ASSURED GUARANTY LTD 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements This Form 10-Q contains information that includes or is based upon forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements give the expectations or forecasts of future events of Assured Guaranty Ltd. (AGL) and its subsidiaries (collectively with AGL, Assured Guaranty or the Company). These statements can be identified by the fact that they do not relate strictly to historical or current facts and relate to future operating or financial performance. Any or all of Assured Guaranty’s forward looking statements herein are based on current expectations and the current economic environment and may turn out to be incorrect. Assured Guaranty’s actual results may vary materially from those expressed in, or implied or projected by, the forward-looking information and statements. Among factors that could cause actual results to differ adversely are: • significant changes in inflation, interest rates, the world’s credit markets or segments thereof, credit spreads, foreign exchange rates or general economic conditions, including the possibility of a recession or stagflation; • geopolitical risk, including Russia’s invasion of Ukraine and risk of intentional or accidental escalation between The North Atlantic Treaty Organization (NATO) and Russia, conflict in the Middle East, confrontation over Iran’s nuclear program, United States (U.S.) – China strategic competition and pursuit of technological independence; • global terrorism risk with threats increasing from conflicts in the Middle East and Ukraine/Russia, and the polarized political environment of the 2024 U.S. presidential election; • the impacts of artificial intelligence, machine learning and other technological advances, including potentially increasing the risks of malicious cyber attacks, dissemination of misinformation, and disruption of markets; • the possibility of a U.S. government shutdown, payment defaults on the debt of the U.S. government or instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities, and downgrades to their credit ratings; • public health crises, including pandemics and endemics, and the governmental and private actions taken in response to such events; • developments in the world’s financial and capital markets, including stresses in the financial condition of banking institutions in the U.S. and the possibility that increasing participation of unregulated financial institutions in these markets results in losses or lower valuations of assets, reduced liquidity and credit and/or contraction of these markets, that adversely affect repayment rates of insured obligors, Assured Guaranty’s insurance loss or recovery experience, or investments of Assured Guaranty; • reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty’s insurance; • the possibility that budget or pension shortfalls or other factors will result in credit losses or liquidity claims on obligations of state, territorial and local governments and their related authorities and public corporations that Assured Guaranty insures or reinsures; • insured losses, including losses with respect to related legal proceedings, in excess of those expected by Assured Guaranty or the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the final resolution of Assured Guaranty’s Puerto Rico Electric Power Authority exposure or the amounts recovered on securities received in connection with the resolution of Puerto Rico exposures already resolved; • the impact of Assured Guaranty satisfying its obligations under insurance policies with respect to legacy insured Puerto Rico bonds; • increased competition, including from new entrants into the financial guaranty industry, nonpayment insurance and other forms of capital saving or risk syndication available to banks and insurers; • the possibility that investments made by Assured Guaranty for its investment portfolio, including alternative investments, do not result in the benefits anticipated or subject Assured Guaranty to reduced liquidity at a time it requires liquidity, or to other negative or unanticipated consequences; • the impacts of Assured Guaranty’s transactions with Sound Point Capital Management, LP (Sound Point, LP) and certain of its investment management affiliates (together with Sound Point, LP, Sound Point) and/or Assured Healthcare Partners LLC (AHP) on Assured Guaranty and its relationships with its shareholders, regulators, rating agencies, employees and the obligors it insures and on the asset management business contributed to Sound Point, LP and on the business of AHP and their relationships with their respective clients and employees; 64 Table of Contents • the possibility that strategic transactions made by Assured Guaranty, including the consummation of the transactions with Sound Point and/or AHP, do not result in the benefits anticipated or subject Assured Guaranty to negative consequences; • the inability to control the business, management or policies of entities in which Assured Guaranty holds a minority interest; • the impact of market volatility on the fair value of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, contracts accounted for as derivatives, its committed capital securities, its consolidated investment vehicles and certain consolidated variable interest entities (VIEs); • rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its insurance subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL’s insurance subsidiaries have insured; • the inability of Assured Guaranty to access external sources of capital on acceptable terms; • changes in applicable accounting policies or practices; • changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions; • difficulties with the execution of Assured Guaranty’s business strategy; • loss of key personnel; • the effects of mergers, acquisitions and divestitures; • natural or man-made catastrophes; • the impact of climate change on Assured Guaranty’s business and regulatory actions taken related to such risk; • other risk factors identified in AGL’s filings with the U.S. Securities and Exchange Commission (SEC); • other risks and uncertainties that have not been identified at this time; and • management’s response to these factors. The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, as well as the risk factors included in the Company’s 2023 Annual Report on Form 10-K. The Company undertakes no obligation to update publicly or review any forward looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Investors are advised, however, to consult any further disclosures the Company makes on related subjects in the Company’s reports filed with the SEC. If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, actual results may vary materially from what the Company projected. Any forward looking statements in this Form 10-Q reflect the Company’s current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to its operations, results of operations, growth strategy and liquidity. For these statements, the Company claims the protection of the safe harbor for forward looking statements contained in Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). Available Information The Company maintains an internet web site at www.assuredguaranty.com . The Company makes available, free of charge, on its web site (under www.assuredguaranty.com/sec-filings ) the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC. The Company also makes available, free of charge, through its web site (under www.assuredguaranty.com/governance ) links to the Company’s Corporate Governance Guidelines, the Company’s Global Code of Ethics, AGL’s Bye-Laws and the charters for the committees of its Board of Directors. In addition, the SEC maintains a web site (at www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Company routinely posts important information for investors on its web site (under www.assuredguaranty.com/company-statements and, more generally, under the Investor Information tab at www.assuredguaranty.com/investor-information and Businesses tab at www.assuredguaranty.com/businesses ). The Company also maintains a social media account on LinkedIn ( www.linkedin.com/company/assured-guaranty/ ). The Company uses its web site and may use its social media account as a means of disclosing material information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Company Statements, Investor Information and Businesses portions of 65 Table of Contents the Company’s web site as well as the Company’s social media account on LinkedIn, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, the Company’s web site or social media account is not incorporated by reference into, and is not a part of, this report. Overview Business The Company reports its results of operations in two distinct segments, Insurance and Asset Management, consistent with the manner in which the Company’s chief operating decision maker reviews the business to assess performance and allocate resources. The Company’s Corporate division and other activities (including financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs)) are presented separately. In the Insurance segment, the Company provides credit protection products to the U.S. and non-U.S. public finance (including infrastructure) and structured finance markets. Until July 1, 2023, the Company served as investment advisor to collateralized loan obligations (CLOs) and opportunity funds, 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. See Item 1, Financial Statements, Note 1, Business and Basis of Presentation. The Corporate division consists primarily of interest expense on the debt of Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH) (the U.S. Holding Companies), as well as other operating expenses attributed to holding company activities, including administrative services performed by certain subsidiaries for the holding companies. Other activities include the effect of consolidating FG VIEs and CIVs (FG VIE and CIV consolidation). See Item 1, Financial Statements, Note 2, Segment Information. Economic Environment Real gross domestic product increased at an annual rate of 1.6% in the three-month period ended March 31, 2024 (first quarter 2024), compared to an increase of 3.4% in the fourth quarter of 2023, according to the first quarter 2024 advance estimate released by the U.S. Bureau of Economic Analysis. At the end of March 2024, the U.S. unemployment rate, seasonally adjusted, stood at 3.8%, near where it started the year at 3.7%. The Company believes a more robust economy makes it less likely that obligors whose obligations it guarantees will default. According to the U.S. Bureau of Labor Statistics, the inflation rate in the U.S. before seasonal adjustment for the 12-month period ending March 2024, as measured by the Consumer Price Index for All Urban Consumers, was 3.5%, as compared to 3.4% for the 12-month period ending December 2023. According to the United Kingdom’s (U.K.) Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs was 3.8% for the 12 months to March 2024, down from 4.2% for the 12 months ended December 2023. Consumer price inflation in the U.K. increases reported net par outstanding for certain U.K exposures with approximately $22.7 billion of net par outstanding as of March 31, 2024, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion of the premium on an installment basis over the term of the exposure. With the Federal Open Market Committee (FOMC) acknowledging the need to combat inflation, in March 2022 the FOMC began again raising the target range for the federal funds rate and stated that it would reduce its holdings of treasury securities and agency debt and agency mortgage-backed securities. From March 2022 through July 2023, the FOMC raised the federal funds rate from a range of 0% to 0.25% where it started 2022 to a target range of 5.25% to 5.50%. The FOMC has repeatedly declared that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the FOMC indicated that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. Since its July 2023 meeting, the FOMC has maintained the federal funds rate at 5.25% to 5.50%, including through its most recent meeting held April 30-May 1, 2024, stating that it would continue to assess additional information and its implications for monetary policy. 