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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, 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 registrant as specified in its charter)

Bermuda |  | 98-0429991
(State or other jurisdiction of incorporation) |  | (I.R.S. employer identification no.)

30 Woodbourne Avenue
Hamilton HM 08, Bermuda
(Address of principal executive offices)
(441) 279-5700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class: | Trading Symbol(s) | Name of exchange on which registered
Common Shares | $0.01 par value per share | AGO | New York Stock Exchange
Assured Guaranty US Holdings Inc. 5.000% Senior Notes due 2024 (and the related guarantee of Registrant) | AGO 24 | New York Stock Exchange
Assured Guaranty US Holdings Inc. 3.150% Senior Notes due 2031 (and the related guarantee of Registrant) | AGO/31 | New York Stock Exchange
Assured Guaranty US Holdings Inc. 3.600% Senior Notes due 2051 (and the related guarantee of Registrant) | AGO/51 | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of registrant’s Common Shares ($0.01 par value) outstanding as of May 4, 2022 was 64,130,598 (includes 36,403 unvested restricted shares).

Table of Contents
ASSURED GUARANTY LTD.
INDEX TO FORM 10-Q

|  | Page
PART I | Financial Information | 1
Item 1. | Financial Statements: | 1
| Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2022 and December 31, 2021 | 1
| Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2022 and 2021 | 2
| Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2022 and 2021 | 3
| Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2022 and 2021 | 4
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2022 and 2021 | 5
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 7
| 1. Business and Basis of Presentation | 7
| 2. Segment Information | 9
| 3. Outstanding Exposure | 11
| 4. Expected Loss to be Paid (Recovered) | 23
| 5. Contracts Accounted for as Insurance | 32
| 6. Contracts Accounted for as Credit Derivatives | 37
| 7. Investments | 39
| 8. Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles | 45
| 9. Fair Value Measurement | 51
| 10. Asset Management Fees | 65
| 11. Credit Facilities | 66
| 12. Income Taxes | 66
| 13. Commitments and Contingencies | 68
| 14. Shareholders’ Equity | 69
| 15. Earnings Per Share | 71
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 72
| Forward Looking Statements | 72
| Available Information | 73
| Overview | 73
| Business | 73
| Economic Environment | 74
| Impact of COVID-19 | 75
| Key Business Strategies | 76
| Executive Summary | 80
| Financial Performance of Assured Guaranty | 81
| Other Matters | 83
| Results of Operations | 84
| Critical Accounting Estimates | 85
| Results of Operations by Segment | 85
| Insurance Segment | 86
| Asset Management Segment | 94
| Corporate | 97
| Other | 97
| Reconciliation to GAAP | 99
| Non-GAAP Financial Measures | 101
| Insured Portfolio | 104
| Liquidity and Capital Resources | 108
| AGL and its U.S. Holding Companies | 108
| Insurance Subsidiaries | 111
| Investment Portfolio | 114
| AssuredIM | 117
| Lease Obligations | 117
| Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles | 117
| Condensed Consolidated Cash Flows | 118
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 120
Item 4. | Controls and Procedures | 120
PART II | Other Information | 121
Item 1. | Legal Proceedings | 121
Item 1A. | Risk Factors | 121
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 121
Item 6. | Exhibits | 122

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Assured Guaranty Ltd.
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in millions except share data)

| As of
| March 31, 2022 |  | December 31, 2021
Assets |  |  |
Investments: |  |  |
Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $47 and $42 (amortized cost of $8,227 and $7,822) | $ | 8,156 |  |  | $ | 8,202 |
Fixed-maturity securities, trading, at fair value | 174 |  |  | — |
Short-term investments, at fair value | 585 |  |  | 1,225 |
Other invested assets (includes $24 and $31, at fair value) | 152 |  |  | 181 |
Total investments | 9,067 |  |  | 9,608 |
Cash | 119 |  |  | 120 |
Premiums receivable, net of commissions payable | 1,335 |  |  | 1,372 |
Deferred acquisition costs | 135 |  |  | 131 |
Salvage and subrogation recoverable | 529 |  |  | 801 |
Financial guaranty variable interest entities’ assets, at fair value | 307 |  |  | 260 |
Assets of consolidated investment vehicles (includes $5,404 and $4,902, at fair value) | 5,700 |  |  | 5,271 |
Goodwill and other intangible assets | 172 |  |  | 175 |
Other assets (includes $132 and $132, at fair value) | 481 |  |  | 470 |
Total assets | $ | 17,845 |  |  | $ | 18,208 |
Liabilities |  |  |
Unearned premium reserve | $ | 3,596 |  |  | $ | 3,716 |
Loss and loss adjustment expense reserve | 718 |  |  | 869 |
Long-term debt | 1,673 |  |  | 1,673 |
Credit derivative liabilities, at fair value | 157 |  |  | 156 |
Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $316 and $269, without recourse $19 and $20) | 335 |  |  | 289 |
Liabilities of consolidated investment vehicles (includes $3,994 and $3,849, at fair value) | 4,854 |  |  | 4,436 |
Other liabilities | 496 |  |  | 569 |
Total liabilities | 11,829 |  |  | 11,708 |
Commitments and contingencies (Note 13) |  |  |
Redeemable noncontrolling interests (Note 8) | 21 |  |  | 22 |
Shareholders’ equity |  |  |
Common shares ($0.01 par value, 500,000,000 shares authorized; 65,043,547 and 67,518,424 shares issued and outstanding) | 1 |  |  | 1 |
Retained earnings | 5,878 |  |  | 5,990 |
Accumulated other comprehensive income (loss), net of tax of $(12) and $60 | (78) |  |  | 300 |
Deferred equity compensation | 1 |  |  | 1 |
Total shareholders’ equity attributable to Assured Guaranty Ltd. | 5,802 |  |  | 6,292 |
Nonredeemable noncontrolling interests (Note 8) | 193 |  |  | 186 |
Total shareholders’ equity | 5,995 |  |  | 6,478 |
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | $ | 17,845 |  |  | $ | 18,208 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
1

Table of Contents
Assured Guaranty Ltd.
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in millions except share data)

| Three Months Ended March 31,
| 2022 |  | 2021
Revenues |  |  |
Net earned premiums | $ | 214 |  |  | $ | 103 |
Net investment income | 62 |  |  | 70 |
Asset management fees | 34 |  |  | 24 |
Net realized investment gains (losses) | 3 |  |  | (3) |
Fair value gains (losses) on credit derivatives | (3) |  |  | (19) |
Fair value gains (losses) on committed capital securities | 1 |  |  | (19) |
Fair value gains (losses) on financial guaranty variable interest entities | 6 |  |  | 5 |
Fair value gains (losses) on consolidated investment vehicles | 14 |  |  | 16 |
Foreign exchange gains (losses) on remeasurement | (30) |  |  | — |
Other income (loss) | (1) |  |  | — |
Total revenues | 300 |  |  | 177 |
Expenses |  |  |
Loss and loss adjustment expenses | 57 |  |  | 30 |
Interest expense | 20 |  |  | 21 |
Amortization of deferred acquisition costs | 4 |  |  | 3 |
Employee compensation and benefit expenses | 73 |  |  | 60 |
Other operating expenses | 42 |  |  | 57 |
Total expenses | 196 |  |  | 171 |
Income (loss) before income taxes and equity in earnings (losses) of investees | 104 |  |  | 6 |
Equity in earnings (losses) of investees | (11) |  |  | 9 |
Income (loss) before income taxes | 93 |  |  | 15 |
Less: Provision (benefit) for income taxes | 18 |  |  | — |
Net income (loss) | 75 |  |  | 15 |
Less: Noncontrolling interests | 9 |  |  | 4 |
Net income (loss) attributable to Assured Guaranty Ltd. | $ | 66 |  |  | $ | 11 |
Earnings per share: |  |  |
Basic | $ | 1.00 |  |  | $ | 0.14 |
Diluted | $ | 0.98 |  |  | $ | 0.14 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
2

Table of Contents
Assured Guaranty Ltd.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in millions)

| Three Months Ended March 31,
| 2022 |  | 2021
Net income (loss) | $ | 75 |  |  | $ | 15 |
Change in net unrealized gains (losses) on: |  |  |
Investments with no credit impairment, net of tax provision (benefit) of $(63) and $(20) | (338) |  |  | (119) |
Investments with credit impairment, net of tax provision (benefit) of $(9) and $(1) | (39) |  |  | (6) |
Change in net unrealized gains (losses) on investments | (377) |  |  | (125) |
Change in instrument-specific credit risk on financial guaranty variable interest entities’ liabilities with recourse, net of tax | — |  |  | (1) |
Other, net of tax | (1) |  |  | 1 |
Other comprehensive income (loss) | (378) |  |  | (125) |
Comprehensive income (loss) | (303) |  |  | (110) |
Less: Comprehensive income (loss) attributable to noncontrolling interests | 9 |  |  | 4 |
Comprehensive income (loss) attributable to Assured Guaranty Ltd. | $ | (312) |  |  | $ | (114) |

The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Table of Contents
Assured Guaranty Ltd.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(dollars in millions, except share data)
For the Three Months Ended March 31, 2022

|  |  |  | Shareholders’ Equity Attributable to Assured Guaranty Ltd. |  |  |  |
| Common Shares Outstanding |  |  | Common Shares Par Value |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Deferred Equity Compensation |  | Total |  | Nonredeemable Noncontrolling Interests |  | Shareholders’ Equity
Balance at December 31, 2021 | 67,518,424 |  |  |  | $ | 1 |  |  | $ | 5,990 |  |  | $ | 300 |  |  | $ | 1 |  |  | $ | 6,292 |  |  | $ | 186 |  |  | $ | 6,478 |
Net income | — |  |  |  | — |  |  | 66 |  |  | — |  |  | — |  |  | 66 |  |  | 10 |  |  | 76 |
Dividends ($0.25 per share) | — |  |  |  | — |  |  | (17) |  |  | — |  |  | — |  |  | (17) |  |  | — |  |  | (17) |
Contributions | — |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5 |  |  | 5 |
Common shares repurchases | (2,738,223) |  |  |  | — |  |  | (155) |  |  | — |  |  | — |  |  | (155) |  |  | — |  |  | (155) |
Share-based compensation | 263,346 |  |  |  | — |  |  | (6) |  |  | — |  |  | — |  |  | (6) |  |  | — |  |  | (6) |
Distributions | — |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (8) |  |  | (8) |
Other comprehensive loss | — |  |  |  | — |  |  | — |  |  | (378) |  |  | — |  |  | (378) |  |  | — |  |  | (378) |
Balance at March 31, 2022 | 65,043,547 |  |  |  | $ | 1 |  |  | $ | 5,878 |  |  | $ | (78) |  |  | $ | 1 |  |  | $ | 5,802 |  |  | $ | 193 |  |  | $ | 5,995 |

For the Three Months Ended March 31, 2021

|  |  |  | Shareholders’ Equity Attributable to Assured Guaranty Ltd. |  |  |  |
| Common Shares Outstanding |  |  | Common Shares Par Value |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Deferred Equity Compensation |  | Total |  | Nonredeemable Noncontrolling Interests |  | Shareholders’ Equity
Balance at December 31, 2020 | 77,546,896 |  |  |  | $ | 1 |  |  | $ | 6,143 |  |  | $ | 498 |  |  | $ | 1 |  |  | $ | 6,643 |  |  | $ | 41 |  |  | $ | 6,684 |
Net income | — |  |  |  | — |  |  | 11 |  |  | — |  |  | — |  |  | 11 |  |  | 4 |  |  | 15 |
Dividends ($0.22 per share) | — |  |  |  | — |  |  | (17) |  |  | — |  |  | — |  |  | (17) |  |  | — |  |  | (17) |
Contributions | — |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | 3 |
Common shares repurchases | (1,986,534) |  |  |  | — |  |  | (77) |  |  | — |  |  | — |  |  | (77) |  |  | — |  |  | (77) |
Share-based compensation | 375,020 |  |  |  | — |  |  | (5) |  |  | — |  |  | — |  |  | (5) |  |  | — |  |  | (5) |
Distributions | — |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (6) |  |  | (6) |
Other comprehensive loss | — |  |  |  | — |  |  | — |  |  | (125) |  |  | — |  |  | (125) |  |  | — |  |  | (125) |
Balance at March 31, 2021 | 75,935,382 |  |  |  | $ | 1 |  |  | $ | 6,055 |  |  | $ | 373 |  |  | $ | 1 |  |  | $ | 6,430 |  |  | $ | 42 |  |  | $ | 6,472 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Table of Contents
Assured Guaranty Ltd.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions)

| Three Months Ended March 31,
| 2022 |  | 2021
Net cash flows provided by (used in) operating activities | $ | (892) |  |  | $ | (466) |
Investing activities |  |  |
Fixed-maturity securities: |  |  |
Purchases | (68) |  |  | (396) |
Sales | 57 |  |  | 120 |
Maturities and paydowns | 179 |  |  | 225 |
Short-term investments with original maturities of over three months: |  |  |
Purchases | (17) |  |  | — |
Maturities and paydowns | — |  |  | 30 |
Net sales (purchases) of short-term investments with original maturities of less than three months | 656 |  |  | 120 |
Paydowns of financial guaranty variable interest entities’ assets | 18 |  |  | 14 |
Purchases of other invested assets | (5) |  |  | (32) |
Return of capital from and sales of other invested assets | 31 |  |  | 45 |
Other | (1) |  |  | (1) |
Net cash flows provided by (used in) investing activities | 850 |  |  | 125 |
Financing activities |  |  |
Dividends paid | (17) |  |  | (18) |
Repurchases of common shares | (152) |  |  | (77) |
Net paydowns of financial guaranty variable interest entities’ liabilities | (41) |  |  | (13) |
Other | (10) |  |  | 7 |
Cash flows from consolidated investment vehicles: |  |  |
Proceeds from issuance of collateralized loan obligations | 371 |  |  | 752 |
Repayment of collateralized loan obligations | (372) |  |  | — |
Proceeds from issuance of warehouse financing debt | 215 |  |  | 217 |
Repayment of warehouse financing debt | — |  |  | (476) |
Payments under credit facilities | (1) |  |  | — |
Contributions from noncontrolling interests to consolidated investment vehicles | 3 |  |  | 3 |
Distributions to noncontrolling interests from consolidated investment vehicles | (6) |  |  | (6) |
Net cash flows provided by (used in) financing activities | (10) |  |  | 389 |
Effect of foreign exchange rate changes | (1) |  |  | — |
Increase (decrease) in cash and restricted cash | (53) |  |  | 48 |
Cash and restricted cash at beginning of period | 342 |  |  | 298 |
Cash and restricted cash at end of period | $ | 289 |  |  | $ | 346 |

(continued on next page)
5

Table of Contents
Assured Guaranty Ltd.
Condensed Consolidated Statements of Cash Flows (Unaudited) - (Continued)
(in millions)

| Three Months Ended March 31,
| 2022 |  | 2021
Supplemental cash flow information |  |  |
Interest paid on long-term debt | $ | 9 |  |  | $ | 8 |
Supplemental disclosure of non-cash activities: |  |  |
Fixed-maturity securities, available-for-sale, received as salvage | $ | 610 |  |  | $ | — |
Fixed-maturity securities, available-for-sale, ceded to a reinsurer | 27 |  |  | — |
Fixed-maturity securities, trading, received as salvage | 184 |  |  | — |
Fixed-maturity securities, trading, ceded to a reinsurer | 6 |  |  | — |
Debt securities of financial guaranty variable interest entities received as salvage | 54 |  |  | — |
| As of
| March 31, 2022 |  | March 31, 2021
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets: |  |  |
Cash | $ | 119 |  |  | $ | 95 |
Restricted cash (included in other assets) | 12 |  |  | 1 |
Cash and cash equivalents of consolidated investment vehicles (Note 8) | 158 |  |  | 250 |
Cash and cash equivalents and restricted cash at the end of period | $ | 289 |  |  | $ | 346 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Table of Contents
Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Business and Basis of Presentation
Business
Assured Guaranty Ltd. (AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the United States (U.S.) and international public finance (including infrastructure) and structured finance markets, as well as asset management services.
Through its insurance subsidiaries, the Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. If an obligor defaults on a scheduled payment due on an obligation, including a scheduled principal or interest payment (collectively, debt service), the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The Company guarantees obligations issued principally in the U.S. and the United Kingdom (U.K.), and also guarantees obligations issued in other countries and regions, including Western Europe, Canada and Australia. The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form.
Through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM), the Company significantly increased its participation in the asset management business with the completion on October 1, 2019, of its acquisition of all of the outstanding equity interests in BlueMountain Capital Management, LLC (BlueMountain, now known as Assured Investment Management LLC) and its associated entities. AssuredIM is a diversified asset manager that serves as investment advisor to collateralized loan obligations (CLOs), opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down. AssuredIM has managed structured and public finance, credit and special situation investments since 2003. AssuredIM provides investment advisory services while leveraging a technology-enabled risk platform, which aims to maximize returns for its clients.
Basis of Presentation
The unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In management’s opinion, all material adjustments necessary for a fair statement of the financial condition, results of operations and cash flows of the Company, including its consolidated variable interest entities (VIEs), are reflected in the periods presented and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These unaudited interim condensed consolidated financial statements are as of March 31, 2022 and cover the three month period ended March 31, 2022 (First Quarter 2022) and the three month period ended March 31, 2021 (First Quarter 2021). Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain prior year balances have been reclassified to conform to the current year’s presentation.
The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries, and its consolidated financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs). See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Intercompany accounts and transactions between and among all consolidated entities have been eliminated.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (SEC).
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
The Company’s principal insurance subsidiaries are:
•Assured Guaranty Municipal Corp. (AGM), domiciled in New York;
•Assured Guaranty Corp. (AGC), domiciled in Maryland;
•Assured Guaranty UK Limited (AGUK), organized in the U.K.;
•Assured Guaranty (Europe) SA (AGE), organized in France;
•Assured Guaranty Re Ltd. (AG Re), domiciled in Bermuda; and
•Assured Guaranty Re Overseas Ltd. (AGRO), domiciled in Bermuda.
The Company’s principal asset management subsidiaries are:
•Assured Investment Management LLC;
•Assured Investment Management (London) LLP; and
•Assured Healthcare Partners LLC.
Until April 1, 2021, Municipal Assurance Corp. (MAC) was also a principal insurance subsidiary domiciled in New York. On April 1, 2021, MAC was merged with and into AGM, with AGM as the surviving company. As a result, the Company wrote-off the $16 million carrying value of MAC’s insurance licenses in First Quarter 2021, which was recorded in other operating expenses in the Insurance segment.
AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S. Insurance Subsidiaries), jointly own an investment subsidiary, AG Asset Strategies LLC (AGAS), which invests in funds managed by AssuredIM (AssuredIM Funds).
AGL directly or indirectly owns several holding companies, two of which - Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH) (collectively, the U.S. Holding Companies) - have public debt outstanding.
Recent Accounting Standards Adopted
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU only apply to contracts that reference the London Interbank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued due to reference rate reform. This ASU became effective upon issuance and may be applied prospectively for contract modifications that occur from March 12, 2020 through December 31, 2022 (the Reference Rate Transition Period).
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies the scope of relief related to ASU 2020-04. This ASU became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively for contract modifications made on or before December 31, 2022.
The Company adopted the optional relief afforded by these ASUs in the third quarter of 2021 on a prospective basis, and the guidance will be followed until the optional relief terminates on December 31, 2022. The Company has identified insurance contracts, derivatives and other financial instruments that are directly or indirectly influenced by LIBOR, and will be applying the accounting relief as relevant contract modifications are made during the Reference Rate Transition Period. There was no impact to the Company’s consolidated financial statements upon the initial adoption of these ASUs.
Recent Accounting Standards Not Yet Adopted
Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The amendments in this ASU:
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
•improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows,
•simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,
•simplify the amortization of deferred acquisition costs (DAC), and
•improve the effectiveness of the required disclosures.
This ASU does not affect the Company’s financial guaranty insurance contracts, but may affect its accounting for certain specialty (non-financial guaranty) insurance contracts. In November 2020, the FASB deferred the effective date of this ASU to January 1, 2023 with early adoption permitted. If early adoption is elected, there is transition relief allowing for the transition date to be either the beginning of the prior period presented or the beginning of the earliest period presented. If early adoption is not elected, the transition date is required to be the beginning of the earliest period presented. The Company does not expect this ASU to have a material effect on its consolidated financial statements.
2. Segment Information
The Company reports its results of operations in two segments: Insurance and Asset Management, separate from its Corporate division and the effects of consolidating FG VIEs and CIVs, which is consistent with the manner in which the Company’s chief operating decision maker (CODM) reviews the business to assess performance and allocate resources.
The Insurance segment primarily consists of: (i) the Company’s insurance subsidiaries; and (ii) AGAS. The Asset Management segment consists of AssuredIM, which provides asset management services to third-party investors as well as to the U.S. Insurance Subsidiaries and AGAS.
The Corporate division primarily consists of interest expense on the debt of the U.S. Holding Companies and any losses on extinguishment or repurchases of their debt, as well as other operating expenses attributed to the corporate activities of AGL and the U.S. Holding Companies.
The Other category primarily includes the effect of consolidating FG VIEs and CIVs, intersegment eliminations and the reclassification of reimbursable fund expenses. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.
The segments differ from the consolidated financial statements in certain respects. The Insurance segment includes: (i) premiums and losses from the financial guaranty insurance policies issued by the U.S. Insurance Subsidiaries which guarantee the FG VIEs’ debt; and (ii) AGAS’s share of earnings from investments in AssuredIM Funds in “equity in earnings (losses) of investees.” Under GAAP, (i) FG VIEs are consolidated by the U.S. Insurance Subsidiaries and the premiums and losses associated with their financial guaranty policies associated with the FG VIEs’ debt is eliminated, whereas the reconciliation tables below present the FG VIEs and related eliminations in “Other”, and (ii) CIVs are consolidated by AGUS, a U.S. holding company, whereas in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’s interest in CIVs are presented in “Other.” In addition, under GAAP, reimbursable fund expenses are shown as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below, they are netted in segment expenses.
The Company analyzes the operating performance of each segment using “segment adjusted operating income.” Results for each segment include specifically identifiable expenses as well as intersegment expense allocations, as applicable, based on time studies and other cost allocation methodologies based on headcount or other metrics. Segment adjusted operating income is defined as net income (loss) attributable to AGL, adjusted for the following items:
•Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading.
•Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments.
•Elimination of fair value gains (losses) on the Company’s committed capital securities (CCS) that are recognized in net income.
•Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and loss adjustment expense (LAE) reserves that are recognized in net income.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
•Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.
The Company does not report assets by reportable segment as the CODM does not use assets to assess performance and allocate resources.
The following table presents information for the Company’s operating segments.
Segment Information

|  | Three Months Ended March 31,
|  | 2022 |  | 2021
|  | Insurance |  | Asset Management |  | Insurance |  | Asset Management
|  | (in millions)
Third-party revenues |  | $ | 276 |  |  | $ | 30 |  |  | $ | 177 |  |  | $ | 18 |
Intersegment revenues |  | 2 |  |  | 9 |  |  | 2 |  |  | 2 |
Segment revenues |  | 278 |  |  | 39 |  |  | 179 |  |  | 20 |
Segment expenses |  | 122 |  |  | 39 |  |  | 106 |  |  | 29 |
Segment equity in earnings (losses) of investees |  | (1) |  |  | — |  |  | 19 |  |  | — |
Less: Segment provision (benefit) for income taxes |  | 22 |  |  | — |  |  | 13 |  |  | (2) |
Segment adjusted operating income (loss) |  | $ | 133 |  |  | $ | — |  |  | $ | 79 |  |  | $ | (7) |

The tables below present a reconciliation of significant components of segment information to the comparable consolidated amounts.
Reconciliation of Segment Information to Consolidated Information
First Quarter 2022

|  |  |  |  | Equity in Earnings (Losses) of Investees |  | Less: |  | Net Income (Loss) Attributable to AGL
| Revenues |  | Expenses |  |  | Provision (Benefit) for Income Taxes |  | Noncontrolling Interests |
| (in millions)
Segments: |  |  |  |  |  |  |  |  |  |  |
Insurance | $ | 278 |  |  | $ | 122 |  |  | $ | (1) |  |  | $ | 22 |  |  | $ | — |  |  | $ | 133 |
Asset Management | 39 |  |  | 39 |  |  | — |  |  | — |  |  | — |  |  | — |
Total segments | 317 |  |  | 161 |  |  | (1) |  |  | 22 |  |  | — |  |  | 133 |
Corporate division | 1 |  |  | 34 |  |  | — |  |  | — |  |  | — |  |  | (33) |
Other | 14 |  |  | 5 |  |  | (10) |  |  | — |  |  | 9 |  |  | (10) |
Subtotal | 332 |  |  | 200 |  |  | (11) |  |  | 22 |  |  | 9 |  |  | 90 |
Reconciling items: |  |  |  |  |  |  |  |  |  |  |
Realized gains (losses) on investments | 3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3 |
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives | (7) |  |  | (4) |  |  | — |  |  | — |  |  | — |  |  | (3) |
Fair value gains (losses) on CCS | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1 |
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves | (29) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (29) |
Tax effect | — |  |  | — |  |  | — |  |  | (4) |  |  | — |  |  | 4 |
Total consolidated | $ | 300 |  |  | $ | 196 |  |  | $ | (11) |  |  | $ | 18 |  |  | $ | 9 |  |  | $ | 66 |

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Reconciliation of Segment Information to Consolidated Information
First Quarter 2021

|  |  |  |  | Equity in Earnings (Losses) of Investees |  | Less: |  | Net Income (Loss) Attributable to AGL
| Revenues |  | Expenses |  |  | Provision (Benefit) for Income Taxes |  | Noncontrolling Interests |
| (in millions)
Segments: |  |  |  |  |  |  |  |  |  |  |
Insurance | $ | 179 |  |  | $ | 106 |  |  | $ | 19 |  |  | $ | 13 |  |  | $ | — |  |  | $ | 79 |
Asset Management | 20 |  |  | 29 |  |  | — |  |  | (2) |  |  | — |  |  | (7) |
Total segments | 199 |  |  | 135 |  |  | 19 |  |  | 11 |  |  | — |  |  | 72 |
Corporate division | — |  |  | 32 |  |  | — |  |  | (3) |  |  | — |  |  | (29) |
Other | 21 |  |  | 7 |  |  | (10) |  |  | — |  |  | 4 |  |  | — |
Subtotal | 220 |  |  | 174 |  |  | 9 |  |  | 8 |  |  | 4 |  |  | 43 |
Reconciling items: |  |  |  |  |  |  |  |  |  |  |
Realized gains (losses) on investments | (3) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3) |
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives | (22) |  |  | (3) |  |  | — |  |  | — |  |  | — |  |  | (19) |
Fair value gains (losses) on CCS | (19) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (19) |
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1 |
Tax effect | — |  |  | — |  |  | — |  |  | (8) |  |  | — |  |  | 8 |
Total consolidated | $ | 177 |  |  | $ | 171 |  |  | $ | 9 |  |  | $ | — |  |  | $ | 4 |  |  | $ | 11 |

3. Outstanding Exposure
The Company sells credit protection primarily in financial guaranty insurance form. Until 2009, the Company also sold credit protection by issuing policies that guaranteed payment obligations under credit derivatives, primarily credit default swaps (CDS). The Company’s contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts. The Company has not entered into any new CDS in order to sell credit protection in the U.S. since the beginning of 2009, when regulatory guidelines were issued that limited the terms under which such protection could be sold. The capital and margin requirements applicable under the Dodd-Frank Wall Street Reform and Consumer Protection Act also contributed to the Company not entering into such new CDS in the U.S. since 2009. The Company has, however, acquired or reinsured portfolios since 2009 that include financial guaranty contracts in credit derivative form.
The Company also writes specialty insurance and reinsurance that is consistent with its risk profile and benefits from its underwriting experience and other types of financial guarantees not subject to insurance accounting guidance.
The Company seeks to limit its exposure to losses by underwriting obligations that it views to be investment grade at inception, although on occasion it may underwrite new issuances that it views to be below-investment-grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures. The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies, providing reinsurance on a portfolio of insurance or reassuming a portfolio of reinsurance it had previously ceded; in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction. The Company diversifies its insured portfolio across sector and geography and, in the structured finance portfolio, generally requires subordination or collateral to protect it from loss. Reinsurance may be used in order to reduce net exposure to certain insured transactions.
Public finance obligations insured by the Company primarily consist of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
purposes, including utilities, toll roads, healthcare facilities and government office buildings. The Company also includes within public finance obligations similar obligations issued by territorial and non-U.S. sovereign and sub-sovereign issuers and governmental authorities.
Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. Some of these VIEs are consolidated as described in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on these VIEs whether or not they are consolidated. The Company also provides specialty insurance and reinsurance on transactions without special purpose entities but with risk profiles similar to those of its structured finance exposures written in financial guaranty form.
Surveillance Categories
The Company segregates its insured portfolio into investment grade and BIG surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review of each exposure. BIG exposures include all exposures with internal credit ratings below BBB-.
The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and generally reflect an approach similar to that employed by the rating agencies, except that the Company’s internal credit ratings focus on future performance rather than lifetime performance.
The Company classifies those portions of risks benefiting from reimbursement obligations collateralized by eligible assets held in trust in acceptable reimbursement structures as being the higher of ‘AA’ or their current internal rating. Unless otherwise noted, ratings disclosed herein on the Company’s insured portfolio reflect its internal ratings.
The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector. Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled. For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating.
Exposures identified as BIG are subjected to further review to determine the probability of a loss. See Note 4, Expected Loss to be Paid (Recovered), for additional information. Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid. The Company uses the tax-equivalent yield of the relevant subsidiary’s investment portfolio to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction. For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss.
More extensive monitoring and intervention are employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will in the future pay claims on that transaction that will not be fully reimbursed. The three BIG surveillance categories are:
•BIG Category 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected.
•BIG Category 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year) have yet been paid.
•BIG Category 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Impact of COVID-19 Pandemic
Variants of COVID-19 continue to spread throughout the world, while the production, acceptance, and distribution of vaccines and therapeutics for it are proceeding unevenly across the globe. The emergence of COVID-19 and reactions to it, including various intermittent closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets. The ultimate size, depth, course and duration of the pandemic, and the effectiveness, acceptance, and distribution of vaccines and therapeutics for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve. Consequently, and due to the nature of the Company’s business, all of the direct and indirect consequences of COVID-19 on the Company are not yet fully known to the Company, and still may not emerge for some time.
From shortly after the pandemic reached the U.S. through early 2021 the Company’s surveillance department conducted supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various intermittent closures and capacity and travel restrictions or an economic downturn. Given significant federal funding in 2021 and the performance it observed, the Company’s surveillance department has reduced these supplemental procedures, but is still monitoring those sectors it identified as most at risk for any developments related to COVID-19 that may impact the ability of issuers to make upcoming debt service payments. The Company has paid only relatively small insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19, and has already received reimbursement for most of those claims.
Financial Guaranty Exposure
The Company measures its financial guaranty exposure in terms of (i) gross and net par outstanding and (ii) gross and net debt service.
The Company typically guarantees the payment of debt service when due. Since most of these payments are due in the future, the Company generally uses gross and net par outstanding as a proxy for its financial guaranty exposure. Gross par outstanding generally represents the principal amount of the insured obligation at a point in time. Net par outstanding equals gross par outstanding net of any reinsurance. The Company includes in its par outstanding calculation the impact of any consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date. Foreign denominated net par outstanding is translated at the spot rate at the end of the reporting period.
The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid (loss mitigation securities), in order to mitigate the economic effect of insured losses. The Company excludes amounts attributable to loss mitigation securities from par and debt service outstanding, and instead includes such amounts in the investment portfolio, because the Company manages such securities as investments and not insurance exposure. As of March 31, 2022 and December 31, 2021, the Company excluded from net par outstanding $1.2 billion and $1.3 billion, respectively, attributable to loss mitigation securities.
Gross debt service outstanding represents the sum of all estimated future debt service payments on the insured obligations, on an undiscounted basis. Net debt service outstanding equals gross debt service outstanding net of any reinsurance. Future debt service payments include the impact of any consumer price index inflator after the reporting date, as well as, in the case of accreting (zero-coupon) obligations, accretion after the reporting date.
The Company calculates its debt service outstanding as follows:
•for insured obligations that are not supported by homogeneous pools of assets (which category includes most of the Company’s public finance transactions), as the total estimated contractual future debt service due through maturity, regardless of whether the obligations may be called and regardless of whether, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, the Company believes the obligations will be repaid prior to contractual maturity; and
•for insured obligations that are supported by homogeneous pools of assets that are contractually permitted to prepay principal (which category includes, for example, residential mortgage-backed securities (RMBS)), as the total estimated expected future debt service due on insured obligations through their respective expected terms, which includes the Company’s expectations as to whether the obligations may be called and, in the case of obligations where
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity.
The calculation of debt service requires the use of estimates, which the Company updates periodically, including estimates and assumptions for the expected remaining term of insured obligations supported by homogeneous pools of assets, updated interest rates for floating and variable rate insured obligations, behavior of consumer price indices for obligations with consumer price index inflators, foreign exchange rates and other assumptions based on the characteristics of each insured obligation. Debt service is a measure of the estimated maximum potential exposure to insured obligations before considering the Company’s various legal rights to the underlying collateral and other remedies available to it under its financial guaranty contract.
Actual debt service may differ from estimated debt service due to refundings, terminations, negotiated restructurings, prepayments, changes in interest rates on variable rate insured obligations, consumer price index behavior differing from that projected, changes in foreign exchange rates on non-U.S. dollar denominated insured obligations and other factors.
Financial Guaranty Portfolio
Debt Service and Par Outstanding

| As of March 31, 2022 |  | As of December 31, 2021
| Gross |  | Net |  | Gross |  | Net
| (in millions)
Debt Service |  |  |  |  |  |  |
Public finance | $ | 352,611 |  |  | $ | 352,285 |  |  | $ | 357,694 |  |  | $ | 357,314 |
Structured finance | 9,734 |  |  | 9,704 |  |  | 10,076 |  |  | 10,046 |
Total financial guaranty | $ | 362,345 |  |  | $ | 361,989 |  |  | $ | 367,770 |  |  | $ | 367,360 |
Par Outstanding |  |  |  |  |  |  |
Public finance | $ | 224,763 |  |  | $ | 224,463 |  |  | $ | 227,507 |  |  | $ | 227,164 |
Structured finance | 8,946 |  |  | 8,916 |  |  | 9,258 |  |  | 9,228 |
Total financial guaranty | $ | 233,709 |  |  | $ | 233,379 |  |  | $ | 236,765 |  |  | $ | 236,392 |

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $1,174 million of public finance direct gross par and $860 million of structured finance direct gross par as of March 31, 2022. These commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts.
Financial Guaranty Portfolio by Internal Rating
As of March 31, 2022

|  | Public Finance U.S. |  | Public Finance Non-U.S. |  | Structured Finance U.S |  | Structured Finance Non-U.S |  | Total
Rating Category |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | %
|  | (dollars in millions)
AAA |  | $ | 270 |  |  | 0.2 | % |  | $ | 2,102 |  |  | 4.3 | % |  | $ | 757 |  |  | 9.3 | % |  | $ | 482 |  |  | 59.1 | % |  | $ | 3,611 |  |  | 1.5 | %
AA |  | 16,472 |  |  | 9.4 |  |  | 3,975 |  |  | 8.2 |  |  | 4,633 |  |  | 57.2 |  |  | 21 |  |  | 2.7 |  |  | 25,101 |  |  | 10.8 |
A |  | 94,442 |  |  | 53.6 |  |  | 10,382 |  |  | 21.4 |  |  | 801 |  |  | 9.9 |  |  | 156 |  |  | 19.1 |  |  | 105,781 |  |  | 45.3 |
BBB |  | 61,039 |  |  | 34.7 |  |  | 31,486 |  |  | 64.9 |  |  | 566 |  |  | 7.0 |  |  | 156 |  |  | 19.1 |  |  | 93,247 |  |  | 40.0 |
BIG |  | 3,734 |  |  | 2.1 |  |  | 561 |  |  | 1.2 |  |  | 1,344 |  |  | 16.6 |  |  | — |  |  | — |  |  | 5,639 |  |  | 2.4 |
Total net par outstanding |  | $ | 175,957 |  |  | 100.0 | % |  | $ | 48,506 |  |  | 100.0 | % |  | $ | 8,101 |  |  | 100.0 | % |  | $ | 815 |  |  | 100.0 | % |  | $ | 233,379 |  |  | 100.0 | %

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Financial Guaranty Portfolio by Internal Rating
As of December 31, 2021

|  | Public Finance U.S. |  | Public Finance Non-U.S. |  | Structured Finance U.S |  | Structured Finance Non-U.S |  | Total
Rating Category |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | % |  | Net Par Outstanding |  | %
|  | (dollars in millions)
AAA |  | $ | 272 |  |  | 0.2 | % |  | $ | 2,217 |  |  | 4.5 | % |  | $ | 806 |  |  | 9.6 | % |  | $ | 493 |  |  | 57.7 | % |  | $ | 3,788 |  |  | 1.6 | %
AA |  | 16,372 |  |  | 9.2 |  |  | 4,205 |  |  | 8.4 |  |  | 4,760 |  |  | 56.8 |  |  | 22 |  |  | 2.6 |  |  | 25,359 |  |  | 10.7 |
A |  | 94,459 |  |  | 53.3 |  |  | 10,659 |  |  | 21.3 |  |  | 813 |  |  | 9.7 |  |  | 160 |  |  | 18.7 |  |  | 106,091 |  |  | 44.9 |
BBB |  | 60,744 |  |  | 34.3 |  |  | 32,264 |  |  | 64.6 |  |  | 611 |  |  | 7.3 |  |  | 179 |  |  | 21.0 |  |  | 93,798 |  |  | 39.7 |
BIG |  | 5,372 |  |  | 3.0 |  |  | 600 |  |  | 1.2 |  |  | 1,384 |  |  | 16.6 |  |  | — |  |  | — |  |  | 7,356 |  |  | 3.1 |
Total net par outstanding |  | $ | 177,219 |  |  | 100.0 | % |  | $ | 49,945 |  |  | 100.0 | % |  | $ | 8,374 |  |  | 100.0 | % |  | $ | 854 |  |  | 100.0 | % |  | $ | 236,392 |  |  | 100.0 | %

Financial Guaranty Portfolio
Components of BIG Net Par Outstanding
As of March 31, 2022

| BIG Net Par Outstanding |  | Net Par
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |  | Outstanding
|  |  |  |  | (in millions) |  |  |  |
Public finance: |  |  |  |  |  |  |  |  |
U.S. public finance | $ | 1,462 |  |  | $ | 116 |  |  | $ | 2,156 |  |  | $ | 3,734 |  |  | $ | 175,957 |
Non-U.S. public finance | 518 |  |  | — |  |  | 43 |  |  | 561 |  |  | 48,506 |
Public finance | 1,980 |  |  | 116 |  |  | 2,199 |  |  | 4,295 |  |  | 224,463 |
Structured finance: |  |  |  |  |  |  |  |  |
U.S. RMBS | 53 |  |  | 81 |  |  | 1,095 |  |  | 1,229 |  |  | 2,277 |
Other structured finance | — |  |  | 39 |  |  | 76 |  |  | 115 |  |  | 6,639 |
Structured finance | 53 |  |  | 120 |  |  | 1,171 |  |  | 1,344 |  |  | 8,916 |
Total | $ | 2,033 |  |  | $ | 236 |  |  | $ | 3,370 |  |  | $ | 5,639 |  |  | $ | 233,379 |

Financial Guaranty Portfolio
Components of BIG Net Par Outstanding
As of December 31, 2021

| BIG Net Par Outstanding |  | Net Par
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |  | Outstanding
|  |  |  |  | (in millions) |  |  |  |
Public finance: |  |  |  |  |  |  |  |  |
U.S. public finance | $ | 1,765 |  |  | $ | 116 |  |  | $ | 3,491 |  |  | $ | 5,372 |  |  | $ | 177,219 |
Non-U.S. public finance | 556 |  |  | — |  |  | 44 |  |  | 600 |  |  | 49,945 |
Public finance | 2,321 |  |  | 116 |  |  | 3,535 |  |  | 5,972 |  |  | 227,164 |
Structured finance: |  |  |  |  |  |  |  |  |
U.S. RMBS | 121 |  |  | 24 |  |  | 1,120 |  |  | 1,265 |  |  | 2,391 |
Other structured finance | 1 |  |  | 41 |  |  | 77 |  |  | 119 |  |  | 6,837 |
Structured finance | 122 |  |  | 65 |  |  | 1,197 |  |  | 1,384 |  |  | 9,228 |
Total | $ | 2,443 |  |  | $ | 181 |  |  | $ | 4,732 |  |  | $ | 7,356 |  |  | $ | 236,392 |

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Financial Guaranty Portfolio
BIG Net Par Outstanding and Number of Risks
As of March 31, 2022

|  | Net Par Outstanding |  | Number of Risks (2)
Description |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total
|  | (dollars in millions)
BIG: |  |  |  |  |  |  |  |  |  |  |  |
Category 1 |  | $ | 2,027 |  |  | $ | 6 |  |  | $ | 2,033 |  |  | 108 |  |  | 1 |  |  | 109 |
Category 2 |  | 225 |  |  | 11 |  |  | 236 |  |  | 20 |  |  | 2 |  |  | 22 |
Category 3 |  | 3,327 |  |  | 43 |  |  | 3,370 |  |  | 127 |  |  | 8 |  |  | 135 |
Total BIG |  | $ | 5,579 |  |  | $ | 60 |  |  | $ | 5,639 |  |  | 255 |  |  | 11 |  |  | 266 |

Financial Guaranty Portfolio
BIG Net Par Outstanding and Number of Risks
As of December 31, 2021

|  | Net Par Outstanding |  | Number of Risks (2)
Description |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total |  | Financial Guaranty Insurance (1) |  | Credit Derivatives |  | Total
|  | (dollars in millions)
BIG: |  |  |  |  |  |  |  |  |  |  |  |
Category 1 |  | $ | 2,429 |  |  | $ | 14 |  |  | $ | 2,443 |  |  | 117 |  |  | 2 |  |  | 119 |
Category 2 |  | 177 |  |  | 4 |  |  | 181 |  |  | 16 |  |  | 1 |  |  | 17 |
Category 3 |  | 4,687 |  |  | 45 |  |  | 4,732 |  |  | 129 |  |  | 8 |  |  | 137 |
Total BIG |  | $ | 7,293 |  |  | $ | 63 |  |  | $ | 7,356 |  |  | 262 |  |  | 11 |  |  | 273 |

_____________________
(1) Includes FG VIEs.
(2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.
Exposure to Puerto Rico
The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $2,237 million net par outstanding as of March 31, 2022, a decrease of $1,335 million from the $3,572 million net par outstanding as of December 31, 2021. All of the Company’s insured exposure to Puerto Rico is rated BIG. The Company has paid claims as a result of payment defaults on all of its outstanding Puerto Rico exposures except the Municipal Finance Agency (MFA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the University of Puerto Rico (U of PR).
On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. PROMESA established a seven-member Financial Oversight and Management Board (the FOMB) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico. Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under Chapter 9 of the United States Bankruptcy Code (Bankruptcy Code).
After over five years of negotiations, on March 15, 2022, a substantial portion of the Company’s Puerto Rico exposure was resolved in accordance with three orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico):
•On January 18, 2022, the Federal District Court of Puerto Rico, acting under Title III of PROMESA, entered an order and judgment confirming the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan). The GO/PBA Plan restructured approximately $35 billion of
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities as well as $50 billion in pension obligations (none of the pension obligations are insured by the Company), all consistent with the terms of the settlement embodied in a revised GO and PBA plan support agreement (PSA) entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the FOMB (GO/PBA PSA).
•On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered an order under Title VI of PROMESA (PRCCDA Modification) modifying the debt of the Puerto Rico Convention Center District Authority (PRCCDA).
•On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered another order under Title VI of PROMESA (PRIFA Modification) modifying certain debt of the Puerto Rico Infrastructure Financing Authority (PRIFA).
As a result of the consummation on March 15, 2022, of each of the GO/PBA Plan, PRCCDA Modification and PRIFA Modification (together, the March Puerto Rico Resolutions), including claim payments made by the Company under the March Puerto Rico Resolutions, the Company’s obligations under its insurance policies covering debt of the PRCCDA and PRIFA were extinguished, and its insurance exposure to Puerto Rico GO and PBA was greatly reduced.
The Company is continuing its efforts to resolve two other Puerto Rico insured exposures that are in payment default, the Puerto Rico Highways and Transportation Authority (PRHTA) and the Puerto Rico Electric Power Authority (PREPA). Both economic and political developments, including those related to the COVID-19 pandemic, may impact any resolution of the Company’s PRHTA and PREPA insured exposures and the value of the consideration the Company has received in connection with the March Puerto Rico Resolutions or may receive in the future in connection with any future resolutions of the Company’s PRHTA and/or PREPA insured exposures. The impact of developments relating to Puerto Rico during any quarter or year could be material to the Company’s results of operations and shareholders’ equity.
Puerto Rico GO and PBA
As of March 31, 2022, the Company had remaining $47 million of insured net par outstanding of GO bonds and $5 million of insured net par outstanding of PBA bonds, consisting of direct exposure, second-to-pay exposure, and assumed reinsurance exposure.

|  | Direct |  | Second-to-Pay |  | Assumed |  | Total
|  | (in millions)
GO |  | $ | 36 |  |  | $ | 10 |  |  | $ | 1 |  |  | $ | 47 |
PBA |  | 5 |  |  | — |  |  | — |  |  | 5 |
Total GO and PBA |  | $ | 41 |  |  | $ | 10 |  |  | $ | 1 |  |  | $ | 52 |

Under the GO/PBA Plan the Company received (including amounts received in connection with the second election described further below):
•$530 million in cash, net of ceded reinsurance,
•$605 million of new recovery bonds (see Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the face value of current interest bonds and the maturity value of capital appreciation bonds, net of ceded reinsurance, and
•$258 million of contingent value instruments (CVIs) (see Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the original notional value, net of ceded reinsurance.
The Company expects to receive amounts in addition to the amounts listed above (and to make additional payments) in connection with its $1 million in net outstanding par of assumed reinsurance and $10 million in net outstanding par of second-to-pay exposure.
The CVIs are intended to provide creditors with additional recoveries tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax (SUT) receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps. The Company has sold a portion of the new recovery bonds and CVIs it received on March 15, 2022, and may sell in the future
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
any new recovery bonds or CVIs it continues to hold. The fair value of any new recovery bonds or CVIs the Company retains will fluctuate. Any gains or losses on sales of new recovery bonds and CVIs relative to their values on March 15, 2022, were and will be reported as realized gains and losses on investments, rather than loss and LAE. The notional amount of the CVI represents the sum of the maximum distributions the holder could receive under the CVI, subject to the cumulative and annual caps, if the SUT sufficiently exceeds 2020 certified fiscal plan projections, without any discount for time.
In August 2021, the Company exercised certain elections under the GO/PBA Plan that impact the timing of payments under its insurance policies. In accordance with the terms of the GO/PBA Plan, the payment of the principal of all GO bonds and PBA bonds insured by the Company was accelerated against the Commonwealth and became due and payable as of March 15, 2022. With respect to certain insured securities covered by the GO/PBA Plan, insured bondholders were permitted to elect either: (i) to receive on March 15, 2022, 100% of the then outstanding principal amount of insured bonds plus accrued interest; or (ii) to receive custody receipts that represent an interest in the legacy insurance policy plus cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan. For those who made the second election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds. The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates to the extent that distributions of Plan Consideration are insufficient to pay such amounts after giving effect to the distributions described in the immediately preceding sentence. In the case of insured bondholders who elected to receive custody receipts, the Company retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying 100% of the then outstanding principal amount of insured bonds plus accrued interest. As of March 31, 2022, the net insured par outstanding under the legacy GO and PBA insurance policies was $41 million, and constituted all of the Company’s remaining net par exposure to the GO and PBA bonds it had directly insured.
PRCCDA and PRIFA
As of March 31, 2022, the Company had no insured net par outstanding of PRCCDA or PRIFA obligations remaining. Under the PRCCDA Modification and the PRIFA Modification, on March 15, 2022, the Company received an aggregate of $47 million in cash (net of ceded reinsurance) and $98 million in notional amount of CVIs (net of ceded reinsurance).
PRHTA
As of March 31, 2022, the Company had $1.3 billion of insured net par outstanding that is covered by a PSA with respect to PRHTA entered into on May 5, 2021, by AGM and AGC and certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA): $799 million insured net par outstanding of PRHTA (transportation revenue) bonds and $457 million insured net par outstanding of PRHTA (highway revenue) bonds. The transportation revenue bonds are secured by a subordinate gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls, plus a first lien on taxes on crude oil, unfinished oil and derivative products. The highway revenue bonds are secured by a gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls.
The HTA PSA provides for payments to AGM and AGC consisting of: (i) cash; (ii) new bonds expected to be backed by toll revenue (Toll Bonds); and (iii) a CVI. The HTA PSA contemplates a Title III proceeding requiring court approval of a disclosure statement, solicitation and voting process, and a plan confirmation hearing. On May 2, 2022, the FOMB took the first step in this process by filing with the Title III Court a plan of adjustment for HTA (HTA Plan) which it believes to be consistent with the HTA PSA. The HTA PSA includes a number of conditions and the HTA Plan is subject to confirmation by the Title III Court, so there can be no assurance that the consensual resolution for PRHTA embodied in the HTA PSA will be achieved in its current form, or at all.
On February 22, 2022, the FOMB certified a revised fiscal plan for PRHTA generally consistent with the HTA PSA.
PREPA
As of March 31, 2022, the Company had $748 million insured net par outstanding of PREPA obligations. The PREPA obligations are secured by a lien on the revenues of the electric system. On May 3, 2019, AGM and AGC entered into a restructuring support agreement with respect to PREPA with PREPA and other stakeholders, including a group of uninsured PREPA bondholders, the Commonwealth and the FOMB (PREPA RSA). This agreement was terminated by Puerto Rico on March 8, 2022.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order, in an action initiated by AGM and ACG in 2017, appointing as members of a PREPA mediation team U.S. Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon. Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that mediation shall terminate on June 1, 2022, unless extended by the PREPA mediation team to July 1, 2022.
The last revised fiscal plan for PREPA was certified by the FOMB on May 27, 2021.
Other Puerto Rico Exposures
All debt service payments for the Company’s remaining Puerto Rico exposures have been made in full by the obligors as of the date of this filing. Such exposures comprise:
MFA. As of March 31, 2022, the Company had $179 million insured net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues.
U of PR. As of March 31, 2022, the Company had $1 million insured net par outstanding of U of PR bonds, which are general obligations of the university and are secured by a subordinate lien on the proceeds, profits and other income of the university, subject to a senior pledge and lien for the benefit of outstanding university system revenue bonds.
PRASA. As of March 31, 2022, the Company had $1 million insured net par outstanding of PRASA obligations. The Company’s insured PRASA obligations are secured by a lien on the gross revenues of the water and sewer system.
Puerto Rico Litigation
Currently, there are numerous legal actions relating to the default by the Commonwealth and certain of its instrumentalities on debt service payments, and related matters, and the Company is a party to a number of them. The Company has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to Puerto Rico obligations which the Company insures. In addition, the Commonwealth, the FOMB and others have taken legal action naming the Company as party.
A number of legal actions involving the Company and relating to PRCCDA and PRIFA, as well as claims related to the clawback of certain excise taxes and revenues pledged to secure bonds issued by PRHTA, were resolved on March 15, 2022 in connection with the consummation of the March Puerto Rico Resolutions. All other proceedings remain stayed pending the Court’s determination on plans of adjustment or other proceedings related to PRHTA and PREPA.
Remaining Stayed Proceedings. The following Puerto Rico proceedings in which the Company is involved remain stayed:
•On June 26, 2017, AGM and AGC filed a complaint in the Federal District Court of Puerto Rico to compel the FOMB to certify the PREPA RSA for implementation under Title VI of PROMESA. On July 21, 2017, considering its PREPA Title III petition on July 2, 2017, the FOMB filed a notice of stay under PROMESA.
•On July 18, 2017, AGM and AGC filed a motion for relief in the Federal District Court of Puerto Rico from the automatic stay filed in the PREPA Title III Bankruptcy proceeding. The court denied the motion on September 14, 2017, but on August 8, 2018, the First Circuit vacated and remanded the court’s decision. On October 3, 2018, AGM and AGC, together with other bond insurers, filed a motion with the court to lift the automatic stay to commence an action against PREPA for the appointment of a receiver. On May 3, 2019, AGM and AGC entered into the PREPA RSA, but on March 8, 2022, the Commonwealth and PREPA terminated the PREPA RSA. Given the termination of the PREPA RSA, the Company is considering several options to enforce its rights in respect of insured PREPA bonds, including, among other things, a renewal of the motion to lift the automatic stay and seek the appointment of a receiver. On April 8, 2022, Judge Swain issued an order appointing as members of the PREPA mediation team U.S. Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon. Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that mediation shall terminate on June 1, 2022, unless extended by the PREPA mediation team to July 1, 2022.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
•On May 20, 2019, the FOMB and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court of Puerto Rico challenging the validity, enforceability, and extent of security interests in PRHTA revenues. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element; Judge Swain extended the stay through December 31, 2019, and subsequently extended the stay again pending further order of the court on the understanding that these issues will be resolved in other proceedings.
•On September 30, 2019, certain fuel line lenders filed an amended adversary complaint against the FOMB and other parties, including AGC and AGM, seeking subordination of PREPA bondholder claims to fuel line lender claims. The FOMB filed a status report on May 15, 2020 regarding PREPA’s financial condition and its request for approval of the PREPA RSA settlement, in which it requested that it be permitted to file an updated report by July 31, 2020, that all proceedings related to the approval of the PREPA RSA settlement continue to be adjourned, and that the hearing in this adversary proceeding scheduled for June 3, 2020 be adjourned. On May 22, 2020, the Title III Court issued an order to that effect.
•On October 30, 2019, the retirement system for PREPA employees (SREAEE) filed an amended adversary complaint in the Federal District Court of Puerto Rico against the FOMB and other parties, seeking subordination of PREPA bondholder claims to SREAEE claims. The FOMB filed a status report on May 15, 2020 regarding PREPA’s financial condition and its request for approval of the PREPA RSA settlement, in which it requested that it be permitted to file an updated report by July 31, 2020, that all proceedings related to the approval of the PREPA RSA settlement continue to be adjourned, and that the hearing in this adversary proceeding scheduled for June 3, 2020 be adjourned. On May 22, 2020, the Title III Court issued an order to that effect.
•On January 16, 2020, the FOMB, on behalf of the PRHTA, brought an adversary proceeding in the Federal District Court of Puerto Rico against AGM and AGC and other insurers of PRHTA bonds, objecting to the bond insurers claims in the PRHTA Title III proceedings and seeking to disallow such claims. Considering the PSA, on May 25, 2021, Judge Swain stayed the participation of AGM and AGC.
Puerto Rico Par and Debt Service Schedules
All Puerto Rico exposures are internally rated BIG. The following tables show the Company’s insured exposure to general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.
Puerto Rico
Gross Par and Gross Debt Service Outstanding

| Gross Par Outstanding |  | Gross Debt Service Outstanding
| As of |  | As of
| March 31, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021
| (in millions)
Exposure to Puerto Rico | $ | 2,256 |  |  | $ | 3,629 |  |  | $ | 3,169 |  |  | $ | 5,322 |

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Puerto Rico
Net Par Outstanding

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement |  |  |
Commonwealth of Puerto Rico - GO (1) | $ | 47 |  |  | $ | 1,097 |
PBA (1) | 5 |  |  | 122 |
Total GO/PBA Plan | 52 |  |  | 1,219 |
PRHTA (Transportation revenue) | 799 |  |  | 799 |
PRHTA (Highway revenue) | 457 |  |  | 457 |
PRCCDA (2) | — |  |  | 152 |
Total HTA/CCDA PSA | 1,256 |  |  | 1,408 |
PRIFA (2) | — |  |  | 16 |
Total Subject to a Plan or Support Agreement | 1,308 |  |  | 2,643 |
Other Puerto Rico Exposures |  |  |
PREPA | 748 |  |  | 748 |
MFA (3) | 179 |  |  | 179 |
PRASA and U of PR (3) | 2 |  |  | 2 |
Total Other Puerto Rico Exposures | 929 |  |  | 929 |
Total net exposure to Puerto Rico | $ | 2,237 |  |  | $ | 3,572 |

____________________
(1) On March 15, 2022, the Modified Eighth Amended Title III Joint Plan of Adjustment, confirmed on January 18, 2022, was consummated, pursuant to which the Company, among other things, fully paid claims on all of its directly insured Puerto Rico GO bonds, other than certain GO bonds whose holders made certain elections. On the same date and pursuant to the same Plan of Adjustment, the Company fully paid claims on all of its directly insured PBA bonds, other than certain PBA bonds whose holders made certain elections.
(2) On March 15, 2022, the Company fully paid claims on all of its insured PRCCDA and PRIFA bonds, eliminating its exposure to insured PRCCDA and PRIFA bonds, pursuant to Title VI orders entered on January 20, 2022.
(3) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company.
The following table shows the scheduled amortization of the insured general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations. The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Amortization Schedule of Puerto Rico
Net Par Outstanding and Net Debt Service Outstanding
As of March 31, 2022

| Scheduled Net Par Amortization |  | Scheduled Net Debt Service Amortization
| (in millions)
2022 (April 1 - June 30) | $ | — |  |  | $ | 3 |
2022 (July 1 - September 30) | 159 |  |  | 213 |
2022 (October 1 - December 31) | — |  |  | 3 |
Subtotal 2022 | 159 |  |  | 219 |
2023 | 186 |  |  | 289 |
2024 | 149 |  |  | 243 |
2025 | 151 |  |  | 237 |
2026 | 170 |  |  | 249 |
2027-2031 | 639 |  |  | 935 |
2032-2036 | 577 |  |  | 732 |
2037-2041 | 201 |  |  | 237 |
2042 | 5 |  |  | 5 |
Total | $ | 2,237 |  |  | $ | 3,146 |

Exposure to the U.S. Virgin Islands
As of March 31, 2022, the Company had $443 million insured net par outstanding to the U.S. Virgin Islands and its related authorities (USVI), of which it rated $185 million BIG (down from $469 million BIG as of December 31, 2021). During First Quarter 2022, the Company upgraded $256 million insured par net outstanding of USVI bonds in anticipation of a legal defeasance of such bonds, which occurred on April 6, 2022. The $185 million of BIG USVI net par outstanding consisted of: (i) Public Finance Authority bonds secured by a gross receipts tax and the general obligation, full faith and credit pledge of the USVI; and (ii) bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system. The COVID-19 pandemic and evolving governmental and private responses to the pandemic have been impacting the USVI economy, especially the tourism sector. The USVI continues to benefit from the federal response to the 2017 hurricanes and COVID-19, has seen improvement in portions of the tourism sector, recently took actions to address its pension shortfalls, and has made its debt service payments to date.
Specialty Insurance and Reinsurance Exposure
The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form. As of both March 31, 2022 and December 31, 2021, gross exposure of $144 million and net exposure of $84 million of aircraft residual value insurance was rated BIG. All other exposures in the table below are investment-grade quality.
Specialty Insurance and Reinsurance Exposure

|  | As of March 31, 2022 |  | As of December 31, 2021
|  | Gross Exposure |  | Net Exposure |  | Gross Exposure |  | Net Exposure
|  | (in millions)
Life insurance transactions (1) |  | $ | 1,261 |  |  | $ | 890 |  |  | $ | 1,250 |  |  | $ | 871 |
Aircraft residual value insurance policies |  | 355 |  |  | 200 |  |  | 355 |  |  | 200 |
Total |  | $ | 1,616 |  |  | $ | 1,090 |  |  | $ | 1,605 |  |  | $ | 1,071 |

____________________
(1) The life insurance transactions’ net exposure is projected to reach $1.1 billion by March 31, 2026.
Guarantee
On March 31, 2022, the Company’s subsidiary, AGRO, entered into an agreement (internally rated AA) which guarantees the receipt of a minimum rental income from a multifamily and commercial real estate portfolio. AGRO’s attachment point is significantly below current annual rental income, and further protective provisions are triggered when rental
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
income falls below a certain level. In addition, AGRO is entitled to be reimbursed for any claims made on the guarantee from future rental income generated by the portfolio. The Company’s maximum potential exposure under the guarantee was $257 million as of March 31, 2022. The Company accounts for the guarantee in accordance with Accounting Standards Codification (ASC) 460, Guarantees.
4. Expected Loss to be Paid (Recovered)
Expected loss to be paid (recovered) is equal to the present value of expected future cash outflows for loss and
LAE payments, net of: (i) inflows for expected salvage, subrogation and other recoveries; and (ii) excess spread on underlying
collateral, as applicable. Cash flows are discounted at current risk-free rates. The Company updates the discount rates each quarter and reflects the effect of such changes in economic loss development. Net expected loss to be paid (recovered) is net of amounts ceded to reinsurers. The Company’s net expected loss to be paid (recovered) incorporates management’s probability weighted estimates of all possible scenarios.
Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about the likelihood of all possible outcomes based on all information available to it. Those assumptions consider the relevant facts and circumstances and are consistent with the information tracked and monitored through the Company’s risk management activities. Expected loss to be paid (recovered) is important from a liquidity perspective in that it represents the present value of amounts that the Company expects to pay or recover in future periods for all contracts.
Management compiles and analyzes loss information for all exposures on a consistent basis, in order to effectively
evaluate and manage the economics and liquidity of the entire insured portfolio. The Company monitors and assigns ratings and
calculates expected loss to be paid (recovered) in the same manner for all its exposures regardless of form or differing
accounting models. This note provides information regarding expected claim payments to be made under all contracts in the
insured portfolio.
In circumstances where the Company has purchased its own insured obligations that had expected losses, and in cases
where issuers of insured obligations elected or the Company and an issuer mutually agreed as part of a negotiation to deliver the
underlying collateral, insured obligation or a new security to the Company, expected loss to be paid (recovered) is reduced and
the asset received is prospectively accounted for under the applicable guidance for that instrument.
Economic loss development represents the change in net expected loss to be paid (recovered) attributable to the effects
of changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic
effects of loss mitigation efforts.
The insured portfolio includes policies accounted for under various accounting models depending on the characteristics of the contract and the Company’s control rights. The three primary models are: (1) insurance, as described in Note 5, Contracts Accounted for as Insurance; (2) derivatives, as described in Note 6, Contracts Accounted for as Credit Derivatives and Note 9, Fair Value Measurement; and (3) FG VIE consolidation, as described in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles. The Company has paid and expects to pay future losses and/or recover past losses on policies which fall under the following accounting models : insurance, derivative and FG VIE.
Loss Estimation Process
The Company’s loss reserve committees estimate expected loss to be paid (recovered) for all contracts by reviewing analyses that consider various scenarios with corresponding probabilities assigned to them. Depending upon the nature of the risk, the Company’s view of the potential size of any loss and the information available to the Company, that analysis may be based upon individually developed cash flow models, internal credit rating assessments, sector-driven loss severity assumptions and/or judgmental assessments. In the case of its assumed business, the Company may conduct its own analysis as just described or, depending on the Company’s view of the potential size of any loss and the information available to the Company, the Company may use loss estimates provided by ceding insurers. The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the period and their view of future performance.
The financial guaranties issued by the Company insure the credit performance of the guaranteed obligations over an extended period of time, in some cases over 30 years, and in most circumstances the Company has no right to cancel such financial guaranties. As a result, the Company’s estimate of ultimate loss on a policy is subject to significant uncertainty over
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
the life of the insured transaction. Credit performance can be adversely affected by economic, fiscal and financial market variability over the life of most contracts.
The Company does not use traditional actuarial approaches to determine its estimates of expected losses. The determination of expected loss to be paid (recovered) is an inherently subjective process involving numerous estimates, assumptions and judgments by management, using both internal and external data sources with regard to frequency, severity of loss, economic projections, governmental actions, negotiations, recovery rates, delinquency and prepayment rates (with respect to RMBS), timing of cash flows, and other factors that affect credit performance. These estimates, assumptions and judgments, and the factors on which they are based, may change materially over a reporting period, and have a material effect on the Company’s financial statements. Each quarter, the Company may revise its scenarios and update its assumptions, including the probability weightings of its scenarios based on public information as well as nonpublic information obtained through its surveillance and loss mitigation activities. Such information includes management’s view of the potential impact of COVID-19 on its distressed exposures. Management assesses the possible implications of such information on each insured obligation, considering the unique characteristics of each transaction.
Changes over a reporting period in the Company’s loss estimates for municipal obligations supported by specified revenue streams, such as revenue bonds issued by toll road authorities, municipal utilities or airport authorities, generally will be influenced by factors impacting their revenue levels, such as changes in demand; changing demographics; and other economic factors, especially if the obligations do not benefit from financial support from other tax revenues or governmental authorities. Changes over a reporting period in the Company’s loss estimates for its tax-supported public finance transactions generally will be influenced by factors impacting the public issuer’s ability and willingness to pay, such as changes in the economy and population of the relevant area; changes in the issuer’s ability or willingness to raise taxes, decrease spending or receive federal assistance; new legislation; rating agency actions that affect the issuer’s ability to refinance maturing obligations or issue new debt at a reasonable cost; changes in the priority or amount of pensions and other obligations owed to workers; developments in restructuring or settlement negotiations; and other political and economic factors. Changes in loss estimates may also be affected by the Company’s loss mitigation efforts and other variables.
Changes in the Company’s loss estimates for structured finance transactions generally will be influenced by factors impacting the performance of the assets supporting those transactions. For example, changes over a reporting period in the Company’s loss estimates for its RMBS transactions may be influenced by factors such as the level and timing of loan defaults experienced, changes in housing prices, results from the Company’s loss mitigation activities, and other variables.
Actual losses will ultimately depend on future events or transaction performance and may be influenced by many
interrelated factors that are difficult to predict. As a result, the Company’s current projections of losses may be subject to
considerable volatility and may not reflect the Company’s ultimate claims paid.
In some instances, the terms of the Company’s policy or the terms of certain workout orders and resolutions give it the option to pay principal losses that have been recognized in the transaction but which it is not yet required to pay, thereby reducing the amount of guaranteed interest due in the future. The Company has sometimes exercised this option, which uses cash but reduces projected future losses.
Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)
by Accounting Model

|  | Net Expected Loss to be Paid (Recovered) |  | Net Economic Loss Development (Benefit)
|  | As of |  | First Quarter
Accounting Model |  | March 31, 2022 |  | December 31, 2021 |  | 2022 |  | 2021
|  | (in millions)
Insurance (see Note 5) |  | $ | 388 |  |  | $ | 364 |  |  | $ | (44) |  |  | $ | 16 |
FG VIEs (see Note 8) |  | 38 |  |  | 42 |  |  | (4) |  |  | (6) |
Credit derivatives (see Note 6) |  | 6 |  |  | 5 |  |  | 4 |  |  | 3 |
Total |  | $ | 432 |  |  | $ | 411 |  |  | $ | (44) |  |  | $ | 13 |

The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts under , which are accounted for under one of the following accounting models: insurance, derivative and FG VIE. The Company used risk-free rates for U.S. dollar denominated obligations that ranged from 0.00% to 2.61% with a weighted average of 2.26% as of March 31, 2022 and 0.00% to 1.98% with a weighted average of 1.02% as of December 31, 2021. Expected losses to be paid
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
for U.S. dollar denominated transactions represented approximately 98.0% and 97.2% of the total as of March 31, 2022 and December 31, 2021, respectively.
Net Expected Loss to be Paid (Recovered)
Roll Forward

| First Quarter
| 2022 |  | 2021
| (in millions)
Net expected loss to be paid (recovered), beginning of period | $ | 411 |  |  | $ | 529 |
Economic loss development (benefit) due to: |  |  |
Accretion of discount | 2 |  |  | 1 |
Changes in discount rates | (47) |  |  | (48) |
Changes in timing and assumptions | 1 |  |  | 60 |
Total economic loss development (benefit) | (44) |  |  | 13 |
Net (paid) recovered losses | 65 |  |  | (70) |
Net expected loss to be paid (recovered), end of period | $ | 432 |  |  | $ | 472 |

Net Expected Loss to be Paid (Recovered)
Roll Forward by Sector

|  | First Quarter 2022
Sector |  | Net Expected Loss to be Paid (Recovered) as of December 31, 2021 |  | Economic Loss Development (Benefit) |  | Net (Paid) Recovered Losses (1) |  | Net Expected Loss to be Paid (Recovered) as of March 31, 2022
|  | (in millions)
Public finance: |  |  |  |  |  |  |  |
U.S. public finance |  | $ | 197 |  |  | $ | (48) |  |  | $ | 32 |  |  | $ | 181 |
Non-U.S. public finance |  | 12 |  |  | (2) |  |  | — |  |  | 10 |
Public finance |  | 209 |  |  | (50) |  |  | 32 |  |  | 191 |
Structured finance: |  |  |  |  |  |  |  |
U.S. RMBS |  | 150 |  |  | 7 |  |  | 38 |  |  | 195 |
Other structured finance |  | 52 |  |  | (1) |  |  | (5) |  |  | 46 |
Structured finance |  | 202 |  |  | 6 |  |  | 33 |  |  | 241 |
Total |  | $ | 411 |  |  | $ | (44) |  |  | $ | 65 |  |  | $ | 432 |

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

|  | First Quarter 2021
Sector |  | Net Expected Loss to be Paid (Recovered) as of December 31, 2020 |  | Economic Loss Development (Benefit) |  | Net (Paid) Recovered Losses (1) |  | Net Expected Loss to be Paid (Recovered) as of March 31, 2021
|  | (in millions)
Public finance: |  |  |  |  |  |  |  |
U.S. public finance |  | $ | 305 |  |  | $ | 15 |  |  | $ | (92) |  |  | $ | 228 |
Non-U.S. public finance |  | 36 |  |  | (12) |  |  | — |  |  | 24 |
Public finance |  | 341 |  |  | 3 |  |  | (92) |  |  | 252 |
Structured finance: |  |  |  |  |  |  |  |
U.S. RMBS |  | 148 |  |  | 11 |  |  | 22 |  |  | 181 |
Other structured finance |  | 40 |  |  | (1) |  |  | — |  |  | 39 |
Structured finance |  | 188 |  |  | 10 |  |  | 22 |  |  | 220 |
Total |  | $ | 529 |  |  | $ | 13 |  |  | $ | (70) |  |  | $ | 472 |

____________________
(1) Net of ceded paid losses, whether or not such amounts have been settled with reinsurers. Ceded paid losses are typically settled 45 days after the end of the reporting period. Such amounts are recorded as reinsurance recoverable on paid losses in other assets.
The tables above include (a) LAE paid of $13 million and $4 million for First Quarter 2022 and First Quarter 2021, respectively, and (b) expected LAE to be paid of $17 million as of March 31, 2022 and $26 million as of December 31, 2021. Ceded expected loss to be recovered (paid) was $(2) million as of March 31, 2022 and $10 million as of December 31, 2021.
Selected U.S. Public Finance Transactions
The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding as of March 31, 2022, all of which was BIG. For additional information regarding the Company’s Puerto Rico exposure, see “Exposure to Puerto Rico” in Note 3, Outstanding Exposure.
On March 15, 2022, the GO/PBA Plan, PRCCDA Modification, and PRIFA Modification were consummated, as described under “Exposure to Puerto Rico” in Note 3, Outstanding Exposure. The fair value of recoveries received under these March Puerto Rico Resolutions (which included cash, new recovery bonds and CVIs) was higher than expected. The Company also updated its assumptions for certain other defaulted Puerto Rico credits that have not yet been settled.
On February 25, 2015, a plan of adjustment resolving the bankruptcy filing of the City of Stockton, California under chapter 9 of the Bankruptcy Code became effective. As of March 31, 2022, the Company’s net par outstanding subject to the plan consisted of $100 million of pension obligation bonds. As part of the plan of adjustment, the City will repay claims paid on the pension obligation bonds from certain fixed payments and certain variable payments contingent on the City’s revenue growth.
The Company projects its total net expected loss to be paid across its troubled U.S. public finance exposures as of March 31, 2022, including those mentioned above, to be $181 million, compared with $197 million as of December 31, 2021. The economic benefit for U.S. public finance transactions was $48 million during First Quarter 2022, which was primarily attributable to Puerto Rico exposures and changes in discount rates. The changes attributable to the Company’s Puerto Rico exposures reflect adjustments the Company made to the assumptions it used in its scenarios and valuation of certain recovery components based on the public information as discussed under “Exposure to Puerto Rico” in Note 3, Outstanding Exposure as well as nonpublic information related to its loss mitigation activities during the period.
Selected Non - U.S. Public Finance Transactions
Expected loss to be paid for non-U.S. public finance transactions was $10 million as of March 31, 2022, compared with $12 million as of December 31, 2021. The economic benefit for non-U.S. public finance transactions was approximately $2 million during First Quarter 2022.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
U.S. RMBS Loss Projections
The Company projects losses on its insured U.S. RMBS on a transaction-by-transaction basis by projecting the performance of the underlying pool of mortgages over time and then applying the structural features (i.e., payment priorities and tranching) of the RMBS and any expected representation and warranty (R&W) recoveries/payables to the projected performance of the collateral over time. The resulting projected claim payments or reimbursements are then discounted using risk-free rates.
Each period the Company makes a judgment as to whether to change the assumptions it uses to make RMBS loss projections based on its observation during the period of the performance of its insured transactions (including early-stage delinquencies, late-stage delinquencies and loss severity) as well as the residential property market and economy in general, and, to the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a trend. The assumptions that the Company uses to project RMBS losses are shown in the sections below.
Net Economic Loss Development (Benefit)
U.S. RMBS

| First Quarter
| 2022 |  | 2021
First lien U.S. RMBS | $ | 18 |  |  | $ | 25 |
Second lien U.S. RMBS | (11) |  |  | (14) |

First Lien U.S. RMBS Loss Projections: Alt-A, Prime, Option ARM and Subprime
The majority of projected losses in first lien RMBS transactions are expected to come from non-performing mortgage loans (those that are or have recently been two or more payments behind, have been modified, are in foreclosure, or have been foreclosed upon). Changes in the amount of non-performing loans from the amount projected in the previous period are one of the primary drivers of loss projections in this portfolio. In order to determine the number of defaults resulting from these delinquent and foreclosed loans, the Company applies a liquidation rate assumption to loans in each of various non-performing categories. The Company arrived at its liquidation rates based on data purchased from a third-party provider and assumptions about how delays in the foreclosure process and loan modifications may ultimately affect the rate at which loans are liquidated. Each quarter the Company reviews recent data and (if necessary) adjusts its liquidation rates based on its observations. The following table shows liquidation assumptions for various non-performing and re-performing categories.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
First Lien Liquidation Rates

| As of
| March 31, 2022 |  | December 31, 2021
Current but recently delinquent |  |  |
Alt-A and Prime | 20% |  | 20%
Option ARM | 20 |  | 20
Subprime | 20 |  | 20
30 – 59 Days Delinquent |  |  |
Alt-A and Prime | 35 |  | 35
Option ARM | 35 |  | 35
Subprime | 30 |  | 30
60 – 89 Days Delinquent |  |  |
Alt-A and Prime | 40 |  | 40
Option ARM | 45 |  | 45
Subprime | 40 |  | 40
90+ Days Delinquent |  |  |
Alt-A and Prime | 55 |  | 55
Option ARM | 60 |  | 60
Subprime | 45 |  | 45
Bankruptcy |  |  |
Alt-A and Prime | 45 |  | 45
Option ARM | 50 |  | 50
Subprime | 40 |  | 40
Foreclosure |  |  |
Alt-A and Prime | 60 |  | 60
Option ARM | 65 |  | 65
Subprime | 55 |  | 55
Real Estate Owned |  |  |
All | 100 |  | 100

While the Company uses the liquidation rates above to project defaults of non-performing loans (including current loans that were recently modified or delinquent), it projects defaults on presently current loans by applying a conditional default rate (CDR) curve. The start of that CDR curve is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans. The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, would be sufficient to produce approximately the amount of defaults that were calculated to emerge from the various delinquency categories. The CDR thus calculated individually on the delinquent collateral pool for each RMBS is then used as the starting point for the CDR curve used to project defaults of the presently performing loans.
In the most heavily weighted scenario (the base case), after the initial 36-month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to an intermediate CDR (calculated as 20% of its CDR plateau); that intermediate CDR is held constant and then steps to a final CDR of 5% of the CDR plateau. In the base case, the Company assumes the final CDR will be reached 1.25 years after the initial 36-month CDR plateau period. Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were recently modified or delinquent, or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36-month period represent defaults attributable to borrowers that are currently performing or are projected to re-perform.
Another important driver of loss projections is loss severity, which is the amount of loss the transaction incurs on a loan after the application of net proceeds from the disposal of the underlying property. The Company assumes in the base case that recent (still historically elevated) loss severities will improve after loans with accumulated delinquencies and foreclosure cost are liquidated. The Company is assuming in the base case that the recent levels generally will continue for another 18 months. The Company determines its initial loss severity based on actual recent experience. Each quarter the Company reviews available data and (if necessary) adjusts its severities based on its observations. The Company then assumes that loss severities
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
begin returning to levels consistent with underwriting assumptions beginning after the initial 18-month period, declining to 40% in the base case over 2.5 years.
The following table shows the range as well as the average, weighted by outstanding net insured par, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 first lien U.S. RMBS.
Key Assumptions in Base Case Expected Loss Estimates
First Lien U.S. RMBS

| As of March 31, 2022 |  | As of December 31, 2021
| Range |  | Weighted Average |  | Range |  | Weighted Average
Alt-A and Prime: |  |  |  |  |  |  |  |  |  |  |
Plateau CDR | 1.7 | % | - | 14.0% |  | 6.1% |  | 0.9 | % | - | 11.6% |  | 5.9%
Final CDR | 0.1 | % | - | 0.7% |  | 0.3% |  | 0.0 | % | - | 0.6% |  | 0.3%
Initial loss severity: |  |  |
2005 and prior | 60% |  |  |  | 60% |  |
2006 | 60% |  |  |  | 60% |  |
2007+ | 60% |  |  |  | 60% |  |
Option ARM: |  |  |
Plateau CDR | 1.2 | % | - | 11.1% |  | 5.3% |  | 1.8 | % | - | 11.9% |  | 5.6%
Final CDR | 0.1 | % | - | 0.6% |  | 0.3% |  | 0.1 | % | - | 0.6% |  | 0.3%
Initial loss severity: |  |  |
2005 and prior | 60% |  |  |  | 60% |  |
2006 | 60% |  |  |  | 60% |  |
2007+ | 60% |  |  |  | 60% |  |
Subprime: |  |  |
Plateau CDR | 2.5 | % | - | 9.8% |  | 6.1% |  | 2.9 | % | - | 10.0% |  | 6.0%
Final CDR | 0.1 | % | - | 0.5% |  | 0.3% |  | 0.1 | % | - | 0.5% |  | 0.3%
Initial loss severity: |  |  |
2005 and prior | 60% |  |  |  | 60% |  |
2006 | 60% |  |  |  | 60% |  |
2007+ | 60% |  |  |  | 60% |  |

The rate at which the principal amount of loans is voluntarily prepaid may impact both the amount of losses projected (since that amount is a function of the CDR, the loss severity and the loan balance over time) as well as the amount of excess spread (the amount by which the interest paid by the borrowers on the underlying loan exceeds the amount of interest owed on the insured obligations). The assumption for the voluntary conditional prepayment rate (CPR) follows a pattern similar to that of the CDR. The current level of voluntary prepayments is assumed to continue for the plateau period before gradually increasing over 12 months to the final CPR, which is assumed to be 15% in the base case. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. These CPR assumptions are the same as those the Company used for December 31, 2021.
The Company incorporates a recovery assumption into its reserving model to reflect observed trends in recoveries of deferred principal balances of modified first lien loans that had been previously written off. For transactions where the Company has detailed loan information, the Company assumes that 20% of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans.
In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien transactions by varying its assumptions of how fast a recovery is expected to occur. One of the variables used to model sensitivities was how quickly the CDR returned to its modeled equilibrium, which was defined as 5% of the initial CDR. The Company also stressed CPR and the speed of recovery of loss severity rates. The Company probability weighted a total of five scenarios as of March 31, 2022 and December 31, 2021.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Total expected loss to be paid on all first lien U.S. RMBS was $204 million and $167 million as of March 31, 2022 and December 31, 2021, respectively. T he $18 million economic loss development in First Quarter 2022 for first lien U.S. RMBS transactions was primarily attributable to lower excess spread, offset in part by changes in discount rates. Certain transactions benefit from exc ess spread when they are supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) but have insured floating rate debt lin ked to LIBOR. An increase in projected LIBOR decreases excess spread, while lower LIBOR results in higher excess spread. LIBOR is anticipated to be discontinued after June 30, 2023, and it is not yet clear how this will impact the calculation of the various interest rates in this portfolio refer encing LIBOR.
The Company used a similar approach to establish its pessimistic and optimistic scenarios as of March 31, 2022 as it used as of December 31, 2021, increasing and decreasing the periods of stress from those used in the base case. In the Company’s most stressful scenario where loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 15 months, expected loss to be paid would increase from current projections by approximately $20 million for all first lien U.S. RMBS transactions. In the Company’s least stressful scenario where the CDR plateau was six months shorter (30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over nine months), expected loss to be paid would decrease from current projections by approximately $12 million for all first lien U.S. RMBS transactions.
Second Lien U.S. RMBS Loss Projections
Second lien RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages. The Company believes the primary variable affecting its expected losses in second lien RMBS transactions is the amount and timing of future losses or recoveries in the collateral pool supporting the transactions. Expected losses are also a function of the structure of the transaction, the CPR of the collateral, the interest rate environment and assumptions about loss severity.
In second lien transactions, the projection of near-term defaults from currently delinquent loans is relatively straightforward because loans in second lien transactions are generally “charged off” (treated as defaulted) by the securitization’s servicer once the loan is 180 days past due. The Company estimates the amount of loans that will default over the next six months by calculating current representative liquidation rates.
Similar to first liens, the Company then calculates a CDR for six months, which is the period over which the currently delinquent collateral is expected to be liquidated. That CDR is then used as the basis for the plateau CDR period that follows the embedded plateau losses.
For the base case scenario, the CDR (the plateau CDR) was held constant for six months. Once the plateau period has ended, the CDR is assumed to gradually trend down in uniform increments to its final long-term steady state CDR. (The long-term steady state CDR is calculated as the constant CDR that would have yielded the amount of losses originally expected at underwriting.) In the base case scenario, the time over which the CDR trends down to its final CDR is 28 months. Therefore, the total stress period for second lien transactions is 34 months, representing six months of delinquent loan liquidations, followed by 28 months of decrease to the steady state CDR, the same as of December 31, 2021.
HELOC loans generally permit the borrower to pay only interest for an initial period (often ten years) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment. This causes the borrower's total monthly payment to increase, sometimes substantially, at the end of the initial interest-only period.
The HELOC loans underlying the Company’s insured HELOC transactions are now past their original interest-only reset date, although a significant number of HELOC loans were modified to extend the original interest-only period. The Company does not apply a CDR increase when such loans are projected to reach their principal amortization period due to the likelihood that those loans will either prepay or once again have their interest-only periods extended. The Company applies a CDR floor of 1.0% for the future steady state CDR on all its HELOC transactions.
When a second lien loan defaults, there is generally a low recovery. The Company assumed, as of March 31, 2022 and December 31, 2021, that it will generally recover 2% of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time. A second lien on the borrower’s home may be retained in the Company’s second lien transactions after the loan is charged off and the loss applied to the transaction, particularly in cases where the holder of the first lien has not foreclosed. If the second lien is retained and the value of the home increases, the servicer may be able to use the second lien to increase recoveries, either by arranging for the borrower to resume payments or by realizing value upon the sale of the underlying real estate. The Company evaluates its assumptions quarterly based on actual
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
recoveries of charged-off loans observed from period to period. In instances where the Company is able to obtain information on the lien status of charged-off loans, it assumes there will be a certain level of future recoveries of the balance of the charged-off loans where the second lien is still intact. The Company’s recovery assumption for charged-off loans is 30%, as shown in the table below, based on recent observed trends. Such recoveries are assumed to be received evenly over the next five years. If the recovery rate decreases to 20%, expected loss to be paid would increase from current projections by approximately $40 million. If the recovery rate increases to 40%, expected loss to be paid would decrease from current projections by approximately $40 million.
The rate at which the principal amount of loans is prepaid may impact both the amount of losses projected as well as the amount of excess spread. In the base case, an average CPR (based on experience of the past year) is assumed to continue until the end of the plateau before gradually increasing to the final CPR over the same period the CDR decreases. The final CPR is assumed to be 15% for second lien transactions (in the base case), which is lower than the historical average but reflects the Company’s continued uncertainty about the projected performance of the borrowers in these transactions. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. This pattern is consistent with how the Company modeled the CPR as of December 31, 2021. To the extent that prepayments differ from projected levels it could materially change the Company’s projected excess spread and losses.
In estimating expected losses, the Company modeled and probability weighted five scenarios, each with a different CDR curve applicable to the period preceding the return to the long-term steady state CDR. The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers behind the amount of losses the collateral will likely suffer.
The following table shows the range as well as the average, weighted by net par outstanding, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 HELOCs.
Key Assumptions in Base Case Expected Loss Estimates
HELOCs

| As of March 31, 2022 |  | As of December 31, 2021
| Range |  | Weighted Average |  | Range |  | Weighted Average
Plateau CDR | 3.4 | % | - | 35.3% |  | 15.8% |  | 6.5 | % | - | 39.6% |  | 16.4%
Final CDR trended down to | 1.0% |  |  |  | 1.0% |  |
Liquidation rates: |  |  |  |  |  |  |  |  |  |  |
Current but recently delinquent | 20% |  |  |  | 20% |  |
30 – 59 Days Delinquent | 30 |  |  |  | 30 |  |
60 – 89 Days Delinquent | 40 |  |  |  | 40 |  |
90+ Days Delinquent | 60 |  |  |  | 60 |  |
Bankruptcy | 55 |  |  |  | 55 |  |
Foreclosure | 55 |  |  |  | 55 |  |
Real Estate Owned | 100 |  |  |  | 100 |  |
Loss severity on future defaults | 98% |  |  |  | 98% |  |
Projected future recoveries on previously charged-off loans | 30% |  |  |  | 30% |  |

The Company continues to evaluate the assumptions affecting its modeling results. The Company believes the most important driver of its projected second lien RMBS losses is the performance of its HELOC transactions. Total net expected recovery for all second lien U.S. RMBS was $9 million as of March 31, 2022 and the net expected recovery was $17 million as of December 31, 2021. The economic development in First Quarter 2022 was a benefit of $11 million and was primarily driven by improved transaction performance, higher recoveries for previously charged-off loans and changes in discount rates, partially offset by lower excess spread.
The Company’s base case assumed a six-month CDR plateau and a 28 month ramp-down (for a total stress period of 34 months). The Company also modeled a scenario with a longer period of elevated defaults and another with a shorter period of elevated defaults. In the Company’s most stressful scenario, increasing the CDR plateau to eight months and increasing the ramp-down by three months to 31 months (for a total stress period of 39 months) would increase the expected loss by approximately $5 million for HELOC transactions. On the other hand, in the Company’s least stressful scenario, reducing the
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
CDR plateau to four months and decreasing the length of the CDR ramp-down to 25 months (for a total stress period of 29 months), and lowering the ultimate prepayment rate to 10% would decrease the expected loss by approximately $6 million for HELOC transactions.
Structured Finance Excluding U.S. RMBS
The Company projected that its total net expected loss to be paid across its troubled structured finance exposures, excluding U.S. RMBS, as of March 31, 2022 was $46 million. The largest component of these structured finance losses were student loan securitizations issued by private issuers with $53 million in BIG net par outstanding. In general, the projected losses of these student loan securitizations are due to: (i) the poor credit performance of private student loan collateral and high loss severities, or (ii) high interest rates on auction rate securities with respect to which the auctions have failed. The Company also had exposure to troubled life insurance transactions with BIG net par of $40 million as of March 31, 2022. The economic benefit across all structured finance transactions, excluding U.S. RMBS, during First Quarter 2022 was $1 million.
Recovery Litigation
In the ordinary course of their respective businesses, certain of AGL’s subsidiaries are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future. The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s financial statements.
The Company has asserted claims in a number of legal proceedings in connection with its exposure to Puerto Rico. See Note 3, Outstanding Exposure, for a discussion of the Company’s exposure to Puerto Rico and related recovery litigation being pursued by the Company.
5. Contracts Accounted for as Insurance
The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives, and consolidated FG VIEs. Amounts presented in this note relate only to contracts accounted for as insurance, unless otherwise specified. See Note 6, Contracts Accounted for as Credit Derivatives, for amounts related to CDS and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as consolidated FG VIEs.
Premiums
Net Earned Premiums

| First Quarter
| 2022 |  | 2021
| (in millions)
Financial guaranty insurance: |  |  |
Scheduled net earned premiums | $ | 79 |  |  | $ | 81 |
Accelerations from refundings and terminations (1) | 128 |  |  | 16 |
Accretion of discount on net premiums receivable | 6 |  |  | 5 |
Financial guaranty insurance net earned premiums | 213 |  |  | 102 |
Specialty net earned premiums | 1 |  |  | 1 |
Net earned premiums | $ | 214 |  |  | $ | 103 |

____________________
(1) First Quarter 2022 accelerations include $104 million related to the March Puerto Rico Resolutions. See Note 3, Outstanding Exposure for additional information.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Gross Premium Receivable,
Net of Commissions Payable on Assumed Business
Roll Forward

| First Quarter
| 2022 |  | 2021
| (in millions)
Beginning of year | $ | 1,372 |  |  | $ | 1,372 |
Less: Specialty insurance premium receivable | 1 |  |  | 1 |
Financial guaranty insurance premiums receivable | 1,371 |  |  | 1,371 |
Gross written premiums on new business, net of commissions | 61 |  |  | 84 |
Gross premiums received, net of commissions | (83) |  |  | (103) |
Adjustments: |  |  |
Changes in the expected term | 8 |  |  | 2 |
Accretion of discount, net of commissions on assumed business | 6 |  |  | 4 |
Foreign exchange gain (loss) on remeasurement | (29) |  |  | — |
Financial guaranty insurance premium receivable | 1,334 |  |  | 1,358 |
Specialty insurance premium receivable | 1 |  |  | 1 |
March 31, | $ | 1,335 |  |  | $ | 1,359 |

Approximately 77% and 78% of gross premiums receivable, net of commissions payable at March 31, 2022 and December 31, 2021, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro.
The timing and cumulative amount of actual collections and net earned premiums may differ from those of expected collections and of expected net earned premiums in the table below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations, restructurings, changes in expected lives and new business.
Financial Guaranty Insurance
Expected Future Premium Collections and Earnings

| As of March 31, 2022
| Future Premiums to be Collected (1) |  | Future Net Premiums to be Earned (2)
| (in millions)
2022 (April 1 - June 30) | $ | 42 |  |  | $ | 76 |
2022 (July 1 - September 30) | 39 |  |  | 75 |
2022 (October 1 - December 31) | 33 |  |  | 73 |
Subtotal 2022 | 114 |  |  | 224 |
2023 | 108 |  |  | 279 |
2024 | 99 |  |  | 257 |
2025 | 88 |  |  | 233 |
2026 | 84 |  |  | 217 |
2027-2031 | 352 |  |  | 892 |
2032-2036 | 246 |  |  | 617 |
2037-2041 | 162 |  |  | 366 |
After 2041 | 339 |  |  | 505 |
Total | $ | 1,592 |  |  | 3,590 |
Future accretion |  |  | 259 |
Total future net earned premiums |  |  | $ | 3,849 |

____________________
(1) Net of assumed commissions payable.
(2) Net of reinsurance.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Selected Information for Financial Guaranty Insurance Policies
with Premiums Paid in Installments

| As of
| March 31, 2022 |  | December 31, 2021
| (dollars in millions)
Premiums receivable, net of commissions payable | $ | 1,334 |  | $ | 1,371
Deferred premium revenue | 1,639 |  | 1,663
Weighted-average risk-free rate used to discount premiums | 1.6% |  | 1.6%
Weighted-average period of premiums receivable (in years) | 12.6 |  | 12.7

Losses
Loss reserves are discounted at risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 0.00% to 2.61% with a weighted average of 2.26% as of March 31, 2022 and 0.00% to 1.98% with a weighted average of 1.02% as of December 31, 2021.
The following tables provide information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance.
Net Reserve (Salvage) by Sector

|  | As of
Sector |  | March 31, 2022 |  | December 31, 2021
|  | (in millions)
Public finance: |  |  |  |
U.S. public finance |  | $ | 127 |  |  | $ | 60 |
Non-U.S. public finance |  | 1 |  |  | 1 |
Public finance |  | 128 |  |  | 61 |
Structured finance: |  |  |  |
U.S. RMBS |  | 18 |  |  | (24) |
Other structured finance |  | 42 |  |  | 42 |
Structured finance |  | 60 |  |  | 18 |
Total |  | $ | 188 |  |  | $ | 79 |

Components of Net Reserve (Salvage)

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Loss and LAE reserve | $ | 718 |  |  | $ | 869 |
Reinsurance recoverable on unpaid losses (1) | (3) |  |  | (5) |
Loss and LAE reserve, net | 715 |  |  | 864 |
Salvage and subrogation recoverable | (529) |  |  | (801) |
Salvage and subrogation reinsurance payable (2) | 2 |  |  | 16 |
Salvage and subrogation recoverable, net | (527) |  |  | (785) |
Net reserve (salvage) | $ | 188 |  |  | $ | 79 |

____________________
(1) Reported in “other assets” on the condensed consolidated balance sheets.
(2) Reported in “other liabilities” on the condensed consolidated balance sheets.
The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed. Expected loss to be paid (recovered) for financial guaranty insurance contracts differs from expected loss to be expensed due to: (i) the contra-paid, which represents the claim payments made and recoveries received that have not yet been recognized in the statements of operations, (ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
(and therefore recognized in income but not yet received), and (iii) loss reserves that have already been established (and therefore expensed but not yet paid).
Reconciliation of Net Expected Loss to be Paid (Recovered)
to Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts

| As of March 31, 2022
| (in millions)
Net expected loss to be paid (recovered) - financial guaranty insurance | $ | 383 |
Contra-paid, net | 21 |
Salvage and subrogation recoverable | 527 |
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance | (710) |
Net expected loss to be expensed (present value) | $ | 221 |

The following table provides a schedule of the expected timing of net expected losses to be expensed. The amount and timing of actual loss and LAE may differ from the estimates shown below due to factors such as accelerations, commutations, changes in expected lives and updates to loss estimates. This table excludes amounts related to FG VIEs, which are eliminated in consolidation.
Net Expected Loss to be Expensed
Financial Guaranty Insurance Contracts

| As of March 31, 2022
| (in millions)
2022 (April 1 - June 30) | $ | 5 |
2022 (July 1 - September 30) | 5 |
2022 (October 1 - December 31) | 5 |
Subtotal 2022 | 15 |
2023 | 19 |
2024 | 18 |
2025 | 17 |
2026 | 20 |
2027-2031 | 73 |
2032-2036 | 47 |
2037-2041 | 9 |
After 2041 | 3 |
Net expected loss to be expensed | 221 |
Future accretion | 167 |
Total expected future loss and LAE | $ | 388 |

The following table presents the loss and LAE reported in the condensed consolidated statements of operations by sector for insurance contracts. Amounts presented are net of reinsurance.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Loss and LAE by Sector

|  | First Quarter
Sector |  | 2022 |  | 2021
|  | (in millions)
Public finance: |  |  |  |
U.S. public finance |  | $ | 55 |  |  | $ | 26 |
Non-U.S. public finance |  | — |  |  | (8) |
Public finance |  | 55 |  |  | 18 |
Structured finance: |  |  |  |
U.S. RMBS |  | $ | 3 |  |  | $ | 12 |
Other structured finance |  | (1) |  |  | — |
Structured finance |  | 2 |  |  | 12 |
Loss and LAE |  | $ | 57 |  |  | $ | 30 |

In each of the years presented, the primary component of U.S. public finance loss and LAE was Puerto Rico exposures. Loss expense is a function of economic loss development, as well as the amortization of unearned premium reserve. In First Quarter 2022, the largest component of loss expense was from the public finance sector, which had loss expense of $55 million primarily attributable to Puerto Rico exposures. The public finance sector also had an economic benefit of $50 million, which was also primarily attributable to Puerto Rico exposures. The difference between public finance loss expense and economic benefit was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.
The following tables provide information on financial guaranty insurance contracts categorized as BIG.
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of March 31, 2022

| Gross |  | Net Total BIG
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |
| (dollars in millions)
Number of risks (1) | 108 |  |  | 20 |  |  | 127 |  |  | 255 |  |  | 255 |
Remaining weighted-average period (in years) | 7.6 |  | 7.9 |  | 8.3 |  | 8.1 |  | 8.1
Outstanding exposure: |  |  |  |  |  |  |  |  |
Par | $ | 2,035 |  |  | $ | 225 |  |  | $ | 3,347 |  |  | $ | 5,607 |  |  | $ | 5,579 |
Interest | 867 |  |  | 41 |  |  | 1,173 |  |  | 2,081 |  |  | 2,077 |
Total (2) | $ | 2,902 |  |  | $ | 266 |  |  | $ | 4,520 |  |  | $ | 7,688 |  |  | $ | 7,656 |
Expected cash outflows (inflows) | $ | 72 |  |  | $ | 68 |  |  | $ | 3,326 |  |  | $ | 3,466 |  |  | $ | 3,453 |
Potential recoveries (3) | (394) |  |  | (48) |  |  | (2,473) |  |  | (2,915) |  |  | (2,903) |
Subtotal | (322) |  |  | 20 |  |  | 853 |  |  | 551 |  |  | 550 |
Discount | 24 |  |  | (3) |  |  | (189) |  |  | (168) |  |  | (167) |
Expected losses to be paid (recovered) | $ | (298) |  |  | $ | 17 |  |  | $ | 664 |  |  | $ | 383 |  |  | $ | 383 |
Deferred premium revenue | $ | 71 |  |  | $ | 9 |  |  | $ | 235 |  |  | $ | 315 |  |  | $ | 313 |
Reserves (salvage) | $ | (317) |  |  | $ | 15 |  |  | $ | 484 |  |  | $ | 182 |  |  | $ | 183 |

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 31, 2021

| Gross |  | Net Total BIG
| BIG 1 |  | BIG 2 |  | BIG 3 |  | Total BIG |
| (dollars in millions)
Number of risks (1) | 117 |  |  | 16 |  |  | 129 |  |  | 262 |  |  | 262 |
Remaining weighted-average period (in years) | 7.6 |  | 8.9 |  | 8.9 |  | 8.5 |  | 8.5
Outstanding exposure: |  |  |  |  |  |  |  |  |
Par | $ | 2,437 |  |  | $ | 177 |  |  | $ | 4,745 |  |  | $ | 7,359 |  |  | $ | 7,293 |
Interest | 1,000 |  |  | 36 |  |  | 1,942 |  |  | 2,978 |  |  | 2,962 |
Total (2) | $ | 3,437 |  |  | $ | 213 |  |  | $ | 6,687 |  |  | $ | 10,337 |  |  | $ | 10,255 |
Expected cash outflows (inflows) | $ | 111 |  |  | $ | 40 |  |  | $ | 4,820 |  |  | $ | 4,971 |  |  | $ | 4,918 |
Potential recoveries (3) | (656) |  |  | (10) |  |  | (3,829) |  |  | (4,495) |  |  | (4,430) |
Subtotal | (545) |  |  | 30 |  |  | 991 |  |  | 476 |  |  | 488 |
Discount | 19 |  |  | (3) |  |  | (145) |  |  | (129) |  |  | (129) |
Expected losses to be paid (recovered) | $ | (526) |  |  | $ | 27 |  |  | $ | 846 |  |  | $ | 347 |  |  | $ | 359 |
Deferred premium revenue | $ | 85 |  |  | $ | 2 |  |  | $ | 350 |  |  | $ | 437 |  |  | $ | 435 |
Reserves (salvage) | $ | (549) |  |  | $ | 25 |  |  | $ | 584 |  |  | $ | 60 |  |  | $ | 74 |

____________________
(1) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.
(2)Includes amounts related to FG VIEs.
(3)Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlements, excess spread on any underlying collateral and other estimated recoveries. Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past.
6. Contracts Accounted for as Credit Derivatives
The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives, and FG VIEs. Amounts presented in this note relate only to contracts accounted for as derivatives. See Note 5, Contracts Accounted for as Insurance for amounts that relate to insurance and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as FG VIEs. The Company’s credit derivatives (financial guaranty contracts that meet the definition of a derivative in accordance with GAAP) are primarily CDS and also include interest rate swaps.
Credit derivative transactions are governed by International Swaps and Derivatives Association, Inc. documentation and have certain characteristics that differ from financial guaranty insurance contracts. For example, the Company’s control rights with respect to a reference obligation under a credit derivative may be more limited than when the Company issues a financial guaranty insurance contract. In addition, there are more circumstances under which the Company may be obligated to make payments. Similar to a financial guaranty insurance contract, the Company would be obligated to pay if the obligor failed to make a scheduled payment of principal or interest in full. However, the Company may also be required to pay if the obligor becomes bankrupt or if the reference obligation were restructured if, after negotiation, those credit events are specified in the documentation for the credit derivative transactions. Furthermore, the Company may be required to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the non-defaulting or the non-affected party, which may be either the Company or the counterparty, depending upon the circumstances, may decide to terminate a credit derivative prior to maturity. In that case, the Company may be required to make a termination payment to its swap counterparty upon such termination. Absent such an event of default or termination event, the Company may not unilaterally terminate a CDS contract; however, the Company on occasion has mutually agreed with various counterparties to terminate certain CDS transactions.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
The components of the Company’s credit derivative net par outstanding by sector are presented in the table below. The estimated remaining weighted average life of credit derivatives was 13.4 years and 13.2 years as of March 31, 2022 and December 31, 2021, respectively.
Credit Derivatives (1)

|  | As of March 31, 2022 |  | As of December 31, 2021
Sector |  | Net Par Outstanding |  | Net Fair Value Asset (Liability) |  | Net Par Outstanding |  | Net Fair Value Asset (Liability)
|  | (in millions)
U.S. public finance |  | $ | 1,487 |  |  | $ | (81) |  |  | $ | 1,705 |  |  | $ | (72) |
Non-U.S. public finance |  | 1,586 |  |  | (46) |  |  | 1,800 |  |  | (48) |
U.S. structured finance |  | 370 |  |  | (27) |  |  | 400 |  |  | (32) |
Non-U.S. structured finance |  | 131 |  |  | (2) |  |  | 135 |  |  | (2) |
Total |  | $ | 3,574 |  |  | $ | (156) |  |  | $ | 4,040 |  |  | $ | (154) |

____________________
(1) Expected loss to be paid was $6 million as of March 31, 2022 and $5 million as of December 31, 2021.
Distribution of Credit Derivative Net Par Outstanding by Internal Rating

|  | As of March 31, 2022 |  | As of December 31, 2021
Rating Category |  | Net Par Outstanding |  | % of Total |  | Net Par Outstanding |  | % of Total
|  | (dollars in millions)
AAA |  | $ | 1,359 |  |  | 38.0 | % |  | $ | 1,503 |  |  | 37.2 | %
AA |  | 1,217 |  |  | 34.1 |  |  | 1,283 |  |  | 31.8 |
A |  | 407 |  |  | 11.4 |  |  | 514 |  |  | 12.7 |
BBB |  | 531 |  |  | 14.8 |  |  | 677 |  |  | 16.7 |
BIG |  | 60 |  |  | 1.7 |  |  | 63 |  |  | 1.6 |
Credit derivative net par outstanding |  | $ | 3,574 |  |  | 100.0 | % |  | $ | 4,040 |  |  | 100.0 | %

Fair Value Gains (Losses) on Credit Derivatives

| First Quarter
| 2022 |  | 2021
| (in millions)
Realized gains (losses) and other settlements | $ | (1) |  |  | $ | 1 |
Net unrealized gains (losses) | (2) |  |  | (20) |
Fair value gains (losses) on credit derivatives | $ | (3) |  |  | $ | (19) |

During First Quarter 2022 unrealized fair value losses were generated primarily as a result of increases in the credit spread of underlying reference obligations, offset in part by the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection increased during the period. For those CDS transactions that were pricing at or above their floor levels, when the cost of purchasing CDS protection on AGC, which management refers to as the CDS spread on AGC, increased, the implied spreads that the Company would expect to receive on these transactions, all else being held equal, decreased.
During First Quarter 2021, unrealized fair value losses were generated primarily as a result of the decreased cost to buy protection on AGC, as the market cost of AGC’s credit protection decreased during the period.
The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time these fair values are determined. In addition, since each transaction has unique collateral and structural terms, the change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts also reflects the Company’s own credit cost based on the price to purchase credit protection on AGC. The Company determines its own credit risk primarily based on quoted CDS prices traded on AGC at each balance sheet date.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
CDS Spread on AGC (in basis points)

| As of March 31, 2022 |  | As of December 31, 2021 |  | As of March 31, 2021 |  | As of December 31, 2020
Five-year CDS spread | 71 |  | 49 |  | 97 |  | 132
One-year CDS spread | 26 |  | 16 |  | 19 |  | 36

Fair Value of Credit Derivative Assets (Liabilities)
and Effect of AGC Credit Spread

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Fair value of credit derivatives before effect of AGC credit spread | $ | (229) |  |  | $ | (225) |
Plus: Effect of AGC credit spread | 73 |  |  | 71 |
Net fair value of credit derivatives | $ | (156) |  |  | $ | (154) |

The fair value of CDS contracts as of March 31, 2022, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.
7. Investments
Investment Portfolio
The investment portfolio consists of both externally and internally managed portfolios. The majority of the investment portfolio is managed by three outside managers and AssuredIM, for which the Company has established investment guidelines regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector.
The internally managed portfolio primarily consists of the Company’s investments in: (i) securities acquired for loss mitigation purposes; (ii) securities managed under an Investment Management Agreement (IMA) with AssuredIM; (iii) new recovery bonds and CVIs received in connection with the consummation of the March Puerto Rico Resolutions and (iv) other investments including certain fixed-maturity and short-term securities and equity method investments. Equity method investments primarily consist of generally less liquid alternative investments including: an investment in renewable and clean energy and private equity funds. The Company had unfunded commitments of $96 million as of March 31, 2022 related to certain of the Company’s alternative investments.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Investment Portfolio
Carrying Value

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Fixed-maturity securities, available-for-sale (1): |  |  |
Externally managed | $ | 6,316 |  |  | $ | 6,843 |
Loss mitigation securities and other | 789 |  |  | 818 |
AssuredIM managed | 537 |  |  | 541 |
Fixed-maturity securities - Puerto Rico (2) | 514 |  |  | — |
Fixed-maturity securities - Puerto Rico, trading (3) | 174 |  |  | — |
Short-term investments (4) | 585 |  |  | 1,225 |
Other invested assets: |  |  |
Equity method investments | 145 |  |  | 169 |
Other | 7 |  |  | 12 |
Total | $ | 9,067 |  |  | $ | 9,608 |

____________________
(1) 7.3% and 7.5% of fixed-maturity securities were rated BIG as of March 31, 2022 and December 31, 2021, respectively, consisting primarily of loss mitigation securities. 7.2% and 0.9% were not rated, as of March 31, 2022 and December 31, 2021, respectively.
(2) Represents new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions. These securities are not rated.
(3) Represents CVIs received in connection with the consummation of the March Puerto Rico Resolutions. These securities are not rated.
(4) Weighted average credit rating of AAA as of both March 31, 2022 and December 31, 2021, based on the lower of the Moody’s and S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P) classifications.
The U.S. Insurance Subsidiaries, through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $750 million in AssuredIM Funds. As of March 31, 2022, the U.S. Insurance Subsidiaries had total commitments to AssuredIM Funds of $702 million, of which $473 million represented net invested capital and $229 million was undrawn. This capital was committed to several funds, each dedicated to a single strategy, including CLOs, asset-based finance, healthcare structured capital and municipal bonds. As of March 31, 2022 and December 31, 2021, the fair value of AGAS’ interest in AssuredIM Funds was $559 million and $543 million, respectively.
AssuredIM Funds, in which AGAS (primarily) and other subsidiaries invest, and where the Company has been deemed to be the primary beneficiary, are not reported in “investments” on the condensed consolidated balance sheets, but rather, such AssuredIM Funds are consolidated and reported in “assets of consolidated investment vehicles” and “liabilities of consolidated investment vehicles”, with the portion not owned by AGAS and other subsidiaries presented as either redeemable or non-redeemable non-controlling interests. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.
Accrued investment income, which is recorded in “other assets,” was $77 million as of March 31, 2022 and $69 million as of December 31, 2021. In First Quarter 2022 and First Quarter 2021, the Company did not write off any accrued investment income.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Available-for-Sale Fixed-Maturity Securities by Security Type
As of March 31, 2022

Security Type |  | Percent of Total (1) |  | Amortized Cost |  | Allowance for Credit Losses |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value |  | AOCI (5) Pre-tax Gain (Loss) on Securities with Credit Loss |  | Weighted Average Credit Rating (2)
|  | (dollars in millions)
Obligations of state and political subdivisions |  | 47 | % |  | $ | 3,893 |  |  | $ | (13) |  |  | $ | 115 |  |  | $ | (54) |  |  | $ | 3,941 |  |  | $ | (3) |  |  | A
U.S. government and agencies |  | 2 |  |  | 122 |  |  | — |  |  | 5 |  |  | (5) |  |  | 122 |  |  | — |  |  | AA+
Corporate securities (3) |  | 30 |  |  | 2,469 |  |  | (5) |  |  | 26 |  |  | (102) |  |  | 2,388 |  |  | (44) |  |  | A
Mortgage-backed securities (4): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RMBS |  | 5 |  |  | 437 |  |  | (18) |  |  | 10 |  |  | (29) |  |  | 400 |  |  | (28) |  |  | BBB+
Commercial mortgage-backed securities (CMBS) |  | 4 |  |  | 321 |  |  | — |  |  | 2 |  |  | (1) |  |  | 322 |  |  | — |  |  | AAA
Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CLOs |  | 5 |  |  | 440 |  |  | — |  |  | — |  |  | (3) |  |  | 437 |  |  | — |  |  | A+
Other |  | 5 |  |  | 422 |  |  | (11) |  |  | 22 |  |  | (3) |  |  | 430 |  |  | (2) |  |  | CCC+
Non-U.S. government securities |  | 2 |  |  | 123 |  |  | — |  |  | — |  |  | (7) |  |  | 116 |  |  | (1) |  |  | AA-
Total available-for-sale fixed-maturity securities |  | 100 | % |  | $ | 8,227 |  |  | $ | (47) |  |  | $ | 180 |  |  | $ | (204) |  |  | $ | 8,156 |  |  | $ | (78) |  |  | A-

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Available-for-Sale Fixed-Maturity Securities by Security Type
As of December 31, 2021

Security Type |  | Percent of Total (1) |  | Amortized Cost |  | Allowance for Credit Losses |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value |  | AOCI Pre-tax Gain (Loss) on Securities with Credit Loss |  | Weighted Average Credit Rating (2)
|  | (dollars in millions)
Obligations of state and political subdivisions |  | 43 | % |  | $ | 3,386 |  |  | $ | (12) |  |  | $ | 290 |  |  | $ | (4) |  |  | $ | 3,660 |  |  | $ | — |  |  | AA-
U.S. government and agencies |  | 2 |  |  | 123 |  |  | — |  |  | 7 |  |  | (2) |  |  | 128 |  |  | — |  |  | AA+
Corporate securities (3) |  | 32 |  |  | 2,516 |  |  | (1) |  |  | 111 |  |  | (21) |  |  | 2,605 |  |  | (4) |  |  | A
Mortgage-backed securities (4): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RMBS |  | 6 |  |  | 454 |  |  | (17) |  |  | 24 |  |  | (24) |  |  | 437 |  |  | (24) |  |  | BBB+
CMBS |  | 4 |  |  | 332 |  |  | — |  |  | 14 |  |  | — |  |  | 346 |  |  | — |  |  | AAA
Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CLOs |  | 6 |  |  | 457 |  |  | — |  |  | 1 |  |  | — |  |  | 458 |  |  | — |  |  | AA-
Other |  | 5 |  |  | 420 |  |  | (12) |  |  | 26 |  |  | (2) |  |  | 432 |  |  | (2) |  |  | CCC+
Non-U.S. government securities |  | 2 |  |  | 134 |  |  | — |  |  | 5 |  |  | (3) |  |  | 136 |  |  | — |  |  | AA-
Total available-for-sale fixed-maturity securities |  | 100 | % |  | $ | 7,822 |  |  | $ | (42) |  |  | $ | 478 |  |  | $ | (56) |  |  | $ | 8,202 |  |  | $ | (30) |  |  | A+

____________________
(1)Based on amortized cost.
(2)Ratings represent the lower of the Moody’s and S&P classifications, except for loss mitigation and certain other securities, which use internal ratings classifications. The Company’s portfolio primarily consists of high-quality, liquid instruments. New recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions are not rated.
(3)Includes securities issued by taxable universities and hospitals.
(4)U.S. government-agency obligations were approximately 30% of mortgage-backed securities as of March 31, 2022 and 31% as of December 31, 2021 based on fair value.
(5)Accumulated other comprehensive income (AOCI).
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Gross Unrealized Loss by Length of Time
for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded
As of March 31, 2022

| Less than 12 months |  | 12 months or more |  | Total
| Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss
| (dollars in millions)
Obligations of state and political subdivisions | $ | 849 |  |  | $ | (47) |  |  | $ | 28 |  |  | $ | (4) |  |  | $ | 877 |  |  | $ | (51) |
U.S. government and agencies | 26 |  |  | (1) |  |  | 32 |  |  | (4) |  |  | 58 |  |  | (5) |
Corporate securities | 825 |  |  | (50) |  |  | 49 |  |  | (8) |  |  | 874 |  |  | (58) |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |
RMBS | 74 |  |  | (1) |  |  | — |  |  | — |  |  | 74 |  |  | (1) |
CMBS | 100 |  |  | (1) |  |  | — |  |  | — |  |  | 100 |  |  | (1) |
Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |
CLOs | 327 |  |  | (3) |  |  | 54 |  |  | — |  |  | 381 |  |  | (3) |
Other | 17 |  |  | (1) |  |  | — |  |  | — |  |  | 17 |  |  | (1) |
Non-U.S. government securities | 82 |  |  | (4) |  |  | 12 |  |  | (2) |  |  | 94 |  |  | (6) |
Total | $ | 2,300 |  |  | $ | (108) |  |  | $ | 175 |  |  | $ | (18) |  |  | $ | 2,475 |  |  | $ | (126) |
Number of securities (1) |  |  | 740 |  |  |  |  | 81 |  |  |  |  | 814 |

Gross Unrealized Loss by Length of Time
for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded
As of December 31, 2021

| Less than 12 months |  | 12 months or more |  | Total
| Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss
| (dollars in millions)
Obligations of state and political subdivisions | $ | 117 |  |  | $ | (3) |  |  | $ | 10 |  |  | $ | (1) |  |  | $ | 127 |  |  | $ | (4) |
U.S. government and agencies | 26 |  |  | — |  |  | 32 |  |  | (2) |  |  | 58 |  |  | (2) |
Corporate securities | 407 |  |  | (12) |  |  | 70 |  |  | (5) |  |  | 477 |  |  | (17) |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |
RMBS | 4 |  |  | — |  |  | — |  |  | — |  |  | 4 |  |  | — |
Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |
CLOs | 226 |  |  | — |  |  | — |  |  | — |  |  | 226 |  |  | — |
Non-U.S. government securities | 24 |  |  | (2) |  |  | 8 |  |  | (1) |  |  | 32 |  |  | (3) |
Total | $ | 804 |  |  | $ | (17) |  |  | $ | 120 |  |  | $ | (9) |  |  | $ | 924 |  |  | $ | (26) |
Number of securities (1) |  |  | 355 |  |  |  |  | 60 |  |  |  |  | 410 |

___________________
(1) The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.
The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company has determined that the unrealized losses recorded as of March 31, 2022 and December 31, 2021 were not related to credit quality, and in the case of First Quarter 2022, primarily attributable to rising interest rates. In addition, as of March 31, 2022 the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value. As of March 31, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 187 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2021, 23 securities had unrealized
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
losses in excess of 10% of their carrying value. The total unrealized loss for these securities was $56 million as of March 31, 2022 and $6 million as of December 31, 2021.
The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of March 31, 2022 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity
As of March 31, 2022

| Amortized Cost |  | Estimated Fair Value
| (in millions)
Due within one year | $ | 202 |  |  | $ | 203 |
Due after one year through five years | 1,956 |  |  | 1,948 |
Due after five years through 10 years | 1,869 |  |  | 1,853 |
Due after 10 years | 3,442 |  |  | 3,430 |
Mortgage-backed securities: |  |  |
RMBS | 437 |  |  | 400 |
CMBS | 321 |  |  | 322 |
Total | $ | 8,227 |  |  | $ | 8,156 |

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $229 million as of March 31, 2022 and $243 million as of December 31, 2021. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements, in the amounts of $1,160 million and $1,231 million, based on fair value as of March 31, 2022 and December 31, 2021, respectively.
Income from Investment Portfolio
Net investment income is a function of the yield that the Company earns on available-for-sale fixed-maturity securities and short-term investments, and the size of such portfolio. The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the securities in this portfolio.
Income from Investment Portfolio

| First Quarter
| 2022 |  | 2021
| (in millions)
Investment income: |  |  |
Externally managed | $ | 48 |  |  | $ | 51 |
Loss mitigation securities and other | 11 |  |  | 16 |
Managed by AssuredIM (1) | 4 |  |  | 4 |
Investment income | 63 |  |  | 71 |
Investment expenses | (1) |  |  | (1) |
Net investment income | $ | 62 |  |  | $ | 70 |
Unrealized gain (loss) on trading securities (2) | $ | (4) |  |  | $ | — |
Equity in earnings (losses) of investees (3) | $ | (11) |  |  | $ | 9 |

____________________
(1) Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.
(2) Reported in “other income (loss)”. First Quarter 2022 amount relates to securities still held as of March 31, 2022.
(3) First Quarter 2022 includes $3 million related to fair value gains on investments where the fair value option was elected utilizing the net asset value (NAV), as a practical expedient. In addition, the Company received $5 million in dividends related to the same investment. Fair value losses in First Quarter 2021 were de minimis.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Realized Investment Gains (Losses)
The table below presents the components of net realized investment gains (losses). Realized gains and losses on sales of investments are determined using the specific identification method.
Net Realized Investment Gains (Losses)

| First Quarter
| 2022 |  | 2021
| (in millions)
Gross realized gains on sales available-for-sale securities | $ | — |  |  | $ | 1 |
Gross realized losses on sales available-for-sale securities | (2) |  |  | (2) |
Net foreign currency gains (losses) | — |  |  | 1 |
Change in credit impairment and intent to sell | (5) |  |  | (4) |
Other net realized gains (losses) (1) | 10 |  |  | 1 |
Net realized investment gains (losses) | $ | 3 |  |  | $ | (3) |

____________________
(1) Net realized gains in First Quarter 2022 related primarily to the sale of one of the Company’s alternative investments.
The following table presents the roll forward of the credit losses on available-for-sale fixed-maturity securities for which the Company has recognized an allowance for credit losses in 2022 and 2021.
Roll Forward of Credit Losses for Available-for-Sale Fixed-Maturity Securities

|  | First Quarter
|  | 2022 |  | 2021
|  | (in millions)
Balance, beginning of period |  | $ | 42 |  |  | $ | 78 |
Additions for securities for which credit impairments were not previously recognized |  | 4 |  |  | 1 |
Additions (reductions) for credit losses on securities for which credit impairments were previously recognized |  | 1 |  |  | 2 |
Balance, end of period |  | $ | 47 |  |  | $ | 81 |

The Company recorded credit loss expenses of $5 million in First Quarter 2022 and $3 million in First Quarter 2021. The Company did not purchase any securities with credit deterioration during the periods presented. Most of the Company’s securities with credit deterioration are loss mitigation securities.
8. Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles
FG VIEs
Structured Finance and Other FG VIEs
The insurance subsidiaries provide financial guaranties with respect to debt obligations of special purpose entities, including VIEs, but do not act as the servicer or collateral manager for any VIE obligations they guarantee. The transaction structure generally provides certain financial protection to the insurance subsidiaries. This financial protection can take several forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread. In the case of overcollateralization (i.e., the principal amount of the securitized assets exceeds the principal amount of the structured finance obligations), the structure allows defaults of the securitized assets before a default is experienced on the structured finance obligation guaranteed by the insurance subsidiaries. In the case of first loss, the insurance subsidiaries’ financial guaranty insurance policy only covers a senior layer of losses experienced by multiple obligations issued by the VIEs. The first loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors. In the case of excess spread, the financial assets contributed to VIEs generate interest income that is in excess of the interest payments on the debt issued by the VIE. Such excess spread is typically distributed through the transaction’s cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the VIE (thereby, creating additional overcollateralization), or distributed to equity or other investors in the transaction.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
The insurance subsidiaries are not primarily liable for the debt obligations issued by the structured finance and other FG VIEs (which excludes the Puerto Rico Trusts described below) they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall. AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs. Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on structured finance and other FG VIEs’ liabilities.
As part of the terms of its financial guaranty contracts, the insurance subsidiaries, under their insurance contracts, obtain certain protective rights with respect to the VIE that give them additional controls over a VIE. These protective rights are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager’s financial condition. At deal inception, the insurance subsidiaries typically are not deemed to control the VIE; however, once a trigger event occurs, the insurance subsidiaries’ control of the VIE typically increases. The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the insurance subsidiaries and, accordingly, where they are obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE. The insurance subsidiaries are deemed to be the control party for certain VIEs under GAAP, typically when their protective rights give them the power to both terminate and replace the transaction’s servicer or collateral manager, which are characteristics specific to the Company’s financial guaranty contracts. If the protective rights that could make the insurance subsidiaries the control party have not been triggered, then the VIE is not consolidated. If the insurance subsidiaries are deemed no longer to have those protective rights, the VIE is deconsolidated.
The structured finance and other FG VIEs’ liabilities that are guaranteed by the insurance subsidiaries are considered to be with recourse, because the insurance subsidiaries guarantee the payment of principal and interest regardless of the performance of the related FG VIEs’ assets. The structured finance and other FG VIEs’ liabilities that are not guaranteed by the insurance subsidiaries are considered to be without recourse, because the payment of principal and interest of these liabilities is wholly dependent on the performance of the FG VIEs’ assets.
The Company has elected the fair value option for all assets and all liabilities of the structured finance and other FG VIEs. The change in fair value of all structured finance and other FG VIEs assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for the change in fair value attributable to change in instrument-specific credit risk (ISCR) on the structured finance and other FG VIE liabilities, which is reported in other comprehensive income (OCI). As of March 31, 2022 and December 31, 2021, the Company consolidated 26 and 25 structured finance and other FG VIEs, respectively.
Puerto Rico Trusts
In First Quarter 2022, the Company consolidated nine custodial trusts established as part of the GO/PBA Plan (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposures to Puerto Rico. With respect to certain insured securities covered by the GO/PBA Plan, insured bondholders were permitted to elect to receive custody receipts that represent an interest in the legacy insurance policy plus cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan. For those who made this election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds. The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates to the extent that distributions of Plan Consideration are insufficient to pay such amounts after giving effect to the distributions described in the immediately preceding sentence. In the case of insured bondholders who elected to receive custody receipts, the Company retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying 100% of the then outstanding principal amount of insured bonds plus accrued interest. The Company consolidated the Puerto Rico Trusts as its insurance subsidiaries are deemed to be the primary beneficiary given their power to collapse these trusts.
The assets within the Puerto Rico Trusts are classified as follows: new recovery bonds and certain trust certificates as available-for-sale securities ($45 million fair value, $48 million amortized cost as of March 31, 2022), and CVIs as trading securities ($8 million fair value as of March 31, 2022, de minimis unrealized gains on trading securities for the First Quarter 2022). The new recovery bonds, CVIs, and trust certificates have maturity dates ranging from 2022 to 2046. For the measurement of liabilities of the Puerto Rico Trusts, the Company elected the fair value option in order to simplify the accounting for these instruments.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Investment income on the new recovery bonds and trust certificates, unrealized gains and losses on the CVIs and the change in fair value of the Puerto Rico Trusts’ liabilities, which are all with recourse, are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of operations. Unrealized gains and losses on the new recovery bonds and trust certificates are reported in OCI. During First Quarter 2022, the consolidation of the nine Puerto Rico Trusts resulted in a $4 million loss on consolidation, which was also reported in “fair value gains (losses) on FG VIEs.”
Components of FG VIE Assets and Liabilities
Net fair value gains and losses on FG VIEs are expected to reverse to zero by maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by the insurance subsidiaries under the financial guaranty insurance contract. The Company’s estimate of expected loss to be paid (recovered) for FG VIEs is included in Note 4, Expected Loss to be Paid (Recovered).
The table below shows the carrying value of all of the consolidated FG VIEs’ assets and liabilities in the condensed consolidated balance sheets, segregated by the types of assets that collateralize the respective debt obligations for FG VIEs’ liabilities.
Consolidated FG VIEs by Type of Collateral

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
FG VIEs’ assets: |  |  |
U.S. RMBS first lien | $ | 204 |  |  | $ | 221 |
U.S. RMBS second lien | 35 |  |  | 39 |
Puerto Rico securities | 53 |  |  | — |
Other | 15 |  |  | — |
Total FG VIEs’ assets | $ | 307 |  |  | $ | 260 |
FG VIEs’ liabilities with recourse: |  |  |
U.S. RMBS first lien | $ | 209 |  |  | $ | 227 |
U.S. RMBS second lien | 36 |  |  | 42 |
Puerto Rico Trust liabilities | 56 |  |  | — |
Other | 15 |  |  | — |
Total FG VIEs’ liabilities with recourse | $ | 316 |  |  | $ | 269 |
FG VIEs’ liabilities without recourse: |  |  |
U.S. RMBS first lien | $ | 19 |  |  | $ | 20 |
Total FG VIEs’ liabilities without recourse | $ | 19 |  |  | $ | 20 |

The change in the ISCR of the FG VIEs’ assets for which the Company elected the fair value option (FG VIE assets at FVO) held as of March 31, 2022 that was reported in the condensed consolidated statements of operations for First Quarter 2022 was a loss of $5 million. The change in the ISCR of the FG VIEs’ assets at FVO held as of March 31, 2021 was a loss of $3 million for First Quarter 2021. The ISCR amount is determined by using expected cash flows at the original date of consolidation, discounted at the effective yield, less current expected cash flows discounted at that same original effective yield.
The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse (all of which are measured at fair value under the fair value option) attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period. In general, if the insurance subsidiaries’ CDS spread tightens, more value will be assigned to insurance subsidiaries’ credit; however, if the insurance subsidiaries’ CDS spread widens, less value is assigned to the insurance subsidiaries’ credit.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Selected Information for FG VIEs Assets and Liabilities
Measured under the Fair Value Option

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Excess of unpaid principal over fair value of: |  |  |
FG VIEs’ assets | $ | 260 |  |  | $ | 255 |
FG VIEs’ liabilities with recourse | 17 |  |  | 12 |
FG VIEs’ liabilities without recourse | 15 |  |  | 15 |
Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due | 47 |  |  | 52 |
Unpaid principal for FG VIEs’ liabilities with recourse (1) | 333 |  |  | 281 |

____________________
(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2022 through 2038.
CIVs
CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses in which the Company is the primary beneficiary. The table below summarizes the number of consolidated CIVs by type as of March 31, 2022 and December 31, 2021. As of both dates, the Company consolidated one CIV that meets the criteria for a voting interest entity, because the Company possesses substantially all of the economics and all of the decision-making of that CIV.
The Company consolidates investment vehicles when it is deemed to be the primary beneficiary, based on its power to direct the most significant activities of each VIE and its level of economic interest in the entities.
The assets and liabilities of the Company’s CIVs are held within separate legal entities. The assets of the CIVs are not available to creditors of the Company, other than creditors of the applicable CIVs. In addition, creditors of the CIVs have no recourse against the assets of the Company, other than the assets of such applicable CIVs. Liquidity available at the Company’s CIVs is not available for corporate liquidity needs, except to the extent of the Company’s investment in the funds, subject to redemption provisions. Changes in the fair value of assets and liabilities of CIVs, interest income and expense are reported in “fair value gains (losses) on consolidated investment vehicles” in the condensed consolidated statements of operations. Interest income from CLO assets is recorded based on contractual rates.
Number of Consolidated CIVs by Type

|  | As of
CIV Type |  | March 31, 2022 |  | December 31, 2021
Funds |  | 8 |  |  | 8 |
CLOs |  | 9 |  |  | 9 |
CLO warehouses |  | 3 |  |  | 3 |
Total number of consolidated CIVs |  | 20 |  |  | 20 |

The table below summarizes the change in the number of consolidated CIVs during each of the periods. During 2022, no consolidated CLO warehouses became CLOs. During 2021, one consolidated CLO warehouse became a CLO.
Roll Forward of Number of Consolidated CIVs

| First Quarter
| 2022 |  | 2021
Beginning of year | 20 |  |  | 11 |
Consolidated | — |  |  | 2 |
Deconsolidated | — |  |  | (1) |
March 31, | 20 |  |  | 12 |

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Assets and Liabilities of CIVs

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Assets: |  |  |
Fund assets: |  |  |
Cash and cash equivalents | $ | 68 |  |  | $ | 64 |
Fund investments, at fair value |  |  |
Equity securities and warrants (1) | 255 |  |  | 252 |
Obligations of state and political subdivisions | 126 |  |  | 101 |
Corporate securities | 85 |  |  | 98 |
Structured products (2) | 74 |  |  | 62 |
Due from brokers and counterparties | 16 |  |  | 49 |
Other | 1 |  |  | 1 |
CLO and CLO warehouse assets: |  |  |
Cash | 90 |  |  | 156 |
CLO investments: |  |  |
Loans in CLOs, fair value option | 3,865 |  |  | 3,913 |
Loans in CLO warehouses, fair value option | 834 |  |  | 331 |
Short-term investments, at fair value | 165 |  |  | 145 |
Due from brokers and counterparties | 121 |  |  | 99 |
Total assets (3) | $ | 5,700 |  |  | $ | 5,271 |
Liabilities: |  |  |
CLO obligations, fair value option (4) | 3,598 |  |  | 3,665 |
Warehouse financing debt, fair value option (5) | 339 |  |  | 126 |
Securities sold short, at fair value | 36 |  |  | 41 |
Due to brokers and counterparties | 844 |  |  | 570 |
Other liabilities | 37 |  |  | 34 |
Total liabilities | $ | 4,854 |  |  | $ | 4,436 |

____________________
(1) Includes investments in AssuredIM Funds and other affiliated entities of $200 million and $198 million as of March 31, 2022 and December 31, 2021, respectively.
(2) Includes investments in affiliated entities of $23 million and $25 million as of March 31, 2022 and December 31, 2021, respectively.
(3) Includes assets of a voting interest entity as of March 31, 2022 and December 31, 2021 of $17 million and $12 million, respectively.
(4) The weighted average maturity of CLO obligations was 6.7 years as of March 31, 2022 and 6.6 years as of December 31, 2021. The weighted average interest rate of CLO obligations was 1.9% as of March 31, 2022 and 1.8% as of December 31, 2021. CLO obligations have stated final maturity dates from 2034 to 2035.
(5) The weighted average maturity of warehouse financing debt of CLO warehouses was 0.6 years as of March 31, 2022 and 1.8 years as of December 31, 2021. The weighted average interest rate of warehouse financing debt of CLO warehouses was 1.3% as of March 31, 2022 and 1.1% as of December 31, 2021. Warehouse financing debt will mature at various dates from 2022 to 2023.
Noncontrolling Interests in CIVs
Noncontrolling interest in CIVs represents the proportion of the consolidated funds not owned by the Company, including third parties, employees, and former employees. The majority of the noncontrolling interest is non-redeemable and presented on the statement of shareholders’ equity. The table below presents the rollforward of redeemable noncontrolling interest in CIVs.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Redeemable Noncontrolling Interests in CIVs

| First Quarter
| 2022 |  | 2021
| (in millions)
Beginning balance | $ | 22 |  |  | $ | 21 |
Net income (loss) attributable to the redeemable noncontrolling interest | (1) |  |  | — |
March 31, | $ | 21 |  |  | $ | 21 |

As of March 31, 2022 the CIVs had commitments to invest $345 million.
As of March 31, 2022 and December 31, 2021, the CIVs included derivative contracts with notional amounts totaling $68 million and $49 million, respectively, and average notional amounts of $59 million and $34 million, respectively. The fair value of derivative contracts is reported in the “assets of CIVs” or “liabilities of CIVs” in the condensed consolidated balance sheets. The net change in fair value is reported in “fair value gains (losses) on CIVs” in the condensed consolidated statements of operations. The net change in fair value of derivative contracts were gains of $4 million and $2 million in First Quarter 2022 and First Quarter 2021, respectively.
Certain of the CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity during the CLO warehouse stage. Borrowings are generally secured by the investments purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective vehicle. When a CIV borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or other Assured Guaranty subsidiaries. Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or other Assured Guaranty subsidiaries.
As of March 31, 2022, these credit facilities had varying maturities ranging from April 28, 2022 to September 15, 2023 with the aggregate principal amount not exceeding $1.0 billion. The available commitment was based on the amount of equity contributed to the warehouse which was $591 million. As of March 31, 2022, $310 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 100 basis points (bps) to 3-month LIBOR plus 100 bps (with a floor on the Euribor/LIBOR rates of zero). The CLO warehouses were in compliance with all financial covenants as of March 31, 2022.
As of March 31, 2022, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed $80 million jointly and $48 million individually for the consolidated healthcare fund. The available commitment was based on the amount of equity contributed to the funds. As of March 31, 2022, $15 million was drawn down by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime Floor of 3%). The fund was in compliance with all financial covenants as of March 31, 2022.
Other Consolidated VIEs
In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the original insured financial guaranty insurance or credit derivative contract, the Company classifies the assets and liabilities of that VIE in the line items that most accurately reflect the nature of such assets and liabilities, as opposed to within FG VIEs’ assets and FG VIEs’ liabilities. The largest of these VIEs had assets of $92 million and liabilities of $12 million as of March 31, 2022, and assets of $96 million and liabilities of $11 million as of December 31, 2021, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.
Non-Consolidated VIEs
As described in Note 3, Outstanding Exposure, the Company monitors all policies in the insured portfolio. Of the approximately 16 thousand policies monitored as of March 31, 2022, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization. The majority of the remaining policies involve transactions where the Company is not deemed to currently have control over the FG VIEs’ most significant activities. With respect to structured finance and other FG VIEs, as of March 31, 2022 and December 31, 2021, the Company identified 63 and 69 policies, respectively, that contain provisions and experienced events that may trigger consolidation. Based on management’s
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
assessment of these potential triggers or events, the Company consolidated 26 and 25 structured finance and other FG VIEs as of March 31, 2022 and December 31, 2021, respectively. In addition, as of March 31, 2022 the Company consolidated nine Puerto Rico Trusts. The Company’s exposure through its financial guaranties with respect to debt obligations of FG VIEs is included within net par outstanding in Note 3, Outstanding Exposure.
The Company manages funds and CLOs that have been determined to be VIEs, in which the Company concluded that it is not the primary beneficiary, because it lacks a controlling financial interest. As such, the Company does not consolidate these entities. The Company’s equity interests in these entities are reported in “other invested assets” on the condensed consolidated balance sheets. The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $1 million as of both March 31, 2022 and December 31, 2021) as well as foregone future management and performance fees. See Note 10, Asset Management Fees, for earnings and receivables from managing funds and CLOs.
9. Fair Value Measurement
The Company carries a significant portion of its assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). The price represents the price available in the principal market for the asset or liability. If there is no principal market, then the price is based on a hypothetical market that maximizes the value received for an asset or minimizes the amount paid for a liability (i.e., the most advantageous market).
Fair value is based on quoted market prices, where available. If listed prices or quotes are not available, fair value is based on either internally developed models that primarily use, as inputs, market-based or independently sourced market parameters, including but not limited to yield curves, interest rates and debt prices or with the assistance of an independent third party using a discounted cash flow approach and the third party’s proprietary pricing models. In addition to market information, models also incorporate transaction details, such as maturity of the instrument and contractual features designed to reduce the Company’s credit exposure, such as collateral rights as applicable.
Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, the Company’s creditworthiness and constraints on liquidity. As markets and products develop and the pricing for certain products becomes more or less transparent, the Company may refine its methodologies and assumptions. During First Quarter 2022, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.
The Company’s methods for calculating fair value produce a fair value that may not be indicative of net realizable value or reflective of future fair values. The use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a materially different estimate of fair value at the reporting date.
The categorization within the fair value hierarchy is determined based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company estimates of market assumptions. The fair value hierarchy prioritizes model inputs into three broad levels as follows, with Level 1 being the highest and Level 3 the lowest. An asset’s or liability’s categorization is based on the lowest level of significant input to its valuation.
Level 1—Quoted prices for identical instruments in active markets. The Company generally defines an active market as a market in which trading occurs at significant volumes. Active markets generally are more liquid and have a lower bid-ask spread than an inactive market.
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and observable inputs other than quoted prices, such as interest rates or yield curves and other inputs derived from or corroborated by observable market inputs.
Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
There were no transfers from or into Level 3 during the periods presented.
Carried at Fair Value
Fixed-Maturity Securities
The fair value of fixed-maturity securities is generally based on prices received from third-party pricing services or alternative pricing sources with reasonable levels of price transparency. The pricing services prepare estimates of fair value using their pricing models, which take into account: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, industry and economic events and sector groupings. Additional valuation factors that can be taken into account are nominal spreads and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news.
Benchmark yields have in many cases taken priority over reported trades for securities that trade less frequently or those that are distressed trades, and therefore may not be indicative of the market. The extent of the use of each input is dependent on the asset class and the market conditions. The valuation of fixed-maturity securities is more subjective when markets are less liquid due to the lack of market-based inputs.
As of March 31, 2022, the Company used models to price 190 securities, including securities that were purchased or obtained for loss mitigation, with a Level 3 fair value of $1.1 billion. All Level 3 securities were priced with the assistance of independent third parties. The pricing is based on a discounted cash flow approach using the third party’s proprietary pricing models. The models use inputs such as projected prepayment speeds; severity assumptions; recovery lag assumptions; estimated default rates (determined on the basis of an analysis of collateral attributes, historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); home price appreciation/depreciation rates based on macroeconomic forecasts and recent trading activity. The yield used to discount the projected cash flows is determined by reviewing various attributes of the security including collateral type, weighted average life, sensitivity to losses, vintage, and convexity, in conjunction with market data on comparable securities. Significant changes to any of these inputs could have materially changed the expected timing of cash flows within these securities which is a significant factor in determining the fair value of the securities.
Short-Term Investments
Short-term investments that are traded in active markets are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices. Securities such as discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.
Other Invested Assets
Other invested assets that are carried at fair value primarily include: (i) equity securities traded in active markets that are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices; and (ii) equity method investments for which the Company elected the fair value option using NAV, as a practical expedient, which are excluded from the fair value hierarchy.
Other Assets
Committed Capital Securities
Each of AGC and AGM have entered into put agreements with four separate custodial trusts allowing each of AGC and AGM to issue an aggregate of $200 million of non-cumulative redeemable perpetual preferred securities to the trusts in exchange for cash. Each custodial trust was created for the primary purpose of issuing $50 million face amount of CCS, investing the proceeds in high-quality assets and entering into put options with AGC or AGM, as applicable.
The fair value of CCS, which is reported in other assets on the condensed consolidated balance sheets, represents the difference between the present value of remaining expected put option premium payments under AGC’s CCS and AGM’s Committed Preferred Trust Securities (the AGM CPS) agreements, and the estimated present value that the Company would hypothetically have to pay currently for a comparable security. The change in fair value of the AGC CCS and AGM CPS are reported in “fair value gains (losses) on committed capital securities” in the condensed consolidated statements of operations. The estimated current cost of the Company’s CCS is based on several factors, including AGM and AGC CDS spreads, LIBOR
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
curve projections, the Company's publicly traded debt and the term the securities are estimated to remain outstanding. The AGC CCS and AGM CPS are classified as Level 3 in the fair value hierarchy.
Supplemental Executive Retirement Plans
The Company classifies assets included in the Company’s various supplemental executive retirement plans as either Level 1 or Level 2. The fair value of these assets is based on the observable published daily values of the underlying mutual funds included in the plans (Level 1) or based upon the NAV of the funds if a published daily value is not available (Level 2). The NAVs are based on observable information. The change in fair value of these assets is reported in “other operating expenses” in the condensed consolidated statements of operations.
Contracts Accounted for as Credit Derivatives
The Company’s credit derivatives in the Insurance segment primarily consist of insured CDS contracts, and also include interest rate swaps that qualify as derivatives under GAAP, which require fair value measurement with changes in the fair value reported in the condensed consolidated statements of operations. The Company did not enter into CDS contracts with the intent to trade these contracts and the Company may not unilaterally terminate a CDS contract absent an event of default or termination event that entitles the Company to terminate such contracts; however, the Company has mutually agreed with various counterparties to terminate certain CDS transactions. In transactions where the counterparty does not have the right to terminate, such transactions are generally terminated for an amount that approximates the present value of future premiums or for a negotiated amount, rather than at fair value.
The terms of the Company’s CDS contracts differ from more standardized credit derivative contracts sold by companies outside the financial guaranty industry. The non-standard terms generally include the absence of collateral support agreements or immediate settlement provisions. In addition, the Company employs relatively high attachment points and does not exit derivatives it sells, except under specific circumstances such as mutual agreements with counterparties. Management considers the non-standard terms of the Company’s credit derivative contracts in determining the fair value of these contracts.
Due to the lack of quoted prices and other observable inputs for its instruments or for similar instruments, the Company determines the fair value of its credit derivative contracts primarily through internally developed, proprietary models that use both observable and unobservable market data inputs. There is no established market where financial guaranty insured credit derivatives are actively traded; therefore, management has determined that the exit market for the Company’s credit derivatives is a hypothetical one based on its entry market. These contracts are classified as Level 3 in the fair value hierarchy as there are multiple unobservable inputs deemed significant to the valuation model, most importantly the Company’s estimate of the value of the non-standard terms and conditions of its credit derivative contracts and how the Company’s own credit spread affects the pricing of its transactions.
The fair value of the Company’s credit derivative contracts represents the difference between the present value of remaining premiums the Company expects to receive and the estimated present value of premiums that a financial guarantor of comparable credit-worthiness would hypothetically charge at the reporting date for the same protection. The fair value of the Company’s credit derivatives depends on a number of factors, including notional amount of the contract, expected term, credit spreads, changes in interest rates, the credit ratings of referenced entities, the Company’s own credit risk and remaining contractual cash flows. The expected remaining contractual premium cash flows are the most readily observable inputs since they are based on the CDS contractual terms. Credit spreads capture the effect of recovery rates and performance of underlying assets of these contracts, among other factors. Consistent with previous years, market conditions at March 31, 2022 were such that market prices of the Company’s CDS contracts were not available.
Assumptions and Inputs
The various inputs and assumptions that are key to the measurement of the Company’s fair value for CDS contracts are as follows: the gross spread, the allocation of gross spread among the bank profit, net spread and hedge cost, and the weighted average life which is based on debt service schedules. The Company obtains gross spreads on its outstanding contracts from market data sources published by third parties (e.g., dealer spread tables for the collateral similar to assets within the Company’s transactions), as well as collateral-specific spreads provided or obtained from market sources. The bank profit represents the profit the originator, usually an investment bank, realizes for structuring and funding the transaction; the net spread represents the premiums paid to the Company for the Company’s credit protection provided; and the hedge cost represents the cost of CDS protection purchased by the originator to hedge its counterparty credit risk exposure to the Company.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
With respect to CDS transactions for which there is an expected claim payment within the next twelve months, the allocation of gross spread reflects a higher allocation to the cost of credit rather than the bank profit component. It is assumed that a bank would be willing to accept a lower profit on distressed transactions in order to remove these transactions from its financial statements.
Market sources determine credit spreads by reviewing new issuance pricing for specific asset classes and receiving price quotes from trading desks for the specific asset in question. The Company validates these quotes by cross-referencing quotes received from one market source against quotes received from another market source to ensure reasonableness. In addition, the Company compares the relative change in price quotes received from one quarter to another with the relative change experienced by published market indices for a specific asset class. Collateral specific spreads obtained from third-party, independent market sources are unpublished spread quotes from market participants or market traders who are not trustees. The Company obtains this information as the result of direct communication with these sources as part of the valuation process. The following spread hierarchy is utilized in determining which source of gross spread to use.
•Actual collateral specific credit spreads (if up-to-date and reliable market-based spreads are available).
•Transactions priced or closed during a specific quarter within a specific asset class and specific rating.
•Credit spreads interpolated based upon market indices adjusted to reflect the non-standard terms of the Company’s CDS contracts.
•Credit spreads extrapolated based upon transactions of similar asset classes, similar ratings, and similar time to maturity.
The rates used to discount future expected premium cash flows ranged from 0.45% to 2.93% at March 31, 2022 and 0.11% to 1.78% at December 31, 2021.
The premium the Company receives is referred to as the “net spread.” The Company’s pricing model takes into account not only how credit spreads on risks that it assumes affect pricing, but also how the Company’s own credit spread affects the pricing of its transactions. The Company’s own credit risk is factored into the determination of net spread based on the impact of changes in the quoted market price for credit protection bought on the Company, as reflected by quoted market prices on CDS referencing AGC. Due to the relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts. The Company obtains the quoted price of CDS contracts traded on AGC from market data sources published by third parties. The cost to acquire CDS protection referencing AGC affects the amount of spread on CDS transactions that the Company retains and, hence, their fair value. As the cost to acquire CDS protection referencing AGC increases, the amount of premium the Company retains on a transaction generally decreases.
In the Company’s valuation model, the premium the Company captures is not permitted to go below the minimum rate that the Company would currently charge to assume similar risks. This assumption can have the effect of mitigating the amount of unrealized gains that are recognized on certain CDS contracts. As of March 31, 2022 and December 31, 2021, the use of the minimum premium did not have a significant effect on fair value. The percentage of transactions that price using the minimum premiums fluctuates due to changes in AGC’s credit spreads. In general, when AGC’s credit spreads narrow, the cost to hedge AGC’s name declines and more transactions price above previously established floor levels. Meanwhile, when AGC’s credit spreads widen, the cost to hedge AGC’s name increases causing more transactions to price at established floor levels. The Company corroborates the assumptions in its fair value model, including the portion of exposure to AGC hedged by its counterparties, with independent third parties periodically. The implied credit risk of AGC, indicated by the trading level of AGC’s own credit spread, is a significant factor in the amount of exposure to AGC that a bank or transaction hedges. When AGC’s credit spreads widen, the hedging cost of a bank or originator increases. Higher hedging costs reduce the amount of contractual cash flows AGC can capture as premium for selling its protection, while lower hedging costs increase the amount of contractual cash flows AGC can capture.
The amount of premium a financial guaranty insurance market participant can demand is inversely related to the cost of credit protection on the insurance company as measured by market credit spreads assuming all other assumptions remain constant. This is because the buyers of credit protection typically hedge a portion of their risk to the financial guarantor, due to the fact that the contractual terms of the Company’s contracts typically do not require the posting of collateral by the guarantor. The extent of the hedge depends on the types of instruments insured and the current market conditions.
A credit derivative liability on protection sold is the result of contractual cash inflows on in-force transactions that are lower than what a hypothetical financial guarantor could receive if it sold protection on the same risk as of the reporting date. If the Company were able to freely exchange these contracts (i.e., assuming its contracts did not contain proscriptions on transfer
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
and there was a viable exchange market), it would realize a loss representing the difference between the lower contractual premiums to which it is entitled and the current market premiums for a similar contract. The Company determines the fair value of its CDS contracts by applying the difference between the current net spread and the contractual net spread for the remaining duration of each contract to the notional value of such contract and discounting such amounts using the LIBOR corresponding to the weighted average remaining life of the contract.
Strengths and Weaknesses of Model
The Company’s credit derivative valuation model, like any financial model, has certain strengths and weaknesses.
The primary strengths of the Company’s CDS modeling techniques are:
•The model takes into account the transaction structure and the key drivers of market value.
•The model maximizes the use of market-driven inputs whenever they are available.
•The model is a consistent approach to valuing positions.
The primary weaknesses of the Company’s CDS modeling techniques are:
•There is no exit market or any actual exit transactions; therefore, the Company’s exit market is a hypothetical one based on the Company’s entry market.
•There is a very limited market in which to validate the reasonableness of the fair values developed by the Company’s model.
•The markets for the inputs to the model are highly illiquid, which impacts their reliability.
•Due to the non-standard terms under which the Company enters into derivative contracts, the fair value of its credit derivatives may not reflect the same prices observed in an actively traded market of credit derivatives that do not contain terms and conditions similar to those observed in the financial guaranty market.
FG VIEs’ Assets and Liabilities
The Company elected the fair value option for the structured finance and other FG VIEs’ assets and liabilities and classifies them as Level 3 in the fair value hierarchy. The prices are generally determined with the assistance of an independent third party, based on a discounted cash flow approach.
For the assets in the Puerto Rico Trusts, new recovery bonds are classified as available-for-sale as Level 2 on the fair value hierarchy, CVIs are classified as trading securities as Level 2 on the fair value hierarchy, and trust certificates are classified as available-for-sale as Level 3 on the fair value hierarchy. The liabilities of the Puerto Rico Trusts are measured under the fair value option as Level 3 on the fair value hierarchy. See “ - Fixed Maturity Securities” above for a description of the fair value methodology for the recovery bonds and CVIs in the Puerto Rico Trusts, which represent the majority of the assets in the Puerto Rico Trusts.
The fair value of the residential mortgage loan FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds; estimated default rates (determined on the basis of an analysis of collateral attributes such as: historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); yields implied by market prices for similar securities; and, as applicable, house price depreciation/appreciation rates based on macroeconomic forecasts. Significant changes to some of these inputs could have materially changed the market value of the FG VIEs’ assets and the implied collateral losses within the transaction. In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically could lead to a decrease in the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets.
The third party utilizes an internal model to determine an appropriate yield at which to discount the cash flows of the security, by factoring in collateral types, weighted-average lives, and other structural attributes specific to the security being priced. The expected yield is further calibrated by utilizing algorithms designed to aggregate market color, received by the independent third party, on comparable bonds.
The models used to price the FG VIEs’ liabilities (other than the liabilities of the Puerto Rico Trusts) generally apply the same inputs used in determining fair value of FG VIEs’ assets. For those liabilities insured by the Company, the benefit of the Company’s insurance policy guaranteeing the timely payment of debt service is also taken into account. The liabilities of
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
the Puerto Rico Trusts are priced based on the value of the assets in the Puerto Rico Trusts including the value of the insurance subsidiaries financial guaranty policies.
Significant changes to any of the inputs described above could materially change the timing of expected losses within the insured transaction which is a significant factor in determining the implied benefit of the Company’s insurance policy guaranteeing the timely payment of principal and interest for the insured tranches of debt issued by the FG VIEs. In general, extending the timing of expected loss payments by the Company into the future typically could lead to a decrease in the value of the Company’s insurance and a decrease in the fair value of the Company’s FG VIEs’ liabilities with recourse, while a shortening of the timing of expected loss payments by the Company typically could lead to an increase in the value of the Company’s insurance and an increase in the fair value of the Company’s FG VIEs’ liabilities with recourse.
The net change in the fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on financial guaranty variable interest entities” in the condensed consolidated statements of operations, except for change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in other comprehensive income (OCI), and the change in fair value of available-for-sale securities, which is reported as a component of the change in unrealized gains (losses) on investments in OCI. Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on financial guaranty variable interest entities”. The FG VIEs issued securities that are typically collateralized by first lien and second lien residential mortgage loans, or, in the case of the Puerto Rico Trusts, the Plan Consideration received under the GO/PBA Plan.
Assets and Liabilities of CIVs
The consolidated CLOs are collateralized financing entities (CFEs), and therefore, the debt issued by, and loans held by, the consolidated CLOs are measured under the fair value option using the CFE practical expedient. Loans in CLOs are priced using a loan pricing service which aggregates quotes from loan market participants. The loans are all Level 2 assets, which are more observable than the fair value of the Level 3 debt issued by the consolidated CLOs. As a result, the less observable CLO debt is measured on the basis of the more observable CLO loans. Under the CFE practical expedient guidance, the loans of consolidated CLOs are measured at fair value and the debt of consolidated CLOs are measured as: (1) the sum of (i) the fair value of the financial assets, and (ii) the carrying value of any nonfinancial assets held temporarily; less (2) the sum of (iii) the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services), and (iv) the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by the Company).
Prior to securitization, when loans are warehoused in an investment vehicle, such vehicle is not considered a CFE. The Company has elected the fair value option to measure the loans held and the debt issued by CLO warehouses to mitigate the accounting mismatch between such assets and liabilities when a CLO warehouse securitizes and becomes a CLO.
Investments held by CIVs which are listed or quoted on a national securities exchange or market are valued at their last reported sale price on the date of determination. Investments held by CIVs which are not listed or quoted on an exchange, but are traded over-the-counter, or are listed on an exchange which has no reported sales, are valued at their fair value as determined by the Company, after giving consideration to third-party data generally at the average between the offer and bid prices. The methods and procedures to value these investments may include, but are not limited to: (i) performing comparisons with prices of comparable or similar investments; (ii) obtaining valuation-related information from issuers; (iii) calculating the present value of future cash flows; (iv) assessing other analytical data and information related to the investment that is an indication of value; (v) obtaining information provided by third parties; (vi) and/or evaluating information provided by management of these investments. These fair values are generally based on dealer quotes, indications of value or pricing models that consider the time value of money, the current market, contractual prices and potential volatilities of the underlying financial instruments. Inputs are used in applying the various valuation techniques and broadly refer to the current assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include dealer price quotations, yield curves, credit curves, forward/CDS/index spreads, prepayments rates, strike and expiry dates, volatility statistics and other factors. Investments in private equity funds are generally valued utilizing NAV.
Level 2 assets in the CIVs include assets of the consolidated CLOs and certain assets of the consolidated funds. Level 3 assets in the CIVs include the remainder of the invested assets of consolidated funds. Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the fair value option), securities sold short and derivative liabilities. Level 3 liabilities of the CIVs include various tranches of CLO debt, first loss subordinated warehouse financing and securitized borrowing. Significant changes to any of the inputs described above could have a material effect on the fair value of the consolidated assets and liabilities.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of March 31, 2022

| Fair Value Hierarchy |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (in millions)
Assets: |  |  |  |  |  |  |
Investments: |  |  |  |  |  |  |
Fixed-maturity securities, available-for-sale |  |  |  |  |  |  |
Obligations of state and political subdivisions | $ | — |  |  | $ | 3,871 |  |  | $ | 70 |  |  | $ | 3,941 |
U.S. government and agencies | — |  |  | 122 |  |  | — |  |  | 122 |
Corporate securities | — |  |  | 2,388 |  |  | — |  |  | 2,388 |
Mortgage-backed securities: |  |  |  |  |  |  |
RMBS | — |  |  | 200 |  |  | 200 |  |  | 400 |
CMBS | — |  |  | 322 |  |  | — |  |  | 322 |
Asset-backed securities | — |  |  | 25 |  |  | 842 |  |  | 867 |
Non-U.S. government securities | — |  |  | 116 |  |  | — |  |  | 116 |
Total fixed-maturity securities, available-for-sale | — |  |  | 7,044 |  |  | 1,112 |  |  | 8,156 |
Fixed-maturity securities, trading | — |  |  | 174 |  |  | — |  |  | 174 |
Short-term investments | 568 |  |  | 17 |  |  | — |  |  | 585 |
Other invested assets (1) | 2 |  |  | — |  |  | 5 |  |  | 7 |
FG VIEs’ assets | — |  |  | 40 |  |  | 267 |  |  | 307 |
Assets of CIVs (2): |  |  |  |  |  |  |
Fund investments: |  |  |  |  |  |  |
Equity securities and warrants | — |  |  | 6 |  |  | 243 |  |  | 249 |
Obligations of state and political subdivisions | — |  |  | 126 |  |  | — |  |  | 126 |
Corporate securities | — |  |  | 2 |  |  | 83 |  |  | 85 |
Structured products | — |  |  | 74 |  |  | — |  |  | 74 |
CLOs and CLO warehouse assets: |  |  |  |  |  |  |
Loans | — |  |  | 4,699 |  |  | — |  |  | 4,699 |
Short-term investments | 165 |  |  | — |  |  | — |  |  | 165 |
Total assets of CIVs | 165 |  |  | 4,907 |  |  | 326 |  |  | 5,398 |
Other assets | 55 |  |  | 51 |  |  | 26 |  |  | 132 |
Total assets carried at fair value | $ | 790 |  |  | $ | 12,233 |  |  | $ | 1,736 |  |  | $ | 14,759 |
Liabilities: |  |  |  |  |  |  |
Credit derivative liabilities | $ | — |  |  | $ | — |  |  | $ | 157 |  |  | $ | 157 |
FG VIEs’ liabilities (3) | — |  |  | — |  |  | 335 |  |  | 335 |
Liabilities of CIVs: |  |  |  |  |  |  |
CLO obligations of CFEs | — |  |  | — |  |  | 3,598 |  |  | 3,598 |
Warehouse financing debt | — |  |  | 308 |  |  | 31 |  |  | 339 |
Securities sold short | — |  |  | 36 |  |  | — |  |  | 36 |
Securitized borrowing | — |  |  | — |  |  | 21 |  |  | 21 |
Total liabilities of CIVs | — |  |  | 344 |  |  | 3,650 |  |  | 3,994 |
Other liabilities | — |  |  | 3 |  |  | — |  |  | 3 |
Total liabilities carried at fair value | $ | — |  |  | $ | 347 |  |  | $ | 4,142 |  |  | $ | 4,489 |

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of December 31, 2021

| Fair Value Hierarchy |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (in millions)
Assets: |  |  |  |  |  |  |
Investments: |  |  |  |  |  |  |
Fixed-maturity securities, available-for sale |  |  |  |  |  |  |
Obligations of state and political subdivisions | $ | — |  |  | $ | 3,588 |  |  | $ | 72 |  |  | $ | 3,660 |
U.S. government and agencies | — |  |  | 128 |  |  | — |  |  | 128 |
Corporate securities | — |  |  | 2,605 |  |  | — |  |  | 2,605 |
Mortgage-backed securities: |  |  |  |  |  |  |
RMBS | — |  |  | 221 |  |  | 216 |  |  | 437 |
CMBS | — |  |  | 346 |  |  | — |  |  | 346 |
Asset-backed securities | — |  |  | 27 |  |  | 863 |  |  | 890 |
Non-U.S. government securities | — |  |  | 136 |  |  | — |  |  | 136 |
Total fixed-maturity securities, available-for-sale | — |  |  | 7,051 |  |  | 1,151 |  |  | 8,202 |
Short-term investments | 1,225 |  |  | — |  |  | — |  |  | 1,225 |
Other invested assets (1) | 6 |  |  | — |  |  | 6 |  |  | 12 |
FG VIEs’ assets | — |  |  | — |  |  | 260 |  |  | 260 |
Assets of CIVs (2): |  |  |  |  |  |  |
Fund investments: |  |  |  |  |  |  |
Equity securities and warrants | — |  |  | 7 |  |  | 239 |  |  | 246 |
Obligations of state and political subdivisions | — |  |  | 101 |  |  | — |  |  | 101 |
Corporate securities | — |  |  | 7 |  |  | 91 |  |  | 98 |
Structured products | — |  |  | 62 |  |  | — |  |  | 62 |
CLOs and CLO warehouse assets: |  |  |  |  |  |  |
Loans | — |  |  | 4,244 |  |  | — |  |  | 4,244 |
Short-term investments | 145 |  |  | — |  |  | — |  |  | 145 |
Total assets of CIVs | 145 |  |  | 4,421 |  |  | 330 |  |  | 4,896 |
Other assets | 53 |  |  | 54 |  |  | 25 |  |  | 132 |
Total assets carried at fair value | $ | 1,429 |  |  | $ | 11,526 |  |  | $ | 1,772 |  |  | $ | 14,727 |
Liabilities: |  |  |  |  |  |  |
Credit derivative liabilities | $ | — |  |  | $ | — |  |  | $ | 156 |  |  | $ | 156 |
FG VIEs’ liabilities (3) | — |  |  | — |  |  | 289 |  |  | 289 |
Liabilities of CIVs: |  |  |  |  |  |  |
CLO obligations of CFEs | — |  |  | — |  |  | 3,665 |  |  | 3,665 |
Warehouse financing debt | — |  |  | 103 |  |  | 23 |  |  | 126 |
Securities sold short | — |  |  | 41 |  |  | — |  |  | 41 |
Securitized borrowing | — |  |  | — |  |  | 17 |  |  | 17 |
Total liabilities of CIVs | — |  |  | 144 |  |  | 3,705 |  |  | 3,849 |
Other liabilities | — |  |  | 1 |  |  | — |  |  | 1 |
Total liabilities carried at fair value | $ | — |  |  | $ | 145 |  |  | $ | 4,150 |  |  | $ | 4,295 |

___________________
(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis. Excludes $17 million and $19 million of equity method investments measured at fair value under the fair value option using the NAV as a practical expedient as of March 31, 2022 and December 31, 2021, respectively.
(2) Excludes $6 million as of both March 31, 2022 and December 31, 2021 in investments in AssuredIM Funds for which the Company records a 100% noncontrolling interest. The consolidation of these funds results in a gross up of assets and noncontrolling interest on the consolidated financial statements; however, it results in no economic equity or net income attributable to AGL.
(3) Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Changes in Level 3 Fair Value Measurements
The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during First Quarter 2022 and First Quarter 2021.
Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis
First Quarter 2022

| Fixed-Maturity Securities, Available-for-Sale |  |  |  | Assets of CIVs |  |  |
| Obligations of State and Political Subdivisions |  | RMBS |  | Asset- Backed Securities |  | FG VIEs’ Assets |  | Equity Securities and Warrants |  | Corporate Securities |  | Other (7) |
| (in millions)
Fair value as of December 31, 2021 | $ | 72 |  |  | $ | 216 |  |  | $ | 863 |  |  | $ | 260 |  |  | $ | 239 |  |  | $ | 91 |  |  | $ | 27 |  |
Total pre-tax realized and unrealized gains (losses) recorded in: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) | — |  |  | 4 |  | (1) |  | 3 |  | (1) |  | (3) |  | (2) |  | 10 |  | (4) |  | (1) |  | (4) |  | 1 |  | (3) |
Other comprehensive income (loss) | (5) |  |  | (8) |  |  | (7) |  |  | (1) |  |  | — |  |  | — |  |  | — |  |
Purchases | 4 |  |  | — |  |  | 25 |  |  | — |  |  | — |  |  | 1 |  |  | — |  |
Sales | — |  |  | — |  |  | (3) |  |  | — |  |  | (6) |  |  | (8) |  |  | — |  |
Settlements | (1) |  |  | (12) |  |  | (39) |  |  | (18) |  |  | — |  |  | — |  |  | — |  |
Consolidations | — |  |  | — |  |  | — |  |  | 29 |  |  | — |  |  | — |  |  | — |  |
Fair value as of March 31, 2022 | $ | 70 |  |  | $ | 200 |  |  | $ | 842 |  |  | $ | 267 |  |  | $ | 243 |  |  | $ | 83 |  |  | $ | 28 |  |
Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings |  |  |  |  |  |  | $ | (3) |  | (2) |  | $ | 8 |  | (4) |  | $ | (2) |  | (4) |  | $ | 1 |  | (3) |
OCI | $ | (5) |  |  | $ | (7) |  |  | $ | (7) |  |  | $ | (1) |  |  |  |  |  |  | $ | — |  |

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis
First Quarter 2022

| Credit Derivative Asset (Liability), net (5) |  | FG VIEs’ Liabilities (8) |  | Liabilities of CIVs |
| (in millions)
Fair value as of December 31, 2021 | $ | (154) |  |  | $ | (289) |  |  | $ | (3,705) |  |
Total pre-tax realized and unrealized gains (losses) recorded in: |  |  |  |  |  |
Net income (loss) | (3) |  | (6) |  | 15 |  | (2) |  | 64 |  | (4) |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |
Issuances | — |  |  | — |  |  | (381) |  |
Settlements | 1 |  |  | 41 |  |  | 372 |  |
Consolidations | — |  |  | (102) |  |  | — |  |
Fair value as of March 31, 2022 | $ | (156) |  |  | $ | (335) |  |  | $ | (3,650) |  |
Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in: |  |  |  |  |  |
Earnings | $ | (3) |  | (6) |  | $ | 38 |  | (2) |  | $ | 41 |  | (4) |
OCI |  |  | $ | — |  |  |  |

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis
First Quarter 2021

| Fixed-Maturity Securities, Available-for-Sale |  |  |  |  |  |
| Obligations of State and Political Subdivisions |  | Corporate Securities |  | RMBS |  | Asset- Backed Securities |  | FG VIEs’ Assets |  | Assets of CIVs - Equity Securities |  | Other (7) |
| (in millions) |  |
Fair value as of December 31, 2020 | $ | 101 |  |  | $ | 30 |  |  | $ | 255 |  |  | $ | 940 |  |  | $ | 296 |  |  | $ | 2 |  |  | $ | 54 |  |
Total pre-tax realized and unrealized gains (losses) recorded in: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) | 1 |  | (1) |  | 2 |  | (1) |  | 2 |  | (1) |  | 6 |  | (1) |  | (1) |  | (2) |  | 2 |  | (4) |  | (18) |  | (3) |
Other comprehensive income (loss) | 2 |  |  | (4) |  |  | — |  |  | 5 |  |  | — |  |  | — |  |  | 1 |  |
Purchases | — |  |  | — |  |  | — |  |  | 94 |  |  | — |  |  | 8 |  |  | — |  |
Sales | — |  |  | — |  |  | — |  |  | (42) |  |  | — |  |  | (11) |  |  | — |  |
Settlements | (1) |  |  | — |  |  | (11) |  |  | (62) |  |  | (14) |  |  | — |  |  | — |  |
Fair value as of March 31, 2021 | $ | 103 |  |  | $ | 28 |  |  | $ | 246 |  |  | $ | 941 |  |  | $ | 281 |  |  | $ | 1 |  |  | $ | 37 |  |
Change in unrealized gains (losses) related to financial instruments held as of March 31, 2021 included in: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings |  |  |  |  |  |  |  |  | $ | — |  | (2) |  | $ | 3 |  | (4) |  | $ | (19) |  | (3) |
OCI | $ | 2 |  |  | $ | (4) |  |  | $ | — |  |  | $ | 5 |  |  |  |  |  |  | $ | 1 |  |

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis
First Quarter 2021

| Credit Derivative Asset (Liability), net (5) |  | FG VIEs’ (8) |  | Liabilities of CIVs |
| (in millions)
Fair value as of December 31, 2020 | $ | (100) |  |  | $ | (333) |  |  | $ | (1,227) |  |
Total pre-tax realized and unrealized gains (losses) recorded in: |  |  |  |  |  |
Net income (loss) | (19) |  | (6) |  | 3 |  | (2) |  | 6 |  | (4) |
Other comprehensive income (loss) | — |  |  | (1) |  |  | — |  |
Issuances | — |  |  | — |  |  | (752) |  |
Settlements | (1) |  |  | 13 |  |  | — |  |
Fair value as of March 31, 2021 | $ | (120) |  |  | $ | (318) |  |  | $ | (1,973) |  |
Change in unrealized gains (losses) related to financial instruments held as of March 31, 2021 included in: |  |  |  |  |  |
Earnings | $ | (20) |  | (6) |  | $ | 5 |  | (2) |  | $ | 6 |  | (4) |
OCI |  |  | $ | (1) |  |  |  |

____________________
(1)Included in “net realized investment gains (losses)” and “net investment income”.
(2)Included in “fair value gains (losses) on FG VIEs”.
(3)Reported in “fair value gains (losses) on CCS”, “net investment income” and “other income”.
(4)Reported in “fair value gains (losses) on CIVs”.
(5)Represents the net position of credit derivatives. Credit derivative assets (reported in “other assets”) and credit derivative liabilities (presented as a separate line item) are shown as either assets or liabilities in the condensed consolidated balance sheets based on net exposure by transaction.
(6)Reported in “fair value gains (losses) on credit derivatives”.
(7)Includes CCS and other invested assets.
(8)Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Level 3 Fair Value Disclosures
Quantitative Information About Level 3 Fair Value Inputs
As of March 31, 2022

Financial Instrument Description |  | Fair Value (in millions) |  | Significant Unobservable Inputs |  | Range |  | Weighted Average (4)
Assets (2): |  |  |  |  |  |  |  |
Fixed-maturity securities available-for-sale (1): |  |  |  |  |  |  |  |  |  |
Obligations of state and political subdivisions |  | $ | 70 |  |  | Yield |  | 2.6 | % | - | 27.1% |  | 6.7%
RMBS |  | 200 |  |  | CPR |  | 0.0 | % | - | 22.5% |  | 11.0%
|  | CDR |  | 1.6 | % | - | 12.0% |  | 5.8%
|  | Loss severity |  | 50.0 | % | - | 125.0% |  | 85.0%
|  | Yield |  | 4.8 | % | - | 6.4% |  | 5.6%
Asset-backed securities: |  |  |  |  |  |  |  |  |  |
Life insurance transactions |  | 370 |  |  | Yield |  | 6.0% |  |
CLOs |  | 437 |  |  | Discount margin |  | 1.0 | % | - | 3.1% |  | 2.1%
Others |  | 35 |  |  | Yield |  | 5.0 | % | - | 10.3% |  | 10.2%
FG VIEs’ assets (1) |  | 267 |  |  | CPR |  | 0.9 | % | - | 25.5% |  | 13.2%
|  | CDR |  | 1.0 | % | - | 26.9% |  | 7.2%
|  | Loss severity |  | 45.0 | % | - | 100.0% |  | 77.1%
|  | Yield |  | 1.7 | % | - | 8.6% |  | 5.4%
Assets of CIVs (3): |  |  |  |  |  |  |  |  |  |
Equity securities and warrants |  | 243 |  |  | Yield |  | 8.0% |  |
|  |  |  | Discount rate |  | 13.0 | % | - | 24.2% |  | 21.8%
|  |  |  | Cost |  | 1.00x |  |
|  |  |  | Market multiple-enterprise value/revenue |  | 1.10x |  |
|  |  |  | Market multiple-enterprise value/EBITDA (6) |  | 3.00x | - | 10.50x |  | 9.21x
|  |  |  | Market multiple-price to book |  | 1.85x |  |
|  |  |  | Exit multiple-EBITDA |  | 8.00x | - | 12.00x |  | 10.43x
|  |  |  | Exit multiple-price to book |  | 1.30x |  |
|  |  |  | Exit multiple |  | 11.00x |  |
|  |  |  | Exit cap rate |  | 12.0% |  |
|  |  |  | Terminal growth rate |  | 4.0% |  |
Corporate securities |  | 83 |  |  | Discount rate |  | 21.4 | % | - | 23.7% |  | 22.3%
|  |  |  | Yield |  | 17.2% |  |
|  |  |  | Cost |  | 1.00x |  |
|  |  |  | Market multiple-enterprise value/EBITDA |  | 3.00x |  |
|  |  |  | Exit multiple-EBITDA |  | 8.00x |  |
Other assets (1) |  | 25 |  |  | Implied Yield |  | 3.1 | % | - | 3.7% |  | 3.4%
|  | Term (years) |  | 10 years |  |

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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description |  | Fair Value (in millions) |  | Significant Unobservable Inputs |  | Range |  | Weighted Average (4)
Liabilities (1): |  |  |  |  |  |  |  |  |  |
Credit derivative liabilities, net |  | $ | (156) |  |  | Year 1 loss estimates |  | 0.0 | % | - | 87.0% |  | 1.9%
|  | Hedge cost (in bps) |  | 11.9 | - | 53.2 |  | 21.8
|  | Bank profit (in bps) |  | 0.0 | - | 211.3 |  | 72.2
|  | Internal floor (in bps) |  | 8.8 |  |
|  | Internal credit rating |  | AAA | - | CCC |  | AA
FG VIEs’ liabilities |  | (335) |  |  | CPR |  | 0.9 | % | - | 25.5% |  | 12.3%
|  | CDR |  | 1.0 | % | - | 26.9% |  | 6.7%
|  | Loss severity |  | 45.0 | % | - | 100.0% |  | 72.0%
|  | Yield |  | 0.6 | % | - | 7.8% |  | 4.4%
Liabilities of CIVs: |  |  |  |  |  |  |  |  |  |
CLO obligations of CFEs (5) |  | (3,598) |  |  | Yield |  | 1.6 | % | - | 14.2% |  | 2.2%
Warehouse financing debt |  | (31) |  |  | Yield |  | 16.2 | % | - | 27.7% |  | 23.7%
Securitized borrowing |  | (21) |  |  | Discount rate |  | 24.2% |  |

___________________
(1) Discounted cash flow is used as the primary valuation technique.
(2) Excludes several investments recorded in “other invested assets” with a fair value of $5 million.
(3) The primary valuation technique uses the income and/or market approach; the key inputs to the valuation are yield/discount rates and market multiples.
(4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, for which it is calculated as a percentage of fair value.
(5) See CFE fair value methodology described above for consolidated CLOs.
(6) Earnings before interest, taxes, depreciation, and amortization (EBITDA).
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Quantitative Information About Level 3 Fair Value Inputs
As of December 31, 2021

Financial Instrument Description |  | Fair Value (in millions) |  | Significant Unobservable Inputs |  | Range |  | Weighted Average (4)
Assets (2): |  |  |  |  |  |  |  |  |  |
Fixed-maturity securities, available-for-sale (1): |  |  |  |  |  |  |  |  |  |
Obligations of state and political subdivisions |  | $ | 72 |  |  | Yield |  | 4.4 | % | - | 24.5% |  | 6.2%
RMBS |  | 216 |  |  | CPR |  | 0.0 | % | - | 22.7% |  | 10.4%
|  | CDR |  | 1.4 | % | - | 12.0% |  | 5.9%
|  | Loss severity |  | 50.0 | % | - | 125.0% |  | 84.9%
|  | Yield |  | 3.8 | % | - | 5.6% |  | 4.5%
Asset-backed securities: |  |  |  |  |  |  |  |  |  |
Life insurance transactions |  | 367 |  |  | Yield |  | 5.0% |  |
CLOs |  | 458 |  |  | Discount margin |  | 0.0 | % | - | 2.9% |  | 1.8%
Others |  | 38 |  |  | Yield |  | 3.2 | % | - | 7.9% |  | 7.9%
FG VIEs’ assets (1) |  | 260 |  |  | CPR |  | 0.9 | % | - | 24.5% |  | 13.3%
|  | CDR |  | 1.4 | % | - | 26.9% |  | 7.6%
|  | Loss severity |  | 45.0 | % | - | 100.0% |  | 81.6%
|  | Yield |  | 1.4 | % | - | 8.0% |  | 4.6%
Assets of CIVs (3): |  |  |  |  |  |  |  |  |  |
Equity securities and warrants |  | 239 |  |  | Yield |  | 7.7% |  |
|  |  |  | Discount rate |  | 14.7 | % | - | 23.9% |  | 21.6%
|  |  |  | Market multiple-enterprise value/revenue |  | 1.10x |  |
|  |  |  | Market multiple-enterprise value/EBITDA |  | 3.00x | - | 10.50x |  | 8.95x
|  |  |  | Market multiple-price to book |  | 1.85x |  |
Corporate securities |  | 91 |  |  | Discount rate |  | 14.7 | % | - | 21.4% |  | 17.8%
|  |  |  | Yield |  | 16.4% |  |
Other assets (1) |  | 23 |  |  | Implied Yield |  | 2.7 | % | - | 3.3% |  | 3.0%
|  |  |  | Term (years) |  | 10 years |  |
Liabilities (1): |  |  |  |  |  |  |  |
Credit derivative liabilities, net |  | (154) |  |  | Year 1 loss estimates |  | 0.0 | % | - | 85.8% |  | 0.1%
|  | Hedge cost (in bps) |  | 8.0 | - | 37.1 |  | 12.6
|  | Bank profit (in bps) |  | 0.0 | - | 187.8 |  | 67.9
|  | Internal floor (in bps) |  | 8.8 |  |
|  | Internal credit rating |  | AAA | - | CCC |  | AA
FG VIEs’ liabilities |  | (289) |  |  | CPR |  | 0.9 | % | - | 24.5% |  | 13.3%
|  | CDR |  | 1.4 | % | - | 26.9% |  | 7.6%
|  | Loss severity |  | 45.0 | % | - | 100.0% |  | 81.6%
|  | Yield |  | 1.4 | % | - | 8.0% |  | 3.7%
Liabilities of CIVs: |  |  |  |  |  |  |  |  |  |
CLO obligations of CFEs (5) |  | (3,665) |  |  | Yield |  | 1.6 | % | - | 13.7% |  | 2.1%
Warehouse financing debt |  | (23) |  |  | Yield |  | 12.6 | % | - | 16.0% |  | 13.8%
Securitized borrowing |  | (17) |  |  | Discount rate |  | 23.9% |  |
|  |  |  | Market multiple-enterprise value/revenue |  | 10.50x |  |

____________________
(1) Discounted cash flow is used as the primary valuation technique.
(2) Excludes several investments reported in “other invested assets” with a fair value of $6 million.
(3) The primary valuation technique uses the income and/or market approach, the key inputs to the valuation are yield/discount rates and market multiples.
(4) Weighted average is calculated as a percentage of current par outstanding for all categories except for assets of CIVs, for which it is calculated as a percentage of fair value.
(5) See CFE fair value methodology described above for consolidated CLOs.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Not Carried at Fair Value
Financial Guaranty Insurance Contracts
Fair value is based on management’s estimate of what a similarly rated financial guaranty insurance company would demand to acquire the Company’s in-force book of financial guaranty insurance business. It is based on a variety of factors that may include pricing assumptions management has observed for portfolio transfers, commutations, and acquisitions that have occurred in the financial guaranty market, and also includes adjustments for stressed losses, ceding commissions and return on capital. The Company classified the fair value of financial guaranty insurance contracts as Level 3.
Long-Term Debt
Long-term debt issued by the U.S. Holding Companies is valued by broker-dealers using third party independent pricing sources and standard market conventions and classified as Level 2 in the fair value hierarchy. The market conventions utilize market quotations, market transactions for the Company’s comparable instruments, and to a lesser extent, similar instruments in the broader insurance industry.
Assets and Liabilities of CIVs
Cash equivalents are recorded at cost which approximates fair value. Due from/to brokers and counterparties primarily consists of cash, margin deposits, and cash collateral with the clearing brokers and various counterparties and the net amounts receivable/payable for securities transactions that had not settled at the balance sheet date. Due from/to brokers and counterparties represent balances on a net-by counterparty basis on the condensed consolidated balance sheets where a contractual right of offset exists under an enforceable netting arrangement. The cash at brokers is partially related to collateral for securities sold short and derivative contracts; its use is therefore restricted until the securities are purchased or the derivative contracts are closed. The carrying value approximates fair value of these items and are considered Level 1 in the fair value hierarchy.
Other Liabilities
Other liabilities in the table below include $36 million and $37 million as of March 31, 2022 and December 31, 2021, respectively, for AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5% of the senior and equity notes issued by certain BlueMountain European CLOs, which was required to comply with its European risk retention obligations. The maturity dates are in 2034 and 2035. AssuredIM’s obligation under the master repurchase agreement is not guaranteed by any Assured Guaranty insurance or holding companies.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.
Fair Value of Financial Instruments Not Carried at Fair Value

| As of March 31, 2022 |  | As of December 31, 2021
| Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
| (in millions)
Assets (liabilities): |  |  |  |  |  |  |
Assets of CIVs (1) | $ | 176 |  |  | $ | 176 |  |  | $ | 171 |  |  | $ | 171 |
Other assets (including other invested assets) (2) | 98 |  |  | 99 |  |  | 134 |  |  | 135 |
Financial guaranty insurance contracts (3) | (2,422) |  |  | (1,677) |  |  | (2,394) |  |  | (2,315) |
Long-term debt | (1,673) |  |  | (1,677) |  |  | (1,673) |  |  | (1,832) |
Liabilities of CIVs (4) | (859) |  |  | (859) |  |  | (586) |  |  | (586) |
Other liabilities (5) | (61) |  |  | (61) |  |  | (45) |  |  | (45) |

____________________
(1) Includes due from brokers and counterparties and cash equivalents. Carrying value approximates fair value.
(2) Includes accrued interest, receivable for an unsettled sale of a portion of the Puerto Rico salvage and subrogation recoverable, management fees receivables and receivables for securities sold for which carrying value approximates fair value.
(3) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.
(4) Includes due to brokers and counterparties and fund’s loan payable. Carrying value approximates fair value.
(5) Includes accrued interest, repurchase agreement liability and payables for securities purchased for which carrying value approximates fair value.
10. Asset Management Fees
The following table presents the sources of asset management fees and performance fees on a consolidated basis.
Asset Management Fees

| First Quarter
| 2022 |  | 2021
| (in millions)
Management fees: |  |  |
CLOs (1) | $ | 9 |  |  | $ | 11 |
Opportunity funds and liquid strategies | 4 |  |  | 4 |
Wind-down funds | 1 |  |  | 3 |
Total management fees | 14 |  |  | 18 |
Performance fees | 14 |  |  | 1 |
Reimbursable fund expenses | 6 |  |  | 5 |
Total asset management fees | $ | 34 |  |  | $ | 24 |

_____________________
(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs. Gross management fees from CLOs, before rebates, we re $9 million and $14 million for First Quarter 2022 and First Quarter 2021, respectively.
The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $7 million as of March 31, 2022 and $8 million as of December 31, 2021. Performance fees in First Quarter 2022 were attributable to the healthcare and asset-based funds.
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Assured Guaranty Ltd.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
11. Credit Facilities
On February 3, 2022, the Company entered into a secured short-term loan facility with a major financial institution to partially fund gross payments in connection with the resolution of a portion of its Puerto Rico exposures. See Note 3, Outstanding Exposure. The short-term loan facility permitted the Company to borrow up to $550 million for up to thirty days and up to $150 million for up to six months. The Company borrowed $400 million under the thirty days portion of this facility on March 14, 2022, and repaid it in full, with interest, on March 16, 2022. The Company did not borrow any amounts under the six months portion of the facility. The one month component bore interest at 1.10% per annum and the six months component would have borne a floating interest rate equal to the forward-looking term Secured Overnight Financing Rate for a tenor of one month provided by CME Group Benchmark Administration Limited, plus 1.10% per annum. The ability of the Company to borrow under the facility has expired.
12. Income Taxes
Overview
AGL and its Bermuda subsidiaries AG Re, AGRO, and Cedar Personnel Ltd. (collectively, the Bermuda Subsidiaries) are not subject to any income, withholding or capital gains taxes under current Bermuda law. The Company has received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, AGL and its Bermuda Subsidiaries will be exempt from taxation in Bermuda until March 31, 2035. AGL’s U.S., U.K. and French subsidiaries are subject to income taxes imposed by U.S., U.K. and French authorities, respectively, and file applicable tax returns. In addition, AGRO, a Bermuda domiciled company, has elected under Section 953(d) of the U.S. Internal Revenue Code (the Code) to be taxed as a U.S. domestic corporation.
AGL is tax resident in the U.K. although it remains a Bermuda-based company and its administrative and head office functions continue to be carried on in Bermuda.
AGUS files a consolidated federal income tax return with all of its U.S. subsidiaries. Assured Guaranty Overseas US Holdings Inc. and its subsidiaries AGRO and AG Intermediary Inc. file their own consolidated federal income tax return.
Tax Assets (Liabilities)
Deferred and Current Tax Assets (Liabilities) (1)

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Net deferred tax assets (liabilities) | $ | 42 |  |  | $ | (33) |
Net current tax assets (liabilities) | (61) |  |  | (43) |

____________________
(1) Included in “other assets” or “other liabilities” on the condensed consolidated balance sheets.
Valuation Allowance
As of March 31, 2022, and December 31, 2021, the Company had $24 million of foreign tax credit (FTC) due to the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years. FTCs will expire in 2027. In analyzing the future realizability of FTCs, the Company notes limitations on future foreign source income due to overall foreign losses as negative evidence. After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the FTC of $24 million will not be utilized, and therefore maintained the valuation allowance from December 31, 2021 with respect to this tax attribute.
The Company came to the conclusion that it is more likely than not that the remaining deferred tax assets will be fully realized after weighing all positive and negative evidence available as required under GAAP. The positive evidence that was considered included the cumulative income the Company has earned over the last three years, and the significant unearned premium income to be included in taxable income. The positive evidence outweighs any negative evidence that exists. As such, the Company believes that no valuation allowance is necessary in connection with the remaining deferred tax assets. The Company will continue to analyze the need for a valuation allowance on a quarterly basis.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Provision for Income Taxes
The Company’s provision for income taxes for interim financial periods is not based on an estimated annual effective rate due, for example, to the variability in loss reserves, fair value of its credit derivatives and VIEs, and foreign exchange gains and losses which prevents the Company from projecting a reliable estimated annual effective tax rate and pre-tax income for the full year 2021. A discrete calculation of the provision is calculated for each interim period.
The effective tax rates reflect the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19%, the French subsidiary taxed at the French marginal corporate tax rate of 25.0% in 2022 and 27.5% in 2021, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S. tax by election. The Company’s overall effective tax rate fluctuates based on the distribution of income across jurisdictions.
A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below.
Effective Tax Rate Reconciliation

| First Quarter
| 2022 |  | 2021
| (in millions)
Expected tax provision (benefit) | $ | 14 |  |  | $ | (1) |
Tax-exempt interest | (3) |  |  | (4) |
State taxes | 4 |  |  | 3 |
Foreign taxes | 1 |  |  | 2 |
Stock based compensation | 2 |  |  | — |
Total provision (benefit) for income taxes | $ | 18 |  |  | $ | — |
Effective tax rate | 20.0 | % |  | (0.9) | %

The expected tax provision (benefit) is calculated as the sum of pre-tax income in each jurisdiction multiplied by the statutory tax rate of the jurisdiction by which it will be taxed. Where there is a pre-tax loss in one jurisdiction and pre-tax income in another, the total combined expected tax rate may be higher or lower than any of the individual statutory rates.
The following tables present pre-tax income and revenue by jurisdiction.
Pre-tax Income (Loss) by Tax Jurisdiction

| First Quarter
| 2022 |  | 2021
| (in millions)
U.S. | $ | 84 |  |  | $ | (4) |
Bermuda | 27 |  |  | 20 |
U.K. | (14) |  |  | 1 |
Other | (4) |  |  | (2) |
Total | $ | 93 |  |  | $ | 15 |

Revenue by Tax Jurisdiction

| First Quarter
| 2022 |  | 2021
| (in millions)
U.S. | $ | 269 |  |  | $ | 134 |
Bermuda | 33 |  |  | 30 |
U.K. | — |  |  | 13 |
Other | (2) |  |  | — |
Total | $ | 300 |  |  | $ | 177 |

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Pre-tax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.
Audits
As of March 31, 2022, AGUS and Assured Guaranty Overseas US Holdings Inc. had open tax years with the U.S. Internal Revenue Service (IRS) for 2018 forward and AGUS is currently under audit for the 2018 and 2019 tax years. The Company’s U.K. subsidiaries are not currently under examination and have open tax years of 2020 forward. The Company’s French subsidiary is not currently under examination and has open tax years of 2019 forward.
13. Commitments and Contingencies
Legal Proceedings
Lawsuits arise in the ordinary course of the Company’s business. It is the opinion of the Company’s management, based upon the information available, that the expected outcome of litigation against the Company, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position or liquidity, although an adverse resolution of litigation against the Company in a fiscal quarter or year could have a material adverse effect on the Company’s results of operations in a particular quarter or year.
In addition, in the ordinary course of their respective businesses, certain of AGL’s insurance subsidiaries are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future. For example, the Company is involved in a number of legal actions in the Federal District Court for Puerto Rico to enforce or defend its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations. See “Exposure to Puerto Rico” section of Note 3, Outstanding Exposure, for a description of such actions. Also in the ordinary course of their respective business, certain of AGL’s investment management subsidiaries are involved in litigation with third parties regarding fees, appraisals, or portfolio companies. The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s results of operations in that particular quarter or year.
The Company also receives subpoenas and interrogatories from regulators from time to time.
Litigation
On November 28, 2011, Lehman Brothers International (Europe) (in administration) (LBIE) sued AG Financial Products Inc. (AGFP), an affiliate of AGC which in the past had provided credit protection to counterparties under CDS. AGC acts as the credit support provider of AGFP under these CDS. LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the Supreme Court), asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination in December 2008 of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP’s termination in July 2008 of 28 other credit derivative transactions between LBIE and AGFP and AGFP’s calculation of the termination payment in connection with those 28 other credit derivative transactions. Following defaults by LBIE, AGFP properly terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly. AGFP has calculated that LBIE owes AGFP approximately $4 million for the claims which were dismissed and approximately $21 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $1.4 billion. AGFP filed a motion to dismiss the claims for breach of the implied covenant of good faith in LBIE’s complaint, and on March 15, 2013, the court granted AGFP’s motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions. LBIE’s administrators disclosed in an April 10, 2015 report to LBIE’s unsecured creditors that LBIE’s valuation expert has calculated LBIE’s claim for damages in aggregate for the 28 transactions to range between a minimum of approximately $200 million and a maximum of approximately $500 million, depending on what adjustment, if any, is made for AGFP's credit risk. In addition, LBIE seeks prejudgment interest from the time of termination onwards. AGFP filed a motion for summary judgment on the remaining causes of action asserted by LBIE and on AGFP’s counterclaims, and on July 2, 2018, the court granted in part and denied in part AGFP’s motion. The court dismissed, in its entirety, LBIE’s remaining claim for breach of the implied covenant of good faith and fair dealing and also dismissed LBIE’s claim for breach of contract solely to the extent that it is based upon AGFP’s conduct in connection with the auction. With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
whether AGFP calculated its loss reasonably and in good faith. On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the lower court’s ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole remaining claim for breach of contract. On January 17, 2019, the Appellate Division affirmed the Supreme Court’s decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith. The trial was originally scheduled for March 9, 2020, but was postponed due to COVID-19. On November 3, 2020, LBIE moved to reopen its Chapter 15 case in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) and remove this action to the United States District Court for the Southern District of New York for assignment to the Bankruptcy Court. On March 22, 2021, the Bankruptcy Court denied the motion and remanded the action to the Supreme Court. On March 29, 2021, the action was reassigned to Justice Melissa A. Crane. A bench trial was held from October 18, 2021 through November 19, 2021; a decision is pending subject to post-trial briefing and argument.
14. Shareholders’ Equity
Other Comprehensive Income
The following tables present the changes in each component of AOCI and the effect of reclassifications out of AOCI into the respective lines in the condensed consolidated statements of operations.
Changes in Accumulated Other Comprehensive Income (Loss) by Component
First Quarter 2022

| Net Unrealized Gains (Losses) on Investments with: |  | ISCR on FG VIEs’ Liabilities with Recourse |  | Cumulative Translation Adjustment |  | Cash Flow Hedge |  | Total AOCI
| No Credit Impairment |  | Credit Impairment |  |  |  |
| (in millions)
Balance, December 31, 2021 | $ | 375 |  |  | $ | (24) |  |  | $ | (21) |  |  | $ | (36) |  |  | $ | 6 |  |  | $ | 300 |
Other comprehensive income (loss) before reclassifications | (339) |  |  | (43) |  |  | (1) |  |  | (1) |  |  | — |  |  | (384) |
Less: Amounts reclassified from AOCI to: |  |  |  |  |  |  |  |  |  |  |
Net realized investment gains (losses) | (1) |  |  | (5) |  |  | — |  |  | — |  |  | — |  |  | (6) |
Fair value gains (losses) on FG VIEs | — |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (1) |
Total before tax | (1) |  |  | (5) |  |  | (1) |  |  | — |  |  | — |  |  | (7) |
Tax (provision) benefit | — |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | 1 |
Total amount reclassified from AOCI, net of tax | (1) |  |  | (4) |  |  | (1) |  |  | — |  |  | — |  |  | (6) |
Other comprehensive income (loss) | (338) |  |  | (39) |  |  | — |  |  | (1) |  |  | — |  |  | (378) |
Balance, March 31, 2022 | $ | 37 |  |  | $ | (63) |  |  | $ | (21) |  |  | $ | (37) |  |  | $ | 6 |  |  | $ | (78) |

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
Changes in Accumulated Other Comprehensive Income (Loss) by Component
First Quarter 2021

| Net Unrealized Gains (Losses) on Investments with: |  | ISCR on FG VIEs’ Liabilities with Recourse |  | Cumulative Translation Adjustment |  | Cash Flow Hedge |  | Total AOCI
| No Credit Impairment |  | Credit Impairment |  |  |  |
| (in millions)
Balance, December 31, 2020 | $ | 577 |  |  | $ | (30) |  |  | $ | (20) |  |  | $ | (36) |  |  | $ | 7 |  |  | $ | 498 |
Other comprehensive income (loss) before reclassifications | (119) |  |  | (8) |  |  | (2) |  |  | 1 |  |  | — |  |  | (128) |
Less: Amounts reclassified from AOCI to: |  |  |  |  |  |  |  |  |  |  |
Net realized investment gains (losses) | — |  |  | (3) |  |  | — |  |  | — |  |  | — |  |  | (3) |
Fair value gains (losses) on FG VIEs | — |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (1) |
Total before tax | — |  |  | (3) |  |  | (1) |  |  | — |  |  | — |  |  | (4) |
Tax (provision) benefit | — |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | 1 |
Total amount reclassified from AOCI, net of tax | — |  |  | (2) |  |  | (1) |  |  | — |  |  | — |  |  | (3) |
Other comprehensive income (loss) | (119) |  |  | (6) |  |  | (1) |  |  | 1 |  |  | — |  |  | (125) |
Balance, March 31, 2021 | $ | 458 |  |  | $ | (36) |  |  | $ | (21) |  |  | $ | (35) |  |  | $ | 7 |  |  | $ | 373 |

Share Repurchases
On February 23, 2022, the Board of Directors (the Board) authorized the repurchase of an additional $350 million of its common shares. Under this and previous authorizations, as of May 5, 2022, the Company was authorized to purchase $240 million of its common shares. The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time. It does not have an expiration date.
Share Repurchases

Period |  | Number of Shares Repurchased |  | Total Payments (in millions) |  | Average Price Paid Per Share
2021 (January 1 - March 31) |  | 1,986,534 |  |  | $ | 77 |  |  | $ | 38.83 |
2021 (April 1 - June 30) |  | 1,887,531 |  |  | 88 |  |  | 46.63 |
2021 (July 1- September 30) |  | 2,918,993 |  |  | 140 |  |  | 47.76 |
2021 (October 1 - December 31) |  | 3,725,982 |  |  | 191 |  |  | 51.47 |
Total 2021 |  | 10,519,040 |  |  | $ | 496 |  |  | 47.19 |
2022 (January 1 - March 31) (1) |  | 2,738,223 |  |  | 155 |  |  | 56.62 |
2022 (April 1 - May 5) |  | 1,007,045 |  |  | 61 |  |  | 59.86 |
Total 2022 |  | 3,745,268 |  |  | $ | 216 |  |  | 57.49 |

____________________
(1) Includes $3 million of share repurchases that was prepaid in December 2021 and settled in First Quarter 2022.
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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
15. Earnings Per Share
Computation of Earnings Per Share

| First Quarter
| 2022 |  | 2021
| (in millions, except per share amounts)
Basic Earnings Per Share (EPS): |  |  |
Net income (loss) attributable to AGL | $ | 66 |  |  | $ | 11 |
Less: Distributed and undistributed income (loss) available to nonvested shareholders | — |  |  | — |
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic | $ | 66 |  |  | $ | 11 |
Basic shares | 66.3 |  |  | 76.7 |
Basic EPS | $ | 1.00 |  |  | $ | 0.14 |
Diluted EPS: |  |  |
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic | $ | 66 |  |  | $ | 11 |
Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries | — |  |  | — |
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted | $ | 66 |  |  | $ | 11 |
Basic shares | 66.3 |  |  | 76.7 |
Dilutive securities: |  |  |
Options and restricted stock awards | 1.1 |  |  | 0.8 |
Diluted shares | 67.4 |  |  | 77.5 |
Diluted EPS | $ | 0.98 |  |  | $ | 0.14 |
Potentially dilutive securities excluded from computation of EPS because of antidilutive effect | 0.2 |  |  | 0.3 |

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This Form 10-Q contains information that includes or is based upon forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements give the expectations or forecasts of future events of Assured Guaranty Ltd. (AGL) and its subsidiaries (collectively with AGL, Assured Guaranty or the Company). These statements can be identified by the fact that they do not relate strictly to historical or current facts and relate to future operating or financial performance.
Any or all of Assured Guaranty’s forward looking statements herein are based on current expectations and the current economic environment and may turn out to be incorrect. Assured Guaranty’s actual results may vary materially. Among factors that could cause actual results to differ adversely are:
•the development, course and duration of the COVID-19 pandemic and the governmental and private actions taken in response, the effectiveness, acceptance and distribution of COVID-19 vaccines and therapeutics, and the global consequences of the pandemic and such actions, including their impact on the factors listed below;
•consequences of the conflict in Ukraine, including economic sanctions, volatility in energy prices, and the potential for increased cyberattacks;
•changes in the world’s credit markets, segments thereof, interest rates, inflation, credit spreads or general economic conditions;
•developments in the world’s financial and capital markets that adversely affect insured obligors’ repayment rates, Assured Guaranty’s insurance loss or recovery experience, investments of Assured Guaranty or assets it manages;
•reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty’s insurance;
•the loss of investors in Assured Guaranty’s asset management strategies or the failure to attract new investors to Assured Guaranty’s asset management business;
•the possibility that budget or pension shortfalls or other factors will result in credit losses or impairments on obligations of state, territorial and local governments and their related authorities and public corporations that Assured Guaranty insures or reinsures;
•insured losses in excess of those expected by Assured Guaranty or the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the failure to resolve Assured Guaranty’s Puerto Rico exposures in a manner substantially consistent with the support agreements signed to date;
•increased competition, including from new entrants into the financial guaranty industry;
•poor performance of Assured Guaranty’s asset management strategies compared to the performance of the asset management strategies of Assured Guaranty’s competitors;
•the possibility that investments made by Assured Guaranty for its investment portfolio, including alternative investments and investments it manages, do not result in the benefits anticipated or subject Assured Guaranty to reduced liquidity at a time it requires liquidity, or to unanticipated consequences;
•the impact of market volatility on the mark-to-market of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, most of its financial guaranty contracts written in credit default swap (CDS) form, and certain consolidated variable interest entities (VIEs);
•rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its insurance subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL’s insurance subsidiaries have insured;
•the inability of Assured Guaranty to access external sources of capital on acceptable terms;
•changes in applicable accounting policies or practices;
•changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions;
•the possibility that acquisitions made by Assured Guaranty, including its acquisition of BlueMountain Capital Management LLC (BlueMountain, now known as Assured Investment Management LLC) and its associated entities (BlueMountain Acquisition), do not result in the benefits anticipated or subject Assured Guaranty to unanticipated consequences;
•difficulties with the execution of Assured Guaranty’s business strategy;
•loss of key personnel;
•the effects of mergers, acquisitions and divestitures;
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•natural or man-made catastrophes or pandemics;
•other risk factors identified in AGL’s filings with the United States (U.S.) Securities and Exchange Commission (the SEC);
•other risks and uncertainties that have not been identified at this time; and
•management’s response to these factors.
The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, as well as the risk factors included in the Company’s 2021 Annual Report on Form 10-K. The Company undertakes no obligation to update publicly or review any forward looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Investors are advised, however, to consult any further disclosures the Company makes on related subjects in the Company’s reports filed with the SEC.
If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, actual results may vary materially from what the Company projected. Any forward looking statements in this Form 10-Q reflect the Company’s current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to its operations, results of operations, growth strategy and liquidity.
For these statements, the Company claims the protection of the safe harbor for forward looking statements contained in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).
Available Information
The Company maintains an internet web site at www.assuredguaranty.com. The Company makes available, free of charge, on its web site (under www.assuredguaranty.com/sec-filings) the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC. The Company also makes available, free of charge, through its web site (under www.assuredguaranty.com/governance) links to the Company’s Corporate Governance Guidelines, the Company’s Global Code of Ethics, AGL’s Bye-Laws and the charters for the committees of its Board of Directors. In addition, the SEC maintains an Internet site (at www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The Company routinely posts important information for investors on its web site (under www.assuredguaranty.com/company-statements and, more generally, under the Investor Information tab at www.assuredguaranty.com/investor-information and Businesses tab at www.assuredguaranty.com/businesses). The Company also maintains a social media account on LinkedIn (www.linkedin.com/company/assured-guaranty/). The Company uses its web site and may use its social media account as a means of disclosing material information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Company Statements, Investor Information and Businesses portions of the Company’s web site as well as the Company’s social media account on LinkedIn, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts.
The information contained on, or that may be accessed through, the Company’s web site or social media account is not incorporated by reference into, and is not a part of, this report.
Overview
Business
The Company reports its results of operations in two distinct segments, Insurance and Asset Management, consistent with the manner in which the Company’s chief operating decision maker (CODM) reviews the business to assess performance and allocate resources. The Company’s Corporate division and other activities (including financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs)) are presented separately.
In the Insurance segment, the Company provides credit protection products to the U.S. and international public finance (including infrastructure) and structured finance markets. The Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer credit protection products to holders of debt instruments and other monetary obligations that protect them from defaults in scheduled payments. If an obligor defaults on a scheduled
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payment due on an obligation, including a debt service payment, the Company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company markets its credit protection products directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The Company guarantees obligations issued principally in the U.S. and the United Kingdom (U.K.), and also guarantees obligations issued in other countries and regions, including Western Europe, Canada and Australia. The Company also provides other forms of insurance that are consistent with its risk profile and benefit from its underwriting experience, which are referred to as the specialty insurance and reinsurance business. Premiums are earned over the contractual lives, or in the case of homogeneous pools of insured obligations, the remaining expected lives, of financial guaranty insurance contracts.
In the Asset Management segment, the Company provides investment advisory services, which include the management of CLOs, opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down. Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM) have managed structured, public finance and credit investments since 2003. AssuredIM provides investment advisory services while leveraging a technology-enabled risk platform, which aims to maximize returns for its clients. The establishment, in the fourth quarter of 2019, of the Asset Management segment diversifies the risk profile and revenue opportunities of the Company. As of March 31, 2022, AssuredIM had $17.0 billion of assets under management (AUM), including $1.4 billion that is managed on behalf of Assured Guaranty Municipal Corp. (AGM) and Assured Guaranty Corp. (AGC).
Fees in respect of investment advisory services are the largest component of revenues for the Asset Management segment. AssuredIM is compensated for its investment advisory services generally through management fees which are based on AUM, and may also earn performance fees calculated as a percentage of net profits or based on an internal rate of return referencing distributions made to investors, in each case, in respect of funds, collateralized loan obligations (CLOs) and/or accounts which it advises.
The Corporate division consists primarily of interest expense on the debt of Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH) (the U.S. Holding Companies), as well as other operating expenses attributed to holding company activities, including administrative services performed by certain subsidiaries for the holding companies. Other activities include the effect of consolidating FG VIEs and CIVs (FG VIE and CIV consolidation). See Item 1, Financial Statements, Note 2, Segment Information.
Economic Environment
Economic activity in the U.S. and throughout the world expanded in 2021 and in the three month period ended March 31, 2022 (First Quarter 2022). According to the advance estimate released by the U.S. Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 6.9% in the fourth quarter of 2021. Although an advance estimate released by the BEA showed that GDP decreased 1.4% in First Quarter 2022, the primary reason was reported to be as a result of trade, since net imports increased as supply chains improved and businesses continued to restock. More granular measures were positive, with a 4.7% increase in consumer spending and a 5.7% increase in business investment. At the end of March 2022, the U.S. unemployment rate, seasonally adjusted, stood at 3.6%, lower than where it started the quarter at 3.9%, and down from a pandemic high of 14.7% in April 2020. More globally, the Organization for Economic Co-operation and Development (OECD) estimates that GDP in the OECD area increased by 5.1% during 2021, with U.K. GDP estimated to have grown by 6.9% for the year, in each case after experiencing material contraction in 2020. The Company believes a more robust economy makes it less likely that obligors whose obligations it guarantees will default.
According to the U.S. Bureau of Labor Statistics, the inflation rate in the U.S. over the 12-month period ending March 2022 (the latest data available), as measured by the consumer price index for all urban consumers, rose to 8.5% before seasonal adjustment, the highest since December of 1981. The energy index rose 32% and the food index 8.8% over the same 12-month period, the most since the period ending May 1981. According to the U.K.’s Office for National Statistics (ONS), the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.2% in the 12 months ending March 2022, up from 5.5% in the 12 months ending February 2022 and 1.0% in the 12 months ending March 2021. Consumer price inflation does not impact the Company’s primary businesses directly, but may impact the Company indirectly to the extent it makes it more difficult for obligors to make their debt payments or causes interest rates to rise more generally.
The 30-year AAA Municipal Market Data (MMD) rate is a measure of interest rates in the Company’s largest financial guaranty insurance market, U.S. public finance. The 30-year AAA MMD rate started First Quarter 2022 at 1.49% but rose more than 100 basis points (bps) to end the quarter at 2.53%. The average rate for the quarter was 2.00%, above the 1.54% average for 2021. With the onset of the COVID-19 pandemic, the Federal Open Market Committee (FOMC) lowered the target range
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for the federal funds rate to 0% to 0.25% in March 2020. However, at the FOMC’s meeting in March 2022, the FOMC decided to raise the target range for the federal funds rate to 0.25% to 0.50%, stating that it anticipated that ongoing increases in the target range will be appropriate. In addition, the FOMC said that it expected to begin reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities at a coming meeting. At the conclusion of its May 3-4, 2022 meeting, the FOMC again raised the federal funds target range, this time to 0.75% to 1%, reiterating that it anticipated that ongoing increases in the target range would be appropriate. In addition, the FOMC announced that it would begin reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities on June 1, 2022. The level and direction of interest rates impact the Company in numerous ways. For example, higher interest rates may make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-income investment portfolio. Specifically, the level of interest rates on the U.S. municipal bonds the Company enhances influences how high a premium the Company can charge for its public finance financial guaranty insurance product, with higher interest rates generally increasing the premium rates the Company may charge. On the other hand, high interest rates decrease the amount of excess spread available to support the distressed residential mortgage-backed securities (RMBS) the Company insures and reduce the market value of its largely fixed rate fixed-maturity securities in the investment portfolio. The Company believes further increases in interest rates and spreads in 2022, should it occur, could increase demand for insurance and permit it to increase its premium rates on new business.
The difference, or credit spread, between the 30-year A-rated general obligation relative to the 30-year AAA MMD averaged 39 bps in First Quarter 2022 up from 33 bps in 2021 but still below the 42 bps in 2020. BBB credit spreads measured on the same basis averaged 72 bps in First Quarter 2022, up modestly from the 70 bps in full year 2021. The level of credit spreads also influences how high a premium the Company can charge for its financial guaranty insurance product, with tighter credit spreads generally lowering the premium rates the Company may charge.
Home prices continued their recent surge in the First Quarter of 2022. According to the National Association of Realtors, the median existing-home price for all housing types in March 2022 was $375,300, a 15% year-over-year increase and up from $358,000 in December 2021. Existing home sales were 5.8 million in March 2022, up 4.5% year over year. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported an 19.8% annualized gain in February 2022 (the latest data available), compared to 19.1% in the previous month. The 10-City Composite annual increase came in at 18.6%, compared to 17.3% in the previous month. The 20-City Composite posted an 20.2% year-over-year gain, compared to 18.9% in the previous month. Home prices in the U.S. impact the performance of the Company's insured RMBS portfolio. Improved home prices generally result in fewer losses or more reimbursements with respect to the Company's distressed insured RMBS risks, and may impact the amount of losses or reimbursements it projects for its distressed legacy RMBS insured portfolio.
Impact of COVID-19
Variants of COVID-19 continue to spread throughout the world, while the production, acceptance, and distribution of vaccines and therapeutics for it are proceeding unevenly across the globe. The emergence of COVID-19 and reactions to it, including various intermittent closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets. The ultimate size, depth, course and duration of the pandemic, and the effectiveness, acceptance, and distribution of vaccines and therapeutics for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve. Consequently, and due to the nature of the Company’s business, all of the direct and indirect consequences of COVID-19 on the Company are not yet fully known to the Company, and still may not emerge for some time.
From shortly after the pandemic reached the U.S. through early 2021, the Company’s surveillance department conducted supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various intermittent closures and capacity and travel restrictions or an economic downturn. Given significant federal funding to state and local governments in 2021 and the performance it observed, the Company’s surveillance department has reduced the supplemental procedures. However, it is still monitoring those sectors it identified as most at risk for any developments related to COVID-19 that may impact the ability of issuers to make upcoming debt service payments. The Company has paid only relatively small insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19, and has already received reimbursement for most of those claims.
The Company began operating remotely in accordance with its business continuity plan in March 2020 in response to the COVID-19 pandemic, instituting mandatory remote work policies in its offices in Bermuda, U.S., U.K. and France. By the end of February 2022, the Company had reopened all of its offices, choosing a hybrid remote and office work model in response to employee feedback and as part of its commitment to providing a safe and healthy workplace. Whether its
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employees are working remotely or in a hybrid remote and office work model, the Company continues to provide the services and communications it normally would.
Key Business Strategies
The Company continually evaluates its business strategies. For example, with the establishment of AssuredIM the Company has increased its focus on asset management and alternative investments. Currently, the Company is pursuing the following key business strategies in three areas: (1) insurance, (2) asset management and alternative investments, and (3) capital management.
Insurance
The Company seeks to grow the insurance business through new business production, acquisitions of remaining legacy monoline insurers or reinsurance of their insured portfolios, and to continue to mitigate losses in its current insured portfolio.
Growth of the Insured Portfolio
The Company seeks to grow its insurance portfolio through new business production in each of its three markets: U.S. public finance, international infrastructure and global structured finance. The Company believes high-profile defaults by municipal obligors, such as Puerto Rico, Detroit, Michigan and Stockton, California as well as events such as the COVID-19 pandemic have led to increased awareness of the value of bond insurance and stimulated demand for the product. The Company believes there will be continued demand for its insurance in this market because, for those exposures that the Company guarantees, it undertakes the tasks of credit selection, analysis, negotiation of terms, surveillance and, if necessary, loss mitigation. The Company believes that its insurance:
•encourages retail investors, who typically have fewer resources than the Company for analyzing municipal bonds, to purchase such bonds;
•enables institutional investors to operate more efficiently; and
•allows smaller, less well-known issuers to gain market access on a more cost-effective basis.
On the other hand, the persistently low interest rate environment and relatively tight U.S. municipal credit spreads have dampened demand for bond insurance compared to the levels before the financial crisis that began in 2008. The Company believes that if interest rates further increase in 2022, demand for bond insurance may improve.
In certain segments of the global infrastructure and structured finance markets the Company believes its financial guaranty product is competitive with other financing options. For example, certain investors may receive advantageous capital requirement treatment with the addition of the Company’s guaranty. The Company considers its involvement in both international infrastructure and structured finance transactions to be beneficial because such transactions diversify both the Company’s business opportunities and its risk profile beyond U.S. public finance. The timing of new business production in the international infrastructure and structured finance sectors is influenced by typically long lead times and therefore may vary from period to period.
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U.S. Municipal Market Data and Bond Insurance Penetration Rates (1)
Based on Sale Date

| First Quarter 2022 |  | First Quarter 2021 |  | Year Ended December 31, 2021
| (dollars in billions, except number of issues and percentages)
Par: |  |  |  |  |
New municipal bonds issued | $ | 96.8 |  |  | $ | 104.5 |  |  | $ | 456.7 |
Total insured | $ | 8.2 |  |  | $ | 8.5 |  |  | $ | 37.5 |
Insured by Assured Guaranty | $ | 4.8 |  |  | $ | 5.5 |  |  | $ | 22.6 |
Number of issues: |  |  |  |  |
New municipal bonds issued | 2,288 |  |  | 2,698 |  |  | 11,819 |
Total insured | 408 |  |  | 514 |  |  | 2,198 |
Insured by Assured Guaranty | 168 |  |  | 252 |  |  | 1,076 |
Bond insurance market penetration based on: |  |  |  |  |
Par | 8.5 | % |  | 8.1 | % |  | 8.2 | %
Number of issues | 17.8 | % |  | 19.1 | % |  | 18.6 | %
Single A par sold | 36.5 | % |  | 27.0 | % |  | 26.6 | %
Single A transactions sold | 57.7 | % |  | 56.7 | % |  | 56.6 | %
$25 million and under par sold | 20.8 | % |  | 21.3 | % |  | 21.3 | %
$25 million and under transactions sold | 20.7 | % |  | 21.9 | % |  | 21.7 | %

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(1) Source: The amounts in the table are those reported by Thomson Reuters. The table excludes Corporate-CUSIP transactions insured by Assured Guaranty, which the Company also considers to be public finance business.
The Company also considers opportunities to acquire financial guaranty portfolios, whether by acquiring financial guarantors who are no longer actively writing new business or their insured portfolios, generally through reinsurance. These transactions enable the Company to improve its future earnings and deploy excess capital.
Loss Mitigation
In an effort to avoid, reduce or recover losses and potential losses in its insurance portfolio, the Company employs a number of strategies.
In the public finance area, the Company believes its experience and the resources it is prepared to deploy, as well as its ability to provide bond insurance or other contributions as part of a solution, result in more favorable outcomes in distressed public finance situations than would be the case without its participation. This has been illustrated by the Company’s role in the Detroit, Michigan and Stockton, California financial crises, and more recently by the Company’s role in negotiating various agreements in connection with the restructuring of obligations of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations. The Company will also, where appropriate, pursue litigation to enforce its rights. For example, it initiated a number of legal actions to enforce its rights with respect to obligations of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations.
After over five years of negotiations, on March 15, 2022, a substantial portion of the Company’s Puerto Rico exposure was resolved in accordance with three orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico):
•On January 18, 2022, the Federal District Court of Puerto Rico, acting under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), entered an order and judgment confirming the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan). The GO/PBA Plan restructured approximately $35 billion of debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities as well as $50 billion in pension obligations (none of which pension obligations are insured by the Company), all consistent with the terms of the settlement embodied in a revised GO and PBA plan support agreement (PSA) entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the financial oversight and management board (the FOMB) (GO/PBA PSA).
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•On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered an order under Title VI of PROMESA (PRCCDA Modification) modifying the debt of the Puerto Rico Convention Center District Authority (PRCCDA).
•On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered another order under Title VI of PROMESA (PRIFA Modification) modifying certain debt of the Puerto Rico Infrastructure Financing Authority (PRIFA).
As a result of the consummation on March 15, 2022, of each of the GO/PBA Plan, PRCCDA Modification and PRIFA Modification (together, the March Puerto Rico Resolutions), including claim payments made by the Company under the March Puerto Rico Resolutions, the Company’s obligations under its insurance policies covering debt of PRCCDA and PRIFA were extinguished, and its insurance exposure to Puerto Rico GO and PBA was greatly reduced. The Company believes the consummation of the March Puerto Rico Resolutions on March 15, 2022, mark a milestone in its Puerto Rico loss mitigation efforts. For more information about developments in Puerto Rico and related recovery litigation being pursued by the Company, see Item 1, Financial Statements, Note 3, Outstanding Exposure and the Insured Portfolio section below.
In connection with the consummation of the March Puerto Rico Resolutions the Company received substantial amounts of new recovery bonds and contingent value instruments (CVIs). The Company has sold some of the new recovery bonds and CVIs it received and may continue to sell amounts it still retains, subject to market conditions. The fair value of such securities held by the Company as of March 31, 2022, is included in the lines “fixed-maturity securities - Puerto Rico, available-for-sale” and “fixed-maturity securities - Puerto Rico, trading” in the table “Investment Portfolio Carrying Value” of Item 1, Financial Statements, Note 7, Investments.
The Company is and has for several years been working with the servicers of some of the RMBS it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS.
In some instances, the terms of the Company’s policy give it the option to pay principal on an accelerated basis on an obligation on which it has paid a claim, thereby reducing the amount of guaranteed interest due in the future. The Company has at times exercised this option, which uses cash but reduces projected future losses. The Company may also facilitate the issuance of refunding bonds, by either providing insurance on the refunding bonds or purchasing refunding bonds, or both. Refunding bonds may provide the issuer with payment relief.
Asset Management and Alternative Investments
AssuredIM is a diversified asset manager that serves as investment adviser to CLOs, opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down. As of March 31, 2022, AssuredIM was a top 25 CLO manager by AUM, as published by Creditflux Ltd. AssuredIM is actively pursuing opportunity strategies focused on healthcare and asset-based lending and liquid strategies relating to municipal obligations.
Over time, the Company seeks to broaden and further diversify its Asset Management segment leading to increased AUM and a fee-generating platform. The Company intends to leverage the AssuredIM infrastructure and platform to grow its Asset Management segment both organically and through strategic combinations.
The Company monitors certain operating metrics that are common to the asset management industry. These operating metrics include, but are not limited to, funded AUM and unfunded capital commitments (together, AUM) and investment advisory management and performance fees. The Company considers the categorization of its AUM by product type to be a useful lens in monitoring the Asset Management segment. AUM by product type assists in measuring the duration of AUM for which the Asset Management segment has the potential to earn management fees and performance fees. For a discussion of the metric AUM, see “— Results of Operations by Segment — Asset Management Segment.”
Additionally, the Company believes that AssuredIM provides the Company an opportunity to deploy excess capital at attractive returns improving the risk-adjusted return on a portion of the investment portfolio and potentially increasing the amount of dividends certain of its insurance subsidiaries are permitted to pay under applicable regulations. The Company allocated $750 million of capital to invest in funds managed by AssuredIM plus $550 million of the AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S. Insurance Subsidiaries) invested assets now managed by AssuredIM under an Investment Management Agreement (IMA). The Company is using these allocations to: (a) launch new products (CLOs, opportunity funds and liquid strategy funds) on the AssuredIM platform; and (b) enhance the returns of its own investment portfolio.
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As of March 31, 2022, AG Asset Strategies LLC (AGAS) had committed $702 million to funds managed by AssuredIM (AssuredIM Funds), including $229 million that has yet to be funded. This capital was committed to several funds, each dedicated to a single strategy including CLOs, asset-based finance, healthcare structured capital and municipal bonds.
Under the IMA with AssuredIM, AGM and AGC have together invested $250 million to municipal obligation strategies and $300 million to CLO strategies. All of these strategies are consistent with the investment strengths of AssuredIM and the Company’s plans to continue to grow its investment strategies.
Capital Management
The Company has developed strategies to efficiently manage capital within the Assured Guaranty group.
From 2013 through May 5, 2022, the Company has repurchased 135.8 million common shares for approximately $4,374 million, representing approximately 70.0% of the total shares outstanding at the beginning of the repurchase program in 2013. On February 23, 2022, the AGL Board of Directors (the Board) authorized the repurchase of an additional $350 million of common shares. Under this and previous authorizations, as of May 5, 2022, the Company was authorized to purchase $240 million of its common shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time and it does not have an expiration date. See Item 1, Financial Statements, Note 14, Shareholders’ Equity, for additional information about the Company’s repurchases of its common shares.
Summary of Share Repurchases

| Amount |  | Number of Shares |  | Average price per share
| (in millions, except per share data)
2013 - 2021 | $ | 4,158 |  |  | 132.0 |  |  | $ | 31.50 |
2022 (First Quarter) | 155 |  |  | 2.7 |  |  | 56.62 |
2022 (through May 5) | 61 |  |  | 1.0 |  |  | 59.86 |
Cumulative repurchases since the beginning of 2013 | $ | 4,374 |  |  | 135.8 |  |  | 32.21 |

Accretive Effect of Cumulative Repurchases (1)

| First Quarter 2022 |  | As of March 31, 2022
| (per share)
Net income (loss) attributable to AGL | $ | 0.51 |  |  |
Adjusted operating income | 0.75 |  |  |
Shareholders’ equity attributable to AGL |  |  | $ | 38.45 |
Adjusted operating shareholders' equity |  |  | 39.16 |
Adjusted book value |  |  | 68.20 |

_________________
(1) Represents the estimated accretive effect of cumulative repurchases since the beginning of 2013.
The Company considers the appropriate mix of debt and equity in its capital structure. On May 26, 2021, the Company issued $500 million of 3.15% Senior Notes, due in 2031 for net proceeds of $494 million. On July 9, 2021, a portion of the proceeds from the issuance of the 3.15% Senior Notes were used to redeem $200 million of AGMH debt as follows: all $100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, and $100 million of the $230 million of AGMH’s 6.25% Notes due in 2102. On August 20, 2021, the Company issued $400 million of 3.6% Senior Notes, due in 2051 for net proceeds of $395 million. On September 27, 2021, all of the proceeds from the issuance of the 3.6% Senior Notes were used to redeem $400 million of AGMH and AGUS debt as follows: all $100 million of AGMH’s 5.60% Notes due in 2103; the remaining $130 million of AGMH 6.25% Notes due in 2102; and $170 million of the $500 million of AGUS 5% Senior Notes due in 2024. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies” for the U.S. Holding Companies’ long-term debt.
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In 2021, as a result of these redemptions, the Company recognized a loss on extinguishment of debt of approximately $175 million on a pre-tax basis ($138 million after-tax) which represents the difference between the amount paid to redeem the debt and the carrying value of the debt. The carrying value of the debt included the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009.
Proceeds from the debt issuances that were not used to redeem debt were used for general corporate purposes, including share repurchases.
The Company may choose to redeem or make additional purchases of this or other Company debt in the future. Since the second quarter of 2017, AGUS has purchased $154 million in principal of AGMH’s outstanding Junior Subordinated Debentures.
Municipal Assurance Corp. Merger
On April 1, 2021, Municipal Assurance Corp. (MAC) merged with and into AGM, with AGM as the surviving company. Upon the merger all direct insurance policies issued by MAC became direct insurance obligations of AGM. As a result, the Company wrote off the $16 million carrying value of MAC’s insurance licenses in the first quarter of 2021. This restructuring of the Company’s U.S. Insurance Subsidiaries simplified the organizational and capital structure, reduced costs, and increased the future dividend capacity of the U.S. Insurance Subsidiaries.
Executive Summary
This executive summary of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Quarterly Report. For a more detailed description of events, trends and uncertainties, as well as the capital, liquidity, credit, operational and market risks and the critical accounting policies and estimates affecting the Company, this Quarterly Report should be read in its entirety and in addition to the Company’s 2021 Annual Report on Form 10-K.
The primary drivers of volatility in the Company’s net income include: changes in fair value of credit derivatives, FG VIEs, CIVs, and committed capital securities (CCS), loss and loss adjustment expense (LAE), foreign exchange gains (losses), the level of refundings of insured obligations, and changes in the value of the Company’s alternative investments, as well as the effects of any large settlements, commutations and loss mitigation strategies, among other factors. Changes in the fair value of AssuredIM Funds affect the amount of management and performance fees earned. Changes in laws and regulations, among other factors, may also have a significant effect on reported net income or loss in a given reporting period.
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Financial Performance of Assured Guaranty
Financial Results

| First Quarter
| 2022 |  | 2021
| (in millions, except per share amounts)
GAAP |  |  |
Net income (loss) attributable to AGL | $ | 66 |  |  | $ | 11 |
Net income (loss) attributable to AGL per diluted share | $ | 0.98 |  |  | $ | 0.14 |
Weighted average diluted shares | 67.4 |  |  | 77.5 |
Non-GAAP |  |  |
Adjusted operating income (loss) (2) | $ | 90 |  |  | $ | 43 |
Adjusted operating income per diluted share | $ | 1.34 |  |  | $ | 0.55 |
Weighted average diluted shares | 67.4 |  |  | 77.5 |
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income | $ | (10) |  |  | $ | — |
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating income per share | $ | (0.14) |  |  | $ | — |
Components of total adjusted operating income (loss) |  |  |
Insurance segment | $ | 133 |  |  | $ | 79 |
Asset Management segment | — |  |  | (7) |
Corporate division | (33) |  |  | (29) |
Other (1) | (10) |  |  | — |
Adjusted operating income (loss) | $ | 90 |  |  | $ | 43 |
Insurance Segment |  |  |
Gross written premiums (GWP) | $ | 70 |  |  | $ | 87 |
Present value of new business production (PVP) (2) | 69 |  |  | 86 |
Gross par written | 4,471 |  |  | 5,472 |
Asset Management Segment |  |  |
AUM |  |  |
Inflows - third party | $ | 91 |  |  | $ | 873 |
Inflows - intercompany | — |  |  | 145 |

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| As of March 31, 2022 |  | As of December 31, 2021
| Amount |  | Per Share |  | Amount |  | Per Share
| (in millions, except per share amounts)
Shareholders’ equity attributable to AGL | $ | 5,802 |  |  | $ | 89.20 |  |  | $ | 6,292 |  |  | $ | 93.19 |
Adjusted operating shareholders' equity (2) | 5,860 |  |  | 90.09 |  |  | 5,991 |  |  | 88.73 |
Adjusted book value (2) | 8,665 |  |  | 133.21 |  |  | 8,823 |  |  | 130.67 |
Gain (loss) related to FG VIE and CIV consolidation included in adjusted operating shareholders’ equity | 22 |  |  | 0.34 |  |  | 32 |  |  | 0.47 |
Gain (loss) related to FG VIE and CIV consolidation included in adjusted book value | 13 |  |  | 0.19 |  |  | 23 |  |  | 0.34 |
Common shares outstanding (3) | 65.0 |  |  |  |  | 67.5 |  |  |

____________________
(1) Relates to the effect of consolidating FG VIEs and CIVs.
(2) See “—Non-GAAP Financial Measures” for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the United States of America (GAAP), a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure, if available, and for additional details.
(3) See “— Overview— Key Business Strategies – Capital Management” above for information on common share repurchases.
Condensed Consolidated Results of Operations
Condensed Consolidated Results of Operations

| Three Months Ended March 31,
| 2022 |  | 2021
| (in millions)
Revenues: |  |  |
Net earned premiums | $ | 214 |  |  | $ | 103 |
Net investment income | 62 |  |  | 70 |
Asset management fees | 34 |  |  | 24 |
Net realized investment gains (losses) | 3 |  |  | (3) |
Fair value gains (losses) on credit derivatives | (3) |  |  | (19) |
Fair value gains (losses) on CCS | 1 |  |  | (19) |
Fair value gains (losses) on FG VIEs | 6 |  |  | 5 |
Fair value gains (losses) on CIVs | 14 |  |  | 16 |
Foreign exchange gains (losses) on remeasurement | (30) |  |  | — |
Other income (loss) | (1) |  |  | — |
Total revenues | 300 |  |  | 177 |
Expenses: |  |  |
Loss and LAE | 57 |  |  | 30 |
Interest expense | 20 |  |  | 21 |
Amortization of deferred acquisition costs (DAC) | 4 |  |  | 3 |
Employee compensation and benefit expenses | 73 |  |  | 60 |
Other operating expenses | 42 |  |  | 57 |
Total expenses | 196 |  |  | 171 |
Income (loss) before income taxes and equity in earnings (losses) of investees | 104 |  |  | 6 |
Equity in earnings (losses) of investees | (11) |  |  | 9 |
Income (loss) before income taxes | 93 |  |  | 15 |
Less: Provision (benefit) for income taxes | 18 |  |  | — |
Net income (loss) | 75 |  |  | 15 |
Less: Noncontrolling interests | 9 |  |  | 4 |
Net income (loss) attributable to Assured Guaranty Ltd. | $ | 66 |  |  | $ | 11 |
Effective tax rate | 20.0 | % |  | (0.9) | %

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Net income attributable to AGL for First Quarter 2022 was higher compared with the three month period ended March 31, 2021 (First Quarter 2021) primarily due to:
•higher net earned premiums of $214 million in First Quarter 2022 compared with $103 million in First Quarter 2021,
•fair value gains on CCS in First Quarter 2022 compared with losses in First Quarter 2021, and
•lower fair value losses on credit derivatives in First Quarter 2022 compared with First Quarter 2021.
These increases were offset in part by:
•foreign exchange losses on remeasurement in First Quarter 2022,
•higher loss expense in First Quarter 2022 compared First Quarter 2021, and
•losses in equity method alternative investments.
The Company’s effective tax rate reflects the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries generally taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19%, French subsidiaries taxed at the French marginal corporate tax rate of 25%, and no taxes for the Company’s Bermuda subsidiaries, unless subject to U.S. tax by election or as a U.S. controlled foreign corporation. The effective tax rate in First Quarter 2022 was higher than in First Quarter 2021 due primarily to differences in the portion of income generated by various jurisdictions.
Adjusted Operating Income
Adjusted operating income in First Quarter 2022 was $90 million, compared with $43 million in First Quarter 2021. The increase was primarily attributable to higher insurance segment adjusted operating income due to the March Puerto Rico Resolutions. See “— Results of Operations — Reconciliation to GAAP” below.
Book Value and Adjusted Book Value
Shareholders’ equity attributable to AGL declined mainly due to unrealized losses on the available-for-sale fixed-maturity investment portfolio that were a result of higher interest rates and share repurchases. Adjusted operating shareholders’ equity and adjusted book value declined from December 31, 2021, mainly due to share repurchases and dividends, partially offset, in the case of adjusted book value, by net written premiums on new business production.
Shareholder’s equity attributable to AGL per share, adjusted operating shareholders’ equity per share and adjusted book value per share were $89.20, $90.09 and $133.21, respectively as of March 31, 2022. Shareholders’ equity per share declined primarily due to unrealized losses on the available-for-sale fixed maturity portfolio. The increase in adjusted operating shareholders’ equity per share and adjusted book value per share was primarily due to the accretive effect of the share repurchase program. In the case of adjusted book value per share, net premiums written in the Insurance segment also contributed to the increase compared with December 31, 2021. See “— Overview — Key Business Strategies , Accretive Effect of Cumulative Repurchases” table above. See “— Non-GAAP Financial Measures” below for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and adjusted book value.
Other Matters
Russia’s Invasion of Ukraine
Russia’s invasion of Ukraine has led to the imposition of economic sanctions by many western countries against Russia and certain Russian individuals, dislocation in global energy markets, massive refugee movements, and probable default by certain Russian credits. The economic sanctions imposed by western governments, along with decisions by private companies regarding their presence in Russia, continue to reduce western economic ties to Russia and to reshape global economic and political ties more generally, and the Company cannot predict all of the potential effects of the conflict on the world or on the Company.
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The Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, and have identified no material direct exposure to Ukraine or Russia. In fact, the Company’s direct insurance exposure to eastern Europe generally is limited to approximately $327 million in net par outstanding as of March 31, 2022, comprising $255 million net par exposure to the sovereign debt of Poland and $72 million net par exposure to a toll road in Hungary. The Company rates the toll road exposure below-investment-grade (BIG).
Inflation
As described above under "Overview -- Economic Environment", by some measures consumer inflation in the U.S. and the U.K. has been higher in the last few months than it has been in decades, and interest rates generally have increased. Concerns have been expressed in the financial press about inflation taking hold in the economy. Inflation and higher interest rates could impact the Company in numerous ways. For example, higher interest rates might make the Company’s credit enhancement products more attractive in the market and increase the level of premiums it can charge for that product, and, over time, also increase the amount the Company can earn on its largely fixed-maturity investment portfolio. On the other hand, high interest rates would decrease the amount of excess spread available to support the distressed RMBS the Company insures, would reduce the market value of its largely fixed rate fixed maturity investment portfolio and may make it more difficult for obligors to repay obligations the Company guarantees. The Federal Reserve Board has communicated its intention to raise interest rates, and the Company believes further increases in interest rates and spreads in 2022, should they occur, could increase demand for insurance and permit the Company to increase its premium rates on new business, although there can be no assurance that this would occur.
LIBOR Sunset
ICE Benchmark Administration (IBA) and U.K. Financial Conduct Authority (FCA) first announced in 2017 that the publication of London Interbank Offered Rate (LIBOR) would cease at the end of 2021. Many legal documents entered into prior to that time did not include robust fallback language contemplating the permanent suspension of the publication of LIBOR. On March 5, 2021, IBA and FCA confirmed a representative panel of banks will continue setting 1, 3, 6 and 12-month U.S. Dollar LIBOR through June 2023, rather than December 31, 2021 as originally announced. The Company believes that the continued publication of U.S. Dollar LIBOR on the current basis after June 2023 is unlikely. The publication of all sterling LIBOR rates ceased on December 31, 2021, as originally announced.
The Company has exposure to LIBOR in the following areas: (i) issuers of obligations the Company insures have obligations, assets and hedges that reference LIBOR, and some loss mitigation securities held in the investment portfolio reference LIBOR, (ii) debt issued by the U.S. Holding Companies currently pay or will convert to, a floating interest rate tied to LIBOR, (iii) CCS from which the Company benefits pay interest tied to LIBOR, and (iv) certain obligations issued by, and certain assets owned by, the Company’s CIVs pay interest tied to LIBOR.
U.S. Dollar LIBOR. On March 15, 2022, the U.S. president signed into law the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) which provides, among other things, a transition to the Secured Overnight Finance Rate (SOFR) as a benchmark replacement for LIBOR-based contracts that do not have adequate fallback language or a replacement rate is not selected by a determining person. The LIBOR Act eliminates the need to seek amendments to our LIBOR-based contracts that do not contain adequate fallback language. New York and other states have also passed legislation similar to the LIBOR Act.
Sterling LIBOR. The Company is cooperating with the relevant parties to amend the relevant documents referencing sterling LIBOR in its insured portfolio to instead reference Sterling Overnight Interbank Average Rate (SONIA), and the Company believes such amendments will be completed by year end 2022. In the meantime, the FCA has authorized temporary use of synthetic sterling LIBOR, which approximates what sterling LIBOR might have been.
Income Taxes
The U.S. Internal Revenue Service and Department of the Treasury issued final and proposed regulations in October 2020 relating to the tax treatment of passive foreign investment companies (PFIC). The final regulations are not expected to have a material impact to the Company’s business operation or its shareholders and the proposed regulations are continuing to be evaluated.
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Results of Operations
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment and require the Company to make estimates and assumptions, based on available information, that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements. The inputs into our estimates and assumptions consider the economic implications of COVID-19. Estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the Consolidated Financial Statements.
Critical estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time.
The accounting policies that the Company believes are the most dependent on the application of judgment, estimates and assumptions are listed below. See Part II. Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, of the Company’s 2021 Annual Report on Form 10-K, for the Company’s significant accounting policies which includes a reference to the note where further details regarding the significant estimates and assumptions are provided, as well as Part II. Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s 2021 Annual Report on Form 10-K, for further details regarding sensitivity analysis.
•Expected loss to be paid (recovered)
•Fair value of certain assets and liabilities, primarily:
▪Investments
▪Assets and liabilities of CIVs
▪Assets and liabilities of FG VIEs
▪Credit derivatives
•Recoverability of goodwill and other intangible assets
•Credit impairment of financial instruments
•Revenue recognition
•Income tax assets and liabilities, including the recoverability of deferred tax assets (liabilities)
In addition, the valuation of AUM, which is the basis for calculating certain asset management fees, is based on estimates and assumptions. AUM valuations are often performed by independent pricing services based on observable and unobservable inputs. AUM may be impacted by a wide range of factors, including the condition of the global economy and financial markets, the relative attractiveness of the investment strategies of AssuredIM, and regulatory or other governmental policies or actions. For an explanation of how the Company defines and uses the AUM metric and why it provides useful information to investors, see “— Results of Operations by Segment — Asset Management Segment”.
Results of Operations by Segment
The Company analyzes the operating performance of each segment using each segment’s adjusted operating income as described in Item 1, Financial Statements, Note 2, Segment Information.
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Insurance Segment Results
Insurance Segment Results

| First Quarter
| 2022 |  | 2021
| (in millions)
Segment revenues |  |  |
Net earned premiums and credit derivative revenues | $ | 219 |  |  | $ | 107 |
Net investment income | 63 |  |  | 73 |
Other income (loss) | (4) |  |  | (1) |
Total segment revenues | 278 |  |  | 179 |
Segment expenses |  |  |
Loss expense | 60 |  |  | 30 |
Interest expense | 1 |  |  | — |
Amortization of DAC | 4 |  |  | 3 |
Employee compensation and benefit expenses | 38 |  |  | 36 |
Other operating expenses | 19 |  |  | 37 |
Total segment expenses | 122 |  |  | 106 |
Equity in earnings (losses) of investees | (1) |  |  | 19 |
Segment adjusted operating income (loss) before income taxes | 155 |  |  | 92 |
Less: Provision (benefit) for income taxes | 22 |  |  | 13 |
Segment adjusted operating income (loss) | $ | 133 |  |  | $ | 79 |

Net Earned Premiums and Credit Derivative Revenues
Premiums are earned over the contractual lives, or in the case of insured obligations backed by homogeneous pools of assets, the remaining expected lives, of financial guaranty insurance contracts. The Company periodically estimates remaining expected lives of its insured obligations backed by homogeneous pools of assets and makes prospective adjustments for such changes in expected lives. Scheduled net earned premiums decrease each year unless replaced by a higher amount of new business, books of business acquired in a business combination or reassumptions of previously ceded business. See Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Premiums, for additional information.
Net earned premiums due to accelerations are attributable to changes in the expected lives of insured obligations driven by: (i) refundings of insured obligations; or (ii) terminations of insured obligations either through negotiated agreements or the exercise of the Company’s contractual rights to make claim payments on an accelerated basis.
Refundings occur in the public finance market when municipalities and other public finance issuers can refinance their debt obligations at lower rates than they are currently paying. The premiums associated with the insured obligations of municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured. When such issuers pay down insured obligations prior to their originally scheduled maturities, the Company is no longer on risk for payment defaults, and therefore accelerates the recognition of the remaining nonrefundable deferred premium revenue. The amortization of our outstanding book of business along with the previously high levels of refunding activity has led to a lower volume of refunding opportunities over the last several years, except for refundings of Puerto Rico polices under the March Puerto Rico Resolutions.
Terminations are generally negotiated agreements with beneficiaries resulting in the extinguishment of the Company’s insurance obligation. Terminations are more common in the structured finance asset class, but may also occur in the public finance asset class. While each termination may have different terms, they all result in the expiration of the Company’s insurance risk, the acceleration of the recognition of the associated deferred premium revenue and the reduction of any remaining premiums receivable.
The Company has not written any new credit derivatives since 2009. Other than credit derivatives that may be acquired in business combinations and reinsurance agreements, or as part of loss mitigation strategies, credit derivative exposure is expected to decline.
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Insurance Segment
Net Earned Premiums and Credit Derivative Revenues

| First Quarter
| 2022 |  | 2021
| (in millions)
Net earned premiums: |  |  |
Financial guaranty insurance: |  |  |
Public finance |  |  |
Scheduled net earned premiums (1) | $ | 71 |  |  | $ | 72 |
Accelerations: |  |  |
Refundings | 128 |  |  | 16 |
Terminations | — |  |  | — |
Total accelerations | 128 |  |  | 16 |
Total public finance | 199 |  |  | 88 |
Structured finance scheduled net earned premiums (1) | 15 |  |  | 15 |
Specialty insurance and reinsurance | 1 |  |  | 1 |
Total net earned premiums | 215 |  |  | 104 |
Credit derivative revenues: |  |  |
Scheduled net earned premiums | 2 |  |  | 3 |
Accelerations | 2 |  |  | — |
Total credit derivative revenues | 4 |  |  | 3 |
Total net earned premiums and credit derivative revenues | $ | 219 |  |  | $ | 107 |

____________________
(1) Includes accretion of discount.
Net earned premiums and credit derivative revenues in First Quarter 2022 increased compared with First Quarter 2021 primarily due to refundings of $104 million associated with the March Puerto Rico Resolutions as discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure. As of March 31, 2022, $3.6 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the insurance contracts.
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New Business Production
Gross Written Premiums and
New Business Production

| First Quarter
| 2022 |  | 2021
| (in millions)
GWP |  |  |
Public Finance—U.S. | $ | 49 |  |  | $ | 79 |
Public Finance—non-U.S. | 16 |  |  | 5 |
Structured Finance—U.S. | 5 |  |  | 3 |
Structured Finance—non-U.S. | — |  |  | — |
Total GWP | $ | 70 |  |  | $ | 87 |
PVP (1): |  |  |
Public Finance—U.S. | $ | 49 |  |  | $ | 81 |
Public Finance—non-U.S. | 12 |  |  | 3 |
Structured Finance—U.S. | 2 |  |  | 2 |
Structured Finance—non-U.S. (1) | 6 |  |  | — |
Total PVP | $ | 69 |  |  | $ | 86 |
Gross Par Written (2): |  |  |
Public Finance—U.S. | $ | 3,931 |  |  | $ | 5,427 |
Public Finance—non-U.S. | 223 |  |  | — |
Structured Finance—U.S. | 60 |  |  | 45 |
Structured Finance—non-U.S. (1) | 257 |  |  | — |
Total gross par written | $ | 4,471 |  |  | $ | 5,472 |
Average rating on new business written | A- |  | A-

____________________
(1) First Quarter 2022 PVP and gross par written includes the present value of future premiums and exposure, respectively, associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees.
(2) PVP and Gross Par Written in the table above are based on “close date,” when the transaction settles. See “– Non-GAAP Financial Measures – PVP or Present Value of New Business Production.”
U.S. public finance GWP and PVP in First Quarter 2022 was lower than the comparable GWP and PVP in First Quarter 2021, primarily due to a large transaction closed in First Quarter 2021 that did not recur. The average rating of U.S. public finance par written was A- in First Quarter 2022, which is consistent with the average rating in First Quarter 2021. The Company's direct par written represented 58% of the total U.S. municipal market insured issuance in First Quarter 2022, compared with 65% in First Quarter 2021, and the Company’s penetration of all municipal issuance was 4.9% in First Quarter 2022 compared with 5.3% in First Quarter 2021.
In First Quarter 2022, non-U.S. public finance GWP and PVP were primarily attributable to a U.K. water liquidity guarantee and a restructuring of an existing U.K. water transaction.
In First Quarter 2022, structured finance GWP is primarily attributable to U.S. credits. Non-U.S. structured finance PVP primarily includes guarantees of rental income cash flows, for which no GWP is reported under GAAP.
Income from Investment Portfolio
Net investment income is a function of the yield that the Company earns on available-for-sale fixed-maturity securities and short-term investments, and the size of such portfolio. The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the securities in this portfolio.
Equity method investments in the Insurance segment include investments that the U.S. Insurance Subsidiaries make in AssuredIM Funds, as well as other alternative investments. The income (loss) on such investments is reported in “equity in earnings (losses) of investees” and typically represents the change in net asset value (NAV) of AssuredIM Funds and the Company’s share of earnings of its other equity method alternative investments. The U.S. Insurance Subsidiaries are authorized
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to invest up to $750 million in AssuredIM Funds. As of March 31, 2022, the U.S. Insurance Subsidiaries had total commitments to AssuredIM Funds of $702 million, of which $473 million represented net invested capital and $229 million was undrawn.
Insurance Segment
Income from Investment Portfolio

| First Quarter
| 2022 |  | 2021
| (in millions)
Net investment income |  |  |
Externally managed | $ | 47 |  |  | $ | 51 |
Loss mitigation securities and other | 12 |  |  | 17 |
Managed by AssuredIM (1) | 4 |  |  | 4 |
Intercompany loans | 2 |  |  | 2 |
Investment income | 65 |  |  | 74 |
Investment expenses | (2) |  |  | (1) |
Net investment income | $ | 63 |  |  | $ | 73 |
Other income: |  |  |
Unrealized gain (loss) on trading securities | $ | (4) |  |  | $ | — |
Equity in earnings (losses) of investees |  |  |
AssuredIM Funds | $ | 11 |  |  | $ | 10 |
Other | (12) |  |  | 9 |
Equity in earnings (losses) of investees | $ | (1) |  |  | $ | 19 |

____________________
(1) Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.
Net investment income for First Quarter 2022 decreased compared to First Quarter 2021, primarily due to lower average balances in fixed-maturity securities as short term investments were accumulated to meet liquidity needs as a result of the consummation of the March Puerto Rico Resolutions on March 15, 2022. The overall pre-tax book yield was 3.15% as of March 31, 2022 and 3.23% as of March 31, 2021. Excluding the internally managed portfolio, pre-tax book yield was 2.93% as of March 31, 2022 and 2.94% as of March 31, 2021.
Equity in earnings of AssuredIM Funds in First Quarter 2022 was primarily attributable to higher valuations of assets held in CLO, healthcare and asset-based funds. The fair value gains on investments in AssuredIM Funds in First Quarter 2021 was primarily attributable to changes in the NAV of CLO funds. Equity in earnings of other investments decreased in First Quarter 2022 compared with First Quarter 2021 primarily due to a stock price decline on a specific investment in a private equity fund.
CVIs issued by Puerto Rico and received as part of the March Puerto Rico Resolutions are classified as trading with changes in fair value reported in other income. The fair value of such instruments as of March 31, 2022 was $174 million.
Other Income (Loss)
Other income (loss) consists of recurring items such as ancillary fees on financial guaranty policies for commitments and consents, foreign exchange gain (loss) on remeasurement, and if applicable, other revenue items on financial guaranty insurance and reinsurance contracts such as loss mitigation recoveries. Beginning in First Quarter 2022, other income (loss) also included unrealized gain (loss) on the portfolio of trading securities.
Economic Loss Development
The insured portfolio includes policies accounted for under three separate accounting models depending on the characteristics of the contract and the Company’s control rights. For a discussion of methodologies used in estimating the expected loss to be paid (recovered) for all contracts and the accounting policies for measurement and recognition under GAAP
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for each type of contract, see the notes listed below in Part II. Item 8, Financial Statements and Supplementary Data, of the Company’s 2021 Annual Report on Form 10-K:
•Note 6 for contracts accounted for as insurance;
•Note 7 for contracts accounted for as credit derivatives;
•Note 9 for FG VIEs; and
•Note 10 for fair value methodologies for credit derivatives and FG VIEs’ assets and liabilities.
In order to efficiently evaluate and manage the economics of the entire insured portfolio, management compiles and analyzes expected loss information for all policies on a consistent basis. The discussion of losses that follows encompasses expected losses on all contracts in the insured portfolio regardless of accounting model, unless otherwise specified. Net expected loss to be paid (recovered) primarily consists of the present value of future: expected claim and LAE payments; expected recoveries from issuers or excess spread; cessions to reinsurers; expected recoveries/payables stemming from breaches of representation and warranties (R&W); and, the effects of other loss mitigation strategies. Assumptions used in the determination of the net expected loss to be paid (recovered) such as delinquency, severity, and discount rates and expected time frames to recovery were consistent by sector regardless of the accounting model used.
Current risk-free rates are used to discount expected losses at the end of each reporting period and therefore changes in such rates from period to period affect the expected loss estimates reported. Changes in risk-free rates used to discount losses affect economic loss development, and loss and LAE; however, the effect of changes in discount rates are not indicative of actual credit impairment or improvement in the period. The following table presents the range and weighted average discount rates used to discount expected losses (recoveries).
Risk-Free Rates Used in Expected Loss (Recovery) for
U.S. Dollar Denominated Obligations

| As of March 31, 2022 |  | As of December 31, 2021 |  | As of March 31, 2021 |  | As of December 31, 2020
Range | 0.00 | % | – | 2.61% |  | 0.00 | % | – | 1.98% |  | 0.00 | % | – | 2.49% |  | 0.0 | % | – | 1.72%
Weighted average | 2.26% |  | 1.02% |  | 0.88% |  | 0.60%

The composition of economic loss development (benefit) by accounting model and by sector are presented in the tables that follow, and the drivers of economic loss development (benefit) are discussed below.
Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)
by Accounting Model

|  | Net Expected Loss to be Paid (Recovered) |  | Net Economic Loss Development (Benefit)
|  | As of |  | First Quarter
Accounting Model |  | March 31, 2022 |  | December 31, 2021 |  | 2022 |  | 2021
|  | (in millions)
Insurance |  | $ | 388 |  |  | $ | 364 |  |  | $ | (44) |  |  | $ | 16 |
FG VIEs |  | 38 |  |  | 42 |  |  | (4) |  |  | (6) |
Credit derivatives |  | 6 |  |  | 5 |  |  | 4 |  |  | 3 |
Total |  | $ | 432 |  |  | $ | 411 |  |  | $ | (44) |  |  | $ | 13 |
Net exposure rated below-investment-grade (BIG) |  | $ | 5,783 |  |  | $ | 7,440 |  |  |  |  |

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Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)
By Sector

|  | Net Expected Loss to be Paid (Recovered) |  | Net Economic Loss Development (Benefit)
|  | As of |  | First Quarter
Sector |  | March 31, 2022 |  | December 31, 2021 |  | 2022 |  | 2021
|  | (in millions)
U.S. public finance |  | $ | 181 |  |  | $ | 197 |  |  | $ | (48) |  |  | $ | 15 |
Non-U.S. public finance |  | 10 |  |  | 12 |  |  | (2) |  |  | (12) |
Structured finance |  |  |  |  |  |  |  |
U.S. RMBS |  | 195 |  |  | 150 |  |  | 7 |  |  | 11 |
Other structured finance |  | 46 |  |  | 52 |  |  | (1) |  |  | (1) |
Structured finance |  | 241 |  |  | 202 |  |  | 6 |  |  | 10 |
Total |  | $ | 432 |  |  | $ | 411 |  |  | $ | (44) |  |  | $ | 13 |
Effect of changes in the risk-free rates included in economic loss development (benefit) |  | $ | (47) |  |  | $ | (48) |

First Quarter 2022 Net Economic Loss Development
Public Finance: The economic benefit on U.S. exposures in First Quarter 2022 was $48 million, and was primarily attributable to Puerto Rico exposures and changes in discount rates. Public finance expected loss to be paid primarily related to U.S. exposures, which had BIG net par outstanding of $3.7 billion as of March 31, 2022 compared with $5.4 billion as of December 31, 2021. The reduction in net par was primarily due to the March Puerto Rico Resolutions discussed in Item 1. Financial Statements, Note 3, Outstanding Exposure. The Company projected that its total net expected loss to be paid across its troubled U.S. public finance exposures as of March 31, 2022 is $181 million, compared with $197 million as of December 31, 2021.
U.S. RMBS: The economic loss development attributable to U.S. RMBS was $7 million and was mainly attributable to a $43 million loss related to lower excess spread, partially offset by a $22 million benefit related to changes in discount rates and an $11 million benefit related to improved performance in certain transactions.
See Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered) for additional information.
First Quarter 2021 Net Economic Loss Development
Public Finance: Public finance expected loss to be paid primarily related to U.S. exposures, which had BIG net par outstanding of $5.4 billion as of March 31, 2021 compared with $5.4 billion as of December 31, 2020. The Company projected that its total net expected loss across its troubled U.S. public finance exposures as of March 31, 2021 was $228 million compared with $305 million as of December 31, 2020. Economic loss development on U.S. public finance exposures in First Quarter 2021 was $15 million, which was primarily attributable to Puerto Rico exposures. The economic benefit was approximately $12 million for non-U.S. public finance exposures during First Quarter 2021 mainly due to the restructuring of certain exposures and the impact of higher Euro Interbank Offered Rate (Euribor).
U.S. RMBS: The economic loss development attributable to U.S. RMBS was $11 million and was mainly related to a reduction of excess spread of $58 million, partially offset by changes in discount rates, which was a gain of $33 million, and improved performance in certain transactions and higher recoveries for secured charged-off loans.
Insurance Segment Loss Expense
The primary differences between net economic loss development and the amount reported as “loss and LAE” in the consolidated statements of operations are that loss and LAE: (1) considers deferred premium revenue in the calculation of loss reserves for financial guaranty insurance contracts; (2) eliminates loss and LAE related to FG VIEs; and (3) does not include estimated losses on credit derivatives.
Insurance segment loss expense includes loss and LAE on financial guaranty insurance contracts and losses on credit derivatives, without giving effect to eliminations related to consolidation of FG VIEs.
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For financial guaranty insurance contracts, each transaction’s expected loss to be expensed is compared with the deferred premium revenue of that transaction. Expected loss to be expensed represents past or expected future net claim payments that have not yet been expensed. Such amounts will be expensed in future periods as deferred premium revenue amortizes into income on financial guaranty insurance policies. Expected loss to be expensed is the Company’s projection of incurred losses that will be recognized in future periods, excluding accretion of discount. When the expected loss to be expensed exceeds the deferred premium revenue, a loss is recognized in income for the amount of such excess. Therefore, the timing of loss recognition in income does not necessarily coincide with the timing of the actual credit impairment or improvement reported in net economic loss development. Transactions (particularly BIG transactions) acquired in a business combination or seasoned portfolios assumed from legacy financial guaranty insurers generally have the largest deferred premium revenue balances. Therefore, the largest differences between net economic loss development and loss and LAE on financial guaranty insurance contracts generally relate to those policies.
The amount of Insurance segment loss expense, which includes all policies regardless of form, is a function of the amount of economic loss development discussed above and the deferred premium revenue amortization in a given period, on a contract-by-contract basis.
While expected loss to be paid (recovered) is an important liquidity measure that provides the present value of amounts that the Company expects to pay or recover in future periods on all contracts, expected loss to be expensed is important because it presents the Company’s projection of net expected losses that will be recognized in the consolidated statement of operations in future periods as deferred premium revenue amortizes into income for financial guaranty insurance policies.
The following table presents the Insurance segment loss expense.
Insurance Segment
Loss Expense

| First Quarter
| 2022 |  | 2021
| (in millions)
U.S. public finance | $ | 55 |  |  | $ | 26 |
Non-U.S. public finance | — |  |  | (8) |
Structured finance |  |  |
U.S. RMBS | 6 |  |  | 12 |
Other structured finance | (1) |  |  | — |
Structured finance | 5 |  |  | 12 |
Total Insurance segment loss expense | $ | 60 |  |  | $ | 30 |

Loss expense is a function of economic loss development, as well as the amortization of unearned premium reserve. In First Quarter 2022, the largest component of loss expense was from the public finance sector, which had loss expense of $55 million primarily attributable to Puerto Rico exposures. The public finance sector also had an economic benefit of $50 million, which was also primarily attributable to Puerto Rico exposures. The difference between public finance loss expense and economic benefit was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.
Loss expense in First Quarter 2021 was mainly driven by certain Puerto Rico transactions and U.S. RMBS exposures. For First Quarter 2021, these losses were partially offset by a benefit in certain European exposures.
For additional information on the expected timing of net expected losses to be expensed see Item 1, Financial Statements, Note 5, Contracts Accounted for as Insurance, Losses.
Other Operating Expenses
The decrease in other operating expenses in First Quarter 2022 compared with First Quarter 2021 was primarily attributable to the write-off of a $16 million intangible asset attributable to MAC insurance licenses in First Quarter 2021. MAC was merged with and into AGM on April 1, 2021. See Item 1, Financial Statements, Note 1, Business and Basis of Presentation, for additional information.
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Financial Strength Ratings
On March 18, 2022, Moody’s Investors Service, Inc. (Moody’s) upgraded the financial strength rating of AGM and AGUK to A1 (stable) from A2 (stable).
Demand for the financial guaranties issued by the Company’s insurance subsidiaries may be impacted by changes in the credit ratings assigned to them by the rating agencies. The financial strength ratings (or similar ratings) assigned to AGL’s insurance subsidiaries, along with the date of the most recent rating action (or confirmation) by the rating agency assigning the rating, are shown in the table below.

| S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC |  | Kroll Bond Rating Agency |  | Moody’s Investors Service, Inc. |  | A.M. Best Company, Inc.
AGM | AA (stable) (7/8/21) |  | AA+ (stable) (10/20/21) |  | A1 (stable) (3/18/22) |  | —
AGC | AA (stable) (7/8/21) |  | AA+ (stable) (10/20/21) |  | (1) |  | —
Assured Guaranty Re Ltd. (AG Re) | AA (stable) (7/8/21) |  | — |  | — |  | —
Assured Guaranty Re Overseas Ltd. (AGRO) | AA (stable) (7/8/21) |  | — |  | — |  | A+ (stable) (7/15/21)
Assured Guaranty UK Limited (AGUK) | AA (stable) (7/8/21) |  | AA+ (stable) (10/20/21) |  | A1 (stable) (3/18/22) |  | —
Assured Guaranty (Europe) SA (AGE) | AA (stable) (7/8/21) |  | AA+ (stable) (10/20/21) |  | — |  | —

____________________
(1) AGC requested that Moody’s withdraw its financial strength ratings of AGC in January 2017, but Moody’s denied that request. On March 18, 2022, Moody’s upgraded the financial strength rating of AGC to A2 (stable) from A3 (stable).
Ratings are subject to continuous rating agency review and revision or withdrawal at any time. In addition, the Company periodically assesses the value of each rating assigned to each of its companies, and as a result of such assessment may request that a rating agency add or drop a rating from certain of its companies. There can be no assurance that any of the rating agencies will not take negative action on the financial strength ratings (or similar ratings) of AGL’s insurance subsidiaries in the future or cease to rate one or more of AGL’s insurance subsidiaries, either voluntarily or at the request of that subsidiary.
For a discussion of the effects of rating actions on the Company beyond potential effects on the demand for its insurance products, see “— Liquidity and Capital Resources —” section below.
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Asset Management Segment Results
Asset Management Segment Results

| First Quarter
| 2022 |  | 2021
| (in millions)
Segment revenues |  |  |
Management fees (1) | $ | 21 |  |  | $ | 19 |
Performance fees | 16 |  |  | 1 |
Other income (loss) | 2 |  |  | — |
Total segment revenues | 39 |  |  | 20 |
Segment expenses |  |  |
Employee compensation and benefit expenses | 29 |  |  | 19 |
Other operating expenses (1) (2) | 10 |  |  | 10 |
Total segment expenses | 39 |  |  | 29 |
Segment adjusted operating income (loss) before income taxes | — |  |  | (9) |
Less: Provision (benefit) for income taxes | — |  |  | (2) |
Segment adjusted operating income (loss) | $ | — |  |  | $ | (7) |

_____________________
(1) The Asset Management segment presents reimbursable fund expenses netted in other operating expenses, whereas on the condensed consolidated statement of operations such reimbursable expenses are shown gross as revenues.
(2) Includes amortization of intangible assets of $3 million in both First Quarter 2022 and First Quarter 2021.
Management and Performance Fees
Management fees are generated by CLOs, opportunity funds, liquid strategies, and the wind-down funds. CLO fees are the net management fees that AssuredIM retains after rebating the portion of these fees that pertains to the CLO Equity that is held directly by AssuredIM Funds. Management fees from opportunity funds and liquid strategies include funds that were launched since the BlueMountain Acquisition in which the Insurance segment’s U.S. Insurance Subsidiaries invest along with two previously established opportunity funds in their harvest periods. The Company also generates fees from legacy hedge and opportunity funds now subject to an orderly wind-down.
Management Fees

| First Quarter
| 2022 |  | 2021
| (in millions)
CLOs | $ | 12 |  |  | $ | 12 |
Opportunity funds and liquid strategies | 8 |  |  | 4 |
Wind-down funds | 1 |  |  | 3 |
Total management fees | $ | 21 |  |  | $ | 19 |

Fees from opportunity funds increased primarily due to higher AUM of $1.9 billion March 31, 2022 compared with $1.5 billion as of March 31, 2021. Fees from the wind-down funds decreased as distributions to investors continued. As of March 31, 2022, AUM of the wind-down funds was $0.5 billion compared with $1.3 billion as of March 31, 2021 and $0.6 billion as of December 31, 2021. CLO fee-earning AUM was $13.9 billion, or 97%, of total CLO AUM as of March 31, 2022, compared with $12.0 billion, or 83%, of total CLO AUM as of March 31, 2021.
Performance fees and increased compensation expenses in First Quarter 2022 were attributable to the performance of the healthcare and asset-based funds.
Assets Under Management
The Company uses AUM as a metric to measure progress in its Asset Management segment. Management fee revenue is based on a variety of factors and is not perfectly correlated with AUM. However, the Company believes that AUM is a useful
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metric for assessing the relative size and scope of our asset management business. The Company uses measures of its AUM in its decision-making process and uses a measure of change in AUM in its calculation of certain components of management compensation. Investors also use AUM to evaluate companies that participate in the asset management business. AUM refers to the assets managed, advised or serviced by the Asset Management segment and equals the sum of the following:
•the amount of aggregate collateral balance and principal cash of AssuredIM’s CLOs, including CLO Equity that may be held by AssuredIM Funds. This also includes CLO assets managed by BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a third party in the second quarter of 2021. AssuredIM is not the investment manager of BM Fuji-advised CLOs, but following the sale, AssuredIM sub-advises and continues to provide personnel and other services to BM Fuji associated with the management of BM Fuji-advised CLOs pursuant to a sub-advisory agreement and a personnel and services agreement, consistent with past practices; and
•the net asset value of all funds and accounts other than CLOs, plus any unfunded commitments. Changes in NAV attributable to movements in fund value of certain private equity funds are reported on a quarter lag.
The Company’s calculation of AUM may differ from the calculation employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment managers. The calculation also differs from the manner in which AssuredIM affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways.
The Company also uses several other measurements of AUM to understand and measure its AUM in more detail and for various purposes, including its relative position in the market and its income and income potential:
“Third-party AUM” refers to the assets AssuredIM manages or advises on behalf of third-party investors. This includes current and former employee investments in AssuredIM Funds. For CLOs, this also includes CLO Equity that may be held by AssuredIM Funds.
“Intercompany AUM” refers to the assets AssuredIM manages or advises on behalf of the Company. This includes investments from affiliates of Assured Guaranty along with general partners’ investments of AssuredIM (or its affiliates) into the AssuredIM Funds.
“Funded AUM” refers to assets that have been deployed or invested into the funds or CLOs.
“Unfunded AUM” refers to unfunded capital commitments from closed-end funds and CLO warehouse funds.
“Fee earning AUM” refers to assets where AssuredIM collects fees and has elected not to waive or rebate fees to investors.
“Non-fee earning AUM” refers to assets where AssuredIM does not collect fees or has elected to waive or rebate fees to investors. AssuredIM reserves the right to waive some or all fees for certain investors, including investors affiliated with AssuredIM and/or the Company. Further, to the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs to the extent such fees are attributable to the wind-down and opportunity funds’ holdings of CLOs also managed by AssuredIM.
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Roll Forward of Assets Under Management
First Quarter 2022

| CLOs |  | Opportunity Funds |  | Liquid Strategies |  | Wind-Down Funds |  | Total
| (in millions)
AUM, December 31, 2021 | $ | 14,699 |  |  | $ | 1,824 |  |  | $ | 389 |  |  | $ | 582 |  |  | $ | 17,494 |
Inflows - third party (1) | — |  |  | 91 |  |  | — |  |  | — |  |  | 91 |
Inflows - intercompany | — |  |  | — |  |  | — |  |  | — |  |  | — |
Outflows: |  |  |  |  |  |  |  |  |
Redemptions | — |  |  | — |  |  | — |  |  | — |  |  | — |
Distributions (2) | (335) |  |  | (104) |  |  | — |  |  | (135) |  |  | (574) |
Total outflows | (335) |  |  | (104) |  |  | — |  |  | (135) |  |  | (574) |
Net flows | (335) |  |  | (13) |  |  | — |  |  | (135) |  |  | (483) |
Change in value | (82) |  |  | 63 |  |  | (14) |  |  | 12 |  |  | (21) |
AUM, March 31, 2022 | $ | 14,282 |  |  | $ | 1,874 |  |  | $ | 375 |  |  | $ | 459 |  |  | $ | 16,990 |

_____________________
(1) Opportunity funds inflows in First Quarter 2022 is primarily related to the healthcare strategy fund.
(2) Distributions from opportunity funds include $48 million related to the AssuredIM Funds created prior to BlueMountain Acquisition. As of March 31, 2022, AUM related to these funds was $128 million.
Components of Assets Under Management

| CLOs (1) |  | Opportunity Funds |  | Liquid Strategies |  | Wind-Down Funds |  | Total
| (in millions)
As of March 31, 2022: |  |  |  |  |  |  |  |  |
Funded AUM | $ | 14,172 |  |  | $ | 1,265 |  |  | $ | 375 |  |  | $ | 437 |  |  | $ | 16,249 |
Unfunded AUM | 110 |  |  | 609 |  |  | — |  |  | 22 |  |  | 741 |
Fee-earning AUM | $ | 13,889 |  |  | $ | 1,597 |  |  | $ | 375 |  |  | $ | 280 |  |  | $ | 16,141 |
Non-fee earning AUM | 393 |  |  | 277 |  |  | — |  |  | 179 |  |  | 849 |
Intercompany AUM |  |  |  |  |  |  |  |  |
Funded AUM | $ | 557 |  |  | $ | 212 |  |  | $ | 355 |  |  | $ | — |  |  | $ | 1,124 |
Unfunded AUM | 108 |  |  | 121 |  |  | — |  |  | — |  |  | 229 |
As of December 31, 2021: |  |  |  |  |  |  |  |  |
Funded AUM | $ | 14,575 |  |  | $ | 1,297 |  |  | $ | 389 |  |  | $ | 560 |  |  | $ | 16,821 |
Unfunded AUM | 124 |  |  | 527 |  |  | — |  |  | 22 |  |  | 673 |
Fee-earning AUM | $ | 14,252 |  |  | $ | 1,527 |  |  | $ | 389 |  |  | $ | 408 |  |  | $ | 16,576 |
Non-fee earning AUM | 447 |  |  | 297 |  |  | — |  |  | 174 |  |  | 918 |
Intercompany AUM |  |  |  |  |  |  |  |  |
Funded AUM | $ | 541 |  |  | $ | 217 |  |  | $ | 368 |  |  | $ | — |  |  | $ | 1,126 |
Unfunded AUM | 123 |  |  | 121 |  |  | — |  |  | — |  |  | 244 |

_____________________
(1) CLO AUM includes CLO Equity that is held by various AssuredIM Funds. This CLO Equity corresponds to the majority of the non-fee earning CLO AUM, as AssuredIM typically rebates the CLO fees back to AssuredIM Funds.
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Corporate Division Results
Corporate Division Results

| First Quarter
| 2022 |  | 2021
| (in millions)
Revenues | $ | 1 |  |  | $ | — |
Expenses |  |  |
Interest expense | 21 |  |  | 23 |
Employee compensation and benefit expenses | 6 |  |  | 5 |
Other operating expenses | 7 |  |  | 4 |
Total expenses | 34 |  |  | 32 |
Equity in earnings (losses) of investees | — |  |  | — |
Adjusted operating income (loss) before income taxes | (33) |  |  | (32) |
Less: Provision (benefit) for income taxes | — |  |  | (3) |
Adjusted operating income (loss) | $ | (33) |  |  | $ | (29) |

Corporate division interest expense primarily relates to debt issued by the U.S. Holding Companies, and also includes intersegment interest expense of $2 million in both First Quarter 2022 and First Quarter 2021 related primarily to the $250 million AGUS debt to the U.S. Insurance Subsidiaries, which was borrowed in October 2019 in connection with the BlueMountain Acquisition.
Corporate division employee compensation and benefits expenses are based on time studies and represent the costs incurred and time spent on holding company activities, capital management, corporate oversight and governance. Other expenses include Board of Director expenses, legal fees and other direct or allocated expenses.
Other (Effect of FG VIEs and CIVs)
The effect of consolidating FG VIEs and CIVs, intersegment eliminations, and reclassifications of reimbursable fund expenses to revenue are presented in “Other.” See Item 1, Financial Statements, Note 2, Segment Information.
The types of entities the Company consolidates when it is deemed to be the primary beneficiary primarily include: (1) entities whose debt obligations the insurance subsidiaries insure; (2) custodial trusts established in connection with the consummation of the March Puerto Rico Resolutions; and (3) investment vehicles such as collateralized financing entities, CLO warehouses and AssuredIM Funds. The Company eliminates the effects of intercompany transactions between its FG VIEs and CIVs, and its insurance and asset management subsidiaries, as well as intercompany transactions between CIVs.
The effect of consolidating FG VIEs (as opposed to accounting for the related insurance contracts in the Insurance segment), has a significant gross-up effect on the consolidated financial statements, and includes: (1) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements; (2) eliminating the premiums and losses associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs; (3) eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG VIEs, and establishing the noncontrolling interests.
The effect of consolidating CIVs (as opposed to accounting for them as equity method investments in the Insurance segment) has a significant effect on assets, liabilities and cash flows, and includes: (1) the establishment of the assets and liabilities of the CIVs, and related changes in fair value; (2) eliminating the asset management fees earned by AssuredIM from the CIVs; (3) eliminating the equity method investments of the insurance subsidiaries and related equity in earnings (losses) of investees and (4) establishing non-controlling interest for amounts not owned by the Company. The economic effect of the Company’s ownership interest in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, and as separate line items (“assets of CIVs,” “liabilities of CIVs,” and redeemable and non-redeemable non-controlling interest) on a consolidated basis.
The table below reflects the effect of consolidating FG VIEs and CIVs on the condensed consolidated statements of operations. The amounts represent: (1) the revenues and expenses of the FG VIEs and the CIVs; and (2) the amounts eliminated between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.
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Effect of Consolidating FG VIEs and CIVs on the Condensed Consolidated Statements of Operations
Increase (Decrease)

|  | First Quarter
|  | 2022 |  | 2021
Effect on Financial Statement Line Item |  | (in millions)
Fair value gains (losses) on FG VIEs (1) |  | $ | 6 |  |  | $ | 5 |
Fair value gains (losses) on CIVs |  | 14 |  |  | 16 |
Equity in earnings (losses) of investees (2) |  | (10) |  |  | (10) |
Other (3) |  | (11) |  |  | (7) |
Effect on income before tax |  | (1) |  |  | 4 |
Less: Tax provision (benefit) |  | — |  |  | — |
Effect on net income (loss) |  | (1) |  |  | 4 |
Less: Effect on noncontrolling interests (4) |  | 9 |  |  | 4 |
Effect on net income (loss) attributable to AGL |  | $ | (10) |  |  | $ | — |
By Type of VIE |  |  |  |
FG VIEs |  | $ | 2 |  |  | $ | — |
CIVs |  | (12) |  |  | — |
Effect on net income (loss) attributable to AGL |  | $ | (10) |  |  | $ | — |

____________________
(1) Changes in fair value of the FG VIEs’ assets and liabilities that are attributable to factors other than (i) changes in the Company’s own credit risk on FG VIE liabilities with recourse, and (ii) unrealized gains and losses on available-for-sale fixed maturity securities.
(2) Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’ investments in the consolidated AssuredIM Funds.
(3) Includes net earned premiums, net investment income, asset management fees, other income (loss), loss and LAE and other operating expenses.
(4) Represents the proportion of consolidated AssuredIM Funds’ income that is not attributable to AGAS’ or any other subsidiaries’ ownership interest.
Fair value gains on CIVs in First Quarter 2022 and First Quarter 2021 were attributable to realized gains or losses, changes in underlying investment prices and investment interest, net of fees and expenses.
Fair value gains on FG VIEs for First Quarter 2022 were attributable to price depreciation on insured fixed rate debt that were negatively impacted due to the increase in interest rates. Fair value gains on FG VIEs for First Quarter 2021 were attributable to price depreciation on insured fixed rate debt that were negatively impacted due to the assumptions in forward interest rates.
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Reconciliation to GAAP
Reconciliation of Net Income (Loss) Attributable to AGL
to Adjusted Operating Income (Loss)

| First Quarter
| 2022 |  | 2021
| (in millions)
Net income (loss) attributable to AGL | $ | 66 |  |  | $ | 11 |
Less pre-tax adjustments: |  |  |
Realized gains (losses) on investments | 3 |  |  | (3) |
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives | (3) |  |  | (19) |
Fair value gains (losses) on CCS | 1 |  |  | (19) |
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves | (29) |  |  | 1 |
Total pre-tax adjustments | (28) |  |  | (40) |
Less tax effect on pre-tax adjustments | 4 |  |  | 8 |
Adjusted operating income (loss) | $ | 90 |  |  | $ | 43 |
Gain (loss) related to FG VIE and CIV consolidation, net of tax, included in adjusted operating income | $ | (10) |  |  | $ | — |

Net Realized Investment Gains (Losses)
The table below presents the components of net realized investment gains (losses).
Net Realized Investment Gains (Losses)

| First Quarter
| 2022 |  | 2021
| (in millions)
Gross realized gains on sales available-for-sale securities | $ | — |  |  | $ | 1 |
Gross realized losses on sales available-for-sale securities | (2) |  |  | (2) |
Net foreign currency gains (losses) | — |  |  | 1 |
Change in credit impairment and intent to sell | (5) |  |  | (4) |
Other net realized gains (losses) | 10 |  |  | 1 |
Net realized investment gains (losses) | $ | 3 |  |  | $ | (3) |

O ther net realized gains in First Quarter 2022 related primarily to the sale of one of the Company’s alternative investments.
Non-Credit Impairment-Related Unrealized Fair Value Gains (Losses) on Credit Derivatives
Changes in the fair value of credit derivatives occur because of changes in the Company’s own credit rating and credit spreads, collateral credit spreads, notional amounts, credit ratings of the referenced entities, expected terms, realized gains (losses) and other settlements, interest rates, and other market factors. The components of changes in fair value of credit derivatives related to credit derivative revenues and changes in expected losses are included in Insurance segment results. Non-credit impairment-related changes in unrealized fair value gains and losses on credit derivatives are not included in the Insurance segment measure of adjusted operating income because they do not represent actual claims or losses and are expected to reverse to zero as the exposure approaches its maturity date. Changes in the fair value of the Company’s credit derivatives that do not reflect actual or expected claims or credit losses have no impact on the Company’s statutory claims-paying resources, rating agency capital or regulatory capital positions. Unrealized gains (losses) on credit derivatives may fluctuate significantly in future periods.
The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time fair values are determined. In addition, since each transaction has unique collateral and structural terms, the underlying change in fair value of each transaction may vary considerably. The fair value of credit derivative contracts also reflects the change in the Company’s own credit cost based on the price to purchase credit protection on AGC. Due to the
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relatively low volume and characteristics of CDS contracts remaining in AGM’s portfolio, changes in AGM’s credit spreads do not significantly affect the fair value of these CDS contracts. The Company determines its own credit risk based on quoted CDS prices traded on AGC at each balance sheet date. Generally, a widening of credit spreads of the underlying obligations results in unrealized losses and the tightening of credit spreads of the underlying obligations results in unrealized gains. A widening of the CDS prices traded on AGC has an effect of offsetting unrealized losses that result from widening general market credit spreads, while a narrowing of the CDS prices traded on AGC has an effect of offsetting unrealized gains that result from narrowing general market credit spreads.
The valuation of the Company’s credit derivative contracts requires the use of models that contain significant, unobservable inputs, and are classified as Level 3 in the fair value hierarchy. The models used to determine fair value are primarily developed internally based on market conventions for similar transactions that the Company observed in the past. There has been very limited new issuance activity in this market since 2009 and, as of March 31, 2022, market prices for the Company’s credit derivative contracts were generally not available. Inputs to the estimate of fair value include various market indices, credit spreads, the Company’s own credit spread, and estimated contractual payments. See Item 1, Financial Statements, Note 9, Fair Value Measurement, for additional information.
First Quarter 2022 non-credit impairment-related unrealized fair value losses were generated primarily as a result of increases in the credit spread of underlying reference obligations, offset in part by the increased cost to buy protection on AGC, as the market cost of AGC’s protection increased during the period. First Quarter 2021 non-credit impairment-related unrealized fair value losses were generated primarily as a result of the decreased cost to buy protection on AGC, as the market cost of AGC's credit protection decreased during the period. These losses were partially offset by the higher discount rates.
Sensitivity to Changes in Credit Spread
The following table summarizes the estimated change in fair value on the net balance of the Company’s credit derivative positions assuming an immediate shift in the net spreads assumed by the Company. The net spread is affected by the spread of the underlying collateral and the credit spreads on AGC.
Effect of Changes in Credit Spread

|  | As of March 31, 2022 |  | As of December 31, 2021
Credit Spreads (1) |  | Estimated Net Fair Value (Pre-Tax) |  | Estimated Change in Gain (Loss) (Pre-Tax) |  | Estimated Net Fair Value (Pre-Tax) |  | Estimated Change in Gain (Loss) (Pre-Tax)
|  | (in millions)
Increase of 25 bps |  | $ | (241) |  |  | $ | (85) |  |  | $ | (250) |  |  | $ | (96) |
Base Scenario |  | (156) |  |  | — |  |  | (154) |  |  | — |
Decrease of 25 bps |  | (86) |  |  | 70 |  |  | (83) |  |  | 71 |
All transactions priced at floor |  | (32) |  |  | 124 |  |  | (37) |  |  | 117 |

____________________
(1)Includes the effects of spreads on both the underlying asset classes and the Company’s own credit spread.
Fair Value Gains (Losses) on CCS
Fair value gains on CCS in First Quarter 2022 were primarily due to a significant increase in LIBOR. Fair value losses on CCS in First Quarter 2021 were primarily due to a tightening in market spreads. Fair value of CCS is heavily affected by, and in part fluctuates with, changes in market spreads and interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.
Foreign Exchange Gain (Loss) on Remeasurement
Foreign exchange gains and losses in all periods primarily relate to remeasurement of long-dated premiums receivables, for which the Company records the present value of future installment premiums, and are mainly due to changes in the exchange rate of the pound sterling and euro relative to the U.S. dollar.
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Non-GAAP Financial Measures
The Company discloses both: (a) financial measures determined in accordance with GAAP; and (b) financial measures not determined in accordance with GAAP (non-GAAP financial measures). Financial measures identified as non-GAAP should not be considered substitutes for GAAP financial measures. The primary limitation of non-GAAP financial measures is the potential lack of comparability to financial measures of other companies, whose definitions of non-GAAP financial measures may differ from those of the Company.
The Company believes its presentation of non-GAAP financial measures provides information that is necessary for analysts to calculate their estimates of Assured Guaranty’s financial results in their research reports on Assured Guaranty and for investors, analysts and the financial news media to evaluate Assured Guaranty’s financial results.
GAAP requires the Company to consolidate entities where it is deemed to be the primary beneficiary which include:
•FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and
•CIVs in which certain subsidiaries invest and which are managed by AssuredIM.
The Company discloses the effect of FG VIE and CIV consolidation that is embedded in each non-GAAP financial measure, as applicable. The Company believes this information may also be useful to analysts and investors evaluating Assured Guaranty’s financial results. In the case of both the consolidated FG VIEs and the CIVs, the economic effect on the Company of each of the consolidated FG VIEs and CIVs is reflected primarily in the results of the Insurance segment.
Management of the Company and AGL’s Board of Directors use non-GAAP financial measures further adjusted to remove the effect of FG VIE and CIV consolidation (which the Company refers to as its core financial measures), as well as GAAP financial measures and other factors, to evaluate the Company’s results of operations, financial condition and progress towards long-term goals. The Company uses core financial measures in its decision-making process for and in its calculation of certain components of management compensation. The financial measures that the Company uses to help determine compensation are: (1) adjusted operating income, further adjusted to remove the effect of FG VIE and CIV consolidation; (2) adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation; (3) adjusted book value per share, further adjusted to remove the effect of FG VIE and CIV consolidation; (4) PVP, and (5) gross third-party assets raised.
Management believes that many investors, analysts and financial news reporters use adjusted operating shareholders’ equity and/or adjusted book value, each further adjusted to remove the effect of FG VIE and CIV consolidation, as the principal financial measures for valuing AGL’s current share price or projected share price and also as the basis of their decision to recommend, buy or sell AGL’s common shares. Management also believes that many of the Company’s fixed income investors also use adjusted operating shareholders’ equity, further adjusted to remove the effect of FG VIE and CIV consolidation, to evaluate the Company’s capital adequacy.
Adjusted operating income, further adjusted for the effect of FG VIE and CIV consolidation enables investors and analysts to evaluate the Company’s financial results in comparison with the consensus analyst estimates distributed publicly by financial databases.
The following paragraphs define each non-GAAP financial measure disclosed by the Company and describe why it is useful. To the extent there is a directly comparable GAAP financial measure, a reconciliation of the non-GAAP financial measure and the most directly comparable GAAP financial measure is presented below.
Adjusted Operating Income
Management believes that adjusted operating income is a useful measure because it clarifies the understanding of the operating results of the Company. Adjusted operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following:
1) Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading. The timing of realized gains and losses, which depends largely on market credit cycles, can vary considerably across periods. The timing of sales is largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax and capital profile.
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2) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, the Company’s credit spreads, and other market factors and are not expected to result in an economic gain or loss.
3) Elimination of fair value gains (losses) on the Company’s CCS that are recognized in net income. Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt, and other market factors and are not expected to result in an economic gain or loss.
4) Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and LAE reserves that are recognized in net income. Long-dated receivables and loss and LAE reserves represent the present value of future contractual or expected cash flows. Therefore, the current period’s foreign exchange remeasurement gains (losses) are not necessarily indicative of the total foreign exchange gains (losses) that the Company will ultimately recognize.
5) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.
See “— Results of Operations — Reconciliation to GAAP”, for a reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).
Adjusted Operating Shareholders’ Equity and Adjusted Book Value
Management believes that adjusted operating shareholders’ equity is a useful measure because it excludes the fair value adjustments on investments, credit derivatives and CCS that are not expected to result in economic gain or loss.
Adjusted operating shareholders’ equity is defined as shareholders’ equity attributable to AGL, as reported under GAAP, adjusted for the following:
1) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments. Such fair value adjustments are heavily affected by, and in part fluctuate with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.
2) Elimination of fair value gains (losses) on the Company’s CCS. Such amounts are affected by changes in market interest rates, the Company’s credit spreads, price indications on the Company’s publicly traded debt, and other market factors and are not expected to result in an economic gain or loss.
3) Elimination of unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (AOCI). The AOCI component of the fair value adjustment on the investment portfolio is not deemed economic because the Company generally holds these investments to maturity and therefore would not recognize an economic gain or loss.
4) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.
Management uses adjusted book value, further adjusted for FG VIE and CIV consolidation, to measure the intrinsic value of the Company, excluding franchise value. Adjusted book value per share, further adjusted for FG VIE and CIV consolidation (core adjusted book value), is one of the key financial measures used in determining the amount of certain long-term compensation elements to management and employees and used by rating agencies and investors. Management believes that adjusted book value is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues net of expected losses. Adjusted book value is adjusted operating shareholders’ equity, as defined above, further adjusted for the following:
1) Elimination of deferred acquisition costs, net. These amounts represent net deferred expenses that have already been paid or accrued and will be expensed in future accounting periods.
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2) Addition of the net present value of estimated net future revenue. See below.
3) Addition of the deferred premium revenue on financial guaranty contracts in excess of expected loss to be expensed, net of reinsurance. This amount represents the present value of the expected future net earned premiums, net of the present value of expected losses to be expensed, which are not reflected in GAAP equity.
4) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.
The unearned premiums and revenues included in adjusted book value will be earned in future periods, but actual earnings may differ materially from the estimated amounts used in determining current adjusted book value due to changes in foreign exchange rates, prepayment speeds, terminations, credit defaults and other factors.
Reconciliation of Shareholders’ Equity Attributable to AGL
to Adjusted Operating Shareholders’ Equity and Adjusted Book Value

| As of March 31, 2022 |  | As of December 31, 2021
| After-Tax |  | Per Share |  | After-Tax |  | Per Share
| (dollars in millions, except share amounts)
Shareholders’ equity attributable to AGL | $ | 5,802 |  |  | $ | 89.20 |  |  | $ | 6,292 |  |  | $ | 93.19 |
Less pre-tax adjustments: |  |  |  |  |  |  |
Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives | (57) |  |  | (0.88) |  |  | (54) |  |  | (0.80) |
Fair value gains (losses) on CCS | 24 |  |  | 0.38 |  |  | 23 |  |  | 0.34 |
Unrealized gain (loss) on investment portfolio excluding foreign exchange effect | (26) |  |  | (0.41) |  |  | 404 |  |  | 5.99 |
Less taxes | 1 |  |  | 0.02 |  |  | (72) |  |  | (1.07) |
Adjusted operating shareholders’ equity | 5,860 |  |  | 90.09 |  |  | 5,991 |  |  | 88.73 |
Pre-tax adjustments: |  |  |  |  |  |  |
Less: Deferred acquisition costs | 135 |  |  | 2.07 |  |  | 131 |  |  | 1.95 |
Plus: Net present value of estimated net future revenue | 164 |  |  | 2.52 |  |  | 160 |  |  | 2.37 |
Plus: Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed | 3,369 |  |  | 51.79 |  |  | 3,402 |  |  | 50.40 |
Plus taxes | (593) |  |  | (9.12) |  |  | (599) |  |  | (8.88) |
Adjusted book value | $ | 8,665 |  |  | $ | 133.21 |  |  | 8,823 |  |  | 130.67 |
Gain (loss) related to FG VIE and CIV consolidation included in: |  |  |  |  |  |  |
Adjusted operating shareholders’ equity (net of tax provision (benefit) of $5 and $5) | $ | 22 |  |  | $ | 0.34 |  |  | $ | 32 |  |  | $ | 0.47 |
Adjusted book value (net of tax provision (benefit) of $3 and $3) | 13 |  |  | 0.19 |  |  | 23 |  |  | 0.34 |

Net Present Value of Estimated Net Future Revenue
Management believes that this amount is a useful measure because it enables an evaluation of the present value of estimated net future revenue for non-financial guaranty insurance contracts. This amount represents the net present value of estimated future revenue from these contracts (other than credit derivatives with net expected losses), net of reinsurance, ceding commissions and premium taxes.
Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than loss mitigation securities. The discount rate is recalculated annually and updated as necessary. Net present value of estimated future revenue for an obligation may change from period to period due to a change in the discount rate or due to a change in estimated net future revenue for the obligation, which may change due to
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changes in foreign exchange rates, prepayment speeds, terminations, credit defaults or other factors that affect par outstanding or the ultimate maturity of an obligation. There is no corresponding GAAP financial measure.
PVP or Present Value of New Business Production
Management believes that PVP is a useful measure because it enables the evaluation of the value of new business production in the Insurance segment by taking into account the value of estimated future installment premiums on all new contracts underwritten in a reporting period as well as additional installment premiums and fees on existing contracts (which may result from supplements or fees or from the issuer not calling an insured obligation the Company projected would be called), regardless of form, which management believes GAAP gross written premiums and changes in fair value of credit derivatives do not adequately measure. PVP in respect of contracts written in a specified period is defined as gross upfront and installment premiums received and the present value of gross estimated future installment premiums.
Future installment premiums are discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturity securities such as loss mitigation securities. The discount rate is recalculated annually and updated as necessary. Under GAAP, financial guaranty installment premiums are discounted at a risk-free rate. Additionally, under GAAP, management records future installment premiums on financial guaranty insurance contracts covering non-homogeneous pools of assets based on the contractual term of the transaction, whereas for PVP purposes, management records an estimate of the future installment premiums the Company expects to receive, which may be based upon a shorter period of time than the contractual term of the transaction.
Actual installment premiums may differ from those estimated in the Company’s PVP calculation due to factors including, but not limited to, changes in foreign exchange rates, prepayment speeds, terminations, credit defaults, or other factors that affect par outstanding or the ultimate maturity of an obligation.
Reconciliation of GWP to PVP

| First Quarter 2022 |  | First Quarter 2021
| Public Finance |  | Structured Finance |  |  |  | Public Finance |  | Structured Finance |  |
| U.S. |  | Non - U.S. |  | U.S. |  | Non - U.S. |  | Total |  | U.S. |  | Non - U.S. |  | U.S. |  | Non - U.S. |  | Total
| (in millions)
GWP | $ | 49 |  |  | $ | 16 |  |  | $ | 5 |  |  | $ | — |  |  | $ | 70 |  |  | $ | 79 |  |  | $ | 5 |  |  | $ | 3 |  |  | $ | — |  |  | $ | 87 |
Less: Installment GWP and other GAAP adjustments (1) | — |  |  | 16 |  |  | 3 |  |  | — |  |  | 19 |  |  | 34 |  |  | 3 |  |  | 1 |  |  | — |  |  | 38 |
Upfront GWP | 49 |  |  | — |  |  | 2 |  |  | — |  |  | 51 |  |  | 45 |  |  | 2 |  |  | 2 |  |  | — |  |  | 49 |
Plus: Installment premiums and other (2) | — |  |  | 12 |  |  | — |  |  | 6 |  |  | 18 |  |  | 36 |  |  | 1 |  |  | — |  |  | — |  |  | 37 |
PVP | $ | 49 |  |  | $ | 12 |  |  | $ | 2 |  |  | $ | 6 |  |  | $ | 69 |  |  | $ | 81 |  |  | $ | 3 |  |  | $ | 2 |  |  | $ | — |  |  | $ | 86 |

___________________
(1) This includes the present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions and other GAAP adjustments.
(2) This includes the present value of future premiums and fees on new business paid in installments discounted at the approximate average pre-tax book yield of fixed-maturity securities purchased during the prior calendar year, other than certain fixed-maturities such as loss mitigation securities. This also includes the present value of future premiums and fees associated with a financial guarantee written by the Company that, under GAAP, is accounted for under ASC 460, Guarantees.
Insured Portfolio
The Company’s financial guaranty and specialty exposures, as well as a guarantee are described in Item 1, Financial Statements, Note 3, Outstanding Exposure.
Financial Guaranty Exposure
The following tables present information in respect of the financial guaranty insured portfolio to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure.
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The following table presents the financial guaranty portfolio by sector, net of cessions to reinsurers. It includes all financial guaranty contracts outstanding as of the dates presented, regardless of the form written (i.e., credit derivative form or traditional financial guaranty insurance form) or the applicable accounting model (i.e., insurance, derivative or FG VIE consolidation), along with each sector’s average rating.
Financial Guaranty Portfolio
Net Par Outstanding and Average Internal Rating by Sector

|  | As of March 31, 2022 |  | As of December 31, 2021
Sector |  | Net Par Outstanding |  | Average Rating |  | Net Par Outstanding |  | Average Rating
|  | (dollars in millions)
Public finance: |  |  |  |  |  |  |  |
U.S. public finance: |  |  |  |  |  |  |  |
General obligation |  | $ | 71,993 |  |  | A- |  | $ | 72,896 |  |  | A-
Tax backed |  | 34,698 |  |  | A- |  | 35,726 |  |  | A-
Municipal utilities |  | 25,238 |  |  | A- |  | 25,556 |  |  | A-
Transportation |  | 18,252 |  |  | BBB+ |  | 17,241 |  |  | BBB+
Healthcare |  | 9,780 |  |  | BBB+ |  | 9,588 |  |  | BBB+
Higher education |  | 6,871 |  |  | A- |  | 6,927 |  |  | A-
Infrastructure finance |  | 6,298 |  |  | A- |  | 6,329 |  |  | A-
Housing revenue |  | 999 |  |  | BBB- |  | 1,000 |  |  | BBB-
Investor-owned utilities |  | 509 |  |  | A- |  | 611 |  |  | A-
Renewable energy |  | 183 |  |  | A- |  | 193 |  |  | A-
Other public finance |  | 1,136 |  |  | A- |  | 1,152 |  |  | A-
Total U.S. public finance |  | 175,957 |  |  | A- |  | 177,219 |  |  | A-
Non-U.S public finance: |  |  |  |  |  |  |  |
Regulated utilities |  | 18,732 |  |  | BBB+ |  | 18,814 |  |  | BBB+
Infrastructure finance |  | 15,723 |  |  | BBB |  | 16,475 |  |  | BBB
Sovereign and sub-sovereign |  | 10,574 |  |  | A+ |  | 10,886 |  |  | A+
Renewable energy |  | 2,231 |  |  | A- |  | 2,398 |  |  | A-
Pooled infrastructure |  | 1,246 |  |  | AAA |  | 1,372 |  |  | AAA
Total non-U.S. public finance |  | 48,506 |  |  | BBB+ |  | 49,945 |  |  | BBB+
Total public finance |  | 224,463 |  |  | A- |  | 227,164 |  |  | A-
Structured finance: |  |  |  |  |  |  |  |
U.S. structured finance: |  |  |  |  |  |  |  |
Life insurance transactions |  | 3,443 |  |  | AA- |  | 3,431 |  |  | AA-
RMBS |  | 2,277 |  |  | BB+ |  | 2,391 |  |  | BB+
Financial products |  | 600 |  |  | AA- |  | 770 |  |  | AA-
Consumer receivables |  | 545 |  |  | A+ |  | 583 |  |  | A+
Pooled corporate obligations |  | 518 |  |  | AA+ |  | 534 |  |  | AA+
Other structured finance |  | 718 |  |  | BBB+ |  | 665 |  |  | BBB+
Total U.S. structured finance |  | 8,101 |  |  | A |  | 8,374 |  |  | A
Non-U.S. structured finance: |  |  |  |  |  |  |  |
Pooled corporate obligations |  | 342 |  |  | AAA |  | 351 |  |  | AAA
RMBS |  | 310 |  |  | A |  | 325 |  |  | A
Other structured finance |  | 163 |  |  | AA |  | 178 |  |  | AA
Total non-U.S structured finance |  | 815 |  |  | AA |  | 854 |  |  | AA
Total structured finance |  | 8,916 |  |  | A |  | 9,228 |  |  | A
Total net par outstanding |  | $ | 233,379 |  |  | A- |  | $ | 236,392 |  |  | A-

Second-to-pay insured par outstanding represents transactions the Company has insured that are already insured by another financial guaranty insurer and where the Company’s obligation to pay under its insurance of such transactions arises only if both the obligor on the underlying insured obligation and the primary financial guaranty insurer default. The Company
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underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary financial guarantor. The second-to-pay insured par outstanding as of March 31, 2022 and December 31, 2021 was $4.7 billion and $4.9 billion, respectively. The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction were BIG was $39 million and $43 million as of March 31, 2022 and December 31, 2021, respectively.
Exposure to Puerto Rico
The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding as of March 31, 2022, all of which was rated BIG. Beginning on January 1, 2016, a number of Puerto Rico exposures have defaulted on bond payments, and the Company has now paid claims on all of its Puerto Rico exposures except the Municipal Finance Agency (MFA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the University of Puerto Rico (U of PR).
The following tables present information in respect of the Puerto Rico exposures to supplement the disclosures and discussions provided in Item 1, Financial Statements, Note 3, Outstanding Exposure.
Exposure to Puerto Rico By Company
As of March 31, 2022

|  | Net Par Outstanding |  |
|  | AGM |  | AGC |  | AG Re |  | Eliminations (1) |  | Total Net Par Outstanding |  | Gross Par Outstanding
|  | (in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement |  |  |  |  |  |  |  |  |  |  |  |
Commonwealth of Puerto Rico - GO (2) |  | $ | 6 |  |  | $ | 28 |  |  | $ | 13 |  |  | $ | — |  |  | $ | 47 |  |  | $ | 47 |
PBA (2) |  | 1 |  |  | 5 |  |  | — |  |  | (1) |  |  | 5 |  |  | 5 |
Total GO/PBA Plan |  | 7 |  |  | 33 |  |  | 13 |  |  | (1) |  |  | 52 |  |  | 52 |
Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue) |  | 233 |  |  | 467 |  |  | 178 |  |  | (79) |  |  | 799 |  |  | 799 |
PRHTA (Highway revenue) |  | 381 |  |  | 51 |  |  | 25 |  |  | — |  |  | 457 |  |  | 457 |
Total HTA/CCDA PSA |  | 614 |  |  | 518 |  |  | 203 |  |  | (79) |  |  | 1,256 |  |  | 1,256 |
Total Subject to a Plan or Support Agreement |  | 621 |  |  | 551 |  |  | 216 |  |  | (80) |  |  | 1,308 |  |  | 1,308 |
Other Puerto Rico Exposures |  |  |  |  |  |  |  |  |  |  |  |
PREPA |  | 469 |  |  | 69 |  |  | 210 |  |  | — |  |  | 748 |  |  | 759 |
MFA (3) |  | 126 |  |  | 16 |  |  | 37 |  |  | — |  |  | 179 |  |  | 187 |
PRASA and U of PR (3) |  | — |  |  | 2 |  |  | — |  |  | — |  |  | 2 |  |  | 2 |
Total Other Puerto Rico Exposures |  | 595 |  |  | 87 |  |  | 247 |  |  | — |  |  | 929 |  |  | 948 |
Total exposure to Puerto Rico |  | $ | 1,216 |  |  | $ | 638 |  |  | $ | 463 |  |  | $ | (80) |  |  | $ | 2,237 |  |  | $ | 2,256 |

___________________
(1) Net par outstanding eliminations relate to second-to-pay policies under which an Assured Guaranty insurance subsidiary guarantees an obligation already insured by another Assured Guaranty insurance subsidiary.
(2) On March 15, 2022, the Modified Eighth Amended Title III Joint Plan of Adjustment, confirmed on January 18, 2022, was consummated, pursuant to which the Company, among other things, fully paid claims on all of its directly insured Puerto Rico GO bonds, other than certain GO bonds whose holders made certain elections. On the same date and pursuant to the same Plan of Adjustment, the Company fully paid claims on all of its directly insured PBA bonds, other than certain PBA bonds whose holders made certain elections.
(3) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company.
The following tables show the scheduled amortization of the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations insured by the Company. The Company guarantees payments of debt service when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis. In the event
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that obligors default on their obligations, the Company would only pay the shortfall between the debt service due in any given period and the amount paid by the obligors.
Amortization Schedule of Net Par of Puerto Rico
As of March 31, 2022

| Scheduled Net Par Amortization
| 2022 (2Q) | 2022 (3Q) | 2022 (4Q) | 2023 | 2024 | 2025 | 2026 | 2027 - 2031 | 2032 - 2036 | 2037 - 2041 | 2042 | Total
| (in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement |  |  |  |  |  |  |  |  |  |  |  |
Commonwealth of Puerto Rico - GO | $ | — |  | $ | 20 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 2 |  | $ | 25 |  | $ | — |  | $ | — |  | $ | — |  | $ | 47 |
PBA | — |  | — |  | — |  | 3 |  | — |  | 2 |  | — |  | — |  | — |  | — |  | — |  | 5 |
Total - GO/PBA Plan | — |  | 20 |  | — |  | 3 |  | — |  | 2 |  | 2 |  | 25 |  | — |  | — |  | — |  | 52 |
PRHTA (Transportation revenue) | — |  | 28 |  | — |  | 34 |  | 4 |  | 29 |  | 24 |  | 164 |  | 310 |  | 201 |  | 5 |  | 799 |
PRHTA (Highway revenue) | — |  | 40 |  | — |  | 31 |  | 33 |  | 34 |  | 1 |  | 78 |  | 240 |  | — |  | — |  | 457 |
Total - HTA/CCDA PSA | — |  | 68 |  | — |  | 65 |  | 37 |  | 63 |  | 25 |  | 242 |  | 550 |  | 201 |  | 5 |  | 1,256 |
Total Subject to a Plan or Support Agreement | — |  | 88 |  | — |  | 68 |  | 37 |  | 65 |  | 27 |  | 267 |  | 550 |  | 201 |  | 5 |  | 1,308 |
Other Puerto Rico Exposures |  |  |  |  |  |  |  |  |  |  |  |
PREPA | — |  | 28 |  | — |  | 95 |  | 93 |  | 68 |  | 106 |  | 332 |  | 26 |  | — |  | — |  | 748 |
MFA | — |  | 43 |  | — |  | 23 |  | 18 |  | 18 |  | 37 |  | 40 |  | — |  | — |  | — |  | 179 |
PRASA and U of PR | — |  | — |  | — |  | — |  | 1 |  | — |  | — |  | — |  | 1 |  | — |  | — |  | 2 |
Total Other Puerto Rico Exposures | — |  | 71 |  | — |  | 118 |  | 112 |  | 86 |  | 143 |  | 372 |  | 27 |  | — |  | — |  | 929 |
Total | $ | — |  | $ | 159 |  | $ | — |  | $ | 186 |  | $ | 149 |  | $ | 151 |  | $ | 170 |  | $ | 639 |  | $ | 577 |  | $ | 201 |  | $ | 5 |  | $ | 2,237 |

Amortization Schedule of Net Debt Service of Puerto Rico
As of March 31, 2022

| Scheduled Net Debt Service Amortization
| 2022 (2Q) | 2022 (3Q) | 2022 (4Q) | 2023 | 2024 | 2025 | 2026 | 2027 - 2031 | 2032 - 2036 | 2037 - 2041 | 2042 | Total
| (in millions)
Puerto Rico Exposures Subject to a Plan or Support Agreement |  |  |  |  |  |  |  |  |  |  |  |
Commonwealth of Puerto Rico - GO | $ | — |  | $ | 22 |  | $ | — |  | $ | 2 |  | $ | 2 |  | $ | 1 |  | $ | 3 |  | $ | 28 |  | $ | — |  | $ | — |  | $ | — |  | $ | 58 |
PBA | — |  | — |  | — |  | 3 |  | — |  | 2 |  | — |  | — |  | — |  | — |  | — |  | 5 |
Total - GO/PBA Plan | — |  | 22 |  | — |  | 5 |  | 2 |  | 3 |  | 3 |  | 28 |  | — |  | — |  | — |  | 63 |
PRHTA (Transportation revenue) | — |  | 48 |  | — |  | 73 |  | 42 |  | 67 |  | 61 |  | 323 |  | 423 |  | 237 |  | 5 |  | 1,279 |
PRHTA (Highway revenue) | — |  | 52 |  | — |  | 54 |  | 52 |  | 53 |  | 18 |  | 159 |  | 279 |  | — |  | — |  | 667 |
Total - HTA/CCDA PSA | — |  | 100 |  | — |  | 127 |  | 94 |  | 120 |  | 79 |  | 482 |  | 702 |  | 237 |  | 5 |  | 1,946 |
Total Subject to a Plan or Support Agreement | — |  | 122 |  | — |  | 132 |  | 96 |  | 123 |  | 82 |  | 510 |  | 702 |  | 237 |  | 5 |  | 2,009 |
Other Puerto Rico Exposures |  |  |  |  |  |  |  |  |  |  |  |
PREPA | 3 |  | 43 |  | 3 |  | 128 |  | 122 |  | 92 |  | 126 |  | 380 |  | 29 |  | — |  | — |  | 926 |
MFA | — |  | 48 |  | — |  | 29 |  | 24 |  | 22 |  | 41 |  | 45 |  | — |  | — |  | — |  | 209 |
PRASA and U of PR | — |  | — |  | — |  | — |  | 1 |  | — |  | — |  | — |  | 1 |  | — |  | — |  | 2 |
Total Other Puerto Rico Exposures | 3 |  | 91 |  | 3 |  | 157 |  | 147 |  | 114 |  | 167 |  | 425 |  | 30 |  | — |  | — |  | 1,137 |
Total | $ | 3 |  | $ | 213 |  | $ | 3 |  | $ | 289 |  | $ | 243 |  | $ | 237 |  | $ | 249 |  | $ | 935 |  | $ | 732 |  | $ | 237 |  | $ | 5 |  | $ | 3,146 |

Financial Guaranty Exposure to U.S. RMBS
The following table presents information in respect of the U.S. RMBS exposures to supplement the disclosures and discussion provided in Item 1, Financial Statements, Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid
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(Recovered). U.S. RMBS exposures represent 1.0% of the total net par outstanding, and BIG U.S. RMBS represent 21.8% of total BIG net par outstanding.
Distribution of U.S. RMBS by Year Insured and Type of Exposure as of March 31, 2022

Year insured: |  | Prime First Lien |  | Alt-A First Lien |  | Option ARMs |  | Subprime First Lien |  | Second Lien |  | Total Net Par Outstanding
|  | (in millions)
2004 and prior |  | $ | 11 |  |  | $ | 10 |  |  | $ | — |  |  | $ | 384 |  |  | $ | 20 |  |  | $ | 425 |
2005 |  | 25 |  |  | 136 |  |  | 16 |  |  | 191 |  |  | 69 |  |  | 437 |
2006 |  | 29 |  |  | 29 |  |  | 1 |  |  | 54 |  |  | 127 |  |  | 240 |
2007 |  | — |  |  | 215 |  |  | 18 |  |  | 737 |  |  | 172 |  |  | 1,142 |
2008 |  | — |  |  | — |  |  | — |  |  | 33 |  |  | — |  |  | 33 |
Total exposures |  | $ | 65 |  |  | $ | 390 |  |  | $ | 35 |  |  | $ | 1,399 |  |  | $ | 388 |  |  | $ | 2,277 |
Exposures rated BIG |  | $ | 43 |  |  | $ | 226 |  |  | $ | 16 |  |  | $ | 807 |  |  | $ | 137 |  |  | $ | 1,229 |

Liquidity and Capital Resources
AGL and its U.S. Holding Companies
AGL directly owns (i) AG Re, an insurance company domiciled in Bermuda, and (ii) AGUS, a U.S. Holding Company with public debt. AGUS directly owns: (i) AGC, an insurance company domiciled in Maryland; and (ii) AGMH, a U.S. Holding Company with public debt outstanding. AGMH directly owns AGM, an insurance subsidiary domiciled in New York. AGUS and AGMH are collectively referred to as the U.S. Holding Companies.
Sources and Uses of Funds
The liquidity of AGL and its U.S. Holding Companies is largely dependent on dividends from their operating subsidiaries (see Insurance Subsidiaries, Distributions from Insurance Subsidiaries below for a description of dividend restrictions) and their access to external financing. The operating liquidity requirements of AGL and the U.S. Holding Companies include:
•principal and interest on debt issued by AGUS and AGMH;
•dividends on AGL’s common shares; and
•the payment of operating expenses.
AGL and its U.S. Holding Companies may also require liquidity to:
•make capital investments in their operating subsidiaries;
•fund acquisitions of new businesses;
•purchase or redeem the Company’s outstanding debt; or
•repurchase AGL’s common shares pursuant to AGL’s share repurchase authorization.
In the ordinary course of business, the Company evaluates its liquidity needs and capital resources in light of holding company expenses and dividend policy, as well as rating agency considerations. The Company also subjects its cash flow projections and its assets to a stress test, maintaining a liquid asset balance of one time its stressed operating company net cash flows. Management believes that AGL will have sufficient liquidity to satisfy its needs over the next twelve months. See “— Overview— Key Business Strategies, Capital Management” above for information on common share repurchases.
Long-Term Debt Obligations
The Company has outstanding long-term debt issued by the U.S. Holding Companies. See Part II, Item 8, Financial Statements and Supplementary Data, Note 13, Long-Term Debt and Credit Facilities of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and Guarantor and U.S. Holding Companies' Summarized Financial Information, below.
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U.S. Holding Companies
Long-Term Debt and Intercompany Loans

|  |  |  |  | As of March 31, 2022 |  | As of December 31, 2021
|  |  |  |  | (in millions)
| Effective Interest Rate |  | Final Maturity |  | Principal Amount
AGUS - long-term debt |  |  |  |  |  |  |
7% Senior Notes | 6.40% |  | 2034 |  | $ | 200 |  |  | $ | 200 |
5% Senior Notes | 5.00% |  | 2024 |  | 330 |  |  | 330 |
3.15% Senior Notes | 3.15% |  | 2031 |  | 500 |  |  | 500 |
3.6% Senior Notes | 3.60% |  | 2051 |  | 400 |  |  | 400 |
Series A Enhanced Junior Subordinated Debentures | 3 month LIBOR +2.38% |  | 2066 |  | 150 |  |  | 150 |
AGUS long-term debt subtotal |  |  |  |  | 1,580 |  |  | 1,580 |
AGUS - intercompany loans from insurance subsidiaries |  |  |  |  |  |  |
AGC and AGM | 3.50% |  | 2030 |  | 250 |  |  | 250 |
AGRO | 6 month LIBOR +3.00% |  | 2023 |  | 20 |  |  | 20 |
AGUS intercompany loans subtotal |  |  |  |  | 270 |  |  | 270 |
Total AGUS |  |  |  |  | 1,850 |  |  | 1,850 |
AGMH |  |  |  |  |  |  |
Junior Subordinated Debentures | 6.40% |  | 2066 |  | 300 |  |  | 300 |
Total AGMH |  |  |  |  | 300 |  |  | 300 |
AGMH’s long-term debt purchased by AGUS (1) |  |  |  |  | (154) |  |  | (154) |
U.S. Holding Company debt |  |  |  |  | $ | 1,996 |  |  | $ | 1,996 |

____________________
(1) Represents principal amount of Junior Subordinated Debentures issued by AGMH that has been purchased by AGUS.
The Series A Enhanced Junior Subordinated Debentures pay interest based on LIBOR. If the AGMH Junior Subordinated Debentures are outstanding after December 15, 2036, then the principal amount of the outstanding debentures will bear interest at one-month LIBOR plus 2.215%. The continuation of LIBOR on the current basis will not be guaranteed after June 2023. See the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part 1, Item 1A, Risk Factors, of the Company’s 2021 Annual Report on Form 10-K.
From time to time, AGL and its subsidiaries have entered into intercompany loan facilities. For example, on October 25, 2013, AGL, as borrower, and AGUS, as lender, entered into a revolving credit facility pursuant to which AGL may, from time to time, borrow for general corporate purposes. Under the credit facility, AGUS committed to lend a principal amount not exceeding $225 million in the aggregate. The commitment under the revolving credit facility terminates on October 25, 2023 (the loan commitment termination date). The unpaid principal amount of each loan will bear semi-annual interest at a fixed rate equal to 100% of the then applicable interest rate as determined under Internal Revenue Code Section 1274(d). Accrued interest on all loans will be paid on the last day of each June and December and at maturity. AGL must repay the then unpaid principal amounts of the loans, if any, by the third anniversary of the loan commitment termination date. AGL has not drawn upon the credit facility.
For more information, see the Company’s 2021 Annual Report on Form 10-K, Part II. Item 8. Financial Statements and Supplementary Data, Note 13, Long-Term Debt and Credit Facilities.
Guarantor and U.S. Holding Companies’ Summarized Financial Information
AGL fully and unconditionally guarantees the payment of the principal of, and interest on, the $1,430 million aggregate principal amount of notes issued by the U.S. Holding Companies, and the $450 million aggregate principal amount of junior subordinated debentures issued by the U.S. Holding Companies, and the intercompany loans. The following tables include summarized financial information for AGL and the U.S. Holding Companies, excluding their investments in subsidiaries.
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| As of March 31, 2022
| AGL |  | U.S. Holding Companies
| (in millions)
Assets |  |  |
Fixed-maturity securities (1) | $ | 83 |  |  | $ | 4 |
Short-term investments, other invested assets and cash | 59 |  |  | 305 |
Receivables from affiliates (2) | 35 |  |  | — |
Receivable from U.S. Holding Companies | 50 |  |  | — |
Other assets | 1 |  |  | 34 |
Liabilities |  |  |
Long-term debt | — |  |  | 1,671 |
Loans payable to affiliates | — |  |  | 270 |
Payable to affiliates (2) | 16 |  |  | 11 |
Payable to AGL | — |  |  | 50 |
Other liabilities | 4 |  |  | 102 |

____________________
(1) As of March 31, 2022, weighted average durations of AGL’s and the U.S. Holding Companies' fixed-maturity securities (excluding AGUS’ investment in AGMH’s debt) were 6.3 years and 5.0 years, respectively.
(2) Represents receivable and payables with non-guarantor subsidiaries.

| First Quarter 2022
| AGL |  | U.S. Holding Companies
| (in millions)
Revenues | $ | 1 |  |  | $ | — |
Expenses |  |  |
Interest expense | — |  |  | 21 |
Other expenses | 11 |  |  | 2 |
Income (loss) before provision for income taxes and equity in earnings (losses) of investees | (10) |  |  | (23) |
Net income (loss) | (10) |  |  | (20) |

The following table presents significant cash flow items for AGL and the U.S. Holding Companies (other than investment income, operating expenses and taxes) related to distributions from subsidiaries and outflows for debt service, dividends and other capital management activities.
AGL and U.S. Holding Companies
Significant Cash Flow Items

| First Quarter 2022
| AGL |  | U.S. Holding Companies
| (in millions)
Dividends received from subsidiaries (1) | $ | 135 |  |  | $ | 224 |
Interest paid | — |  |  | (9) |
Investments in subsidiaries | — |  |  | (15) |
Dividends paid to AGL | — |  |  | (135) |
Dividends paid | (17) |  |  | — |
Repurchases of common shares (2) | (152) |  |  | — |

____________________
(1) AGL’s dividends include dividends from AGUS.
(2) See Item 1, Financial Statements, Note 14, Shareholders’ Equity, for additional information about share repurchases and authorizations.
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Generally, dividends paid by a U.S. company to a Bermuda holding company are subject to a 30% withholding tax. After AGL became tax resident in the U.K., it became subject to the tax rules applicable to companies resident in the U.K., including the benefits afforded by the U.K.’s tax treaties. The income tax treaty between the U.K. and the U.S. reduces or eliminates the U.S. withholding tax on certain U.S. sourced investment income (to 5% or 0%), including dividends from U.S. subsidiaries to U.K. resident persons entitled to the benefits of the treaty.
For more information, see also Part II, Item 8. Financial Statements and Supplementary Data, Note 13, Long-Term Debt and Credit Facilities of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
External Financing
From time to time, AGL and its subsidiaries have sought external debt or equity financing in order to meet their obligations. External sources of financing may or may not be available to the Company, and if available, the cost of such financing may not be acceptable to the Company.
Insurance Subsidiaries
The Company has several insurance subsidiaries. The U.S. Insurance Subsidiaries consist of AGM and AGC. AGM owns: (i) AGUK, an insurance subsidiary domiciled in the U.K; and (ii) AGE SA, an insurance company domiciled in France. AGUK and AGE are collectively referred to as the European Insurance Subsidiaries. AG Re is an insurance company domiciled in Bermuda, which owns AGRO, an insurance subsidiary, also domiciled in Bermuda.
Sources and Uses of Funds
Liquidity of the insurance subsidiaries is primarily used to pay for:
•operating expenses,
•claims on the insured portfolio,
•dividends or other distributions to AGL, AGUS and/or AGMH, as applicable,
•reinsurance premiums,
•principal of, and interest on, surplus notes, where applicable, and
•capital investments in their own subsidiaries, where appropriate.
Management believes that the insurance subsidiaries’ liquidity needs for the next twelve months can be met from current cash, short-term investments and operating cash flow, including premium collections and coupon payments as well as scheduled maturities and paydowns from their respective investment portfolios, although the Company may enter into secured short-term loan facilities with financial institutions, as described below, to provide short-term liquidity for the payment of insurance claims it anticipates making in connection with the future resolutions of other Puerto Rico exposures. The Company generally targets a balance of its most liquid assets including cash and short-term securities, U.S. Treasuries, agency RMBS and pre-refunded municipal bonds equal to 1.5 times its projected operating company cash flow needs over the next four quarters. As of March 31, 2022, the Company intended to hold and had the ability to hold securities in an unrealized loss position until the date of anticipated recovery of amortized cost.
Beyond the next twelve months, the ability of the operating subsidiaries to declare and pay dividends may be influenced by a variety of factors, including market conditions, general economic conditions, and, in the case of the Company’s insurance subsidiaries, insurance regulations and rating agency capital requirements.
Financial Guaranty Policies
Insurance policies issued provide, in general, that payments of principal, interest and other amounts insured may not be accelerated by the holder of the obligation. Amounts paid by the Company therefore are typically in accordance with the obligation’s original payment schedule, unless the Company accelerates such payment schedule, at its sole option. Premiums received on financial guaranty contracts are paid either upfront or in installments over the life of the insured obligations.
Payments made in settlement of the Company’s obligations arising from its insured portfolio may, and often do, vary significantly from year to year, depending primarily on the frequency and severity of payment defaults and whether the Company chooses to accelerate its payment obligations in order to mitigate future losses. While it appears to the Company that significant federal funding in 2021 may have mitigated the financial stress from direct and indirect consequences of COVID-19 for most obligors and assets underlying obligations guaranteed by the Company, the pandemic may still result in further
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increases in claims and loss reserves. The Company believes that state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various intermittent closures and capacity and travel restrictions or an economic downturn, are most at risk for increased claims. The size and depth of the COVID-19 pandemic, its course and duration and the direct and indirect consequences of governmental and private responses to it, and the effectiveness and acceptance of vaccines and therapeutics for it, remain unknown, so the Company cannot predict the ultimate size of any increases in claims that may result from the pandemic.
In addition, as of March 31, 2022, the Company has financial guaranty exposure to the general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations aggregating $2.2 billion net par outstanding, all of which is rated BIG. As set forth in Item 1, Financial Statements, Note 3, Outstanding Exposure, its $1.3 billion net outstanding par exposure to PRHTA is subject to a plan of adjustment filed by the FOMB with the Title III Court on May 2, 2022 (HTA Plan). The Company anticipates making substantial claim payments in connection with the consummation of the HTA Plan, should consummation occur, and is taking this into account in projecting its liquidity needs.
While the Company has the capacity to generate sufficient liquidity internally to fund the full amount of the gross claim payments it would be required to pay under the HTA Plan, the Company may enter into a secured short-term loan facility to partially fund such gross claim payments until it sells the securities it expects to receive under the HTA Plan. See Item 1. Financial Statements Note 11, Credit Facilities, for a description of the secured short-term facility it used to partially fund the claim payments it made in connection with the consummation of the March Puerto Rico Resolutions in March 2022.
In connection with the acquisition of AGMH, AGM agreed to retain the risks relating to the debt and strip policy portions of the leveraged lease business. In a leveraged lease transaction, a tax-exempt entity (such as a transit agency) transfers tax benefits to a tax-paying entity by transferring ownership of a depreciable asset, such as subway cars. The tax-exempt entity then leases the asset back from its new owner.
If the lease is terminated early, the tax-exempt entity must make an early termination payment to the lessor. A portion of this early termination payment is funded from monies that were pre-funded and invested at the closing of the leveraged lease transaction (along with earnings on those invested funds). The tax-exempt entity is obligated to pay the remaining, unfunded portion of this early termination payment (known as the strip coverage) from its own sources. AGM issued financial guaranty insurance policies (known as strip policies) that guaranteed the payment of these unfunded strip coverage amounts to the lessor, in the event that a tax-exempt entity defaulted on its obligation to pay this portion of its early termination payment. Following such events, AGM can then seek reimbursement of its strip policy payments from the tax-exempt entity, and can also sell the transferred depreciable asset and reimburse itself from the sale proceeds.
Currently, all the leveraged lease transactions in which AGM acts as strip coverage provider are breaching a rating trigger related to AGM and are subject to early termination. However, early termination of a lease does not result in a draw on the AGM policy if the tax-exempt entity makes the required termination payment. If all the leases were to terminate early and the tax-exempt entities did not make the required early termination payments, then AGM would be exposed to possible liquidity claims on gross exposure of approximately $446 million as of March 31, 2022. To date, none of the leveraged lease transactions that involve AGM has experienced an early termination due to a lease default and a claim on the AGM policy. As of March 31, 2022, approximately $1.9 billion of cumulative strip par exposure had been terminated since 2008 on a consensual basis. The consensual terminations have resulted in no claims on AGM.
The terms of the Company’s CDS contracts generally are modified from standard CDS contract forms approved by International Swaps and Derivatives Association, Inc. in order to provide for payments on a scheduled “pay-as-you-go” basis and to replicate the terms of a traditional financial guaranty insurance policy. The documentation for certain CDS were negotiated to require the Company to also pay if the obligor becomes bankrupt or if the reference obligation were restructured. Furthermore, some CDS documentation requires the Company to make a payment due to an event that is unrelated to the performance of the obligation referenced in the credit derivative. If events of default or termination events specified in the credit derivative documentation were to occur, the Company may be required to make a cash termination payment to its swap counterparty upon such termination. Any such payment would probably occur prior to the maturity of the reference obligation and be in an amount larger than the amount due for that period on a “pay-as-you-go” basis.
Distributions From Insurance Subsidiaries
The Company anticipates that, for the next twelve months, amounts paid by AGL’s direct and indirect insurance subsidiaries as dividends or other distributions will be a major source of the holding companies’ liquidity. The insurance subsidiaries’ ability to pay dividends depends upon their financial condition, results of operations, cash requirements, other
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potential uses for such funds, and compliance with rating agency requirements, and is also subject to restrictions contained in the insurance laws and related regulations of their states of domicile. For more information, see Part II, Item 8, Financial Statements and Supplementary Data, Note 16, Insurance Company Regulatory Requirements, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for a complete discussion of the Company’s dividend restrictions applicable to AGC, AGM, AG Re and AGRO.
Dividend restrictions by insurance subsidiary are as follows:
•The maximum amount available during 2022 for AGM (a subsidiary of AGMH) to distribute as dividends without regulatory approval is estimated to be approximately $291 million, but none is available for distribution in the second quarter of 2022.
•The maximum amount available during 2022 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends is approximately $207 million, of which approximately $25 million is available for distribution in the second quarter of 2022.
•Based on the applicable law and regulations, in 2022 AG Re (a subsidiary of AGL) has the capacity to (i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $236 million as of March 31, 2022. Such dividend capacity is further limited by (i) the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $146 million as of March 31, 2022, and (ii) the amount of statutory surplus, which as of March 31, 2022 was $42 million.
•Based on the applicable law and regulations, in 2021 AGRO (an indirect subsidiary of AGRe) has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $106 million as of March 31, 2022. Such dividend capacity is further limited by (i) the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements and which was approximately $396 million as of March 31, 2022, and (ii) the amount of statutory surplus, which as of March 31, 2022 was $270 million.
Distributions From Insurance Company Subsidiaries

| First Quarter
| 2022 |  | 2021
| (in millions)
Dividends paid by AGC to AGUS | $ | 125 |  |  | $ | 13 |
Dividends paid by AGM to AGMH | 96 |  |  | 82 |

Ratings Impact on Financial Guaranty Business
A downgrade of one of AGL’s insurance subsidiaries may result in increased claims under financial guaranties issued by the Company if counterparties exercise contractual rights triggered by the downgrade against insured obligors, and the insured obligors are unable to pay. See Part II, Item 8, Financial Statements and Supplementary Data, Note 6, Contracts Accounted for as Insurance, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Assumed Reinsurance
Some of the Company’s insurance subsidiaries (Assuming Subsidiaries) assumed financial guaranty insurance from legacy third-party bond insurers. The agreements under which such Assuming Subsidiaries assumed such business are generally subject to termination at the option of the ceding company (a) if the Assuming Subsidiary fails to meet certain financial and regulatory criteria; (b) if the Assuming Subsidiary fails to maintain a specified minimum financial strength rating; or (c) upon certain changes of control of the Assuming Subsidiary. Upon termination due to one of the above events, the Assuming Subsidiary typically would be required to return to the ceding company unearned premiums (net of ceding commissions) and loss reserves, calculated on a U.S. statutory basis, attributable to the assumed business (plus in certain cases, an additional required amount), after which the Assuming Subsidiary would be released from liability with respect to such business.
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As of March 31, 2022, if each third-party company ceding business to an Assuming Subsidiary had a right to recapture such business, and chose to exercise such right, the aggregate amounts those subsidiaries could be required to pay to all such ceding companies would be approximately $268 million, including $237 million by AGC and $31 million by AG Re.
Committed Capital Securities
Each of AGC and AGM have entered into put agreements with four separate custodial trusts allowing each of AGC and AGM, respectively, to issue an aggregate of $200 million of non-cumulative redeemable perpetual preferred securities to the trusts in exchange for cash. Each custodial trust was created for the primary purpose of issuing $50 million face amount of CCS, investing the proceeds in high-quality assets and entering into put options with AGC or AGM, as applicable. The Company is not the primary beneficiary of the trusts and therefore the trusts are not consolidated in Assured Guaranty’s financial statements.
The trusts provide AGC and AGM access to new equity capital at their respective sole discretion through the exercise of the put options. Upon AGC’s or AGM’s exercise of its put option, the relevant trust will liquidate its portfolio of eligible assets and use the proceeds to purchase AGC or AGM preferred stock, as applicable. AGC or AGM may use the proceeds from its sale of preferred stock to the trusts for any purpose, including the payment of claims. The put agreements have no scheduled termination date or maturity. However, each put agreement will terminate if (subject to certain grace periods) specified events occur. Both AGC and AGM continue to have the ability to exercise their respective put options and cause the related trusts to purchase their preferred stock.
Prior to 2008 or 2007, the amounts paid on the CCS were established through an auction process. All of those auctions failed in 2008 or 2007, and the rates paid on the CCS increased to their respective maximums. The annualized rate on the AGC CCS is one-month LIBOR plus 250 bps, and the annualized rate on the AGM Committed Preferred Trust Securities is one-month LIBOR plus 200 bps. LIBOR may be discontinued. See “— Executive Summary — Other Matters — LIBOR Sunset” above and the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part I, Item 1A, Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Investment Portfolio
The Company’s principal objectives in managing its investment portfolio are to support the highest possible ratings for each operating company, to manage investment risk within the context of the underlying portfolio of insurance risk, to maintain sufficient liquidity to cover unexpected stress in the insurance portfolio, and to maximize after-tax net investment income. Approximately 71% of the total investment portfolio is managed by external parties. Each of the three external investment managers must maintain a minimum average rating of A+/A1/A+ by S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P), Moody’s and Fitch Ratings Inc., respectively.
Changes in interest rates affect the value of the Company’s fixed-maturity securities. As interest rates fall, the fair value of fixed-maturity securities generally increases and as interest rates rise, the fair value of fixed-maturity securities generally decreases. The Company’s portfolio of fixed-maturity securities primarily consists of investment-grade, liquid instruments. Other invested assets include other alternative investments. For more information about the Investment Portfolio and a detailed description of the Company’s valuation of investments, see Item 1, Financial Statements, Note 7, Investments and Note 9, Fair Value Measurement.
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Investment Portfolio
Carrying Value

| As of
| March 31, 2022 |  | December 31, 2021
| (in millions)
Fixed-maturity securities, available-for-sale (1) | $ | 8,156 |  |  | $ | 8,202 |
Fixed-maturity securities - Puerto Rico, trading | 174 |  |  | — |
Short-term investments | 585 |  |  | 1,225 |
Other invested assets | 152 |  |  | 181 |
Total | $ | 9,067 |  |  | $ | 9,608 |

____________________
(1) Include $514 million of new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.
The Company’s available-for-sale fixed-maturity securities had a duration of 4.3 years and 4.7 years as of March 31, 2022 and December 31, 2021, respectively. Generally, the Company’s fixed-maturity securities are designated as available-for-sale, except for CVIs received under the March Puerto Rico Resolutions, which are classified as trading.
Available-for-Sale Fixed-Maturity Securities By Contractual Maturity
The amortized cost and estimated fair value of the Company’s available-for-sale fixed-maturity securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity
As of March 31, 2022

| Amortized Cost |  | Estimated Fair Value
| (in millions)
Due within one year | $ | 202 |  |  | $ | 203 |
Due after one year through five years | 1,956 |  |  | 1,948 |
Due after five years through 10 years | 1,869 |  |  | 1,853 |
Due after 10 years | 3,442 |  |  | 3,430 |
Mortgage-backed securities: |  |  |
RMBS | 437 |  |  | 400 |
Commercial mortgage-backed securities (CMBS) | 321 |  |  | 322 |
Total | $ | 8,227 |  |  | $ | 8,156 |

Available-for-Sale Fixed-Maturity Securities By Rating
The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities as of March 31, 2022 and December 31, 2021. Ratings reflect the lower of Moody’s and S&P classifications, except for bonds purchased for loss mitigation and certain other securities, which use Assured Guaranty’s internal ratings classifications, or are not rated, such as the Puerto Rico securities received under the March Puerto Rico Resolutions.
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Distribution of Available-for-Sale Fixed-Maturity Securities by Rating

|  | As of
Rating |  | March 31, 2022 |  | December 31, 2021
AAA |  | 13.8 | % |  | 14.6 | %
AA |  | 36.0 |  |  | 38.2 |
A |  | 23.6 |  |  | 25.1 |
BBB |  | 12.1 |  |  | 13.7 |
BIG (1) |  | 7.3 |  |  | 7.5 |
Not rated (2) |  | 7.2 |  |  | 0.9 |
Total |  | 100.0 | % |  | 100.0 | %

____________________
(1)Includes primarily loss mitigation securities. See Item I, Financial Statements, Note 7, Investments, for additional information.
(2)As of March 31, 2022, primarily represent new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.
Other Investments
Other invested assets reported on the condensed consolidated balance sheets primarily consist of investments in renewable and clean energy and private equity funds managed by a third party.
The Insurance segment reports AGAS’s percentage ownership of AssuredIM Funds’ as equity method investments with changes in NAV included in the Insurance segment adjusted operating income. As of March 31, 2022 and December 31, 2021, all of the funds in which AGAS invests are consolidated in the Company’s consolidated financial statements. The amounts in the table below represent the fair value of AGAS’s interests in the AssuredIM Funds. See Commitments below.
Fair Value of AGAS’s Interest in AssuredIM Funds

|  | As of
Strategy |  | March 31, 2022 |  | December 31, 2021
|  | (in millions)
CLOs |  | $ | 245 |  |  | $ | 228 |
Municipal bonds |  | 103 |  |  | 107 |
Healthcare |  | 103 |  |  | 115 |
Asset-based |  | 108 |  |  | 93 |
Total |  | $ | 559 |  |  | $ | 543 |

Equity in Earnings (Losses) of Investees of AGAS’s Investment in AssuredIM Funds

|  | First Quarter
Strategy |  | 2022 |  | 2021
|  | (in millions)
CLOs |  | $ | 7 |  |  | $ | 7 |
Municipal bonds |  | (4) |  |  | 1 |
Healthcare |  | 3 |  |  | — |
Asset-based |  | 5 |  |  | 2 |
Total |  | $ | 11 |  |  | $ | 10 |

Restricted Assets
Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $229 million and $243 million as of March 31, 2022 and December 31, 2021, respectively. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the
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benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,160 million and $1,231 million, based on fair value, as of March 31, 2022 and December 31, 2021, respectively.
Commitments
The Company is authorized to invest up to $750 million in AssuredIM Funds. As of March 31, 2022, the Insurance segment had total commitments to AssuredIM Funds of $702 million, of which $473 million represented net invested capital and $229 million was undrawn. The Company had unfunded commitments of $96 million as of March 31, 2022 related to certain of the Company’s other alternative investments.
AssuredIM
Sources and Uses of Funds
AssuredIM’s sources of liquidity are: (1) cash from operations, including management and performance fees (which are unpredictable as to amount and timing); and (2) capital contributions from AGUS ($15 million and $15 million in First Quarter 2022 and First Quarter 2021, respectively, had been contributed to supplement cash from operations). As of March 31, 2022, AssuredIM had $24 million in cash and short-term investments.
AssuredIM’s liquidity needs primarily include: (1) paying operating expenses including compensation; (2) paying dividends or other distributions to AGUS; and (3) capital to support growth and expansion of the asset management business.
Lease Obligations
The Company has entered into several lease agreements for office space in Bermuda, New York, San Francisco,
London, Paris, and other locations with various lease terms. See Part II, Item 8, Financial Statements and Supplementary Data, Note 18, Leases, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for a table of minimum lease obligations and other lease commitments.
FG VIEs and CIVs
The Company manages its liquidity needs by evaluating cash flows without the effect of consolidating FG VIEs and CIVs; however, the Company’s consolidated financial statements include the effect of consolidating FG VIEs and CIVs. The primary sources and uses of cash at Assured Guaranty’s FG VIEs and CIVs are as follows:
•FG VIEs. The primary sources of cash in FG VIEs are the collection of principal and interest on the collateral supporting the debt obligations, and the primary uses of cash are the payment of principal and interest due on the debt obligations. The insurance subsidiaries are not primarily liable for the debt obligations issued by the VIEs they insure and would only be required to make payments on those insured debt obligations in the event that the issuer of such debt obligations defaults on any principal or interest due and only for the amount of the shortfall. AGL’s and its insurance subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs. For the Puerto Rico Trusts, the primary source of cash is the collection of debt service on the assets in the trusts and the primary use of cash is the payment of the trusts debt obligations.
•CIVs. The primary sources and uses of cash in the CIVs are raising capital from investors, using capital to make investments, generating cash income from investments, paying expenses, distributing cash flow to investors and issuing debt or borrowing funds to finance investments (CLOs and warehouses). The assets and liabilities of the Company’s CIVs are held within separate legal entities. The assets of the CIVs are not available to creditors of the Company, other than creditors of the applicable CIVs. In addition, creditors of the CIVs have no recourse against the assets of the Company, other than the assets of such applicable CIVs. Liquidity available at the Company’s CIVs is not available for corporate liquidity needs, except to the extent of the Company’s investment in the funds, subject to redemption provisions.
See Item. 1, Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for additional information.
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Credit Facilities of CIVs
Certain of the Company’s CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity to such CIVs during the CLO warehouse stage. Borrowings are generally secured by the investments purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective vehicle. When a CIV borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or Assured Guaranty subsidiaries. Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or Assured Guaranty subsidiaries.
As of March 31, 2022, these credit facilities had varying maturities ranging from April 28, 2022 to September 15, 2023 with the aggregate principal amount not exceeding $1.0 billion. The available commitment was based on the amount of equity contributed to the warehouse which was $591 million. As of March 31, 2022, $310 million was drawn down under credit facilities with the interest rates ranging from 3-month Euribor plus 100 basis points (bps) to 3-month LIBOR plus 100 bps (with a floor on the Euribor/LIBOR rates of zero). The CLO warehouses were in compliance with all financial covenants as of March 31, 2022.
As of March 31, 2022, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed $80 million jointly and $48 million individually for the consolidated healthcare fund. The available commitment was based on the amount of equity contributed to the funds. As of March 31, 2022, $15 million was drawn down by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime Floor of 3%). The fund was in compliance with all financial covenants as of March 31, 2022.
Condensed Consolidated Cash Flows
The summarized condensed consolidated statements of cash flow in the table below presents the cash flow effect for the aggregate of the Insurance and Asset Management business and holding companies, separately from the aggregate effect of FG VIEs and CIVs.
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Condensed Consolidated Cash Flow Summary

| First Quarter
| 2022 |  | 2021
| (in millions)
Net cash flows provided by (used in) operating activities, before effect of FG VIEs and CIVs consolidation | $ | (640) |  |  | $ | (42) |
Effect of FG VIEs and CIVs consolidation (1) | (252) |  |  | (424) |
Net cash flows provided by (used in) operating activities | (892) |  |  | (466) |
Net cash flows provided by (used in) investing activities, before effect of FG VIEs and CIVs consolidation | 831 |  |  | 81 |
Effect of FG VIEs and CIVs consolidation (1) | 19 |  |  | 44 |
Net cash flows provided by (used in) investing activities | 850 |  |  | 125 |
Net cash flows provided by (used in) financing activities, before effect of FG VIEs and CIVs consolidation |  |  |
Dividends paid | (17) |  |  | (18) |
Repurchases of common shares | (152) |  |  | (77) |
Other | (10) |  |  | (12) |
Effect of FG VIEs and CIVs consolidation (1) | 169 |  |  | 496 |
Net cash flows provided by (used in) financing activities (2) | (10) |  |  | 389 |
Effect of exchange rate changes | (1) |  |  | — |
Increase (decrease) in cash and cash equivalents and restricted cash | (53) |  |  | 48 |
Cash and cash equivalents and restricted cash at beginning of period | 342 |  |  | 298 |
Cash and cash equivalents and restricted cash at the end of the period | $ | 289 |  |  | $ | 346 |

____________________
(1) This includes the effects of consolidating FG VIEs and CIVs.
(2) Claims paid on consolidated FG VIEs are presented in the condensed consolidated statements of cash flows as a component of paydowns on FG VIEs’ liabilities in financing activities as opposed to operating activities.
Cash flows from operations, excluding the effect of consolidating VIEs, was an outflow of $640 million in First Quarter 2022 and an outflow of $42 million in First Quarter 2021. The increase in cash outflows during 2022 was primarily due to claim payments made net of cash recoveries received in connection with the March Puerto Rico Resolutions. See Item 1. Financial Statements, Note 3, Outstanding Exposure, for additional information. Cash flows from operations attributable to the effect of VIE consolidation was negative in 2022 and 2021 due to the inclusion of investing activities of CIVs, which included cash outflows for purchases of investments, offset in part by sales of investments.
Investing activities primarily consisted of net sales (purchases) of fixed-maturity and short-term investments, and paydowns on and sales of FG VIEs’ assets. The increase in investing cash inflows during 2022 was mainly attributable to higher sales of short-term investments in 2022 to fund share repurchases and claim payments in connection with the March Puerto Rico Resolutions. See Item 1. Financial Statements, Note 3, Outstanding Exposure, for additional information.
Financing activities primarily consist of share repurchases, dividends, and paydowns of FG VIEs’ liabilities, as well and CLO issuances and CLO warehouse financing activities. The decrease in financing cash flow activity from VIEs was primarily due to First Quarter 2021 including the consolidation of an additional CLO and securitization of a previously consolidated CLO warehouse. See Item 1. Financial Statements, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.
From March 1 through May 5, 2022, the Company repurchased an additional 1.0 million of common shares. As of May 5, 2022, the Company was authorized to purchase $240 million of its common shares. For more information abou t th e Company’s share repurchases and authorizations, see Item 1, Financial Statements, Note 14, Shareholders’ Equity.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2022, there were no material changes to the market risks to which the Company is exposed since December 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Assured Guaranty’s management, with the participation of AGL’s President and Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are effective in recording, processing, summarizing and reporting, within the time periods specified in the Securities and Exchange Commission’s rules and forms, information required to be disclosed by AGL in the reports that it files or submits under the Exchange Act and ensuring that such information is accumulated and communicated to management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Management of the Company, with the participation of its President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2022. Based on their evaluation as of March 31, 2022 covered by this Form 10-Q, the Company’s President and Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective.
There were no changes in the Company’s internal control over financial reporting during First Quarter 2022 which were identified in connection with the evaluation required pursuant to Rules 13a-15 or 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II.OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and in Part I, Item 1, Financial Statements, Note 13, Commitments and Contingencies – Legal Proceedings contained in this Form 10-Q.
ITEM 1A.RISK FACTORS
See the risk factors set forth in Part I, “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to the risk factors disclosed in such Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer’s Purchases of Equity Securities
The following table reflects purchases of AGL common shares made by the Company during First Quarter 2022.

Period |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Program (1) |  | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program (2)
January 1 - January 31 |  | 940,333 |  |  | $ | 52.80 |  |  | 940,333 |  |  | $ | 56,124,501 |
February 1 - February 28 |  | 1,051,645 |  |  | $ | 57.55 |  |  | 836,967 |  |  | $ | 359,035,582 |
March 1 - March 31 |  | 961,259 |  |  | $ | 60.66 |  |  | 960,923 |  |  | $ | 300,749,261 |
Total |  | 2,953,237 |  |  | $ | 57.05 |  |  | 2,738,223 |  |  |

____________________
(1) After giving effect to repurchases since the Board first authorized the repurchase program on January 18, 2013, through May 5, 2022, the Company has repurchased a total of 135.8 million common shares for approximately $4,374 million, excluding commissions, at an average price of $32.21 per share. On February 24, 2022, the Company announced that the Board of Directors had authorized an additional $350 million of share repurchases. As of May 5, 2022, the remaining authorization the Company was authorized to purchase was $240 million of its common shares, on a settlement basis. The repurchase program has no expiration date and the Board has previously increased the authorization periodically.
(2) Excludes commissions.
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ITEM 6.EXHIBITS
The following exhibits are filed with this report:

Exhibit Number |  | Description of Document
10.1 |  |  | 2022 Form of Executive TSR Performance Based Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
10.2 |  |  | 2022 Form of Executive ABV Performance Based Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
10.3 |  |  | 2022 Form of Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
10.4 |  |  | 2022 Form of Executive Non-Equity Incentive Award Agreement under the Assured Guaranty L td. 2004 Long-Term Incentive Plan*
10.5 |  |  | 2022 Form of Non-Executive Performance Retention Award under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
10.6 |  |  | 2022 Form of Non-Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan*
10.7 |  |  | Form of Restricted Stock Agreement for Outside Directors under Assured Guaranty Ltd. 2004 Long-Term Incentive Plan, as in effect for awards commencing in 2022*
10.8 |  |  | Form of Indemnification Agreement between the Company and its executive officers and directors*
31.1 |  |  | Certification of CEO Pursuant to Exchange Act Rules 13A-14 and 15D-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 |  |  | Certification of CFO Pursuant to Exchange Act Rules 13A-14 and 15D-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 |  |  | Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
32.2 |  |  | Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
101.1 |  |  | The following financial information from Assured Guaranty Ltd.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021; (ii) Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2022 and 2021; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2022 and 2021; (iv) Condensed Consolidated Statements of Shareholders’ Equity for the Three Months ended March 31, 2022 and 2021; (v) Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2022 and 2021; and (vi) Notes to Condensed Consolidated Financial Statements.
104.1 |  |  | The Cover Page Interactive Data File from Assured Guaranty Ltd.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted, in Inline XBRL (the cover page XBRL tags are embedded in the Inline XBRL document and included in Exhibit 101).

* Management contract or compensatory plan
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

| ASSURED GUARANTY LTD. (Registrant)
Dated May 6, 2022 | By: | /s/ ROBERT A. BAILENSON
|  | Robert A. Bailenson Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

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