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]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________________________ FORM 10-Q ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 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 No. 001-32141 Hamilton HM 08, Bermuda (Address of principal ex ...

Assured Guaranty Ltd. (NYSE:AGO) Q1 2023 Earnings Conference Call May 10, 2023 8:00 AM ET Company Participants Robert Tucker - Senior Managing Director, IR & Corporate Communications Dominic Frederico - President & CEO Robert Bailenson - CFO Conference Call Participants Tommy McJoynt - KBW Giuliano Bologna - Compass Point Jordan Hymowitz - Philadelphia Financial Brian Meredith - UBS Operator Good morning, everyone, and welcome to the Assured Guaranty Ltd. First Quarter 2023 Earnings Conference Call. My name ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________________________ FORM 10-Q ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 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 No. 001-32141 ASSURED GUARANTY LTD. (Exact name of registrant ...

Assured Guaranty Ltd. (NYSE:AGO) Q4 2022 Earnings Conference Call March 1, 2023 8:00 AM ET Company Participants Robert Tucker - Senior Managing Director, IR & Corporate Communications Dominic Frederico - President & CEO Robert Bailenson - CFO Conference Call Participants Geoffrey Dunn - Dowling & Partners Brian Meredith - UBS Tommy McJoynt - KBW Giuliano Bologna - Compass Point Operator Good morning, and welcome to the Assured Guaranty Ltd. Fourth Quarter and Full Year 2022 Earnings Conference Call. My name ...

Part I [Business](index=7&type=section&id=Item%201.%20Business) Assured Guaranty Ltd. operates through two primary segments: Insurance and Asset Management, focusing on credit protection and investment advisory services - The company operates in two distinct segments: Insurance and Asset Management, alongside a Corporate division[25](index=25&type=chunk) - Key business strategies are centered on three areas: (1) insurance growth and loss mitigation, (2) asset management and alternative investments, and (3) capital management[26](index=26&type=chunk) [Insurance](index=7&type=section&id=Insurance) The Insurance segment, the company's largest business line, offers financial guaranty insurance for U.S. and non-U.S. public and structured finance markets - The company's primary insurance operating subsidiaries are **Assured Guaranty Municipal Corp. (AGM)**, **Assured Guaranty Corp. (AGC)**, **Assured Guaranty UK Limited (AGUK)**, and **Assured Guaranty (Europe) SA (AGE)**[27](index=27&type=chunk)[33](index=33&type=chunk) - U.S. insurance subsidiaries (AGM and AGC) provide support to European subsidiaries (AGUK and AGE) through reinsurance, co-guarantee structures, and net worth maintenance agreements to ensure capital adequacy[28](index=28&type=chunk)[29](index=29&type=chunk)[37](index=37&type=chunk) - The company insures a wide range of U.S. public finance obligations, including General Obligation Bonds, Tax-Backed Bonds, Municipal Utility Bonds, and Infrastructure Bonds[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) - The structured finance portfolio includes Residential Mortgage-Backed Securities (RMBS), Pooled Corporate Obligations, and Consumer Receivables Securities, with no new primary market RMBS insured since 2008[68](index=68&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) [Asset Management](index=18&type=section&id=Asset%20Management) The Asset Management segment, significantly expanded by the BlueMountain acquisition, diversifies revenues through a fee-based platform managing CLOs and opportunity funds - The Asset Management segment was established through the acquisition of BlueMountain Capital Management on October 1, 2019, for **$157 million**, diversifying the company's revenues into a fee-based platform[116](index=116&type=chunk) - The U.S. Insurance Subsidiaries are authorized to invest up to **$750 million** in funds managed by AssuredIM, enhancing returns and facilitating the growth of AssuredIM's CLO, asset-based, and healthcare funds[120](index=120&type=chunk) Assets Under Management (AUM) - CLOs | Metric | Value | | :--- | :--- | | AUM in CLOs | $15.2 billion (as of Dec 31, 2022) | | Global Manager Ranking | Top 25 by AUM | - Asset Management revenues are primarily composed of management fees based on a percentage of AUM and performance-based fees, which are subject to hurdles and market conditions[132](index=132&type=chunk)[137](index=137&type=chunk) [Investment Portfolio](index=21&type=section&id=Investment%20Portfolio) The company's investment portfolio, primarily fixed-maturity securities, serves as a key cash flow source, managed for liquidity, income, and high ratings Investment Portfolio Composition (as of Dec 31, 2022) | Category | Fair Value (USD) | % of Portfolio | | :--- | :--- | :--- | | Total Investments | $8.4 billion | 100% | | Externally Managed | $5.6 billion | 67% | | Puerto Rico New Recovery Bonds & CVIs | $661 million | 7.9% | | Loss Mitigation Securities | $508 million | 6.1% | | Managed by AssuredIM (IMA) | $537 million | 6.0% | - As a result of the 2022 Puerto Rico Resolutions, the company received substantial amounts of cash, New Recovery Bonds, and Contingent Value Instruments (CVIs)[145](index=145&type=chunk) - The Insurance segment has authorized up to **$750 million** to be invested in AssuredIM Funds, with a fair value of **$569 million** as of December 31, 2022, consolidated as assets of consolidated investment vehicles (CIVs)[151](index=151&type=chunk)[152](index=152&type=chunk) [Risk Management](index=23&type=section&id=Risk%20Management) The company employs an enterprise-wide risk management framework, overseen by the Board and committees, covering credit, market, liquidity, and operational risks - The Board of Directors has ultimate oversight of risk management, with specific responsibilities delegated to committees like the Risk Oversight, Audit, and Finance Committees[154](index=154&type=chunk)[155](index=155&type=chunk) - Surveillance personnel monitor each risk in the insured portfolio, assigning and updating internal credit ratings and recommending remedial actions to management to mitigate potential losses[165](index=165&type=chunk) - The company has integrated climate change risk into its underwriting, surveillance, and investment processes, evaluating obligors' vulnerability to climate-related perils and resilience factors[173](index=173&type=chunk)[174](index=174&type=chunk) - To manage cybersecurity risks, the company utilizes tools like firewalls, anti-malware, multifactor authentication, and conducts penetration tests, also establishing policies for data protection to comply with regulations like GDPR[171](index=171&type=chunk)[172](index=172&type=chunk) [Regulation](index=29&type=section&id=Regulation) The company's global operations are extensively regulated in the U.S., Bermuda, the U.K., and France, impacting dividends, capital, and risk limits - U.S. insurance subsidiaries (AGM in New York, AGC in Maryland) are subject to state regulations that limit dividend payments without prior regulatory approval, with **AGM able to pay up to $209 million** and **AGC up to $102 million** in 2023 without approval[192](index=192&type=chunk)[193](index=193&type=chunk)[773](index=773&type=chunk) - State insurance laws establish single risk limits, typically capping insured average annual debt service for a single municipal risk at **10% of the insurer's policyholders' surplus and contingency reserves**[198](index=198&type=chunk) - Bermuda-based reinsurers AG Re and AGRO are regulated by the Bermuda Monetary Authority, which imposes minimum solvency margins, enhanced capital requirements, and restrictions on dividend payments[213](index=213&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - European subsidiaries AGUK (U.K.) and AGE (France) are regulated under the Solvency II framework, which sets rules on capital adequacy, governance, risk management, and reporting[231](index=231&type=chunk)[241](index=241&type=chunk) [Human Capital Management](index=38&type=section&id=Human%20Capital%20Management) The company focuses on attracting, retaining, and developing a diverse workforce through competitive compensation, professional development, and an inclusive culture Workforce Statistics (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Total Employees | 411 | | Female Workforce | 36% | | Male Workforce | 64% | | Average Tenure | 11.9 years | - The company's compensation program includes base salary, annual cash incentives, and deferred compensation (cash and/or equity) to attract and motivate talent[258](index=258&type=chunk) - Diversity and inclusion initiatives are supported by an employee-led committee, Employee Resource Groups (ERGs), bias awareness training, and inclusive recruiting strategies[261](index=261&type=chunk)[263](index=263&type=chunk)[265](index=265&type=chunk) - In response to COVID-19, the company has adopted a hybrid work model, offering employees the option to work remotely for a portion of their time[269](index=269&type=chunk) [Tax Matters](index=41&type=section&id=Tax%20Matters) The company's complex global tax structure involves U.K. tax residency, Bermuda tax exemption, U.S. corporate tax, and potential U.S. shareholder implications - AGL became tax resident in the U.K. in November 2013, making it subject to U.K. corporation tax on worldwide profits but also providing access to the U.K.'s tax treaty benefits[282](index=282&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk) - Under current Bermuda law, AGL and its Bermuda subsidiaries are not subject to income or profits tax and have received an assurance this will remain the case until March 31, 2035[273](index=273&type=chunk) - The company believes that due to dispersed share ownership, no U.S. person should be treated as a **10% U.S. Shareholder**, mitigating the risk of AGL or its non-U.S. subsidiaries being classified as a Controlled Foreign Corporation (CFC)[294](index=294&type=chunk) - The company intends to operate in a manner to qualify for exceptions to the Related Person Insurance Income (RPII) rules, which could otherwise require U.S. shareholders to include a share of certain insurance income in their gross income[297](index=297&type=chunk) [Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including economic volatility, credit spread changes, Puerto Rico exposure, competition, cybersecurity threats, and complex tax regulations - Economic risks include adverse developments in global financial markets, budget deficits of governments the company insures, and significant losses from large or correlated exposures like Puerto Rico[343](index=343&type=chunk)[344](index=344&type=chunk) - Strategic risks involve intense competition, the possibility that strategic transactions do not result in anticipated benefits, and the risk of a downgrade of the insurance subsidiaries' financial strength ratings[345](index=345&type=chunk)[380](index=380&type=chunk)[383](index=383&type=chunk) - Operational risks include cybersecurity attacks, the loss of key executives, potential liquidity shortages to meet significant claim payments, and the inability to raise additional capital on favorable terms if needed[345](index=345&type=chunk)[398](index=398&type=chunk)[400](index=400&type=chunk) - Taxation risks are substantial, including potential changes in U.S. tax laws, the possibility of non-U.S. subsidiaries being subject to U.S. tax, and adverse tax consequences for U.S. shareholders under CFC, RPII, or PFIC rules[346](index=346&type=chunk)[417](index=417&type=chunk)[424](index=424&type=chunk) [Properties](index=70&type=section&id=Item%202.%20Properties) The company leases office space in Hamilton, Bermuda (principal executive offices), New York (U.S. operations), London, and Paris, which are deemed adequate for its needs - The company's principal executive offices are located in Hamilton, Bermuda, with a lease expiring in April 2026[465](index=465&type=chunk) - Primary offices for U.S. Insurance Subsidiaries and AssuredIM are in New York, with leases expiring in 2032[465](index=465&type=chunk)[470](index=470&type=chunk) [Legal Proceedings](index=71&type=section&id=Item%203.%20Legal%20Proceedings) Details on the company's legal proceedings are incorporated by reference from specific notes within the consolidated financial statements in Part II, Item 8 - Details on legal proceedings are incorporated by reference from Notes 3, 4, and 18 of the Consolidated Financial Statements[466](index=466&type=chunk) [Information About Our Executive Officers](index=71&type=section&id=Information%20About%20Our%20Executive%20Officers) This section provides biographical information for Assured Guaranty Ltd.'s executive officers, including their names, ages, positions, and business experience - Dominic J. Frederico has served as President and Chief Executive Officer of AGL since December 2003[469](index=469&type=chunk) - Robert A. Bailenson has been the Chief Financial Officer of AGL since June 2011 and has been with the company or its predecessors since 1990[470](index=470&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=73&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Assured Guaranty Ltd.'s common shares trade on the NYSE, supported by an active share repurchase program and quarterly cash dividends 2022 Share Repurchase Summary | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 8,847,981 | | Total Cost | ~$503 million | | Average Price per Share | $56.79 | - As of February 28, 2023, the company had **$201 million** remaining under its share repurchase authorization, which has no expiration date[481](index=481&type=chunk) - The company paid quarterly cash dividends of **$0.25 per common share** in 2022[479](index=479&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=75&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results, analyzing segment performance, key strategies, and liquidity [Overview](index=75&type=section&id=Overview) The company's business, comprising Insurance and Asset Management, navigated a 2022 economic environment marked by rising inflation and interest rates, impacting its strategies - The economic environment in 2022 saw a **2.1% increase in real GDP**, a **3.5% unemployment rate**, and a **6.5% inflation rate (CPI-U)** for the 12 months ending December 2022[491](index=491&type=chunk)[492](index=492&type=chunk) - The Federal Reserve raised the federal funds rate seven times in 2022, from near zero to a range of **4.25%-4.50%**, to combat inflation[493](index=493&type=chunk)[494](index=494&type=chunk) - The company's key strategies are to grow the insurance business, expand asset management and alternative investments, and efficiently manage capital, including significant share repurchases[497](index=497&type=chunk) - From 2013 through February 28, 2023, the company repurchased **141 million common shares** for approximately **$4.7 billion**, representing about **73% of the shares outstanding** at the start of the program[524](index=524&type=chunk) [Financial Performance of Assured Guaranty](index=81&type=section&id=Financial%20Performance%20of%20Assured%20Guaranty) Assured Guaranty reported a decrease in 2022 net income to $124 million, primarily due to loss expenses and investment losses, despite an increase in adjusted book value per share Financial Results Summary (GAAP) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net income attributable to AGL | $124 million | $389 million | | Net income per diluted share | $1.92 | $5.23 | Financial Results Summary (Non-GAAP) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Adjusted operating income | $267 million | $470 million | | Adjusted operating income per diluted share | $4.14 | $6.32 | - The decrease in 2022 net income was primarily driven by loss and LAE expense, losses on equity method investments, and higher foreign exchange remeasurement losses compared to 2021[538](index=538&type=chunk)[539](index=539&type=chunk) Book Value Metrics Per Share | Metric | As of Dec 31, 2022 | As of Dec 31, 2021 | | :--- | :--- | :--- | | Shareholders' equity per share | $85.80 | $93.19 | | Adjusted operating shareholders' equity per share | $93.92 | $88.73 | | Adjusted book value per share | $141.98 | $130.67 | [Results of Operations by Segment](index=87&type=section&id=Results%20of%20Operations%20by%20Segment) The company's segment performance shows a decrease in Insurance segment income due to investment losses, a narrowed Asset Management loss from higher fees, and a reduced Corporate loss due to non-recurring debt extinguishment Adjusted Operating Income by Segment | Segment | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Insurance | $413 | $722 | | Asset Management | $(6) | $(19) | | Corporate | $(134) | $(263) | | Other | $(6) | $30 | | **Total** | **$267** | **$470** | [Insurance Segment](index=88&type=section&id=Insurance%20Segment) The Insurance segment's adjusted operating income declined to $413 million in 2022, primarily due to alternative investment losses and a shift from loss benefit to expense Insurance Segment Adjusted Operating Income | Year | Adjusted Operating Income (in millions) | | :--- | :--- | | 2022 | $413 | | 2021 | $722 | - Net earned premiums and credit derivative revenues increased to **$508 million** in 2022 from **$438 million** in 2021, primarily due to **$133 million** in premium accelerations related to the 2022 Puerto Rico resolutions[579](index=579&type=chunk)[580](index=580&type=chunk) New Business Production (PVP) | Year | PVP (in millions) | | :--- | :--- | | 2022 | $375 | | 2021 | $361 | - The segment experienced a **$51 million loss** from equity in earnings of investees in 2022, compared to a **$144 million gain** in 2021, mainly due to mark-to-market losses in a private equity fund and the dilutive impact of a healthcare fund's subsequent close[593](index=593&type=chunk)[595](index=595&type=chunk) - Net economic loss development was a benefit of **$125 million** in 2022, primarily from a **$143 million benefit** in U.S. RMBS due to improved transaction performance and higher recoveries[599](index=599&type=chunk)[605](index=605&type=chunk) [Asset Management Segment](index=96&type=section&id=Asset%20Management%20Segment) The Asset Management segment's adjusted operating loss narrowed to $6 million in 2022, driven by increased performance and management fees, with stable total AUM Asset Management Segment Adjusted Operating Income (Loss) | Year | Adjusted Operating Loss (in millions) | | :--- | :--- | | 2022 | $(6) | | 2021 | $(19) | Asset Management Fee Revenue | Fee Type | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Management Fees | $85 | $76 | | Performance Fees | $21 | $1 | Assets Under Management (AUM) | Date | Total AUM (in billions) | | :--- | :--- | | Dec 31, 2022 | $17.5 | | Dec 31, 2021 | $17.5 | - Goodwill and finite-lived intangible assets associated with the BlueMountain acquisition had a carrying value of **$117 million** and **$40 million**, respectively, as of December 31, 2022, with no impairments recorded to date[630](index=630&type=chunk) [Corporate Division](index=99&type=section&id=Corporate%20Division) The Corporate division's adjusted operating loss significantly narrowed to $134 million in 2022, primarily due to the non-recurrence of a large debt extinguishment loss from 2021 Corporate Division Adjusted Operating Income (Loss) | Year | Adjusted Operating Loss (in millions) | | :--- | :--- | | 2022 | $(134) | | 2021 | $(263) | - The 2021 loss included a **$175 million pre-tax ($138 million after-tax) loss** on extinguishment of debt related to the redemption of AGMH and AGUS debt, which did not recur in 2022[647](index=647&type=chunk)[648](index=648&type=chunk) [Non-GAAP Financial Measures](index=104&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like Adjusted Operating Income, Adjusted Book Value, and PVP to provide clearer insight into performance by excluding volatile, non-economic items - Adjusted Operating Income excludes items like realized gains/losses on investments, non-credit impairment-related unrealized fair value changes on credit derivatives, and foreign exchange remeasurement gains/losses[683](index=683&type=chunk) - Adjusted Book Value is a key metric used by management to measure the intrinsic value of the company, adjusting shareholders' equity for unrealized gains/losses and adding the value of the in-force insurance portfolio, net of expected losses[685](index=685&type=chunk) - Present Value of New Business Production (PVP) is used to evaluate the value of new insurance business, including the present value of estimated future installment premiums, which is not fully captured by GAAP GWP[692](index=692&type=chunk) [Insured Portfolio](index=107&type=section&id=Insured%20Portfolio) As of December 31, 2022, the financial guaranty portfolio's net par outstanding was $233.3 billion, predominantly public finance, with significantly reduced Puerto Rico exposure Financial Guaranty Portfolio Net Par Outstanding | Date | Total Net Par Outstanding | | :--- | :--- | | Dec 31, 2022 | $233.3 billion | | Dec 31, 2021 | $236.4 billion | Portfolio Composition by Sector (Net Par, Dec 31, 2022) | Sector | Net Par Outstanding | | :--- | :--- | | Public Finance | $224.1 billion | | Structured Finance | $9.2 billion | - Net par exposure to Puerto Rico decreased from **$3.6 billion** at year-end 2021 to **$1.4 billion** as of December 31, 2022, following the consummation of the 2022 Puerto Rico Resolutions[1007](index=1007&type=chunk)[1011](index=1011&type=chunk) - The ten largest U.S. public finance exposures by revenue source represent **8.8% of the total U.S. public finance net par outstanding**, with the State of New Jersey being the largest at **$3.1 billion**[708](index=708&type=chunk) [Liquidity and Capital Resources](index=113&type=section&id=Liquidity%20and%20Capital%20Resources) The company manages liquidity at both holding company and operating subsidiary levels, relying on dividends and maintaining liquid assets to meet obligations - Holding company liquidity is primarily dependent on dividends from operating subsidiaries, which are subject to regulatory limits[735](index=735&type=chunk) U.S. Holding Company Long-Term Debt (Principal) | Company | Dec 31, 2022 (in millions) | | :--- | :--- | | AGUS | $1,580 | | AGMH | $300 | | **Total** | **$1,880** (before intercompany eliminations) | - Insurance subsidiaries target a liquid asset balance of **1.5 times their projected net cash flow needs** over the next four quarters[761](index=761&type=chunk) - The company's consolidated cash flow summary shows a net cash outflow from operating activities of **$2,479 million** in 2022, largely driven by claim payments related to Puerto Rico resolutions and investment activities within consolidated CIVs[824](index=824&type=chunk)[825](index=825&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=128&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks including credit spread, interest rate, and foreign currency exchange rate risks, with sensitivity analyses provided for their potential impact - The company's primary market risk exposures are interest rate risk, foreign currency exchange rate risk, and credit spread risk[830](index=830&type=chunk) Sensitivity of Credit Derivatives to Credit Spread Changes (Pre-Tax) | Scenario | Estimated Change in Gain/(Loss) (in millions) | | :--- | :--- | | Increase of 25 bps | $(71) | | Decrease of 25 bps | $63 | Sensitivity of Investment Portfolio to Interest Rate Changes (Pre-Tax) | Scenario | Estimated Change in Fair Value (in millions) | | :--- | :--- | | Increase of 100 bps | $(378) | | Decrease of 100 bps | $404 | - As of December 31, 2022, approximately **74% of installment premiums receivable** are denominated in currencies other than the U.S. dollar, creating foreign exchange risk[852](index=852&type=chunk) [Financial Statements and Supplementary Data](index=134&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2022, and preceding years, along with the independent auditor's report - The section includes the consolidated financial statements as of December 31, 2022 and 2021, and for the three years ended December 31, 2022, audited by PricewaterhouseCoopers LLP[872](index=872&type=chunk)[876](index=876&type=chunk) - The independent auditor's report expresses an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[877](index=877&type=chunk) - A critical audit matter identified was the valuation of the Loss and Loss Adjustment Expense (LAE) Reserve and the Salvage and Subrogation Recoverable, due to the significant management judgment involved in estimating expected losses[884](index=884&type=chunk)[885](index=885&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=247&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for its upcoming Annual General Meeting - Required information for this item is incorporated by reference from the company's definitive proxy statement[1631](index=1631&type=chunk) [Executive Compensation](index=248&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and director compensation is incorporated by reference from the company's definitive proxy statement for its upcoming Annual General Meeting - Required information for this item is incorporated by reference from the company's definitive proxy statement[1634](index=1634&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=248&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership by beneficial owners and management, along with equity compensation plans, is incorporated by reference from the company's definitive proxy statement - Required information for this item is incorporated by reference from the company's definitive proxy statement[1635](index=1635&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=248&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related person transactions and director independence is incorporated by reference from the company's definitive proxy statement for its upcoming Annual General Meeting - Required information for this item is incorporated by reference from the company's definitive proxy statement[1636](index=1636&type=chunk) [Principal Accountant Fees and Services](index=248&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services, including the pre-approval policy, is incorporated by reference from the company's definitive proxy statement - Required information for this item is incorporated by reference from the company's definitive proxy statement[1637](index=1637&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=248&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report - This section provides a list of all financial statements and exhibits filed with the Form 10-K[1640](index=1640&type=chunk) - Financial statement schedules have been omitted because they are not applicable or the required information is included elsewhere in the report[1642](index=1642&type=chunk)

Assured Guaranty Ltd. (NYSE:AGO) Q3 2022 Earnings Conference Call November 8, 2022 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 Financial Officer Conference Call Participants Brian Meredith - UBS Tommy McJoynt - KBW Jackie Cavanaugh - Putnam Geoffrey Dunn - Dowling & Partners Giuliano Bologna - Compass Point Operator Good morning, and welcome to the Ass ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________________________ FORM 10-Q ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2022 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 No. 001-32141 ASSURED GUARANTY LTD. (Exact name of regist ...