66 Table of Contents The level and direction of interest rates and credit spreads impact the Company in numerous ways. On the one hand, higher interest rates may reduce the fair value of fixed-maturity securities currently held in the Company’s investment portfolio, dampen municipal bond issuance and negatively impact the finances of some of the obligors whose payments the Company insures. On the other hand, higher interest rates increase the base on which the Company charges premium in most U.S. municipal bond transactions. Higher interest rates also are often accompanied by wider spreads, which may also increase the level of premiums it can charge for those products. The 30-year AAA Municipal Market Data (MMD) rate is a measure of interest rates in the Company’s largest financial guaranty insurance market, U.S. public finance. The MMD rate averaged 3.57% for the quarter ended March 2024, lower than the 4.06% average for the quarter ended December 2023, but higher than the 3.37% average for the quarter ended March 2023. Meanwhile, the difference, or credit spread, between the 30-year BBB-rated general obligation relative to the 30-year AAA MMD averaged 92 basis points (bps) in the quarter ended March 2024, which is narrower than the 100 bps average for the quarter ended December 2023, and narrower than the 101 bps average for the quarter ended March 2023. The Company believes that, over time, wider spreads could permit it to increase its premium rates on new business, and higher interest rates may also increase the amount the Company can earn on its largely fixed-maturity securities. Additionally, the Company believes that higher interest rates are discouraging some homeowners from moving as many are locked into lower mortgage interest rates at the homes in which they reside, which, in turn, is restricting housing inventory and leading to an increase in home prices as demand outpaces supply. The increase in housing prices may benefit distressed residential mortgage-backed securities (RMBS) the Company insures. The National Association of Realtors reported that year-over-year existing-home sales declined 3.7% from March 2023 to March 2024, while the median existing-home sales price increased 4.8% from March 2023 ($375,300) to March 2024 ($393,500). Key Business Strategies The Company continually evaluates its business strategies and is currently pursuing key business strategies in three areas: (i) insurance; (ii) asset management and alternative investments; and (iii) capital management. Insurance The Company seeks to grow the insurance business through new business production, acquisitions of legacy financial guarantors or reinsurance of their insured portfolios, and to continue to mitigate losses in its current insured portfolio. Growth of the Insured Portfolio The Company seeks to grow its financial guaranty insurance portfolio through new business production in each of its markets: public finance (including infrastructure) and structured finance. The Company believes high-profile defaults by municipal obligors, such as Puerto Rico, Detroit, Michigan and Stockton, California as well as events such as the COVID-19 pandemic have led to increased awareness of the value of bond insurance and stimulated demand for the product. The Company believes there will be continued demand for its insurance in this market because, for those exposures that the Company guarantees, it undertakes the tasks of credit selection, analysis, negotiation of terms, surveillance and, if necessary, loss mitigation. The Company believes that its insurance: (i) encourages retail investors, who typically have fewer resources than the Company for analyzing municipal bonds, to purchase such bonds; (ii) enables institutional investors to operate more efficiently; and (iii) allows smaller, less well-known issuers to gain market access on a more cost-effective basis. The low interest rate environment and tight U.S. municipal credit spreads from when the financial crisis began in 2008 through early 2020 dampened demand for bond insurance compared to the levels before the financial crisis. After the onset of the COVID-19 pandemic in early 2020, credit spreads initially widened as a result of market concerns about the impact of the COVID-19 pandemic on some municipal credits, thereby improving demand for financial guaranty insurance even in a low interest rate environment, before narrowing again in 2022. The Company believes that, over time, wider credit spreads may improve demand for bond insurance. In certain segments of the infrastructure and structured finance markets, the Company believes its financial guaranty product is competitive with other financing options. For example, certain investors may receive advantageous capital requirement treatment with the addition of the Company’s guaranty. The Company considers its involvement in both infrastructure and structured finance transactions to be beneficial because such transactions diversify both the Company’s business opportunities and its risk profile beyond U.S. public finance. The timing of new business production in the infrastructure and structured finance sectors is influenced by typically long lead times and therefore may vary from period to period. 67 Table of Contents U.S. Municipal Market Data and Bond Insurance Penetration Rates (1) Based on Sale Date First Quarter 2024 First Quarter 2023 Year Ended December 31, 2023 (dollars in billions, except number of issues and percentages) Par: New municipal bonds issued $ 99.1 $ 74.1 $ 362.8 Total insured $ 7.1 $ 5.7 $ 31.8 Insured by Assured Guaranty $ 3.8 $ 3.4 $ 19.5 Number of issues: New municipal bonds issued 1,613 1,385 7,268 Total insured 318 260 1,397 Insured by Assured Guaranty 152 124 645 Bond insurance market penetration based on: Par 7.2 % 7.7 % 8.8 % Number of issues 19.7 % 18.8 % 19.2 % Single A par sold 26.6 % 38.3 % 31.1 % Single A transactions sold 62.5 % 63.3 % 61.6 % $25 million and under par sold 23.0 % 24.2 % 24.6 % $25 million and under transactions sold 24.1 % 22.3 % 23.6 % ____________________ (1) Source: The amounts in the table are those reported by Thomson Reuters. The table excludes Corporate-CUSIP transactions insured by Assured Guaranty, certain of which the Company also considers to be public finance business. The Company also considers opportunities to acquire financial guaranty portfolios, whether by acquiring financial guarantors that are no longer actively writing new business or their insured portfolios, generally through reinsurance or novations. These transactions enable the Company to improve its future earnings and deploy excess capital. Loss Mitigation In an effort to avoid, reduce or recover losses and potential losses in its insurance portfolio, the Company employs a number of strategies. In the public finance area, the Company believes its experience and the resources it is prepared to deploy, as well as its ability to provide bond insurance or other contributions as part of a solution, result in more favorable outcomes in distressed public finance situations than would be the case without its participation. This has been illustrated by the Company’s role in negotiating various agreements in connection with the restructuring of obligations of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations, as well as Detroit, Michigan and Stockton, California. The Company will also, where appropriate, pursue litigation to enforce its rights. For example, the Company initiated a number of legal actions to enforce its rights with respect to obligations of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations. In 2022, as a result of the resolution of the Company’s exposure to insured Puerto Rico credits experiencing payment default other than Puerto Rico Electric Power Authority (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. The Company may sell in the future any CVIs it continues to hold. The Company continues to work to resolve its remaining unresolved defaulted Puerto Rico exposure, PREPA. For more information about developments in Puerto Rico and related recovery litigation being pursued by the Company, see Item 1, Financial Statements, Note 3, Outstanding Exposure, and the Insured Portfolio section below. The Company is, and for several years has been, working with the servicers of some of the RMBS transactions it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS. 68 Table of Contents The Company may also purchase attractively priced obligations, including below-investment-grade (BIG) obligations, that it has insured and for which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities). The fair value of Loss Mitigation Securities as of March 31, 2024 (excluding the value of the Company’s insurance) was $464 million. 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 on an accelerated basis on an obligation on which it has paid a claim, thereby reducing the amount of guaranteed interest due in the future. The Company has at times exercised this option, which uses cash but reduces projected future losses. The Company may also facilitate the issuance of refunding bonds, by either providing insurance on the refunding bonds or purchasing refunding bonds, or both. Refunding bonds may provide the issuer with payment relief. Asset Management and Alternative Investments Until July 1, 2023, the Company pursued its asset management strategy through AssuredIM. With the consummation of the Sound Point Transaction and AHP Transaction, effective as of July 1, 2023, the Company participates in the asset management business through its ownership interest in Sound Point, and no longer directly manages investments for third parties. The Company’s ownership interest in Sound Point furthers its strategy of participating in a fee-based earnings stream independent of the risk-based premiums generated by its financial guaranty business. The Sound Point business was strengthened by the addition of AssuredIM’s assets under management (AUM) (excluding AUM relating to AHP). See Item 1, Financial Statements, Note 1, Business and Basis of Presentation, for a description of the Sound Point Transaction. The Company expects its relationship with Sound Point to also enhance its alternative investment opportunities. Upon closing of the Sound Point Transaction and the AHP Transaction in July, the Company has increased the aggregate amount it has agreed to invest in alternative investments to $1.5 billion, including $1 billion in Sound Point managed investments, subject to regulatory approval. Of the $1.5 billion, the U.S. Insurance Subsidiaries through their jointly owned investment subsidiary, AG Asset Strategies LLC (AGAS), are authorized to invest up to $750 million plus previously distributed gains of $162 million for a total of $912 million as of March 31, 2024. As of March 31, 2024, AGAS commitments to funds managed by Sound Point and AHP (Sound Point and AHP funds) were $772 million. Capital Management The Company has developed strategies to efficiently manage capital within the Assured Guaranty group. From 2013 through May 7, 2024, the Company has repurchased 146 million common shares for approximately $5.1 billion, representing approximately 75% of the total shares outstanding at the beginning of the repurchase program in 2013. On May 2, 2024, the AGL Board of Directors (the Board) authorized the repurchase of an additional $300 million of the Company’s common shares. Under this and previous authorizations, as of May 7, 2024, the Company was authorized to purchase $414 million of its common shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time and it does not have an expiration date. See Item 1, Financial Statements, Note 12, Shareholders’ Equity, for additional information about the Company’s repurchases of its common shares. Summary of Share Repurchases Amount (1) Number of Shares Average price per share (1) (in millions, except per share data) 2013 - 2023 $ 4,860 144.09 $ 33.73 2024 (first quarter) 129 1.54 84.07 2024 (through May 7) 61 0.75 80.70 Cumulative repurchases since the beginning of 2013 $ 5,050 146.38 34.50 ____________________ (1) Excludes commissions and excise taxes. 69 Table of Contents As of March 31, 2024, the estimated accretive effect of the cumulative repurchases of common shares since the beginning of 2013 was approximately: $49.49 per share in shareholders’ equity attributable to AGL, $53.50 per share in adjusted operating shareholders’ equity and $89.47 per share in adjusted book value. The Company considers the appropriate mix of debt and equity in its capital structure. In 2023, the Company issued $350 million in 6.125% Senior Notes due in 2028, and used the proceeds primarily to redeem $330 million of 5% Senior Notes due in 2024. Since the second quarter of 2017, AGUS has also purchased $154 million in principal of AGMH’s outstanding Junior Subordinated Debentures. The Company may choose to redeem or make additional purchases of this or other Company debt in the future. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies.” Executive Summary This executive summary of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Quarterly Report. For a more detailed description of events, trends and uncertainties, as well as the capital, liquidity, credit, operational and market risks and the critical accounting policies and estimates affecting the Company, this Quarterly Report should be read in its entirety and in addition to the Company’s 2023 Annual Report on Form 10-K. The primary drivers of volatility in the Company’s net income include: loss and loss adjustment expense (LAE), changes in fair value of credit derivatives, FG VIEs, CIVs, CVIs and committed capital securities (CCS), as well as foreign exchange gains (losses), the level of refundings of insured obligations, changes in the value of the Company’s alternative investments, the effects of any large transactions, settlements, commutations and loss mitigation strategies, among other factors. Changes in laws and regulations, among other factors, may also have a significant effect on reported net income or loss in a given reporting period. 70 Table of Contents Financial Performance of Assured Guaranty Financial Results First Quarter 2024 2023 (in millions, except per share amounts) GAAP Net income (loss) attributable to AGL $ 109 $ 81 Net income (loss) attributable to AGL per diluted share $ 1.89 $ 1.34 Weighted average diluted shares 57.1 60.4 Non-GAAP Adjusted operating income (loss) (1) $ 113 $ 68 Adjusted operating income per diluted share $ 1.96 $ 1.12 Weighted average diluted shares 57.1 60.4 Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income $ — $ (4) Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share $ — $ (0.06) Components of total adjusted operating income (loss) Insurance segment $ 149 $ 117 Asset Management segment 1 (1) Corporate division (37) (44) Other (2) — (4) Adjusted operating income (loss) $ 113 $ 68 Insurance Segment Gross written premiums (GWP) $ 61 $ 86 Present value of new business production (PVP) (1) 63 112 Gross par written 3,743 5,363 As of March 31, 2024 As of December 31, 2023 Amount Per Share Amount Per Share (in millions, except per share amounts) Shareholders’ equity attributable to AGL $ 5,629 $ 102.19 $ 5,713 $ 101.63 Adjusted operating shareholders' equity (1) 5,932 107.69 5,990 106.54 Adjusted book value (1) 8,665 157.31 8,765 155.92 Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating shareholders’ equity 3 0.06 5 0.07 Gain (loss) related to FG VIE and CIV consolidation included in adjusted book value (3) (0.05) — — Common shares outstanding (3) 55.1 56.2 ____________________ (1) See “— Non-GAAP Financial Measures” for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the United States of America (GAAP), a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure, if available, and for additional details. (2) Relates to the effect of consolidating FG VIEs and CIVs. (3) See “— Overview — Key Business Strategies — Capital Management” above for information on common share repurchases. 71 Table of Contents Condensed Consolidated Results of Operations Condensed Consolidated Results of Operations Three Months Ended March 31, 2024 2023 (in millions) 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 CCS (10) (16) Fair value gains (losses) on FG VIEs (3) (5) Fair value gains (losses) on CIVs 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 LAE (benefit) (1) 4 Interest expense 23 21 Amortization of deferred acquisition cost (DAC) 6 3 Employee compensation, benefit and other operating expenses: Asset management subsidiaries — 45 Insurance and other subsidiaries 97 92 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 Effective tax rate 21.4 % 19.1 % First Quarter 2024 Compared with First Quarter 2023 Net income attributable to AGL for first quarter 2024 was higher compared with the three-month period ended March 31, 2023 (first quarter 2023) primarily due to: • higher net earned premiums in first quarter 2024 compared with first quarter 2023 primarily due to one large refunded transaction, and • fair value gains on trading securities in first quarter 2024 compared with losses in first quarter 2023. These increases were offset in part by: • foreign exchange losses on remeasurement in first quarter 2024, compared with gains in first quarter 2023, and • lower other income due to the reversal of a previously recorded litigation accrual of $20 million in first quarter 2023. 72 Table of Contents The Company’s effective tax rate reflects the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries generally taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19% prior to March 31, 2023 and 25% after April 1 2023, the French subsidiary taxed at the French marginal corporate tax rate of 25%, and Bermuda subsidiaries taxed at the Bermuda marginal corporate tax rate of 0%, unless subject to U.S. tax by election or as a U.S. controlled foreign corporation. Effective January 1, 2024, the U.K. adopted a global minimum tax rate of 15% under the Organization for Economic Co-Operation and Development’s Base Erosion and Profit Shifting Pillar Two rules. See Item 1, Financial Statements, Note 10, Income Taxes. Adjusted Operating Income Adjusted operating income in first quarter 2024 was $113 million, compared with $68 million in first quarter 2023. The increase was primarily due to higher premiums earned from accelerations due to a large refunded transaction in first quarter 2024, and fair value gains on Puerto Rico CVIs classified as trading securities, offset in part by lower other income in first quarter 2024, compared with first quarter 2023, which included the reversal of a previously recorded litigation accrual. See “— Results of Operations — Reconciliation to GAAP” for the reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss). Book Value and Adjusted Book Value Shareholders’ equity attributable to AGL as of March 31, 2024 decreased compared with December 31, 2023, due to share repurchases, unrealized losses on investments and dividends, offset in part by net income. Adjusted operating shareholders’ equity and adjusted book value also decreased primarily due to share repurchases of $129 million and dividends, partially offset by operating income of $113 million and in the case of adjusted book value, GWP of $61 million. See “— Non-GAAP Financial Measures” below for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and adjusted book value. On a per share basis, shareholders’ equity attributable to AGL, adjusted operating shareholders’ equity, and adjusted book value increased as of March 31, 2024 compared with December 31, 2023, due, in part, to the accretive effect of the share repurchase program. See “— Non-GAAP Financial Measures” for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and adjusted book value. Other Matters Inflation By some key measures, consumer price inflation in the U.S. and the U.K. was higher in recent years than it has been in decades, and interest rates generally increased. Consumer price inflation in the U.K. impacts the Company directly by increasing exposure for certain index-linked U.K. debt with par that accretes with increasing inflation, and also increasing projected future installment premiums on the portion of such exposure that pays at least some of the premium on an installment basis over the term of the exposure. Consumer price inflation may also impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments, and may be accompanied by higher interest rates. Higher interest rates impact the Company in numerous other ways. For example, higher interest rates are often accompanied by wider credit spreads, which may make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product. Despite the recent increases in interest rates since 2022, the pace of credit spread widening was more modest and market penetration of municipal bond insurance in the U.S. public finance market remained relatively flat compared to 2021 when interest rates were lower. Over time, higher interest rates also increase the amount the Company can earn on its largely fixed-maturity investment portfolio. However, higher interest rates may, in turn, reduce the fair value of its largely fixed-rate fixed-maturity investment portfolio, dampen municipal bond issuance and negatively impact the finances of some insured obligors. See “ — Overview — Economic Environment.” Russia’s Invasion of Ukraine Russia’s invasion of Ukraine has led to the imposition of economic sanctions by many western countries against Russia and certain Russian individuals, dislocation in global energy markets, massive refugee movements, and payment default by certain Russian credits. The economic sanctions imposed by western governments, along with decisions by private companies regarding their presence in Russia, continue to reduce western economic ties to Russia and to reshape global 73 Table of Contents economic and political ties more generally, and the Company cannot predict all of the potential effects of the conflict on the world or on the Company. The Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, and have identified no material direct exposure to Ukraine or Russia. In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $245 million in net par outstanding as of March 31, 2024, comprising $205 million net par exposure to the sovereign debt of Poland and $40 million net par exposure to a toll road in Hungary. The Company rates all such exposure investment grade. Middle East Conflict In light of recent events in the Middle East, the Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, for exposures to the Middle East. After review, the Company’s surveillance and treasury functions have identified no material direct exposure to such area. The Company’s direct insurance exposure to the Middle East is generally limited to approximately $58 million in net par outstanding as of March 31, 2024, comprised of funded commitments to subscription finance facilities; however, such exposure may increase to a total of approximately $93 million to the extent all unfunded commitments under the facilities are ultimately funded. The Company rates all such insurance exposure investment grade. Results of Operations Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment and require the Company to make estimates and assumptions, based on available information, that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements. Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the condensed consolidated financial statements. Critical estimates and assumptions are periodically evaluated based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially different in the future due to changes in these estimates and assumptions. Listed below are the accounting policies and estimates that the Company believes are most dependent on the application of judgment and assumptions. • Expected loss to be paid (recovered); • Fair value of certain assets and liabilities, primarily: • Investments • Assets and liabilities of CIVs • Assets and liabilities of FG VIEs • Credit derivatives; • Acquisition date fair value of the equity method investment in Sound Point; • Impairments of equity method investments and financial instruments; and • Income tax assets and liabilities, including the recoverability of deferred tax assets (liabilities) including the Bermuda deferred tax asset reported in 2023. See Part II, Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, of the Company’s 2023 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the applicable note where further details regarding the significant estimates and assumptions are provided, as well as Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2023 Annual Report on Form 10-K, for further details regarding the sensitivity analyses. Results of Operations by Segment The Company analyzes the operating performance of each segment using each segment’s adjusted operating income as described in Item 1, Financial Statements, Note 2, Segment Information. 74 Table of Contents Insurance Segment Results Insurance Segment Results First Quarter 2024 2023 Segment revenues Net earned premiums and credit derivative revenues $ 122 $ 84 Net investment income 83 82 Fair value gains (losses) on trading securities 26 (2) Foreign exchange gains (losses) on remeasurement — 1 Other income (loss) (2) 25 Total segment revenues 229 190 Segment expenses Loss expense (benefit) 4 9 Amortization of DAC 6 3 Employee compensation and benefit expenses 48 39 Other operating expenses 27 28 Total segment expenses 85 79 Equity in earnings (losses) of investees 40 30 Segment adjusted operating income (loss) before income taxes 184 141 Less: Provision (benefit) for income taxes 35 24 Segment adjusted operating income (loss) $ 149 $ 117 Net Earned Premiums and Credit Derivative Revenues Premiums are earned over the contractual lives, or in the case of insured obligations backed by homogeneous pools of assets, the remaining expected lives, of financial guaranty insurance contracts. The Company periodically estimates remaining expected lives of its insured obligations backed by homogeneous pools of assets and makes prospective adjustments for such changes in expected lives. Scheduled net earned premiums decrease each year unless replaced by a higher amount of new business, or books of business acquired in business combinations. See Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Premiums, for additional information. Net earned premiums due to accelerations are attributable to changes in the expected lives of insured obligations driven by: (i) refundings of insured obligations; or (ii) terminations of insured obligations either through negotiated agreements or the exercise of the Company’s contractual rights to make claim payments on an accelerated basis. Refundings occur in the public finance market when municipalities and other public finance issuers pay down insured obligations prior to their originally scheduled maturities. Refundings tend to increase when issuers can refinance their debt obligations at lower rates than they are currently paying. The premiums associated with the insured obligations of municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured. When issuers pay down insured obligations, the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the remaining nonrefundable deferred premium revenue. The amortization of the Company’s outstanding book of business along with the previously high levels of refunding activity, and the higher interest rates environment has led to a lower volume of refunding opportunities over the last several years. Terminations are generally negotiated agreements with beneficiaries resulting in the extinguishment of the Company’s insurance obligation. Terminations have been more common in the structured finance asset class, but may also occur in the public finance asset class. While each termination may have different terms, they all result in the expiration of the Company’s insurance risk, the acceleration of the recognition of the associated deferred premium revenue and the reduction of any remaining premiums receivable. 75 Table of Contents Insurance Segment Net Earned Premiums and Credit Derivative Revenues First Quarter 2024 2023 (in millions) Net earned premiums: Financial guaranty insurance: Public finance Scheduled net earned premiums (1) $ 65 $ 62 Refundings and terminations 37 4 Total public finance 102 66 Structured finance Scheduled net earned premiums (1) 14 15 Accelerations 2 — Total structured finance 16 15 Specialty insurance and reinsurance 2 1 Total net earned premiums 120 82 Credit derivative revenues 2 2 Total net earned premiums and credit derivative revenues $ 122 $ 84 ____________________ (1) Includes accretion of discount. Net earned premiums and credit derivative revenues increased in first quarter 2024 compared with first quarter 2023 primarily due to a large refunded transaction in first quarter 2024. As of March 31, 2024, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts. 76 Table of Contents New Business Production Gross Written Premiums and New Business Production First Quarter 2024 2023 (in millions) GWP Public finance—U.S. $ 44 $ 22 Public finance—non-U.S. 2 36 Structured finance—U.S. 13 28 Structured finance—non-U.S. 2 — Total GWP $ 61 $ 86 PVP (1): Public finance—U.S. $ 43 $ 22 Public finance—non-U.S. 1 30 Structured finance—U.S. 15 27 Structured finance—non-U.S. (2) 4 33 Total PVP $ 63 $ 112 Gross Par Written (1): Public finance—U.S. $ 2,909 $ 2,907 Public finance—non-U.S. — 360 Structured finance—U.S. 480 582 Structured finance—non-U.S. (2) 354 1,514 Total gross par written $ 3,743 $ 5,363 ____________________ (1) PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles. See “— Non-GAAP Financial Measures — PVP or Present Value of New Business Production.” PVP was discounted at 5.0% and 4.0% in 2024 and 2023, respectively. (2) First quarter 2023 PVP and gross par written include the present value of future gross revenues and exposure, respectively, associated with a financial guaranty written by the Company that, under GAAP, is accounted for under Accounting Standards Codification (ASC) 460, Guarantees . U.S. public finance GWP and PVP in first quarter 2024 were higher than the comparable GWP and PVP in first quarter 2023, primarily due to several large transportation revenue transactions that closed in first quarter 2024. The Company’s direct par written represented 53% of the total U.S. municipal market insured issuance in first quarter 2024, compared with 60% in first quarter 2023, and the Company’s penetration of all municipal issuance was 3.8% in first quarter 2024 compared with 4.6% in first quarter 2023. Structured finance GWP and PVP in first quarter 2024 were primarily attributable to insurance securitization and subscription finance transactions. Business activity in the non-U.S. public finance and structured finance sectors often has long lead times and therefore may vary from period to period. 77 Table of Contents Financial Strength Ratings Demand for the financial guaranties issued by the Company’s insurance subsidiaries may be impacted by changes in the credit ratings assigned to them by the rating agencies. The financial strength ratings (or similar ratings) assigned to AGL’s insurance subsidiaries, along with the date of the most recent rating action (or confirmation) by the rating agency assigning the rating, are shown in the table below. S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P) Kroll Bond Rating Agency Moody’s Ratings (Moody’s) A.M. Best Company, Inc. Assured Guaranty Municipal Corp.(AGM) AA (stable) (7/13/23) AA+ (stable) (10/20/23) A1 (stable) (4/30/24) — Assured Guaranty Corp.(AGC) AA (stable) (7/13/23) AA+ (stable) (10/20/23) A1 (stable) (4/30/24) — Assured Guaranty Re Ltd. (AG Re) AA (stable) (7/13/23) — — — Assured Guaranty Re Overseas Ltd. (AGRO) AA (stable) (7/13/23) — — A+ (stable) (7/21/23) Assured Guaranty UK Limited (AGUK) AA (stable) (7/13/23) AA+ (stable) (10/20/23) A1 (stable) (4/30/24) — Assured Guaranty (Europe) SA (AGE) AA (stable) (7/13/23) AA+ (stable) (10/20/23) — — Ratings are subject to continuous rating agency review and revision or withdrawal at any time. In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment may request that a rating agency add or drop a rating from certain of its companies. There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL’s insurance subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary. Income from Investments Net investment income is a function of the yield that the Company earns on available-for-sale fixed-maturity securities and short-term investments and the size of such portfolio. The investment yield on fixed-maturity securities is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the securities in this portfolio. CVIs issued by Puerto Rico and received as part of the 2022 Puerto Rico Resolutions are classified as trading with changes in fair value reported in “fair value gains (losses) on trading securities” in the condensed consolidated statements on operations. The fair value of such instruments as of March 31, 2024 and December 31, 2023 was $272 million and $318 million, respectively. Equity method investments in the Insurance segment include investments that the U.S. Insurance Subsidiaries make in certain alternative investments, primarily Sound Point and AHP funds. The income (loss) on such investments is reported in “equity in earnings (losses) of investees” and typically represents the Company’s share of earnings of its investees. 78 Table of Contents Insurance Segment Income from Investments First Quarter 2024 2023 (in millions) Net investment income Fixed-maturity securities, available-for-sale: Externally managed $ 52 $ 52 Loss Mitigation Securities 8 9 Puerto Rico, New Recovery Bonds — 3 Other 3 5 Short-term investments 19 12 Intercompany loans 2 2 Investment income 84 83 Investment expenses (1) (1) Net investment income $ 83 $ 82 Fair value gains (losses) on trading securities $ 26 $ (2) Equity in earnings (losses) of investees CLOs $ 20 $ 19 Healthcare 4 8 Asset-based/specialty finance 4 1 Middle market direct lending 3 — Other 9 2 Equity in earnings (losses) of investees $ 40 $ 30 Net investment income increased to $83 million in first quarter 2024 compared to $82 million in first quarter 2023, primarily due to the increase in short-term rates and higher average short-term balances, partially offset by lower income on Loss Mitigation Securities. The overall pre-tax book yield of available-for-sale fixed-maturity securities and short-term investments was 3.87% as of March 31, 2024 and 3.82% as of March 31, 2023. Equity in earnings (losses) of investees increased to $40 million in first quarter 2024 compared with $30 million in first quarter 2023 due to higher balances and changes in fair value in alternative investments. Other Income (Loss) The decrease in “other income (loss)” in first quarter 2024 was primarily attributable to the reversal of a previously recorded litigation accrual of $20 million in first quarter 2023. See Item 1, Financial Statements, Note 11, Commitments and Contingencies, for additional information. Economic Loss Development The insured portfolio includes policies accounted for under several different accounting models depending on the characteristics of the contract and the Company’s control rights. For a discussion of methodologies and significant estimates for expected loss to be paid (recovered), see Part II, Item 8, Financial Statements and Supplementary Data, Note 4, Expected Loss to be Paid (Recovered), of the Company’s 2023 Annual Report on Form 10-K. The GAAP accounting policies for measurement and recognition for each type of contract are described in the notes listed below in Part II, Item 8, Financial Statements and Supplementary Data, of the Company’s 2023 Annual Report on Form 10-K: • Note 5 for contracts accounted for as insurance; • Note 6 for contracts accounted for as credit derivatives; • Note 8 for FG VIEs; and 79 Table of Contents • Note 9 for fair value methodologies for credit derivatives and FG VIEs’ assets and liabilities. In order to efficiently evaluate and manage the economics of the entire insured portfolio, management compiles and analyzes expected loss information for all policies on a consistent basis. The discussion of losses that follows encompasses expected losses on all contracts in the insured portfolio regardless of accounting model, unless otherwise specified. 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. Assumptions used in the determination of the net expected loss to be paid (recovered) such as delinquency, severity, discount rates and expected time frames to recovery are consistent by sector regardless of the accounting model used. Current risk-free rates are used to discount expected losses at the end of each reporting period. Therefore, changes in such rates from period to period affect economic loss development and loss and LAE. However, the effect of changes in discount rates is not indicative of actual credit impairment or improvement in the period. The weighted average discount rates used to discount expected losses (recoveries) for U.S. denominated exposures were 4.44% and 4.10% as of March 31, 2024 and December 31, 2023, respectively. The composition of economic loss development (benefit) by accounting model and by sector is presented in the tables that follow, and the drivers of economic loss development (benefit) are discussed below. Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit) 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 $ 191 $ 263 $ (7) $ 6 FG VIEs (1) 241 240 — 5 Credit derivatives 1 2 — — Total $ 433 $ 505 $ (7) $ 11 Net exposure rated BIG $ 5,277 $ 5,521 ____________________ (1) The expected loss to be paid for FG VIEs primarily relates to trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts). See Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered). 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) (2) 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 80 Table of Contents First Quarter 2023 Sector Net Expected Loss to be Paid (Recovered) as of December 31, 2022 Net Economic Loss Development (Benefit) (2) 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.” (2) Effect of changes in the risk-free rates included in economic loss development (benefit) was a benefit of $3 million in first quarter 2024 and a loss of $10 million in first quarter 2023. First Quarter 2024 Net Economic Loss Development Public Finance: The economic benefit on U.S. public finance exposures in first quarter 2024 was $3 million, which was primarily attributable to the improved performance across various credits. U.S. RMBS: The net benefit attributable to U.S. RMBS was $3 million and was mainly attributable to higher recoveries for secured second lien charged-off loans. First Quarter 2023 Net Economic Loss Development Economic loss development of $11 million was primarily due to changes in discount rates of $10 million. Insurance Segment Loss Expense The primary differences between net economic loss development and the amount reported as “loss and LAE (benefit)” in the consolidated statements of operations are that loss and LAE (benefit): (i) considers deferred premium revenue in the calculation of loss reserves for financial guaranty insurance contracts; (ii) eliminates loss and LAE related to FG VIEs; and (iii) does not include estimated losses on credit derivatives. Insurance segment loss expense includes loss and LAE on financial guaranty insurance contracts and losses on credit derivatives, without giving effect to eliminations related to the consolidation of FG VIEs. For financial guaranty insurance contracts, each transaction’s expected loss to be expensed is compared with the deferred premium revenue of that transaction. Expected loss to be expensed represents past or expected future net claim payments that have not yet been expensed. Such amounts will be expensed in future periods as deferred premium revenue amortizes into income on financial guaranty insurance policies. Expected loss to be expensed is the Company’s projection of incurred losses that will be recognized in future periods, excluding accretion of discount. When the expected loss to be expensed exceeds the deferred premium revenue, a loss is recognized in income for the amount of such excess. Therefore, the timing of loss recognition in income does not necessarily coincide with the timing of the actual credit impairment or improvement reported in net economic loss development. Transactions (particularly BIG transactions) acquired in business combinations or seasoned portfolios assumed from legacy financial guaranty insurers generally have the largest deferred premium revenue balances. Therefore, the largest differences between net economic loss development and loss and LAE on financial guaranty insurance contracts generally relate to those policies. While expected loss to be paid (recovered) is an important measure that provides the present value of amounts that the Company expects to pay or recover in future periods on all contracts, expected loss to be expensed is important because it 81 Table of Contents presents the Company’s projection of net expected losses that will be recognized in the consolidated statement of operations in future periods as deferred premium revenue amortizes into income for financial guaranty insurance policies. The amount of Insurance segment loss expense, which includes all policies regardless of form, is a function of the amount of economic loss development discussed above and the deferred premium revenue amortization in a given period, on a contract-by-contract basis. The following table presents the Insurance segment loss expense (benefit). Insurance Segment Loss Expense (Benefit) First Quarter 2024 2023 (in millions) U.S. public finance $ 1 $ 1 Structured finance: U.S. RMBS 2 6 Other structured finance 1 2 Structured finance 3 8 Total Insurance segment loss expense (benefit) $ 4 $ 9 Employee Compensation and Benefit Expenses and Other Operating Expenses The increase in first quarter 2024 compared with first quarter 2023 was primarily attributable to an increase in headcount and employee time allocations to the insurance segment. Asset Management Segment Results Asset Management Segment Results First Quarter 2024 2023 (in millions) Segment revenues $ 1 $ 41 Segment expenses — 42 Equity in earnings (losses) of investees 1 — Segment adjusted operating income (loss) before income taxes 2 (1) Less: Provision (benefit) for income taxes 1 — Segment adjusted operating income (loss) $ 1 $ (1) Results in the table above represent (i) asset management and performance fees, amortization of intangible assets and compensation and other operating expenses of AssuredIM in first quarter 2023, (ii) equity in earnings of Sound Point of $4 million in first quarter 2024 (Sound Point results are reported on a one quarter lag), net of the amortization of finite-lived intangible assets associated with the basis difference in Sound Point, (iii) an impairment loss of $3 million of a smaller financial services advisory firm with a carrying value of $4 million and (iv) other asset management related income. 82 Table of Contents Corporate Division Results Corporate Division Results First Quarter 2024 2023 (in millions) Revenues $ 5 $ 2 Expenses Interest expense 25 23 Employee compensation and benefit expenses 10 9 Other operating expenses 12 16 Total expenses 47 48 Adjusted operating income (loss) before income taxes (42) (46) Less: Provision (benefit) for income taxes (5) (2) Adjusted operating income (loss) $ (37) $ (44) Corporate division interest expense primarily relates to debt issued by the U.S. Holding Companies, and also includes intersegment interest expense. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies, Intercompany Loans Payable,” for additional information. Corporate division employee compensation and benefits expenses are an allocation of expenses based on time studies and represent the costs incurred and time spent on holding company activities, capital management, corporate oversight and governance including Board of Director expenses, legal fees and other direct or allocated expenses. The decrease in operating expenses in first quarter 2024 was primarily due to expenses related to the Sound Point Transaction and higher charge for value added taxes in first quarter 2023, partially offset by increases in premises related expenses. Other (Effect of Consolidating FG VIEs and CIVs) The effect of consolidating FG VIEs and CIVs, intersegment eliminations and reclassifications of reimbursable fund expenses to revenue are presented in “other.” See Item 1, Financial Statements, Note 2, Segment Information. The types of entities the Company consolidates when it is deemed to be the primary beneficiary primarily include: (i) entities whose debt obligations the insurance subsidiaries insure; (ii) Puerto Rico Trusts; and (iii) investment vehicles such as (a) Sound Point funds and (b) prior to July 1, 2023, AHP funds, collateralized financing entities and CLO warehouses. The Company eliminates the effects of intercompany transactions between its FG VIEs and CIVs and its insurance and asset management subsidiaries, as well as intercompany transactions between CIVs. Consolidating FG VIEs (as opposed to accounting for the related insurance contracts in the Insurance segment) has a significant gross-up effect on the consolidated financial statements, and includes: (i) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements; (ii) eliminating the premiums and losses/recoveries associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs; and (iii) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG VIEs. Consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on assets, liabilities and cash flows, and includes: (i) the establishment of the assets and liabilities of the CIVs, and related changes in fair value; (ii) eliminating the asset management fees earned by AssuredIM from the CIVs (prior to July 1, 2023); (iii) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees; and (iv) establishing noncontrolling interest for amounts not owned by the Company. The economic effect of the U.S Insurance Subsidiaries’ ownership interests in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, while the effect of CIVs is presented as separate line items (“fair value gains (losses) on consolidated investment vehicles” and “noncontrolling interest) on a consolidated basis. The table below reflects the effect of consolidating FG VIEs and CIVs on the condensed consolidated statements of operations. The amounts represent: (i) the revenues and expenses of the FG VIEs and the CIVs and (ii) the consolidation adjustments and eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries. 83 Table of Contents Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations Increase (Decrease) First Quarter 2024 2023 Effect on Financial Statement Line Item (in millions) Fair value gains (losses) on FG VIEs (1) $ (3) $ (5) Fair value gains (losses) on CIVs 22 58 Equity in earnings (losses) of investees (2) (17) (28) Other (3) 2 (14) Effect on income before tax 4 11 Less: Tax provision (benefit) — (1) Effect on net income (loss) 4 12 Less: Effect on noncontrolling interests (4) 4 16 Effect on net income (loss) attributable to AGL $ — $ (4) By Type of VIE FG VIEs $ (1) $ (2) CIVs 1 (2) Effect on net income (loss) attributable to AGL $ — $ (4) ____________________ (1) Changes in fair value of the FG VIEs’ assets and liabilities that are attributable to factors other than (i) changes in the Company’s own credit risk on FG VIE liabilities with recourse and (ii) unrealized gains and losses on available-for-sale fixed maturity securities. (2) Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’ investments in certain alternative investments, primarily Sound Point and AHP funds (and prior to July 1, 2023, AssuredIM managed funds). (3) Includes net earned premiums, net investment income, asset management fees for first quarter 2023, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE (benefit) and other operating expenses. (4) Represents the proportion of consolidated funds managed by Sound Point and prior to July 1, 2023, AssuredIM funds’ income that is not attributable to AGAS’ or any other subsidiaries’ ownership interest. Reconciliation to GAAP Reconciliation of Net Income (Loss) Attributable to AGL to Adjusted Operating Income (Loss) First Quarter 2024 2023 (in millions) Net income (loss) attributable to AGL $ 109 $ 81 Less pre-tax adjustments: Realized gains (losses) on investments 8 (2) Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives 10 13 Fair value gains (losses) on CCS (10) (16) Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves (12) 20 Total pre-tax adjustments (4) 15 Less tax effect on pre-tax adjustments — (2) Adjusted operating income (loss) $ 113 $ 68 Gain (loss) related to FG VIE and CIV consolidation (net of tax provision (benefit) of $0 and $(1)) included in adjusted operating income $ — $ (4) 84 Table of Contents Net Realized Investment Gains (Losses) The table below presents the components of net realized investment gains (losses). 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 allowance for credit losses and intent to sell 10 (5) Net realized investment gains (losses) $ 8 $ (2) Non-Credit Impairment-Related Unrealized Fair Value Gains (Losses) on Credit Derivatives Changes in the fair value of credit derivatives occur because of changes in the Company’s own credit rating and credit spreads, collateral credit spreads, notional amounts, credit ratings of the referenced entities, expected terms, realized gains (losses) and other settlements, interest rates and other market factors. The components of changes in fair value of credit derivatives related to credit derivative revenues and changes in expected losses are included in Insurance segment results. Non-credit impairment-related changes in unrealized fair value gains and losses on credit derivatives are not included in the Insurance segment measure of adjusted operating income because they do not represent actual claims or losses and are expected to reverse to zero as the exposure approaches its maturity date. Changes in the fair value of the Company’s credit derivatives that do not reflect actual or expected claims or credit losses have no impact on the Company’s statutory claims-paying resources, rating agency capital or regulatory capital positions. Unrealized gains (losses) on credit derivatives may fluctuate significantly in future periods. Except for underlying credit impairment, which is recognized as loss expense in the Insurance segment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio. See Item 1, Financial Statements, Note 9, Fair Value Measurement, for additional information. During first quarter 2024 non-credit impairment-related unrealized fair value gains were generated primarily as a result of the termination of certain structured finance policies. During first quarter 2023, non-credit impairment-related unrealized fair value gains were generated primarily as a result of the increased cost to buy protection on AGC. Fair Value Gains (Losses) on CCS Fair value losses on CCS in first quarter 2024 and first quarter 2023 were primarily due to a tightening in market spreads. Fair value gains (losses) of CCS are heavily affected by, and in part fluctuate with, changes in market spreads and interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss. Foreign Exchange Gain (Loss) on Remeasurement Foreign exchange gains and losses in all periods primarily relate to remeasurement of long-dated premiums receivable, for which the Company records the present value of future installment premiums, and are mainly due to changes in the exchange rate of the pound sterling and, to a lesser extent, the euro relative to the U.S. dollar. Approximately 68% and 70% of gross premiums receivable, net of commissions payable as of March 31, 2024 and December 31, 2023, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro. Premiums on European infrastructure and structured finance transactions typically are paid, in whole or in part, on an installment basis, whereas premiums on U.S. public finance transactions are often paid upfront. The following table presents the foreign exchange rates as of the balance sheet dates. Foreign Exchange Rates U.S. Dollar Per Foreign Currency As of March 31, 2024 As of December 31, 2023 As of March 31, 2023 As of December 31, 2022 Pound sterling $1.262 $1.273 $1.234 $1.208 Euro $1.079 $1.104 $1.084 $1.071 85 Table of Contents Non-GAAP Financial Measures The Company discloses both: (i) financial measures determined in accordance with GAAP; and (ii) financial measures not determined in accordance with GAAP (non-GAAP financial measures). Financial measures identified as non-GAAP should not be considered substitutes for GAAP financial measures. The primary limitation of non-GAAP financial measures is the potential lack of comparability to financial measures of other companies, whose definitions of non-GAAP financial measures may differ from those of the Company. The Company believes its presentation of non-GAAP financial measures provides information that is necessary for analysts to calculate their estimates of Assured Guaranty’s financial results in their research reports on Assured Guaranty and for investors, analysts and the financial news media to evaluate Assured Guaranty’s financial results. GAAP requires the Company to consolidate entities where it is deemed to be the primary beneficiary which include: • FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and • CIVs in which certain subsidiaries invest. The Company discloses the effect of FG VIE and CIV consolidation that is embedded in each non-GAAP financial measure, as applicable. The Company believes this information may also be useful to analysts and investors evaluating Assured Guaranty’s financial results. In the case of both the consolidated FG VIEs and the CIVs, the economic effect on the Company of each of the consolidated FG VIEs and CIVs is reflected primarily in the results of the Insurance segment. Management of the Company and AGL’s Board of Directors use non-GAAP financial measures further adjusted to remove the effect of FG VIE and CIV consolidation (which the Company refers to as its core financial measures), as well as GAAP financial measures and other factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals. The Company uses core financial measures in its decision-making process for and in its calculation of certain components of management compensation. The financial measures that the Company uses to help determine compensation are: (1) adjusted operating income, further adjusted to remove the effect of FG VIE and CIV consolidation; (2) adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation; (3) adjusted book value per share, further adjusted to remove the effect of FG VIE and CIV consolidation; and (4) PVP. Management believes that many investors, analysts and financial news reporters use adjusted operating shareholders’ equity and/or adjusted book value, each further adjusted to remove the effect of FG VIE and CIV consolidation, as the principal financial measures for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares. Management also believes that many of the Company’s fixed income investors also use adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation, to evaluate the Company’s capital adequacy. Adjusted operating income, further adjusted for the effect of FG VIE and CIV consolidation, enables investors and analysts to evaluate the Company’s financial results in comparison with the consensus analyst estimates distributed publicly by financial databases. The following paragraphs define each non-GAAP financial measure disclosed by the Company and describe why it is useful. To the extent there is a directly comparable GAAP financial measure, a reconciliation of the non-GAAP financial measure and the most directly comparable GAAP financial measure is presented below. Adjusted Operating Income Management believes that adjusted operating income is a useful measure because it clarifies the understanding of the operating results of the Company. Adjusted operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following: 1) Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading. The timing of realized gains and losses, which depends largely on market credit cycles, can vary considerably across periods. The timing of sales is largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax and capital profile. 86 Table of Contents 2) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, the Company’s credit spreads, and other market factors and are not expected to result in an economic gain or loss. 3) Elimination of fair value gains (losses) on the Company’s CCS that are recognized in net income. Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt and other market factors and are not expected to result in an economic gain or loss. 4) Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and LAE reserves that are recognized in net income. Long-dated receivables and loss and LAE reserves represent the present value of future contractual or expected cash flows. Therefore, the current period’s foreign exchange remeasurement gains (losses) are not necessarily indicative of the total foreign exchange gains (losses) that the Company will ultimately recognize. 5) 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. See “— Results of Operations — Reconciliation to GAAP” for a reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss). Adjusted Operating Shareholders’ Equity and Adjusted Book Value Management believes that adjusted operating shareholders’ equity is a useful measure because it excludes the fair value adjustments on investments, credit derivatives and CCS that are not expected to result in economic gain or loss. Adjusted operating shareholders’ equity is defined as shareholders’ equity attributable to AGL, as reported under GAAP, adjusted for the following: 1) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss. 2) Elimination of fair value gains (losses) on the Company’s CCS. Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt, and other market factors and are not expected to result in an economic gain or loss. 3) Elimination of unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (AOCI). The AOCI component of the fair value adjustment on the investment portfolio is not deemed economic because the Company generally holds these investments to maturity and therefore would not recognize an economic gain or loss. 4) The tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments. Management uses adjusted book value, further adjusted to remove the effect of FG VIE and CIV consolidation, to measure the intrinsic value of the Company, excluding franchise value. Adjusted book value per share, further adjusted for FG VIE and CIV consolidation (core adjusted book value), is one of the key financial measures used in determining the amount of certain long-term compensation elements to management and employees and used by rating agencies and investors. Management believes that adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues net of expected losses. Adjusted book value is adjusted operating shareholders’ equity, as defined above, further adjusted for the following: 1) Elimination of deferred acquisition costs, net. These amounts represent net deferred expenses that have already been paid or accrued and will be expensed in future accounting periods. 87 Table of Contents 2) Addition of the net present value of estimated net future revenue. See below. 3) Addition of the deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed, net of reinsurance. This amount represents the present value of the expected future net earned premiums, net of the present value of expected losses to be expensed, which are not reflected in GAAP equity. 4) 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 unearned premiums and revenues included in adjusted book value will be earned in future periods, but actual earnings may differ materially from the estimated amounts used in determining current adjusted book value due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults and other factors. Reconciliation of Shareholders’ Equity Attributable to AGL to Adjusted Operating Shareholders’ Equity and Adjusted Book Value As of March 31, 2024 As of December 31, 2023 Total Per Share Total Per Share (dollars in millions, except share amounts) Shareholders’ equity attributable to AGL $ 5,629 $ 102.19 $ 5,713 $ 101.63 Less pre-tax adjustments: Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives 44 0.79 34 0.61 Fair value gains (losses) on CCS 3 0.05 13 0.22 Unrealized gain (loss) on investment portfolio (393) (7.13) (361) (6.40) Less taxes 43 0.79 37 0.66 Adjusted operating shareholders’ equity 5,932 107.69 5,990 106.54 Pre-tax adjustments: Less: Deferred acquisition costs 164 2.99 161 2.87 Plus: Net present value of estimated net future revenue 191 3.47 199 3.54 Plus: Net deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed 3,393 61.61 3,436 61.12 Plus taxes (687) (12.47) (699) (12.41) Adjusted book value $ 8,665 $ 157.31 8,765 155.92 Gain (loss) related to FG VIE and CIV consolidation included in: Adjusted operating shareholders’ equity (net of tax provision (benefit) of $1 and $1) $ 3 $ 0.06 $ 5 $ 0.07 Adjusted book value (net of tax provision (benefit) of $(1) and $0) (3) (0.05) — — Net Present Value of Estimated Net Future Revenue Management believes that this amount is a useful measure because it enables an evaluation of the present value of estimated net future revenue for non-financial guaranty insurance contracts. This amount represents the net present value of estimated future revenue from these contracts (other than credit derivatives with net expected losses), net of reinsurance, ceding commissions and premium taxes. Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than Loss Mitigation Securities. The discount rate is recalculated annually and updated as necessary. Net present value of estimated future revenue for an obligation may change from period to period due to a change in the discount rate or due to a change in estimated net future revenue for the obligation, which may change due to 88 Table of Contents changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation. There is no corresponding GAAP financial measure. PVP or Present Value of New Business Production Management believes that PVP is a useful measure because it enables the evaluation of the value of new business production in the Insurance segment by taking into account the value of estimated future installment premiums on all new contracts underwritten in a reporting period as well as additional installment premiums and fees on existing contracts (which may result from supplements or fees or from the issuer not calling an insured obligation the Company projected would be called), regardless of form, which management believes GAAP gross written premiums and changes in fair value of credit derivatives do not adequately measure. PVP in respect of contracts written in a specified period is defined as gross upfront and installment premiums received and the present value of gross estimated future installment premiums. Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturity securities such as Loss Mitigation Securities. The discount rate is recalculated annually and updated as necessary. Under GAAP, financial guaranty installment premiums are discounted at a risk-free rate. Additionally, under GAAP, management records future installment premiums on financial guaranty insurance contracts covering non-homogeneous pools of assets based on the contractual term of the transaction, whereas for PVP purposes, management records an estimate of the future installment premiums the Company expects to receive, which may be based upon a shorter period of time than the contractual term of the transaction. Actual installment premiums may differ from those estimated in the Company’s PVP calculation due to factors including, but not limited to, changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation. Reconciliation of GWP to PVP First Quarter 2024 First Quarter 2023 Public Finance Structured Finance Public Finance Structured Finance U.S. Non - U.S. U.S. Non - U.S. Total U.S. Non - U.S. U.S. Non - U.S. Total (in millions) GWP $ 44 $ 2 $ 13 $ 2 $ 61 $ 22 $ 36 $ 28 $ — $ 86 Less: Installment GWP and other GAAP adjustments (1) 12 2 12 2 28 8 33 28 — 69 Upfront GWP 32 — 1 — 33 14 3 — — 17 Plus: Installment premiums and other (2) 11 1 14 4 30 8 27 27 33 95 PVP $ 43 $ 1 $ 15 $ 4 $ 63 $ 22 $ 30 $ 27 $ 33 $ 112 ___________________ (1) Includes the present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions and other GAAP adjustments. (2) Includes the present value of future premiums and fees on new business paid in installments, discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturity securities such as Loss Mitigation Securities. First quarter 2023 also includes the present value of future premiums and fees associated with other guaranties written by the Company that, under GAAP, are accounted for under Accounting Standards Codification (ASC) 460, Guarantees. Insured Portfolio Financial Guaranty Exposure The following tables present information in respect of the financial guaranty insured portfolio to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure. The following table presents the financial guaranty portfolio by sector, net of cessions to reinsurers. It includes all financial guaranty contracts outstanding as of the dates presented, regardless of the form written (i.e., credit derivative form or traditional financial guaranty insurance form) or the applicable accounting model (i.e., insurance, derivative or FG VIE consolidation). 89 Table of Contents Financial Guaranty Portfolio Net Par Outstanding by Sector As of March 31, 2024 As of December 31, 2023 Sector (dollars in millions) Public finance: U.S. public finance: General obligation $ 74,884 $ 74,609 Tax backed 32,866 33,060 Municipal utilities 28,657 29,300 Transportation 22,393 22,052 Healthcare 12,532 12,604 Infrastructure finance 8,737 8,796 Higher education 7,225 7,250 Housing revenue 1,152 1,152 Investor-owned utilities 328 329 Renewable energy 167 167 Other public finance 954 970 Total U.S. public finance 189,895 190,289 Non-U.S public finance: Regulated utilities 20,427 20,545 Infrastructure finance 15,028 15,430 Sovereign and sub-sovereign 9,658 9,869 Renewable energy 2,005 2,030 Pooled infrastructure 1,119 1,133 Total non-U.S. public finance 48,237 49,007 Total public finance 238,132 239,296 Structured finance: U.S. structured finance: Insurance securitizations 4,557 4,379 RMBS 1,684 1,774 Pooled corporate obligations 565 631 Financial products 469 464 Consumer receivables 287 314 Subscription finance facilities 225 178 Other structured finance 856 892 Total U.S. structured finance 8,643 8,632 Non-U.S. structured finance: Subscription finance facilities 612 444 Pooled corporate obligations 412 425 RMBS 242 252 Other structured finance 103 104 Total non-U.S. structured finance 1,369 1,225 Total structured finance 10,012 9,857 Total net par outstanding $ 248,144 $ 249,153 Second-to-pay insured par outstanding represents transactions the Company has insured that are already insured by another financial guaranty insurer and where the Company’s obligation to pay under its insurance of such transactions arises only if both the obligor on the underlying insured obligation and the primary financial guaranty insurer default. The Company underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary 90 Table of Contents financial guarantor. The second-to-pay insured par outstanding as of March 31, 2024 and December 31, 2023 was $4.2 billion and $4.3 billion, respectively. Exposure to Puerto Rico The following tables present information in respect of the Puerto Rico exposures to supplement the disclosures and discussions provided in “—Liquidity and Capital Resources—Insurance Subsidiaries, Financial Guaranty Policies” below and Item 1, Financial Statements, Note 3, Outstanding Exposure. Exposure to Puerto Rico by Company As of March 31, 2024 Net Par Outstanding AGM AGC AG Re Eliminations (1) Total Net Par Outstanding Gross Par Outstanding (in millions) Defaulted Puerto Rico Exposures PREPA $ 377 $ 67 $ 180 $ — $ 624 $ 633 Total Defaulted 377 67 180 — 624 633 Resolved Puerto Rico Exposures (2) Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue) 12 130 74 (12) 204 204 PRHTA (Highway revenue) 21 2 1 — 24 24 Total Resolved 33 132 75 (12) 228 228 Non-Defaulting Puerto Rico Exposures (3) Municipal Finance Agency (MFA) 84 6 18 — 108 114 Puerto Rico Aqueduct and Sewer Authority (PRASA) and University of Puerto Rico (U of PR) — 1 — — 1 1 Total Non-Defaulting 84 7 18 — 109 115 Total exposure to Puerto Rico $ 494 $ 206 $ 273 $ (12) $ 961 $ 976 ___________________ (1) Net par outstanding eliminations relate to second-to-pay policies under which an Assured Guaranty insurance subsidiary guarantees an obligation already insured by another Assured Guaranty insurance subsidiary. (2) Resolved pursuant to the 2022 Puerto Rico Resolutions. Consideration (e.g. Toll Bonds and CVIs) received under the HTA Plan related to the remaining insured exposure is reported in FG VIEs’ assets (see Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles). (3) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company. 91 Table of Contents The following tables show the scheduled amortization of the various obligations of Puerto Rico’s authorities and public corporations insured by the Company. The Company guarantees payments of debt service when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. In the event that obligors default on their obligations, the Company would only pay the shortfall between the debt service due in any given period and the amount paid by the obligors. Amortization Schedule of Net Par of Puerto Rico As of March 31, 2024 Scheduled Net Par Amortization 2024 (2Q) 2024 (3Q) 2024 (4Q) 2025 2026 2027 2028 2029 - 2033 2034 - 2038 2039 - 2041 Total (in millions) Defaulted Puerto Rico Exposures PREPA $ — $ 93 $ — $ 68 $ 105 $ 105 $ 68 $ 176 $ 9 $ — $ 624 Total Defaulted — 93 — 68 105 105 68 176 9 — 624 Resolved Puerto Rico Exposures PRHTA (Transportation revenue) — — — — — — — — 107 97 204 PRHTA (Highway revenue) — — — — — — — 8 16 — 24 Total Resolved — — — — — — — 8 123 97 228 Non-Defaulting Puerto Rico Exposures MFA — 16 — 16 35 15 13 13 — — 108 PRASA and U of PR — 1 — — — — — — — — 1 Total Non-Defaulting — 17 — 16 35 15 13 13 — — 109 Total $ — $ 110 $ — $ 84 $ 140 $ 120 $ 81 $ 197 $ 132 $ 97 $ 961 Amortization Schedule of Net Debt Service of Puerto Rico As of March 31, 2024 Scheduled Net Debt Service Amortization 2024 (2Q) 2024 (3Q) 2024 (4Q) 2025 2026 2027 2028 2029 - 2033 2034 - 2038 2039 - 2041 Total (in millions) Defaulted Puerto Rico Exposures PREPA $ 3 $ 105 $ 3 $ 92 $ 126 $ 122 $ 80 $ 199 $ 9 $ — $ 739 Total Defaulted 3 105 3 92 126 122 80 199 9 — 739 Resolved Puerto Rico Exposures PRHTA (Transportation revenue) — 5 — 11 11 11 11 53 143 106 351 PRHTA (Highway revenue) — 1 — 1 1 1 1 15 18 — 38 Total Resolved — 6 — 12 12 12 12 68 161 106 389 Non-Defaulting Puerto Rico Exposures MFA — 19 — 20 39 17 14 14 — — 123 PRASA and U of PR — 1 — — — — — — — — 1 Total Non-Defaulting — 20 — 20 39 17 14 14 — — 124 Total $ 3 $ 131 $ 3 $ 124 $ 177 $ 151 $ 106 $ 281 $ 170 $ 106 $ 1,252 In the fourth quarter of 2023, all of the Toll Bonds in the Puerto Rico Trusts were called, resulting in cash proceeds of $154 million. Such cash proceeds comprised the vast majority of the assets in the Puerto Rico Trusts as of December 31, 2023. In January 2024, such 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. 92 Table of Contents Liquidity and Capital Resources AGL and its U.S. Holding Companies AGL directly owns (i) AG Re, an insurance company domiciled in Bermuda; and (ii) AGUS, a U.S. holding company with public debt outstanding. AGUS directly owns: (i) AGC, an insurance company domiciled in Maryland; and (ii) AGMH, a U.S. holding company with public debt outstanding. AGMH directly owns AGM, an insurance subsidiary domiciled in New York. AGUS and AGMH are collectively referred to as the U.S. Holding Companies. Sources and Uses of Funds The liquidity of AGL and its U.S. Holding Companies is largely dependent on dividends and other distributions from their operating subsidiaries (see “— Insurance Subsidiaries — Distributions from Insurance Subsidiaries” below for a description of dividend and other capital distribution restrictions) and their access to external financing. The operating liquidity requirements of AGL and the U.S. Holding Companies include: • principal and interest on debt issued by AGUS and AGMH; • dividends on AGL’s common shares; and • the payment of operating expenses. AGL and its U.S. Holding Companies may also require liquidity to: • make capital investments in their operating subsidiaries; • fund acquisitions of new businesses; • purchase or redeem the Company’s outstanding debt; or • repurchase AGL’s common shares pursuant to AGL’s share repurchase authorization. In the ordinary course of business, the Company evaluates its liquidity needs and capital resources in light of holding company expenses and dividend policy, as well as rating agency considerations. The Company also subjects its cash flow projections and its assets to a stress test, maintaining a liquid asset balance of one and a half times its stressed operating company net cash flows. Management believes that AGL will have sufficient liquidity to satisfy its needs over the next twelve months. See “— Overview— Key Business Strategies, Capital Management” above for information on common share repurchases. Long-Term Debt Obligations The Company has outstanding long-term debt issued by the U.S. Holding Companies. See Part II, Item 8, Financial Statements and Supplementary Data, Note 12, Long-Term Debt and Credit Facilities, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and — Guarantor and U.S. Holding Companies' Summarized Financial Information, below. 93 Table of Contents U.S. Holding Companies Long-Term Debt and Intercompany Loans As of March 31, 2024 As of December 31, 2023 (in millions) Effective Interest Rate Final Maturity Principal Amount AGUS - long-term debt 6.125% Senior Notes 6.125% 2028 $ 350 $ 350 3.15% Senior Notes 3.15% 2031 500 500 7% Senior Notes 6.40% 2034 200 200 3.6% Senior Notes 3.60% 2051 400 400 Series A Enhanced Junior Subordinated Debentures 3 month CME Term SOFR +2.64% 2066 150 150 AGUS long-term debt 1,600 1,600 AGUS - intercompany loans from: AGC and AGM 3.50% 2029 250 250 AGRO 5.00% 2028 20 20 AGUS intercompany loans 270 270 Total AGUS long-term debt and intercompany loans 1,870 1,870 AGMH Junior Subordinated Debentures (1) 6.40% 2066 300 300 Total AGMH long-term debt 300 300 AGMH’s long-term debt purchased by AGUS (2) (154) (154) U.S. Holding Company long-term debt $ 2,016 $ 2,016 ____________________ (1) If the AGMH Junior Subordinated Debentures are outstanding after December 15, 2036, then the principal amount of the outstanding debentures will bear interest at One-Month Chicago Mercantile Exchange (CME) Term Secured Overnight Finance Rate (SOFR) plus 2.33%. (3) Represents principal amount of Junior Subordinated Debentures issued by AGMH that has been purchased by AGUS. From time to time, AGL and its subsidiaries have entered into intercompany loan facilities. For example, on October 25, 2013, AGL, as borrower, and AGUS, as lender, entered into a revolving credit facility pursuant to which AGL may, from time to time, borrow for general corporate purposes. Under the credit facility, AGUS committed to lend a principal amount not exceeding $225 million in the aggregate. The commitment under the revolving credit facility terminates on October 25, 2033 (the loan commitment termination date). The unpaid principal amount of each loan will bear semi-annual interest at a fixed rate equal to 100% of the then applicable interest rate as determined under Internal Revenue Code Section 1274(d). Accrued interest on all loans will be paid on the last day of each June and December and at maturity. AGL must repay unpaid principal amounts of the loans, if any, by the third anniversary of the loan commitment termination date. AGL has not drawn upon the credit facility. For more information, see the Company’s 2023 Annual Report on Form 10-K, Part II, Item 8. Financial Statements and Supplementary Data, Note 12, Long-Term Debt and Credit Facilities. 94 Table of Contents Guarantor and U.S. Holding Companies’ Summarized Financial Information AGL fully and unconditionally guarantees the payment of the principal of, and interest on, the $1,450 million aggregate principal amount of notes issued by the U.S. Holding Companies, the $450 million aggregate principal amount of junior subordinated debentures issued by the U.S. Holding Companies, and the intercompany loans. The following tables include summarized financial information for AGL and the U.S. Holding Companies, excluding their investments in subsidiaries. As of March 31, 2024 AGL U.S. Holding Companies (in millions) Assets Fixed-maturity securities (1) $ 17 $ 3 Investment in Sound Point — 417 Short-term investments, other invested assets and cash 55 239 Receivables from affiliates (2) 55 3 Receivable from U.S. Holding Companies 95 — Other assets 1 47 Liabilities Long-term debt — 1,695 Loans payable to affiliates — 270 Payable to affiliates (2) 26 22 Payable to AGL — 95 Other liabilities 8 88 ____________________ (1) As of March 31, 2024, weighted average durations of AGL’s and the U.S. Holding Companies’ fixed-maturity securities (excluding AGUS’s investment in AGMH’s debt) were 9.5 years and 4.1 years, respectively. (2) Represents receivable and payables with non-guarantor subsidiaries. First Quarter 2024 AGL U.S. Holding Companies (in millions) Revenues $ 1 $ 3 Expenses Interest expense — 25 Other expenses 13 5 Income (loss) before provision for income taxes and equity in earnings (losses) of investees (12) (27) Net income (loss) (12) (22) 95 Table of Contents The following table presents significant cash flow items for AGL and the U.S. Holding Companies (other than investment income, operating expenses and taxes) related to distributions from subsidiaries and outflows for debt service, dividends and other capital management activities. AGL and U.S. Holding Companies Selected Cash Flow Items First Quarter 2024 AGL U.S. Holding Companies (in millions) Dividends received from subsidiaries (1) $ 192 $ 83 Distributions from equity method investees (2) — 10 Interest paid — (22) Investments in subsidiaries — (5) Dividends paid to AGL — (145) Dividends paid (19) — Repurchases of common shares (3) (129) — ____________________ (1) AGL’s dividends include dividends from AGUS. (2) Represents distributions from Sound Point. (3) See Item 1, Financial Statements, Note 12, Shareholders’ Equity, for additional information about share repurchases and authorizations. Generally, dividends paid by a U.S. company to a Bermuda holding company are subject to a 30% withholding tax. After AGL became tax resident in the U.K., it became subject to the tax rules applicable to companies resident in the U.K., including the benefits afforded by the U.K.’s tax treaties. The income tax treaty between the U.K. and the U.S. reduces or eliminates the U.S. withholding tax on certain U.S. sourced investment income (to 5% or 0%), including dividends from U.S. subsidiaries to U.K. resident persons entitled to the benefits of the treaty. For more information, see also Part II, Item 8. Financial Statements and Supplementary Data, Note 12, Long-Term Debt and Credit Facilities, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. External Financing From time to time, AGL and its subsidiaries have sought external debt or equity financing in order to meet their obligations. External sources of financing may or may not be available to the Company and, if available, the cost of such financing may not be acceptable to the Company. Insurance Subsidiaries The Company has several insurance subsidiaries. The U.S. Insurance Subsidiaries consist of AGM and AGC. AGM owns: (i) AGUK, an insurance subsidiary domiciled in the U.K; and (ii) AGE, an insurance company domiciled in France. AGUK and AGE are collectively referred to as the European Insurance Subsidiaries. AG Re is an insurance company domiciled in Bermuda, which owns AGRO, an insurance subsidiary, also domiciled in Bermuda. Sources and Uses of Funds Liquidity of the insurance subsidiaries is primarily used to pay for: • operating expenses, • claims on the insured portfolio, • dividends or other distributions to parent, • reinsurance premiums, • principal of, and interest on, surplus notes, where applicable, and • capital investments in their own subsidiaries and in alternative investments, where appropriate. 96 Table of Contents Management believes that the insurance subsidiaries’ liquidity needs for the next twelve months can be met from current cash, short-term investments and operating cash flow, including premium collections and coupon payments as well as scheduled maturities and paydowns from their respective investment portfolios. The Company generally targets a balance of its most liquid assets including cash and short-term securities, U.S. Treasuries, agency RMBS and pre-refunded municipal bonds equal to 1.5 times its projected operating company cash flow needs over the next four quarters. As of March 31, 2024, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost. Beyond the next twelve months, the ability of the operating subsidiaries to declare and pay dividends may be influenced by a variety of factors, including market conditions, general economic conditions, and, in the case of the Company’s insurance subsidiaries, insurance regulations and rating agency capital requirements. Financial Guaranty Policies Insurance policies issued provide, in general, that payments of principal, interest and other amounts insured may not be accelerated by the holder of the obligation. Amounts paid by the Company therefore are typically in accordance with the obligation’s original payment schedule, unless the Company accelerates such payment schedule, at its sole option. Premiums received on financial guaranty contracts are paid either upfront or in installments over the life of the insured obligations. Payments made in settlement of the Company’s obligations arising from its insured portfolio may, and often do, vary significantly from year to year, depending primarily on the frequency and severity of payment defaults and whether the Company chooses to accelerate its payment obligations in order to mitigate future losses. For example, the Company made substantial claim payments in 2022 in connection with the resolution of certain Puerto Rico credits. The Company is continuing its efforts to resolve the one remaining unresolved Puerto Rico insured exposure that is in payment default, PREPA. The Company had $624 million in insured net par outstanding of PREPA obligations as of March 31, 2024. For more information, see Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. The terms of the Company’s credit default swaps (CDS) contracts generally are modified from standard CDS contract forms approved by International Swaps and Derivatives Association, Inc. 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 documentation for certain CDS were negotiated to require the Company to also pay if the obligor becomes bankrupt or if the reference obligation were restructured. Furthermore, some CDS documentation requires the Company 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 Company may be required to make a cash termination payment to its swap counterparty upon such termination. Any such payment would probably occur prior to the maturity of the reference obligation and be in an amount larger than the amount due for that period on a “pay-as-you-go” basis. Distributions From Insurance Subsidiaries to Holding Companies The Company anticipates that, for the next twelve months, amounts paid by AGL’s direct and indirect insurance subsidiaries as dividends or other distributions will be a major source of the holding companies’ liquidity. The insurance subsidiaries’ ability to pay dividends depends upon their financial condition, results of operations, cash requirements, other potential uses for such funds and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their states of domicile. For more information, see Part II, Item 8, Financial Statements and Supplementary Data, Note 15, Insurance Company Regulatory Requirements, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for a complete discussion of the Company’s dividend restrictions applicable to AGC, AGM, AG Re and AGRO. Dividend restrictions by insurance subsidiary are as follows: • The maximum amount available during 2024 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is approximately $267 million of which approximately $2 million is available for distribution in the second quarter of 2024. • The maximum amount available during 2024 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $117 million of which approximately $24 million is available for distribution in the second quarter of 2024. 97 Table of Contents • Based on the applicable law and regulations, in 2024 AG Re (a subsidiary of AGL) paid dividends of $47 million in the first three months of the year and has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $226 million as of March 31, 2024. Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $97 million as of March 31, 2024, and (ii) the amount of statutory surplus, which as of March 31, 2024 was $20 million. Distributions From Insurance Company Subsidiaries to Holding Companies First Quarter 2024 2023 (in millions) Dividends paid by AG Re to AGL $ 47 $ — Dividends paid by AGC to AGUS 35 20 Dividends paid by AGM to AGMH 47 40 Committed Capital Securities Each of AGC and AGM is party to an arrangement that enables it to access, at its discretion, up to $200 million of capital, at any time, and has the right to use such capital for any purpose, including to pay claims. The arrangement entails four custodial trusts (Woodbourne Capital Trust I, II, III and IV) relating to AGC and four custodial trusts (Sutton Capital Trust I, II, III and IV) relating to AGM, each of which issued $50 million face amount of “committed capital securities” and invested the proceeds of that issuance in eligible assets that would enable the trust to have the cash necessary to respond to AGC’s or AGM’s exercise, respectively, of a put option. The put option consists of a right that each of AGC and AGM has, pursuant to separate put agreements that AGC and AGM entered into with each of the trusts, to issue to each trust $50 million of non-cumulative redeemable perpetual preferred stock, in exchange for an equivalent amount of cash (i.e., an aggregate of $200 million for each of AGC and AGM). When AGC or AGM exercises its put option, the relevant trust(s) must liquidate the portfolio of high-quality, liquid assets that it currently maintains and use the liquidation proceeds to purchase AGC or AGM preferred stock, as applicable. The put agreements have no scheduled termination date or maturity, but may be terminated upon the occurrence of certain specified events. None of the events that would give rise to a termination of the put agreements have occurred. Accordingly, each of AGC and AGM currently has the ability to exercise put options to raise up to $200 million of capital at any time. Investment Portfolio The Company’s principal objectives in managing its investment portfolio are to: support the highest possible ratings for each operating company, manage investment risk within the context of the underlying portfolio of insurance risk, maintain sufficient liquidity to cover unexpected stress in the insurance portfolio, and maximize after-tax net investment income. Approximately 61% of the total investment portfolio is managed by external parties. In accordance with the Company’s investment guidelines, each of the three external investment managers is required to maintain the Company’s investment portfolio with an overall credit quality rated at a minimum of A+/A1/A+ by S&P/Moody’s/Fitch Inc., respectively. Changes in interest rates affect the value of the Company’s fixed-maturity securities. As interest rates fall, the fair value of fixed-maturity securities generally increases and, as interest rates rise, the fair value of fixed-maturity securities generally decreases. The Company’s portfolio of fixed-maturity securities primarily consists of investment-grade, liquid instruments. Other invested assets include other alternative investments, which are generally less liquid. For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments, see Item 1, Financial Statements, Note 7, Investments, and Note 9, Fair Value Measurement. 98 Table of Contents Investment Portfolio Carrying Value As of March 31, 2024 December 31, 2023 (in millions) Fixed-maturity securities, available-for-sale $ 6,091 $ 6,307 Fixed-maturity securities, trading (1) 272 318 Short-term investments 1,649 1,661 Other invested assets (2) 875 829 Total $ 8,887 $ 9,115 ____________________ (1) Represents CVIs received under the 2022 Puerto Rico Resolutions, which are not rated. (2) Excludes investments in three Sound Point funds that are consolidated. See Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. The Company’s available-for-sale fixed-maturity securities had a duration of 4.0 years and 3.9 years as of March 31, 2024 and December 31, 2023, respectively. Available-for-Sale and Trading Fixed-Maturity Securities By Rating The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of March 31, 2024 and December 31, 2023. Ratings generally reflect the lower of Moody’s and S&P classifications, except for (i) Loss Mitigation Securities, which use Assured Guaranty’s internal ratings classifications or (ii) Puerto Rico securities received under the 2022 Puerto Rico Resolutions, which are not rated. Distribution of Available-for-Sale Fixed-Maturity Securities by Rating As of Rating March 31, 2024 December 31, 2023 AAA 13.9 % 13.3 % AA 38.5 38.2 A 26.1 27.6 BBB 12.0 11.7 BIG (1) 8.2 7.8 Not rated 1.3 1.4 Total 100.0 % 100.0 % ____________________ (1) Includes primarily Loss Mitigation Securities. See Item 1, Financial Statements, Note 7, Investments, for additional information. Other Investments Other invested assets, which are generally less liquid than fixed-maturity securities primarily consist of the investment in Sound Point and alternative investments across a variety of strategies. The Insurance segment reports the Company’s percentage ownership of Sound Point funds and AHP funds as equity method investments with changes in net asset value (NAV) included in the Insurance segment adjusted operating income. As of March 31, 2024 and December 31, 2023, three of the funds in which the Company invests are consolidated and the remaining are accounted as equity method investments in the Company’s consolidated financial statements. See “— Commitments” below. 99 Table of Contents Investment in Assets Managers and Alternative Investments by Strategy As of March 31, 2024 Investments Consolidation Adjustments (1) Consolidated (in millions) Sound Point (1) $ 417 $ — $ 417 Alternative investments: CLOs (2) 329 (233) 96 Healthcare 137 — 137 Asset-based/specialty finance 175 (80) 95 Middle market direct lending 28 — 28 Other 134 — 134 Total (3) $ 1,220 $ (313) $ 907 ____________________ (1) Certain CLO and asset-based funds are CIVs. See Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. (2) Represents primarily investments in the equity of U.S. and European CLOs. (3) Includes $32 million in alternative investments reported in fixed-maturity securities, available-for-sale, on the condensed consolidated balance sheets. Investment in Assets Managers and Alternative Investments by Strategy As of December 31, 2023 Investments Consolidation Adjustments (1) Consolidated (in millions) Sound Point (1) $ 429 $ — $ 429 Alternative investments: CLOs (2) 315 (223) 92 Healthcare 102 — 102 Asset-based/specialty finance 166 (82) 84 Middle market direct lending 26 — 26 Other 130 — 130 Total (3) $ 1,168 $ (305) $ 863 ____________________ (1) Certain CLO and asset-based funds are CIVs. See Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. (2) Represents primarily investments in the equity of U.S. and European CLOs. (3) Includes $34 million in alternative investments reported in fixed-maturity securities, available-for-sale, on the condensed consolidated balance sheets. 100 Table of Contents Change in Fair Value of Alternative Investments by Strategy First Quarter 2024 Investments Consolidation Adjustments (1) Consolidated (in millions) Sound Point $ 4 $ — $ 4 CLOs 21 (15) 6 Healthcare 4 — 4 Asset-based/specialty finance 4 (2) 2 Middle market direct lending 4 — 4 Other 6 — 6 Total $ 43 $ (17) $ 26 ____________________ (1) Certain CLO and asset-based funds are CIVs. See Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Change in Fair Value of Alternative Investments by Strategy First Quarter 2023 Investments Consolidation Adjustments (1) Consolidated (in millions) CLOs $ 19 $ (19) $ — Healthcare 8 (8) — Asset-based 1 (1) — Other 2 — 2 Total $ 30 $ (28) $ 2 ____________________ (1) Certain CLO and asset-based funds are CIVs. See Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Beginning in third quarter 2023, the Company records an equity method investment in Sound Point pursuant to the Sound Point Transaction described in Item 1, Financial Statements, Note 1, Business and Basis of Presentation. Commitments Upon closing of the Sound Point Transaction and the AHP Transaction in July, the Company has agreed to invest $1.5 billion in alternative investments, including the $1 billion in Sound Point managed investments, subject to regulatory approval, which includes $803 million of invested capital (at fair value) and $743 million in unfunded commitments. See Item 1, Financial Statements, Note 1, Business and Basis of Presentation, for a description of the Sound Point Transaction. Of the $1.5 billion mentioned above, the U.S. Insurance Subsidiaries through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $750 million plus previously distributed gains of $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 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. Restricted Assets 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 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. 101 Table of Contents Lease Obligations The Company has entered into several lease agreements for office space in Bermuda; New York; San Francisco; Asheville, North Carolina; London; Paris; and other locations with various lease terms. See Part II, Item 8, Financial Statements and Supplementary Data, Note 17, Leases, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, for a table of minimum lease obligations and other lease commitments. FG VIEs and CIVs The Company manages its liquidity needs by evaluating cash flows without the effect of consolidating FG VIEs and CIVs; however, the Company’s condensed consolidated financial statements include the effect of consolidating FG VIEs and CIVs. The primary sources and uses of cash at Assured Guaranty’s FG VIEs and CIVs are as follows: • FG VIEs. The primary sources of cash in FG VIEs are the collection of principal and interest on the collateral supporting the debt obligations, and the primary uses of cash are the payment of principal and interest due on the debt obligations. The insurance subsidiaries are not primarily liable for the debt obligations issued by the VIEs 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 FG VIEs. In the fourth quarter of 2023, all of the Toll Bonds in the Puerto Rico Trusts were called, resulting in cash proceeds of $154 million. Such cash proceeds comprise the vast majority of the assets in the Puerto Rico Trusts as of December 31, 2023. In January 2024, such proceeds were used to pay down a portion of the liabilities of the Puerto Rico Trusts. The remaining liabilities of the Puerto Rico Trusts are payable by the U.S. Insurance Subsidiaries under their financial guaranty policies and are no longer dependent on the credit of PRHTA. • CIVs. The primary sources and uses of cash in the CIVs are using capital to make investments, generating cash income from investments, paying expenses, distributing cash flow to investors and borrowing funds to finance investments. 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. See Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information. Condensed Consolidated Cash Flows The summarized condensed consolidated statements of cash flows in the table below present the cash flow effect for the aggregate of the Insurance and Asset Management businesses and holding companies, separately from the aggregate effect of consolidating FG VIEs and CIVs. In the third quarter of 2023, as a result of the Sound Point Transaction and AHP Transaction, the Company deconsolidated all CLOs and CLO warehouses and certain funds. As a result, beginning July 1, 2023, the Company’s cash flow statements will no longer include all the operating, investing and financing cash flow activity of the deconsolidated CIVs. See Item 1, Financial Statements, Note 1, Business and Basis of Presentation, and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information. 102 Table of Contents Summarized Condensed Consolidated Cash Flows First Quarter 2024 2023 (in millions) Net cash flows provided by (used in) operating activities, excluding FG VIEs and CIVs operating cash flows $ (62) $ (34) FG VIEs and CIVs operating cash flows (12) 346 Net cash flows provided by (used in) operating activities (74) 312 Net cash flows provided by (used in) investing activities, excluding FG VIEs and CIVs investing cash flows 257 102 FG VIEs and CIVs investing cash flows (4) (196) Net cash flows provided by (used in) investing activities 253 (94) Net cash flows provided by (used in) financing activities, excluding FG VIEs and CIVs financing cash flows Dividends paid (19) (18) Repurchases of common shares (129) (2) Other (28) (15) FG VIEs and CIVs financing cash flows (151) (261) Net cash flows provided by (used in) financing activities (1) (327) (296) Effect of 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 the end of the period $ 137 $ 130 ____________________ (1) Claims paid on consolidated FG VIEs are presented in the condensed consolidated statements of cash flows as a component of paydowns on FG VIEs’ liabilities in financing activities as opposed to operating activities. Cash flows from operations, excluding FG VIEs and CIVs, were an outflow of $62 million in first quarter 2024 and an outflow of $34 million in first quarter 2023. The increase in cash outflows, other than those of the FG VIEs and CIVs, during first quarter 2024 was primarily due to a $48 million increase in net claim payments. Cash flows from operations attributable to FG VIEs and CIVs were outflows in first quarter 2024 and inflows in first quarter 2023. Cash flow form operations in first quarter 2023 included the operating activities of the CLOs and CLO warehouses in the first half of 2023 prior to the Sound Point Transaction. The condensed consolidated statements of cash flows present the investing activities of the consolidated Sound Point funds, which were formerly known as AssuredIM funds, and CLOs as cash flows from operations. Investing activities primarily consisted of net sales (purchases) of fixed-maturity and short-term investments and paydowns on and sales of FG VIEs’ assets. The increase in investing cash inflows in first quarter 2024 compared with the first quarter 2023 was mainly attributable to net purchases of short-term and fixed-maturity securities in the first quarter 2023 and lower net sales of fixed-maturity securities in first quarter 2024, partially offset by higher sales of trading securities in first quarter 2024. In the first quarter 2024, investing inflows were used to fund claim payments and share repurchases. See Item 1, Financial Statements, Condensed Consolidated Statements of Cash Flows, and Note 3, Outstanding Exposure, for additional information. Financing activities primarily consist of (i) AGL share repurchases and dividends, (ii) paydowns of FG VIEs’ liabilities, and (iii) until July 1, 2023, CLO issuances and CLO warehouse financing activities. The CIVs’ financing cash flows mainly included repayments of CLO warehouse financing debt and distributions from noncontrolling interests to CIVs. First quarter 2024 FG VIE financing cash flows included the par paydown of Puerto Rico Trust liabilities of $144 million. See Item 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. From April 1, 2024 through May 7, 2024, the Company repurchased an additional 750,280 of common shares. As of May 7, 2024, the Company was authorized to purchase $414 million of its common shares. For more information about the Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 12, Shareholders’ Equity. 103 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes to the market risks to which the Company is exposed since December 31, 2023.