ASSURED GUARANTY LTD 10-Q

ITEM 1. FINANCIAL STATEMENTS Assured Guaranty Ltd. Condensed Consolidated Balance Sheets (Unaudited) (dollars in millions except share data) As of March 31, 2024 December 31, 2023 Assets Investments: Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $ 67 and $ 77 (amortized cost of $ 6,553 and $ 6,746 ) $ 6,091 $ 6,307 Fixed-maturity securities, trading, at fair value 272 318 Short-term investments, at fair value 1,649 1,661 Other invested assets (includes $ 4 and $ 3 , at fair value) 875 829 Total investments 8,887 9,115 Cash 115 97 Premiums receivable, net of commissions payable 1,450 1,468 Deferred acquisition costs 164 161 Salvage and subrogation recoverable 295 298 Financial guaranty variable interest entities’ assets (includes $ 167 and $ 174 , at fair value) 167 328 Assets of consolidated investment vehicles (includes $ 353 and $ 331 , at fair value) 377 366 Other assets (includes $ 123 and $ 123 , at fair value) 713 706 Total assets $ 12,168 $ 12,539 Liabilities Unearned premium reserve $ 3,612 $ 3,658 Loss and loss adjustment expense reserve 307 376 Long-term debt 1,695 1,694 Credit derivative liabilities, at fair value 43 53 Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $ 389 and $ 543 , without recourse $ 10 and $ 11 ) 399 554 Other liabilities 430 439 Total liabilities 6,486 6,774 Commitments and contingencies (Notes 3, 7 and 11) Shareholders’ equity Common shares ($ 0.01 par value, 500,000,000 shares authorized; 55,081,584 and 56,217,305 shares issued and outstanding) 1 1 Retained earnings 6,014 6,070 Accumulated other comprehensive income (loss), net of tax of $( 72 ) and $( 67 ) ( 387 ) ( 359 ) Deferred equity compensation 1 1 Total shareholders’ equity attributable to Assured Guaranty Ltd. 5,629 5,713 Nonredeemable noncontrolling interests (Note 8) 53 52 Total shareholders’ equity 5,682 5,765 Total liabilities and shareholders’ equity $ 12,168 $ 12,539 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents Assured Guaranty Ltd. Condensed Consolidated Statements of Operations (Unaudited) (dollars in millions except share data) Three Months Ended March 31, 2024 2023 Revenues Net earned premiums $ 119 $ 81 Net investment income 84 81 Asset management fees — 26 Net realized investment gains (losses) 8 ( 2 ) Fair value gains (losses) on credit derivatives 10 15 Fair value gains (losses) on committed capital securities ( 10 ) ( 16 ) Fair value gains (losses) on financial guaranty variable interest entities ( 3 ) ( 5 ) Fair value gains (losses) on consolidated investment vehicles 22 58 Foreign exchange gains (losses) on remeasurement ( 12 ) 20 Fair value gains (losses) on trading securities 26 ( 2 ) Other income (loss) 1 27 Total revenues 245 283 Expenses Loss and loss adjustment expenses (benefit) ( 1 ) 4 Interest expense 23 21 Amortization of deferred acquisition costs 6 3 Employee compensation and benefit expenses 58 82 Other operating expenses 39 55 Total expenses 125 165 Income (loss) before income taxes and equity in earnings (losses) of investees 120 118 Equity in earnings (losses) of investees 24 2 Income (loss) before income taxes 144 120 Less: Provision (benefit) for income taxes 31 23 Net income (loss) 113 97 Less: Noncontrolling interests 4 16 Net income (loss) attributable to Assured Guaranty Ltd. $ 109 $ 81 Earnings per share: Basic $ 1.94 $ 1.37 Diluted $ 1.89 $ 1.34 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents Assured Guaranty Ltd. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (in millions) Three Months Ended March 31, 2024 2023 Net income (loss) $ 113 $ 97 Change in net unrealized gains (losses) on: Investments with no credit impairment, net of tax provision (benefit) of $( 5 ) and $ 14 ( 29 ) 89 Investments with credit impairment, net of tax provision (benefit) of $ 0 and $ 1 1 5 Change in net unrealized gains (losses) on investments ( 28 ) 94 Change in instrument-specific credit risk on financial guaranty variable interest entities’ liabilities with recourse, net of tax provision (benefit) ( 1 ) ( 1 ) Other, net of tax provision (benefit) 1 2 Other comprehensive income (loss) ( 28 ) 95 Comprehensive income (loss) 85 192 Less: Comprehensive income (loss) attributable to noncontrolling interests 4 16 Comprehensive income (loss) attributable to Assured Guaranty Ltd. $ 81 $ 176 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents Assured Guaranty Ltd. Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) (dollars in millions, except share data) For the Three Months Ended March 31, 2024 Shareholders’ Equity Attributable to Assured Guaranty Ltd. Common Shares Outstanding Common Shares Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Deferred Equity Compensation Total Nonredeemable Noncontrolling Interests Shareholders’ Equity As of December 31, 2023 56,217,305 $ 1 $ 6,070 $ ( 359 ) $ 1 $ 5,713 $ 52 $ 5,765 Net income — — 109 — — 109 4 113 Dividends ($ 0.31 per share) — — ( 19 ) — — ( 19 ) — ( 19 ) Common shares repurchases ( 1,539,278 ) — ( 131 ) — — ( 131 ) — ( 131 ) Share-based compensation 403,557 — ( 15 ) — — ( 15 ) — ( 15 ) Distributions — — — — — — ( 3 ) ( 3 ) Other comprehensive loss — — — ( 28 ) — ( 28 ) — ( 28 ) As of March 31, 2024 55,081,584 $ 1 $ 6,014 $ ( 387 ) $ 1 $ 5,629 $ 53 $ 5,682 For the Three Months Ended March 31, 2023 Shareholders’ Equity Attributable to Assured Guaranty Ltd. Common Shares Outstanding Common Shares Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Deferred Equity Compensation Total Nonredeemable Noncontrolling Interests Shareholders’ Equity As of December 31, 2022 59,013,040 $ 1 $ 5,577 $ ( 515 ) $ 1 $ 5,064 $ 228 $ 5,292 Net income — — 81 — — 81 16 97 Dividends ($ 0.28 per share) — — ( 18 ) — — ( 18 ) — ( 18 ) Contributions — — — — — — 3 3 Common shares repurchases ( 36,369 ) — ( 2 ) — — ( 2 ) — ( 2 ) Share-based compensation 297,441 — — — — — — — Distributions — — — — — — ( 52 ) ( 52 ) Other comprehensive income — — — 95 — 95 — 95 As of March 31, 2023 59,274,112 $ 1 $ 5,638 $ ( 420 ) $ 1 $ 5,220 $ 195 $ 5,415 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents Assured Guaranty Ltd. Condensed Consolidated Statements of Cash Flows (Unaudited) (in millions) Three Months Ended March 31, 2024 2023 Net cash flows provided by (used in) operating activities $ ( 74 ) $ 312 Cash flows from investing activities: Fixed-maturity securities, available-for-sale: Purchases ( 321 ) ( 225 ) Sales 359 455 Maturities and paydowns 165 129 Short-term investments with original maturities of over three months: Purchases — ( 12 ) Sales — 3 Maturities and paydowns 4 15 Net sales (purchases) of short-term investments with original maturities of less than three months 8 ( 460 ) Sales of fixed-maturity securities, trading 72 — Paydowns of financial guaranty variable interest entities’ assets 6 7 Purchases of and contributions to other invested assets ( 56 ) ( 10 ) Sales of and return of capital from other invested assets 17 5 Other ( 1 ) ( 1 ) Net cash flows provided by (used in) investing activities 253 ( 94 ) Cash flows from financing activities: Dividends paid ( 19 ) ( 18 ) Repurchases of common shares ( 129 ) ( 2 ) Net paydowns of financial guaranty variable interest entities’ liabilities ( 148 ) ( 9 ) Other ( 28 ) ( 15 ) Cash flows from consolidated investment vehicles: Repayment of warehouse financing debt — ( 152 ) Borrowing (payment) under credit facilities — ( 30 ) Distributions to noncontrolling interests from consolidated investment vehicles ( 3 ) ( 70 ) Net cash flows provided by (used in) financing activities ( 327 ) ( 296 ) Effect of foreign exchange rate changes ( 1 ) 1 Increase (decrease) in cash and cash equivalents and restricted cash ( 149 ) ( 77 ) Cash and cash equivalents and restricted cash at beginning of period 286 207 Cash and cash equivalents and restricted cash at end of period $ 137 $ 130 (continued on next page) 5 Table of Contents Assured Guaranty Ltd. Condensed Consolidated Statements of Cash Flows (Unaudited) - (Continued) (in millions) Three Months Ended March 31, 2024 2023 Supplemental cash flow information Interest paid on long-term debt $ 22 $ 10 Supplemental disclosure of non-cash activities: Fixed-maturity securities, available-for-sale, received as salvage $ — $ 1 Contributions from noncontrolling interests — 3 Distributions to noncontrolling interests — 3 Distributions from equity method investments 7 — As of March 31, 2024 March 31, 2023 Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets: Cash $ 115 $ 118 Cash and cash equivalents of consolidated investment vehicles (See Note 8) 22 ( 13 ) Cash (included in assets held for sale) — 25 Cash and cash equivalents and restricted cash at the end of period $ 137 $ 130 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Business and Basis of Presentation Business Assured Guaranty Ltd. (AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-based holding company that provides, through its wholly owned operating subsidiaries, credit protection products to the United States (U.S.) and non-U.S. public finance (including infrastructure) and structured finance markets. Assured Guaranty also participates in the asset management business. Insurance Through its insurance subsidiaries, the Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. If an obligor defaults on a scheduled payment due on an obligation, including a scheduled principal or interest payment (collectively, debt service), the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The Company guarantees obligations issued principally in the U.S. and the United Kingdom (U.K.), and also guarantees obligations issued in other countries and regions, including Western Europe. The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form. Asset Management Until July 1, 2023, the Company served as an investment advisor to primarily 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 Capital Management, LP (Sound Point, LP) and certain of its investment management affiliates (together with Sound Point, LP, Sound Point), as described below. On July 1, 2023, Assured Guaranty contributed to Sound Point, LP most of its asset management business, other than that conducted by Assured Healthcare Partners LLC (AHP) (AssuredIM Contributed Business), as contemplated by the transaction agreement entered into with Sound Point on April 5, 2023 (Transaction Agreement). Assured Guaranty received, subject to certain potential post-closing adjustments, approximately 30 % of the common interests in Sound Point, LP, and certain other interests in Sound Point. In addition, in accordance with the terms of a letter agreement (Letter Agreement), effective July 1, 2023 Assured Guaranty Municipal Corp. and Assured Guaranty Corp. (collectively, the U.S. Insurance Subsidiaries) (i) engaged Sound Point as their sole alternative credit manager and (ii) transitioned to Sound Point the management of certain existing alternative investments and related commitments. The Letter Agreement also provides that, within the first two years of Sound Point’s engagement, the U.S. Insurance Subsidiaries, including through their investment subsidiary AG Asset Strategies LLC (AGAS), would, subject to regulatory approval, cure terms and other terms of the Letter Agreement, make new investments in funds, other vehicles and separately managed accounts managed by Sound Point which, when aggregated with the alternative investments and commitments transitioned from AssuredIM and any reinvestments (collectively, Sound Point Investments), and investments made by other Assured Guaranty affiliates, will total $ 1 billion. The Letter Agreement contemplates a long-term investment partnership between Sound Point and Assured Guaranty, whereby the U.S. Insurance Subsidiaries have agreed to reinvest all returns of capital from Sound Point Investments for a period of 15 years, until July 1, 2038. Similarly, the Letter Agreement provides for reinvestment by the U.S. Insurance Subsidiaries of all gains and dividends from Sound Point Investments for the first two years of Sound Point’s engagement, and reinvestment of half of all such gains and dividends thereafter until July 1, 2033 (the transactions contemplated under the Transaction Agreement and the Letter Agreement, the Sound Point Transaction). On July 1, 2028, the U.S. Insurance Subsidiaries may choose to reduce the amounts invested or required to be reinvested in certain Sound Point Investments under the Letter Agreement, subject to adjustment in Assured Guaranty’s portion of its ownership interest in Sound Point. To the extent not required to be reinvested by the Letter Agreement, all proceeds from Sound Point Investments received in accordance with their operative investment documents can be distributed to the U.S. Insurance Subsidiaries. See Note 7, Investments. 7 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued In July 2023, Assured Guaranty sold all of its equity interests in AHP, which manages healthcare funds, to an entity owned and controlled by the managing partner of AHP (AHP Transaction). In connection with the AHP Transaction, the Company agreed to remain a strategic investor in certain AHP managed funds, is retaining its portion of carried interest in certain AHP managed funds, and received other consideration. Upon closing of the Sound Point Transaction and the AHP Transaction, the Company deconsolidated most of the corresponding AssuredIM entities (which had previously been classified as held for sale) and reported an investment in Sound Point that is accounted for under the equity method. In connection with the Sound Point Transaction and AHP Transaction, the Company reevaluated its consolidation conclusion for each consolidated investment vehicle (CIV) and deconsolidated all but three CIVs. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. After the Sound Point Transaction and AHP Transaction, the Company continues to consolidate the general partner of a fund that Sound Point now manages and may report performance fees reported in “other income.” Prior to the Sound Point Transaction and AHP Transaction, the Company received management fees, as well as performance fees, incentive allocations or carried interest (collectively referred to as performance fees) in exchange for AssuredIM providing investment advisory services to manage investment funds and CLOs. Prior to the Sound Point Transaction and the AHP Transaction, these fees were reported in “asset management fees” in the condensed consolidated financial statements. Assets and Liabilities Held For Sale The Company designated certain assets and liabilities supporting the Insurance segment as held for sale in the first quarter of 2023. The held for sale assets and liabilities were $ 28 million (reported in “other assets”) and $ 3 million (reported in “other liabilities”), respectively, as of March 31, 2024. Basis of Presentation The unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In management’s opinion, all material adjustments necessary for a fair statement of the financial condition, results of operations and cash flows of the Company, including its consolidated variable interest entities (VIEs), are reflected in the periods presented and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited interim condensed consolidated financial statements are as of March 31, 2024 and cover the three-month period ended March 31, 2024 (first quarter 2024) and the three-month period ended March 31, 2023 (first quarter 2023). Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain prior year balances have been reclassified to conform to the current period’s presentation. The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries, and its consolidated financial guaranty VIEs (FG VIEs) and CIVs. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Intercompany accounts and transactions between and among all consolidated entities have been eliminated. All amounts are reported in U.S. dollars, unless otherwise specified. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (SEC). The Company’s principal insurance subsidiaries are: • Assured Guaranty Municipal Corp. (AGM), domiciled in New York; • Assured Guaranty Corp. (AGC), domiciled in Maryland; • Assured Guaranty UK Limited (AGUK), organized in the U.K.; 8 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued • Assured Guaranty (Europe) SA (AGE), organized in France; • Assured Guaranty Re Ltd. (AG Re), domiciled in Bermuda; and • Assured Guaranty Re Overseas Ltd. (AGRO), domiciled in Bermuda. The U.S. Insurance Subsidiaries jointly own an investment subsidiary, AGAS, which invests in funds managed by Sound Point, AHP, and, prior to July 1, 2023, AssuredIM (Sound Point and AHP funds, some of which were formerly known as AssuredIM funds). AGL directly or indirectly owns several holding companies, two of which - Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH) (collectively the U.S. Holding Companies) - have public debt outstanding. Recent Accounting Standards Not Yet Adopted In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The amendments in this ASU require disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM), extend certain annual disclosures to interim periods, and permit more than one measure of segment profit or loss to be reported under certain conditions. This ASU is effective in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company will adopt this ASU during the fourth quarter of 2024 and apply its amendments retrospectively to all prior periods presented in its consolidated financial statements. In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments require enhanced annual disclosures regarding the rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024. The Company will apply the amendments in this ASU prospectively to all annual periods beginning after December 15, 2024. The adoption of this ASU will affect certain of the Company’s income tax disclosures. 2. Segment Information The Company reports its results of operations in two segments: Insurance and Asset Management. The Company separately reports the results of its Corporate division and the effects of consolidating FG VIEs and CIVs. This presentation is consistent with the manner in which the Company’s CODM reviews the business to assess performance and allocate resources. The Insurance segment primarily consists of: (i) the Company’s insurance subsidiaries; and (ii) AGAS. Prior to July 1, 2023, the Asset Management segment consisted of AssuredIM, which provided asset management services to third-party investors, the U.S. Insurance Subsidiaries and AGAS. Beginning in July 2023, the Company participates in the asset management business through its ownership interest in Sound Point as described in Note 1, Business and Basis of Presentation. Beginning in the third quarter of 2023, the Asset Management segment primarily includes the results of the Company’s equity method investment in Sound Point. The Corporate division primarily consists of: (i) interest expense and any losses on the extinguishment of the U.S. Holding Companies’ debt; and (ii) other corporate operating expenses of AGL and the U.S. Holding Companies. The Other category primarily includes the effect of consolidating FG VIEs, CIVs, intersegment eliminations and, prior to July 1, 2023, the reclassification of reimbursable fund expenses. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. The segment results differ from the consolidated financial statements in certain respects. The Insurance segment includes: (i) premiums and losses from the financial guaranty insurance policies issued by the U.S. Insurance Subsidiaries that guarantee the FG VIEs’ debt; and (ii) the insurance segment’s share of earnings from investments in funds managed by Sound Point (prior to July 1, 2023, AssuredIM) and AHP funds in “equity in earnings (losses) of investees.” Under GAAP, (i) FG VIEs are consolidated by the U.S. Insurance Subsidiaries and the premiums and losses/recoveries associated with the financial guaranty policies associated with the FG VIEs’ debt are eliminated (the reconciliation tables below present the FG VIEs and related eliminations in “other”); and (ii) CIVs are consolidated by either AGUS or AGAS (in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’ ownership interest in CIVs are presented in “other”). Until July 1, 2023, under GAAP, reimbursable fund expenses were shown 9 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below these expenses were netted in “segment expenses.” The Company analyzes the operating performance of each segment using “segment adjusted operating income (loss).” Results for each segment include specifically identifiable expenses as well as intersegment expense allocations, as applicable, based on time studies and other cost allocation methodologies based on headcount or other metrics. Segment adjusted operating income is defined as “net income (loss) attributable to AGL,” adjusted for the following items, which primarily affect the Insurance segment and Corporate division: • Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading. • Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. • Elimination of fair value gains (losses) on the Company’s committed capital securities (CCS) that are recognized in net income. • Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and loss adjustment expense (LAE) reserves that are recognized in net income. • 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. The Company does not report assets by reportable segment as the CODM does not assess performance and allocate resources based on assets. The following table presents information for the Company’s operating segments. Intersegment revenues include transactions between and among the segments, the corporate division and other. Segment Information First Quarter 2024 2023 Insurance Asset Management Insurance Asset Management (in millions) Third-party revenues $ 227 $ 1 $ 188 $ 25 Intersegment revenues 2 — 2 16 Segment revenues 229 1 190 41 Segment expenses 85 — 79 42 Segment equity in earnings (losses) of investees 40 1 30 — Less: Segment provision (benefit) for income taxes 35 1 24 — Segment adjusted operating income (loss) $ 149 $ 1 $ 117 $ ( 1 ) 10 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The tables below present a reconciliation of significant components of segment information to the comparable consolidated amounts. Reconciliation of Segment Information to Consolidated Information First Quarter 2024 Equity in Earnings (Losses) of Investees Less: Net Income (Loss) Attributable to AGL Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests (in millions) Segments: Insurance $ 229 $ 85 $ 40 $ 35 $ — $ 149 Asset Management 1 — 1 1 — 1 Total segments 230 85 41 36 — 150 Corporate division 5 47 — ( 5 ) — ( 37 ) Other 16 ( 5 ) ( 17 ) — 4 — Subtotal 251 127 24 31 4 113 Reconciling items: Realized gains (losses) on investments 8 — — — — 8 Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives 8 ( 2 ) — — — 10 Fair value gains (losses) on CCS ( 10 ) — — — — ( 10 ) Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves ( 12 ) — — — — ( 12 ) Tax effect — — — — — — Total consolidated $ 245 $ 125 $ 24 $ 31 $ 4 $ 109 11 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Reconciliation of Segment Information to Consolidated Information First Quarter 2023 Equity in Earnings (Losses) of Investees Less: Net Income (Loss) Attributable to AGL Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests (in millions) Segments: Insurance $ 190 $ 79 $ 30 $ 24 $ — $ 117 Asset Management 41 42 — — — ( 1 ) Total segments 231 121 30 24 — 116 Corporate division 2 48 — ( 2 ) — ( 44 ) Other 35 ( 4 ) ( 28 ) ( 1 ) 16 ( 4 ) Subtotal 268 165 2 21 16 68 Reconciling items: Realized gains (losses) on investments ( 2 ) — — — — ( 2 ) Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives 13 — — — — 13 Fair value gains (losses) on CCS ( 16 ) — — — — ( 16 ) Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves 20 — — — — 20 Tax effect — — — 2 — ( 2 ) Total consolidated $ 283 $ 165 $ 2 $ 23 $ 16 $ 81 3. Outstanding Exposure The Company sells credit protection primarily in financial guaranty insurance form. The Company may also sell credit protection by issuing policies that guarantee payment obligations under credit default swaps (CDS). The Company’s contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts. The Company seeks to limit its exposure to losses by underwriting obligations that it views to be investment grade at inception, although on occasion it may underwrite new issuances that it views to be below-investment-grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures. The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies, providing reinsurance on, or novating, a portfolio of insurance; in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction. The Company diversifies its insured portfolio across sector and geography and, in the structured finance portfolio, generally requires subordination or collateral to protect it from loss. Reinsurance may be used in order to reduce net exposure to certain insured transactions. Public finance obligations insured by the Company primarily consist of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, healthcare facilities and government office buildings as well as obligations issued by U.S. and non-U.S. sovereign and sub-sovereign issuers and governmental authorities. Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. Some of these VIEs are consolidated as described in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on these VIEs whether or not they are consolidated. 12 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form. Surveillance Categories The Company segregates its insured portfolio into investment grade and BIG surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review of each exposure. BIG exposures include all exposures with internal credit ratings below BBB-. The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and generally reflect an approach similar to that employed by the rating agencies, except that the Company’s internal credit ratings focus on future performance rather than lifetime performance. The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector. Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled. For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating. Exposures identified as BIG are subjected to further review to determine the probability of a loss. See Note 4, Expected Loss to be Paid (Recovered). Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid. The Company uses the pre-tax book yield of the relevant subsidiary’s investment portfolio to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction. For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss. More extensive monitoring and intervention are employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50 % chance that, on a present value basis, it will in the future pay claims on that transaction that will not be fully reimbursed. The three BIG surveillance categories are: • BIG 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected. • BIG 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year ) have yet been paid. • BIG 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid. Financial Guaranty Exposure The Company measures its financial guaranty exposure in terms of (i) gross and net par outstanding and (ii) gross and net debt service. The Company typically guarantees the payment of debt service when due. Since most of these payments are due in the future, the Company generally uses gross and net par outstanding as a proxy for its financial guaranty exposure. Gross par outstanding generally represents the principal amount of the insured obligation at a point in time. Net par outstanding equals gross par outstanding net of any reinsurance. The Company includes in its par outstanding calculation the impact of any consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date. Non-U.S. dollar denominated par outstanding is translated at the spot rate at the end of the reporting period. The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities). The Company excludes amounts 13 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued attributable to Loss Mitigation Securities from par and debt service outstanding and instead reports Loss Mitigation Securities in the investment portfolio. The Company manages such securities as investments and not insurance exposure. As of both March 31, 2024 and December 31, 2023, the Company excluded net par outstanding of $ 1.2 billion attributable to Loss Mitigation Securities. Gross debt service outstanding represents the sum of all estimated future debt service payments on the insured obligations, on an undiscounted basis. Net debt service outstanding equals gross debt service outstanding net of any reinsurance. Future debt service payments include the estimated impact of any consumer price index inflator after the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion after the reporting date. The Company calculates its debt service outstanding as follows: • for insured obligations that are not supported by homogeneous pools of assets (which category includes most of the Company’s public finance transactions), as the total estimated contractual future debt service due through maturity, regardless of whether the obligations may be called and regardless of whether, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, the Company believes the obligations will be repaid prior to contractual maturity; and • for insured obligations that are supported by homogeneous pools of assets that are contractually permitted to prepay principal (which category includes, for example, residential mortgage-backed securities (RMBS)), as the total estimated expected future debt service due on insured obligations through their respective expected terms, which includes the Company’s expectations as to whether the obligations may be called and, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity. The calculation of debt service requires the use of estimates, which the Company updates periodically, including estimates and assumptions for the expected remaining term of insured obligations supported by homogeneous pools of assets, updated interest rates for floating and variable rate insured obligations, behavior of consumer price indices for obligations with consumer price index inflators, foreign exchange rates and other assumptions based on the characteristics of each insured obligation. Debt service is a measure of the estimated maximum potential exposure to insured obligations before considering the Company’s various legal rights to the underlying collateral and other remedies available to it under its financial guaranty contract. Actual debt service may differ from estimated debt service due to refundings, terminations, negotiated restructurings, prepayments, changes in interest rates on variable rate insured obligations, consumer price index behavior differing from that projected, changes in foreign exchange rates on non-U.S. dollar denominated insured obligations and other factors. Financial Guaranty Portfolio Debt Service and Par Outstanding As of March 31, 2024 As of December 31, 2023 Gross Net Gross Net (in millions) Debt Service Public finance $ 383,723 $ 383,648 $ 386,494 $ 386,419 Structured finance 11,627 11,201 11,543 11,217 Total financial guaranty $ 395,350 $ 394,849 $ 398,037 $ 397,636 Par Outstanding Public finance $ 238,188 $ 238,132 $ 239,352 $ 239,296 Structured finance 10,438 10,012 10,183 9,857 Total financial guaranty $ 248,626 $ 248,144 $ 249,535 $ 249,153 In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $ 829 million of public finance gross par and $ 1.8 billion of structured finance gross par as of March 31, 2024. These commitments are contingent on the satisfaction of all conditions set forth in the guaranties and may expire unused or be 14 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts. Also, in connection with a potential transaction that would accelerate the run-off of the insured portfolio of Financial Guaranty Insurance Company (FGIC) pursuant to the First Amended Plan of Rehabilitation for FGIC, dated June 4, 2013 (the Proposed Transaction), the Company and FGIC are parties to a Novation Agreement dated as of February 8, 2024 (the Agreement) pursuant to which certain FGIC policies insuring approximately $ 353 million of public finance (including infrastructure) gross par and approximately $ 50 million of structured finance gross par as of December 31, 2023 may in the future be novated to the Company in accordance with the terms and conditions of the Agreement. The Proposed Transaction, including the novation of certain FGIC policies to the Company, is subject in all respects to review and approval by the New York State Department of Financial Services, the reopening of FGIC’s rehabilitation proceeding, and ultimate approval by the Supreme Court of the State of New York. In the event the Proposed Transaction does not occur on or prior to September 30, 2025, either the Company or FGIC has the right to terminate the Agreement in accordance with its terms. Financial Guaranty Portfolio by Internal Rating As of March 31, 2024 Public Finance U.S. Public Finance Non-U.S. Structured Finance U.S Structured Finance Non-U.S Total Rating Category Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % (dollars in millions) AAA $ 27 — % $ 2,058 4.3 % $ 762 8.8 % $ 454 33.2 % $ 3,301 1.3 % AA 17,872 9.5 3,336 6.9 5,591 64.7 84 6.1 26,883 10.8 A 103,551 54.5 12,740 26.4 816 9.5 738 53.9 117,845 47.5 BBB 65,326 34.4 28,998 60.1 505 5.8 93 6.8 94,922 38.3 BIG 3,119 1.6 1,105 2.3 969 11.2 — — 5,193 2.1 Total net par outstanding $ 189,895 100.0 % $ 48,237 100.0 % $ 8,643 100.0 % $ 1,369 100.0 % $ 248,144 100.0 % Financial Guaranty Portfolio by Internal Rating As of December 31, 2023 Public Finance U.S. Public Finance Non-U.S. Structured Finance U.S Structured Finance Non-U.S Total Rating Category Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % (dollars in millions) AAA $ 110 0.1 % $ 2,062 4.2 % $ 867 10.0 % $ 465 38.0 % $ 3,504 1.4 % AA 17,883 9.4 3,379 6.9 4,517 52.3 89 7.3 25,868 10.4 A 102,945 54.1 12,968 26.5 1,639 19.0 571 46.6 118,123 47.4 BBB 66,080 34.7 29,467 60.1 574 6.7 100 8.1 96,221 38.6 BIG 3,271 1.7 1,131 2.3 1,035 12.0 — — 5,437 2.2 Total net par outstanding $ 190,289 100.0 % $ 49,007 100.0 % $ 8,632 100.0 % $ 1,225 100.0 % $ 249,153 100.0 % 15 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of March 31, 2024 BIG Net Par Outstanding Net Par BIG 1 BIG 2 BIG 3 Total BIG Outstanding (in millions) Public finance: U.S. public finance $ 1,249 $ 926 $ 944 $ 3,119 189,895 Non-U.S. public finance 1,105 — — 1,105 48,237 Public finance 2,354 926 944 4,224 238,132 Structured finance: U.S. RMBS 17 36 825 878 1,684 Other structured finance — 25 66 91 8,328 Structured finance 17 61 891 969 10,012 Total $ 2,371 $ 987 $ 1,835 $ 5,193 $ 248,144 Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of December 31, 2023 BIG Net Par Outstanding Net Par BIG 1 BIG 2 BIG 3 Total BIG Outstanding (in millions) Public finance: U.S. public finance $ 1,257 $ 926 $ 1,088 $ 3,271 $ 190,289 Non-U.S. public finance 1,131 — — 1,131 49,007 Public finance 2,388 926 1,088 4,402 239,296 Structured finance: U.S. RMBS 22 36 883 941 1,774 Other structured finance — 27 67 94 8,083 Structured finance 22 63 950 1,035 9,857 Total $ 2,410 $ 989 $ 2,038 $ 5,437 $ 249,153 Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of March 31, 2024 Net Par Outstanding Number of Risks (2) Description Financial Guaranty Insurance (1) Credit Derivatives Total Financial Guaranty Insurance (1) Credit Derivatives Total (dollars in millions) BIG 1 $ 2,356 $ 15 $ 2,371 91 2 93 BIG 2 977 10 987 12 2 14 BIG 3 1,808 27 1,835 109 7 116 Total BIG $ 5,141 $ 52 $ 5,193 212 11 223 16 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of December 31, 2023 Net Par Outstanding Number of Risks (2) Description Financial Guaranty Insurance (1) Credit Derivatives Total Financial Guaranty Insurance (1) Credit Derivatives Total (dollars in millions) BIG 1 $ 2,394 $ 16 $ 2,410 95 2 97 BIG 2 979 10 989 13 2 15 BIG 3 2,010 28 2,038 109 7 116 Total BIG $ 5,383 $ 54 $ 5,437 217 11 228 _____________________ (1) Includes FG VIEs. (2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments. Exposure to Puerto Rico All of the Company’s insured exposure to various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) is rated BIG. As of March 31, 2024, the Company’s only remaining outstanding insured Puerto Rico exposure subject to a payment default was the Puerto Rico Electric Power Authority (PREPA). Puerto Rico Par and Debt Service Schedules The following tables show the Company’s insured exposure to various authorities and public corporations of Puerto Rico. Puerto Rico Gross Par and Gross Debt Service Outstanding Gross Par Outstanding Gross Debt Service Outstanding As of As of March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 (in millions) Exposure to Puerto Rico $ 976 $ 1,120 $ 1,270 $ 1,526 17 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Puerto Rico Net Par Outstanding As of March 31, 2024 December 31, 2023 (in millions) Defaulted Puerto Rico Exposures PREPA $ 624 $ 624 Total Defaulted 624 624 Resolved Puerto Rico Exposures (1) Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue) 204 244 PRHTA (Highway revenue) 24 128 Total Resolved 228 372 Non-Defaulting Puerto Rico Exposures (2) Municipal Finance Agency (MFA) 108 108 Puerto Rico Aqueduct and Sewer Authority (PRASA) and University of Puerto Rico (U of PR) 1 1 Total Non-Defaulting 109 109 Total net exposure to Puerto Rico $ 961 $ 1,105 ____________________ (1) Resolved pursuant to the 2022 Puerto Rico Resolutions (as defined below). In January 2024, $ 144 million of the remaining PRHTA net par was paid down. All of the Toll Bonds (as defined below) received from the PRHTA under the 2022 Puerto Rico Resolutions for the insured PRHTA bonds have been sold or redeemed; therefore, the remaining amounts owed for such insured PRHTA bonds are payable in full by the Company’s insurance subsidiaries under their financial guaranty policies and are no longer dependent on the credit of the PRHTA. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. (2) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company. The following table shows the scheduled amortization of the obligations of the Puerto Rico authorities and public corporations that the Company insures. The Company guarantees payment of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors. 18 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Amortization Schedule of Puerto Rico Net Par Outstanding and Net Debt Service Outstanding As of March 31, 2024 Scheduled Net Par Amortization Scheduled Net Debt Service Amortization (in millions) 2024 (April 1 - June 30) $ — $ 3 2024 (July 1 - September 30) 110 131 2024 (October 1 - December 31) — 3 Subtotal 2024 110 137 2025 84 124 2026 140 177 2027 120 151 2028 81 106 2029-2033 197 281 2034-2038 132 170 2039-2041 97 106 Total $ 961 $ 1,252 PREPA As of March 31, 2024 and December 31, 2023, the Company’s net par outstanding on insured PREPA obligations was $ 624 million. The Company believes that the PREPA bonds are secured by a lien on the revenues of the electric system. The default of PREPA’s obligations has been the subject of restructuring negotiations, mediation and litigation since 2014. On April 8, 2022, Judge Laura Taylor Swain of the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) issued an order appointing as members of a PREPA mediation team U.S. Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon. Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that the mediation would terminate on June 1, 2022. Judge Swain has since extended the term of such mediation several times, most recently on May 1, 2024 extending the term to July 31, 2024. The Financial Oversight and Management Board (the FOMB) which was established under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) filed an initial plan of adjustment and disclosure statement for PREPA with the Federal District Court of Puerto Rico on December 16, 2022. On March 22, 2023, the Federal District Court of Puerto Rico held that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control but did not have a lien on future revenues until deposited in those funds. The Federal District Court of Puerto Rico also held, however, that PREPA bondholders do have recourse under the PREPA trust agreement in the form of an unsecured net revenue claim. At that time, the Federal District Court of Puerto Rico declined to value the unsecured net revenue claim or the method for its determination. The ultimate value of the claim, according to the Federal District Court of Puerto Rico, should be determined through a claim estimation proceeding. On June 6-8, 2023, the Federal District Court of Puerto Rico held a claim estimation proceeding and, on June 26, 2023, issued an opinion and order estimating the unsecured net revenue claim to be $ 2.4 billion as of July 3, 2017. This estimate included a determination that PREPA’s discounted cash flows, using the FOMB’s base-case incremental net revenues over a 100-year collection period and a discount rate of 7 %, would be $ 3.0 billion, and should be reduced by an additional 20 % for collection risk. PREPA bondholders had sought an unsecured net revenue claim of approximately $ 8.5 billion. On November 17, 2023, the Federal District Court of Puerto Rico approved the supplemental disclosure statement (Supplemental Disclosure Statement) supporting the PREPA plan of adjustment filed by the FOMB (as amended or modified from time to time). On February 16, 2024, FOMB filed with the Federal District Court of Puerto Rico its most recent plan of adjustment for PREPA, the Modified Fourth Amended Title III Plan of Adjustment (FOMB PREPA Plan). The Supplemental Disclosure Statement and the FOMB PREPA Plan are based on the last revised PREPA fiscal plan certified by the FOMB on June 23, 2023 (2023 PREPA Fiscal Plan). 19 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued On November 28, 2023, the Federal District Court of Puerto Rico finally adjudicated all claims and counterclaims in the PREPA lien challenge adversary proceeding. On November 30, 2023, the Company filed a notice of appeal with the United States Court of Appeals for the First Circuit (First Circuit) for portions of the March 22, 2023 decision, including the lien scope ruling and the need for a claim estimation proceeding, as well as the June 26, 2023 claim estimation ruling. On January 29, 2024, the First Circuit heard oral arguments for the Company’s appeals. The FOMB PREPA Plan would split bondholders into two groups: one that would settle litigation regarding whether creditor repayment is limited to existing accounts, and another group that would continue litigating whether bondholders are secured by PREPA’s current and future revenue collections. The FOMB PREPA Plan also would further split settling bondholders into two sub-groups: one consisting of certain original settling bondholders that would receive an enhanced recovery (compared to non-settling bondholders) plus other supporting creditor payments, while the second settling sub-group would receive only the enhanced recovery. The FOMB asserts that, other than for pension claims, PREPA’s debt capacity is $ 2.5 billion, of which approximately $ 1.4 billion is allocated to settling creditors. The remaining $ 1.1 billion is allocated to (i) non-settling bondholders, and (ii) general unsecured creditors. The most recent revised FOMB PREPA Plan provides for reduced payments to bondholders since lower projected PREPA revenues are included in the 2023 PREPA Fiscal Plan than had been previously anticipated. The FOMB PREPA Plan estimates that non-settling bondholders will receive a recovery of 12.5 % of their allowed unsecured net revenue claim. The Company is opposed to the FOMB PREPA Plan and has joined with a group of non-settling bondholders that continue to litigate the lien scope and claim estimation rulings. The confirmation hearing for the FOMB PREPA Plan occurred in March 2024. At the end of the hearing, Judge Swain stated that she was taking the confirmation of the FOMB PREPA Plan under advisement and gave no indication of timing for an opinion or order. On April 29, 2024, the Company and other non-settling bondholders filed a motion to reopen the record of the confirmation hearing for the FOMB PREPA Plan to include newly discovered updated forecasts of electricity usage. Resolved Puerto Rico Exposures In 2022, as a result of the resolution of the Company’s exposure to insured Puerto Rico credits experiencing payment default other than PREPA (2022 Puerto Rico Resolutions), the Company received cash, new general obligation bonds (New GO Bonds), new bonds backed by toll revenues (Toll Bonds, and together with New GO Bonds, New Recovery Bonds) and contingent value instruments (CVIs). The CVIs are intended to provide creditors with additional recoveries tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps. Cash, New Recovery Bonds and CVIs received pursuant to the 2022 Puerto Rico Resolutions are collectively referred to as Plan Consideration. As of March 31, 2024, all but $ 272 million in CVIs (at fair value) had been sold or redeemed. As of March 31, 2024, remaining CVIs are reported in fixed-maturity securities, trading. See Note 7, Investments. The Company may sell in the future any CVIs it continues to hold. As of March 31, 2024, the Company had $ 228 million of insured net par outstanding of legacy PRHTA bonds. This net par outstanding primarily represents the Company’s exposure in respect of legacy insured PRHTA bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus Plan Consideration, as described below. The remaining amounts owed for insured PRHTA bonds are payable in full by the Company’s insurance subsidiaries under their financial guaranty policies and are no longer dependent on the credit of PRHTA. The Company consolidates the trusts in which the PRHTA obligations are reported. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Certain insured bondholders elected to receive custody receipts representing an interest in custodial trusts that hold the legacy insurance policy plus Plan Consideration that were reported in FG VIEs’ assets at the time of the receipt. The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates. Non-Defaulting Puerto Rico Exposures As of March 31, 2024, and December 31, 2023, the Company had $ 109 million of remaining non-defaulting Puerto Rico net par outstanding related primarily to the Municipal Finance Agency (MFA). The MFA exposures are secured by a lien on local tax revenues and remain current on debt service payments. 20 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Puerto Rico Litigation Currently, there are numerous legal actions relating to the default by the Commonwealth of Puerto Rico and certain of its instrumentalities on debt service payments, and related matters, and the Company is a party to a number of them. The Company has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to the remaining Puerto Rico obligations it still insures. In addition, the Commonwealth, the FOMB and others have taken legal action naming the Company as party. Certain legal actions involving the Company and relating to the Commonwealth, Puerto Rico Convention Center District Authority, Puerto Rico Infrastructure Financing Authority or PRHTA, were resolved on March 15, 2022, and all remaining legal actions involving the Company and relating to PRHTA were resolved on December 6, 2022, in connection with the consummation of the 2022 Puerto Rico Resolutions. There remains one active proceeding related to PREPA, while there are a number of unresolved proceedings involving the Company and relating to the default by the Commonwealth or its instrumentalities that remain stayed pending the Federal District Court of Puerto Rico’s determination on the PREPA plan of adjustment. The remaining active proceeding was initiated by the FOMB in the Federal District Court of Puerto Rico on July 1, 2019 against U.S. Bank National Association, as trustee for PREPA’s bonds, objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing those bonds and seeking other relief. On September 30, 2022, the FOMB filed an amended complaint against the trustee (i) objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing PREPA’s bonds and (ii) arguing that PREPA bondholders’ recourse was limited to certain deposit accounts held by the trustee. On October 7, 2022, the court approved a stipulation permitting AGM and AGC to intervene as defendants. Summary judgment motions were filed by plaintiffs and defendants on October 24, 2022. On March 22, 2023, the Federal District Court of Puerto Rico granted in part and denied in part each party’s cross-motions for summary judgment. The Federal District Court of Puerto Rico found that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control. The Federal District Court of Puerto Rico also held that the PREPA bondholders do have recourse under the trust agreement in the form of an unsecured net revenue claim. In a June 26, 2023 opinion, the court estimated the PREPA bondholders’ allowed unsecured net revenue claim to be $ 2.4 billion, which the court calculated by largely adopting the conclusions in the FOMB’s expert report. On May 3, 2023, the court denied PREPA bondholders’ request to certify their interlocutory appeal of the finding that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control. On May 15, 2023, the FOMB filed its motion to dismiss the trustee’s and bondholders’ counterclaims, which was granted by the court on November 28, 2023. AGM and AGC filed a notice of appeal on November 30, 2023. On January 29, 2024, the First Circuit heard oral arguments for the Company’s appeals. The unresolved proceedings initiated in the Federal District Court of Puerto Rico involving the Company and relating to the default by the Commonwealth or its instrumentalities that remain stayed pending the Federal District Court of Puerto Rico’s determination on the PREPA plan of adjustment are: • AGM and AGC motion to compel the FOMB to certify the PREPA restructuring support agreement executed in May 2019 (PREPA RSA) for implementation under Title VI of PROMESA. • AGM and AGC motion to dismiss PREPA’s Title III Bankruptcy proceeding or, in the alternative, to lift the PROMESA automatic stay to allow for the appointment of a receiver. • Adversary complaint by certain fuel line lenders of PREPA against AGM and AGC, among other parties, including various PREPA bondholders and bond insurers, seeking, among other things, declarations that there is no valid lien securing the PREPA bonds unless and until such lenders are paid in full, as well as orders subordinating the PREPA bondholders’ lien and claims to such lenders’ claims, and declaring the PREPA RSA null and void. • AGM and AGC motion to intervene in lawsuit by the retirement system for PREPA employees against, among others, the FOMB, PREPA, the Commonwealth, and the trustee for PREPA bondholders seeking, among other things, declarations that there is no valid lien securing the PREPA bonds other than on amounts in the sinking funds, and order subordinating the PREPA bondholders’ lien and claim to the PREPA employees’ claims. 21 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Specialty Business The Company also guarantees specialty business with risk profiles similar to those of its structured finance exposures written in financial guaranty form. Specialty Business As of March 31, 2024 As of December 31, 2023 Gross Exposure Net Exposure Gross Exposure Net Exposure (in millions) Insurance securitizations (1) $ 1,398 $ 1,067 $ 1,370 $ 1,043 Aircraft residual value insurance 355 200 355 200 Other guaranties 2,001 2,001 2,057 2,057 ____________________ (1) Insurance securitizations exposure is projected to reach $ 1.5 billion gross in 2025 and $ 1.2 billion net in 2026. All exposures in the table above are rated investment-grade, except gross exposure of $ 144 million and net exposure of $ 84 million of aircraft residual value insurance as of both March 31, 2024 and December 31, 2023. Other guaranties in specialty business include an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties with an internal rating of AA that matures in 2042. The Company’s maximum potential exposure under this guaranty, which is accounted for in accordance with Accounting Standards Codification (ASC) 460, Guarantees, was $ 1.5 billion as of March 31, 2024. 4. Expected Loss to be Paid (Recovered) Net expected loss to be paid (recovered) is equal to the present value of expected future cash outflows for loss and LAE payments, net of: (i) inflows for expected salvage, subrogation and other recoveries; (ii) excess spread on underlying collateral, as applicable; and (iii) amounts ceded to reinsurers. Cash flows are discounted at current risk-free rates. The Company updates the discount rates each quarter and reflects the effect of such changes in economic loss development. Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about the likelihood of all possible outcomes based on all information available to the Company. Those assumptions consider the relevant facts and circumstances and are consistent with the information tracked and monitored through the Company’s surveillance and risk management functions. Expected loss to be paid (recovered) is important in that it represents the present value of amounts that the Company expects to pay or recover in future periods for all contracts. Insured obligations with expected losses that were purchased by the Company are referred to as Loss Mitigation Securities and are recorded in the investment portfolio at fair value, excluding the value of the Company’s insurance. Concurrently, the Company reduces any related expected loss to be paid (recovered). For Loss Mitigation Securities, the difference between the purchase price of the insured obligation and the fair value excluding the value of the Company’s insurance (on the date of acquisition) is treated as a paid loss. See Note 7, Investments, and Note 9, Fair Value Measurement. Similarly, in cases where issuers of insured obligations elected (or where an issuer and the Company negotiated) to deliver the underlying collateral, insured obligation, or a new security to the Company, expected loss to be paid (recovered) is adjusted accordingly and the asset received is prospectively accounted for under the applicable guidance for that instrument. Economic loss development represents the change in net expected loss to be paid (recovered) attributable to the effects of changes in the economic performance of insured transactions, changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts. In order to effectively evaluate and manage the economics and liquidity of the entire insured portfolio, management assigns ratings and calculates expected loss to be paid (recovered), on a contract-by-contract basis, in the same manner for all its exposures regardless of form or differing accounting models. The exposure reported in Note 3, Outstanding Exposure, includes policies accounted for under various accounting models depending on the characteristics of the contract and the Company’s control rights. The three primary models are: (i) insurance, as described in Note 5, Contracts Accounted for as Insurance; (ii) derivatives, as described in Note 6, Contracts Accounted for as Credit Derivatives, and Note 9, Fair Value Measurement; and (iii) FG VIE consolidation, as described in Note 8, Financial Guaranty Variable Interest Entities and 22 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Consolidated Investment Vehicles. The Company has paid and expects to pay future losses and/or recover past losses on policies which fall under each of these accounting models. This note provides information regarding expected claim payments to be made and/or recovered under all contracts in the insured portfolio. Loss Estimation Process The Company’s loss reserve committees estimate expected loss to be paid (recovered) for all contracts by reviewing analyses that consider various scenarios with corresponding probabilities assigned to them. Depending upon the characteristics of the risk, the Company’s view of the potential size of any loss and the information available to the Company, that analysis may be based upon individually developed cash flow models, internal credit rating assessments, sector-driven loss severity assumptions and/or judgmental assessments. In the case of its assumed business, the Company may conduct its own analysis as just described or, depending on the Company’s view of the potential size of any loss and the information available to the Company, the Company may use loss estimates provided by ceding insurers. Each quarter, the Company’s loss reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on developments during the period and their view of future performance. The financial guaranties issued by the Company insure the credit performance of the guaranteed obligations over an extended period of time, in some cases over 30 years, and in most circumstances the Company has no right to cancel such financial guaranties. As a result, the Company’s estimate of ultimate loss on a policy is subject to significant uncertainty over the life of the insured transaction. Credit performance can be affected by, among other things, economic, fiscal and financial market and political developments over the life of most contracts. The Company does not use traditional actuarial approaches to determine its estimates of expected losses. The determination of expected loss to be paid (recovered) is an inherently subjective process involving numerous estimates, assumptions and judgments by management, using both internal and external data sources with regard to frequency, and severity of loss, economic projections, governmental actions, legal developments, negotiations, recovery rates, delinquency and prepayment rates, timing of cash flows and other factors that affect credit performance. These estimates, assumptions and judgments, and the factors on which they are based, may change materially over a reporting period, and have a material effect on the Company’s financial statements. Each quarter, the Company may revise its scenarios and update its assumptions, including the probability weightings of its scenarios, based on public as well as nonpublic information obtained through its surveillance and loss mitigation activities. Changes over a reporting period in the Company’s loss estimates for public finance obligations supported by specified revenue streams, such as revenue bonds issued by toll road authorities, municipal utilities or airport authorities, generally will be influenced by factors impacting their revenue levels, such as changes in demand; changing demographics; and other economic factors, especially if the obligations do not benefit from financial support from other tax revenues or governmental authorities. Changes over a reporting period in the Company’s loss estimates for its tax-supported and general obligation public finance transactions generally will be influenced by factors impacting the public issuer’s ability and willingness to pay, such as changes in the economy and population of the relevant area; changes in the issuer’s ability or willingness to raise taxes, decrease spending or receive federal assistance; new legislation; rating agency actions that affect the issuer’s ability to refinance maturing obligations or issue new debt at a reasonable cost; changes in the priority or amount of pensions and other obligations owed to workers; developments in restructuring or settlement negotiations; and other political and economic factors. Changes in loss estimates may also be affected by the Company’s loss mitigation efforts and other variables. Changes in the Company’s loss estimates for structured finance transactions generally will be influenced by factors impacting the performance of the assets supporting those transactions. For example, changes over a reporting period in the Company’s loss estimates for its RMBS transactions may be influenced by factors such as the level and timing of loan defaults experienced, changes in housing prices, results from the Company’s loss mitigation activities and other variables. Net economic loss development (benefit) over a reporting period may be attributable to a number of interrelated factors such as changes in discount rates, improvement or deterioration of transaction performance, changes in charge-offs, loss mitigation activity, changes to projected default curves, changes in severity rates and outcome of disputed issues. Actual losses will ultimately depend on future events, transaction performance or other factors that are difficult to predict. As a result, the Company’s current projections of certain losses may be subject to considerable uncertainty and may not reflect the Company’s ultimate claims paid. 23 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued In some instances, the terms of the Company’s policy or the terms of certain workout orders and resolutions give it the option to pay principal losses that have been recognized in the transaction but which it is not yet required to pay, thereby reducing the amount of guaranteed interest due in the future. The Company has sometimes exercised this option, which results in an acceleration of cash outflows but reduces overall losses paid. Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit) by Accounting Model Net Expected Loss to be Paid (Recovered) Net Economic Loss Development (Benefit) As of First Quarter Accounting Model March 31, 2024 December 31, 2023 2024 2023 (in millions) Insurance (see Note 5) $ 191 $ 263 $ ( 7 ) $ 6 FG VIEs (see Note 8) (1) 241 240 — 5 Credit derivatives (see Note 6) 1 2 — — Total $ 433 $ 505 $ ( 7 ) $ 11 ____________________ (1) The net expected loss to be paid for FG VIEs primarily relates to trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts) that were consolidated. The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts, which are accounted for under one of the following accounting models: insurance, derivative and FG VIE. The Company used risk-free rates for U.S. dollar denominated obligations that ranged from 4.14 % to 5.33 % with a weighted average of 4.44 % as of March 31, 2024 and 3.79 % to 5.40 % with a weighted average of 4.10 % as of December 31, 2023. Net expected losses to be paid for U.S. dollar denominated transactions represented approximately 95.5 % and 96.1 % of the total as of March 31, 2024 and December 31, 2023, respectively. Net Expected Loss to be Paid (Recovered) Roll Forward First Quarter 2024 2023 (in millions) Net expected loss to be paid (recovered), beginning of period $ 505 $ 522 Economic loss development (benefit) due to: Accretion of discount 5 5 Changes in discount rates ( 3 ) 10 Changes in timing and assumptions ( 9 ) ( 4 ) Total economic loss development (benefit) ( 7 ) 11 Net (paid) recovered losses ( 65 ) ( 16 ) Net expected loss to be paid (recovered), end of period $ 433 $ 517 24 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Net Expected Loss to be Paid (Recovered) Roll Forward by Sector First Quarter 2024 Sector Net Expected Loss to be Paid (Recovered) as of December 31, 2023 Net Economic Loss Development (Benefit) Net (Paid) Recovered Losses (1) Net Expected Loss to be Paid (Recovered) as of March 31, 2024 (in millions) Public finance: U.S. public finance $ 398 $ ( 3 ) $ ( 17 ) $ 378 Non-U.S. public finance 20 — — 20 Public finance 418 ( 3 ) ( 17 ) 398 Structured finance: U.S. RMBS 43 ( 3 ) ( 42 ) ( 2 ) Other structured finance 44 ( 1 ) ( 6 ) 37 Structured finance 87 ( 4 ) ( 48 ) 35 Total $ 505 $ ( 7 ) $ ( 65 ) $ 433 First Quarter 2023 Sector Net Expected Loss to be Paid (Recovered) as of December 31, 2022 Net Economic Loss Development (Benefit) Net (Paid) Recovered Losses (1) Net Expected Loss to be Paid (Recovered) as of March 31, 2023 (in millions) Public finance: U.S. public finance $ 403 $ 1 $ ( 24 ) $ 380 Non-U.S. public finance 9 4 — 13 Public finance 412 5 ( 24 ) 393 Structured finance: U.S. RMBS 66 5 11 82 Other structured finance 44 1 ( 3 ) 42 Structured finance 110 6 8 124 Total $ 522 $ 11 $ ( 16 ) $ 517 ____________________ (1) Net of ceded paid losses, whether or not such amounts have been settled with reinsurers. Ceded paid losses are typically settled 45 days after the end of the reporting period. Such amounts are recorded as reinsurance recoverable on paid losses in “other assets.” The tables above include (i) net LAE paid of $ 7 million and $ 3 million for first quarter 2024 and first quarter 2023, respectively, and (ii) net expected LAE to be paid of $ 16 million as of March 31, 2024 and $ 22 million as of December 31, 2023, respectively. Public Finance The largest component of the public finance net expected losses to be paid (recovered) and net economic loss development (benefit) are U.S. exposures, including Puerto Rico exposures, which are discussed in Note 3, Outstanding Exposure. The total net expected loss to be paid for troubled U.S. public finance exposures is net of a credit for estimated future recoveries of claims already paid. As of both March 31, 2024 and December 31, 2023, that credit was $ 193 million. The Company’s net expected losses to be paid (recovered) incorporate management’s probability weighted estimates of all possible scenarios. 25 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued U.S. RMBS Loss Projections The Company projects losses on its insured U.S. RMBS on a transaction-by-transaction basis by projecting the performance of the underlying pool of mortgages over time and then applying the structural features (e.g., payment priorities and tranching) of the RMBS and any expected representation and warranty recoveries/payables to the projected performance of the collateral over time. The resulting projected claim payments or reimbursements are then discounted using risk-free rates. Each period the Company reviews the assumptions it uses to make RMBS loss projections with consideration of updates on the performance of its insured transactions (including early-stage delinquencies, late-stage delinquencies and loss severity) as well as the residential property market and economy in general. To the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a more prolonged trend. The assumptions that the Company uses to project RMBS losses are shown in the sections below. Net Economic Loss Development (Benefit) U.S. RMBS First Quarter 2024 2023 (in millions) First lien U.S. RMBS $ ( 1 ) $ — Second lien U.S. RMBS ( 2 ) 5 First Lien U.S. RMBS Loss Projections: Alt-A, Prime, Option ARM and Subprime The majority of projected losses in first lien U.S. RMBS transactions are expected to come from non-performing mortgage loans (those that are or have recently been two or more payments behind, have been modified, are in foreclosure, or have been foreclosed upon). Changes in the amount of non-performing loans from the amount projected in the previous period are one of the primary drivers of loss projections in this portfolio. Collateral losses are projected to be offset by recoveries on deferred principal balance. In order to project the number of defaults arising from these delinquent and foreclosed loans, the Company applies a liquidation rate assumption to loans in each of various non-performing categories. The Company arrived at its liquidation rates based on data purchased from a third-party provider and assumptions about how delays in the foreclosure process and loan modifications may ultimately affect the rate at which loans are liquidated. Each quarter the Company reviews recent data and (if necessary) adjusts its liquidation rates based on its observations. The following table shows liquidation assumptions for various non-performing and re-performing categories. First Lien U.S. RMBS Liquidation Rates As of March 31, 2024 As of December 31, 2023 Range (1) Range (1) Current but recently delinquent 20 % 20 % 30 – 59 Days Delinquent 30 % – 35 % 30 % – 35 % 60 – 89 Days Delinquent 40 % – 45 % 40 % – 45 % 90+ Days Delinquent 45 % – 60 % 45 % – 60 % Bankruptcy 40 % – 50 % 40 % – 50 % Foreclosure 55 % – 65 % 55 % – 65 % Real Estate Owned 100 % 100 % ____________________ (1) The ranges represent variation in calculated liquidation rates across RMBS sectors. While the Company uses the liquidation rates above to project defaults of non-performing loans (including current loans that were recently modified or delinquent), it projects defaults on presently current loans by applying a conditional default rate (CDR) curve. The start of that CDR curve is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans. The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, results in the projection of the defaults that are expected to emerge from the various delinquency categories. The CDR thus calculated individually on the delinquent collateral pool for each RMBS is then used as the starting point for the CDR curve used to project defaults of the presently performing loans. 26 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued In the most heavily weighted scenario (the base scenario), after the 36 -month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to a final CDR of 5 % of the CDR plateau. In the base scenario, the Company assumes the final CDR will be reached one year after the 36 -month CDR plateau period. Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were recently modified or delinquent, or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36 -month period represent defaults attributable to borrowers that are currently performing or are projected to re-perform. Another important driver of loss projections is loss severity, which is the amount of loss the transaction incurs on a loan after the application of net proceeds from the disposal of the underlying property. The Company assumes in the base scenario that recent (still historically elevated) loss severities will improve after loans with accumulated delinquencies and foreclosure cost are liquidated. The Company is assuming in the base scenario that recent severity levels generally will continue for another 18 months. The Company determines its initial loss severity based on recent experience. Each quarter, the Company reviews available data and (if necessary) adjusts its severities based on its observations. The Company then assumes that loss severities begin returning to levels consistent with underwriting assumptions beginning after the initial 18 -month period, declining to 40 % in the base scenario over 2.5 years. The Company incorporates a recovery assumption into its loss modeling to reflect observed trends in recoveries of deferred principal balances of modified first lien loans. For transactions where the Company has detailed loan information, the Company assumes, in the base scenario, that 30 % of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans. The following table shows the range as well as the average, weighted by outstanding net insured par, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 first lien U.S. RMBS. Key Assumptions in Base Scenario Expected Loss Estimates First Lien U.S. RMBS As of March 31, 2024 As of December 31, 2023 Range Weighted Average Range Weighted Average Plateau CDR 0.0 % - 11.8 % 4.1 % 0.0 % - 10.0 % 4.2 % Final CDR 0.0 % - 0.6 % 0.2 % 0.0 % - 0.5 % 0.2 % Initial loss severity 50 % 50 % The rate at which the principal amount of loans is voluntarily prepaid may impact both the amount of losses projected (since that amount is a function of the CDR, the loss severity and the loan balance over time) as well as the amount of excess spread (the amount by which the interest paid by the borrowers on the underlying loan exceeds the amount of interest owed on the insured obligations). The assumption for the voluntary conditional prepayment rate (CPR) follows a pattern similar to that of the CDR. The current level of voluntary prepayments is assumed to continue for the plateau period before gradually increasing over 12 months to the final CPR, which is assumed to be 15 % in the base scenario. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. These CPR assumptions are the same as those the Company used for December 31, 2023. In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien U.S. RMBS transactions by varying its assumptions of how fast a recovery is expected to occur. One of the variables used to model sensitivities was how quickly the CDR returned to its modeled equilibrium, which was defined as 5 % of the CDR plateau. The Company also stressed CPR and the speed of recovery of loss severity rates. The Company probability weighted a total of five scenarios as of March 31, 2024 and December 31, 2023. Certain transactions benefit from excess spread when they are supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) but have insured floating rate debt linked to the Secured Overnight Finance Rate (SOFR). An increase in projected SOFR decreases excess spread, while lower SOFR projections result in higher excess spread. The Company used a similar approach to establish its scenarios as of March 31, 2024 as it used as of December 31, 2023, increasing and decreasing the periods and levels of stress from those used in the base scenario. In the Company’s most 27 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued stressful scenario where 10 % of deferred principal balances are assumed to be recovered, loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 16 months, expected loss to be paid would increase from current projections by approximately $ 28 million for all first lien U.S. RMBS transactions. In the Company’s least stressful scenario where 50 % of deferred principal balances are assumed to be recovered, the CDR plateau was six months shorter ( 30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over eight months ), expected loss to be paid would decrease from current projections by approximately $ 20 million for all first lien U.S. RMBS transactions. Second Lien U.S. RMBS Loss Projections Second lien U.S. RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages. The Company believes the primary variable affecting its expected losses in second lien U.S. RMBS transactions is the amount and timing of future losses or recoveries in the collateral pool supporting the transactions (including recoveries from previously charged-off loans). Expected losses are also a function of the structure of the transaction, the prepayment speeds of the collateral, the interest rate environment and assumptions about loss severity. The Company estimates the amount of loans that will default over the next several years by first calculating expected liquidation rates for delinquent loans, and applying liquidation rates to currently delinquent loans in order to arrive at an expected dollar amount of defaults from currently delinquent collateral (plateau period defaults). Similar to the methodology applied to first lien U.S. RMBS transactions, the Company then calculates a CDR that will cause the targeted amount of liquidations to occur during the plateau period. For the base scenario, the CDR plateau is held constant for 36 months. Once the plateau period ends, the CDR is assumed to trend down in uniform increments for one year to its final long-term steady state CDR ( 5 % of original plateau). HELOC loans generally permit the borrower to pay only interest for an initial period (often ten years ) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment. This causes the borrower's total monthly payment to increase, sometimes substantially, at the end of the initial interest-only period. A substantial number of loans in the Company’s insured transactions had been modified to extend the interest-only period to 15 years. The majority of the modified loans have reset to full amortization. The Company has observed the performance of the modified loans that have finally reset to full amortization and noted low levels of delinquency, even with substantial increases in monthly payments. This observed performance lowers the level of uncertainty regarding this modified cohort. When a second lien loan defaults, there is generally a low recovery. The Company assumed, as of March 31, 2024 and December 31, 2023, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time. A second lien on the borrower’s home may be retained in the Company’s second lien transactions after the loan is charged off and the loss applied to the transaction, particularly in cases where the holder of the first lien has not foreclosed. If the second lien is retained and the value of the home increases, the servicer may be able to use the second lien to increase recoveries, either by arranging for the borrower to resume payments or by realizing value upon the sale of the underlying real estate. The Company evaluates its assumptions quarterly based on actual recoveries of charged-off loans observed from period to period and reasonable expectations of future recoveries. In instances where the Company is able to obtain information on the lien status of charged-off loans, it assumes there will be a certain level of future recoveries of the balance of the charged-off loans where the second lien is still intact. The Company’s base scenario recovery assumption for charged-off loans is 40 %. Such recoveries are assumed to be received evenly over the next five years . The rate at which the principal amount of loans is prepaid may impact both the amount of losses projected as well as the amount of excess spread. In the base scenario, an average CPR (based on experience of the past year) is assumed to continue until the end of the plateau before gradually increasing to the final CPR over the same period the CDR decreases. The final CPR is assumed to be 15 % for second lien U.S. RMBS transactions (in the base scenario), which is lower than the historical average but reflects the Company’s continued uncertainty about the projected performance of the borrowers in these transactions. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. This pattern is consistent with how the Company modeled the CPR as of December 31, 2023. To the extent that prepayments differ from projected levels, the Company’s projected excess spread and losses could materially change. 28 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued In estimating expected losses, the Company modeled and probability weighted five scenarios, each with a different CDR curve applicable to the period preceding the return to the long-term steady state CDR. The Company believes that the level of the elevated CDR and the length of time it will persist, the ultimate prepayment rate and recoveries for charged-off loans are the primary drivers of the amount of losses the collateral will likely suffer. The following table shows the range as well as the average, weighted by net par outstanding, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 HELOCs. Key Assumptions in Base Scenario Expected Loss Estimates HELOCs As of March 31, 2024 As of December 31, 2023 Range Weighted Average Range Weighted Average Plateau CDR 0.0 % - 6.3 % 2.6 % 0.0 % - 9.3 % 2.6 % Final CDR 0.0 % - 0.3 % 0.1 % 0.0 % - 0.5 % 0.1 % Liquidation rates: Current but recently delinquent 20 % 20 % 30 – 59 Days Delinquent 30 30 60 – 89 Days Delinquent 40 40 90+ Days Delinquent 60 60 Bankruptcy 55 55 Foreclosure 55 55 Real Estate Owned 100 100 Loss severity on future defaults 98 % 98 % Projected future recoveries on previously charged-off loans 40 % 40 % The Company continues to evaluate the assumptions affecting its modeling results. The Company believes the most important driver of its projected second lien U.S. RMBS losses is the performance of its HELOC transactions. The Company modeled scenarios with a longer period of elevated defaults and others with a shorter period of elevated defaults as well as various levels of assumed recoveries. In the Company’s most stressful scenario, assuming 10 % recoveries on charged-off loans, increasing the CDR plateau to 42 months and increasing the ramp-down by four months to 16 months (for a total stress period of 58 months) would decrease the expected recovery by approximately $ 84 million for HELOC transactions. On the other hand, in the Company’s least stressful scenario, assuming 80 % recoveries on charged-off loans, reducing the CDR plateau to 30 months and decreasing the length of the CDR ramp-down to eight months (for a total stress period of 38 months) and lowering the ultimate prepayment rate to 10 % would increase the expected recovery by approximately $ 114 million for HELOC transactions. Recovery Litigation and Dispute Resolution In the ordinary course of their respective businesses, certain of AGL’s subsidiaries are involved in litigation or other dispute resolution with third parties to recover insurance losses paid or return benefits received in prior periods or prevent or reduce losses in the future. The impact, if any, of these and other proceedings on the amount of recoveries the Company ultimately receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s financial statements. The Company has asserted claims in a number of legal proceedings in connection with its exposure to Puerto Rico. See Note 3, Outstanding Exposure, for a discussion of the Company’s exposure to Puerto Rico and related recovery litigation being pursued by the Company. 29 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued 5. Contracts Accounted for as Insurance The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives and consolidated FG VIEs. Amounts presented in this note relate only to contracts accounted for as insurance, unless otherwise specified. See Note 6, Contracts Accounted for as Credit Derivatives, for amounts related to CDS and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts related to consolidated FG VIEs. Premiums Net Earned Premiums First Quarter 2024 2023 (in millions) Financial guaranty insurance: Scheduled net earned premiums $ 71 $ 69 Accelerations from refundings and terminations 39 4 Accretion of discount on net premiums receivable 7 7 Financial guaranty insurance net earned premiums 117 80 Specialty net earned premiums 2 1 Net earned premiums $ 119 $ 81 Gross Premium Receivable, Net of Commissions Payable on Assumed Business Roll Forward First Quarter 2024 2023 (in millions) Beginning of year $ 1,468 $ 1,298 Less: Specialty insurance premium receivable 1 1 Financial guaranty insurance premiums receivable 1,467 1,297 Gross written premiums on new business, net of commissions 63 79 Gross premiums received, net of commissions ( 75 ) ( 64 ) Adjustments: Changes in the expected term and debt service assumptions ( 3 ) 6 Accretion of discount, net of commissions on assumed business 7 7 Foreign exchange gain (loss) on remeasurement ( 10 ) 20 Financial guaranty insurance premium receivable 1,449 1,345 Specialty insurance premium receivable 1 1 March 31, $ 1,450 $ 1,346 Approximately 68 % and 70 % of gross premiums receivable, net of commissions payable, at March 31, 2024 and December 31, 2023, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro. 30 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The timing and cumulative amount of actual collections and net earned premiums may differ from those of expected collections and of expected net earned premiums in the table below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations, restructurings, changes in the consumer price indices, changes in expected lives and new business. Financial Guaranty Insurance Expected Future Premium Collections and Earnings As of March 31, 2024 Future Premiums to be Collected (1) Future Net Premiums to be Earned (2) (in millions) 2024 (April 1 - June 30) $ 49 $ 71 2024 (July 1 - September 30) 45 71 2024 (October 1 - December 31) 23 70 Subtotal 2024 117 212 2025 124 266 2026 107 249 2027 103 234 2028 96 222 2029-2033 406 913 2034-2038 276 603 2039-2043 200 378 After 2043 391 520 Total $ 1,820 3,597 Future accretion 369 Total future net earned premiums $ 3,966 ____________________ (1) Net of assumed commissions payable. (2) Net of reinsurance. Selected Information for Financial Guaranty Insurance Policies with Premiums Paid in Installments As of March 31, 2024 December 31, 2023 (dollars in millions) Premiums receivable, net of commissions payable $ 1,449 $ 1,467 Deferred premium revenue 1,757 1,768 Weighted-average risk-free rate used to discount premiums 2.1 % 2.1 % Weighted-average period of premiums receivable (in years) 12.4 12.5 Losses and Recoveries Loss reserves and salvage are discounted at risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 4.14 % to 5.33 % with a weighted average of 4.49 % as of March 31, 2024 and 3.79 % to 5.40 % with a weighted average of 4.17 % as of December 31, 2023. 31 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The following tables provide information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance. Net Reserve (Salvage) by Sector As of Sector March 31, 2024 December 31, 2023 (in millions) Public finance: U.S. public finance $ 100 $ 119 Non-U.S. public finance 1 1 Public finance 101 120 Structured finance: U.S. RMBS ( 127 ) ( 87 ) Other structured finance 36 42 Structured finance ( 91 ) ( 45 ) Total $ 10 $ 75 The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed. Expected loss to be paid (recovered) for financial guaranty insurance contracts differs from expected loss to be expensed due to: (i) the contra-paid, which represents the claim payments made and recoveries received that have not yet been recognized in the statements of operations; (ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid (and therefore recognized in income but not yet received); and (iii) loss reserves that have already been established (and therefore expensed but not yet paid). Reconciliation of Net Expected Loss to be Paid (Recovered) to Net Expected Loss to be Expensed Financial Guaranty Insurance Contracts As of March 31, 2024 (in millions) Net expected loss to be paid (recovered) - financial guaranty insurance $ 188 Contra-paid, net 22 Salvage and subrogation recoverable, net 294 Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance ( 301 ) Net expected loss to be expensed (present value) $ 203 32 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The following table provides a schedule of the expected timing of net expected losses to be expensed. The amount and timing of actual loss and LAE may differ from the estimates shown below due to factors such as accelerations, commutations, changes in expected lives and updates to loss estimates. This table excludes amounts related to FG VIEs, which are eliminated in consolidation. Net Expected Loss to be Expensed Financial Guaranty Insurance Contracts As of March 31, 2024 (in millions) 2024 (April 1 - June 30) $ 4 2024 (July 1 - September 30) 3 2024 (October 1 - December 31) 3 Subtotal 2024 10 2025 12 2026 15 2027 16 2028 14 2029-2033 67 2034-2038 47 2039-2043 11 After 2043 11 Net expected loss to be expensed (present value) 203 Future accretion ( 18 ) Total expected future loss and LAE $ 185 The following table presents the loss and LAE (benefit) reported in the condensed consolidated statements of operations by sector for insurance contracts. Loss and LAE (Benefit) by Sector First Quarter Sector 2024 2023 (in millions) Public finance: U.S. public finance $ ( 2 ) $ ( 4 ) Non-U.S. public finance — — Public finance ( 2 ) ( 4 ) Structured finance: U.S. RMBS $ 2 $ 6 Other structured finance ( 1 ) 2 Structured finance 1 8 Loss and LAE (benefit) $ ( 1 ) $ 4 33 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The following tables provide information on financial guaranty insurance contracts categorized as BIG. Financial Guaranty Insurance BIG Transaction Loss Summary As of March 31, 2024 Gross Net Total BIG BIG 1 BIG 2 BIG 3 Total BIG (dollars in millions) Number of risks (1) 91 12 109 212 212 Remaining weighted-average period (in years) 9.4 15.7 6.9 9.7 9.7 Outstanding exposure: Par $ 2,362 $ 977 $ 1,817 $ 5,156 $ 5,141 Interest 1,098 893 657 2,648 2,644 Total (2) $ 3,460 $ 1,870 $ 2,474 $ 7,804 $ 7,785 Expected cash outflows (inflows) $ 171 $ 187 $ 1,472 $ 1,830 $ 1,820 Potential recoveries (3) ( 363 ) ( 77 ) ( 1,219 ) ( 1,659 ) ( 1,650 ) Subtotal ( 192 ) 110 253 171 170 Discount 53 ( 23 ) ( 12 ) 18 18 Expected losses to be paid (recovered) $ ( 139 ) $ 87 $ 241 $ 189 $ 188 Deferred premium revenue $ 96 $ 62 $ 136 $ 294 $ 294 Reserves (salvage) $ ( 175 ) $ 45 $ 137 $ 7 $ 7 34 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Financial Guaranty Insurance BIG Transaction Loss Summary As of December 31, 2023 Gross Net Total BIG BIG 1 BIG 2 BIG 3 Total BIG (dollars in millions) Number of risks (1) 95 13 109 217 217 Remaining weighted-average period (in years) 9.6 15.9 7.5 9.9 10.0 Outstanding exposure: Par $ 2,400 $ 979 $ 2,019 $ 5,398 $ 5,383 Interest 1,126 896 818 2,840 2,836 Total (2) $ 3,526 $ 1,875 $ 2,837 $ 8,238 $ 8,219 Expected cash outflows (inflows) $ 176 $ 187 $ 1,585 $ 1,948 $ 1,938 Potential recoveries (3) ( 376 ) ( 78 ) ( 1,214 ) ( 1,668 ) ( 1,659 ) Subtotal ( 200 ) 109 371 280 279 Discount 56 ( 22 ) ( 53 ) ( 19 ) ( 19 ) Expected losses to be paid (recovered) $ ( 144 ) $ 87 $ 318 $ 261 $ 260 Deferred premium revenue $ 100 $ 63 $ 142 $ 305 $ 305 Reserves (salvage) $ ( 181 ) $ 45 $ 209 $ 73 $ 72 ____________________ (1) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments. (2) Includes amounts related to FG VIEs. (3) Represents expected inflows from future payments by obligors pursuant to restructuring agreements, settlements, excess spread on any underlying collateral and other estimated recoveries. Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past. 6. Contracts Accounted for as Credit Derivatives Amounts presented in this note relate only to contracts accounted for as derivatives, which are primarily CDS, and also include interest rate swaps. The Company’s credit derivatives are generally governed by International Swaps and Derivatives Association, Inc. documentation and have certain characteristics that differ from financial guaranty insurance contracts. For example, the Company’s control rights with respect to a reference obligation under a CDS may be more limited than when the Company issues a financial guaranty insurance contract. In addition, there are more circumstances under which the Company may be obligated to make payments. Similar to a financial guaranty insurance contract, the Company would be obligated to pay if the obligor failed to make a scheduled payment of principal or interest in full. In certain credit derivative transactions, the Company also specifically agreed to pay if the obligor were to become bankrupt or if the reference obligation were restructured. Furthermore, in certain credit derivative transactions, the Company may be required to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the non-defaulting or the non-affected party, which may be either the Company or the counterparty, depending upon the circumstances, may decide to terminate a credit derivative prior to maturity. In that case, the Company may be required to make a termination payment to its swap counterparty upon such termination. Absent such an event of default or termination event, the Company may not unilaterally terminate a credit derivative contract; however, the Company on occasion has mutually agreed with various counterparties to terminate certain CDS transactions. 35 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The components of the Company’s credit derivative net par outstanding by sector are presented in the table below. The estimated remaining weighted average life of credit derivatives was 10.9 years and 11.1 years as of March 31, 2024 and December 31, 2023, respectively. Credit Derivatives (1) As of March 31, 2024 As of December 31, 2023 Sector Net Par Outstanding Net Fair Value Asset (Liability) Net Par Outstanding Net Fair Value Asset (Liability) (in millions) U.S. public finance $ 1,077 $ ( 14 ) $ 1,149 $ ( 15 ) Non-U.S. public finance 1,507 ( 19 ) 1,522 ( 20 ) U.S. structured finance 223 ( 5 ) 322 ( 13 ) Non-U.S. structured finance 614 ( 1 ) 615 ( 2 ) Total $ 3,421 $ ( 39 ) $ 3,608 $ ( 50 ) ____________________ (1) Expected loss to be paid was $ 1 million and $ 2 million as of March 31, 2024 and December 31, 2023, respectively. Fair Value Gains (Losses) on Credit Derivatives First Quarter 2024 2023 (in millions) Realized gains (losses) and other settlements $ ( 1 ) $ 1 Net unrealized gains (losses) 11 14 Fair value gains (losses) on credit derivatives $ 10 $ 15 The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates and other market conditions at the time these fair values are determined. In addition, since each transaction has unique collateral and structural terms, the change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts generally also reflects the Company’s own credit cost based on the price to purchase credit protection on AGC. The Company determines its own credit risk primarily based on quoted CDS prices traded on AGC at each balance sheet date. CDS Spread on AGC (in basis points) As of March 31, 2024 As of December 31, 2023 As of March 31, 2023 As of December 31, 2022 Five-year CDS spread 52 66 83 63 One-year CDS spread 19 23 31 26 Fair Value of Credit Derivative Assets (Liabilities) and Effect of AGC Credit Spread As of March 31, 2024 December 31, 2023 (in millions) Fair value of credit derivatives before effect of AGC credit spread $ ( 56 ) $ ( 76 ) Plus: Effect of AGC credit spread 17 26 Net fair value of credit derivatives $ ( 39 ) $ ( 50 ) The fair value of CDS contracts as of March 31, 2024, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor. 36 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued 7. Investments The majority of the investment portfolio comprises investment grade fixed-maturity securities managed by three outside managers. The Company has established investment guidelines for these investment managers regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector. The remainder of the investment portfolio primarily consists of (i) Loss Mitigation Securities; (ii) CVIs received in connection with the 2022 Puerto Rico Resolutions; (iii) equity method investments; and (iv) short-term investments. Equity method investments primarily consist of the investment in Sound Point and fund investments across a variety of strategies. Investment Portfolio Carrying Value As of March 31, 2024 December 31, 2023 (in millions) Fixed-maturity securities, available-for-sale (1): Externally managed $ 5,383 $ 5,372 Loss Mitigation Securities 464 459 Other 244 476 Fixed-maturity securities, trading - Puerto Rico, CVIs (2) 272 318 Short-term investments 1,649 1,661 Other invested assets: Equity method investments: Sound Point 417 429 Alternative investments (3) 451 394 Other 7 6 Total (4) $ 8,887 $ 9,115 ____________________ (1) 9.5 % and 9.2 % of fixed-maturity securities, available for sale, were rated BIG or not rated as of March 31, 2024 and December 31, 2023, respectively. BIG rated securities consisted primarily of Loss Mitigation Securities. (2) These securities are not rated. (3) Excludes certain investments in funds that are consolidated and accounted for as CIVs. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. (4) The aggregate carrying value of the Company’s investments in Sound Point, and Sound Point managed funds was $ 636 million and $ 631 million as of March 31, 2024 and December 31, 2023, respectively. The Company has agreed to invest $ 1.5 billion in alternative investments, including $ 1 billion in Sound Point managed investments, subject to regulatory approval. The fair value of alternative investments as of March 31, 2024 was $ 803 million. The Company had $ 743 million in unfunded commitments to alternative investments (of which $ 324 million is committed to specific funds). See Note 1, Business and Basis of Presentation for a description of the Sound Point Transaction. Of the $ 1.5 billion 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 $ 162 million for a total of $ 912 million as of March 31, 2024. As of March 31, 2024, AGAS commitments to Sound Point and AHP funds were $ 772 million (of which $ 574 million was funded with a net asset value (NAV) of $ 632 million). This capital was committed to several funds, each dedicated to a single strategy, including CLOs, asset-based/special finance and healthcare structured capital. As of March 31, 2024, three of the eight funds in which AGAS invests are accounted for as CIVs. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Accrued investment income, which is reported in “other assets,” was $ 72 million as of March 31, 2024 and $ 71 million as of December 31, 2023. 37 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Available-for-Sale Fixed-Maturity Securities by Security Type As of March 31, 2024 Security Type Percent of Total (1) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (dollars in millions) Obligations of state and political subdivisions 37 % $ 2,418 $ ( 14 ) $ 27 $ ( 100 ) $ 2,331 U.S. government and agencies 1 60 — 1 ( 6 ) 55 Corporate securities (2) 35 2,307 ( 6 ) 10 ( 210 ) 2,101 Mortgage-backed securities (3): RMBS 7 490 ( 22 ) 3 ( 69 ) 402 Commercial mortgage-backed securities (CMBS) 3 202 — — ( 6 ) 196 Asset-backed securities: CLOs 7 442 — 1 ( 4 ) 439 Other 8 535 ( 25 ) 1 ( 28 ) 483 Non-U.S. government securities 2 99 — — ( 15 ) 84 Total available-for-sale fixed-maturity securities 100 % $ 6,553 $ ( 67 ) $ 43 $ ( 438 ) $ 6,091 Available-for-Sale Fixed-Maturity Securities by Security Type As of December 31, 2023 Security Type Percent of Total (1) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (dollars in millions) Obligations of state and political subdivisions 41 % $ 2,733 $ ( 13 ) $ 33 $ ( 92 ) $ 2,661 U.S. government and agencies 1 65 — 1 ( 6 ) 60 Corporate securities (2) 34 2,327 ( 6 ) 17 ( 197 ) 2,141 Mortgage-backed securities (3): RMBS 6 428 ( 21 ) 3 ( 68 ) 342 CMBS 2 157 — — ( 6 ) 151 Asset-backed securities: CLOs 7 456 — 1 ( 7 ) 450 Other 7 465 ( 37 ) — ( 26 ) 402 Non-U.S. government securities 2 115 — — ( 15 ) 100 Total available-for-sale fixed-maturity securities 100 % $ 6,746 $ ( 77 ) $ 55 $ ( 417 ) $ 6,307 ____________________ (1) Based on amortized cost. (2) Includes securities issued by taxable universities and hospitals. (3) U.S. government-agency obligations were approximately 56 % and 42 % of mortgage-backed securities as of March 31, 2024 and December 31, 2023, respectively, based on fair value. 38 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Gross Unrealized Loss by Length of Time for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded As of March 31, 2024 Less than 12 months 12 months or more Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss (dollars in millions) Obligations of state and political subdivisions $ 603 $ ( 3 ) $ 1,250 $ ( 96 ) $ 1,853 $ ( 99 ) U.S. government and agencies 7 — 33 ( 6 ) 40 ( 6 ) Corporate securities 164 ( 2 ) 1,384 ( 168 ) 1,548 ( 170 ) Mortgage-backed securities: RMBS 34 — 138 ( 11 ) 172 ( 11 ) CMBS 4 — 127 ( 6 ) 131 ( 6 ) Asset-backed securities: CLOs 9 — 222 ( 2 ) 231 ( 2 ) Other 9 — 26 ( 1 ) 35 ( 1 ) Non-U.S. government securities — — 79 ( 15 ) 79 ( 15 ) Total $ 830 $ ( 5 ) $ 3,259 $ ( 305 ) $ 4,089 $ ( 310 ) Number of securities (1) 319 1,311 1,609 Gross Unrealized Loss by Length of Time for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded As of December 31, 2023 Less than 12 months 12 months or more Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss (dollars in millions) Obligations of state and political subdivisions $ 641 $ ( 4 ) $ 931 $ ( 87 ) $ 1,572 $ ( 91 ) U.S. government and agencies — — 33 ( 6 ) 33 ( 6 ) Corporate securities 72 ( 1 ) 1,426 ( 152 ) 1,498 ( 153 ) Mortgage-backed securities: RMBS 27 ( 1 ) 124 ( 8 ) 151 ( 9 ) CMBS 3 — 148 ( 6 ) 151 ( 6 ) Asset-backed securities: CLOs 22 ( 1 ) 379 ( 6 ) 401 ( 7 ) Other 1 — 26 ( 1 ) 27 ( 1 ) Non-U.S. government securities — — 95 ( 15 ) 95 ( 15 ) Total $ 766 $ ( 7 ) $ 3,162 $ ( 281 ) $ 3,928 $ ( 288 ) Number of securities (1) 274 1,266 1,525 ___________________ (1) The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column. The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company has determined that the unrealized losses recorded as of March 31, 2024 and December 31, 2023 were primarily related to higher interest rates rather than credit quality. As of March 31, 2024, the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value. As of March 31, 2024, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 458 securities had unrealized losses in excess of 10% of their carrying value, 39 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued whereas as of December 31, 2023, 409 securities had unrealized losses in excess of 10% of their carrying value. The total unrealized loss for these securities was $ 224 million as of March 31, 2024 and $ 200 million as of December 31, 2023. The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of March 31, 2024 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity As of March 31, 2024 Amortized Cost Estimated Fair Value (in millions) Due within one year $ 289 $ 283 Due after one year through five years 1,373 1,305 Due after five years through 10 years 1,605 1,527 Due after 10 years 2,594 2,378 Mortgage-backed securities: RMBS 490 402 CMBS 202 196 Total $ 6,553 $ 6,091 Based on fair value, fixed-maturity securities, short-term investments and cash 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 $ 143 million as of March 31, 2024 and $ 234 million as of December 31, 2023. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or are otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements with a fair value of $ 1,144 million and $ 1,154 million as of March 31, 2024 and December 31, 2023, respectively. 40 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Income from Investments The components of income derived from the investment portfolio are presented in the following tables. Income from Investments First Quarter 2024 2023 (in millions) Investment income: Fixed-maturity securities, available-for-sale: Externally managed $ 51 $ 52 Loss Mitigation Securities 7 9 Puerto Rico, New Recovery Bonds — 3 Other 4 5 Short-term investments 23 13 Investment income 85 82 Investment expenses ( 1 ) ( 1 ) Net investment income $ 84 $ 81 Fair value gains (losses) on trading securities (1) $ 26 $ ( 2 ) Equity in earnings (losses) of investees: Sound Point (2) $ 4 $ — Funds (3) 14 — Other 6 2 Equity in earnings (losses) of investees $ 24 $ 2 ____________________ (1) Fair value gains on trading securities pertaining to securities still held as of March 31, 2024 were $ 22 million for first quarter 2024. Fair value losses on trading securities pertaining to securities still held as of March 31, 2023 were $ 2 million for first quarter 2023. (2) Beginning in the fourth quarter of 2023, equity in earnings (losses) includes the Company’s share of the earnings of Sound Point, which is reported on a one-quarter lag. (3) Sound Point and AHP funds, and, prior to July 1 2023, AssuredIM funds. Realized Investment Gains (Losses) The table below presents the components of net realized investment gains (losses). Realized gains and losses on sales of investments are determined using the specific identification method. Net Realized Investment Gains (Losses) First Quarter 2024 2023 (in millions) Gross realized gains on sales of available-for-sale securities $ 1 $ 12 Gross realized losses on sales of available-for-sale securities ( 3 ) ( 9 ) Change in the allowance for credit losses and intent to sell (1) 10 ( 5 ) Net realized investment gains (losses) $ 8 $ ( 2 ) ____________________ (1) Change in allowance for credit losses for all periods was primarily related to Loss Mitigation Securities. 41 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The following table presents the roll forward of allowance for the credit losses on available-for-sale fixed-maturity securities. Roll Forward of Allowance for Credit Losses for Available-for-Sale Fixed-Maturity Securities First Quarter 2024 2023 (in millions) Balance, beginning of period $ 77 $ 65 Additions (reductions) for securities for which credit losses were previously recognized ( 10 ) 4 Balance, end of period $ 67 $ 69 The Company did not purchase any securities with credit deterioration during first quarter 2024 and first quarter 2023. Most of the Company’s allowance for credit losses relates to Loss Mitigation Securities. 8. Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles FG VIEs Structured Finance and Other FG VIEs The insurance subsidiaries provide financial guaranties with respect to debt obligations of special purpose entities, including VIEs, but do not act as the servicer or collateral manager for any VIE obligations they guarantee. The transaction structure generally provides certain financial protections to the insurance subsidiaries. This financial protection can take several forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread. In the case of overcollateralization (i.e., the principal amount of the securitized assets exceeds the principal amount of the structured finance obligations), the structure allows defaults of the securitized assets before a default is experienced on the structured finance obligation guaranteed by the insurance subsidiaries. In the case of first loss, the insurance subsidiaries’ financial guaranty insurance policy only covers a senior layer of losses experienced by multiple obligations issued by the VIEs. The first loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors. In the case of excess spread, the financial assets contributed to VIEs generate interest income that is in excess of the interest payments on the debt issued by the VIE. Such excess spread is typically distributed through the transaction’s cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the VIE (thereby, creating additional overcollateralization), or distributed to equity or other investors in the transaction. The insurance subsidiaries are not primarily liable for the debt obligations issued by the structured finance and other FG VIEs (which excludes the Puerto Rico Trusts described below) they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall. AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the structured finance and other FG VIEs. Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on structured finance and other FG VIEs’ liabilities. As part of the terms of its financial guaranty contracts, the insurance subsidiaries obtain certain protective rights with respect to the VIE that give them additional controls over a VIE. These protective rights are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer’s or collateral manager’s financial condition. At deal inception, the insurance subsidiaries typically are not deemed to control the VIE; however, once a trigger event occurs, the insurance subsidiaries’ control of the VIE typically increases. The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the insurance subsidiaries and, accordingly, where they are obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE. The insurance subsidiaries are deemed to be the control party for certain VIEs under GAAP, typically when their protective rights give them the power to both terminate and replace the transaction’s servicer or collateral manager, which are characteristics specific to the Company’s financial guaranty contracts. If the protective rights that could make the insurance subsidiaries the control party have not been triggered, then the VIE is not consolidated. If the insurance subsidiaries are deemed to no longer have those protective rights, the VIE is deconsolidated. 42 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The structured finance and other FG VIEs’ liabilities that are guaranteed by the insurance subsidiaries are considered to be with recourse, because the insurance subsidiaries guarantee the payment of principal and interest regardless of the performance of the related FG VIEs’ assets. The structured finance and other FG VIEs’ liabilities that are not guaranteed by the insurance subsidiaries are considered to be without recourse, because the payment of principal and interest of these liabilities is wholly dependent on the performance of the FG VIEs’ assets. The Company has elected the fair value option (FVO) for all assets and all liabilities of the structured finance and other FG VIEs. Upon initial adoption of the accounting guidance for VIEs in 2010, the Company elected to fair value its structured finance and other FG VIEs’ assets and liabilities as the carrying amount transition method was not practical. To allow for consistency in the accounting for the assets and liabilities of its consolidated FG VIEs other than the Puerto Rico Trusts, the Company elected the FVO. The change in fair value of all structured finance and other FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for the change in fair value attributable to change in instrument-specific credit risk (ISCR) on the structured finance and other FG VIEs’ liabilities, which is reported in other comprehensive income (OCI). The ISCR amount is determined by using expected cash flows at the original date of consolidation, discounted at the effective yield, less current expected cash flows discounted at that same original effective yield. As of March 31, 2024 and December 31, 2023, the Company consolidated 23 and 24 structured finance and other FG VIEs, respectively. Puerto Rico Trusts With respect to certain insured securities covered by the 2022 Puerto Rico Resolutions, insured bondholders were permitted to elect to receive custody receipts that represent an interest in the legacy insurance policy plus cash and investments. At least one separate custodial trust was set up for each legacy insured bond, and the trusts are deconsolidated when their liabilities are paid off. For those who made the election above, distributions of Plan Consideration are passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds. The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates to the extent that distributions of Plan Consideration are insufficient to pay or prepay such amounts after giving effect to the distributions described in the immediately preceding sentence. In the case of insured bondholders who elected to receive custody receipts, the Company retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying 100% of the then outstanding principal amount of insured bonds plus accrued interest. By December 31, 2023, substantially all of the securities in the Puerto Rico Trusts had been called, and the assets in the Puerto Rico Trusts consisted primarily of cash. In January 2024, such cash proceeds were used to pay down a portion of the liabilities of the Puerto Rico Trusts. The remaining liabilities of the Puerto Rico Trusts will be paid by the U.S. Insurance Subsidiaries under their financial guaranty policies and are no longer dependent on the credit of PRHTA. For the Puerto Rico Trust liabilities, the Company elected the FVO in order to simplify the accounting for these instruments. As of both March 31, 2024 and December 31, 2023 the Company consolidated 24 custodial trusts established as part of the Puerto Rico resolutions reached in 2022. See Note 3, Outstanding Exposure, Exposure to Puerto Rico. Components of FG VIEs’ Assets and Liabilities Net fair value gains and losses on FG VIEs are expected to reverse to zero by the maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by the insurance subsidiaries under the financial guaranty insurance contracts. The Company’s estimate of expected loss to be paid (recovered) for FG VIEs is included in Note 4, Expected Loss to be Paid (Recovered). 43 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The table below shows the carrying value of FG VIEs’ assets and liabilities segregated by type of collateral. Consolidated FG VIEs by Type of Collateral As of March 31, 2024 December 31, 2023 (in millions) FG VIEs’ assets: U.S. RMBS first lien $ 139 $ 145 U.S. RMBS second lien 26 28 Puerto Rico Trusts’ assets (includes $ 2 and $ 1 at fair value) (1) 2 155 Total FG VIEs’ assets $ 167 $ 328 FG VIEs’ liabilities with recourse: U.S. RMBS first lien $ 151 $ 156 U.S. RMBS second lien 20 21 Puerto Rico Trusts’ liabilities 218 366 Total FG VIEs’ liabilities with recourse $ 389 $ 543 FG VIEs’ liabilities without recourse: U.S. RMBS first lien $ 10 $ 11 Total FG VIEs’ liabilities without recourse $ 10 $ 11 ____________________ (1) Includes $ 154 million of cash as December 31, 2023. The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse (all of which are measured at fair value under the FVO) attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period. Selected Information for FG VIEs’ Assets and Liabilities Measured under the FVO As of March 31, 2024 December 31, 2023 (in millions) Excess of unpaid principal over fair value of: FG VIEs’ assets $ 260 $ 259 FG VIEs’ liabilities with recourse 31 25 FG VIEs’ liabilities without recourse 16 16 Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due 27 29 Unpaid principal for FG VIEs’ liabilities with recourse (1) 420 568 ____________________ (1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2024 through 2041. CIVs CIVs consist of certain Sound Point funds for which the Company is the primary beneficiary or has a controlling interest. The Company consolidates investment vehicles that are VIEs when it is deemed to be the primary beneficiary, based on its power to direct the most significant activities of each VIE and its level of economic interest in the entities. The assets and liabilities of the Company’s CIVs are held within separate legal entities. The assets of the CIVs are not available to creditors of the Company, other than creditors of the applicable CIVs. In addition, creditors of the CIVs have no recourse against the assets of the Company, other than the assets of such applicable CIVs. Liquidity available at the Company’s CIVs is not available for corporate liquidity needs, except to the extent of the Company’s investment in the funds, subject to redemption provisions. Changes in the fair value of assets and liabilities of CIVs, interest income and expense, and gains and losses on consolidation and deconsolidation of CIVs are reported in “fair value gains (losses) on CIVs” in the condensed 44 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued consolidated statements of operations. As of both March 31, 2024 and December 31, 2023, the Company consolidated three CIVs. Assets and Liabilities of CIVs As of March 31, 2024 December 31, 2023 (in millions) Assets: Cash and cash equivalents $ 22 $ 35 Equity securities 89 83 Structured products 264 248 Other 2 — Total assets (1) $ 377 $ 366 Liabilities: Other liabilities (2) $ 3 $ 4 Total liabilities $ 3 $ 4 ____________________ (1) Includes investments with affiliated entities of $ 309 million and $ 281 million as of March 31, 2024 and December 31, 2023, respectively. (2) The balance is reported in “other liabilities” in the condensed consolidated balance sheets. Includes $ 3 million with affiliated entities as of both March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, the CIVs included derivative contracts with average notional amounts of $ 38 million and $ 41 million, respectively. Derivative instruments, which include forward foreign currency contracts, serve as a component of the CIVs’ investment strategies. The fair value of derivative contracts is reported in the “assets of CIVs” or “other liabilities” in the condensed consolidated balance sheets. Noncontrolling Interest in CIVs Noncontrolling interest (NCI) represents the portion of the consolidated funds not owned by the Company and includes ownership interests of third parties and former employees. The NCI is non-redeemable and presented on the statement of shareholders’ equity. Other Consolidated VIEs In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the obligations under the original financial guaranty insurance or insured credit derivative contract, the Company classifies the assets and liabilities of that VIE in the line items that most accurately reflect the nature of such assets and liabilities, as opposed to within FG VIEs’ assets and FG VIEs’ liabilities. The largest of these VIEs had assets of $ 92 million and liabilities of $ 7 million as of December 31, 2023, which were reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets. In first quarter 2024, the Company deconsolidated the largest of these VIEs and recognized a $ 5 million gain on deconsolidation, which is included in “fair value gains (losses) on credit derivatives” in the condensed consolidated statements of operations. Non-Consolidated VIEs As described in Note 3, Outstanding Exposure, the Company monitors all policies in the insured portfolio. Of the approximately 15 thousand policies monitored as of March 31, 2024, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization. The majority of the remaining policies involve transactions where the Company is not deemed to currently have control over the FG VIEs’ most significant activities. As of March 31, 2024 and December 31, 2023, the Company identified 60 and 68 policies, respectively, that contain provisions and experienced events that may trigger consolidation. 45 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The Company holds variable interests in VIEs which are not consolidated, as the Company is not the primary beneficiary. As of March 31, 2024, the Company’s maximum exposure to losses relating to these VIEs was $ 395 million. 9. Fair Value Measurement The Company carries a significant portion of its assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit or transfer price). The price represents the price available in the principal market for the asset or liability. If there is no principal market, then the price is based on a hypothetical market that maximizes the value received for an asset or minimizes the amount paid for a liability (i.e., the most advantageous market). Fair value is based on quoted market prices, where available. If listed prices or quotes are not available, fair value is based on either (i) internally developed models that primarily use, as inputs, market-based or independently sourced market parameters (including, but not limited to, yield curves, interest rates, and debt prices) or (ii) discounted cash flows using a third party’s proprietary pricing models. In addition to market information, when applicable, the models also incorporate transaction details, such as the instrument’s maturity and contractual features that reduce the Company’s credit exposure (e.g., collateral rights). Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, the Company’s creditworthiness and constraints on liquidity. As markets and products develop and the pricing transparency for certain products changes, the Company may refine its methodologies and assumptions. During first quarter 2024, no changes were made to the Company’s valuation models that had (or are expected to have) a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income. The Company’s valuation methods produce fair values that may not be indicative of net realizable value or future fair values. The use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a materially different estimate of fair value at the reporting date. The categorization within the fair value hierarchy is determined based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company estimates of market assumptions. The fair value hierarchy prioritizes model inputs into three broad levels, with Level 1 being the highest and Level 3 the lowest. The categorization, of an asset or liability, within the hierarchy is based on the lowest level of significant input to its valuation. Level 1—Quoted prices for identical instruments in active markets. The Company generally defines an active market as a market in which trading occurs at significant volumes. Active markets generally are more liquid and have a lower bid-ask spread than an inactive market. Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and observable inputs other than quoted prices, such as interest rates or yield curves and other inputs derived from or corroborated by observable market inputs. Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Financial instruments are considered Level 3 when their values are (i) determined using pricing models, discounted cash flow methodologies or similar techniques and (ii) at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. There was a transfer of securities into Level 3 in the investment portfolio and in CIVs due to changes in observability of pricing inputs in first quarter 2024. There were no other transfers from or into Level 3 during the periods presented. 46 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Carried at Fair Value Fixed-Maturity Securities The fair value of fixed-maturity securities is generally based on prices received from third-party pricing services or alternative pricing sources that provide reasonable levels of price transparency. The pricing services prepare estimates of fair value using their pricing models, which take into account: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, industry and economic events and sector groupings. Additional valuation factors that can be taken into account are nominal spreads and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. In many cases, benchmark yields have proven to be more reliable indicators of the market for a security, as compared to reported trades for infrequently traded securities and distressed transactions. The extent of the use of each input is dependent on the asset class and the market conditions. The valuation of fixed-maturity securities is more subjective when markets are less liquid due to the lack of market-based inputs. As of March 31, 2024, the Company used models to price 186 securities. All Level 3 securities were priced with the assistance of independent third parties. The pricing is based on a discounted cash flow approach using the third party’s proprietary pricing models. The models use inputs such as projected prepayment speeds; severity assumptions; recovery lag assumptions; estimated default rates (determined based on an analysis of collateral attributes, historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); home price appreciation/depreciation rates based on macroeconomic forecasts; and recent trading activity. The yield used to discount the projected cash flows is determined by reviewing various attributes of the security including collateral type, weighted average life, sensitivity to losses, vintage, and convexity, in conjunction with market data on comparable securities. Significant changes to any of these inputs could have materially changed the expected timing of cash flows within these securities which could have significantly affected the fair value of the securities. Short-Term Investments Short-term investments that are traded in active markets are classified as Level 1 as their value is based on quoted market prices. Securities such as discount notes are classified as Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value. Other Assets Committed Capital Securities Each of AGC and AGM have entered into put agreements with four separate custodial trusts allowing each of AGC and AGM to issue an aggregate of $ 200 million of non-cumulative redeemable perpetual preferred securities to the trusts in exchange for cash. Each custodial trust was created for the primary purpose of issuing $ 50 million face amount of CCS, investing the proceeds in high-quality assets and entering into put options with AGC or AGM, as applicable. The fair value of CCS, which is reported in other assets on the condensed consolidated balance sheets, represents the difference between the present value of the remaining expected put option premium payments under AGC CCS and AGM’s Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value of the amounts that the Company would hypothetically have to pay currently for a comparable security. The change in fair value of the AGC CCS and AGM CPS are reported in “fair value gains (losses) on committed capital securities” in the condensed consolidated statements of operations. The estimated current cost of the Company’s CCS is based on several factors, including AGM and AGC CDS spreads, the Company’s publicly traded debt and an estimation of the securities’ remaining term. The AGC CCS and AGM CPS are classified as Level 3. Supplemental Executive Retirement Plans The Company classified assets included in the Company’s various supplemental executive retirement plans as either Level 1 or Level 2. The fair value of these assets is based on the observable published daily values of the underlying mutual funds included in the plans (Level 1) or based upon the NAV of the funds if a published daily value is not available (Level 2). 47 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The NAVs are based on observable information. The change in fair value of these assets is reported in “other operating expenses” in the condensed consolidated statements of operations. Contracts Accounted for as Credit Derivatives The Company’s credit derivatives, which primarily consist of insured CDS contracts, qualify as derivatives under GAAP that require fair value measurement, with changes in fair value reported in the condensed consolidated statements of operations. The Company does not enter into CDS contracts with the intent to trade these contracts and may not unilaterally terminate a CDS contract absent an event of default or termination event that entitles the Company to terminate such contract. The Company and its counterparties have negotiated the termination of certain contracts from time to time. Transactions are generally terminated for an amount that approximates the present value of future premiums or a negotiated amount, rather than fair value. The terms of the Company’s CDS contracts differ from more standardized credit derivative contracts sold by companies outside the financial guaranty industry. The non-standard terms generally include the absence of collateral support agreements or immediate settlement provisions, and the Company’s insured exposure benefits from relatively high attachment points or other protections. Management considers the non-standard terms of the Company’s credit derivative contracts in determining the fair value of these contracts. There is no established market where financial guaranty insured credit derivatives are actively traded; therefore, management has determined that the exit market for the Company’s credit derivatives is a hypothetical one based on its entry market. Due to the lack of quoted prices and other observable inputs for its instruments or for similar instruments, the Company determines the fair value of its credit derivative contracts primarily through internally developed, proprietary models that use both observable and unobservable market data inputs, and such contracts are therefore classified as Level 3 in the fair value hierarchy. There are multiple unobservable inputs deemed significant to the valuation model, most importantly the Company’s estimate of the value of the non-standard terms and conditions of its credit derivative contracts and how the Company’s own credit spread affects the pricing of its transactions. The fair value of the Company’s credit derivative contracts generally represents the difference between the present value of remaining premiums the Company expects to receive and the estimated present value of premiums that a financial guarantor of comparable credit-worthiness would hypothetically charge at the reporting date for the same protection. The fair value of the Company’s credit derivatives depends on a number of factors, including notional amount of the contract, expected term, credit spreads, changes in interest rates, the credit ratings of referenced entities, the Company’s own credit risk and remaining contractual cash flows. The expected remaining contractual premium cash flows are the most readily observable inputs since they are based on the CDS contractual terms. Credit spreads capture the effect of recovery rates and performance of underlying assets of these contracts, among other factors. Consistent with previous years, market conditions as of March 31, 2024 were such that market prices of the Company’s CDS contracts were not available. Assumptions and Inputs The various inputs and assumptions that are key to the measurement of the Company’s fair value for CDS contracts are as follows: the gross spread, the allocation of gross spread among the bank profit, net spread and hedge cost and the weighted average life (which is based on debt service schedules). The primary sources of information used to determine gross spread and the fair value for CDS contracts include actual collateral credit spreads (if up-to-date and reliable market-based spreads are available), transactions priced or closed during a specific quarter within a specific asset class and specific rating, and information provided by the counterparty of the CDS. Credit spreads may also be interpolated based upon market indices adjusted to reflect the non-standard terms of the Company’s CDS contracts, or extrapolated based upon transactions of similar asset classes, similar ratings, and similar time to maturity. The Company’s pricing model considers not only how credit spreads on its insured risks affect pricing, but also how the Company’s own credit spread affects the pricing of its transactions. The amount of premium a financial guaranty insurance market participant can demand (or “current premium”) is inversely related to the cost of credit protection on the insurance company as measured by market credit spreads assuming all other assumptions remain constant. This is because the buyers of credit protection typically hedge a portion of their risk to the financial guarantor, because the contractual terms of the Company’s contracts typically do not require the posting of collateral by the guarantor. The extent of the hedge depends on the types of instruments insured and the current market conditions. 48 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued The Company’s own credit risk is factored into the determination of the current premium based on the quoted market price for credit protection bought on the Company, as reflected by quoted market prices on CDS contracts referencing AGC. AGM's CDS spreads do not significantly affect the fair value of derivatives because of the characteristics of the derivative contracts remaining in its portfolio. The Company obtains the quoted price of CDS contracts traded on AGC from market data sources published by third parties. As the cost to acquire CDS protection referencing AGC increases, the amount of premium the Company retains on a transaction generally decreases. In the Company’s valuation model, the current premium is not permitted to go below the minimum rate that the Company would charge to assume similar risks in the reporting period. This assumption can have the effect of limiting the amount of unrealized gains that are recognized on certain CDS contracts. Approximately 14.2 % and 11.5 %, based on fair value, of the Company’s CDS contracts were fair valued using this minimum premium as of March 31, 2024 and December 31, 2023, respectively. A credit derivative liability on protection sold is the result of contractual cash inflows on in-force transactions that are lower than what a hypothetical financial guarantor could receive if it sold protection on the same risk as of the reporting date. If the Company were able to freely exchange these contracts (i.e., assuming its contracts did not contain proscriptions on transfer and there was a viable exchange market), it would realize a loss representing the difference between the lower contractual premiums to which it is entitled and the current market premiums for a similar contract. The Company determines the fair value of its CDS contracts by applying the difference between the current premium and the contractual premium for the remaining duration of each contract to the notional value of such contract and then discounting such amounts using the applicable discount rate corresponding to the weighted average remaining life of the contract. The rates used to discount future expected premium cash flows ranged from 3.44 % to 5.42 % as of March 31, 2024 and 3.26 % to 4.81 % as of December 31, 2023. The Company’s credit derivative valuation model is a consistent approach that takes into account the transaction structure and the key drivers of market value and maximizes the use of market-driven inputs whenever they are available. However, because there is no exit market or any actual exit transactions, the Company’s exit market is a hypothetical one based on the Company’s entry market and there is a very limited and illiquid market in which to validate the reasonableness of the fair values developed by the Company’s model. FG VIEs’ Assets and Liabilities FG VIEs include Puerto Rico Trusts and structured finance and other FG VIEs. As of March 31, 2024 and December 31, 2023, assets in the Puerto Rico Trusts, consisted of one fixed-maturity debt security classified as Level 3. The Company elected the FVO for the Puerto Rico Trusts’ liabilities and they are classified as Level 3. Structured finance and other FG VIEs’ assets and liabilities are carried at fair value under the FVO and are classified as Level 3. The fair value of the residential mortgage loan FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds; estimated default rates (determined on the basis of an analysis of collateral attributes such as: historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); yields implied by market prices for similar securities; and, as applicable, house price depreciation/appreciation rates based on macroeconomic forecasts. Significant changes to some of these inputs could have materially changed the fair value of the FG VIEs’ assets and the implied collateral losses within these transactions. In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically leads to a potential decrease in the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets. The prices of the assets and liabilities of the FG VIEs are generally determined with the assistance of an independent third party, based on a discounted cash flow approach. The third party pricing service utilizes an internal model to determine an appropriate yield at which to discount the cash flows of the security, by factoring in collateral types, weighted-average lives and other structural attributes specific to the security being priced. The expected yield is further calibrated by utilizing algorithms designed to aggregate market color, received by the independent third party, on comparable bonds. The models used to price the FG VIEs’ liabilities (other than the liabilities of the Puerto Rico Trusts) generally apply the same inputs used in determining fair value of FG VIEs’ assets. For those liabilities insured by the Company, the benefit of the Company’s insurance policy guaranteeing the timely payment of debt service is also taken into account. The liabilities of 49 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued the Puerto Rico Trusts are priced based on the value of the assets in the Puerto Rico Trusts including the value of the U.S. Insurance Subsidiaries’ financial guaranty policies. Significant changes to any of the inputs described above could materially change the timing of expected losses within an insured transaction. This is a significant factor in determining the implied benefit of the Company’s insurance policy which guarantees the timely payment of principal and interest for the insured tranches of debt issued by the FG VIEs. In general, extending the timing of expected loss payments by the Company typically leads to a decrease in the value of the Company’s insurance and a decrease in the fair value of the Company’s FG VIEs’ liabilities with recourse, while a shortening of the timing of expected loss payments by the Company typically could lead to an increase in the value of the Company’s insurance and an increase in the fair value of the Company’s FG VIEs’ liabilities with recourse. The change in fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for the change in fair value attributable to change in ISCR on FG VIEs’ liabilities. Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on FG VIEs.” Assets and Liabilities of CIVs Investments held by CIVs which are quoted on a national securities exchange are valued at their last reported sale price on the date of determination. Investments held by CIVs which are traded over-the-counter reflect third-party data generally at the average of dealer offer and bid prices. The valuation methodology may include, but is not limited to: (i) performing price comparisons with similar investments; (ii) obtaining valuation-related information from issuers; (iii) calculating the present value of future cash flows; (iv) assessing other data related to the investment that is an indication of value; (v) obtaining information provided by third parties; and/or (vi) evaluating information provided by the investment manager. Inputs may include dealer price quotations, yield curves, credit curves, forward/CDS/index spreads, prepayments rates, strike and expiry dates, volatility statistics and other factors. Significant changes to any of the inputs described above could have a material effect on the fair value of the consolidated assets and liabilities. 50 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Amounts recorded at fair value in the Company’s financial statements are presented in the tables below. Fair Value Hierarchy of Financial Instruments Carried at Fair Value As of March 31, 2024 Fair Value Hierarchy Level 1 Level 2 Level 3 Total (in millions) Assets: Fixed-maturity securities, available-for-sale Obligations of state and political subdivisions $ — $ 2,325 $ 6 $ 2,331 U.S. government and agencies — 55 — 55 Corporate securities — 2,101 — 2,101 Mortgage-backed securities: RMBS — 249 153 402 CMBS — 196 — 196 Asset-backed securities — 101 821 922 Non-U.S. government securities — 84 — 84 Total fixed-maturity securities, available-for-sale — 5,111 980 6,091 Fixed-maturity securities, trading — 272 — 272 Short-term investments 1,649 — — 1,649 Other invested assets (1) — — 4 4 FG VIEs’ assets — — 167 167 Assets of CIVs: Equity securities — — 89 89 Structured products — 44 220 264 Total assets of CIVs — 44 309 353 Other assets 61 55 7 123 Total assets carried at fair value $ 1,710 $ 5,482 $ 1,467 $ 8,659 Liabilities: Credit derivative liabilities $ — $ — $ 43 $ 43 FG VIEs’ liabilities (2) — — 399 399 Total liabilities carried at fair value $ — $ — $ 442 $ 442 51 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Fair Value Hierarchy of Financial Instruments Carried at Fair Value As of December 31, 2023 Fair Value Hierarchy Level 1 Level 2 Level 3 Total (in millions) Assets: Fixed-maturity securities, available-for sale Obligations of state and political subdivisions $ — $ 2,655 $ 6 $ 2,661 U.S. government and agencies — 60 — 60 Corporate securities — 2,141 — 2,141 Mortgage-backed securities: RMBS — 188 154 342 CMBS — 151 — 151 Asset-backed securities — 49 803 852 Non-U.S. government securities — 100 — 100 Total fixed-maturity securities, available-for-sale — 5,344 963 6,307 Fixed-maturity securities, trading — 318 — 318 Short-term investments 1,657 4 — 1,661 Other invested assets (1) — — 3 3 FG VIEs’ assets — — 174 174 Assets of CIVs: Equity securities and warrants — 3 80 83 Structured products — 59 189 248 Total assets of CIVs — 62 269 331 Other assets 55 52 16 123 Total assets carried at fair value $ 1,712 $ 5,780 $ 1,425 $ 8,917 Liabilities: Credit derivative liabilities $ — $ — $ 53 $ 53 FG VIEs’ liabilities (2) — — 554 554 Total liabilities carried at fair value $ — $ — $ 607 $ 607 ___________________ (1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis. (2) Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Changes in Level 3 Fair Value Measurements The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during first quarter 2024 and first quarter 2023. 52 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis First Quarter 2024 Fixed-Maturity Securities, Available-for-Sale Assets of CIVs Obligations of State and Political Subdivisions RMBS Asset- Backed Securities FG VIEs’ Assets Equity Securities Structured Products Other (7) (in millions) Fair value as of December 31, 2023 $ 6 $ 154 $ 803 $ 174 $ 80 $ 189 $ 14 Total pre-tax realized and unrealized gains (losses) recorded in: Net income (loss) — 3 (1) 16 (1) ( 2 ) (2) 8 (4) 4 (4) ( 10 ) (3) Other comprehensive income (loss) — 1 2 1 — — 1 Purchases — — 10 — — 29 — Sales — — — — ( 2 ) ( 12 ) — Settlements — ( 5 ) ( 30 ) ( 6 ) — — — Transfers into Level 3 — — 20 — 3 10 — Fair value as of March 31, 2024 $ 6 $ 153 $ 821 $ 167 $ 89 $ 220 $ 5 Change in unrealized gains (losses) related to financial instruments held as of March 31, 2024 included in: Earnings $ ( 3 ) (2) $ 7 (4) $ 5 (4) $ ( 10 ) (3) OCI $ — $ 1 $ 2 $ 1 Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis First Quarter 2024 Credit Derivative Liability, net (5) FG VIEs’ Liabilities (8) (in millions) Fair value as of December 31, 2023 $ ( 50 ) $ ( 554 ) Total pre-tax realized and unrealized gains (losses) recorded in: Net income (loss) 10 (6) 9 (2) Other comprehensive income (loss) — ( 2 ) Settlements 1 148 Fair value as of March 31, 2024 $ ( 39 ) $ ( 399 ) Change in unrealized gains (losses) related to financial instruments held as of March 31, 2024 included in: Earnings $ 4 (6) $ 2 (2) OCI $ ( 2 ) 53 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis First Quarter 2023 Fixed-Maturity Securities, Available-for-Sale Assets of CIVs Obligations of State and Political Subdivisions RMBS Asset- Backed Securities FG VIEs’ Assets Equity Securities and Warrants Corporate Securities Structured Products Other (7) (in millions) Fair value as of December 31, 2022 $ 47 $ 179 $ 794 $ 204 $ 297 $ 96 $ 46 $ 50 Total pre-tax realized and unrealized gains (losses) recorded in: Net income (loss) — 3 (1) 3 (1) 1 (2) 33 (4) ( 2 ) (4) 2 (4) ( 16 ) (3) Other comprehensive income (loss) 1 ( 1 ) ( 3 ) — — — — — Purchases — — 5 — 4 4 — — Sales — — — — ( 5 ) ( 5 ) ( 31 ) — Settlements ( 1 ) ( 7 ) ( 4 ) ( 8 ) — — — — Fair value as of March 31, 2023 $ 47 $ 174 $ 795 $ 197 $ 329 $ 93 $ 17 $ 34 Change in unrealized gains (losses) related to financial instruments held as of March 31, 2023 included in: Earnings $ — $ 32 (4) $ ( 3 ) (4) $ — $ ( 16 ) (3) OCI $ 1 $ ( 1 ) $ ( 3 ) $ — Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis First Quarter 2023 Credit Derivative Liability, net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs (9) (in millions) Fair value as of December 31, 2022 $ ( 162 ) $ ( 715 ) $ ( 4,154 ) Total pre-tax realized and unrealized gains (losses) recorded in: Net income (loss) 15 (6) 3 (2) ( 62 ) (4) Other comprehensive income (loss) — ( 1 ) ( 8 ) Settlements ( 1 ) 9 4 Fair value as of March 31, 2023 $ ( 148 ) $ ( 704 ) $ ( 4,220 ) Change in unrealized gains (losses) related to financial instruments held as of March 31, 2023 included in: Earnings $ 14 (6) $ ( 2 ) (2) $ ( 65 ) (4) OCI $ ( 1 ) $ ( 8 ) ____________________ (1) Included in “net realized investment gains (losses)” and “net investment income.” (2) Included in “fair value gains (losses) on FG VIEs.” (3) Reported in “fair value gains (losses) on CCS”, “net investment income” and “other income (loss).” (4) Reported in “fair value gains (losses) on CIVs.” (5) Represents the net position of credit derivatives. Credit derivative assets (reported in “other assets”) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheets based on policy. (6) Reported in “fair value gains (losses) on credit derivatives.” (7) Includes CCS and other invested assets. (8) Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse. (9) Includes primarily various tranches of CLO debt. The CLOs were collateralized financing entities that were consolidated until the Sound Point Transaction occurred on July 1, 2023. 54 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Level 3 Fair Value Disclosures Quantitative Information About Level 3 Fair Value Inputs As of March 31, 2024 Financial Instrument Description Fair Value Assets (Liabilities) (in millions) Significant Unobservable Inputs Range Weighted Average (4) Investments (2): Fixed-maturity securities, available-for-sale (1): Obligations of state and political subdivisions $ 6 Yield 7.0 % - 22.5 % 7.8 % RMBS 153 CPR 0.9 % - 15.0 % 3.2 % CDR 1.5 % - 18.8 % 5.7 % Loss severity 50.0 % - 125.0 % 81.6 % Yield 7.6 % - 11.4 % 9.0 % Asset-backed securities: CLOs 439 Discount margin 1.0 % - 9.6 % 2.5 % Others 382 Yield 6.6 % - 10.1 % 7.8 % FG VIEs’ assets (1) 167 CPR 0.2 % - 21.6 % 7.6 % CDR 1.3 % - 41.0 % 10.5 % Loss severity 45.0 % - 100.0 % 82.9 % Yield 5.7 % - 10.8 % 9.5 % Assets of CIVs (3): Equity securities 89 Discount rate 16.5 % - 23.5 % 20.5 % Market multiple-price to book 1.05 x Market multiple-price to earnings 5.25 x Terminal growth rate 4.0 % Exit multiple-price to book 1.10 x Exit multiple-price to earnings 5.25 x Structured products 220 Yield 9.8 % - 23.5 % 16.6 % Other assets (1) 3 Implied Yield 7.5 % - 8.0 % 7.8 % Term (years) 10 years Credit derivative liabilities, net (1) ( 39 ) Hedge cost (in basis points) (bps) 8.7 - 20.6 12.5 Bank profit (in bps) 83.6 - 268.3 139.4 Internal floor (in bps) 10.0 Internal credit rating AAA - CCC A FG VIEs’ liabilities (1) ( 399 ) CPR 0.2 % - 21.6 % 7.6 % CDR 1.3 % - 41.0 % 10.5 % Loss severity 45.0 % - 100.0 % 82.9 % Yield 4.8 % - 10.8 % 5.9 % ___________________ (1) Discounted cash flow is used as the primary valuation technique. (2) Excludes several investments reported in “other invested assets” with a fair value of $ 4 million. (3) The primary valuation technique uses the income and/or market approach; the key inputs to the valuation are yield/discount rates and market multiples. (4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, for which it is calculated as a percentage of fair value. 55 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Quantitative Information About Level 3 Fair Value Inputs As of December 31, 2023 Financial Instrument Description Fair Value Assets (Liabilities) (in millions) Significant Unobservable Inputs Range Weighted Average (4) Investments (2): Fixed-maturity securities, available-for-sale (1): Obligations of state and political subdivisions $ 6 Yield 7.4 % - 22.5 % 7.8 % RMBS 154 CPR 0.1 % - 15.0 % 3.4 % CDR 1.5 % - 18.8 % 5.6 % Loss severity 50.0 % - 125.0 % 82.6 % Yield 7.5 % - 11.3 % 8.9 % Asset-backed securities: CLOs 450 Discount margin 1.1 % - 9.5 % 2.6 % Others 353 Yield 6.2 % - 11.7 % 7.8 % FG VIEs’ assets (1) 174 CPR 0.2 % - 21.4 % 7.8 % CDR 1.3 % - 41.0 % 10.4 % Loss severity 45.0 % - 100.0 % 82.9 % Yield 5.5 % - 10.9 % 9.4 % Assets of CIVs (3): Equity securities 80 Discount rate 20.9 % Market multiple-price to book 1.10 x Market multiple-price to earnings 5.50 x Terminal growth rate 4.0 % Exit multiple-price to book 1.10 x Exit multiple-price to earnings 5.50 x Structured products 189 Yield 14.7 % - 21.4 % 18.0 % Other assets (1) 13 Year 1 loss estimates 7.8 % - 8.4 % 8.1 % Term (years) 10 years Credit derivative liabilities, net (1) ( 50 ) Hedge cost (in bps) 10.2 - 26.5 15.8 Bank profit (in bps) 105.6 - 302.6 158.6 Internal floor (in bps) 10.0 Internal credit rating AAA - CCC A FG VIEs’ liabilities (1) ( 554 ) CPR 0.2 % - 21.4 % 7.8 % CDR 1.3 % - 41.0 % 10.4 % Loss severity 45.0 % - 100.0 % 82.9 % Yield 5.0 % - 10.7 % 5.8 % ____________________ (1) Discounted cash flow is used as the primary valuation technique. (2) Excludes several investments reported in “other invested assets” with a fair value of $ 3 million. (3) The primary valuation technique uses the income and/or market approach, the key inputs to the valuation are yield/discount rates and market multiples. (4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, for which it is calculated as a percentage of fair value. 56 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Not Carried at Fair Value Financial Guaranty Insurance Contracts Fair value is based on management’s estimate of what a similarly rated financial guaranty insurance company would demand to acquire the Company’s in-force book of financial guaranty insurance business. It is based on a variety of factors that include pricing assumptions management has observed for portfolio transfers, commutations, and acquisitions that have occurred in the financial guaranty market, and also includes adjustments for stressed losses, ceding commissions and return on capital. The Company classified the fair value of financial guaranty insurance contracts as Level 3. Long-Term Debt Long-term debt issued by the U.S. Holding Companies is valued by broker-dealers using independent third-party pricing sources and standard market conventions and classified as Level 2 in the fair value hierarchy. The market conventions utilize market quotations, market transactions for the Company’s comparable instruments, and to a lesser extent, similar instruments in the broader insurance industry. Assets and Liabilities of CIVs Cash equivalents are recorded at cost which approximates fair value. Due from/to brokers and counterparties primarily consists of cash, margin deposits, cash collateral with the clearing brokers and various counterparties and the net amounts receivable/payable for securities transactions that had not settled at the balance sheet date. Due from/to brokers and counterparties represents balances on a net-by counterparty basis on the condensed consolidated balance sheets where a contractual right of offset exists under an enforceable netting arrangement. The cash at brokers is partially related to derivative contracts; its use is therefore restricted until the derivative contracts are closed. The carrying value approximates fair value of these items and are considered Level 1 in the fair value hierarchy. The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table. Fair Value of Financial Instruments Not Carried at Fair Value As of March 31, 2024 As of December 31, 2023 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value (in millions) Assets (liabilities): Assets of CIVs $ 27 $ 27 $ 19 $ 19 Other assets (including other invested assets) 79 80 79 80 Financial guaranty insurance contracts (1) ( 2,153 ) ( 1,635 ) ( 2,244 ) ( 1,811 ) Long-term debt ( 1,695 ) ( 1,597 ) ( 1,694 ) ( 1,593 ) Other liabilities ( 24 ) ( 24 ) ( 15 ) ( 15 ) ____________________ (1) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance. 10. Income Taxes Overview Under Bermuda law, there was no Bermuda income, corporate or profits tax or withholding tax, capital gains tax or capital transfer tax payable by AGL or AG Re, AGRO and Cedar Personnel Ltd. (collectively, the Bermuda Subsidiaries) in 2023 and first quarter 2024. AGL’s U.S., U.K. and French subsidiaries are subject to income taxes imposed by U.S., U.K. and French authorities, respectively, and file applicable tax returns. In addition, AGRO, a Bermuda domiciled company, has elected under Internal Revenue Code Section 953(d) to be taxed as a U.S. domestic corporation. 57 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued AGL is a tax resident in the U.K. although it remains a Bermuda-based company and its administrative and head office functions continue to be carried on in Bermuda. AGUS files a consolidated federal income tax return with all of its U.S. subsidiaries. Assured Guaranty Overseas US Holdings Inc. and its subsidiaries, AGRO and AG Intermediary Inc., file their own consolidated federal income tax return. In July of 2023, the U.K. government passed legislation to implement the Organization for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Pillar Two income inclusion rule. This includes a multinational top-up tax which will apply to large multinational corporations for accounting periods beginning on or after December 31, 2023. This will apply to AGL and its subsidiaries, requiring a minimum effective rate of 15 % in all jurisdictions in which they operate. In addition, on December 27, 2023 the Bermuda government enacted a corporate income tax at the rate of 15 % which will apply for accounting periods starting on or after January 1, 2025. The enactment of the corporate income tax regime required the Company to recognize Bermuda deferred taxes for the first time and was recognized in the period that includes the date of enactment. An economic transition adjustment (ETA) equal to the difference between the fair market value and the carrying value of assets and liabilities of each of the Company’s Bermuda insurance subsidiaries as of September 30, 2023 resulted in the establishment of a deferred tax asset and corresponding benefit of $ 189 million reported in the fourth quarter of 2023 consolidated statement of operations. The ETA is expected to be utilized over 10 to 15 years, beginning in 2025. Tax Assets (Liabilities) Deferred and Current Tax Assets (Liabilities) As of March 31, 2024 December 31, 2023 (in millions) Net deferred tax assets (liabilities) $ 256 $ 250 Net current tax assets (liabilities) ( 39 ) ( 9 ) Valuation Allowance The Company came to the conclusion that it is more likely than not that the deferred tax assets will be fully realized after weighing all positive and negative evidence available as required under GAAP. The positive evidence that was considered included the cumulative income the Company has earned over the last three years and the significant unearned premium income to be included in taxable income. The positive evidence outweighs any negative evidence that exists. As such, the Company believes that no valuation allowance is necessary in connection with the remaining deferred tax assets. The Company will continue to analyze the need for a valuation allowance on a quarterly basis. Changes in market conditions during 2024 and 2023, including rising interest rates, resulted in the recording of deferred tax assets related to net unrealized tax capital losses. When assessing recoverability of these deferred tax assets, the Company considers the ability and intent to hold the underlying securities to recovery in value, if necessary, as well as other factors as noted above. As of March 31, 2024 and December 31, 2023, based on all available evidence, including capital loss carryback capacity, the Company concluded that the deferred tax assets related to the unrealized tax capital losses on the available-for-sale securities portfolios are, more likely than not, expected to be realized. Provision for Income Taxes The Company’s provision for income taxes for interim financial periods is not based on an estimated annual effective rate due, for example, to the variability in loss reserves, fair value of its credit derivatives and VIEs, and foreign exchange gains and losses which prevents the Company from projecting a reliable estimated annual effective tax rate and pre-tax income for the full year 2024. A discrete calculation of the provision is calculated for each interim period. The Company’s overall effective tax rate fluctuates based on the distribution of income across jurisdictions. The effective tax rates reflect the proportion of income recognized by each of the Company’s operating subsidiaries, with • U.S. subsidiaries taxed at the U.S. marginal corporate income tax rate of 21 %, • the French subsidiary taxed at the French marginal corporate tax rate of 25 %, 58 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued • Bermuda Subsidiaries taxed at the Bermuda marginal corporate tax rate of 0 %, unless subject to U.S. tax by election, and • U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 25 % for periods starting April 1, 2023 and 19 % for periods ending on or before March 31, 2023. Effective January 1, 2024, the U.K. adopted a global minimum tax rate of 15 % under the OECD’s BEPS Pillar Two rules. A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below. Effective Tax Rate Reconciliation First Quarter 2024 2023 (in millions) Expected tax provision (benefit) $ 23 $ 20 Tax-exempt interest ( 2 ) ( 3 ) NCI ( 1 ) ( 3 ) State taxes 2 3 Foreign taxes 5 5 Global minimum tax 5 — Stock based compensation — 1 Other ( 1 ) — Total provision (benefit) for income taxes $ 31 $ 23 Effective tax rate 21.4 % 19.1 % The expected tax provision (benefit) is calculated as the sum of pre-tax income in each jurisdiction multiplied by the statutory tax rate of the jurisdiction by which it will be taxed. Where there is a pre-tax loss in one jurisdiction and pre-tax income in another, the total combined expected tax rate may be higher or lower than any of the individual statutory rates. The following tables present pre-tax income and revenue by jurisdiction. Pre-tax Income (Loss) by Tax Jurisdiction First Quarter 2024 2023 (in millions) U.S. $ 129 $ 108 Bermuda 30 25 U.K. ( 11 ) ( 11 ) France ( 4 ) ( 2 ) Total $ 144 $ 120 Revenue by Tax Jurisdiction First Quarter 2024 2023 (in millions) U.S. $ 204 $ 235 Bermuda 36 35 U.K. 6 13 France ( 1 ) — Total $ 245 $ 283 59 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Pre-tax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate. Audits As of March 31, 2024, AGUS had open tax years with the U.S. Internal Revenue Service (IRS) for 2018 forward and is currently under audit for the 2018 and 2019 tax years. As of March 31, 2024, Assured Guaranty Overseas US Holdings Inc. had open tax years with the IRS for 2020 forward and is not currently under audit with the IRS. In September 2022, His Majesty’s Revenue & Customs (HMRC) completed a business risk review of Assured Guaranty that commenced in July 2022 and assigned a low-risk rating for corporate taxes in the U.K. In December 2023, HMRC issued an inquiry into the Company’s 2021 U.K. tax returns. As of December 31, 2023, the Company's U.K. subsidiaries had open tax years with HMRC for 2021 forward. The Company’s French subsidiary is not currently under examination and has open tax years of 2020 forward. 11. Commitments and Contingencies Legal Proceedings Lawsuits arise in the ordinary course of the Company’s business. It is the opinion of the Company’s management, based upon the information available, that the expected outcome of litigation against the Company, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, although an adverse resolution of litigation against the Company in a fiscal quarter or year could have a material adverse effect on the Company’s results of operations or liquidity in that particular quarter or year. In addition, in the ordinary course of their respective businesses, certain of AGL’s insurance subsidiaries are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future. For example, the Company is involved in a number of legal actions in the Federal District Court of Puerto Rico to enforce or defend its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations. See the “Exposure to Puerto Rico” section of Note 3, Outstanding Exposure, for a description of such actions. The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s results of operations in that particular quarter or year. In first quarter 2023, the Company reduced its previously recorded accrual of $ 20 million to zero in connection with developments in litigation. The Company also receives subpoenas and interrogatories from regulators from time to time. Litigation On November 28, 2011, Lehman Brothers International (Europe) (in administration) (LBIE) sued AG Financial Products Inc. (AGFP), an affiliate of AGC, which, in the past, had provided credit protection to counterparties under CDS. AGC acts as the credit support provider of AGFP under these CDS. LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the Court), asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination in December 2008 of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP’s termination in July 2009 of 28 other credit derivative transactions between LBIE and AGFP and AGFP’s calculation of the termination payment in connection with those 28 other credit derivative transactions. Following defaults by LBIE, AGFP had terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and properly calculated that LBIE owes AGFP approximately $ 4 million for the claims which were dismissed (as described below) and approximately $ 21 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $ 1.4 billion. On March 15, 2013, the Court granted AGFP’s motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions. Following a bench trial, on March 8, 2023, the Court rendered its decision and found in favor of AGFP. On June 30, 2023, the clerk entered judgment in favor of AGFP in the amount of approximately $ 54 million plus post-judgment simple interest at an annual rate of 8 %. On July 1, 2023, AGFP moved the Court to award it approximately $ 58 million for attorneys’ fees and expenses AGFP incurred through March 2023. The parties reached a confidential settlement with respect to this motion for attorneys’ fees, and AGFP withdrew the motion without prejudice on October 30, 2023. On September 22, 2023, LBIE appealed the Court’s post-trial decision to the New York Appellate Division’s First Judicial Department (Appellate Division). On March 14, 2024, the Appellate Division affirmed the Court’s judgment. On April 15, 60 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued 2024, LBIE moved for leave to reargue its appeal before the Appellate Division or, alternatively, to appeal to the New York Court of Appeals. The Company did not accrue in its financial statements for the judgment it was awarded or the attorneys’ fees it sought. 12. Shareholders’ Equity Other Comprehensive Income The following tables present the changes in each component of accumulated other comprehensive income (AOCI) and the effect of reclassifications out of AOCI into the respective lines in the condensed consolidated statements of operations. Changes in Accumulated Other Comprehensive Income (Loss) by Component First Quarter 2024 Net Unrealized Gains (Losses) on Investments with: ISCR on FG VIEs’ Liabilities with Recourse Cumulative Translation Adjustment Cash Flow Hedge Total AOCI No Credit Impairment Credit Impairment (in millions) Balance, December 31, 2023 $ ( 202 ) $ ( 104 ) $ ( 20 ) $ ( 38 ) $ 5 $ ( 359 ) Other comprehensive income (loss) before reclassifications ( 31 ) 10 ( 2 ) 1 — ( 22 ) Less: Amounts reclassified from AOCI to: Net realized investment gains (losses) ( 2 ) 10 — — — 8 Fair value gains (losses) on FG VIEs — — ( 1 ) — — ( 1 ) Total before tax ( 2 ) 10 ( 1 ) — — 7 Tax (provision) benefit — ( 1 ) — — — ( 1 ) Total amount reclassified from AOCI, net of tax ( 2 ) 9 ( 1 ) — — 6 Other comprehensive income (loss) ( 29 ) 1 ( 1 ) 1 — ( 28 ) Balance, March 31, 2024 $ ( 231 ) $ ( 103 ) $ ( 21 ) $ ( 37 ) $ 5 $ ( 387 ) 61 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued Changes in Accumulated Other Comprehensive Income (Loss) by Component First Quarter 2023 Net Unrealized Gains (Losses) on Investments with: ISCR on FG VIEs’ Liabilities with Recourse Cumulative Translation Adjustment Cash Flow Hedge Total AOCI No Credit Impairment Credit Impairment (in millions) Balance, December 31, 2022 $ ( 343 ) $ ( 110 ) $ ( 23 ) $ ( 45 ) $ 6 $ ( 515 ) Other comprehensive income (loss) before reclassifications 91 1 ( 2 ) 2 — 92 Less: Amounts reclassified from AOCI to: Net realized investment gains (losses) 3 ( 5 ) — — — ( 2 ) Fair value gains (losses) on FG VIEs — — ( 1 ) — — ( 1 ) Total before tax 3 ( 5 ) ( 1 ) — — ( 3 ) Tax (provision) benefit ( 1 ) 1 — — — — Total amount reclassified from AOCI, net of tax 2 ( 4 ) ( 1 ) — — ( 3 ) Other comprehensive income (loss) 89 5 ( 1 ) 2 — 95 Balance, March 31, 2023 $ ( 254 ) $ ( 105 ) $ ( 24 ) $ ( 43 ) $ 6 $ ( 420 ) Share Repurchases On May 2, 2024, AGL’s Board of Directors (the Board) authorized the repurchase of an additional $ 300 million of its common shares. As of May 7, 2024, the Company was authorized to purchase $ 414 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time. It does not have an expiration date. Share Repurchases Period Number of Shares Repurchased Total Payments (1) (in millions) Average Price Paid Per Share (1) 2023 (January 1 - March 31) 36,369 $ 2 $ 62.23 2023 (April 1 - June 30) 453,942 24 53.08 2023 (July 1- September 30) 1,065,902 64 59.67 2023 (October 1- December 31) 1,659,680 109 65.83 Total 2023 3,215,893 $ 199 $ 61.95 2024 (January 1 - March 31) 1,539,278 129 84.07 2024 (April 1 - May 7) 750,280 61 80.70 Total 2024 2,289,558 $ 190 $ 82.96 ____________________ (1) Excludes commissions and excise taxes. 62 Table of Contents Assured Guaranty Ltd. Notes to Condensed Consolidated Financial Statements (Unaudited), Continued 13. Earnings Per Share Computation of Earnings Per Share First Quarter 2024 2023 (in millions, except per share amounts) Basic Earnings Per Share (EPS): Net income (loss) attributable to AGL $ 109 $ 81 Less: Distributed and undistributed income (loss) available to nonvested shareholders 1 — Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic $ 108 $ 81 Basic shares 55.6 59.1 Basic EPS $ 1.94 $ 1.37 Diluted EPS: Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic $ 108 $ 81 Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries — — Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted $ 108 $ 81 Basic shares 55.6 59.1 Dilutive securities: Restricted stock awards 1.5 1.3 Diluted shares 57.1 60.4 Diluted EPS $ 1.89 $ 1.34 Potentially dilutive securities excluded from computation of EPS because of antidilutive effect 0.1 0.1 63 Table of Contents