Assured Guaranty Ltd. (NYSE:AGO) Q4 2023 Earnings Conference Call February 28, 2024 8:00 AM ET Company Participants Robert Tucker – Senior Managing Director-Investor Relations and Corporate Communications Dominic Frederico – President and Chief Executive Officer Rob Bailenson – Chief Operating Officer Ben Rosenblum – Chief Financial Officer Conference Call Participants Tommy McJoynt – KBW Giuliano Bologna – Compass Point Geoffrey Dunn – Dowling & Partners Operator Good morning, and welcome to the Assured Gu ...

Assured Guaranty (AGO) came out with quarterly earnings of $5.75 per share, beating the Zacks Consensus Estimate of $1.01 per share. This compares to earnings of $0.22 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 469.31%. A quarter ago, it was expected that this insurance holding company would post earnings of $1.07 per share when it actually produced earnings of $3.42, delivering a surprise of 219.63%.Over the last four qu ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________________________ FORM 10-K ☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-32141 ASSURED GUARANTY LTD. (Exact name of Registrant as specified in its ...

Assured Guaranty Ltd. December 31, 2023 Financial Supplement | Table of Contents | Page | | --- | --- | | Selected Financial Highlights | 1 | | Condensed Consolidated Statements of Operations (unaudited) | 3 | | Condensed Consolidated Balance Sheets (unaudited) | 4 | | Selected Financial Highlights GAAP to Non-GAAP Reconciliations | 5 | | Income Components | 8 | | Fixed-Maturity Securities, Short-Term Investments and Cash | 12 | | Investment Portfolio, Cash and CIVs | 13 | | Income from Investment Portfolio ...

HAMILTON, Bermuda--(BUSINESS WIRE)--Assured Guaranty Ltd. (NYSE:AGO) (Assured Guaranty) announced that Mark C. Batten has been appointed as a non-executive director to Assured Guaranty's Board of Directors (Board). Mr. Batten will serve on the Board's Audit, Risk Oversight and Finance Committees. The appointment is effective as of February 19, 2024, and brings the total number of Board members to 12. Mr. Batten will also continue to serve as the non-executive Chair of the board of directors of Assured Guara ...

HAMILTON, Bermuda--(BUSINESS WIRE)--Assured Guaranty Ltd. (NYSE:AGO) (the Company) today announced that it will issue its financial results press release for the full year and fourth quarter ended December 31, 2023 after 4:00 p.m. Eastern Time (5:00 p.m. Atlantic Time) on Tuesday, February 27, 2024. The press release and Assured Guaranty Ltd.'s Financial Supplement for December 31, 2023 will be available in the Investor Information section of the Company's website located at AssuredGuaranty.com. The Compan ...

HAMILTON, Bermuda--(BUSINESS WIRE)--Assured Guaranty Ltd. (NYSE:AGO) (together with its subsidiaries, Assured Guaranty) announced that Nicholas Proud has been appointed Global Head of Origination for its financial guaranty business. Dominic Nathan will assume Mr. Proud’s responsibilities as CEO of Assured Guaranty UK Limited (AGUK) and Head of International. “We created the new position of Global Head of Origination to enhance our strategic approach to generating new business and executing transactions, ...

Assured Guaranty Ltd. (NYSE:AGO) Q3 2023 Earnings Conference Call November 8, 2023 7:00 AM ET Company Participants Robert Tucker - Senior Managing Director, Investor Relations and Corporate Communications Dominic Frederico - President and Chief Executive Officer Robert Bailenson - Chief Financial Officer Conference Call Participants Thomas Mcjoynt-Griffith - KBW Giuliano Bologna - Compass Point Geoffrey Dunn - Dowling & Partners Operator Good morning, and welcome to the Assured Guaranty Limited Third Quarte ...

PART I Financial Information [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements%3A) The unaudited condensed consolidated financial statements show decreased assets and liabilities from deconsolidation and increased net income from asset sales [Condensed Consolidated Balance Sheets (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)%20as%20of%20September%2030%2C%202023%20and%20December%2031%2C%202022) Total assets and liabilities decreased significantly due to the deconsolidation of investment vehicles while shareholders' equity slightly increased Total Assets and Liabilities | Metric | September 30, 2023 (millions) | December 31, 2022 (millions) | | :--- | :--- | :--- | | Total Assets | $11,944 | $16,843 | | Total Liabilities | $6,643 | $11,551 | Shareholders' Equity Attributable to Assured Guaranty Ltd. | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $5,252 | | December 31, 2022 | $5,064 | - Significant asset changes include a decrease in assets of consolidated investment vehicles from **$5,493 million to $330 million** and fixed-maturity securities, available-for-sale from **$7,119 million to $6,267 million**[7](index=7&type=chunk) - Liabilities of consolidated investment vehicles decreased from **$4,625 million to $4 million**[7](index=7&type=chunk) [Condensed Consolidated Statements of Operations (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) Net income increased substantially, driven by a **$255 million gain** on the sale of asset management subsidiaries and higher net investment income Net Income (Loss) Attributable to Assured Guaranty Ltd. | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $157 | $11 | $363 | $30 | | Diluted EPS | $2.60 | $0.18 | $5.99 | $0.46 | - Key revenue drivers for the three months ended September 30, 2023, include a **$255 million gain** on the sale of asset management subsidiaries and a rise in net investment income to **$100 million** from $67 million in the prior year[8](index=8&type=chunk) - Fair value gains on credit derivatives also improved to **$9 million** from a **$(48) million loss**[8](index=8&type=chunk) - Loss and loss adjustment expenses increased to **$100 million in Q3 2023** from a **$(75) million benefit in Q3 2022**[8](index=8&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) Comprehensive income improved significantly from prior-year losses, primarily due to higher net income and smaller unrealized losses on investments Comprehensive Income (Loss) Attributable to Assured Guaranty Ltd. | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Comprehensive Income (Loss) | $50 | $(271) | $313 | $(922) | - The change in net unrealized gains (losses) on investments with no credit impairment was **$(113) million in Q3 2023**, an improvement from **$(277) million in Q3 2022**[10](index=10&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity (Unaudited)](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Unaudited)%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) Shareholders' equity increased, driven by net income which was partially offset by dividends, share repurchases, and investment vehicle deconsolidation Shareholders' Equity Attributable to Assured Guaranty Ltd. | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $5,252 | | December 31, 2022 | $5,064 | Common Shares Outstanding | Date | Number of Shares | | :--- | :--- | | September 30, 2023 | 57,819,732 | | December 31, 2022 | 59,013,040 | - For the nine months ended September 30, 2023, key changes included net income of **$363 million**, dividends paid of **$(51) million**, common share repurchases of **$(90) million**, and deconsolidation of investment vehicles of **$(132) million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=16&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)%20for%20the%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) Operating cash flows improved significantly due to lower net claim payments, while financing outflows increased from investment vehicle deconsolidation Net Cash Flows by Activity | Activity | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | | Operating Activities | $258 | $(1,848) | | Investing Activities | $183 | $1,128 | | Financing Activities | $(533) | $655 | Cash and Cash Equivalents and Restricted Cash at End of Period | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $115 | | September 30, 2022 | $271 | - The improvement in operating cash flows was primarily due to a **$362 million decrease in net claim payments**, mainly from the 2022 Puerto Rico Resolutions, and a **$94 million decrease in tax payments**[606](index=606&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=19&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes detail the company's business, accounting policies, and performance, highlighting the asset management restructuring and Puerto Rico exposure [1. Business and Basis of Presentation](index=19&type=section&id=1.%20Business%20and%20Basis%20of%20Presentation) AGL provides credit protection products and significantly restructured its asset management business, resulting in a **$255 million gain** Gain on Sound Point Transaction and AHP Transaction | Item | Amount (millions) | | :--- | :--- | | Fair value of investment in Sound Point | $419 | | Fair value of other consideration | $25 | | Total consideration | $444 | | Less net asset carrying value of transferred AssuredIM subsidiaries | $189 | | **Gain on sale** | **$255** | - AGL provides financial guaranty insurance for debt instruments in U.S. and non-U.S. public finance and structured finance markets[19](index=19&type=chunk)[20](index=20&type=chunk) - On July 1, 2023, Assured Guaranty contributed most of its asset management business to Sound Point Capital Management, LP, receiving a **30% common interest**, and sold its equity interests in Assured Healthcare Partners LLC (AHP)[21](index=21&type=chunk)[22](index=22&type=chunk) - The company recognized expenses of **$14 million in Q3 2023** and **$46 million in 9M 2023** associated with the Sound Point Transaction and AHP Transaction[26](index=26&type=chunk) [2. Segment Information](index=35&type=section&id=2.%20Segment%20Information) The company reports in Insurance and Asset Management segments, with the latter now reflecting an equity method investment in Sound Point Segment Adjusted Operating Income (Loss) | Segment/Division | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Insurance | $59 | $159 | $282 | $347 | | Asset Management | $0 | $(3) | $(3) | $(3) | | Corporate | $155 | $(30) | $61 | $(98) | | Other | $(8) | $7 | $(30) | $7 | | **Total** | **$206** | **$133** | **$310** | **$253** | - The company reports results in two segments: **Insurance** and **Asset Management**, along with a Corporate division and an 'Other' category for consolidating Financial Guaranty Variable Interest Entities (FG VIEs) and Consolidated Investment Vehicles (CIVs)[35](index=35&type=chunk)[38](index=38&type=chunk) - Beginning in July 2023, the Asset Management segment primarily includes the results of the company's equity method investment in Sound Point entities, reported on a **one-quarter lag**[36](index=36&type=chunk) [3. Outstanding Exposure](index=48&type=section&id=3.%20Outstanding%20Exposure) Total financial guaranty exposure increased, with a diversified portfolio, while net par outstanding for Puerto Rico decreased post-resolution Total Financial Guaranty Exposure | Metric | Sep 30, 2023 (millions) | Dec 31, 2022 (millions) | | :--- | :--- | :--- | | Gross Debt Service | $384,198 | $370,172 | | Net Par Outstanding | $241,833 | $233,258 | Financial Guaranty Portfolio by Internal Rating (Net Par Outstanding as of Sep 30, 2023) | Rating Category | Public Finance U.S. (millions) | Public Finance Non-U.S. (millions) | Structured Finance U.S. (millions) | Structured Finance Non-U.S. (millions) | Total Net Par Outstanding (millions) | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | AAA | $212 | $2,004 | $860 | $457 | $3,533 | 1.5% | | AA | $16,994 | $3,298 | $4,545 | $1 | $24,849 | 10.3% | | A | $101,243 | $10,545 | $1,932 | $568 | $114,288 | 47.2% | | BBB | $64,220 | $29,083 | $586 | $100 | $93,989 | 38.9% | | BIG | $3,304 | $818 | $1,052 | $0 | $5,174 | 2.1% | | **Total** | **$185,973** | **$45,748** | **$8,975** | **$1,137** | **$241,833** | **100.0%** | Exposure to Puerto Rico (Net Par Outstanding) | Category | Sep 30, 2023 (millions) | Dec 31, 2022 (millions) | | :--- | :--- | :--- | | Total Defaulted (PREPA) | $624 | $720 | | Total Resolved (PRHTA, GO, PBA) | $372 | $509 | | Total Other (MFA, PRASA, U of PR) | $109 | $132 | | **Total Net Exposure** | **$1,105** | **$1,361** | - The company's exposure to Puerto Rico GO and PBA bonds was **extinguished on August 31, 2023**[91](index=91&type=chunk)[92](index=92&type=chunk) - The remaining PREPA exposure of **$624 million net par outstanding** is in payment default, with ongoing mediation and litigation[96](index=96&type=chunk)[99](index=99&type=chunk) [4. Expected Loss to be Paid (Recovered)](index=86&type=section&id=4.%20Expected%20Loss%20to%20be%20Paid%20(Recovered)) Net expected loss to be paid decreased, influenced by economic loss development in public finance and benefits from U.S. RMBS recoveries Net Expected Loss to be Paid (Recovered) | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $490 | | December 31, 2022 | $522 | Net Economic Loss Development (Benefit) | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Amount | $87 | $(72) | $147 | $(148) | - Net (paid) recovered losses were **$(157) million in Q3 2023**, including recoveries related to Puerto Rico securities transfers, compared to **$357 million in Q3 2022**[128](index=128&type=chunk) - Economic loss development in Q3 2023 for public finance was a **$134 million loss**, primarily attributable to PREPA, while U.S. RMBS showed a **$48 million economic benefit**[130](index=130&type=chunk)[134](index=134&type=chunk)[137](index=137&type=chunk)[146](index=146&type=chunk)[155](index=155&type=chunk)[449](index=449&type=chunk)[450](index=450&type=chunk) [5. Contracts Accounted for as Insurance](index=111&type=section&id=5.%20Contracts%20Accounted%20for%20as%20Insurance) Net earned premiums decreased for the nine-month period due to significant 2022 premium accelerations related to Puerto Rico resolutions Net Earned Premiums | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Net Earned Premiums | $95 | $89 | $261 | $385 | Loss and LAE (Benefit) by Sector (Insurance Contracts) | Sector | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | U.S. public finance | $134 | $1 | $186 | $67 | | U.S. RMBS | $(35) | $(78) | $(31) | $(97) | | **Total** | **$100** | **$(75)** | **$159** | **$(29)** | Net Expected Loss to be Expensed (Financial Guaranty Insurance Contracts) | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $196 | - The decrease in 9M 2023 net earned premiums was primarily due to **$104 million in accelerations** related to PRCCDA, PRIFA, and GO/PBA exposures in 9M 2022[164](index=164&type=chunk) [6. Contracts Accounted for as Credit Derivatives](index=121&type=section&id=6.%20Contracts%20Accounted%20for%20as%20Credit%20Derivatives) Credit derivative exposure increased, and fair value gains improved significantly from prior-year losses due to lower collateral asset spreads Credit Derivative Net Par Outstanding and Net Fair Value Asset (Liability) | Metric | Sep 30, 2023 (millions) | Dec 31, 2022 (millions) | | :--- | :--- | :--- | | Net Par Outstanding | $3,489 | $3,203 | | Net Fair Value (Liability)| $(49) | $(162) | Fair Value Gains (Losses) on Credit Derivatives | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Amount | $9 | $(48) | $115 | $(42) | Five-year CDS Spread on AGC | Date | Basis Points | | :--- | :--- | | September 30, 2023 | 98 | | December 31, 2022 | 63 | - Expected loss to be paid for credit derivatives was **$3 million** as of both September 30, 2023, and December 31, 2022[185](index=185&type=chunk) [7. Investments](index=126&type=section&id=7.%20Investments) Total investments and net investment income increased, driven by the new Sound Point investment and higher short-term interest rates Total Investments | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $8,808 | | December 31, 2022 | $8,365 | Net Investment Income | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Net Investment Income | $100 | $67 | $270 | $191 | - Investment composition as of September 30, 2023, includes **$6,267 million in fixed-maturity securities**, $1,426 million in short-term investments, and $765 million in other invested assets, which includes a **$419 million equity method investment in Sound Point**[194](index=194&type=chunk) - The allowance for credit losses on available-for-sale fixed-maturity securities increased to **$86 million** at September 30, 2023, from $65 million at December 31, 2022[204](index=204&type=chunk)[215](index=215&type=chunk) [8. Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles](index=138&type=section&id=8.%20Financial%20Guaranty%20Variable%20Interest%20Entities%20and%20Consolidated%20Investment%20Vehicles) The company deconsolidated most Consolidated Investment Vehicles (CIVs) following strategic transactions, significantly reducing related assets and liabilities Consolidated FG VIEs by Type of Collateral (Sep 30, 2023) | Type of Collateral | FG VIEs' Assets (millions) | FG VIEs' Liabilities with Recourse (millions) | | :--- | :--- | :--- | | U.S. RMBS first lien | $146 | $156 | | Puerto Rico Trusts' assets | $147 | $347 | | **Total** | **$327** | **$531** | - The company consolidated 25 structured finance and other FG VIEs as of September 30, 2023, and **24 Puerto Rico Trusts** (down from 45 at December 31, 2022)[222](index=222&type=chunk)[223](index=223&type=chunk) - Following the Sound Point and AHP Transactions, the company deconsolidated all but three CIVs, resulting in a **$16 million loss on deconsolidation** and a significant reduction in CIV assets and liabilities[235](index=235&type=chunk)[236](index=236&type=chunk)[238](index=238&type=chunk)[240](index=240&type=chunk) - Maximum exposure to losses relating to non-consolidated non-FG VIEs was **$251 million** as of September 30, 2023[246](index=246&type=chunk) [9. Fair Value Measurement](index=147&type=section&id=9.%20Fair%20Value%20Measurement) Total assets and liabilities carried at fair value decreased significantly due to the deconsolidation of Consolidated Investment Vehicles (CIVs) Total Assets and Liabilities Carried at Fair Value | Metric | September 30, 2023 (millions) | December 31, 2022 (millions) | | :--- | :--- | :--- | | Total Assets | $8,802 | $14,031 | | Total Liabilities | $592 | $5,316 | Effect of Changes in Credit Spread on Credit Derivatives (Sep 30, 2023) | Credit Spreads (1) | Estimated Net Fair Value (Pre-Tax) (millions) | Estimated Change Gain (Loss) (Pre-Tax) (millions) | | :--- | :--- | :--- | | Increase of 25 bps | $(112) | $(63) | | Base Scenario | $(49) | $0 | | Decrease of 25 bps | $(33) | $16 | - Fair value measurements are categorized into **Level 1** (quoted prices), **Level 2** (observable inputs), and **Level 3** (unobservable inputs)[251](index=251&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) - Credit derivative contracts are classified as **Level 3** due to the use of internally developed models with multiple unobservable inputs[265](index=265&type=chunk) [10. Asset Management Fees](index=170&type=section&id=10.%20Asset%20Management%20Fees) The company no longer reports asset management fee revenues following the strategic restructuring of its asset management business Total Asset Management Fees | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Total Asset Management Fees | $0 | $16 | $53 | $71 | - The company ceased reporting asset management fee revenues after July 1, 2023, due to the deconsolidation of transferred subsidiaries and accounting for its Sound Point investment as an **equity method investment**[316](index=316&type=chunk) [11. Long-Term Debt](index=171&type=section&id=11.%20Long-Term%20Debt) Total long-term debt increased slightly following the issuance of new Senior Notes and the redemption of notes nearing maturity Principal and Carrying Amounts of Long-Term Debt | Debt Type | Sep 30, 2023 Principal (millions) | Sep 30, 2023 Carrying Value (millions) | Dec 31, 2022 Principal (millions) | Dec 31, 2022 Carrying Value (millions) | | :--- | :--- | :--- | :--- | :--- | | AGUS 5% Senior Notes | $0 | $0 | $330 | $329 | | AGUS 6.125% Senior Notes | $350 | $345 | $0 | $0 | | AGUS 3.15% Senior Notes | $500 | $495 | $500 | $495 | | AGUS 7% Senior Notes | $200 | $198 | $200 | $198 | | AGUS 3.6% Senior Notes | $400 | $395 | $400 | $395 | | AGUS Series A Enhanced Junior Subordinated Debentures | $150 | $150 | $150 | $150 | | AGMH Junior Subordinated Debentures | $146 | $110 | $146 | $108 | | **Total** | **$1,746** | **$1,693** | **$1,726** | **$1,675** | - On August 21, 2023, AGUS issued **$350 million of 6.125% Senior Notes due 2028**, and on September 25, 2023, redeemed **$330 million of 5% Senior Notes due 2024**[319](index=319&type=chunk) [12. Income Taxes](index=172&type=section&id=12.%20Income%20Taxes) The provision for income taxes increased, and the company is monitoring potential tax law changes in the U.K. and Bermuda Provision (Benefit) for Income Taxes and Effective Tax Rate | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Provision (Benefit) | $43 | $(27) | $84 | $(6) | | Effective Tax Rate | 21.4% | 123.5% | 18.1% | (12.1)% | - The U.K. corporation tax rate increased to **25%** after April 1, 2023, from 19%[330](index=330&type=chunk) - The Bermuda government is considering introducing a corporate income tax, expected to be effective in **2025**, which could supersede existing tax assurances[322](index=322&type=chunk)[323](index=323&type=chunk) - The company believes its deferred tax assets, including foreign tax credits, are **more likely than not to be fully realized**[325](index=325&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk) [13. Commitments and Contingencies](index=179&type=section&id=13.%20Commitments%20and%20Contingencies) The company is involved in various legal proceedings, including ongoing litigation related to Puerto Rico, but expects no material adverse effect - The company is a party to numerous legal actions, including those related to **Puerto Rico obligations**, to enforce its rights or defend against claims[337](index=337&type=chunk)[338](index=338&type=chunk) - A previously recorded litigation accrual of **$20 million was reduced to zero** in the first quarter of 2023[338](index=338&type=chunk) - In the Lehman Brothers International (Europe) (LBIE) lawsuit, the court found in favor of AGFP, awarding approximately **$54 million plus interest**[340](index=340&type=chunk) [14. Shareholders' Equity](index=180&type=section&id=14.%20Shareholders'%20Equity) AOCI decreased due to unrealized investment losses, while the Board authorized an additional **$300 million** for share repurchases Accumulated Other Comprehensive Income (Loss) (AOCI) | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $(565)$ | | December 31, 2022 | $(515)$ | Common Share Repurchases (Q3 2023) | Period | Number of Shares Purchased | Total Payments (millions) | Average Price Paid Per Share | | :--- | :--- | :--- | :--- | | July 1 - September 30 | 1,065,902 | $64 | $59.67 | - The Board authorized an additional **$300 million** for common share repurchases on November 1, 2023, increasing the total authorized amount to **$372 million**[346](index=346&type=chunk) - Cumulative share repurchases since 2013 totaled **143.114 million common shares** for approximately **$4.793 billion**[392](index=392&type=chunk) [15. Earnings Per Share](index=184&type=section&id=15.%20Earnings%20Per%20Share) Basic and diluted earnings per share increased significantly in Q3 and the first nine months of 2023 compared to the prior year Basic and Diluted Earnings Per Share (EPS) | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Basic EPS | $2.65 | $0.18 | $6.11 | $0.47 | | Diluted EPS | $2.60 | $0.18 | $5.99 | $0.46 | Weighted Average Diluted Shares | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Weighted Average Diluted Shares | 59.6 | 62.9 | 60.0 | 65.1 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=79&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, highlighting the asset management restructuring, economic environment, and Puerto Rico resolutions' impact [Forward Looking Statements](index=79&type=section&id=Forward%20Looking%20Statements) The report contains forward-looking statements based on current expectations that are subject to various economic and business risk factors - Forward-looking statements are based on current expectations and the economic environment, and **actual results may vary materially** due to various factors[351](index=351&type=chunk) - Key risk factors include changes in inflation, interest rates, credit markets, geopolitical risks, potential U.S. government shutdown, and impacts of **Sound Point and AHP transactions**[352](index=352&type=chunk)[353](index=353&type=chunk) - The company claims the protection of the **safe harbor** for forward-looking statements[356](index=356&type=chunk) [Available Information](index=87&type=section&id=Available%20Information) SEC filings and corporate governance documents are available on the company's website, which is also used for material information disclosure - The company's SEC filings (10-K, 10-Q, 8-K) are available free of charge on its website under **www.assuredguaranty.com/sec-filings**[357](index=357&type=chunk) - Corporate governance documents are available on **www.assuredguaranty.com/governance**[357](index=357&type=chunk) - The company uses its website and LinkedIn for disclosing material information and complying with **SEC Regulation FD**[358](index=358&type=chunk) [Overview](index=88&type=section&id=Overview) The company operates in Insurance and Asset Management segments, with the latter transitioning to an ownership interest in Sound Point - The company reports results in **Insurance and Asset Management segments**, with a Corporate division and other activities[360](index=360&type=chunk) - Effective July 1, 2023, the company contributed most of its asset management business to Sound Point Capital Management, LP, receiving a **30% ownership interest**[363](index=363&type=chunk)[364](index=364&type=chunk) - U.S. Real GDP increased at an annual rate of **4.9% in Q3 2023**, and the U.S. unemployment rate was **3.8%** at the end of September 2023[365](index=365&type=chunk)[366](index=366&type=chunk) - The FOMC has maintained the federal funds rate at **5.25% to 5.50%** since July 2023, impacting the company's investment portfolio and demand for its products[368](index=368&type=chunk)[369](index=369&type=chunk)[370](index=370&type=chunk) [Business](index=88&type=section&id=Business) The business is structured into Insurance and Asset Management segments, with the latter transitioning to an ownership interest in Sound Point - The company reports its operations in two segments: **Insurance** and **Asset Management**, along with a Corporate division and other activities[360](index=360&type=chunk) - The Insurance segment provides credit protection products to the U.S. and non-U.S. **public finance and structured finance markets**[361](index=361&type=chunk) - Beginning July 1, 2023, the company participates in the asset management business through its **ownership interest in Sound Point**[361](index=361&type=chunk)[363](index=363&type=chunk) [Economic Environment](index=88&type=section&id=Economic%20Environment) The U.S. economy showed strong GDP growth, but elevated inflation and higher interest rates impact the company's investments and business demand - U.S. Real GDP increased at an annual rate of **4.9% in Q3 2023**, and the U.S. unemployment rate was **3.8%** at the end of September 2023[365](index=365&type=chunk) - U.S. inflation (CPI-U) was **3.7%** for the 12 months ending September 2023, and U.K. inflation (CPIH) was **6.3%** for the same period[366](index=366&type=chunk) - The Federal Funds Rate has been maintained at **5.25% to 5.50%** since July 2023[368](index=368&type=chunk)[370](index=370&type=chunk) - Higher interest rates may reduce the fair value of fixed-maturity securities but could also make **credit enhancement products more attractive**[369](index=369&type=chunk)[370](index=370&type=chunk) [Key Business Strategies](index=90&type=section&id=Key%20Business%20Strategies) Key strategies focus on growing the insurance business, shifting the asset management model, and actively managing capital through share repurchases - The company's key business strategies are focused on **insurance, asset management and alternative investments, and capital management**[372](index=372&type=chunk) - Insurance strategy aims to grow through new business production, acquire financial guaranty portfolios, and **mitigate losses**, as demonstrated by the 2022 Puerto Rico Resolutions[373](index=373&type=chunk)[374](index=374&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk)[382](index=382&type=chunk)[383](index=383&type=chunk) - Asset management strategy shifted to participating in a fee-based earnings stream through an **ownership interest in Sound Point** and increasing aggregate alternative investments to **$1.5 billion**[387](index=387&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk) - Capital management involves efficient capital deployment, including repurchasing **143 million common shares for approximately $4.8 billion** since 2013[391](index=391&type=chunk)[393](index=393&type=chunk) [Executive Summary](index=93&type=section&id=Executive%20Summary) Net income volatility is primarily influenced by loss expenses, fair value adjustments, foreign exchange rates, and large settlements - Primary drivers of volatility in net income include changes in loss and loss adjustment expenses (LAE), fair value of credit derivatives, and **foreign exchange gains (losses)**[396](index=396&type=chunk) - Changes in laws and regulations may also have a **significant effect** on reported net income or loss[396](index=396&type=chunk) [Financial Performance of Assured Guaranty](index=94&type=section&id=Financial%20Performance%20of%20Assured%20Guaranty) GAAP net income and adjusted operating income increased significantly, driven by the gain on the sale of asset management subsidiaries GAAP Net Income (Loss) Attributable to AGL and EPS | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $157 | $11 | $363 | $30 | | Diluted EPS | $2.60 | $0.18 | $5.99 | $0.46 | Non-GAAP Adjusted Operating Income (Loss) and Per Share | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Adjusted Operating Income (Loss) | $206 | $133 | $310 | $253 | | Per diluted share | $3.42 | $2.11 | $5.12 | $3.88 | Shareholders' Equity and Adjusted Book Value | Metric | Sep 30, 2023 (millions) | Sep 30, 2023 Per Share | Dec 31, 2022 (millions) | Dec 31, 2022 Per Share | | :--- | :--- | :--- | :--- | :--- | | Shareholders' equity attributable to AGL | $5,252 | $90.84 | $5,064 | $85.80 | | Adjusted book value | $8,559 | $148.03 | $8,379 | $141.98 | - The increase in net income was primarily due to the gain associated with the **Sound Point Transaction and AHP Transaction** ($241 million pre-tax for Q3, $215 million pre-tax for 9M)[401](index=401&type=chunk)[402](index=402&type=chunk)[403](index=403&type=chunk) [Other Matters](index=97&type=section&id=Other%20Matters) High inflation impacts debt exposure, while the company has no material direct exposure to geopolitical conflicts and is evaluating tax changes - High inflation in the U.S. and U.K. directly impacts the company by increasing exposure for **U.K. index-linked debt**[407](index=407&type=chunk)[408](index=408&type=chunk) - The company has identified **no material direct insurance or investment exposure** to Ukraine, Russia, or the Middle East conflict[410](index=410&type=chunk)[411](index=411&type=chunk) - The company is evaluating the impact of new U.K. legislation (OECD Pillar Two) and **Bermuda's proposal for a corporate income tax**[322](index=322&type=chunk)[323](index=323&type=chunk)[412](index=412&type=chunk) [Results of Operations](index=98&type=section&id=Results%20of%20Operations) This section details segment performance and critical accounting estimates, highlighting the impact of economic loss development from key exposures [Critical Accounting Estimates](index=98&type=section&id=Critical%20Accounting%20Estimates) Financial statements require significant judgment and estimates, particularly for expected losses, fair value, and credit impairment - Critical accounting estimates include **expected loss to be paid (recovered)**, fair value of certain assets and liabilities, credit impairment, and income tax assets and liabilities[417](index=417&type=chunk) - These estimates and assumptions are **inherently subjective** and are evaluated on an ongoing basis, with actual results potentially differing materially from projections[413](index=413&type=chunk)[414](index=414&type=chunk) [Results of Operations by Segment](index=98&type=section&id=Results%20of%20Operations%20by%20Segment) The company analyzes operating performance using "segment adjusted operating income (loss)" to assess performance and allocate resources - The company analyzes the operating performance of each segment using **'segment adjusted operating income (loss)'** to assess performance and allocate resources[416](index=416&type=chunk) - Segment results are reported for **Insurance, Asset Management, Corporate division, and 'Other'**[35](index=35&type=chunk) [Insurance Segment](index=99&type=section&id=Insurance%20Segment) The Insurance segment's adjusted operating income decreased due to higher loss expense, while new business production remained strong Insurance Segment Adjusted Operating Income (Loss) | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Adjusted Operating Income (Loss) | $59 | $159 | $282 | $347 | Insurance Segment Net Earned Premiums and Credit Derivative Revenues | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Total | $99 | $92 | $271 | $397 | New Business Production (PVP) and Gross Par Written | Metric | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Total PVP | $46 | $95 | $249 | $240 | | Total Gross Par Written | $5,948 | $3,846 | $20,285 | $15,012 | - Net investment income for the Insurance segment increased to **$101 million in Q3 2023** and to **$273 million in 9M 2023**, driven by higher income from loss mitigation securities and increased short-term rates[437](index=437&type=chunk)[438](index=438&type=chunk) - Economic loss development on U.S. public finance exposures in Q3 2023 was a **$135 million loss**, primarily attributable to PREPA, while U.S. RMBS showed a **$48 million economic benefit**[449](index=449&type=chunk)[450](index=450&type=chunk) [Asset Management Segment](index=109&type=section&id=Asset%20Management%20Segment) The segment reported no revenue or operating income in Q3 2023 following the strategic transition to an ownership interest in Sound Point Asset Management Segment Revenues and Adjusted Operating Income (Loss) | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Total Segment Revenues | $0 | $21 | $71 | $88 | | Adjusted Operating Income (Loss) | $0 | $(3) | $(3) | $(3) | - The company no longer reports asset management fee revenues after July 1, 2023, due to the **Sound Point and AHP Transactions**[469](index=469&type=chunk) - Assets Under Management (AUM) of approximately **$15.1 billion were transferred to Sound Point**, and **$1.3 billion were transferred with the sale of AHP**[470](index=470&type=chunk) [Corporate](index=110&type=section&id=Corporate) The Corporate division's adjusted operating income improved significantly due to the **$255 million gain** on the sale of asset management subsidiaries Corporate Division Adjusted Operating Income (Loss) | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Adjusted Operating Income (Loss) | $155 | $(30) | $61 | $(98) | - The significant improvement in Q3 2023 adjusted operating income was driven by a **$255 million gain** on the sale of asset management subsidiaries[472](index=472&type=chunk) - Interest expense increased due to the issuance of **$350 million in 6.125% Senior Notes**, and operating expenses included **$14 million (Q3 2023)** related to the Sound Point and AHP Transactions[473](index=473&type=chunk)[474](index=474&type=chunk) [Other](index=110&type=section&id=Other) The "Other" category reflects consolidation effects, with a **$16 million loss** on the deconsolidation of CIVs in Q3 2023 Effect on Net Income (Loss) Attributable to AGL from Consolidating FG VIEs and CIVs | Period | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Effect on Net Income (Loss) | $(8) | $7 | $(30) | $7 | - The deconsolidation of CIVs in Q3 2023 resulted in a **$16 million loss** and significantly reduced consolidated CIV assets (**$4.7 billion**) and liabilities (**$4.4 billion**)[479](index=479&type=chunk) - Consolidating FG VIEs and CIVs has a **significant gross-up effect** on the consolidated financial statements[477](index=477&type=chunk)[478](index=478&type=chunk)[479](index=479&type=chunk) [Reconciliation to GAAP](index=112&type=section&id=Reconciliation%20to%20GAAP) This section reconciles GAAP net income to the non-GAAP measure of adjusted operating income by eliminating certain non-economic adjustments Adjusted Operating Income (Loss) Reconciliation | Metric | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to AGL | $157 | $11 | $363 | $30 | | Total pre-tax adjustments | $(60) | $(140) | $63 | $(253) | | Less tax effect | $11 | $18 | $(10) | $30 | | **Adjusted operating income (loss)** | **$206** | **$133** | **$310** | **$253** | - Key pre-tax adjustments include realized gains (losses) on investments, **non-credit impairment-related unrealized fair value gains (losses) on credit derivatives**, and foreign exchange gains (losses)[483](index=483&type=chunk) - Non-credit impairment unrealized fair value gains on credit derivatives in Q3 2023 were primarily due to **generally lower collateral asset spreads**[488](index=488&type=chunk) - Fair value losses on CCS in Q3 2023 and 9M 2023 were primarily due to a **tightening in market spreads**[490](index=490&type=chunk) [Non-GAAP Financial Measures](index=114&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like adjusted operating income and adjusted book value to provide a clearer view of operating results Reconciliation of Shareholders' Equity to Adjusted Operating Shareholders' Equity and Adjusted Book Value (Sep 30, 2023) | Metric | Amount (millions) | Per Share | | :--- | :--- | :--- | | Shareholders' equity attributable to AGL | $5,252 | $90.84 | | Adjusted operating shareholders' equity | $5,735 | $99.18 | | Adjusted book value | $8,559 | $148.03 | Reconciliation of GWP to PVP (Nine Months 2023) | Metric | Public Finance U.S. (millions) | Public Finance Non-U.S. (millions) | Structured Finance U.S. (millions) | Structured Finance Non-U.S. (millions) | Total (millions) | | :--- | :--- | :--- | :--- | :--- | :--- | | GWP | $129 | $40 | $48 | $4 | $221 | | Less: Installment GWP and other GAAP adjustments | $55 | $37 | $48 | $4 | $144 | | Upfront GWP | $74 | $3 | $0 | $0 | $77 | | Plus: Installment premiums and other | $55 | $35 | $42 | $40 | $172 | | **PVP** | **$129** | **$38** | **$42** | **$40** | **$249** | - Non-GAAP financial measures are used to evaluate financial results by excluding **non-economic fair value adjustments** and the effects of FG VIE and CIV consolidation[495](index=495&type=chunk)[496](index=496&type=chunk)[498](index=498&type=chunk)[499](index=499&type=chunk) - **Present Value of New Business Production (PVP)** is a non-GAAP measure that provides a comprehensive view of new business value[520](index=520&type=chunk) [Insured Portfolio](index=118&type=section&id=Insured%20Portfolio) The financial guaranty portfolio's net par outstanding increased, with public finance remaining the largest sector and Puerto Rico exposure decreasing Financial Guaranty Portfolio Net Par Outstanding | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $241,833 | | December 31, 2022 | $233,258 | Net Par Outstanding by Sector (Sep 30, 2023) | Sector | Amount (millions) | | :--- | :--- | | U.S. public finance | $185,973 | | Non-U.S. public finance | $45,748 | | U.S. structured finance | $8,975 | | Non-U.S. structured finance | $1,137 | | **Total** | **$241,833** | Exposure to Puerto Rico Net Par Outstanding (Sep 30, 2023) | Category | Amount (millions) | | :--- | :--- | | Defaulted (PREPA) | $624 | | Resolved (PRHTA) | $372 | | Other (MFA, PRASA, U of PR) | $109 | | **Total** | **$1,105** | - U.S. RMBS exposures represent **$1,817 million (0.8% of total net par outstanding)** as of September 30, 2023[538](index=538&type=chunk)[539](index=539&type=chunk) [Liquidity and Capital Resources](index=122&type=section&id=Liquidity%20and%20Capital%20Resources) The company details its liquidity and capital management strategies, covering sources of funds, debt obligations, and dividend restrictions [AGL and its U.S. Holding Companies](index=122&type=section&id=AGL%20and%20its%20U.S.%20Holding%20Companies) Holding company liquidity relies on subsidiary dividends and external financing, with sufficient resources to meet needs for the next twelve months AGL and U.S. Holding Companies Selected Cash Flow Items (9M 2023) | Item | Amount (millions) | | :--- | :--- | | Dividends received from subsidiaries | $193 | | Dividends paid (AGL) | $(51)$ | | Repurchases of common shares | $(90)$ | | Issuance of long-term debt, net | $345 | | Redemption of debt | $(330)$ | - AGL and its U.S. Holding Companies' liquidity is dependent on **dividends from operating subsidiaries** and access to external financing[541](index=541&type=chunk) - The company targets maintaining liquid assets at **1.5 times its projected operating company net cash flow needs** over the next four quarters[543](index=543&type=chunk) - AGUS issued **$350 million of 6.125% Senior Notes** and redeemed **$330 million of 5% Senior Notes** in August/September 2023[545](index=545&type=chunk) [Insurance Subsidiaries](index=125&type=section&id=Insurance%20Subsidiaries) Insurance subsidiaries' liquidity is sufficient to meet needs, with dividend capacity subject to regulatory approval and statutory surplus - Insurance subsidiaries' liquidity needs are met from **current cash, short-term investments, and operating cash flow**[559](index=559&type=chunk) - The company made substantial claim payments in 2022 for Puerto Rico resolutions; remaining PREPA exposure is **$624 million net par outstanding**[562](index=562&type=chunk)[563](index=563&type=chunk) - **Dividend capacity** for insurance subsidiaries is subject to regulatory approval and statutory surplus[570](index=570&type=chunk)[571](index=571&type=chunk)[572](index=572&type=chunk) - A downgrade of an insurance subsidiary could trigger recapture rights by ceding companies, potentially requiring payments of up to **$264 million**[574](index=574&type=chunk)[576](index=576&type=chunk) [Investment Portfolio](index=129&type=section&id=Investment%20Portfolio) The investment portfolio aims to support ratings and maximize income, with a primarily investment-grade composition and a duration of 4.1 years Total Investment Portfolio | Date | Amount (millions) | | :--- | :--- | | September 30, 2023 | $8,808 | | December 31, 2022 | $8,365 | - The investment portfolio's objectives are to support ratings, manage risk, maintain liquidity, and **maximize after-tax net investment income**[580](index=580&type=chunk) - Available-for-sale fixed-maturity securities had a **duration of 4.1 years** as of September 30, 2023[583](index=583&type=chunk)[586](index=586&type=chunk) - Other invested assets primarily consist of the **$419 million investment in Sound Point** and other alternative investments[589](index=589&type=chunk)[591](index=591&type=chunk)[596](index=596&type=chunk) [Lease Obligations](index=132&type=section&id=Lease%20Obligations) The company has various lease agreements for office spaces, with details provided in its 2022 Annual Report on Form 10-K - The company has lease agreements for office space in **Bermuda, New York, San Francisco, London, Paris**, and other locations[598](index=598&type=chunk) - Further details on minimum lease obligations are available in Note 17 of the company's **2022 Annual Report on Form 10-K**[598](index=598&type=chunk) [Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles](index=132&type=section&id=Financial%20Guaranty%20Variable%20Interest%20Entities%20and%20Consolidated%20Investment%20Vehicles) The company manages liquidity for FG VIEs and CIVs separately, as their assets are legally distinct and not available to general creditors - Financial Guaranty Variable Interest Entities (FG VIEs) generate cash from collateral collections, which is used to pay debt obligations[599](index=599&type=chunk) - Consolidated Investment Vehicles (CIVs) raise capital and make investments, with assets held within **separate legal entities**[600](index=600&type=chunk) [Condensed Consolidated Cash Flows](index=133&type=section&id=Condensed%20Consolidated%20Cash%20Flows) Operating cash outflows (excluding VIEs/CIVs) decreased due to lower claim and tax payments, while financing outflows increased post-deconsolidation Net Cash Flows from Operating Activities (excluding FG VIEs and CIVs) | Period | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | | Amount | $(217) | $(534) | Net Cash Flows from Investing Activities (excluding FG VIEs and CIVs) | Period | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--- | :--- | :--- | | Amount | $358 | $1,006 | - The decrease in operating cash outflows was primarily due to a **$362 million decrease in net claim payments** and a **$94 million decrease in tax payments**[606](index=606&type=chunk) - Financing activities resulted in a net outflow of **$(533) million in 9M 2023**, largely due to the deconsolidation of CLOs following the Sound Point and AHP Transactions[605](index=605&type=chunk)[609](index=609&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=126&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There were no material changes to the company's market risk exposures since the end of the previous fiscal year - **No material changes** to the market risks to which the company is exposed as of September 30, 2023, compared to December 31, 2022[611](index=611&type=chunk) [Item 4. Controls and Procedures](index=126&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective, with no material changes in internal control - The company's disclosure controls and procedures were evaluated as **effective** as of September 30, 2023[613](index=613&type=chunk) - There were **no material changes** in the company's internal control over financial reporting during Q3 2023[614](index=614&type=chunk) PART II Other Information [Item 1. Legal Proceedings](index=127&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, including ongoing litigation related to its Puerto Rico obligations - The company is subject to legal proceedings and claims, including those related to **Puerto Rico obligations**[615](index=615&type=chunk) - Further details are incorporated by reference from **Note 13 and Note 3** in Part I of this Form 10-Q[615](index=615&type=chunk) [Item 1A. Risk Factors](index=127&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors include increased investment risks from new allocations and potential adverse effects from new Bermuda corporate income tax laws - Expansion of investment categories, including allocations to Sound Point, may expose the company to **increased credit, interest rate, liquidity, and reputational risks**[617](index=617&type=chunk)[618](index=618&type=chunk) - AGL, AG Re, and AGRO may become subject to **corporate income taxes in Bermuda** earlier than 2035 due to new government proposals, which could adversely affect financial results[619](index=619&type=chunk)[620](index=620&type=chunk)[621](index=621&type=chunk)[622](index=622&type=chunk) - There have been **no other material changes** to the risk factors disclosed in the 2022 Annual Report or the Q2 Quarterly Report[616](index=616&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=128&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased over one million common shares in Q3 2023 and increased its total share repurchase authorization Issuer's Purchases of Equity Securities (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 1 - July 31 | 257,066 | $57.64 | | August 1 - August 31 | 264,107 | $59.73 | | September 1 - Sep 30 | 547,256 | $60.61 | | **Total (Q3 2023)** | **1,068,429** | **$59.67** | - As of November 7, 2023, the remaining authorization for common share repurchases was **$372 million**, following an additional **$300 million authorization** on November 1, 2023[624](index=624&type=chunk) - Cumulative repurchases since 2013 totaled **143 million common shares** for approximately **$4.8 billion**[624](index=624&type=chunk) [Item 5. Other Matters](index=128&type=section&id=Item%205.%20Other%20Matters) No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the third quarter of 2023 - **None of the company's directors or officers** adopted, terminated, or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during Q3 2023[625](index=625&type=chunk) [Item 6. Exhibits](index=129&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including officer certificates, agreements, and CEO/CFO certifications - Exhibits include Form of Officer's Certificate for 6.125% Senior Notes due 2028, a Separation Agreement, and a list of Subsidiary Companies[627](index=627&type=chunk) - **CEO and CFO Certifications** pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed[627](index=627&type=chunk) - Financial information from the Quarterly Report is formatted in **Inline XBRL**[627](index=627&type=chunk)

Financial Data and Key Metrics Changes - Adjusted operating income for Q2 2023 increased to $36 million or $0.60 per share from $30 million or $0.46 per share in Q2 2022 [15] - Adjusted operating shareholders' equity per share reached $95.64 and adjusted book value per share reached $144.21, both at record levels [7][24] - Net investment income increased by $24 million, driven mainly by higher short-term interest rates and average balances [16] Business Line Data and Key Metrics Changes - Insurance segment contributed $106 million to adjusted operating income in Q2 2023, compared to $55 million in the prior year [15] - International Public Finance produced $36 million of PVP in the first half of 2023, up from $30 million in the same period of 2022 [10] - Global Structured Finance direct PVP was the largest first half amount since 2009, producing $68 million of PVP [11] Market Data and Key Metrics Changes - Assured's share of the insured primary municipal bond market increased to 63% in the first half of 2023, up from 56% in the same period of 2022 [8] - Total insured penetration for the second quarter was 10.1%, the highest rate since 2009 [9] - Market demand for bond insurance increased significantly in Q2 2023, up 72% from Q1 2023 [9] Company Strategy and Development Direction - The company is optimistic about growth opportunities across all business units, particularly in U.S. public finance and global structured finance [50][51] - The recent transactions with Sound Point Capital Management and the sale of Assured Healthcare Partners are expected to be immediately accretive to the bottom line [12][20] - The company plans to request special dividends from subsidiaries with excess capital following the completion of audits [27][29] Management's Comments on Operating Environment and Future Outlook - Management emphasized the company's resilience and ability to thrive in volatile market conditions, highlighting strong demand for bond insurance [14] - The company is committed to negotiating a fair settlement regarding Puerto Rico Electric Power Authority (PREPA) and views litigation as the necessary path forward [13][35] - Management expressed optimism about the future, citing strong pipelines in various sectors and the potential for growth [50][51] Other Important Information - The company resumed its share repurchase program in Q2 2023, with $158 million remaining in authorization [23] - The U.K. subsidiary paid a dividend of £100 million or $127 million to AGM, enhancing dividend capacity [24] - The company reported a fair value gain of $40 million on Puerto Rico contingent value instruments in Q2 2023, compared to losses in the prior year [16] Q&A Session Summary Question: Next steps toward requesting special dividends after clean audits - Management confirmed plans to proceed with requests for special dividends from subsidiaries with excess capital [27][29] Question: Annualized cash expenses at the holding company level - Annual net expenses are approximately $50 million, with annual dividend distributions of $66 million and debt service of $82 million [30] Question: Additional Puerto Rico loss development - Management indicated that the additional reserves are predominantly related to PREPA and are adjusting their models based on new information [35][36] Question: Capital buffer over AAA level - Management confirmed a capital buffer of approximately $1.8 billion above the AAA level, but noted that they are rated as a AA company [39][41] Question: Excess capital and ROE challenges - Management acknowledged that excess capital has impacted ROE and indicated a desire to be more aggressive in capital management following the audit clearance [42][44] Question: Pipeline of reinsurance opportunities - Management stated that they continue to look for opportunities across all markets, both direct and reinsurance, and are optimistic about the business pipeline [67]