52 —

Receivable from U.S.

Holding Companies 70 —

Other assets 1 41

2 unchanged sentences

Payable to affiliates (2) 19 9

Payable to AGL — 70

Other liabilities 10 73

____________________

(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.

(1) As of March 31, 2023, weighted average durations of AGL’s and the U.S.

Holding Companies’ fixed-maturity securities (excluding AGUS’s investment in AGMH’s debt) were 9.9 years and 4.4 years, respectively.

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

Nine Months 2022

First Quarter 2023

Holding Companies

8 unchanged sentences

Holding Companies

Significant Cash Flow Items

Nine Months 2022

Selected Cash Flow Items

First Quarter 2023

Holding Companies

3 unchanged sentences

Investments in subsidiaries — (12)

Return of capital from subsidiaries — 9

Dividends paid to AGL — (28)

22 unchanged sentences

(i) AGUK, an insurance subsidiary domiciled in the U.K;

and (ii) AGE SA, an insurance company domiciled in France.

and (ii) AGE, an insurance company domiciled in France.

AGUK and AGE are collectively referred to as the European Insurance Subsidiaries.

8 unchanged sentences

• capital investments in their own subsidiaries, where appropriate.

Management believes that the insurance subsidiaries’ liquidity needs for the next twelve months can be met from current cash, short-term investments and operating cash flow, including premium collections and coupon payments as well as scheduled maturities and paydowns from their respective investment portfolios, although the Company may enter into secured short-term loan facilities with financial institutions, as described below, to provide short-term liquidity for the payment of insurance claims it anticipates making in connection with the future resolutions of other Puerto Rico exposures.

Management believes that the insurance subsidiaries’ liquidity needs for the next twelve months can be met from current cash, short-term investments and operating cash flow, including premium collections and coupon payments as well as scheduled maturities and paydowns from their respective investment portfolios, although the Company may enter into secured short-term loan facilities with financial institutions to provide short-term liquidity for the payment of insurance claims it anticipates making in connection with the future resolutions of other Puerto Rico exposures.

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

Treasuries, agency RMBS and

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

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.

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.

March 31, 2023, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

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

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

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

The Company believes that state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various 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 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.

While the Company has the capacity to generate sufficient liquidity internally to fund the full amount of the gross claim payments it would be required to pay under the HTA Plan, the Company may enter into a secured short-term loan facility to partially fund such gross claim payments until it sells the securities it expects to receive under the HTA Plan.

Financial Statements Note 11, Long-Term Debt and Credit Facilities, for a description of the secured short-term facility it used to partially fund the claim payments it made in connection with the consummation of the March Puerto Rico Resolutions in March 2022.

For example, the Company made substantial claim payments in 2022 in connection with the resolution of certain Puerto Rico credits.

The Company is continuing its efforts to resolve the one remaining unresolved Puerto Rico insured exposure that is in payment default, PREPA.

The Company had $720 million net par outstanding to PREPA on March 31, 2023.

As described in Item 1, Financial Statements, Note 3, Outstanding Exposure, in connection with the implementation of the GO/PBA Plan and the HTA Plan, certain insured bondholders elected to receive custody receipts that represent an interest in the legacy insurance policy plus cash, New Recovery Bonds and CVIs, as relevant, that constitute distributions under the GO/PBA Plan or HTA Plan.

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

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

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

As of March 31, 2023, the Company’s remaining net par outstanding for HTA and GO/PBA Puerto Rico exposures was $506 million, which consisted of bonds where the holders elected to receive custody receipts and exposures assumed from third-party financial guarantors.

In connection with the acquisition of AGMH, AGM agreed to retain the risks relating to the debt and strip policy portions of the leveraged lease business.

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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 $429 million as of September 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 September 30, 2022, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

As of March 31, 2023, 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 $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.

• 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 September 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 $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.

• 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 September 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 $369 million as of September 30, 2022, and (ii) the amount of statutory surplus, which as of September 30, 2022 was $248 million.

• The maximum amount available during 2023 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $193 million, of which approximately none is available for distribution in the second quarter of 2023.

• The maximum amount available during 2023 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $102 million, of which approximately $24 million is available for distribution in the second quarter of 2023.

• Based on the applicable law and regulations, in 2023 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 $209 million as of March 31, 2023.

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 $181 million as of March 31, 2023, and (ii) the amount of statutory surplus, which as of March 31, 2023 was $29 million.

• Based on the applicable law and regulations, in 2023 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 $98 million as of March 31, 2023.

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 $365 million as of March 31, 2023, and (ii) the amount of statutory surplus, which as of March 31, 2023 was $263 million.

Distributions From Insurance Company Subsidiaries

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

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A downgrade of one of AGL’s insurance subsidiaries may result in increased claims under financial guaranties issued by the Company if counterparties exercise contractual rights triggered by the downgrade against insured obligors, and the insured obligors are unable to pay.

See Part II, Item 8, Financial Statements and Supplementary Data, Note 6, Contracts Accounted for as Insurance, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Insurance Subsidiaries, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Assumed Reinsurance

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

As of September 30, 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.

As of March 31, 2023, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $266 million, including $233 million by AGC and $33 million by AG Re.

Committed Capital Securities

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The annualized rate on the AGC CCS is one-month LIBOR plus 250 bps, and the annualized rate on the AGM Committed Preferred Trust Securities is one-month LIBOR plus 200 bps.

LIBOR may be discontinued.

See “— Executive Summary — Other Matters — LIBOR Sunset” above and the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part I, Item 1A, Risk Factors, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The Company believes that after June 2023 the reference to LIBOR in such CCS will be replaced, by operation of law in accordance with federal legislation enacted in March 2022, with a rate based on SOFR.

Investment Portfolio

5 unchanged sentences

The Company’s portfolio of fixed-maturity securities primarily consists of investment-grade, liquid instruments.

Other invested assets include other alternative investments.

For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments, see Item 1, Financial Statements, Note 7, Investments, and Note 9, Fair Value Measurement.

Other invested assets include other alternative investments, which are generally less liquid.

For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments, see Item 1, Financial

Statements, Note 7, Investments, and Note 9, Fair Value Measurement.

Investment Portfolio

Carrying Value

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

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____________________

(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.

(1) As of March 31, 2023 and December 31, 2022, includes $136 million and $358 million, respectively, of New Recovery Bonds received in connection with the consummation of the 2022 Puerto Rico Resolutions.

(2) Represents CVIs received under the 2022 Rico Resolutions.

The Company’s available-for-sale fixed-maturity securities had a duration of 4.1 years and 4.4 years as of March 31, 2023 and December 31, 2022, 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 September 30, 2022

As of March 31, 2023

Cost Estimated

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Mortgage-backed securities:

Commercial mortgage-backed securities (CMBS) 291 280

Commercial mortgage-backed securities 267 258

Total $ 7,359 $ 6,869

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.

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of March 31, 2023 and December 31, 2022.

Ratings generally reflect the lower of Moody’s and S&P classifications, except for (i) Loss Mitigation Securities, which use Assured Guaranty’s internal ratings classifications, or (ii) Puerto Rico securities received under the 2022 Puerto Rico Resolutions, which are not rated.

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

Rating September 30, 2022 December 31, 2021

Rating March 31, 2023 December 31, 2022

AAA 14.7 % 14.2 %

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

(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.

(2) Primarily includes New Recovery Bonds received in connection with the consummation of the 2022 Puerto Rico Resolutions.

The Company also had $300 million and $303 million in trading fixed-maturity securities as of March 31, 2023 and December 31, 2022, respectively, representing CVIs received under the 2022 Puerto Rico Resolutions, which are not rated.

Other Investments

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.

Other invested assets, which are generally less liquid than fixed-maturity securities 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.

As of March 31, 2023 and December 31, 2022, all of the funds in which AGAS directly 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.

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Fair Value of AGAS’ Interest in AssuredIM Funds

Strategy September 30, 2022 December 31, 2021

Strategy March 31, 2023 December 31, 2022

(in millions)

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Total $ 396 $ 569

____________________

(1) In first quarter 2023, the fund distributed substantially all of its available cash to AGAS and other investors in the fund.

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

Third Quarter Nine Months

First Quarter

Strategy 2023 2022

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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 $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.

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

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

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $229 million and $222 million as of March 31, 2023 and December 31, 2022, 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 $1,146 million and $1,169 million, based on fair value, as of March 31, 2023 and December 31, 2022, respectively.

Insurance Subsidiaries are authorized to invest up to $750 million in affiliated alternative investment funds.

Adding distributed gains from inception through March 31, 2023, the U.S.

Insurance Subsidiaries may invest a total of up to $853 million in affiliated alternative investment funds.

As of March 31, 2023, the Insurance segment had total commitments to AssuredIM Funds of $613 million, of which $366 million represented net invested capital and $247 million was undrawn.

In addition to its commitments to AssuredIM Funds, the Company had unfunded commitments of $79 million as of March 31, 2023 to other alternative investments.

Sources and Uses of Funds

AssuredIM’s sources of liquidity are:

Currently, AssuredIM’s sources of liquidity are:

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

and (2) capital contributions from AGUS ($15 million and $15 million in 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.

and (2) capital contributions from AGUS ($10 million and $15 million in first quarter 2023 and first quarter 2022, respectively, had been contributed to supplement cash from operations).

As of March 31, 2023 and December 31, 2022, AssuredIM had $26 million and $41 million, respectively, 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.

