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Expected Loss to be Paid (Recovered) | 9 Months Ended
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Sep. 30, 2025
Expected Losses [Abstract] |
Expected Loss to be Paid (Recovered) | Expected Loss to be Paid (Recovered) Net 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; (ii) excess spread on underlying collateral, as applicable; and (iii) amounts ceded to reinsurers. 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. 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 the Company. Those assumptions consider the relevant facts and circumstances and are consistent with the information tracked and monitored through the Company’s surveillance and risk-management functions. Expected loss to be paid (recovered) is important in that it represents the present value of amounts that the Company expects to pay or recover in future periods. The Company removes any related expected loss to be paid (recovered) associated with Loss Mitigation Securities. For Loss Mitigation Securities, the difference between the purchase price of the insured obligation and the fair value excluding the value of the Company’s insurance (on the date of acquisition) is treated as a paid loss. See Note 7, Investments, and Note 9, Fair Value Measurement. Similarly, in cases where issuers of insured obligations elected (or where an issuer and the Company negotiated) to deliver the underlying collateral, insured obligation or a new security to the Company, expected loss to be paid (recovered) is adjusted accordingly and the asset received is prospectively accounted for under the applicable guidance for that instrument. Economic loss development (benefit) represents the change in net expected loss to be paid (recovered) attributable to the effects of changes in the economic performance of insured transactions, changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts. In order to effectively evaluate and manage the economics and liquidity of the entire insured portfolio, management assigns ratings and calculates expected loss to be paid (recovered), on a contract-by-contract basis, in the same manner for all its exposures regardless of form or differing accounting models. The exposure reported in Note 3, Outstanding Exposure, 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: (i) insurance, as described in Note 5, Contracts Accounted for as Insurance; (ii) derivatives, as described in Note 6, Contracts Accounted for as Credit Derivatives, and Note 9, Fair Value Measurement; and (iii) FG VIE consolidation, as described in Note 8, Variable Interest Entities. The Company has paid and may pay future claims and/or recover past claims on policies which fall under each of these accounting models. This note provides information regarding expected loss to be paid (recovered), regardless of the accounting method. Loss Estimation Process 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 the life of the insured transaction. Credit performance can be affected by, among other things, economic, fiscal and financial market and political developments over the life of most contracts. The Company guarantees payment 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. When obligors default on their obligations, the Company is only required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors. 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 and severity of loss, economic projections, governmental actions, legal developments, negotiations, recovery rates, delinquency and prepayment rates, 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 as well as nonpublic information obtained through its surveillance and loss mitigation activities. Changes over a reporting period in the Company’s loss estimates for public finance obligations supported by specified revenue streams, such as revenue bonds issued by toll road authorities, municipal and regulated utilities, airport authorities or healthcare systems, generally will be influenced by factors impacting their revenue levels, such as changes in demand; changing demographics; and other economic and regulatory 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 and general obligation 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 and 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 can be influenced by the performance of the assets supporting those transactions, by macroeconomic factors and by specific actions taken to mitigate losses. 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, discount rates and results from the Company’s loss mitigation activities. In recent years, expected losses to be paid (recovered) for U.S. RMBS have also been affected by changes in the amount of recoveries on first lien deferred principal balances and second lien charged-off loans. Actual losses will ultimately depend on future events, transaction performance or other factors that are difficult to predict. As a result, the Company’s current projections of certain losses may be subject to considerable uncertainty 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 the Company 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 results in an acceleration of cash outflows but reduces overall losses paid. The Company’s reserve committees estimate expected loss to be paid (recovered) by reviewing analyses that consider various scenarios with corresponding probabilities assigned to them. Depending upon the characteristics 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 or use loss estimates provided by ceding insurers. Each quarter, the Company’s reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on developments during the period and their view of future performance. 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 |  | Third Quarter |  | Nine Months
Accounting Model |  | September 30, 2025 |  | December 31, 2024 |  | 2025 |  | 2024 |  | 2025 |  | 2024
|  | (in millions)
Insurance (see Note 5) |  | $ | 92 |  |  | $ | 90 |  |  | $ | (35) |  |  | $ | (31) |  |  | $ | 51 |  |  | $ | (19) |
FG VIEs (see Note 8) |  | 12 |  |  | 16 |  |  | (4) |  |  | (1) |  |  | (5) |  |  | — |
Credit derivatives (see Note 6) |  | — |  |  | — |  |  | 1 |  |  | (2) |  |  | (63) |  |  | (1) |
Total |  | $ | 104 |  |  | $ | 106 |  |  | $ | (38) |  |  | $ | (34) |  |  | $ | (17) |  |  | $ | (20) |
The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts, which are accounted for under one of the following accounting models: insurance, derivative or FG VIE. The Company used risk-free rates for U.S. and non-U.S. currencies that ranged from 1.92% to 5.70% with a weighted average of 4.02% as of September 30, 2025 and 1.98% to 5.22% with a weighted average of 4.38% as of December 31, 2024. Net Expected Loss to be Paid (Recovered) Roll Forward
|  | Third Quarter |  | Nine Months
|  | 2025 |  | 2024 |  | 2025 |  | 2024
| (in millions)
Net expected loss to be paid (recovered), beginning of period |  | $ | 186 |  |  | $ | 447 |  |  | $ | 106 |  |  | $ | 505 |
Economic loss development (benefit) due to: |  |  |  |  |  |  |  |
Accretion of discount |  | 2 |  |  | 5 |  |  | 5 |  |  | 14 |
Changes in discount rates |  | — |  |  | 3 |  |  | 6 |  |  | 1 |
Changes in timing and assumptions |  | (40) |  |  | (42) |  |  | (28) |  |  | (35) |
Total economic loss development (benefit) (1) |  | (38) |  |  | (34) |  |  | (17) |  |  | (20) |
Net (paid) recovered losses (1) |  | (44) |  |  | (107) |  |  | 15 |  |  | (179) |
Net expected loss to be paid (recovered), end of period |  | $ | 104 |  |  | $ | 306 |  |  | $ | 104 |  |  | $ | 306 |
____________________ (1) Nine months 2025 amounts include recoveries recognized in connection with the resolution of the LBIE litigation. See Note 6, Contracts Accounted for as Credit Derivatives, for additional information. Net Expected Loss to be Paid (Recovered) Roll Forward by Sector
|  | Third Quarter 2025
Sector |  | Net Expected Loss to be Paid (Recovered) as of June 30, 2025 |  | Net Economic Loss Development (Benefit) |  | Net (Paid) Recovered Losses (1) |  | Net Expected Loss to be Paid (Recovered) as of September 30, 2025
|  | (in millions)
Public finance: |  |  |  |  |  |  |  |
U.S. public finance |  | $ | 53 |  |  | $ | (2) |  |  | $ | (81) |  |  | $ | (30) |
Non-U.S. public finance |  | 139 |  |  | (6) |  |  | — |  |  | 133 |
Public finance |  | 192 |  |  | (8) |  |  | (81) |  |  | 103 |
Structured finance: |  |  |  |  |  |  |  |
U.S. RMBS |  | (35) |  |  | (31) |  |  | 7 |  |  | (59) |
Other structured finance (2) |  | 29 |  |  | 1 |  |  | 30 |  |  | 60 |
Structured finance |  | (6) |  |  | (30) |  |  | 37 |  |  | 1 |
Total |  | $ | 186 |  |  | $ | (38) |  |  | $ | (44) |  |  | $ | 104 |
|  | Third Quarter 2024
Sector |  | Net Expected Loss to be Paid (Recovered) as of June 30, 2024 |  | Net Economic Loss Development (Benefit) |  | Net (Paid) Recovered Losses (1) |  | Net Expected Loss to be Paid (Recovered) as of September 30, 2024
|  | (in millions)
Public finance: |  |  |  |  |  |  |  |
U.S. public finance |  | $ | 374 |  |  | $ | (23) |  |  | $ | (113) |  |  | $ | 238 |
Non-U.S. public finance |  | 37 |  |  | 46 |  |  | (2) |  |  | 81 |
Public finance |  | 411 |  |  | 23 |  |  | (115) |  |  | 319 |
Structured finance: |  |  |  |  |  |  |  |
U.S. RMBS |  | — |  |  | (56) |  |  | 10 |  |  | (46) |
Other structured finance |  | 36 |  |  | (1) |  |  | (2) |  |  | 33 |
Structured finance |  | 36 |  |  | (57) |  |  | 8 |  |  | (13) |
Total |  | $ | 447 |  |  | $ | (34) |  |  | $ | (107) |  |  | $ | 306 |
|  | Nine Months 2025
Sector |  | Net Expected Loss to be Paid (Recovered) as of December 31, 2024 |  | Net Economic Loss Development (Benefit) |  | Net (Paid) Recovered Losses (1) |  | Net Expected Loss to be Paid (Recovered) as of September 30, 2025
|  | (in millions)
Public finance: |  |  |  |  |  |  |  |
U.S. public finance |  | $ | 18 |  |  | $ | 51 |  |  | $ | (99) |  |  | $ | (30) |
Non-U.S. public finance |  | 98 |  |  | 36 |  |  | (1) |  |  | 133 |
Public finance |  | 116 |  |  | 87 |  |  | (100) |  |  | 103 |
Structured finance: |  |  |  |  |  |  |  |
U.S. RMBS |  | (43) |  |  | (40) |  |  | 24 |  |  | (59) |
Other structured finance (2) |  | 33 |  |  | (64) |  |  | 91 |  |  | 60 |
Structured finance |  | (10) |  |  | (104) |  |  | 115 |  |  | 1 |
Total |  | $ | 106 |  |  | $ | (17) |  |  | $ | 15 |  |  | $ | 104 |
|  | Nine Months 2024
Sector |  | Net Expected Loss to be Paid (Recovered) as of December 31, 2023 |  | Net Economic Loss Development (Benefit) |  | Net (Paid) Recovered Losses (1) |  | Net Expected Loss to be Paid (Recovered) as of September 30, 2024
|  | (in millions)
Public finance: |  |  |  |  |  |  |  |
U.S. public finance |  | $ | 398 |  |  | $ | (14) |  |  | $ | (146) |  |  | $ | 238 |
Non-U.S. public finance |  | 20 |  |  | 63 |  |  | (2) |  |  | 81 |
Public finance |  | 418 |  |  | 49 |  |  | (148) |  |  | 319 |
Structured finance: |  |  |  |  |  |  |  |
U.S. RMBS |  | 43 |  |  | (69) |  |  | (20) |  |  | (46) |
Other structured finance |  | 44 |  |  | — |  |  | (11) |  |  | 33 |
Structured finance |  | 87 |  |  | (69) |  |  | (31) |  |  | (13) |
Total |  | $ | 505 |  |  | $ | (20) |  |  | $ | (179) |  |  | $ | 306 |
____________________ (1) Amounts are 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.” (2) Nine months 2025 amounts include recoveries recognized in connection with the resolution of the LBIE litigation. See Note 6, Contracts Accounted for as Credit Derivatives, for additional information. Includes cash proceeds for recoveries related to claims previously paid. The tables above include (i) net LAE paid (recovered) of $5 million, $5 million, $(51) million and $25 million for third quarter 2025, third quarter 2024, nine months 2025 and nine months 2024, respectively, and (ii) net expected LAE to be paid of $4 million as of September 30, 2025 and $11 million as of December 31, 2024. Public Finance The largest components of the public finance net expected losses to be paid (recovered) relate to certain insured healthcare and U.K. regulated utility exposures, as well as Puerto Rico Electric Power Authority (PREPA). The total net expected loss to be paid for public finance exposures is net of expected recoveries of $310 million and $265 million as of September 30, 2025 and December 31, 2024, respectively, for certain claims and LAE that have already been paid. In third quarter 2025, the economic benefit for public finance transactions was primarily attributable to certain healthcare exposures. In nine months 2025, the economic loss development for public finance transactions was primarily attributable to higher expected losses for certain U.K. regulated utility exposures, PREPA and certain healthcare exposures. U.K. Regulated Utility and European Renewable Energy As of September 30, 2025, the Company insures net par of £3.8 billion (or $5.2 billion) of BIG U.K. regulated utility and €792 million (or $930 million) of BIG European renewable energy transactions that are experiencing operational strain. As of September 30, 2025, the Company had £1.7 billion (or $2.3 billion) of net par outstanding of Thames Water Utilities Finance PLC (Thames), a BIG U.K. regulated utility. All of the Company’s insured exposure to Thames is to senior Class A debt at the regulated operating company level and not holding company debt or subordinated debt. The Company, as part of the Thames senior Class A creditor group, continues to engage the Water Services Regulation Authority (the governmental body responsible for the economic regulation of the privatized water and sewage industry in England and Wales, or Ofwat), His Majesty’s Treasury and other members of the U.K. Government in restructuring negotiations, and is taking other actions to work out this insured credit. The first scheduled principal payment that comes due under the Company’s Thames exposure is in 2037. The Company is actively working to mitigate losses and reduce risk. Following sustained controversy about the failures in the wider water sector, the U.K. Government formed an independent commission to conduct a wide ranging review (known as the Cunliffe review) in recognition of the need for fundamental reform. The final report, published in 2025, is the most comprehensive review since the industry’s privatization and covers a wide range of topics, including regulatory reform, company governance, long term investment, the legislative framework and overall strategy and planning in the water system. Key amongst the many recommendations in this final report was the overhaul of the regulatory system and the consolidation of the U.K. water utility regulators into a single regulator. Some of the recommendations, if implemented, are expected to improve the financial condition of the Company’s insured obligations. The U.K. Government indicated that it is reviewing the report and will publish a white paper in late 2025 with its full response. Healthcare Certain BIG healthcare exposures are experiencing rising labor costs due to competition for labor and shortages in certain markets. Additionally, inflation has increased the cost of medical supplies, medical equipment and pharmacy products, while U.S. hospitals with large Medicaid and Medicare payor mixes have not seen reimbursement levels keep pace with rising costs and may be further impacted by recent cuts to Medicaid funding that will go into effect in 2026 and 2027. The combined revenue and expense challenges have led to cash flow and liquidity stress in certain transactions. In addition, certain credits are struggling to make, or are in dispute as to who should fund, necessary capital expenditures and improvements to facilities. Puerto Rico All of the Company’s exposure to the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and its various authorities and public corporations is rated BIG. The Company’s Puerto Rico net par and net debt service outstanding as of September 30, 2025 were $553 million and $645 million, respectively, compared with net par and net debt service outstanding as of December 31, 2024 of $637 million and $756 million, respectively. Defaulting Puerto Rico Exposure As of September 30, 2025, the Company’s only unresolved outstanding insured Puerto Rico exposure subject to a payment default was PREPA. As of September 30, 2025, the Company’s PREPA net par and debt service outstanding were $464 million and $539 million, respectively. As of December 31, 2024, the Company’s PREPA net par and debt service outstanding were $532 million and $629 million, respectively. The PREPA bonds are secured by a lien on the net revenues of the electric system. The default of PREPA’s obligations has been the subject of restructuring negotiations, mediation and litigation since 2014. Puerto Rico Litigation Currently, there are numerous legal actions relating to defaults by PREPA 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 the remaining Puerto Rico obligations it still insures. In addition, the Commonwealth, the Financial Oversight and Management Board (FOMB) established under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) and others have taken legal action naming the Company as a party. Certain legal actions involving the Company and relating to defaults by the Commonwealth and its authorities and public corporations were resolved in 2022. The remaining proceedings relate to PREPA’s default, including two related recently active proceedings and a number of proceedings that remain stayed pending the U.S. District Court for the District of Puerto Rico’s (Federal District Court of Puerto Rico) determination on a plan of adjustment and disclosure statement, as described below. PREPA – Recently Active Proceedings Lien Challenge Adversary Proceeding and Appeal. On March 22, 2023, the Federal District Court of Puerto Rico held that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control but did not have a lien on future revenues until deposited in those funds. The Federal District Court of Puerto Rico also held, however, that PREPA bondholders do have recourse under the PREPA trust agreement in the form of an unsecured net revenue claim. At that time, the Federal District Court of Puerto Rico declined to value the unsecured net revenue claim or the method for its determination. The ultimate value of the claim, according to the Federal District Court of Puerto Rico, should be determined through a claim estimation proceeding. On June 26, 2023, the Federal District Court of Puerto Rico issued an opinion and order estimating the unsecured net revenue claim to be $2.4 billion as of July 3, 2017. Subject to their appeal of the Federal District Court of Puerto Rico’s ruling on the scope of lien, PREPA bondholders had sought an unsecured net revenue claim of approximately $8.5 billion. On November 28, 2023, the Federal District Court of Puerto Rico finally adjudicated all claims and counterclaims in the PREPA lien challenge adversary proceeding. On November 30, 2023, the Company filed a notice of appeal with the U.S. Court of Appeals for the First Circuit (First Circuit) for portions of the March 22, 2023 decision, including the lien scope ruling and the need for a claim estimation proceeding, as well as the June 26, 2023 claim estimation ruling. On June 12, 2024, the First Circuit held that bondholders have a claim against PREPA for the full principal amount of the bonds, plus matured interest, that there was no need for a claim estimation proceeding because the PREPA bonds specify the amount that PREPA legally owes bondholders, and that the claim is secured by PREPA’s net revenues, including future net revenues. The FOMB asked the First Circuit to reconsider its determination that bondholders’ security interest in future net revenues is perfected twice, once on June 26, 2024, and again on November 27, 2024. In both instances, the First Circuit upheld its determination, with the most recent decision published on December 31, 2024. Bondholders’ Administrative Expense Claim. In light of the decision by the First Circuit described above in Lien Challenge Adversary Proceeding and Appeal, in March 2025, the Federal District Court of Puerto Rico ordered the parties to propose an agreed proposal or competing proposals for a litigation schedule for resolving certain key issues related to PREPA bondholders’ claims, including determining whether the bondholders’ perfected lien described above includes collateral used for PREPA’s administrative expenses, prior to a further plan confirmation hearing. On March 13, 2025, the parties submitted competing proposals. At an Omnibus Hearing held on March 19, 2025, the Federal District Court of Puerto Rico indicated that it would allow the bondholders, including the Company, to litigate an administrative expense claim based on PREPA’s post-petition use of the bondholders’ collateral and that the parties could revisit the possibility of litigating other key issues at a later time. At an Omnibus Hearing held on October 22, 2025, the Federal District Court of Puerto Rico instructed the parties to submit a joint discovery schedule and status report for the administrative expense claim by November 24, 2025. FOMB Board In August 2025, the FOMB announced that the U.S. administration terminated six of its seven board members. On September 18, 2025, three of the terminated board members sued the U.S. administration for reinstatement, alleging that they had been unlawfully terminated without cause and that their offices are a form of property protected by due process. On October 3, 2025, the Federal District Court of Puerto Rico granted the plaintiffs’ request for a preliminary injunction. Mediation and PREPA Litigation Stay On July 10, 2024, the Federal District Court of Puerto Rico ordered the FOMB and bondholders to resume mediation and instituted a 60-day stay of all PREPA litigation, subsequently extending mediation and the litigation stay several times. Following the Omnibus Hearing held on March 19, 2025, the Federal District Court of Puerto Rico partially lifted the PREPA litigation stay and indicated that the PREPA litigation stay otherwise remains in place for the time being. The Federal District Court of Puerto Rico most recently extended the term of mediation through April 30, 2026. Plan of Adjustment, Disclosure Statement and Related Stayed Proceedings The FOMB filed an initial plan of adjustment and disclosure statement for PREPA with the Federal District Court of Puerto Rico on December 16, 2022. On November 17, 2023, the Federal District Court of Puerto Rico approved a supplemental disclosure statement (Supplemental Disclosure Statement) relating to the PREPA plan of adjustment filed by the FOMB (as amended or modified from time to time). On February 16, 2024, the FOMB filed with the Federal District Court of Puerto Rico the Modified Fourth Amended Title III Plan of Adjustment (Fourth FOMB PREPA Plan). The Supplemental Disclosure Statement and the Fourth FOMB PREPA Plan are based on the PREPA fiscal plan certified by the FOMB on June 23, 2023. The confirmation hearing for the Fourth FOMB PREPA Plan occurred in March 2024. At the end of the hearing, the Federal District Court of Puerto Rico stated that it was taking the confirmation of the Fourth FOMB PREPA Plan under advisement. As directed by the Federal District Court of Puerto Rico, the FOMB filed on March 28, 2025 its Fifth Amended Title III Plan of Adjustment and related Disclosure Statement for informational purposes of the parties. The following proceedings involving the Company and relating to the default by PREPA remain stayed in the Federal District Court of Puerto Rico pending its determination on a plan of adjustment and disclosure statement: • The Company’s motion to compel the FOMB to certify the PREPA restructuring support agreement executed in May 2019 (PREPA RSA) for implementation under Title VI of PROMESA. • The Company’s motion to dismiss PREPA’s Title III Bankruptcy proceeding or, in the alternative, to lift the PROMESA automatic stay to allow for the appointment of a receiver. • Adversary complaint by certain fuel line lenders of PREPA against the Company, among other parties, including various PREPA bondholders and bond insurers, seeking, among other things, declarations that there is no valid lien securing the PREPA bonds unless and until such lenders are paid in full, as well as orders subordinating the PREPA bondholders’ lien and claims to such lenders’ claims, and declaring the PREPA RSA null and void. • The Company’s motion to intervene in a lawsuit by the retirement system for PREPA employees against, among others, the FOMB, PREPA, the Commonwealth, and the trustee for PREPA bondholders seeking, among other things, declarations that there is no valid lien securing the PREPA bonds other than on amounts in the sinking funds, and order subordinating the PREPA bondholders’ lien and claim to the PREPA employees’ claims. Non-Defaulting Puerto Rico Exposure As of September 30, 2025 and December 31, 2024, the Company had $76 million and $92 million, respectively, of remaining non-defaulting Puerto Rico net par outstanding related primarily to the Puerto Rico Municipal Finance Agency (MFA). The MFA exposures are secured by a lien on local tax revenues and remain current on debt service payments. 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 (e.g., payment priorities and tranching) of the RMBS and any expected representation and warranty 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. The rate at which borrowers from a particular delinquency category (number of monthly payments behind) eventually default is referred to as the “liquidation rate.” The Company derives its liquidation rate assumptions from observed roll rates, which are the rates at which loans progress from one delinquency category to the next and eventually to default and liquidation. The Company applies liquidation rates to the mortgage loan collateral in each delinquency category and makes certain timing assumptions to project near-term mortgage collateral defaults from loans that are currently delinquent. Each quarter the Company reviews recent third party data and (if necessary) adjusts its liquidation rates based on its observations. Performing borrowers that eventually default will also need to progress through delinquency categories before any defaults occur. The Company projects how many of the currently performing loans will default and when they will default, by first converting the projected near term defaults of delinquent borrowers derived from liquidation rates into a vector of conditional default rates (CDR), then projecting how the CDR will develop over time. While the Company uses the liquidation rates 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 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, results in the projection of the defaults that are expected 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 order to derive collateral pool losses from the collateral pool defaults it has projected, the Company applies a loss severity. The loss severity is the amount of loss the transaction experiences on a defaulted loan after the application of net proceeds from the disposal of the underlying property. The Company projects loss severities by sector and vintage based on its experience to date. The Company continues to update its evaluation of these loss severities as new information becomes available. The Company incorporates a recovery assumption into its loss modeling 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 a percentage of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans. When a second lien loan defaults, there is generally a low recovery. The Company assumed that it will generally recover 2% of future defaulting collateral at the time of charge-off. Additional amounts of post charge-off recoveries are projected to come in evenly over the next five years in instances where the Company is able to obtain information on the lien status and the second lien is still intact. The Company evaluates its assumptions quarterly based on actual recoveries of charged-off loans observed from period to period and reasonable expectations of future recoveries. During third quarter 2025, due to observed trends and high levels of home equity, the Company updated its assumptions of such recoveries to reflect a base scenario, and a weighted-average, recovery of 60%, up from 50%, which resulted in a benefit in economic development of $26 million. The Company projects the overall future cash flow from a collateral pool by adjusting the payment stream from the principal and interest contractually due on the underlying mortgages for the collateral losses it projects as described above; assumed voluntary prepayments; and servicer advances. The Company then applies an individual model of the structure of the transaction to the projected future cash flow from that transaction’s collateral pool to project the Company’s future claims and claim reimbursements for that individual transaction. Finally, the projected claims and reimbursements are discounted using risk-free rates. The Company runs several sets of assumptions regarding mortgage collateral performance, or scenarios, which are probability weighted. Each period the Company reviews the assumptions it uses to make RMBS loss projections with consideration of updates on 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. To the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a more prolonged trend. Expected losses are also a function of the structure of the transaction, the interest rate environment and other factors. Net Economic Loss Development (Benefit) U.S. RMBS
| Third Quarter |  | Nine Months
| 2025 |  | 2024 |  | 2025 |  | 2024
| (in millions)
First lien U.S. RMBS | $ | (2) |  |  | $ | (21) |  |  | $ | (4) |  |  | $ | (24) |
Second lien U.S. RMBS | (29) |  |  | (35) |  |  | (36) |  |  | (45) |
Total U.S. RMBS economic loss development (benefit) | $ | (31) |  |  | $ | (56) |  |  | $ | (40) |  |  | $ | (69) |
First Lien U.S. RMBS Loss Projections: Alt-A, Prime, Option ARM and Subprime The majority of projected losses in first lien U.S. 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). Collateral losses are projected to be offset by recoveries on deferred principal balances. In the most heavily weighted scenario (base scenario), the Company assumes the final CDR will be reached one year after the 36-month CDR plateau period. The Company then assumes that loss severities begin returning to levels consistent with underwriting assumptions beginning after the initial 18-month period, staying or trending, as applicable, to 40% in the base scenario 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 Scenario Expected Loss Estimates First Lien U.S. RMBS
| As of September 30, 2025 |  | As of December 31, 2024
| Range |  | Weighted Average |  | Range |  | Weighted Average
Plateau CDR | 0.0 | % | - | 9.2% |  | 3.2% |  | 0.0 | % | - | 8.8% |  | 3.4%
Final CDR | 0.0 | % | - | 0.5% |  | 0.2% |  | 0.0 | % | - | 0.4% |  | 0.2%
Initial loss severity | 40.0 | % | - | 50.0% |  | 43.0% |  | 40.0 | % | - | 50.0% |  | 43.1%
Future recovery for deferred principal balances | 50% |  |  |  | 50% |  |
Liquidation rates (1) | 20 | % | - | 50% |  |  |  | 20 | % | - | 50% |  |
____________________ (1) The liquidation rates range from current but recently delinquent loans to foreclosed loans. Certain transactions benefit from 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) 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 linked to the Secured Overnight Finance Rate (SOFR). An increase in projected SOFR decreases excess spread, while lower SOFR projections result in higher excess spread. The Company establishes its scenarios by increasing and decreasing the periods and levels of stress from those used in the base scenario. In the Company’s most stressful scenario where 20% of deferred principal balances are assumed to be recovered, loss severities experience stress for nine years and the initial ramp-down of the CDR was assumed to occur over 16 months, expected loss to be paid would increase from current projections by approximately $33 million for all first lien U.S. RMBS transactions. In the Company’s least stressful scenario where 80% of deferred principal balances are assumed to be recovered, 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 eight months), expected loss to be paid would decrease from current projections by approximately $32 million for all first lien U.S. RMBS transactions. Second Lien U.S. RMBS Loss Projections Second lien U.S. RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages. The Company believes the most important driver of its projected second lien U.S. RMBS losses is the performance of its HELOC transactions. The Company believes the primary variable affecting its expected losses in second lien U.S. RMBS transactions is the amount and timing of future losses or recoveries in the collateral pool supporting the transactions (including recoveries from previously charged-off loans). For the base scenario, the CDR plateau is held constant for 36 months. Once the plateau period ends, the CDR is assumed to trend down in uniform increments for one year to its final long-term steady state CDR (5% of original plateau). 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 Scenario Expected Loss Estimates HELOCs
| As of September 30, 2025 |  | As of December 31, 2024
| Range |  | Weighted Average |  | Range |  | Weighted Average
Plateau CDR | 0.1 | % | – | 10.7% |  | 2.2% |  | 0.0 | % | – | 5.6% |  | 2.2%
Final CDR | 0.0 | % | – | 0.5% |  | 0.1% |  | 0.0 | % | – | 0.3% |  | 0.1%
Liquidation rates (1) | 20 | % | – | 55% |  |  |  | 20 | % | – | 55% |  |
Loss severity on future defaults | 98% |  |  |  | 98% |  |
Projected future recoveries on previously charged-off loans | 60% |  |  |  | 50% |  |
____________________ (1) The liquidation rates range from current but recently delinquent loans to foreclosed loans. The Company modeled scenarios with a longer period of elevated defaults and others with a shorter period of elevated defaults as well as various levels of assumed recoveries. In the Company’s most stressful scenario, assuming 40% recoveries on charged-off loans, increasing the CDR plateau to 42 months, increasing the ramp-down by four months to 16 months (for a total stress period of 58 months) and using the ultimate prepayment rate of 15% would decrease the expected recovery by approximately $49 million for HELOC transactions. On the other hand, in the Company’s least stressful scenario, assuming 80% recoveries on charged-off loans, reducing the CDR plateau to 30 months, decreasing the length of the CDR ramp-down to eight months (for a total stress period of 38 months) and lowering the ultimate prepayment rate to 10% would increase the expected recovery by approximately $49 million for HELOC transactions. Recovery Litigation and Dispute Resolution In the ordinary course of their respective businesses, certain of AGL’s subsidiaries are involved in litigation or other dispute resolution with third parties to recover insurance losses paid or return benefits received in prior periods or prevent or reduce losses in the future. For example, the Company has asserted claims in a number of legal proceedings in connection with its exposure to Puerto Rico. See above for a discussion of the Company’s exposure to Puerto Rico and related recovery litigation being pursued by the Company. The impact, if any, of these and other proceedings on the amount of recoveries the Company ultimately 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.

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