What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 753 added, 460 removed, 2026 unchanged (37% of the section changed)

3 unchanged sentences

(dollars in millions except share data)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $ 79 and $ 65 (amortized cost of $ 7,044 and $ 7,707 )

17 unchanged sentences

Credit derivative liabilities, at fair value 58 163

Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $ 692 and $ 702 , without recourse $ 12 and $ 13 )

Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $ 687 and $ 702 , without recours e $ 12 and $ 13 )

Liabilities of consolidated investment vehicles (includes $ 4,326 and $ 4,431 , at fair value)

18 unchanged sentences

(dollars in millions except share data)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net earned premiums $ 85 $ 82 $ 166 $ 296

23 unchanged sentences

Net income (loss) attributable to Assured Guaranty Ltd.

$ 125 $ ( 47 ) $ 206 $ 19

Earnings per share:

5 unchanged sentences

(in millions)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net income (loss) $ 126 $ ( 25 ) $ 223 $ 50

1 unchanged sentence

Investments with no credit impairment, net of tax provision (benefit) of $( 6 ), $( 37 ), $ 8 and $( 100 )

( 30 ) ( 242 ) 59 ( 580 )

Investments with credit impairment, net of tax provision (benefit) of $( 3 ), $( 10 ), $( 2 ) and $( 19 )

( 10 ) ( 44 ) ( 5 ) ( 83 )

Change in net unrealized gains (losses) on investments ( 40 ) ( 286 ) 54 ( 663 )

10 unchanged sentences

(dollars in millions, except share data)

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

4 unchanged sentences

Shareholders’ Equity

As of December 31, 2022 59,013,040 $ 1 $ 5,577 $ ( 515 ) $ 1 $ 5,064 $ 228 $ 5,292

As of March 31, 2023 59,274,112 $ 1 $ 5,638 $ ( 420 ) $ 1 $ 5,220 $ 195 $ 5,415

Net income — — 125 — — 125 1 126

1 unchanged sentence

— — ( 17 ) — — ( 17 ) — ( 17 )

Contributions — — — — — — 3 3

Common shares repurchases ( 453,942 ) — ( 24 ) — — ( 24 ) — ( 24 )

Share-based compensation 29,974 — 10 — — 10 — 10

Reclassification to liabilities — — — — — — ( 16 ) ( 16 )

Contributions — — — — — — 17 17

Distributions — — — — — — ( 18 ) ( 18 )

Other comprehensive income — — — 95 — 95 — 95

Other comprehensive loss — — — ( 38 ) — ( 38 ) — ( 38 )

As of June 30, 2023 58,850,144 $ 1 $ 5,732 $ ( 458 ) $ 1 $ 5,276 $ 179 $ 5,455

For the Three Months Ended June 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Common Shares Outstanding Common

Par Value Retained Earnings Accumulated

Comprehensive Income (Loss) Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

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

For the Three Months Ended March 31, 2022

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

Dividends ($ 0.25 per share)

— — ( 16 ) — — ( 16 ) — ( 16 )

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

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

Contributions — — — — — — 35 35

Distributions — — — — — — ( 7 ) ( 7 )

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

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

Assured Guaranty Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(dollars in millions, except share data)

For the Six Months Ended June 30, 2023

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

8 unchanged sentences

— — ( 35 ) — — ( 35 ) — ( 35 )

Common shares repurchases ( 490,311 ) — ( 26 ) — — ( 26 ) — ( 26 )

Share-based compensation 327,415 — 10 — — 10 — 10

Reclassification to liabilities — — — — — — ( 16 ) ( 16 )

Contributions — — — — — — 20 20

Distributions — — — — — — ( 70 ) ( 70 )

Other comprehensive income — — — 57 — 57 — 57

As of June 30, 2023 58,850,144 $ 1 $ 5,732 $ ( 458 ) $ 1 $ 5,276 $ 179 $ 5,455

For the Six Months Ended June 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Common Shares Outstanding Common

Par Value Retained Earnings Accumulated

Comprehensive Income (Loss) Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

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

Net income — — 19 — — 19 32 51

Dividends ($ 0.50 per share)

— — ( 33 ) — — ( 33 ) — ( 33 )

Common shares repurchases ( 5,344,170 ) — ( 306 ) — — ( 306 ) — ( 306 )

Share-based compensation 301,485 — 2 — — 2 — 2

Contributions — — — — — — 40 40

Distributions — — — — — — ( 15 ) ( 15 )

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

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

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

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

2 unchanged sentences

(in millions)

Three Months Ended March 31,

Six Months Ended June 30,

Net cash flows provided by (used in) operating activities $ 436 $ ( 1,794 )

2 unchanged sentences

Purchases ( 290 ) ( 180 )

Sales 694 353

Maturities and paydowns 298 389

3 unchanged sentences

Net sales (purchases) of short-term investments with original maturities of less than three months ( 845 ) 379

Sales of fixed-maturity securities, trading — 68

Paydowns of financial guaranty variable interest entities’ assets 14 44

25 unchanged sentences

(in millions)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information

Income taxes paid (received) $ 2 $ 97

Interest paid on long-term debt 41 38

8 unchanged sentences

Distributions to noncontrolling interests 20 20

March 31, 2023 March 31, 2022

June 30, 2023 June 30, 2022

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

9 unchanged sentences

Assured Guaranty Ltd.

(AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the United States (U.S.) and non-U.S.

public finance (including infrastructure) and structured finance markets, as well as asset management services.

(AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-based holding company that provides, through its wholly-owned operating subsidiaries, credit protection products to the United States (U.S.) and non-U.S.

public finance (including infrastructure) and structured finance markets.

Assured Guaranty also participates in the asset management business, as described below.

Through its insurance subsidiaries, the Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments.

2 unchanged sentences

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

Through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM), the Company serves as investment advisor to collateralized loan obligations (CLOs) and opportunity funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

AssuredIM has managed structured and public finance, credit and special situation investments since 2003.

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

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 Capital Management, LP (Sound Point) most of its asset management business, other than that conducted by Assured Healthcare Partners LLC (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.

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

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

Asset Management

Until July 1, 2023, the Company served as an investment advisor to collateralized loan obligations (CLOs) and opportunity funds, as well as certain legacy hedge and opportunity funds subject to an orderly wind-down, through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM).

Beginning July 1, 2023, the Company participates in the asset management business through its ownership interest in Sound Point Capital Management, LP (Sound Point) as described below.

On July 1, 2023, Assured Guaranty contributed to Sound Point most of its asset management business, other than that conducted by Assured Healthcare Partners LLC (AssuredIM Contributed Business), as contemplated by the transaction agreement entered into with Sound Point on April 5, 2023 (Transaction Agreement).

In addition, in accordance with the terms of a letter agreement (Letter Agreement), effective July 1, 2023 Assured Guaranty Municipal Corp.

and Assured Guaranty Corp.

(collectively, the U.S.

Insurance Subsidiaries) (i) engaged Sound Point as their sole alternative credit manager, and (ii) transitioned to Sound Point the management of certain existing alternative investments and related commitments.

The Letter Agreement also provides that, in the first two years of Sound Point’s engagement, the U.S.

Insurance Subsidiaries would, subject to regulatory approval, make new investments in funds, other vehicles and separately managed accounts managed by Sound Point which, when aggregated with the alternative investments and commitments transitioned from AssuredIM, 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).

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.

Assured Guaranty received, 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).

In July 2023, Assured Guaranty sold all of its equity interests in Assured Healthcare Partners LLC (AHP), which manages healthcare funds, to an entity owned and controlled by the managing partner of AHP (AHP Transaction).

In connection with the AHP Transaction, the Company agreed to remain a strategic investor in certain AHP investment vehicles, is retaining certain carried interest in AHP entities and received other consideration.

Assets and Liabilities Held For Sale

As of March 31, 2023, the AssuredIM assets and liabilities subject to the Transaction Agreement were classified as held for sale.

Separately, Assured Guaranty has committed to a plan to sell the remaining AssuredIM operating entities associated with its healthcare strategy, and not part of the Sound Point Transaction, including Assured Healthcare Partners LLC, and has also classified those assets and liabilities as held for sale.

As of June 30, 2023, the AssuredIM assets and liabilities subject to the Sound Point Transaction and the AHP Transaction were classified as held for sale.

The results of all of the AssuredIM entities that are classified as held for sale are reported in the Asset Management segment.

See Note 2, Segment Information.

In addition, the Company designated certain other assets and liabilities supporting the Insurance segment as held for sale in the first quarter of 2023.

The disposal group consisting of the assets and liabilities classified as held for sale is measured at the lower of carrying amount or fair value less any costs associated with the transaction.

The Company assessed the disposal group for impairment and determined no impairment existed as of March 31, 2023.

The Company also designated certain other assets and liabilities supporting the Insurance segment as held for sale in the first quarter of 2023 and expects the sale to be completed in 2024.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

A disposal group is measured at the lower of carrying amount or fair value less any costs associated with the transaction.

The Company assessed the disposal groups for impairment and determined no impairment existed as of June 30, 2023.

Upon classification of the disposal group as held for sale, the Company ceased amortizing held for sale intangibles.

Each of the components held for sale will be accounted for as dispositions of businesses.

The Company is still evaluating the effect that the Sound Point Transaction, and the expected sales

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

of the remaining assets and liabilities held for sale, will have in the period in which the transactions are consummated, which is expected to be in the third quarter of 2023.

The Company is still evaluating the effect of the Sound Point Transaction and the AHP Transaction on its third quarter of 2023 financial statements.

The table below shows the components of assets and liabilities held for sale.

Assets and Liabilities Held For Sale

As of March 31, 2023

As of June 30, 2023

(in millions)

7 unchanged sentences

Substantially all of the entities in the asset management segment are held for sale.

Once the Company executes the Sound Point Transaction and the sales of its held for sale businesses, which are expected to occur in the third quarter of 2023, the Company expects to deconsolidate the corresponding AssuredIM and other entities.

Upon closing of the Sound Point Transaction and the AHP Transaction the Company will deconsolidate the corresponding AssuredIM management companies.

The Company will account for its investment in Sound Point as an equity method investment.

As of March 31, 2023, the effect of deconsolidating all the CIVs would have been a reduction in assets of $ 4,668 million, a reduction in liabilities of $ 4,458 million, and a reduction in non-controlling interests of $ 195 million.

In light of the Sound Point Transaction and the AHP Transaction, the Company is evaluating whether it will continue to consolidate each of its consolidated investment vehicles (CIVs).

The Company recognized expenses of $ 24 million and $ 31 million during the three-month period ended June 30, 2023 (second quarter 2023) and the six-month period ended June 30, 2023 (six months 2023), respectively, associated with the Sound Point Transaction and AHP Transaction.

Basis of Presentation

3 unchanged sentences

Actual results could differ from those estimates.

These unaudited interim condensed consolidated financial statements are as of March 31, 2023 and cover the three-month period ended March 31, 2023 (first quarter 2023) and the three-month period ended March 31, 2022 (first quarter 2022).

These unaudited interim condensed consolidated financial statements are as of June 30, 2023 and cover second quarter 2023, the three-month period ended June 30, 2022 (second quarter 2022), six months 2023 and the six-month period ended June 30, 2022 (six months 2022).

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

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Certain prior year balances have been reclassified to conform to the current period’s presentation, except for assets and liabilities held for sale as described above.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

disclosures required by GAAP.

Certain prior year balances have been reclassified to conform to the current period’s presentation.

The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries, and its consolidated financial guaranty VIEs (FG VIEs) and CIVs.

1 unchanged sentence

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S.

11 unchanged sentences

(AGRO), domiciled in Bermuda.

The Company’s principal asset management subsidiaries are:

Until July 2023, the Company’s principal asset management subsidiaries were:

• Assured Investment Management LLC, organized in Delaware;

1 unchanged sentence

• Assured Healthcare Partners LLC, organized in Delaware.

AGM and AGC (collectively, the U.S.

Insurance Subsidiaries jointly own an investment subsidiary, AG Asset Strategies LLC (AGAS), which invests in funds managed by AssuredIM (AssuredIM Funds).

Effective July 1, 2023, the AssuredIM Funds are managed by Sound Point or AHP.

Following the closing of the Sound Point Transaction, AGAS has also begun to invest in funds managed by Sound Point.

AGL directly or indirectly owns several holding companies, two of which - Assured Guaranty US Holdings Inc.

