What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-10 · 436 added, 398 removed, 1162 unchanged (42% of the section changed)

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

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

• the possibility of a U.S.

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

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

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

• public health crises, including pandemics and endemics, and the governmental and private actions taken in response to such events;

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

• the loss of investors in Assured Guaranty’s asset management strategies or the failure to attract new investors to Assured Guaranty’s asset management business;

• the risk that the Company’s investments in funds managed by Sound Point Capital Management, LP (Sound Point) do not result in the benefits anticipated or subject Assured Guaranty to negative consequences;

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

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

• the impact of the Company satisfying its obligations under insurance policies with respect to legacy insured Puerto Rico bonds;

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

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

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

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

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

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

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

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

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

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• natural or man-made catastrophes or pandemics;

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

• the impact of climate change on Assured Guaranty’s business and regulatory actions taken related to such risk;

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

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• management’s response to these factors.

The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, as well as the risk factors included in the Company’s 2022 Annual Report on Form 10-K.

The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements and risk factors that are included in this Form 10-Q, as well as the risk factors included in the Company’s 2022 Annual Report on Form 10-K.

The Company undertakes no obligation to update publicly or review any forward looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

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

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

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

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

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

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public finance (including infrastructure) and structured finance markets.

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

Until July 1, 2023, the Company served as 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 as described below.

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

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

Transaction with Sound Point

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

In addition, AGM and AGC (U.S.

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

Asset Management Transactions

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.

(AGM) and Assured Guaranty Corp.

(AGC) (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).

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

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

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

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).

Based on the combined assets under management (AUM) of AssuredIM and Sound Point as of March 31, 2023, Sound Point would be the fifth largest CLO manager by AUM in the world (based on March 31, 2023 CreditFlux CLO manager rankings).

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.

Economic Environment

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

Real gross domestic product (GDP) increased 2.4% in the three-month period ended June 30, 2023 (second quarter 2023), compared to an increase of 2.0% in the first quarter of 2023, according to the advance estimate released by the U.S.

Bureau of Economic Analysis (BEA).

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

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

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

unemployment rate, seasonally adjusted, stood at 3.6%, nearly unchanged from where it had started the quarter, and down from the COVID-19 pandemic high of 14.7% in April 2020.

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

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

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

The BLS reports that the 5.0% increase for the 12

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

According to the United Kingdom’s (U.K.) Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was 8.9% for the 12 months to March 2023, down from 9.2% for the 12 months ended December 2022.

Consumer price inflation in the U.K.

increases reported net par outstanding for certain U.K exposures with approximately $20.7 billion of net par outstanding as of March 31, 2023, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion of the premium on an installment basis over the term of the exposure.

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

before seasonal adjustment for the 12-month period ending June 2023, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), was 3.0%, as compared to 5.0% for the 12-month period ending March 2023.

The BLS reports that the 3.0% increase for the 12 months ending June 2023 was the smallest 12-month increase since the period ending March 2021.

According to the United

Kingdom’s (U.K.) Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was 7.3% for the 12 months to June 2023, down from 8.9% for the 12 months ended March 2023.

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

In addition, consumer price inflation in the U.K.

increases reported net par outstanding for certain U.K exposures with approximately $22.0 billion of net par outstanding as of June 30, 2023, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion of the premium on an installment basis over the term of the exposure.

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

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

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

From March 2022 through July 26, 2023, the FOMC raised the target range for the federal funds rate 11 times, from a range of 0% to 0.25% where it started 2022 to a range of 5.25% to 5.50% at its July 25-26, 2023 meeting, stating that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run.

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

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

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

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

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

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

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

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

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public finance.

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

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

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

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

The MMD rate averaged 3.41% for the quarter ended June 2023, slightly higher than the 3.37% average for the quarter ended March 2023, and higher than the 3.05% average for the quarter ended June 2022.

Meanwhile, the difference, or credit spread, between the 30-year BBB-rated general obligation relative to the 30-year AAA MMD averaged 101 basis points (bps) in the quarter ended June 2023, which is the same spread as the quarter ended March 2023, but wider than the 90 bps average for the quarter ended June 2022.

The Company believes that, over time, wider spreads could permit it to increase its premium rates on new business, and higher interest rates may also increase the amount the Company can earn on its largely fixed-maturity securities.

Additionally, the Company believes that higher interest rates are discouraging homeowners from moving as many are locked into lower mortgage interest rates at the homes in which they reside, which, in turn, is restricting housing inventory and leading to an increase in home prices as demand outpaces supply.

The increase in housing prices may benefit distressed residential mortgage-backed securities (RMBS) the Company insures.

The National Association of Realtors reported existing-home sales declined 18.9% in June 2023 from one year ago with fewer Americans on the move.

The median existing-home price for all housing types in June 2023 was $410,200, an increase of 9.2% from March 2023 ($375,700).

Key Business Strategies

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and (iii) capital management.

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

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

Growth of the Insured Portfolio

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

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

The Company believes there will be continued demand for its insurance in this market because, for those exposures that the Company

guarantees, it undertakes the tasks of credit selection, analysis, negotiation of terms, surveillance and, if necessary, loss mitigation.

The Company believes that its insurance:

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The low interest rate environment and tight U.S.

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

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

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

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

The Company believes that, over time, wider credit spreads may improve demand for bond insurance.

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

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Based on Sale Date

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

Six Months 2023 Six Months 2022 Year Ended December 31, 2022

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

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

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

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

This has been illustrated by the Company’s role in the

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

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

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

After over five years of negotiations, 2022 was a turning point for resolving a substantial portion of the Company’s Puerto Rico exposure in accordance with four orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) related to the Company’s exposure to all defaulting Puerto Rico credits except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions) as discussed in Item 1.

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

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

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The Company also purchases attractively priced obligations, including below-investment-grade (BIG) obligations, that it has insured and for which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities).

The fair value of Loss Mitigation Securities as of March 31, 2023 (excluding the value of the Company’s insurance) was $497 million, with a par of $769 million.

The fair value of Loss Mitigation Securities as of June 30, 2023 (excluding the value of the Company’s insurance) was $463 million, with a par of $761 million.

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

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Asset Management and Alternative Investments

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

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

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

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

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

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

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

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

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

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

Until July 1, 2023, the Company pursued its asset management strategy through AssuredIM.

With the consummation of the Sound Point Transaction and AHP Transaction, effective as of July 1, 2023, the Company will participate in the asset management business through its ownership interest in Sound Point, and will no longer directly manage investments for third parties through its subsidiaries.

The Company’s ownership interest in Sound Point furthers its strategy of participating in a fee-based earnings stream independent of the risk-based premiums generated by its financial guaranty business.

The Sound Point business was strengthened by the addition of AssuredIM’s AUM (excluding AUM relating to AHP).

The Company also expects its relationship with Sound Point to enhance its alternative investment opportunities.

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.

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 of $553 million are managed by Sound Point or by AHP.

Capital Management

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

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

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

From 2013 through August 8, 2023, the Company has repurchased 142 million common shares for approximately $4.7 billion, representing approximately 73% of the total shares outstanding at the beginning of the repurchase program in 2013.

As of August 8, 2023, the Company was authorized to purchase $158 million of its common shares.

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

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2013 - 2022 $ 4,661 140.875 $ 33.09

2023 (January 1 - May 9) 2 0.036 62.23

2023 (First Quarter) 2 0.036 62.23

2023 (Second Quarter) 24 0.454 53.08

2023 (through August 8) 19 0.321 58.32

Cumulative repurchases since the beginning of 2013 $ 4,706 $ 141.686 33.21

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

As of June 30, 2023, the estimated accretive effect of the cumulative repurchases of common shares since the beginning of 2013 was approximately:

$39.94 per share in shareholders’ equity attributable to AGL, $44.15 per share in adjusted operating shareholders’ equity and $78.42 per share in adjusted book value.

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

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

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

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

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Holding Companies’ long-term debt.

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

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

Executive Summary

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

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

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

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Financial Results

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions, except per share amounts)

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Present value of new business production (PVP) (2)

91 76 203 145

Gross par written 8,974 6,695 14,337 11,166

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Inflows - intercompany — 154 — 154

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

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

Amount Per Share Amount Per Share

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____________________

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

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

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

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

(4) The Company was limited in its ability to raise third party AUM in 2023 as a result of the pending Sound Point Transaction and AHP Transaction due to regulatory and practical considerations.

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

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Condensed Consolidated Results of Operations

Three Months Ended March 31,

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

2023 2022 2023 2022

(in millions)

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Net income (loss) attributable to Assured Guaranty Ltd.

$ 125 $ (47) $ 206 $ 19

Effective tax rate 12.6 % (12.9) % 15.6 % 30.3 %

First Quarter 2023 Compared with First Quarter 2022

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

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

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

Second Quarter 2023 Compared with Second Quarter 2022

The increase in net income attributable to AGL in second quarter 2023 compared with the three-month period ended June 30, 2022 (second quarter 2022) was primarily due to:

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

• higher fair value gains on credit derivatives in second quarter 2023,

• fair value gains on trading portfolio in second quarter 2023, compared with losses in second quarter 2022, and

• higher net investment income.

These increases were offset in part by:

• losses and LAE in second quarter 2023 compared with a benefit in second quarter 2022, and

• higher operating expenses, primarily due to expenses of $24 million associated with the Sound Point Transaction and AHP Transaction.

Six Months 2023 Compared with Six Months 2022

Net income attributable to AGL for the six-month period ended June 30, 2023 (six months 2023) was higher compared with the six-month period ended June 30, 2022 (six months 2022) primarily due to:

• foreign exchange gains on remeasurement in six months 2023, compared with losses in six months 2022,

• higher fair value gains on credit derivatives in six months 2023,

• fair value gains on trading portfolio in six months 2023, compared with losses in six months 2022,

• higher fair value gains on CIVs, and

• higher net investment income, and other income.

These increases were primarily offset in part by:

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

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

• higher net investment income.

These increases were offset in part by:

• lower net earned premiums in six months 2023 compared with six months 2022 which benefited from premium accelerations related to the 2022 Puerto Rico Resolutions, and

• higher operating expenses in six months 2023 primarily due to expenses of $31 million associated with the Sound Point Transaction and AHP Transaction.

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

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subsidiaries taxed at the U.K.

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

marginal corporate tax rate of 19% prior to March 31, 2023 and 25% after April 1 2023, the French subsidiary taxed at the French marginal corporate tax rate of 25%, and no taxes for the Company’s Bermuda subsidiaries, unless subject to U.S.

tax by election or as a U.S.

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Adjusted Operating Income

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

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

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

Adjusted operating income in second quarter 2023 was $36 million, compared with $30 million in second quarter 2022.

The increase was primarily due to fair value gains on the trading portfolio and higher net investment income, offset in part by higher losses and transaction expenses related to the Sound Point Transaction and the AHP transaction.

Adjusted operating income in six months 2023 was $104 million, compared with $120 million in six months 2022.

The decrease was primarily due to lower net earned premiums in six months 2023, compared with six months 2022 which included premium accelerations related to the 2022 Puerto Rico Resolutions, and higher operating expenses, partially offset by fair value gains on the trading portfolio and CIVs.

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

Book Value and Adjusted Book Value

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

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

Shareholders’ equity attributable to AGL as of June 30, 2023 increased compared with December 31, 2022, as net income and other comprehensive income were partially offset by dividends and share repurchases.

Adjusted operating shareholders’ equity and adjusted book value increased primarily due to operating income offset in part by dividends and share repurchases, and in the case of adjusted book value, the increase was also due to new business production.

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

Other Matters

Russia’s Invasion of Ukraine

Russia’s invasion of Ukraine has led to the imposition of economic sanctions by many western countries against Russia and certain Russian individuals, dislocation in global energy markets, massive refugee movements, and payment default by certain Russian credits.

The economic sanctions imposed by western governments, along with decisions by private companies regarding their presence in Russia, continue to reduce western economic ties to Russia and to reshape global economic and political ties more generally, and the Company cannot predict all of the potential effects of the conflict on the world or on the Company.

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

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

The Company rates the toll road exposure BIG.

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

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Consumer price inflation may also impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and may be accompanied by higher interest rates that could impact the Company in several ways.

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

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

In determining the extent to which additional federal

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

At its July 25-26, 2023 meeting, the FOMC raised the federal funds target rate by 25 bps to 5.25% to 5.5%, and stated that its decision to raise the target range of the federal funds rate was in support of its goals of achieving maximum employment and inflation at the rate of 2% over the longer run.

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

Higher interest rates impact the Company in numerous other ways.

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

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

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

public finance market remained relatively flat compared to 2021.

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

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

However, higher interest rates may, in turn, reduce the fair value of its largely fixed-rate fixed-maturity investment portfolio, dampen municipal bond issuance and negatively impact the finances of some insured obligors.

See “Overview — Economic Environment”.

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

Russia’s Invasion of Ukraine

In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $271 million in net par outstanding as of June 30, 2023, comprising $216 million net par exposure to the sovereign debt of Poland and $55 million net par exposure to a toll road in Hungary.

The Company rates the toll road exposure BIG.

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

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

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

Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation , of the Company’s 2022 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the applicable note where further details regarding the significant estimates and assumptions are provided, as well as Part II.

Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2022 Annual Report on Form 10-K, for further details regarding sensitivity analysis.

See Part II, Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, of the Company’s 2022 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the applicable note where further details regarding the significant estimates and assumptions are provided, as well as Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2022 Annual Report on Form 10-K, for further details regarding sensitivity analysis.

• Expected loss to be paid (recovered)

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• Income tax assets and liabilities, including the recoverability of deferred tax assets (liabilities)

In addition, the valuation of AUM, which is the basis for calculating certain asset management fees, is based on estimates and assumptions.

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

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

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

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

Results of Operations by Segment

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Insurance Segment Results

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

Segment revenues

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

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

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

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

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Net Earned Premiums and Credit Derivative Revenues

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

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(1) Includes accretion of discount.

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

Net earned premiums and credit derivative revenues increased in second quarter 2023 compared with second quarter 2022 primarily due to higher refundings.

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

Financial Statements, Note 3, Outstanding Exposure.

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

As of June 30, 2023, $3.7 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

New Business Production

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New Business Production

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

Public Finance—U.S.

$ 78 $ 57 $ 100 $ 106

Public Finance—non-U.S.

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Public Finance—U.S.

$ 77 $ 57 $ 99 $ 106

Public Finance—non-U.S.

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Public Finance—non-U.S.

249 207 609 430

Structured Finance—U.S.

252 16 834 76

Structured Finance—non-U.S.

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Total gross par written $ 8,974 $ 6,695 $ 14,337 $ 11,166

Average rating on new business written A A-

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

____________________

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

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

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

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

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

In first quarter 2023, non-U.S.

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

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

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

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

Second Quarter 2023

public finance GWP and PVP in second quarter 2023 were higher than the comparable GWP and PVP in second quarter 2022, due to $47 million in assumed GWP and $46 million in assumed PVP in second quarter 2023.

These were offset in part by lower direct GWP and PVP of $31 million, primarily due to a decrease in secondary market business in second quarter 2023.

The average rating of U.S.

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

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

The Company’s direct par written represented 64% of the total U.S.

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

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

municipal market insured issuance in second quarter 2023, compared with 54% in second quarter 2022, and the Company’s penetration of all municipal issuance was 6.5% in second quarter 2023 compared with 4.8% in second quarter 2022.

infrastructure markets, the Company wrote a guaranty on a U.K.

regulated utility and, in the structured finance asset class, the Company wrote several subscription finance guaranties in second quarter 2023.

Six Months 2023

public finance GWP and PVP in six months 2023 were comparable to GWP and PVP in six months 2022, with higher assumed business offsetting lower direct business that was primarily due to a decrease in secondary market business in six months 2023.

The average rating of U.S.

public finance par written was A- in both six months 2023 and six months 2022.

The Company’s direct par written represented 63% of the total U.S.

municipal market insured issuance in six months 2023, compared with 56% in six months 2022, and the Company’s penetration of all municipal issuance was 5.7% in six months 2023 compared with 4.9% in six months 2022.

In six months 2023, non-U.S.

public finance GWP and PVP were higher than GWP and PVP in six months 2022.

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

In six months 2023, structured finance GWP and PVP were $36 million and $68 million, respectively, compared with GWP and PVP of $7 million and $9 million, respectively, in six months 2022.

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

Business activity in the non-U.S.

public finance and structured finance sectors typically has long lead times and therefore may vary from period to period.

Income from Investments

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CVIs issued by Puerto Rico and received as part of the 2022 Puerto Rico Resolutions are classified as trading with changes in fair value reported in “fair value gains (losses) on trading securities” in the consolidated statements on operations.

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

The fair value of such instruments as of June 30, 2023 was $340 million.

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

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

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

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

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

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

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

Insurance Segment

Income from Investments

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

Net investment income

Fixed-maturity securities, available-for-sale:

Externally managed (1) $ 53 $ 49 $ 105 $ 98

Internally managed:

Loss Mitigation Securities 12 7 24 17

Managed by AssuredIM (1) 8 4

Short-term 10 —

Puerto Rico, New Recovery Bonds 1 3 4 4

Other (2) 4 4 7 7

Short-term investments 16 1 28 1

Intercompany loans 3 3 5 5

Other investment assets 2 — 2 —

Investment income 91 67 175 132

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AssuredIM Funds $ — $ (33) $ 28 $ (22)

Other 5 (1) 7 (13)

Equity in earnings (losses) of investees $ 5 $ (34) $ 35 $ (35)

____________________

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

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

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

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

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

Other Income (Loss)

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

(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.

Net investment income for second quarter 2023 and six months 2023 increased compared to second quarter 2022 and six months 2022, primarily due to the increase in short-term rates and higher average short-term balances, as well as higher income on floating rate CLO investments.

The overall pre-tax book yield of available-for-sale fixed-maturity securities and short-term investments was 3.89% as of June 30, 2023 and 2.95% as of June 30, 2022.

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

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

Foreign Exchange Gains (Losses) on Remeasurement and Other Income (Loss)

The increase in “foreign exchange gains (losses) on remeasurement and other income (loss)” in six months 2023 compared with six months 2022 was primarily attributable to the reversal of a previously recorded litigation accrual of $20 million.

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

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

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

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

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

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

For a discussion of methodologies and significant estimates for expected loss to be paid (recovered), see Part II, Item 8, Financial Statements and Supplementary Data, Note 4, Expected Loss to be Paid (Recovered), of the Company’s 2022 Annual Report on Form 10-K.

The GAAP accounting policies for measurement and recognition for each type of contract are described in the notes listed below in Part II, Item 8, Financial Statements and Supplementary Data, of the Company’s 2022 Annual Report on Form 10-K:

• Note 5 for contracts accounted for as insurance;

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

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

Changes in risk-free rates used to discount losses affect economic loss development, and loss and LAE;

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

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

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

Current risk-free rates are used to discount expected losses at the end of each reporting period.

Therefore, changes in such rates from period to period affect economic loss development and loss and LAE.

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

The weighted average discount rates used to discount expected losses (recoveries) were 4.34% and 4.08% as of June 30, 2023 and December 31, 2022, respectively.

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

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

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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)

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____________________

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

(1) The expected loss to be paid for FG VIEs primarily relates to trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts).

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

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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)

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Total $ 522 $ 60 $ (22) $ 560

First Quarter 2022

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)

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

First Quarter 2023 Net Economic Loss Development

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

First Quarter 2022 Net Economic Loss Development

Second Quarter 2023 Net Economic Loss Development

Public Finance:

The economic benefit on U.S.

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

The economic loss development on U.S.

exposures in second quarter 2023 was $57 million and was primarily attributable to $78 million for certain Puerto Rico and healthcare exposures, partially offset by higher projected recoveries of $21 million in other municipal exposures.

The economic benefit attributable to U.S.

RMBS was $9 million and was primarily attributable to a $7 million benefit related to higher recoveries for secured second lien charged-off loans, a $5 million benefit related to improved performance in certain transactions, and $3 million benefit related to changes in discount rates, partially offset by losses of $6 million related to lower excess spread.

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

Second Quarter 2022 Net Economic Loss Development

Public Finance:

The economic loss development on U.S.

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

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

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

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

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

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

The economic loss development attributable to U.S.

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

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

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

The economic benefit attributable to U.S.

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

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

Six Months 2023 Net Economic Loss Development

The economic loss development on U.S.

public finance exposures in six months 2023 was $58 million, which was primarily attributable to $81 million for certain Puerto Rico and healthcare exposures, partially offset by higher projected recoveries of $23 million in other municipal exposures.

The net benefit attributable to U.S.

RMBS was $4 million and was mainly attributable to a $14 million benefit related to higher recoveries for second lien charged-off loans, and a $9 million benefit related to improved performance in certain transactions, partially offset by a $15 million loss related to the return of certain funds previously received, a $2 million loss related to changes in discount rates and a $2 million loss related to lower excess spread.

Six Months 2022 Net Economic Loss Development

The economic benefit on U.S.

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

The net benefit attributable to U.S.

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

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

Insurance Segment Loss Expense

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

The following table presents the Insurance segment loss expense.

The following table presents the Insurance segment loss expense (benefit).

Insurance Segment

Loss Expense (Benefit)

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

public finance $ 45 $ 11 $ 46 $ 66

public finance — —

Structured finance:

RMBS (3) (28) 3 (22)

Other structured finance 2 — 4 (1)

1 unchanged sentence

Total Insurance segment loss expense (benefit) $ 44 $ (17) $ 53 $ 43

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

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

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

Rico exposures.

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

Other Operating Expenses

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

The increase in “other operating expenses” in six months 2023 compared with six months 2022 was primarily attributable to an increase in value added taxes and increases in certain employee benefit related costs.

Financial Strength Ratings

22 unchanged sentences

Asset Management Segment Results

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

5 unchanged sentences

Segment expenses

Interest expense 1 — 1 —

Employee compensation and benefit expenses 25 17 59 46

6 unchanged sentences

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

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

(2) Includes amortization of intangible assets of $3 million for second quarter 2022, $2 million for six months 2023 and $6 million for six months 2022.

The Company ceased amortizing the intangible assets when the asset management assets and liabilities were reclassified to held-for-sale.

Management and Performance Fees

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

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

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

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

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

Management fees in second quarter 2023 were primarily generated by CLOs, opportunity funds and liquid strategies.

CLO fees represented the net management fees that AssuredIM retained after rebating the portion of these fees that pertained to the CLO equity that was held directly by AssuredIM Funds.

Management Fees

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

3 unchanged sentences

Total management fees $ 18 $ 27 $ 35 $ 48

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

Performance fees and related compensation expenses relate to tax distributions from the healthcare and asset-based funds.

Employee compensation and benefit expenses increased in second quarter 2023 and six months 2023 primarily due to expenses related to the Sound Point Transaction and higher compensation due to the increase in performance fees.

Assets Under Management

The Company uses AUM as a metric to measure progress in its Asset Management segment.

Management fee revenue is based on a variety of factors and is not perfectly correlated with AUM.

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

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

AUM refers to the assets managed, advised or serviced by the Asset Management segment and equals the sum of the following:

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

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

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

• the net asset value of all funds and accounts other than CLOs, plus any unfunded commitments.

Changes in NAV attributable to movements in fund value of certain private equity funds are reported on a quarter lag.

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

The calculation also differs from the manner in which AssuredIM affiliates registered with the U.S.

Securities and Exchange Commission (SEC) report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways.

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

“Third-party AUM” refers to the assets AssuredIM manages or advises on behalf of third-party investors.

This includes current and former employee investments in AssuredIM Funds.

For CLOs, this also includes CLO Equity that may be held by AssuredIM Funds.

“Intercompany AUM” refers to the assets AssuredIM manages or advises on behalf of the Company.

This includes investments from affiliates of Assured Guaranty along with general partners’ investments of AssuredIM (or its affiliates) into the AssuredIM Funds.

“Funded AUM” refers to assets that have been deployed or invested into the funds or CLOs.

“Unfunded AUM” refers to unfunded capital commitments from closed-end funds and CLO warehouse funds.

“Fee earning AUM” refers to assets where AssuredIM collects fees and has elected not to waive or rebate fees to investors.

“Non-fee earning AUM” refers to assets where AssuredIM does not collect fees or has elected to waive or rebate fees to investors.

AssuredIM reserves the right to waive some or all fees for certain investors, including investors affiliated with AssuredIM and/or the Company.

Further, 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 to the extent such fees are attributable to the wind-down and opportunity funds’ holdings of CLOs also managed by AssuredIM.

Roll Forward of Assets Under Management

First Quarter 2023

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

(in millions)

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

Inflows - third party — 1 — — 1

Inflows - intercompany — — — — —

Redemptions — — — — —

Distributions (64) (133) — (48) (245)

Total outflows (64) (133) — (48) (245)

Net flows (64) (132) — (48) (244)

Change in value 54 24 5 (1) 82

AUM, March 31, 2023

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

_____________________

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

Roll Forward of Assets Under Management

First Quarter 2022

CLOs Opportunity Funds Liquid Strategies Wind-Down Funds Total

(in millions)

AUM, December 31, 2021 $ 14,699 $ 1,824 $ 389 $ 582 $ 17,494

Inflows - third party — 91 — — 91

Inflows - intercompany — — — — —

Redemptions — — — — —

Distributions (335) (104) — (135) (574)

Total outflows (335) (104) — (135) (574)

Net flows (335) (13) — (135) (483)

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

AUM, March 31, 2022

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

Components of Assets Under Management

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

(in millions)

As of March 31, 2023:

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

Unfunded AUM 132 664 — 22 818

Fee-earning AUM $ 14,801 $ 1,526 $ 253 $ 77 $ 16,657

Non-fee earning AUM 339 250 — 56 645

Intercompany AUM

Funded AUM $ 548 $ 164 $ 253 $ — $ 965

Unfunded AUM 132 115 — — 247

As of December 31, 2022:

Funded AUM $ 15,047 $ 1,217 $ 248 $ 160 $ 16,672

Unfunded AUM 103 667 — 22 792

Fee-earning AUM $ 14,820 $ 1,640 $ 248 $ 87 $ 16,795

Non-fee earning AUM 330 244 — 95 669

Intercompany AUM

Funded AUM $ 582 $ 192 $ 248 $ — $ 1,022

Unfunded AUM 103 115 — — 218

_____________________

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

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

Until July 1, 2023, the effective date of the Sound Point Transaction and the AHP Transaction, the Company used AUM as one of the metrics to measure progress in its Asset Management Segment.

AUM refers to the assets managed, advised or serviced by AssuredIM.

In the first half of 2023, while the Sound Point Transaction and AHP Transaction were pending, the Company was limited in its ability to raise third party AUM due to regulatory and practical considerations.

AUM as of June 30, 2023 was $16.4 billion.

As of July 1, 2023, the management of approximately $15.1 billion of AUM (of which $385 million was attributable to the Company) was transferred to Sound Point.

Also in July 2023, the management of approximately $1.3 billion in remaining AUM (of which $185 million was attributable to the Company) was transferred with the sale of AHP to an entity owned and controlled by its managing partner, and AHP will continue to manage the healthcare funds.

See Note 1, Business and Basis of Presentation.

In second quarter 2023, (i) the management of approximately $159 billion in AUM in respect of certain wind-down and opportunity funds in their harvest period were transferred to a third party liquidator and (ii) management of approximately $513 million at fair value in investment grade municipal bonds and CLOs under an IMA was transferred to an internal manager and to one of the Company’s external fixed-maturity security managers.

Corporate Division Results

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

Revenues $ 2 $ 1 $ 4 $ 2

Interest expense 24 23 47 44

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

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

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

Holding Companies, and also includes intersegment interest expense of $3 million in both second quarter 2023 and second quarter 2022, and $5 million in both six months 2023 and six months 2022, related primarily to the $250 million AGUS debt issued to the U.S.

Insurance Subsidiaries.

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

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

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

Transaction related expenses in the corporate division for Sound Point and AHP were $21 million for second quarter 2023 and $25 million for six months 2023.

Other (Effect of Consolidating FG VIEs and CIVs)

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

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

(ii) custodial trusts established in connection with the

consummation of the 2022 Puerto Rico Resolutions;

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

2 unchanged sentences

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

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

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

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

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

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

The economic effect of the U.S Insurance Subsidiaries’ ownership interests in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, while the effect of CIVs is presented as separate line items (“fair value gains (losses) on consolidated investment vehicles” and “noncontrolling interest) on a consolidated basis.

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

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Increase (Decrease)

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

Effect on Financial Statement Line Item (in millions)

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to Adjusted Operating Income (Loss)

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

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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 (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)

1 unchanged sentence

Net realized investment gains (losses) $ (9) $ (28) $ (11) $ (25)

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

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

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

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

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

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Unrealized gains (losses) on credit derivatives may fluctuate significantly in future periods.

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

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

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A widening of the CDS prices traded on AGC has an effect of offsetting unrealized losses that result from widening general market credit spreads, while a narrowing of the CDS prices traded on AGC has an effect of offsetting unrealized gains that result from narrowing general market credit spreads.

The valuation of the Company’s credit derivative contracts requires the use of models that contain significant, unobservable inputs and are classified as Level 3 in the fair value hierarchy.

The valuation of the Company’s credit derivative contracts requires the use of models that contain significant, unobservable inputs.

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

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

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

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

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

During first quarter 2023, non-credit impairment-related unrealized fair value gains were generated primarily as a result of the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period.

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

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

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

Second quarter 2023 and six months 2023 non-credit impairment-related unrealized fair value gains were primarily generated by lower collateral asset spreads.

For six months 2023, the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period, also contributed to the gain.

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

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

Sensitivity to Changes in Credit Spread

2 unchanged sentences

Effect of Changes in Credit Spread

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

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

Credit Spreads (1) Estimated Net

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Fair Value Gains (Losses) on CCS

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

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

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

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

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

1 unchanged sentence

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

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

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

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves were gains of $26 million and $46 million in second quarter 2023 and six months 2023, respectively, and losses of $73 million and $102 million in second quarter 2022 and six months 2022, respectively.

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.

1 unchanged sentence

public finance transactions are often paid upfront.

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

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

Foreign Exchange Rates

Dollar Per Foreign Currency

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

As of June 30, 2023 As of December 31, 2022 As of June 30, 2022 As of December 31, 2021

Pound sterling $1.270 $1.208 $1.218 $1.353

2 unchanged sentences

The Company discloses both:

(a) financial measures determined in accordance with GAAP;

and (b) financial measures not determined in accordance with GAAP (non-GAAP financial measures).

(i) financial measures determined in accordance with GAAP;

and (ii) financial measures not determined in accordance with GAAP (non-GAAP financial measures).

Financial measures identified as non-GAAP should not be considered substitutes for GAAP financial measures.

3 unchanged sentences

• FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and

• CIVs in which certain subsidiaries invest and which are managed by AssuredIM.

• CIVs in which certain subsidiaries invest.

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

18 unchanged sentences

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

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

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

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

29 unchanged sentences

to Adjusted Operating Shareholders’ Equity and Adjusted Book Value

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

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

After-Tax Per Share After-Tax Per Share

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Gain (loss) related to FG VIE and CIV consolidation included in:

Adjusted operating shareholders’ equity (net of tax provision of $4 and $4) $ 13 $ 0.22 $ 17 $ 0.28

Adjusted book value (net of tax provision of $3 and $3) 8 0.15 11 0.19

Adjusted operating shareholders’ equity (net of tax provision (benefit) of $(1) and $4) $ (3) $ (0.04) $ 17 $ 0.28

Adjusted book value (net of tax provision (benefit) of $(3) and $3) (7) (0.12) 11 0.19

Net Present Value of Estimated Net Future Revenue

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

The discount rate is recalculated annually and updated as necessary.

discount rate is recalculated annually and updated as necessary.

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

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Reconciliation of GWP to PVP

First Quarter 2023 First Quarter 2022

Second Quarter 2023 Second Quarter 2022

Public Finance Structured Finance Public Finance Structured Finance

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PVP $ 77 $ 6 $ 3 $ 5 $ 91 $ 57 $ 18 $ — $ 1 $ 76

Six Months 2023 Six Months 2022

Public Finance Structured Finance Public Finance Structured Finance

(in millions)

GWP $ 100 $ 45 $ 33 $ 3 $ 181 $ 106 $ 22 $ 6 $ 1 $ 135

Installment GWP and other GAAP adjustments (1) 49 42 33 3 127 — 22 4 1 27

Upfront GWP 51 3 — — 54 106 — 2 — 108

Installment premiums and other (2) 48 33 30 38 149 — 30 — 7 37

PVP $ 99 $ 36 $ 30 $ 38 $ 203 $ 106 $ 30 $ 2 $ 7 $ 145

___________________

1 unchanged sentence

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

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

Six months 2023 and 2022 also include the present value of future premiums and fees associated with other guaranties written by the Company that, under GAAP, are accounted for under Accounting Standards Codification (ASC) 460, Guarantees.

Insured Portfolio

5 unchanged sentences

Net Par Outstanding and Average Internal Rating by Sector

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

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

Sector Net Par

10 unchanged sentences

Healthcare 11,661 BBB+ 11,304 BBB+

Higher education 7,318 A- 7,137 A-

Infrastructure finance 8,667 A- 6,955 A-

Higher education 7,237 A- 7,137 A-

Housing revenue 937 BBB- 959 BBB-

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RMBS 263 A- 263 A-

Other structured finance 366 AA- 324 AA-

Total non-U.S structured finance 977 AA 931 AA

Other structured finance 590 A+ 324 AA-

Total non-U.S.

structured finance 1,205 AA- 931 AA

Total structured finance 10,032 A 9,159 A

1 unchanged sentence

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

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

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

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were not investment grade was $16 million and $19 million as of March 31, 2023 and December 31, 2022, respectively.

financial guarantor.

The second-to-pay insured par outstanding as of both June 30, 2023 and December 31, 2022 was $4.3 billion.

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 March 31, 2023, all of which was rated BIG.

The Company had insured exposure to obligations of various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) as well as its general obligation bonds aggregating $1.3 billion net par outstanding as of June 30, 2023, all of which was rated BIG.

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

1 unchanged sentence

Exposure to Puerto Rico by Company

As of March 31, 2023

As of June 30, 2023

Net Par Outstanding

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

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

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

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

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Amortization Schedule of Net Par of Puerto Rico

As of March 31, 2023

As of June 30, 2023

Scheduled Net Par Amortization

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

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

(in millions)

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Amortization Schedule of Net Debt Service of Puerto Rico

As of March 31, 2023

As of June 30, 2023

Scheduled Net Debt Service Amortization

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

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

(in millions)

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

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

RMBS represent 17.2% of total BIG net par outstanding as of June 30, 2023.

Distribution of U.S.

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

RMBS by Year Insured and Type of Exposure as of June 30, 2023

First Lien Alt-A

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Long-Term Debt and Intercompany Loans

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

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

(in millions)

9 unchanged sentences

AGC and AGM 3.50% 2029 250 250

AGRO 6 month LIBOR +3.00% 2023 20 20

AGRO (2) 5.00% 2028 20 20

AGUS intercompany loans 270 270

5 unchanged sentences

____________________

(1) Until June 30, 2023, the Series A Enhanced Junior Subordinated Debentures paid interest based on LIBOR.

The reference to LIBOR in such debentures has been replaced with a rate based on Secured Overnight Finance Rate (SOFR).

(2) In second quarter 2023, the final maturity of the AGRO loan was extended from 2023 to 2028 and the floating rate interest rate was converted to a fixed rate of 5%.

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

(4) Represents principal amount of Junior Subordinated Debentures issued by AGMH that has been purchased by AGUS.

The Series A Enhanced Junior Subordinated Debentures pay interest based on LIBOR.

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

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

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

6 unchanged sentences

AGL has not drawn upon the credit facility.

For more information, see the Company’s 2022 Annual Report on Form 10-K, Part II.

For more information, see the Company’s 2022 Annual Report on Form 10-K, Part II, Item 8.

Financial Statements and Supplementary Data, Note 12, Long-Term Debt and Credit Facilities.

6 unchanged sentences

Holding Companies, excluding their investments in subsidiaries.

As of March 31, 2023

As of June 30, 2023

Holding Companies

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Receivables from affiliates (2) 57 —

Receivable from U.S.

Holding Companies 27 —

Other assets 5 42

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Payable to affiliates (2) 12 13

Payable to AGL — 27

Other liabilities 10 56

____________________

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

(1) As of June 30, 2023, weighted average durations of AGL’s and the U.S.

Holding Companies’ fixed-maturity securities (excluding AGUS’s investment in AGMH’s debt) were 9.6 years and 4.2 years, respectively.

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

First Quarter 2023

Six Months 2023

Holding Companies

9 unchanged sentences

Selected Cash Flow Items

First Quarter 2023

Six Months 2023

Holding Companies

34 unchanged sentences

• claims on the insured portfolio,

• dividends or other distributions to AGL, AGUS and/or AGMH, as applicable,

• dividends or other distributions to parent,

• reinsurance premiums,

1 unchanged sentence

• capital investments in their own subsidiaries, where appropriate.

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

short-term loan facilities with financial institutions to provide short-term liquidity for the payment of insurance claims it anticipates making in connection with the future resolutions of other Puerto Rico exposures.

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

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

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

As of June 30, 2023, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.

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

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

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

The Company had $720 million net par outstanding to PREPA on June 30, 2023.

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

2 unchanged sentences

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

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

As of June 30, 2023, the Company’s remaining net par outstanding for HTA and GO/PBA Puerto Rico exposures was $504 million, which consisted of bonds where the holders elected to receive custody receipts and exposures assumed from third-party financial guarantors.

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.

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

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

If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately $404 million as of March 31, 2023.

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

As of March 31, 2023, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

As of June 30, 2023, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis.

The consensual terminations have resulted in no claims on AGM.

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Dividend restrictions by insurance subsidiary are as follows:

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

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

• Based on the applicable law and regulations, in 2023 AG Re (a subsidiary of AGL) has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $209 million as of March 31, 2023.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $181 million as of March 31, 2023, and (ii) the amount of statutory surplus, which as of March 31, 2023 was $29 million.

• Based on the applicable law and regulations, in 2023 AGRO (an indirect subsidiary of AG Re) has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $98 million as of March 31, 2023.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $365 million as of March 31, 2023, and (ii) the amount of statutory surplus, which as of March 31, 2023 was $263 million.

• The maximum amount available during 2023 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $270 million, of which approximately $61 million is available for distribution in the third quarter of 2023.

• The maximum amount available during 2023 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $102 million, of which none is available for distribution in the third quarter of 2023.

• Based on the applicable law and regulations, in 2023 AG Re (a subsidiary of AGL) paid dividends of $29 million in the first half of the year and has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $209 million as of June 30, 2023.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $167 million as of June 30, 2023, and (ii) the amount of statutory surplus, which as of June 30, 2023 was $25 million.

Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $394 million as of June 30, 2023, and (ii) the amount of statutory surplus, which as of June 30, 2023 was $265 million.

Distributions From Insurance Company Subsidiaries

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

1 unchanged sentence

Dividends paid by AGM to AGMH — — 40 96

Dividends paid by AG Re to AGL 29 — 29 —

Dividends from AGUK to AGM 127 — 127 —

Ratings Impact on Financial Guaranty Business

3 unchanged sentences

Some of the Company’s insurance subsidiaries (Assuming Subsidiaries) assumed financial guaranty insurance from legacy third-party bond insurers.

The agreements under which such Assuming Subsidiaries assumed such business are generally subject to termination at the option of the ceding company (a) if the Assuming Subsidiary fails to meet certain financial and regulatory criteria;

(b) if the Assuming Subsidiary fails to maintain a specified minimum financial strength rating;

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

The agreements under which such Assuming Subsidiaries assumed such business are generally subject to termination at the option of the ceding company (i) if the Assuming Subsidiary fails to meet certain financial and regulatory criteria;

(ii) if the Assuming Subsidiary fails to maintain a specified minimum financial strength rating;

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

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

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

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

As of June 30, 2023, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $267 million, including $241 million by AGC and $26 million by AG Re.

Committed Capital Securities

Each of AGC and AGM have entered into put agreements with four separate custodial trusts allowing each of AGC and AGM, respectively, to issue an aggregate of $200 million of non-cumulative redeemable perpetual preferred securities to the trusts in exchange for cash.

Each of AGC and AGM have entered into put agreements with four separate custodial trusts allowing each of AGC and AGM to issue an aggregate of $200 million of non-cumulative redeemable perpetual preferred securities to the trusts in exchange for cash.

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

8 unchanged sentences

All of those auctions failed in 2008 or 2007, and the rates paid on the CCS increased to their respective maximums.

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

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

Until June 30, 2023, the annualized rate on the AGC CCS was one-month LIBOR plus 250 bps, and the annualized rate on the AGM Committed Preferred Trust Securities was one-month LIBOR plus 200 bps.

In July 2023, the reference to LIBOR in such CCS was replaced with a rate based on SOFR.

Investment Portfolio

1 unchanged sentence

Approximately 62% of the total investment portfolio is managed by external parties.

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

In accordance with the Company’s investment guidelines, each of the three external investment managers is required to maintain the Company’s investment portfolio with an overall credit quality rated at a minimum of A+/A1/A+ by S&P/Moody’s/Fitch Inc., respectively.

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

2 unchanged sentences

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

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

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

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

Investment Portfolio

Carrying Value

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions)

5 unchanged sentences

____________________

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

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

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

(1) As of June 30, 2023 and December 31, 2022, includes $36 million and $358 million, respectively, of New Recovery Bonds received in connection with the consummation of the 2022 Puerto Rico Resolutions.

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

The Company’s available-for-sale fixed-maturity securities had a duration of 3.9 years and 4.4 years as of June 30, 2023 and December 31, 2022, respectively.

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

2 unchanged sentences

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

As of March 31, 2023

As of June 30, 2023

Cost Estimated

8 unchanged sentences

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

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

The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of June 30, 2023 and December 31, 2022.

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

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

Rating March 31, 2023 December 31, 2022

Rating June 30, 2023 December 31, 2022

AAA 13.9 % 14.2 %

7 unchanged sentences

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

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

The Company also had $340 million and $303 million in trading fixed-maturity securities as of June 30, 2023 and December 31, 2022, respectively, representing CVIs received under the 2022 Puerto Rico Resolutions, which are not rated.

Other Investments

1 unchanged sentence

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

As of March 31, 2023 and December 31, 2022, all of the funds in which AGAS directly invests are consolidated in the Company’s consolidated financial statements.

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

As of June 30, 2023 and December 31, 2022, all of the funds in which AGAS directly invests are consolidated in the Company’s consolidated financial statements.

In July 2023, the management of the CLO fund and asset-based funds was transferred from AssuredIM to Sound Point.

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

See Commitments below.

Fair Value of AGAS’ Interest in AssuredIM Funds

Strategy March 31, 2023 December 31, 2022

Insurance Segment

Strategy June 30, 2023 December 31, 2022

(in millions)

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____________________

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

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

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

First Quarter

Insurance Segment

Second Quarter Six Months

Strategy 2023 2022 2023 2022

5 unchanged sentences

Total $ — $ (33) $ 28 $ (22)

Beginning in the third quarter of 2023, the Company will record an equity method investment in Sound Point pursuant to the Sound Point Transaction described in Item 1, Financial Statements, Note 1, Business and Basis of Presentation

Restricted Assets

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

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

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

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

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

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

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

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

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

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.

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.

Sources and Uses of Funds

Currently, AssuredIM’s sources of liquidity are:

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

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

As of March 31, 2023 and December 31, 2022, AssuredIM had $26 million and $41 million, respectively, in cash and short-term investments.

AssuredIM’s sources of liquidity were:

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

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

As of June 30, 2023 and December 31, 2022, AssuredIM had $21 million and $41 million, respectively, in cash and short-term investments.

AssuredIM’s liquidity needs primarily include:

(1) paying operating expenses including compensation;

(2) paying dividends or other distributions to AGUS;

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

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

(i) paying operating expenses including compensation;

(ii) paying dividends or other distributions to AGUS;

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

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

Lease Obligations

10 unchanged sentences

For the Puerto Rico Trusts, the primary source of cash is the collection of debt service on the assets in the trusts and the primary use of cash is the payment of the trusts debt obligations.

The primary sources and uses of cash in the CIVs are raising capital from investors, using capital to make investments, generating cash income from investments, paying expenses, distributing cash flow to investors and issuing debt or borrowing funds to finance investments (CLOs and warehouses).

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

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

Company, other than creditors of the applicable CIVs.

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

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

6 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 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 an interest rate of Euro InterBank Offered Rate (Euribor) plus 300 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.

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.

Condensed Consolidated Cash Flows

1 unchanged sentence

Summarized Condensed Consolidated Cash Flows

First Quarter

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

19 unchanged sentences

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

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

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

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

Cash flows from operations, excluding the effect of consolidating FG VIEs and CIVs, was an outflow of $7 million in six months 2023 and an outflow of $621 million in six months 2022.

The decrease in outflows during six months 2023 was primarily due to a $579 million decrease in net claim payments, primarily due to the 2022 Puerto Rico Resolutions, as well as a decrease of $95 million in tax payments.

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

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

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

The increase in inflows in six months 2023 compared with six months 2022 is mainly due to a decrease of $2,104 million in investment purchases, partially offset by a decrease of investment sales, maturities and paydowns of $570 million.

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

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

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

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

The decrease in investing cash inflows in six months 2023 compared with six months 2022 was mainly attributable to an increase in short-term investments in six months 2023 compared to net sales of short term and fixed maturity investments in six months 2022.

In six months 2022, investing inflows were used to fund claim

payments under the 2022 Puerto Rico Resolutions and share repurchases.

Financial Statements, Condensed Consolidated Statements of Cash Flows and Note 3, Outstanding Exposure, for additional information.

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

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

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

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

the purchases of loans.

The decrease in financing cash flow activity from VIEs was primarily due to a decrease of $2,163 million in issuances, partially offset by a decrease in repayments of $949 million by the consolidated CLOs and CLO warehouses.

The proceeds from CLO issuances and CLO warehouse borrowings are used to fund the purchases of loans.

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

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

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

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

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

From July 1, 2023 through August 8, 2023, the Company repurchased an additional 320,646 of common shares.

As of August 8, 2023, the Company was authorized to purchase $158 million of its common shares.

For more information about the Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 13, Shareholders’ Equity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

As of June 30, 2023, there were no material changes to the market risks to which the Company is exposed since December 31, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis