Assured Guaranty(AGO) - 2025 Q4 - Annual Report

Financial Performance and Market Position - In 2025, the company insured approximately 58% of the par value of new U.S. public finance bonds sold with insurance, while its competitor BAM insured about 42%[81] - The company maintains strong financial strength ratings: AA+ from Kroll Bond Rating Agency, AA from S&P, and A1 from Moody's, compared to BAM's AA from S&P[81] - The company believes that issuers and investors will continue to purchase financial guaranty insurance, especially if credit spreads widen, which historically has led to increased demand[85] - The company expects long-term debt financings for infrastructure projects to grow globally, driven by privatization initiatives and refinancing needs in developed countries[86] Capital Management and Shareholder Returns - The company has excess capital based on its internal capital model and rating agency models, and has been returning some of this excess capital to shareholders through share repurchases and dividends[87] - The company has been actively acquiring financial guaranty portfolios since 2009, although the number and size of suitable opportunities have decreased[89] Subsidiaries and Operational Structure - The company operates through several subsidiaries, including Assured Guaranty Inc., Assured Guaranty UK Limited, and Assured Guaranty (Europe) SA, providing financial guaranty insurance in various regions[90] - The company has a co-guarantee structure with AGUK, where AGUK guarantees 50% of obligations up to £100 million per transaction, while AG guarantees the remaining[92] - The company has a quota share reinsurance agreement with AGUK, covering 85% of new business written where the co-guarantee structure cannot be utilized[94] Asset Management Transition - The company transitioned its asset management business to Sound Point, LP as of July 1, 2023, after previously serving as an investment adviser to CLOs and opportunity funds[102] - Assured Guaranty contributed most of its asset management business to Sound Point, LP, receiving approximately 30% of common interests in Sound Point[103] - The total investment commitment to Sound Point, including existing and new investments, is projected to reach $1 billion, with a long-term partnership established for 15 years[104] - As of September 30, 2025, Sound Point manages over $44 billion in assets under management (AUM), focusing on capital preservation and attractive returns[115] Investment Portfolio and Strategies - The investment portfolio as of December 31, 2025, had a carrying value of $8.5 billion, with 87% ($7.4 billion) in fixed-maturity securities and short-term investments[119] - The Company’s ownership interest in Sound Point was valued at $415 million as of December 31, 2025, classified under "other invested assets"[122] - The Company’s investment strategies include a focus on investment-grade fixed-maturity securities, alternative investments, and maintaining liquidity for operational costs[117] - Sound Point operates in a competitive asset management market, with performance directly impacting its ability to increase and retain AUM[116] Risk Management Framework - The Company has established a comprehensive risk management framework overseen by its Board, focusing on credit, market, and operational risks[125] - The investment committee evaluates alternative investments prior to fund commitments, ensuring alignment with the Company's risk management strategy[131] - The Company has established an enterprise-level risk appetite statement approved by the Board, governing risk-taking activities across business units[134] - Internal Audit provides independent assurance on effective risk management, reporting findings directly to the Audit Committee and senior management[133] - The Company performs quarterly risk reporting to keep the Board and senior management informed about material risk-related developments[135] - The Company integrates climate risk into its risk management and control functions, requiring assessments of environmental risks in underwriting submissions[146] - The Company has invested in talent and technology to enhance its analytical capabilities for evaluating climate risk and its financial implications[147] - The Company monitors its insured portfolio and refreshes internal credit ratings based on exposure quality and loss potential, with quarterly reviews for high-risk sectors[138] - The Company has committees responsible for oversight of reserves and assumptions related to insured obligations, ensuring accurate loss projections[136] Regulatory Compliance and Requirements - The Company is subject to various regulatory requirements regarding climate risk management and reporting, which have not materially impacted its financial condition[150] - The Company has a rigorous vendor selection process to ensure compliance with data protection laws and enhance data privacy and security awareness among employees[144] - The Company continues to monitor regulatory developments and expects evolving statutes and regulations to impact its operations and those of its subsidiaries[153] - Assured Guaranty is required to establish a contingency reserve to protect policyholders, as mandated by Maryland insurance law[161] - The Maryland Insurance Administration (MIA) last completed a financial examination of Assured Guaranty for the five-year period ending December 31, 2021, with no significant regulatory issues noted[159] - Assured Guaranty may pay dividends not exceeding 10% of its policyholders' surplus or 100% of its adjusted net investment income, subject to regulatory notification[160] - The Code of Maryland Regulations limits the insured average annual debt service for a single risk to 10% of the sum of the insurer's policyholders' surplus and contingency reserves[165] - Assured Guaranty ceased quarterly contributions to its contingency reserves for non-municipal business in Q4 2014, with resumption expected for municipal business in Q3 2024 due to a merger[164] - The aggregate net liability of Assured Guaranty must not be less than specified percentages of its aggregate net liability for various categories of obligations, ranging from 0.3333% to 4.0%[168] - Assured Guaranty is subject to diversification requirements for its investment portfolio, limiting investments in certain asset categories[173] International Operations and Taxation - The company holds approximately 30% ownership in Sound Point, which is registered as an investment adviser and must comply with the U.S. Investment Advisers Act[180] - Assured Guaranty has obtained certified reinsurer status in Missouri, allowing it to post 10% collateral for reinsurance from Missouri-domiciled ceding companies[178] - The Maryland Commissioner has broad discretion to order Assured Guaranty to cease new business if it fails to comply with risk limits, but is likely to work with the company for isolated instances of non-compliance[172] - The Company operates in non-U.S. jurisdictions and must comply with local regulatory requirements, including registration and periodic reporting for insurance and reinsurance companies[181] - AG Re is registered as a Class 3B insurer in Bermuda, authorized to conduct general insurance business under the Insurance Act 1978[183] - AGRO holds licenses as both a Class 3A insurer and a Class C long-term (life) insurer, maintaining separate accounts for general and long-term business[184] - Assured Life Re is licensed as a Bermuda Class E long-term (life) insurer with total assets exceeding $500 million[185] - The Insurance Act mandates that AG Re, AGRO, and Assured Life Re file annual U.S. GAAP financial statements and comply with minimum solvency and liquidity standards[186] - Dividends declared by AG Re, AGRO, and Assured Life Re are limited to 25% of total statutory capital and surplus from the previous financial year without prior approval from the Authority[190] - The minimum liquidity ratio requires insurers engaged in general business to maintain relevant assets at no less than 75% of relevant liabilities[192] - AGUK is subject to the PRA and FCA regulations, which impose minimum solvency capital requirements and reporting obligations[197] - Under Solvency UK, AGUK must maintain a minimum solvency capital requirement based on the type and amount of insurance business written[202] - U.K. company law prohibits AGUK and AGFOL from declaring dividends unless they have "profits available for distribution," which is determined by accumulated realized profits less losses[204] - AGUK ceased underwriting new business within the EEA as of January 2, 2020, after establishing AGE as a French company to address Brexit impacts[206] - AGE is regulated by the ACPR and must comply with Solvency II requirements, including maintaining a minimum solvency capital requirement[208][212] - The ACPR has the authority to intervene in insurance companies' operations and can withdraw authorization under certain circumstances[210] - Solvency II requires insurance firms to maintain capital to ensure a 99.5% probability of meeting obligations to policyholders over the next 12 months[213] Employee Relations and Development - As of December 31, 2025, the Company employed 367 people worldwide, with satisfactory employee relations[220] - The Company invests in employee development through training and mentoring programs to enhance job satisfaction and performance[221][222] - The compensation program includes base salary and performance-based incentives, designed to attract and retain talent[223] - The Company conducts periodic reviews of its compensation program to ensure competitiveness and alignment with best practices[224] Taxation and Compliance - The Corporate Income Tax Act 2023 in Bermuda imposes a corporate income tax rate of 15% starting January 1, 2025, for entities with annual revenues of €750 million or greater[231][232] - AGL intends to limit its U.S. operations to avoid being subject to U.S. income tax, with the highest marginal federal income tax rates currently at 21% for effectively connected income and 30% for branch profits tax[234] - AG Re aims to conduct its activities without establishing a permanent establishment in the U.S. to benefit from the Bermuda Treaty, which exempts it from U.S. income tax on effectively connected income[235] - AGL, as a U.K. tax resident, is subject to a corporation tax rate of 25% on its worldwide profits, with a requirement to file a corporation tax return with HMRC[246] - AGL may be liable for U.K.'s multinational top-up tax if any group member is taxed at a rate below 15% in their respective territories, effective for accounting periods starting on or after December 31, 2023[246] - The dividends AGL receives from its direct subsidiaries are expected to be exempt from U.K. corporation tax, and dividends paid by AGL to shareholders should not incur withholding tax in the U.K.[247] - AGL's shares are not subject to Bermuda capital gains tax or withholding tax on dividends, interest, or principal payments[249] - U.S. withholding tax on dividends paid to U.S. shareholders is currently at a rate of 30%[242] - AGL believes that dividends paid to non-corporate holders will qualify for reduced tax rates applicable to long-term capital gains, provided certain conditions are met[255] - AGL's shares may not be as widely dispersed as believed, which could affect the classification of U.S. shareholders as 10% U.S. Shareholders under tax regulations[257] - AGL's subsidiaries are characterized as Controlled Foreign Corporations (CFCs), and any subpart F income generated will be included in the gross income of applicable domestic subsidiaries[257] - The company believes that each Foreign Insurance Subsidiary will either be below the 20% threshold or in compliance with the 20% Ownership Exception for each tax year[258] - RPII is defined as insurance income attributable to policies where the insured is a RPII shareholder or related person, with gross RPII being less than 20% of a Foreign Insurance Subsidiary's gross insurance income exempting it from special RPII rules[259][260] - If a Foreign Insurance Subsidiary does not meet the 20% Ownership Exception or the 20% Gross Income Exception, U.S. Persons owning shares will need to include their share of RPII in gross income for the taxable year[263] - The amount of RPII includable in a RPII shareholder's income is based on net RPII income after deducting related expenses[262] - Tax-exempt entities must treat certain subpart F insurance income, including RPII, as unrelated business taxable income[268] - If AGL is characterized as a PFIC, U.S. Persons holding shares would face penalty taxes on gains or excess distributions unless certain elections are made[272] - The company intends to operate in a manner that ensures compliance with either the 20% Gross Income Exception or the 20% Ownership Exception[261] - U.S. Persons holding shares may be required to file IRS Form 5471 under certain circumstances, and failure to do so may result in penalties[266] - The company cannot predict the final form of proposed regulations regarding RPII, which could expand the definition and affect future transactions[265] - A RPII shareholder's tax basis in common shares will be adjusted based on the amount of RPII included in income[264] - The company expects that each of AGL's insurance subsidiaries will not have financial reserves exceeding the reasonable needs of its insurance business in each operational year[274] - The TCJA limits the insurance income exception to non-U.S. insurance companies that maintain insurance liabilities of more than 25% of their assets for a taxable year[274] - The 2020 Regulations propose that a non-U.S. insurance company will qualify for the insurance company exception only if it meets specific factual requirements or active conduct percentage tests[274] - AGL believes it should not be characterized as a PFIC based on the application of the PFIC look-through rules and its operational plans[274] - The company will consider providing shareholders with information regarding the portion of current income inclusions constituting foreign source income[275] - Substantially all "subpart F income," RPII, and dividends that are foreign source income may be classified as either "passive" or "general" income[275] - Information returns may be filed with the IRS regarding distributions on AGL's common shares and proceeds from their sale unless an exemption is established[276] - Holders of common shares who do not establish an exemption may be subject to U.S. backup withholding tax on payments[277] - The discussion on U.K. tax consequences applies only to shareholders who are not resident or domiciled for tax purposes in the U.K.[278]