13 unchanged sentences

and (ii) AGAS.

The Asset Management segment consists of AssuredIM, which provides asset management services to third-party investors as well as to the U.S.

As of June 30, 2023, the Asset Management segment consisted of AssuredIM, which provided asset management services to third-party investors as well as to the U.S.

Insurance Subsidiaries and AGAS.

Beginning in July 2023, the Company participates in the asset management business through its investment in Sound Point as described in Note 1, Business and Basis of Presentation.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Corporate division primarily consists of interest expense on the debt of the U.S.

8 unchanged sentences

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

Insurance Subsidiaries and the premiums and losses associated with the financial guaranty policies associated with the FG VIEs’ debt are eliminated, whereas

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Insurance Subsidiaries and the premiums and losses/recoveries associated with the financial guaranty policies associated with the FG VIEs’ debt are eliminated (the reconciliation tables below present the FG VIEs and related eliminations in “other”,) and (ii) CIVs are consolidated by AGUS, (in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’ interest in CIVs are presented in “other.”) In addition, under GAAP, reimbursable fund expenses are shown as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below, these expenses are netted in “segment expenses”.

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

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The Company does not report assets by reportable segment as the CODM does not assess performance and allocate resources based on assets.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

1 unchanged sentence

Segment Information

Three Months Ended March 31,

Second Quarter

Insurance Asset Management Insurance Asset Management

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Segment adjusted operating income (loss) $ 106 $ ( 2 ) $ 55 $ —

Insurance Asset Management Insurance Asset Management

(in millions)

Third-party revenues $ 409 $ 44 $ 413 $ 46

Intersegment revenues 5 27 4 21

Segment revenues 414 71 417 67

Segment expenses 189 75 163 67

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

Segment provision (benefit) for income taxes 37 ( 1 ) 31 —

Segment adjusted operating income (loss) $ 223 $ ( 3 ) $ 188 $ —

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Reconciliation of Segment Information to Consolidated Information

First Quarter 2023

Three Months Ended June 30, 2023

Equity in Earnings (Losses) of Investees Less:

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

First Quarter 2022

Three Months Ended June 30, 2022

Equity in Earnings (Losses) of Investees Less:

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

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2023

Equity in Earnings (Losses) of Investees Less:

Net Income (Loss) Attributable to AGL

Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests

(in millions)

Insurance $ 414 $ 189 $ 35 $ 37 $ — $ 223

Asset Management 71 75 — ( 1 ) — ( 3 )

Total segments 485 264 35 36 — 220

Corporate division 4 108 — ( 10 ) — ( 94 )

Other 32 15 ( 28 ) ( 6 ) 17 ( 22 )

Subtotal 521 387 7 20 17 104

Reconciling items:

Realized gains (losses) on investments ( 11 ) — — — — ( 11 )

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives 102 ( 1 ) — — — 103

Fair value gains (losses) on CCS ( 15 ) — — — — ( 15 )

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves 46 — — — — 46

Tax effect — — — 21 — ( 21 )

Total consolidated $ 643 $ 386 $ 7 $ 41 $ 17 $ 206

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2022

Equity in Earnings (Losses) of Investees Less:

Net Income (Loss) Attributable to AGL

Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests

(in millions)

Insurance $ 417 $ 163 $ ( 35 ) $ 31 $ — $ 188

Asset Management 67 67 — — — —

Total segments 484 230 ( 35 ) 31 — 188

Corporate division 2 70 — — — ( 68 )

Other 21 12 24 2 31 —

Subtotal 507 312 ( 11 ) 33 31 120

Reconciling items:

Realized gains (losses) on investments ( 25 ) — — — — ( 25 )

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives ( 1 ) ( 4 ) — — — 3

Fair value gains (losses) on CCS 11 — — — — 11

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves ( 102 ) — — — — ( 102 )

Tax effect — — — ( 12 ) — 12

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

Outstanding Exposure

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

The Company has not entered into any new CDS in order to sell credit protection in the U.S.

since the beginning of 2009, when regulatory guidelines were issued that limited the terms under which such protection could be sold by its U.S.

Insurance Subsidiaries.

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

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

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sovereign and sub-sovereign issuers and governmental authorities.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Some of these VIEs are consolidated as described in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

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Exposures identified as BIG are subjected to further review to determine the probability of a loss.

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

See Note 4, Expected Loss to be Paid (Recovered).

Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid.

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The Company measures its financial guaranty exposure in terms of (i) gross and net par outstanding and (ii) gross and net debt service.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company typically guarantees the payment of debt service when due.

1 unchanged sentence

Gross par outstanding generally represents the principal amount of the insured obligation at a point in time.

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

Net par outstanding equals

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

gross par outstanding net of any reinsurance.

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

1 unchanged sentence

The Company has, from time to time, purchased securities 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 Company excludes amounts attributable to Loss Mitigation Securities from par and debt service outstanding and instead reports Loss Mitigation Securities in the investment portfolio because the Company manages such securities as investments and not insurance exposure.

As of both March 31, 2023 and December 31, 2022, the Company excluded from net par outstanding $ 1.3 billion attributable to Loss Mitigation Securities.

The Company excludes amounts attributable to Loss Mitigation Securities from par and debt service outstanding and instead reports Loss Mitigation Securities in the investment portfolio.

The Company manages such securities as investments and not insurance exposure.

As of both June 30, 2023 and December 31, 2022, the Company excluded net par outstanding of $ 1.3 billion, primarily attributable to Loss Mitigation Securities.

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

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

Debt Service and Par Outstanding

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

As of June 30, 2023 As of December 31, 2022

Gross Net Gross Net

7 unchanged sentences

Total financial guaranty $ 244,193 $ 244,013 $ 233,438 $ 233,258

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $ 808 million of public finance direct gross par and $ 1.4 billion of structured finance direct gross par as of March 31, 2023.

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

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $ 2.0 billion of public finance direct gross par and $ 1.3 billion of structured finance direct gross par as of June 30, 2023.

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

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

Financial Guaranty Portfolio by Internal Rating

As of March 31, 2023

As of June 30, 2023

Public Finance

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Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of March 31, 2023

As of June 30, 2023

BIG Net Par Outstanding Net Par

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BIG Net Par Outstanding and Number of Risks

As of March 31, 2023

As of June 30, 2023

Net Par Outstanding Number of Risks (2)

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(dollars in millions)

Category 1 $ 3,370 $ 6 $ 3,376 117 1 118

Category 2 170 10 180 15 2 17

Category 3 2,286 40 2,326 109 8 117

BIG 1 $ 2,320 $ 6 $ 2,326 107 1 108

BIG 2 989 10 999 16 2 18

BIG 3 2,269 40 2,309 109 8 117

Total BIG $ 5,578 $ 56 $ 5,634 232 11 243

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

8 unchanged sentences

(dollars in millions)

Category 1 $ 3,357 $ 6 $ 3,363 122 1 123

Category 2 171 10 181 14 2 16

Category 3 2,307 41 2,348 111 10 121

BIG 1 $ 3,357 $ 6 $ 3,363 122 1 123

BIG 2 171 10 181 14 2 16

BIG 3 2,307 41 2,348 111 10 121

Total BIG $ 5,835 $ 57 $ 5,892 247 13 260

3 unchanged sentences

Exposure to Puerto Rico

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 both March 31, 2023 and December 31, 2022.

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 $ 1.3 billion and $ 1.4 billion net par outstanding as of June 30, 2023 and December 31, 2022, respectively.

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

The Company has paid claims as a result of payment defaults on all of its outstanding 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), which have made their debt service payments on time.

The Company has paid claims as a result of payment defaults on all of its outstanding 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), each of which has continued to make timely debt service payments.

On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law.

1 unchanged sentence

Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under Chapter 9 of the United States Bankruptcy Code.

After over five years of negotiations, a substantial portion of the Company’s Puerto Rico exposure was resolved in 2022 in accordance with four orders (including orders implementing the GO/PBA Plan and HTA Plan described below) 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 insured Puerto Rico credits experiencing payment default in 2022 except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions).

As a result of the 2022 Puerto Rico Resolutions, during 2022 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 were greatly reduced.

After over five years of negotiations, a substantial portion of the Company’s Puerto Rico exposure was resolved in 2022 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 insured Puerto Rico credits experiencing payment default in 2022 except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions).

Under 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 Company received cash, new general obligation bonds (New GO Bonds) and contingent value instruments (CVIs).

Under the Modified Fifth Amended Title III Plan of Adjustment for PRHTA (HTA Plan), the Company received cash, new bonds backed by toll revenues (Toll Bonds, and together with the New GO Bonds, New Recovery Bonds) and CVIs.

In connection with the Modified Fifth Amended Title III Plan of Adjustment for PRHTA (HTA Plan) and related arrangements, the Company received cash and new bonds backed by toll revenues (Toll Bonds, and together with the New GO Bonds, New Recovery Bonds) from the PRHTA and CVIs from the Commonwealth.

Cash, New Recovery Bonds and CVIs received pursuant to the 2022 Puerto Rico Resolutions are collectively referred to as Plan Consideration.

Plan Consideration is reported in either cash, investments or FG VIE assets as described below.

Plan Consideration is reported in either cash, investments or FG VIEs’ assets as described below.

• Investments and cash.

Plan Consideration received in respect of bondholders whose principal on bonds insured by the Company were accelerated against the Commonwealth and became due and payable under the 2022 Puerto Rico Resolutions are reported in Cash and Investments.

See Note 7, Investments, for the fair value of the Toll Bonds and CVIs remaining as of March 31, 2023.

Plan Consideration received in respect of bondholders whose principal of bonds insured by the Company were accelerated against the Commonwealth and became due and payable under the 2022 Puerto Rico Resolutions are reported in Cash and Investments.

See Note 7, Investments, for the fair value of the New Recovery Bonds and CVIs remaining as of June 30, 2023.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

• FG VIE assets.

Plan Consideration received in respect of insured bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus Plan Consideration that constitute distributions under the HTA Plan or the GO/PBA Plan are reported in FG VIE assets.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

• FG VIEs’ assets.

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 of Plan Consideration are insufficient to pay or prepay such amounts.

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for the fair value of New Recovery Bonds remaining as of March 31, 2023

On July 28, 2023, the Company directed the trustee to notify certain holders of custody receipts representing interests in legacy insured GO, PBA and HTA bonds of its intent to satisfy on August 31, 2023 its obligations under the legacy insured bonds with respect to $ 108 million net par outstanding as of July 28, 2023 and, following payment of such obligations, AGC and AGM will receive the New Recovery Bonds and/or CVIs with notional amounts and maturity values totaling $ 94 million as of July 28, 2023 held as collateral with respect to the custodial trusts.

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for the fair value of New Recovery Bonds remaining as of June 30, 2023.

The Company has sold a portion of the New Recovery Bonds and CVIs and may sell in the future any New Recovery Bonds or CVIs it continues to hold.

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

Substantially all of the CVIs are reported in investments, rather than FG VIEs.

Substantially all of the CVIs are reported in investments, rather than FG VIEs’ assets.

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

6 unchanged sentences

Gross Par Outstanding Gross Debt Service Outstanding

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

(in millions)

1 unchanged sentence

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Par Outstanding

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

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____________________

(1) Resolved in pursuant to the 2022 Puerto Rico Resolutions.

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

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

4 unchanged sentences

Net Par Outstanding and Net Debt Service Outstanding

As of March 31, 2023

As of June 30, 2023

Scheduled Net Par Amortization Scheduled Net Debt Service Amortization

(in millions)

2023 (April 1 - June 30) $ — $ 3

2023 (July 1 - September 30) $ 124 $ 154

5 unchanged sentences

Total $ 1,349 $ 1,829

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of March 31, 2023, the Company had $ 720 million insured net par outstanding of PREPA obligations.

As of June 30, 2023, the Company had $ 720 million insured net par outstanding of PREPA obligations.

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

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

On May 3, 2019, AGM and

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

2 unchanged sentences

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

Judge Swain has since extended the term of such mediation several times, most recently on April 24, 2023 extending the term to July 28, 2023.

Judge Swain has since extended the term of such mediation several times, most recently on July 25, 2023 extending the term to October 30, 2023.

The FOMB initially filed a plan of adjustment and disclosure statement for PREPA with the Federal District Court of Puerto Rico on December 16, 2022, and filed an amended version on February 9, 2023 (FOMB PREPA Plan).

