What changed in this filing

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Item 1. Financial Statements

2023-11-08 compared with 2023-08-09 · 521 added, 560 removed, 2219 unchanged (33% of the section changed)

3 unchanged sentences

(dollars in millions except share data)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $ 86 and $ 65 (amortized cost of $ 6,971 and $ 7,707 )

2 unchanged sentences

Short-term investments, at fair value 1,426 810

Other invested assets (includes $ 26 and $ 30 , at fair value)

Other invested assets 765 133

Total investments 8,808 8,365

5 unchanged sentences

Goodwill and other intangible assets 6 163

Assets held for sale 221 —

Other assets (includes $ 112 and $ 148 , at fair value)

4 unchanged sentences

Credit derivative liabilities, at fair value 50 163

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

Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $ 531 and $ 702 , without recourse $ 11 and $ 13 )

Liabilities of consolidated investment vehicles (includes $ 0 and $ 4,431 , at fair value)

Liabilities held for sale 50 —

Other liabilities 393 457

16 unchanged sentences

(dollars in millions except share data)

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

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

2023 2022 2023 2022

9 unchanged sentences

Fair value gains (losses) on trading securities 4 ( 8 ) 42 ( 30 )

Gain on sale of asset management subsidiaries 255 — 255 —

Other income (loss) 6 ( 1 ) 38 12

21 unchanged sentences

(in millions)

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

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

2023 2022 2023 2022

17 unchanged sentences

(dollars in millions, except share data)

For the Three Months Ended June 30, 2023

For the Three Months Ended September 30, 2023

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

4 unchanged sentences

Shareholders’ Equity

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

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

Net income — — 157 — — 157 2 159

3 unchanged sentences

Share-based compensation 35,490 — 6 — — 6 — 6

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

Contributions — — — — — — 17 17

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

Other comprehensive loss — — — ( 107 ) — ( 107 ) — ( 107 )

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

For the Three Months Ended June 30, 2022

Deconsolidation of investment vehicles — — — — — — ( 132 ) ( 132 )

As of September 30, 2023 57,819,732 $ 1 $ 5,815 $ ( 565 ) $ 1 $ 5,252 $ 49 $ 5,301

For the Three Months Ended September 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

4 unchanged sentences

Shareholders’ Equity

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

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

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

6 unchanged sentences

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

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

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

Assured Guaranty Ltd.

1 unchanged sentence

(dollars in millions, except share data)

For the Six Months Ended June 30, 2023

For the Nine Months Ended September 30, 2023

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

13 unchanged sentences

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

Other comprehensive income — — — 57 — 57 — 57

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

For the Six Months Ended June 30, 2022

Other comprehensive loss — — — ( 50 ) — ( 50 ) — ( 50 )

Deconsolidation of investment vehicles — — — — — — ( 132 ) ( 132 )

As of September 30, 2023 57,819,732 $ 1 $ 5,815 $ ( 565 ) $ 1 $ 5,252 $ 49 $ 5,301

For the Nine Months Ended September 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

13 unchanged sentences

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

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

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

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

2 unchanged sentences

(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash flows provided by (used in) operating activities $ 258 $ ( 1,848 )

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Sales and return of capital of other invested assets 16 35

Sale of asset management subsidiaries, net of cash ( 14 ) —

Other ( 1 ) ( 2 )

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Net paydowns of financial guaranty variable interest entities’ liabilities ( 141 ) ( 92 )

Issuance of long-term debt, net of issuance costs 345 —

Redemption of debt ( 330 ) —

Other ( 15 ) ( 6 )

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(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information

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Distributions to noncontrolling interests 27 53

June 30, 2023 June 30, 2022

Sale of asset management subsidiaries (see Note 1)

Assets acquired 444 —

Assets transferred 241 —

Liabilities transferred 66 —

September 30, 2023 September 30, 2022

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

2 unchanged sentences

Cash and cash equivalents of consolidated investment vehicles (See Note 8)

Cash (included in assets held for sale) 20 —

Cash and cash equivalents and restricted cash at the end of period $ 115 $ 271

27 unchanged sentences

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

Assets and Liabilities Held For Sale

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

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

See Note 2, Segment Information.

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

Upon closing of the Sound Point Transaction and the AHP Transaction the Company deconsolidated most of the corresponding AssuredIM entities (which had previously been classified as held-for-sale) and reported an investment in Sound Point that is accounted for under the equity method.

In connection with the Sound Point Transaction and AHP Transaction, the Company reevaluated its consolidation conclusion for each consolidated investment vehicle (CIV) and deconsolidated all but three CIVs.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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

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

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

Assets and Liabilities Held For Sale

As of June 30, 2023

The following table presents the calculation of the gain associated with the Sound Point Transaction and AHP Transaction.

Gain on Sound Point Transaction and AHP Transaction

(in millions)

Short-term investments $ 1

Goodwill and other intangible assets 156

Deferred tax assets 3

Total assets held for sale $ 221

Other liabilities $ 50

Total liabilities held for sale $ 50

Revenues and expenses attributable to all businesses held for sale relate primarily to the AssuredIM entities in the asset management segment, which results are presented in Note 2, Segment Information.

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

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

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

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

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

Fair value of investment in Sound Point $ 419

Fair value of other consideration 25

Total consideration 444

Less net asset carrying value of transferred AssuredIM subsidiaries (1) 189

Gain on sale of asset management subsidiaries (2) $ 255

____________________

(1) Consists primarily of goodwill and intangible assets of $ 155 million.

(2) Consists of a $ 248 million gain on the Sound Point Transaction, and a $ 7 million gain on the AHP Transaction, which were both reported in the corporate division.

The Company’s interest in Sound Point is reported in other invested assets on the consolidated balance sheet.

On the date of acquisition, the Company’s cost basis of its investment in Sound Point is the fair value of the Company’s ownership in Sound Point, and certain other interests in related Sound Point entities (collectively, Sound Point entities).

The acquisition date cost basis includes a basis difference, which is the excess of the fair value of the Company’s ownership interest in Sound Point entities of $ 419 million, over the Company’s proportionate share of the equity of the Sound Point entities.

The basis difference must be allocated between identifiable assets and liabilities.

The carrying value on the date of acquisition is periodically adjusted for the Company’s share in the comprehensive income or loss of Sound Point entities (on a one-quarter lag), distributions, contributions and the amortization of definite-lived intangible assets.

As of the filing of this report, the Company has not finalized the calculation of the basis difference or the allocation of such basis difference.

The equity method investment in Sound Point is subject to a periodic other-than-temporary-impairment (OTTI) analysis.

The Company recognized expenses of $ 14 million and $ 46 million during the three-month period ended September 30, 2023 (third quarter 2023) and the nine-month period ended September 30, 2023 (nine months 2023), respectively, associated with the Sound Point Transaction and AHP Transaction.

Assets and Liabilities Held For Sale

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

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

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

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

Assets held for sale were $ 28 million and liabilities held for sale were $ 2 million as of September 30, 2023 and were reported in “other assets” and “other liabilities,” respectively.

Basis of Presentation

3 unchanged sentences

Actual results could differ from those estimates.

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

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

disclosures required by GAAP.

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

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

15 unchanged sentences

(AGRO), domiciled in Bermuda.

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

• Assured Investment Management LLC, organized in Delaware;

• Assured Investment Management (London) LLP, organized in the U.K.;

• Assured Healthcare Partners LLC, organized in Delaware.

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

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

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

Insurance Subsidiaries jointly own an investment subsidiary, AG Asset Strategies LLC (AGAS), which invests in funds managed by Sound Point, AHP, and, prior to July 1, 2023, AssuredIM (Sound Point and AHP funds, some of which were formerly known as AssuredIM funds).

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

2 unchanged sentences

Holding Companies) - have public debt outstanding.

See Note 11, Long-Term Debt.

Recent Accounting Standards Adopted

9 unchanged sentences

and (ii) AGAS.

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

Prior to July 1, 2023, the Asset Management segment consisted of AssuredIM, which provided asset management services to third-party investors as well as to the U.S.

Insurance Subsidiaries and AGAS.

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

Beginning in third quarter 2023, the Asset Management segment primarily includes the results of the Company’s equity method investment in Sound Point entities, which are reported on a one-quarter lag.

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

Holding Companies and any losses on extinguishment or repurchases of their debt, as well as any gains and losses and other operating expenses attributed to the corporate activities of AGL and the U.S.

Holding Companies, including the gain associated with the Sound Point Transaction and the AHP Transaction.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Holding Companies and any losses on extinguishment or repurchases of their debt, as well as other operating expenses attributed to the corporate activities of AGL and the U.S.

Holding Companies.

The Other category primarily includes the effect of consolidating FG VIEs and CIVs, intersegment eliminations and the reclassification of reimbursable fund expenses.

4 unchanged sentences

Insurance Subsidiaries which guarantee the FG VIEs’ debt;

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

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

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

Insurance Subsidiaries and the premiums and losses/recoveries associated with the financial guaranty policies associated with the FG VIEs’ debt are eliminated (the reconciliation tables below present the FG VIEs and related eliminations in “other”) and (ii) CIVs are consolidated by either AGUS or AGAS (in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’ ownership interest in CIVs are presented in “other”).

Until July 1, 2023, under GAAP, reimbursable fund expenses were shown as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below these expenses were netted in “segment expenses.”

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

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

Segment adjusted operating income is defined as “net income (loss) attributable to AGL,” adjusted for the following items, which primarily affect the Insurance segment and corporate division:

• Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading.

4 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

1 unchanged sentence

Segment Information

Second Quarter

Third Quarter

Insurance Asset Management Insurance Asset Management

7 unchanged sentences

Segment adjusted operating income (loss) $ 59 $ — $ 159 $ ( 3 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Insurance Asset Management Insurance Asset Management

7 unchanged sentences

Segment adjusted operating income (loss) $ 282 $ ( 3 ) $ 347 $ ( 3 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Reconciliation of Segment Information to Consolidated Information

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Equity in Earnings (Losses) of Investees Less:

18 unchanged sentences

Reconciliation of Segment Information to Consolidated Information

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Equity in Earnings (Losses) of Investees Less:

16 unchanged sentences

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Equity in Earnings (Losses) of Investees Less:

18 unchanged sentences

Reconciliation of Segment Information to Consolidated Information

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Equity in Earnings (Losses) of Investees Less:

30 unchanged sentences

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Consolidated Investment Vehicles.

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

29 unchanged sentences

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

Net par outstanding equals

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

The Company includes in its par outstanding calculation the impact of any

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

gross par outstanding net of any reinsurance.

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

Foreign denominated par outstanding is translated at the spot rate at the end of the reporting period.

consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date.

dollar denominated par outstanding is translated at the spot rate at the end of the reporting period.

The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities).

1 unchanged sentence

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

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

As of September 30, 2023 and December 31, 2022, the Company excluded net par outstanding of $ 1.2 billion and $ 1.3 billion, respectively, primarily attributable to Loss Mitigation Securities.

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

12 unchanged sentences

Debt Service and Par Outstanding

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

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

Gross Net Gross Net

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Total financial guaranty $ 242,009 $ 241,833 $ 233,438 $ 233,258

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

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $ 1.5 billion of public finance direct gross par and $ 1.3 billion of structured finance direct gross par as of September 30, 2023.

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

1 unchanged sentence

Financial Guaranty Portfolio by Internal Rating

As of June 30, 2023

As of September 30, 2023

Public Finance

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Components of BIG Net Par Outstanding

As of June 30, 2023

As of September 30, 2023

BIG Net Par Outstanding Net Par

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BIG Net Par Outstanding and Number of Risks

As of June 30, 2023

As of September 30, 2023

Net Par Outstanding Number of Risks (2)

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

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 $ 1.1 billion and $ 1.4 billion net par outstanding as of September 30, 2023 and December 31, 2022, respectively.

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

5 unchanged sentences

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

As described below, on August 31, 2023, the Company extinguished its remaining exposure to GO and PBA bonds by satisfying its obligations to insured bondholders holding custody receipts representing interests in legacy insured GO and PBA bonds.

Under the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan), the Company received cash, new general obligation bonds (New GO Bonds) and contingent value instruments (CVIs).

3 unchanged sentences

• Investments and cash.

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Resolutions are reported in Cash and Investments.

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

• FG VIEs’ assets.

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

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

The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates to the extent that distributions of Plan Consideration are insufficient to pay or prepay such amounts.

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

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

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

On August 31, 2023, after notice to certain holders of custody receipts representing interests in legacy insured GO, PBA and HTA bonds, the Company satisfied its obligations under such legacy insured bonds with respect to $ 108 million net par outstanding as of August 31, 2023, and the custodial trusts released to AGC and AGM New Recovery Bonds and CVIs with a fair value totaling $ 73 million as of August 31, 2023.

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

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

The fair value of any New Recovery Bonds and CVIs that the Company retains will fluctuate from their date of acquisition.

2 unchanged sentences

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

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

As of September 30, 2023, all of the CVIs are reported in investments.

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

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Gross Par Outstanding Gross Debt Service Outstanding

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

September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

(in millions)

3 unchanged sentences

Net Par Outstanding

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

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Net Par Outstanding and Net Debt Service Outstanding

As of June 30, 2023

As of September 30, 2023

Scheduled Net Par Amortization Scheduled Net Debt Service Amortization

(in millions)

2023 (October 1 - December 31) $ — $ 3

2024 (January 1 - March 31) — 24

2024 (April 1 - June 30) — 3

2024 (July 1 - September 30) 110 134

5 unchanged sentences

Total $ 1,105 $ 1,511

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

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

On May 3, 2019, AGM and

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

As of September 30, 2023, the Company had $ 624 million insured net par outstanding of PREPA obligations.

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

On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order appointing as members of a PREPA mediation team U.S.

1 unchanged sentence

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

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

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

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

The FOMB PREPA Plan would split bondholders into two groups:

one that would settle litigation regarding whether that creditor repayment is limited to existing accounts, and another group that would continue litigating that bondholders have a right to PREPA’s current and future revenue collections.

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

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

Judge Swain has since extended the term of such mediation several times, most recently on September 29, 2023 extending the term to March 29, 2024.

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

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

3 unchanged sentences

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

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

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

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

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

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

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

On October 27, 2023, the FOMB filed with the Federal District Court of Puerto Rico the third modified third amended plan of adjustment for PREPA and supporting supplemental disclosure statement (FOMB PREPA Plan) based on the last revised PREPA fiscal plan certified by the FOMB on June 23, 2023 (2023 PREPA Fiscal Plan).

The FOMB PREPA Plan would split bondholders into two groups:

one that would settle litigation regarding whether creditor repayment is limited to existing accounts, and another group that would continue litigating whether bondholders are secured by PREPA’s current and future revenue collections.

The FOMB PREPA Plan also would further split settling bondholders into two sub-groups:

one consisting of certain original settling bondholders that would receive an enhanced recovery (compared to non-settling bondholders) plus other supporting creditor payments, while the second settling sub-group would receive only the enhanced recovery.

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

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

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

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

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

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

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

The most recent revised FOMB PREPA Plan provides for reduced payments to bondholders since lower projected PREPA revenues are included in the 2023 PREPA Fiscal Plan than had been previously anticipated.

The FOMB PREPA Plan estimates that non-settling bondholders will receive a recovery of 12.5 % of their allowed unsecured net revenue claim.

The Company is opposed to the FOMB PREPA Plan and has joined with a group of non-settling bondholders that continue to litigate whether creditor repayments will include future revenue collections.

The supplemental disclosure statement hearing for the FOMB PREPA Plan is scheduled for November 14, 2023.

The confirmation hearing for the FOMB PREPA Plan is currently scheduled to occur in March 2024.

As of September 30, 2023, the Company had $ 372 million of insured net par outstanding of PRHTA bonds:

$ 244 million insured net par outstanding of PRHTA (transportation revenue) bonds and $ 128 million insured net par outstanding of PRHTA (highway revenue) bonds.

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

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

Assured Guaranty Ltd.

1 unchanged sentence

Puerto Rico GO and PBA

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

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

The Company’s exposure to GO bonds and PBA bonds was extinguished on August 31, 2023, and, therefore, as of September 30, 2023, the Company had no remaining insured net par outstanding of GO bonds and PBA bonds.

Other Puerto Rico Exposures

48 unchanged sentences

The Company also guarantees specialty business with risk profiles similar to those of its structured finance exposures written in financial guaranty form.

Specialty Insurance, Reinsurance and Guaranties

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

Specialty Business

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

Gross Exposure Net Exposure Gross Exposure Net Exposure

7 unchanged sentences

(1) The life insurance transactions net exposure is projected to reach $ 1.1 billion in 2024.

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

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

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

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

This guaranty matures in 2042.

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

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

Specialty business includes an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties with an internal rating of AA that matures in 2042.

The Company’s maximum potential exposure under this guaranty, which is accounted for in accordance with Accounting Standards Codification (ASC) 460, Guarantees, was $ 1.6 billion as of September 30, 2023.

Expected Loss to be Paid (Recovered)

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In order to effectively evaluate and manage the economics and liquidity of the entire insured portfolio, management assigns ratings and calculates expected loss to be paid (recovered) in the same manner for all its exposures regardless of form or differing accounting models.

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

The three primary models are:

(1) insurance, as

The exposure reported in Note 3, Outstanding Exposure includes policies accounted for under various accounting models depending on the characteristics of the contract and the Company’s control rights.

The three primary

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

described in Note 5, Contracts Accounted for as Insurance;

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

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

37 unchanged sentences

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

As of Second Quarter Six Months

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

As of Third Quarter Nine Months

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

(in millions)

6 unchanged sentences

____________________

(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) that were consolidated.

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

The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts, which are accounted for under one of the following accounting models:

1 unchanged sentence

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

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

Expected losses to be paid for U.S.

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

dollar denominated obligations that ranged from 4.51 % to 5.45 % with a weighted average of 4.80 % as of September 30, 2023 and 3.82 % to 4.69 % with a weighted average of 4.08 % as of December 31, 2022.

Net expected losses to be paid for U.S.

dollar denominated transactions represented approximately 98.2 % and 98.5 % of the total as of September 30, 2023 and December 31, 2022, respectively.

Net Expected Loss to be Paid (Recovered)

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

9 unchanged sentences

____________________

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

(1) Net (paid) recovered losses in 2023 include recoveries related to various Puerto Rico securities transferred to the Company's investment portfolio upon the maturity and extinguishment of certain GO, PBA and HTA insured exposure.

Net (paid) recovered losses in 2022 include the net amounts received pursuant to the 2022 Puerto Rico Resolutions, as described in Note 3, Outstanding Exposure.

Assured Guaranty Ltd.

2 unchanged sentences

Roll Forward by Sector

Second Quarter 2023

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

Third Quarter 2023

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

Development (Benefit) Net (Paid)

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

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

(in millions)

8 unchanged sentences

Total $ 560 $ 87 $ ( 157 ) $ 490

Second Quarter 2022

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

Third Quarter 2022

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

Development (Benefit) Net (Paid)

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

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

(in millions)

8 unchanged sentences

Total $ 442 $ ( 72 ) $ 357 $ 727

Six Months 2023

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

Nine Months 2023

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

Development (Benefit) Net (Paid)

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

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

(in millions)

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Six Months 2022

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

Nine Months 2022

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

Development (Benefit) Net (Paid)

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

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

(in millions)

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

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

The tables above include (i) net LAE paid of $ 9 million, $ 5 million, $ 17 million and $ 25 million for third quarter 2023, third quarter 2022, nine months 2023 and nine months 2022, respectively, and (ii) net expected LAE to be paid of $ 29 million and $ 11 million as of September 30, 2023 and December 31, 2022, respectively.

Public Finance

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

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

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

7 unchanged sentences

Net Economic Loss Development (Benefit)

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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RMBS Liquidation Rates

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current but recently delinquent

41 unchanged sentences

First Lien U.S.

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

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

Range Weighted Average Range Weighted Average

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For transactions where the Company has detailed loan information, the Company assumes, in the base scenario, that 30 % of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans.

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

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

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

Additionally, in third quarter 2023, due to home prices reaching all time highs and high equity levels, the Company increased its scenario based recovery assumptions such that the weighted average recovery percentage increased from 20 % to approximately 30 %.

The effect of these updated assumptions on expected losses was a benefit of $ 7 million.

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

2 unchanged sentences

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

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

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

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

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

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

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

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

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

The Company used a similar approach to establish its scenarios as of September 30, 2023 as it used as of December 31, 2022, increasing and decreasing the periods of stress from those used in the base scenario, except as described above with regards to the increase in deferred principal recoveries.

In the Company’s most stressful scenario where 10 % of deferred principal balances were recovered, loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 16 months, expected loss to be paid would increase from current projections by approximately $ 28 million for all first lien U.S.

15 unchanged sentences

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

1 unchanged sentence

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

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

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

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

2 unchanged sentences

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

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

The Company’s base scenario recovery assumption for charged-off loans is 40 % (up from 30 % in the prior quarters), as shown in the table below, based on observed trends and reasonable expectations of future recoveries.

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

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

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

In the first quarter of 2023, in light of volatility in interest rates, the mortgage market and home prices, as with the first lien deferred principal balances detailed earlier, the Company also expanded the range of potential recoveries as a percentage of charged off loan balances.

In third quarter 2023, this range was further expanded to represent a potential for greater future recoveries due to home prices reaching new record highs.

The assumptions for the current quarter ranged from a 10 % recovery of charged-off loan balances in the most stressful scenario and an 80 % recovery in the least stressful scenario.

The effect of these updated assumptions on expected loss to be paid (recovered) was a benefit of $ 31 million.

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

7 unchanged sentences

The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers of the amount of losses the collateral will likely suffer.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Key Assumptions in Base Scenario Expected Loss Estimates

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

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

Range Weighted Average Range Weighted Average

28 unchanged sentences

Net Earned Premiums

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

8 unchanged sentences

____________________

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

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

See Note 3, Outstanding Exposure.

12 unchanged sentences

Specialty insurance premium receivable 1 1

June 30, $ 1,417 $ 1,235

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

September 30, $ 1,376 $ 1,178

Approximately 70 % and 74 % of gross premiums receivable, net of commissions payable, at September 30, 2023 and December 31, 2022, respectively, are denominated in currencies other than the U.S.

dollar, primarily the pound sterling and euro.

4 unchanged sentences

Expected Future Premium Collections and Earnings

As of June 30, 2023

As of September 30, 2023

Future Gross Premiums

2 unchanged sentences

(in millions)

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

2023 (October 1 - December 31) $ 45 $ 72

Subtotal 2023 81 145

2028-2032 402 958

9 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(dollars in millions)

5 unchanged sentences

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

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

dollar denominated financial guaranty insurance obligations that ranged from 4.51 % to 5.45 % with a weighted average of 4.86 % as of September 30, 2023 and 3.82 % to 4.69 % with a weighted average of 4.15 % as of December 31, 2022.

Assured Guaranty Ltd.

2 unchanged sentences

Net Reserve (Salvage) by Sector

Sector June 30, 2023 December 31, 2022

Sector September 30, 2023 December 31, 2022

(in millions)

16 unchanged sentences

Financial Guaranty Insurance Contracts

As of June 30, 2023

As of September 30, 2023

(in millions)

11 unchanged sentences

Financial Guaranty Insurance Contracts

As of June 30, 2023

As of September 30, 2023

(in millions)

2023 (July 1 - September 30) $ 4

2023 (October 1 - December 31) $ 2

Subtotal 2023 7

After 2042 13

5 unchanged sentences

Loss and LAE (Benefit) by Sector

Second Quarter Six Months

Third Quarter Nine Months

Sector 2023 2022 2023 2022

14 unchanged sentences

BIG Transaction Loss Summary

As of June 30, 2023

As of September 30, 2023

Gross Net Total BIG

42 unchanged sentences

Amounts presented in this note relate only to contracts accounted for as derivatives.

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

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

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

The Company’s credit derivatives are generally governed by International Swaps and Derivatives Association, Inc.

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

9 unchanged sentences

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

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

The estimated remaining weighted average life of credit derivatives was 11.4 years and 12.8 years as of September 30, 2023 and December 31, 2022, respectively.

Assured Guaranty Ltd.

1 unchanged sentence

Credit Derivatives (1)

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

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

Sector Net Par

8 unchanged sentences

____________________

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

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

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

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

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

Rating Category Net Par

9 unchanged sentences

Fair Value Gains (Losses) on Credit Derivatives

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

5 unchanged sentences

In addition, since each transaction has unique collateral and structural terms, the change in fair value of each transaction may vary considerably.

The fair value of credit derivative contracts also reflects the Company’s own credit cost based on the price to purchase credit protection on AGC.

The fair value of credit derivative contracts generally also reflects the Company’s own credit cost based on the price to purchase credit protection on AGC.

The Company determines its own credit risk primarily based on quoted CDS prices traded on AGC at each balance sheet date.

CDS Spread on AGC (in basis points)

As of June 30,

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

As of September 30,

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

2022 As of December 31, 2021

5 unchanged sentences

and Effect of AGC Credit Spread

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

2 unchanged sentences

Net fair value of credit derivatives $ ( 49 ) $ ( 162 )

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

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

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

2 unchanged sentences

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

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

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

(iii) equity method investments;

(iv) short-term investments and (iv) other investments.

Equity method investments primarily consists of the investment in Sound Point and fund investments across a variety of strategies.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Investment Portfolio

Carrying Value

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

8 unchanged sentences

Equity method investments:

Alternative investments (5) 331 123

Total $ 8,808 $ 8,365

____________________

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

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

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

(1) 7.6 % and 7.4 % of fixed-maturity securities were rated BIG as of September 30, 2023 and December 31, 2022, respectively, consisting primarily of Loss Mitigation Securities.

2.4 % and 5.9 % were not rated, as of September 30, 2023 and December 31, 2022, respectively.

(2) As of September 30, 2023 and December 31, 2022 amounts include $ 294 million and $ 305 million, respectively, of CLOs that had been managed internally by AssuredIM under an investment management agreement until it transitioned to an external manager in June 2023.

(3) These securities are not rated.

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

On August 31, 2023, the Company satisfied its obligations under certain Puerto Rico Trusts and as a result $ 68 million, at fair value, of Puerto Rico New Recovery Bonds and $ 5 million, at fair value, of CVIs were transferred from the consolidated Puerto Rico Trusts to AGC and AGM’s investment portfolios.

See Note 3, Outstanding Exposure.

(4) As of September 30, 2023 and December 31, 2022, amounts include $ 214 million and $ 232 million, respectively, of municipal bonds that had been managed by AssuredIM under an investment management agreement until June 2023, and are now managed by the U.S.

Insurance Subsidiaries for their own accounts.

(5) Excludes certain investments in funds that are consolidated and accounted for as CIVs.

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

Upon closing of the Sound Point Transaction and the AHP Transaction in July, the Company has increased the aggregate amount it has agreed to invest in alternative investments to $ 1.5 billion, including the $ 1 billion with Sound Point, subject to regulatory approval, which includes $ 630 million of invested capital (at fair value), and $ 890 million in unfunded commitments (of which $ 332 million is committed to specific funds).

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

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

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

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

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

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

Of the $ 1.5 billion mentioned above, 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 $ 132 million for a total of $ 882 million as of September 30, 2023.

As of September 30, 2023, AGAS commitments to Sound Point and AHP funds were $ 703 million (of which $ 446 million was funded with a net asset value (NAV) of $ 469 million).

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

As of September 30, 2023, three of the six funds in which AGAS invests are accounted for as CIVs.

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

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

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

Accrued investment income, which is reported in “other assets,” was $ 78 million as of September 30, 2023 and $ 71 million as of December 31, 2022.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

As of June 30, 2023

As of September 30, 2023

Security Type Percent

2 unchanged sentences

Losses Estimated

Value Weighted

(dollars in millions)

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

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

Corporate securities (3) 33 2,330 ( 6 ) 3 ( 261 ) 2,066 A

Obligations of state and political subdivisions 42 % $ 2,938 $ ( 14 ) $ 20 $ ( 178 ) $ 2,766

government and agencies 1 65 — — ( 7 ) 58

Corporate securities (2)

33 2,321 ( 6 ) 1 ( 307 ) 2,009

Mortgage-backed securities (3):

RMBS 6 440 ( 20 ) 3 ( 71 ) 352 BBB+

Commercial mortgage-backed securities (CMBS) 3 214 — — ( 10 ) 204 AAA

RMBS 6 430 ( 20 ) 2 ( 82 ) 330

Commercial mortgage-backed securities (CMBS) 3 198 — — ( 10 ) 188

Asset-backed securities:

CLOs 7 468 — — ( 14 ) 454 A+

Other 6 432 ( 39 ) 17 ( 36 ) 374 CCC+

government securities 2 118 — — ( 20 ) 98 AA-

Total available-for-sale fixed-maturity securities 100 % $ 7,044 $ ( 79 ) $ 51 $ ( 528 ) $ 6,488 A

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

CLOs 7 463 — 1 ( 10 ) 454

Other 6 440 ( 46 ) 6 ( 31 ) 369

government securities 2 116 — — ( 23 ) 93

Total available-for-sale fixed-maturity securities 100 % $ 6,971 $ ( 86 ) $ 30 $ ( 648 ) $ 6,267

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

4 unchanged sentences

Losses Estimated

Value Weighted

(dollars in millions)

Obligations of state and political subdivisions 45 % $ 3,509 $ ( 14 ) $ 37 $ ( 138 ) $ 3,394 A

government and agencies 2 118 — 1 ( 8 ) 111 AA+

Corporate securities (3) 31 2,387 ( 6 ) 2 ( 299 ) 2,084 A

Obligations of state and political subdivisions 45 % $ 3,509 $ ( 14 ) $ 37 $ ( 138 ) $ 3,394

government and agencies 2 118 — 1 ( 8 ) 111

Corporate securities (2)

31 2,387 ( 6 ) 2 ( 299 ) 2,084

Mortgage-backed securities (3):

RMBS 5 418 ( 19 ) 3 ( 62 ) 340 BBB

CMBS 4 282 — — ( 11 ) 271 AAA

RMBS 5 418 ( 19 ) 3 ( 62 ) 340

CMBS 4 282 — — ( 11 ) 271

Asset-backed securities:

CLOs 6 449 — — ( 21 ) 428 A+

Other 5 423 ( 26 ) 22 ( 26 ) 393 CCC+

government securities 2 121 — — ( 23 ) 98 AA-

Total available-for-sale fixed-maturity securities 100 % $ 7,707 $ ( 65 ) $ 65 $ ( 588 ) $ 7,119 A

CLOs 6 449 — — ( 21 ) 428

Other 5 423 ( 26 ) 22 ( 26 ) 393

government securities 2 121 — — ( 23 ) 98

Total available-for-sale fixed-maturity securities 100 % $ 7,707 $ ( 65 ) $ 65 $ ( 588 ) $ 7,119

____________________

(1) Based on amortized cost.

(2) Ratings represent the lower of the Moody’s and S&P classifications, except for Loss Mitigation Securities and certain other securities, which use internal ratings classifications.

The Company’s portfolio primarily consists of high-quality, liquid instruments.

New Recovery Bonds received in connection with the consummation of the 2022 Puerto Rico Resolutions are not rated.

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Gross Unrealized Loss by Length of Time

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

As of June 30, 2023

As of September 30, 2023

Less than 12 months 12 months or more Total

15 unchanged sentences

Number of securities (1) 795 1,308 2,079

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Gross Unrealized Loss by Length of Time

21 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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

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

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

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

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

As of September 30, 2023, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 641 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2022, 567 securities had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 351 million as of September 30, 2023 and $ 329 million as of December 31, 2022.

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

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

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

As of June 30, 2023

As of September 30, 2023

Cost Estimated

6 unchanged sentences

Total $ 6,971 $ 6,267

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $ 230 million as of June 30, 2023 and $ 222 million as of December 31, 2022.

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

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 $ 224 million as of September 30, 2023 and $ 222 million as of December 31, 2022.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or are otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amounts of $ 1,107 million and $ 1,169 million based on fair value as of September 30, 2023 and December 31, 2022, respectively.

Income from Investments

3 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Income from Investments

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

16 unchanged sentences

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

(3) Fair value gains on trading securities pertaining to securities still held as of September 30, 2023 were $ 4 million for third quarter 2023 and $ 42 million for nine months 2023.

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

(4) Beginning in the fourth quarter of 2023, equity in earnings (losses) will include the Company’s share of the earnings of the Sound Point entities, which is reported on a one-quarter lag.

Realized Investment Gains (Losses)

2 unchanged sentences

Net Realized Investment Gains (Losses)

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

8 unchanged sentences

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

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

The proceeds from sales of fixed-maturity securities classified as available-for-sale were $ 73 million in third quarter 2023, $ 207 million in third quarter 2022, $ 767 million in nine months 2023 and $ 560 million in nine months 2022.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

1 unchanged sentence

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

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

2 unchanged sentences

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

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

Additions (reductions) for securities for which credit losses were previously recognized 7 3 21 9

Balance, end of period $ 86 $ 57 $ 86 $ 57

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

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

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

The Company did not purchase any securities with credit deterioration during third quarter 2023 and nine months 2023.

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

6 unchanged sentences

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

7 unchanged sentences

however, once a trigger event occurs, the insurance subsidiaries’ control of the VIE typically increases.

The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the insurance subsidiaries and, accordingly, where they are obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the insurance subsidiaries and, accordingly, where they are obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE.

The insurance subsidiaries are deemed to be the control party for certain VIEs under GAAP, typically when their protective rights give them the power to both terminate and replace the transaction’s servicer or collateral manager, which are characteristics specific to the Company’s financial guaranty contracts.

5 unchanged sentences

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

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

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

Puerto Rico Trusts

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

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

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.

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

Puerto Rico Trusts

Carrying Value

June 30, 2023 December 31, 2022

(in millions)

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

CVIs, trading 5 5

On August 31, 2023, after notice to certain holders of custody receipts representing interests in legacy insured GO, PBA and HTA bonds, the Company satisfied its obligations under such legacy insured bonds with respect to $ 108 million net par outstanding as of August 31, 2023, and the custodial trusts released to AGC and AGM New Recovery Bonds and/or CVIs with a fair value totaling $ 73 million as of August 31, 2023.

As of September 30, 2023 and December 31, 2022, respectively, the Company consolidated 24 and 45 custodial trusts established as part of the 2022 Puerto Rico Resolutions discussed in Note 3, Outstanding Exposure, Exposure to Puerto Rico.

New Recovery Bonds

3 unchanged sentences

(dollars in millions)

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

As of September 30, 2023 $ 136 $ 10 $ — $ 146

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

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

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

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

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

As of September 30, 2023, no New Recovery Bonds in the Puerto Rico Trusts were in a gross unrealized loss position.

As of December 31, 2022, 14 New Recovery Bonds in the Puerto Rico Trusts were in a gross unrealized loss position totaling $ 4 million and had a fair value of $ 110 million, all of which were in a continuous unrealized loss position for less than 12

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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

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

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

The Company did not intend to and was not required to sell these investments prior to an expected recovery in value.

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

The total unrealized loss for these securities was $ 3 million.

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

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

New Recovery Bonds in FG VIEs’ Assets

Available-for-Sale

New Recovery Bonds, Available-for-Sale

Reported in FG VIEs’ Assets

Distribution by Contractual Maturity

As of June 30, 2023

As of September 30, 2023

Cost Estimated

(in millions)

Due within one year $ 1 $ 1

Due after one year through five years 6 6

Due after five years through 10 years $ 28 $ 30

1 unchanged sentence

Total $ 136 $ 146

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Components of FG VIEs’ Assets and Liabilities

1 unchanged sentence

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The table below shows the carrying value of FG VIEs’ assets and liabilities segregated by type of collateral.

Consolidated FG VIEs by Type of Collateral

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

14 unchanged sentences

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

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

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

The change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIEs’ assets at FVO) held as of September 30, 2023 that was reported in the condensed consolidated statements of operations for third quarter 2023 and nine months 2023 were gains of $ 3 million and $ 1 million, respectively.

The change in the ISCR of the FG VIEs’ assets at FVO held as of September 30, 2022 were gains of $ 15 million and $ 11 million for third quarter 2022 and nine months 2022, respectively.

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

The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse (all of which are measured at fair value under the FVO) attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Selected Information for FG VIEs’ Assets and Liabilities

Measured under the FVO

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

7 unchanged sentences

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

In connection with the Sound Point Transaction and AHP Transaction the Company reevaluated its consolidation conclusion for each CIV and deconsolidated all but three CIVs.

As of September 30, 2023, CIVs consist of certain funds managed by Sound Point, that were previously managed by AssuredIM.

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

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

As a result of the Sound Point Transaction and AHP Transaction, during third quarter 2023 and nine months 2023, the Company deconsolidated CIV assets of $ 4.7 billion and CIV liabilities of $ 4.4 billion.

The Company recognized a loss on deconsolidation of $ 16 million, which is reported in “fair value gains (losses) on CIVs”.

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

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

2 unchanged sentences

Liquidity available at the Company’s CIVs is not available for corporate liquidity needs, except to the extent of the Company’s investment in the funds, subject to redemption provisions.

Changes in the fair value of assets and liabilities of CIVs, interest income and expense are reported in “fair value gains (losses) on consolidated investment vehicles” in the condensed consolidated statements of operations.

Changes in the fair value of assets and liabilities of CIVs, interest income and expense, and gains and losses on consolidation and deconsolidation of CIVs are reported in “fair value gains (losses) on CIVs” in the condensed consolidated statements of operations.

Interest income from CLO assets is recorded based on contractual rates.

Number of Consolidated CIVs by Type

CIV Type June 30, 2023 December 31, 2022

Funds (1) 6 8

CLOs (2) 10 10

CIV Type September 30, 2023 December 31, 2022

CLO warehouses — 4

1 unchanged sentence

____________________

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

One fund was consolidated in six months 2022.

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

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

One CLO warehouse was consolidated in six months 2022

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

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

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

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

(1) As of December 31, 2022, two CIVs were voting interest entities (VOEs).

Funds meet the criteria for consolidating a VOE when the Company possesses substantially all of the economics and all of the decision-making authority.

Assured Guaranty Ltd.

1 unchanged sentence

Assets and Liabilities of CIVs

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

2 unchanged sentences

Equity securities and warrants 79 434

Corporate securities 84 96

Structured products 239 128

Due from brokers and counterparties 3 —

Corporate securities — 96

CLO and CLO warehouse assets:

CLO investments:

Loans in CLOs, FVO 4,283 4,202

Loans in CLO warehouses, FVO 169 368

Loans in CLOs and CLO warehouses, FVO — 4,570

Short-term investments, at fair value — 135

7 unchanged sentences

____________________

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) Includes investments in AssuredIM funds and other affiliated entities of $ 392 million as of December 31, 2022.

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

(2) As of December 31, 2022, the weighted average maturity of CLO obligations was 6.2 years and the weighted average interest rate of CLO obligations was 5.3 %.

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

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

(4) As of December 31, 2022, includes redeemable noncontrolling interests (NCI).

As of September 30, 2023, the CIVs had unfunded commitments to invest of $ 143 million.

As of September 30, 2023 and December 31, 2022, the CIVs included derivative contracts with notional amounts totaling $ 36 million and $ 46 million, respectively, and average notional amounts of $ 41 million and $ 47 million, respectively.

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

Borrowings are generally secured by the investments purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective vehicle.

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

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

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

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

As of June 30, 2023, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed $ 110 million jointly and $ 71 million individually for the consolidated healthcare fund.

The available commitment was based on the capital committed to the funds.

As of 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.

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

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

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Other Consolidated VIEs

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

nature of such assets and liabilities, as opposed to within FG VIEs’ assets and FG VIEs’ liabilities.

The largest of these VIEs had assets of $ 87 million and liabilities of $ 7 million as of September 30, 2023, and assets of $ 86 million and liabilities of $ 12 million as of December 31, 2022, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

Non-Consolidated VIEs

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

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

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

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

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

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

As such, the Company does not consolidate these entities.

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

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

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

As of September 30, 2023 and December 31, 2022, the Company identified 66 and 85 , respectively, policies that contain provisions and experienced events that may trigger consolidation.

The Company holds variable interests in non-FG VIEs which are not consolidated, as the Company is not the primary beneficiary.

As of September 30, 2023, the Company’s maximum exposure to losses relating to these non-FG VIEs was $ 251 million, which is limited to the carrying value of these investments of $ 239 million and other assets of $ 12 million.

Fair Value Measurement

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

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

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

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

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

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and observable inputs other than quoted prices, such as interest rates or yield curves and other inputs derived from or corroborated by observable market inputs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable.

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

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

There was a transfer of fixed-maturity security in the investment portfolio from Level 3 to Level 2 during third quarter 2023 and nine months 2023.

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

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

The extent of the use of each input is

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

dependent on the asset class and the market conditions.

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

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

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

As of September 30, 2023, the Company used models to price 189 securities.

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

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Securities such as discount notes are classified as Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

Other Invested Assets

Other invested assets that are carried at fair value primarily include equity method investments for which the Company elected the FVO using NAV, as a practical expedient, and, therefore, are excluded from the fair value hierarchy.

Committed Capital Securities

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

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

The estimated current cost of the Company’s CCS is based on several factors, including AGM and AGC CDS spreads, the

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Company's publicly traded debt and the term the securities are estimated to remain outstanding.

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Contracts Accounted for as Credit Derivatives

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

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

however, the Company has from time-to-time mutually agreed with various counterparties to terminate certain CDS transactions.

In transactions where the counterparty does not have the right to terminate, such transactions were generally terminated for an amount that approximated the present value of future premiums or for a negotiated amount, rather than at fair value.

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

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

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

Assumptions and Inputs

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and the hedge cost represents the cost of CDS protection purchased by the originator to hedge its counterparty credit risk exposure to the Company.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The primary sources of information used to determine gross spread include:

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

• Credit spreads provided by the counterparty of the CDS.

The rates used to discount future expected premium cash flows ranged from 3.62 % to 5.41 % at September 30, 2023 and 2.78 % to 5.08 % at December 31, 2022.

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

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

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

Given market conditions and the Company’s own credit spreads, approximately 11.2 %, based on fair value, of the Company’s CDS contracts were fair valued using this minimum premium as of September 30, 2023.

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

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The Company’s credit derivative valuation model, like any financial model, has certain strengths and weaknesses.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The primary strengths of the Company’s CDS modeling techniques are:

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

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

The prices are generally determined with the assistance of an independent third party, based on a discounted cash flow approach.

The Company records the fair value of structured finance and other FG VIEs’ assets and liabilities based on modeled prices.

Structured finance and other FG VIEs’ assets and liabilities are carried at fair value under the FVO and are classified as Level 3.

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

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

The prices of the assets and liabilities of the FG VIEs are generally determined with the assistance of an independent third party, based on a discounted cash flow approach.

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

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

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

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

Assets and Liabilities of CIVs

The consolidated CLOs are collateralized financing entities (CFEs), and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured under the FVO using the CFE practical expedient.

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

The loans are all Level 2 assets, which are more

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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

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

Under the CFE practical expedient guidance, the loans of consolidated CLOs are measured at fair value and the debt of consolidated CLOs are measured as:

(1) the sum of (i) the fair value of the financial assets, and (ii) the carrying value of any nonfinancial assets held temporarily;

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

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

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

The Company has elected the FVO to measure the loans held and the debt issued by CLO warehouses to mitigate the accounting mismatch between such assets and liabilities when a CLO warehouse securitizes and becomes a CLO.

VIEs’ liabilities, and (ii) unrealized gains and losses on the New Recovery Bonds in the Puerto Rico Trusts, which are reported in OCI.

Assets and Liabilities of CIVs

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

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(v) obtaining information provided by third parties;

(vi) and/or evaluating information provided by management of these investments.

and/or (vi) evaluating information provided by management of these investments.

These fair values are generally based on dealer quotes, indications of value or pricing models that consider the time value of money, the current market, contractual prices and potential volatilities of the underlying financial instruments.

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Investments in private equity funds are generally valued utilizing NAV.

Level 2 assets in the CIVs include assets of the consolidated CLOs and certain assets of the consolidated funds.

Level 3 assets in the CIVs include the remainder of the invested assets of consolidated funds.

Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the FVO).

Level 3 liabilities of the CIVs include various tranches of CLO debt, first loss subordinated warehouse financing and securitized borrowing.

Until July 1, 2023, the consolidated CLOs were collateralized financing entities (CFEs), and therefore, the debt issued by, and loans held by, the consolidated CLOs were measured under the FVO using the CFE practical expedient.

Loans in CLOs were priced using a loan pricing service which aggregated quotes from loan market participants.

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

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

Under the CFE practical expedient guidance, the loans of consolidated CLOs were measured at fair value and the debt of consolidated CLOs were measured as:

(1) the sum of (i) the fair value of the financial assets, and (ii) the carrying value of any nonfinancial assets held temporarily;

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

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

The Company had elected the FVO to measure the loans held and the debt issued by CLO warehouses to mitigate the accounting mismatch between such assets and liabilities when a CLO warehouse securitized and became a CLO.

As of December 31, 2022, Level 2 assets in the CIVs included assets of the consolidated CLOs and certain assets of the consolidated funds.

Level 3 assets in the CIVs included the remainder of the invested assets of consolidated funds.

Level 2 liabilities in the CIVs included senior warehouse financing debt used to fund a CLO warehouse (measured under the FVO).

Level 3 liabilities of the CIVs included various tranches of CLO debt, first loss subordinated warehouse financing and securitized borrowing.

Significant changes to any of the inputs described above could have a material effect on the fair value of the consolidated assets and liabilities.

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Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of June 30, 2023

As of September 30, 2023

Fair Value Hierarchy

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Assets of CIVs:

Fund investments:

Equity securities and warrants — 4 75 79

Corporate securities — — 84 84

Structured products — 66 173 239

CLOs and CLO warehouse assets:

Loans — 4,452 — 4,452

Short-term investments 69 — — 69

Total assets of CIVs — 70 248 318

Assets held for sale 1 — — 1

Other assets 51 48 13 112

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FG VIEs’ liabilities (3) — — 542 542

Liabilities of CIVs:

CLO obligations of CFEs — — 4,138 4,138

Warehouse financing debt — 127 30 157

Securitized borrowing — — 31 31

Total liabilities of CIVs — 127 4,199 4,326

Liabilities held for sale — 7 — 7

Total liabilities carried at fair value $ — $ — $ 592 $ 592

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

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

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

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

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

As of December 31, 2022, excludes $ 127 million investment in the AssuredIM municipal relative value master fund, which is measured using NAV as a practical expedient.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

(2) As of December 31, 2022, excludes $ 5 million in investments in AssuredIM funds for which the Company recorded a 100% NCI.

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

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

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

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

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Level 3 Fair Value Measurements

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

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

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

Second Quarter 2023

Third Quarter 2023

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

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(in millions)

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

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

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

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Settlements ( 1 ) ( 7 ) ( 15 ) ( 9 ) — — — —

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

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

Consolidations — — — — — — — —

Deconsolidations — — — — ( 219 ) ( 84 ) 166 —

Transfers out of Level 3 ( 40 ) — — — — — — —

Fair value as of September 30, 2023 $ 2 $ 153 $ 796 $ 180 $ 75 $ — $ 173 $ 13

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

Earnings $ — $ 6 (4) $ — $ 7 (4) $ ( 20 ) (3)

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

Second Quarter 2023

Third Quarter 2023

Credit Derivative

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(in millions)

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

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

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

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Settlements ( 1 ) 127 —

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

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

Deconsolidations — — 4,199

Fair value as of September 30, 2023 $ ( 49 ) $ ( 542 ) $ —

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

Earnings $ 9 (6) $ 9 (2) $ —

OCI $ 2 $ ( 5 )

Assured Guaranty Ltd.

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

Second Quarter 2022

Third Quarter 2022

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

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(in millions)

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

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

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

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

Deconsolidations — — — ( 15 ) — — 20 —

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

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

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

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

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

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

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

Second Quarter 2022

Third Quarter 2022

Credit Derivative

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(in millions)

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

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

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

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Settlements 1 27 —

Deconsolidations — 15 374

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

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

Consolidations — — ( 26 )

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

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

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

OCI $ ( 4 ) $ 41

Assured Guaranty Ltd.

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

Six Months 2023

Nine Months 2023

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

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Settlements ( 3 ) ( 23 ) ( 22 ) ( 24 ) — — — ( 4 )

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

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

Deconsolidations — — — — ( 219 ) ( 84 ) 166 —

Transfers out of Level 3 ( 40 ) — — — — — — —

Fair value as of September 30, 2023 $ 2 $ 153 $ 796 $ 180 $ 75 $ — $ 173 $ 13

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

Earnings $ ( 3 ) (2) $ 6 (4) $ — $ 7 (4) $ ( 33 ) (3)

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

Six Months 2023

Nine Months 2023

Credit Derivative

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Settlements ( 2 ) 141 13

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

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

Deconsolidations — — 4,199

Fair value as of September 30, 2023 $ ( 49 ) $ ( 542 ) $ —

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

Earnings $ 114 (6) $ 11 (2) $ —

OCI $ 1 $ ( 13 )

Assured Guaranty Ltd.

1 unchanged sentence

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

Six Months 2022

Nine Months 2022

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

13 unchanged sentences

Deconsolidations — — — ( 15 ) — — 20 —

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

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

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

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

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

3 unchanged sentences

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

Six Months 2022

Nine Months 2022

Credit Derivative

11 unchanged sentences

Deconsolidations — 15 374

Fair value as of June 30, 2022

Fair value as of September 30, 2022

$ ( 194 ) $ ( 251 ) $ ( 4,009 )

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

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

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

OCI $ ( 1 ) $ 97

____________________

12 unchanged sentences

Quantitative Information About Level 3 Fair Value Inputs

As of June 30, 2023

As of September 30, 2023

Financial Instrument Description Fair Value Assets (Liabilities)

16 unchanged sentences

Assets of CIVs (3):

Equity securities and warrants 290 Yield 8.7 %

Discount rate 17.1 % - 27.4 % 23.6 %

Market multiple-enterprise value/revenue 0.95 x

Market multiple-enterprise value/EBITDA (6) 2.50 x

Equity securities and warrants 75 Discount rate 20.9 %

Market multiple-price to book 1.10 x

1 unchanged sentence

Terminal growth rate 4.0 %

Exit multiple-EBITDA 11.00 x

Exit multiple-price to book 1.10 x

Exit multiple-price to earnings 5.25 x

Sale scenario - discount rate 4.7 % - 4.8 % 4.8 %

Haircut to Holdback 30.0 % - 95.0 % 62.5 %

Corporate securities 84 Discount rate 17.1 %

Market multiple-enterprise value/EBITDA 2.50 x

Structured products 173 Yield 7.5 % - 28.1 % 17.9 %

Other assets (1) 12 Implied Yield 7.7 % - 8.2 % 7.9 %

Term (years) 10 years

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description Fair Value Assets (Liabilities)

(in millions) Significant Unobservable Inputs Range Weighted Average (4)

Credit derivative liabilities, net (1) ( 49 ) Hedge cost (in bps) 17.2 - 39.2 24.1

1 unchanged sentence

Internal floor (in bps) 10.0

Internal credit rating AAA - CCC AA

Internal credit rating AAA - CCC A

FG VIEs’ liabilities (1) ( 542 ) CPR 0.1 % - 21.2 % 8.0 %

2 unchanged sentences

Yield 5.5 % - 11.5 % 6.5 %

Liabilities of CIVs (1):

CLO obligations of CFEs (5) ( 4,138 ) Yield 4.8 % - 24.1 % 7.0 %

Warehouse financing debt ( 30 ) Yield 0.0 % - 9.3 % 9.3 %

Securitized borrowing ( 31 ) Discount rate 24.3 %

Terminal growth rate 3.0 %

Exit multiple-EBITDA 11.00 x

Market multiple-enterprise value/EBITDA 10.50 x

___________________

4 unchanged sentences

(4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, for which it is calculated as a percentage of fair value.

(5) See CFE fair value methodology described above for consolidated CLOs.

(6) Earnings before interest, taxes, depreciation, and amortization (EBITDA).

Assured Guaranty Ltd.

61 unchanged sentences

(5) See CFE fair value methodology described above for consolidated CLOs.

(6) Earnings before interest, taxes, depreciation, and amortization (EBITDA).

Not Carried at Fair Value

17 unchanged sentences

Other Liabilities

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

The maturity dates are in 2034 and 2035.

AssuredIM’s obligation under the master repurchase agreement is not guaranteed by any Assured Guaranty insurance or holding companies.

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

The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.

Fair Value of Financial Instruments Not Carried at Fair Value

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

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

Amount Estimated

4 unchanged sentences

Assets of CIVs (1) $ 21 $ 21 $ 46 $ 46

Assets held for sale 10 10 — —

Other assets (including other invested assets) (2) 106 107 92 93

2 unchanged sentences

Liabilities of CIVs (4) ( 4 ) ( 4 ) ( 170 ) ( 170 )

Liabilities held for sale ( 36 ) ( 36 ) — —

Other liabilities (5) ( 17 ) ( 17 ) ( 43 ) ( 43 )

2 unchanged sentences

Carrying value approximates fair value.

(2) Primarily includes accrued interest, management fees receivables for December 31, 2022, a participation loan, and receivables for securities sold, for which carrying value approximates fair value.

(2) Primarily includes accrued interest, a participation loan, and receivables for securities sold, for which carrying value approximates fair value.

Also includes note receivable from Sound Point as of September 30, 2023 and management fees receivables as of December 31, 2022.

(3) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.

(4) Includes due to brokers and counterparties and fund’s loan payable.

(4) Includes due to brokers and counterparties and, as of December 31, 2022, fund’s loan payable.

Carrying value approximates fair value.

1 unchanged sentence

Asset Management Fees

The following table presents the sources of asset management fees on a consolidated basis.

Upon closing of the Sound Point Transaction and the AHP Transaction, the Company will account for its investment in Sound Point as an equity method investment rather than as a consolidated asset manager.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The following table presents the sources of asset management fees on a consolidated basis through the end of June 30, 2023.

Upon closing of the Sound Point Transaction and the AHP Transaction, the Company deconsolidated the transferred AssuredIM subsidiaries and reports its investment in Sound Point as an equity method investment (on a one-quarter lag).

As a result, the Company no longer has asset management fee revenues on its consolidated statement of operations.

Asset Management Fees

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

1 unchanged sentence

Management fees $ — $ 11 $ 21 $ 41

CLOs (1) $ 9 $ 8 $ 17 $ 17

Opportunity funds and liquid strategies 1 8 4 12

Wind-down funds — — — 1

Total management fees 10 16 21 30

Performance fees — 2 18 17

1 unchanged sentence

Total asset management fees $ — $ 16 $ 53 $ 71

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Long-Term Debt

The principal and carrying values of the Company’s debt are presented in the table below.

Principal and Carrying Amounts of Long-Term Debt

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

Principal Carrying

Value Principal Carrying

(in millions)

AGUS 5 % Senior Notes

$ — $ — $ 330 $ 329

(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs.

The Company had management and performance fees receivable of $ 10 million as of both June 30, 2023 and December 31, 2022.

These balances are in “assets held for sale” and “other assets” on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively.

Performance fees were attributable to the healthcare and asset-based funds.

AGUS 6.125 % Senior Notes

AGUS 3.15 % Senior Notes

500 495 500 495

AGUS 7 % Senior Notes

200 198 200 198

AGUS 3.6 % Senior Notes

400 395 400 395

AGUS Series A Enhanced Junior Subordinated Debentures 150 150 150 150

AGMH Junior Subordinated Debentures (1) 146 110 146 108

Total $ 1,746 $ 1,693 $ 1,726 $ 1,675

____________________

(1) Carrying amounts are different than principal amounts primarily due to fair value adjustments at the date of the AGMH acquisition, which are accreted into interest expense over the remaining terms of these obligations.

Net of AGMH’s long-term debt purchased by AGUS.

6.125 % Senior Notes.

On August 21, 2023, AGUS issued $ 350 million of 6.125 % Senior Notes due 2028 ( 6.125 % Senior Notes) for net proceeds of $ 345 million.

The net proceeds from the issuance were used for the redemption on September 25, 2023, of $ 330 million of AGUS’s debt maturing in 2024.

AGUS may redeem all or part of the 6.125 % Senior Notes at any time or from time to time prior to August 15, 2028 (the date that is one month prior to the maturity of the 6.125 % Senior Notes), at its option, at a redemption price equal to the greater of:

(i) 100 % of the principal amount of the 6.125 % Senior Notes being redeemed;

and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 6.125 % Senior Notes being redeemed (excluding interest accrued to the redemption date) from the redemption date to August 15, 2028 discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the treasury rate plus 30 bps;

plus, in each case, accrued and unpaid interest on the 6.125 % Senior Notes to be redeemed to, but excluding, the redemption date.

AGUS may redeem all or part of the 6.125 % Senior Notes at any time or from time to time on and after August 15, 2028, at its option, at a redemption price equal to 100 % of the principal amount of the 6.125 % Senior Notes being redeemed, plus accrued and unpaid interest on the 6.125 % Senior Notes to be redeemed to, but excluding, the redemption date.

The 6.125 % Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by AGL.

The 6.125 % Senior Notes are senior unsecured obligations of AGUS and rank equally in right of payment with all of AGUS’s other unsecured and unsubordinated indebtedness outstanding.

The guarantee is a senior unsecured obligation of AGL and ranks equally in right of payment with all of AGL’s other unsecured and unsubordinated indebtedness outstanding.

AGL and its Bermuda subsidiaries AG Re, AGRO and Cedar Personnel Ltd.

(collectively, the Bermuda Subsidiaries) are not subject to any income, withholding or capital gains taxes under current Bermuda law.

The Company has received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, AGL and its Bermuda Subsidiaries will be exempt from taxation in Bermuda until March 31, 2035.

AGL’s U.S., U.K.

10 unchanged sentences

and its subsidiaries, AGRO and AG Intermediary Inc., file their own consolidated federal income tax return.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

In July of 2023, the U.K.

government passed legislation to implement the Organization for Economic Co-Operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Pillar Two income inclusion rule.

This includes a multinational top-up tax which will apply to large multinational corporations for accounting periods beginning on or after December 31, 2023.

It is expected this will apply to AGL and subsidiaries, requiring a minimum effective rate of 15% in all jurisdictions in which it operates.

In addition, in August of 2023 the Bermuda government released the first of two public consultations for the introduction of a corporate income tax in Bermuda in response to the Pillar II initiatives.

The Bermuda tax is expected to be enacted in 2023 to be effective in 2025.

According to a second public consultation paper issued by the Ministry of Finance of the Bermuda Government, the Government of Bermuda believes it is reasonable and proportionate for any new Bermuda corporate income tax regime to supersede any existing tax assurances given to companies such as AGL and its Bermuda subsidiaries.

The Company is assessing the impact of both the U.K.

legislation and the Bermuda proposal.

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

2 unchanged sentences

Valuation Allowance

As of June 30, 2023 and December 31, 2022, the Company had $ 5 million in foreign tax credits (FTCs) due to the 2017 Tax Cuts and Jobs Act for use against regular tax in future years.

FTCs will expire in 2027.

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

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

that the remaining FTCs of $ 5 million will not be utilized, and therefore maintained the valuation allowance from December 31, 2022 with respect to this tax attribute.

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

During 2023, the Company recorded a return to provision adjustment, which included the utilization of $ 3 million in foreign tax credits, thereby reducing the Company’s foreign tax credits (FTC) from $ 5 million as of December 31, 2022 to $ 2 million as of September 30, 2023.

As of September 30, 2023, the Company believes that the weight of the positive evidence outweighs the negative evidence regarding the realization of the Company’s foreign tax credits, resulting in the release of the corresponding valuation allowance.

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

The positive evidence that was considered included the cumulative income the Company has earned over the last three years and the significant unearned premium income to be included in taxable income.

4 unchanged sentences

When assessing recoverability of these deferred tax assets, the Company considers the ability and intent to hold the underlying securities to recovery in value, if necessary, as well as other factors as noted above.

As of June 30, 2023 and December 31, 2022, based on all available evidence, including capital loss carryback capacity, the Company concluded that the deferred tax assets related to the unrealized tax capital losses on the available-for-sale securities portfolios are, more likely than not, expected to be realized.

As of September 30, 2023 and December 31, 2022, based on all available evidence, including capital loss carryback capacity, the Company concluded that the deferred tax assets related to the unrealized tax capital losses on the available-for-sale securities portfolios are, more likely than not, expected to be realized.

Provision for Income Taxes

7 unchanged sentences

corporation tax rate was 19 %.

For periods subsequent to April 1, 2023, the U.K.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

subsequent to April 1, 2023, the U.K.

corporation tax rate has been increased to 25 %.

5 unchanged sentences

Effective Tax Rate Reconciliation

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

3 unchanged sentences

NCI ( 1 ) 1 ( 4 ) ( 5 )

Return to provision adjustment ( 6 ) ( 20 ) ( 6 ) ( 20 )

State taxes 1 2 8 10

Foreign taxes 7 ( 1 ) 8 9

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

Stock based compensation 2 — 2 4

4 unchanged sentences

Where there is a pre-tax loss in one jurisdiction and pre-tax income in another, the total combined expected tax rate may be higher or lower than any of the individual statutory rates.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The following tables present pre-tax income and revenue by jurisdiction.

Pre-tax Income (Loss) by Tax Jurisdiction

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

6 unchanged sentences

Revenue by Tax Jurisdiction

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

6 unchanged sentences

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

As of June 30, 2023, AGUS had open tax years with the U.S.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 30, 2023, AGUS had open tax years with the U.S.

Internal Revenue Service (IRS) for 2018 forward and is currently under audit for the 2018 and 2019 tax years.

As of June 30, 2023, Assured Guaranty Overseas US Holdings Inc.

As of September 30, 2023, Assured Guaranty Overseas US Holdings Inc.

had open tax years with the IRS for 2019 forward and is not currently under audit with the IRS.

7 unchanged sentences

For example, the Company is involved in a number of legal actions in the Federal District Court of Puerto Rico to enforce or defend its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations.

See “Exposure to Puerto Rico” section of Note 3, Outstanding Exposure, for a description of such actions.

Also in the ordinary course of their respective business, certain of AGL’s investment management affiliates are involved in litigation with third parties regarding fees, appraisals, or portfolio companies.

The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s results of operations in that particular quarter or

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

See the “Exposure to Puerto Rico” section of Note 3, Outstanding Exposure, for a description of such actions.

In the first quarter of 2023, the Company reduced its previously recorded accrual of $ 20 million to zero in connection with developments in litigation.

7 unchanged sentences

Following a bench trial, on March 8, 2023, the Court rendered its decision and found in favor of AGFP.

On May 17, 2023, the Court issued an order holding that AGFP is entitled to interest on its damages award at a rate of 8 % simple and directing the clerk to enter judgment in favor of AGFP.

On June 30, 2023, the clerk entered judgment in favor of AGFP in the amount of approximately $ 54 million for damages and prejudgment interest on AGFP’s counterclaims and, on July 10, 2023, LBIE filed a notice of appeal of that judgment.

On June 30, 2023, the clerk entered judgment in favor of AGFP in the amount of approximately $ 54 million plus prejudgment simple interest at an annual rate of 8 %.

On September 22, 2023, LBIE appealed this judgment.

On July 1, 2023, AGFP moved the Court to award it approximately $ 58 million for attorneys’ fees and expenses AGFP incurred through March 2023.

The Company has not accrued for either of these amounts in its financial statements.

The parties reached a confidential settlement with respect to this motion for attorneys’ fees, and AGFP withdrew the motion without prejudice on October 30, 2023.

The Company did not accrue in its financial statements for the judgment it was awarded or the attorneys’ fees it sought.

Assured Guaranty Ltd.

4 unchanged sentences

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Second Quarter 2023

Third Quarter 2023

Net Unrealized Gains (Losses) on Investments with:

4 unchanged sentences

(in millions)

Balance, March 31, 2023 $ ( 254 ) $ ( 105 ) $ ( 24 ) $ ( 43 ) $ 6 $ ( 420 )

Balance, June 30, 2023 $ ( 284 ) $ ( 115 ) $ ( 22 ) $ ( 42 ) $ 5 $ ( 458 )

Other comprehensive income (loss) before reclassifications ( 115 ) ( 14 ) 10 ( 1 ) — ( 120 )

2 unchanged sentences

( 2 ) ( 7 ) — — — ( 9 )

Fair value gains (losses) on FG VIEs

Fair value gains (losses) on CIVs

— — — ( 6 ) — ( 6 )

Interest expense — — — — 1 1

Total before tax

1 unchanged sentence

Tax (provision) benefit

( 1 ) 2 — — 1

Total amount reclassified from AOCI, net of tax ( 2 ) ( 6 ) — ( 5 ) — ( 13 )

Other comprehensive income (loss) ( 113 ) ( 8 ) 10 4 — ( 107 )

Balance, June 30, 2023 $ ( 284 ) $ ( 115 ) $ ( 22 ) $ ( 42 ) $ 5 $ ( 458 )

Balance, September 30, 2023 $ ( 397 ) $ ( 123 ) $ ( 12 ) $ ( 38 ) $ 5 $ ( 565 )

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Second Quarter 2022

Third Quarter 2022

Net Unrealized Gains (Losses) on Investments with:

4 unchanged sentences

(in millions)

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

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

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

2 unchanged sentences

( 11 ) ( 3 ) — — — ( 14 )

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Total before tax

3 unchanged sentences

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

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

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

Assured Guaranty Ltd.

1 unchanged sentence

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2023

Nine Months 2023

Net Unrealized Gains (Losses) on Investments with:

11 unchanged sentences

— — ( 2 ) — — ( 2 )

Fair value gains (losses) on CIVs

— — — ( 6 ) — ( 6 )

Interest expense — — — — 1 1

5 unchanged sentences

Other comprehensive income (loss) ( 54 ) ( 13 ) 11 7 ( 1 ) ( 50 )

Balance, June 30, 2023 $ ( 284 ) $ ( 115 ) $ ( 22 ) $ ( 42 ) $ 5 $ ( 458 )

Balance, September 30, 2023 $ ( 397 ) $ ( 123 ) $ ( 12 ) $ ( 38 ) $ 5 $ ( 565 )

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Six Months 2022

Nine Months 2022

Net Unrealized Gains (Losses) on Investments with:

16 unchanged sentences

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

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

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

Assured Guaranty Ltd.

1 unchanged sentence

Share Repurchases

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

On November 1, 2023, the Board of Directors (the Board) authorized the repurchase of an additional $ 300 million of its common shares.

Under this and previous authorizations, as of November 7, 2023, the Company was authorized to purchase $ 372 million of its common shares.

The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions.

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

The repurchase program may be modified, extended or terminated by the Board of Directors at any time.

The repurchase program may be modified, extended or terminated by the Board at any time.

It does not have an expiration date.

9 unchanged sentences

2023 (April 1 - June 30) 453,942 24 53.08

2023 (July 1 - August 8) 320,646 19 58.32

2023 (July 1 - September 30) 1,065,902 64 59.67

2023 (October 1 - November 7) 682,676 42 61.17

Total 2023 2,238,889 $ 132 58.83

3 unchanged sentences

Computation of Earnings Per Share

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

16 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements