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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
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 to be taxed as a U.S. domestic corporation.
 
In November 2013, AGL became 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. As a U.K. tax resident company, AGL is required to file a corporation tax return with His Majesty’s Revenue & Customs. AGL is subject to U.K. corporation tax in respect of its worldwide profits (both income and capital gains), subject to any applicable exemptions. The corporation tax rate was 19%. The Company expects that the dividends AGL receives from its direct subsidiaries will be exempt from U.K. corporation tax due to the exemption in section 931D of the U.K. Corporation Tax Act 2009. In addition, the Company obtained a clearance from His Majesty’s Revenue & Customs confirming any dividends paid by AGL to its shareholders should not be
subject to any withholding tax in the U.K. The Company does not expect any profits of non-U.K. resident members of the group to be taxed under the U.K. “controlled foreign companies” regime.

    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. The U.S. entities acquired in the BlueMountain Acquisition are included in the AGUS consolidated federal income tax return and the U.K. entities acquired in the BlueMountain Acquisition are included in the U.K tax returns.

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) became law on March 27, 2020 and was updated on April 9, 2020. The CARES Act, among other tax changes, accelerates the ability of companies to receive refunds of alternative minimum tax (AMT) credits related to tax years beginning in 2018 and 2019. As a result, the Company received a refund for AMT credits in 2020.

Accounting Policy

The provision for income taxes consists of an amount for taxes currently payable and an amount for deferred taxes. Deferred income taxes are provided for temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded to reduce the deferred tax asset to an amount that is more likely than not to be realized.

Non-interest-bearing tax and loss bonds are purchased in the amount of the tax benefit that results from deducting statutory-basis contingency reserves as provided under the Code Section 832(e). The Company records the purchase of tax and loss bonds in deferred taxes.

The Company recognizes tax benefits only if a tax position is “more likely than not” to prevail.

The Company elected to account for tax associated with Global Intangible Low-Taxed Income (GILTI) as a current-period expense when incurred.

Deferred and current tax assets and liabilities are reported in “other assets” or ”other liabilities” on the consolidated balance sheets.

Tax Assets (Liabilities)
    
Deferred and Current Tax Assets (Liabilities)
As of December 31,
20222021
(in millions)
Net deferred tax assets (liabilities)$114 $(33)
Net current tax assets (liabilities)63 (43)
Components of Net Deferred Tax Assets (Liabilities)
As of December 31,
20222021
(in millions)
Deferred tax assets:
Unearned premium reserves, net
$26 $51 
Net unrealized investment losses70 — 
Rent18 17 
Investments7 — 
Foreign tax credit
5 24 
Net operating loss
25 28 
Depreciation30 27 
Deferred compensation
30 29 
Deferred balances related to non-U.S. affiliates14 — 
Other
23 19 
Total deferred tax assets248 195 
Deferred tax liabilities:
Net unrealized investment gains— 74 
Investments— 30 
DAC
20 20 
Loss and LAE reserve
74 44 
Lease14 16 
Other
21 20 
Total deferred tax liabilities129 204 
Less: Valuation allowance5 24 
Net deferred tax assets (liabilities) $114 $(33)

As part of the acquisition of CIFG Holding Inc. (CIFGH, and together with its subsidiaries, CIFG), the Company acquired $189 million of net operating losses (NOL) which will begin to expire in 2033. The NOL has been limited under the Code Section 382 due to a change in control as a result of the acquisition. As of December 31, 2022, the Company had $121 million of NOL available to offset its future U.S. taxable income.

Valuation Allowance
 
    During 2022, the Company recorded a return to provision adjustment, which included the utilization of $19 million in foreign tax credits, thereby reducing the Company's foreign tax credits (FTC) from $24 million as of December 31, 2021 to $5 million as of December 31, 2022. FTCs were established under the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years, and 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 remaining FTC of $5 million will not be utilized, and therefore maintained a valuation allowance with respect to this tax attribute, resulting in a decrease in the valuation allowance from $24 million as of December 31, 2021 to $5 million as of December 31, 2022.

There were no changes in the valuation allowance during 2021. During 2020, the Company reduced its valuation allowance from $36 million as of December 31, 2019 to $24 million as of December 31, 2020 due to the expiration of the FTC from previous acquisitions.

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.
Changes in market conditions during 2022, including rising interest rates, resulted in the recording of deferred tax assets related to net unrealized tax capital losses. When assessing recoverability of these deferred tax assets, the Company considers the ability and intent to hold the underlying securities to recovery in value, if necessary, as well as other factors as noted above. As of December 31, 2022, based on all available evidence, including capital loss carryback capacity, the Company concluded that the deferred tax assets related to the unrealized tax capital losses on the available-for-sale securities portfolios are, more likely than not, expected to be realized.

Provision for Income Taxes

    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% in 2022, 2021 and 2020; 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% in 2022, 27.5% in 2021, and 28% in 2020; and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S. tax by election. Controlled foreign corporations (CFCs) apply the local marginal corporate tax rate. In addition, the TCJA creates a new requirement that a portion of the GILTI earned by CFCs must be included currently in the gross income of the CFCs’ U.S. shareholder. 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 
 Year Ended December 31,
 202220212020
 (in millions)
Expected tax provision (benefit)$23 $76 $83 
Tax-exempt interest(14)(19)(20)
Change in liability for uncertain tax positions— — (17)
Return to provision adjustment(20)(4)(7)
Noncontrolling interest(3)(8)(1)
State taxes12 7 4 
Taxes on reinsurance— (2)9 
Foreign taxes6 8 (3)
Stock based compensation 5 4 — 
Other2 (4)(3)
Total provision (benefit) for income taxes$11 $58 $45 
Effective tax rate7.2 %12.2 %10.9 %

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
 Year Ended December 31,
 202220212020
 (in millions)
U.S.$189 $378 $385 
Bermuda44 115 16 
U.K.(69)(8)13 
France(16)(8)(1)
Total$148 $477 $413 

Revenue by Tax Jurisdiction
 Year Ended December 31,
 202220212020
 (in millions)
U.S.$661 $685 $894 
Bermuda84 123 151 
U.K.(15)41 60 
France(8)(3)6 
Other1 2 4 
Total$723 $848 $1,115 
 
Pre-tax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.

Audits

    As of December 31, 2022, AGUS had open tax years with the U.S. IRS for 2018 forward and is currently under audit for the 2018 and 2019 tax years. As of December 31, 2022, Assured Guaranty Overseas US Holdings Inc. had open tax years with the U.S. IRS for 2019 forward and is not currently under audit with the IRS. In September 2022, His Majesty’s Revenue & Customs completed a business risk review of Assured Guaranty that commenced in July 2022 and assigned a low-risk rating for corporate taxes in the U.K. The Company’s French subsidiary is not currently under examination and has open tax years of 2019 forward.

Uncertain Tax Positions

The Company’s policy is to recognize interest related to uncertain tax positions in income tax expense and has accrued zero for full years 2022 and 2021 and $0.3 million for 2020. As of both December 31, 2022 and 2021, the Company has accrued zero of interest.

The total amount of reserves for unrecognized tax positions, including accrued interest, that would affect the effective tax rate, if recognized, was zero as of December 31, 2022, 2021 and 2020. In 2020, unrecognized tax positions were decreased by $15 million to zero as a result of settlement of positions taken during the prior period.