The Company expects that a confirmation hearing for the FOMB PREPA Plan will be held in fourth quarter 2023 or first quarter 2024.

The FOMB PREPA Plan would split bondholders into two groups:

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The FOMB PREPA Plan provides for lower recoveries to bondholders than did previous agreements the FOMB reached with bondholders.

The Federal District Court of Puerto Rico approved the PREPA disclosure statement on February 28, 2023, which allows bondholder solicitation on the FOMB PREPA Plan to begin.

On March 22, 2023, the Federal District Court of Puerto Rico found that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control.

The Federal District Court of Puerto Rico approved the PREPA disclosure statement on February 28, 2023, which allowed bondholder solicitation on the FOMB PREPA Plan to begin.

On March 22, 2023, the Federal District Court of Puerto Rico held that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control but did not have a lien in future revenues until deposited in those funds.

The Federal District Court of Puerto Rico also held, however, that PREPA bondholders do have recourse under the PREPA trust agreement in the form of an unsecured net revenue claim.

The Federal District Court of Puerto Rico declined to value the amount of the claim but defined it as the value of the net revenues that would have, under the waterfall provisions of the PREPA trust agreement and applicable nonbankruptcy law, become collateral upon being deposited in the sinking fund and payable to PREPA bondholders over the remaining terms of the bonds.

The ultimate value of the claim, according to the Federal District Court of Puerto Rico, should be determined through a claim estimations proceeding.

On April 13, 2023, the Federal District Court of Puerto Rico issued an order regarding proposed procedures to estimate the value of the unsecured net revenue claim, pursuant to which the court established a discovery briefing and expert report schedule, indicated that a hearing would be held the week of June 5, 2023, and stated that it expected and directed the parties to engage in good faith mediation.

The last revised fiscal plan for PREPA was certified by the FOMB on June 28, 2022.

As of March 31, 2023, the Company had $ 477 million of insured net par outstanding of PRHTA bonds:

At that time, the Federal District Court of Puerto Rico declined to value the unsecured net revenue claim or the method for its determination.

The ultimate value of the claim, according to the Federal District Court of Puerto Rico, should be determined through a claim estimation proceeding.

On June 6-8, 2023, the Federal District Court of Puerto Rico held a claim estimation proceeding and, on June 26, 2023, issued an opinion and order estimating the unsecured net revenue claim to be $ 2.4 billion as of July 3, 2017.

This estimate included a determination that PREPA’s discounted cash flows, using FOMB’s base-case incremental net revenues over a 100-year collection period and a discount rate of 7 %, would be $ 3.0 billion, and should be reduced by an additional 20 % for “risk of success in achieving the projected cash flow through the actions of a receiver and other equitable remedies appropriate”.

PREPA bondholders had sought an unsecured net revenue claim of approximately $ 8.5 billion.

The Company expects to appeal portions of the March 22, 2023 decision, including the lien scope ruling and the need for a claim estimation proceeding, as well as the June 26, 2023 claim estimate ruling, upon final adjudication by the Federal District Court of Puerto Rico of all claims and counterclaims in the PREPA lien challenge proceedings.

The last revised fiscal plan for PREPA was certified by the FOMB on June 23, 2023 (2023 PREPA Fiscal Plan).

In the 2023 PREPA Fiscal Plan, FOMB asserts that, other than for pension claims, PREPA’s debt capacity is $ 2.5 billion, of which approximately $ 1.4 billion is allocated to settling creditors.

The remaining $ 1.1 billion is allocated pro rata to (i) non-settling bondholders, and (ii) general unsecured creditors (GUCs).

The Federal District Court of Puerto Rico extended to August 11, 2023 the deadline for FOMB to file a further amended FOMB PREPA Plan based on the 2023 PREPA Fiscal Plan.

The Company believes that a further revised FOMB PREPA Plan would provide for reduced payments to bondholders since lower projected PREPA revenues are included in the 2023 PREPA Fiscal Plan than had been previously anticipated.

Since the Federal District Court of Puerto Rico’s estimated unsecured net revenue claim exceeds the $ 1.1 billion available to non-settling bondholders and GUCs under the 2023 PREPA Fiscal Plan, the unsecured net revenue claim may be subject to further impairment.

The 2023 PREPA Fiscal Plan contemplates that non-settling bondholders will receive at least 12.5 % of their allowed claim in the form of restructuring bonds, as well as two CVIs allocated based on their allowed claim.

As of June 30, 2023, the Company had $ 475 million of insured net par outstanding of PRHTA bonds:

$ 293 million insured net par outstanding of PRHTA (transportation revenue) bonds and $ 182 million insured net par outstanding of PRHTA (highway revenue) bonds.

PRHTA net par outstanding represents the Company’s exposure in respect of insured bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus Toll Bonds that constitute distributions under the HTA Plan.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Puerto Rico GO and PBA

As of March 31, 2023, the Company had remaining $ 25 million of insured net par outstanding of GO bonds and $ 4 million of insured net par outstanding of PBA bonds.

As of June 30, 2023, the Company had remaining $ 25 million of insured net par outstanding of GO bonds and $ 4 million of insured net par outstanding of PBA bonds.

GO/PBA net par outstanding represents the Company’s exposure in respect of insured bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus cash, New GO Bonds and CVIs that constitute distributions under the GO/PBA Plan.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Other Puerto Rico Exposures

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The Federal District Court of Puerto Rico also held that the PREPA bondholders do have recourse under the trust agreement in the form of an unsecured net revenue claim, but declined to value the unsecured net revenue claim.

On April 13, 2023, the court issued an order proposing procedures to estimate the value of the unsecured net revenue claim, pursuant to which the court established a discovery and expert report schedule, and directed the parties to engage in good faith mediation.

A hearing is expected to be held the week of June 5, 2023.

On May 3, 2023, the Federal District Court of Puerto Rico denied PREPA bondholders’ request to certify their interlocutory appeal of the finding that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control.

The Company is likely to appeal portions of the decision, including the lien scope ruling and necessity of any claim estimation proceeding, once the FOMB PREPA Plan has been approved.

On April 13, 2023, the court issued an order proposing procedures to estimate the value of the unsecured net revenue claim arising from the Trustee’s ability to exercise remedies to obtain specific performance of PREPA’s covenants to fund the sinking fund, which must be done under the Bankruptcy Code for purposes of allowance.

The order also set a discovery and expert report schedule, and directed the parties to engage in good faith mediation.

A claim estimation hearing was held June 6-8, 2023, and in a June 26, 2023 opinion, the court estimated the PREPA bondholders’ allowed unsecured net revenue claim to be $ 2.4 billion, which the court calculated by largely adopting the conclusions in the FOMB’s expert report.

On May 3, 2023, the court denied PREPA bondholders’ request to certify their interlocutory appeal of the finding that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control.

On May 15, 2023, the FOMB filed its motion to dismiss the Trustee’s and bondholders’ counterclaims.

Unless mediation or a confirmed plan of adjustment leads to an acceptable outcome, AGM and AGC expect to appeal portions of the court’s decision, including the lien scope ruling and the result of the claim estimation proceeding, upon final adjudication by the court.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The following Puerto Rico proceedings in which the Company is involved remain stayed:

6 unchanged sentences

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

Following termination of mediation without a resolution and the filing of a motion to dismiss PREPA’s Title III case or to lift the automatic stay

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

to allow for the appointment of a receiver, the court effectively stayed this matter until termination of the plan confirmation process.

Following termination of mediation without a resolution and the filing of a motion to dismiss PREPA’s Title III case or to lift the automatic stay to allow for the appointment of a receiver, the court effectively stayed this matter until termination of the plan confirmation process.

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

9 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Specialty Business

1 unchanged sentence

Specialty Insurance, Reinsurance and Guaranties

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

As of June 30, 2023 As of December 31, 2022

Gross Exposure Net Exposure Gross Exposure Net Exposure

7 unchanged sentences

(1) The life insurance transactions net exposure is projected to reach $ 1.1 billion in 2025.

As of both March 31, 2023 and December 31, 2022, gross exposure of $ 144 million and net exposure of $ 84 million of aircraft residual value insurance was BIG.

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

The Company’s subsidiary, AGRO, also guarantees other specialty business, including an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties with an internal rating of AA.

These guaranties mature in 2042.

The Company’s maximum potential exposure under these guaranties was $ 1.6 billion as of March 31, 2023.

As of both June 30, 2023 and December 31, 2022, gross exposure of $ 144 million and net exposure of $ 84 million of aircraft residual value insurance was internally rated BIG.

All other exposures in the table above are rated investment-grade.

The Company’s subsidiary, AGRO, also guarantees other specialty business included in other guaranties in the table above, including an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties with an internal rating of AA.

This guaranty matures in 2042.

The Company’s maximum potential exposure under this guaranty was $ 1.6 billion as of June 30, 2023.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Expected Loss to be Paid (Recovered)

9 unchanged sentences

Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about the likelihood of all possible outcomes based on all information available to the Company.

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

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

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

10 unchanged sentences

The three primary models are:

(1) insurance, as described in Note 5, Contracts Accounted for as Insurance;

(1) insurance, as

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

described in Note 5, Contracts Accounted for as Insurance;

(2) derivatives, as described in Note 6, Contracts Accounted for as Credit Derivatives, and Note 9, Fair Value Measurement;

10 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

15 unchanged sentences

For example, changes over a reporting period in the Company’s loss estimates for its RMBS transactions may be influenced by factors such as the level and timing of loan defaults experienced, changes in housing prices, results from the Company’s loss mitigation activities, and other variables.

Changes to estimates of net expected loss to be paid (recovered) and net economic loss development (benefit) over a reporting period may be attributable to a number of interrelated factors such as changes in discount rates, improvement or deterioration of transaction performance, charge-offs, loss mitigation activity, changes to projected default curves, severity rates, and dispute resolution.

Net economic loss development (benefit) over a reporting period may be attributable to a number of interrelated factors such as changes in discount rates, improvement or deterioration of transaction performance, charge-offs, loss mitigation activity, changes to projected default curves, severity rates and dispute resolution.

Actual losses will ultimately depend on future events, transaction performance or other factors that are difficult to predict.

As a result, the Company’s current projections of losses may be subject to considerable volatility and may not reflect the Company’s ultimate claims paid.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

In some instances, the terms of the Company’s policy or the terms of certain workout orders and resolutions give it the option to pay principal losses that have been recognized in the transaction but which it is not yet required to pay, thereby reducing the amount of guaranteed interest due in the future.

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

The Company has sometimes exercised this option, which results in an acceleration of cash outflows but reduces overall losses paid.

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

1 unchanged sentence

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

As of First Quarter

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

As of Second Quarter Six Months

Accounting Model June 30, 2023 December 31, 2022 2023 2022 2023 2022

(in millions)

9 unchanged sentences

insurance, derivative and FG VIE.

The Company used risk-free

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

rates for U.S.

dollar denominated obligations that ranged from 3.44 % to 4.87 % with a weighted average of 3.75 % as of March 31, 2023 and 3.82 % to 4.69 % with a weighted average of 4.08 % as of December 31, 2022.

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

dollar denominated obligations that ranged from 3.73 % to 5.37 % with a weighted average of 4.34 % as of June 30, 2023 and 3.82 % to 4.69 % with a weighted average of 4.08 % as of December 31, 2022.

Expected losses to be paid for U.S.

dollar denominated transactions represented approximately 97.6 % and 98.5 % of the total as of March 31, 2023 and December 31, 2022, respectively.

dollar denominated transactions represented approximately 98.3 % and 98.5 % of the total as of June 30, 2023 and December 31, 2022, respectively.

Net Expected Loss to be Paid (Recovered)

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

9 unchanged sentences

(1) Net (paid) recovered losses in 2022 include the net amounts received pursuant to the portion of the 2022 Puerto Rico Resolutions related to PRCCDA, PRIFA and GO/PBA exposures, as described in Note 3, Outstanding Exposure.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector

First Quarter 2023

Second Quarter 2023

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

Development (Benefit) Net (Paid)

Net Expected Loss to be Paid (Recovered) as of June 30, 2023

(in millions)

Public finance:

public finance $ 380 $ 57 $ ( 4 ) $ 433

public finance 13 ( 3 ) — 10

Public finance 393 54 ( 4 ) 443

Structured finance:

RMBS 82 ( 9 ) — 73

Other structured finance 42 4 ( 2 ) 44

Structured finance 124 ( 5 ) ( 2 ) 117

Total $ 517 $ 49 $ ( 6 ) $ 560

Second Quarter 2022

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

Development (Benefit) Net (Paid)

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

(in millions)

Public finance:

public finance $ 181 $ 8 $ 21 $ 210

public finance 10 ( 2 ) ( 1 ) 7

Public finance 191 6 20 217

Structured finance:

RMBS 195 ( 39 ) 23 179

Other structured finance 46 1 ( 1 ) 46

Structured finance 241 ( 38 ) 22 225

Total $ 432 $ ( 32 ) $ 42 $ 442

Six Months 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

Net Expected Loss to be Paid (Recovered) as of June 30, 2023

(in millions)

9 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

First Quarter 2022

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Six Months 2022

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

Development (Benefit) Net (Paid)

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

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

(in millions)

12 unchanged sentences

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

The tables above include (a) net LAE paid of $ 3 million and $ 13 million for first quarter 2023 and first quarter 2022, respectively, and (b) net expected LAE to be paid of $ 9 million as of March 31, 2023 and $ 11 million as of December 31, 2022.

The tables above include (i) net LAE paid of $ 5 million, $ 7 million, $ 8 million and $ 20 million for second quarter 2023, second quarter 2022, six months 2023 and six months 2022 respectively, and (ii) net expected LAE to be paid of $ 11 million as of both June 30, 2023 and December 31, 2022.

Public Finance

The largest component of public finance expected losses to be paid (recovered) and economic loss development (benefit) are U.S.

exposures, including Puerto Rico exposures, which are discussed in Note 3, Outstanding Exposure.

RMBS Loss Projections

The Company projects losses on its insured U.S.

RMBS on a transaction-by-transaction basis by projecting the performance of the underlying pool of mortgages over time and then applying the structural features (i.e., payment priorities and tranching) of the RMBS and any expected representation and warranty (R&W) recoveries/payables to the projected performance of the collateral over time.

RMBS on a transaction-by-transaction basis by projecting the performance of the underlying pool of mortgages over time and then applying the structural features (e.g., payment priorities and tranching) of the RMBS and any expected representation and warranty (R&W) recoveries/payables to the projected performance of the collateral over time.

The resulting projected claim payments or reimbursements are then discounted using risk-free rates.

Each period the Company makes a judgment as to whether to change the assumptions it uses to make RMBS loss projections based on its observation during the period of the performance of its insured transactions (including early-stage delinquencies, late-stage delinquencies and loss severity) as well as the residential property market and economy in general, and, to the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a trend.

Each period the Company reviews the assumptions it uses to make RMBS loss projections with consideration of updates on the performance of its insured transactions (including early-stage delinquencies, late-stage delinquencies and loss severity) as well as the residential property market and economy in general.

To the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a more prolonged trend.

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

Net Economic Loss Development (Benefit)

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

8 unchanged sentences

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

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

In order to determine the number of defaults resulting from these delinquent and foreclosed loans, the Company applies a liquidation rate assumption to loans in each of various non-performing categories.

Changes in the amount of non-performing loans from the amount projected in the previous period

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

are one of the primary drivers of loss projections in this portfolio.

In order to project the number of defaults arising from these delinquent and foreclosed loans, the Company applies a liquidation rate assumption to loans in each of various non-performing categories.

The Company arrived at its liquidation rates based on data purchased from a third-party provider and assumptions about how delays in the foreclosure process and loan modifications may ultimately affect the rate at which loans are liquidated.

1 unchanged sentence

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

First Lien U.S.

RMBS Liquidation Rates

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current but recently delinquent

24 unchanged sentences

The start of that CDR curve is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans.

The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, would be sufficient to produce approximately the amount of defaults that were calculated to emerge from the various delinquency categories.

The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, results in the projection of the defaults that are expected to emerge from the various delinquency categories.

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

1 unchanged sentence

In the base scenario, the Company assumes the final CDR will be reached one year after the 36 -month CDR plateau period.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

trend after the first 36 -month period represent defaults attributable to borrowers that are currently performing or are projected to re-perform.

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

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

The Company is assuming in the base scenario that the recent levels generally will continue for

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

another 18 months.

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

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

4 unchanged sentences

First Lien U.S.

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

As of June 30, 2023 As of December 31, 2022

Range Weighted Average Range Weighted Average

23 unchanged sentences

These CPR assumptions are the same as those the Company used for December 31, 2022.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company incorporates a recovery assumption into its reserving model to reflect observed trends in recoveries of deferred principal balances of modified first lien loans that had been previously written off.

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

In first quarter 2023, in light of recent volatility in interest rates, the mortgage market, and home prices, the Company also began incorporating a 10 % recovery of deferred principal balances in the pessimistic scenario and a 50 % recovery in the optimistic scenario.

In the first quarter of 2023, in light of recent volatility in interest rates, the mortgage market and home prices, the Company also began incorporating a 10 % recovery of deferred principal balances in the most stressful scenario and a 50 % recovery in the least stressful scenario.

The effect on expected losses of this refinement in methodology was less than $ 1 million.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

2 unchanged sentences

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

The Company probability weighted a total of five scenarios as of March 31, 2023 and December 31, 2022.

The Company probability weighted a total of five scenarios as of June 30, 2023 and December 31, 2022.

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

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

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

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

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of March 31, 2023 as it used as of December 31, 2022, increasing and decreasing the periods of stress from those used in the base scenario, but, as mentioned above, it updated the assumed recovery for deferred principal balances for the pessimistic and optimistic scenarios (to 10 % and 50 %, respectively) compared to December 31, 2022 (when 20 % was assumed in all scenarios).

As previously announced by the ICE Benchmark Administration and the Financial Conduct Authority, publication of LIBOR was discontinued after June 30, 2023.

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

The Company used a similar approach to establish its scenarios as of June 30, 2023 as it used as of December 31, 2022, increasing and decreasing the periods of stress from those used in the base scenario, but, as mentioned above, it updated the assumed recovery for deferred principal balances for the most stressful and least stressful scenarios (to 10 % and 50 %, respectively) compared to December 31, 2022 (when 20 % was assumed in all scenarios).

In the Company’s most stressful scenario where 10 % of deferred principal balances were recovered, loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 16 months, expected loss to be paid would increase from current projections by approximately $ 22 million for all first lien U.S.

RMBS transactions.

In the Company’s least stressful scenario where 50 % of deferred principal balances are recovered, the CDR plateau was six months shorter ( 30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over eight months ), expected loss to be paid would decrease from current projections by approximately $ 33 million for all first lien U.S.

In the Company’s least stressful scenario where 50 % of deferred principal balances are assumed to be recovered, the CDR plateau was six months shorter ( 30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over eight months ), expected loss to be paid would decrease from current projections by approximately $ 31 million for all first lien U.S.

RMBS transactions.

12 unchanged sentences

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

A substantial number of loans in the Company’s insured transactions had been modified to extend the interest-only period to 15 years.

A substantial number of loans in the Company’s insured transactions had been modified to extend the interest-only period to 15

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The majority of the modified loans had reset to fully amortizing by the end of 2022, and most of the remaining loans will reset over the next several years.

1 unchanged sentence

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

The Company assumed, as of March 31, 2023 and December 31, 2022, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time.

The Company assumed, as of June 30, 2023 and December 31, 2022, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time.

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

4 unchanged sentences

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

In first quarter 2023, in light of recent volatility in interest rates, the mortgage market, and home prices, as with the first lien deferred principal balances detailed earlier, the Company also began incorporating a 10 % recovery of charged-off loan balances in the pessimistic scenario and a 50 % recovery in the optimistic scenario.

In the first quarter of 2023, in light of recent volatility in interest rates, the mortgage market and home prices, as with the first lien deferred principal balances detailed earlier, the Company also began incorporating a 10 % recovery of charged-off loan balances in the most stressful scenario and a 50 % recovery in the least stressful scenario.

The effect on expected losses of this refinement in methodology was less than $ 1 million.

5 unchanged sentences

This pattern is consistent with how the Company modeled the CPR as of December 31, 2022.

To the extent that prepayments differ from projected levels it could materially change the Company’s projected excess spread and losses.

To the extent that prepayments differ from projected levels, the Company’s projected excess spread and losses could materially change.

In estimating expected losses, the Company modeled and probability weighted five scenarios, each with a different CDR curve applicable to the period preceding the return to the long-term steady state CDR.

1 unchanged sentence

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Key Assumptions in Base Scenario Expected Loss Estimates

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

As of June 30, 2023 As of December 31, 2022

Range Weighted Average Range Weighted Average

13 unchanged sentences

The Company believes the most important driver of its projected second lien RMBS losses is the performance of its HELOC transactions.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

1 unchanged sentence

On the other hand, in the Company’s least stressful scenario, assuming 50 % recoveries on charged-off loans, reducing the CDR plateau to 30 months and decreasing the length of the CDR ramp-down to eight months (for a total stress period of 38 months) and lowering the ultimate prepayment rate to 10 % would increase the expected recovery by approximately $ 63 million for HELOC transactions.

Structured Finance Excluding U.S.

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

RMBS, as of March 31, 2023 was $ 42 million.

The largest component of these structured finance losses were student loan securitizations issued by private issuers with $ 46 million in BIG net par outstanding.

In general, the projected losses of these student loan securitizations are due to:

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

The Company also had exposure to troubled life insurance transactions with BIG net par of $ 40 million as of March 31, 2023.

Recovery Litigation and Dispute Resolution

7 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Earned Premiums

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

7 unchanged sentences

____________________

(1) First quarter 2022 accelerations included $ 104 million related to PRCCDA, PRIFA and GO/PBA exposures.

See Note 3, Outstanding Exposure, for additional information.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(1) Six months 2022 accelerations included $ 104 million related to PRCCDA, PRIFA and GO/PBA exposures.

See Note 3, Outstanding Exposure.

Gross Premium Receivable,

Net of Commissions Payable on Assumed Business

First Quarter

(in millions)

9 unchanged sentences

Specialty insurance premium receivable 1 1

March 31, $ 1,346 $ 1,335

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.

June 30, $ 1,417 $ 1,235

Approximately 72 % and 74 % of gross premiums receivable, net of commissions payable, at June 30, 2023 and December 31, 2022, respectively, are denominated in currencies other than the U.S.

dollar, primarily the pound sterling and euro.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

Expected Future Premium Collections and Earnings

As of March 31, 2023

As of June 30, 2023

Future Gross Premiums

2 unchanged sentences

(in millions)

2023 (April 1 - June 30) $ 32 $ 70

2023 (July 1 - September 30) $ 51 $ 73

11 unchanged sentences

(2) Net of reinsurance.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Selected Information for Financial Guaranty Insurance Policies with Premiums Paid in Installments

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(dollars in millions)

5 unchanged sentences

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

dollar denominated financial guaranty insurance obligations that ranged from 3.44 % to 4.87 % with a weighted average of 3.84 % as of March 31, 2023 and 3.82 % to 4.69 % with a weighted average of 4.15 % as of December 31, 2022.

dollar denominated financial guaranty insurance obligations that ranged from 3.73 % to 5.37 % with a weighted average of 4.36 % as of June 30, 2023 and 3.82 % to 4.69 % with a weighted average of 4.15 % as of December 31, 2022.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Net Reserve (Salvage) by Sector

Sector March 31, 2023 December 31, 2022

Sector June 30, 2023 December 31, 2022

(in millions)

16 unchanged sentences

Financial Guaranty Insurance Contracts

As of March 31, 2023

As of June 30, 2023

(in millions)

5 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The following table provides a schedule of the expected timing of net expected losses to be expensed.

3 unchanged sentences

Financial Guaranty Insurance Contracts

As of March 31, 2023

As of June 30, 2023

(in millions)

2023 (April 1 - June 30) $ 3

2023 (July 1 - September 30) $ 4

8 unchanged sentences

Loss and LAE (Benefit) by Sector

First Quarter

Second Quarter Six Months

Sector 2023 2022 2023 2022

5 unchanged sentences

Structured finance:

RMBS ( 2 ) ( 22 ) $ 4 $ ( 19 )

Other structured finance 1 — 3 ( 1 )

2 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

1 unchanged sentence

BIG Transaction Loss Summary

As of March 31, 2023

As of June 30, 2023

Gross Net Total BIG

15 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

37 unchanged sentences

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

The estimated remaining weighted average life of credit derivatives was 12.6 years and 12.8 years as of March 31, 2023 and December 31, 2022, respectively.

The estimated remaining weighted average life of credit derivatives was 12.6 years and 12.8 years as of June 30, 2023 and December 31, 2022, respectively.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Credit Derivatives (1)

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

As of June 30, 2023 As of December 31, 2022

Sector Net Par

8 unchanged sentences

____________________

(1) Expected loss to be paid was $ 3 million as of both March 31, 2023 and December 31, 2022.

(1) Expected loss to be paid was $ 3 million as of both June 30, 2023 and December 31, 2022.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

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

As of June 30, 2023 As of December 31, 2022

Rating Category Net Par

9 unchanged sentences

Fair Value Gains (Losses) on Credit Derivatives

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

7 unchanged sentences

CDS Spread on AGC (in basis points)

As of March 31,

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

As of June 30,

2023 As of December 31, 2022 As of June 30,

2022 As of December 31, 2021

2 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC Credit Spread

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

2 unchanged sentences

Net fair value of credit derivatives $ ( 57 ) $ ( 162 )

The fair value of CDS contracts as of March 31, 2023, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

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

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

The fair value of CDS contracts as of June 30, 2023, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

The majority of the investment portfolio comprises investment grade fixed-maturity securities managed by three outside managers.

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

The remainder of the investment portfolio primarily consists of (i) Loss Mitigation Securities;

(ii) New Recovery Bonds and CVIs received in connection with the consummation of the 2022 Puerto Rico Resolutions;

and (iii) other investments including certain fixed-maturity and short-term securities, and equity method investments.

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

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

The Company had unfunded commitments of $ 79 million as of March 31, 2023 related to certain of the Company’s alternative investments other than AssuredIM Funds.

(iii) other investments including certain fixed-maturity and short-term securities, and (iv) equity method investments.

Equity method investments primarily consist of generally less liquid alternative investments including an investment in renewable and clean energy and private equity funds.

Investment Portfolio

Carrying Value

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

1 unchanged sentence

Externally managed (2) $ 5,551 $ 5,824

Loss Mitigation Securities and other 696 705

AssuredIM managed 539 537

Loss Mitigation Securities 509 548

Puerto Rico, New Recovery Bonds (3) 36 358

Other (4) 392 389

Fixed-maturity securities, trading - Puerto Rico, CVIs (3) 340 303

4 unchanged sentences

____________________

(1) 7.5 % and 7.4 % of fixed-maturity securities were rated BIG as of March 31, 2023 and December 31, 2022, respectively, consisting primarily of Loss Mitigation Securities.

2.9 % and 5.9 % were not rated, as of March 31, 2023 and December 31, 2022, respectively.

(1) 7.5 % and 7.4 % of fixed-maturity securities were rated BIG as of June 30, 2023 and December 31, 2022, respectively, consisting primarily of Loss Mitigation Securities.

1.7 % and 5.9 % were not rated, as of June 30, 2023 and December 31, 2022, respectively.

(2) As of June 30, 2023 and December 31, 2022 amounts include $ 292 million and $ 305 million, respectively, of CLOs that had been managed by AssuredIM under an investment management agreement until June 20, 2023.

(3) These securities are not rated.

(3) Weighted average credit rating of AAA as of both March 31, 2023 and December 31, 2022, based on the lower of the Moody’s Investors Service, Inc.

(4) As of June 30, 2023 and December 31, 2022 amounts include $ 221 million and $ 232 million, respectively, of municipal bonds that had been managed by AssuredIM under an investment management agreement until June 20, 2023.

(5) Weighted average credit rating of AAA as of both June 30, 2023 and December 31, 2022, based on the lower of the Moody’s Investors Service, Inc.

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

Insurance Subsidiaries, through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $ 750 million in affiliated alternative investment funds, which currently consist of investments in AssuredIM Funds.

Adding inception-to-date distributed gains, 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

(6) Excludes investments in AssuredIM Funds which are consolidated and accounted for as CIVs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Funds of $ 613 million, of which $ 366 million represented net invested capital and $ 247 million was undrawn.

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

As of March 31, 2023 and December 31, 2022, the net asset value (NAV) of investments in AssuredIM Funds was $ 396 million and $ 569 million, respectively.

The decline in the carrying value of AssuredIM Funds was primarily due to distributions from the municipal bond fund.

As discussed in Note 1, Business and Basis of Presentation, Sound Point Transaction, the U.S.

Insurance Subsidiaries agreed after the closing of the transactions contemplated by the Transaction Agreement to engage Sound Point as their sole alternative credit manager and to transition existing investments and commitments in AssuredIM Funds and make new investments in an aggregate amount totaling $ 1 billion over time, subject to regulatory approval for additional amounts, in funds, other vehicles and separately managed accounts managed by Sound Point as part of the Sound Point Transaction.

As of March 31, 2023, current investments and commitments in AssuredIM Funds that will transfer to Sound Point management totaled $ 393 million, and such amount will be applied to the $ 1 billion commitment described above.

The Company’s $ 853 million authorization is available for investment in funds, vehicles and separately managed accounts managed by Sound Point and for investment in healthcare strategies.

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

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Upon closing of the Sound Point Transaction and the AHP Transaction in July, the Company has increased the aggregate amount it has agreed to invest in alternative investments to $ 1.5 billion, including the $ 1 billion with Sound Point, subject to regulatory approval, which includes $ 510 million of investment capital (at fair value), and $ 991 million in unfunded commitments.

See Note 1, Business and Basis of Presentation for a description of the Sound Point Transaction.

Of the $ 1.5 billion to be invested, the U.S.

Insurance Subsidiaries through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $ 750 million plus previously distributed gains of $ 114 million for a total of $ 864 million as of June 30, 2023.

As of July 1, 2023, AGAS commitments to funds previously managed by AssuredIM were $ 553 million (of which $ 333 million was funded with a net asset value (NAV) of $ 350 million).

This capital was committed to several funds, each dedicated to a single strategy, including CLOs, asset-based finance and healthcare structured capital and are managed by Sound Point or by AHP.

As of June 30, 2023, all of the funds in which AGAS invests are accounted for as CIVs.

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

Accrued investment income, which is reported in “other assets,” was $ 76 million as of March 31, 2023 and $ 71 million as of December 31, 2022.

In first quarter 2023 and first quarter 2022, the Company did not write off any accrued investment income.

Accrued investment income, which is reported in “other assets,” was $ 73 million as of June 30, 2023 and $ 71 million as of December 31, 2022.

In six months 2023 and six months 2022, the Company did not write off any accrued investment income.

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

As of March 31, 2023

As of June 30, 2023

Security Type Percent

4 unchanged sentences

(dollars in millions)

Obligations of state and political subdivisions 43 % $ 3,161 $ ( 14 ) $ 46 $ ( 96 ) $ 3,097 A+

Obligations of state and political subdivisions 42 % $ 2,973 $ ( 14 ) $ 27 $ ( 110 ) $ 2,876 AA-

government and agencies 1 69 — 1 ( 6 ) 64 AA+

9 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

23 unchanged sentences

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

government-agency obligations were approximately 32 % and 30 % of mortgage-backed securities as of March 31, 2023 and December 31, 2022, respectively, based on fair value.

government-agency obligations were approximately 38 % and 30 % of mortgage-backed securities as of June 30, 2023 and December 31, 2022, respectively, based on fair value.

Gross Unrealized Loss by Length of Time

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

As of March 31, 2023

As of June 30, 2023

Less than 12 months 12 months or more Total

16 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Gross Unrealized Loss by Length of Time

22 unchanged sentences

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

The Company has determined that the unrealized losses recorded as of March 31, 2023 and December 31, 2022 were related to higher interest rates rather than credit quality.

As of March 31, 2023, the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value.

As of March 31, 2023, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 482 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2022, 567 securities had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 253 million as of March 31, 2023 and $ 329 million as of December 31, 2022.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of March 31, 2023 are shown below.

The Company has determined that the unrealized losses recorded as of June 30, 2023 and December 31, 2022 were related to higher interest rates rather than credit quality.

As of June 30, 2023, the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value.

As of June 30, 2023, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 508 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2022, 567 securities had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 269 million as of June 30, 2023 and $ 329 million as of December 31, 2022.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of June 30, 2023 are shown below.

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

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

As of March 31, 2023

As of June 30, 2023

Cost Estimated

7 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amounts of $ 1,146 million and $ 1,169 million based on fair value as of March 31, 2023 and December 31, 2022, respectively.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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 $ 230 million as of June 30, 2023 and $ 222 million as of December 31, 2022.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or are otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amounts of $ 1,149 million and $ 1,169 million based on fair value as of June 30, 2023 and December 31, 2022, respectively.

Income from Investments

4 unchanged sentences

Income from Investments

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

Investment income:

Fixed-maturity securities, available-for-sale:

Externally managed (1) $ 53 $ 50 $ 105 $ 100

Loss Mitigation Securities and other 26 11

Managed by AssuredIM (1) 8 4

Loss Mitigation Securities 12 6 22 15

Puerto Rico, New Recovery Bonds 1 3 4 4

Other (2) 4 4 7 7

Short-term investments 18 1 32 1

Other invested assets 2 — 2 —

Investment income 90 64 172 127

4 unchanged sentences

____________________

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

(2) Fair value losses on trading securities pertaining to securities still held as of March 31, 2023 were $ 2 million for first quarter 2023.

Fair value losses on trading securities pertaining to securities still held as of March 31, 2022 were $ 4 million for first quarter 2022.

(3) Fair value gains (losses) on investments where the fair value option (FVO) was elected utilizing the NAV as a practical expedient were $ 1 million in first quarter 2023 and $ 3 million in first quarter 2022.

(1) Amounts for 2022 include income on the portion of the CLO portfolio that was previously managed by AssuredIM.

(2) Amounts for 2022 include income on the portion of the municipal bond portfolio that was previously managed by AssuredIM.

(3) Fair value gains on trading securities pertaining to securities still held as of June 30, 2023 were $ 40 million for second quarter 2023 and $ 38 million for six months 2023, respectively.

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

(4) Fair value gains (losses) on investments where the fair value option (FVO) was elected utilizing the NAV as a practical expedient were $ 1 million in second quarter 2023, $ 2 million in six months 2023, and $ 3 million in six months 2022.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Realized Investment Gains (Losses)

2 unchanged sentences

Net Realized Investment Gains (Losses)

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

1 unchanged sentence

Gross realized losses on sales of available-for-sale securities (1) ( 6 ) ( 21 ) ( 15 ) ( 23 )

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

Change in allowance for credit losses and intent to sell ( 10 ) ( 4 ) ( 15 ) ( 9 )

2 unchanged sentences

____________________

(1) First quarter 2023 related primarily to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

(2) First quarter 2023 related primarily to sales in externally managed portfolio and New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

(3) First quarter 2022 net realized gains related primarily to the sale of one of the Company’s alternative investments.

(1) Gross realized gains and losses on sales in all periods related primarily to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

The proceeds from sales of fixed-maturity securities classified as available-for-sale were $ 239 million in second quarter 2023, $ 296 million in second quarter 2022, $ 694 million in six months 2023 and $ 353 million in six months 2022.

The following table presents the roll forward of allowance for the credit losses on available-for-sale fixed-maturity securities.

1 unchanged sentence

Credit Losses for Available-for-Sale Fixed-Maturity Securities

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

3 unchanged sentences

Balance, end of period $ 79 $ 51 $ 79 $ 51

The Company recorded credit loss expenses of $ 4 million and $ 5 million in first quarter 2023 and first quarter 2022, respectively.

The Company did not purchase any securities with credit deterioration in first quarter 2023 or first quarter 2022.

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

Most of the Company’s securities with credit deterioration are Loss Mitigation Securities.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles

5 unchanged sentences

In the case of first loss, the insurance subsidiaries’ financial guaranty insurance policy only covers a senior layer of losses experienced by multiple obligations issued by the VIEs.

The first loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors.

In the case of excess spread, the financial assets contributed to VIEs generate interest income that is in excess of the interest payments on the debt issued by the VIE.

3 unchanged sentences

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

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

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

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

8 unchanged sentences

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

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

As of both March 31, 2023 and December 31, 2022, the Company consolidated 25 structured finance and other FG VIEs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

As of both June 30, 2023 and December 31, 2022, the Company consolidated 25 structured finance and other FG VIEs.

Puerto Rico Trusts

As of March 31, 2023 and December 31, 2022, the Company consolidated 45 custodial trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposure to Puerto Rico.

As of June 30, 2023 and December 31, 2022, the Company consolidated 45 custodial trusts established as part of the 2022 Puerto Rico Resolutions discussed in Note 3, Outstanding Exposure, Exposure to Puerto Rico.

With respect to certain insured securities covered by the 2022 Puerto Rico Resolutions, insured bondholders were permitted to elect to receive custody receipts that represent an interest in the legacy insurance policy plus cash, New Recovery Bonds and/or CVIs that constitute distributions under the 2022 Puerto Rico Resolutions.

(At least one separate custodial trust was set up for each legacy insured bond, and the trusts are deconsolidated as each is paid off.) For those who made this election, distributions of Plan Consideration 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.

(At least one separate custodial trust was set up for each legacy insured bond, and the trusts are deconsolidated as they are paid off.) For those who made this election, distributions of Plan Consideration 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.

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.

On July 28, 2023, the Company directed the trustee to notify certain holders of custody receipts representing interests in legacy insured GO, PBA and HTA bonds of its intent to satisfy on August

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

31, 2023 its obligations under the legacy insured bonds with respect to $ 108 million net par outstanding as of July 28, 2023 and, following payment of such obligations, AGC and AGM will receive the New Recovery Bonds and/or CVIs with notional amounts and maturity values totaling $ 94 million as of July 28, 2023 held as collateral with respect to the custodial trusts.

The Company consolidated the Puerto Rico Trusts as its insurance subsidiaries are deemed to be the primary beneficiary given its power to collapse these trusts.

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

New Recovery Bonds as available-for-sale securities ($ 211 million fair value, $ 204 million amortized cost as of March 31, 2023 and $ 204 million fair value, $ 204 million amortized cost as of December 31, 2022) and CVIs as trading securities ($ 5 million fair value as of both March 31, 2023 and December 31, 2022).

As of March 31, 2023, the available-for-sale securities had gross unrealized gains of $ 10 million and gross unrealized losses of $ 3 million.

Twelve securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $ 3 million and had a fair value of $ 21 million.

Puerto Rico Trusts

Carrying Value

June 30, 2023 December 31, 2022

(in millions)

New Recovery Bonds, available-for-sale $ 218 $ 204

CVIs, trading 5 5

New Recovery Bonds

Reported in FG VIEs’ Assets

Available-for-Sale

Losses Estimated

(dollars in millions)

As of June 30, 2023 $ 205 $ 15 $ ( 2 ) $ 218

As of December 31, 2022 204 4 ( 4 ) 204

As of June 30, 2023, 11 securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $ 2 million and had a fair value of $ 21 million.

All of these securities were in a continuous unrealized loss position for more than 12 months.

As of December 31, 2022, the available-for-sale securities had gross unrealized gains of $ 4 million and gross unrealized losses of $ 4 million.

Fourteen securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $ 4 million and had a fair value of $ 110 million.

As of December 31, 2022, 14 securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $ 4 million and had a fair value of $ 110 million.

All of these securities were in a continuous unrealized loss position for less than 12 months.

The Company has determined that the unrealized losses recorded as of March 31, 2023 and December 31, 2022 were primarily attributable to the change in interest rates, rather than credit quality.

As of March 31, 2023 and December 31, 2022, the Company did not intend to and was not required to sell these investments prior to an expected recovery in value.

As of March 31, 2023 and December 31, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, six and eight securities, respectively, had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 2 million and $ 3 million as of March 31, 2023 and December 31, 2022, respectively.

The amortized cost and estimated fair value of available-for-sale New Recovery Bonds by contractual maturity as of March 31, 2023 are shown below.

The Company has determined that the unrealized losses recorded as of June 30, 2023 and December 31, 2022 were primarily attributable to the change in interest rates, rather than credit quality.

As of June 30, 2023 and December 31, 2022, the Company did not intend to and was not required to sell these investments prior to an expected recovery in value.

As of June 30, 2023 and December 31, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, three and eight securities, respectively, had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 1 million and $ 3 million as of June 30, 2023 and December 31, 2022, respectively.

The amortized cost and estimated fair value of available-for-sale New Recovery Bonds by contractual maturity as of June 30, 2023 are shown below.

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

New Recovery Bonds in FG VIEs’ Assets

Available-for-Sale

Distribution by Contractual Maturity

As of March 31, 2023

As of June 30, 2023

Cost Estimated

6 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Components of FG VIE Assets and Liabilities

Net fair value gains and losses on FG VIEs are expected to reverse to zero by maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by the insurance subsidiaries under the financial guaranty insurance contracts.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Components of FG VIEs’ Assets and Liabilities

Net fair value gains and losses on FG VIEs are expected to reverse to zero by the maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by the insurance subsidiaries under the financial guaranty insurance contracts.

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

1 unchanged sentence

Consolidated FG VIEs by Type of Collateral

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

14 unchanged sentences

(1) Includes $ 2 million of cash as of December 31, 2022.

The change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIEs’ assets at FVO) held as of March 31, 2023 that was reported in the condensed consolidated statements of operations for first quarter 2023 was a loss of $ 1 million.

The change in the ISCR of the FG VIEs’ assets at FVO held as of March 31, 2022 was a loss of $ 5 million for first quarter 2022.

The change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIEs’ assets at FVO) held as of June 30, 2023 that was reported in the condensed consolidated statements of operations for second quarter 2023 and six months 2023 were losses of $ 1 million and $ 2 million, respectively.

The change in the ISCR of the FG VIEs’ assets at FVO held as of June 30, 2022 was a gain of $ 1 million and a loss of $ 4 million for second quarter 2022 and six months 2022, respectively.

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

1 unchanged sentence

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Selected Information for FG VIEs’ Assets and Liabilities

Measured under the FVO

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

7 unchanged sentences

(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2023 through 2041.

CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses for which the Company is the primary beneficiary or has a controlling interest.

As of June 30, 2023, CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses for which the Company was the primary beneficiary or has a controlling interest.

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

In light of the Sound Point Transaction and the AHP Transaction, the Company is evaluating whether it will continue to consolidate each of its consolidated investment vehicles (CIVs).

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

5 unchanged sentences

Number of Consolidated CIVs by Type

CIV Type March 31, 2023 December 31, 2022

CIV Type June 30, 2023 December 31, 2022

Funds (1) 6 8

CLOs (2) 10 10

CLO warehouses (3) 2 4

1 unchanged sentence

____________________

(1) One fund was deconsolidated in first quarter 2023.

(2) As of March 31, 2023, one CIV was a voting interest entity, and as of December 31, 2022, two CIVs were voting interest entities.

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

During both first quarter 2023 and first quarter 2022 no consolidated CLO warehouses became CLOs.

(1) Two funds were deconsolidated in six months 2023.

One fund was consolidated in six months 2022.

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

(3) Two CLO warehouses were deconsolidated in six months 2023.

One CLO warehouse was consolidated in six months 2022

(4) As of June 30, 2023 and December 31, 2022, one and two , respectively, CIV were voting interest entities (VOEs).

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

During six months 2023, no consolidated CLO warehouses became CLOs.

During six months 2022, two consolidated CLO warehouses became CLOs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Assets and Liabilities of CIVs

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

18 unchanged sentences

____________________

(1) Includes investments in AssuredIM Funds and other affiliated entities of $ 260 million and $ 392 million as of March 31, 2023 and December 31, 2022, respectively.

Includes assets of a voting interest entity as of March 31, 2023 of $ 38 million, and assets and liabilities of voting interest entities of $ 58 million and $ 1 million, respectively, as of December 31, 2022.

(2) The weighted average maturity of CLO obligations was 5.9 years as of March 31, 2023 and 6.2 years as of December 31, 2022.

The weighted average interest rate of CLO obligations was 6.1 % as of March 31, 2023 and 5.3 % as of December 31, 2022.

(1) Includes investments in AssuredIM Funds and other affiliated entities of $ 267 million and $ 392 million as of June 30, 2023 and December 31, 2022, respectively.

Includes assets of a VOE of $ 24 million as of June 30, 2023, and assets and liabilities of a VOE of $ 58 million and $ 1 million, respectively, as of December 31, 2022.

(2) The weighted average maturity of CLO obligations was 5.8 years as of June 30, 2023 and 6.2 years as of December 31, 2022.

The weighted average interest rate of CLO obligations was 6.6 % as of June 30, 2023 and 5.3 % as of December 31, 2022.

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

(3) The weighted average maturity of warehouse financing debt of CLO warehouses was 0.5 years as of March 31, 2023 and 1.9 years as of December 31, 2022.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 5.0 % as of March 31, 2023 and 4.5 % as of December 31, 2022.

(3) The weighted average maturity of warehouse financing debt of CLO warehouses was 0.3 years as of June 30, 2023 and 1.9 years as of December 31, 2022.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 5.3 % as of June 30, 2023 and 4.5 % as of December 31, 2022.

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

(4) Negative cash as of March 31, 2023 is due to reporting the distribution of certain cash by an AssuredIM Fund to AGAS in the current period, while reporting the receipt of cash as a result of an investment sale by an AssuredIM Fund on a lag.

The “equity securities and warrants” category in the table above includes $ 127 million as of December 31, 2022 related to a consolidated feeder’s investment in a municipal master fund that was unwound in January 2023 based on the December 31, 2022 valuation.

On January 31, 2023, the fund distributed substantially all of its available cash to AGAS and other investors in the fund.

As of December 31, 2022, other liabilities in the table above include redeemable NCI.

These liabilities were settled in first quarter 2023.

As of March 31, 2023, the CIVs had unfunded commitments to invest $ 453 million.

As of March 31, 2023 and December 31, 2022, the CIVs included derivative contracts with notional amounts totaling $ 39 million and $ 46 million, respectively, and average notional amounts of $ 43 million and $ 47 million, respectively.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

As of June 30, 2023 and December 31, 2022, other liabilities in the table above include redeemable noncontrolling interests (NCI).

As of June 30, 2023, the CIVs had unfunded commitments to invest of $ 452 million.

As of June 30, 2023 and December 31, 2022, the CIVs included derivative contracts with notional amounts totaling $ 39 million and $ 46 million, respectively, and average notional amounts of $ 42 million and $ 47 million, respectively.

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

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

The net change in fair value of derivative contracts were gains of $ 4 million in first quarter 2022.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

2 unchanged sentences

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

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

As of June 30, 2023, these credit facilities had varying maturities ranging from 2023 to 2024 with the aggregate principal amount not exceeding $ 820 million.

The available commitments were based on the amount of equity contributed to the warehouses which was $ 217 million.

As of March 31, 2023, $ 138 million was drawn under credit facilities with interest rates ranging from 3-month Term SOFR plus 150 basis points (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.

As of June 30, 2023, $ 134 million was drawn under credit facilities with interest rate Euro InterBank Offered Rate (Euribor) plus 300 basis points (bps) (with a floor on Euribor of zero ).

The CLO warehouses were in compliance with all financial covenants as of June 30, 2023.

As of June 30, 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.

Noncontrolling Interest in CIVs

As of June 30, 2023, $ 54 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 June 30, 2023.

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

2 unchanged sentences

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

The largest of these VIEs had assets of $ 89 million and liabilities of $ 10 million as of March 31, 2023, and assets of $ 86 million and liabilities of $ 12 million as of December 31, 2022, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

The largest of these VIEs had assets of $ 89 million and liabilities of $ 9 million as of June 30, 2023, and assets of $ 86 million and liabilities of $ 12 million as of December 31, 2022, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

Non-Consolidated VIEs

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

Of the approximately 15 thousand policies monitored as of March 31, 2023, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

Of the approximately 15 thousand policies monitored as of June 30, 2023, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

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

As of March 31, 2023 and December 31, 2022, the Company identified 86 and 85 policies, respectively, that contain provisions and experienced events that may trigger consolidation.

See above for information on VIEs that were consolidated based on management’s assessment of these potential triggers or events.

As of both June 30, 2023 and December 31, 2022, the Company identified 85 policies that contain provisions and experienced events that may trigger consolidation.

The Company manages funds and CLOs that have been determined to be VIEs in which the Company concluded that it is not the primary beneficiary because it lacks a controlling financial interest.

1 unchanged sentence

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

The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $ 1 million as of both March 31, 2023 and December 31, 2022) as well as foregone future management and performance fees.

The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $ 1 million as of both June 30, 2023 and December 31, 2022) as well as foregone future management and performance fees.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value Measurement

2 unchanged sentences

The price represents the price available in the principal market for the asset or liability.

If there is no principal market, then the price is based on a hypothetical market that maximizes the value received for an asset or minimizes the amount paid for a liability (i.e., the most advantageous market).

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

there is no principal market, then the price is based on a hypothetical market that maximizes the value received for an asset or minimizes the amount paid for a liability (i.e., the most advantageous market).

Fair value is based on quoted market prices, where available.

4 unchanged sentences

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

During first quarter 2023, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

During six months 2023, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

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

13 unchanged sentences

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

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

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

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

Carried at Fair Value

5 unchanged sentences

The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Benchmark yields have in many cases taken priority over reported trades for securities that trade less frequently or those that are distressed trades, and therefore may not be indicative of the market.

The extent of the use of each input is dependent on the asset class and the market conditions.

The extent of the use of each input is

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

dependent on the asset class and the market conditions.

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

As of March 31, 2023, the Company used models to price 190 securities.

As of June 30, 2023, the Company used models to price 193 securities.

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

18 unchanged sentences

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

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

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

The AGC CCS and AGM CPS are classified as Level 3.

4 unchanged sentences

The change in fair value of these assets is reported in “other operating expenses” in the condensed consolidated statements of operations.

Contracts Accounted for as Credit Derivatives

The Company’s credit derivatives in the Insurance segment primarily consist of insured CDS contracts, and also include interest rate swaps that qualify as derivatives under GAAP, which require fair value measurement with changes in the

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

fair value reported in the condensed consolidated statements of operations.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Contracts Accounted for as Credit Derivatives

The Company did not enter into CDS contracts with the intent to trade these contracts and the Company may not unilaterally terminate a CDS contract absent an event of default or termination event that entitles the Company to terminate such contracts;

13 unchanged sentences

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

Consistent with previous years, market conditions at March 31, 2023 were such that market prices of the Company’s CDS contracts were not available.

Consistent with previous years, market conditions at June 30, 2023 were such that market prices of the Company’s CDS contracts were not available.

Assumptions and Inputs

10 unchanged sentences

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

The rates used to discount future expected premium cash flows ranged from 2.59 % to 5.06 % at March 31, 2023 and 2.78 % to 5.08 % at December 31, 2022.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

affects the pricing of its transactions.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The rates used to discount future expected premium cash flows ranged from 2.94 % to 5.48 % at June 30, 2023 and 2.78 % to 5.08 % at December 31, 2022.

The Company’s own credit risk is factored into the determination of net spread based on the impact of changes in the quoted market price for credit protection bought on the Company, as reflected by quoted market prices on CDS referencing AGC.

4 unchanged sentences

In the Company’s valuation model, the premium the Company captures is not permitted to go below the minimum rate that the Company would currently charge to assume similar risks.

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

As of March 31, 2023 and December 31, 2022, the use of the minimum premium did not have a significant effect on fair value.

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

Given market conditions and the Company’s own credit spreads, approximately 10.6 %, based on fair value, of the Company’s CDS contracts were fair valued using this minimum premium as of June 30, 2023.

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

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

10 unchanged sentences

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

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

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

Strengths and Weaknesses of Model

7 unchanged sentences

therefore, the Company’s exit market is a hypothetical one based on the Company’s entry market.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

• There is a very limited market in which to validate the reasonableness of the fair values developed by the Company’s model.

1 unchanged sentence

• Due to the non-standard terms under which the Company enters into derivative contracts, the fair value of its credit derivatives may not reflect the same prices observed in an actively traded market of credit derivatives that do not contain terms and conditions similar to those observed in the financial guaranty market.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

FG VIEs’ Assets and Liabilities

2 unchanged sentences

The Company elected the FVO for the Puerto Rico Trusts’ liabilities and they are classified as Level 3.

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

See “ - Fixed Maturity Securities” above for a description of the fair value methodology for the New Recovery Bonds and CVIs in the Puerto Rico Trusts.

For structured finance and other FG VIEs’ assets and liabilities the Company elected the FVO and they are classified as Level 3.

8 unchanged sentences

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

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

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

The expected yield is further calibrated by utilizing algorithms designed to aggregate market color, received by the independent third party, on comparable bonds.

4 unchanged sentences

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

The change in fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for (i) the change in fair value attributable to change in ISCR on FG VIEs’ liabilities, and (ii) unrealized gains and losses on the New Recovery Bonds in the Puerto Rico Trusts, which are reported OCI.

Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on FG VIEs.” Investment income on the New Recovery Bonds and changes in fair value on the CVIs in the Puerto Rico Trusts are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of operations.

2 unchanged sentences

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

The loans are all Level 2 assets, which are more observable than the fair value of the Level 3 debt issued by the consolidated CLOs.

The loans are all Level 2 assets, which are more

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

observable than the fair value of the Level 3 debt issued by the consolidated CLOs.

As a result, the less observable CLO debt is measured on the basis of the more observable CLO loans.

2 unchanged sentences

less (2) the sum of (iii) the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services), and (iv) the Company’s carrying value of any beneficial interests that represent compensation for services.

The resulting amount is

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

allocated to the individual financial liabilities (other than the underlying financial liabilities to the beneficial interests retained by the Company).

The resulting amount is allocated to the individual financial liabilities (other than the underlying financial liabilities to the beneficial interests retained by the Company).

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

19 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of March 31, 2023

As of June 30, 2023

Fair Value Hierarchy

37 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

39 unchanged sentences

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

Excludes $ 22 million and $ 23 million of equity method investments measured at fair value under the FVO using the NAV as a practical expedient as of March 31, 2023 and December 31, 2022, respectively.

(2) Excludes $ 5 million as of both March 31, 2023 and December 31, 2022, in investments in AssuredIM Funds for which the Company records a 100% NCI.

Excludes $ 23 million of equity method investments measured at fair value under the FVO using the NAV as a practical expedient as of both June 30, 2023 and December 31, 2022.

(2) Excludes $ 5 million, as of both June 30, 2023 and December 31, 2022, in investments in AssuredIM Funds for which the Company records a 100% NCI.

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

2 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

1 unchanged sentence

Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during first quarter 2023 and first quarter 2022.

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during second quarter 2023, second quarter 2022, six months 2023 and six months 2022.

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

First Quarter 2023

Second Quarter 2023

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

3 unchanged sentences

(in millions)

Fair value as of December 31, 2022 $ 47 $ 179 $ 794 $ 204 $ 297 $ 96 $ 46 $ 50

Fair value as of March 31, 2023 $ 47 $ 174 $ 795 $ 197 $ 329 $ 93 $ 17 $ 34

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

4 unchanged sentences

Settlements ( 1 ) ( 9 ) ( 3 ) ( 7 ) — — — ( 4 )

Fair value as of June 30, 2023 $ 46 $ 162 $ 800 $ 188 $ 290 $ 84 $ — $ 33

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2023 included in:

Earnings $ ( 3 ) (2) $ ( 33 ) (4) $ — $ — $ 3 (3)

OCI $ ( 1 ) $ ( 7 ) $ ( 4 ) $ —

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

Second Quarter 2023

Credit Derivative

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

(in millions)

Fair value as of March 31, 2023 $ ( 148 ) $ ( 704 ) $ ( 4,220 )

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2023 included in:

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

Net income (loss) 91 (6) ( 2 ) (2) 17 (4)

Other comprehensive income (loss) — 2 ( 5 )

Settlements — 5 9

Fair value as of June 30, 2023 $ ( 57 ) $ ( 699 ) $ ( 4,199 )

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2023 included in:

Earnings $ 91 (6) $ 4 (2) $ ( 2 ) (4)

OCI $ 2 $ ( 5 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

First Quarter 2023

Second Quarter 2022

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

Subdivisions RMBS Asset-

Securities FG VIEs’

Assets Equity Securities and Warrants Corporate Securities Structured Products Other

(in millions)

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

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

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

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

Purchases — — 10 — 5 — 42 —

Sales — — ( 9 ) — ( 6 ) — ( 21 ) —

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

Deconsolidations — — — ( 15 ) — — 20 —

Transfers out of Level 3 ( 1 ) — — ( 4 ) — — — —

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

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

Earnings $ 2 (2) $ 10 (4) $ 7 (4) $ ( 3 ) (4) $ 10 (3)

OCI $ ( 4 ) $ ( 10 ) $ ( 29 ) $ ( 1 )

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

Second Quarter 2022

Credit Derivative

1 unchanged sentence

(in millions)

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

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

Net income (loss) 9 (6) 11 (2) 250 (4)

Other comprehensive income (loss) — 3 37

Issuances — — ( 1,027 )

Settlements — 24 29

Deconsolidations — 15 374

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

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

Earnings $ 8 (6) $ 11 (2) $ 262 (4)

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Six Months 2023

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

Subdivisions RMBS Asset-

Securities FG VIEs’

Assets Equity Securities and Warrants Corporate Securities Structured Products Other

(in millions)

Fair value as of December 31, 2022 $ 47 $ 179 $ 794 $ 204 $ 297 $ 96 $ 46 $ 50

2 unchanged sentences

Other comprehensive income (loss) — ( 8 ) ( 8 ) — — — — —

Purchases — — 23 — 38 6 — —

Sales — — ( 2 ) — ( 85 ) ( 15 ) ( 48 ) —

Settlements ( 2 ) ( 16 ) ( 7 ) ( 15 ) — — — ( 4 )

Fair value as of March 31, 2023 $ ( 148 ) $ ( 704 ) $ ( 4,220 )

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2023 included in:

Fair value as of June 30, 2023 $ 46 $ 162 $ 800 $ 188 $ 290 $ 84 $ — $ 33

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2023 included in:

Earnings $ ( 3 ) (2) $ ( 1 ) (4) $ ( 3 ) (4) $ — $ ( 13 ) (3)

OCI $ — $ ( 8 ) $ ( 7 ) $ —

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

Six Months 2023

Credit Derivative

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

(in millions)

Fair value as of December 31, 2022 $ ( 162 ) $ ( 715 ) $ ( 4,154 )

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

Net income (loss) 106 (6) 1 (2) ( 45 ) (4)

Other comprehensive income (loss) — 1 ( 13 )

Settlements ( 1 ) 14 13

Fair value as of June 30, 2023 $ ( 57 ) $ ( 699 ) $ ( 4,199 )

Change in unrealized gains (losses) related to financial instruments held as of June 30, 2023 included in:

Earnings $ 105 (6) $ 2 (2) $ ( 67 ) (4)

OCI $ 1 $ ( 13 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

First Quarter 2022

Six Months 2022

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

1 unchanged sentence

Securities FG VIEs’

Assets Equity Securities Corporate Securities Other

Assets Equity Securities Corporate Securities Structured Products Other

(in millions)

8 unchanged sentences

Consolidations — — — 15 — — — —

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

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:

Deconsolidations — — — ( 15 ) — — 20 —

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

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

Earnings $ ( 2 ) (2) $ 18 (4) $ 5 (4) $ ( 3 ) (4) $ 11 (3)

OCI $ ( 10 ) $ ( 17 ) $ ( 36 ) $ ( 1 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

First Quarter 2022

Six Months 2022

Credit Derivative

10 unchanged sentences

Consolidations — ( 102 ) —

Fair value as of March 31, 2022

Deconsolidations — 15 374

Fair value as of June 30, 2022

$ ( 147 ) $ ( 282 ) $ ( 3,987 )

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:

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

Earnings $ 5 (6) $ 49 (2) $ 303 (4)

10 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Level 3 Fair Value Disclosures

Quantitative Information About Level 3 Fair Value Inputs

As of March 31, 2023

As of June 30, 2023

Financial Instrument Description Fair Value Assets (Liabilities)

29 unchanged sentences

Corporate securities 84 Discount rate 17.1 %

Exit multiple-EBITDA 8.00 x

Market multiple-enterprise value/EBITDA 2.50 x

Sale scenario - discount rate 4.4 % - 5.5 % 4.9 %

Haircut to Holdback 30.0 % - 95.0 % 62.5 %

Structured products 17 Yield 15.7 % - 26.9 % 20.8 %

Other assets (1) 32 Implied Yield 8.1 % - 8.7 % 8.4 %

1 unchanged sentence

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description Fair Value Assets (Liabilities)

2 unchanged sentences

Bank profit (in bps) 115.9 - 298.8 178.0

Internal floor (in bps) 10.0

Internal credit rating AAA - CCC AA

19 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Quantitative Information About Level 3 Fair Value Inputs

36 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description Fair Value Assets (Liabilities)

37 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Other Liabilities

As of March 31, 2023 and December 31, 2022, $ 36 million and $ 35 million, respectively, of AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5 % of the senior and equity notes issued by certain consolidated European CLOs, which was required to comply with its European risk retention obligations, were included in “liabilities held for sale” and “other liabilities”, respectively.

As of June 30, 2023 and December 31, 2022, $ 36 million and $ 35 million, respectively, of AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5 % of the senior and equity notes issued by certain consolidated European CLOs, which was required to comply with its European risk retention obligations, were included in “liabilities held for sale” and “other liabilities,” respectively.

The maturity dates are in 2034 and 2035.

2 unchanged sentences

Fair Value of Financial Instruments Not Carried at Fair Value

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

As of June 30, 2023 As of December 31, 2022

Amount Estimated

21 unchanged sentences

The following table presents the sources of asset management fees on a consolidated basis.

Upon closing of the Sound Point Transaction and the AHP Transaction, the Company will account for its investment in Sound Point as an equity method investment rather than as a consolidated asset manager.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Asset Management Fees

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

9 unchanged sentences

(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company had management and performance fees receivable of $ 10 million as of both March 31, 2023 and December 31, 2022.

These balances are in “assets held for sale” and “other assets” on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

The Company had management and performance fees receivable of $ 10 million as of both June 30, 2023 and December 31, 2022.

These balances are in “assets held for sale” and “other assets” on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively.

Performance fees were attributable to the healthcare and asset-based funds.

16 unchanged sentences

Deferred and Current Tax Assets (Liabilities)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

2 unchanged sentences

Valuation Allowance

As of March 31, 2023 and December 31, 2022, the Company had $ 5 million in foreign tax credits (FTCs) due to the 2017 Tax Cuts and Jobs Act for use against regular tax in future years.

As of June 30, 2023 and December 31, 2022, the Company had $ 5 million in foreign tax credits (FTCs) due to the 2017 Tax Cuts and Jobs Act for use against regular tax in future years.

FTCs will expire in 2027.

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

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the remaining FTCs of $ 5 million will not be utilized, and therefore maintained the valuation allowance from December 31, 2022 with respect to this tax attribute.

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

that the remaining FTCs of $ 5 million will not be utilized, and therefore maintained the valuation allowance from December 31, 2022 with respect to this tax attribute.

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

5 unchanged sentences

When assessing recoverability of these deferred tax assets, the Company considers the ability and intent to hold the underlying securities to recovery in value, if necessary, as well as other factors as noted above.

As of March 31, 2023 and December 31, 2022, based on all available evidence, including capital loss carryback capacity, the Company concluded that the deferred tax assets related to the unrealized tax capital losses on the available-for-sale securities portfolios are, more likely than not, expected to be realized.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2023 and December 31, 2022, based on all available evidence, including capital loss carryback capacity, the Company concluded that the deferred tax assets related to the unrealized tax capital losses on the available-for-sale securities portfolios are, more likely than not, expected to be realized.

Provision for Income Taxes

15 unchanged sentences

Effective Tax Rate Reconciliation

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

5 unchanged sentences

Stock based compensation ( 1 ) 2 — 4

Other ( 1 ) ( 1 ) ( 1 ) —

Total provision (benefit) for income taxes $ 18 $ 3 $ 41 $ 21

2 unchanged sentences

Where there is a pre-tax loss in one jurisdiction and pre-tax income in another, the total combined expected tax rate may be higher or lower than any of the individual statutory rates.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The following tables present pre-tax income and revenue by jurisdiction.

Pre-tax Income (Loss) by Tax Jurisdiction

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

$ 117 $ 25 $ 225 $ 109

Bermuda 33 ( 10 ) 58 17

2 unchanged sentences

Total $ 144 $ ( 22 ) $ 264 $ 71

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Revenue by Tax Jurisdiction

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

$ 293 $ 106 $ 528 $ 375

Bermuda 58 6 93 39

8 ( 18 ) 21 ( 18 )

Other 1 ( 4 ) 1 ( 6 )

1 unchanged sentence

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

As of March 31, 2023, AGUS had open tax years with the U.S.

As of June 30, 2023, AGUS had open tax years with the U.S.

Internal Revenue Service (IRS) for 2018 forward and is currently under audit for the 2018 and 2019 tax years.

As of March 31, 2023, Assured Guaranty Overseas US Holdings Inc.

As of June 30, 2023, Assured Guaranty Overseas US Holdings Inc.

had open tax years with the IRS for 2019 forward and is not currently under audit with the IRS.

8 unchanged sentences

See “Exposure to Puerto Rico” section of Note 3, Outstanding Exposure, for a description of such actions.

Also in the ordinary course of their respective business, certain of AGL’s investment management subsidiaries are involved in litigation with third parties regarding fees, appraisals, or portfolio companies.

The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s results of operations in that particular quarter or year.

In first quarter 2023, the Company reduced its previously recorded accrual of $ 20 million to zero in connection with developments in litigation.

Also in the ordinary course of their respective business, certain of AGL’s investment management affiliates are involved in litigation with third parties regarding fees, appraisals, or portfolio companies.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

In the first quarter of 2023, the Company reduced its previously recorded accrual of $ 20 million to zero in connection with developments in litigation.

The Company also receives subpoenas and interrogatories from regulators from time to time.

3 unchanged sentences

LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the Court), asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination in December 2008 of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP’s termination in July 2009 of 28 other credit derivative transactions between LBIE and AGFP and AGFP’s calculation of the termination payment in connection with those 28 other credit derivative transactions.

Following defaults by LBIE, AGFP properly terminated the

Following defaults by LBIE, AGFP had terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and properly calculated that LBIE owes AGFP approximately $ 4 million for the claims which were dismissed (as described below) and approximately $ 21 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $ 1.4 billion.

On March 15, 2013, the Court granted AGFP’s motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions.

Following a bench trial, on March 8, 2023, the Court rendered its decision and found in favor of AGFP.

On May 17, 2023, the Court issued an order holding that AGFP is entitled to interest on its damages award at a rate of 8 % simple and directing the clerk to enter judgment in favor of AGFP.

On June 30, 2023, the clerk entered judgment in favor of AGFP in the amount of approximately $ 54 million for damages and prejudgment interest on AGFP’s counterclaims and, on July 10, 2023, LBIE filed a notice of appeal of that judgment.

On July 1, 2023, AGFP moved the Court to award it approximately $ 58 million for attorneys’ fees and expenses AGFP incurred through March 2023.

The Company has not accrued for either of these amounts in its financial statements.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly.

AGFP has calculated that LBIE owes AGFP approximately $ 4 million for the claims which were dismissed (as described below) and approximately $ 21 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $ 1.4 billion.

AGFP filed a motion to dismiss the claims for breach of the implied covenant of good faith in LBIE’s complaint, and on March 15, 2013, the Court granted AGFP’s motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions.

LBIE’s administrators disclosed in an April 10, 2015 report to LBIE’s unsecured creditors that LBIE’s valuation expert has calculated LBIE’s claim for damages in aggregate for the 28 transactions to range between a minimum of approximately $ 200 million and a maximum of approximately $ 500 million, depending on what adjustment, if any, is made for AGFP's credit risk.

In addition, LBIE sought prejudgment interest from the time of termination onwards.

A bench trial before Supreme Court Justice Melissa A.

Crane was held from October 18 through November 19, 2021.

On March 8, 2023, Justice Crane rendered her decision and found in favor of AGFP.

On April 12, 2023, AGFP requested entry of judgment in its favor.

The Court heard argument on that request on May 9, 2023, and the request is under consideration.

The Company continues to evaluate developments related to this case including any issues associated with a potential appeal by the plaintiff.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Shareholders’ Equity

2 unchanged sentences

Changes in Accumulated Other Comprehensive Income (Loss) by Component

First Quarter 2023

Second Quarter 2023

Net Unrealized Gains (Losses) on Investments with:

4 unchanged sentences

(in millions)

Balance, December 31, 2022 $ ( 343 ) $ ( 110 ) $ ( 23 ) $ ( 45 ) $ 6 $ ( 515 )

Balance, March 31, 2023 $ ( 254 ) $ ( 105 ) $ ( 24 ) $ ( 43 ) $ 6 $ ( 420 )

Other comprehensive income (loss) before reclassifications ( 30 ) ( 18 ) 1 1 — ( 46 )

4 unchanged sentences

— — ( 1 ) — — ( 1 )

Interest expense — — — — 1 1

Total before tax

4 unchanged sentences

Other comprehensive income (loss) ( 30 ) ( 10 ) 2 1 ( 1 ) ( 38 )

Balance, June 30, 2023 $ ( 284 ) $ ( 115 ) $ ( 22 ) $ ( 42 ) $ 5 $ ( 458 )

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Second Quarter 2022

Net Unrealized Gains (Losses) on Investments with:

FG VIEs’ Liabilities with Recourse Cumulative

Adjustment Cash Flow

Hedge Total AOCI

No Credit Impairment Credit Impairment

(in millions)

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

Other comprehensive income (loss) before reclassifications ( 261 ) ( 48 ) 2 ( 8 ) — ( 315 )

Amounts reclassified from AOCI to:

Net realized investment gains (losses)

( 23 ) ( 5 ) — — — ( 28 )

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Total before tax

( 23 ) ( 5 ) ( 1 ) — — ( 29 )

Tax (provision) benefit

Total amount reclassified from AOCI, net of tax ( 19 ) ( 4 ) — — — ( 23 )

Other comprehensive income (loss) ( 242 ) ( 44 ) 2 ( 8 ) — ( 292 )

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

First Quarter 2022

Six Months 2023

Net Unrealized Gains (Losses) on Investments with:

11 unchanged sentences

— — ( 2 ) — — ( 2 )

Interest expense — — — — 1 1

Total before tax

1 unchanged sentence

Tax (provision) benefit

( 2 ) 3 — — 1

Total amount reclassified from AOCI, net of tax 2 ( 12 ) ( 2 ) — 1 ( 11 )

Other comprehensive income (loss) 59 ( 5 ) 1 3 ( 1 ) 57

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

Balance, June 30, 2023 $ ( 284 ) $ ( 115 ) $ ( 22 ) $ ( 42 ) $ 5 $ ( 458 )

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2022

Net Unrealized Gains (Losses) on Investments with:

FG VIEs’ Liabilities with Recourse Cumulative

Adjustment Cash Flow

Hedge Total AOCI

No Credit Impairment Credit Impairment

(in millions)

Balance, December 31, 2021 $ 375 $ ( 24 ) $ ( 21 ) $ ( 36 ) $ 6 $ 300

Other comprehensive income (loss) before reclassifications ( 600 ) ( 91 ) 1 ( 9 ) — ( 699 )

Amounts reclassified from AOCI to:

Net realized investment gains (losses)

( 24 ) ( 10 ) — — — ( 34 )

Fair value gains (losses) on FG VIEs

— — ( 2 ) — — ( 2 )

Total before tax

( 24 ) ( 10 ) ( 2 ) — — ( 36 )

Tax (provision) benefit

Total amount reclassified from AOCI, net of tax ( 20 ) ( 8 ) ( 1 ) — — ( 29 )

Other comprehensive income (loss) ( 580 ) ( 83 ) 2 ( 9 ) — ( 670 )

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Share Repurchases

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

As of August 8, 2023, the Company was authorized to purchase $ 158 million of its common shares.

The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions.

10 unchanged sentences

Total 2022 8,847,981 $ 503 56.79

2023 (January 1 - May 9) 36,369 2 62.23

2023 (January 1 - March 31) 36,369 2 62.23

2023 (April 1 - June 30) 453,942 24 53.08

2023 (July 1 - August 8) 320,646 19 58.32

Total 2023 810,957 $ 45 55.56

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Earnings Per Share

Computation of Earnings Per Share

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions, except per share amounts)

15 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements