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Income Taxes
 9 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
Income Taxes 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. 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.

AGL is a 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.
In July of 2023, the U.K. government passed legislation to implement the Organization for Economic Co-Operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Pillar Two income inclusion rule. This includes a multinational top-up tax which will apply to large multinational corporations for accounting periods beginning on or after December 31, 2023. It is expected this will apply to AGL and subsidiaries, requiring a minimum effective rate of 15% in all jurisdictions in which it operates.

In addition, in August of 2023 the Bermuda government released the first of two public consultations for the introduction of a corporate income tax in Bermuda in response to the Pillar II initiatives. The Bermuda tax is expected to be enacted in 2023 to be effective in 2025. According to a second public consultation paper issued by the Ministry of Finance of the Bermuda Government, the Government of Bermuda believes it is reasonable and proportionate for any new Bermuda corporate income tax regime to supersede any existing tax assurances given to companies such as AGL and its Bermuda subsidiaries.

The Company is assessing the impact of both the U.K. legislation and the Bermuda proposal.

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities)
As of
September 30, 2023December 31, 2022
(in millions)
Net deferred tax assets (liabilities)$82 $114 
Net current tax assets (liabilities)34 63 

Valuation Allowance
 
During 2023, the Company recorded a return to provision adjustment, which included the utilization of $3 million in foreign tax credits, thereby reducing the Company’s foreign tax credits (FTC) from $5 million as of December 31, 2022 to $2 million as of September 30, 2023. As of September 30, 2023, the Company believes that the weight of the positive evidence outweighs the negative evidence regarding the realization of the Company’s foreign tax credits, resulting in the release of the corresponding valuation allowance.

The Company came to the conclusion that it is more likely than not that the 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 2023 and 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 September 30, 2023 and 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 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 2023. 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% and the French subsidiary 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. For the periods between April 1, 2017 and March 31, 2023, the U.K. corporation tax rate was 19%. For periods
subsequent to April 1, 2023, the U.K. corporation tax rate has been increased to 25%. For the full year 2023, the U.K. subsidiaries will be taxed at the U.K. blended marginal corporate tax rate of 23.5%. 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  
 Third QuarterNine Months
 2023202220232022
 (in millions)
Expected tax provision (benefit)$45 $(6)$88 $6 
Tax-exempt interest(3)(3)(9)(10)
NCI(1)1 (4)(5)
Return to provision adjustment(6)(20)(6)(20)
State taxes1 2 8 10 
Foreign taxes7 (1)8 9 
Taxes on reinsurance(1)— (1)(1)
Stock based compensation2 — 2 4 
Other(1)— (2)1 
Total provision (benefit) for income taxes$43 $(27)$84 $(6)
Effective tax rate21.4 %123.5 %18.1 %(12.1)%

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
 Third QuarterNine Months
 2023202220232022
 (in millions)
U.S.$233 $3 $458 $112 
Bermuda(17)10 41 27 
U.K. (10)(30)(25)(75)
Other(4)(5)(8)(15)
Total$202 $(22)$466 $49 

Revenue by Tax Jurisdiction
 Third QuarterNine Months
 2023202220232022
 (in millions)
U.S.$373 $60 $901 $435 
Bermuda30 4 123 43 
U.K.1 (21)22 (39)
Other(1)(2)— (8)
Total$403 $41 $1,046 $431 
     
Pre-tax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.
Audits

As of September 30, 2023, AGUS had open tax years with the U.S. Internal Revenue Service (IRS) for 2018 forward and is currently under audit for the 2018 and 2019 tax years. As of September 30, 2023, Assured Guaranty Overseas US Holdings Inc. had open tax years with the 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.