Business and Basis of Presentation

3 Months Ended

Mar. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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 non-U.S. 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 serves as investment advisor to collateralized loan obligations (CLOs) and opportunity 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.

Transaction with Sound Point

On April 5, 2023, Assured Guaranty entered into a transaction agreement (Transaction Agreement) pursuant to which it agreed to contribute to Sound Point Capital Management, LP (Sound Point) most of its asset management business, other than that conducted by Assured Healthcare Partners LLC (AssuredIM Contributed Business). In addition, AGM and AGC (U.S. Insurance Subsidiaries) entered into a letter agreement (Letter Agreement) pursuant to which they agreed that, after the closing of the transactions contemplated by the Transaction Agreement, they would (a) engage Sound Point as their sole alternative credit manager, (b) transition to Sound Point the management of certain existing alternative investments and related commitments, and (c) subject to regulatory approval, over time make new investments in funds, other vehicles and separately managed accounts managed by Sound Point which, when aggregated with the transitioned alternative investments and commitments, will total $1 billion. See Note 7, Investments. Assured Guaranty will receive, subject to certain potential post-closing adjustments, common interests in Sound Point representing a 30% participation percentage in Sound Point, and certain other interests in related Sound Point entities (the transactions contemplated under the Transaction Agreement and the Letter Agreement, the Sound Point Transaction). The Sound Point Transaction is expected to be completed in the third quarter of 2023, subject to certain customary closing conditions, including the receipt of certain consents and regulatory approval.

Assets and Liabilities Held For Sale

As of March 31, 2023, the AssuredIM assets and liabilities subject to the Transaction Agreement were classified as held for sale. Separately, Assured Guaranty has committed to a plan to sell the remaining AssuredIM operating entities associated with its healthcare strategy, and not part of the Sound Point Transaction, including Assured Healthcare Partners LLC, and has also classified those assets and liabilities as held for sale. The results of all of the AssuredIM entities that are classified as held for sale are reported in the Asset Management segment. See Note 2, Segment Information.

In addition, the Company designated certain other assets and liabilities supporting the Insurance segment as held for sale in the first quarter of 2023.

The disposal group consisting of the assets and liabilities classified as held for sale is measured at the lower of carrying amount or fair value less any costs associated with the transaction. The Company assessed the disposal group for impairment and determined no impairment existed as of March 31, 2023. Upon classification of the disposal group as held for sale, the Company ceased amortizing held for sale intangibles. Each of the components held for sale will be accounted for as dispositions of businesses. The Company is still evaluating the effect that the Sound Point Transaction, and the expected sales

of the remaining assets and liabilities held for sale, will have in the period in which the transactions are consummated, which is expected to be in the third quarter of 2023. The table below shows the components of assets and liabilities held for sale.

Assets and Liabilities Held For Sale

As of March 31, 2023


	(in millions)
Assets
Short-term investments	$	1
Cash	25
Goodwill and other intangible assets	155
Other assets
Deferred tax assets	5
Other	41
Total assets held for sale	$	227
Liabilities
Other liabilities	$	51
Total liabilities held for sale	$	51

Revenues and expenses attributable to all businesses held for sale relate primarily to the AssuredIM entities in the asset management segment, which results are presented in Note 2, Segment Information. Substantially all of the entities in the asset management segment are held for sale.

Once the Company executes the Sound Point Transaction and the sales of its held for sale businesses, which are expected to occur in the third quarter of 2023, the Company expects to deconsolidate the corresponding AssuredIM and other entities. The Company will account for its investment in Sound Point as an equity method investment. As of March 31, 2023, the effect of deconsolidating all the CIVs would have been a reduction in assets of $4,668 million, a reduction in liabilities of $4,458 million, and a reduction in non-controlling interests of $195 million.

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, 2023 and cover the three-month period ended March 31, 2023 (first quarter 2023) and the three-month period ended March 31, 2022 (first quarter 2022). 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 period’s presentation, except for assets and liabilities held for sale as described above.

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 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, 2022 filed with the U.S. Securities and Exchange Commission (SEC).

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, organized in Delaware;

•Assured Investment Management (London) LLP, organized in the U.K.; and

•Assured Healthcare Partners LLC, organized in Delaware.

AGM and AGC (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 and, together with AGUS, the U.S. Holding Companies) - have public debt outstanding.

Recent Accounting Standards Adopted

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The Company’s adoption of this ASU on January 1, 2023 did not have any effect on the Company’s consolidated financial statements.