See “ - Overview, Business.” for a discussion of Sound Point Transaction.

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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The assets and liabilities of the Company’s CIVs are held within separate legal entities.

The assets of the CIVs are not available to creditors of the Company, other than creditors of the applicable CIVs.

The assets of the CIVs are not available to creditors of the

Company, other than creditors of the applicable CIVs.

In addition, creditors of the CIVs have no recourse against the assets of the Company, other than the assets of such applicable CIVs.

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When a CIV borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or Assured Guaranty subsidiaries.

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

As of 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 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 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.

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

As of March 31, 2023, these credit facilities had varying maturities ranging from 2023 to 2031 with the aggregate principal amount not exceeding $1.6 billion.

The available commitments were based on the amount of equity contributed to the warehouses which was $252 million.

As of March 31, 2023, $138 million was drawn under credit facilities with interest rates ranging from 3-month Term SOFR plus 150 bps to 3-month Euro InterBank Offered Rate (Euribor) plus 250 bps (with a floor on Euribor of zero).

The CLO warehouses were in compliance with all financial covenants as of March 31, 2023.

As of March 31, 2023, 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 capital committed to the funds.

As of March 31, 2023, $28 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 March 31, 2023.

Condensed Consolidated Cash Flows

The summarized condensed consolidated statements of cash flow in the table below presents the cash flow effect for the aggregate of the Insurance and Asset Management business and holding companies, separately from the aggregate effect of FG VIEs and CIVs.

Condensed Consolidated Cash Flow Summary

Third Quarter Nine Months

2022 2021 2022 2021

The summarized condensed consolidated statements of cash flows in the table below present the cash flow effect for the aggregate of the Insurance and Asset Management business and holding companies, separately from the aggregate effect of consolidating FG VIEs and CIVs.

Summarized Condensed Consolidated Cash Flows

First Quarter

(in millions)

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Repurchases of common shares (2) (152)

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

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)

Other (15) (10)

Effect of FG VIEs and CIVs consolidation (261) 169

Net cash flows provided by (used in) financing activities (2) (296) (10)

Effect of exchange rate changes, before effect of FG VIEs and CIVs consolidation 1 (1)

Effect of FG VIEs and CIVs consolidation — —

Effect of exchange rate changes 1 (1)

3 unchanged sentences

____________________

(1) This includes the effects of consolidating FG VIEs and CIVs.

(1) 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 $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.

Cash flows from operations attributable to the effect of VIE consolidation was negative in 2022 and 2021 due to the inclusion of investing activities of CIVs, which included cash outflows for purchases of investments, offset in part by sales of investments.

Cash flows from operations, excluding the effect of consolidating FG VIEs and CIVs, was an outflow of $34 million in first quarter 2023 and an outflow of $640 million in first quarter 2022.

The decrease in cash outflows during first quarter 2023 was primarily due to a $627 million decrease in net claim payments, primarily due to the 2022 Puerto Rico Resolutions.

Cash flows from operations attributable to the effect of FG VIE and CIV consolidation were outflows in first quarter 2023 and first quarter 2022.

The consolidated statements of cash flows present the investing activities of the consolidated AssuredIM Funds and CLOs as cash flows from operations.

The increase in inflows in first quarter 2023 compared with first quarter 2022 is mainly due to a decrease of $813 million in investment purchases, partially offset by a decrease of investment sales, maturities and paydowns of $205 million.

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 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.

The decrease in investing cash inflows during first quarter 2023 was mainly attributable to an increase in net outflows of short-term investments of $1,093 million and an increase of $157 million for purchases of available-for-sale fixed-maturity securities in first quarter 2023, partially offset by lower disposals of $348 million of available-for-sale fixed-maturity securities.

First quarter 2023 had net purchases of short-term investments compared to net sales of short-term investments in first quarter 2022 to fund share repurchases and claim payments in connection with the 2022 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 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.

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

The CIVs’ financing cash flows mainly include issuances and repayments of CLOs and CLO warehouse financing debt.

The decrease in financing cash flow activity from VIEs was primarily due to a decrease of $586 million million in issuances, partially offset by a decrease in repayments of $220 million by the consolidated CLOs and CLO warehouses.

The proceeds from CLO issuances and CLO warehouse borrowings are used to fund

the purchases of loans.

FG VIEs’ cash flows relate to the paydowns of FG VIEs’ liabilities.

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

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.

From January 1, 2023 through May 9, 2023, the Company repurchased an additional 36 thousand of common shares.

As of May 9, 2023, the Company was authorized to purchase $201 million of its common shares.

For more information abou t th e Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 13, Shareholders’ Equity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

As of March 31, 2023, there were no material changes to the market risks to which the Company is exposed since December 31, 2022.

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