What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 387 added, 390 removed, 1208 unchanged (39% of the section changed)

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

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

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

• geopolitical risk, including Russia’s invasion of Ukraine and the resulting economic sanctions, volatility in energy prices, potential for increased cyberattacks, and risk of intentional or accidental escalation between The North Atlantic Treaty Organization (NATO) and Russia, conflict in the Middle East, confrontation over Iran’s nuclear program, and United States (U.S.) – China strategic competition and the pursuit of technological independence;

• the possibility of a U.S.

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

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

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

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

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

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

• the impacts of the completion of Assured Guaranty’s transactions with Sound Point Capital Management, LP (Sound Point) and/or Assured Healthcare Partners LLC (AHP) on Assured Guaranty and its relationships with its shareholders, regulators, rating agencies, employees and the obligors it insures and on the asset management business contributed to Sound Point and on the business of AHP and their relationships with their respective clients and employees;

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

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

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

• the impact of market volatility on the mark-to-market of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, contracts accounted for as derivatives, and certain consolidated variable interest entities (VIEs);

• rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its insurance subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL’s insurance subsidiaries have insured;

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public finance (including infrastructure) and structured finance markets.

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

Until July 1, 2023, the Company served as investment advisor to collateralized loan obligations (CLOs) and opportunity funds, through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM).

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

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

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

As of September 30, 2023, Sound Point is the fifth largest CLO manager by assets under management (AUM) in the world (based on September 30, 2023 CreditFlux CLO manager rankings).

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

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Economic Environment

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

Real gross domestic product (GDP) increased at an annual rate of 4.9% in the three-month period ended September 30, 2023 (third quarter 2023), compared to an increase of 2.1% in the second quarter of 2023, according to the advance estimate released by the U.S.

Bureau of Economic Analysis (BEA).

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

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

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

unemployment rate, seasonally adjusted, stood at 3.8%, up slightly from the 3.6% rate where it had started the quarter, and down from the COVID-19 pandemic high of 14.7% in April 2020.

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

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

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

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

According to the United

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

before seasonal adjustment for the 12-month period ending September 2023, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), was 3.7%, as compared to 3.0% for the 12-month period ending June 2023.

According to the United Kingdom’s (U.K.) Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was 6.3% for the 12 months through September 2023, down from 7.3% for the 12 months ended June 2023.

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

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

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

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

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

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

increases reported net par outstanding for certain U.K

exposures with approximately $21.2 billion of net par outstanding as of September 30, 2023, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion of the premium on an installment basis over the term of the exposure.

With the Federal Open Market Committee (FOMC) acknowledging the need to combat inflation, in March 2022 the FOMC began again raising the target range for the federal funds rate and stated that it would reduce its holdings of treasury securities and agency debt and agency mortgage-backed securities.

From March 2022 through July 26, 2023, the FOMC raised the target range for the federal funds rate from a range of 0% to 0.25% where it started 2022 to a range of 5.25% to 5.50% at its July 25-26, 2023 meeting.

The FOMC has repeatedly declared that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run.

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

Since its July 25-26, 2023 meeting, the FOMC has maintained the federal funds rate at 5.25% to 5.50%, including through its most recent meeting held October 31 – November 1, 2023, stating that it would continue to assess additional information and its implications for monetary policy.

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

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public finance.

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

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

The MMD rate averaged 3.77% for the quarter ended September 2023, higher than the 3.41% average for the quarter ended June 2023, and higher than the 3.22% average for the quarter ended September 2022.

Meanwhile, the difference, or credit spread, between the 30-year BBB-rated general obligation relative to the 30-year AAA MMD averaged 101 basis points (bps) in the quarter ended September 2023, which is the same spread as the quarter ended June 2023, but wider than the 95 bps average for the quarter ended September 2022.

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

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

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

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

According to the National Association of Realtors reported that existing home sales declined 15.4% in September 2023 from one year ago.

The median existing-home price for all housing types in September 2023 was $394,300, a decrease of 3.9% from June 2023 ($410,200).

Key Business Strategies

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

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

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

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

The Company believes that its insurance:

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

(i) encourages retail investors, who typically have fewer resources than the

Company for analyzing municipal bonds, to purchase such bonds;

(ii) enables institutional investors to operate more efficiently;

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Based on Sale Date

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

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

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

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

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

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

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

its related authorities and public corporations.

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

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

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

After over five years of negotiations, 2022 was a turning point for resolving a substantial portion of the Company’s Puerto Rico exposure in accordance with four orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) related to the Company’s exposure to all defaulting Puerto Rico credits except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions) as discussed in Item 1, Financial Statements, Note 3, Outstanding Exposure—Exposure to Puerto Rico.

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

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

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

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

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

The fair value of Loss Mitigation Securities as of September 30, 2023 (excluding the value of the Company’s insurance) was $448 million, with a par of $745 million.

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

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

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

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

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

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

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

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

As of July 1, 2023, AGAS commitments to funds previously managed by AssuredIM of $553 million are managed by Sound Point or by AHP.

Of the $1.5 billion, the U.S.

Insurance Subsidiaries through their jointly owned investment subsidiary, AG Asset Strategies LLC (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 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) were $703 million.

Capital Management

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

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

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

From 2013 through November 7, 2023, the Company has repurchased 143 million common shares for approximately $4.8 billion, representing approximately 74% of the total shares outstanding at the beginning of the repurchase program in 2013.

On November 1, 2023, the AGL Board of Directors (the Board) authorized the repurchase of an additional $300 million of common shares.

Under this and previous authorizations, as of November 7, 2023, the Company was authorized to purchase $372 million of its common shares.

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

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

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

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

See Item 1, Financial Statements, Note 14, Shareholders’ Equity, for additional information about the Company’s repurchases of its common shares.

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2023 (Second Quarter) 24 0.454 53.08

2023 (through August 8) 19 0.321 58.32

2023 (Third Quarter) 64 1.066 59.67

2023 (through November 7) 42 0.683 61.17

Cumulative repurchases since the beginning of 2013 $ 4,793 143.114 33.49

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

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

$40.71 per share in shareholders’ equity attributable to AGL, $46.65 per share in adjusted operating shareholders’ equity and $81.29 per share in adjusted book value.

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

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

The proceeds from these issuances were used to redeem $100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, $230 million of AGMH’s 6.25% Notes due in 2102, $100 million of AGMH’s 5.60% Notes due in 2103, and $170 million of the $500 million of AGUS 5% Senior Notes due in 2024.

In 2023, the Company issued $350 million in 6.125% Senior Notes due in 2028, and used the proceeds primarily to redeem $330 million of 5% Senior Notes due in 2024.

In 2021, the Company also redeemed $600 million in long-dated high coupon debt using proceeds from the issuance of $900 million in shorter-dated, lower coupon debt.

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

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

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

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

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

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Financial Results

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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Gross par written 5,948 3,846 20,285 15,012

Asset Management Segment

Inflows - third party $ 2 $ 1,270 $ 3 $ 1,361

Inflows - intercompany — 154 — 154

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

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

Amount Per Share Amount Per Share

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____________________

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

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

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

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

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

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Condensed Consolidated Results of Operations

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

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

2023 2022 2023 2022

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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

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Effective tax rate 21.4 % 123.5 % 18.1 % (12.1) %

Second Quarter 2023 Compared with Second Quarter 2022

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

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

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

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

• higher net investment income.

These increases were offset in part by:

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

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

Six Months 2023 Compared with Six Months 2022

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

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

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

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

• higher fair value gains on CIVs, and

• higher net investment income.

Third Quarter 2023 Compared with Third Quarter 2022

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

• the gain associated with the Sound Point Transaction and AHP Transaction, net of transaction expenses, of $241 million (pre-tax),

• fair value gains on credit derivatives in third quarter 2023, compared with losses in third quarter 2022,

• lower foreign exchange losses on remeasurement, and

• higher income from the fixed-maturity and alternative investment portfolio.

These increases were offset in part by losses and LAE in third quarter 2023 compared with a benefit in third quarter 2022.

Nine Months 2023 Compared with Nine Months 2022

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

• the gain associated with the Sound Point Transaction and AHP Transaction, net of transaction expenses, of $215 million (pre-tax),

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

• fair value gains on credit derivatives in nine months 2023, compared with losses in nine months 2022, and

• higher income from the fixed-maturity and alternative investment portfolio.

These increases were offset in part by:

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

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

• losses and LAE in nine months 2023 compared with a benefit in nine months 2022,

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

• higher operating expenses in nine months 2023 primarily due to $46 million in expenses associated with the Sound Point Transaction and AHP Transaction.

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

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controlled foreign corporation.

Financial Statements, Note 12, Income Taxes.

Adjusted Operating Income

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

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

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

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

Adjusted operating income in third quarter 2023 was $206 million, compared with $133 million in third quarter 2022.

The increase was primarily due to the gain associated with the Sound Point Transaction and AHP Transaction, offset in part by higher loss expense.

Adjusted operating income in nine months 2023 was $310 million, compared with $253 million in nine months 2022.

The increase was primarily due to the gain associated with the Sound Point Transaction and AHP Transaction, offset in part by higher loss expense and lower net earned premiums in nine months 2023, compared with nine months 2022 which included premium accelerations of $104 million related to the 2022 Puerto Rico Resolutions.

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

Book Value and Adjusted Book Value

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

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

Shareholders’ equity attributable to AGL as of September 30, 2023 increased compared with December 31, 2022, due to net income, which was partially offset by dividends, share repurchases, and unrealized losses on investments.

Adjusted operating shareholders’ equity and adjusted book value increased primarily due to operating income components of $310 million offset in part by dividends and share repurchases of $141 million, and in the case of adjusted book value, the increase was also primarily due to gross written premiums of $221 million, which was partially offset by economic loss development of $147 million.

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

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

After acknowledging the need to combat inflation, the FOMC of the Federal Reserve Board decided at its March 2022 meeting to start again raising the target federal funds rate, and raised the rate 11 times from March 2022 through July 26, 2023.

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

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

Higher interest rates impact the Company in numerous other ways.

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

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

public finance market remained relatively flat compared to 2021.

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

public finance market remained relatively flat compared to 2021 when interest rates were lower.

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

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

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

The Company rates the toll road exposure BIG.

In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $249 million in net par outstanding as of September 30, 2023, comprising $208 million net par exposure to the sovereign debt of Poland and $41 million net par exposure to a toll road in Hungary.

The Company rates all such exposure investment grade.

Middle East Conflict

In light of recent events in the Middle East, the Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, for exposures to the Middle East.

After review, the Company’s surveillance and treasury functions have identified no material direct exposure to such area.

The Company’s direct insurance exposure to the Middle East is generally is limited to approximately $49 million in net par outstanding as of September 30, 2023, comprised of funded commitments to subscription finance facilities;

however, such exposure may increase to a total of approximately $94 million to the extent all unfunded commitments under the facilities are ultimately funded.

The Company rates all such insurance exposure investment grade.

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

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

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

See Note 12, Income Taxes.

Results of Operations

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

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

• Expected loss to be paid (recovered);

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▪ Credit derivatives;

• Recoverability of goodwill and other intangible assets

• Credit impairment of financial instruments;

• Other-than-temporary-impairment of equity method investments;

• Revenue recognition;

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Insurance Segment Results

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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Net Earned Premiums and Credit Derivative Revenues

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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Refundings 14 12 26 145

Terminations — — — —

Total accelerations 14 12 26 145

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(1) Includes accretion of discount.

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

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

Net earned premiums and credit derivative revenues increased in third quarter 2023 compared with third quarter 2022 primarily due to higher refundings in third quarter 2023 and updates to debt service assumptions in third quarter 2022.

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

Financial Statements, Note 3, Outstanding Exposure.

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

As of September 30, 2023, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.

New Business Production

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New Business Production

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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Total gross par written $ 5,948 $ 3,846 $ 20,285 $ 15,012

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

____________________

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

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

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

Second Quarter 2023

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

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

The average rating of U.S.

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

See “— Non-GAAP Financial Measures — PVP or Present Value of New Business Production.” GWP may be negative due to changes in debt service assumptions.

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

Third Quarter 2023

public finance GWP and PVP in third quarter 2023 were lower than the comparable GWP and PVP in third quarter 2022, due to a large transportation revenue transaction in third quarter 2022 that did not recur in third quarter 2023, and higher credit quality new business that carry lower premium rates in third quarter 2023, compared with third quarter 2022.

The Company’s direct par written represented 61% of the total U.S.

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

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

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

Six Months 2023

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

The average rating of U.S.

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

municipal market insured issuance in third quarter 2023, compared with 56% in third quarter 2022, and the Company’s penetration of all municipal issuance was 4.6% in third quarter 2023 compared with 3.2% in third quarter 2022.

Structured finance GWP and PVP in third quarter 2023 primarily includes an insurance securitization.

Nine Months 2023

public finance GWP and PVP in nine months 2023 were lower than the comparable GWP and PVP in nine months 2022 primarily due to fewer secondary market transactions in nine months 2023, compared with nine months 2022.

The Company’s direct par written represented 62% of the total U.S.

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

In six months 2023, non-U.S.

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

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

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

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

municipal market insured issuance in nine months 2023, compared with 56% in nine months 2022, and the Company’s penetration of all municipal issuance was 5.3% in nine months 2023 compared with 4.4% in nine months 2022.

In nine months 2023, non-U.S.

public finance GWP and PVP were lower than GWP and PVP in nine months 2022 due to a large amount of secondary market transactions in nine months 2022.

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

In nine months 2023, structured finance GWP and PVP were $52 million and $82 million, respectively, compared with GWP and PVP of $3 million and $10 million, respectively, in nine months 2022.

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

Business activity in the non-U.S.

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

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

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

The fair value of such instruments as of September 30, 2023 was $350 million.

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

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

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

Insurance Subsidiaries make in certain alternative investments, primarily Sound Point and AHP funds.

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

Insurance Segment

Income from Investments

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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Equity in earnings (losses) of investees

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

Asset managers (3) $ — $ — $ — $ —

CLOs 7 6 23 (10)

Asset-based — — 3 7

Healthcare 12 3 21 (6)

Other 6 (20) 13 (37)

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

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

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

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

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

(3) The Company acquired its investment in Sound Point on July 1, 2023 and reports its equity in earnings on this investment on a one quarter lag.

Net investment income for third quarter 2023 increased compared to third quarter 2022 primarily due to higher income from loss mitigation securities and the increase in short-term rates and higher average short-term balances.

Net investment income for nine months 2023 increased compared to nine months 2022, primarily due to the increase in short-term rates and higher average short-term balances, and loss mitigation securities.

The overall pre-tax book yield of available-for-sale fixed-maturity securities and short-term investments was 4.04% as of September 30, 2023 and 3.01% as of September 30, 2022.

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

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

The gain in “foreign exchange gains (losses) on remeasurement and other income (loss)” in nine months 2023 compared with nine months 2022 was primarily attributable to the reversal of a previously recorded litigation accrual of $20 million in nine months 2023, and foreign exchange gain on remeasurement of $1 million in nine months 2023, compared with a loss of $7 million in nine months 2022.

See Item 1, Financial Statements, Note 13, Commitments and Contingencies, for additional information.

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

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

The weighted average discount rates used to discount expected losses (recoveries) were 4.80% and 4.08% as of September 30, 2023 and December 31, 2022, respectively.

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

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

As of Second Quarter Six Months

Accounting Model June 30, 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)

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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)

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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)

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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)

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Total $ 522 $ 147 $ (179) $ 490

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.”

Second Quarter 2023 Net Economic Loss Development

Third Quarter 2023 Net Economic Loss Development

Public Finance:

The economic loss development on U.S.

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

exposures in third quarter 2023 of $135 million was primarily attributable to PREPA.

The economic benefit attributable to U.S.

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

RMBS of $48 million was primarily attributable to a $37 million benefit related to higher recoveries for secured second lien charged-off loans, an $11 million benefit related to changes in discount rates, and a $6 million benefit related to higher assumed recoveries for deferred principal in first lien transactions, partially offset by losses related to lower excess spread.

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

Second Quarter 2022 Net Economic Loss Development

Third Quarter 2022 Net Economic Loss Development

Public Finance:

The economic loss development on U.S.

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

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

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

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

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

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

The reduction in net par was primarily due to 2022 Puerto Rico Resolutions.

The economic benefit attributable to U.S.

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

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

Six Months 2023 Net Economic Loss Development

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

Nine Months 2023 Net Economic Loss Development

Public Finance:

The economic loss development on U.S.

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

public finance exposures in nine months 2023 was $193 million, which was primarily attributable to PREPA and healthcare exposures, partially offset by higher projected recoveries in other municipal exposures.

The net benefit attributable to U.S.

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

Six Months 2022 Net Economic Loss Development

RMBS was $52 million and was mainly attributable to a $50 million benefit related to higher recoveries for secured second lien charged-off loans, an $11 million benefit related to improved performance in certain transactions, a $9 million benefit related to changes in discount rates, and a $6 million benefit related to higher assumed recoveries for deferred principal in first lien transactions.

These benefits were partially offset by a $18 million loss development related to the return of certain funds previously received and $6 million related to lower excess spread.

Nine Months 2022 Net Economic Loss Development

Public Finance:

The economic benefit on U.S.

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

public finance exposures in nine months 2022 was $16 million, which was primarily attributable to changes in discount rates and higher projected revenues for certain exposures, partially offset by healthcare and Puerto Rico exposures.

The net benefit attributable to U.S.

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

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

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

Insurance Segment Loss Expense

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Therefore, the timing of loss recognition in income does not necessarily coincide with the timing of the actual credit impairment or improvement reported in net economic loss development.

Transactions (particularly BIG transactions) acquired in a business combination or seasoned portfolios assumed from legacy financial guaranty insurers generally have the largest deferred premium revenue balances.

Transactions (particularly BIG transactions) acquired in business combinations or seasoned portfolios assumed from legacy financial guaranty insurers generally have the largest deferred premium revenue balances.

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

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Loss Expense (Benefit)

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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Total Insurance segment loss expense (benefit) $ 101 $ (75) $ 154 $ (32)

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

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

Rico exposures.

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

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

Other Operating Expenses

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

Employee Compensation and Benefit Expenses and Other Operating Expenses

The increase in nine months 2023 compared with nine months 2022 was primarily attributable to an increase in value added taxes and increases in certain employee benefit related costs.

Financial Strength Ratings

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Asset Management Segment Results

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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

_____________________

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

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

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

Management and Performance Fees

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

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

Management Fees

Second Quarter Six Months

2023 2022 2023 2022

(in millions)

CLOs $ 13 $ 12 $ 25 $ 24

Opportunity funds and liquid strategies 5 15 10 23

Wind-down funds — — — 1

Total management fees $ 18 $ 27 $ 35 $ 48

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

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

In the first half of 2023, prior to the Sound Point Transaction and the AHP Transaction, the Company owned and consolidated AssuredIM and reported asset management fees (primarily from CLOs and opportunity funds) in revenues.

Since July 1, 2023, the Company reports its ownership interest in Sound Point through equity in earnings of investees (on a one quarter lag).

Assets Under Management

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

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

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

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

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

AHP will continue to manage the healthcare funds.

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

Effective with the Sound Point Transaction and the AHP Transaction, the Company no longer has any AUM.

See Note 1, Business and Basis of Presentation.

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

Corporate Division Results

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

(in millions)

Revenues $ 2 $ 1 $ 4 $ 2

Gain on sale of asset management subsidiaries $ 255 $ — $ 255 $ —

Other 4 1 8 3

Total revenues 259 1 263 3

Interest expense 26 22 73 66

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Adjusted operating income (loss) $ 155 $ (30) $ 61 $ (98)

Gain on sale of asset management subsidiaries relates to the Sound Point Transaction and AHP Transaction.

Financial Statements, Note 1, Business and Basis of Presentation.

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

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

Holding Companies, and also includes intersegment interest expense related primarily to the $250 million AGUS debt issued to the U.S.

Insurance Subsidiaries.

On August 21, 2023, AGUS issued $350 million of 6.125% Senior Notes due 2028.

On September 25, 2023, AGUS used the proceeds of this issuance to redeem $330 million of 5% Senior Notes due 2024.

Third quarter 2023 and nine months 2023 interest expense was higher than the comparable periods in 2022 due to additional interest expense on the 6.125% Senior Notes and higher interest on the variable rate AGMH Series A Enhanced Junior debentures.

Financial Statements, Note 11, Long-Term Debt.

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

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

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

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

Transaction related expenses in the corporate division for Sound Point and AHP were $14 million for third quarter 2023 and $40 million for nine months 2023, consisting primarily of $25 million advisory and consent fees and $8 million legal fees.

Other (Effect of Consolidating FG VIEs and CIVs)

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

(ii) custodial trusts established in connection with the

consummation of the 2022 Puerto Rico Resolutions;

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

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

and (iii) investment vehicles such as (a) collateralized financing entities, CLO warehouses until July 1, 2023, and (b) Sound Point and AHP funds.

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

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

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

(ii) eliminating the

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

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

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

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

(ii) eliminating the asset management fees earned by AssuredIM from the CIVs (prior to July 1, 2023);

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

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

As a result of the Sound Point Transaction and AHP Transaction, 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”.

1, Financial Statements, Note 1, Business and Basis of Presentation and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

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

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Increase (Decrease)

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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(1) Changes in fair value of the FG VIEs’ assets and liabilities that are attributable to factors other than (i) changes in the Company’s own credit risk on FG VIE liabilities with recourse, and (ii) unrealized gains and losses on available-for-sale fixed maturity securities.

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

(2) Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’ investments in certain alternative investments, primarily Sound Point and AHP funds.

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

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

(4) Represents the proportion of consolidated funds managed by Sound Point and prior to July 1, 2023, AssuredIM funds’ income that is not attributable to AGAS’ or any other subsidiaries’ ownership interest.

Reconciliation to GAAP

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to Adjusted Operating Income (Loss)

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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Net Realized Investment Gains (Losses)

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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Net realized investment gains (losses) $ (9) $ (14) $ (20) $ (39)

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

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

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

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

Due to the relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts.

Due to the relatively low volume and characteristics of credit default swaps (CDS) contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts.

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

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

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

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

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

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

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

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

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

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

Third quarter 2023 non-credit impairment unrealized fair value gains were generated primarily as a result of generally lower collateral asset spreads.

Nine months 2023 non-credit impairment unrealized fair value gains on credit derivatives were generated primarily as a result of generally lower collateral asset spreads and a widening of AGC spreads.

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

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

Sensitivity to Changes in Credit Spread

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Effect of Changes in Credit Spread

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

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

Credit Spreads (1) Estimated Net

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Fair Value Gains (Losses) on CCS

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

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

Fair value losses on CCS in third quarter 2023 and nine months 2023 were primarily due to a tightening in market spreads.

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

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

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

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

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

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

dollar, primarily the pound sterling and euro.

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Dollar Per Foreign Currency

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

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

Pound sterling $1.220 $1.208 $1.117 $1.353

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4) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

Management uses adjusted book value, further adjusted for FG VIE and CIV consolidation, to measure the intrinsic value of the Company, excluding franchise value.

Management uses adjusted book value, further adjusted to remove the effect of FG VIE and CIV consolidation, to measure the intrinsic value of the Company, excluding franchise value.

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

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to Adjusted Operating Shareholders’ Equity and Adjusted Book Value

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

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

After-Tax Per Share After-Tax Per Share

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Reconciliation of GWP to PVP

Second Quarter 2023 Second Quarter 2022

Third Quarter 2023 Third Quarter 2022

Public Finance Structured Finance Public Finance Structured Finance

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PVP $ 30 $ 2 $ 12 $ 2 $ 46 $ 57 $ 37 $ 1 $ — $ 95

Six Months 2023 Six Months 2022

Nine Months 2023 Nine Months 2022

Public Finance Structured Finance Public Finance Structured Finance

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

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

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

Insured Portfolio

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

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

Financial Guaranty Portfolio

Net Par Outstanding and Average Internal Rating by Sector

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

Sector Net Par

Outstanding Average

Rating Net Par

Outstanding Average

(dollars in millions)

Net Par Outstanding by Sector

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

Sector (dollars in millions)

Public finance:

public finance:

General obligation $ 74,874 A- $ 71,868 A-

Tax backed 32,911 A- 33,752 A-

Municipal utilities 28,185 A- 26,436 A-

Transportation 20,317 A- 19,688 A-

Healthcare 11,661 BBB+ 11,304 BBB+

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

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

Housing revenue 937 BBB- 959 BBB-

Investor-owned utilities 331 A- 332 A-

Renewable energy 171 A- 180 A-

Other public finance 1,032 BBB 1,025 BBB

public finance 186,323 A- 179,636 A-

General obligation $ 73,322 $ 71,868

Tax backed 32,982 33,752

Municipal utilities 28,541 26,436

Transportation 20,602 19,688

Healthcare 11,842 11,304

Infrastructure finance 8,808 6,955

Higher education 7,256 7,137

Housing revenue 1,141 959

Investor-owned utilities 329 332

Renewable energy 171 180

Other public finance 979 1,025

public finance 185,973 179,636

Non-U.S public finance:

Regulated utilities 19,836 BBB+ 17,855 BBB+

Infrastructure finance 14,756 BBB 13,915 BBB

Sovereign and sub-sovereign 9,862 A+ 9,526 A+

Renewable energy 2,073 A- 2,086 A-

Pooled infrastructure 1,131 AAA 1,081 AAA

Regulated utilities 19,207 17,855

Infrastructure finance 14,031 13,915

Sovereign and sub-sovereign 9,403 9,526

Renewable energy 2,021 2,086

Pooled infrastructure 1,086 1,081

Total non-U.S.

public finance 47,658 BBB+ 44,463 BBB+

Total public finance 233,981 A- 224,099 A-

public finance 45,748 44,463

Total public finance 231,721 224,099

Structured finance:

structured finance:

Life insurance transactions 4,406 AA- 3,879 AA-

RMBS 1,863 BBB- 1,956 BBB-

Pooled corporate obligations 606 AAA 625 AAA

Financial products 450 AA- 453 AA-

Consumer receivables 373 A 437 A

Other structured finance 1,129 BBB+ 878 BBB+

structured finance 8,827 A 8,228 A

Life insurance transactions 4,663 3,879

RMBS 1,817 1,956

Pooled corporate obligations 595 625

Financial products 447 453

Consumer receivables 342 437

Other structured finance 1,111 878

structured finance 8,975 8,228

Pooled corporate obligations 352 AAA 344 AAA

RMBS 263 A- 263 A-

Other structured finance 590 A+ 324 AA-

structured finance:

Pooled corporate obligations 339 344

Other structured finance 550 324

Total non-U.S.

structured finance 1,205 AA- 931 AA

Total structured finance 10,032 A 9,159 A

Total net par outstanding $ 244,013 A- $ 233,258 A-

structured finance 1,137 931

Total structured finance 10,112 9,159

Total net par outstanding $ 241,833 $ 233,258

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

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

financial guarantor.

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

The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were not investment grade was $16 million and $19 million as of June 30, 2023 and December 31, 2022, respectively.

The second-to-pay insured par outstanding as of September 30, 2023 and December 31, 2022 was $4.2 billion and $4.3 billion, respectively.

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 net par outstanding as of June 30, 2023, all of which was rated BIG.

The Company had insured exposure to obligations of various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) as well as its general obligation bonds aggregating $1.1 billion net par outstanding as of September 30, 2023, all of which was rated BIG.

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

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Exposure to Puerto Rico by Company

As of June 30, 2023

As of September 30, 2023

Net Par Outstanding

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PRHTA (Highway revenue) (2) 109 11 8 — 128 128

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

PBA (2) 1 4 — (1) 4 4

Total Resolved 123 168 95 (14) 372 372

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

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

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

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

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Amortization Schedule of Net Par of Puerto Rico

As of June 30, 2023

As of September 30, 2023

Scheduled Net Par Amortization

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

2023 (4Q) 2024 (1Q) 2024 (2Q) 2024 (3Q) 2024 (4Q) 2025 2026 2027 2028 - 2032 2033 - 2037 2038 - 2041 Total

(in millions)

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PRHTA (Highway revenue) — — — — — — — — 27 101 — 128

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

PBA 2 — — 2 — — — — — 4

Total Resolved — — — — — — — — 27 222 123 372

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Amortization Schedule of Net Debt Service of Puerto Rico

As of June 30, 2023

As of September 30, 2023

Scheduled Net Debt Service Amortization

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

2023 (4Q) 2024 (1Q) 2024 (2Q) 2024 (3Q) 2024 (4Q) 2025 2026 2027 2028 - 2032 2033 - 2037 2038 - 2041 Total

(in millions)

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PRHTA (Highway revenue) — 3 — 3 — 7 7 7 61 115 — 203

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

PBA 2 — — 3 — — — — — 5

Total Resolved — 9 — 9 — 20 20 19 126 288 140 631

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

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

RMBS represent 18.5% of total BIG net par outstanding as of September 30, 2023.

Distribution of U.S.

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

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

First Lien Alt-A

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and (ii) AGUS, a U.S.

holding company with public debt.

holding company with public debt outstanding.

AGUS directly owns:

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The liquidity of AGL and its U.S.

Holding Companies is largely dependent on dividends from their operating subsidiaries (see Insurance Subsidiaries, Distributions from Insurance Subsidiaries below for a description of dividend restrictions) and their access to external financing.

Holding Companies is largely dependent on dividends and other distributions from their operating subsidiaries (see — Insurance Subsidiaries — Distributions from Insurance Subsidiaries below for a description of dividend and other capital distribution restrictions) and their access to external financing.

The operating liquidity requirements of AGL and the U.S.

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Long-Term Debt and Intercompany Loans

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

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

(in millions)

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7% Senior Notes 6.40% 2034 200 200

Series A Enhanced Junior Subordinated Debentures (1) 3 month LIBOR +2.38% 2066 150 150

3.6% Senior Notes 3.60% 2051 400 400

Series A Enhanced Junior Subordinated Debentures (1) 3 month CME Term SOFR +2.64% 2066 150 150

AGUS long-term debt 1,600 1,580

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

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

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

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

The reference to LIBOR in such debentures has been replaced with a rate based on Three-Month Chicago Mercantile Exchange (CME) Term Secured Overnight Finance Rate (SOFR).

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

(3) If the AGMH Junior Subordinated Debentures are outstanding after December 15, 2036, then the principal amount of the outstanding debentures will bear interest at One-Month CME Term SOFR plus 2.33%.

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

On August 21, 2023, AGUS issued $350 million of 6.125% Senior Notes due 2028.

On September 25, 2023, AGUS redeemed $330 million of 5% Senior Notes due 2024.

Financial Statements, Note 11, Long-Term Debt.

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

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Accrued interest on all loans will be paid on the last day of each June and December and at maturity.

AGL must repay the then unpaid principal amounts of the loans, if any, by the third anniversary of the loan commitment termination date.

AGL must repay unpaid principal amounts

of the loans, if any, by the third anniversary of the loan commitment termination date.

AGL has not drawn upon the credit facility.

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Holding Companies, excluding their investments in subsidiaries.

As of June 30, 2023

As of September 30, 2023

Holding Companies

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Fixed-maturity securities (1) $ 20 $ 4

Investment in Sound Point — 419

Short-term investments, other invested assets and cash 23 56

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____________________

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

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

Holding Companies’ fixed-maturity securities (excluding AGUS’s investment in AGMH’s debt) were 9.2 years and 4.1 years, respectively.

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

Six Months 2023

Nine Months 2023

Holding Companies

(in millions)

Revenues $ 1 2

Gain on sale of asset management subsidiaries (1) $ — $ 258

Interest expense — 73

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Net income (loss) (34) 105

____________________

(1) Excludes a $3 million write off of goodwill reported by a subsidiary of AGUS.

The following table presents significant cash flow items for AGL and the U.S.

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Selected Cash Flow Items

Six Months 2023

Nine Months 2023

Holding Companies

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Repurchases of common shares (2) (90) —

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

Redemption of debt — (330)

____________________

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• principal of, and interest on, surplus notes, where applicable, and

• capital investments in their own subsidiaries, where appropriate.

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

• capital investments in their own subsidiaries and in alternative investments, where appropriate.

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

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

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

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

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

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

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

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

The Company had $624 million net par outstanding to PREPA on September 30, 2023.

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

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

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

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

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

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.

Consequently, as of September 30, 2023, the Company had extinguished its exposure to Puerto Rico GO/PBA and had remaining net par outstanding for Puerto Rico HTA of $372 million, which consisted of bonds where the holders elected to receive custody receipts and exposures assumed from a third-party financial guarantor.

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

In a leveraged lease transaction, a tax-exempt entity (such as a transit agency) transfers tax benefits to a tax-paying entity by transferring ownership of a depreciable asset, such as subway cars.

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The tax-exempt entity is obligated to pay the remaining, unfunded portion of this early termination payment (known as the strip coverage) from its own sources.

AGM issued financial guaranty insurance policies (known as strip policies) that guaranteed the payment of these unfunded strip coverage amounts to the lessor, in the event that a tax-exempt entity defaulted on its obligation to pay this portion of its early termination payment.

AGM issued financial guaranty insurance policies (known as strip policies) that guaranteed the payment of these unfunded strip coverage amounts to the lessor,

in the event that a tax-exempt entity defaulted on its obligation to pay this portion of its early termination payment.

Following such events, AGM can then seek reimbursement of its strip policy payments from the tax-exempt entity, and can also sell the transferred depreciable asset and reimburse itself from the sale proceeds.

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

If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately $398 million as of June 30, 2023.

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

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

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

The consensual terminations have resulted in no claims on AGM.

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Dividend restrictions by insurance subsidiary are as follows:

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

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

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

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

• Based on the applicable law and regulations, in 2023 AGRO (an indirect subsidiary of AG Re) has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $98 million as of June 30, 2023.

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

• The maximum amount available during 2023 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is approximately $257 million.

Approximately $157 million is available for distribution in the fourth quarter of 2023, of which $77 million was paid in October 2023

• The maximum amount available during 2023 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $102 million.

Approximately $58 million is available for distribution in the fourth quarter of 2023, of which $16 million was paid in October 2023.

• Based on the applicable law and regulations, in 2023 AG Re (a subsidiary of AGL) paid dividends of $53 million in the first nine months of the year and has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $209 million as of September 30, 2023.

Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $117 million as of September 30, 2023, and (ii) the amount of statutory surplus, which as of September 30, 2023 was a deficit of $41 million.

$364 million as of September 30, 2023, and (ii) the amount of statutory surplus, which as of September 30, 2023 was $259 million.

Distributions From Insurance Company Subsidiaries

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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

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

As of September 30, 2023, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $264 million, including $237 million by AGC and $27 million by AG Re.

Committed Capital Securities

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

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

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

As of July 2023, the annualized rate on the AGC CCS is one-month CME Term SOFR plus 261 bps, and the annualized rate on the AGM Committed Preferred Trust Securities is one-month CME Term SOFR plus 211 bps.

Investment Portfolio

9 unchanged sentences

Carrying Value

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions)

5 unchanged sentences

____________________

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

(1) As of September 30, 2023 and December 31, 2022, includes $78 million and $358 million, respectively, of New Recovery Bonds received in connection with the consummation of the 2022 Puerto Rico Resolutions.

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

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

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

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

2 unchanged sentences

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

As of June 30, 2023

As of September 30, 2023

Cost Estimated

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

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

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

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

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

Rating June 30, 2023 December 31, 2022

Rating September 30, 2023 December 31, 2022

AAA 13.8 % 14.2 %

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

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

The Company also had $350 million and $303 million in trading fixed-maturity securities as of September 30, 2023 and December 31, 2022, respectively, representing CVIs received under the 2022 Puerto Rico Resolutions, which are not rated.

Other Investments

Other invested assets, which are generally less liquid than fixed-maturity securities primarily consist of investments in renewable and clean energy and private equity funds managed by a third party.

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

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

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

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

Other invested assets, which are generally less liquid than fixed-maturity securities primarily consist of the investment in Sound Point and fund investments across a variety of strategies.

The Insurance segment reports AGAS’ percentage ownership of Sound Point and AHP funds’ as equity method investments with changes in NAV included in the Insurance segment adjusted operating income.

As of September 30, 2023, three of the funds in which AGAS invests are consolidated and the remaining are accounted as equity method investments in the Company’s condensed consolidated financial statements.

As of December 31, 2022, all of the funds in which AGAS directly invested were consolidated in the Company’s condensed consolidated financial statements.

See — Commitments below.

Fair Value of AGAS’ Interest in AssuredIM Funds

Insurance Segment

Strategy June 30, 2023 December 31, 2022

Investment in Assets Managers and Alternative Investments by Strategy

As of September 30, 2023

Investments Eliminations Consolidated

(in millions)

Sound Point (1) $ 419 $ — $ 419

Alternative investments:

CLOs (2) 246 (184) 62

Municipal bonds (1) — 105

Asset-based 132 (88) 44

Healthcare 103 — 103

Other 149 — 149

Total $ 1,049 $ (272) $ 777

____________________

(1) The investment in Sound Point is carried at the acquisition date fair value.

On a one quarter lag, the acquisition date fair value will be adjusted for the Company’s interest in the earnings of Sound Point and amortization of intangible assets.

(2) Represents primarily investments in the equity of U.S.

and European CLOs as well as the first loss equity of CLOs.

Alternative Investments by Strategy

As of December 31, 2022

Investments Eliminations Consolidated

(in millions)

CLOs $ 272 $ (272) $ —

Asset-based 101 (101) —

Healthcare 91 (91) —

Municipal bonds (1) 105 (105) —

Other 133 — 133

Total $ 702 $ (569) $ 133

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

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

Insurance Segment

Second Quarter Six Months

Strategy 2023 2022 2023 2022

Change in Fair Value of Alternative Investments by Strategy

Nine Months Ended September 30, 2023

Investments Eliminations Consolidated

(in millions)

CLOs $ 21 $ (23) $ (2)

Municipal bonds — — — (4)

Asset-based 3 (3) —

Healthcare 21 (9) 12

Other 13 — 13

Total $ 58 $ (35) $ 23

Change in Fair Value of Alternative Investments by Strategy

Nine Months Ended September 30, 2022

Investments Eliminations Consolidated

(in millions)

CLOs $ (10) $ 10 $ —

Asset-based 7 (7) —

Healthcare (6) 8 2

Municipal bonds (4) 4 —

Other (34) — (34)

Total $ (47) $ 15 $ (32)

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

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

Restricted Assets

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

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

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

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

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

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

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

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

Sources and Uses of Funds

AssuredIM’s sources of liquidity were:

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

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

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

AssuredIM’s liquidity needs primarily include:

(i) paying operating expenses including compensation;

(ii) paying dividends or other distributions to AGUS;

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

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

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

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

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.

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

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 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.

Lease Obligations

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The Company manages its liquidity needs by evaluating cash flows without the effect of consolidating FG VIEs and CIVs;

however, the Company’s consolidated financial statements include the effect of consolidating FG VIEs and CIVs.

however, the Company’s condensed consolidated financial statements include the effect of consolidating FG VIEs and CIVs.

The primary sources and uses of cash at Assured Guaranty’s FG VIEs and CIVs are as follows:

3 unchanged sentences

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

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

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

3 unchanged sentences

1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

Credit Facilities of CIVs

Certain of the Company’s CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity to such CIVs 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 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 an interest rate of Euro InterBank Offered Rate (Euribor) plus 300 bps (with a floor on Euribor of zero).

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

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

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

As of June 30, 2023, $54 million was drawn by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime floor of 3%).

The fund was in compliance with all financial covenants as of June 30, 2023.

Condensed Consolidated Cash Flows

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

In third quarter 2023, as a result of the Sound Point Transaction and AHP Transaction, the Company deconsolidated all CLOs and CLO warehouses and certain funds.

As a result, beginning July 1, 2023, the Company’s cash flow statements will no longer include all the operating, investing and financing cash flow activity of the deconsolidated CIVs.

Financial Statements, Note 1, Business and Basis of Presentation, and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.

Summarized Condensed Consolidated Cash Flows

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

(in millions)

Net cash flows provided by (used in) operating activities, before effect of FG VIEs and CIVs consolidation $ 27 $ 19 $ (7) $ (621)

Effect of FG VIEs and CIVs consolidation 97 (921) 443 (1,173)

Net cash flows provided by (used in) operating activities, excluding FG VIEs and CIVs operating cash flows $ (210) $ 87 $ (217) $ (534)

FG VIEs and CIVs operating cash flows 32 (141) 475 (1,314)

Net cash flows provided by (used in) operating activities (178) (54) 258 (1,848)

Net cash flows provided by (used in) investing activities, before effect of FG VIEs and CIVs consolidation 6 150 108 981

Effect of FG VIEs and CIVs consolidation (40) 58 (236) 77

Net cash flows provided by (used in) investing activities, excluding FG VIEs and CIVs investing cash flows 250 25 358 1,006

FG VIEs and CIVs investing cash flows 61 45 (175) 122

Net cash flows provided by (used in) investing activities 311 70 183 1,128

Net cash flows provided by (used in) financing activities, before effect of FG VIEs and CIVs consolidation

Net cash flows provided by (used in) financing activities, excluding FG VIEs and CIVs financing cash flows

Dividends paid (16) (16) (51) (49)

Repurchases of common shares (64) (97) (90) (400)

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

Redemption of debt (330) — (330) —

Other — — (15) (6)

Effect of FG VIEs and CIVs consolidation 4 832 (257) 1,001

FG VIEs and CIVs financing cash flows (135) 109 (392) 1,110

Net cash flows provided by (used in) financing activities (1) (200) (4) (533) 655

Effect of exchange rate changes, before effect of FG VIEs and CIVs consolidation 1 (1) 2 (2)

Effect of FG VIEs and CIVs consolidation — — — —

Effect of exchange rate changes,excluding FG VIEs and CIVs (2) (4) — (6)

Effect of exchange rate changes for FG VIEs and CIVs — — — —

Effect of exchange rate changes (2) (4) — (6)

4 unchanged sentences

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

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

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

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

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

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

Cash flows from operations, excluding FG VIEs and CIVs, were an outflow of $217 million in nine months 2023 and an outflow of $534 million in nine months 2022.

The decrease in outflows during nine months 2023 was primarily due to a $362 million decrease in net claim payments, primarily due to the 2022 Puerto Rico Resolutions, as well as a decrease of $94 million in tax payments.

Cash flows from operations attributable to FG VIE and CIV were inflows in nine months 2023 and outflows in nine months 2022, primarily because all the CLOs and CLO warehouses, which generally reported significant operating cash flows, had limited operating activities and new issuances in the first half of 2023 pending the closing of the Sound Point Transaction and AHP Transaction, at which point the CLOs and CLO warehouses were deconsolidated.

condensed consolidated statements of cash flows present the investing activities of the consolidated Sound Point funds, which were formerly known as AssuredIM funds, AssuredIM funds and CLOs as cash flows from operations.

The increase in inflows in nine months 2023 compared with nine months 2022 was mainly due to a decrease of $2,714 million in investment purchases, partially offset by a decrease of investment sales, maturities and paydowns of $850 million.

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

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

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

payments under the 2022 Puerto Rico Resolutions and share repurchases.

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

In nine months 2022, investing inflows were used to fund claim payments under the 2022 Puerto Rico Resolutions and share repurchases.

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

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

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

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

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

Financing activities primarily consist of (i) AGL share repurchases and dividends, (ii) paydowns of FG VIEs’ liabilities, and (iii) CLO issuances and CLO warehouse financing activities.

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

The decrease in financing cash flow activity from VIEs was primarily due to a decrease of $2,254 million in issuances, partially offset by a decrease in repayments of $964 million by the previously consolidated CLOs and CLO warehouses.

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

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

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

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

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

From October 1, 2023 through November 7, 2023, the Company repurchased an additional 682,676 of common shares.

As of November 7, 2023, the Company was authorized to purchase $372 million of its common shares.

For more information about the Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 14, Shareholders’ Equity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis