CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
THE PROVEN LEADER IN BOND INSURANCE
A Stronger Bond
for a stronger tomorrow
2022 Annual Report
2022 CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
A Stronger Bond
for a stronger tomorrow
For over 35 years, Assured Guaranty has helped to lower the cost of building and maintaining essential infrastructure.
Bond issuers use our credit enhancement to gain more efficient access to capital markets. Bond investors rely on our
unconditional and irrevocable guaranty of timely debt service payments and enjoy the added value of our credit selec-
tion, underwriting and surveillance. We have assisted in expanding the buying power of consumers and the financial
resources of businesses by guaranteeing structured financings; and have provided tools and resources for institutions
to manage capital efficiently. With this value proposition, our risk management discipline, and our strategic vision,
execution and diversification, our company continues to stand the test of time.
Throughout our history, Assured Guaranty’s strategy has been based on our
fundamental commitments:
• To protect investors in securities we insure, through every part of the economic cycle
• To help lower the cost of building and maintaining essential public infrastructure and services by insuring
municipal bonds and public-private partnership financings
• To provide credit enhancement for securitizations that expand the availability of consumer
and commercial credit
• To offer effective risk management tools for banks, insurance companies and other portfolio managers
• To expand our opportunities in businesses that benefit from our market knowledge and credit skills
• To build greater value for our shareholders through strategic execution and prudent capital management
Through its insurance subsidiaries, Assured Guaranty Ltd. (together with its subsidiaries, Assured Guaranty) is the leading provider of financial
guarantees for principal and interest payments due on municipal, public infrastructure and structured financings. Through other subsidiaries,
Assured Guaranty provides asset management services. Assured Guaranty Ltd. is a publicly traded (NYSE: AGO), Bermuda-based holding company.
More information on Assured Guaranty Ltd. and its subsidiaries can be found at AssuredGuaranty.com.
Please see the inside back cover for the forward-looking statements disclaimer.
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Dominic J. Frederico, President and Chief Executive Officer
To Our Shareholders,
Policyholders and Clients
Assured Guaranty performed exceptionally well in a very volatile 2022:
• Our U.S. public finance, international infrastructure finance and
global structured finance financial guaranty businesses combined
to produce $375 million of total present value of new business
production (PVP*) in 2022, the fifth consecutive year in which new
business production generated more than $350 million of PVP.*
• We continued to lead the U.S. municipal bond insurance industry,
with our share of new issue insured par sold nearly equal to the
previous year’s record share of 60%.
• Our 364 trades in the secondary U.S. municipal bond market produced
$3.3 billion of par insured, up 650% year-over-year and a par amount
not seen in over a decade.
Assured Guaranty
protected insured
bondholders, benefited
issuers, increased the
company’s intrinsic value†
and performed well in
2022, a year when we saw
the potential for greater
growth unlocked.
• We brought key measures of shareholder value per share to new year-
end highs. Topping the previous records set in 2021, adjusted operating
shareholders’ equity* per share increased 6% to $93.92, and adjusted
* On all pages, an asterisk denotes a non-GAAP financial
measure. For definitions, please refer to the section entitled
“Non-GAAP Financial Measures” on pages 104-107 in the Form
10-K at the back of this book. For five-year reconciliations of
non-GAAP financial measures to the most directly comparable
GAAP measures, please refer to pages 3, 5 and 17 of this
Annual Report.
book value* per share rose 9% to $141.98 at December 31, 2022.
†Measured as adjusted book value* per share.
Assured Guaranty 1
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
• We earned $267 million of adjusted operating income.*
• We returned a total of $567 million to shareholders, consisting of
$503 million in share repurchases and $64 million of dividends.
The share repurchases represented nearly 13% of our year-end
2021 shares outstanding. Since the beginning of our repurchase
program in 2013, we have returned $4.7 billion to shareholders
through repurchases, resulting in a 73% reduction in our total
shares outstanding.
• We reached settlement agreements for our exposures to the
$608,310,000
Power Authority of the
State of New York
GREEN TRANSMISSION PROJECT
REVENUE BONDS
SERIES 2022A
$546,015,000
Department of Airports of the
City of Los Angeles, CA
LAX AIRPORT CFC REVENUE BONDS,
CONSOLIDATED RENTAL CAR FACILITY PROJECT
Commonwealth of Puerto Rico and to all but one of the defaulted
SERIES 2022A
Puerto Rico entities in our insured portfolio, which when combined
with our normal Puerto Rico amortization, eliminated $2.2 billion
of below-investment-grade net insured par outstanding. We also
sold, or were paid off on, a portion of the securities we received in
the settlements.
Successfully Navigating a Volatile Environment
Our markets and the economic environment presented a new set of
challenges during 2022, a year marked by inflation, rising interest
rates, volatile financial and currency markets, uncertain economic
trends and geopolitical stress. For example, the rapid rise of interest
rates led to unrealized losses in our fixed-income investment portfolio.
We believe it also caused refundings in the U.S. municipal market
to decrease significantly, which is an important reason that volume
declined in both the overall primary market and its insured portion.
For our non-U.S. business, the rapid strengthening of the U.S. dollar
versus foreign currencies, especially U.K. pound sterling, reduced the
premiums receivable for foreign denominated insured transactions,
Assured Guaranty 2
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
During 2022, important measures of value per share reached
new record highs, including those for adjusted operating
shareholders’ equity* and adjusted book value.*
Adjusted book value* reconciliation
As of December 31,
(dollars in millions, except per share amounts)
2022
2021
2020
2019
2018
Reconciliation of shareholders’ equity to adjusted book value*:
Shareholders’ equity attributable to Assured Guaranty Ltd. (AGL)
Less pre-tax adjustments:
Consolidated claims-paying resources
and insured portfolio leverage
Non-credit impairment-related unrealized fair value gains (losses)
(dollars in millions at year-end)
on credit derivatives
Fair value gains (losses) on Committed Capital Securities (CCS)
Consolidated claims-paying resources (statutory basis)**
47
0.80
23
0.34
Unrealized gain (loss) on investment portfolio
Ratio of statutory net exposure to total claims-paying resources
(523)
(8.86 )
Less tax effect on pretax adjustments
Adjusted operating shareholders’ equity*
Pre-tax adjustments:
Less: Deferred acquisition costs
Plus: Net present value of estimated net future revenue
Aggregate data for insurance companies within the Assured Guaranty Ltd. group.
Claims on each insurance subsidiary’s guarantees are paid from that subsidiary’s
Plus: Net deferred premium revenue on financial guaranty contracts
separate claims-paying resources. Details in the latest Assured Guaranty Ltd. Financial
in excess of expected loss to be expensed
Supplement at assuredguaranty.com/agldata.
Plus tax effect on pretax adjustments
**For the present value of installment premium component, 2010 and 2011 are
discounted at 6%; for 2012–2022, 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.
Adjusted book value*
Total
Per
Share
Total
Per
Share
Total
Per
Share
Total
Per
Share
Total
Per
Share
$5,064 $85.80 $6,292
$93.19
$6,643
$85.66 $6,639
$71.18 $6,555
$63.23
(71)
(1.21 )
(54)
(0.80)
9
52
0.12
(56)
(0.60)
(45)
(0.44)
0.66
52
0.56
74
0.72
404
5.99
611
7.89
486
5.21
247
2.39
(72)
(1.07)
(116)
(1.50)
(89)
(0.95)
(63)
(0.61)
68
$12,835
5,543
1.15
$13,171
93.92
$12,845
5,991
$12,603
$12,620
88.73
47
147
157
2.48
41
2.66
131
1.95
160
39
2.37
3,428
58.10
3,402
34
50.40
30
$12,713
6,087
119
182
78.49
$12,070
$12,135
6,246
$11,941
66.96
$11,357
6,342
$11,077
$11,219
61.17
$10,818
1.54
111
1.19
2.35
206
2.20
105
219
1.01
2.11
3,355
43.27
3,296
35.34
3,005
28.98
(602)
(10.22)
(599)
(8.88)
26
(597)
(7.70)
(590)
(6.32)
(526)
(5.07)
$8,379 $141.98 $8,823 $130.67
’10
’11
’12
’13
’14
22
$8,908 $114.87 $9,047
’16
’15
’17
20
19
’18
20
$96.99
’19
21
$8,935
’20
21
’21
21
$86.18
’22
Adjusted book value* per share
Net deferred premium revenue on financial guaranty contracts in excess of
expected loss to be expensed less deferred acquisition costs, after tax per share
Net present value of estimated net future revenue, after tax per share
Adjusted operating shareholders’ equity* per share
$141.98
$45.94
$130.67
$40.05
$1.89
$2.12
$114.87
$34.50
$1.88
$96.99
$28.26
$1.77
$86.18
$23.32
$1.69
$61.17
’18
$66.96
’19
$78.49
’20
$88.73
’21
$93.92
’22
Assured Guaranty 3
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
and caused the PVP* (in U.S. dollars) for the period to be lower than it
would have been at 2021 rates.
In the face of such headwinds, our $375 million of PVP* was an
impressive result, and it was well diversified across our public finance
and structured finance markets. Strong PVP* production substantially
offsets the effect of refundings and scheduled amortization on our
deferred premium revenue, thereby helping to stabilize our future
base of predictable earned premium.
$754,830,000
Metropolitan Washington
Airports Authority
DULLES TOLL ROAD REVENUE REFUNDING BONDS
(Dulles Metrorail and Capital Improvement Projects)
SERIES 2022
$298,750,000
Texas State Technical College System
REVENUE FINANCING SYSTEM
IMPROVEMENT BONDS
Issuance of U.S. municipal bonds totaled $360 billion in 2022, down
SERIES 2022A
21% from a record par amount of $457 billion in 2021. We believe
refunding activity, in particular, was limited by higher interest rates.
Nevertheless, in the new issue market, the bond insurance industry’s
penetration rate for the year reached 8% for the second consecutive year,
which is well above pre-pandemic levels and indicates that the investors
and issuers who saw first-hand the value of bond insurance during the
COVID-19 crisis continue to see its benefits in an unpredictable world.
Continued Leadership in Municipal Bond Insurance
Assured Guaranty’s production was the leading force behind the
industry’s performance in 2022, as we insured nearly 60% of new
issue insured par sold. Additionally, as investors turned to the
secondary market to make up for the comparative lack of new issue
supply, the secondary market par we insured was 650% higher than
in 2021. As interest rates surged upward and bond prices fell, our
secondary market insurance was useful for investors seeking market
liquidity and portfolio management flexibility.
In the combined primary and secondary markets, we sold insurance
Assured Guaranty 4
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
After years of returning capital to shareholders and paying
claims, our claims-paying resources remain near $11 billion,
and our insured portfolio leverage remains low.
Adjusted operating income* reconciliation
Year Ended December 31,
(dollars in millions, except per share amounts)
2022
2021
2020
2019
2018
Net income (loss) attributable to AGL
Less pre-tax adjustments:
Realized gains (losses) on investments
Non-credit impairment-related unrealized fair value gains (losses)
on credit derivatives
Fair value gains (losses) on CCS
Per
Diluted
Share
Per
Diluted
Share
Per
Diluted
Share
Total
Per
Diluted
Share
Per
Diluted
Share
Total
Total
Total
Total
$124
$1.92
$389
$5.23
$362
$4.19
$402
$4.00
$521
$4.68
(56)
(0.87)
15
0.20
(18)
(0.27)
(64)
(0.85)
18
65
0.21
0.75
22
0.22
(32)
(0.29)
(10)
(0.11)
101
0.90
24
0.37
(28)
(0.38)
(1)
(0.01)
(22)
(0.22)
14
0.13
Foreign exchange gains (losses) on remeasurement of premiums receivable
and loss and loss adjustment expense (LAE) reserves
(110)
(1.72)
(21)
(0.29)
42
0.49
22
0.21
(32)
(0.29)
Total pre-tax adjustments
(160)
(2.49)
(98)
(1.32)
124
1.44
12
0.10
51
0.45
Less tax effect on pre-tax adjustments
17
0.27
17
0.23
(18)
(0.22)
(1)
(0.01)
(12)
(0.11)
Adjusted operating income*
$267
$4.14
$470
$6.32
$256
$2.97
$391
$3.91
$482
$4.34
Consolidated claims-paying resources
and insured portfolio leverage
(dollars in millions at year-end)
Consolidated claims-paying resources (statutory basis)**
Ratio of statutory net exposure to total claims-paying resources
Aggregate data for insurance companies within the Assured Guaranty Ltd. group.
Claims on each insurance subsidiary’s guarantees are paid from that subsidiary’s
separate claims-paying resources. Details in the latest Assured Guaranty Ltd. Financial
Supplement at assuredguaranty.com/agldata.
**For the present value of installment premium component, 2010 and 2011 are
discounted at 6%; for 2012–2022, 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.
$12,835
$13,171
$12,845
$12,603
$12,620
$12,713
$12,070
$12,135
$11,941
$11,357
$11,077
$11,219
$10,818
47
41
39
34
30
26
’10
’11
’12
’13
’14
’15
22
’16
20
’17
19
’18
20
’19
21
’20
21
’21
21
’22
Adjusted book value* per share
Net deferred premium revenue on financial guaranty contracts in excess of
expected loss to be expensed less deferred acquisition costs, after tax per share
Net present value of estimated net future revenue, after tax per share
Adjusted operating shareholders’ equity* per share
Assured Guaranty 5
$141.98
$45.94
$130.67
$40.05
$1.89
$2.12
$114.87
$34.50
$1.88
$96.99
$28.26
$1.77
$86.18
$23.32
$1.69
$61.17
’18
$66.96
’19
$78.49
’20
$88.73
’21
$93.92
’22
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Assured Guaranty
remained the leading
municipal bond insurer in
2022, insuring nearly 60%
of insured new issue par
sold and increasing our
annual secondary market
par insured by 650%.
on municipal par of $20 billion. Our combined U.S. public finance
PVP* totaled $257 million.
Reflecting market confidence in our financial strength and ratings
stability, we continued to add value on credits with underlying ratings
in the double-A category from one or both of S&P and Moody’s,
insuring 121 such double-A transactions, up from 109 last year, and
totaling $2.7 billion of insured par.
Our 2022 transactions included the Bond Buyer’s Health Care
Financing Deal of the Year, in which we insured both tax-exempt
and taxable hospital revenue bonds issued by Kentucky’s Louisville/
Jefferson County Metro Government to finance two major strategic
projects of UofL Health, Inc. We insured $272 million, or about
two-thirds of par issued, in this transaction.
The UofL healthcare issue was one of the 31 issues launched in 2022
in which we insured at least $100 million of par. In one example, we
insured all $608 million of tax-exempt Green Transmission Project
Revenue Bonds that the Power Authority of the State of New York
issued to support construction and improvement of transmission
projects. In another, we insured $572 million of private activity
bonds issued as part of a $1.8 billion public-private partnership (P3)
financing to support the Pennsylvania Department of Transportation’s
rehabilitation, reconstruction and improvement of aging bridges.
As increased federal spending provides an impetus for large-scale
infrastructure projects, this sector should present important
opportunities for Assured Guaranty. We can bring not only our
guaranty of timely principal and interest payments but also our
financial strength and capacity to insure large project financings, as
Assured Guaranty 6
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
New business production (PVP*)
(dollars in millions)
Assumed PVP
Direct PVP
$697
$569
PVP* of $375 million reflected strong U.S. public finance
production, including our best secondary market production
in more than a decade, excellent international infrastructure
performance, and outstanding global structured finance production.
$553
$296
$389
$390
’18
’19
’20
$361
$375
$350
’21
$375
’22
Dividends
Per share ($)
Total paid (dollars in millions)
In February 2023, we increased our quarterly dividend by
New business production (PVP*)
12% to $0.28 per common share ($1.12 annualized).
(dollars in millions)
Assumed PVP
Direct PVP
$9
$.12
’05
Per
Share
$5
$.06
’04
In 2004, dividends were paid following
our April IPO. The amount shown is the
quarterly dividend, annualized.
Dividends
Per share ($)
Total paid (dollars in millions)
U.S. public finance par insured
In February 2023, we increased our quarterly dividend by
12% to $0.28 per common share ($1.12 annualized).
(dollars in millions)
$75
$76
$69
$72
$70
$71
$69
$74
$69
$66
$64
$33
$33
$22
$16
$11
$10
$.14
’06
$.16
’07
$.18
’08
$.18
’09
$.18
’10
$.18
’11
$.36
’12
$.40
’13
$697
$296
’18
$.44
’14
$75
$76
$69
$569
$390
$361
$375
$553
’19
$.52
’16
$389
’20
$.64
’18
$.57
’17
$350
’21
$.80
’20
$375
$.88
’21
’22
$1.00
’22
$.72
’19
$74
$70
$71
$69
$69
$.48
’15
$72
$66
$64
$23,793
$21,198
$19,801
$19,572
$16,337
$33
$33
$22
$16
$11
In 2018, Assured Guaranty assumed through reinsurance a large portfolio of Syncora Guarantee Inc. exposures
that included $7.6 billion of U.S. public finance insured par.
$10
$9
$5
In 2004, dividends were paid following
our April IPO. The amount shown is the
quarterly dividend, annualized.
Per
Share
$.06
’04
$.12
’05
$.14
’06
$.16
’07
$.18
’08
$.18
’09
$.18
’10
$.18
’11
$.36
’12
$.40
’13
$.44
’14
$.48
’15
$.52
’16
$.57
’17
’18
’19
’20
$.64
’18
$.72
’19
’21
$.80
’20
’22
$1.00
’22
$.88
’21
Assured Guaranty 7
U.S. public finance par insured
(dollars in millions)
$23,793
$21,198
$19,801
$19,572
$16,337
In 2018, Assured Guaranty assumed through reinsurance a large portfolio of Syncora Guarantee Inc. exposures
that included $7.6 billion of U.S. public finance insured par.
’18
’19
’20
’21
’22
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
well as our years of experience underwriting infrastructure credits,
including public-private partnerships.
Strong International and Structured Finance Performance
Outside the United States, our public finance business has become a
consistent performer, producing more than $60 million of PVP* for six
years in a row. In 2022, we wrote $68 million of PVP* in this business,
after foreign currency conversion. Among our notable accomplish-
ments within non-U.S. public finance were large secondary market
transactions related to U.K. regulated utilities and a major airport. Our
French subsidiary, which we opened in 2020 to serve the European
Economic Area more effectively, further grew its business originations
in 2022.
In global structured finance, we wrote $50 million of PVP,* which makes
2022 our second most productive year for direct structured finance activity
since 2012. Providing institutions like banks and insurance companies
with tools to syndicate risk and optimize capital utilization continues to
be an important focus for Assured Guaranty. During the year, we closed
transactions in several sectors including insurance risk transfer, commercial
real estate, collateralized loan obligations (CLOs) and whole business
securitization. We also made further inroads into subscription finance,
where we work with banks to help them provide credit to private
equity–style funds collateralized by investors’ funding commitments.
Puerto Rico Settlements Improve Insured Portfolio Quality
During the year, we further strengthened our high-quality, well-diversified
insured portfolio, and 2022 will be remembered as the year we finalized
settlement agreements on our exposures to the bonds of the Common-
wealth of Puerto Rico, its Public Buildings Authority, its Highways and
Transportation Authority and certain of its other public corporations.
Although the settlement terms varied by credit, we were compensated
Our international
infrastructure business
contributed $68 million of
PVP* in 2022, and our global
structured finance business
generated $50 million, its
second highest direct PVP*
since 2012.
I
m
a
g
e
c
o
u
r
t
e
s
y
o
f
U
o
f
L
H
e
a
l
t
h
Assured Guaranty 8
CEO Letter
CEO Letter
Environmental / Social
Environmental / Social
Leadership
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Financial Highlights
Board of Directors
Corporate Information
FORM 10-K
Consolidated net par outstanding
by sector
(as of December 31, 2022)
77% U.S. public finance A– average rating
4% U.S. structured finance A average rating
19% Non-U.S. public finance BBB+ average rating
<1% Non-U.S. structured finance A average rating
$233.3 Billion
A- average rating
Our insured portfolio has
improved significantly as a
result of our loss mitigation
efforts and robust portfolio
management. Investment
grade exposures constitute
more than 97% of our net
par outstanding.
U.S. public finance net par outstanding
by sector
(as of December 31, 2022)
40% General obligation
19% Tax-backed
15% Municipal utilities
11% Transportation
6% Healthcare
4% Higher education
5% Other public finance
$179.6 Billion
A- average rating
Consolidated net par outstanding
by rating
(as of December 31, 2022)
2% AAA
10% AA
46% A
39% BBB
<3% Below investment grade
$233.3 Billion
Ratings are based on Assured Guaranty’s internal rating scale.
Assured Guaranty 9
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
in the settlements overall with a mix of cash and securities, including
some contingent value instruments that have upside potential based on
the performance of the Puerto Rico economy. We have sold many of the
$459,943,677
Alameda Corridor
Transportation Authority, CA
TAX-EXEMPT SENIOR AND SECOND SUBORDINATE
LIEN REVENUE REFUNDING BONDS
securities we received and continue to do so as market opportunities arise.
SERIES 2022 INSURED BONDS
£170,000,000
Yorkshire Water Services
LIMITED DEBT SERVICE RESERVE
LIQUIDITY GUARANTEE FACILITY
5-YEAR EVERGREEN FACILITY
RENEWED ON AN ANNUAL BASIS
Our last remaining unsettled defaulted Puerto Rico exposure is the Puerto
Rico Electric Power Authority (PREPA), which we believe could be resolved
in 2023.
The Puerto Rico settlements eliminated $2.0 billion of net par
exposure, helping to reduce the below-investment-grade portion
of our net par outstanding to just 2.5%, the lowest level since we
acquired Assured Guaranty Municipal in 2009.
The rating agencies looked positively on our reduced exposure to
Puerto Rico. Both S&P Global Ratings and Kroll Bond Rating Agency
(KBRA) cited it in their affirmations during 2022 of our AA ratings at
S&P and AA+ ratings at KBRA, both with stable outlooks.
Challenges and Progress in Asset Management
Assured Investment Management (AssuredIM) ended 2022 with
$17.5 billion of assets under management (AUM), which was essen-
tially flat to that of 2021. Third-party gross inflows were $1.4 billion,
and we experienced, as was typical for many asset managers, the
negative impact of the challenging global economy and financial
markets and the widening of CLO spreads following the invasion of
Ukraine, as well as the runoff of our legacy funds and certain other
limitations during the year.
It is important to keep in mind that since acquiring AssuredIM just three
years ago, we have made important and successful course corrections to
its business strategies. We increased the fee-earning AUM of AssuredIM
funds to $16.8 billion as of December 31, 2022 from $8.0 billion on
December 31, 2019. Additionally, in the wind-down funds, since the
Assured Guaranty 10
New business production (PVP*)
(dollars in millions)
CEO Letter
Assumed PVP
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Direct PVP
$697
$569
We have increased our quarterly dividend to shareholders for
12 consecutive years, including a 12% increase to 28 cents per
share announced in February 2023.
$390
$361
$375
$296
’18
$553
’19
$389
’20
$350
’21
$375
’22
$75
$76
$69
$72
$70
$71
$69
$74
$69
$66
$64
Dividends
Per share ($)
Total paid (dollars in millions)
In February 2023, we increased our quarterly dividend by
12% to $0.28 per common share ($1.12 annualized).
Investment portfolio and cash
(dollars in millions, fair value at year-end)
$33
$33
$22
$16
$11
$10
$10,977
$10,409
$10,000
$9,728
$8,472
$.14
’06
$.16
’07
$.18
’08
$.18
’09
$.18
’10
$.18
’11
$.36
’12
$.40
’13
$.44
’14
$.48
’15
$.52
’16
$.57
’17
$.64
’18
$.72
’19
$.80
’20
$.88
’21
$1.00
’22
’18
’19
’20
’21
’22
In 2004, dividends were paid following
our April IPO. The amount shown is the
quarterly dividend, annualized.
$9
$.12
’05
Per
Share
$5
$.06
’04
U.S. public finance par insured
(dollars in millions)
Net investment income
(dollars in millions at year-end)
In 2018, Assured Guaranty assumed through reinsurance a large portfolio of Syncora Guarantee Inc. exposures
that included $7.6 billion of U.S. public finance insured par.
Insurance Segment
Segment Net Investment Income
Fair value gains (losses) on trading securities
Insurance segment equity in earnings of:
AssuredIM funds
Other alternative investments
Total
Beginning in fourth quarter 2019, the Insurance
segment invested in certain AssuredIM Funds and
reports the changes in fair value of its investments in
these funds in equity in earnings of investees. These
AssuredIM funds are generally consolidated in the
consolidated financial statements.
Share repurchases
(dollars and share count in millions)
Total amount of shares repurchased
Total share count repurchased
$23,793
$395
$19,572
$21,198
$378
$19,801
$16,337
$297
$269
$269
’18
’18
$396
’19
’19
$383
’20
’20
$310
’21
’21
$280
—
1
$397
(2)
4
$385
42
19
$371
80
64
$424
’22
’22
$278
(34)
(10)
(41)
$193
Assured Guaranty 11
$500
$500
$496
$503
$446
16
13
11
11
9
’18
’19
’20
’21
’22
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
acquisition date, we reduced AUM from $5.5 billion to $182 million
HOSPITAL REVENUE BONDS (UofL HEALTH PROJECT)
at year-end 2022.
SERIES 2022A DUE 2047 AND
TAXABLE SERIES 2022B
$271,545,000
Louisville/Jefferson County Metro
Government, Kentucky
$500,000,000
Private U.S. Insurance Securitization
One of our goals in acquiring AssuredIM was to improve returns
on our insurance companies’ investment portfolios by investing in
AssuredIM funds, which are a significant portion of our alternative
investments. Our alternative investments are more volatile than our
fixed-maturity investments, but since the acquisition, on a cumulative
basis through year-end 2022, our AssuredIM funds returned pretax gains
of $110 million, representing a 9.4% annualized return. We remain
committed to alternative investment strategies, where we expect
greater investment returns than those generated by the fixed-maturity
investment portfolio.
We are also committed to our strategic objective of growing asset
management-related earnings and continue to look for alternative
accretive strategies to do so.
The Stage Is Set for More Success and Growth
In our view, 2022 was a remarkable year.
• We saw interest rates rise from a prolonged period of historic lows
to more traditionally normal—and we believe sustainable—levels,
giving us the potential to offer issuers even greater savings than we
have in recent years, while originating more PVP.*
• It became clear that the increased penetration of municipal bond
insurance that began with the onset of the COVID-19 pandemic has
been sustained, even with lower issuance. We believe this indicates
more widespread understanding of our value proposition, which
Assured Guaranty 12
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Investment portfolio and cash
(dollars in millions, fair value at year-end)
$10,977
$10,409
$10,000
$9,728
$8,472
2022 share repurchases represented nearly 13% of our year-end 2021
shares outstanding. Since the 2013 beginning of our repurchase program,
we have reduced total shares outstanding by 73% through $4.7 billion of
share repurchases.
’18
’19
’20
’21
’22
Net investment income
(dollars in millions at year-end)
Investment portfolio and cash
(dollars in millions, fair value at year-end)
In addition to the investment portfolio and cash assets in the graph, U.S.
subsidiaries have invested in AssuredIM funds that are consolidated in the
consolidated financial statements and reported in separate line items on
the consolidated balance sheets. The fair value of the AssuredIM fund
investments as of December 31 of the following years were:
2019: $77 million
2020: $254 million
2021: $543 million
2022: $569 million
Beginning in fourth quarter 2019, the Insurance
segment invested in certain AssuredIM Funds and
reports the changes in fair value of its investments in
these funds in equity in earnings of investees. These
AssuredIM funds are generally consolidated in the
consolidated financial statements.
Net investment income
(dollars in millions at year-end)
Share repurchases
(dollars and share count in millions)
Total amount of shares repurchased
Total share count repurchased
Beginning in fourth quarter 2019, the Insurance
segment invested in certain AssuredIM Funds and
reports the changes in fair value of its investments in
these funds in equity in earnings of investees. These
AssuredIM funds are generally consolidated in the
consolidated financial statements.
Share repurchases
(dollars and share count in millions)
Total amount of shares repurchased
Total share count repurchased
$395
$378
$297
$269
$269
$10,977
$10,409
$10,000
$9,728
$8,472
’18
’19
’20
’21
’22
’18
’19
’20
’21
’22
$395
$378
$297
$269
$269
$500
$500
$496
$503
$446
16
’20
’18
13
’19
11
’21
11
’22
9
’18
’19
’20
’21
’22
Assured Guaranty 13
$500
$500
$496
$503
$446
16
13
11
11
9
’18
’19
’20
’21
’22
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
will support increasing demand for our product during a stage of
the world economy that shows no signs of becoming more stable.
• The United States began to experience the impact of the bipartisan
infrastructure act. It incentivizes municipalities to complement
federal funding with their own investments, typically funded with
bonds we can potentially insure, and it encourages public-private
partnership financings, where we can add great value through
our infrastructure finance experience, analytic and due diligence
capabilities and financial strength.
• The success of our secondary market municipal bond business
exemplified the growing awareness of the value and versatility of
our bond insurance in volatile market conditions.
• Perhaps most importantly, we resolved most of our Puerto Rico
exposure, demonstrating again the effectiveness of our loss
mitigation strategies, our determination to act in the best interests
of our stakeholders, our commitment to responsible engagement
with our insured obligors, and the resilience of our business model.
Looking forward, we are well-positioned for growth in the years
ahead, because we will do what we have always done—protect
insured investors and shareholders through disciplined underwriting and
risk management, produce savings and broaden opportunities for issuers,
expand our markets, and actively and prudently manage our capital.
Dominic J. Frederico
President and Chief Executive Officer
March 2023
Having significantly
improved our insured
portfolio, maintained our
leadership in the financial
guaranty industry and
demonstrated the resilience
of our business model, we
have positioned Assured
Guaranty for growth in the
years ahead.
Assured Guaranty 14
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Stronger Communities
For over 35 years, Assured Guaranty
has been insuring transactions that
provide positive social and environmental
outcomes leading to improved access
to healthcare, housing, education, and
public transportation, and more recently,
protecting communities against extreme
weather events and transitioning to a low
carbon economy.
As a financial guarantor, Assured Guaranty
plays a valuable role in the building of the
nation’s infrastructure, schools, hospitals,
utilities, mass transit and other essential
public works projects. Municipalities
provide services that have direct and
tangible benefits for their communities;
they stand at the front line of defense
against climate change. For more than
three decades, we have been working
with diverse issuers across the United
States—cities, counties and states,
school districts and public and private
colleges and universities, hospitals and
rural healthcare systems, and utilities
and power authorities—to secure
needed financing at a lower cost. Some
of these financings are utilized to give
communities the funds they need to
serve underserved populations, meet
their own environmental objectives or
comply with federal and state environ-
mental regulations.
Below is a representative selection
of transactions in 2022 in which our
financial guaranty insurance helped lower
borrowing costs for issuers to build more
energy efficient schools, meet climate
goals, improve climate resilience, provide
healthcare, housing and education, and
develop neighborhoods.
Within Assured Guaranty, we endeavor
to strengthen our own community;
we work to support a corporate
culture that is ethical, professional,
respectful and inclusive. Through our
employee-led Diversity and Inclusion
Committee and Corporate Philanthropy
Committee, our Employee Resource
Groups, mentoring program and
educational and social programming
throughout the year, we create
community and engagement.
Power Authority of the State of New York
Texas State Technical College System
Simmons University
$608,310,000 Green Transmission Project Revenue
Bonds, Series 2022A: Proceeds used to finance capi-
tal projects expected to accelerate progress towards
New York State’s clean energy and climate goals.
Department of Airports of the
City of Los Angeles, California
$546,015,000 Los Angeles International Airport
Customer Facility Charge Revenue Bonds
(Consolidated Rental Car Facility Project),
2022 Series A (Federally Taxable) (Green Bonds):
Proceeds used to fund development and con-
struction of car rental facility to alleviate airport
traffic congestion and prepare for transition to
fully electrified rental car fleets.
Louisville/Jefferson County
Metro Government, Kentucky
$271,545,000 Hospital Revenue Bonds (UofL Health
Project), Series 2022: Proceeds used to finance
acquiring, constructing, improving and equipping
certain health care facilities.
$298,750,000 Revenue Financing System Improve-
ment Bonds, Series 2022A: Proceeds used to finance
costs of acquiring, improving and equipping
buildings and various campus facilities of the Texas
State Technical College System, a statewide public
college system that provides students two-year
technical and vocational education in fields that
are strategically important to the state’s economic
development and growing workforce.
City of Newark
$110,000,000 Mass Transit Access Tax Revenue
Bonds, Series 2022: Proceeds used to finance
the cost of construction of a pedestrian bridge,
located in areas in need of redevelopment and
rehabilitation, connecting Newark Penn Station
to various neighborhoods and downtown
Newark, New Jersey, in order to provide
commuter and pedestrian access to connect
disconnected communities.
$71,675,000 Bonds, Series 2022 (Taxable):
Proceeds used to finance capital projects at
Simmons University, a private institution of
higher education in Massachusetts serving
undergraduate women and a coeducational
graduate program.
Board of Trustees of the
Colorado School of Mines
$46,405,000 Institutional Enterprise Revenue
Bonds (Green Bonds), Series 2022A: Proceeds
used to finance construction of four academic
buildings designed to achieve LEED Gold certi-
fication and include energy efficient upgrades
and geothermal heating.
Sienna Parks & Levee Improvement
District of Fort Bend County, Texas
$29,910,000 Unlimited Tax Levee Improvement
Bonds, Series 2022: Proceeds used to finance
improvements to the flood protection system.
Assured Guaranty 15
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
EXECUTIVE TEAM
Robert A. Bailenson
Chief Financial Officer
Ling Chow
General Counsel and Secretary
David A. Buzen
Chief Investment Officer
and Head of Asset Management
Stephen Donnarumma
Chief Credit Officer
Jorge A. Gana
Deputy Chief Risk Officer
Chief Risk Officer
as of January 1, 2023
Holly L. Horn
Chief Surveillance Officer
CORPORATE: Senior Management and Business Leaders
Laura A. Bieling
Chief Accounting Officer
and Controller
Christopher M. Gibbons
Chief Technology Officer
Ivana M. Grillo
Senior Managing Director,
Human Resources
Dawn L. Jasiak
Head of Human
Capital Management
Teresa Muñoz
Senior Managing Director,
Financial Reporting and Controls
Alfonso J. Pisani
Senior Managing Director
and Treasurer
Benjamin G. Rosenblum
Chief Actuary
Robert S. Tucker
Senior Managing Director,
Investor Relations and
Corporate Communications
Timothy E. Williams
Senior Managing Director, Tax
Howard W. Albert
Chief Risk Officer
Senior Advisor to CEO
as of January 1, 2023
INSURANCE: Senior Management and Business Leaders
Daniel S. Bevill
Senior Managing Director,
Structured Finance
Gary F. Burnet
President, Assured
Guaranty Re Ltd.
Christopher P. Chafizadeh
Senior Managing Director,
Public Finance Marketing
William J. Hogan
Senior Managing Director,
Public Finance
Steven B. Kahn
Senior Managing Director,
Structured Finance
Kevin J. Lyons
Deputy General Counsel,
Public Finance
Dominic J. B. Nathan
Senior Managing Director,
Infrastructure Finance
Edward M. Newman
Deputy General Counsel,
Structured Finance
and Infrastructure
Nicholas J. Proud
Senior Managing Director,
International Infrastructure
and Structured Finance
ASSET MANAGEMENT: Senior Management and Business Leaders
Ashleigh L. Bischoff
Deputy Chief Investment Officer
Evan P. Boulukos
Head of Municipal Bond Investing
Brandon L. Cahill
Co-Head of Collateralized
Loan Obligation Management
Lee S. Kempler
Chief Operating Officer and
Head of Distribution
Charles C. Kobayashi
Co-Head of Collateralized
Loan Obligation Management
James B. Pieri
Chief Investment Officer and
Managing Partner, Assured
Healthcare Partners LLC
Dave Ray
General Counsel and
Chief Compliance Officer
Bradley S. Schwartz
Head of Asset Based Investing
Assured Guaranty 16
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Financial highlights
(in millions, except per share amounts)
GAAP Results
Net income attributable to AGL
Shareholders’ equity attributable to AGL
Net income attributable to AGL, per share
Shareholders’ equity attributable to AGL, per share
Non-GAAP Results(1)
Adjusted operating income(2)
Adjusted operating shareholders’ equity(3)
Adjusted book value(3)
Adjusted operating income, per share(2)
Adjusted operating shareholders’ equity, per share(3)
Adjusted book value, per share(3)
Insurance Segment
2022
2021
2020
2019
2018
$
124 $
389 $
362 $
402 $
5,064
1.92
85.80
6,292
5.23
93.19
6,643
4.19
85.66
6,639
4.00
71.18
$
267
$
470 $
256 $
391 $
5,543
8,379
4.14
93.92
5,991
8,823
6.32
88.73
6,087
8,908
2.97
78.49
141.98
130.67
114.87
6,246
9,047
3.91
66.96
96.99
521
6,555
4.68
63.23
482
6,342
8,935
4.34
61.17
86.18
Insurance segment adjusted operating income
$
413
$
722 $
429 $
512 $
582
Gross premiums written (GWP)
Less: Installment GWP and other GAAP adjustments(4)
Plus: Installment premiums and other (5)
Present value of new business production (PVP)(1)
360
145
160
375
377
158
142
361
454
191
127
390
677
469
361
569
612
119
204
697
Gross par written
22,047
26,656
23,265
24,353
24,624
Financial Guaranty Exposure, net(6)
Debt service outstanding
Par outstanding
Public finance
Structured finance
Total
Statutory capital
Claims-paying resources(7)
Asset Management Segment
Asset Management segment adjusted operating income (loss)
Assets under management
Fee-earning assets under management
Share Capital
Common shares outstanding
Number of common shares repurchased
Amount of common shares repurchased
$ 369,951
$ 367,360 $ 366,233 $ 374,130 $ 371,586
224,099
227,164
224,625
226,746
230,665
9,159
9,228
9,528
10,061
11,137
233,258
236,392
234,153
236,807
241,802
6,357
10,818
$
6,797 $
11,219
6,634 $
11,077
6,663 $
11,357
6,811
11,941
(6) $
(19) $
(50) $
(10) $ —
17,464
16,795
17,494
16,576
17,348
12,940
17,827
7,971
—
—
$
$
59.0
8.8
67.5
10.5
77.5
15.8
93.3
11.2
$
503
$
496 $
446 $
500 $
103.7
13.2
500
(1) Non-GAAP Results and PVP are financial measures that are not in accordance with U.S. generally accepted accounting principles (GAAP), and we refer to them as non-GAAP financial measures. Please see
Assured Guaranty’s Form 10-K filing with the U.S. Securities and Exchange Commission (SEC), which is bound into this Annual Report, for definitions of these non-GAAP financial measures.
(2) See page 5 for five-year reconciliation to the most comparable GAAP measure.
(3) See page 3 for five-year reconciliation to the most comparable GAAP measure.
(4) 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,
any cancellations of assumed reinsurance contracts, and other GAAP adjustments.
(5) Primarily 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.
(6) Please see Assured Guaranty’s Form 10-K filing with the U.S. Securities and Exchange Commission (SEC), which is bound into this Annual Report, for a description of financial guaranty exposures.
(7) Based on accounting practices prescribed or permitted by U.S. insurance regulatory authorities, for all insurance subsidiaries. Claims-paying resources is calculated as the sum of statutory policyholders’
surplus; statutory contingency reserve; unearned premium reserves and net deferred ceding commission income; statutory loss and LAE reserves; present value of future installment premiums, discounted
at the approximate average pre-tax book yield of fixed-maturity securities purchased in the prior calendar year, excluding Loss Mitigation Securities; standby lines of credit/stop loss; and excess-of-loss
reinsurance facility. Total claims-paying resources is used by the Company to evaluate the adequacy of capital resources.
Assured Guaranty 17
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Assured Guaranty Ltd.
BOARD OF DIRECTORS
Francisco L. Borges
Dominic J. Frederico
G. Lawrence Buhl
Bonnie L. Howard
Chair of the Board and of the
Nominating and Governance
and Executive Committees
President and Chief Executive
Officer and member of the
Executive Committee
Member of the Audit,
Compensation, and
Nominating and Governance
Committees
Chair of the Audit Committee;
and member of the
Compensation and Nominating
and Governance Committees
Thomas W. Jones
Patrick W. Kenny
Alan J. Kreczko
Chair of the Compensation
Committee; and member of
the Audit and Nominating and
Governance Committees
Member of the Compensation,
Environmental and Social
Responsibility, Executive,
and Nominating and
Governance Committees
Chair of the Environmental
and Social Responsibility
Committee; and member of
the Finance and Nominating
and Governance Committees
Simon W. Leathes
Chair of the Risk Oversight
Committee; and member of
the Finance, Executive, and
Environmental and Social
Responsibility Committees
Michelle McCloskey
Member of the Finance,
Environmental and Social
Responsibility, and Risk
Oversight Committees
Yukiko Omura
Chair of the Finance
Committee; and member
of the Environmental and
Social Responsibility and
Risk Oversight Committees
Lorin P.T. Radtke
Member of the Audit,
Finance and Risk
Oversight Committees
Courtney C. Shea
Member of the Audit,
Finance and Risk
Oversight Committees
Assured Guaranty 18
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
THE PROVEN LEADER IN BOND INSURANCE
2022 Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 Number 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
(441) 279-5700
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive office)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Shares
Assured Guaranty US Holdings Inc. 5.000% Senior Notes due 2024 (and the related guarantee of Registrant)
$0.01 par value per share
Assured Guaranty US Holdings Inc. 3.150% Senior Notes due 2031 (and the related guarantee of Registrant)
Assured Guaranty US Holdings Inc. 3.600% Senior Notes due 2051 (and the related guarantee of Registrant)
Securities registered pursuant to Section 12(g) of the Act: None
Trading
Symbol(s)
AGO
AGO 24
AGO/31
AGO/51
Name of exchange on
which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 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
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.
☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company
☐ Emerging growth company
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The aggregate market value of Common Shares held by non-affiliates of the Registrant as of the close of business on June 30, 2022 was 3,341,929,790 (based
upon the closing price of the Registrant's shares on the New York Stock Exchange on that date, which was $55.79). For purposes of this information, the
outstanding Common Shares which were owned by all directors and executive officers of the Registrant were deemed to be the only shares of Common Shares
held by affiliates.
As of February 24, 2023, 59,056,267 Common Shares, par value $0.01 per share, were outstanding (including 36,403 unvested restricted shares).
Certain portions of Registrant’s definitive proxy statement relating to its 2023 Annual General Meeting of Shareholders to be held on May 3, 2023, are
incorporated by reference to Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
This page is intentionally left blank
2
Forward Looking Statements
This Form 10-K 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
significant changes in inflation, interest rates, the world’s credit markets or segments thereof, credit spreads,
foreign exchange rates or general economic conditions, including the possibility of a recession;
geopolitical risk, including war in Ukraine and the resulting economic sanctions, fragmentation of global supply
chains, volatility in energy prices, potential for increased cyberattacks, and risk of intentional or accidental
escalation;
the possibility of a United States (U.S.) government shutdown, payment defaults on the debt of the U.S.
government or instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities, and
downgrades to their credit ratings;
the development, course and duration of the COVID-19 pandemic and the governmental and private actions taken
in response, and the global consequences of the pandemic and such actions, including their impact on the factors
listed in this section;
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, including losses with respect to related legal proceedings, 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 final resolution of Assured Guaranty’s remaining
Puerto Rico exposures or the amounts recovered on securities received in connection with the resolution of Puerto
Rico exposures already resolved;
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 strategic transactions 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;
3
loss of key personnel;
the effects of mergers, acquisitions and divestitures;
natural or man-made catastrophes or pandemics;
other risk factors identified in AGL’s filings with the U.S. Securities and Exchange Commission (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-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-K 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).
Conventions
Unless otherwise noted, ratings on Assured Guaranty’s insured portfolio are Assured Guaranty’s internal ratings. The
Company purchases attractively priced obligations that it has insured and for which it had expected losses to be paid, in order to
mitigate the economic effect of insured losses (Loss Mitigation Securities). Ratings on Loss Mitigation Securities are also
Assured Guaranty's internal ratings. Internal credit ratings are expressed on a rating scale similar to that used by the rating
agencies and generally reflect an approach similar to that employed by the rating agencies, except that Assured Guaranty’s
internal credit ratings focus on future performance, rather than lifetime performance. The Company excludes amounts from its
outstanding insured par and debt service relating to Loss Mitigation Securities.
Also, unless otherwise noted, the Company includes as part of its asset management business the management of
collateralized loan obligations (CLOs) managed by BlueMountain Fuji Management, LLC (BM Fuji), which was sold to a third
party in the second quarter of 2021. Assured Investment Management LLC (AssuredIM LLC) and its investment management
affiliates (together with AssuredIM LLC, 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.
4
ASSURED GUARANTY LTD.
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business
Overview
Insurance
Support of AGUK and AGE
Insurance Portfolio
Exposure Limits, Underwriting Procedures, and Credit Policy
Importance of Financial Strength Ratings
Competition
Asset Management
Products
Asset Management Revenues
Competition
Investment Portfolio
Risk Management
Regulation
Human Capital Management
Tax Matters
Description of Share Capital
Other Provisions of AGL’s Bye-Laws
Available Information
Item 1A. Risk Factors
Risks Related to Economic, Market and Political Conditions and Natural Phenomena
Risks Related to Estimates, Assumptions and Valuations
Strategic Risks
Operational Risks
Risks Related to Taxation
Risks Related to GAAP, Applicable Law and Litigation
Risks Related to AGL’s Common Shares
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Information About Our Executive Officers
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Business
Economic Environment
Key Business Strategies
Executive Summary
Financial Performance of Assured Guaranty
Other Matters
5
Page
7
7
7
7
8
10
13
16
17
18
18
20
21
21
23
29
38
41
49
50
51
51
53
57
58
60
63
67
69
70
70
71
71
71
73
73
75
75
75
75
76
80
81
84
Results of Operations
Critical Accounting Estimates
Results of Operations by Segment
Insurance Segment
Asset Management Segment
Corporate Division
Other
Reconciliation to GAAP
Non-GAAP Financial Measures
Insured Portfolio
Liquidity and Capital Resources
AGL and its U.S Holding Companies
Insurance Subsidiaries
Investment Portfolio
AssuredIM
Lease Obligations
Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles
Consolidated Cash Flow Summary
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021
Consolidated Statements of Operations for Years Ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for Years Ended December 31, 2022, 2021 and
2020
Consolidated Statement of Shareholders’ Equity for Years Ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for Years Ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16.
Signatures
Form 10-K Summary
6
Page
87
87
87
88
96
99
100
102
104
108
114
114
118
122
126
126
126
127
129
135
136
138
139
140
141
142
144
246
246
247
247
248
248
248
248
248
248
249
249
255
255
ITEM 1. BUSINESS
Overview
PART I
Assured Guaranty Ltd. (AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-
based holding company incorporated in 2003 that provides, through its operating subsidiaries, credit protection products and
asset management services. The Company provides credit protection products to the United States (U.S.) and non-U.S. public
finance (including infrastructure) and structured finance markets, and manages assets across collateralized loan obligations
(CLOs) as well as opportunity funds that build on its corporate credit, asset-based finance and healthcare experience.
In the Insurance segment, the Company applies its credit underwriting judgment, risk management skills and capital
markets experience primarily to offer, through its several insurance subsidiaries, 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.
In the Asset Management segment, the Company provides asset management services through Assured Investment
Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM).
AssuredIM provides investment advisory services to CLOs, 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. The Company established AssuredIM 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 (the BlueMountain Acquisition). The Asset
Management segment diversifies the risk profile and revenue opportunities of the Company.
Since the establishment of AssuredIM, the Company has been operating in two distinct operating segments, Insurance
and Asset Management, and also has a Corporate division. See Part II, Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations and Part II, Item 8, Financial Statements and Supplementary Data, Note 2,
Segment Information, for financial results of the Company’s segments.
The Company continually evaluates its key business strategies, which fall into three areas: (1) insurance; (2) asset
management and alternative investments; and (3) capital management. The Company seeks to grow the insurance business
through new business production, acquisitions of legacy monolines or reinsurance of their portfolios, and to continue to
mitigate losses in its current insured portfolio. The Company intends to grow its Asset Management business through strategic
combinations. The Company is also using the investment knowledge and experience in AssuredIM to expand the categories and
types of investments it makes. AssuredIM’s investing capabilities provide the Insurance segment with an opportunity to deploy
excess capital at attractive returns, and to improve the risk-adjusted return on a portion of its investment portfolio. Finally, the
Company pursues strategies to manage capital within the Assured Guaranty group more efficiently.
Insurance
Insurance Companies
The Company’s largest line of business is Insurance. The Company primarily conducts financial guaranty business on
a direct basis from the following companies: Assured Guaranty Municipal Corp. (AGM), Assured Guaranty Corp. (AGC),
Assured Guaranty UK Limited (AGUK, formerly known as Assured Guaranty (Europe) plc) and, most recently, Assured
Guaranty (Europe) SA (AGE). It also conducts insurance business through its Bermuda-based reinsurers Assured Guaranty Re
Ltd. (AG Re) and Assured Guaranty Re Overseas Ltd. (AGRO). The following is a description of the Company’s principal
insurance operating subsidiaries:
7
•
•
•
•
Assured Guaranty Municipal Corp. AGM is located and domiciled in New York, and was organized in 1984 as
“Financial Security Assurance Inc.” It provides financial guaranty insurance and reinsurance on debt obligations
issued in the U.S. and non-U.S. public finance and infrastructure markets, including bonds issued by U.S. state or
governmental authorities or notes issued to finance infrastructure projects.
Assured Guaranty Corp. AGC is located in New York and domiciled in Maryland, was organized in 1985 and
commenced operations in 1988. It provides insurance and reinsurance principally on debt obligations in the U.S
and non-U.S. structured finance market and also offers guaranties on obligations in the U.S. and non-U.S. public
finance and infrastructure markets. AGC acquired CIFG Assurance North America, Inc. (CIFGNA) in 2016 and
Radian Asset Assurance Inc. (Radian Asset) in 2015, and merged them each with and into AGC, with AGC being
the surviving entity.
Assured Guaranty UK Limited and Assured Guaranty (Europe) SA. AGUK and AGE (the European Insurance
Subsidiaries) offer financial guaranties in the non-U.S. public finance, infrastructure and structured finance
markets. AGUK is a U.K. incorporated private limited company licensed as a U.K. insurance company and
located in England that writes new business in the U.K. and certain other countries that are not part of the
European Economic Area (EEA). AGUK was organized in 1990 and issued its first financial guaranty in 1994.
AGE is a French incorporated company located in France and established in mid-2019 that has been authorized by
the French insurance and banking supervisory authority, the Autorité de Contrôle Prudentiel et de Résolution
(ACPR), to conduct financial guaranty business. AGE writes new business in the EEA.
Assured Guaranty Re Ltd. and Assured Guaranty Re Overseas Ltd. AG Re and AGRO underwrite financial
guaranty reinsurance, and AGRO also underwrites other specialty insurance and reinsurance that are in line with
the Company’s risk profile and benefits from its financial guaranty underwriting experience. AG Re and AGRO
write business as reinsurers of third-party primary insurers and of certain affiliated companies. AG Re is
incorporated under the laws of Bermuda and is licensed as a Class 3B insurer under the Insurance Act 1978 and
related regulations of Bermuda. AG Re indirectly owns AGRO, which is a Bermuda Class 3A and Class C insurer.
Support of the European Insurance Subsidiaries
AGM and AGC (the U.S. Insurance Subsidiaries) provide support to the European Insurance Subsidiaries through
reinsurance and other agreements.
Support of AGUK
AGM and AGUK implemented in 2011 a co-guarantee structure pursuant to which: (i) AGUK directly guarantees a
specified portion of the public finance obligations issued in a particular transaction rather than guaranteeing 100% of the issued
obligations; (ii) AGM directly guarantees the balance of the guaranteed public finance obligations; and (iii) AGM also provides
a second-to-pay guarantee for AGUK’s portion of the guaranteed public finance obligations (Public Finance Co-Guarantee
Structure). The co-guarantee split for public finance business, which has been in effect since October 2018, is 15% AGUK and
85% AGM.
Effective July 1, 2021, AGC and AGUK implemented a co-guarantee structure for non-public finance business that,
other than the covered business, is identical to the AGM/AGUK Public Finance Co-Guarantee Structure (Non-Public Finance
Co-Guarantee Structure). The co-guarantee split for non-public finance business is 15% AGUK and 85% AGC.
Separate and apart from the Public Finance Co-Guarantee Structure and the Non-Public Finance Co-Guarantee
Structure, AGM provides support to AGUK through a quota share and excess of loss reinsurance agreement (Reinsurance
Agreement) and a net worth maintenance agreement (Net Worth Agreement). Under the quota share cover of the Reinsurance
Agreement, AGM reinsures approximately 95-99% of AGUK’s retention (after cessions to other reinsurers) of most of the
outstanding financial guaranties that AGUK wrote prior to the implementation of the Public Finance Co-Guarantee Structure in
2011.
The quota share cover of the Reinsurance Agreement also obligates AGM to reinsure 85% of municipal, utility,
project finance or infrastructure risks or similar business that AGUK writes from and after October 2018 without utilizing the
co-guarantee structure. Currently, there is no such outstanding business at AGUK.
AGM secures its quota share reinsurance obligations to AGUK under the Reinsurance Agreement by posting
collateral in trust equal to 102% of the sum of AGM’s assumed share of the following in respect of the reinsured AGUK
8
policies: (i) AGUK’s unearned premium reserve (net of AGUK’s reinsurance premium payable to AGM); (ii) AGUK’s
provisions for unpaid losses and allocated loss adjustment expenses (LAE) (net of any salvage recoverable); and (iii) any
unexpired risk provisions of AGUK, in each case (i) - (iii) as calculated by AGUK in accordance with generally accepted
accounting practice in the U.K. (UK GAAP).
Under the excess of loss cover of the Reinsurance Agreement, AGM is obligated to pay AGUK quarterly the amount
(if any) by which (i) the sum of: (a) AGUK’s incurred losses, calculated in accordance with UK GAAP as reported by AGUK
in its financial returns filed with the Prudential Regulation Authority (PRA); and (b) AGUK’s paid losses and LAE, in both
cases net of all other performing reinsurance (including the reinsurance provided by AGM under the quota share cover of the
Reinsurance Agreement), exceeds (ii) an amount equal to: (a) AGUK’s capital resources under U.K. law; minus (b) 110% of
the greatest of the amounts as may be required by the PRA as a condition for maintaining AGUK’s authorization to carry on a
financial guarantee business in the U.K. The purpose of this excess of loss cover is to ensure that AGUK maintains capital
resources equal to at least 110% of the most stringent amount of capital that it may be required to maintain as a condition to
carrying on a financial guarantee business in the U.K.
AGUK may terminate the Reinsurance Agreement (i.e., both its quota share and excess of loss covers) upon the
occurrence of any of the following events: (i) AGM’s rating by Moody’s Investors Service, Inc. (Moody’s) falls below “Aa3”
or its rating by S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P), falls below “AA-” (and
AGM fails to restore such rating(s) within a prescribed period of time); (ii) AGM’s insolvency, failure to maintain the minimum
capital required under the laws of AGM’s domiciliary jurisdiction, filing a petition in bankruptcy, going into liquidation or
rehabilitation, or having a receiver appointed; or (iii) AGM’s failure to maintain its required collateral described above.
Under the Net Worth Agreement, AGM is obligated to make capital contributions to AGUK in amounts sufficient to
ensure that AGUK maintains capital resources equal to 110% of the greatest of the amounts as may be required by the PRA as a
condition of AGUK maintaining its authorization to carry on a financial guarantee business in the U.K., provided that such
contributions: (i) do not exceed 35% of AGM’s policyholders’ surplus as determined by the laws of the State of New York; and
(ii) are in compliance with a provision of the New York Insurance Law requiring notice to, or approval by, the New York State
Department of Financial Services (the NYDFS) for transactions between affiliates that exceed certain thresholds. The Net
Worth Agreement obligates AGM to provide AGUK with support similar to that which AGM also provides AGUK under the
excess of loss cover of the Reinsurance Agreement, except the latter is meant to protect against erosion of AGUK’s capital
resources due to insurance and/or reinsurance losses in AGUK’s insured portfolio, while the former is meant to protect against
an erosion of AGUK’s capital resources for other reasons (e.g., poor investment performance or origination expenses exceeding
premium). Given this purpose, the Net Worth Agreement clarifies that any amounts due thereunder must take into account all
amounts paid, or reasonably expected to be paid, under the Reinsurance Agreement. The Net Worth Agreement also includes
termination provisions substantially similar to those in the Reinsurance Agreement. AGM has never been required to make any
contributions to AGUK’s capital under the current Net Worth Agreement.
Support of AGE
AGE has in place similar reinsurance and capital support agreements as are in place with AGUK.
AGM’s agreements with AGE generally apply to all AGE policies that insure public finance business in EEA
jurisdictions. The agreements consist of:
(i)
a quota share reinsurance agreement between AGE and AGM pursuant to which AGM provides the same
reinsurance to AGE in respect of business that was transferred to AGE by AGUK pursuant to Part VII of the Financial Services
and Markets Act 2000 (FSMA) (Part VII Transfer) effective October 1, 2020 as AGM provided to AGUK prior to such transfer
(AGE also has similar agreements in effect with its affiliates, AGC and AG Re);
(ii)
a second quota share reinsurance agreement whereby AGM provides AGE with 90% proportional
reinsurance for:
a.
b.
c.
certain business transferred to AGE pursuant to the Part VII Transfer that was not reinsured by
AGM when such business was part of AGUK's insured portfolio;
certain business originally written by AGUK pursuant to the co-insurance arrangement described
above, but which was novated to, and 100% guaranteed by, AGE in connection with the Part VII
Transfer; and
any new public finance business written by AGE; and
9
(iii) an excess of loss reinsurance agreement, similar to the excess of loss cover of AGM’s Reinsurance
Agreement with AGUK, pursuant to which AGM is obligated, effectively, to ensure that AGE maintains capital resources equal
to at least 110% of the most stringent amount of capital that AGE may be required to maintain as a condition of it maintaining
its authorization to carry on a financial guarantee business in France.
Effective July 1, 2021, AGC and AGE entered into a Non-Public Finance Business Reinsurance Agreement pursuant
to which AGC provides AGE with 90% proportional reinsurance for any non-public finance business written by AGE.
AGM and AGC secure their quota share reinsurance obligations to AGE under the agreements described above by
depositing collateral in accounts maintained by an EEA financial institution and pledging such accounts to AGE under French
law. The measure of AGM’s and AGC’s required collateral for AGE is generally the same as the measure of AGM’s required
collateral for AGUK, except that the former is determined in accordance with French (versus U.K.) GAAP.
AGM also has in place with AGE a net worth maintenance agreement that is similar to AGM’s Net Worth Agreement
with AGUK - i.e., the former obligates AGM to ensure that AGE maintains capital resources at least equal to 110% of its most
stringent capital requirement for maintaining its authorization to carry on a financial guarantee business in France.
Other Group Support of the European Insurance Subsidiaries for Certain Legacy Business
AGC and AG Re also provide reinsurance support to the European Insurance Subsidiaries for certain legacy business
that was insured prior to 2009 by AGUK. Some of this business continues to reside at AGUK, while some of it was transferred
to AGE in October 2020 pursuant to the Part VII Transfer. AG Re does not currently provide direct reinsurance support for new
business being written by AGUK or AGE.
AGC and AG Re secure their reinsurance of this legacy business in essentially the same manner as AGM secures its
reinsurance of the European Insurance Subsidiaries - i.e., AGC and AG Re pledge collateral equal to their assumed UK GAAP
liabilities for AGUK and equal to their assumed French GAAP liabilities for AGE.
Insurance Acquisitions
The Company has acquired financial guaranty portfolios, including by acquiring financial guarantors which are no
longer actively writing new business or acquiring (through reinsurance) their insured portfolios, and by commuting business
that it had previously ceded. In the last several years, the Company has reassumed a number of previously ceded portfolios and
has completed the acquisition of Radian Asset, CIFG Holding Inc. (CIFGH, and together with its subsidiaries, CIFG) and
MBIA UK Insurance Limited (MBIA UK), the U.K. operating subsidiary of MBIA Insurance Corporation. On June 1, 2018, the
Company closed a transaction with Syncora Guarantee Inc. (SGI) (SGI Transaction) under which AGC assumed, generally on a
100% quota share basis, substantially all of SGI’s insured portfolio and AGM reassumed a book of business previously ceded to
SGI by AGM. The Company continues to investigate additional opportunities related to remaining legacy financial guaranty
portfolios, but the number and size of the opportunities have decreased and there can be no assurance of whether or when the
Company will find suitable opportunities on appropriate terms.
Insurance Portfolio - Financial Guaranty
Financial guaranty insurance generally provides an unconditional and irrevocable guaranty that protects the holder of a
debt instrument or other monetary obligation against non-payment of scheduled principal and interest payments when due.
Upon an obligor’s default on scheduled payments due on the debt obligation, whether due to its insolvency or otherwise, the
Company is generally required under the financial guaranty contract to pay the investor the principal and interest shortfalls
when due.
Financial guaranty insurance may be issued to all of the investors of the guaranteed series or tranche of a municipal
bond or structured finance security at the time of issuance of those obligations or it may be issued to specific individual holders
of such obligations who purchase the Company’s credit protection either in the secondary market or on a bilateral basis in the
primary market when an obligation is not normally traded.
Both issuers of and investors in financial instruments may benefit from financial guaranty insurance. Issuers benefit
when they purchase financial guaranty insurance for their new issue debt transaction because the insurance may have the effect
of lowering an issuer’s interest cost over the life of the debt transaction to the extent that the insurance premium charged by the
Company is less than the net present value of the difference between the yield on the obligation insured by Assured Guaranty
(which carries the credit rating of the specific subsidiary that guarantees the debt obligation) and the yield on the debt obligation
10
if sold on the basis of its uninsured credit rating. The principal benefit to investors is that the Company's guaranty provides
increased certainty that scheduled payments will be received when due. A financial guaranty may also improve the
marketability and liquidity of obligations, especially obligations with complex structures or backed by asset classes new to the
market. In general, and especially in such instances, investors may be able to sell insured bonds more quickly and at a better
price than the comparable uninsured debt.
As an alternative to traditional financial guaranty insurance, the Company also may provide credit protection relating
to a particular security or obligor through a credit derivative contract, such as a credit default swap (CDS). Under the terms of a
CDS, the seller of credit protection agrees to make a specified payment to the buyer of credit protection if one or more specified
credit events occurs with respect to a reference obligation or entity. In general, the Company, as the seller of credit protection,
specified as credit events in its CDS failure to pay interest and principal on the reference obligation, but the Company’s rights
and remedies under a CDS may be different and more limited than under financial guaranty insurance of an entire issuance.
The Company also offers credit protection through reinsurance, and in the past has provided reinsurance to other
financial guaranty insurers with respect to their financial guaranties of public finance, infrastructure and structured finance
obligations. The Company believes that the opportunities currently available to it in the reinsurance market primarily consist of
potentially assuming portfolios of transactions from inactive primary insurers, such as it did in the SGI Transaction.
U.S. Public Finance Obligations The Company insures and reinsures a number of different types of U.S. public
finance obligations. The types of U.S. public finance obligations the Company insures include the following:
General Obligation Bonds are full faith and credit obligations that are issued by states, their political subdivisions
and other municipal issuers, and are supported by the general obligation of the issuer to pay from available funds and
by a pledge of the issuer to levy property taxes in an amount sufficient to provide for the full payment of the bonds.
Tax-Backed Bonds are obligations that are supported by the issuer from specific and discrete sources of taxation
and tax-backed revenue bonds. Tax-backed obligations may be secured by a lien on specific pledged tax revenues,
such as a gasoline or excise tax, or an income tax, or incrementally from growth in property tax revenue associated
with growth in property values. These obligations also include obligations secured by special assessments levied
against property owners and often benefit from issuer covenants to enforce collections of such assessments and to
foreclose on delinquent properties. Lease revenue bonds typically are general fund obligations of a municipality or
other governmental authority that are subject to annual appropriation or abatement; projects financed and subject to
such lease payments ordinarily include real estate or equipment serving an essential public purpose.
Municipal Utility Bonds are obligations of all forms of municipal utilities, including electric, water and sewer
utilities and resource recovery revenue bonds. These utilities may be organized in various forms, including municipal
enterprise systems, authorities or joint action agencies.
Transportation Bonds include a wide variety of revenue-supported obligations, such as bonds for airports, ports,
tunnels, municipal parking facilities, toll roads and toll bridges.
Healthcare Bonds are obligations of healthcare facilities, including community based hospitals and systems, as
well as of health maintenance organizations and long-term care facilities.
Higher Education Bonds are obligations secured by revenue collected by either public or private secondary
schools, colleges and universities. Such revenue can encompass all of an institution’s revenue, including tuition and
fees, or in other cases, can be specifically restricted to certain auxiliary sources of revenue or revenue relating to
student accommodation.
Infrastructure Bonds include obligations issued by a variety of entities engaged in the financing of infrastructure
projects, such as roads, airports, ports, social infrastructure and other physical assets delivering essential services
supported by long-term concession arrangements with a public sector entity.
Housing Revenue Bonds are obligations relating to both single and multi-family housing, issued by states and
localities, supported by cash flow and, in some cases, insurance from entities such as the Federal Housing
Administration.
11
Investor-Owned Utility Bonds are obligations primarily issued by investor-owned utilities, and include first
mortgage bond obligations of for-profit electric or water utilities providing retail, industrial and commercial service, as
well as sale-leaseback obligation bonds supported by such entities.
Renewable Energy Bonds are obligations backed by revenue from renewable energy sources.
Other Public Finance Bonds include other debt issued, guaranteed or otherwise supported by U.S. national or
local governmental authorities, as well as student loans, revenue bonds, and obligations of some not-for-profit
organizations.
A portion of the Company’s exposure to tax-backed bonds, municipal utility bonds and transportation bonds constitutes
“special revenue” bonds under the United States Bankruptcy Code (Bankruptcy Code). Special revenue bonds benefit from a
lien on the special revenues, after deducting necessary operating expenses, of the project or system from which the revenues are
derived.
Non-U.S. Public Finance Obligations The Company insures and reinsures a number of different types of non-U.S.
public finance obligations, which consist of both infrastructure projects and other projects essential for municipal function such
as regulated utilities. The types of non-U.S. public finance securities the Company insures and reinsures include the following:
Regulated Utility Obligations are obligations issued by government-regulated providers of essential services and
commodities, including electric, water and gas utilities, supported by the rates and charges paid by the utilities’
customers. The majority of the Company’s non-U.S. regulated utility business is conducted in the U.K.
Infrastructure Finance Obligations are obligations issued by a variety of entities engaged in the financing of non-
U.S. infrastructure projects, such as roads, airports, ports, social infrastructure, student accommodations, stadiums, and
other physical assets delivering essential services supported either by long-term concession arrangements or a
regulatory regime. The majority of the Company’s non-U.S. infrastructure business is conducted in the U.K.
Pooled Infrastructure Obligations are synthetic asset-backed obligations that take the form of CDS obligations or
credit-linked notes that reference either infrastructure finance obligations or a pool of such obligations, with a defined
deductible to cover credit risks associated with the referenced obligations. The Company has not entered into a pooled
infrastructure transaction since 2006.
Sovereign and Sub-Sovereign Obligations primarily includes obligations of local, municipal, regional or national
governmental authorities or agencies outside of the U.S.
Renewable Energy Bonds are obligations secured by revenues relating to renewable energy sources, typically solar
or wind farms. These transactions often benefit from regulatory support in the form of regulated minimum prices for
the electricity produced. The majority of the Company’s non-U.S. renewable energy business is conducted in Spain.
Other Public Finance Obligations are obligations of, or backed by, local, municipal, regional or national
governmental authorities or agencies not generally described in any of the other described categories.
U.S. and Non-U.S. Structured Finance Obligations The Company insures and reinsures a number of different types
of U.S. and non-U.S. structured finance obligations. Credit support for the exposures written by the Company may come from a
variety of sources, including some combination of subordinated tranches, excess spread, over-collateralization or cash reserves.
Additional support also may be provided by transaction provisions intended to benefit noteholders or credit enhancers. The
types of U.S. and non-U.S. structured finance obligations the Company insures and reinsures include the following:
Residential Mortgage-Backed Securities (RMBS) are obligations backed by first and second lien mortgage loans
on residential properties. The credit quality of borrowers covers a broad range, including “prime,” “subprime” and
“Alt-A.” A prime borrower is generally defined as one with strong risk characteristics as measured by factors such as
payment history, credit score, and debt-to-income ratio. A subprime borrower is a borrower with higher risk
characteristics. An Alt-A borrower is generally defined as a prime quality borrower that lacks certain ancillary
characteristics, such as fully documented income. RMBS include home equity lines of credit (HELOCs), which refers
to a type of residential mortgage-backed transaction backed by second-lien loan collateral. The Company has not
provided insurance for RMBS in the primary market since 2008.
12
Life Insurance Transactions are obligations secured by the future earnings from pools of various types of
insurance/reinsurance policies and income produced by invested assets.
Pooled Corporate Obligations are securities primarily backed by various types of corporate debt obligations, such
as secured or unsecured bonds, bank loans or loan participations and trust preferred securities. These securities are
often issued in “tranches,” with subordinated tranches providing credit support to the more senior tranches. The
Company’s financial guaranty exposures generally are to the more senior tranches of these issues.
Consumer Receivables Securities are obligations backed by non-mortgage consumer receivables, such as student
loans, automobile loans and leases, manufactured home loans and other consumer receivables.
Financial Products Business is the guaranteed investment contracts (GICs) portion of a line of business previously
conducted by Assured Guaranty Municipal Holdings Inc. (AGMH) that the Company did not acquire when it
purchased AGMH in 2009 from Dexia SA and that is being run off. That line of business consisted of AGMH’s GIC
business, its medium term notes business and the equity payment agreements associated with AGMH’s leveraged lease
business. Although Dexia SA and certain of its affiliates (Dexia) assumed the liabilities related to such businesses
when the Company purchased AGMH, AGM policies related to such businesses remained outstanding. Assured
Guaranty is indemnified by Dexia SA and certain of its affiliates against loss from the former financial products
business.
Until November 2008, AGMH’s former financial products segment had been in the business of borrowing funds
through the issuance of GICs insured by AGM and reinvesting the proceeds in investments that met AGMH’s
investment criteria. In June 2009, in connection with the Company’s acquisition of AGMH from Dexia Holdings Inc.,
Dexia SA, the ultimate parent of Dexia Holdings Inc., and certain of its affiliates, entered into a number of agreements
intended to mitigate the credit, interest rate and liquidity risks associated with the GIC business and the related AGM
insurance policies. Some of those agreements have since terminated or expired, or been modified. As of December 31,
2022, the aggregate accreted GIC balance was approximately $0.5 billion, compared with approximately $10.2 billion
as of December 31, 2009. As of December 31, 2022, the aggregate fair market value of the assets supporting the GIC
business plus cash and positive derivative value exceeded by nearly $0.7 billion the aggregate principal amount of all
outstanding GICs and certain other business and hedging costs of the GIC business.
AGMH’s financial products business had also issued medium term notes insured by AGM, reinvesting the
proceeds in investments that met AGMH’s investment criteria. As of December 31, 2022, only $228 million of insured
medium term notes remain outstanding.
The financial products business also included the equity payment undertaking agreement portion of the leveraged
lease business, described in Liquidity and Capital Resources, Liquidity Requirements and Sources, Insurance
Subsidiaries.
Other Structured Finance Obligations are obligations backed by assets not generally described in any of the other
described categories.
Insurance Portfolio - Specialty Business
The Company also provides specialty insurance, reinsurance and guarantees in transactions with similar risk profiles to
its structured finance exposures written in financial guaranty form. The Company provides such specialty insurance and
reinsurance, for example, for life insurance transactions and aircraft residual value insurance (RVI) transactions.
Exposure Limits, Underwriting Procedures, and Credit Policy
Exposure Limits
The Company establishes exposure limits and underwriting criteria for obligors, sectors and countries, and for
individual insurance transactions. Risk exposure limits for single obligors are based on the Company’s capital resources and its
assessment of potential frequency and severity of loss as well as other factors, such as historical and stressed collateral
performance. Moreover, these limits are further constrained by both regulatory limits and rating agency requirements. Sector
limits are based on the Company’s view of stress losses for the sector and on its assessment of correlation. Country limits are
based on the size and stability of the relevant economy, and the Company’s view of the political environment and legal system.
All of the foregoing limits are established in relation to the Company’s capital base.
13
Underwriting Procedures
Each insurance transaction underwritten by the Company involves persons with different skills and backgrounds
across various departments within the Company. The Company’s insurance underwriting teams include both underwriters and
lawyers, who analyze the structure of a potential transaction and the credit and legal issues pertinent to the particular line of
business or asset class, and accounting and finance personnel, who review the more complex transactions to determine the
appropriate accounting treatment.
Upon completion of the underwriting analysis, the underwriter prepares a formal credit report that is submitted to a
credit committee for review. An oral presentation is usually made to the committee, followed by questions from committee
members and discussion among the committee members and the underwriters. In some cases, additional information may be
presented at the meeting or required to be submitted prior to approval. Each credit committee decision is documented and any
further requirements, such as specific terms or evidence of due diligence, are noted. The Company’s credit committees assess
each insurance transaction underwritten by the Company and are composed of senior officers of the Company generally
excluding those senior officers responsible for business origination. The committees are organized by asset class, such as for
public finance or structured finance, and by company. For certain small transactions, the credit decision may be delegated by
the credit committee to a sub-committee composed of members of the credit committee.
Upon approval by the credit committee, the underwriter, working with the responsible attorney, is responsible for
closing the transaction and issuing the policy. At policy issuance, the underwriter and the responsible attorney certify that the
transaction closed meets the terms and conditions agreed to by the credit committee.
Credit Policy
The Company maintains underwriting manuals that articulate the application of the principles in its risk appetite
statement to its financial guaranty business. For new financial guaranty business, generally a risk must be viewed by the
Company as investment grade at the time of underwriting to be eligible for insurance. The underwriting manuals also articulate
the Company’s exposure limits and credit policies applicable to specific products.
U.S. Public Finance. For U.S. public finance transactions, the Company’s underwriters generally analyze the issuer’s
historical financial statements and, where warranted, develop stress case projections to test the issuer’s ability to make timely
debt service payments under stressful economic conditions.
The Company focuses principally on the credit quality of the obligor based on population size and trends, wealth
factors, and strength of the economy. The Company evaluates the obligor’s liquidity position; its fiscal management policies
and track record; its ability to raise revenues and control expenses; and its exposure to derivative contracts and to debt subject to
acceleration. The Company assesses the obligor’s pension and other post-employment benefits obligations and funding policies
and evaluates the obligor’s ability to adequately fund such obligations in the future. The Company analyzes other critical risk
factors including the type of issue; the repayment source; pledged security, if any; the presence of restrictive covenants and the
tenor of the risk. The Company also considers the ability of obligors to file for bankruptcy or receivership under applicable
statutes (and on related statutes that provide for state oversight or fiscal control over financially troubled obligors). The
Company evaluates the impact of environmental and climate change risks, including weather-related events, on the ability of
the obligor to meet its financial obligations over the life of the insured transaction. Such risks include rising sea levels,
hurricanes, wildfires and earthquakes. The Company weighs the risk of a rating agency downgrade of an obligation's underlying
uninsured rating.
In cases of not-for-profit institutions, such as healthcare issuers and private higher education issuers, the Company
focuses on the financial stability of the institution, its competitive position and its management experience as well as restrictive
covenants imposed on the obligor for the benefit of debt holders.
The Company’s credit policy for U.S. infrastructure transactions is substantially similar to that of non-U.S.
infrastructure transactions described below.
Non-U.S. Public Finance Transactions. For non-U.S. transactions, the Company undertakes an analysis of the
country or countries in which the risk resides, which includes political risk as well as economic and demographic
characteristics. For each transaction, the Company also performs an assessment of the legal framework governing the
transaction and the laws affecting the underlying assets supporting the obligations to be insured. In general, non-U.S.
transactions consist of transactions with regulated utilities or infrastructure transactions.
14
The underwriting of regulated utilities outside of the U.S. primarily focuses on financial strength of the utility,
financial covenants made by the utility, and regulations relevant to the specific jurisdiction. The Company also assesses each
transaction for material environmental and climate change risks, and incorporates its assessment into its underwriting decisions.
For non-U.S. infrastructure transactions, the Company reviews the type of project (e.g., utility, hospital, road, social
housing, transportation or student accommodation) and the source of repayment of the debt. For certain transactions, debt
service and operational expenses are covered by availability payments made by either a governmental entity or a not-for-profit
entity. The availability payments are due if the project is available for use, regardless of whether the project actually is in use.
The principal risks for such transactions are construction risk and operational risk.
For other transactions, notably transactions secured by toll-roads, student accommodation and stadiums, revenues
derived from the project must be sufficient to make debt service payments as well as cover operating expenses during the
concession period.
For infrastructure transactions, underwriters generally use financial models to evaluate the ability of the transaction to
generate adequate cash flow to service the debt under a variety of scenarios. The models include economically stressed
scenarios that the underwriters use for their assessment of the potential credit risk inherent in a particular transaction. Stress
models developed internally by the Company’s underwriters reflect both empirical research and information gathered from third
parties, such as rating agencies or investment banks. The Company may also engage advisers such as consultants and external
counsel to assist in analyzing a transaction’s financial or legal risks.
The Company’s due diligence for infrastructure projects also includes: a financial review of the entity seeking the
development of the project (usually a governmental entity or university); a financial and operational review of the developer,
the construction companies, and the project operator; and a financial review of the various providers of operational financial
protection for the bondholders (and therefore the insurer), including construction surety providers, letter-of-credit providers,
liquidity banks or account banks. The Company uses outside consultants to review the construction program and to assess
whether the project can be completed on time and on budget. The Company projects the cost of replacing the construction
company, including delays in construction, in the event that a construction company is unable to complete the construction for
any reason. Construction security packages are sized appropriately to cover these risks and the Company requires such coverage
from credit-worthy institutions.
U.S. Structured Finance. Structured finance obligations generally present three distinct forms of risk: asset risk,
pertaining to the amount and quality of assets underlying an issue; structural risk, pertaining to the extent to which an issuer's
legal structure provides protection from loss; and execution risk, which is the risk that poor performance by a servicer or
collateral manager contributes to a decline in the cash flow available to the transaction. Each of these risks is addressed through
the Company’s underwriting process. The underwriter is also required to assess the presence of any environmental or climate
change risk and, to the extent there are notable environmental or climate change risks, work to assess the risks and present them
to the credit committee.
For structured finance transactions, underwriters generally use financial models to evaluate the ability of the
transaction to generate adequate cash flow to service the debt under a variety of hypothetical scenarios. The models include
economically stressed scenarios that the underwriters use for their assessment of the potential credit risk inherent in a particular
transaction. Stress models developed internally by the Company’s underwriters reflect both empirical research and information
gathered from third parties, such as rating agencies or investment banks. Generally, the amount and quality of asset coverage
required with respect to a structured finance exposure is dependent upon both the historic performance of the asset class, as well
as the Company’s view of the future performance of the subject assets.
The Company may also engage advisers such as consultants and external counsel to assist in analyzing a transaction's
financial or legal risks. The Company may also conduct a due diligence review that includes, among other things, a site visit to
the project or facility, meetings with issuer management, review of underwriting and operational procedures, file reviews, and
review of financial procedures and computer systems.
In addition, structured securities usually are designed to protect investors (and therefore the insurer or reinsurer) from
the bankruptcy or insolvency of the entity that originated the underlying assets, as well as the bankruptcy or insolvency of the
servicer or manager of those assets.
The Company conducts due diligence on the collateral that supports its insured transactions. The principal focus of the
due diligence is to confirm the underlying collateral was originated in accordance with the stated underwriting criteria of the
asset originator. The Company also conducts audits of servicing or other management procedures, reviewing critical aspects of
15
these procedures such as cash management and collections. The Company may, for certain transactions, obtain background
checks on key managers of the originator, servicer or manager of the obligations underlying that transaction.
Non-U.S. Structured Finance. The underwriting process for Non-U.S. Structured Finance transactions is
substantially similar to the procedures described above for U.S. Structured Finance transactions, with additional consideration
for the risks relating to the relevant jurisdiction for each transaction.
Importance of Financial Strength Ratings
Financial strength ratings reflect a rating agency’s opinion of an insurer’s ability to pay under its insurance policies
and contracts in accordance with their terms. When the Company insures an obligation, the issuer or another party may request
that one or more rating agencies providing financial strength ratings on the relevant insurance operating company assign a
rating equivalent to that insurer’s financial strength rating to the specific obligation it insured. The ability to obtain such specific
ratings is one attribute that makes the Company’s insurance products attractive in the market.
An insurer’s financial strength rating itself is not specific to any particular policy or contract; a rating agency must
assign a rating to the insured obligation. A financial strength rating does not refer to an insurer's ability to meet non-insurance
obligations and is not a recommendation to purchase any policy or contract issued by an insurer or to buy, hold, or sell any
security insured by an insurer. The insurance financial strength ratings assigned by the rating agencies are based upon factors
that the rating agencies believe are relevant to policyholders and are not directed toward the protection of investors in AGL’s
common shares. Ratings reflect only the views of the respective rating agencies assigning them and are subject to continuous
review and revision or withdrawal at any time.
Low financial strength ratings or uncertainty over the Company’s ability to maintain its financial strength ratings for
its insurance operating companies would have a negative impact on issuers’ and investors’ perceptions of the value of the
Company’s insurance product. Therefore, the Company manages its business with the goal of achieving high financial strength
ratings.
A major component in arriving at a financial guaranty insurer’s rating has been the rating agency’s assessment of the
insurer’s capital adequacy, with each rating agency employing its own proprietary model. These capital adequacy approaches
include “stress case” loss assumptions for various risks or risk categories. The rating agencies have at various times materially
increased stress case loss assumptions for various risks or risk categories, in some cases later reducing such stress case losses.
This approach has made predicting the amount of capital required to maintain or attain a certain rating more difficult. In
addition, both S&P and Moody’s have applied other factors, some of which are subjective, such as the insurer's business
strategy and franchise value or the anticipated future demand for its product, to justify ratings for the Company’s insurance
subsidiaries below the ratings implied by their own capital adequacy models. Currently, for example, S&P has concluded that
Assured Guaranty’ insurance companies have “AAA” capital adequacy under the S&P model (but apply a downward
adjustment due to a “largest obligor test” and rate them “AA”) and Moody’s has concluded that AGM has “Aa” capital
adequacy under the Moody’s model (but rates it A2 based on other factors including the rating agency’s assessment of
competitive profile, future profitability and market share). The application of these additional factors make it uncertain whether
a rating downgrade could generally be avoided by raising additional capital or otherwise improving capital adequacy under the
rating agency’s model.
Despite the unpredictable application of subjective factors that are in addition to a rating agency’s assessment of
insurers’ capital adequacy, the Company has been able to maintain strong financial strength ratings. However, if a substantial
downgrade of the financial strength ratings of the Company’s insurance subsidiaries were to occur in the future, such
downgrade would adversely affect its business and prospects and, consequently, its results of operations and financial
condition. The Company believes that if the financial strength ratings of any of its insurance subsidiaries were downgraded
from their current levels, such downgrade could result in downward pressure on the premium that such insurance subsidiary
would be able to charge for its insurance. The Company believes that so long as its insurance subsidiaries continue to have
financial strength ratings in the double-A category from at least one of S&P or Moody’s, they are likely to be able to continue
writing financial guaranty business with a credit quality similar to that historically written. However, if neither S&P nor
Moody’s maintained financial strength ratings of an insurance subsidiary in the double-A category, or if either S&P or Moody’s
were to downgrade an insurance subsidiary below the single-A level, it could be difficult for such insurance subsidiary to
originate the current volume of new financial guaranty business with comparable credit characteristics.
The Company periodically assesses the value of each rating assigned to each of its companies, and may as a result of
such assessment request that a rating agency add or drop a rating from certain of its companies. For example, a Moody’s rating
16
was dropped from AG Re and AGRO in 2015, and was the subject of a rating withdrawal request by AGC (such request was
declined by Moody’s).
See Item 1A. Risk Factors, Strategic Risks captioned “A downgrade of the financial strength or financial enhancement
ratings of any of the Company’s insurance and reinsurance subsidiaries may adversely affect its business and prospects” and
Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations
— Insurance Segment — Financial Strength Ratings, for more information about the Company’s ratings.
Competition
Assured Guaranty is the market leader in the financial guaranty industry. The Company’s position in the market
benefits from its ability to maintain strong financial strength ratings, its strong claims-paying resources, its proven willingness
and ability to make claim payments to policyholders after obligors have defaulted, and its ability to achieve recoveries in
respect of the claims that it has paid on insured residential mortgage-backed and other securities and to resolve its troubled
municipal exposures.
Assured Guaranty’s principal competition is in the form of obligations that issuers decide to issue on an uninsured
basis. In the U.S. public finance market, when the difference in yield (or the credit spread) between a bond insured by Assured
Guaranty and an uninsured bond is narrow, as is often the case in a low interest rate environment, investors may prefer greater
yield over insurance protection, and issuers may find the cost savings from insurance less compelling. In contrast, when credit
spreads are wider, there is comparatively more room for issuer savings and insurance premium. However, credit spreads may be
narrower in a higher interest rate environment, as occurred in late 2022, and credit spreads may widen in a low interest rate
environment, as occurred after the onset of the COVID-19 pandemic as a result of market concerns about the impact of the
COVID-19 pandemic on some municipal credits. See Part II, Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Overview — Economic Environment.
In the U.S. public finance market, Assured Guaranty is the only financial guaranty company active before the financial
crisis that began in 2008 that has maintained sufficient financial strength to write new business continuously since the crisis
began. Assured Guaranty has only one direct competitor for public finance financial guaranty business, Build America Mutual
Assurance Company (BAM), a mutual insurance company that commenced business in 2012.
The Company estimates that, of the new U.S. public finance bonds sold with insurance in 2022, the Company insured
approximately 59% of the par, while BAM insured approximately 41%. BAM is effective in competing with the Company for
small to medium sized U.S. public finance transactions in certain sectors. BAM sometimes prices its guaranties for such
transactions at levels the Company does not believe produces an adequate rate of return and so does not match, but BAM's
pricing and underwriting strategies may have a negative impact on the amount of premium the Company is able to charge for its
insurance for such transactions. However, the Company believes it has competitive advantages over BAM due to: AGM’s
larger capital base; AGM’s ability to insure larger transactions and issuances in more diverse U.S. bond sectors; BAM’s higher
leverage ratios than those of AGM; BAM’s inability to date to generate profits and to increase its statutory capital
meaningfully; and AGM’s strong financial strength ratings from multiple rating agencies (in the case of AGM, AA+ from Kroll
Bond Rating Agency (KBRA), AA from S&P and A1 from Moody’s, compared with BAM’s AA solely from S&P).
Additionally, as a public company with access to both the equity and debt capital markets, Assured Guaranty may have greater
flexibility to raise capital, if needed.
In the non-U.S. structured finance and infrastructure markets, Assured Guaranty is the only financial guaranty
insurance company currently writing new guaranties. Management considers the Company’s greater diversification to be a
competitive advantage in the long run because it means the Company is not wholly dependent on conditions in any one market.
In the non-U.S. infrastructure finance market, the uninsured execution serving as the Company’s principal competition occurs
primarily in privately funded transactions where no bonds are sold in the public markets. In the structured finance market, the
majority of our business is represented by bilateral transactions with counterparties (typically insurance companies or banks)
where the motivation to buy our product relates to capital savings, and/or single risk or sectoral risk management. In this sector
the Company’s principal competition is from nonpayment insurance and other forms of capital saving or risk syndication
available to banks and insurers. In the securitization markets, uninsured execution occurs in both public and private transactions
primarily where bonds are sold with sufficient credit or structural enhancement embedded in transactions, such as through
overcollateralization, first loss insurance, excess spread or other terms, to make the bonds attractive to investors without bond
insurance.
In the future, additional new entrants into the financial guaranty industry could reduce the Company’s new business
prospects, including by furthering price competition or offering financial guaranty insurance on transactions with structural and
17
security features that are more favorable to the issuers than those required by Assured Guaranty. However, the Company
believes that the presence of multiple guarantors might also increase the overall visibility and acceptance of the product by a
broadening group of investors, and the fact that investors are willing to commit fresh capital to the industry may promote
market confidence in the product.
In addition to monoline insurance companies, Assured Guaranty competes with other forms of credit enhancement,
such as nonpayment insurance, letters of credit or credit derivatives provided by banks and other financial institutions, some of
which are governmental enterprises, or direct guaranties of municipal, structured finance or other debt by federal or state
governments or government sponsored or affiliated agencies. Alternative credit enhancement structures, and in particular
federal government credit enhancement or other programs, can interfere with the Company’s new business prospects,
particularly if they provide direct governmental-level guaranties, restrict the use of third-party financial guaranties or reduce the
amount of transactions that might qualify for financial guaranties.
The Company believes that issuers and investors in securities will continue to purchase financial guaranty insurance,
especially if credit spreads widen. U.S. municipalities have budgetary requirements that are best met through financings in the
fixed income capital markets. Historically, smaller municipal issuers have frequently used financial guaranties in order to
access the capital markets with new debt offerings at a lower all-in interest rate than on an unguaranteed basis. In addition, the
Company expects long-term debt financings for infrastructure projects will grow throughout the world, as will the financing
needs associated with privatization initiatives or refinancing of infrastructure projects in developed countries.
The Company evaluates the amount of capital it requires based on an internal capital model as well as rating agency
models and insurance regulations. The Company believes it has excess capital based on its internal capital model and rating
agency models, and, to the extent permitted by insurance regulation or other regulatory authority, has been returning some of its
excess capital to shareholders by repurchasing its common shares and paying dividends, and has been deploying some of its
excess capital to acquire financial guaranty portfolios, asset management companies and alternative investments.
Asset Management
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 and its associated entities, for a
purchase price of $157 million. The Company used BlueMountain to establish AssuredIM and diversify the Company into the
asset management industry, with the goal of utilizing the Company’s core competency in credit while diversifying its revenues
and expanding its marketing reach through a fee-based platform.
The Company is exploring alternative accretive growth strategies for its asset management business, with the goal of
maximizing the value of this business for its stakeholders. The Company remains committed to growing asset management-
related earnings and is pursuing strategies that would provide it with an avenue for such growth. Discussions regarding
alternative accretive growth strategies are ongoing, and there can be no assurances that such discussions will result in any
transaction. Please see Item 1A. Risk Factors, Strategic Risks captioned “Strategic transactions may not result in the benefits
anticipated.”
Investment Managers
The following is a description of the Company’s principal investment management subsidiaries:
•
•
AssuredIM LLC. AssuredIM LLC is a Delaware limited liability company established in 2003 and located in New
York and is an investment adviser registered with the Securities and Exchange Commission (SEC). AssuredIM LLC
serves as an investment adviser to pooled investment vehicles, special purpose vehicles for CLOs, and institutional
accounts that are primarily U.S. and non-U.S. limited partnerships, U.S. limited liability companies, trusts and other
non-U.S. companies. AssuredIM LLC generally provides investment management and supervisory services to its
advisory clients on a discretionary basis. AssuredIM LLC was formerly known as BlueMountain Capital Management,
LLC.
Assured Investment Management (London) LLP. Assured Investment Management (London) LLP (AssuredIM
London) is an affiliate of AssuredIM and serves as subadviser to AssuredIM, primarily with respect to issuers based in
Europe, and is compensated by AssuredIM for its services. AssuredIM London was formerly known as Blue Mountain
Capital Partners (London) LLP. AssuredIM London is registered with the Financial Conduct Authority (FCA) and is a
relying adviser in AssuredIM LLC’s SEC registration.
18
•
Assured Healthcare Partners LLC. Assured Healthcare Partners LLC (AHP) is a Delaware limited liability company
formed in September 2020 as a continuation of the private healthcare strategy established at AssuredIM in 2013 to
provide investment advisory services primarily focused on private investments in the healthcare sector. AHP serves as
an investment adviser to certain funds, pooled investment vehicles or accounts, which are its advisory clients. AHP is a
relying adviser in AssuredIM LLC’s SEC registration.
Management of a Portion of Insurance Company Capital
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 U.S. Insurance
Subsidiaries, through their jointly-owned investment subsidiary, AG Asset Strategies LLC (AGAS), are authorized to invest up
to $750 million in funds managed by AssuredIM (AssuredIM Funds). Adding distributed gains from inception through
December 31, 2022, the U.S. Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds through
AGAS. As of December 31, 2022, the U.S. Insurance Subsidiaries had total commitments to AssuredIM Funds of $755 million,
of which $536 million represented net invested capital and $219 million was undrawn. This capital was committed to several
funds, each dedicated to a single strategy, including CLOs, asset-based finance, and healthcare structured capital. As of
December 31, 2022 and December 31, 2021, the fair value of AGAS’ interest in AssuredIM Funds was $569 million and
$543 million, respectively. In addition, the U.S. Insurance Subsidiaries invested $550 million in third-party separately managed
accounts under an Investment Management Agreement (IMA) with AssuredIM. As of December 31, 2022, total capital
managed by AssuredIM on behalf of the Company was $1.2 billion. These investments provide the Company with an
opportunity to enhance its returns on a meaningful portion of its portfolio. They also have had the effect of facilitating the
growth of AssuredIM’s CLO business and the launch on the AssuredIM platform of new products or funds in the asset-based
and healthcare sectors. All of the AssuredIM Funds that were established since the BlueMountain Acquisition and in which the
Company directly invested are consolidated as of December 31, 2022. Consolidated AssuredIM Funds are not included in the
investment portfolio on the balance sheet, but instead as assets and liabilities of consolidated investment vehicles (CIVs). CIVs
consist of certain AssuredIM Funds, CLOs and CLO warehouses.
Asset Management Strategies
CLOs
The Company’s CLO management business was established in 2005 and is the largest business by assets under
management (AUM) in the Asset Management segment. As of December 31, 2022, CLOs consisted of $15.2 billion in AUM.
The Company is among the top 25 global managers of CLOs when measured by AUM, according to Creditflux Ltd., issuing
CLOs in both the U.S. and Europe. The CLOs managed by the Company are backed predominantly by non-investment grade
first-lien senior secured loans. The CLOs typically have reinvestment periods ranging from three to five years with a stated
maturity of 12 to 13 years. The Company employs an active portfolio management strategy focused on seeking relative value
and maximizing absolute return of the loan portfolio.
The Company also manages a fund that invests in the equity of U.S. and European CLOs as well as the first loss equity
of CLO warehouses managed by AssuredIM. (A CLO warehouse is a special purpose vehicle that invests in a diverse portfolio
of loans until such time as sufficient loans have been acquired and the market conditions are opportune to securitize and issue a
new CLO.) The CLO fund has the ability to, and may at times, invest in the mezzanine securities of a CLO managed by
AssuredIM. The Company has committed capital to, and invests in, the CLO fund through AGAS. The Company has
committed $380 million to the CLO Fund, and as of December 31, 2022, $276 million has been funded.
In addition to CLO management, the Company offers CLO investing capabilities, deploying managed capital across
the entire CLO capital structure. The Company’s CLO investment management team manages funds for the Company’s
Insurance segment under an IMA in a separately managed account. This account invests in investment grade CLO tranches
managed by unaffiliated managers.
Opportunity Funds
Opportunity funds invest in strategies that may have higher concentrations in less liquid investments. Typically,
opportunity funds have limited redemption rights and instead offer contractual cash flow distributions based on the legal
agreement of each respective opportunity fund. The Company manages opportunity funds that focus on healthcare investments,
and asset-based investments.
19
Healthcare Investing. AssuredIM established its private healthcare strategy in 2013. Through its healthcare
opportunity funds, the Company offers to the healthcare services industry flexible capital solutions supporting mergers and
acquisitions, acceleration of organic growth, consolidation, repositioning, shareholder liquidity, and restructuring opportunities.
The Company focuses investments in post-acute and long-term care, behavioral and mental health, physician practice
management, regional health systems, and payer and provider services (non-clinical).
The Company typically earns management fees on the total committed capital of a healthcare opportunity fund during
the investment period, and on remaining invested capital during the harvest period (the period post reinvestment period where
capital is returned to investors upon the disposition of investments). A portion of fees are paid without regard to performance
and a portion is performance-based. The Company receives performance-based fees if and to the extent one or more contractual
thresholds, such as certain rate of return or a multiple on invested capital (each a “hurdle”), is exceeded. Performance-based
fees are typically not recognized until near the end of the fund life. Generally, the Company’s healthcare funds have expected
fund lives of between 5 and 10 years at close.
The Company manages two healthcare opportunity funds. The Company has committed capital to this strategy through
AGAS.
Asset-Based Investing. The Company’s asset-based investment management business was founded in 2008. It seeks to
generate returns by investing in specialty finance companies that originate and service a broad array of consumer and
commercial assets, as well as by investing in discrete pools of such assets through either privately negotiated transactions or
publicly issued securitizations. The asset classes of focus include auto loans, student loans, unsecured consumer loans,
equipment loans, leases and dealer floor plan loans.
The Company manages a fund that is invested in a consumer finance company focused on auto loans and also manages
an asset-based fund. The Company has committed capital to this strategy through AGAS.
Legacy Opportunity Funds. The Company manages two opportunity funds that are multi-strategy funds and were
established prior to the BlueMountain Acquisition. These funds are in the harvest periods and returning capital to investors. The
Company does not have any capital commitments to these funds.
Liquid Strategies
The municipal investment management team currently invests in investment grade municipal securities as an income
generation strategy for the Company’s Insurance segment in a separately managed account under an IMA. This strategy seeks
to maximize after-tax income and total return across a broad portfolio of both taxable and tax-exempt municipal bonds. It also
seeks to generate returns through a combination of investment yield and price return due to credit spread changes and duration
impact.
Wind-Down Funds
The Company manages several funds that were established prior to the BlueMountain Acquisition and are currently
returning capital to investors. These funds are structured as co-mingled hedge funds and single investor funds not otherwise
described above. The Company does not have any capital commitments to these funds.
Asset Management Revenues
Fees in respect of investment advisory services are the largest components of revenues for the Asset Management
segment. The Company is compensated for its investment advisory services generally through management fees charged to its
advisory clients that are typically based on a percentage of value of a client’s net AUM. The Company believes that AUM was
impacted by a range of factors in 2022, including the condition of the global economy and financial markets, the widening of
CLO spreads following Russia’s invasion of Ukraine, the runoff of legacy funds, and certain strategic limitations during the
year. AUM may also be impacted by the relative attractiveness of the investment strategies of AssuredIM, and regulatory or
other governmental policies or actions.
With respect to the CLOs, the Company earns management fees on the total adjusted par outstanding of a CLO. A
portion of fees are paid senior (senior investment management fees) in the structure and a portion is paid after all notes have
received current interest (subordinated investment management fees). Existing CLOs have total fees of between 25 basis points
(bps) and 50 bps per annum that are paid on a quarterly basis. In the typical structure, downgrades of underlying loans and
defaults of underlying loans may cause the CLO to fail one or more performance tests. If such test failure occurs, subordinated
20
investment management fees are not paid in that quarter and are deferred until the CLO resumes passing these tests. In addition,
the subordinated notes or more commonly referred to as CLO equity (CLO Equity) of the CLO do not receive distributions
when such tests are failing. Funds that would have been used to pay the CLO Equity are required to be used to buy new loans or
pay down the senior notes of the CLO. Over time, the CLO may come back into compliance with these performance tests by
reinvesting excess spread in new loans, improvements in the underlying loans and through active trading. If and when the CLO
comes back into compliance, the deferred subordinated investment management fees are paid and the CLO Equity resumes its
quarterly distributions.
When a market dislocation or negative credit cycle causes the deferral of subordinated investment management fees
and suspension of CLO Equity distributions, the Company may be impacted in two ways. First, the subordinated fees are
deferred and not currently paid to AssuredIM, as occurred in 2020 (all such deferred subordinated fees have since been
collected). Second, the investments in the CLO Equity made by an AssuredIM Fund held by the Company through AGAS will
typically see a decline in market value, reducing insurance segment adjusted operating income. The fair value of the Insurance
segment’s investment in AssuredIM-managed CLO funds at December 31, 2022 was $272 million.
With respect to opportunity funds, the Company typically receives monthly or quarterly management fees. In certain
opportunity funds the Company receives management fees expressed as a percentage of the committed amount and funded
amount while in other opportunity, liquid strategy and wind-down funds, fees are expressed as a percentage of their net assets
values.
In addition, the Company may receive performance-based fees (performance fees, incentive allocations, and carried
interest are collectively referred to as performance fees) with respect to a performance period, typically expressed as a
percentage of net profits. For certain opportunity funds, and wind-down funds, performance-based fees are typically allocated
to each investor on an annual basis, payable at the end of each year or performance period. For these funds, performance-based
fees are typically reduced by the amount of management fees paid over a specified period and/or subject to a “high-water mark”
or “loss carryforward provision”. (A “high-water mark” provision typically requires that, once a performance fee is paid based
on net asset value (NAV) or other measure during a period, any subsequent performance fee be measured from that value, or
high-water mark; and a “loss carryforward” provision similarly ensures that losses must be recouped before the fund manager
receives any incentive compensation. With respect to certain opportunity funds, the Company receives performance-based fees
if and to the extent one or more contractual thresholds, such as a certain rate of return or a multiple on invested capital (each a
“hurdle”), is exceeded.
Depending on the characteristics of a fund, fees may be higher or lower. The Company reserves the right to credit,
reduce or waive some or all fees for certain investors, including investors affiliated with the Company. Further, to the extent
that the Company’s wind-down and/or opportunity funds are invested in the Company’s managed/serviced CLOs, the Company
may rebate any management fees and/or performance-based fees earned from the CLOs to the extent that such fees are
attributable to the funds’ holdings of CLOs also managed or serviced by the Company.
Competition
The asset management industry is a highly competitive market. AssuredIM competes with many other firms in every
aspect of the asset management business, including raising funds, seeking investments, and hiring and retaining talented
professionals. Some of AssuredIM’s asset management competitors are substantially larger and have considerably greater
financial, technical and marketing resources. Certain of these competitors periodically raise significant amounts of capital in
investment strategies that are also pursued by AssuredIM. Some of these competitors also may have a lower cost of capital and
access to funding sources that are not available to AssuredIM and/or the Company, which may create further competitive
challenges with respect to investment opportunities. In addition, some of these competitors may have higher risk tolerances or
make different risk assessments, allowing them to consider a wider variety of investments and establish broader networks of
business relationships than those available to AssuredIM and/or the Company. On the other hand, the Company believes being
part of a financial services company the size of the Company gives AssuredIM a number of key advantages as compared with
many of its competitors, especially those that are smaller. For example, the Company is able to provide AssuredIM with access
to capital to help initiate its strategies and to share its institutional experience in a number of asset classes. In addition, the
Company believes that AssuredIM has built a platform that is scalable for future strategies.
Investment Portfolio
The Company’s investment portfolio primarily consists of fixed-maturity securities supporting its Insurance segment.
The Corporate division primarily includes short-term investments used to support business operations and corporate initiatives.
21
Investment income from the Company’s investment portfolio is one of the primary sources of cash flow supporting its
operations and insurance claim payments.
The Company’s principal objectives in managing its investment portfolio are to maintain sufficient liquidity to cover
unexpected stress in the insurance portfolio; to maximize after tax book income; to manage investment risk within the context
of the underlying portfolio of insurance risk; and to preserve the highest possible ratings for each Assured Guaranty
subsidiaries. If the Company’s calculations with respect to its insurance subsidiaries liabilities are incorrect or other
unanticipated payment obligations arise, or if the Company improperly structures its investments to meet these and other
corporate liabilities, it could have unexpected losses, including losses resulting from forced liquidation of investments. The
investment policies of the Company’s insurance subsidiaries are subject to insurance law requirements, and may change
depending upon regulatory, economic, rating agency and market conditions and the existing or anticipated financial condition
and operating requirements, including the tax position, of the businesses. The performance of invested assets is subject to the
ability of the Company and its internal and external investment managers to select and manage appropriate investments.
On the consolidated balance sheet, approximately 98% of the reported total investments, which were $8.4 billion as of
December 31, 2022 and $9.6 billion as of December 31, 2021, represent fixed-maturity securities and short-term investments
consisting primarily of the following.
Assets Managed by External Investment Managers: The Company’s three external asset managers are Goldman Sachs
Asset Management, L.P., Wellington Management Company, LLP, and MacKay Shields LLC, each of which has discretionary
authority over the portion of the investment portfolio it manages, within the limits of the investment guidelines approved by the
Company’s Board of Directors. Each manager is compensated based upon a fixed percentage of the market value of the portion
of the portfolio being managed by such manager. Wellington Management Company LLP owns or manages funds that own
more than 5% of the Company’s common shares. As of December 31, 2022, 67% of the investment portfolio, with a fair value
of $5.6 billion, compared with 72% or $7.0 billion as of December 31, 2021, is externally managed.
Puerto Rico New Recovery Bonds and Contingent Value Instruments (CVIs): After over five years of negotiations, in
2022 a substantial portion of the Company’s Puerto Rico exposure was resolved in accordance with four 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).
• 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).
• On October 12, 2022, the Federal District Court of Puerto Rico, acting under Title III of PROMESA, entered an order
and judgment confirming the Modified Fifth Amended Title III Plan of Adjustment (HTA Plan) of the Puerto Rico
Highways and Transportation Authority (PRHTA).
As a result of the consummation on March 15, 2022 of each of the GO/PBA Plan, PRCCDA Modification and PRIFA
Modification and the consummation on December 6, 2022 of the HTA Plan (together, the 2022 Puerto Rico Resolutions),
including claim payments made by the Company under the 2022 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,
PBA and PRHTA was greatly reduced. In connection with the consummation of the 2022 Puerto Rico Resolutions, the
Company received substantial amounts of cash and CVIs, as well as new general obligation bonds (under the GO/PBA Plan)
(New GO Bonds) and new bonds backed by toll revenues (under the HTA Plan) (Toll Bonds, and together with the New GO
Bonds, New Recovery Bonds). See Part II, Item 8, Financial Statements and Supplementary Data, Note 3, Outstanding
Exposure. As of December 31, 2022, 7.9% of the investment portfolio, with a fair value of $661 million, represents New
Recovery Bonds and CVIs obtained as part of the 2022 Puerto Rico Resolutions (excluding amounts held in the consolidated
22
Puerto Rico Trusts). The Company has continued to sell New Recovery Bonds received as salvage, and had $486 million fair
value of New Recover Bonds and CVIs remaining as of February 24, 2023.
Loss Mitigation Securities: As of December 31, 2022, Loss Mitigation Securities represent 6.1% of the investment
portfolio or $508 million at fair value (excluding the benefit of any insurance provided by the Company). As of December 31,
2021, the Company had $581 million of such securities, at fair value, representing 6.1% of its reported investment portfolio.
Fixed-Maturity Securities Managed by AssuredIM: The Company also has a portfolio of investment grade municipal
bonds and investment grade tranches of CLOs, which represents approximately 6% of the investment portfolio with a fair value
$537 million, and $541 million as of December 31, 2022 and December 31, 2021, respectively, that are managed by AssuredIM
under an IMA.
In addition to its fixed-maturity and short-term investments portfolio, the Company also invests in non-AssuredIM
alternative investments. As of December 31, 2022 and December 31, 2021, the Company had $123 million and $169 million,
respectively, in other non-AssuredIM alternative investments.
In addition to assets reported in the total investment line item on the consolidated financial statements, the Company
has other invested capital that is reported on the consolidated balance sheets as part of financial guaranty variable interest
entities (FG VIEs) assets or as CIVs with other investors’ ownership interest reported as noncontrolling interests. See Part II,
Item 8, Financial Statements and Supplementary Data, Note 8, Financial Guaranty Variable Interest Entities and Consolidated
Investment Vehicles.
AssuredIM Funds and CLOs: The Company considers leveraging the knowledge and experience of AssuredIM to
manage its assets to be a value-added opportunity, and has authorized up to $750 million of Insurance segment assets to be
invested in AssuredIM Funds. The portion of the Insurance segment’s assets that is invested in AssuredIM Funds is excluded
from the amounts reported in investments if, under accounting principles generally accepted in the U.S. (GAAP), the entity is
consolidated. In instances where consolidation of these entities is required, the assets and liabilities of consolidated AssuredIM
Funds and CLOs are reported in the line items captioned “assets of consolidated investment vehicles” and “liabilities of
consolidated investment vehicles,” resulting in a gross-up of the Company’s consolidated assets and liabilities.
As of December 31, 2022 and December 31, 2021, all AssuredIM Funds in which the Insurance segment invests were
consolidated, and the U.S. Insurance Subsidiaries had investments in AssuredIM Funds with a fair value of $569 million and
$543 million on those dates, respectively. These are reported as a component of CIVs in the Company's consolidated financial
statements. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources — Investment Portfolio — Other Investments.
Puerto Rico Trust Assets: In addition to New Recovery Bonds and CVIs described above, for bondholders that elected
to receive custody receipts that represent an interest in the legacy insurance policy plus any cash, New Recovery Bonds and
CVIs under the 2022 Puerto Rico Resolutions, such assets reside in consolidated trusts. As of December 31, 2022, the Company
reported $212 million in Puerto Rico Trusts’ assets in FG VIEs assets on the consolidated balance sheets. 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.
Risk Management
Organizational Structure
The Company’s Board of Directors (the Board or AGL’s Board) oversees the risk management process. The Board
employs an enterprise-wide approach to risk management that supports the Company’s business plans within a reasonable level
of risk. Risk assessment and risk management are not only understanding the risks a company faces and what steps
management is taking to manage those risks, but also understanding what level of risk is appropriate for that company. The
Board annually approves the Company’s business plan, factoring risk management into account. It also approves the
Company’s risk appetite statement, which articulates the Company’s tolerance for risk and describes the general types of risk
that the Company accepts or attempts to avoid. The involvement of the Board in setting the Company’s business strategy is a
key part of its assessment of management’s risk tolerance and a determinant of what constitutes an appropriate level of risk for
the Company.
23
While the Board has the ultimate oversight responsibility for the risk management process, various committees of the
Board also have responsibility for risk assessment and risk management. The Risk Oversight Committee of the Board oversees
the standards, controls, limits, underwriting guidelines and policies that the Company establishes and implements in respect of
credit underwriting and risk management. It focuses on management's assessment and management of credit risks as well as
other risks, including, but not limited to, market, financial, legal, and operational risks (including cybersecurity and data privacy
risks), and risks relating to the Company's reputation and ethical standards. In addition, the Audit Committee of the Board is
responsible for, among other matters, reviewing policies and processes related to risk assessment and risk management,
including the Company’s major financial risk exposures and the steps management has taken to monitor and control such
exposures. It also oversees cybersecurity and data privacy and reviews compliance with related legal and regulatory
requirements. The Compensation Committee of the Board reviews compensation-related risks to the Company. The Finance
Committee of the Board oversees the investment of the Company’s investment portfolio (including alternative investments) and
the Company’s capital structure, liquidity, financing arrangements, rating agency matters, and any corporate development
activities in support of the Company’s financial plan. The Nominating and Governance Committee of the Board oversees risk at
the Company by developing appropriate corporate governance guidelines and identifying qualified individuals to become board
members. The Environmental and Social Responsibility Committee oversees the Company’s risk and opportunities related to
environmental issues, such as climate change, as well as aspects of human capital management, including diversity and
inclusion.
The board of directors of each of the Company’s insurance subsidiaries has overall responsibility for the system of
governance, oversight of the business and affairs and establishment of the key strategic direction and key financial objectives,
including risk management, of its respective company. The AGUK Board and the AGE Board have each delegated, pursuant to
written terms of reference, responsibility for risk matters to their respective Risk Oversight Committees. The AGUK Board and
the AGE Board have delegated the day-to-day management of their companies to their Chief Executive Officer and Managing
Director respectively, who is in each case supported by a number of management committees.
The Company has established several management committees to develop enterprise level risk management
guidelines, policies and procedures for the Company’s insurance, reinsurance and asset management subsidiaries that are
tailored to their respective businesses, providing multiple levels of review, analysis and control.
The Company’s management committees responsible for risk management in its Insurance segment include:
•
•
•
•
Portfolio Risk Management Committee—The Portfolio Risk Management Committee is responsible for
enterprise risk management for the Company’s Insurance segment and focuses on measuring and managing credit,
market and liquidity risk for the Company’s Insurance segment. This committee establishes company-wide credit
policy for the Company’s direct and assumed insured business. It implements specific underwriting procedures
and limits for the Company and allocates underwriting capacity among the Company’s subsidiaries. All
transactions in new asset classes or new jurisdictions, or otherwise outside the Company’s Board-approved risk
appetite statement, must be approved by this committee.
Risk Management Committees—The U.S., AG Re and AGRO risk management committees and the European
Insurance Subsidiaries Surveillance Committees conduct an in-depth review of the insured portfolios of the
relevant subsidiaries, focusing on varying portions of the portfolio at each meeting. They review and may revise
internal ratings assigned to the insured transactions and review sector reports, monthly product line surveillance
reports and compliance reports. The European Insurance Subsidiaries Executive Risk Committees are responsible
for assisting the risk oversight committees of their respective board of directors in the management of risk and
oversight of their respective company’s risk management framework and processes. This includes monitoring
their respective company’s compliance with risk strategy, risk appetite, risk limits, as well as overseeing and
challenging their respective company’s risk management and compliance functions. In carrying out its
responsibilities, each of the risk management committees considers numerous factors that could impact their
insured portfolios, including macroeconomic factors, long term trends and climate change.
U.S. Workout Committee—This committee receives reports from surveillance and workout personnel on
insurance transactions at AGM and/or AGC that might benefit from active loss mitigation or risk reduction and
approves loss mitigation or risk reduction strategies for such transactions.
Reserve Committees—Oversight of reserving risk is vested in the U.S. Reserve Committee, the European
Insurance Subsidiaries Executive Risk Committees, the AG Re Reserve Committee and the AGRO Reserve
Committee. The committees review the reserve methodology and assumptions for each major asset class or
significant below-investment-grade (BIG) transaction, as well as the loss projection scenarios used and the
24
probability weights assigned to those scenarios. The reserve committees establish reserves for the relevant
subsidiaries, taking into consideration supporting information provided by surveillance personnel, and are
responsible for changes to assumptions that that have a significant impact on expected losses.
The Company’s committees responsible for risk management in its Asset Management segment include:
•
•
•
AssuredIM Investment Committees—These committees focus on application of investment evaluation criteria for
the Asset Management segment’s investing activity within each investment strategy. Each Asset Management
segment investment committee consists of the Chief Investment Officer and two or more senior investment
professionals with deep expertise in the markets relevant to each investment.
AssuredIM Risk Committee—This committee focuses on avoiding inappropriate risk of loss, legal or reputational
damage to AssuredIM’s investors arising from the Asset Management segment’s investment and business
processes. Moreover, the committee reviews risk matters that need to be addressed by the broader group rather
than the regular oversight and escalation designees, which would include, but is not limited to, fund limit
breaches, investment mandate compliance, allocations, trade execution, counterparty agreements, legal and
regulatory compliance and business continuity. Within such responsibilities, the committee reviews principal
transactions and cross transactions among clients within the Asset Management segment. Compliance and other
operational sub-committees report to this committee on the full range of compliance and other operational risk
matters applicable to the Asset Management segment including policies, risks and controls, audits, personal
trading activity, compliance testing results, operational diligence and regulatory filings.
AssuredIM and AssuredIM Healthcare Partners Valuation Committees—These committees focus on oversight
of the Asset Management segment’s valuation policies and procedures. The respective committees meet to review
the period-end valuations prior to the release of net asset valuations to fund investors (either monthly or quarterly
depending on the investor reporting cycle). The period-end package includes details of estimated versus final
NAV differences, securitized products price verification, valuation model reviews, price back testing, derivative
valuation verification, administrator valuation reconciliation and latent price analysis. In addition, these
committees convene to review and decide on material changes to fund valuation methodology, material valuation
changes on an Accounting Standards Codification (ASC) 820 Level 3 asset, pricing or valuation exceptions,
valuation approach to new products, new model approval, guidelines and policies for classification of assets and
changes to policies and procedures.
Enterprise Risk Management
The business units and functional areas are responsible for identifying, assessing, monitoring, reporting and managing
their own risks. The Chief Risk Officer and other risk management personnel are separate from the business units and are
responsible for developing the risk management framework, ensuring applicable risk management policies and procedures are
followed consistently across business units, and for providing objective oversight and aggregated risk analysis.
The internal audit function (Internal Audit) provides independent assurance around effective risk management design
and control execution. On a quarterly basis, or more frequently when required, Internal Audit reports its findings directly to the
Audit Committee of the Board of Directors and informs the Chief Executive Officer of any material issues.
The Company has established an enterprise level risk appetite statement, approved by the Board, and risk limits, that
govern the Company’s risk-taking activities, with similar documents governing the activities of each operating subsidiary. Risk
management personnel monitor a variety of key risk indicators on an ongoing basis and work with the business units to take the
appropriate steps to manage the Company’s established risk appetites and tolerances. Risk management also uses an internally
developed economic capital model to project potential credit losses in the insured portfolio as well as potential ultimate losses
on investments, and analyze the related capital implications for the Company, and performs stress and scenario testing to both
validate model results and assess the potential financial impact of emerging risks and major strategic initiatives such as
acquisitions or releases of capital.
Quarterly risk reporting keeps management and the Board and its Risk Oversight Committee, senior management, the
business units and functional areas informed about material risk-related developments. At least once each year, risk
management personnel prepare an Own Risk and Solvency Assessment for the Company as a whole and each of the operating
companies (Commercial Insurer Solvency Self-Assessment for AG Re and AGRO) which reports the results of capital
modeling, the status of key risk indicators and any emerging risks. In addition, the Company performs in-depth reviews
annually of risk topics of interest to management and the Board. To the extent potentially significant business activities or
25
operational initiatives are considered, the Chief Risk Officer analyzes the possible impact on the Company’s risk profile and
capital adequacy.
Surveillance of Insured Transactions
The Company’s surveillance personnel are responsible for monitoring and reporting on the performance of each risk in
its insured portfolio, including exposures in both the financial guaranty direct and assumed businesses, and tracking aggregation
of risk. The primary objective of the surveillance process is to monitor trends and changes in transaction credit quality, detect
any deterioration in credit quality, change or affirm ratings during reviews, and recommend remedial actions to management.
The Company assigns internal credit ratings at closing to all transactions in the insured portfolio, and surveillance personnel
recommend rating affirmations or adjustments to those ratings via the Risk Management Committees to reflect changes in
transaction credit quality. The Company monitors its insured portfolio and refreshes its internal credit ratings on individual
exposures in quarterly, semi-annual or annual review cycles based on the Company’s view of the exposure’s 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
the credit when a ratings review is not scheduled.
The review cycle and scope vary based upon transaction type and credit quality. In general, the review process
includes the collection and analysis of information from various sources, including trustee and servicer reports, performance
reports from Intex (a commercially available structured finance reporting system), financial statements, general industry or
sector news and analyses, and rating agency reports. For public finance risks, the surveillance process includes monitoring
general economic trends, developments with respect to state and municipal finances, regulatory changes, environmental trends,
and the financial situation of the issuers. For structured finance transactions, the surveillance process can include monitoring
transaction performance data and cash flows, compliance with transaction terms and conditions, and evaluation of servicer or
collateral manager performance and their financial condition. Additionally, the Company uses various quantitative tools,
scorecards and models to assess transaction performance and identify situations where there may have been a change in credit
quality. Surveillance activities may include discussions with or site visits to issuers, servicers, collateral managers or other
parties to a transaction. Surveillance may adopt augmented procedures in response to various events, as it has done in response
to the COVID-19 pandemic, major hurricanes or floods, and the transition away from the London Interbank Offered Rate
(LIBOR) as a reference rate.
For transactions that the Company has assumed, the ceding insurers are responsible for conducting ongoing
surveillance of the exposures that have been ceded to the Company, except that the Company provides surveillance for
exposures assumed from SGI in a manner consistent with its own direct portfolio. The Company’s surveillance personnel
monitor the ceding insurer’s surveillance activities on exposures ceded to the Company through a variety of means, including
reviews of surveillance reports provided by the ceding insurers, and meetings and discussions with their analysts. For public
finance risks, the Company’s surveillance personnel independently review assumed exposure utilizing the same procedures as
applied to the Company’s direct exposures. The Company’s surveillance personnel also monitor transaction performance (for
structured finance and infrastructure transactions), general news and information, industry trends and rating agency reports to
help focus surveillance activities on sectors or exposures of particular concern. For certain exposures, the Company also will
undertake an independent analysis and remodeling of the exposure. The Company’s surveillance personnel also take steps to
ensure that the ceding insurer is managing the risk pursuant to the terms of the applicable reinsurance agreement.
Workouts
The Company’s workout and surveillance personnel are responsible for managing workout, loss mitigation and risk
reduction situations. They work to develop and implement strategies on transactions that are experiencing loss or could possibly
experience loss. They, along with the Workout Committee, develop strategies designed to enhance the ability of the Company
to enforce its contractual rights and remedies and mitigate potential losses. The Company’s workout and surveillance personnel
also engage in negotiation discussions with transaction participants and, when necessary, manage (along with legal personnel)
the Company’s litigation proceedings. They may also make open market or negotiated purchases of securities that the Company
has insured, or negotiate or otherwise implement consensual terminations of insurance coverage prior to contractual maturity.
The Company’s surveillance personnel work with servicers of RMBS transactions to enhance their performance.
Asset Management
The Company’s Asset Management segment risk personnel are responsible for quantifying, analyzing and reporting
the risks of each asset management fund and ensuring adherence to agreed investor mandates, independent from Asset
Management segment investment personnel. The Asset Management segment applies investment and risk management
26
processes across all managed funds and investments. Investment professionals are responsible for sourcing, evaluating,
structuring, executing, managing, and exiting existing investments. After the evaluation and diligence processes, and as
appropriate thereafter, investment team members submit recommended actions to the relevant Asset Management segment
investment committee in accordance with each strategy’s required investment procedures. The relevant Asset Management
segment investment committee carefully considers the alignment of each investment with the unique objectives and constraints
of the vehicle(s) to which it is allocated. Asset Management segment risk professionals further independently monitor and
ensure alignment of risk taking with the objectives and constraints of each investment mandate at inception and thereafter, using
both proprietary and third-party quantitative data, analytic tools, and reports.
Cybersecurity
The Company relies upon information technology and systems, including technology and systems provided by or
interfacing with those third parties, to conduct its businesses and interact with market participants and vendors. With this
reliance on technology comes the associated security risks from using today’s communication technology and networks. To
defend the Company’s computer systems from cyberattacks, the Company uses tools such as firewalls, anti-malware software,
multifactor authentication, e-mail security services, virtual private networks, and timely applied software patches, among
others. In addition, the Company evaluates the adequacy of the cybersecurity controls of applicable third-party service
providers, including through a rigorous vendor selection and management process. The Company has also engaged third-party
consultants to conduct penetration tests to identify any potential security vulnerabilities. The Company trains personnel on how
to identify potential cybersecurity risks and protect Company information and resources. This training is mandatory for all
employees globally upon hire and on an annual basis. Although the Company believes its defenses against cyber intrusions are
sufficient, it continually monitors its computer networks for new types of threats.
Data Protection
The Company is subject to local, state, and national laws and regulations in the U.S., U.K., the European Union (EU),
the other EEA countries that comply with data protection laws in the EU, and other non-U.S. jurisdictions that require financial
institutions and other businesses to protect personal and other sensitive information and provide notice of their privacy and
security practices relating to the collection, disclosure and other processing of personal information. The Company is also
subject to local, state, and national laws and regulations in the U.S., U.K., EEA, and other non-U.S. jurisdictions that require
notification to affected individuals and regulators regarding data security breaches. To address these requirements, the
Company has established and implemented policies and procedures that are intended to protect the privacy and security of
personal information that comes into the Company’s possession or control, and to comply with applicable laws and regulations.
Company policies and procedures include, but are not limited to, specific technical, administrative, and physical safeguards for
personal information, periodic risk assessments on privacy and security measures, monitoring and testing, an incident response
plan that requires Company personnel to promptly report suspected and actual data breach incidents to designated management
representatives, an enterprise-wide data governance program, and regularly maintained records that demonstrate the Company’s
accountability for compliance with the core privacy principles, relating to the processing of personal information and applicable
data protection laws. The Company has imposed similar requirements, as applicable, on third parties with whom it shares
personal information including through a rigorous vendor selection and management process. The Company engages its
personnel and enhances data privacy and security awareness through training, which is mandatory for all employees globally on
an annual basis.
Climate Change Risk
The Company has long considered environmental impacts as part of its underwriting process, in particular with regard
to U.S. public finance transactions. Global awareness of climate change has drawn greater attention to the potential financial
implications and long-term consequences of increasing frequency or severity of natural disaster events (e.g., storms and
wildfires). As a financial guarantor of municipal and structured finance transactions, the Company does not take direct
insurance exposure to climate change but does face the risk that its obligors’ ability to pay debt service will be impaired by the
impact of climate related perils.
The Company continues to enhance its approach to the consideration of climate risk in the origination, underwriting,
credit approval, and surveillance of its insured exposures and has integrated climate risk into its risk management and control
functions. Credit underwriting submissions are required to include an assessment of environmental and/or transitional risk
factors as part of the underwriting analysis. Specifically, the vulnerability of obligors is evaluated with respect to climatic
changes (e.g., sea level rise, droughts), extreme weather events (e.g., hurricanes, tornadoes, floods) or geological events (e.g.,
earthquakes, volcanoes) as well as resilience factors (e.g., mitigation capabilities, adaptation capacity) to determine if such
environmental issues could materially impact an obligor’s expected performance.
27
The Company’s assessment of how climate change-driven risks may impact a prospective obligor’s ability to pay debt
service is informed by its extensive experience in municipal finance coupled with proprietary analytics and third-party data and
insights. To improve the Company’s understanding of climate change and to develop the analytical tools needed to measure
and manage the related financial risks, the Company has been investing in both talent and technology. The Company’s risk
management resources include climate science expertise. In addition, a dedicated internal team is currently working with a
geospatial data analytics company specializing in climate change/risk analysis and its effect on cities, counties, and states, to
develop analytical capabilities to evaluate climate risk and assess potential negative impacts that climate change could have on
the proposed obligor’s ability to pay debt service.
The Company is also exposed indirectly to climate change trends and events that might impair the performance of
securities in its investment portfolio. The portfolio consists predominantly of fixed-income assets. Nevertheless, environmental
issues, including regulatory changes, changes in supply or demand characteristics of fuels, and extreme weather events, may
impact the value of certain securities. In 2016, the Company determined not to make any new investments in thermal coal
enterprises. In fourth quarter of 2019, the Company revised its investment guidelines to incorporate material environmental
factors into its investment analysis to enhance the quality of investment decisions. On an annual basis, the Company instructs
its primary external portfolio managers to conduct an environmental, social and governance (ESG) analysis of their respective
portion of the Company’s investment portfolio, for which ESG data is readily available. The Company conducts the ESG
review to analyze if there are any material ESG risks in the portfolio that may adversely impact return expectations or are
otherwise not in keeping with the Company’s risk appetite statement.
Regulatory Reporting. As the global community moves to address and mitigate the effects of climate change,
regulators across jurisdictions have taken steps to require climate change risk management and related reporting. Several of the
Company’s subsidiaries are, or are anticipated to be, subject to regulatory reporting with respect to managing and disclosing the
impact of climate change and the related financial risks. In November 2021, the NYDFS, which is the regulator for AGM,
issued its “Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change” In the U.K., the
PRA, which regulates AGUK, has established certain requirements in relation to understanding the financial impact of climate
change, as part of its ongoing supervisory approach. In August 2022, the Bermuda Monetary Authority issued, for consultation,
its “Guidance Note on the Management of Climate Change Risks for Commercial Insurers”, detailing its expectations regarding
the management of climate risk by commercial insurers. The Company continues to monitor regulatory developments and meet
requirements applicable to its subsidiaries. To date, the costs associated with complying with regulatory reporting obligations
have not had a material impact on the Company’s business, financial condition, and results of operations.
Managing Greenhouse Gas Emissions. As a financial services firm with approximately 400 employees, the direct
impact of Assured Guaranty’s operations on the environment is relatively small. The Company contributes to the global effort
to combat climate change by monitoring its greenhouse gas emissions (GHG). In 2019, the Company instituted a program to
measure, manage and report its GHG emissions on an enterprise-wide basis and set targets for reducing such emissions.
Pursuant to the Greenhouse Gas Protocol, the Company collects and analyzes internal data annually for its Scope 1, Scope 2
and certain key Scope 3 GHG emissions (business travel and data hosting). In 2021, the most recent year for which data is
available, the Company’s total GHG emissions (using location-based Scope 2) equaled approximately 2,220 total tonnes of
carbon dioxide. The Company’s methodology and results are reviewed by an independent third party, which conducts a
reasonable assurance review for Scope 1 and Scope 2 emissions and a limited assurance review for Scope 3 emissions, in
accordance with ISO 14064-3 International Standards.
The Company believes that the physical effects of climate change on the Company’s business operations are not likely
to be material and the Company does not anticipate capital expenditures for climate related projects.
Governance. The Environmental and Social Responsibility Committee and the Risk Oversight Committee of AGL’s
Board of Directors, each consisting solely of independent directors, provide oversight of the Company's approach to addressing
climate change risk in accordance with their respective charters. The Environmental and Social Responsibility Committee
reviews updates on the consideration of environmental risks in the Company’s insurance risk management and its investment
portfolio, as well as legislative and regulatory developments of significance to the Company’s environmental initiatives and
related oversight. The Risk Oversight Committee reviews the establishment and implementation of enterprise risk management
policies and practices.
At the operating company level, the AGM and AGC boards of directors review environmental risk reports at each of
their quarterly meetings. The Chief Risk Officer is designated as the AGM and AGC board member and member of senior
management responsible for overseeing the management of climate risks. The Company has also formed an environmental risk
working group composed of senior members of the Company’s credit, underwriting, surveillance, and risk management
departments, to review the impact of environmental risk on the Company, including the development of objective risk
28
measures, metrics and methodologies needed to evaluate the financial impact of climate change on obligors in its insured
portfolio on both aggregate and individual risk levels.
Regulation
Overview
The Company’s operations are regulated by many different regulatory authorities, including insurance, securities,
derivatives and investment advisory. The insurance and financial services industries generally have been subject to heightened
regulatory scrutiny and supervision since the financial crisis that began in 2008.
The Company and its subsidiaries are subject to insurance-related and asset management-related statutes, regulations
and supervision by the U.S. states and territories and the non-U.S. jurisdictions in which they do business. The degree and type
of regulation varies from one jurisdiction to another. We expect that the U.S. and non-U.S. regulations applicable to the
Company and its regulated entities will continue to evolve for the foreseeable future.
United States Regulation
Insurance and Financial Services Regulation
AGL has two operating insurance subsidiaries domiciled in the U.S., which the Company refers to collectively as the
U.S. Insurance Subsidiaries.
•
•
AGM is a New York domiciled insurance company licensed to write financial guaranty insurance and reinsurance
in 50 U.S. states, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.
AGC is a Maryland domiciled insurance company licensed to write financial guaranty insurance and reinsurance
in 50 U.S. states, the District of Columbia and Puerto Rico.
Insurance Holding Company Regulation
The U.S. Insurance Subsidiaries are subject to the insurance holding company laws of their respective jurisdictions of
domicile, as well as other jurisdictions where these insurers are licensed to do insurance business. These laws generally require
each of the U.S. Insurance Subsidiaries to register with its domestic state insurance department and annually to furnish financial
and other information about the operations of companies within its holding company system. Generally, all transactions among
companies in the holding company system to which any of the U.S. Insurance Subsidiaries is a party (including sales, loans,
reinsurance agreements and service agreements) must be fair, reasonable and equitable, and, if material or of a specified
category, such as reinsurance or service agreements, require prior notice to and approval or non-disapproval by the insurance
department where the applicable subsidiary is domiciled.
Change of Control
Before a person can acquire control of a U.S.-domiciled insurance company, prior written approval must be obtained
from the insurance commissioner of the state where the insurer is domiciled or deemed commercially domiciled. Generally,
state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns,
controls, holds with the power to vote, or holds proxies representing, 10% or more of the voting securities of such insurer.
Because a person acquiring 10% or more of AGL’s common shares would indirectly control the same percentage of the stock of
our U.S. Insurance Subsidiaries, the insurance change of control laws of Maryland and New York would likely apply to such
acquisition. Accordingly, a person acquiring 10% or more of AGL’s common shares must either file disclaimers of control of
our U.S. Insurance Subsidiaries with the insurance commissioners of the States of Maryland and New York or apply to acquire
control of such subsidiaries with such insurance commissioners. However, this presumption does not create a safe harbor for
acquisitions below the 10% threshold, which may still result in a control determination. Significantly, an acquirer of less than
10% of an insurer’s voting securities may still be deemed to control the insurer based on all the facts and circumstances,
including the terms and conditions of the proposed transaction. Moreover, a control relationship can arise from a contract or
other factors, in the absence of any ownership of voting securities of an insurer. Prior to approving an application to acquire
control of a domestic insurer, each state insurance commissioner will consider factors such as the financial strength of the
applicant, the integrity and management of the applicant’s board of directors and executive officers, the applicant's plans for the
management of the board of directors and executive officers of the insurer, the applicant’s plans for the future operations of the
insurer and any anti-competitive results that may arise from the consummation of the acquisition of control. These laws may
29
discourage potential acquisition proposals and may delay, deter or prevent a change of control involving AGL that some or all
of AGL’s shareholders might consider to be desirable, including, in particular, unsolicited transactions.
Other State Insurance Regulations
State insurance authorities have broad regulatory powers with respect to various aspects of the business of U.S.
insurance companies, including licensing these companies to transact business, “accrediting” reinsurers, determining whether
assets are “admitted” and counted in statutory surplus, prohibiting unfair trade and claims practices, establishing reserve
requirements and solvency standards, regulating investments and dividends and, in certain instances, approving policy forms
and related materials and approving premium rates. State insurance laws and regulations require the U.S. Insurance Subsidiaries
to file financial statements with insurance departments in every U.S. state or jurisdiction where they are licensed, authorized or
accredited to conduct insurance business, and their operations are subject to examination by those departments at any time. The
U.S. Insurance Subsidiaries prepare statutory financial statements in accordance with Statutory Accounting Principles, or SAP,
and procedures prescribed or permitted by these departments. State insurance departments conduct periodic examinations of the
books and records, financial reporting, policy filings and market conduct of insurance companies domiciled in their states,
generally once every three to five years.
The NYDFS, the regulatory authority of the domiciliary jurisdiction of AGM, and the Maryland Insurance
Administration (the MIA), the regulatory authority of the domiciliary jurisdiction of AGC, each conducts a periodic
examination of insurance companies domiciled in New York and Maryland, respectively, usually at five-year intervals. In 2018,
NYDFS last completed an examination of AGM, and the MIA last completed an examination of AGC. The examinations for
AGM and AGC were for the five-year period ending December 31, 2016. The examination reports from the NYDFS and the
MIA did not note any significant regulatory issues.
The NYDFS and the MIA formally commenced their current ongoing joint examination of AGM and AGC in the
second quarter of 2022 for the five-year period ending December 31, 2021.
State Dividend Limitations
New York. One of the primary sources of cash for repurchases of shares and the payment of debt service and
dividends by the Company is the receipt of dividends from AGM. Under the New York Insurance Law, AGM may only pay
dividends out of “earned surplus,” which is the portion of an insurer’s surplus that represents the net earnings, gains or profits
(after deduction of all losses) that have not been distributed to the insurer’s shareholders as dividends, transferred to stated
capital or capital surplus, or applied to other purposes permitted by law, but does not include unrealized appreciation of assets.
AGM may pay dividends without the prior approval of the NYDFS in an amount that, together with all dividends declared or
distributed by it during the preceding 12 months, does not exceed the lesser of 10% of its policyholders' surplus (as of its last
annual or quarterly statement filed with the NYDFS) or 100% of its adjusted net investment income during that period. See Part
II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Insurance Subsidiaries, for the maximum amount of dividends that can be paid without regulatory approval,
recent dividend history and other recent capital movements.
Maryland. Another primary source of cash for repurchases of shares and the payment of debt service and dividends
by the Company is the receipt of dividends from AGC. Under Maryland’s insurance law, AGC may, with prior notice to the
MIA, pay an ordinary dividend in an amount that, together with all dividends paid in the prior 12 months, does not exceed the
lesser of 10% of its policyholders’ surplus (as of the prior December 31) or 100% of its adjusted net investment income during
that period. A dividend or distribution to a shareholder of AGC in excess of this limitation would constitute an “extraordinary
dividend,” which must be paid out of AGC’s “earned surplus” and reported to, and approved by, the MIA prior to payment.
"Earned surplus" is that portion of AGC's surplus that represents the net earnings, gains or profits (after deduction of all losses)
that have not been distributed to its shareholders as dividends or transferred to stated capital or capital surplus, or applied to
other purposes permitted by law, but does not include unrealized capital gains and appreciation of assets. AGC may not pay any
dividend or make any distribution, including ordinary dividends, unless it notifies the MIA Insurance Commissioner (the
Maryland Commissioner) of the proposed payment within five business days following declaration and at least ten days before
payment. The Maryland Commissioner may declare that such dividend not be paid if it finds that AGC’s policyholders’ surplus
would be inadequate after payment of the dividend or the dividend could lead AGC to a hazardous financial condition. See Part
II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Insurance Subsidiaries, for the maximum amount of dividends that can be paid without regulatory approval,
recent dividend history and other recent capital movements.
30
Contingency Reserves
Each of AGM, under the New York Insurance Law, and AGC, under Maryland insurance law and regulations, must
establish a contingency reserve, as reported on its statutory financial statements, to protect policyholders. The New York
Insurance Law and Maryland insurance laws and regulations, as applicable, determine the calculation of the contingency
reserve and the period of time over which it must be established and, subsequently, can be released.
In both New York and Maryland, releases from the insurer’s contingency reserve may be permitted under specified
circumstances in the event that actual loss experience exceeds certain thresholds or if the reserve accumulated is deemed
excessive in relation to the insurer's outstanding insured obligations.
From time to time, the U.S. Insurance Subsidiaries have obtained the approval of their regulators to release
contingency reserves based on losses or because the accumulated reserve is deemed excessive in relation to the insurer’s
outstanding insured obligations. In 2022, the U.S. Insurance Subsidiaries each requested a release of accumulated contingency
reserve which were deemed excessive in relation to the Company’s outstanding insured obligations. AGM obtained the
NYDFS’s approval for a contingency reserve release of approximately $87.3 million and AGC obtained the MIA’s approval for
a contingency reserve release of approximately $1.3 million, which represented the assumed contingency reserves maintained
by AGC, as a reinsurer of AGM, in connection with the same insured obligations that were the subject of AGM’s $87.3 million
release. Both AGM’s and AGC’s release were recorded in 2022. In 2021 AGM obtained the NYDFS’s approval for a
contingency reserve release of approximately $104 million and AGC obtained the MIA’s approval for a contingency reserve
release of approximately $246 million, of which approximately $1.5 million represented the assumed contingency reserves
maintained by AGC, as a reinsurer of AGM, in connection with the same insured obligations that were the subject of AGM’s
$104 million release.
Applicable New York and Maryland laws and regulations require regular, quarterly contributions to contingency
reserves, but such laws and regulations permit the discontinuation of such quarterly contributions to an insurer's contingency
reserves when such insurer’s aggregate contingency reserves for a particular line of business (i.e., municipal or non-municipal)
exceed the sum of the insurer’s outstanding principal for each specified category of obligations within the particular line of
business multiplied by the specified contingency reserve factor for each such category. In accordance with such laws and
regulations, and with the approval of the NYDFS and the MIA, respectively, AGM ceased making quarterly contributions to its
contingency reserves for non-municipal business and AGC ceased making quarterly contributions to its contingency reserves
for both municipal and non-municipal business, in each case beginning in the fourth quarter of 2014. Such cessations are
expected to continue for as long as AGM and AGC satisfy the foregoing condition for their applicable line(s) of business.
Single and Aggregate Risk Limits
The New York Insurance Law and the Code of Maryland Regulations establish single risk limits for financial guaranty
insurers applicable to all obligations insured by a financial guaranty insurer that are issued by a single entity and backed by a
single revenue source. For example, under the limit applicable to municipal obligations, the insured average annual debt service
for a single risk, net of qualifying reinsurance and collateral, may not exceed 10% of the sum of the insurer's policyholders’
surplus and contingency reserves. In addition, the insured unpaid principal of municipal obligations attributable to any single
risk, net of qualifying reinsurance and collateral, is limited to 75% of the insurer’s policyholders’ surplus and contingency
reserves.
Under the limit applicable to qualifying asset-backed securities, the lesser of:
•
•
the insured average annual debt service for a single risk, net of qualifying reinsurance and collateral, or
the insured unpaid principal (reduced by the extent to which the unpaid principal of the supporting assets exceeds
the insured unpaid principal) divided by nine, net of qualifying reinsurance and collateral,
may not exceed 10% of the sum of the insurer’s policyholders’ surplus and contingency reserves, subject to certain conditions.
Single-risk limits are also specified for other categories of insured obligations, and generally are more restrictive than
those described above for municipal and asset-backed obligations. Obligations not qualifying for an enhanced single-risk limit
are generally subject to a catch-all or “other” limit under which the unpaid principal of the single risk, net of qualifying
reinsurance and collateral, may not exceed 10% of the sum of the insurer's policyholders’ surplus and contingency reserves. For
example, “triple-X” and “future flow” securitizations, as well as unsecured corporate obligations and unsecured investor-owned
utility obligations, are generally subject to this catch-all or “other” single-risk limit.
31
The New York Insurance Law and the Code of Maryland Regulations also establish an aggregate risk limit on the basis
of the aggregate net liability insured by a financial guaranty insurer as compared with its statutory capital. “Aggregate net
liability” is defined for this purpose as the outstanding principal and interest of guaranteed obligations insured, net of qualifying
reinsurance and collateral. Under this limit, an insurer’s combined policyholders’ surplus and contingency reserves must not be
less than the sum of various percentages of aggregate net liability for various categories of specified obligations. The percentage
varies from 0.33% for certain municipal obligations to 4% for certain non-investment-grade obligations. As of December 31,
2022, the aggregate net liability of each of AGM and AGC utilized approximately 26% and 9% of their respective
policyholders’ surplus and contingency reserves.
The NYDFS Superintendent (New York Superintendent) and the Maryland Commissioner each have broad discretion
to order a financial guaranty insurer to cease new business originations if the insurer fails to comply with single or aggregate
risk limits. In the Company’s experience in New York, the New York Superintendent has shown a willingness to work with
insurers to address these concerns.
Investments
The U.S. Insurance Subsidiaries are subject to laws and regulations that require diversification of their investment
portfolios and limit the amount of investments in certain asset categories, such as BIG fixed-maturity securities, real estate,
equity investments, and derivatives. Failure to comply with these laws and regulations would cause investments exceeding
regulatory limitations to be treated as non-admitted assets for purposes of measuring surplus, and, in some instances, would
require divestiture of such non-qualifying investments. In addition, any investment by a U.S. Insurance Subsidiary must be
authorized or approved by that insurance company’s board of directors or a committee thereof that is responsible for
supervising or making such investment.
Group Regulation
In connection with AGL’s establishment of tax residence in the U.K., as discussed in greater detail under “Tax
Matters” below, the NYDFS has been designated as group-wide supervisor for the Assured Guaranty group. Group-wide
supervision by the NYDFS results in additional regulatory oversight over Assured Guaranty, particularly with respect to group-
wide enterprise risk, and may subject Assured Guaranty to new regulatory requirements and constraints.
U.S. Credit for Reinsurance Requirements for Non-U.S. Reinsurance Subsidiaries
The Company’s Bermuda reinsurance subsidiaries, AG Re and AGRO, are affected by regulatory requirements in
various U.S. states governing the ability of a ceding company domiciled in the state to receive credit on its statutory financial
statements for reinsurance provided by a reinsurer. In general, under such requirements, a ceding company that obtains
reinsurance from a reinsurer that is licensed, accredited or approved by the ceding company’s state of domicile is permitted to
reflect in its statutory financial statements a credit in an aggregate amount equal to the ceding company's liability for unearned
premiums (which are that portion of premiums written which applies to the unexpired portion of the policy period), and loss
and LAE reserves ceded to the reinsurer. The substantial majority of states, however, also permit a credit on the statutory
financial statements of a ceding insurer for reinsurance obtained from a non-licensed or non-accredited reinsurer to the extent
that the reinsurer secures its reinsurance obligations to the ceding insurer by providing collateral in the form of a letter of credit,
trust fund or other acceptable security arrangement. Certain of those states also permit such non-licensed/non-accredited
reinsurers that meet certain specified requirements to apply for “certified reinsurer” status. If granted, such status allows the
certified reinsurer to post less than 100% collateral (the exact percentage depends on the certifying state's view of the reinsurer's
financial strength) and the applicable ceding company will still qualify, on the basis of such reduced collateral, for full credit for
reinsurance on its statutory financial statements with respect to reinsurance contracts renewed or entered into with the certified
reinsurer on or after the date the reinsurer becomes certified. Certain states have eliminated the reinsurance collateral
requirements for unauthorized reinsurers in certain qualifying jurisdictions that (i) meet specified requirements, such as
minimum capital and surplus amounts and minimum solvency or capital ratios, and (ii) provide certain commitments to the
ceding insurer’s domiciliary state, such as submission to such state’s jurisdiction and the filing of annual audited financial
statements with the state. A few states do not allow credit for reinsurance ceded to non-licensed reinsurers except in certain
limited circumstances and others impose additional requirements that make it difficult to become accredited.
AG Re and AGRO are not licensed, accredited or approved in any state and have established trusts to secure their
reinsurance obligations. In 2017, AGRO obtained certified reinsurer status in Missouri, which allows AGRO to post 10%
collateral in respect of any reinsurance assumed from a Missouri-domiciled ceding company on or after the date of AGRO’s
certification (although, currently, AGRO does not assume any such reinsurance). See “International Regulation —Bermuda—
Bermuda Insurance Regulation” for Bermuda regulations applicable to AG Re and AGRO.
32
Regulation of Swap Transactions Under Dodd-Frank
The Company’s U.S. insurance businesses are subject to direct and indirect regulation under U.S. federal law. In
particular, their derivatives activities are directly and indirectly subject to a variety of regulatory requirements under the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Based on the size of its U.S. Insurance
Subsidiaries’ remaining legacy derivatives portfolios, AGL does not believe any of its U.S. subsidiaries are required to register
with the Commodity Futures Trading Commission (CFTC) as a “major swap participant” or with the SEC as a “major
securities-based swap participant.” Certain of the Company's subsidiaries may be subject to Dodd-Frank Act requirements to
post margin for, or to clear on a regulated execution facility, future swap transactions or with respect to certain amendments to
legacy swap transactions, if they enter into such transactions.
Regulation of U.S. Asset Management Business
AGL has two principal operating asset management subsidiaries domiciled in the U.S.: AssuredIM LLC and AHP.
AssuredIM LLC is registered as an investment adviser with the SEC and AHP is a relying adviser of AssuredIM LLC.
Registered investment advisers, including their relying advisers, are subject to the requirements and regulations of the U.S.
Investment Advisers Act of 1940, as amended (the Advisers Act). As registered investment advisers, AssuredIM must submit
periodic filings with the SEC on Forms ADV, which are publicly available. AssuredIM LLC’s SEC filings include information
regarding AHP as a relying advisor. The Advisers Act also imposes additional requirements on registered advisers, including
the maintenance of a Code of Ethics addressing potential conflicts of interest, an effective compliance program, recordkeeping
and reporting, disclosure, limitations on cross and principal transactions between an adviser and its advisory clients and general
anti-fraud prohibitions. AssuredIM is also registered with the CFTC as a commodity pool operator and is a member of the
National Futures Association (NFA), therefore subject to their respective periodic filing and other requirements. BlueMountain
CLO Management, LLC (BMCLO), a third asset management subsidiary, has limited activity with a relatively small AUM and,
accordingly, ceased to be registered with the SEC in 2022.
In addition, private funds advised by AssuredIM LLC, AHP and BMCLO rely on exemptions from various
requirements of the Securities Act, the Exchange Act, the U.S. Investment Company Act of 1940, as amended, the Commodity
Exchange Act and the U.S. Employee Retirement Income Security Act of 1974, as amended. These exemptions are complex
and may in certain circumstances depend on compliance by third parties which are not controlled by the Company.
International Regulation
General
A portion of the Company’s business is conducted in foreign countries. Generally, the Company’s subsidiaries
operating in foreign jurisdictions must satisfy local regulatory requirements. Certain of these jurisdictions require registration
and periodic reporting by insurance and reinsurance companies that are licensed or authorized in such jurisdictions and are
controlled by other entities. Applicable legislation also typically requires periodic disclosure concerning the entity that controls
the insurer and reinsurer and the other companies in the holding company system and prior approval of intercompany
transactions and transfers of assets, including, in some instances, payment of dividends by the insurance and reinsurance
subsidiary within the holding company system.
In addition to these licensing, disclosure and asset transfer requirements, the Company’s foreign operations are also
regulated in various jurisdictions with respect to, among other matters, policy language and terms, amount and type of reserves,
amount and type of capital to be held, amount and type of local investment, local tax requirements, and restrictions on changes
in control. AGL, as a Bermuda-domiciled holding company, is also subject to shareholding restrictions. Such shareholding
restrictions of AGL and restrictions on changes in control of our foreign operations may discourage potential acquisition
proposals and may delay, deter or prevent a change of control of AGL, including through transactions, and, in particular,
unsolicited transactions, that some or all of its shareholders might consider to be desirable. See Item 1A. Risk Factors, Risks
Related to GAAP, Applicable Law and Regulations captioned “Applicable insurance laws may make it difficult to effect a
change of control of AGL.”
33
Bermuda
The Bermuda Monetary Authority (the Authority) regulates the Company’s operating insurance and reinsurance
subsidiaries in Bermuda. AG Re and AGRO are each an insurance company currently registered and licensed under the
Insurance Act 1978 of Bermuda, amendments thereto and related regulations (collectively, the Insurance Act). AG Re is
registered and licensed as a Class 3B insurer and is authorized to carry on general insurance business (as understood under the
Insurance Act), subject to any conditions attached to its license and to compliance with the requirements imposed by the
Insurance Act.
AGRO is registered and licensed as both a Class 3A insurer and a Class C long-term insurer, and therefore carries on
both general and long-term business (as understood under the Insurance Act), subject to any conditions attached to its license.
In particular, AGRO must keep its accounts in respect of its general business and its long-term business separate in respect of
any other business. AGRO is required to maintain both a general business fund and a long-term business fund (as defined in the
Insurance Act.)
Bermuda Insurance Regulation
The Insurance Act, as enforced by the Authority, imposes on AG Re and AGRO a variety of requirements and
restrictions, including the filing of annual GAAP financial statements and audited statutory financial statements; compliance
with minimum enhanced capital requirements; compliance with the Authority’s Insurance Code of Conduct; compliance with
the Authority’s Insurance Sector Operational Cyber Risk Management Code of Conduct; compliance with minimum solvency
and liquidity standards; restrictions on the declaration and payment of dividends and distributions; preparation and publication
of an annual Financial Condition Report providing details on measures governing the business operations, corporate governance
framework, solvency and financial performance of the insurer and reinsurer; restrictions on changes in control of regulated
insurers and reinsurers; restrictions on the reduction of statutory capital; and the need to have a principal representative and a
principal office (as understood under the Insurance Act) in Bermuda. The Insurance Act grants to the Authority the power to
cancel insurance licenses, supervise, investigate and intervene in the affairs of insurance and reinsurance companies and in
certain circumstances share information with foreign regulators.
Shareholder Controllers
Pursuant to provisions in the Insurance Act, any person who becomes a holder of 10% or more, 20% or more, 33% or
more or 50% or more of the Company’s common shares must notify the Authority in writing within 45 days of becoming such a
holder. The Authority has the power to object to such a person if it appears to the Authority that the person is not fit and proper
to be such a holder. In such a case, the Authority may require the holder to reduce their shareholding in the Company and may
direct, among other things, that the voting rights attached to their common shares are not exercisable.
Minimum Solvency Margin and Enhanced Capital Requirements
Under the Insurance Act, AG Re and AGRO must each ensure that the value of its general business statutory assets
exceeds the amount of its general business statutory liabilities by an amount greater than a prescribed minimum solvency
margin and each company’s applicable enhanced capital requirement, which is established by reference to either its Bermuda
Solvency Capital Requirement (BSCR) model or an approved internal capital model. The BSCR model is a risk-based capital
model which provides a method for determining an insurer’s capital requirements (statutory economic capital and surplus) by
establishing capital requirements for ten categories of risk in the insurer’s business: fixed income investment risk, equity
investment risk, interest rate/liquidity risk, currency risk, concentration risk, premium risk, reserve risk, credit risk, catastrophe
risk and operational risk.
Restrictions on Dividends and Distributions
The Insurance Act limits the declaration and payment of dividends by AG Re and AGRO, including by prohibiting
each company from declaring or paying any dividends during any financial year if it is in breach of its prescribed minimum
solvency margin, minimum liquidity ratio or enhanced capital requirement, or if the declaration or payment of such dividends
would cause such a breach. Dividends are paid out of each insurer's statutory surplus and, therefore, dividends cannot exceed
such surplus. See “Minimum Solvency Margin and Enhanced Capital Requirements” above and “Minimum Liquidity Ratio”
below.
The Companies Act 1981 of Bermuda (Companies Act) also limits the declaration and payment of dividends and
other distributions by Bermuda companies such as AGL and its Bermuda subsidiaries, which, in addition to AG Re and AGRO,
34
also include Cedar Personnel Ltd. (collectively, the Bermuda Subsidiaries). Such companies may only declare and pay a
dividend or make a distribution out of contributed surplus (as understood under the Companies Act) if there are reasonable
grounds for believing that the company is, and after the payment will be, able to meet and pay its liabilities as they become due
and the realizable value of the company’s assets will not be less than its liabilities.
Minimum Liquidity Ratio
The Insurance Act provides a minimum liquidity ratio for general business. An insurer engaged in general business is
required to maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities. Relevant assets
include cash and time deposits, quoted investments, unquoted bonds and debentures, first liens on real estate, investment
income due and accrued, accounts and premiums receivable, reinsurance balances receivable, funds held by ceding insurers and
any other assets which the Authority accepts on application. The relevant liabilities are total general business insurance reserves
and total other liabilities less deferred income tax and sundry liabilities (by interpretation, those not specifically defined) and
letters of credit, corporate guaranties and other instruments.
Certain Other Bermuda Law Considerations
Although AGL is incorporated in Bermuda, it is classified as a non-resident of Bermuda for exchange control purposes
by the Authority. Pursuant to its non-resident status, AGL may engage in transactions in currencies other than Bermuda dollars
and there are no restrictions on its ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of
Bermuda or to pay dividends to U.S. residents who are holders of its common shares.
AGL is not currently subject to taxes computed on profits or income or computed on any capital asset, gain or
appreciation. Bermuda companies pay, as applicable, annual government fees, business fees, payroll tax and other taxes and
duties. See “— Tax Matters—Taxation of AGL and Subsidiaries—Bermuda.”
United Kingdom Insurance and Financial Services Regulation
Each of AGUK and Assured Guaranty Finance Overseas Ltd. (AGFOL) are subject to the FSMA, which covers
financial services relating to deposits, insurance, investments and certain other financial products. Under FSMA, effecting or
carrying out contracts of insurance by way of business in the U.K. each constitutes a “regulated activity” requiring authorization
by the appropriate regulator.
The PRA and the FCA are the main regulatory authorities responsible for insurance regulation in the U.K. These two
regulatory bodies cover the following areas:
•
•
the PRA, a part of the Bank of England, is responsible for prudential regulation of certain classes of financial
services firms, including insurance companies, and
the FCA is responsible for the prudential regulation of all non-PRA firms and the regulation of market
conduct by all firms.
AGUK, as an insurance company, is regulated by both the PRA and the FCA. They impose on AGUK a variety of
requirements and restrictions, including minimum solvency capital requirements; change of control; reporting requirements;
supervision of management; intervention and enforcement; and fees and levies. AGFOL, as an insurance intermediary, is
regulated by the FCA. AGFOL’s permissions from the FCA allow it to introduce business to the U.S. Insurance Subsidiaries, so
that AGFOL can arrange financial guaranties underwritten by the U.S. Insurance Subsidiaries. AGFOL is not authorized as an
insurer and does not itself take risk in the transactions it arranges or places.
AGUK also is the principal of Assured Guaranty Credit Protection Ltd. (AGCPL). Prior to 2009, AGCPL entered into
a limited number of derivative contracts, some of which are still outstanding, that provide credit protection on certain
referenced obligations. AGUK guarantees AGCPL’s obligations under such derivative contracts. AGCPL is not authorized by
the PRA or FCA, but is an appointed representative of AGUK. This means that AGCPL can carry on insurance distribution
activities without a license because AGUK has regulatory responsibility for it.
PRA Supervision and Enforcement
The PRA has extensive powers to intervene in the affairs of an authorized firm, including the power in certain
circumstances to withdraw the firm’s authorization to carry on a regulated activity. The PRA carries out the prudential
35
supervision of insurance companies like AGUK through a variety of methods, including the collection of information from
statistical returns, the review of accountants’ reports and insurers’ annual reports and disclosures, visits to insurance companies
and regular formal interviews. The PRA takes a risk-based approach to the supervision of insurance companies.
The PRA assesses, on an ongoing basis, whether insurers are acting in a manner consistent with safety and soundness
and appropriate policyholder protection, and whether they meet, and are likely to continue to meet, threshold conditions. The
PRA weights its supervision towards those issues and those insurers that, in its judgment, pose the greatest risk to its regulatory
objectives. It is forward-looking, assessing its objectives not just against current risks, but also against those that could
plausibly arise in the future. Its risk assessment framework looks at the insurer’s risk context, the potential impact of failure of
the insurer and mitigating factors.
AGUK calculates its minimum required capital according to the Solvency II criteria and is in compliance.
Other U.K. Regulatory Requirements
In 2010 it was agreed between AGUK’s management and its then regulator, the Financial Services Authority (now
the PRA), that new business written by AGUK would be guaranteed using a co-insurance structure pursuant to which AGUK
would co-insure municipal and infrastructure transactions with AGM, and structured finance transactions with AGC. AGUK's
financial guaranty for each transaction covers a proportionate share (currently fixed from 2018 at 15%) of the total exposure,
and AGM or AGC, as the case may be, guarantees the remaining exposure under the transaction. AGM or AGC, as the case
may be, will also provide a second-to-pay guaranty to cover AGUK’s financial guaranty.
Solvency II and Solvency Requirements
Solvency II took effect from January 1, 2016, in the U.K. and remains in effect as part of the U.K.’s retained EU law
after the withdrawal of the U.K. from the EU (Brexit). The reform of Solvency II as it applies in the U.K. is currently under
consideration by the U.K. government. Solvency II provides rules on capital adequacy, governance and risk management and
regulatory reporting and public disclosure. Under Solvency II, AGUK is subject to certain limits and requirements, including
the maintenance of a minimum solvency capital requirement (which depends on the type and amount of insurance business a
company writes and the other risks to which it is exposed) and the establishment of technical provisions, which include
projected losses and premium earnings. Failure to maintain capital at least equal to the capital requirements under Solvency II is
one of the grounds on which the wide powers of intervention conferred upon the PRA may be exercised.
Among other things, Solvency II introduced a revised risk-based prudential regime which includes the following
features: (1) assets and liabilities are generally to be valued at their market value; (2) the amount of required economic capital is
intended to ensure, with a probability of 99.5%, that regulated insurance firms are able to meet their obligations to
policyholders and beneficiaries over the following 12 months; and (3) reinsurance recoveries are treated as a separate asset
(rather than being netted off the underlying insurance liabilities). AGUK calculates its solvency capital requirements using the
Standard Formula under Solvency II and is in compliance.
Restrictions on Dividend Payments
U.K. company law prohibits each of AGUK and AGFOL from declaring a dividend to its shareholders unless it has
“profits available for distribution.” The determination of whether a company has profits available for distribution is based on its
accumulated realized profits less its accumulated realized losses. While the U.K. insurance regulatory laws impose no statutory
restrictions on a general insurer’s ability to declare a dividend, the PRA’s capital requirements may in practice act as a
restriction on dividends for AGUK.
Change of Control
Under FSMA, when a person decides to acquire or increase “control” of a U.K. authorized firm (including an
insurance company) they must give the PRA (if regulated by the PRA and FCA) or the FCA (if regulated solely by the FCA)
notice in writing before making the acquisition. The PRA and the FCA have up to 60 working days (without including any
period of interruption) in which to assess a change of control case. Any person (a company or individual) that directly or
indirectly acquires 10% or 20% (depending on the type of firm, the “Control Percentage Threshold”) or more of the shares, or is
entitled to exercise or control the exercise of the Control Percentage Threshold or more of the voting power, of a U.K.
authorized firm or its parent undertaking is considered to “acquire control” of the authorized firm. Broadly speaking, the 10%
threshold applies to banks, insurers and reinsurers (but not brokers) and Markets in Financial Instruments Directive (MiFID)
36
investment firms, and the 20% threshold to insurance brokers and certain other firms that are Non-Directive firms for the
purposes of the Solvency II Directive.
U.K. Withdrawal from the European Union
Through 2019, AGUK wrote business in the U.K. and various countries throughout the EU as well as certain other
non-EU countries. In mid-2019, to address the impact of the withdrawal of the U.K. from the EU, AGL established AGE as a
French incorporated company. AGE was authorized by the French insurance and banking supervisory authority, the ACPR, to
conduct financial guarantee business from January 2, 2020, and from that date AGUK ceased the underwriting of new business
within the EEA. In October 2020, in preparation for Brexit, AGUK transferred to AGE certain existing AGUK policies relating
to risks in the EEA under the Part VII Transfer.
AGUK will continue to write new business in the U.K. and certain other non-EEA countries.
Regulation of U.K. Asset Management Business
AssuredIM London is domiciled in the U.K. and is authorized by the FCA as an investment manager in the U.K. with
certain permissions. The FSMA and rules promulgated thereunder, together with certain additional legislation, govern all
aspects of the U.K. investment business, including sales, research and trading practices, the provision of investment advice, and
discretionary management services, the use and safekeeping of client funds and securities, regulatory capital, margin practices
and procedures, the approval standards for individuals, anti-money laundering, periodic reporting and settlement procedures.
AssuredIM London acts as a subadvisor to AssuredIM LLC, is a relying adviser of AssuredIM LLC for US regulatory
purposes and its information is incorporated into AssuredIM LLC’s periodic filings on Forms ADV, which are publicly
available. As a result of its FCA registration and being a relying adviser of AssuredIM LLC, AssuredIM London is subject to
both U.K. and U.S. requirements on registered advisers, including the maintenance of a Code of Ethics addressing potential
conflicts of interest, an effective compliance program, recordkeeping and reporting, disclosure, limitations on cross and
principal transactions between an adviser and its advisory clients and general anti-fraud prohibitions. In 2022, AssuredIM
London ceased to be registered as a commodity trading adviser with the CFTC and is no longer a member of the NFA due to its
limited role as a subadvisor to AssuredIM LLC.
In addition, AssuredIM London relies on complex exemptions from the Securities Act, the Exchange Act, the U.S.
Investment Company Act of 1940, as amended, the Commodity Exchange Act and the U.S. Employee Retirement Income
Security Act of 1974, as amended. Such exemptions may in certain circumstances depend on compliance by third parties not
controlled by the Company.
France
As an insurance company licensed in France, AGE is regulated by the ACPR and is subject to the provisions of
Solvency II as well as related EU delegated regulations as implemented in France, and by the French Insurance Code and the
Monetary and Financial Code, both of which set out the primary rules governing the insurance industry in France. In
accordance with French insurance regulation and Solvency II, AGE is permitted to carry on its activities in the countries of the
EEA where it is authorized to operate under the freedom to provide services regime.
French regulation of insurance companies imposes on AGE a variety of requirements and restrictions, including
minimum solvency capital requirements; change of control; reporting requirements; supervision of management; and
intervention and enforcement.
ACPR Supervision and Enforcement
The ACPR has extensive powers to intervene in the affairs of an insurance company, including the power in certain
circumstances to withdraw the company’s authorization to carry on a regulated activity. The ACPR carries out the prudential
supervision of insurance companies like AGE through a variety of methods, including the collection of information from
statistical returns, the review of accountants' reports and insurers’ annual reports and disclosures, visits to insurance companies
and regular formal interviews.
The ACPR assesses, on an ongoing basis, whether insurers are acting in a manner consistent with safety and
soundness and appropriate policyholder protection, and whether they meet, and are likely to continue to meet, threshold
conditions. The ACPR is forward-looking, assessing its objectives not just against current risks, but also against those that
37
could plausibly arise in the future. Its risk assessment framework looks at the insurer’s risk context, the potential impact of
failure of the insurer and mitigating factors.
Solvency II and Solvency Requirements
Solvency II came into effect in France on January 1, 2016, and is the legal and regulatory basis for the supervision of
insurance firms in France. It provides rules on capital adequacy, governance, risk management, and regulatory reporting and
public disclosure. Under Solvency II, AGE is subject to certain limits and requirements, including the maintenance of a
minimum solvency capital requirement (which depends on the type and amount of insurance business a company writes and the
other risks to which it is exposed) and the establishment of technical provisions, which include projected losses and premium
earnings. Failure to maintain capital at least equal to the capital requirements under Solvency II is one of the grounds on which
the wide powers of intervention conferred upon the ACPR may be exercised.
Among other things, Solvency II introduced a revised risk-based prudential regime which includes the following
features: (1) assets and liabilities are generally to be valued at their market value; (2) the amount of required economic capital is
intended to ensure, with a probability of 99.5%, that regulated insurance firms are able to meet their obligations to
policyholders and beneficiaries over the following 12 months; and (3) reinsurance recoveries are treated as a separate asset
(rather than being netted off the underlying insurance liabilities). AGE calculates its solvency capital requirements using the
Standard Formula under Solvency II and is in compliance.
Restrictions on Dividend Payments
French company law prohibits AGE from declaring a dividend to its shareholders unless it has “profits and/or
reserves available for distribution.” The determination of whether a company has profits available for distribution is based on
its accumulated realized profits less its accumulated realized losses. While French law imposes no statutory restrictions on an
insurer's ability to declare a dividend, the ACPR’s capital requirements may, in practice, act as a restriction on dividends for
AGE.
Change of Control
The French insurance code has requirements regarding acquisitions, disposals, and increases or decreases in
ownership of a French-licensed insurance company.
Any transaction enabling a person (a company or individual), acting alone or in concert with other persons, to
acquire, increase, dispose of or reduce its ownership in an insurance company licensed in France requires express or implied
approval from the ACPR: (i) where such transaction results directly or indirectly in the proportion of shares or voting rights
held by that person or those persons rising above 10%, 20%, one-third or 50% of all shares or voting rights; (ii) where the
insurance or reinsurance company becomes a subsidiary of that person or those persons; and (iii) where the transaction allows
this person or persons to exercise a significant influence over the management of this company.
As a matter of principle, the ACPR has 60 business days from the date on which it acknowledges receipt of the
notification of the transaction to notify the reporting entity and the insurance company whose ownership change is
contemplated of its refusal or approval of the transaction. In approving or refusing the transaction, the ACPR takes into account
various factors, including the reputation of the acquirer, the effect of the transaction on the business and the management of the
company, the impact of the transaction on the financial strength of the company, or the ability of the company to continue to
comply with applicable regulation.
Human Capital Management
The Company recognizes that its workforce, as a key driver of long-term performance, is among its most valued assets.
Accordingly, the Company’s key human capital management objectives are to attract, retain, develop and support a diverse
group of the highest quality employees, including talented and experienced business leaders who drive its corporate strategies
and build long-term shareholder value. To promote these objectives, the Company’s human capital management programs are
designed to reward and support employees with competitive compensation and benefit packages in each of its locations around
the globe, and with professional development opportunities to cultivate talented employees and prepare them for critical roles
and future leadership positions.
As of December 31, 2022, the Company employed 411 people worldwide; approximately 89% of employees are based
in the U.S. and Bermuda and approximately 11% are based in the U.K. and France. Approximately 36% of the Company’s
38
workforce is female and 64% is male. The average tenure is 11.9 years. Other than in France, none of the Company’s
employees are subject to collective bargaining agreements. The Company believes its employee relations are satisfactory.
Learning and Development; Mentoring. The Company invests in the professional development of its workforce. To
support the advancement of its employees, the Company endeavors to strengthen their knowledge and skills by providing
equitable access to training, including in leadership, management and effective communication skills, mentoring opportunities,
as well as tuition reimbursement assistance. Employee evaluations and performance reviews are conducted annually, during
which managers and employees are encouraged to discuss employee goals and opportunities for development, including, as
appropriate, training and coaching.
The Company also provides opportunities for qualified employees to work abroad in another of the Company’s offices
as part of its international rotation program.
The Company’s collegial and collaborative culture fosters informal mentoring and learning. The Company also has a
formal one-on-one mentoring program to provide an additional learning resource for its employees, facilitate the onboarding of
new recruits and reinforce connectedness. The mentoring program is offered to all employees across the Company’s offices.
The Company utilizes an outside consultant to provide workshops for both mentors and mentees. In addition, the Company
sponsors memberships for its employees in external organizations to provide further opportunities for professional
development, mentoring and networking.
Compensation and Benefits. The compensation program is designed to attract, retain and motivate talented individuals
and to recognize and reward outstanding achievement. The components of the program consist of base salary and may include
incentive compensation in the form of an annual cash incentive and deferred compensation in the form of cash and/or equity
(including, in the case of certain AssuredIM professionals, an entitlement to a portion of carried interest allocated to the general
partners of certain AssuredIM Funds). The Company believes that a compensation program with both short-term and long-term
awards provides fair and competitive compensation and aligns the interests of employees and investors. To maintain the
wellness of its employees, the Company offers a benefits package designed to promote and support physical and mental health
as well as financial security. Benefits include life and health (medical, dental and vision) insurance, retirement savings plans, an
employee stock purchase plan, paid time off, paid family leave, an employee assistance program, commuter benefits, tuition
reimbursement, fertility and family planning resources, emergency backup child, elder and pet care, reimbursement of health
club fees, online classes for children, and corporate matches of an employee’s charitable contributions.
Culture. The Company seeks to foster and maintain strong ethical standards and a reputation as a business that
conducts itself professionally and with a high degree of integrity. In addition, the Company works to provide and support a
respectful and inclusive environment that values the abilities of each employee, leading to enhanced engagement and improved
retention. Education and awareness are critical components in promoting the Company’s cultural values across the organization.
Upon onboarding and annually, all employees are required to complete training in the Company’s Global Code of Ethics as
well as its policies on the prevention of sexual harassment and discrimination. The Company also provides additional targeted
training and guidance to specific personnel regarding anti-fraud, anti-bribery and anti-corruption related matters. Transparency
towards stakeholders, including shareholders, policyholders, investors and employees, is another hallmark of the Company’s
culture. Each quarter after the Company issues its financial results, in addition to meeting with shareholders and policyholders,
the AGL Chief Executive Officer and Chief Financial Officer hold a town-hall style meeting for all employees where they
provide an update on the Company’s performance and strategy, acknowledge contributions made by employees to the
continued success of its business and answer questions.
Employee Engagement. In 2022, the Company launched its inaugural employee engagement survey. While the
Company encourages open dialogue, the engagement survey provided a confidential forum for employees to provide more
candid feedback. The Company engaged a third-party provider to foster confidentiality; the vendor conducted the survey,
collected and aggregated feedback and benchmarked results relative to other similar-size financial services companies. The
survey was sent to the total global workforce; 88% of all employees participated in the survey. The overall engagement score
exceeded the benchmark.
Diversity and Inclusion. Diversity and inclusion are ingrained within Assured Guaranty’s policies and practices,
including its Diversity and Inclusion Policy, and integrated throughout the Company. Assured Guaranty is committed to
building and sustaining at all levels of the organization a diverse workforce that is representative of its communities, in a
manner consistent with its business needs, scale and resources, and fostering an inclusive culture and workplace that embrace
the differences within its staff and effectively utilize the many and varied talents of its employees. Responsibility for
implementing the goals of diversity and inclusion is shared by board members, who participate in forums, senior management,
who serve as mentors and executive sponsors of employee resource groups (ERGs) (described below) and the global workforce,
39
who serve on the Diversity and Inclusion Committee (D&I Committee) (described below). To incentivize and hold senior
leadership accountable, the Company incorporates environmental and social responsibility considerations (including with
respect to diversity and inclusion) in its executive compensation program.
The Company has taken a number of steps to demonstrate its organizational commitment to diversity and inclusion.
Training. In 2021, the Company provided bias awareness training for all of its employees on how to identify and
interrupt unconscious bias and the role each employee can play to promote diversity, equity and inclusion. In 2022, the
Company provided workshops on inclusive interviewing for managers and others with hiring responsibilities.
Recruiting. The Company added a number of talent acquisition strategies to its recruiting practices in order to
deliberately reach and attract a diverse and qualified applicant pool. To cast a wider net, positions are posted on Assured
Guaranty’s websites and other public job and recruiting websites. For positions which require the use of a search firm, the
Company has instructed its executive recruiters and search firms to present more diverse and qualified applicant pools. The
Company’s internal recruiting team also works with organizations that promote the development and advancement of women
and underrepresented minorities to help source more diverse applicant pools. The Company does not use artificial intelligence
or other software to screen applicants.
Employee-led Diversity and Inclusion Committee. The Company’s employee-led D&I Committee is a critical ally in
the Company’s commitment to promoting diversity, fostering inclusion, and addressing racial inequity. The D&I Committee is
composed of dedicated employees with different backgrounds, points of view, levels of seniority and tenure with the Company,
who provide input into policies and strategies for achieving a diverse workforce and an inclusive culture. The D&I Committee
has played a key role in recommending and working to implement strategies and initiatives to achieve its diversity and inclusion
goals, such as the mentoring program, ERGs, hosting firm-wide events designed to provide education and facilitate discussion
around topics such as bias, gender and race, and investing in organizations that work to create a pipeline of diverse and
qualified candidates.
Employee Resource Groups. Based on employee feedback, the Company launched employee resource groups for
African Americans, women and working parents to create community and awareness and encourage employees to engage with
and support one another. The ERGs also provide mentorship and career development opportunities to members and assist the
Company in its efforts to retain, develop and promote diverse professionals and to foster a more inclusive culture. The ERGs
are employee-led with the support of executive sponsors; membership in the ERGs is voluntary and open to all employees.
Throughout the year, the ERGs sponsored various events, firm-wide as well as focused for group members, including a panel
discussion on women in the workforce, a workshop for parents on helping children cope with the stress resulting from the
COVID-19 pandemic, and discussions on the business case for, and importance of, diversity and inclusion.
Conversations Around Gender and Race. In 2022, the ERGs and the D&I Committee sponsored several firm-wide
presentations and panel discussions designed to facilitate difficult conversations around race, gender, and bias. The chair of the
AGL Board and the chair of the Environmental and Social Responsibility Committee each visited the New York office, on
separate occasions, to participate in a question and answer discussion about the business case for diversity and inclusion,
balancing the goals of diversity and meritocracy, and the Board’s support for the Company’s diversity and inclusion initiatives.
Women directors from AGL’s Board as well as AGUK’s Board participated in a panel discussion where they shared insights
and advice about careers and balancing professional and personal goals.
The women’s ERG is currently planning Assured Guaranty’s first international women’s conference. Women
employees and allies are invited to gather in New York in March 2023 (coinciding with International Women’s Day) to
network in person with women colleagues, hear inspiring speakers, participate in round table educational sessions on key
professional issues, and to celebrate collective and individual accomplishments.
COVID-19 Response and Hybrid Work. At the start of the global COVID-19 pandemic in 2020, Assured Guaranty
initiated its business continuity protocols and instructed its employees to work from home, placing an emphasis on the well-
being of its employees and their families. The Company’s investments in technology and the regular testing of its business
continuity plan allowed it to quickly shift to remote work. The success of remote work, both at the Company and across the
broader labor market, sparked a collective re-evaluation of the nature of office work. The Company surveyed its employees for
their feedback while also observing industry trends and peer practices to craft a viable and sustainable remote work policy.
Currently, the Company offers employees the option to work remotely for a portion of their time– both as a convenience to
employees and to remain competitive as an employer.
40
Governance. The AGL Board’s Environmental and Social Responsibility Committee and Compensation Committee,
pursuant to their respective charters, provide oversight of the Company’s human capital management strategies, policies, and
initiatives, including the attraction, development and retention of personnel, the promotion of diversity, and the fostering of an
inclusive culture. The Environmental and Social Responsibility Committee is periodically updated on workforce demographics
and tenure, culture and workplace safety, and initiatives of the employee-led D&I Committee and the Corporate Philanthropy
Committee. The Compensation Committee, which is advised by an independent compensation consultant, is responsible for the
oversight of management development and evaluation of succession planning for senior management, and a review of the
Company’s senior management compensation benchmarked against a comparison group.
Board members also support the Company’s D&I Committee programming by participating in panel discussion and
presentations sponsored by the Company’s ERGs and D&I Committee, as described above.
Tax Matters
United States Tax Reform
The 2017 Tax Cuts and Jobs Act of 2017 (the TCJA) lowered the corporate U.S. tax rate to 21%, eliminated the
alternative minimum tax, limited the deductibility of interest expense and required a one-time tax on a deemed repatriation of
untaxed earnings of non-U.S. subsidiaries. In the context of the taxation of U.S. property/casualty insurance companies such as
the Company, the TCJA also modifies the loss reserve discounting rules and the proration rules that apply to reduce reserve
deductions to reflect the lower corporate income tax rate. In addition, the TCJA included certain provisions intended to
eliminate certain perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the
U.S. but have certain U.S. connections and U.S. persons investing in such companies. For example, the TCJA includes a base
erosion and anti-abuse tax (BEAT) that could make affiliate reinsurance between U.S. and non-U.S. members of the
Company’s group economically unfeasible. In addition, the TCJA introduced a current tax on global intangible low-taxed
income that may result in an increase in U.S. corporate income tax imposed on the Company’s U.S. group members with
respect to earnings of their non-U.S. subsidiaries. As discussed in more detail below, the TCJA also revised the rules applicable
to passive foreign investment companies (PFICs) and controlled foreign corporations (CFCs). Further, it is possible that other
legislation could be introduced and enacted by the current Congress or future Congresses that could have an adverse impact on
the Company. Additionally, tax laws and interpretations regarding whether a company is engaged in a U.S. trade or business or
whether a company is a CFC or a PFIC or has related person insurance income (RPII) are subject to change, possibly on a
retroactive basis. The Treasury Department recently issued final and proposed regulations intended to clarify the application of
the insurance income exception to the classification of a non-U.S. insurer as a PFIC and provide guidance on a range of issues
relating to PFICs, and recently issued proposed regulations that would expand the scope of the RPII rules. New regulations or
pronouncements interpreting or clarifying such rules may be forthcoming. The Company cannot be certain if, when or in what
form such regulations or pronouncements may be provided and whether such guidance will have a retroactive effect. See, Part
II, Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation and Note 14, Income
Taxes.
Taxation of AGL and Subsidiaries
Bermuda
Under current Bermuda law, there is no Bermuda income, corporate or profits tax or withholding tax, capital gains tax
or capital transfer tax payable by AGL or its Bermuda Subsidiaries. AGL, AG Re and AGRO have each obtained from the
Minister of Finance under the Exempted Undertakings Tax Protection Act 1966, as amended, an assurance that, in the event
that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in
the nature of estate duty or inheritance, then the imposition of any such tax shall not be applicable to AGL, AG Re or AGRO or
to any of their operations or their shares, debentures or other obligations, until March 31, 2035. This assurance is subject to the
provision that it is not to be construed so as to prevent the application of any tax or duty to such persons as are ordinarily
resident in Bermuda, or to prevent the application of any tax payable in accordance with the provisions of the Land Tax Act
1967 or otherwise payable in relation to any land leased to AGL, AG Re or AGRO. AGL, AG Re and AGRO each pays annual
Bermuda government fees, and AG Re and AGRO pay annual insurance license fees. In addition, all entities employing
individuals in Bermuda are required to pay a payroll tax and there are other sundry taxes payable, directly or indirectly, to the
Bermuda government.
41
United States
AGL has conducted and intends to continue to conduct substantially all of its operations outside the U.S. and to limit
the U.S. contacts of AGL and its non-U.S. subsidiaries (except AGRO, which elected to be taxed as a U.S. corporation) so that
they should not be engaged in a trade or business in the U.S. A non-U.S. corporation, such as AG Re, that is deemed to be
engaged in a trade or business in the U.S. would be subject to U.S. income tax at regular corporate rates, as well as the branch
profits tax, on its income which is treated as effectively connected with the conduct of that trade or business, unless the
corporation is entitled to relief under the permanent establishment provision of an applicable tax treaty, as discussed below.
Such income tax, if imposed, would be based on effectively connected income computed in a manner generally analogous to
that applied to the income of a U.S. corporation, except that a non-U.S. corporation would generally be entitled to deductions
and credits only if it timely files a U.S. federal income tax return. AGL, AG Re and certain of the other non-U.S. subsidiaries
have and will continue to file protective U.S. federal income tax returns on a timely basis in order to preserve the right to claim
income tax deductions and credits if it is ever determined that they are subject to U.S. federal income tax. The highest marginal
federal income tax rates currently are 21% for a corporation’s effectively connected income and 30% for the “branch profits”
tax.
Under the income tax treaty between Bermuda and the U.S. (the Bermuda Treaty), a Bermuda insurance company
would not be subject to U.S. income tax on income found to be effectively connected with a U.S. trade or business unless that
trade or business is conducted through a permanent establishment in the U.S. AG Re currently intends to conduct its activities
so that it does not have a permanent establishment in the U.S.
An insurance enterprise resident in Bermuda generally will be entitled to the benefits of the Bermuda Treaty if:
(i) more than 50% of its shares are owned beneficially, directly or indirectly, by individual residents of the U.S. or Bermuda or
U.S. citizens; and (ii) its income is not used in substantial part, directly or indirectly, to make disproportionate distributions to,
or to meet certain liabilities of, persons who are neither residents of either the U.S. or Bermuda nor U.S. citizens.
Non-U.S. insurance companies carrying on an insurance business within the U.S. have a certain minimum amount of
effectively connected net investment income determined in accordance with a formula that depends, in part, on the amount of
U.S. risk insured or reinsured by such companies. If AG Re or another of the Company’s Bermuda subsidiaries is considered to
be engaged in the conduct of an insurance business in the U.S. and is not entitled to the benefits of the Bermuda Treaty in
general (because it fails to satisfy one of the limitations on treaty benefits discussed above), the Internal Revenue Code of 1986,
as amended (the Code), could subject a significant portion of AG Re’s or another of the Company’s Bermuda subsidiary’s
investment income to U.S. income tax.
AGL, as a U.K. tax resident, would not be subject to U.S. income tax on any income found to be effectively connected
with a U.S. trade or business under the income tax treaty between the U.S. and the U.K. (the U.K. Treaty), unless that trade or
business is conducted through a permanent establishment in the U.S. AGL intends to conduct its activities so that it does not
have a permanent establishment in the U.S.
Non-U.S. corporations not engaged in a trade or business in the U.S., and those that are engaged in a U.S. trade or
business with respect to their non-effectively connected income are nonetheless subject to U.S. withholding tax on certain
“fixed or determinable annual or periodic gains, profits and income” derived from sources within the U.S. (such as dividends
and certain interest on investments), subject to exemption under the Code or reduction by applicable treaties. The standard non-
treaty rate of U.S. withholding tax is currently 30%. The Bermuda Treaty does not reduce the U.S. withholding rate on U.S.-
sourced investment income. The U.K. Treaty reduces or eliminates U.S. withholding tax on certain U.S.-sourced investment
income, including dividends from U.S. companies to U.K. resident persons entitled to the benefit of the U.K. Treaty.
The U.S. also imposes an excise tax on insurance and reinsurance premiums paid to non-U.S. insurers with respect to
risks of a U.S. person located wholly or partly within the U.S. or risks of a foreign person engaged in a trade or business in the
U.S. which are located within the U.S. The rates of tax applicable to premiums paid are 4% for direct casualty insurance
premiums and 1% for reinsurance premiums.
AGRO has elected to be treated as a U.S. corporation for all U.S. federal tax purposes and, as such, AGRO, together
with AGL’s U.S. subsidiaries, is subject to taxation in the U.S. at regular corporate rates.
If AGRO were to pay dividends to its U.S. holding company parent and that U.S. holding company were to pay
dividends to its Bermudian parent AG Re, such dividends would be subject to U.S. withholding tax at a rate of 30%.
42
United Kingdom
In November 2013, AGL became tax resident in the U.K. AGL remains a Bermuda-based company and its
administrative and head office functions continue to be carried on in Bermuda. The AGL common shares have not changed and
continue to be listed on the New York Stock Exchange (NYSE).
As a company that is not incorporated in the U.K., AGL will be considered tax resident in the U.K. only if it is
“centrally managed and controlled” in the U.K. Central management and control constitutes the highest level of control of a
company’s affairs. From November 6, 2013, the AGL Board began to manage the affairs of AGL in such a way as to maintain
its status as a company that is tax resident in the U.K.
As a U.K. tax resident company, AGL is subject to the tax rules applicable to companies resident in the U.K.,
including the benefits afforded by the U.K.’s tax treaties.
As a U.K. tax resident, AGL is required to file a corporation tax return with His Majesty’s Revenue & Customs
(HMRC). 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 rate of corporation tax is currently 19% (which is due to increase to 25% from April 1,
2023). AGL has also registered in the U.K. to report its value-added tax (VAT) liability. The current standard rate of VAT is
20%.
The dividends AGL receives from its direct subsidiaries should be exempt from U.K. corporation tax due to the
exemption in section 931D of the U.K. Corporation Tax Act 2009. In addition, any dividends paid by AGL to its shareholders
should not be subject to any withholding tax in the U.K. The non-U.K. resident subsidiaries intend to operate in such a manner
that their profits are outside the scope of the charge under the “controlled foreign companies” regime. Accordingly, Assured
Guaranty does not expect any profits of non-U.K. resident members of the group to be attributed to AGL and taxed in the U.K.
under the CFC regime. In 2013, Assured Guaranty obtained clearance from HMRC confirming this on the basis of the facts and
intentions as they were at the time.
Taxation of Shareholders
Bermuda Taxation
Currently, there is no Bermuda capital gains tax, or withholding or other tax payable on principal, interest or dividends
paid to the holders of the AGL common shares.
United States Taxation
This discussion is based upon the Code, the regulations promulgated thereunder and any relevant administrative
rulings or pronouncements or judicial decisions, all as in effect on the date of filing and as currently interpreted, and does not
take into account possible changes in such tax laws or interpretations thereof, which may apply retroactively. This discussion
does not include any description of the tax laws of any state or local governments within the U.S. or any foreign government.
The following summary sets forth the material U.S. federal income tax considerations related to the purchase,
ownership and disposition of AGL’s shares. Unless otherwise stated, this summary deals only with holders that are U.S.
Persons (as defined below) who purchase and hold their shares and who hold their shares as capital assets within the meaning of
section 1221 of the Code. The following discussion is only a discussion of the material U.S. federal income tax matters as
described herein and does not purport to address all of the U.S. federal income tax consequences that may be relevant to a
particular shareholder in light of such shareholder’s specific circumstances. For example, special rules apply to certain
shareholders, such as partnerships, insurance companies, regulated investment companies, real estate investment trusts, dealers
or traders in securities, tax exempt organizations, expatriates, persons liable for alternative minimum tax, U.S. accrual method
taxpayers subject to special tax accounting rules as a result of any item of gross income with respect to AGL’s shares being
taken into account in an applicable financial statement as described in 451(b) of the Code, persons that do not hold their
securities in the U.S. dollar, persons who are considered with respect to AGL or any of its non-U.S. subsidiaries as “United
States shareholders” for purposes of the CFC rules of the Code (generally, a U.S. Person, as defined below, who owns or is
deemed to own 10% or more of the total combined voting power or value of all classes of AGL shares or the shares of any of
AGL’s non-U.S. subsidiaries (i.e., 10% U.S. Shareholders)), or persons who hold the common shares as part of a hedging or
conversion transaction or as part of a short-sale or straddle. Any such shareholder should consult their tax adviser.
43
If a partnership holds AGL’s shares, the tax treatment of the partners will generally depend on the status of the partner
and the activities of the partnership. Partners of a partnership owning AGL’s shares should consult their tax advisers.
For purposes of this discussion, the term “U.S. Person” means: (i) a citizen or resident of the U.S.; (ii) a partnership or
corporation, created or organized in or under the laws of the U.S., or organized under any political subdivision thereof; (iii) an
estate the income of which is subject to U.S. federal income taxation regardless of its source; (iv) a trust if either (x) a court
within the U.S. is able to exercise primary supervision over the administration of such trust and one or more U.S. Persons have
the authority to control all substantial decisions of such trust or (y) the trust has a valid election in effect to be treated as a U.S.
Person for U.S. federal income tax purposes; or (v) any other person or entity that is treated for U.S. federal income tax
purposes as if it were one of the foregoing.
Taxation of Distributions. Subject to the discussions below relating to the potential application of the CFC, RPII and
PFIC rules, cash distributions, if any, made with respect to AGL’s shares will constitute dividends for U.S. federal income tax
purposes to the extent paid out of current or accumulated earnings and profits of AGL (as computed using U.S. tax principles).
Dividends paid by AGL to corporate shareholders will not be eligible for the dividends received deduction. To the extent such
distributions exceed AGL's earnings and profits, they will be treated first as a return of the shareholder’s basis in the common
shares to the extent thereof, and then as gain from the sale of a capital asset.
AGL believes dividends paid by AGL on its common shares to non-corporate holders will be eligible for reduced rates
of tax at the rates applicable to long-term capital gains as “qualified dividend income,” provided that AGL is not a PFIC and
certain other requirements, including stock holding period requirements, are satisfied.
Classification of AGL or its Non-U.S. Subsidiaries as a CFC. Each 10% U.S. Shareholder (as defined below) of a
non-U.S. corporation that is a CFC at any time during a taxable year that owns, directly or indirectly through non-U.S. entities,
shares in the non-U.S. corporation on the last day of the non-U.S. corporation’s taxable year on which it is a CFC, must include
in its gross income, for U.S. federal income tax purposes, its pro rata share of the CFC’s “subpart F income,” even if the subpart
F income is not distributed. “Subpart F income” of a non-U.S. insurance corporation typically includes foreign personal holding
company income (such as interest, dividends and other types of passive income), as well as insurance and reinsurance income
(including underwriting and investment income). A non-U.S. corporation is considered a CFC if 10% U.S. Shareholders own
(directly, indirectly through non-U.S. entities or by attribution by application of the constructive ownership rules of
section 958(b) of the Code (i.e., constructively)) more than 50% of the total combined voting power of all classes of voting
stock of such non-U.S. corporation, or more than 50% of the total value of all stock of such corporation on any day during the
taxable year of such corporation. For purposes of taking into account insurance income, a CFC also includes a non-U.S.
corporation in which more than 25% of the total combined voting power of all classes of stock or more than 25% of the total
value of the stock is owned by 10% U.S. Shareholders, on any day during the taxable year of such corporation. A “10% U.S.
Shareholder” is a U.S. Person who owns (directly, indirectly through non-U.S. entities or constructively) at least 10% of the
total combined voting power or value of all classes of stock of the non-U.S. corporation. The TCJA expanded the definition of
10% U.S. Shareholder to include ownership by value (rather than just vote), so provisions in the Company’s organizational
documents that cut back voting power to potentially avoid 10% U.S. Shareholder status will no longer mitigate the risk of 10%
U.S. Shareholder status. AGL believes that because of the dispersion of AGL’s share ownership, no U.S. Person who owns
shares of AGL directly or indirectly through one or more non-U.S. entities should be treated as owning (directly, indirectly
through non-U.S. entities, or constructively), 10% or more of the total voting power or value of all classes of shares of AGL or
any of its non-U.S. subsidiaries. However, AGL’s shares may not be as widely dispersed as the Company believes due to, for
example, the application of certain ownership attribution rules, and no assurance may be given that a U.S. Person who owns the
Company's shares will not be characterized as a 10% U.S. Shareholder. In addition, the direct and indirect subsidiaries of
Assured Guaranty US Holdings Inc. (AGUS) are characterized as CFCs and any subpart F income generated will be included in
the gross income of the applicable domestic subsidiaries in the AGL group.
The RPII CFC Provisions. The following discussion generally is applicable only if the gross RPII of AG Re or any
other non-U.S. insurance subsidiary that either: (i) has not made an election under section 953(d) of the Code to be treated as a
U.S. corporation for all U.S. federal tax purposes or (ii) is not a CFC owned directly or indirectly by AGUS (each a “Foreign
Insurance Subsidiary” or collectively, with AG Re, the “Foreign Insurance Subsidiaries”) is 20% or more of the Foreign
Insurance Subsidiary’s gross insurance income for the taxable year and the 20% Ownership Exception (as defined below) is not
met. The following discussion generally would not apply for any taxable year in which the Foreign Insurance Subsidiary’s
gross RPII falls below the 20% threshold or the 20% Ownership Exception is met. Although the Company cannot be certain, it
believes that each Foreign Insurance Subsidiary has been, in prior years of operations, and will be, for the foreseeable future,
either below the 20% threshold or in compliance with the requirements of 20% Ownership Exception for each tax year.
44
RPII is any “insurance income” (as defined below) attributable to policies of insurance or reinsurance with respect to
which the person (directly or indirectly) insured is a “RPII shareholder” (as defined below) or a “related person” (as defined
below) to such RPII shareholder. In general, and subject to certain limitations, "insurance income" is income (including
premium and investment income) attributable to the issuing of any insurance or reinsurance contract which would be taxed
under the portions of the Code relating to insurance companies if the income were the income of a domestic insurance
company. For purposes of inclusion of the RPII of a Foreign Insurance Subsidiary in the income of RPII shareholders, unless an
exception applies, the term "RPII shareholder" means any U.S. Person who owns (directly or indirectly through non-U.S.
entities) any amount of AGL’s common shares. Generally, the term “related person” for this purpose means someone who
controls or is controlled by the RPII shareholder or someone who is controlled by the same person or persons which control the
RPII shareholder. Control is measured by either more than 50% in value or more than 50% in voting power of stock applying
certain constructive ownership principles. A Foreign Insurance Subsidiary will be treated as a CFC under the RPII provisions if
RPII shareholders are treated as owning (directly, indirectly through non-U.S. entities or constructively) 25% or more of the
shares of AGL by vote or value.
RPII Exceptions. The special RPII rules do not apply if: (i) at all times during the taxable year less than 20% of the
voting power and less than 20% of the value of the stock of AGL (the 20% Ownership Exception) is owned (directly or
indirectly through entities) by persons who are (directly or indirectly) insured under any policy of insurance or reinsurance
issued by a Foreign Insurance Subsidiary or related persons to any such person; (ii) RPII, determined on a gross basis, is less
than 20% of a Foreign Insurance Subsidiary’s gross insurance income for the taxable year (the 20% Gross Income Exception);
(iii) a Foreign Insurance Subsidiary elects to be taxed on its RPII as if the RPII were effectively connected with the conduct of a
U.S. trade or business, and to waive all treaty benefits with respect to RPII and meet certain other requirements; or (iv) a
Foreign Insurance Subsidiary elects to be treated as a U.S. corporation and waive all treaty benefits and meet certain other
requirements. The Foreign Insurance Subsidiaries do not intend to make either of these elections. Where none of these
exceptions applies, each U.S. Person owning or treated as owning any shares in AGL (and therefore, indirectly, in a Foreign
Insurance Subsidiary) on the last day of AGL’s taxable year will be required to include in its gross income for U.S. federal
income tax purposes its share of the RPII for the portion of the taxable year during which a Foreign Insurance Subsidiary was a
CFC under the RPII provisions, determined as if all such RPII were distributed proportionately only to such U.S. Persons at that
date, but limited by each such U.S. Person’s share of a Foreign Insurance Subsidiary’s current-year earnings and profits as
reduced by the U.S. Person’s share, if any, of certain prior-year deficits in earnings and profits. The Foreign Insurance
Subsidiaries intend to operate in a manner that is intended to ensure that each qualifies for either the 20% Gross Income
Exception or 20% Ownership Exception.
Computation of RPII. For any year in which a Foreign Insurance Subsidiary does not meet the 20% Ownership
Exception or the 20% Gross Income Exception, AGL may also seek information from its shareholders as to whether beneficial
owners of shares at the end of the year are U.S. Persons so that the RPII may be determined and apportioned among such
persons; to the extent AGL is unable to determine whether a beneficial owner of shares is a U.S. Person, AGL may assume that
such owner is not a U.S. Person, thereby increasing the per share RPII amount for all known RPII shareholders. The amount of
RPII includable in the income of a RPII shareholder is based upon the net RPII income for the year after deducting related
expenses such as losses, loss reserves and operating expenses. If a Foreign Insurance Subsidiary meets the 20% Ownership
Exception or the 20% Gross Income Exception, RPII shareholders will not be required to include RPII in their taxable income.
Apportionment of RPII to U.S. Holders. Every RPII shareholder who owns shares on the last day of any taxable year
of AGL in which a Foreign Insurance Subsidiary does not meet the 20% Ownership Exception or the 20% Gross Income
Exception should expect that for such year it will be required to include in gross income its share of a Foreign Insurance
Subsidiary's RPII for the portion of the taxable year during which the Foreign Insurance Subsidiary was a CFC under the RPII
provisions, whether or not distributed, even though it may not have owned the shares throughout such period. A RPII
shareholder who owns shares during such taxable year but not on the last day of the taxable year is not required to include in
gross income any part of the Foreign Insurance Subsidiary’s RPII.
Basis Adjustments. A RPII shareholder’s tax basis in its common shares will be increased by the amount of any RPII
the shareholder includes in income. The RPII shareholder may exclude from income the amount of any distributions by AGL
out of previously taxed RPII income. The RPII shareholder’s tax basis in its common shares will be reduced by the amount of
such distributions that are excluded from income.
Uncertainty as to Application of RPII. The RPII provisions are complex and have never been interpreted by the
courts or the Treasury Department in final regulations; regulations interpreting the RPII provisions of the Code exist only in
proposed form. Further, recently proposed regulations could, if finalized in their current form, substantially expand the
definition of RPII to include insurance income of our Foreign Insurance Subsidiaries related to affiliate reinsurance
transactions. These regulations would apply to taxable years beginning after the date the regulations are finalized. Although we
45
cannot predict whether, when or in what form the proposed regulations might be finalized, the proposed regulations, if finalized
in their current form, could limit our ability to execute affiliate reinsurance transactions that would otherwise be undertaken for
non-tax business reasons in the future and could increase the risk that gross RPII could constitute 20% or more of the gross
insurance income of one or more of our Foreign Insurance Subsidiaries. in a particular taxable year, which could result in such
RPII being taxable to U.S. Persons that own or are treated as owning shares of AGL. Accordingly, the meaning of the RPII
provisions and the application thereof to the Foreign Insurance Subsidiaries is uncertain. In addition, the Company cannot be
certain that the amount of RPII or the amounts of the RPII inclusions for any particular RPII shareholder, if any, will not be
subject to adjustment based upon subsequent Internal Revenue Service (IRS) examination. U.S. Persons owning or treated as
owning shares of AGL should consult their tax advisors as to the effect of these uncertainties.
Information Reporting. Under certain circumstances, U.S. Persons owning shares (directly, indirectly or
constructively) in a non-U.S. corporation are required to file IRS Form 5471, Information Return of U.S. Persons With Respect
To Certain Foreign Corporations, with their U.S. federal income tax returns. Generally, information reporting on IRS
Form 5471 is required by: (i) a person who is treated as a RPII shareholder; (ii) a 10% U.S. Shareholder of a non-U.S.
corporation that is a CFC at any time during any tax year of the non-U.S. corporation and who owned the stock on the last day
of that year; and (iii) under certain circumstances, a U.S. Person who acquires stock in a non-U.S. corporation and as a result
thereof owns 10% or more of the voting power or value of such non-U.S. corporation, whether or not such non-U.S. corporation
is a CFC. For any taxable year in which AGL determines that neither the 20% Gross Income Exception nor the 20% Ownership
Exception applies, AGL will provide to all U.S. Persons registered as shareholders of its shares a completed IRS Form 5471 or
the relevant information necessary to complete the form. Failure to file IRS Form 5471 may result in penalties. In addition, U.S.
shareholders should consult their tax advisers with respect to other information reporting requirements that may be applicable to
them.
U.S. Persons holding the Company’s shares should consider their possible obligation to file FinCEN Form 114,
Foreign Bank and Financial Accounts Report, with respect to their shares. Additionally, such U.S. and non-U.S. persons should
consider their possible obligations to annually report certain information with respect to the non-U.S. accounts with their
U.S. federal income tax returns. Shareholders should consult their tax advisers with respect to these or any other reporting
requirement which may apply with respect to their ownership of the Company’s shares.
Tax-Exempt Shareholders. Tax-exempt entities will be required to treat certain subpart F insurance income,
including RPII, that is includable in income by the tax-exempt entity as unrelated business taxable income. Prospective
investors that are tax exempt entities are urged to consult their tax advisers as to the potential impact of the unrelated business
taxable income provisions of the Code. A tax-exempt organization that is treated as a 10% U.S. Shareholder or a RPII
Shareholder also must file IRS Form 5471 in certain circumstances.
Dispositions of AGL’s Shares. Subject to the discussions below relating to the potential application of the Code
section 1248 and PFIC rules, holders of shares generally should recognize capital gain or loss for U.S. federal income tax
purposes on the sale, exchange or other disposition of shares in the same manner as on the sale, exchange or other disposition of
any other shares held as capital assets. If the holding period for these shares exceeds one year, any gain will be subject to tax at
the marginal tax rate applicable to long term capital gains.
Code section 1248 provides that if a U.S. Person sells or exchanges stock in a non-U.S. corporation and such person
owned, directly, indirectly through non-U.S. entities or constructively, 10% or more of the voting power of the corporation at
any time during the five-year period ending on the date of disposition when the corporation was a CFC, any gain from the sale
or exchange of the shares will be treated as a dividend to the extent of the CFC’s earnings and profits (determined under U.S.
federal income tax principles) during the period that the shareholder held the shares and while the corporation was a CFC (with
certain adjustments). The Company believes that because of the dispersion of AGL’s share ownership, no U.S. shareholder of
AGL should be treated as owning (directly, indirectly through non-U.S. entities or constructively) 10% or more of the total
voting power of AGL; to the extent this is the case this application of Code Section 1248 under the regular CFC rules should
not apply to dispositions of AGL’s shares. A 10% U.S. Shareholder may in certain circumstances be required to report a
disposition of shares of a CFC by attaching IRS Form 5471 to the U.S. federal income tax or information return that it would
normally file for the taxable year in which the disposition occurs. In the event this is determined necessary, AGL will provide a
completed IRS Form 5471 or the relevant information necessary to complete the Form. Code section 1248 in conjunction with
the RPII rules also applies to the sale or exchange of shares in a non-U.S. corporation if the non-U.S. corporation would be
treated as a CFC for RPII purposes regardless of whether the shareholder is a 10% U.S. Shareholder or whether the 20%
Ownership Exception or 20% Gross Income Exception applies. Existing proposed regulations do not address whether Code
section 1248 would apply if a non-U.S. corporation is not a CFC but the non-U.S. corporation has a subsidiary that is a CFC
and that would be taxed as an insurance company if it were a U.S. domestic corporation. The Company believes, however, that
this application of Code section 1248 under the RPII rules should not apply to dispositions of AGL’s shares because AGL will
46
not be directly engaged in the insurance business. The Company cannot be certain, however, that the IRS will not interpret the
proposed regulations in a contrary manner or that the Treasury Department will not amend the proposed regulations to provide
that these rules will apply to dispositions of common shares. Prospective investors should consult their tax advisers regarding
the effects of these rules on a disposition of common shares.
Passive Foreign Investment Companies. In general, a non-U.S. corporation will be a PFIC during a given year if:
(i) 75% or more of its gross income constitutes “passive income” (the 75% test); or (ii) 50% or more of its assets produce
passive income (the 50% test) and once characterized as a PFIC will generally retain PFIC status for future taxable years with
respect to its U.S. shareholders in the taxable year of the initial PFIC characterization.
If AGL were characterized as a PFIC during a given year, each U.S. Person holding AGL’s shares would be subject to
a penalty tax at the time of the sale at a gain of, or receipt of an "excess distribution" with respect to, their shares, unless such
person: (i) is a 10% U.S. Shareholder and AGL is a CFC; or (ii) made a “qualified electing fund election” or “mark-to-market”
election. It is uncertain that AGL would be able to provide its shareholders with the information necessary for a U.S. Person to
make a qualified electing fund election. In addition, if AGL were considered a PFIC, upon the death of any U.S. individual
owning common shares, such individual’s heirs or estate would not be entitled to a “step-up” in the basis of the common shares
that might otherwise be available under U.S. federal income tax laws. In general, a shareholder receives an "excess distribution"
if the amount of the distribution is more than 125% of the average distribution with respect to the common shares during the
three preceding taxable years (or shorter period during which the taxpayer held common shares). In general, the penalty tax is
equivalent to an interest charge on taxes that are deemed due during the period the shareholder owned the common shares,
computed by assuming that the excess distribution or gain (in the case of a sale) with respect to the common shares was taken in
equal portion at the highest applicable tax rate on ordinary income throughout the shareholder's period of ownership. The
interest charge is equal to the applicable rate imposed on underpayments of U.S. federal income tax for such period. In addition,
a distribution paid by AGL to U.S. shareholders that is characterized as a dividend and is not characterized as an excess
distribution would not be eligible for reduced rates of tax as qualified dividend income. A U.S. Person that is a shareholder in a
PFIC may also be subject to additional information reporting requirements, including the annual filing of IRS Form 8621,
Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.
For the above purposes, passive income generally includes interest, dividends, annuities and other investment income.
The PFIC rules, as amended by the TCJA, provide that income derived in the active conduct of an insurance business by a
qualifying insurance corporation is not treated as passive income. The PFIC provisions also contain a look-through rule under
which a non-U.S. corporation shall be treated as if it “received directly its proportionate share of the income...” and as if it “held
its proportionate share of the assets...” of any other corporation in which it owns at least 25% of the value of the stock. A
second PFIC look-through rule would treat stock of a U.S. corporation owned by another U.S. corporation which is at least 25%
owned (by value) by a non-U.S. corporation as a non-passive asset that generates non-passive income for purposes of
determining whether the non-U.S. corporation is a PFIC.
The insurance income exception originally was intended to ensure that income derived by a bona fide insurance
company is not treated as passive income, except to the extent such income is attributable to financial reserves in excess of the
reasonable needs of the insurance business. The Company expects, for purposes of the PFIC rules, that each of AGL’s
insurance subsidiaries is unlikely to have financial reserves in excess of the reasonable needs of its insurance business in each
year of operations. However, the TCJA limits the insurance income exception to a non-U.S. insurance company that is a
qualifying insurance corporation that would be taxable as an insurance company if it were a U.S. corporation and maintains
insurance liabilities of more than 25% of such company’s assets for a taxable year (or maintains insurance liabilities that at least
equal or exceed 10% of its assets, is predominantly engaged in an insurance business and satisfies a facts and circumstances test
that requires a showing that the failure to exceed the 25% threshold is due to runoff-related or rating-related circumstances) (the
Reserve Test). Further, the U.S. Treasury Department and the IRS recently issued final and proposed regulations (the 2020
Regulations) intended to clarify the application of the PFIC provisions to a non-U.S. insurance company and provide guidance
on a range of issues relating to PFICs, including the application of the look-through rule, the treatment of income and assets of
certain U.S. insurance subsidiaries for purposes of the look-through rule and the extension of the look-through rule to 25% or
more owned partnerships. The 2020 Regulations define insurance liabilities for purposes of the Reserve Test, tighten the
Reserve Test and the statutory cap on insurance liabilities, and provide guidance on the runoff-related and rating-related
circumstances for purposes of the 10% test (including a provision that deems certain financial guaranty insurers that fail the
25% test to meet the rating-related circumstances test). The 2020 Regulations also propose that a non-U.S. insurance company
will qualify for the insurance company exception only if a factual requirements test or an active conduct percentage test is
satisfied. The factual requirements test will be met if the non-U.S. insurance company’s officers and employees perform its
substantial managerial and operational activities on a regular and continuous basis with respect to its core functions and
virtually all of the active decision-making functions relevant to underwriting on a contract-by-contract basis (taking into
account activities of officers and employees of certain related entities in certain cases). The active conduct percentage test will
47
be satisfied if: (1) the total costs incurred by the non-U.S. insurance company with respect to its officers and employees
(including officers and employees of certain related entities) for services related to core functions (other than investment
activities) equal at least 50% of the total costs incurred for all such services; and (2) the non-U.S. insurer’s officers and
employees oversee any part of the non-U.S. insurance company’s core functions, including investment management, that are
outsourced to an unrelated party. Services provided by officers and employees of certain related entities are only taken into
account in the numerator of the active conduct percentage if the non-U.S. insurance company exercises regular oversight and
supervision over such services and compensation arrangements meet certain requirements. The 2020 Regulations also propose
that a non-U.S. insurance company with no or a nominal number of employees that relies exclusively or almost exclusively
upon independent contractors (other than certain related entities) to perform its core functions will not be treated as engaged in
the active conduct of an insurance business. The Company believes that, based on the application of the PFIC look-through
rules described above and the Company's plan of operations for the current and future years, AGL should not be characterized
as a PFIC. However, as the Company cannot predict the likelihood of finalization of the proposed 2020 Regulations or the
scope, nature or impact of the 2020 Regulations on us, or whether the Company’s non-U.S. insurance subsidiaries will be able
to satisfy the Reserve Test in future years and the interaction of the PFIC look-through rules is not clear, no assurance may be
given that the Company will not be characterized as a PFIC. Prospective investors should consult their tax adviser as to the
effects of the PFIC rules.
Foreign tax credit. If U.S. Persons own a majority of AGL’s common shares, only a portion of the current income
inclusions, if any, under the CFC, RPII and PFIC rules and of dividends paid by AGL (including any gain from the sale of
common shares that is treated as a dividend under section 1248 of the Code) will be treated as foreign source income for
purposes of computing a shareholder’s U.S. foreign tax credit limitations. The Company will consider providing shareholders
with information regarding the portion of such amounts constituting foreign source income to the extent such information is
reasonably available. It is also likely that substantially all of the “subpart F income,” RPII and dividends that are foreign source
income will constitute either “passive” or “general” income. Thus, it may not be possible for most shareholders to utilize excess
foreign tax credits to reduce U.S. tax on such income.
Information Reporting and Backup Withholding on Distributions and Disposition Proceeds. Information returns may
be filed with the IRS in connection with distributions on AGL’s common shares and the proceeds from a sale or other
disposition of AGL’s common shares unless the holder of AGL’s common shares establishes an exemption from the
information reporting rules. A holder of common shares that does not establish such an exemption may be subject to U.S.
backup withholding tax on these payments if the holder is not a corporation or non-U.S. Person or fails to provide its taxpayer
identification number or otherwise comply with the backup withholding rules. The amount of any backup withholding from a
payment to a U.S. Person will be allowed as a credit against the U.S. Person’s U.S. federal income tax liability and may entitle
the U.S. Person to a refund, provided that the required information is furnished to the IRS.
United Kingdom
The following discussion is intended to be only a general guide to certain U.K. tax consequences of holding AGL
common shares, under current law and the current practice of HMRC, either of which is subject to change at any time, possibly
with retrospective effect. Except where otherwise stated, this discussion applies only to shareholders who are not (and have not
recently been) resident or (in the case of individuals) domiciled for tax purposes in the U.K. who hold their AGL common
shares as an investment and who are the absolute beneficial owners of their common shares. This discussion may not apply to
certain shareholders, such as dealers in securities, life insurance companies, collective investment schemes, shareholders who
are exempt from tax and shareholders who have (or are deemed to have) acquired their shares by virtue of an office or
employment. Such shareholders may be subject to special rules.
The following statements do not purport to be a comprehensive description of all the U.K. considerations that may be
relevant to any particular shareholder. Any person who is in any doubt as to their tax position should consult an appropriate
professional tax adviser.
AGL’s Tax Residency. AGL is not incorporated in the U.K., but from November 6, 2013, the AGL Board has managed
its affairs with the intent to maintain its status as a company that is tax resident in the U.K.
Dividends. Under current U.K. tax law, AGL is not required to withhold tax at source from dividends paid to the
holders of the AGL common shares.
Capital gains. U.K. tax is not normally charged on any capital gains realized by non-U.K. shareholders in AGL unless,
in the case of a corporate shareholder, at or before the time the gain accrues, the shareholding is used in or for the purposes of a
trade carried on by the non-resident shareholder through a permanent establishment in the U.K. or for the purposes of that
48
permanent establishment. Similarly, an individual shareholder who carries on a trade, profession or vocation in the U.K.
through a branch or agency may be liable for U.K. tax on the gain if such shareholder disposes of shares that are, or have been,
used, held or acquired for the purposes of such trade, profession or vocation or for the purposes of such branch or agency. This
treatment applies regardless of the U.K. tax residence status of AGL.
Stamp Taxes. On the basis that AGL does not currently intend to maintain a share register in the U.K., there should be
no U.K. stamp duty reserve tax on a purchase of common shares in AGL. A conveyance or transfer on sale of common shares
in AGL will not be subject to U.K. stamp duty, provided that the instrument of transfer is not executed in the U.K. and does not
relate to any property situated, or any matter or thing done, or to be done, in the U.K.
Description of Share Capital
The following summary of AGL’s share capital is qualified in its entirety by the provisions of Bermuda law, AGL’s
memorandum of association and its Bye-Laws, copies of which are incorporated by reference as exhibits to this Annual Report
on Form 10-K.
AGL’s authorized share capital of $5,000,000 is divided into 500,000,000 shares, par value U.S. $0.01 per share, of
which 59,019,864 common shares were issued and outstanding as of February 24, 2023. Except as described below, AGL’s
common shares have no preemptive rights or other rights to subscribe for additional common shares, no rights of redemption,
conversion or exchange and no sinking fund rights. In the event of liquidation, dissolution or winding-up, the holders of AGL’s
common shares are entitled to share equally, in proportion to the number of common shares held by such holder, in AGL's
assets, if any remain after the payment of all AGL’s debts and liabilities and the liquidation preference of any outstanding
preferred shares. Under certain circumstances, AGL has the right to purchase all or a portion of the shares held by a
shareholder. See “Acquisition of Common Shares by AGL” below.
Voting Rights and Adjustments
In general, and except as provided below, shareholders have one vote for each common share held by them and are
entitled to vote with respect to their fully paid shares at all meetings of shareholders. However, if, and so long as, the common
shares (and other of AGL’s shares) of a shareholder are treated as “controlled shares” (as determined pursuant to section 958 of
the Code) of any U.S. Person and such controlled shares constitute 9.5% or more of the votes conferred by AGL’s issued and
outstanding shares, the voting rights with respect to the controlled shares owned by such U.S. Person shall be limited, in the
aggregate, to a voting power of less than 9.5% of the voting power of all issued and outstanding shares, under a formula
specified in AGL’s Bye-Laws. The formula is applied repeatedly until there is no U.S. Person whose controlled shares
constitute 9.5% or more of the voting power of all issued and outstanding shares and who generally would be required to
recognize income with respect to AGL under the Code if AGL were a CFC as defined in the Code and if the ownership
threshold under the Code were 9.5% (as defined in AGL’s Bye-Laws as a 9.5% U.S. Shareholder). In addition, AGL’s Board
may determine that shares held carry different voting rights when it deems it appropriate to do so to: (i) avoid the existence of
any 9.5% U.S. Shareholder; and (ii) avoid adverse tax, legal or regulatory consequences to AGL or any of its subsidiaries or
any direct or indirect holder of shares or its affiliates. “Controlled shares” includes, among other things, all shares of AGL that
such U.S. Person is deemed to own directly, indirectly or constructively (within the meaning of section 958 of the Code).
Further, these provisions do not apply in the event one shareholder owns greater than 75% of the voting power of all issued and
outstanding shares.
Under these provisions, certain shareholders may have their voting rights limited to less than one vote per share, while
other shareholders may have voting rights in excess of one vote per share. Moreover, these provisions could have the effect of
reducing the votes of certain shareholders who would not otherwise be subject to the 9.5% limitation by virtue of their direct
share ownership. AGL’s Bye-Laws provide that it will use its best efforts to notify shareholders of their voting interests prior to
any vote to be taken by them.
AGL’s Board is authorized to require any shareholder to provide information for purposes of determining whether any
holder’s voting rights are to be adjusted, which may be information on beneficial share ownership, the names of persons having
beneficial ownership of the shareholder’s shares, relationships with other shareholders or any other facts AGL’s Board may
deem relevant. If any holder fails to respond to this request or submits incomplete or inaccurate information, AGL’s Board may
eliminate the shareholder’s voting rights. All information provided by the shareholder will be treated by AGL as confidential
information and shall be used by AGL solely for the purpose of establishing whether any 9.5% U.S. Shareholder exists and
applying the adjustments to voting power (except as otherwise required by applicable law or regulation).
49
Restrictions on Transfer of Common Shares
AGL’s Board may decline to register a transfer of any common shares under certain circumstances, including if they
have reason to believe that any adverse tax, regulatory or legal consequences to the Company, any of its subsidiaries or any of
its shareholders or indirect holders of shares or its affiliates may occur as a result of such transfer (other than such as AGL’s
Board considers de minimis). Transfers must be by instrument unless otherwise permitted by the Companies Act.
The restrictions on transfer and voting restrictions described above may have the effect of delaying, deferring or
preventing a change in control of Assured Guaranty.
Acquisition of Common Shares by AGL
Under AGL’s Bye-Laws and subject to Bermuda law, if AGL’s Board determines that any ownership of AGL’s shares
may result in adverse tax, legal or regulatory consequences to the Company, any of the Company’s subsidiaries or any of
AGL’s shareholders or indirect holders of shares or its affiliates (other than such as AGL’s Board considers de minimis), the
Company has the option, but not the obligation, to require such shareholder to sell to AGL or to a third party to whom AGL
assigns the repurchase right the minimum number of common shares necessary to avoid or cure any such adverse consequences
at a price determined in the discretion of the Board to represent the shares’ fair market value (as defined in AGL’s Bye-Laws).
Other Provisions of AGL’s Bye-Laws
AGL’s Board and Corporate Action
AGL’s Bye-Laws provide that AGL’s Board shall consist of not less than three and not more than 21 directors, the
exact number as determined by the Board. AGL’s Board currently consists of 12 persons who are elected for annual terms.
Shareholders may only remove a director for cause (as defined in AGL’s Bye-Laws) at a general meeting, provided
that the notice of any such meeting convened for the purpose of removing a director shall contain a statement of the intention to
do so and shall be provided to that director at least two weeks before the meeting. Vacancies on the Board can be filled by the
Board if the vacancy occurs in those events set out in AGL’s Bye-Laws as a result of death, disability, disqualification or
resignation of a director, or from an increase in the size of the Board.
Generally under AGL’s Bye-Laws, the affirmative votes of a majority of the votes cast at any meeting at which a
quorum is present is required to authorize a resolution put to vote at a meeting of the Board, including one relating to a merger,
acquisition or business combination. Corporate action may also be taken by a unanimous written resolution of the Board
without a meeting. A quorum shall be at least one-half of directors then in office present in person or represented by a duly
authorized representative, provided that at least two directors are present in person.
Shareholder Action
At the commencement of any general meeting, two or more persons present in person and representing, in person or by
proxy, more than 50% of the issued and outstanding shares entitled to vote at the meeting shall constitute a quorum for the
transaction of business. In general, any questions proposed for the consideration of the shareholders at any general meeting
shall be decided by the affirmative votes of a majority of the votes cast in accordance with the Bye-Laws.
The Bye-Laws contain advance notice requirements for shareholder proposals and nominations for directors, including
when proposals and nominations must be received and the information to be included.
Amendment
The Bye-Laws may be amended only by both a resolution adopted by the Board and by a resolution adopted by the
shareholders.
Voting of Non-U.S. Subsidiary Shares
When AGL is required or entitled to vote at a general meeting (for example, an annual meeting) of any of AG Re,
AGFOL or any other of its directly held non-U.S. subsidiaries, AGL’s Board is required to refer the subject matter of the vote
to AGL’s shareholders and seek direction from such shareholders as to how they should vote on the resolution proposed by the
non-U.S. subsidiary. AGL’s Board in its discretion shall require that substantially similar provisions are or will be contained in
50
the Bye-Laws (or equivalent governing documents) of any direct or indirect non-U.S. subsidiaries other than AGRO and
subsidiaries incorporated in the U.K.
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, its Global Code of Ethics,
AGL's Bye-Laws and the charters for its Board committees, as well as certain of the Company's environmental and social
policies and statements. 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 is not incorporated by
reference into, and is not a part of, this report.
ITEM 1A. RISK FACTORS
You should carefully consider the following information, together with the information contained in AGL’s other
filings with the SEC. The risks and uncertainties discussed below are not the only ones the Company faces. However, these are
the risks that the Company’s management believes are material. The Company may face additional risks or uncertainties that
are not presently known to the Company or that management currently deems immaterial, and such risks or uncertainties also
may impair its business or results of operations. The risks discussed below could result in a significant or material adverse
effect on the Company’s financial condition, results of operations, liquidity, or business prospects.
Summary of Risk Factors
The following summarizes some of the risks and uncertainties that may adversely affect the Company’s financial
condition, results of operations, capital, liquidity, business prospects or share price. It is provided for convenience and should
be read together with the more expansive explanations below this summary.
•
•
•
•
Risks Related to Economic, Market and Political Conditions and Natural Phenomena
Developments in the U.S. and global financial markets and economy generally.
Significant budget deficits and pension funding and revenue shortfalls of certain state and local governments and
entities that issue obligations the Company insures.
Significant risks from large individual or correlated exposures.
Losses on obligations of the Commonwealth of Puerto Rico and its related authorities and public corporations insured
by the Company significantly in excess of those currently expected by the Company or recoveries significantly below
those currently expected by the Company.
Downgrades to the U.S. government’s sovereign credit ratings, or to the credit ratings of instruments issued, insured or
guaranteed by related institutions, agencies or instrumentalities.
The COVID-19 pandemic, and the governmental and private actions taken in response to the pandemic.
Changes in attitudes toward debt repayment negatively impacting the Company’s insurance portfolio.
Persistently low interest rate levels and credit spreads adversely affecting demand for financial guaranty insurance.
Global climate change adversely affecting the Company’s insurance portfolio and investments.
Credit losses and interest rate changes adversely affecting the Company’s investments and AUM.
Expansion of the categories and types of the Company’s investments exposing it to increased credit, interest rate,
liquidity and other risks.
•
•
•
•
•
•
•
51
Risks Related to Estimates, Assumptions and Valuations
•
•
Estimates of expected insurance losses to be paid (recovered), including losses with respect to related legal
proceedings, are subject to uncertainties and actual amounts may be different, causing the Company to reserve either
too little or too much for future losses.
The valuation of many of the Company’s assets and liabilities and AUM includes methodologies, estimates and
assumptions that are subject to differing interpretations and could result in changes to valuations of the Company’s
assets and liabilities that may materially adversely affect the Company’s financial condition, results of operations,
capital, business prospects and share price.
Strategic Risks
•
•
•
•
•
Competition in the Company’s industries.
Strategic transactions not resulting in the benefits anticipated.
Risks related to the asset management business.
Alternative investments not resulting in the benefits anticipated.
A downgrade of the financial strength or financial enhancement ratings of any of the Company’s insurance or
reinsurance subsidiaries.
Operational Risks
•
•
•
•
•
•
•
•
•
•
Fluctuations in foreign exchange rates.
Less predictable, political, credit or legal risks associated with the some of the Company’s non-U.S. operations.
The loss of the Company’s key executives or its inability to retain other key personnel.
A cyberattack, security breach or failure in the Company’s or a vendor's information technology system, or a data
privacy breach of the Company’s or a vendor’s information technology system.
Errors in, overreliance on, or misuse of, models.
Significant claim payments may reduce the Company’s liquidity.
A sudden need to raise additional capital as a result of insurance losses, whether related to Puerto Rico or otherwise, or
as a result of changes in regulatory or rating agency capital requirements applicable to its insurance companies, at a
time when additional capital may not be available or may be available only on unfavorable terms.
Large insurance losses, whether related to Puerto Rico or otherwise, substantially increasing the Company’s insurance
subsidiaries’ leverage ratios, and preventing them from writing new insurance.
The Company’s holding companies' ability to meet their obligations may be constrained.
The ability of AGL and its subsidiaries to meet their liquidity needs may be limited.
Risks Related to Taxation
•
•
•
•
•
•
•
•
•
•
•
Changes in U.S. tax laws could reduce the demand or profitability of financial guaranty insurance, or negatively
impact the Company’s investments.
Certain of the Company’s non-U.S. subsidiaries may be subject to U.S. tax.
AGL, AG Re and AGRO may become subject to taxes in Bermuda after March 2035.
In certain circumstances, U.S. Persons holding AGL’s shares may be subject to taxation under the U.S. CFC rules,
additional U.S. income taxation on their proportionate share of the Company's RPII or unrelated business taxable
income rules, and may be subject to adverse tax consequences if AGL is considered to be a PFIC for U.S. federal
income tax purposes.
Changes in U.S. federal income tax law adversely affecting an investment in AGL’s common shares.
An ownership change under Section 382 of the Code could have adverse U.S. federal tax consequences.
A change in AGL’s U.K. tax residence or its ability to otherwise qualify for the benefits of income tax treaties to
which the U.K. is a party could adversely affect an investment in AGL’s common shares.
Changes in U.K. tax law or in AGL’s ability to satisfy all the conditions for exemption from U.K. taxation on dividend
income or capital gains in respect of its direct subsidiaries could affect an investment in AGL’s common shares.
An adverse adjustment under U.K. transfer pricing legislation could adversely impact Assured Guaranty’s tax liability.
An adverse adjustment under U.K. legislation governing the taxation of U.K. tax resident holding companies on the
profits of their non-U.K. subsidiaries adversely affecting Assured Guaranty's tax liability.
Assured Guaranty’s financial results may be affected by measures taken in response to the Organization for Economic
Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project.
Risks Related to GAAP, Applicable Law and Litigation
•
•
Changes in the fair value of the Company’s insured credit derivatives portfolio, its committed capital securities (CCS),
its FG VIEs, its CIVs, and/or the Company’s decision to consolidate or deconsolidate one or more FG VIEs and/or
CIVs during a financial reporting period, subjecting its financial condition and results of operations to volatility.
Changes in industry and other accounting practices.
52
•
•
•
•
Changes in or inability to comply with applicable law and regulations.
Legislation, regulation or litigation arising out of the struggles of distressed obligors.
Certain insurance regulatory requirements and restrictions constraining AGL’s ability to pay dividends and fund share
repurchases and other activities.
Applicable insurance laws may make it difficult to effect a change of control of AGL.
Risks Related to AGL’s Common Shares
•
•
•
Volatility in the market price of AGL’s common shares.
Provisions in the Code and AGL’s Bye-Laws reducing or increasing the voting rights of its common shares.
Provisions in AGL’s Bye-Laws potentially restricting the ability to transfer common share or requiring shareholders to
sell their common shares.
Risks Related to Economic, Market and Political Conditions and Natural Phenomena
Developments in the U.S. and global financial markets and economy generally may adversely affect the Company’s
financial condition, results of operations, capital, liquidity, business prospects and share price.
In recent years, the global financial markets and economy generally have been impacted by changes in inflation and
interest rates, the COVID-19 pandemic, political events such as trade confrontations between the U.S. and traditional allies and
between the U.S. and China as well as the withdrawal of the U.K. from the EU (commonly known as “Brexit”). The global
economic and political systems also have been impacted by events in the Middle East and Eastern Europe (including events in
the Ukraine), as well as Africa and Southeast Asia, and could be impacted by other events in the future, including natural and
man-made events and disasters.
These and other risks could materially and negatively affect the Company’s ability to access the capital markets, the
cost of the Company’s debt, the demand for its credit enhancement and asset management products, the amount of losses
incurred on transactions it guarantees, the value and performance of its investments (including those that are accounted for as
CIVs), the value of its AUM and amount of its related asset management fees (including performance fees), the capital and
liquidity position and financial strength and enhancement ratings of its insurance subsidiaries, and the price of its common
shares.
Some of the state and local governments and entities that issue obligations the Company insures are experiencing
significant budget deficits and pension funding and revenue shortfalls that could result in increased credit losses or
impairments and increased rating agency capital charges on those insured obligations.
Some of the state, territorial, and local governments that issue the obligations the Company insures are experiencing
significant budget deficits and pension funding and revenue collection shortfalls. Certain territorial or local governments,
including ones that have issued obligations insured by the Company, have sought protection from creditors under Chapter 9 of
the U.S. Bankruptcy Code, or, in the case of Puerto Rico, the similar provisions of the Puerto Rico Oversight, Management, and
Economic Stability Act (PROMESA), as a means of restructuring their outstanding debt. In some instances where local
governments were seeking to restructure their outstanding debt, pension and other obligations owed to workers were treated
more favorably than senior bond debt owed to the capital markets. If the issuers of the obligations in the Company’s public
finance portfolio do not have sufficient funds to cover their expenses and are unable or unwilling to raise taxes, decrease
spending or receive federal assistance, the Company may experience increased levels of losses or impairments on its insured
public finance obligations.
In addition, obligations supported by revenue streams, which may include both revenue and non-revenue bonds, such
as those issued by toll road authorities, municipal utilities, airport authorities or mass transit, may be adversely affected by
revenue declines resulting from reduced demand, changing demographics, evolving business practices that began during the
COVID-19 pandemic including hybrid work models, telecommuting, video conferencing and other alternative work
arrangements, or other causes. These obligations, which may not necessarily benefit from financial support from other tax
revenues or governmental authorities, may also experience increased losses if the revenue streams are insufficient to pay
scheduled interest and principal payments.
The Company may be subjected to significant risks from large individual or correlated insurance exposures.
The Company is exposed to the risk that issuers of obligations that it insures or other counterparties may default on
their financial obligations, whether as a result of insolvency, lack of liquidity, operational failure or other reasons, and the
amount of insurance exposure the Company has to some the risks is quite large. The Company seeks to reduce this risk by
53
managing exposure to large single risks, as well as concentrations of correlated risks, through tracking its aggregate exposure to
single risks in its various lines of insurance business and establishing underwriting criteria to manage risk aggregations. Should
the Company's risk assessments prove inaccurate and should the applicable limits prove inadequate, the Company could be
exposed to larger than anticipated losses, and could be required by the rating agencies to hold additional capital against insured
exposures whether or not downgraded by the rating agencies. The Company’s ultimate exposure to a single risk may exceed its
underwriting guidelines (caused by, for example, acquisitions, reassumptions, or amortization of the portfolio faster than the
single risk).
The Company is exposed to correlation risk across the various assets the Company insures and in which it invests.
During periods of strong macroeconomic performance, stress in an individual transaction generally occurs for idiosyncratic
reasons or as a result of issues in a single asset class (so impacting only transactions in that sector). During a broad economic
downturn or in the face of a significant natural or man-made event or disaster (such as the COVID-19 pandemic or events in
Ukraine), a wider range of the Company’s insurance and investments could be exposed to stress at the same time. This stress
may manifest itself in any or all of the following: ratings downgrades of insured risks, which may require more capital in the
Company’s insurance subsidiaries; a reduction in the value of the Company’s investments and /or AUM; and actual defaults
and losses in its insurance portfolio and / or investments.
Losses on obligations of the Commonwealth of Puerto Rico and its related authorities and public corporations insured by
the Company significantly in excess of those currently expected by the Company or recoveries significantly below those
currently expected by the Company could have a negative effect on the Company’s financial condition, results of operations,
capital, business prospects and share price.
The Company has an aggregate $1.4 billion net par exposure as of December 31, 2022 to the Commonwealth of Puerto
Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations, and losses
on such insured exposures significantly in excess of those currently expected by the Company could have a negative effect on
the Company’s financial condition, results of operations, capital, business prospects and share price. Most of the Puerto Rican
entities with obligations insured by the Company have defaulted on their debt service payments, and the Company has paid
claims on them. The total net expected loss the Company calculates related to such exposures is net of a significant credit for
estimated recoveries on claims already paid, and recoveries significantly below those expected by the Company could also have
a negative effect on the Company’s financial condition, results of operations, capital, liquidity, business prospects and share
prices. Additional information about the Company’s exposure to Puerto Rico and legal actions related to that exposure may be
found in, Part II, Item 8, Financial Statements and Supplementary Data, Note 3, Outstanding Exposure, Exposure to Puerto
Rico.
Downgrades to the U.S. government’s sovereign credit ratings, or to the credit ratings of instruments issued, insured or
guaranteed by related institutions, agencies or instrumentalities, could result in a deterioration in general economic
conditions, increased credit losses in the Company’s insured portfolio, impairments or losses in its investment portfolio, and
other risks to the Company and its credit ratings that the Company is not able to predict.
In the U.S., debt ceiling and budget deficit concerns, which have increased the possibility of a U.S. government
shutdown, payment defaults on the debt of the U.S. government or instruments issued, insured or guaranteed by related
institutions, agencies or instrumentalities, and downgrades to their credit ratings, could weaken the U.S. dollar, global economy
and banking system, cause market volatility, raise the cost of credit, negatively impact the Company’s insured and investment
portfolios, and disrupt general economic conditions in ways that the Company is not able to predict, which could materially and
adversely affect the Company’s business, financial condition and results of operations. While rating agencies currently permit
sub-sovereign and corporate credits in the U.S. to be rated higher than sovereign credits, in the event that the U.S. government
is downgraded and if the rating agencies no longer permit sub-sovereign and/or corporate credit ratings to be higher than the
U.S. government, the resulting downgrades could result in a material adverse impact to the Company’s credit ratings and its
insurance and investment portfolios.
The Company may be exposed to a higher risk of default of U.S. public finance obligations in connection with a U.S.
government default. While the Company historically has experienced low levels of defaults in its U.S. public finance insured
portfolio, from time-to-time state and local governments that issue some of the obligations the Company insures have reported
budget shortfalls that have required them to raise taxes and/or cut spending in order to satisfy their obligations. While there has
been support provided by the U.S. federal government designed to provide aid to state and local governments, including during
the COVID-19 pandemic, certain state and local governments remain under financial stress. If the issuers of the obligations in
the Company’s U.S. public finance insurance portfolio are reliant on financial assistance from the U.S. government in order to
meet their obligations, and the U.S. government does not provide such assistance, the Company may experience credit losses or
impairments on those obligations.
54
A downgrade of the U.S. government may also result in higher interest rates, which could adversely affect the
distressed RMBS that are in the Company’s insured portfolio, reduce the market value of the fixed-maturity securities held in
the Company’s investment portfolio and dampen municipal bond issuance.
The development, course and duration of the COVID-19 pandemic, and the governmental and private actions taken in
response to the pandemic may adversely affect the Company’s financial condition, results of operations, capital, liquidity,
business prospects and share price.
In addition to its human toll, the COVID-19 pandemic and the governmental and private actions taken in response
have caused economic and financial disruption on a global scale and may continue to do so. While vaccines and therapeutics
have been developed and approved and deployed by governments, the remaining course and duration of the pandemic, and
future governmental and private responses to its course, remain unknown. While there has been approximately three years of
experience with the pandemic, not all of the direct and indirect consequences of COVID-19 are known yet. The Company
believes the most material of these risks include the following, all of which are discussed in more detail in this Risk Factors
section:
•
Impact on its insurance business, including potential:
Increased insurance claims and loss reserves;
Increased correlation of risks;
Difficulty in meeting applicable capital requirements as well as other regulatory requirements;
Reduction in one or more of the financial strength and enhancement ratings of the Company’s insurance
subsidiaries;
◦
◦
◦
◦
•
Impact on the Company’s asset management business, including potential:
◦
◦
◦
Difficulty in attracting third-party funds to manage;
Reduction and/or deferral of asset management fees (including performance fees) as occurred with respect to
the deferral of CLO management fees in 2020 (although such deferred performance fees have since been
received);
Impairment of goodwill and other intangible assets associated with the BlueMountain Acquisition;
•
•
•
Impact of legislative or regulatory responses to the pandemic;
Losses in the Company’s investments; and
Operational disruptions and security risks from remote working arrangements.
The Company believes that state, territorial 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 closures and capacity and travel restrictions or an economic downturn, are most at risk for increased claims
from the impact of the COVID-19 pandemic and the governmental and private actions taken in response. Moreover, state and
local governments under financial stress and dependent on U.S. federal government assistance provided in connection with the
COVID-19 pandemic may be at risk of experiencing credit losses or impairment on their obligations as a result of cessation of
the U.S. federal government’s support. In addition to obligations already internally rated in the low investment grade or BIG
categories, the Company believes that its sectors most at risk include: (i) Mass Transit - Domestic; (ii) Toll Roads and
Transportation - International; (iii) Hotel / Motel Occupancy Tax; (iv) Stadiums; (v) UK University Housing - International;
(vi) Privatized Student Housing: Domestic; and (vii) Commercial Receivables.
The Company continues to provide the services and communications it did prior to the COVID-19 pandemic, and to
close new insurance transactions and make insurance claim payments and, in its asset management business, make trades,
establish new funds and attract third-party funds to manage. However, the Company’s operations could be disrupted if key
members of its senior management or a significant percentage of its workforce or the workforce of its vendors were unable to
continue work because of illness, government directives, or otherwise.
The COVID-19 pandemic and governmental and private actions taken in response may also exacerbate many of the
risks applicable to the Company in ways or to an extent not yet identified by the Company.
Changes in attitudes toward debt repayment could negatively impact the Company’s insurance portfolio.
The likelihood of debt repayment is impacted by both the ability and the willingness of the obligor to repay their debt.
Debtors generally understand that debt repayment is not only a legal obligation but is also appropriate, and that a failure to
repay their debt will impede their access to debt in the future. To the extent societal attitudes toward the repayment of debt by
struggling obligors softens and such obligors believe there to be less of a penalty for nonpayment, some struggling debtors may
be more likely to default and, if they default, less likely to agree to repayment plans they view as burdensome. If the issuers of
55
the obligations in the Company’s public finance insurance portfolio become unwilling to raise taxes, decrease spending or
receive federal assistance in order to repay their debt, the Company may experience increased levels of losses on its public
finance obligations, which could adversely affect its financial condition, results of operations, capital, liquidity, business
prospects and share price.
Persistently low interest rate levels and credit spreads could adversely affect demand for financial guaranty insurance.
Demand for financial guaranty insurance generally fluctuates with changes in market credit spreads. Credit spreads,
which are based on the difference between interest rates on high-quality or “risk free” securities versus those on lower-rated
securities, fluctuate due to a number of factors, and are sensitive to the absolute level of interest rates, current credit experience
and investors’ risk appetite. When interest rates are low, or when the market is relatively less risk averse, the credit spread
between high-quality or insured obligations versus lower-rated obligations typically narrows. As a result, financial guaranty
insurance typically provides lower interest cost savings to issuers than it would during periods of relatively wider credit
spreads. Issuers are less likely to use financial guaranties on their new issues when credit spreads are narrow, so (absent other
factors) this results in decreased demand or premiums obtainable for financial guaranty insurance.
Global climate change may adversely impact the Company’s insurance portfolio and investments.
Global climate change and climate change regulations may impact asset prices and general economic conditions and
may disproportionately impact particular sectors, industries or locations. Due to the significant uncertainty of forecasted data
related to the impact of climate change, the Company cannot predict the long-term consequences to the Company resulting from
the physical, transition, legal, regulatory and reputational risks associated with climate change. The Company considers
environmental risk in its insurance underwriting and surveillance process and its investment process and manages its insurance
and investment risks by maintaining a well-diversified portfolio of insurance and investments both geographically and by sector
and monitors these measures continuously. While the Company can adjust its investment exposure to sectors and/or
geographical areas that face severe risks due to climate change or climate change regulation, the Company has less flexibility in
adjusting the existing exposure in its insurance portfolio because the majority of the financial guaranties issued by the
Company’s insurance subsidiaries 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 insurance.
Credit losses and changes in interest rates could adversely affect the Company’s investments and AUM.
The Company’s results of operations are affected by the performance of its investments, which primarily consist of
fixed-income securities and short-term investments. As of December 31, 2022, fixed-maturity securities and short-term
investments held by the Company had a fair value of approximately $8.2 billion. Credit losses on the Company’s investments
adversely affect the Company’s financial condition and results of operations by reducing net income and shareholders’ equity.
In recent years the Company has increased the amount it invests in alternative investments. In addition, the Company received a
significant amount of New Recovery Bonds and CVIs as a result of the 2022 Puerto Rico Resolutions. Alternative investments,
Loss Mitigation Securities, Puerto Rico New Recovery Bonds and CVIs may be more susceptible to credit losses than most of
the rest of the Company’s fixed-income portfolio.
The impact of changes in interest rates may also adversely affect both the Company’s financial condition and results of
operations. For example, if interest rates decline, funds reinvested will have a lower yield than expected, reducing the
Company’s future investment income compared to the amount it would earn if interest rates had not declined. However, the
value of the Company’s fixed-rate investments would generally increase, resulting in an unrealized gain on investments and
improving the Company’s financial condition. Conversely, if interest rates increase, the Company’s results of operations would
improve as a result of higher future reinvestment income, but its financial condition would be adversely affected, since value of
the fixed-rate investments generally would be reduced.
Credit losses and changes in interest rates could also have an adverse impact on the amount of the Company’s AUM,
which could impact results of operations. For example, if there are credit losses in the portfolios managed by AssuredIM or, to a
lesser extent, if interest rates increase, AUM will decrease, reducing the amount of management fees earned by the Company.
Interest rates are highly sensitive to many factors, including monetary policies, U.S. and non-U.S. economic and
political conditions and other factors beyond the Company’s control. The Company does not engage in active management, or
hedging, of interest rate risk in its investment portfolio, and may not be able to mitigate interest rate sensitivity effectively.
Expansion of the categories and types of the Company’s investments (including those accounted for as CIVs) may expose it
to increased credit, interest rate, liquidity and other risks.
56
The Company is using AssuredIM’s investment knowledge and experience to expand the categories and types of its
investments (including those accounted for as CIVs) by both: (a) allocating $750 million of capital in AssuredIM Funds; and
(b) expanding the categories and types of its alternative investments not managed by AssuredIM. This expansion of categories
and types of investments may increase the credit, interest rate and liquidity risk in the Company’s investments (including those
accounted for as CIVs). In addition, the fair value of some of these assets may be more volatile than other investments made by
the Company. As a result of the Company’s expansion of the categories and types of its investments, as of December 31, 2022,
the U.S. Insurance Subsidiaries had investments in AssuredIM Funds with a fair value of $569 million, which are reported as
CIVs, in the Company’s consolidated financial statements. In addition, the Company had $123 million of other non-AssuredIM
alternative investments reported in the consolidated financial statements. This expansion also has resulted in the Company
investing a portion of its portfolio in assets that are less liquid than some of its other investments, and so may increase the risks
described below under “— Operational Risks — The ability of AGL and its subsidiaries to meet their liquidity needs may be
limited”. Expanding the categories and types of Company investments (including those accounted for as CIVs) may also expose
the Company to other types of risks, including reputational risks.
Risks Related to Estimates, Assumptions and Valuations
Estimates of expected insurance losses to be paid (recovered), including losses with respect to related legal proceedings, are
subject to uncertainties and actual amounts may be different, causing the Company to reserve either too little or too much
for future losses.
The financial guaranties issued by the Company’s insurance subsidiaries 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 losses to be paid (recovered) on
a policy is subject to significant uncertainty over the life of the insured transaction. Additionally, even after the Company pays a
claim on its financial guaranties (or determines no claim is owing), subsequent related litigation may result in additional losses.
If the Company’s actual losses exceed its current estimate, the Company’s financial condition, results of operations, capital,
liquidity, business prospects, financial strength ratings and ability to raise additional capital may all be adversely affected.
The Company does not use traditional actuarial approaches to determine its estimates of expected losses to be paid
(recovered). The determination of expected loss to be paid (recovered) is an inherently subjective process involving numerous
estimates, probability weightings, assumptions and judgments by management, using both internal and external data sources
with regard to frequency, severity of loss, economic projections, future interest rates, the perceived strength of legal protections,
the perceived strength of the Company’s position in any ongoing legal proceedings, governmental actions, negotiations,
delinquency and prepayment rates (with respect to RMBS), timing of cash flows, and other factors that affect credit
performance. Actual losses will ultimately depend on future events, legal rulings, and/or transaction performance and may be
influenced by many interrelated factors that are difficult to predict. As a result, the Company’s current estimates of losses to be
paid (recovered), including losses with respect to related legal proceedings, may be subject to considerable volatility and may
not reflect the Company’s future ultimate losses paid (recovered).
The Company’s expected loss models and reserve assumptions take into account current and expected future trends,
which contemplate the impact of current and possible developments in the performance of the exposure and any related legal
proceedings. These factors, which are integral elements of the Company's reserve estimation methodology, are updated on a
quarterly basis based on current information. Also, in some instances, the Company may not be able to reasonably estimate the
amount or range of loss that could result from an unfavorable outcome of a legal proceeding based on the information available
at the stage of the legal proceeding or its estimate may prove to be materially different than the actual results. Loss models and
reserve assumptions may be impacted by changes to interest rates due both to discounting and transaction structures that include
floating rates, which could impact the calculation of expected losses. Because such information changes over time, sometimes
materially, the Company’s projection of losses and its related reserves may also change materially. Much of the recent
development in the Company’s loss projections and reserves relate to the Company’s insured Puerto Rico exposures.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 18, Commitments and Contingencies, for
additional information.
The valuation of many of the Company’s assets and liabilities and AUM includes methodologies, estimates and assumptions
that are subject to differing interpretations and could result in changes to valuations of the Company’s assets and liabilities
that may materially adversely affect the Company’s financial condition, results of operations, capital, business prospects and
share price.
57
The Company carries a significant portion of its assets and liabilities and reports a significant portion of its AUM at
fair value. The approaches used by the Company to calculate the fair value of those assets and liabilities it carries at fair value
are described under, Part II, Item 8, Financial Statements and Supplementary Data, Note 9, Fair Value Measurement. The
determination of fair values is made at a specific point in time, based on available market information and judgments about the
assets and liabilities being valued, including estimates of timing and amounts of cash flows and the credit rating of the issuer or
counterparty. The use of different methodologies and assumptions may have a material effect on estimated fair value amounts.
During periods of market disruption, including periods of rapidly changing credit spreads or illiquidity, it may be
difficult to value certain of the Company’s assets and liabilities and AUM, particularly if trading becomes less frequent or
market data becomes less observable. An increase in the amount of the Company’s alternative investments in its investment
portfolio and/or CIVs may increase the amount of the Company’s assets subject to this risk. During such periods, more assets
and liabilities may fall to the Level 3 valuation level, which describes model derived valuations in which one or more
significant inputs or significant value drivers are unobservable, thereby resulting in values that may not be indicative of net
realizable value or reflective of future fair values. Rapidly changing credit and equity market conditions could materially impact
the valuation of assets and liabilities as reported within the financial statements, and period-to-period changes in value could
vary significantly.
Strategic Risks
Competition in the Company’s industries may adversely affect its results of operations, business prospects and share price.
As described in greater detail under Item 1, Business — Insurance Segment — Competition, the Company can face
competition in its insurance business, either in the form of current or new providers of credit enhancement, such as nonpayment
insurance, letters of credit or credit derivatives, or in terms of alternative structures, including uninsured offerings, or pricing
competition. Increased competition could have an adverse effect on the Company’s insurance business.
The Company’s Asset Management segment operates in highly competitive markets. The Company competes with
many other firms in every aspect of the asset management industry, including raising funds, seeking investments, and hiring
and retaining professionals. The Company’s ability to increase and retain AUM is directly related to the performance of the
assets it manages as measured against market averages and the performance of the Company’s competitors. In addition, if the
Company’s successful competitors charge lower fees for substantially similar products, the Company may face pressure to
lower fees to attract and retain asset management clients, which may reduce the Company’s revenues and /or income.
Some of the Company’s asset management competitors are substantially larger and have considerably greater
financial, technical and marketing resources. Certain of these competitors periodically raise significant amounts of capital in
investment strategies that are also pursued by the Company. Some of these competitors also may have a lower cost of capital
and access to funding sources that are not available to the Company, which may create further competitive disadvantages with
respect to investment opportunities. In addition, some of these competitors may have higher risk tolerances or make different
risk assessments, allowing them to consider a wider variety of investments and establish broader networks of business
relationships than those available to AssuredIM and/or the Company.
Strategic transactions may not result in the benefits anticipated.
From time to time the Company evaluates strategic opportunities and conducts diligence activities with respect to
transactions with other financial services companies including transactions involving asset managers, asset management
contracts, legacy financial guaranty companies and financial guaranty portfolios, and other financial services companies, and
has executed a number of such transactions in the past. For example, the Company is exploring alternative accretive growth
strategies for its asset management business, with the goal of maximizing the value of this business for its stakeholders. From
time to time the Company also evaluates expanding its business by hiring teams of professionals engaged in activities it wishes
to pursue and conducts due diligence with respect to such individuals and their current positions. Such strategic transactions
related to entities, portfolios or teams may involve some or all of the various risks commonly associated with such strategic
transactions, including, among other things: (a) failure to adequately identify and value potential exposures and liabilities
associated with a new entity, portfolio or team; (b) difficulty in estimating the value of a new entity, portfolio or team; (c)
potential diversion of management’s time and attention; (d) exposure to asset quality issues of a new entity or portfolio; (e)
difficulty and expense of integrating the operations, systems and personnel of a new entity; (f) difficulty integrating the culture
of a new entity or team; (g) failure to identify legal risks associated with the strategic transaction with an entity, portfolio or
team, and (h) in the case of acquisitions of a financial guaranty company or portfolio, concentration of insurance exposures,
including insurance exposures which may exceed single risk limits, aggregate risk limits, BIG limits and/or non-U.S. dollar
exposure limits, due to the addition of the target insurance portfolio. Such strategic transactions related to entities, portfolios or
58
teams may also have unintended consequences on ratings assigned by the rating agencies to the Company or its insurance
subsidiaries or on the applicability of laws and regulations to the Company’s existing businesses. These or other factors may
cause any past or future strategic transactions relating to financial services entities, portfolios or teams not to result in the
benefits to the Company that the Company anticipated when the transaction was agreed. Past or future transactions may also
subject the Company to non-monetary consequences that may or may not have been anticipated or fully mitigated at the time of
the transaction.
Additionally, if the Company enters into discussions regarding a strategic transaction and a transaction is not
consummated, especially if such discussions become known, related portions of the Company’s business may be negatively
impacted.
Asset Management may present risks that may adversely affect the Company’s financial condition, results of operations,
capital, business prospects and share price.
The expansion of the Company’s asset management business segment and the establishment of AssuredIM has
exposed the Company’s financial condition, results of operations, business prospects and share price to some of the risks faced
by asset managers generally and the risk of AssuredIM’s investment business more specifically. Asset management services are
primarily a fee-based business, and the Company’s asset management and performance fees are based on the amount of its
AUM as well as the performance of those assets. Volatility or declines in the markets in which the Company invests as an asset
manager, or poor performance of its investments, may negatively affect its AUM and its asset management and performance
fees, and may deter future investment by third parties in the Company’s asset management products. The Company’s asset
management business is also subject to legal, regulatory, compliance, accounting, valuation and political risks that differ from
those involved in the Company’s insurance business. In addition, the asset management business is an intensely competitive
business, creating new competitive risks.
The Company had a carrying value as of December 31, 2022, of $157 million for goodwill and other intangible assets
established in connection with the acquisition of BlueMountain (now known as AssuredIM LLC). External factors, such as the
impact of the war in Ukraine or the COVID-19 pandemic on global financial markets, general macroeconomic factors, and
industry conditions, as well as the financial performance of AssuredIM relative to the Company’s expectations at the time of
acquisition, could impact the Company’s assessment of the goodwill and other intangible assets carrying value. The Company’s
goodwill impairment assessment also is sensitive to the Company’s assumptions of discount rates, market multiples, projections
of AUM growth and other factors, which may vary. A change in the Company’s assessment may, in the future, result in an
impairment, which could adversely affect the Company’s financial condition, results of operations and share price.
Alternative investments may not result in the benefits anticipated.
The Company and its CIVs have invested in alternative investments, and may over time increase the proportion of the
Company’s assets invested in alternative investments. Alternative investments may be riskier than other investments the
Company makes, and may not result in the benefits anticipated at the time of the investment. In addition, although the Company
uses what it believes to be excess capital to make alternative investments, whether directly or through CIVs, measures of
required capital can fluctuate and such assets may not be given much, or any, value under the various rating agency, regulatory
and internal capital models to which the Company is or may be subject. Also, alternative investments may be less liquid than
most of the Company’s other investments and so may be difficult to convert to cash or investments that do receive more
favorable treatment under the capital models to which the Company is subject. See “— Operational Risks — The ability of
AGL and its subsidiaries to meet their liquidity needs may be limited.”
A downgrade of the financial strength or financial enhancement ratings of any of the Company’s insurance or reinsurance
subsidiaries may adversely affect its business prospects.
The financial strength and financial enhancement ratings assigned by S&P, Moody’s, KBRA and A.M. Best Company,
Inc. to each of the Company’s insurance and reinsurance subsidiaries represent such rating agencies’ opinions of the insurer’s
financial strength and ability to meet ongoing obligations to policyholders and cedants in accordance with the terms of the
financial guaranties it has issued or the reinsurance agreements it has executed. Issuers, investors, underwriters, ceding
companies and others consider the Company’s financial strength or financial enhancement ratings an important factor when
deciding whether or not to utilize a financial guaranty or purchase reinsurance from one of the Company’s insurance or
reinsurance subsidiaries. A downgrade by a rating agency of the financial strength or financial enhancement ratings of one or
more of the Company’s insurance subsidiaries could impair the Company’s financial condition, results of operation, capital,
liquidity, business prospects and/or share price. The ratings assigned by the rating agencies to the Company’s insurance
subsidiaries are subject to review and may be lowered by a rating agency at any time and without notice to the Company.
59
The rating agencies have changed their methodologies and criteria from time to time. Factors influencing the rating
agencies are beyond management's control and not always known to the Company. In the event of an actual or perceived
deterioration in creditworthiness of large risks in the Company’s insurance portfolio, or other large increases in liabilities
(including those related to legal proceedings), or a change in a rating agency’s capital model or rating methodology, a rating
agency may require the Company to increase the amount of capital it holds to maintain its financial strength and financial
enhancement ratings under the rating agencies’ capital adequacy models, or a rating agency may identify an issue that
additional capital would not address. The amount of any capital required may be substantial, and may not be available to the
Company on favorable terms and conditions or at all, especially if it were known that additional capital was necessary to
preserve the Company’s financial strength or financial enhancement ratings. The failure to raise any additional required capital,
or successfully address another issue or issues raised by a rating agency, could result in a downgrade of the ratings of the
Company’s insurance subsidiaries and thus have an adverse impact on its business, results of operations and financial condition.
The Company periodically assesses the value of each rating assigned to each of its subsidiaries, and may as a result of
such assessment request that a rating agency add or drop a rating from certain of its subsidiaries. Rating agencies may choose
not to honor the Company’s request, and continue to rate a subsidiary after the Company’s request to drop the rating, as
Moody’s did with respect to AGC.
The insurance subsidiaries’ financial strength and financial enhancement ratings are an important competitive factor in
the financial guaranty insurance and reinsurance markets. If the financial strength or financial enhancement ratings of one or
more of the Company’s insurance subsidiaries were reduced below current levels, the Company expects the number of
transactions that would benefit from the Company’s insurance would be reduced; consequently, a downgrade by rating agencies
could harm the Company’s new insurance business production.
In addition, a downgrade may have a negative impact on the Company’s insurance subsidiaries in respect of
transactions that they have insured or that they have assumed through reinsurance. For example, beneficiaries of financial
guaranties issued by the Company’s insurance subsidiaries may have the right to cancel the credit protection provided by them,
which would result in the loss of future premium earnings and the reversal of any fair value gains recorded by the Company. In
addition, a downgrade of AG Re, AGC or AGRO could result in certain ceding companies recapturing business that they had
ceded to these reinsurers.
Operational Risks
Fluctuations in foreign exchange rates may adversely affect the Company’s financial position and results of operations.
The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s insurance and
reinsurance subsidiaries is the U.S. dollar. The Company’s subsidiaries maintain both assets and liabilities in currencies
different from their functional currencies, which exposes the Company to changes in currency exchange rates. The investment
portfolios of non-U.S. subsidiaries are primarily invested in local currencies in order to satisfy regulatory requirements and to
support local insurance operations regardless of currency fluctuations.
The principal currencies creating foreign exchange risk to the Company are the pound sterling and the euro. The
Company cannot accurately predict the nature or extent of future exchange rate variability between these currencies or relative
to the U.S. dollar. Foreign exchange rates are sensitive to factors beyond the Company’s control.
The Company does not engage in active management, or hedging, of its foreign exchange rate risk. Therefore,
fluctuation in exchange rates between the U.S. dollar and the pound sterling or the euro could adversely impact the Company’s
financial position, results of operations and cash flows. See Part II, Item 7A, Quantitative and Qualitative Disclosures About
Market Risk — Sensitivity to Foreign Exchange Rate Risk.
Some of the Company’s non-U.S. operations expose it to less predictable political, credit and legal risks.
The Company pursues new business opportunities in non-U.S. markets. The underwriting of obligations of an issuer in
a country other than the U.S. involves the same process as that for a U.S. issuer, but additional risks must be addressed, such as
the evaluation of currency exchange rates, non-U.S. business and legal issues, and the economic and political environment of
the country or countries in which an issuer does business. Changes in such factors could impede the Company’s ability to
insure, or increase the risk of loss from insuring, obligations in the non-U.S. countries in which it currently does business and
limit its ability to pursue business opportunities in other non-U.S. countries.
60
The Company is dependent on key executives and the loss of any of these executives, or its inability to retain other key
personnel, could adversely affect its business.
The Company’s success substantially depends upon its ability to attract, motivate and retain qualified employees and
upon the ability of its senior management and other key employees to implement its business strategy. The Company believes
there are only a limited number of available qualified executives in the insurance business lines in which the Company
competes, and that there is strong competition for qualified asset management executives, including portfolio managers. The
Company relies substantially upon the services of Dominic J. Frederico, President and Chief Executive Officer, and other
executives.
Beginning in 2021, there has been a dramatic increase in U.S. workers leaving their positions generally in what has
been referred to as the “great resignation,” and the market to build, retain and replace talent has become even more highly
competitive. Although the Company has designed its executive compensation with the goal of retaining and creating incentives
for its executive officers and other key employees, including portfolio managers, the Company may not be successful in
retaining their services. The loss of the services of any of these individuals or other key members of the Company’s
management team could adversely affect the implementation of its business strategy, including the Company’s development of
its asset management business.
The Company is dependent on its information technology and that of certain third parties, and a cyberattack, security
breach or failure in the Company’s or a vendor’s information technology system, or a data privacy breach of the Company’s
or a vendor’s information technology system, could adversely affect the Company’s business.
The Company relies upon information technology and systems, including technology and systems provided by or
interfacing with those of third parties, to support a variety of its business processes and activities. In addition, the Company
receives and stores confidential information, including personally identifiable information, in connection with certain loss
mitigation and due diligence activities related to its structured finance insurance and asset management businesses, along with
information regarding employees and directors and asset management clients, among others. Information technology security
threats and events are increasing in frequency and sophistication. The Company’s data systems and those of third parties on
which it relies will continue to be vulnerable to security and data privacy breaches due to, and continue to be the target of,
cyberattacks, viruses, malware, ransomware, other malicious codes, hackers, unauthorized access, or other computer-related
penetrations, and other external hazards, as well as inadvertent errors, equipment and system failures, and employee
misconduct. Over time, the frequency and sophistication of such threats continue to increase and often become further
heightened in connection with geopolitical tensions. Like other global companies, the Company has an increasing challenge of
attracting and retaining highly qualified security personnel to assist in combating these security threats. A breach of these
systems could, for example, result in lost business, reputational harm, the disclosure or misuse of confidential or proprietary
information, incorrect reporting, legal costs and regulatory penalties, including under the EU’s General Data Protection
Regulation, the California Consumer Privacy Act and similar laws and regulations.
The Company’s business operations rely on the continuous availability of its computer systems as well as those of
certain third parties. In addition to disruptions caused by cyberattacks or data privacy breaches, such systems may be adversely
affected by natural and man-made catastrophes. The Company’s failure to maintain business continuity in the wake of such
events, particularly if there were an interruption for an extended period, could prevent the timely completion of critical
processes across its operations, including, for example, claims processing, treasury and investment operations and payroll.
These failures could result in additional costs, loss of business, fines and litigation.
The Company began operating remotely in accordance with its business continuity plan, and instituted mandatory
work-from-home policies at all of its global offices, in March 2020. The Company has shifted to a hybrid work-from-home and
work-from-office paradigm. This shift to working from home at least part of the time has made the Company more dependent
on internet and communications access and capabilities and has heightened the risk of cybersecurity attacks to its operations.
The Company and its subsidiaries are subject to numerous data privacy and protection laws and regulations in a
number of jurisdictions, particularly with regard to personally identifiable information. The Company’s failure to comply with
these requirements, even absent a security breach, could result in penalties, reputational harm or difficulty in obtaining desired
consents from regulatory authorities.
The Board oversees the risk management process and engages with Company cybersecurity and data privacy risk
issues, including reinforcing related policies, standards and practices, and the expectation that employees will comply with
these policies. The Audit Committee of the Board of Directors has specific responsibility for overseeing information technology
61
matters, including cybersecurity and data privacy risk, and the Risk Oversight Committee of the Board addresses cybersecurity
and data privacy matters as part of its enterprise risk management responsibilities.
Errors in, overreliance on or misuse of models may result in financial loss, reputational harm or adverse regulatory action.
The Company uses models for numerous purposes in its business. For example, it uses models to project future cash
flows associated with pricing models, calculating insurance expected losses to be paid (recoveries), evaluating risks in its
insurance and investments, valuing assets and liabilities and projecting liquidity needs. It also uses models to determine and
project capital requirements under its own risk model as well as under regulatory and rating agency requirements. While the
Company has a model validation function and has adopted procedures to protect its models, the models may not operate
properly (including as a result of errors or damage) and may rely on assumptions that are inherently uncertain and may prove to
have been incorrect.
Significant claim payments may reduce the Company’s liquidity.
Claim payments and payments made in connection with related legal proceedings reduce the Company’s invested
assets and result in reduced liquidity and net investment income, even if the Company is reimbursed in full over time and does
not experience ultimate loss on the claim. In the years after the financial crisis that began in 2008, many of the larger claims
paid by the Company were with respect to insured U.S. RMBS securities. More recently, the Company has been paying large
claims related to certain insured Puerto Rico exposures, which it has been doing since 2016. The Company had net par
outstanding to general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities
and public corporations aggregating $1.4 billion and $3.6 billion, respectively, as of December 31, 2022 and December 31,
2021, all of which was rated BIG under the Company’s rating methodology. For a discussion of the Company’s Puerto Rico
risks, see, Part II, Item 8, Financial Statements and Supplementary Data, Note 3, Outstanding Exposure. For a discussion of the
Company’s plans to fund large claim payments associated with the anticipated resolution of these exposures, see Part II, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources
— Insurance Subsidiaries.
The Company plans for future claim payments. If the amount of future claim payments is significantly more than that
projected by the Company, the Company’s ability to make other claim payments and its financial condition, financial strength
ratings and business prospects and share price could be adversely affected.
The Company may face a sudden need to raise additional capital as a result of insurance losses, whether related to Puerto
Rico or otherwise, substantially in excess of the stress scenarios for which it plans, or as a result of changes in regulatory or
rating agency capital requirements applicable to its insurance companies, which additional capital may not be available or
may be available only on unfavorable terms.
The Company’s capital requirements depend on many factors, primarily related to its in-force book of insurance
business and rating agency capital requirements for its insurance companies. Failure to raise additional capital if and as needed
may result in the Company being unable to write new insurance business and may result in the ratings of the Company and its
insurance subsidiaries being downgraded by one or more rating agency. The Company’s access to external sources of financing,
as well as the cost of such financing, is dependent on various factors, including the market supply of such financing, the
Company’s long-term debt ratings and insurance financial strength and enhancement ratings and the perceptions of its financial
strength and the financial strength of its insurance subsidiaries. The Company’s debt ratings are in turn influenced by numerous
factors, such as financial leverage, balance sheet strength, capital structure and earnings trends. If the Company’s need for
capital arises because of significant insurance losses substantially in excess of the stress scenarios for which it plans, the
occurrence of such losses may make it more difficult for the Company to raise the necessary capital.
Future capital raises for equity or equity-linked securities could also result in dilution to the Company’s shareholders.
In addition, some securities that the Company could issue, such as preferred stock or securities issued by the Company's
operating subsidiaries, may have rights, preferences and privileges that are senior to those of its common shares.
Large insurance losses, whether related to Puerto Rico or otherwise, could increase substantially the Company’s insurance
subsidiaries’ leverage ratios, which may prevent them from writing new insurance.
Insurance regulatory authorities impose capital requirements on the Company’s insurance subsidiaries. These capital
requirements, which include leverage ratios and surplus requirements, may limit the amount of insurance that the subsidiaries
may write. A material reduction in the statutory capital and surplus of an insurance subsidiary, whether resulting from
underwriting or investment losses, a change in regulatory capital requirements or another event, or a disproportionate increase
62
in the amount of risk in force, could increase a subsidiary’s leverage ratio. This in turn could require that subsidiary to obtain
reinsurance for existing business or add to its capital base (neither of which may be available, or may be available only on terms
that the Company considers unfavorable). Failure to maintain regulatory capital levels could limit that insurance subsidiary’s
ability to write new business.
The Company’s holding companies’ ability to meet their obligations may be constrained.
Each of AGL, AGUS and AGMH is a holding company and, as such, has no direct operations of its own. None of the
holding companies expect to have any significant operations or assets other than its ownership of the stock of its subsidiaries.
The Company expects that while it is building its asset management business, dividends and other payments from the insurance
companies will be the primary source of funds for AGL, AGUS and AGMH to meet ongoing cash requirements, including
operating expenses, intercompany loan payments, any future debt service payments and other expenses, to pay dividends to
their respective shareholders, to fund any acquisitions, and, in the case of AGL, to repurchase its common shares. The insurance
subsidiaries’ ability to pay dividends and make other payments depends, among other things, upon their financial condition,
results of operations, cash requirements, 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. Additionally, in recent years AGM and AGC
have sought and been granted permission from their insurance regulators to make discretionary payments to their corporate
parents in excess of the amounts permitted by right under the insurance laws and related regulations. There can be no assurance
that such regulators will permit discretionary payments in the future. Accordingly, if the insurance subsidiaries are unable to
pay sufficient dividends and other permitted payments at the times or in the amounts that are required, that would have an
adverse effect on the ability of AGL, AGUS and AGMH to satisfy their ongoing cash requirements and on their ability to pay
dividends to shareholders or repurchase common shares or fund other activities, including acquisitions.
The ability of AGL and its subsidiaries to meet their liquidity needs may be limited.
Each of AGL, AGUS and AGMH requires liquidity, either in the form of cash or in the ability to easily sell investment
assets for cash, in order to meet its payment obligations, including, without limitation, its operating expenses, interest and
principal payments on debt and dividends on common shares, and to make capital investments in operating subsidiaries. Such
cash is also used by AGL to repurchase its common shares. The Company’s operating subsidiaries require substantial liquidity
to meet their respective payment and/or collateral posting obligations, including under financial guaranty insurance policies or
reinsurance agreements. They also require liquidity to pay operating expenses, reinsurance premiums, dividends to AGUS or
AGMH for debt service and dividends to AGL, as well as, where appropriate, to make capital investments in their own
subsidiaries. In addition, the Company may require substantial liquidity to fund any future acquisitions. The Company cannot
give any assurance that the liquidity of AGL and its subsidiaries will not be adversely affected by adverse market conditions,
changes in insurance regulatory law, insurance claim payments and related litigation substantially in excess of those projected
by the Company in its stress scenarios, or changes in general economic conditions.
AGL anticipates that its liquidity needs will be met by the ability of its operating subsidiaries to pay dividends or to
make other payments; external financings; investment income from its invested assets; and current cash and short-term
investments. The Company expects that its subsidiaries’ need for liquidity will be met by the operating cash flows of such
subsidiaries; external financings; investment income from their invested assets; and proceeds derived from the sale of their
investments, significant portions of which are in the form of cash or short-term investments. The value of the Company’s
investments may be adversely affected by changes in interest rates, credit risk and capital market conditions that therefore may
adversely affect the Company’s potential ability to sell investments quickly and the price which the Company might receive for
those investments. Part of the Company’s investment strategy is to invest more of its excess capital in alternative investments,
which may be particularly difficult to sell at adequate prices, or at all.
The Company’s sources of liquidity are subject to market, regulatory or other factors that may impact the Company’s
liquidity position at any time. As discussed above, AGL’s insurance subsidiaries are subject to regulatory and rating agency
restrictions limiting their ability to declare and to pay dividends and make other payments to AGL. As further noted above,
external financing may or may not be available to AGL or its subsidiaries in the future on satisfactory terms.
Risks Related to Taxation
Changes in U.S. tax laws could reduce the demand or profitability of financial guaranty insurance, or negatively impact the
Company’s investments.
The TCJA included provisions that could result in a reduction of supply, such as the termination of advance refunding
bonds. Any such lower volume of municipal obligations could impact the amount of such obligations that could benefit from
63
insurance. In addition, the reduction of the U.S. corporate income tax rate to 21% could make municipal obligations less
attractive to certain institutional investors such as banks and property and casualty insurance companies, resulting in lower
demand for municipal obligations.
Further, future changes in U.S. federal, state or local laws that materially adversely affect the tax treatment of
municipal securities or the market for those securities may lower volume and demand for municipal obligations and also may
adversely impact the value and liquidity of the Company’s investments, a significant portion of which is invested in tax-exempt
instruments.
Certain of the Company’s non-U.S. subsidiaries may be subject to U.S. tax.
The Company manages its business so that AGL and its non-U.S. subsidiaries (other than AGRO) operate in such a
manner that none of them should be subject to U.S. federal tax (other than U.S. excise tax on insurance and reinsurance
premium income attributable to insuring or reinsuring U.S. risks, and U.S. withholding tax on certain U.S. source investment
income). However the Company cannot be certain that the IRS will not contend successfully that AGL or any of its non-U.S.
subsidiaries (other than AGRO) is/are engaged in a trade or business in the U.S., in which case each such company could be
subject to U.S. corporate income and branch profits taxes on the portion of its earnings effectively connected to such U.S.
business. See Item 1. Business — Tax Matters — Taxation of AGL and Subsidiaries— United States.
AGL, AG Re and AGRO may become subject to taxes in Bermuda after March 2035, which may adversely affect the
Company’s future results of operations and on an investment in the Company.
The Bermuda Minister of Finance, under Bermuda’s Exempted Undertakings Tax Protection Act 1966, as amended,
has given AGL, AG Re and AGRO an assurance that if any legislation is enacted in Bermuda that would impose tax computed
on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or
inheritance tax, then subject to certain limitations the imposition of any such tax will not be applicable to AGL, AG Re or
AGRO, or any of AGL’s or its subsidiaries’ operations, stocks, debentures or other obligations until March 31, 2035. Given the
limited duration of the Minister of Finance’s assurance, the Company cannot be certain that it will not be subject to Bermuda
tax after March 31, 2035.
U.S. Persons who hold 10% or more of AGL’s shares directly or through non-U.S. entities may be subject to taxation under
the U.S. CFC rules.
If AGL and/or a non-U.S. subsidiary is considered a CFC, a U.S. Person that is treated as owning 10% or more of
AGL’s shares may be required to include in income for U.S. federal income tax purposes its pro rata share of certain income of
AGL and its non-U.S. subsidiaries for a taxable year, even if such income is not distributed and may be subject to U.S. federal
income tax on a portion of any gain upon a sale or other disposition of its shares at ordinary income tax rates.
No assurance may be given that a U.S. Person who owns the Company’s shares will not be characterized as owning
10% or more of AGL and/or its non-U.S. subsidiaries under the CFC rules, in which case such U.S. Person may be subject to
taxation under such rules. See Item 1. Business — Tax Matters, — Taxation of Shareholders ─ United States Taxation ─
Classification of AGL or its Non-U.S. Subsidiaries as a CFC.
U.S. Persons who hold shares may be subject to U.S. income taxation at ordinary income rates on their proportionate share
of the Company’s RPII.
If any Foreign Insurance Subsidiary generates RPII (broadly defined as insurance and related investment income
attributable to the insurance of a U.S. shareholder and certain related persons to such shareholder) and certain exceptions are not
met, each U.S. Person owning AGL shares (directly or indirectly through foreign entities) may be required to include in income
for U.S. federal income tax purposes its pro rata share of the Foreign Insurance Subsidiary’s RPII, regardless of whether such
income is distributed and may be subject to U.S. federal income tax on a portion of any gain upon a sale or other disposition of
its shares at ordinary tax rates (even if an exception to the RPII rules applies).
The Company believes that each of its Foreign Insurance Subsidiaries should qualify for an exception to the RPII rules
and the rules that subject gain on sale or disposition of shares to ordinary tax rates would not apply to the disposition of AGL
shares. However, the Company cannot be certain that this will be the case because some of the factors which determine the
extent of RPII may be beyond its control and rules regarding the treatment of gain on disposition of shares have not been
interpreted or finalized. Recently proposed regulations could, if finalized in their current form, substantially expand the
definition of RPII to include insurance income of our Foreign Insurance Subsidiaries related to affiliate reinsurance
64
transactions. If these proposed regulations are finalized in their current form, it could limit our ability to execute affiliate
reinsurance transactions that would otherwise be undertaken for non-tax business reasons in the future and could increase the
risk that gross RPII could constitute 20% or more of the gross insurance income of one or more of our Foreign Insurance
Subsidiaries in a particular taxable year, which could result in such RPII being taxable to U.S. Persons that own or are treated as
owning shares of AGL. U.S. Persons owning or treated as owning shares of AGL should consult their tax advisors as to the
effect of these uncertainties. See Item 1. Business — Tax Matters — Taxation of Shareholders — United States Taxation —
The RPII CFC Provisions; Disposition of AGL Shares.
U.S. tax-exempt shareholders may be subject to the unrelated business taxable income rules with respect to certain
insurance income of the Foreign Insurance Subsidiaries.
U.S. tax-exempt shareholders may be required to treat insurance income includable under the CFC or RPII rules as
unrelated business taxable income. See Item 1. Business — Tax Matters — Taxation of Shareholders — United States Taxation
— Tax-Exempt Shareholders.
U.S. Persons who hold AGL’s shares will be subject to adverse tax consequences if AGL is considered to be PFIC for U.S.
federal income tax purposes.
If AGL is considered a PFIC for U.S. federal income tax purposes, a U.S. Person who owns any shares of AGL will be
subject to adverse tax consequences that could materially adversely affect its investment, including subjecting the investor to
both a greater tax liability than might otherwise apply and an interest charge or other unfavorable rules (either a mark-to-market
or current inclusion regime). The Company believes that AGL was not a PFIC for U.S. federal income tax purposes for taxable
years through 2022 and, based on the application of certain PFIC look-through rules and the Company’s plan of operations for
the current and future years, should not be a PFIC in the future. See Item 1. Business — Tax Matters — Taxation of
Shareholders — United States Taxation — Passive Foreign Investment Companies.
Changes in U.S. federal income tax law may adversely affect an investment in AGL’s common shares.
Although the Company is currently unable to predict the ultimate impact of the TCJA on its business, shareholders
and results of operations, it is possible that the TCJA may increase the U.S. federal income tax liability of the U.S. members of
its group that cede risk to non-U.S. group members and may affect the timing and amount of U.S. federal income taxes imposed
on certain U.S. shareholders. Furthermore, it is possible that other legislation could be introduced and enacted by the current
Congress or future Congresses that could have an adverse impact on the Company.
Further, U.S. federal income tax laws and interpretations regarding whether a company is engaged in a trade or
business within the U.S. is a PFIC, or whether U.S. Persons would be required to include in their gross income the “subpart F
income” of a CFC or RPII CFC are subject to change, possibly on a retroactive basis. The Company cannot be certain if, when,
or in what form any future regulations or pronouncements may be implemented or made, or whether such guidance will have a
retroactive effect. See Item 1. Business — Tax Matters — United States Tax Reform.
An ownership change under Section 382 of the Code could have adverse U.S. federal tax consequences.
If AGL were to issue equity securities in the future, including in connection with any strategic transaction, or if
previously issued securities of AGL were to be sold by the current holders, AGL may experience an “ownership change” within
the meaning of Section 382 of the Code. In general terms, an ownership change would result from transactions increasing the
aggregate ownership of certain holders in AGL’s shares by more than 50 percentage points over a testing period (generally
three years). If an ownership change occurred, the Company’s ability to use certain tax attributes, including certain built-in
losses, credits, deductions or tax basis and/or the Company’s ability to continue to reflect the associated tax benefits as assets on
AGL’s balance sheet, may be limited. The Company cannot give any assurance that AGL will not undergo an ownership
change at a time when these limitations could materially adversely affect the Company’s financial condition.
A change in AGL’s U.K. tax residence or its ability to otherwise qualify for the benefits of income tax treaties to which the
U.K. is a party could adversely affect an investment in AGL’s common shares.
AGL is not incorporated in the U.K. and, accordingly, is only resident in the U.K. for U.K. tax purposes if it is
“centrally managed and controlled” in the U.K. Central management and control constitutes the highest level of control of a
company’s affairs. AGL believes it is entitled to take advantage of the benefits of income tax treaties to which the U.K. is a
party on the basis that it is has established central management and control in the U.K. In 2013, AGL obtained confirmation that
there was a low risk of challenge to its residency status from HMRC on the facts as they were at that time. The Board intends to
65
manage the affairs of AGL in such a way as to maintain its status as a company that is tax resident in the U.K. for U.K. tax
purposes and to qualify for the benefits of income tax treaties to which the U.K. is a party. However, the concept of central
management and control is a case-law concept that is not comprehensively defined in U.K. statute. In addition, it is a question
of fact. Moreover, tax treaties may be revised in a way that causes AGL to fail to qualify for benefits thereunder. Accordingly, a
change in relevant U.K. tax law or in tax treaties to which the U.K. is a party, or in AGL’s central management and control as a
factual matter, or other events, could adversely affect the ability of Assured Guaranty to manage its capital in the efficient
manner that it contemplated in establishing U.K. tax residence.
Changes in U.K. tax law or in AGL’s ability to satisfy all the conditions for exemption from U.K. taxation on dividend
income or capital gains in respect of its direct subsidiaries could affect an investment in AGL’s common shares.
As a U.K. tax resident, AGL is subject to U.K. corporation tax in respect of its worldwide profits (both income and
capital gains), subject to applicable exemptions.
• With respect to income, the dividends that AGL receives from its subsidiaries should be exempt from U.K.
corporation tax under the exemption contained in section 931D of the Corporation Tax Act 2009.
• With respect to capital gains, if AGL were to dispose of shares in its direct subsidiaries or if it were deemed to
have done so, it may realize a chargeable gain for U.K. tax purposes. Any tax charge would be based on AGL’s
original acquisition cost. It is anticipated that any such future gain should qualify for exemption under the
substantial shareholding exemption in Schedule 7AC to the Taxation of Chargeable Gains Act 1992. However, the
availability of such exemption would depend on facts at the time of disposal, in particular the “trading” nature of
the relevant subsidiary. There is no statutory definition of what constitutes “trading” activities for this purpose and
in practice reliance is placed on the published guidance of HMRC.
A change in U.K. tax law or its interpretation by HMRC, or any failure to meet all the qualifying conditions for
relevant exemptions from U.K. corporation tax, could affect Assured Guaranty’s financial results of operations or its ability to
provide returns to shareholders.
An adverse adjustment under U.K. legislation governing the taxation of U.K. tax resident holding companies on the profits
of their non-U.K. subsidiaries could adversely impact Assured Guaranty’s tax liability.
Under the U.K. “controlled foreign company” regime, the income profits of non-U.K. resident companies may, in
certain circumstances, be attributed to controlling U.K. resident shareholders for U.K. corporation tax purposes. The non-U.K.
resident members of the Assured Guaranty group intend to operate and manage their levels of capital in such a manner that their
profits would not be taxed on AGL under the U.K. CFC regime. In 2013, Assured Guaranty obtained clearance from HMRC
that none of the profits of the non-U.K. resident members of the Assured Guaranty group should be subject to U.K. tax as a
result of attribution under the CFC regime on the facts as they were at the time. However, a change in the way in which Assured
Guaranty operates or any further change in the CFC regime, resulting in an attribution to AGL of any of the income profits of
AGL’s non-U.K. resident subsidiaries for U.K. corporation tax purposes, could adversely affect Assured Guaranty’s financial
results of operations.
An adverse adjustment under U.K. transfer pricing legislation or the imposition of diverted profits tax could adversely
impact Assured Guaranty’s tax liability.
If any arrangements between U.K. resident companies in the Assured Guaranty group and other members of the
Assured Guaranty group (whether resident in or outside the U.K.) are found not to be on arm's length terms and as a result a
U.K. tax advantage is being obtained, an adjustment will be required to compute U.K. taxable profits as if such arrangement
were on arm's length terms. Any transfer pricing adjustment could adversely affect Assured Guaranty’s results of operations.
Since January 1, 2016, the U.K. has implemented a country-by-country reporting (CBCR) regime whereby large multi-
national enterprises are required to report details of their operations and intra-group transactions in each jurisdiction. The U.K.
CBCR legislation includes power to introduce regulations requiring public disclosure of U.K. CBCR reports, although this
power has not yet been exercised. It is possible that Assured Guaranty’s approach to transfer pricing may become subject to
greater scrutiny from the tax authorities in the jurisdictions in which the group operates in consequence of the implementation
of a CBCR regime in the U.K. (or other jurisdictions).
The diverted profits tax (DPT), which is currently levied at 25% (and due to increase to 31% from April 1, 2023), is an
anti-avoidance measure, aimed at protecting the U.K. tax base against the diversion of profits away from the U.K., tax charge.
In particular, DPT may apply to profits generated by economic activities carried out in the U.K., that are not taxed in the U.K.
66
by reason of arrangements between companies in the same multinational group and involving a low-tax jurisdiction, including
co-insurance and reinsurance. It is currently unclear whether DPT would constitute a creditable tax for U.S. foreign tax credit
purposes. If any member of the Assured Guaranty group is liable for DPT, this could adversely affect the Company’s results of
operations.
Assured Guaranty’s financial results may be affected by measures taken in response to the OECD BEPS project.
In May 2019, the OECD published a “Programme of Work” designed to address the tax challenges created by an
increasingly digitalized economy. The Programme is divided into two pillars. The first pillar focuses on the allocation of group
profits between jurisdictions based on a new nexus rule that looks to the jurisdiction of the customer or user (the so-called
“market jurisdiction”) as a supplement to the traditional “permanent establishment” concept. The second pillar addresses the
remaining BEPS risk of profit shifting to entities in low tax jurisdictions by introducing a global minimum tax rate. Possible
measures to implement such rate include the imposition of source-based taxation (including withholding tax) on certain
payments to low tax jurisdictions and an effective extension of a “controlled foreign company” regime whereby parent
companies would be subject to a “top-up” tax on the profits of all their subsidiaries in low tax jurisdictions. The OECD
published detailed blueprints of its proposals on October 14, 2020 and public consultations were held virtually in January 2021.
Following agreement on the principles of the two pillar solution by the finance ministers of the G7 nations in June 2021 and by
the OECD/G20 Inclusive Framework in July 2021, final political agreement on the two pillar framework was published on
October 8, 2021 to which most of the member jurisdictions of the OECD/G20 Inclusive Framework have currently agreed. The
agreement provided that regulated financial services are excluded from the application of Pillar One. The agreement also
provided that the proposals under Pillar Two would apply to multinational groups with revenues exceeding EUR 750 million
and would consist of a globally coordinated set of rules, including an Income Inclusion Rule and Undertaxed Payment Rule,
which would operate with reference to a minimum tax rate of 15% (determined on a country-by-country basis). However, the
ultimate impact of the proposals remains subject to agreement on certain design elements of the two pillars within the OECD/
G20 Inclusive Framework. It is intended that Pillar Two will be implemented into law by participating jurisdictions before an
intended effective date in 2023; to this end, model rules for Pillar Two were released on December 20, 2021, but further work
on this aspect of the Programme of Work remains, including with respect to domestic implementation in participating
jurisdictions, detailed guidance and administrative aspects of the rules. As such, the proposals, in particular in relation to Pillar
Two, are broad in scope and remain subject to further work, and it is therefore not possible to determine their impact at this
time. They could adversely affect Assured Guaranty’s tax liability.
Risks Related to GAAP, Applicable Law and Litigation
Changes in the fair value of the Company’s insured credit derivatives portfolio, its CCS, and its FG VIEs, CIVs and/or the
Company’s decision to consolidate or deconsolidate one or more FG VIEs and/or CIVs during a financial reporting period,
may subject its financial condition and results of operations to volatility.
The Company is required to mark-to-market certain derivatives that it insures, including CDS that are considered
derivatives under GAAP as well as its CCS. Although there is no cash flow effect from this “marking-to-market,” net changes
in the fair value of these derivatives are reported in the Company’s consolidated statements of operations and therefore affect its
financial condition and results of operations. If a credit derivative is held to maturity and no credit loss is incurred, any
unrealized gains or losses previously reported would be reversed as the transaction reaches maturity. The Company also expects
fluctuations in the fair value of its put option under its CCS to reverse over time. For discussion of the Company’s fair value
methodology for credit derivatives, see, Part II, Item 8, Financial Statements and Supplementary Data, Note 9, Fair Value
Measurement.
The Company is required to consolidate certain variable interest entities (VIEs) with respect to which it has provided
financial guaranties, certain AssuredIM Funds in which it invests, and certain AssuredIM-managed CLOs and CLO warehouses
in which it invests, if it concludes that it is the primary beneficiary of that FG VIE, AssuredIM Fund, CLO or CLO warehouse,
respectively. Substantially all of the assets and liabilities of the consolidated FG VIEs and CIVs are reported at fair value. The
Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of
VIEs and, if circumstances change, may consolidate a VIE that was not previously consolidated or deconsolidate a VIE that had
previously been consolidated, and such consolidation or deconsolidation would impact its financial condition and results of
operations in the period in which such action is taken. See, Part II, Item 8, Financial Statements and Supplementary Data, Note
8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.
The required treatment under GAAP of the Company’s insured credit derivatives portfolio, its CCS and its VIEs
causes its financial condition and results of operations as reported under GAAP to be more volatile than would be suggested by
the actual performance of its business operations. Due to the complexity of fair value accounting and the application of GAAP
67
requirements, future amendments or interpretations of relevant accounting standards may cause the Company to modify its
accounting methodology in a manner which may have an adverse impact on its financial results.
Change in industry and other accounting practices could adversely affect the Company’s financial condition, results of
operations, business prospects and share price.
Changes in or the issuance of new accounting standards, as well as any changes in the interpretation of current
accounting guidance, could adversely affect the Company’s financial condition, results of operations, business prospects and
share price. See, Part II, Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of Presentation, for
a discussion of the future application of accounting standards.
Changes in or inability to comply with applicable law and regulations could adversely affect the Company’s financial
condition, results of operations, capital, liquidity, business prospects and share price.
The Company’s businesses are subject to detailed insurance, asset management and other financial services laws and
government regulation in the jurisdictions in which it operates across the globe. In addition to the insurance, asset management
and other regulations and laws specific to the industries in which it operates, regulatory agencies in jurisdictions in which the
Company operates across the globe have broad administrative power over many aspects of the Company’s business, which may
include ethical issues, money laundering, privacy, recordkeeping and marketing and sales practices. Future legislative,
regulatory, judicial or other legal changes in the jurisdictions in which the Company does business may adversely affect the
Company’s financial condition, results of operations, capital, liquidity, business prospects and share price by, among other
things, limiting the types of risks it may insure, lowering applicable single or aggregate risk limits related to its insurance
business, increasing required reserves or capital for its insurance subsidiaries, providing insured obligors with additional
avenues for avoiding or restructuring the repayment of their insured liabilities, increasing the level of supervision or regulation
to which the Company’s operations may be subject, imposing restrictions that make the Company’s products less attractive to
potential buyers and investors, lowering the profitability of the Company’s business activities, requiring the Company to change
certain of its business practices and exposing it to additional costs (including increased compliance costs).
Compliance with applicable laws and regulations is time consuming and personnel-intensive. If the Company fails to
comply with applicable insurance or investment advisory laws and regulations it could be exposed to fines, the loss of insurance
or investment advisory licenses, limitations on the right to originate new business and restrictions on its ability to pay
dividends. If an insurance subsidiary’s surplus declines below minimum required levels, the insurance regulator could impose
additional restrictions on the insurance subsidiary or initiate insolvency proceedings.
Legislation, regulation or litigation arising out of the struggles of distressed obligors may adversely impact the Company’s
legal rights as creditor as well as its investments and the investments it manages.
Borrower distress or default, whether or not the relevant obligation is insured by one of the Company’s insurance
subsidiaries, may result in legislation, regulation or litigation that may impact the Company’s legal rights as creditor or its
investments or the investments it manages. For example, the default by the Commonwealth of Puerto Rico on much of its debt
has resulted in both legislation (including the enactment of PROMESA) and litigation that is continuing to impact the
Company’s rights as creditor, most directly in Puerto Rico but also elsewhere in the U.S. municipal market.
The Company is, and may be in the future, involved in litigation, both as a defendant and as a plaintiff, in the ordinary
course of its insurance and asset management business and other business operations. The outcome of such litigation could
materially impact the Company’s loss reserves and results of operations and cash flows. For a discussion of material litigation,
see, Part II, Item 8, Financial Statements and Supplementary Data, Note 3, Outstanding Exposure; Note 4, Expected Loss to be
Paid (Recovered); and Note 18, Commitments and Contingencies.
AGL’s ability to pay dividends and fund share repurchases and other activities may be constrained by certain insurance
regulatory requirements and restrictions.
AGL is subject to Bermuda regulatory requirements that affect its ability to pay dividends on common shares and to
make other payments. Under the Bermuda Companies Act 1981, as amended, AGL may declare or pay a dividend only if it has
reasonable grounds for believing that it is, and after the payment would be, able to pay its liabilities as they become due, and if
the realizable value of its assets would not be less than its liabilities. While AGL currently intends to pay dividends on its
common shares, investors who require dividend income should carefully consider these risks before investing in AGL.
68
AGL is dependent on dividends from its subsidiaries, including dividends from its insurance subsidiaries, for resources
to pay holders of its common shares, fund share repurchases and pursue other activities. The ordinary dividends that AGL’s
insurance subsidiaries may pay without regulatory approval are subject to legal and regulatory limitations. See “– Regulatory –
State Dividend Limitations”, “– International Regulation – Bermuda – Restrictions on Dividends and Distributions”, “–
International Regulation – United Kingdom Insurance and Financial Services Regulation – Restrictions on Dividend Payments”
and “– International Regulation – France – Restrictions on Dividend Payments”. As a result, absent relief from the relevant
regulator(s), the Company’s insurance subsidiaries may be required to retain capital in the insurance companies that is
substantially in excess of what the Company believes is necessary to support its insurance businesses, reducing the Company’s
ability to productively use or return to shareholders such excess capital. In addition, if, pursuant to insurance laws and
regulations, AGL’s insurance subsidiaries are not permitted to pay ordinary dividends or make other permitted payments to
AGL at the times or in sufficient amounts AGL requires to fund its activities, and if AGL’s other operating subsidiaries were
unable to provide such funds, AGL’s ability to pay dividends to shareholders or fund share repurchases or pursue other
activities could be adversely affected. See “— Operational Risks — The ability of AGL and its subsidiaries to meet their
liquidity needs may be limited.”
Applicable insurance laws may make it difficult to effect a change of control of AGL.
Before a person can acquire control of a U.S., U.K. or French insurance company, prior written approval must be
obtained from the relevant regulator commissioner of the state or country where the insurer is domiciled. In addition, once a
person controls a Bermuda insurance company, the Authority may object to such a person who is not, or is no longer, a fit and
proper person to exercise such control. Because a person acquiring 10% or more of AGL’s common shares would indirectly
control the same percentage of the stock of its insurance subsidiaries, the insurance change of control laws of Maryland, New
York, the U.K., France and Bermuda would likely apply to such a transaction. These laws may discourage potential acquisition
proposals and may delay, deter or prevent a change of control of AGL, including through transactions, and in particular
unsolicited transactions, that some or all of its shareholders might consider to be desirable. While AGL’s Bye-Laws limit the
voting power of any shareholder to less than 10%, the Company cannot provide assurances that the applicable regulatory bodies
would agree that a shareholder who owned 10% or more of its common shares did not control the applicable insurance
subsidiaries, notwithstanding the limitation on the voting power of such shares.
Risks Related to AGL’s Common Shares
The market price of AGL’s common shares may be volatile, and the value of an investment in the Company may decline.
The market price of AGL’s common shares has experienced, and may continue to experience, significant volatility.
Numerous factors, including many over which the Company has no control, may have a significant impact on the market price
of its common shares. These risks include those described or referred to in this “Risk Factors” section as well as, among other
things: (a) investor perceptions of the Company, its prospects and that of the financial guaranty and asset management
industries and the markets in which the Company operates; (b) the Company’s operating and financial performance; (c) the
Company’s access to financial and capital markets to raise additional capital, refinance its debt or obtain other financing; (d) the
Company’s ability to repay debt; (e) the Company’s dividend policy; (f) the amount of share repurchases authorized by the
Company; (g) future sales of equity or equity-related securities; (h) changes in earnings estimates or buy/sell recommendations
by analysts; and (i) general financial, economic and other market conditions.
In addition, the stock market in recent years has experienced extreme price and trading volume fluctuations that often
have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations
may adversely affect the price of AGL’s common shares, regardless of AGL-specific factors.
Furthermore, future sales or other issuances of AGL equity may adversely affect the market price of its common
shares.
Provisions in the Code and AGL’s Bye-Laws may reduce or increase the voting rights of its common shares.
Under the Code, AGL’s Bye-Laws and contractual arrangements, certain shareholders have their voting rights limited
to less than one vote per share, resulting in other shareholders having voting rights in excess of one vote per share. Moreover,
the relevant provisions of the Code and AGL’s Bye-Laws may have the effect of reducing the votes of certain shareholders who
would not otherwise be subject to the limitation by virtue of their direct share ownership.
More specifically, pursuant to the relevant provisions of the Code, if, and so long as, the common shares of a
shareholder are treated as “controlled shares” (as determined under section 958 of the Code) of any U.S. Person and such
69
controlled shares constitute 9.5% or more of the votes conferred by AGL’s issued shares, the voting rights with respect to the
controlled shares of such U.S. Person (a 9.5% U.S. Shareholder) are limited, in the aggregate, to a voting power of less than
9.5%, under a formula specified in AGL’s Bye-Laws. The formula is applied repeatedly until the voting power of all 9.5% U.S.
Shareholders has been reduced to less than 9.5%. For these purposes, “controlled shares” include, among other things, all shares
of AGL that such U.S. Person is deemed to own directly, indirectly or constructively (within the meaning of section 958 of the
Code).
In addition, the Board may limit a shareholder’s voting rights where it deems appropriate to do so to: (1) avoid the
existence of any 9.5% U.S. Shareholders; and (2) avoid certain material adverse tax, legal or regulatory consequences to the
Company or any of the Company’s subsidiaries or any shareholder or its affiliates. AGL’s Bye-Laws provide that shareholders
will be notified of their voting interests prior to any vote taken by them.
As a result of any such reallocation of votes, the voting rights of a holder of AGL common shares might increase
above 5% of the aggregate voting power of the outstanding common shares, thereby possibly resulting in such holder becoming
a reporting person subject to Schedule 13D or 13G filing requirements under the Securities Exchange Act of 1934. In addition,
the reallocation of votes could result in such holder becoming subject to the short swing profit recovery and filing requirements
under Section 16 of the Exchange Act.
AGL also has the authority under its Bye-Laws to request information from any shareholder for the purpose of
determining whether a shareholder’s voting rights are to be reallocated under the Bye-Laws. If a shareholder fails to respond to
a request for information or submits incomplete or inaccurate information in response to a request, the Company may, in its sole
discretion, eliminate such shareholder’s voting rights.
Provisions in AGL’s Bye-Laws may restrict the ability to transfer common shares, and may require shareholders to sell their
common shares.
AGL’s Board may decline to approve or register a transfer of any common shares: (1) if it appears to the Board, after
taking into account the limitations on voting rights contained in AGL’s Bye-Laws, that any adverse tax, regulatory or legal
consequences to AGL, any of its subsidiaries or any of its shareholders may occur as a result of such transfer (other than such as
the Board considers to be de minimis); or (2) subject to any applicable requirements of or commitments to the NYSE, if a
written opinion from counsel supporting the legality of the transaction under U.S. securities laws has not been provided or if
any required governmental approvals have not been obtained.
AGL’s Bye-Laws also provide that if the Board determines that share ownership by a person may result in adverse tax,
legal or regulatory consequences to the Company, any of the subsidiaries or any of the shareholders (other than such as the
Board considers to be de minimis), then AGL has the option, but not the obligation, to require that shareholder to sell to AGL or
to third parties to whom AGL assigns the repurchase right for fair market value the minimum number of common shares held
by such person which is necessary to eliminate such adverse tax, legal or regulatory consequences.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Management believes its office space is adequate for its current and anticipated needs. The Company’s properties
include the following:
•
Hamilton, Bermuda:
◦
approximately 8,700 square feet of office space that serves as the principal executive offices of AGL and AG
Re. The lease expires in April 2026 and is renewable at the option of the Company.
•
New York, U.S.:
◦
103,500 square feet of office space that serves as the primary offices of the U.S. Insurance Subsidiaries. The
lease expires in February 2032, with an option, subject to certain conditions, to renew for five years at a fair
market rent;
70
◦
◦
approximately 52,000 square feet of office space that serves as the primary offices of AssuredIM. This lease
expires in December 2032; and
78,600 square feet of office space that previously served as the primary offices of AssuredIM. The lease
expires in April 2024. As of December 31, 2022, this space is subleased to other tenants for a substantial
portion of its remaining lease term.
•
London, U.K.:
◦
◦
approximately 7,000 square feet of office space that serves as the primary office of AGUK. The lease expires
in September 2029, with an option, subject to certain conditions, to renew for five years at a fair market rent;
and
approximately 8,000 square feet of office space that previously served as the primary office of AssuredIM
LLC. The lease expires in March 2024. As of December 31, 2022, this space is subleased to another tenant for
its remaining term.
•
Other: The Company leases other office space in San Francisco, California; London, England; and Paris, France.
ITEM 3. LEGAL PROCEEDINGS
Information pertaining to legal proceedings is provided in the “Legal Proceedings” and “Litigation” sections of Part II,
Item 8, Financial Statements and Supplementary Data, Note 18, Commitments and Contingencies, the “Recovery Litigation”
section of Note 4, Expected Loss to be Paid (Recovered), and the “Puerto Rico Litigation” section of Note 3, Outstanding
Exposure, and is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Information About Our Executive Officers
The table below sets forth the names, ages, positions and business experience of the executive officers of AGL.
Name
Dominic J. Frederico
Robert A. Bailenson
Ling Chow
David A. Buzen
Stephen Donnarumma
Jorge A. Gana
Holly Horn
Age
70
56
52
63
60
52
62
Position(s)
President and Chief Executive Officer; Deputy Chairman
Chief Financial Officer
General Counsel and Secretary
Chief Investment Officer and Head of Asset Management
Chief Credit Officer
Chief Risk Officer
Chief Surveillance Officer
Dominic J. Frederico has been a director of AGL since the Company’s 2004 initial public offering and the President
and Chief Executive Officer of AGL since December 2003. Mr. Frederico served as Vice Chairman of ACE Limited from 2003
until 2004 and served as President and Chief Operating Officer of ACE Limited and Chairman of ACE INA Holdings, Inc.
from 1999 to 2003. Mr. Frederico was a director of ACE Limited from 2001 through May 2005. From 1995 to 1999
Mr. Frederico served in a number of executive positions with ACE Limited. Prior to joining ACE Limited, Mr. Frederico spent
13 years working for various subsidiaries of American International Group, Inc.
Robert A. Bailenson has been Chief Financial Officer of AGL since June 2011. Mr. Bailenson has been with Assured
Guaranty and its predecessor companies since 1990. Mr. Bailenson became Chief Accounting Officer of AGC in 2003, of AGL
in May 2005, and of AGM in July 2009, and served in such capacities until 2019. He was Chief Financial Officer and Treasurer
of AG Re from 1999 until 2003 and was previously the Assistant Controller of Capital Re Corp., the Company’s predecessor.
71
Ling Chow has been General Counsel and Secretary of AGL since January 1, 2018. She is responsible for legal affairs
and corporate governance at the Company, including its litigation and other legal strategies relating to distressed credits, and its
corporate, compliance, regulatory and disclosure efforts. She is also responsible for the Company’s human resources function.
Ms. Chow began her tenure at the Company in 2002 as a transactional attorney, working on the insurance of structured finance
and derivative transactions. She previously served as Deputy General Counsel and Assistant Secretary of AGL from May 2015
and as Assured Guaranty’s U.S. General Counsel from June 2016. Prior to that, Ms. Chow served as Deputy General Counsel
of Assured Guaranty’s U.S. subsidiaries in several capacities from 2004. Before joining Assured Guaranty, Ms. Chow was an
associate at law firms in New York City, where she was responsible for transactional work associated with public and private
mergers and acquisitions, venture capital investments, and private and public securities offerings.
David A. Buzen has been the Chief Investment Officer (CIO) and Head of Asset Management of the Company’s U.S.
Insurance Subsidiaries and Chief Executive Officer and CIO of AssuredIM since August 2020. Previously, Mr. Buzen served as
Deputy CIO of BlueMountain (now AssuredIM LLC). Prior to that, he was the Senior Managing Director, Alternative
Investments, where he was responsible for leading the Company’s efforts to enter the asset management business. Mr. Buzen
joined Assured Guaranty in 2016 after the acquisition of CIFG Holding Inc., where he was President and CEO. Prior to his
years at CIFG, Mr. Buzen was Chief Financial Officer of Churchill Financial, a commercial finance and asset management
company after heading DEPFA Bank’s municipal reinvestment and U.S. financial guarantee businesses. Earlier, he served as
Chief Operating Officer of ACE Financial Solutions, an operating division of ACE Limited. Before that, he was the Chief
Financial Officer of Capital Re Corp., a company that was acquired by ACE Limited in 1999 and which owned the company
now known as Assured Guaranty Corp. until Assured Guaranty’s 2004 IPO. He began his career in the financial guaranty
industry at Ambac Financial Group.
Stephen Donnarumma has been the Chief Credit Officer of AGC since 2007, and of AGM since its 2009 acquisition.
Mr. Donnarumma joined Assured Guaranty in 1993 and has held a number of positions over the years, including Deputy Chief
Credit Officer of AGL, Chief Operating Officer and Chief Underwriting Officer of AG Re, Chief Risk Officer of AGC, and
Senior Managing Director, Head of Mortgage and Asset-backed Securities of AGC. Prior to joining Assured Guaranty,
Mr. Donnarumma was with Financial Guaranty Insurance Company from 1989 until 1993, where his responsibilities included
underwriting domestic and international financial guaranty transactions. Prior to that, he served as a Director of Credit Risk
Analysis at Fannie Mae from 1987 until 1989. Mr. Donnarumma was also an analyst with Moody’s Investors Services
from 1985 until 1987.
Jorge A. Gana has been Chief Risk Officer of AGL and Chair of the U.S. Risk Management and Portfolio Risk
Management Committees since January 1, 2023. Mr. Gana also maintains primary responsibility for the environmental aspect
of Assured Guaranty’s ESG efforts. Prior to that, Mr. Gana served as Deputy Chief Risk Officer of AGM and AGC. Mr. Gana
joined Assured Guaranty in 2005 as a Director in structured finance. Over the years, Mr. Gana has held a number of positions at
Assured Guaranty, including Managing Director, Structured Finance at AGC, Senior Managing Director of Workouts and
Government & Corporate Affairs at AGM and AGC, and chair of AGM's and AGC's Workout Committees. Mr. Gana continues
to serve as a voting member of AGM's and AGC's Credit and Workout Committees. Prior to joining Assured Guaranty, Mr.
Gana served as a Director of Global Commercial Asset Securitization for XLCA (now Syncora). Prior to XLCA, Mr. Gana
worked at Natexis Banques Populaires (now Natixis) and at Banco Santander in global capacities dealing with credit and risk,
managing investment portfolios, originating complex transactions, and issuing repackaged debt. Mr. Gana also worked for the
Chile Economic Development Agency, New York Office, and as Editor of the Chile Economic Report until 1996.
Holly L. Horn has been Chief Surveillance Officer of AGL and the Company’s US Insurance Subsidiaries since
January 2022. Prior to that, Ms. Horn served as AGM’s and AGC’s Chief Surveillance Officer, Public Finance where she was
responsible for ongoing surveillance, monitoring and loss mitigation of municipal risks insured by the Company across all
sectors of the municipal market. She joined AGM in 2003 as a director in the health care underwriting group, where she was
responsible for analyzing and recommending the insurability of health care credits. She also served as a director in AGM’s
health care surveillance group. Ms. Horn began her public finance career at Inova Health System, a nationally ranked integrated
health care delivery system, and subsequently served as a senior manager for the national health care strategy practice at Ernst
& Young.
72
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
AGL’s common shares are listed on the NYSE under the symbol “AGO.” On February 24, 2023, the approximate
number of shareholders of record at the close of business on that date was 82.
AGL is a holding company whose principal source of liquidity is dividends from its operating subsidiaries. The ability
of the operating subsidiaries to pay dividends to AGL and AGL’s ability to pay dividends to its shareholders are each subject to
legal and regulatory restrictions. The declaration and payment of future dividends will be at the discretion of AGL’s Board and
will be dependent upon the Company’s profits and financial requirements and other factors, including legal restrictions on the
payment of dividends and such other factors as the Board deems relevant. AGL paid quarterly cash dividends in the amount of
$0.25 and $0.22 per common share in 2022 and 2021, respectively. For more information concerning AGL’s dividends, see
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources and Item 8, Financial Statements and Supplementary Data, Note 19, Shareholders’ Equity.
Issuer’s Purchases of Equity Securities
In 2022, the Company repurchased a total of 8,847,981 common shares for approximately $503 million at an average
price of $56.79 per share.
From time to time, the Board authorizes the repurchase of additional common shares under a program without an
expiration date that it initiated on January 18, 2013. Most recently, on August 3, 2022, the Board authorized the repurchase of
an additional $250 million of its common shares. As of February 28, 2023, the Company was authorized to purchase $201
million of its common shares. The Company expects future common share repurchases under the current authorization to be
made from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share
repurchases are at the discretion of management and will depend on a variety of factors, including availability of funds at the
holding companies, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements
and other factors. The repurchase authorization may be modified, extended or terminated by the Board at any time. It does not
have an expiration date. See Item 8, Financial Statements and Supplementary Data, Note 19, Shareholders’ Equity for
additional information about share repurchases and authorizations.
The following table reflects purchases of AGL common shares made by the Company during the fourth quarter of
2022.
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Program (1)
648,249 $
576,084 $
493,770 $
1,718,103 $
52.97
60.11
63.34
58.35
648,249 $
571,992 $
493,175 $
1,713,416
Maximum Number (or
Approximate Dollar
Value)
of Shares that
May Yet Be
Purchased
Under the Program(2)
268,933,146
234,542,994
203,303,329
Period
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
____________________
(1)
After giving effect to repurchases since the Board first authorized the repurchase program on January 18, 2013,
through February 28, 2023, the Company has repurchased a total of 141 million common shares for approximately
$4.7 billion, excluding commissions, at an average price of $33.09 per share. The repurchase program has no
expiration date and the Board has previously increased the authorization periodically.
Excludes commissions.
(2)
73
Performance Graph
Set forth below are a line graph and a table comparing the dollar change in the cumulative total shareholder return on
AGL’s common shares from December 31, 2017 through December 31, 2022 as compared to the cumulative total return of the
Standard & Poor’s 500 Stock Index, the cumulative total return of the Standard & Poor’s 500 Financials Sector GICS Level 1
Index and the cumulative total return of the Russell Midcap Financial Services Index. The Company added the Russell Midcap
Financial Services Index in 2018 because it believes that this index, which includes the Company, provides a useful comparison
to other companies in the financial services sector, and excludes companies that are included in the Standard & Poor's 500
Financials Sector GICS Level 1 Index but are many times larger than the Company. The chart and table depict the value on
December 31 of each year from 2017 through 2022 of a $100 investment made on December 31, 2017, with all dividends
reinvested:
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
Assured Guaranty
S&P 500 Index
S&P 500
Financials Sector
GICS Level 1 Index
Russell Midcap
Financial Services
Index
$
100.00 $
114.96
149.59
98.82
160.44
202.48
100.00 $
95.61
125.70
148.81
191.48
156.77
100.00 $
86.96
114.87
112.85
152.20
136.11
100.00
89.96
120.14
126.08
171.28
149.87
___________________
Source: Calculated from total returns published by Bloomberg.
74
Comparison of Cumulative Total ReturnAssured GuarantyS&P 500 IndexS&P 500 Financials Sector GICS Level 1 IndexRussell Midcap Financial Services Index12/31/1712/31/1812/31/1912/31/2012/31/2112/31/22$80$100$120$140$160$180$200$220$240
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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, the following discussion and analysis
of the Company’s financial condition and results of operations should be read in its entirety with the Company’s consolidated
financial statements and accompanying notes which appear elsewhere in this Form 10-K. The following discussion and analysis
of the Company’s financial condition and results of operations contains forward looking statements that involve risks and
uncertainties. See “Forward Looking Statements” for more information. The Company’s actual results could differ materially
from those anticipated in these forward looking statements as a result of various factors, including those discussed below and
elsewhere in this Form 10-K, particularly under the headings “Risk Factors” and “Forward Looking Statements.”
Discussion related to the results of operations for the Company’s comparison of 2021 results to 2020 results have been
omitted in this Form 10-K. The Company’s comparison of 2021 results to 2020 results is included in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2021, under Part II, Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
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 FG VIEs and CIVs) are presented
separately.
In the Insurance segment, the Company provides credit protection products to the U.S. and non-U.S. public finance
(including infrastructure) and structured finance markets. In the Asset Management segment, the Company provides
investment advisory services, which include the management of CLOs and opportunity funds, as well as certain legacy hedge
and opportunity funds now subject to an orderly wind-down. The Corporate division consists primarily of interest expense on
the debt of AGUS and 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 8, Financial
Statements and Supplementary Data, Note 1, Business and Basis of Presentation, and Note 2, Segment Information.
Economic Environment
Real gross domestic product (GDP) increased 2.1% in 2022, compared to an increase of 5.9% in 2021, according to
the second estimate released by the U.S. Bureau of Economic Analysis (BEA). Additionally, the BEA second estimate reported
real GDP increased at an annual rate of 2.7% in the fourth quarter of 2022. At the end of December 2022, the U.S.
unemployment rate, seasonally adjusted, stood at 3.5%, lower than where it started the year at 3.9%, and down from the
COVID-19 pandemic high of 14.7% in April 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. before seasonal adjustment for the 12-
month period ending December 2022, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), was 6.5%,
as compared to 8.2% for the 12-month period ending September 2022. According to the U.K.’s Office for National Statistics,
the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose 9.2% in the 12 months to December 2022, up
from 8.8% in September 2022. The CPIH 12-month rate started the year at 4.8%. Consumer price inflation in the U.K. increases
reported net par outstanding for certain U.K exposures with approximately $19.8 billion of net par outstanding as of December
31, 2022, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion
of the premium on an installment basis over the term of the exposure. Consumer price inflation may also 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.
With the Federal Open Market Committee (FOMC) acknowledging the need to combat inflation, the FOMC decided at
its meeting in March 2022 to start again raising the target range for the federal funds rate and has continued to do so since then.
In addition, the FOMC stated that it would reduce its holdings of treasury securities and agency debt and agency mortgage-
backed securities. From March 2022 through December 2022, the FOMC raised the target range for the federal funds rate seven
75
times, from 0% to 0.25% where it started the year to 4.25% to 4.50% at its mid-December 2022 meeting. Although
acknowledging that a disinflationary process has begun, at the conclusion of its January 31-February 1, 2023 meeting, the
FOMC raised the federal funds target rate by 25 bps to 4.5% to 4.75%, its eighth consecutive increase, stating that it anticipates
that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return
inflation to 2% over time.
The level and direction of interest rates and credit spreads impact the Company in numerous ways. On the one hand,
higher interest rates may present a more challenging environment for distressed RMBS the Company insures to the extent it
causes housing prices to decline. Data released for the November 2022 S&P CoreLogic Case-Shiller Indices show the recent
trend of home prices declining across the U.S., with the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index,
covering all nine U.S. census divisions, reporting a seasonally adjusted month-over-month decrease of 0.3%, and the 10-City
and 20-City Composites both posting decreases of 0.5%. The National Association of Realtors reported existing-home sales in
2022 declined 17.8% from 2021 as 2022’s rapidly escalating interest rate environment weighed on the residential real estate
market. Higher interest rates may also reduce the fair value of fixed-maturity securities currently held in the Company’s
investment portfolio, dampen municipal bond issuance and negatively impact the finances of some of the obligors whose
payments the Company insures.
On the other hand, higher interest rates are often accompanied by wider spreads, which may make the Company’s credit
enhancement products more attractive in the U.S. municipal bond market and increase the level of premiums it can charge for
those products. 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 MMD rate averaged 3.00% for 2022, higher than the 1.54%
average of 2021. Meanwhile, the difference, or credit spread, between the 30-year BBB-rated general obligation relative to the
30-year AAA MMD averaged 90 bps in 2022. This represented an increase from an average of 70 bps in 2021 but remained
well below the 121 bps average in 2020, which included a period of instability following the onset of the COVID-19 pandemic.
Despite the significant increase in MMD rate for 2022, the pace of credit spread widening was more modest and market
penetration of municipal bond insurance in the U.S. public finance market remained relatively flat at 8.0% of the par amount of
new issuances sold for 2022 versus 8.2% in 2021. The Company believes that a widening of credit spreads in 2023, should it
occur, could permit it to increase its premium rates on new business. In addition, over time, higher interest rates may also
increase the amount the Company can earn on its largely fixed-maturity securities.
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: (i) insurance; (ii) asset management and alternative investments; and (iii)
capital management.
Insurance
The Company seeks to grow the insurance business through new business production, acquisitions of remaining other
monoline financial guaranty companies that currently are in runoff and no longer actively writing new business (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 markets: public
finance (including infrastructure) and 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.
76
The low interest rate environment and tight U.S. municipal credit spreads from when the financial crisis began in 2008
through early 2020 dampened demand for bond insurance compared to the levels before the financial crisis that began in 2008.
After the onset of the COVID-19 pandemic in early 2020, credit spreads initially widened as a result of market concerns about
the impact of the COVID-19 pandemic on some municipal credits, thereby improving demand for financial guaranty insurance
even in a low interest rate environment, before narrowing again in 2022. The Company believes that, if credit spreads widen in
2023, demand for bond insurance may improve. See Part I, Item 1, Business — Insurance – Competition.
In certain segments of the 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
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
infrastructure and structured finance sectors is influenced by typically long lead times and therefore may vary from period to
period.
U.S. Municipal Market Data and Bond Insurance Penetration Rates (1)
Based on Sale Date
Par:
New municipal bonds issued
Total insured
Insured by Assured Guaranty
Number of issues:
New municipal bonds issued
Total insured
Insured by Assured Guaranty
Bond insurance market penetration based on:
Par
Number of issues
Single A par sold
Single A transactions sold
$25 million and under par sold
$25 million and under transactions sold
Year Ended December 31,
2022
2021
2020
(dollars in billions)
$
$
$
359.7
28.8
17.0
7,902
1,420
648
8.0 %
18.0 %
30.2 %
59.0 %
21.9 %
21.4 %
$
$
$
456.7
37.5
22.6
$
$
$
11,819
2,198
1,076
8.2 %
18.6 %
26.6 %
56.6 %
21.3 %
21.7 %
451.8
34.2
19.7
11,857
2,140
982
7.6 %
18.0 %
28.3 %
54.3 %
20.9 %
21.0 %
____________________
(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.
77
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, 2022 has been a turning point for resolving a substantial portion of the
Company’s Puerto Rico exposure in accordance with four orders entered by the United States District Court of the District of
Puerto Rico (Federal District Court of Puerto Rico) as discussed in Item 8, Financial Statements and Supplementary Data, Note
3, Outstanding Exposure.
As a result of the consummation on March 15, 2022, of each of the GO/PBA Plan, PRCCDA Modification and PRIFA
Modification and the consummation on December 6, 2022 of the HTA Plan (together, the 2022 Puerto Rico Resolutions),
including claim payments made by the Company under the 2022 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,
PBA and PRHTA was greatly reduced. In the twelve-month period ended December 31, 2022, the Company has reduced its
total Puerto Rico exposure, all rated BIG, by $2.2 billion (from $3.6 billion as of December 31, 2021 to $1.4 billion as of
December 31, 2022). The Company believes the consummations of the 2022 Puerto Rico Resolutions mark significant
milestones in its Puerto Rico loss mitigation efforts.
In connection with the consummation of the 2022 Puerto Rico Resolutions, the Company received substantial amounts
of cash, New Recovery Bonds and CVIs.
Under the GO/PBA Plan and in connection with its direct exposure the Company received (including amounts
received in connection with the second election described in Item 8, Financial Statements and Supplementary Data, Note 3,
Outstanding Exposure, but excluding amounts received in connection with second-to-pay exposures):
•
•
•
$530 million in cash, net of ceded reinsurance,
$605 million of New GO Bonds (see Item 8, Financial Statements and Supplementary Data, Note 7, Investments and
Cash 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 CVIs (see Item 8, Financial Statements and Supplementary Data, Note 7, Investments and Cash 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.
Under the PRCCDA Modification and the PRIFA Modification, on March 15, 2022, the Company received an
aggregate of $47 million in cash and $98 million in notional amount of CVIs.
In connection with the resolution of its PRHTA exposures pursuant to both the HTA Plan and the GO/PBA Plan the
Company received (including amounts received in connection with the election described in Item 8, Financial Statements and
Supplementary Data, Note 3, Outstanding Exposure, but excluding amounts received in connection with second-to-pay
exposures):
•
•
•
$251 million in cash,
$807 million of Toll Bonds (see Note 7, Investments and Cash 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 and convertible capital appreciation bonds, and
$672 million of CVIs (see Note 7, Investments and Cash, for additional information), which represents the original
notional value.
The Company has sold some of the New Recovery Bonds and CVIs it received in connection with the 2022 Puerto
Rico Resolutions 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 December 31, 2022, is included in the line items “fixed-maturity securities, available-for-sale, at fair
value”, “fixed-maturity securities, trading, at fair value”, and “financial guaranty variable interest entities’ assets, at fair value”
on the consolidated balance sheets.
The Company continues to work to resolve its remaining unresolved defaulted Puerto Rico exposure, Puerto Rico
Electric Power Authority (PREPA). For information about PREPA developments, see Item 8, Financial Statements and
Supplementary Data, Note 3, Outstanding Exposure. For more information about developments in Puerto Rico and related
recovery litigation being pursued by the Company, see Item 8, Financial Statements and Supplementary Data, Note 3,
Outstanding Exposure and the Insured Portfolio section below.
78
The Company is and has for several years been working with the servicers of some of the RMBS transactions 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.
The Company also purchases attractively priced obligations, including BIG obligations, that it has insured and for
which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities).
The fair value of Loss Mitigation Securities as of December 31, 2022 (excluding the value of the Company’s insurance) was
$508 million, with a par of $778 million.
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 strategies,
as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down. As of December 31, 2022,
AssuredIM is 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 strategies. Over time, the Company seeks to broaden and diversify its
Asset Management business through strategic combinations.
The Company is exploring alternative accretive growth strategies for its asset management business, with the goal of
maximizing the value of this business for its stakeholders. The Company remains committed to growing asset management-
related earnings and is pursuing strategies that would provide it with an avenue for such growth. Discussions regarding
alternative accretive growth strategies are ongoing, and there can be no assurances that such discussions will result in any
transaction. Please see Part I, Item 1A. Risk Factors, Strategic Risks captioned “Strategic transactions may not result in the
benefits anticipated.”
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
AUM metric, 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 AssuredIM Funds plus $550 million aggregate of investment assets of the U.S.
Insurance Subsidiaries’ to be managed by AssuredIM under an IMA. The Company has used these allocations to: (i) launch
new products (CLOs and opportunity funds) on the AssuredIM platform; and (ii) enhance the returns of its own investment
portfolio.
Adding distributed gains from inception through December 31, 2022 to the original $750 million allocation, the U.S.
Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds through their jointly owned investment
subsidiary, AGAS. As of December 31, 2022, AGAS had committed $755 million to AssuredIM Funds, including $219 million
that has yet to be funded. This capital was committed to several funds, each dedicated to a single strategy including CLOs,
healthcare structured capital, and asset-based finance.
Under the IMA with AssuredIM, AGM and AGC have together invested $250 million in 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.
79
From 2013 through February 28, 2023, the Company has repurchased 141 million common shares for approximately
$4.7 billion, representing approximately 73% of the total shares outstanding at the beginning of the repurchase program in
2013. On February 23, 2022 and August 3, 2022, the Board authorized the repurchase of an additional $350 million and $250
million, respectively, of its common shares. As of February 28, 2023, the Company was authorized to purchase $201 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 8, Financial Statements and
Supplementary Data, Note 19, Shareholders’ Equity, for additional information about the Company’s repurchases of its
common shares.
Summary of Share Repurchases
2013-2021
2022
2023 (through February 28, 2023)
Cumulative repurchases since the beginning of 2013
Amount
Number of
Shares
Average price
per share
(in millions, except per share data)
$
$
4,158
503
2
4,663
$
132.027
8.848
0.036
140.911
31.50
56.79
62.23
33.09
As of December 31, 2022, the estimated accretive effect of the cumulative repurchases of common shares since the
beginning of 2013 was approximately: $37.11 per share in shareholders’ equity attributable to AGL, $42.91 per share in
adjusted operating shareholders’ equity, and $76.76 per share in adjusted book value.
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 was 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. Proceeds from the debt issuances that were not used to redeem debt were used for general corporate purposes, including
share repurchases. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies” for the U.S. Holding
Companies’ long-term debt.
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.
Since the second quarter of 2017, AGUS has purchased $154 million in principal of AGMH’s outstanding Junior
Subordinated Debentures. The Company may choose to redeem or make additional purchases of this or other Company debt in
the future. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies”, and Item 8, Financial
Statements and Supplementary Data, Note 12, Long-Term Debt and Credit Facilities.
Executive Summary
The primary drivers of volatility in the Company’s net income include: changes in fair value of credit derivatives, FG
VIEs, CIVs, and CCS, as well as loss and LAE, foreign exchange gains (losses), the level of refundings of insured obligations,
changes in the value of the Company’s alternative investments, the effects of any large settlements, commutations and loss
mitigation strategies, among other factors. Changes in the fair value of AssuredIM Funds and amount of AUM 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.
80
Financial Performance of Assured Guaranty
Financial Results
Year Ended December 31,
2022
2021
2020
(in millions, except per share amounts)
GAAP
Net income (loss) attributable to AGL
Net income (loss) attributable to AGL per diluted share
Weighted average diluted shares
Non-GAAP
Adjusted operating income (loss) (1)
Adjusted operating income per diluted share
Weighted average diluted shares
Gain (loss) related to FG VIE and CIV consolidation included in adjusted
operating income
Gain (loss) related to FG VIE and CIV consolidation included in adjusted
operating income per share
Components of total adjusted operating income (loss)
Insurance segment
Asset Management segment
Corporate division
Other (2)
Adjusted operating income (loss)
Insurance Segment
Gross written premiums (GWP)
Present value of new business production (PVP) (1)
Gross par written
Asset Management Segment
AUM:
Inflows - third party
Inflows - intercompany
$
$
$
$
$
$
$
$
$
$
$
$
$
$
124
1.92
63.9
267
4.14
63.9
389
5.23
74.3
470
6.32
74.3
(6) $
30
(0.10) $
0.41
$
$
$
413
(6)
(134)
(6)
267
360
375
22,047
722
(19)
(263)
30
470
377
361
26,656
$
$
$
$
$
$
$
$
$
362
4.19
86.2
256
2.97
86.2
(12)
(0.14)
429
(50)
(111)
(12)
256
454
390
23,265
$
1,385
270
$
2,971
243
1,618
1,257
81
As of December 31, 2022
As of December 31, 2021
Amount
Per Share
Amount
Per Share
$
Shareholders’ equity attributable to AGL
Adjusted operating shareholders’ equity (1)
Adjusted book value (1)
Gain (loss) related to FG VIE and CIV consolidation
included in adjusted operating shareholders’ equity
Gain (loss) related to FG VIE and CIV consolidation
included in adjusted book value
Common shares outstanding (3)
5,064
5,543
8,379
17
11
59.0
(in millions, except per share amounts)
6,292
$
5,991
8,823
85.80
93.92
141.98
$
0.28
0.19
32
23
67.5
$
93.19
88.73
130.67
0.47
0.34
____________________
(1)
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.
Relates to the effect of consolidating FG VIEs and CIVs.
See “— Overview— Key Business Strategies – Capital Management” above for information on common share
repurchases.
(2)
(3)
82
Consolidated Results of Operations
Consolidated Results of Operations
Year Ended December 31,
2022
2021
(in millions)
2020
$
Revenues:
Net earned premiums
Net investment income
Asset management fees
Net realized investment gains (losses)
Fair value gains (losses) on credit derivatives
Fair value gains (losses) on CCS
Fair value gains (losses) on FG VIEs
Fair value gains (losses) on CIVs
Foreign exchange gains (losses) on remeasurement
Fair value gains (losses) on trading securities
Commutation gains (losses)
Other income (loss)
Total revenues
Expenses:
Loss and LAE (benefit)
Interest expense
Loss on extinguishment of debt
Amortization of deferred acquisition cost (DAC)
Employee compensation and benefit expenses
Other operating expenses
Total expenses
Income (loss) before income taxes and equity in earnings (losses) of
investees
Equity in earnings (losses) of investees
Income (loss) before income taxes
Less: Provision (benefit) for income taxes
Net income (loss)
Less: Noncontrolling interests
Net income (loss) attributable to Assured Guaranty Ltd.
$
494
269
93
(56)
(11)
24
22
17
(112)
(34)
2
15
723
16
81
—
14
258
167
536
187
(39)
148
11
137
13
124
$
$
414
269
88
15
(58)
(28)
23
127
(23)
—
—
21
848
(220)
87
175
14
230
179
465
383
94
477
58
419
30
389
$
$
485
297
89
18
81
(1)
(10)
41
39
—
38
38
1,115
203
85
—
16
228
197
729
386
27
413
45
368
6
362
Effective tax rate
7.2 %
12.2 %
10.9 %
Net income attributable to AGL in 2022 was lower compared with 2021 primarily due to the following:
•
•
•
•
•
loss and LAE in 2022 compared with a benefit in 2021,
losses on equity method alternative investments in 2022 compared with gains in 2021,
realized and unrealized losses on the investment portfolio reported in realized gains (losses) on investments and
fair value gains (losses) on trading securities compared with gains in 2021,
lower fair value gains on CIVs, and
higher foreign exchange remeasurement losses in 2022.
83
These decreases were offset in part by:
•
•
•
losses on extinguishment of debt in 2021 that did not recur in 2022,
higher net earned premiums mainly attributable to accelerations on certain Puerto Rico exposures, and
fair value gains on CCS in 2022 compared with losses in 2021.
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%, 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 or as a U.S. CFC. The
effective tax rate in 2022 was lower than in 2021 due primarily to differences in the portion of income generated by various
jurisdictions as well as the Company’s ability to utilize foreign tax credits.
Adjusted Operating Income
Adjusted operating income in 2022 was $267 million, compared with $470 million in 2021. The decrease was
primarily attributable to lower Insurance segment adjusted operating income due to losses in equity method alternative
investments and benefits in Puerto Rico expected losses in 2021 that did not recur in 2022, offset by a lower corporate division
loss due to a 2021 loss on extinguishment of debt that did not recur in 2022. See “— Results of Operations —Reconciliation to
GAAP” for the reconciliation of net income (loss) attributable to AGL to adjusted operating income (loss).
Book Value and Adjusted Book Value
Shareholders’ equity attributable to AGL as of December 31, 2022 decreased compared with December 31, 2021, as
net income was offset by other comprehensive loss, share repurchases and dividends. Adjusted operating shareholders’ equity
and adjusted book value also decreased primarily due to share repurchases, and dividends and foreign exchange remeasurement
losses, offset in part, in the case of adjusted book value, by new business development and favorable loss development.
On a per share basis, shareholders’ equity attributable to AGL was $85.80 as of December 31, 2022, which was lower
than shareholders’ equity attributable to AGL of $93.19 as of December 31, 2021, primarily due to unrealized losses on the
investment portfolio caused largely by rising interest rates.
On a per share basis, adjusted operating shareholders’ equity increased to $93.92 as of December 31, 2022, from
$88.73 as of December 31, 2021, and adjusted book value increased to $141.98 as of December 31, 2022 from $130.67 as of
December 31, 2021, primarily due to the accretive effect of the share repurchase program, and in the case of adjusted book
value, net premiums written and favorable loss development. See “— Non-GAAP Financial Measures” 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 payment 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.
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 $300 million in net par outstanding as of December
31, 2022, comprising $237 million net par exposure to the sovereign debt of Poland and $63 million net par exposure to a toll
road in Hungary. The Company rates the toll road exposure BIG.
84
Inflation
By some key measures, consumer price inflation in the U.S. and the U.K. was higher in 2022 than it has been in
decades, and interest rates generally increased. Consumer price inflation in the U.K. impacts the Company directly by
increasing exposure for certain index-linked U.K. debt with par that accretes with increasing inflation, and also increasing
projected future installment premiums on the portion of such exposure that pays at least some of the premium on an installment
basis over the term of the exposure. Consumer price inflation may also impact the Company indirectly to the extent it makes it
more difficult for obligors to make their debt payments, and may be accompanied by higher interest rates that could impact the
Company in several ways.
After acknowledging the need to combat inflation, the FOMC of the Federal Reserve Board decided at its March 2022
meeting to start again raising the target federal funds rate, and raised the rate seven times from March 2022 through December
2022. At its January 31 - February 1, 2023 meeting, the FOMC raised the federal funds target rate by 25 bps to 4.5% to 4.75%,
its eighth consecutive increase, stating that it anticipates that ongoing increases will be appropriate in order to attain a stance of
monetary policy that is sufficiently restrictive to return inflation to 2% over time.
Higher interest rates impact the Company in numerous other ways. For example, higher interest rates are often
accompanied by wider credit spreads, which 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. However, despite the increases in interest rates in
2022, the pace of credit spread widening was more modest and market penetration of municipal bond insurance in the U.S.
public finance market remained relatively flat in 2022 versus 2021. Over time, higher interest rates also increase the amount the
Company can earn on its largely fixed-maturity investment portfolio. Higher interest rates may present a more challenging
environment for distressed RMBS the Company insures to the extent it causes housing prices to decline, reduce the fair value of
its largely fixed-rate fixed-maturity investment portfolio, dampen municipal bond issuance and negatively impact the finances
of some insured obligors.
See “Overview — Economic Environment”.
LIBOR Sunset
IBA and FCA first announced in 2017 that the publication of 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
publication of all sterling LIBOR rates ceased on December 31, 2021, as originally announced. To address the permanent
cessation of U.S. dollar LIBOR, the U.S. Congress enacted the Adjustable Interest Rate (LIBOR) Act (AIRLA) on March 15,
2022, to provide a federal solution for replacing references to U.S. dollar LIBOR in existing contracts that either lack, or
contain insufficient, LIBOR fallback provisions. In accordance with AIRLA, the Board of Governors of the Federal Reserve
System adopted final rule 12. C.F.R. Part 253 “Regulation Implementing the Adjustable Interest Rate (LIBOR) Act (Regulation
ZZ)” (Rule 253), which identifies Secured Overnight Finance Rate (SOFR)-based benchmark rates that will replace U.S. dollar
LIBOR in certain financial contracts after June 30, 2023. Rule 253 confirms that the AIRLA safe harbor provisions for LIBOR
contracts that change over to SOFR, either by operation of law or the choice of a determining person, will apply.
The Company has outstanding exposure to LIBOR in the following areas:
Outstanding Insured Financial Guaranty Portfolio
The Company has insured net part outstanding on December 31, 2022 to obligors that the Company is aware have
assets, liabilities or hedges that reference U.S. dollar LIBOR or sterling LIBOR. In each case, the transactions are generally
governed by documentation entered into prior to the announcement that the publication of LIBOR would cease. These obligors,
not the Company, are responsible for any financial cost of the transition away from LIBOR. The Company is impacted if such
costs result in payment defaults of obligations the Company insures or increase the amount of losses the Company is required to
pay for insured transactions already in payment default.
U.S. Dollar LIBOR. The Company projects that in June 2023 it will have approximately $2.8 billion of
insured net par outstanding to obligors that the Company is aware have assets, liabilities or hedges that reference U.S. dollar
LIBOR. Of the $2.8 billion of insured net par, approximately $0.9 billion is currently rated BIG by the Company. As part of its
insured portfolio surveillance process, the Company’s surveillance team evaluates the potential impact of the transition from
U.S. dollar LIBOR on the Company’s insured exposures. The Company is generally in contact with relevant parties to insured
85
transactions most likely to be impacted by the transition from U.S. dollar LIBOR. In many instances it is difficult to amend the
relevant documentation, so the enactment of AIRLA is very helpful. While most of the parties relevant to the Company’s
exposure to U.S. dollar LIBOR have not yet expressly committed to a course of action, AIRLA provides a replacement rate and
a safe harbor from liability as a result of the transition from U.S. LIBOR.
Sterling LIBOR. The Company also had $16 million of insured net par outstanding at December 31, 2022 to
one obligor that the Company is aware has assets, liabilities or hedges that reference sterling LIBOR. The documentation for
this transaction was recently amended and will instead reference Sterling Overnight Interbank Average Rate (SONIA) effective
March 17, 2023.
Loss Mitigation and Other Securities
Certain securities, primarily Loss Mitigation Securities, with a fair value of approximately $504 million on December
31, 2022 that reference U.S. dollar LIBOR, are generally governed by documentation entered into prior to the announcement
that the publication of LIBOR would cease. The transition away from U.S. dollar LIBOR may impact the fair value and total
amounts eventually received from such investments.
Outstanding Debt Issued by AGMH and AGUS
The Company’s subsidiary AGUS has $150 million of debentures outstanding that bear a floating rate of interest tied
to U.S. dollar LIBOR. In 2022, the Company paid $6 million of interest on those debentures. In addition, the Company’s
subsidiary AGMH has $300 million of debentures outstanding ($154 million of which are held by AGUS) that will convert to a
floating interest rate tied to U.S. dollar LIBOR after December 15, 2036.
Committed Capital Securities
The Company benefits from $400 million of CCS that pay a rate tied to U.S. dollar LIBOR. In 2022, the amount the
Company paid on the CCS was $11 million.
CLOs
Certain CLOs issued and owned by the Company’s CIVs pay interest historically tied to U.S. dollar LIBOR. The
relevant operative documents generally included from the outset or were amended or executed after the planned cessation of
U.S. dollar LIBOR was announced to include robust fallback language with alternative procedures to transition to a new
benchmark rate based on SOFR.
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 PFICs. 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.
Impact of COVID-19
The emergence and continuation 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. Due to the nature of the Company’s
business, COVID-19 and its global impact, directly and indirectly affected certain sectors in the insured portfolio.
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 these supplemental procedures. However, the Company is still monitoring those sectors it identified as
most at risk for any developments related to COVID-19. The Company has paid only relatively small insurance claims it
86
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
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. For more information, see Part I, Item 1A, Risk Factors, Operational Risks captioned
“The Company is dependent on its information technology and that of certain third parties, and a cyberattack, security breach or
failure in the Company’s or a vendor’s information technology system, or a data privacy breach of the Company’s or a vendor’s
information technology system, could adversely affect the Company’s business.”
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 the Company’s 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 different
in the future to reflect changes in these estimates and assumptions from time to time.
The accounting policies that the Company believes are most dependent on the application of judgment, estimates and
assumptions are listed below. See Item 8, Financial Statements and Supplementary Data, Note 1, Business and Basis of
Presentation, 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 Item 7A, Quantitative and Qualitative Disclosures
About Market Risk, 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 reports its results of operations in two distinct segments, Insurance and Asset Management, consistent
with the manner in which the Company’s CODM reviews the business to assess performance and allocate resources. The
following describes the components of each segment, along with the Corporate division and Other categories. The Insurance
87
and Asset Management segments and the Corporate division are presented without giving effect to the consolidation of FG
VIEs and CIVs.
The Company analyzes the operating performance of each segment using each segment’s adjusted operating income as
described in Item 8, Financial Statements and Supplementary Data, Note 2, Segment Information. Results for each segment
include specifically identifiable expenses as well as allocations of expenses among legal entities based on time studies and other
cost allocation methodologies based on headcount or other metrics.
Insurance Segment Results
Insurance Segment Results
Year Ended December 31,
2022
2021
(in millions)
2020
Segment revenues
Net earned premiums and credit derivative revenues
Net investment income
Fair value gains (losses) on trading securities
Commutation gains (losses)
Foreign exchange gains (losses) on remeasurement and other income
(loss) (1)
Total segment revenues
Segment expenses
Loss expense (benefit)
Interest expense
Amortization of DAC
Employee compensation and benefit expenses
Other operating expenses
Total segment expenses
Equity in earnings (losses) of investees
Segment adjusted operating income (loss) before income taxes
Less: Provision (benefit) for income taxes
Segment adjusted operating income (loss)
$
$
508
278
(34)
2
3
757
12
1
14
148
84
259
(51)
447
34
413
$
$
438
280
—
—
15
733
(221)
—
14
142
98
33
144
844
122
722
$
$
504
310
—
38
22
874
204
—
16
143
83
446
61
489
60
429
____________________
(1)
Other income (loss) consists of recurring items such as ancillary fees on financial guaranty policies for commitments
and consents, and if applicable, other revenue items on financial guaranty insurance and reinsurance contracts such as
loss mitigation recoveries.
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 8,
Financial Statements and Supplementary Data, 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 pay down insured
obligations prior to their originally scheduled maturities. Refundings tend to increase when issuers can refinance their debt
obligations at lower rates than they are currently paying. The premiums associated with the insured obligations of
88
municipalities and other public finance issuers are generally received upfront when the obligations are issued and insured.
When issuers pay down insured obligations, 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 the Company’s 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 policies under the 2022 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.
Insurance Segment
Net Earned Premiums and Credit Derivative Revenues
Net earned premiums:
Financial guaranty insurance:
Public finance
Scheduled net earned premiums (1)
Accelerations:
Refundings
Terminations
Total accelerations
Total public finance
Structured finance
Scheduled net earned premiums (1)
Terminations
Total structured finance
Specialty insurance and reinsurance
Total net earned premiums
Credit derivative revenues:
Scheduled net earned premiums
Accelerations
Year Ended December 31,
2022
2021
(in millions)
2020
$
256
$
290
$
179
—
179
435
58
—
58
4
497
9
2
11
508
$
56
1
57
347
66
2
68
3
418
13
7
20
438
$
292
123
6
129
421
67
—
67
2
490
13
1
14
504
Total credit derivative revenues
Total net earned premiums and credit derivative revenues
$
____________________
(1)
Includes accretion of discount.
Net earned premiums and credit derivative revenues increased in 2022 compared with 2021 primarily due to
refundings of $133 million related to the 2022 Puerto Rico Resolutions discussed in Item 8, Financial Statements and
Supplementary Data, Note 3, Outstanding Exposure, offset in part by the scheduled decline in structured finance par
outstanding and the effect of other refundings and terminations on scheduled net earned premiums. As of December 31, 2022,
$3.7 billion of net deferred premium revenue on financial guaranty insurance remained to be earned over the life of the
insurance contracts.
89
New Business Production
Gross Written Premiums and New Business Production
GWP
Public Finance—U.S.
Public Finance—non-U.S.
Structured Finance—U.S.
Structured Finance—non-U.S.
Total GWP
PVP (1):
Public Finance—U.S.
Public Finance—non-U.S.
Structured Finance—U.S.
Structured Finance—non-U.S. (2)
Total PVP
Gross Par Written (1):
Public Finance—U.S.
Public Finance—non-U.S.
Structured Finance—U.S.
Structured Finance—non-U.S. (2)
Total gross par written
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
$
$
$
248
75
37
—
360
257
68
43
7
375
19,801
624
1,077
545
22,047
$
$
$
$
$
$
231
89
51
6
377
235
79
42
5
361
23,793
1,117
1,316
430
26,656
$
$
$
$
$
$
294
142
18
—
454
292
82
14
2
390
21,198
1,434
380
253
23,265
Average rating on new business written
A-
A-
A-
____________________
(1)
(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.”
2022 PVP and gross par written include 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.
GWP relates to insurance and reinsurance contracts for both financial guaranty and specialty business. Financial
guaranty insurance and reinsurance GWP includes: (i) amounts collected upfront on new business written; (ii) the present value
of future contractual or expected premiums on new business written (discounted at risk-free rates); and (iii) the effects of
changes in the estimated lives of certain transactions in the in-force book of business. Specialty business GWP is recorded as
premiums are due. Credit derivatives are accounted for at fair value and therefore are not included in GWP.
The non-GAAP financial measure, PVP, includes upfront premiums and the present value of expected future
installments on new business at the time of issuance, discounted at the approximate average pre-tax book yield of fixed-
maturity securities purchased during the prior calendar year, for all contracts regardless of form or accounting model. See “—
Non-GAAP Financial Measures” below.
U.S. public finance GWP increased in 2022 to $248 million from $231 million in 2021, and the corresponding PVP
increased in 2022 to $257 million from $235 million in 2021. The increase was primarily due to a higher proportion of
secondary market transactions. The Company’s direct par written represented 59% of the total U.S. municipal market insured
issuance in 2022, compared with 60% in 2021, and the Company’s penetration of all municipal issuance was 4.7% in 2022,
compared with 5.0% in 2021.
In 2022, non-U.S. public finance GWP and PVP included restructuring of several existing transactions that resulted in
additional GWP and PVP, without an increase in gross par, and several large transactions involving secondary market
guarantees for institutional investors and banks, and a U.K. water utility liquidity guarantee.
90
Structured finance GWP and PVP in 2022 were primarily attributable to large insurance securitization transactions and
pooled corporate obligations. PVP also includes a guarantee of rental income cash flows, for which no GWP is reported under
GAAP.
Business activity in the infrastructure and structured finance sectors typically has long lead times and therefore may
vary from period to period.
Income from Investments
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 on fixed-maturity securities 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.
CVIs issued by Puerto Rico and received as part of the 2022 Puerto Rico Resolutions are classified as trading with
changes in fair value reported in “fair value gains (losses) on trading securities” in the consolidated statements on operations.
The fair value of such instruments as of December 31, 2022 was $303 million.
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 NAV of AssuredIM Funds and the Company’s share of
earnings of its other investees. The U.S. Insurance Subsidiaries are authorized to invest up to $750 million in AssuredIM Funds.
Adding distributed gains from inception through December 31, 2022, the U.S. Insurance Subsidiaries may invest a total of up to
$810 million in AssuredIM Funds. As of December 31, 2022, the U.S. Insurance Subsidiaries had total commitments to
AssuredIM Funds of $755 million, of which $536 million represented net invested capital and $219 million was undrawn.
Insurance Segment
Income from Investments
Net investment income
Externally managed
Loss Mitigation Securities and other
Managed by AssuredIM (1)
Intercompany loans
Investment income
Investment expenses
Net investment income
Fair value gains (losses) on trading securities
Equity in earnings (losses) of investees
AssuredIM Funds
Other
Equity in earnings (losses) of investees
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
$
$
186
66
22
10
284
(6)
278
$
$
202
58
16
10
286
(6)
280
$
$
231
69
8
10
318
(8)
310
(34) $
—
$
—
(10) $
(41)
(51) $
80
64
144
$
$
42
19
61
____________________
(1)
Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.
Net investment income was consistent in 2022 compared with 2021. The overall pre-tax book yield of available-for-
sale fixed-maturity securities and short-term investments was 3.55% as of December 31, 2022 and 2.93% as of December 31,
2021. Externally managed portfolio’s pre-tax book yield was 3.09% as of December 31, 2022, compared with 2.92% as of
December 31, 2021.
91
Equity in earnings of AssuredIM Funds in 2022 was a loss primarily attributable to the dilutive impact of a subsequent
close of a healthcare fund. Equity in earnings of other investments was a loss in 2022 primarily due to mark-to-market losses in
a private equity fund.
Economic Loss Development
The insured portfolio includes policies accounted for under several different accounting models depending on the
characteristics of the contract and the Company’s control rights. For a discussion of methodologies and significant estimates for
expected loss to be paid (recovered), see Item 8, Financial Statements and Supplementary Data, Note 4, Expected Loss to be
Paid (Recovered). For the accounting policies for measurement and recognition under GAAP for each type of contract, see the
notes listed below in Item 8, Financial Statements and Supplementary Data.
•
•
•
•
Note 5 for contracts accounted for as insurance;
Note 6 for contracts accounted for as credit derivatives;
Note 8 for FG VIEs; and
Note 9 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, 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 weighted average discount rates used to discount expected losses
(recoveries) were 4.08%, 1.02% and 0.60% as of December 31, 2022, 2021 and 2020, respectively.
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
Accounting Model
Insurance
FG VIEs
Credit derivatives
Total
Net exposure rated BIG
Net Expected Loss to be Paid (Recovered)
Net Economic Loss Development (Benefit)
As of December 31,
2022
2021
Year Ended December 31,
2021
2020
2022
(in millions)
$
$
$
205
$
314 (1)
3
522
$
364 $
42
5
411 $
(112) $
(17)
4
(125) $
(281) $
(20)
14
(287) $
142
1
2
145
5,976
$
7,440
____________________
(1)
The increase in expected loss to be paid for FG VIEs primarily relates to Puerto Rico Trusts that were consolidated as
a result of the 2022 Puerto Rico Resolutions. Prior to the 2022 Puerto Rico Resolutions, all Puerto Rico Exposures
were accounted for as insurance. See Item 8, Financial Statements and Supplementary Data, Note 3, Outstanding
Exposure, and Note 4, Expected Loss to be Paid (Recovered).
92
Net Expected Loss to be Paid (Recovered)
Roll Forward by Sector
Year Ended December 31, 2022
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
December 31, 2022
(in millions)
19 $
(2)
17
(143)
1
(142)
(125) $
187 $
(1)
186
59
(9)
50
236 $
197 $
12
209
150
52
202
411 $
$
$
403
9
412
66
44
110
522
Year Ended December 31, 2021
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
December 31, 2021
(in millions)
(182) $
(22)
(204)
(100)
17
(83)
(287) $
74 $
(2)
72
102
(5)
97
169 $
305 $
36
341
148
40
188
529 $
$
$
197
12
209
150
52
202
411
Sector
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
Sector
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
Effect of changes in the risk-free rates included in economic loss development (benefit) was a benefit of $115 million
and $33 million in 2022 and 2021, respectively.
2022 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 $3.8 billion as of December 31, 2022, compared with $5.4 billion as of December 31, 2021. The Company
projected that its total net expected loss across its troubled U.S. public finance exposures as of December 31, 2022 was $403
million, compared with $197 million as of December 31, 2021. The economic loss development on U.S. exposures in 2022 was
$19 million, which was primarily attributable to certain Puerto Rico and health care exposures, partially offset by the effect of
changes in discount rates. In 2022, the Company had net recovered losses of $187 million in the U.S. public finance sector
related primarily to the claims paid on $2.0 billion net par under the 2022 Puerto Rico Resolutions, net of recoveries, which
were in the form of cash, New Recovery Bonds and CVIs. See Item 8, Financial Statements and Supplementary Data, Note 3,
Outstanding Exposure, for a discussion of Puerto Rico developments.
U.S. RMBS: The net benefit attributable to U.S. RMBS of $143 million was mainly related to a $58 million benefit
related to changes in discount rates, a $49 million benefit related to improvement in transaction performance, a $30 million
benefit related to higher recoveries on charged-off second lien loans, a $27 million benefit related to loss mitigation activity, a
$26 million benefit related to updates in projected default curves, and a $17 million benefit on certain assumed RMBS
transactions related to a settlement between a ceding company and a R&W provider. These items were all partially offset by
loss of $79 million related to lower excess spread.
93
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 both December 31, 2021 and December 31, 2020. The Company projected that its total net
expected loss across its troubled U.S. public finance exposures as of December 31, 2021 would be $197 million, compared with
$305 million as of December 31, 2020. The economic benefit on U.S. exposures in 2021 was $182 million, which was
primarily attributable to certain Puerto Rico exposures. In the fourth quarter of 2021, the Company sold a portion of its salvage
and subrogation recoverables associated with certain matured Puerto Rico GO and PREPA exposures on which the Company
had previously paid claims. This sale resulted in proceeds of $383 million, including $56 million that was settled in January
2022. The Company has continued to make such sales, and received an additional $133 million in proceeds in connection with
additional such sales in 2022. Also in the fourth quarter of 2021, the Company increased its assumptions for the value of the
remaining CVIs and New Recovery Bonds received under the GO/PBA Plan and HTA Plan. During 2021, the Company also
incorporated refinements in certain terms of the Puerto Rico support agreements.
The economic benefit of $22 million for non-U.S. public finance exposures during 2021 was mainly due to the impact
of higher Euro Interbank Offered Rate (Euribor), the restructuring of certain exposures and an improved performance outlook
for certain road exposures.
U.S. RMBS: The net benefit attributable to U.S. RMBS of $100 million was mainly related to a $72 million benefit
related to higher recoveries on charged-off second lien loans, a $28 million benefit related to improvement in transaction
performance, a $23 million benefit related to assumed recovery on certain deferred principal balances in first lien loans, and a
benefit of $18 million related to changes in discount rates, partially offset by loss of $41 million related to lower excess spread.
Other Structured Finance: The economic loss development attributable to structured finance, excluding U.S. RMBS,
was $17 million, which was primarily attributable to LAE for certain transactions and deterioration of certain aircraft RVI
exposures.
Insurance Segment Loss Expense
The primary differences between net economic loss development and the amount reported as “loss and LAE (benefit)”
in the consolidated statements of operations are that loss and LAE (benefit): (i) considers deferred premium revenue in the
calculation of loss reserves for financial guaranty insurance contracts; (ii) eliminates loss and LAE related to FG VIEs; and (iii)
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 the consolidation of FG VIEs.
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.
While expected loss to be paid (recovered) is an important 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 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. The following table presents the Insurance segment loss expense.
94
Insurance Segment
Loss Expense (Benefit)
Year Ended December 31,
2022
2021
(in millions)
2020
U.S. public finance
Non-U.S. public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
$
128 $
—
(120)
4
(116)
Total Insurance segment loss expense (benefit)
$
12 $
(146) $
(9)
(84)
18
(66)
(221) $
225
5
(36)
10
(26)
204
The difference between public finance loss expense and economic development in 2022 was primarily attributable to
the release of unearned premium reserve on policies that were extinguished under the 2022 Puerto Rico Resolutions. As a
result, the Company recognized loss and LAE expense that had not previously been reported in the statement of operations, and
corresponding net earned premiums were recognized for the remaining deferred premium revenue on the extinguished Puerto
Rico exposures. For additional information on the expected timing of net expected losses to be expensed see Item 8, Financial
Statements and Supplementary Data, Note 5, Contracts Accounted for as Insurance.
Other Operating Expenses
The decrease in other operating expenses to $84 million in 2022 from $98 million in 2021 was primarily attributable to
the write-off of a $16 million intangible asset attributable to Municipal Assurance Corp. (MAC) insurance licenses in 2021 that
did not recur in 2022. MAC was merged with and into AGM on April 1, 2021. See Item 8, Financial Statements and
Supplementary Data, Note 11, Goodwill and Other Intangible Assets, for additional information.
Financial Strength Ratings
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.
AGM
AGC
AG Re
AGRO
AGUK
AGE
S&P
AA (stable) (7/8/22)
AA (stable) (7/8/22)
AA (stable) (7/8/22)
AA (stable) (7/8/22)
AA (stable) (7/8/22)
AA (stable) (7/8/22)
KBRA
Moody’s
AA+ (stable) (10/21/22) A1 (stable) (3/18/22)
AA+ (stable) (10/21/22)
—
—
(1)
—
—
AA+ (stable) (10/21/22) A1 (stable) (3/18/22)
AA+ (stable) (10/21/22)
—
A.M. Best Company,
Inc.
—
—
—
A+ (stable) (7/22/22)
—
—
____________________
(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 — Insurance Subsidiaries” section below.
95
Asset Management Segment Results
Asset Management Segment Results
Segment revenues
Management fees (1)
Performance fees
Foreign exchange gains (losses) on remeasurement and other income (loss)
$
Total segment revenues
Segment expenses
Employee compensation and benefit expenses
Interest expense
Other operating expenses (1) (2)
Total segment expenses
Segment adjusted operating income (loss) before income taxes
Less: Provision (benefit) for income taxes
Segment adjusted operating income (loss)
$
Year Ended December 31,
2022
2021
(in millions)
2020
85 $
21
6
112
80
1
38
119
(7)
(1)
(6) $
76 $
1
6
83
67
1
40
108
(25)
(6)
(19) $
59
1
6
66
67
—
61
128
(62)
(12)
(50)
_____________________
(1)
The Asset Management segment presents reimbursable fund expenses netted in other operating expenses, whereas on
the consolidated statement of operations such reimbursable expenses are shown gross as revenues.
Includes amortization of intangible assets of $11 million in 2022, $12 million in 2021 and $13 million in 2020.
(2)
Management and Performance Fees
Management fees are generated by CLOs, opportunity funds, liquid strategies, and certain of 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 as
well as 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
CLOs
Opportunity funds and liquid strategies
Wind-down funds
Total management fees
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
48 $
35
2
85 $
48 $
20
8
76 $
23
11
25
59
Fees from opportunity funds increased primarily due to higher third party AUM in healthcare funds. Fees from the
wind-down funds decreased as distributions to investors continued. As of December 31, 2022, AUM of the wind-down funds
was $182 million compared with $582 million as of December 31, 2021.
Performance fees and increased compensation expenses in 2022 were attributable to the healthcare and asset-based
funds.
Expenses
Expenses primarily consist of employee compensation and benefits, and also include other operating expenses such as
rent, professional fees, placement fees, and depreciation. Amortization of finite-lived intangible assets mainly consist of
AssuredIM’s CLO and investment management contracts and its CLO distribution network as discussed below.
96
Goodwill and Intangible Assets
As of December 31, 2022, the Company had $117 million in goodwill and $40 million in finite-lived intangible assets
associated with the BlueMountain Acquisition. To date, there have been no impairments of goodwill or finite-lived intangible
assets. Amortization expense associated with the finite-lived intangible assets was $11 million, $12 million and $13 million for
the years ended December 31, 2022, 2021 and 2020, respectively.
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
metric for assessing the relative size and scope of the Company’s 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.
97
Roll Forward of Assets Under Management
Year Ended December 31, 2022
CLOs (1)
Opportunity
Funds (2)
Liquid
Strategies (3)
(in millions)
Wind-Down
Funds
Total
$
$
14,699 $
1,049
165
—
(525)
(525)
689
(238)
15,150 $
1,824 $
315
—
—
(290)
(290)
25
35
1,884 $
389 $
21
105
—
(252)
(252)
(126)
(15)
248 $
582 $
—
—
17,494
1,385
270
—
(399)
(399)
(399)
(1)
182 $
—
(1,466)
(1,466)
189
(219)
17,464
AUM, December 31, 2021
Inflows - third party
Inflows - intercompany
Outflows:
Redemptions
Distributions
Total outflows
Net flows
Change in value
AUM, December 31, 2022
_____________________
(1)
(2)
CLOs inflows and outflows include $105 million in 2022 related to the transfer of assets between two CLO funds.
Opportunity funds inflows in 2022 are primarily related to the healthcare strategy fund. Distributions from opportunity
funds include $115 million related to the AssuredIM Funds created prior to the BlueMountain Acquisition. As of
December 31, 2022, AUM related to these funds was $68 million.
Liquid strategies’ inflows and outflows in 2022 relate to the transfer of assets between funds.
(3)
AUM, December 31, 2020
Inflows - third party
Inflows - intercompany
Outflows:
Redemptions
Distributions
Total outflows
Net flows
Change in value
AUM, December 31, 2021
Year Ended December 31, 2021
CLOs
Opportunity
Funds
Liquid
Strategies
(in millions)
Wind-Down
Funds
Total
$
$
13,856 $
2,608
227
—
(1,843)
(1,843)
992
(149)
14,699 $
1,486 $
363
16
—
(509)
(509)
(130)
468
1,824 $
383 $
—
—
—
—
—
—
6
389 $
1,623 $
—
—
17,348
2,971
243
—
(1,017)
(1,017)
(1,017)
(24)
582 $
—
(3,369)
(3,369)
(155)
301
17,494
98
As of December 31, 2022:
Funded AUM
Unfunded AUM
Fee earning AUM
Non-fee earning AUM
Intercompany AUM:
Funded AUM
Unfunded AUM
As of December 31, 2021:
Funded AUM
Unfunded AUM
Fee earning AUM
Non-fee earning AUM
Intercompany AUM:
Funded AUM
Unfunded AUM
Components of Assets Under Management
CLOs (1)
Opportunity
Funds
Liquid
Strategies
(in millions)
Wind-Down
Funds
Total
$
$
$
$
$
$
15,047 $
103
1,217 $
667
14,820 $
330
1,640 $
244
248 $
—
248 $
—
160 $
22
16,672
792
87 $
95
16,795
669
582 $
103
192 $
115
248 $
—
— $
—
1,022
218
14,575 $
124
1,297 $
527
14,252 $
447
1,527 $
297
389 $
—
389 $
—
560 $
22
16,821
673
408 $
174
16,576
918
541 $
123
217 $
121
368 $
—
— $
—
1,126
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.
Corporate Division Results
Corporate Division Results
Revenues
Expenses
Interest expense
Loss on extinguishment of debt
Employee compensation and benefit expenses
Other operating expenses
Total expenses
Equity in earnings (losses) of investees
Adjusted operating income (loss) before income taxes
Less: Provision (benefit) for income taxes
Adjusted operating income (loss)
$
Year Ended December 31,
2022
2021
(in millions)
2020
$
4
$
2
$
9
89
—
30
24
143
—
(139)
(5)
(134) $
96
175
21
20
312
—
(310)
(47)
(263) $
95
—
18
19
132
(6)
(129)
(18)
(111)
The Corporate division loss in 2021 was primarily due to the loss on extinguishment of debt of $175 million on a pre-
tax basis ($138 million after-tax) associated with the redemption of AGMH and AGUS debt, which represented the difference
between the amount paid to redeem the debt and the carrying value of the debt. The loss on extinguishment of debt primarily
consisted of a $156 million acceleration of unamortized fair value adjustments that were originally recorded upon the
99
acquisition of AGMH in 2009, and a $19 million make-whole payment associated with the redemption of $170 million of
AGUS 5% Senior Notes. See Item 8, Financial Statements and Supplementary Data, Note 12, Long-Term Debt and Credit
Facilities.
Corporate division interest expense primarily relates to debt issued by the U.S. Holding Companies, and also includes
intersegment interest expense of $10 million in both 2022 and 2021, related primarily to the $250 million AGUS debt issued to
the U.S. Insurance Subsidiaries, which was borrowed in October 2019 in connection with the BlueMountain Acquisition. See
“— Liquidity and Capital Resources — AGL and its U.S. Holding Companies, Intercompany Loans Payable”, for additional
information.
Corporate division employee compensation and benefits expenses are an allocation of expenses 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 8, Financial Statements and Supplementary Data, Note 2, Segment
Information.
The types of entities the Company consolidates when it is deemed to be the primary beneficiary primarily include: (i)
entities whose debt obligations the insurance subsidiaries insure; (ii) custodial trusts established in connection with the
consummation of the 2022 Puerto Rico Resolutions; and (iii) 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.
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: (i) the establishment of the FG VIEs’ assets
and liabilities and related changes in fair value on the consolidated financial statements; (ii) eliminating the premiums and
losses associated with the financial guaranty insurance contracts between the insurance subsidiaries and the FG VIEs; and (iii)
eliminating the investment balances associated with the insurance subsidiaries’ purchases of the debt obligations of the FG
VIEs.
Consolidating CIVs (as opposed to accounting for them as equity method investments) has a significant effect on
assets, liabilities and cash flows, and includes: (i) the establishment of the assets and liabilities of the CIVs, and related changes
in fair value; (ii) eliminating the asset management fees earned by AssuredIM from the CIVs; (iii) eliminating the equity
method investments of the insurance subsidiaries and related equity in earnings (losses) of investees and (iv) establishing
noncontrolling interest for amounts not owned by the Company. The economic effect of the U.S. Insurance Subsidiaries’
ownership interests in CIVs is presented in the Insurance segment as equity in earnings (losses) of investees, while the effect of
CIVs is presented as separate line items (“assets of CIVs,” “liabilities of CIVs,” and redeemable and non-redeemable
noncontrolling interest) on a consolidated basis.
The table below reflects the effect of consolidating FG VIEs and CIVs on the consolidated statements of operations.
The amounts represent: (i) the revenues and expenses of the FG VIEs and the CIVs; and (ii) the consolidation adjustments and
eliminations between consolidated FG VIEs or CIVs and the operating and investment subsidiaries.
100
Effect of Consolidating FG VIEs and CIVs on the Consolidated Statements of Operations
Increase (Decrease)
Effect on Financial Statement Line Item
Fair value gains (losses) on FG VIEs (1)
Fair value gains (losses) on CIVs
Equity in earnings (losses) of investees (2)
Other (3)
Effect on income before tax
Less: Tax provision (benefit)
Effect on net income (loss)
Less: Effect on noncontrolling interests (4)
Effect on net income (loss) attributable to AGL
By Type of VIE
FG VIEs
CIVs
Effect on net income (loss) attributable to AGL
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
$
$
22
17
12
(44)
7
—
7
13
(6) $
$
4
(10)
(6) $
23
127
(50)
(34)
66
6
60
30
30
$
$
(1) $
31
30
$
(10)
41
(28)
(12)
(9)
(3)
(6)
6
(12)
(14)
2
(12)
____________________
(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.
Represents the elimination of the equity in earnings (losses) of investees of AGAS and the other subsidiaries’
investments in the consolidated AssuredIM Funds.
Includes net earned premiums, net investment income, asset management fees, foreign exchange gains (losses) on
remeasurement, other income (loss), loss and LAE (benefit) and other operating expenses.
Represents the proportion of consolidated AssuredIM Funds’ income that is not attributable to AGAS’ or any other
subsidiaries’ ownership interest.
(2)
(3)
(4)
The net effect of consolidating CIVs in 2021 included a $31 million gain on consolidation as described in Item 8,
Financial Statements and Supplementary Data, Note 8, Financial Guaranty Variable Interest Entities and Consolidated
Investment Vehicles.
101
Reconciliation to GAAP
Reconciliation of Net Income (Loss) Attributable to AGL
to Adjusted Operating Income (Loss)
Net income (loss) attributable to AGL
Less pre-tax adjustments:
Realized gains (losses) on investments
Non-credit impairment-related unrealized fair value gains (losses) on
credit derivatives
Fair value gains (losses) on CCS
Foreign exchange gains (losses) on remeasurement of premiums
receivable and loss and LAE reserves
Total pre-tax adjustments
Less tax effect on pre-tax adjustments
Adjusted operating income (loss)
Gain (loss) related to FG VIE and CIV consolidation (net of tax provision
(benefit) of $-, $6 and $(3)) included in adjusted operating income
Year Ended December 31,
2022
2021
(in millions)
2020
$
124
$
389
$
362
(56)
(18)
24
(110)
(160)
17
267
$
15
(64)
(28)
(21)
(98)
17
470
$
18
65
(1)
42
124
(18)
256
(6) $
30
$
(12)
$
$
Net Realized Investment Gains (Losses)
The table below presents the components of net realized investment gains (losses).
Net Realized Investment Gains (Losses)
Gross realized gains on sales of available-for-sale securities
Gross realized losses on sales of available-for-sale securities
Net foreign currency gains (losses)
Change in allowance for credit losses and intent to sell
Other net realized gains (losses)
Net realized investment gains (losses)
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
3
(45)
(4)
(21)
11
(56) $
20
(5)
2
(7)
5
15
$
$
27
(5)
6
(17)
7
18
Gross realized losses on sales of available-for-sale securities in 2022 were primarily attributable to sales of Puerto Rico
New Recovery Bonds. Other net realized gains in 2022 relate primarily to the sale of one of the Company’s alternative
investments. The change in the allowance for credit losses in 2022 was primarily due to Loss Mitigation Securities.
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.
102
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
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 December 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 8, Financial Statements
and Supplementary Data, Note 9, Fair Value Measurement, for additional information.
During 2022, non-credit impairment-related unrealized fair value losses were generated primarily as a result of wider
asset spreads, partially offset by the increased cost to buy protection on AGC, as the market cost of AGC’s credit protection
increased during the period, and changes in discount rates. 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 (or another comparable entity) would expect to receive on these transactions
decreased.
During 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. Some of
the unrealized fair value losses were partially offset by price improvement in certain underlying collateral and the termination
of certain CDS transactions.
Fair Value Gains (Losses) on CCS
Fair value gains on CCS in 2022 were primarily driven by an increase in LIBOR during the year. Fair value losses on
CCS in 2021 were primarily driven by tightened market spreads during the year. Fair value gains (losses) of CCS are heavily
affected by, and in part fluctuate 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 receivable,
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, to a lesser extent, the euro relative to the U.S. dollar. Foreign exchange gains (losses)
on remeasurement of premiums receivable and loss and LAE reserves were $(110) million and $(21) million in 2022 and 2021,
respectively. Approximately 74% and 78% of gross premiums receivable, net of commissions payable at December 31, 2022
and December 31, 2021, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and
euro. Premiums on European infrastructure and structured finance transactions typically are paid, in whole or in part , on an
installment basis, whereas premiums on U.S. public finance transactions are often paid upfront.
The following table presents the foreign exchange rates as of balance sheet dates.
Foreign Exchange Rates
U.S. Dollar Per Foreign Currency
Pound sterling
Euro
As of December 31,
2021
$1.353
$1.137
2020
$1.367
$1.222
2022
$1.208
$1.071
103
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.
104
2)
3)
4)
5)
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.
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.
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.
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)
2)
3)
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.
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.
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.
105
2)
3)
Addition of the net present value of estimated net future revenue. See below.
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 December 31, 2022
As of December 31, 2021
After-Tax
Per Share
After-Tax
Per Share
Shareholders’ equity attributable to AGL
$
5,064
(dollars in millions, except share amounts)
6,292
85.80
$
$
$
93.19
Less pre-tax adjustments:
Non-credit impairment-related unrealized fair value
gains (losses) on credit derivatives
Fair value gains (losses) on CCS
Unrealized gain (loss) on investment portfolio
Less taxes
Adjusted operating shareholders’ equity
Pre-tax adjustments:
Less: Deferred acquisition costs
Plus: Net present value of estimated net future
revenue
Plus: Net deferred premium revenue on financial
guaranty contracts in excess of expected loss to be
expensed
Plus taxes
Adjusted book value
Gain (loss) related to FG VIE and CIV consolidation
included in:
Adjusted operating shareholders’ equity (net of tax
provision of $4 and $5)
Adjusted book value (net of tax provision of $3 and
$3)
Net Present Value of Estimated Net Future Revenue
$
$
(71)
47
(523)
68
5,543
147
157
(1.21)
0.80
(8.86)
1.15
93.92
2.48
2.66
(54)
23
404
(72)
5,991
131
160
(0.80)
0.34
5.99
(1.07)
88.73
1.95
2.37
3,428
(602)
8,379
$
58.10
(10.22)
141.98
$
3,402
(599)
8,823
$
50.40
(8.88)
130.67
17
$
0.28
$
32
$
11
0.19
23
0.47
0.34
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
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.
106
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
GWP
Less: Installment GWP and other GAAP adjustments (1)
Upfront GWP
Plus: Installment premiums and other (2)
PVP
GWP
Less: Installment GWP and other GAAP adjustments (1)
Upfront GWP
Plus: Installment premiums and other (2)
PVP
Year Ended December 31, 2022
Public Finance
Structured Finance
U.S.
Non - U.S.
U.S.
Non - U.S.
Total
(in millions)
248 $
40
208
49
257 $
75 $
75
—
68
68 $
37 $
30
7
36
43 $
— $
—
—
7
7 $
360
145
215
160
375
Year Ended December 31, 2021
Public Finance
Structured Finance
U.S.
Non - U.S.
U.S.
Non - U.S.
Total
(in millions)
231 $
43
188
47
235 $
89 $
65
24
55
79 $
51 $
44
7
35
42 $
6 $
6
—
5
5 $
377
158
219
142
361
$
$
$
$
107
GWP
Less: Installment GWP and other GAAP adjustments (1)
Upfront GWP
Plus: Installment premiums and other (2)
PVP
Year Ended December 31, 2020
Public Finance
Structured Finance
U.S.
Non - U.S.
U.S.
Non - U.S.
Total
(in millions)
$
$
294 $
33
261
31
292 $
142 $
141
1
81
82 $
18 $
17
1
13
14 $
— $
—
—
2
2 $
454
191
263
127
390
_____________
(1)
(2)
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.
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. The year 2022 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 Accounting Standards Codification (ASC) 460, Guarantees.
Insured Portfolio
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 8, Financial Statements and Supplementary Data, Note 3, Outstanding Exposure.
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.
108
Financial Guaranty Portfolio
Net Par Outstanding and Average Internal Rating by Sector
$
Sector
Public finance:
U.S. public finance:
General obligation
Tax backed
Municipal utilities
Transportation
Healthcare
Higher education
Infrastructure finance
Housing revenue
Investor-owned utilities
Renewable energy
Other public finance
Total U.S. public finance
Non-U.S public finance:
Regulated utilities
Infrastructure finance
Sovereign and sub-sovereign
Renewable energy
Pooled infrastructure
Total non-U.S. public finance
Total public finance
Structured finance:
U.S. structured finance:
Life insurance transactions
RMBS
Pooled corporate obligations
Financial products
Consumer receivables
Other structured finance
Total U.S. structured finance
Non-U.S. structured finance:
Pooled corporate obligations
RMBS
Other structured finance
Total non-U.S structured finance
Total structured finance
Total net par outstanding
$
As of December 31, 2022
As of December 31, 2021
Net Par
Outstanding
Average
Rating
Net Par
Outstanding
Average
Rating
(dollars in millions)
71,868
33,752
26,436
19,688
11,304
7,137
6,955
959
332
180
1,025
179,636
17,855
13,915
9,526
2,086
1,081
44,463
224,099
3,879
1,956
625
453
437
878
8,228
344
263
324
931
9,159
233,258
A-
A-
A-
A-
BBB+
A-
A-
BBB-
A-
A-
BBB
A-
BBB+
BBB
A+
A-
AAA
BBB+
A-
AA-
BBB-
AAA
AA-
A
BBB+
A
AAA
A-
AA-
AA
A
A-
$
$
72,896
35,726
25,556
17,241
9,588
6,927
6,329
1,000
611
193
1,152
177,219
18,814
16,475
10,886
2,398
1,372
49,945
227,164
3,431
2,391
534
770
583
665
8,374
351
325
178
854
9,228
236,392
A-
A-
A-
BBB+
BBB+
A-
A-
BBB-
A-
A-
A-
A-
BBB+
BBB
A+
A-
AAA
BBB+
A-
AA-
BB+
AA+
AA-
A+
BBB+
A
AAA
A
AA
AA
A
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
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 December 31, 2022 and 2021 was $4.3 billion and $4.9
billion, respectively. The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and
109
underlying insured transaction were not investment grade was $19 million and $43 million as of December 31, 2022 and
December 31, 2021, respectively.
The tables below show the Company’s ten largest U.S. public finance, U.S. structured finance and non-U.S. exposures
by revenue source, excluding related authorities and public corporations, as of December 31, 2022.
Ten Largest U.S. Public Finance Exposures by Revenue Source
As of December 31, 2022
New Jersey (State of)
Pennsylvania (Commonwealth of)
Metro Washington Airports Authority (Dulles Toll Road)
New York Metropolitan Transportation Authority
Illinois (State of)
Foothill/Eastern Transportation Corridor Agency, California
Alameda Corridor Transportation Authority, California
North Texas Tollway Authority
Port Authority of New York and New Jersey
CommonSpirit Health, Illinois
Total of top ten U.S. public finance exposures
Net Par
Outstanding
$
$
3,130
2,271
1,630
1,568
1,312
1,309
1,261
1,239
1,034
1,000
15,754
Ten Largest U.S. Structured Finance Exposures
As of December 31, 2022
$
Private US Insurance Securitization
Private US Insurance Securitization
Private US Insurance Securitization
Private US Insurance Securitization
Private US Insurance Securitization
Private US Insurance Securitization
SLM Student Loan Trust 2007-A
Private US Insurance Securitization
Private Middle Market CLO
Option One 2007-FXD2
Total of top ten U.S. structured finance exposures
$
Net Par
Outstanding
1,100
910
500
400
395
386
215
129
129
118
4,282
Percent of Total
U.S. Public
Finance Net Par
Outstanding
(dollars in millions)
1.7 %
1.3
0.9
0.9
0.7
0.7
0.7
0.7
0.6
0.6
8.8 %
Percent of Total
U.S. Structured
Finance Net Par
Outstanding
(dollars in millions)
13.4 %
11.1
6.1
4.8
4.8
4.6
2.6
1.6
1.6
1.4
52.0 %
Rating
BBB
BBB+
BBB+
A-
BBB-
BBB+
BBB+
A+
BBB
A-
Rating
AA
AA-
A
AA-
AA-
AA-
AA
AA
AAA
CCC
110
Ten Largest Non-U.S. Exposures
As of December 31, 2022
Country
Net Par
Outstanding
$
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Canada
United Kingdom
United Kingdom
France, United Kingdom
United Kingdom
United Kingdom
$
2,199
1,811
1,806
1,635
1,498
1,390
1,215
1,159
1,072
1,047
14,832
Percent of Total
Non-U.S. Net Par
Outstanding
(dollars in millions)
4.8 %
4.0
4.0
3.6
3.3
3.1
2.7
2.5
2.4
2.3
32.7 %
Rating
BBB
BBB
BBB
A-
AA-
BBB+
A-
BBB
BBB
A+
Southern Water Services Limited
Thames Water Utilities Finance Plc
Southern Gas Networks PLC
Dwr Cymru Financing Limited
Quebec Province
National Grid Gas PLC
Anglian Water Services Financing PLC
Channel Link Enterprises Finance PLC
Yorkshire Water Services Finance Plc
British Broadcasting Corporation (BBC)
Total of top ten non-U.S. exposures
Financial Guaranty Portfolio by Issue Size
The Company seeks broad coverage of the market by insuring and reinsuring small and large issues alike. The
following tables set forth the distribution of the Company’s portfolio by original size of the Company’s exposure.
Public Finance Portfolio by Issue Size
As of December 31, 2022
Original Par Amount Per Issue
Less than $10 million
$10 through $50 million
$50 through $100 million
$100 million to $200 million
$200 million or greater
Total
Original Par Amount Per Issue
Less than $10 million
$10 through $50 million
$50 through $100 million
$100 million to $200 million
$200 million or greater
Total
Exposure to Puerto Rico
Number of
Issues
Net Par
Outstanding
(dollars in millions)
29,669
$
61,120
36,154
37,816
59,340
224,099
$
10,135
3,535
620
327
205
14,822
% of Public
Finance
Net Par
Outstanding
13.2 %
27.3
16.1
16.9
26.5
100.0 %
Structured Finance Portfolio by Issue Size
As of December 31, 2022
Number of
Issues
Net Par
Outstanding
% of Structured
Finance
Net Par
Outstanding
(dollars in millions)
102
$
1,071
896
1,413
5,677
9,159
$
110
148
42
49
83
432
1.1 %
11.7
9.8
15.4
62.0
100.0 %
The Company had insured exposure to obligations of various authorities and public corporations of the
Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) as well as its general obligation bonds aggregating $1.4
111
billion net par outstanding as of December 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 “—Liquidity and Capital Resources—Insurance Subsidiaries, Financial Guaranty Policies” below and
Item 8, Financial Statements and Supplementary Data, Note 3, Outstanding Exposure.
Exposure to Puerto Rico by Company
As of December 31, 2022
Net Par Outstanding
AGM
AGC
AG Re
Eliminations
(1)
Total Net
Par
Outstanding
Gross Par
Outstanding
Resolved Puerto Rico Exposures
PRHTA (Transportation revenue) (2)
PRHTA (Highway revenue) (2)
Commonwealth of Puerto Rico - GO (3)
PBA (3)
Total Resolved
$
49 $
140
—
1
190
183 $
30
19
4
236
(in millions)
108 $
12
6
—
126
(42) $
—
—
(1)
(43)
298 $
182
25
4
509
Other Puerto Rico Exposures
PREPA (4)
MFA (5)
PRASA and U of PR (5)
Total Other
446
101
—
547
69
6
1
76
205
24
—
229
—
—
—
—
720
131
1
852
298
182
25
4
509
730
138
1
869
Total exposure to Puerto Rico
$
737 $
312 $
355 $
(43) $
1,361 $
1,378
____________________
(1)
(2)
(3)
(4)
(5)
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.
Resolved on December 6, 2022, pursuant to the Modified Fifth Amended Title III Plan of Adjustment of the Puerto
Rico Highways and Transportation Authority.
Resolved on March 15, 2022, pursuant to the Modified Eighth Amended Title III 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.
This exposure is in payment default.
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
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.
112
Amortization Schedule of Net Par of Puerto Rico
As of December 31, 2022
2023
Q1
2023
Q2
2023
Q3
2023
Q4
Scheduled Net Par Amortization
2024
2025
2026
2027
(in millions)
2028
-2032
2033
-2037
2038
-2042
Total
10 $ — $ — $
8 $ — $
$ — $ — $
— — — — — — — —
— — — — — —
4
— —
— —
12 $ 127 $ 133 $ 298
182
81
101 —
25
19 — —
2 — — — — —
4
509
133
10
2 — —
12 — —
228
112
10
8 $
2
4
95 —
— —
— —
18 —
— — — —
113 —
— —
68
18
105
37
241
13 —
105
93
18
25 — —
15
1 — — — — — —
13 —
120
266
142
86
112
720
131
1
852
Resolved Puerto Rico Exposures
PRHTA (Transportation revenue)
PRHTA (Highway revenue)
Commonwealth of Puerto Rico - GO
PBA
Total Resolved
Other Puerto Rico Exposures
PREPA
MFA
PRASA and U of PR
Total Other
Total
$ — $ — $ 125 $ — $ 112 $
96 $ 152 $ 124 $ 378 $ 241 $ 133 $ 1,361
Amortization Schedule of Net Debt Service of Puerto Rico
As of December 31, 2022
Scheduled Net Debt Service Amortization
2023
Q1
2023
Q2
2023
Q3
2023
Q4
2024
2025
2026
2027
(in millions)
2028
-2032
2033
-2037
2038
-2042
Total
Resolved Puerto Rico Exposures
PRHTA (Transportation revenue)
PRHTA (Highway revenue)
Commonwealth of Puerto Rico - GO
PBA
Total Resolved
$
8 $ — $
5 —
— —
— —
13 —
15 $
18 $ — $
9
5 —
1 —
2
2 — —
26
26 —
14 $
10
6
22 $
10
3
82 $ 182 $ 151 $ 515
23 $
288
124
116 —
9
34
1
21 — —
3 — — — — —
5
842
151
36
298
227
30
35
Other Puerto Rico Exposures
PREPA
MFA
PRASA and U of PR
Total Other
14
3
3 —
109
3
21 —
— — — —
3
130
17
3
92
22
126
41
274
14 —
122
122
28 — —
17
24
1 — — — — — —
139
879
156
1
14 — 1,036
302
147
114
167
Total
$
30 $
3 $ 156 $
3 $ 173 $ 150 $ 202 $ 169 $ 529 $ 312 $ 151 $ 1,878
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 8, Financial Statements and Supplementary Data, Note 3, Outstanding Exposure, and Note 4,
Expected Loss to be Paid (Recovered). U.S. RMBS exposures represent 0.8% of the total net par outstanding, and BIG U.S.
RMBS represent 17.1% of total BIG net par outstanding as of December 31, 2022.
113
Distribution of U.S. RMBS by Year Insured and Type of Exposure as of December 31, 2022
Year insured:
2004 and prior
2005
2006
2007
2008
Total exposures
Exposures rated BIG
$
$
$
Prime
First Lien
Alt-A
First Lien
Option
ARMs
Subprime
First Lien
Second
Lien
Total Net Par
Outstanding
10 $
22
25
—
—
57 $
8 $
122
25
196
—
351 $
(in millions)
— $
15
1
16
—
32 $
342 $
184
44
590
31
1,191 $
14 $
53
109
149
—
325 $
374
396
204
951
31
1,956
38 $
208 $
16 $
633 $
115 $
1,010
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 and a half times 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 Item 8, Financial
Statements and Supplementary Data, Note 12, Long-Term Debt and Credit Facilities, and Guarantor and U.S. Holding
Companies’ Summarized Financial Information, below.
114
U.S. Holding Companies
Long-Term Debt and Intercompany Loans
Effective Interest Rate
Final
Maturity
AGUS - long-term debt
7% Senior Notes
5% Senior Notes
3.15% Senior Notes
3.6% Senior Notes
Series A Enhanced Junior Subordinated Debentures
6.40%
5.00%
3.15%
3.60%
3 month LIBOR +2.38%
2034
2024
2031
2051
2066
$
AGUS long-term debt
AGUS - intercompany loans from:
AGC and AGM
AGRO
AGUS intercompany loans
Total AGUS long-term debt and intercompany
loans
AGMH
Junior Subordinated Debentures
Total AGMH long-term debt
3.50%
6 month LIBOR +3.00%
2030
2023
As of December 31,
2022
2021
(in millions)
Principal Amount
200 $
330
500
400
150
1,580
250
20
270
200
330
500
400
150
1,580
250
20
270
1,850
1,850
6.40%
2066
300
300
300
300
AGMH’s long-term debt purchased by AGUS (2)
U.S. Holding Company long-term debt
(154)
1,996 $
(154)
1,996
$
____________________
(1)
Represents principal amount of Junior Subordinated Debentures issued by AGMH that has been purchased by AGUS.
Interest Paid on U.S. Holding Companies’ Long-Term Debt and Intercompany Loans
AGUS - long-term debt
AGUS - intercompany loans
Total AGUS
AGMH - long-term debt
AGMH’s long-term debt purchased by AGUS
Total interest paid
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
68 $
10
78
19
(10)
87 $
50 $
10
60
40
(10)
90 $
44
10
54
46
(9)
91
On May 26, 2021, AGUS issued $500 million in 3.15% Senior Notes. On July 9, 2021, a portion of the proceeds of the
debt issuance was used to redeem $200 million in AGMH debt. On August 20, 2021, AGUS issued $400 million in 3.6%
Senior Notes, and on September 27, 2021, the proceeds of the debt issuance were used to redeem $230 million in AGMH debt
and $170 million in AGUS debt. See Item 8, Financial Statements and Supplementary Data, Note 12, Long-Term Debt and
Credit Facilities.
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 Company believes that after June 2023 the reference to LIBOR will be
replaced, by operation of law in accordance with federal legislation enacted in March 2022 (AIRLA), with a rate based on
SOFR. See “— Executive Summary — Other Matters — LIBOR Sunset” above.
115
Year
2023
2024
2025
2026
2027
2028-2047
2048-2066
Total
U.S. Holding Companies
Expected Debt Service of Long-Term Debt
As of December 31, 2022
AGUS
AGMH
Eliminations (1)
Total
$
$
102 $
401
111
109
108
1,400
720
2,951 $
(in millions)
19 $
19
19
19
19
384
665
1,144 $
(40) $
(19)
(69)
(67)
(65)
(302)
(340)
(902) $
81
401
61
61
62
1,482
1,045
3,193
____________________
(1)
Includes eliminations of intercompany loans payable and AGMH’s debt purchased by AGUS.
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.
Intercompany Loans Payable
On October 1, 2019, the U.S. Insurance Subsidiaries made 10-year, 3.5% interest rate intercompany loans to AGUS,
aggregating $250 million, to fund the BlueMountain Acquisition and the related capital contributions. Interest is payable
annually in arrears on each anniversary of the note, and commenced on October 1, 2020. Interest accrues daily and is computed
on a basis of a 360-day year from October 1, 2019 until the date on which the principal amount is paid in full. AGUS will pay
20% of the original principal amount of each note on the sixth, seventh, eighth, and ninth anniversaries. The remaining 20% of
the original principal amount and all accrued and unpaid interest will be paid on the maturity date. AGUS has the right to
prepay the principal amount of the notes in whole or in part at any time, or from time to time, without payment of any premium
or penalty.
In addition, in 2012 AGUS borrowed $90 million from its affiliate AGRO to fund the acquisition of MAC. In 2018,
the maturity date was extended to November 2023. AGUS repaid $10 million in each of 2021 and 2020 in outstanding principal
as well as accrued and unpaid interest. There were no repayments in 2022. As of December 31, 2022, $20 million remained
outstanding.
Capital Contributions to AssuredIM
The Company contributed $60 million of cash to AssuredIM at closing, and contributed an additional $30 million in
cash in February 2020, $15 million in both February 2021 and February 2022 and $10 million in February 2023.
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.
116
Assets
Fixed-maturity securities (1)
Short-term investments, other invested assets and cash
Receivables from affiliates (2)
Receivable from U.S. Holding Companies
Other assets
Liabilities
Long-term debt
Loans payable to affiliates
Payable to affiliates (2)
Payable to AGL
Other liabilities
$
As of December 31, 2022
AGL
U.S. Holding
Companies
(in millions)
21 $
5
57
18
1
—
—
15
—
7
3
143
—
—
53
1,675
270
9
18
72
____________________
(1)
As of December 31, 2022, weighted average durations of AGL’s and the U.S. Holding Companies’ fixed-maturity
securities (excluding AGUS’s investment in AGMH’s debt) were 9.9 years and 4.7 years, respectively.
Represents receivable and payables with non-guarantor subsidiaries.
(2)
Revenues
Expenses
Interest expense
Other expenses
Income (loss) before provision for income taxes and equity in earnings (losses) of
investees
Net income (loss)
Year Ended December 31, 2022
AGL
U.S. Holding
Companies
$
(in millions)
(1) $
—
45
(46)
(46)
1
89
9
(97)
(86)
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.
117
AGL and U.S. Holding Companies
Selected Cash Flow Items
$
Year Ended December 31, 2022
AGL
U.S. Holding
Companies
(in millions)
437 $
—
—
—
—
—
(64)
(500)
476
(10)
(77)
(22)
9
(437)
—
—
Dividends received from subsidiaries
Interest on intercompany loans
Interest paid (1)
Investments in subsidiaries
Return of capital from subsidiaries
Dividends paid to AGL
Dividends paid
Repurchases of common shares (2)
____________________
(1)
(2)
See “Long-Term Debt Obligations” above for interest paid by subsidiary.
See Item 8, Financial Statements and Supplementary Data, Note 19, Shareholders’ Equity, for additional information
about share repurchases and authorizations.
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 Item 8, Financial Statements and Supplementary Data, Note 12, Long-Term Debt and
Credit Facilities.
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, 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 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
118
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
December 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. For example, the Company made
substantial claim payments in 2022 in connection with the resolution of certain Puerto Rico credits. The Company is continuing
its efforts to resolve the one remaining unresolved Puerto Rico insured exposure that is in payment default, PREPA. The
Company had $720 million net par outstanding to PREPA on December 31, 2022. As described in Item 8, Financial Statements
and Supplementary Data, Note 3, Outstanding Exposure, in connection with the implementation of the GO/PBA Plan and the
HTA Plan, certain insured bondholders elected to receive custody receipts that represent an interest in the legacy insurance
policy plus cash, New Recovery Bonds and CVIs, as relevant, that constitute distributions under the GO/PBA Plan or HTA
Plan. For those who made the election, distributions under the GO/PBA Plan and HTA Plan 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 under the GO/PBA Plan or HTA Plan, as applicable, are insufficient to pay or prepay 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 December 31, 2022, the remaining net par outstanding for HTA and GO/
PBA Resolved Puerto Rico exposures where the bondholders elected to receive custody receipts, or where the Company
assumed exposure from another financial guarantor, was $509 million.
The following table presents estimated probability weighted expected cash outflows under direct and assumed
financial guaranty contracts, whether accounted for as insurance or credit derivatives, including claim payments under contracts
in consolidated FG VIEs, as of December 31, 2022. This amount is not reduced for cessions under reinsurance contracts or
recoveries attributable to Loss Mitigation Securities. This amount includes any benefit anticipated from excess spread or other
recoveries within the contracts but does not reflect any benefit for recoveries under breaches of R&W. This amount also
excludes estimated recoveries related to past claims paid for policies in the public finance sector.
Estimated Expected Claim Payments
(Undiscounted)
Less than 1 year
1-3 years
3-5 years
More than 5 years
Total
As of December 31, 2022
(in millions)
$
$
325
582
418
321
1,646
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
119
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 $418 million as of December 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 December 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
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 Item 8, Financial Statements
and Supplementary Data, Note 15, Insurance Company Regulatory Requirements.
Dividend restrictions by insurance subsidiary are as follows:
•
•
•
The maximum amount available during 2023 for AGM (a subsidiary of AGMH) to distribute as dividends without
regulatory approval is estimated to be approximately $209 million, of which approximately $40 million is
available for distribution in the first quarter of 2023.
The maximum amount available during 2023 for AGC (a subsidiary of AGUS) to distribute as ordinary dividends
is approximately $102 million, of which approximately $20 million is available for distribution in the first quarter
of 2023.
Based on the applicable law and regulations, in 2023 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 Authority; and
(ii) declare and pay dividends in an aggregate amount up to approximately $210 million as of December 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
$138 million as of December 31, 2022; and (ii) the amount of statutory surplus, which, as of December 31, 2022,
was a deficit of $19 million.
120
•
Based on the applicable law and regulations, in 2023 AGRO (an indirect subsidiary of AG Re) 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 $98 million as of
December 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 $374 million as of December 31, 2022; and (ii) the amount of statutory surplus, which, as of
December 31, 2022, was $253 million.
Distributions from / Contribution to Insurance Company Subsidiaries
Dividends paid by AGC to AGUS
Dividends paid by AGM to AGMH
Dividends paid by AG Re to AGL (1)
Dividends from AGUK to AGM (2)
Contributions from AGM to AGE (2)
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
207
266
—
—
—
$
94
291
150
—
—
166
267
150
124
(123)
____________________
(1)
The 2021 and 2020 amounts included fixed-maturity securities with a fair value of $46 million and $47 million,
respectively.
In 2020, the dividend paid to AGM from AGUK was contributed to AGE.
(2)
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.
For example, the U.S. Insurance Subsidiaries have issued financial guaranty insurance policies in respect of the
obligations of municipal obligors under interest rate swaps. The U.S. Insurance Subsidiaries insure periodic payments owed by
the municipal obligors to the bank counterparties. In such cases, the U.S. Insurance Subsidiaries would be required to pay the
termination payment owed by the municipal obligor, in an amount not to exceed the policy limit set forth in the financial
guaranty insurance policy, if: (i) the U.S. Insurance Subsidiaries have been downgraded below the rating trigger set forth in a
swap under which they have insured the termination payment, which rating trigger varies on a transaction by transaction basis;
(ii) the municipal obligor has the right to cure by, but has failed in, posting collateral, replacing the U.S. Insurance Subsidiaries
or otherwise curing the downgrade of the U.S. Insurance Subsidiaries; (iii) the transaction documents include as a condition that
an event of default or termination event with respect to the municipal obligor has occurred, such as the rating of the municipal
obligor being downgraded below the rating trigger set forth in such swap (which rating trigger varies on a transaction by
transaction basis), and such condition has been met; (iv) the bank counterparty has elected to terminate the swap; (v) a
termination payment is payable by the municipal obligor; and (vi) the municipal obligor has failed to make the termination
payment payable by it. Conversely, no termination payment would be owed in such cases if the transaction documents include
as a condition that an underlying event of default or termination event with respect to the municipal obligor has occurred, such
as the rating of the municipal obligor being downgraded below a specified rating trigger, and such condition has not been met.
Taking into consideration whether the rating of the municipal obligor is below any applicable specified trigger, if the financial
strength ratings of the U.S. Insurance Subsidiaries were downgraded below “A-” by S&P or below “A3” by Moody’s, and the
conditions giving rise to the obligation of the U.S. Insurance Subsidiaries to make a payment under the swap policies were all
satisfied, then the U.S. Insurance Subsidiaries could pay claims in an amount not exceeding approximately $13 million in
respect of such termination payments.
As another example, with respect to variable rate demand obligations (VRDOs) for which a bank has agreed to provide
a liquidity facility, a downgrade of AGM or AGC may provide the bank with the right to give notice to bondholders that the
bank will terminate the liquidity facility, causing the bondholders to tender their bonds to the bank. Bonds held by the bank
accrue interest at a “bank bond rate” that is higher than the rate otherwise borne by the bond (typically the prime rate plus
2.00% – 3.00%, and capped at the lesser of 25% and the maximum legal limit). In the event the bank holds such bonds for
longer than a specified period of time, usually 90-180 days, the bank has the right to demand accelerated repayment of bond
principal, usually through payment of equal installments over a period of not less than five years. In the event that a municipal
obligor is unable to pay interest accruing at the bank bond rate or to pay principal during the shortened amortization period, a
121
claim could be submitted to AGM or AGC under its financial guaranty policy. As of December 31, 2022, AGM and AGC had
insured approximately $1.5 billion net par of VRDOs, of which approximately $15 million of net par constituted VRDOs issued
by municipal obligors rated BBB- or lower pursuant to the Company’s internal rating. As of December 31, 2022, none of the
insured VRDOs were issued by municipal obligors rated BIG. The specific terms relating to the rating levels that trigger the
bank’s termination right, and whether it is triggered by a downgrade by one rating agency or a downgrade by all rating agencies
then rating the insurer, vary depending on the transaction.
In addition, AGM may be required to pay claims in respect of AGMH’s former financial products business if
Dexia SA and its affiliates, from which the Company had purchased AGMH and its subsidiaries, do not comply with their
obligations following a downgrade of the financial strength rating of AGM. A downgrade of the financial strength rating of
AGM could trigger a payment obligation of AGM in respect to AGMH’s former GIC business. Most GICs insured by AGM
allow for the termination of the GIC contract and a withdrawal of GIC funds at the option of the GIC holder in the event of a
downgrade of AGM below a specified threshold, generally below A- by S&P or A3 by Moody’s. AGMH’s former subsidiary
FSA Asset Management LLC is expected to have sufficient eligible and liquid assets to satisfy any expected withdrawal and
collateral posting obligations resulting from future rating actions affecting AGM.
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.
As of December 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 $234 million by AGC and $34 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 (CPS) is
one-month LIBOR plus 200 bps. The Company believes that after June 2023 the reference to LIBOR in such CCS will be
replaced, by operation of law in accordance with federal legislation enacted in March 2022, with a rate based on SOFR. See “—
Executive Summary — Other Matters — LIBOR Sunset” above.
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
122
sufficient liquidity to cover unexpected stress in the insurance portfolio, and to maximize after-tax net investment income.
Approximately 67% 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, 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, which are generally less liquid. For more information
about the Investment Portfolio and a detailed description of the Company’s valuation of investments, see Item 8, Financial
Statements and Supplementary Data, Note 9, Fair Value Measurement and Note 7, Investments and Cash.
Investment Portfolio
Carrying Value
Fixed-maturity securities, available-for-sale (1)
Fixed-maturity securities, trading (2)
Short-term investments
Other invested assets
Total
As of December 31,
2022
2021
(in millions)
7,119
303
810
133
8,365
$
$
8,202
—
1,225
181
9,608
$
$
____________________
(1)
As of December 31, 2022, includes $358 million of New Recovery Bonds received in connection with the
consummation of the 2022 Puerto Rico Resolutions.
Represents CVIs received under the 2022 Puerto Rico Resolutions.
(2)
The Company’s available-for-sale fixed-maturity securities had a duration of 4.4 years as of December 31, 2022 and
4.7 years as of December 31, 2021, respectively.
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 December 31, 2022
Due within one year
Due after one year through five years
Due after five years through 10 years
Due after 10 years
Mortgage-backed securities:
RMBS
CMBS
Total
Amortized
Cost
Estimated
Fair Value
(in millions)
290 $
1,713
1,778
3,226
418
282
7,707 $
282
1,585
1,667
2,974
340
271
7,119
$
$
Available-for-Sale and Trading Fixed-Maturity Securities By Rating
The following table summarizes the ratings distributions of the Company’s available-for-sale fixed-maturity securities
as of December 31, 2022 and December 31, 2021. Ratings generally reflect the lower of Moody’s and S&P classifications,
except for (i) Loss Mitigation Securities, which use Assured Guaranty’s internal ratings classifications, or (ii) Puerto Rico
securities received under the 2022 Puerto Rico Resolutions, which are not rated.
123
Rating
AAA
AA
A
BBB
BIG (1)
Not rated (2)
Total
Distribution of Available-for-Sale Fixed-Maturity Securities by Rating
As of December 31,
2022
2021
14.2 %
37.1
24.4
11.0
7.4
5.9
100.0 %
14.6 %
38.2
25.1
13.7
7.5
0.9
100.0 %
____________________
(1)
The BIG category primarily includes Loss Mitigation Securities. See Item 8, Financial Statements and Supplementary
Data, Note 7, Investments and Cash, for additional information.
As of December 31, 2022, the not rated category primarily includes New Recovery Bonds received in connection with
the consummation of the 2022 Puerto Rico Resolutions.
(2)
The Company also had $303 million in trading fixed-maturity securities as of December 31, 2022 representing CVIs
received under the 2022 Puerto Rico Resolutions, which are not rated.
Portfolio of Obligations of State and Political Subdivisions
The Company’s fixed-maturity investment portfolio includes issuances by a wide number of municipal authorities
across the U.S. and its territories. The following table presents the components of the Company’s $3,394 million (fair value) of
obligations of state and political subdivisions included in the Company’s available-for-sale fixed-maturity portfolio as of
December 31, 2022.
Fair Value of Available-for-Sale Fixed-Maturity Portfolio of Obligations of State and Political Subdivisions
As of December 31, 2022 (1)
State
California
Puerto Rico
New York
Texas
Washington
Florida
Massachusetts
Pennsylvania
Illinois
Colorado
All others
Total
State
General
Obligation
Local
General
Obligation
Revenue Bonds
Total Fair
Value
Amortized
Cost
$
$
47 $
33
3
16
45
—
63
31
12
—
99
349 $
65 $
—
37
73
53
2
—
5
16
22
107
380 $
(in millions)
287 $
327
298
245
94
162
82
76
77
51
606
2,305 $
399 $
360
338
334
192
164
145
112
105
73
812
3,034 $
414
362
352
351
198
171
149
114
109
76
857
3,153
Average
Credit
Rating
A
Not Rated
AA
AA
AA
A+
AA
A+
A+
AA
AA-
A
____________________
(1)
Excludes $360 million as of December 31, 2022 of pre-refunded bonds, at fair value. The credit ratings are based on
the underlying ratings and do not include any benefit from bond insurance.
The revenue bond portfolio primarily consists of essential service revenue bonds issued by transportation authorities,
utilities, and universities.
124
Revenue Bonds
Sources of Funds
As of December 31, 2022
Amortized
Cost
Fair Value
(in millions)
845 $
563
419
286
172
96
2,381 $
832
541
411
276
165
80
2,305
$
$
Type
Tax revenue
Transportation
Utilities
Education
Healthcare
All others
Total
Other Investments
Other invested assets, which are generally less liquid than fixed-maturity securities primarily consist of investments in
renewable and clean energy and private equity funds managed by a third party.
The Insurance segment reports AGAS’ percentage ownership of AssuredIM Funds’ as equity method investments with
changes in NAV included in the Insurance segment adjusted operating income. As of December 31, 2022 and December 31,
2021, all of the funds in which AGAS directly invests are consolidated in the Company’s consolidated financial statements. The
amounts in the table below represent the fair value of AGAS’ interests in the AssuredIM Funds. See Part I, Item 1. Business —
Asset Management — Products, for a description of the fund strategies. See also Commitments below.
Strategy
CLOs
Municipal bonds (1)
Healthcare
Asset-based
Total
Fair Value of AGAS’ Interest in AssuredIM Funds
As of December 31,
2022
2021
$
$
$
(in millions)
272
105
91
101
569
$
228
107
115
93
543
____________________
(1)
The fund was unwound in January 2023 based on the December 31, 2022 valuation. On January 31, 2023 the fund
distributed substantially all of its available cash to AGAS and other investors in the fund.
Equity in Earnings (Losses) of Investees of AGAS’ Investment in AssuredIM Funds
Strategy
CLOs
Municipal bonds
Healthcare
Asset-based
Total
Restricted Assets
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
(2) $
(2)
(11)
5
(10) $
29 $
2
30
19
80 $
14
5
19
4
42
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 $222 million and $243 million, as of December 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
125
benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amount of $1,169 million and
$1,231 million, based on fair value as of December 31, 2022 and December 31, 2021, respectively.
Commitments
The U.S. Insurance Subsidiaries are authorized to invest up to $750 million in AssuredIM Funds. Adding distributed
gains from inception through December 31, 2022, the U.S. Insurance Subsidiaries may invest a total of up to $810 million in
AssuredIM Funds. As of December 31, 2022, the Insurance segment had total commitments to AssuredIM Funds of $755
million, of which $536 million represented net invested capital and $219 million was undrawn. In addition to its commitments
to AssuredIM Funds, the Company had unfunded commitments of $78 million as of December 31, 2022 to 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, $15 million and $30 million
in 2022, 2021 and 2020, respectively, had been contributed to supplement cash from operations). As of December 31, 2022 and
December 31, 2021, AssuredIM had $41 million and $37 million, respectively, 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. In
each of 2022, 2021 and 2020, AssuredIM distributed $8.8 million to AGUS to fund AGUS’s interest payments on its
intercompany debt to the U.S. Insurance Subsidiaries. That debt was incurred in October 2019 to fund the BlueMountain
Acquisition. See “— AGL and U.S. Holding Companies — Intercompany Loans Payable” above for additional information.
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 Item 8, Financial Statements and Supplementary Data, Note
17, Leases, 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 8, Financial Statements and Supplementary Data, Note 8, Financial Guaranty Variable Interest Entities and
Consolidated Investment Vehicles, for additional information.
126
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 December 31, 2022, these credit facilities had varying maturities ranging from 2023 to 2031 with the aggregate
principal amount not exceeding $1.6 billion. The available commitment was based on the amount of equity contributed to the
warehouse which was $377 million. As of December 31, 2022, $284 million was drawn under credit facilities with interest rates
ranging from 3-month SOFR plus 150 bps to 3-month Euribor plus 200 bps (with a floor on Euribor of zero). The CLO
warehouses were in compliance with all financial covenants as of December 31, 2022.
As of December 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 $110 million jointly and $71 million individually for the consolidated healthcare fund. The available commitment
was based on the capital committed to the funds. As of December 31, 2022, $58 million was drawn 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 December 31, 2022.
Consolidated Cash Flow Summary
The summarized consolidated statements of cash flows in the table below present the cash flow effect for the aggregate
of the Insurance and Asset Management business and holding companies, separately from the aggregate effect of consolidating
FG VIEs and CIVs.
127
Summarized Consolidated Cash Flows
Year Ended December 31,
2022
2021
(in millions)
2020
Net cash flows provided by (used in) operating activities, before effect of FG
VIEs and CIVs consolidation
Effect of FG VIEs and CIVs consolidation
$
Net cash flows provided by (used in) operating activities
(1,056) $
(1,423)
(2,479)
420 $
(2,357)
(1,937)
Net cash flows provided by (used in) investing activities, before effect of FG
VIEs and CIVs consolidation
Effect of FG VIEs and CIVs consolidation
Net cash flows provided by (used in) investing activities
Net cash flows provided by (used in) financing activities, before effect of FG
VIEs and CIVs consolidation
Dividends paid
Repurchases of common shares
Issuance of long-term debt, net of issuance costs
Redemptions and purchases of debt, including make-whole payment
Other
Effect of FG VIEs and CIVs consolidation
Net cash flows provided by (used in) financing activities (1)
Effect of exchange rate changes, before effect of FG VIEs and CIVs
consolidation
Effect of FG VIEs and CIVs consolidation
Effect of exchange rate changes
Increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at the end of the period
$
1,618
122
1,740
(64)
(500)
—
—
(8)
1,184
612
(3)
(5)
(8)
(135)
342
207 $
(156)
179
23
(66)
(496)
889
(619)
(12)
2,264
1,960
(2)
—
(2)
44
298
342 $
67
(920)
(853)
478
310
788
(69)
(446)
—
(21)
(11)
730
183
(3)
—
(3)
115
183
298
____________________
(1)
Claims paid on consolidated FG VIEs are presented in the 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 FG VIEs and CIVs, was an outflow of $1,056
million in 2022 and an inflow of $420 million in 2021. The increase in cash outflows during 2022 was primarily due to a $1.3
billion increase in net claim payments, which were primarily due to the 2022 Puerto Rico Resolutions as well as an increase of
$81 million in tax payments. Cash flows from operations attributable to the effect of FG VIE and CIV consolidation were
outflows in 2022 and 2021. The consolidated statements of cash flows present the investing activities of the consolidated
AssuredIM Funds and CLOs as cash flows from operations. The decrease in outflows in 2022 compared with 2021 is mainly
due to a decrease of $2,154 million in investment purchases, partially offset by a decrease of investment sales, maturities and
paydowns of $1,352 million.
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 a
decrease of $865 million for purchases of available-for-sale fixed-maturity securities, $208 million in sales, maturities and
paydowns of trading securities, and an increase in net sales of short-term investments of $786 million in 2022 to fund share
repurchases and claim payments in connection with the 2022 Puerto Rico Resolutions, partially offset by lower disposals of
$177 million of available-for-sale fixed-maturity securities. See Item 8, Financial Statements and Supplementary Data, Note 3,
Outstanding Exposure, for additional information.
Financing activities primarily consist of share repurchases, dividends, and paydowns of FG VIEs’ liabilities, as well as
CLO issuances and CLO warehouse financing activities. In 2021, it also included the issuance of 3.15% Senior Notes and 3.6%
Senior Notes and redemptions of a portion of AGMH and AGUS debt. See Item 8, Financial Statements and Supplementary
128
Data, Note 12, Long-Term Debt and Credit Facilities. The CIVs’ financing cash flows mainly include issuances and repayments
of CLOs and CLO warehouse financing debt. The decrease in financing cash flow activity from VIEs was primarily due to a
decrease of $2,251 million in issuances, and repayments of $1,192 million by the consolidated CLOs and CLO warehouses. The
proceeds from CLO issuances and CLO warehouse borrowings are used to fund the purchases of loans. FG VIEs’ cash flows
relate to the paydowns of FG VIEs’ liabilities. See Item 8, Financial Statements and Supplementary Data, Note 8, Financial
Guaranty Variable Interest Entities and Consolidated Investment Vehicles.
From January 1, 2023 through February 28, 2023, the Company repurchased an additional 36 thousand common
shares. As of February 28, 2023, the Company was authorized to repurchase $201 million of its common shares. For more
information about the Company’s share repurchases and authorizations, see Item 8, Financial Statements and Supplementary
Data, Note 19, Shareholders’ Equity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss due to factors that affect the overall performance of the financial markets or movements
in market prices. The Company’s primary market risk exposures include interest rate risk, foreign currency exchange rate risk
and credit spread risk, and primarily affect the following areas.
•
•
•
•
•
•
•
•
The fair value of credit derivatives within the financial guaranty portfolio of insured obligations is sensitive to
changes in credit spreads of the underlying obligations and the Company’s own credit spreads.
The fair value of the investment portfolio is primarily driven by changes in interest rates and also affected by
changes in credit spreads.
New business production is sensitive to changes in interest rates.
Expected loss to be paid (recovered) is sensitive to changes in interest rates.
The fair value of the investment portfolio contains foreign denominated securities whose value also fluctuates
based on changes in foreign exchange rates. The carrying value of premiums receivable includes foreign
denominated receivables whose values fluctuate based on changes in foreign exchange rates.
Asset management revenues are sensitive to changes in the fair value of investments.
The fair value of CIVs are sensitive to changes in market risk.
The fair value of the assets and liabilities of consolidated FG VIEs may fluctuate based on changes in
prepayments, spreads, default rates, interest rates, and house price depreciation/appreciation. The fair value of the
FG VIEs’ liabilities also fluctuates based on changes in the Company’s credit spread.
Sensitivity of Credit Derivatives to Credit Risk
Fair value gains and losses on credit derivatives are sensitive to changes in credit spreads of the underlying obligations
and the Company’s own credit spread. Market liquidity could also impact valuations of the underlying obligations. The
Company considers the impact of its own credit risk, together with credit spreads on the exposures that it insured through CDS
contracts, in determining their fair value.
The Company determines its own credit risk based on quoted CDS prices traded on AGC at each balance sheet date.
The quoted price of five-year CDS contracts traded on AGC at December 31, 2022 and December 31, 2021 was 63 bps and 49
bps, respectively. Movements in AGM’s CDS prices no longer have a significant impact on the estimated fair value of the
Company’s credit derivative contracts due to the relatively low volume and characteristics of CDS contracts remaining in
AGM’s portfolio.
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 underlying change in fair value of each transaction may vary considerably. An overall narrowing of spreads generally
results in an unrealized gain on credit derivatives for the Company, and an overall widening of spreads generally results in an
unrealized loss for the Company.
129
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. Historically, the price of CDS traded on AGC typically moved directionally the
same as general market spreads, although this may not always be the case. In certain circumstances, due to the fact that spread
movements are not perfectly correlated, the narrowing or widening of the price of CDS traded on AGC can have a more
significant financial statement impact than the changes in risks it assumes.
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 December 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 premium 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 following table summarizes the estimated change in fair values 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 on Credit Derivatives
Credit Spreads (1)
Increase of 25 bps
Base Scenario
Decrease of 25 bps
All transactions priced at floor
As of December 31, 2022
As of December 31, 2021
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)
$
(233) $
(162)
(99)
(27)
(in millions)
(71) $
—
63
135
(250) $
(154)
(83)
(37)
(96)
—
71
117
____________________
(1)
Includes the effects of spreads on both the underlying asset classes and the Company’s own credit spread.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 6, Contracts Accounted for as Credit
Derivatives, for additional information.
Sensitivity of Investment Portfolio to Interest Rate Risk
Interest rate risk is the risk that financial instruments’ values will change due to changes in the level of interest rates, in
the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. The Company is exposed
to interest rate risk in its investment portfolio. As interest rates rise for an available-for-sale investment portfolio, the fair value
of fixed maturity securities generally decreases; as interest rates fall for an available-for-sale portfolio, the fair value of fixed-
income securities generally increases. The Company’s policy is generally to hold assets in the investment portfolio to maturity.
Therefore, barring credit deterioration, interest rate movements do not result in realized gains or losses unless assets are sold
prior to maturity. The Company does not hedge interest rate risk; instead, interest rate fluctuation risk is managed through the
investment guidelines which limit duration and prohibit investment in historically high volatility sectors.
Interest rate sensitivity in the investment portfolio can be estimated by projecting a hypothetical instantaneous increase
or decrease in interest rates. The following table presents the estimated pre-tax change in fair value of the Company’s fixed-
maturity securities and short-term investments from instantaneous parallel shifts in interest rates.
130
Increase (Decrease) in Fair Value (Pre-Tax)
of Fixed-Maturity Securities and Short-Term Investments
from Changes in Interest Rates (1)
$
As of December 31,
2022
2021
(in millions)
$
1,315
854
404
(378)
(734)
(1,069)
509
508
357
(403)
(788)
(1,176)
Decrease of 300 bps
Decrease of 200 bps
Decrease of 100 bps
Increase of 100 bps
Increase of 200 bps
Increase of 300 bps
____________________
(1)
Sensitivity analysis assumes a floor of zero for interest rates.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 7, Investments and Cash, for additional
information.
Sensitivity of New Business Production to Interest Rate Risk
Fluctuations in interest rates also affect the demand for the Company’s product. When interest rates are lower or when
the market is otherwise relatively less risk averse, the spread between insured and uninsured obligations typically narrows and,
as a result, financial guaranty insurance typically provides lower cost savings to issuers than it would during periods of
relatively wider spreads. These lower cost savings generally lead to a corresponding decrease in demand and premiums
obtainable for financial guaranty insurance. In addition, increases in prevailing interest rate levels can lead to a decreased
volume of capital markets activity and, correspondingly, a decreased volume of insured transactions. See Part II, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, Results of Operations — Insurance
Segment — New Business Production, for additional information.
Sensitivity of Expected Loss to be Paid (Recovered) to Interest Rates
Expected losses to be paid (recovered), and therefore loss reserves and loss and loss adjustment expenses are sensitive
to changes in interest rates in several ways. First, expected losses to be paid are discounted at the end of each reporting period at
the risk-free rate, such that an increase in discount rates has the effect of reducing net expected loss to be paid for transactions
in a net expected payable position and increasing net expected loss to be paid for transactions in a net expected recoverable
position. The effect of changes in discount rates on expected losses to be paid was a gain of $115 million in 2022, a gain of $33
million in 2021 and a loss of $13 million in 2020. The gain related to changes in discount rates was highest in 2022 as interest
rates rose from historically low levels during 2022.
Some of the Company’s expected losses to be paid (recovered) relate to insured obligations with variable interest rates.
Fluctuations in interest rates impact the performance of insured transactions where there are differences between the interest
rates on the underlying collateral and the interest rates on the insured securities. For example, a rise in interest rates could
increase the amount of losses the Company projects for certain RMBS and student loan transactions. The impact of fluctuations
in interest rates on such transactions varies, depending on, among other things, the interest rates on the underlying collateral and
insured securities, the relative amounts of underlying collateral and liabilities, the structure of the transaction, and the sensitivity
to interest rates of the behavior of the underlying borrowers and the value of the underlying assets.
In the case of RMBS, fluctuations in interest rates impact the amount of periodic excess spread, which is created when
a trust’s assets produce interest that exceeds the amount required to pay interest on the trust’s liabilities. There are several
RMBS transactions in the Company’s insured portfolio which benefit from excess spread either by using it to cover losses in a
particular period or reimburse past claims under the Company’s policies. As of December 31, 2022, the Company projects that
the maximum potential excess spread at risk in the U.S. RMBS transactions is approximately $20 million. In the significantly
higher interest rate environment of 2022, much of the Company’s benefit from future excess spread has been reduced. If future
expectations of interest rates become lower, the Company could experience an additional benefit due to projected excess spread.
Since RMBS excess spread is determined by the relationship between interest rates on the underlying collateral and the
trust’s certificates, it can be affected by unmatched moves in either of these interest rates. For example, modifications to
131
underlying mortgage rates (e.g., rate reductions for troubled borrowers) can reduce excess spread when an upswing in short-
term rates that increases the trust’s certificate interest rate is not met with equal increases to the interest rates on the underlying
mortgages. These potential reductions in excess spread are often mitigated by an interest rate cap, which goes into effect once
the collateral rate falls below the stated certificate rate. Interest due on most of the RMBS transactions the Company insures are
capped at the collateral rate. The Company is not obligated to pay additional claims when the collateral interest rate drops
below the trust's certificate stated interest rate, rather this just causes the Company to lose the benefit of potential positive
excess spread. Additionally, faster than expected prepayments can decrease the dollar amount of excess spread and therefore
reduce the cash flow available to cover losses or reimburse past claims. Interest rates can also have indirect effects on the
underlying performance or value of collateral backing an obligation. Higher interest rates can lead to slower prepayments of
debt, and can cause market prices of financed assets to decline. Conversely, lower interest rates can lead to faster prepayment
and higher potential recovery values.
In addition, the value of expected recoveries that are in the form of bonds or other securities (which are sensitive to
changes in interest rates), also affects the net expected loss to be paid (recovered), such that increases in interest rates generally
reduce the estimated value of such recoveries and therefore increase the net expected loss to be paid. In the case of the
Company’s Puerto Rico exposures and other troubled transactions, changes in interest rates affect the value of expected
recoveries described in Item 8, Financial Statements and Supplementary Data, Note 3, Outstanding Exposure and Note 4,
Expected Loss to be Paid (Recovered).
Sensitivity to Foreign Exchange Rate Risk
Foreign exchange risk is the risk that a financial instrument’s value will change due to a change in the foreign currency
exchange rates. The Company has foreign denominated securities in its investment portfolio as well as foreign denominated
premium receivables. The Company’s material exposure is to changes in U.S. dollar/pound sterling and U.S. dollar/euro
exchange rates. Securities denominated in currencies other than U.S. dollar were 9.2% and 9.8% of the fixed-maturity securities
and short-term investments as of December 31, 2022 and 2021, respectively. Changes in fair value of available-for-sale
investments attributable to changes in foreign exchange rates are recorded in other comprehensive income. Approximately 74%
and 78% of installment premiums at December 31, 2022 and December 31, 2021, respectively, are denominated in currencies
other than the U.S. dollar, primarily the pound sterling and euro. Changes in premiums receivable attributable to changes in
foreign exchange rates are reported in the consolidated statement of operations.
Increase (Decrease) in Carrying Value
of Fixed-Maturity Securities and Short-Term Investments and Premiums Receivable
from Changes in Foreign Exchange Rates
Decrease of 30%
Decrease of 20%
Decrease of 10%
Increase of 10%
Increase of 20%
Increase of 30%
Fixed-Maturity Securities and Short-Term
Investments
Premium Receivable, net of Reinsurance and
Commissions Payable
As of December 31,
As of December 31,
2022
2021
2022
2021
$
(226) $
(151)
(75)
75
151
226
(in millions)
(280) $
(186)
(93)
93
186
280
(288) $
(192)
(96)
96
192
288
(318)
(212)
(106)
106
212
318
See Part II, Item 8, Financial Statements and Supplementary Data, Note 7, Investments and Cash and Note 5, Contracts
Accounted for as Insurance, for additional information.
Sensitivity of Asset Management Fees to Changes in Fair Value of AssuredIM Managed Assets
In the ordinary course of business, AssuredIM may manage a variety of risks, including market risk, credit risk,
liquidity risk, foreign exchange risk and interest rate risk. The Company identifies, measures and monitors risk through various
132
control mechanisms, including, but not limited to, monitoring and diversifying exposures and activities across a variety of
instruments, markets and counterparties.
At December 31, 2022, the majority of AssuredIM’s management fees are generated by CLOs, where the Company
typically earns fees as a percentage of adjusted par outstanding. Subordinate management fees, which are the majority of CLO
fees, may be deferred if a CLO fails one or more over collateralization tests, which could be triggered by a sharp decline in loan
prices. In such a scenario the CLO fees are deferred until the CLO passes the overcollateralization test.
Management fees on AssuredIM Funds are generally based on NAV, or for certain funds, based on total committed
capital, and may vary based on changes in fair value of the investments in the AssuredIM Funds.
In addition to management fees, the Company also receives performance fees, which are generally calculated as a
portion of net profits or cash distributions. Movements in credit markets, equity market prices, interest rates, foreign exchange
rates, or all of these could cause the value of AUM to fluctuate, and the returns realized on AUM to change, which could result
in lower asset management fees.
Management believes that investment performance is one of the most important factors for the growth and retention of
AUM. Poor investment performance relative to applicable portfolio benchmarks and to competitors could reduce revenues and
growth because existing clients might withdraw funds in favor of better performing products, which could reduce the ability to
attract funds; and could result in lower asset management revenues. As of December 31, 2022 and 2021, a decline of 10% in the
fair value of AssuredIM Funds would not have had a material effect on total asset management fees reported in the consolidated
statements of operations.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 10, Asset Management Fees, for additional
information.
Sensitivity of CIVs to Market Risk
The fair value of the Company’s AssuredIM consolidated CLOs (collectively, consolidated CLOs), is generally
sensitive to changes related to: 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); reinvestment assumptions; yields implied by market prices for similar securities; and changes to the
market prices of similar loans held by the CLOs. Significant changes to some of these inputs could materially change the fair
value of the assets and liabilities of consolidated CLOs, as these are all inputs used to project and discount future cash flows.
The fair value of the Company’s consolidated AssuredIM Funds is generally sensitive to changes in prices of
comparable or similar investments; changes in financial projections of subject companies; changes in company specific risk
premium, changes in the risk-free rate of return; changes in equity risk premium; and new information obtained from issuers.
These 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.
The Insurance segment’s sensitivity to changes in fair value of the AssuredIM Funds in which it invests or which it
consolidates at the AGL level is summarized below.
Sensitivity of Insurance Segment Investments in CIVs
to Changes in Fair Value (Pre-Tax)
Decrease of 10%
Increase of 10%
As of December 31,
2022
2021
$
(in millions)
(19) $
19
(23)
23
See Part II, Item 8, Financial Statements and Supplementary Data, Note 7, Investments and Cash, for additional information.
Sensitivity of FG VIEs’ Assets and Liabilities to Market Risk
The fair value of the Company’s FG VIEs’ assets is generally sensitive to changes related to estimated prepayment
speeds; estimated default rates (determined on the basis of an analysis of collateral attributes such as: historical collateral
133
performance, borrower profiles and other features relevant to the evaluation of collateral credit quality); yields implied by
market prices for similar securities; and house price depreciation/appreciation rates based on macroeconomic forecasts.
Significant changes to some of these inputs could materially change the fair 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 leads 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
pricing provider 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. For certain non-structured FG VIE assets, such as assets in Puerto Rico Trusts, interest rates
and the credit worthiness of the obligor are the biggest drivers of value. The independent third party's valuation methods are
similar to those mentioned above, aside from collateral analysis, which may not be applicable.
The models to price the FG VIEs’ liabilities used, where appropriate, the same inputs used in determining fair value of
FG VIEs’ assets and, for those liabilities insured by the Company, the benefit from the Company's insurance policy
guaranteeing the timely payment of principal and interest, taking into account the Company’s own credit risk.
Significant changes to certain 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 from the Company’s insurance
policy guaranteeing the timely payment of principal and interest for the tranches of debt issued by the FG VIEs that is insured
by the Company. In general, extending the timing of expected loss payments by the Company into the future typically leads 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 leads 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.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 8, Financial Guaranty Variable Interest
Entities and Consolidated Investment Vehicles, for additional information.
134
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 238)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
1. Business and Basis of Presentation
2. Segment Information
3. Outstanding Exposure
4. Expected Loss to be Paid (Recovered)
5. Contracts Accounted for as Insurance
6. Contracts Accounted for as Credit Derivatives
7. Investments and Cash
8. Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles
9. Fair Value Measurement
10. Asset Management Fees
11. Goodwill and Other Intangible Assets
12. Long-Term Debt and Credit Facilities
13. Employee Benefit Plans
14. Income Taxes
15. Insurance Company Regulatory Requirements
16. Related Party Transactions
17. Leases
18. Commitments and Contingencies
19. Shareholders’ Equity
20. Other Comprehensive Income
21. Earnings Per Share
22. Parent Company
136
138
139
140
141
142
144
144
146
152
167
176
185
187
195
204
218
219
221
225
228
232
236
237
238
239
241
242
244
135
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Assured Guaranty Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Assured Guaranty Ltd. and its subsidiaries (the
“Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive
income (loss), of shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022,
including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the
Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control
over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
136
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of the Loss and Loss Adjustment Expense (LAE) Reserve and the Salvage and Subrogation Recoverable - Estimation
of the Expected Loss to be Paid (Recovered)
As described in Notes 4 and 5 to the consolidated financial statements, the loss and LAE reserve and the salvage and
subrogation recoverable reported on the consolidated balance sheet relate only to direct and assumed reinsurance contracts that
are accounted for as insurance, substantially all of which are financial guaranty insurance contracts. As of December 31, 2022,
the loss and LAE reserve was $296 million and the salvage and subrogation recoverable was $257 million. A loss and LAE
reserve for a financial guaranty insurance contract is recorded only to the extent, and for the amount, that expected loss to be
paid plus contra-paid (total losses) exceed the deferred premium revenue, on a contract-by-contract basis. The expected loss to
be paid (recovered) is equal to the present value of expected future cash outflows for loss and LAE payments, net of inflows for
expected salvage and subrogation and net of excess spread on underlying collateral, using current risk-free rates. If a transaction
is in a net recovery position, this results in the recording of a salvage and subrogation recoverable. 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 management. The determination of expected loss to be paid (recovered) is a
subjective process involving numerous estimates, assumptions and judgments relating to internal credit ratings, severity of loss,
delinquencies, liquidation rates, prepayment rates, timing of cash flows, recovery rates, and probability weightings, as used in
the respective cash flow models used by management.
The principal considerations for our determination that performing procedures relating to the valuation of the loss and
LAE reserve and the salvage and subrogation recoverable – estimation of the expected loss to be paid (recovered) is a critical
audit matter are (i) the significant judgment by management in determining the significant assumptions related to internal credit
ratings, severity of loss, delinquencies, liquidation rates, prepayment rates, timing of cash flows, recovery rates, and probability
weightings (collectively referred to as the “significant assumptions”) used in the respective cash flow models in determining the
estimate, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures related to the
valuation; (ii) the significant auditor effort and judgment in evaluating audit evidence relating to the aforementioned significant
assumptions and judgments used in the respective cash flow models; and (iii) the audit effort included the involvement of
professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
to the valuation of the loss and LAE reserve and the salvage and subrogation recoverable, including controls over the cash flow
models and the development of the aforementioned significant assumptions. These procedures also included, among others, the
use of professionals with specialized skill and knowledge to assist in (i) independently estimating a range of expected loss to be
paid (recovered) and comparing the independent estimate to management’s estimate to evaluate the reasonableness of the
estimate for certain transactions; and (ii) testing management’s process for determining the estimate for certain transactions by
evaluating the reasonableness of the aforementioned significant assumptions, and assessing the appropriateness of the
methodology of the respective models used in developing the estimate of the expected loss to be paid (recovered). Performing
these procedures also involved testing the completeness and accuracy of data provided by management.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 1, 2023
We have served as the Company’s auditor since 2003.
137
Assured Guaranty Ltd.
Consolidated Balance Sheets
(dollars in millions except share data)
Assets
Investments:
Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit
loss of $65 and $42 (amortized cost of $7,707 and $7,822)
Fixed-maturity securities, trading, at fair value
Short-term investments, at fair value
Other invested assets (includes $30 and $31, at fair value)
$
Total investments
Cash
Premiums receivable, net of commissions payable
Deferred acquisition costs
Salvage and subrogation recoverable
Financial guaranty variable interest entities’ assets (includes $413 and $260, at fair
value)
Assets of consolidated investment vehicles (includes $5,363 and $4,902, at fair value)
Goodwill and other intangible assets
Other assets (includes $148 and $132, at fair value)
Total assets
Liabilities
Unearned premium reserve
Loss and loss adjustment expense reserve
Long-term debt
Credit derivative liabilities, at fair value
Financial guaranty variable interest entities’ liabilities, at fair value (with recourse $702
and $269, without recourse $13 and $20)
Liabilities of consolidated investment vehicles (includes $4,431 and $3,849, at fair
value)
Other liabilities
$
$
Total liabilities
Commitments and contingencies (Note 18)
Redeemable noncontrolling interests (Note 8)
Shareholders’ equity
Common shares ($0.01 par value, 500,000,000 shares authorized; 59,013,040 and
67,518,424 shares issued and outstanding)
Retained earnings
Accumulated other comprehensive income (loss), net of tax of $(84) and $60
Deferred equity compensation
Total shareholders’ equity attributable to Assured Guaranty Ltd.
Nonredeemable noncontrolling interests (Note 8)
Total shareholders’ equity
Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
As of December 31,
2022
2021
$
$
$
7,119
303
810
133
8,365
107
1,298
147
257
416
5,493
163
597
16,843
3,620
296
1,675
163
715
4,625
457
11,551
8,202
—
1,225
181
9,608
120
1,372
131
801
260
5,271
175
470
18,208
3,716
869
1,673
156
289
4,436
569
11,708
—
22
1
5,577
(515)
1
5,064
228
5,292
16,843
$
1
5,990
300
1
6,292
186
6,478
18,208
The accompanying notes are an integral part of these consolidated financial statements.
138
Assured Guaranty Ltd.
Consolidated Statements of Operations
(dollars in millions except share data)
Year Ended December 31,
2022
2021
2020
Revenues
Net earned premiums
Net investment income
Asset management fees
Net realized investment gains (losses)
Fair value gains (losses) on credit derivatives
Fair value gains (losses) on committed capital securities
Fair value gains (losses) on financial guaranty variable interest entities
Fair value gains (losses) on consolidated investment vehicles
Foreign exchange gains (losses) on remeasurement
Fair value gains (losses) on trading securities
Commutation gains (losses)
Other income (loss)
Total revenues
Expenses
Loss and loss adjustment expenses (benefit)
Interest expense
Loss on extinguishment of debt
Amortization of deferred acquisition costs
Employee compensation and benefit expenses
Other operating expenses
Total expenses
Income (loss) before income taxes and equity in earnings (losses) of
investees
Equity in earnings (losses) of investees
Income (loss) before income taxes
Provision (benefit) for income taxes
Current
Deferred
Total provision (benefit) for income taxes
Net income (loss)
Less: Noncontrolling interests
Net income (loss) attributable to Assured Guaranty Ltd.
Earnings per share:
Basic
Diluted
$
$
$
$
494
269
93
(56)
(11)
24
22
17
(112)
(34)
2
15
723
16
81
—
14
258
167
536
187
(39)
148
14
(3)
11
137
13
124
1.95
1.92
$
$
$
$
414
269
88
15
(58)
(28)
23
127
(23)
—
—
21
848
(220)
87
175
14
230
179
465
383
94
477
96
(38)
58
419
30
389
5.29
5.23
$
$
$
$
485
297
89
18
81
(1)
(10)
41
39
—
38
38
1,115
203
85
—
16
228
197
729
386
27
413
(13)
58
45
368
6
362
4.22
4.19
The accompanying notes are an integral part of these consolidated financial statements.
139
Assured Guaranty Ltd.
Consolidated Statements of Comprehensive Income (Loss)
(in millions)
Net income (loss)
Change in net unrealized gains (losses) on:
Year Ended December 31,
2022
2021
2020
$
137
$
419
$
368
Investments with no credit impairment, net of tax provision (benefit) of
$(121), $(31) and $20
Investments with credit impairment, net of tax provision (benefit) of
$(20), $2 and $(4)
Change in net unrealized gains (losses) on investments
Change in instrument-specific credit risk on financial guaranty variable
interest entities’ liabilities with recourse, net of tax
Other, net of tax
Other comprehensive income (loss)
Comprehensive income (loss)
Less: Comprehensive income (loss) attributable to noncontrolling interests
$
Comprehensive income (loss) attributable to Assured Guaranty Ltd.
(718)
(86)
(804)
(2)
(9)
(815)
(678)
13
(691) $
(202)
6
(196)
(1)
(1)
(198)
221
30
191
$
163
(16)
147
7
2
156
524
6
518
The accompanying notes are an integral part of these consolidated financial statements.
140
Assured Guaranty Ltd.
Consolidated Statements of Shareholders’ Equity
(dollars in millions, except share data)
Total Shareholders’ Equity Attributable to Assured Guaranty Ltd.
Accumulated
Other
Comprehensive
Income
Deferred
Equity
Compensation
Retained
Earnings
1 $ 6,295 $
Nonredeemable
Noncontrolling
Interests
Total
Shareholders’
Equity
As of December 31, 2019
Net income
Dividends ($0.80 per share)
Common shares repurchases
Share-based compensation
Reallocation of ownership interest
Contributions
Distributions
Other comprehensive income
Other (Note 16)
As of December 31, 2020
Net income
Dividends ($0.88 per share)
Common shares repurchases
Share-based compensation
Consolidation
Contributions
Distributions
Other comprehensive loss
As of December 31, 2021
Net income
Dividends ($1.00 per share)
Common shares repurchases
Share-based compensation
Contributions
Distributions
Other comprehensive loss
As of December 31, 2022
Common
Shares
Outstanding
93,274,987
—
—
(15,787,804)
445,490
—
—
—
—
(385,777)
77,546,896
—
—
(10,519,040)
490,568
—
—
—
—
67,518,424
—
—
(8,847,981)
342,597
—
—
—
59,013,040
Common
Shares
Par Value
$
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
$
362
(69)
(446)
16
—
—
—
—
(15)
6,143
389
(65)
(496)
19
—
—
—
—
5,990
124
(64)
(503)
30
—
—
—
1 $ 5,577 $
342 $
—
—
—
—
—
—
—
156
—
498
—
—
—
—
—
—
—
(198)
300
—
—
—
—
—
—
(815)
(515) $
362
(69)
(446)
16
—
—
—
156
(15)
6,643
389
(65)
(496)
19
—
Total
1 $ 6,639 $
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
1 $ 5,064 $
—
(198)
6,292
124
(64)
(503)
30
—
—
(815)
—
6 $
7
—
—
—
10
63
(45)
—
—
41
29
—
—
—
89
40
(13)
—
186
14
—
—
—
89
(61)
—
228 $
6,645
369
(69)
(446)
16
10
63
(45)
156
(15)
6,684
418
(65)
(496)
19
89
40
(13)
(198)
6,478
138
(64)
(503)
30
89
(61)
(815)
5,292
The accompanying notes are an integral part of these consolidated financial statements.
141
Assured Guaranty Ltd.
Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash flows provided by operating activities:
Year Ended December 31,
2022
2021
2020
$
137 $
419 $
368
Non-cash interest and operating expenses
Provision (benefit) for deferred income taxes
Net realized investment losses (gains)
Equity in (earnings) losses of investees
Fair value losses (gains) on trading securities
Loss on extinguishment of debt
Change in premiums receivable, net of premiums and commissions payable
Change in unearned premium reserve, net
Change in loss and loss adjustment expense reserve, net
Change in current income taxes
Change in credit derivative assets and liabilities, net
Other
Cash flows from consolidated investment vehicles:
Purchases of securities
Sales of securities
Maturities and paydowns of securities
Proceeds from (purchases of) money market funds
Purchases to cover securities sold short
Proceeds from securities sold short
Other changes in consolidated investment vehicles
Net cash flows provided by (used in) operating activities
Cash flows from investing activities:
Fixed-maturity securities, available for sale:
Purchases
Sales
Maturities and paydowns
Short-term investments with original maturities of over three months:
Purchases
Sales
Maturities and paydowns
Net sales (purchases) of short-term investments with original maturities of less than
three months
Fixed-maturity securities, trading:
Sales
Maturities and paydowns
Purchases of other invested assets
Sales and return of capital of other invested assets
Paydowns on financial guaranty variable interest entities’ assets
Other
Net cash flows provided by (used in) investing activities
(continued)
65
(3)
56
39
34
—
74
(93)
(1,207)
(106)
8
(56)
(3,201)
1,513
156
6
(223)
188
134
(2,479)
69
(38)
(15)
(94)
—
175
—
(17)
(99)
64
54
20
54
58
(18)
(27)
—
—
(102)
19
(174)
9
(85)
(1)
(4,957)
2,161
430
(6)
(621)
618
(100)
(1,937)
(2,053)
1,156
71
(108)
(460)
509
(69)
(853)
(371)
717
682
(1,236)
428
1,148
(1,380)
779
878
(63)
—
36
—
—
36
(85)
5
73
439
(410)
430
121
87
(25)
36
84
(3)
1,740
—
—
(79)
80
62
(6)
23
—
—
(19)
23
83
1
788
The accompanying notes are an integral part of these consolidated financial statements.
142
Assured Guaranty Ltd.
Consolidated Statements of Cash Flows, Continued
(in millions)
Cash flows from financing activities:
Dividends paid
Repurchases of common shares
Net paydowns of financial guaranty variable interest entities’ liabilities
Issuance of long-term debt, net of issuance costs
Redemptions and purchases of debt, including make-whole payment
Other
Cash flows from consolidated investment vehicles:
Proceeds from issuance of collateralized loan obligations
Repayment of collateralized loan obligations
Proceeds from issuance of warehouse financing debt
Repayment of warehouse financing debt
Contributions from noncontrolling interests to consolidated investment vehicles
Distributions to noncontrolling interests from consolidated investment vehicles
Borrowing (payment) under credit facility
Net cash flows provided by (used in) financing activities
Effect of foreign exchange rate changes
Increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
Supplemental cash flow information
Income taxes paid (received)
Interest paid on long-term debt
Supplemental disclosure of non-cash activities:
Puerto Rico Salvage (see Note 3)
Fixed-maturity securities, available-for-sale, received as salvage
Fixed-maturity securities, available-for-sale, ceded to a reinsurer
Fixed-maturity securities, trading, received as salvage
Fixed-maturity securities, trading, ceded to a reinsurer
Debt securities of financial guaranty variable interest entities received as salvage
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Reconciliation of cash and cash equivalents and restricted cash to the
consolidated balance sheets:
Cash
Restricted cash (included in other assets)
Cash of financial guaranty variable interest entities (see Note 8)
Cash and cash equivalents of consolidated investment vehicles (see Note 8)
Cash and cash equivalents and restricted cash at the end of period
Year Ended December 31,
2022
2021
2020
(64) $
(500)
(99)
—
(2)
(6)
1,372
(373)
991
(796)
74
(26)
41
612
(8)
(135)
342
207 $
(66) $
(496)
(53)
889
(620)
26
3,276
(824)
1,338
(1,537)
39
(12)
—
1,960
(2)
44
298
342 $
(69)
(446)
(77)
—
(22)
(10)
738
—
234
(210)
88
(43)
—
183
(3)
115
183
298
105 $
77
24 $
80
(25)
81
986 $
27
549
6
234
36
56
— $
—
—
—
—
1
1
—
—
—
—
—
—
—
As of December 31,
2022
2021
2020
107 $
1
2
97
207 $
120 $
2
—
220
342 $
162
2
—
134
298
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
143
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements
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 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.
The Company is exploring alternative accretive growth strategies for its asset management business, with the goal of
maximizing the value of this business for its stakeholders. Discussions regarding alternative accretive growth strategies are
ongoing, and there can be no assurances that such discussions will result in any transaction. The Company is not yet able to
estimate the impact that any transaction being discussed would have on its financial statements.
Basis of Presentation
The 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.
The 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.
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;
•
•
•
•
•
•
•
144
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
•
•
Assured Investment Management (London) LLP, organized in the U.K.; and
Assured Healthcare Partners LLC, organized in Delaware.
AGM, AGC and, until its merger with AGM on April 1, 2021, Municipal Assurance Corp. (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.
Significant Accounting Policies
The Company revalues assets, liabilities, revenue and expenses denominated in non-U.S. currencies into U.S. dollars
using applicable exchange rates. Gains and losses relating to transactions in foreign denominations in those subsidiaries where
the functional currency is the U.S. dollar are reported in the consolidated statements of operations. Gains and losses relating to
translating foreign functional currency financial statements to U.S. dollars are reported in the consolidated statements of other
comprehensive income (loss) (OCI).
Other accounting policies are included in the following notes to the consolidated financial statements.
Note Name
Segment information
Expected loss to be paid (recovered)
Contracts accounted for as insurance
Contracts accounted for as credit derivatives
Investments and cash
Financial guaranty variable interest entities and consolidated investment vehicles
Fair value measurement
Asset management fees and compensation
Goodwill and other intangible assets
Long-term debt and credit facilities
Employee benefit plans
Income taxes
Leases
Commitments and contingencies
Shareholders' equity
Earnings per share
Recent Accounting Standards Adopted
Reference Rate Reform
Note Number
Note 2
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 17
Note 18
Note 19
Note 21
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 temporary 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.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify the scope of
relief related to ASU 2020-04. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):
Deferral of the Sunset Date of Topic 848, to extend the aforementioned temporary optional expedients and exceptions from
December 31, 2022 to December 31, 2024. These ASUs became effective upon their issuance and may be applied for contract
modifications that occur from March 12, 2020 through December 31, 2024 (the Reference Rate Transition Period).
145
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The Company adopted the optional relief afforded by 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, 2024. 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:
•
•
•
•
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 guaranties associated with deposit (or account
balance) contracts,
simplify the amortization of deferred acquisition costs (DAC), and
improve the effectiveness of the required disclosures.
In November 2020, the FASB deferred the effective date of this ASU to January 1, 2023, with early adoption
permitted.
This ASU does not affect the Company’s financial guaranty insurance contracts. The Company assessed the impact for
certain specialty (non-financial guaranty) insurance contracts and determined that there will be no impact to the Company’s
consolidated financial statements upon the adoption of this ASU on January 1, 2023.
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 segment results 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’ 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 are 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’ 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 (loss).”
Results for each segment include specifically identifiable expenses as well as intersegment expense allocations, as applicable,
146
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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.
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 assess performance and allocate
resources based on assets.
The following table presents information for the Company’s operating segments. Intersegment revenues include
transactions between and among the segments, the corporate division and other.
Segment Information
Years Ended December 31,
2022
2021
2020
Insurance
Asset
Management
Insurance
Asset
Management
Insurance
Asset
Management
$
748 $
9
757
259
78 $
34
112
119
(in millions)
724 $
9
733
33
73 $
10
83
108
864 $
10
874
446
(51)
—
144
—
61
61
5
66
128
—
34
413 $
(1)
(6) $
122
722 $
(6)
(19) $
60
429 $
(12)
(50)
Third-party revenues
Intersegment revenues
Segment revenues
Segment expenses
Segment equity in earnings (losses) of
investees
Less: Segment provision (benefit) for income
taxes
Segment adjusted operating income (loss)
$
Selected components of segment adjusted
operating income:
Net investment income
Interest expense
Non-cash compensation and operating
expenses (1)
$
278 $
1
— $
1
280 $
—
— $
1
310 $
—
41
18
56
17
39
—
—
31
_____________________
(1)
Consists of amortization of DAC and intangible assets, depreciation, share-based compensation (see Note 13,
Employee Benefit Plans), write-off of long-lived intangible assets related to MAC licenses (see Note 11, Goodwill and
Other Intangible Assets), and lease impairment (see Note 17, Leases).
147
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The tables below present a reconciliation of significant components of segment information to the comparable
consolidated amounts.
Reconciliation of Segment Information to Consolidated Information
Year Ended December 31, 2022
Revenues
Expenses
Less:
Equity in
Earnings
(Losses) of
Investees
Provision
(Benefit) for
Income Taxes
(in millions)
Noncontrolling
Interests
Net Income
(Loss)
Attributable to
AGL
$
757 $
112
869
4
14
887
259 $
119
378
143
19
540
(56)
—
(22)
24
(4)
—
(51) $
—
(51)
—
12
(39)
—
—
—
34 $
(1)
33
(5)
—
28
—
—
—
— $
—
—
—
13
13
—
—
—
(110)
—
723 $
—
—
536 $
—
—
(39) $
$
—
(17)
11 $
—
—
13 $
413
(6)
407
(134)
(6)
267
(56)
(18)
24
(110)
17
124
Segments:
Insurance
Asset Management
Total segments
Corporate division
Other
Subtotal
Reconciling items:
Realized gains (losses) on investments
Non-credit impairment-related
unrealized fair value gains (losses) on
credit derivatives
Fair value gains (losses) on CCS
Foreign exchange gains (losses) on
remeasurement of premiums receivable
and loss and LAE reserves
Tax effect
Total consolidated
148
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Reconciliation of Segment Information to Consolidated Information
Year Ended December 31, 2021
Revenues
Expenses
Less:
Equity in
Earnings
(Losses) of
Investees
Provision
(Benefit) for
Income Taxes
(in millions)
Noncontrolling
Interests
Net Income
(Loss)
Attributable to
AGL
$
733 $
83
816
2
142
960
33 $
108
141
312
26
479
144 $
—
144
—
(50)
94
15
—
(78)
(28)
(14)
—
—
—
—
122 $
(6)
116
(47)
6
75
—
—
—
— $
—
—
—
30
30
—
—
—
(21)
—
848 $
—
—
465 $
—
—
94 $
$
—
(17)
58 $
—
—
30 $
722
(19)
703
(263)
30
470
15
(64)
(28)
(21)
17
389
Segments:
Insurance
Asset Management
Total segments
Corporate division
Other
Subtotal
Reconciling items:
Realized gains (losses) on investments
Non-credit impairment-related
unrealized fair value gains (losses) on
credit derivatives
Fair value gains (losses) on CCS
Foreign exchange gains (losses) on
remeasurement of premiums receivable
and loss and LAE reserves
Tax effect
Total consolidated
149
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Reconciliation of Segment Information to Consolidated Information
Year Ended December 31, 2020
Segments:
Insurance
Asset Management
Total segments
Corporate division
Other
Subtotal
Reconciling items:
Realized gains (losses) on investments
Non-credit impairment-related
unrealized fair value gains (losses) on
credit derivatives
Fair value gains (losses) on CCS
Foreign exchange gains (losses) on
remeasurement of premiums receivable
and loss and LAE reserves
Tax effect
Total consolidated
Revenues
Expenses
Less:
Equity in
Earnings
(Losses) of
Investees
Provision
(Benefit) for
Income Taxes
(in millions)
Noncontrolling
Interests
Net Income
(Loss)
Attributable to
AGL
$
874 $
66
940
9
40
989
18
67
(1)
446 $
128
574
132
21
727
—
2
—
61 $
—
61
(6)
(28)
27
—
—
—
60 $
(12)
48
(18)
(3)
27
—
—
—
— $
—
—
—
6
6
—
—
—
42
—
1,115 $
$
—
—
729 $
—
—
27 $
—
18
45 $
—
—
6 $
429
(50)
379
(111)
(12)
256
18
65
(1)
42
(18)
362
Supplemental Information
Year Ended December 31, 2022
Segments:
Insurance
Asset Management
Total segments
Corporate division
Other
Subtotal
Reconciling items:
Credit derivative impairment (recoveries) (2)
Total consolidated
Net Earned
Premiums
Net Investment
Income
Loss and LAE
(Benefit)
Amortization of
DAC
Other
Expenses(1)
(in millions)
$
$
497 $
—
497
—
(3)
494
—
494 $
278 $
—
278
4
(13)
269
—
269 $
12 $
—
12
—
8
20
(4)
16 $
14 $
—
14
—
—
14
—
14 $
232
118
350
54
21
425
—
425
_____________________
(1)
Consists of “employee compensation and benefit expenses” and “other operating expenses.” Includes non-cash
compensation and operating expenses of $41 million for Insurance segment, $18 million for Asset Management
segment, and $13 million for Corporate division.
Credit derivative impairment (recoveries) are included in “fair value gains (losses) on credit derivatives” in the
Company’s consolidated statements of operations, and in loss and LAE (benefit) on a segment basis.
(2)
150
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Supplemental Information
Year Ended December 31, 2021
Segments:
Insurance
Asset Management
Total segments
Corporate division
Other
Subtotal
Reconciling items:
Credit derivative impairment (recoveries) (2)
Total consolidated
Net Earned
Premiums
Net Investment
Income
Loss and LAE
(Benefit)
Amortization of
DAC
Other
Expenses(1)
(in millions)
$
$
418 $
—
418
—
(4)
414
—
414 $
280 $
—
280
2
(13)
269
—
269 $
(221) $
—
(221)
—
15
(206)
(14)
(220) $
14 $
—
14
—
—
14
—
14 $
240
107
347
41
21
409
—
409
_____________________
(1)
Consists of “employee compensation and benefit expenses” and “other operating expenses.” Includes non-cash
compensation and operating expenses of $56 million for Insurance segment, $17 million for Asset Management
segment, and $5 million for Corporate division.
Credit derivative impairment (recoveries) are included in “fair value gains (losses) on credit derivatives” in the
Company’s consolidated statements of operations, and in loss and LAE (benefit) on a segment basis.
(2)
Supplemental Information
Year Ended December 31, 2020
Segments:
Insurance
Asset Management
Total segments
Corporate division
Other
Subtotal
Reconciling items:
Credit derivative impairment (recoveries) (2)
Total consolidated
Net Earned
Premiums
Net Investment
Income
Loss and LAE
(Benefit)
Amortization of
DAC
Other
Expenses(1)
(in millions)
$
$
490 $
—
490
—
(5)
485
—
485 $
310 $
—
310
2
(15)
297
—
297 $
204 $
—
204
—
(3)
201
2
203 $
16 $
—
16
—
—
16
—
16 $
226
128
354
37
34
425
—
425
_____________________
(1)
Consists of “employee compensation and benefit expenses” and “other operating expenses.” Includes non-cash
compensation and operating expenses of $39 million for Insurance segment, $31 million for Asset Management
segment, and $6 million for Corporate division.
Credit derivative impairment (recoveries) are included in “fair value gains (losses) on credit derivatives” in the
Company’s consolidated statements of operations, and in loss and LAE (benefit) on a segment basis.
(2)
151
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The table below summarizes revenues for the operating segments, Corporate division and Other category by country of
domicile for each period indicated, based on the country of domicile of the Company’s subsidiaries that generated the revenues.
Segment, Corporate Division and Other
Revenues by Country of Domicile
Country of Domicile
U.S.
Bermuda
U.K.
Other
Total
3.
Outstanding Exposure
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
727
129
32
(1)
887
$
$
762
153
42
3
960
$
$
788
155
38
8
989
The Company sells credit protection primarily in financial guaranty insurance form. The Company may also sell credit
protection by issuing policies that guarantee payment obligations under 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 by its U.S. Insurance Subsidiaries. The Company has, however,
acquired or reinsured portfolios since 2009 that include financial guaranty contracts in credit derivative form.
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
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 writes specialty business that is consistent with its risk profile and benefits from its underwriting
experience and other types of financial guaranties.
152
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Significant Risk Management Activities
The Portfolio Risk Management Committee, which includes members of senior management and senior risk and
surveillance officers, is responsible for enterprise risk management for the Insurance segment and focuses on measuring and
managing insurance credit, market and liquidity risk for the Company. This committee establishes company-wide credit policy
for the Company’s direct and assumed insurance business. It implements specific insurance underwriting procedures and limits
for the Company and allocates underwriting capacity among the Company’s insurance subsidiaries. All insurance transactions
in new asset classes or new jurisdictions must be approved by this committee.
The U.S., AG Re and AGRO risk management committees and AGUK’s and AGE’s (the European Insurance
Subsidiaries) surveillance committees conduct in-depth reviews of the insured portfolios of the relevant subsidiaries, focusing
on varying portions of the portfolio at each meeting. They review and may revise internal ratings assigned to the insured
transactions and review sector reports, monthly product line surveillance reports and compliance reports.
All transactions in the insured portfolio are assigned internal credit ratings by the relevant underwriting committee at
inception, and such credit ratings are updated by the relevant risk management or surveillance committee based on changes in
transaction credit quality. As part of the surveillance process, the Company monitors trends and changes in transaction credit
quality, and recommends such remedial actions as may be necessary or appropriate. The Company also develops strategies to
enforce its contractual rights and remedies and to mitigate its losses, engage in negotiation discussions with transaction
participants and, when necessary, manage the Company’s litigation proceedings.
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 pre-tax book 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.
153
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
•
•
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.
Impact of COVID-19 Pandemic
The emergence and continuation 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. Due to the nature of the Company’s
business, COVID-19 and its global impact, directly and indirectly affected certain sectors in the insured portfolio.
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 the significant
federal funding to state and local governments in 2021 and the performance it observed, the Company’s surveillance
department has reduced these supplemental procedures. However, the Company is still monitoring those sectors it identified as
most at risk for any developments related to COVID-19. 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 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 reports Loss Mitigation Securities
in the investment portfolio, because the Company manages such securities as investments and not insurance exposure. As of
both December 31, 2022 and December 31, 2021, the Company excluded from net par outstanding $1.3 billion 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
154
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
•
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
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 December 31, 2022
As of December 31, 2021
Gross
Net
Gross
Net
$
$
$
$
359,899
10,273
370,172
224,254
9,184
233,438
$
$
$
$
(in millions)
359,703
10,248
369,951
224,099
9,159
233,258
$
$
$
$
357,694
10,076
367,770
227,507
9,258
236,765
$
$
$
$
357,314
10,046
367,360
227,164
9,228
236,392
Debt Service
Public finance
Structured finance
Total financial guaranty
Par Outstanding
Public finance
Structured finance
Total financial guaranty
In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of
$220 million of public finance gross par and $792 million of structured finance direct gross par as of December 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 December 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
%
AAA
AA
A
BBB
BIG
Total net par
outstanding
$
222
16,241
96,807
62,570
3,796
0.1 % $
9.1
53.9
34.8
2.1
1,967
3,497
9,271
28,747
981
4.4 % $
7.9
20.9
64.6
2.2
(dollars in millions)
926
4,633
1,075
479
1,115
11.2 % $
56.3
13.1
5.8
13.6
469
12
340
110
—
50.4 % $
1.3
36.5
11.8
—
3,584
24,383
107,493
91,906
5,892
1.5 %
10.5
46.1
39.4
2.5
$ 179,636
100.0 % $
44,463
100.0 % $
8,228
100.0 % $
931
100.0 % $ 233,258
100.0 %
155
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, 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
%
AAA
AA
A
BBB
BIG
Total net par
outstanding
$
272
16,372
94,459
60,744
5,372
0.2 % $
9.2
53.3
34.3
3.0
2,217
4,205
10,659
32,264
600
4.5 % $
8.4
21.3
64.6
1.2
(dollars in millions)
806
4,760
813
611
1,384
9.6 % $
56.8
9.7
7.3
16.6
493
22
160
179
—
57.7 % $
2.6
18.7
21.0
—
3,788
25,359
106,091
93,798
7,356
1.6 %
10.7
44.9
39.7
3.1
$ 177,219
100.0 % $
49,945
100.0 % $
8,374
100.0 % $
854
100.0 % $ 236,392
100.0 %
156
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The following tables present net par outstanding by sector for the financial guaranty portfolio.
Financial Guaranty Portfolio
Net Par Outstanding by Sector
Sector
Public finance:
U.S. public finance:
General obligation
Tax backed
Municipal utilities
Transportation
Healthcare
Higher education
Infrastructure finance
Housing revenue
Investor-owned utilities
Renewable energy
Other public finance
Total U.S. public finance
Non-U.S public finance:
Regulated utilities
Infrastructure finance
Sovereign and sub-sovereign
Renewable energy
Pooled infrastructure
Total non-U.S. public finance
Total public finance
Structured finance:
U.S. structured finance:
Life insurance transactions
RMBS
Pooled corporate obligations
Financial products
Consumer receivables
Other structured finance
Total U.S. structured finance
Non-U.S. structured finance:
Pooled corporate obligations
RMBS
Other structured finance
Total non-U.S structured finance
Total structured finance
Total net par outstanding
157
As of December 31,
2022
2021
(in millions)
$
71,868 $
33,752
26,436
19,688
11,304
7,137
6,955
959
332
180
1,025
179,636
17,855
13,915
9,526
2,086
1,081
44,463
224,099
3,879
1,956
625
453
437
878
8,228
344
263
324
931
9,159
233,258 $
$
72,896
35,726
25,556
17,241
9,588
6,927
6,329
1,000
611
193
1,152
177,219
18,814
16,475
10,886
2,398
1,372
49,945
227,164
3,431
2,391
534
770
583
665
8,374
351
325
178
854
9,228
236,392
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Financial Guaranty Portfolio
Expected Amortization of Net Par Outstanding
As of December 31, 2022
0 to 5 years
5 to 10 years
10 to 15 years
15 to 20 years
20 years and above
Total net par outstanding
Public Finance
Structured Finance
Total
(in millions)
$
$
47,218
47,902
41,695
31,597
55,687
224,099
$
$
3,093
2,796
1,737
991
542
9,159
$
$
50,311
50,698
43,432
32,588
56,229
233,258
Actual amortization differs from expected maturities because borrowers may have the right to call or prepay certain
obligations, terminations and because of management’s assumptions on structured finance amortization. The expected
maturities of structured finance obligations are, in general, considerably shorter than the contractual maturities for such
obligations.
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
Financial Guaranty Portfolio
Components of BIG Net Par Outstanding
As of December 31, 2022
BIG Net Par Outstanding
Net Par
BIG 1
BIG 2
BIG 3
(in millions)
Total BIG
Outstanding
$
$
2,364 $
981
3,345
18
—
18
3,363 $
108 $
—
108
39
34
73
181 $
1,324 $
—
1,324
3,796 $
981
4,777
179,636
44,463
224,099
953
71
1,024
2,348 $
1,010
105
1,115
5,892 $
1,956
7,203
9,159
233,258
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
(in millions)
Total BIG
Outstanding
$
$
1,765 $
556
2,321
121
1
122
2,443 $
116 $
—
116
24
41
65
181 $
3,491 $
44
3,535
5,372 $
600
5,972
177,219
49,945
227,164
1,120
77
1,197
4,732 $
1,265
119
1,384
7,356 $
2,391
6,837
9,228
236,392
158
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Financial Guaranty Portfolio
BIG Net Par Outstanding and Number of Risks
As of December 31, 2022
Net Par Outstanding
Number of Risks (2)
Financial
Guaranty
Insurance (1)
Credit
Derivatives
Total
Financial
Guaranty
Insurance (1)
Credit
Derivatives
Total
(dollars in millions)
$
$
3,357 $
171
2,307
5,835 $
6 $
10
41
57 $
3,363
181
2,348
5,892
122
14
111
247
1
2
10
13
Financial Guaranty Portfolio
BIG Net Par Outstanding and Number of Risks
As of December 31, 2021
Net Par Outstanding
Number of Risks (2)
Financial
Guaranty
Insurance (1)
Credit
Derivatives
Total
Financial
Guaranty
Insurance(1)
Credit
Derivatives
Total
(dollars in millions)
$
$
2,429 $
177
4,687
7,293 $
14 $
4
45
63 $
2,443
181
4,732
7,356
117
16
129
262
2
1
8
11
123
16
121
260
119
17
137
273
Description
BIG:
Category 1
Category 2
Category 3
Total BIG
Description
BIG:
Category 1
Category 2
Category 3
Total BIG
_____________________
(1)
(2)
Includes FG VIEs.
A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of
making debt service payments.
When the Company insures an obligation, it assigns the obligation to a geographic location or locations based on its
view of the geographic location of the risk. The Company seeks to maintain a diversified portfolio of insured obligations
designed to spread its risk across a number of geographic areas.
159
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Financial Guaranty Portfolio
Geographic Distribution of Net Par Outstanding
As of December 31, 2022
Number of Risks
Net Par Outstanding
(dollars in millions)
Percent of Total Net
Par Outstanding
U.S.:
U.S. Public finance:
California
Texas
Pennsylvania
New York
Illinois
New Jersey
Florida
Louisiana
Michigan
Alabama
Other
Total U.S. public finance
U.S. Structured finance (multiple states)
Total U.S.
Non-U.S.:
United Kingdom
Canada
Spain
Australia
France
Other
Total non-U.S.
Total
Exposure to Puerto Rico
1,256
1,026
543
584
498
265
211
129
235
240
1,883
6,870
371
7,241
280
5
7
6
7
37
342
7,583
$
$
36,818
18,973
16,142
15,580
12,824
9,610
7,790
4,979
4,943
3,763
48,214
179,636
8,228
187,864
34,903
1,728
1,575
1,506
1,437
4,245
45,394
233,258
15.8 %
8.1
6.9
6.7
5.5
4.1
3.4
2.1
2.1
1.6
20.7
77.0
3.5
80.5
15.0
0.7
0.7
0.6
0.7
1.8
19.5
100.0 %
The Company had insured exposure to obligations of various authorities and public corporations of the
Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) as well as its general obligation bonds aggregating $1.4
billion net par outstanding as of December 31, 2022, a decrease of $2.2 billion from the $3.6 billion 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), which have made their debt
service payments on time.
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, in 2022 a substantial portion of the Company’s Puerto Rico exposure was
resolved in accordance with four orders entered by the United States District Court of the District of Puerto Rico (Federal
District Court of Puerto Rico):
160
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
•
•
•
•
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).
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).
On October 12, 2022, the Federal District Court of Puerto Rico, acting under Title III of PROMESA, entered an order
and judgment confirming the Modified Fifth Amended Title III Plan of Adjustment (HTA Plan) of the Puerto Rico
Highways and Transportation Authority (PRHTA).
As a result of the consummation on March 15, 2022, of each of the GO/PBA Plan, PRCCDA Modification and PRIFA
Modification and the consummation on December 6, 2022 of the HTA Plan (together, the 2022 Puerto Rico Resolutions),
including claim payments made by the Company under the 2022 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,
PBA and PRHTA was greatly reduced.
The effect on the consolidated financial statements of the 2022 Puerto Rico Resolutions was a reduction in net par
outstanding of $2.0 billion. The Company received cash, new general obligation bonds (under the GO/PBA Plan) (New GO
Bonds) and new bonds backed by toll revenues (under the HTA Plan) (Toll Bonds, and together with the New GO Bonds, New
Recovery Bonds) and contingent value instruments (CVIs). The New Recovery Bonds and CVIs were reported as either
available-for-sale or trading fixed-maturities in either the investment portfolio or FG VIE assets. The portion of the assets that
are reported in FG VIE assets relate to the portion of the GO, PBA and PRHTA insured obligations for which bondholders
elected to receive custody receipts as described below.
The Company is continuing its efforts to resolve the one remaining Puerto Rico insured exposure that is in payment
default, the Puerto Rico Electric Power Authority (PREPA).
Economic, political and legal developments, including inflation, increases in the cost of petroleum products and
developments related to the COVID-19 pandemic, may impact any resolution of the Company’s PREPA insured exposure and
the value of the consideration the Company has received in connection with the 2022 Puerto Rico Resolutions or any future
resolutions of the Company’s 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 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
As of December 31,
Gross Debt Service Outstanding
As of December 31,
2022
2021
2022
2021
Exposure to Puerto Rico
$
1,378
$
(in millions)
3,629
$
1,899
$
5,322
161
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Puerto Rico
Net Par Outstanding
Resolved Puerto Rico Exposures
PRHTA (Transportation revenue) (1)
PRHTA (Highway revenue) (1)
Commonwealth of Puerto Rico - GO (2)
PBA (2)
PRCCDA (3)
PRIFA (3)
Total Resolved
Other Puerto Rico Exposures
PREPA (4)
MFA (5)
PRASA and U of PR (5)
Total Other
Total net exposure to Puerto Rico
As of December 31,
2022
2021
(in millions)
$
298
182
25
4
—
—
509
720
131
1
852
1,361
$
799
457
1,097
122
152
16
2,643
748
179
2
929
3,572
$
$
____________________
(1)
(2)
(3)
(4)
(5)
Resolved on December 6, 2022, pursuant to the Modified Fifth Amended Title III Plan of Adjustment of the Puerto
Rico Highways and Transportation Authority.
Resolved on March 15, 2022, pursuant to the Modified Eighth Amended Title III 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.
Modified on March 15, 2022, pursuant to an order of the Federal District Court of Puerto Rico acting under Title VI of
PROMESA.
This exposure is in payment default.
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 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. 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.
162
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Amortization Schedule of Puerto Rico
Net Par Outstanding and Net Debt Service Outstanding
As of December 31, 2022
Scheduled Net Par
Amortization
Scheduled Net Debt
Service Amortization
2023 (January 1 - March 31)
2023 (April 1 - June 30)
2023 (July 1 - September 30)
2023 (October 1 - December 31)
Subtotal 2023
2024
2025
2026
2027
2028-2032
2033-2037
2038-2042
Total
PREPA
$
$
$
(in millions)
—
—
125
—
125
112
96
152
124
378
241
133
1,361
$
30
3
156
3
192
173
150
202
169
529
312
151
1,878
As of December 31, 2022, the Company had $720 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 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.
On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order 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 the
mediation would terminate on June 1, 2022. Judge Swain has since extended the term of such mediation several times, most
recently on January 26, 2023 extending the term to April 28, 2023. On September 29, 2022, Judge Swain ordered the FOMB to
file a plan of adjustment and disclosure statement by December 1, 2022 and set a schedule for litigating bondholders’ lien
status. After receiving an extension from Judge Swain, the FOMB initially filed a plan of adjustment and disclosure statement
for PREPA with the Federal District Court of Puerto Rico on December 16, 2022, and filed an amended version on February 9,
2023 (FOMB PREPA Plan). The FOMB PREPA Plan would split bondholders into two groups: one that would settle litigation
and agree that creditor repayment is limited to existing accounts, and another group that would continue litigating that
bondholders have a right to PREPA’s future revenue collections. The FOMB PREPA Plan provides for lower recoveries to
bondholders than did previous agreements the FOMB reached with bondholders. Dueling summary judgment motions were
made in respect of the bondholders’ lien status by the FOMB and by the PREPA bondholders on October 24, 2022. As of
February 28, 2023, the Federal District Court of Puerto Rico had not issued any decisions on the motions for summary
judgment on the bondholders’ lien status. The Federal District Court of Puerto Rico approved the FOMB disclosure statement
on February 28, 2023, which allows bondholder solicitation on the FOMB PREPA Plan to begin.
The last revised fiscal plan for PREPA was certified by the FOMB on June 28, 2022.
Puerto Rico GO and PBA
As of December 31, 2022, the Company had remaining $25 million of insured net par outstanding of GO bonds and $4
million of insured net par outstanding of PBA bonds.
Under the GO/PBA Plan and in connection with its direct exposure the Company received cash, new general
obligation bonds and CVIs (in aggregate, GO/PBA Plan Consideration) (including amounts received in connection with the
second election described further below, but excluding amounts received in connection with second-to-pay exposures):
•
$530 million in cash, net of ceded reinsurance,
163
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
•
•
$605 million of New GO Bonds (see Note 7, Investments and Cash, 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 CVIs (see Note 7, Investments and Cash, 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 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 notional amount of a 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.
The Company has sold most of the New GO Bonds and CVIs it received on March 15, 2022, and may sell in the future
any New GO Bonds or CVIs it continues to hold. The fair value of any New GO Bonds or CVIs the Company retains will
fluctuate. Any gains or losses on sales of New GO Bonds and CVIs in the investment portfolio, were and will be reported as
realized gains and losses on investments and fair value gains (losses) on trading securities, respectively, rather than loss and
LAE.
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. Insured holders of noncallable insured bonds covered by the GO/PBA Plan (representing $102 million of net
par outstanding as of December 31, 2021) 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 GO/PBA Plan Consideration that constitute distributions under the GO/PBA Plan. For those
who made the second election, distributions of GO/PBA 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 GO/PBA Plan Consideration are insufficient to pay or prepay 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 December 31, 2022, the net insured par outstanding under the legacy GO and PBA
insurance policies was $29 million, and constituted all of the Company’s remaining net par exposure to the GO and PBA bonds
it had insured.
PRHTA
As of December 31, 2022, the Company had $480 million of insured net par outstanding of PRHTA bonds: $298
million insured net par outstanding of PRHTA (transportation revenue) bonds and $182 million insured net par outstanding of
PRHTA (highway revenue) bonds.
In connection with the resolution of its PRHTA exposures pursuant to both the HTA Plan and the GO/PBA Plan the
Company received cash, new bonds backed by toll revenue and CVIs (in aggregate, HTA Plan Consideration and, together with
GO/PBA Plan Consideration, Plan Consideration) (including amounts received in connection with the election described further
below, but excluding amounts received in connection with second-to-pay exposures):
•
•
•
$251 million in cash,
$807 million of Toll Bonds (see Note 7, Investments and Cash, 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 and convertible capital appreciation bonds, and
$672 million of CVIs (see Note 7, Investments and Cash, for additional information), which represents the original
notional value.
164
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The Company has sold a portion of those Toll Bonds and CVIs, and may sell in the future any Toll Bonds or CVIs it
continues to hold. The fair value of any Toll Bonds and CVIs that the Company retains will fluctuate from their date of
acquisition. Any gains or losses on sales of Toll Bonds and CVIs in the investment portfolio were and will be reported as
realized gains and losses on investments and fair value gains (losses) on trading securities, respectively, rather than loss and
LAE.
The HTA Plan, similar to the GO/PBA Plan, provided an option for holders of noncallable bonds insured by the
Company to elect to receive custody receipts that represent an interest in the legacy insurance policy plus Toll Bonds, and
insured bondholders representing $451 million net par outstanding as of December 31, 2022 elected this option. 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 HTA Plan Consideration are insufficient to pay or prepay such amounts.
PRCCDA and PRIFA
As of December 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 and $98 million in notional amount of CVIs.
Other Puerto Rico Exposures
All debt service payments for the Company’s remaining Puerto Rico exposures of $132 million insured net par
outstanding have been made in full by the obligors as of the date of this filing. These exposures consist primarily of $131
million net par outstanding of MFA bonds, which are secured by a lien on local tax revenues.
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 2022 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 United States Court of Appeals for 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 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 October 12, 2022, the court entered an order and judgment confirming the amended plan of adjustment for PRHTA
165
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
•
•
•
•
filed by the FOMB with the court on September 6, 2022 (HTA Confirmation Order). The HTA Confirmation Order
provides that this adversary proceeding must be dismissed with prejudice within five business days of the HTA
Confirmation Order becoming a final order, which should occur after all appeals of the HTA Confirmation Order have
been resolved.
On September 30, 2019, certain parties that either had advanced funds to PREPA for the purchase of fuel or had
succeeded to such claims (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 Lenders’ claims.
On November 12, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint. 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 Federal District Court of
Puerto Rico issued an order to that effect. On September 29, 2022, the court entered an order terminating the motion to
dismiss without prejudice, and indicating that the issues in the adversary proceeding will only be addressed, if
necessary, after issues related to security and recourse of the PREPA bonds have been resolved or, if necessary, in
connection with the confirmation of a plan of adjustment for PREPA.
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. On November 7, 2019, the court granted a motion to intervene by AGC and
AGM. On November 13, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint. 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 Federal District Court of
Puerto Rico issued an order to that effect. On September 29, 2022, the court entered an order terminating the motion to
dismiss without prejudice, and indicating that the issues in the adversary proceeding will only be addressed, if
necessary, after issues related to security and recourse of the PREPA bonds have been resolved or, if necessary, in
connection with the confirmation of a plan of adjustment for PREPA.
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 plan support
agreement, on May 25, 2021, Judge Swain stayed the participation of AGM and AGC. On October 12, 2022, the court
entered the HTA Confirmation Order, which provides that this adversary proceeding must be dismissed with prejudice
within five business days of the HTA Confirmation Order becoming a final order, which should occur after all appeals
of the HTA Confirmation Order have been resolved.
On July 1, 2019, the FOMB initiated an adversary proceeding against U.S. Bank National Association, as trustee for
PREPA’s bonds, objecting to and challenging the validity, enforceability, and extent of prepetition security interests
securing those bonds and seeking other relief. On September 30, 2022, the FOMB filed an amended complaint against
the trustee (i) objecting to and challenging the validity, enforceability, and extent of prepetition security interests
securing PREPA’s bonds and (ii) arguing that PREPA bondholders’ recourse was limited to certain deposit accounts
held by the trustee. On October 7, 2022, the court approved a stipulation permitting AGM and AGC to intervene as
defendants.
Specialty Business
The Company also guarantees specialty business with risk profiles similar to those of its structured finance exposures
written in financial guaranty form.
166
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Specialty Insurance, Reinsurance and Guaranties
As of December 31, 2022
As of December 31, 2021
Gross Exposure
Net Exposure
Gross Exposure
Net Exposure
Life insurance transactions (1)
Aircraft residual value insurance policies
Other guaranties
$
1,314 $
355
228
(in millions)
986 $
200
228
1,250 $
355
—
871
200
—
____________________
(1)
The life insurance transactions net exposure is projected to reach $1.1 billion by June 30, 2024.
As of both December 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 above are investment-grade quality.
4.
Expected Loss to be Paid (Recovered)
Accounting Policy
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 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 the Company. 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 in that it represents the present value of amounts that
the Company expects to pay or recover in future periods for all contracts.
In circumstances where the Company 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. Insured obligations with
expected losses that were purchased by the Company are referred to as Loss Mitigation Securities and are recorded in the
investment portfolio at fair value, excluding the value of the Company’s insurance. 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 Cash, and Note 9, Fair Value
Measurement.
Economic loss development 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) in the same manner for all its exposures regardless of form or
differing accounting models. 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 each of these accounting models. This note provides information
regarding expected claim payments to be made and/or recovered under all contracts in the insured portfolio.
167
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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
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.
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 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 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 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.
Changes to estimates of net expected loss to be paid (recovered) and net economic loss development (benefit) over a
reporting period may be attributable to a number of interrelated factors such as changes in discount rates, improvement or
deterioration of transaction performance, charge-offs, loss mitigation activity, changes to projected default curves, severity
rates, and dispute resolution. 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 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.
168
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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 December 31,
Year Ended December 31,
Accounting Model
2022
2021
2022
2021
2020
Insurance (see Note 5)
FG VIEs (see Note 8)
Credit derivatives (see Note 6)
Total
$
$
205
314 (1)
3
522
$
$
(in millions)
364 $
42
5
411 $
(112) $
(17)
4
(125) $
(281) $
(20)
14
(287) $
142
1
2
145
____________________
(1)
The increase in expected loss to be paid for FG VIEs primarily relates to trusts established as part of the 2022 Puerto
Rico Resolutions (Puerto Rico Trusts) that were consolidated as a result of the 2022 Puerto Rico Resolutions. Prior to
the 2022 Puerto Rico Resolutions, all Puerto Rico Exposures were accounted for as insurance.
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 and FG VIE. The Company used risk-free
rates for U.S. dollar denominated obligations that ranged from 3.82% to 4.69% with a weighted average of 4.08% as of
December 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 for U.S. dollar denominated transactions represented approximately 98.5% and 97.2% of the total as of December 31, 2022
and December 31, 2021, respectively.
Net Expected Loss to be Paid (Recovered)
Roll Forward
Net expected loss to be paid (recovered), beginning of period
Economic loss development (benefit) due to:
Accretion of discount
Changes in discount rates
Changes in timing and assumptions
Total economic loss development (benefit)
Net (paid) recovered losses (1)
Net expected loss to be paid (recovered), end of period
$
Year Ended December 31,
2022
2021
(in millions)
2020
$
411
$
529
$
737
16
(115)
(26)
(125)
236
522
$
7
(33)
(261)
(287)
169
411
$
9
13
123
145
(353)
529
____________________
(1)
Net (paid) recovered losses in 2022 include the net amounts received pursuant to the Puerto Rico Resolutions, as
described in Note 3, Outstanding Exposure.
169
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Net Expected Loss to be Paid (Recovered)
Roll Forward by Sector
Year Ended December 31, 2022
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
December 31, 2022
(in millions)
19 $
(2)
17
(143)
1
(142)
(125) $
187 $
(1)
186
59
(9)
50
236 $
197 $
12
209
150
52
202
411 $
$
$
403
9
412
66
44
110
522
Year Ended December 31, 2021
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
December 31, 2021
(in millions)
(182) $
(22)
(204)
(100)
17
(83)
(287) $
74 $
(2)
72
102
(5)
97
169 $
305 $
36
341
148
40
188
529 $
$
$
197
12
209
150
52
202
411
Year Ended December 31, 2020
Net Expected
Loss to be
Paid (Recovered) as of
December 31, 2019
Economic Loss
Development
(Benefit)
Net
(Paid)
Recovered
Losses (1)
Net Expected
Loss to be
Paid (Recovered) as of
December 31, 2020
$
$
531 $
23
554
146
37
183
737 $
(in millions)
190 $
13
203
(71)
13
(58)
145 $
(416) $
—
(416)
73
(10)
63
(353) $
305
36
341
148
40
188
529
Sector
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
Sector
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
Sector
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
____________________
(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) net LAE paid of $33 million, $36 million and $25 million for the years ended
170
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
December 31, 2022, 2021 and 2020, respectively; and (b) net expected LAE to be paid of $11 million as of December 31, 2022
and $26 million as of December 31, 2021.
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 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 further behind mortgage borrowers fall in making payments, the more likely it is that they will default. 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.
Mortgage borrowers that are not behind on payments and have not fallen two or more payments behind in the last two
years (generally considered performing borrowers) have demonstrated an ability and willingness to pay through challenging
economic periods, and as a result are viewed as less likely to default than delinquent borrowers or those that have experienced
delinquency recently. 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. Loans that are defaulted pursuant to
the CDR after the near-term liquidation of currently delinquent loans represent defaults of currently performing loans and
projected re-performing loans. A CDR is the outstanding principal amount of defaulted loans liquidated in the current month
divided by the remaining outstanding amount of the whole pool of loans (collateral pool balance). The collateral pool balance
decreases over time as a result of scheduled principal payments, partial and whole principal prepayments, and defaults.
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 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, and
probability weights them.
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
Year Ended December 31,
2022
2021
(in millions)
2020
$
(36) $
(107)
— $
(100)
(45)
(26)
First lien U.S. RMBS
Second lien U.S. RMBS
171
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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). 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.
First Lien U.S. RMBS Liquidation Rates
As of December 31,
Current but recently delinquent:
Alt-A and Prime
Option ARM
Subprime
30 – 59 Days Delinquent:
Alt-A and Prime
Option ARM
Subprime
60 – 89 Days Delinquent:
Alt-A and Prime
Option ARM
Subprime
90+ Days Delinquent:
Alt-A and Prime
Option ARM
Subprime
Bankruptcy:
Alt-A and Prime
Option ARM
Subprime
Foreclosure:
Alt-A and Prime
Option ARM
Subprime
Real Estate Owned
All
2022
20%
20%
20%
35%
35%
30%
40%
45%
40%
55%
60%
45%
45%
50%
40%
60%
65%
55%
2021
20%
20%
20%
35%
35%
30%
40%
45%
40%
55%
60%
45%
45%
50%
40%
60%
65%
55%
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 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 scenario), after the 36-month CDR plateau period, each transaction’s
CDR is projected to improve over 12 months to a final CDR of 5% of the plateau CDR. In the base scenario, the Company
172
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
assumes the final CDR will be reached 1 year after the 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
scenario 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 scenario 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 begin returning to levels consistent with underwriting assumptions beginning after the initial 18-month
period, declining 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
Alt-A and Prime:
Plateau CDR
Final CDR
Initial loss severity:
2005 and prior
2006
2007+
Option ARM:
Plateau CDR
Final CDR
Initial loss severity:
2005 and prior
2006
2007+
Subprime:
Plateau CDR
Final CDR
Initial loss severity:
2005 and prior
2006
2007+
As of December 31, 2022
As of December 31, 2021
Range
Weighted
Average
Range
Weighted
Average
1.6 % – 11.5%
0.1 % – 0.6%
5.1%
0.3%
0.9 % – 11.6%
0.0 % – 0.6%
5.9%
0.3%
50%
50%
50%
60%
60%
60%
2.0 % – 7.7%
0.1 % – 0.4%
4.3%
0.2%
1.8 % – 11.9%
0.1 % – 0.6%
5.6%
0.3%
50%
50%
50%
60%
60%
60%
2.7 % – 9.7%
0.1 % – 0.5%
5.6%
0.3%
2.9 % – 10.0%
0.1 % – 0.5%
6.0%
0.3%
50%
50%
50%
60%
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 scenario. 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.
173
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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 U.S. RMBS
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 plateau 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 December 31, 2022 and December 31, 2021.
Certain transactions benefit from excess 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 linked to LIBOR. An increase in projected LIBOR
decreases excess spread, while lower LIBOR results in higher excess spread. ICE Benchmark Administration (IBA) and the
Financial Conduct Authority have announced that LIBOR will be discontinued after June 30, 2023. The Company believes that
the reference to LIBOR in such floating rate RMBS debt will be replaced, by operation of law in accordance with federal
legislation enacted in March 2022, with a rate based on the Secured Overnight Finance Rate (SOFR).
The Company used a similar approach to establish its pessimistic and optimistic scenarios as of December 31, 2022 as
it used as of December 31, 2021, increasing and decreasing the periods of stress from those used in the base scenario. 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 16 months, expected loss to be paid would increase from current projections
by approximately $13 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 eight months), expected loss to be paid would decrease from current projections by approximately $8 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 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 (including recoveries from
previously charged-off loans). Expected losses are also a function of the structure of the transaction, the prepayment speeds of
the collateral, the interest rate environment and assumptions about loss severity.
The Company estimates the amount of loans that will default over the next several years by first calculating expected
liquidation rates for delinquent loans, and applying liquidation rates to currently delinquent loans in order to arrive at an
expected dollar amount of defaults from currently delinquent collateral (plateau period defaults).
Similar to first lien U.S. RMBS transactions, the Company then calculates a CDR that will cause the targeted amount
of liquidations to occur during the plateau period.
Prior to the third quarter of 2022, for the base scenario, the CDR (the plateau CDR) was held constant for six months.
Once the plateau period had ended, the CDR was assumed to gradually trend down in uniform increments to its final long-term
steady state CDR. (The long-term steady state CDR was calculated as the constant CDR that would have yielded the amount of
losses originally expected at underwriting, subject to a floor). In the base case scenario, the time over which the CDR trended
down to its final CDR was 28 months. Therefore, the total stress period for second lien transactions was 34 months.
The Company has observed lower than expected default rates and longer liquidation timelines due to significant home
price appreciation and special servicing activity which now favors modifications and foreclosure actions rather than charge-offs
at 180 days delinquent. In the third quarter of 2022, the Company extended the time over which a portion of the delinquent
loans default from six months to 36 months in the base scenario (conforming to the methodology used for first lien U.S. RMBS
transactions). After the plateau period, as with first lien U.S. RMBS transactions, the CDR trends down over one year to 5% of
the plateau CDR. These changes in the shape of the CDR curve result in a longer period of stress defaults (48 months in the
base scenario), but at lower default levels leading to lower overall levels of expected losses.
174
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
HELOC loans generally permitted 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. A
substantial number of loans in the Company’s insured transactions had been modified to extend the interest-only period to 15
years. Approximately 80% of the modified loans had reset to fully amortizing by the end of 2022, and most of the remaining
loans will reset over the next several years.
Recently, the Company has observed the performance of the modified loans that have finally reset to full amortization
(which represent the majority of extended loans), and noted low levels of delinquency, even with substantial increases in
monthly payments. This observed performance lowers the level of uncertainty regarding this modified cohort as the remainder
continue to reset.
When a second lien loan defaults, there is generally a low recovery. The Company assumed, as of December 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 recoveries of charged-off loans observed from period to period and reasonable expectations of future
recoveries. 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 observed trends and
reasonable expectations of future recoveries. 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 $37 million.
If the recovery rate increases to 40%, expected loss to be paid would decrease from current projections by approximately $37
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 scenario, 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 U.S. RMBS transactions (in the base scenario), 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 of 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.
175
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Key Assumptions in Base Scenario Expected Loss Estimates
HELOCs
Plateau CDR
Final CDR trended down to
Liquidation rates:
Current but recently delinquent
30 – 59 Days Delinquent
60 – 89 Days Delinquent
90+ Days Delinquent
Bankruptcy
Foreclosure
Real Estate Owned
Loss severity on future defaults
Projected future recoveries on previously charged-off loans
As of December 31, 2022
As of December 31, 2021
Range
0.4 % – 8.4%
0.0 % – 0.4%
Weighted
Average
3.5%
0.2%
Range
6.5 % – 39.6%
1.0%
Weighted
Average
16.4%
20%
30
40
60
55
55
100
98%
30%
20%
30
40
60
55
55
100
98%
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.
The Company updated its assumptions related to the CDR plateau and ramp-down during the third quarter of 2022.
The Company’s base scenario assumed a 36-month CDR plateau and a 12-month ramp-down (for a total stress period of 48
months), compared to a six-month CDR plateau and a 28-month ramp-down (for a total stress period of 34 months). The
Company modeled scenarios with a longer period of elevated defaults and others with a shorter period of elevated defaults. In
the Company’s most stressful scenario, increasing the CDR plateau to 42 months and increasing the ramp-down by four months
to 16 months (for a total stress period of 58 months) would decrease the expected recovery by approximately $1 million for
HELOC transactions. On the other hand, in the Company’s least stressful scenario, reducing the CDR plateau to 30 months and
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 $2 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 December 31, 2022 was $44 million. The largest component of these structured finance losses were
student loan securitizations issued by private issuers with $47 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 December 31, 2022.
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. 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.
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.
176
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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
Accounting Policy
Financial guaranty contracts that meet the scope exception under derivative accounting guidance are subject to
industry specific guidance for financial guaranty insurance. The accounting for contracts that fall under the financial guaranty
insurance definition is consistent whether contracts are written on a direct basis, assumed from another financial guarantor,
ceded to another insurer, or acquired in a business combination.
Premiums receivable represent the present value of contractual or expected future premium collections discounted
using risk-free rates. Unearned premium reserve represents deferred premium revenue less claim payments made (net of
recoveries received) that have not yet been recognized in the statement of operations (contra-paid). The following discussion
relates to the deferred premium revenue component of the unearned premium reserve, while the contra-paid is discussed below
under “Losses and Recoveries”.
The amount of deferred premium revenue at contract inception is determined as follows:
•
•
•
For premiums received upfront on financial guaranty insurance contracts that were originally underwritten by the
Company, deferred premium revenue is equal to the amount of cash received. Upfront premiums typically relate
to public finance transactions.
For premiums received in installments on financial guaranty insurance contracts that were originally underwritten
by the Company, deferred premium revenue is the present value (discounted at risk free rates) of either:
(i) contractual premiums due; or (ii) in cases where the underlying collateral is composed of homogeneous pools
of assets, the expected premiums to be collected over the life of the contract. To be considered a homogeneous
pool of assets, prepayments must be contractually allowable, the amount of prepayments must be probable, and
the timing and amount of prepayments must be reasonably estimable. Installment premiums typically relate to
structured finance and infrastructure transactions, where the insurance premium rate is determined at the inception
of the contract but the insured par is subject to prepayment throughout the life of the transaction.
For financial guaranty insurance contracts acquired in a business combination, deferred premium revenue is equal
to the fair value of the Company’s stand-ready obligation portion of the insurance contract at the date of
acquisition based on what a hypothetical similarly rated financial guaranty insurer would have charged for the
contract at that date and not the actual cash flows under the insurance contract. The amount of deferred premium
revenue may differ significantly from cash collections primarily due to fair value adjustments recorded in
connection with a business combination.
When the Company adjusts prepayment assumptions or expected premium collections for obligations backed by
homogeneous pools of assets, an adjustment is recorded to the deferred premium revenue, with a corresponding adjustment to
premiums receivable. Premiums receivable are discounted at the risk-free rate at inception and such discount rate is updated
only when changes to prepayment assumptions are made that change the expected date of final maturity. Accretion of the
discount on premiums receivable is reported in “net earned premiums”.
The Company recognizes deferred premium revenue as earned premium over the contractual period or expected period
of the contract in proportion to the amount of insurance protection provided. As premium revenue is recognized, a
corresponding decrease to the deferred premium revenue is recorded. The amount of insurance protection provided is a function
of the insured par amount outstanding. Accordingly, the proportionate share of premium revenue recognized in a given
reporting period is a constant rate calculated based on the relationship between the insured par amounts outstanding in the
reporting period compared with the sum of each of the insured par amounts outstanding for all periods. When an insured
financial obligation is retired before its maturity, the financial guaranty insurance contract is extinguished, and any
nonrefundable deferred premium revenue related to that contract is accelerated and recognized as premium revenue. The
Company assesses the need for an allowance for credit loss on premiums receivables each reporting period.
177
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
For assumed reinsurance contracts, net earned premiums reported in the consolidated statements of operations are
calculated based upon data received from ceding companies; however, some ceding companies report premium data between 30
and 90 days after the end of the reporting period. The Company estimates net earned premiums for the lag period. Differences
between such estimates and actual amounts are recorded in the period in which the actual amounts are determined. When
installment premiums are related to assumed reinsurance contracts, the Company assesses the credit quality and available
liquidity of the ceding companies and the impact of any potential regulatory constraints to determine the collectability of such
amounts.
Ceded unearned premium reserve is recorded as an asset. Direct, assumed and ceded earned premiums are presented
together as net earned premiums in the statement of operations.
Any premiums related to FG VIEs are eliminated upon consolidation.
Insurance Contracts’ Premium Information
Net Earned Premiums
Financial guaranty insurance:
Scheduled net earned premiums
Accelerations from refundings and terminations (1)
Accretion of discount on net premiums receivable
Financial guaranty insurance net earned premiums
Specialty net earned premiums
Net earned premiums
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
287
179
24
490
4
494
$
$
322
59
30
411
3
414
$
$
334
129
20
483
2
485
____________________
(1)
2022 accelerations include $133 million related to the 2022 Puerto Rico Resolutions. See Note 3, Outstanding
Exposure, for additional information.
Gross Premium Receivable, Net of Commissions Payable on Assumed Business
Roll Forward
Year Ended December 31,
2022
2021
(in millions)
2020
Beginning of year
Less: Specialty insurance premium receivable
Financial guaranty insurance premiums receivable
Gross written premiums on new business, net of commissions
Gross premiums received, net of commissions
Adjustments:
Changes in the expected term and debt service assumptions
Accretion of discount, net of commissions on assumed business
Foreign exchange gain (loss) on remeasurement
Expected recovery of premiums previously written off
Financial guaranty insurance premium receivable
Specialty insurance premium receivable
December 31,
$
$
1,372
1
1,371
356
(345)
2
24
(111)
—
1,297
1
1,298
$
$
1,372
1
1,371
369
(383)
6
26
(22)
4
1,371
1
1,372
$
$
1,286
2
1,284
462
(426)
(10)
18
43
—
1,371
1
1,372
Approximately 74% and 78% of gross premiums receivable, net of commissions payable at December 31, 2022 and
December 31, 2021, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and
euro.
178
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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 the consumer price index changes in
expected lives and new business.
Financial Guaranty Insurance
Expected Future Premium Collections and Earnings
As of December 31, 2022
Future Premiums
to be Collected (1)
Future Net Premiums
to be Earned (2)
2023 (January 1 - March 31)
2023 (April 1 - June 30)
2023 (July 1 - September 30)
2023 (October 1 - December 31)
Subtotal 2023
2024
2025
2026
2027
2028-2032
2033-2037
2038-2042
After 2042
Total
Future accretion
Total future net earned premiums
____________________
(1)
(2)
Net of assumed commissions payable.
Net of reinsurance.
$
$
$
(in millions)
43
32
25
29
129
92
90
87
82
348
241
167
352
1,588
$
69
69
69
68
275
260
244
229
214
898
608
370
521
3,619
293
3,912
Selected Information for Financial Guaranty Insurance Policies with Premiums Paid in Installments
Premiums receivable, net of commissions payable
Deferred premium revenue
Weighted-average risk-free rate used to discount premiums
Weighted-average period of premiums receivable (in years)
Policy Acquisition Costs
Accounting Policy
$
$
As of December 31,
2022
2021
(dollars in millions)
$
$
1,297
1,663
1.8 %
12.9
1,371
1,663
1.6 %
12.7
Policy acquisition costs that are directly related and essential to successful insurance contract acquisition, as well as
ceding commission income and expense on ceded and assumed reinsurance contracts, are deferred and reported net.
Capitalized policy acquisition costs include the cost of underwriting personnel attributable to successful underwriting
efforts. The Company conducts an annual time study, which requires the use of judgement, to estimate the amount of costs to be
deferred.
Ceding commission expense on assumed reinsurance contracts and ceding commission income on ceded reinsurance
contracts that are associated with premiums received in installments are calculated at their contractually defined commission
179
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
rates, discounted consistent with premiums receivable for all future periods, and included in DAC, with a corresponding offset
to net premiums receivable or reinsurance balances payable.
DAC is amortized in proportion to net earned premiums. Amortization of deferred policy acquisition costs includes the
accretion of discount on ceding commission receivable and payable. When an insured obligation is retired early, the remaining
related DAC is expensed at that time.
Costs incurred for soliciting potential customers, market research, training, administration, unsuccessful acquisition
efforts, and product development as well as overhead costs are charged to expense as incurred.
Expected losses and LAE, investment income, and the remaining costs of servicing the insured or reinsured business,
are considered in determining the recoverability of DAC.
Policy Acquisition Costs
Roll Forward of Deferred Acquisition Costs
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
131
30
(14)
147
$
$
119
26
(14)
131
$
$
111
24
(16)
119
Beginning of year
Costs deferred during the period
Costs amortized during the period
December 31,
Losses and Recoveries
Accounting Policies
Loss and LAE Reserve
Loss and LAE reserve reported on the balance sheet relates only to direct and assumed reinsurance contracts that are
accounted for as insurance, substantially all of which are financial guaranty insurance contracts. The corresponding reserve
ceded to reinsurers is reported as reinsurance recoverable on unpaid losses and reported in other assets. Any loss and LAE
reserves related to FG VIEs are eliminated upon consolidation. Any expected losses to be paid (recovered) on credit derivatives
are reflected in the fair value of credit derivatives.
Under financial guaranty insurance accounting, the sum of unearned premium reserve and loss and LAE reserve
represents the Company’s stand-ready obligation. At contract inception, the entire stand-ready obligation is represented entirely
by unearned premium reserve. Unearned premium reserve is deferred premium revenue, less claim payments (net of recoveries
received) that have not yet been recognized in the statement of operations (contra-paid). A loss and LAE reserve for a financial
guaranty insurance contract is recorded only to the extent, and for the amount, that expected loss to be paid plus contra-paid
(total losses) exceed the deferred premium revenue, on a contract-by-contract basis. As a result, the Company has expected loss
to be paid that has not yet been expensed. Such amounts will be recognized in future periods as deferred premium revenue
amortizes into income.
When a claim or LAE payment is made on a contract, it first reduces any recorded loss and LAE reserve. To the extent
there is insufficient loss and LAE reserve on a contract, then such claim payment is recorded as contra-paid, which reduces the
unearned premium reserve. The contra-paid is recognized in “loss and loss adjustment expenses (benefit)” in the consolidated
statement of operations when and for the amount that total losses exceed the remaining deferred premium revenue on the
insurance contract. “Loss and loss adjustment expenses (benefit)” in the consolidated statement of operations is presented net of
cessions to reinsurers.
Salvage and Subrogation Recoverable
When the Company becomes entitled to the cash flow from the underlying collateral of, or other recoveries in relation
to, an insured exposure under salvage and subrogation rights as a result of a claim payment or estimated future claim payment,
it reduces the expected loss to be paid on the contract. Such reduction in expected loss to be paid can result in one of the
180
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
following: (i) a reduction in the corresponding loss and LAE reserve with a benefit to the consolidated statement of operations;
(ii) no effect on the consolidated balance sheet or statements of operations, if total loss is not in excess of deferred premium
revenue; or (iii) the recording of a salvage asset with a benefit to the consolidated statements of operations if the transaction is
in a net recovery position at the reporting date. The ceded component of salvage and subrogation recoverable is reported in
“other liabilities”.
Expected Loss to be Expensed
Expected loss to be expensed represents past or expected future financial guaranty insurance net claim payments that
have not yet been expensed. Such amounts will be expensed in future periods as deferred premium revenue amortizes into
income. Expected loss to be expensed is the Company’s projection of incurred losses that will be recognized in future periods,
excluding accretion of discount.
Insurance Contracts’ Loss Information
Loss reserves and salvage are discounted at risk-free rates for U.S. dollar denominated financial guaranty insurance
obligations that ranged from 3.82% to 4.69% with a weighted average of 4.15% as of December 31, 2022, and 0.0% 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
Sector
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
Components of Net Reserve (Salvage)
Loss and LAE reserve
Reinsurance recoverable on unpaid losses (1)
Loss and LAE reserve, net
Salvage and subrogation recoverable
Salvage and subrogation reinsurance payable (2)
Salvage and subrogation recoverable, net
Net reserve (salvage)
____________________
(1)
(2)
Reported in “other assets” on the consolidated balance sheets.
Reported in “other liabilities” on the consolidated balance sheets.
$
$
$
$
As of December 31,
2022
2021
(in millions)
71 $
1
72
(77)
42
(35)
37 $
As of December 31,
2022
2021
$
(in millions)
296
(3)
293
(257)
1
(256)
37
$
60
1
61
(24)
42
18
79
869
(5)
864
(801)
16
(785)
79
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
181
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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
(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
Net expected loss to be paid (recovered) - financial guaranty insurance
Contra-paid, net
Salvage and subrogation recoverable, net
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance
Net expected loss to be expensed (present value)
As of December 31,
2022
(in millions)
$
$
201
23
256
(289)
191
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 December 31,
2022
(in millions)
$
$
2
2
3
3
10
12
13
17
15
61
43
8
12
191
82
273
2023 (January 1 - March 31)
2023 (April 1 - June 30)
2023 (July 1 - September 30)
2023 (October 1 - December 31)
Subtotal 2023
2024
2025
2026
2027
2028-2032
2033-2037
2038-2042
After 2042
Net expected loss to be expensed
Future accretion
Total expected future loss and LAE
182
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The following table presents the loss and LAE (benefit) reported in the consolidated statements of operations by sector
for insurance contracts. Amounts presented are net of reinsurance.
Loss and LAE (Benefit) by Sector
Sector
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Loss and LAE (benefit)
Year Ended December 31,
2022
2021
(in millions)
2020
$
125 $
—
125
(112)
3
(109)
$
16 $
(146) $
(9)
(155)
(69)
4
(65)
(220) $
225
5
230
(34)
7
(27)
203
In each of the years presented, the primary component of U.S. public finance loss and LAE (benefit) was Puerto Rico
exposures.
The following tables provide information on financial guaranty insurance contracts categorized as BIG.
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 31, 2022
Gross
Number of risks (1)
Remaining weighted-average period (in years)
122
11.3
(dollars in millions)
111
7.6
14
8.7
247
9.8
247
9.8
BIG 1
BIG 2
BIG 3
Total BIG
Net Total BIG
Outstanding exposure:
Par
Interest
Total (2)
Expected cash outflows (inflows)
Potential recoveries (3)
Subtotal
Discount
Expected losses to be paid (recovered)
Deferred premium revenue
Reserves (salvage)
$
$
$
$
$
$
3,363 $
2,177
5,540 $
128 $
(294)
(166)
35
(131) $
170 $
(174) $
171 $
77
248 $
121 $
(79)
42
(13)
29 $
15 $
21 $
2,318 $
894
3,212 $
1,771 $
(1,364)
407
(104)
303 $
5,852 $
3,148
9,000 $
2,020 $
(1,737)
283
(82)
201 $
160 $
186 $
345 $
33 $
5,835
3,144
8,979
2,008
(1,725)
283
(82)
201
345
33
183
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Financial Guaranty Insurance
BIG Transaction Loss Summary
As of December 31, 2021
Gross
Number of risks (1)
Remaining weighted-average period (in years)
117
7.6
(dollars in millions)
129
8.9
16
8.9
262
8.5
262
8.5
BIG 1
BIG 2
BIG 3
Total BIG
Net Total BIG
Outstanding exposure:
Par
Interest
Total (2)
Expected cash outflows (inflows)
Potential recoveries (3)
Subtotal
Discount
Expected losses to be paid (recovered)
Deferred premium revenue
Reserves (salvage)
$
$
$
$
$
$
2,437 $
1,000
3,437 $
111 $
(656)
(545)
19
(526) $
85 $
(549) $
177 $
36
213 $
40 $
(10)
30
(3)
27 $
2 $
25 $
4,745 $
1,942
6,687 $
4,820 $
(3,829)
991
(145)
846 $
7,359 $
2,978
10,337 $
4,971 $
(4,495)
476
(129)
347 $
7,293
2,962
10,255
4,918
(4,430)
488
(129)
359
350 $
584 $
437 $
60 $
435
74
__________________
(1)
(2)
(3)
A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of
making debt service payments.
Includes amounts related to FG VIEs.
Represents expected inflows from 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.
Reinsurance
The Company assumes financial guaranty exposure (Assumed Financial Guaranty Business) from third-party insurers,
primarily other monoline financial guaranty companies that currently are in runoff (Legacy Monoline Insurers). The Company’s
Assumed Financial Guaranty Business represents $14.0 billion, or approximately 3.8%, of the Company’s total gross financial
guaranty insured exposure of $370.2 billion, as measured by insured debt service, as of December 31, 2022.
The Company’s assumed reinsurance agreements with the Legacy Monoline Insurers are generally subject to
termination at the option of the ceding company: (i) if the Company fails to meet certain financial and regulatory criteria; (ii) if
the Company fails to maintain a specified minimum financial strength rating(s); or (iii) upon certain changes of control of the
Company. Upon termination due to one of the above events, the Company 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 Financial Guaranty Business (plus in certain cases, an additional required amount), after which the Company
would be released from liability with respect to such business. As of December 31, 2022, if each third-party insurer ceding
financial guaranty business to any of the Company’s insurance subsidiaries had a right to recapture such business, and chose to
exercise such right, the aggregate amounts that AGC and AG Re could be required to pay to all such companies would be
approximately $234 million and $34 million, respectively.
The Company also assumes specialty business at AGRO. AGRO’s assumed reinsurance agreements in respect of this
specialty business generally require it to post collateral for the ceding insurer if AGRO fails to maintain a specified minimum
financial strength rating. If S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (S&P) downgrades
AGRO’s financial strength rating (currently “AA”) below “A-”, and A.M. Best Company, Inc. downgrades AGRO’s financial
strength rating (currently “A+”) below “A-”, AGRO would be required to post, as of December 31, 2022, up to an estimated
$12 million of collateral in respect of its assumed specialty business.
184
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The Company cedes portions of its gross insured financial guaranty exposure (Ceded Financial Guaranty Business) to
third-party insurers. This Ceded Financial Guaranty Business represents $221 million, or approximately 0.1%, of the
Company’s total gross insured exposure of $370.2 billion, as measured by insured debt service, as of December 31, 2022. The
Company also cedes $483 million of its $1.7 billion in gross insured specialty business.
In 2020, the Company reassumed $336 million in par, including $118 million in net par of Puerto Rico exposures,
from its largest remaining legacy third-party financial guaranty reinsurer, resulting in a commutation gain of $38 million.
Effect of Reinsurance
The following table presents the components of premiums and losses reported in the consolidated statements of
operations attributable to the Assumed and Ceded Businesses (both financial guaranty and specialty).
Effect of Reinsurance on Premiums Written, Premiums Earned and Loss and LAE (Benefit)
Premiums Written:
Direct
Assumed (1)
Ceded (2)
Net
Premiums Earned:
Direct
Assumed
Ceded
Net
Loss and LAE (benefit):
Direct (3)
Assumed
Ceded
Net
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
$
$
$
377 $
(17)
—
360 $
469 $
28
(3)
494 $
32 $
(17)
1
16 $
355 $
22
—
377 $
385 $
32
(3)
414 $
(203) $
5
(22)
(220) $
453
1
13
467
448
41
(4)
485
182
24
(3)
203
____________________
(1)
(2)
(3)
Negative assumed premiums written were due to terminations and changes in expected debt service schedules.
Positive ceded premiums written were due to commutations and changes in expected debt service schedules.
See Note 4, Expected Loss to be Paid (Recovered), for additional information on the economic loss development
(benefit).
6.
Contracts Accounted for as Credit Derivatives
Amounts presented in this note relate only to contracts accounted for as derivatives. 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, including CDS, 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 CDS 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. In certain credit derivative transactions, the Company
also specifically agreed to pay if the obligor were to become bankrupt or if the reference obligation were restructured.
Furthermore, in certain credit derivative transactions, 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
185
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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 credit
derivative contract; however, the Company on occasion has mutually agreed with various counterparties to terminate certain
CDS transactions.
Accounting Policy
Credit derivatives are recorded at fair value. Changes in fair value are reported in “net change in fair value of credit
derivatives” in the consolidated statement of operations. The fair value of credit derivatives is reflected as either net assets or
net liabilities determined on a contract-by-contract basis in the Company’s consolidated balance sheets. See Note 9, Fair Value
Measurement, for a discussion on the fair value methodology for credit derivatives.
Credit Derivative Net Par Outstanding and Fair Value
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 12.8 years and 13.2 years as of December 31, 2022 and
December 31, 2021, respectively.
Sector
U.S. public finance
Non-U.S. public finance
U.S. structured finance
Non-U.S. structured finance
Total
Credit Derivatives (1)
As of December 31, 2022
As of December 31, 2021
Net Par
Outstanding
Net Fair Value
Asset (Liability)
Net Par
Outstanding
Net Fair Value
Asset (Liability)
$
$
1,175 $
1,565
342
121
3,203 $
(in millions)
(79) $
(58)
(22)
(3)
(162) $
1,705 $
1,800
400
135
4,040 $
(72)
(48)
(32)
(2)
(154)
____________________
(1)
Expected loss to be paid was $3 million as of December 31, 2022 and $5 million as of December 31, 2021.
Distribution of Credit Derivative Net Par Outstanding by Internal Rating
Rating Category
AAA
AA
A
BBB
BIG
Credit derivative net par outstanding
As of December 31, 2022
As of December 31, 2021
Net Par
Outstanding
% of Total
Net Par
Outstanding
% of Total
$
$
1,260
1,064
232
590
57
3,203
(dollars in millions)
39.3 % $
33.2
7.2
18.5
1.8
100.0 % $
1,503
1,283
514
677
63
4,040
37.2 %
31.8
12.7
16.7
1.6
100.0 %
Fair Value Gains (Losses) on Credit Derivatives
Realized gains (losses) and other settlements
Net unrealized gains (losses)
Fair value gains (losses) on credit derivatives
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
(2) $
(9)
(11) $
(3) $
(55)
(58) $
(4)
85
81
186
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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.
Five-year CDS spread
One-year CDS spread
CDS Spread on AGC (in basis points)
As of
December 31, 2022
63
26
December 31, 2021
49
16
December 31, 2020
132
36
Fair Value of Credit Derivative Assets (Liabilities) and Effect of AGC Credit Spread
Fair value of credit derivatives before effect of AGC credit spread
Plus: Effect of AGC credit spread
Net fair value of credit derivatives
As of
December 31, 2022
December 31, 2021
$
$
(in millions)
(207) $
45
(162) $
(225)
71
(154)
The fair value of CDS contracts as of December 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 and Cash
Accounting Policy
Fixed-maturity debt securities are classified as either available-for-sale or trading. All fixed-maturity securities are
measured at fair value and reported on a trade-date basis. Unrealized gains and losses on available-for-sale fixed-maturity debt
securities that are not associated with credit related factors are reported as a component of accumulated OCI (AOCI), net of
deferred income taxes. Loss Mitigation Securities, which are a component of fixed-maturity debt securities, are accounted for
based on their underlying investment type, excluding the effects of the Company’s insurance. Realized gains and losses on sales
of available-for-sale fixed-maturity debt securities and credit losses are reported as a component of net income. Changes in fair
value on trading fixed-maturity debt securities are reported as a component of net income.
Short-term investments, which are investments with a maturity of less than one year at time of purchase, are carried at
fair value and include amounts deposited in certain money market funds.
Other invested assets primarily consist of equity method investments. The Company reports its interest in the earnings
of equity method investments in “equity in earnings (losses) of investees” in the consolidated statement of operations. Certain
equity method investments are reported on a lag because information is not received on a timely basis. The Company classifies
distributions received from equity method investments using the cumulative earnings approach in the consolidated statements
of cash flows. Under the cumulative earnings approach, distributions received up to the amount of cumulative equity in
earnings recognized are treated as returns on investment within operating cash flows and those in excess of that amount are
treated as returns of investment within investing cash flows. All distributions from equity method investments for which the
Company elected the fair value option (FVO) are classified as investing activities.
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 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
noncontrolling interests (NCI). See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles,
for further information regarding the CIVs.
Cash consists of cash on hand, demand deposits for all entities, and cash and cash equivalents for consolidated
AssuredIM Funds. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.
187
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Net investment income primarily includes the income earned on fixed-maturity securities and short-term investments,
including amortization of premiums and accretion of discounts. For mortgage-backed securities and any other securities for
which there is prepayment risk, prepayment assumptions are evaluated quarterly and revised as necessary. For securities other
than purchased credit deteriorated (PCD) securities, any necessary adjustments due to changes in effective yields and expected
maturities are recognized in net investment income using the retrospective method.
Net realized investment gains (losses) include sales of investments, which are determined using the specific
identification method, reductions to amortized cost of available-for-sale investments that have been written down due to the
Company’s intent to sell them or it being more likely than not that the Company will be required to sell them, and the change in
allowance for credit losses (including accretion).
For all securities that were originally purchased with credit deterioration, accrued interest is not separately presented,
but rather is a component of the amortized cost of the instrument. For all other available-for-sale securities, a separate amount
for accrued interest is reported in “other assets”.
Credit Losses
For fixed-maturity securities classified as available for sale for which a decline in the fair value below the amortized
cost is due to credit related factors, an allowance is established for the difference between the estimated recoverable value and
amortized cost with a corresponding charge to net realized investment gains (losses). The estimated recoverable value is the
present value of cash flows expected to be collected, as determined by management. The allowance for credit losses is limited
to the difference between amortized cost and fair value. The difference between fair value and amortized cost that is not
associated with credit related factors is presented as a component of AOCI.
When estimating future cash flows for fixed-maturity securities, management considers the historical performance of
underlying assets and available market information as well as bond-specific considerations. In addition, the process of
estimating future cash flows includes, but is not limited to, the following critical inputs, which vary by security type:
•
•
•
•
•
•
•
•
•
the extent to which fair value is less than amortized cost;
credit ratings;
any adverse conditions specifically related to the security, industry, and/or geographic area;
changes in the financial condition of the issuer, or underlying loan obligors;
general economic and political factors;
remaining payment terms of the security;
prepayment speeds;
expected defaults; and
the value of any embedded credit enhancements.
The length of time an instrument has been impaired or the effect of changes in foreign exchange rates are not
considered in the Company’s assessment of credit loss. The assessment of whether a credit loss exists is performed each
reporting period.
The allowance for credit losses and the corresponding charge to net realized investment gains (losses) may be reversed
if conditions change, however, the allowance for credit losses is never reduced below zero. When the Company determines that
all or a portion of a fixed-maturity security is uncollectible, the uncollectible amortized cost amount is written off with a
corresponding reduction to the allowance for credit losses. If cash flows that were previously written off are collected, the
recovery is recognized in net realized investment gains (losses).
PCD securities are defined as financial assets that, as of the date of acquisition, have experienced a more-than-
insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. An allowance for
credit losses is established upon initial recognition for available-for-sale PCD securities. On the date of acquisition, the
amortized cost of PCD securities is equal to the purchase price plus the allowance for credit losses, with no credit loss expense
recognized in the consolidated statements of operations. After the date of acquisition, deterioration or improvement in credit
will result in an increase or decrease, respectively to the allowance and an offsetting credit loss expense (or benefit). To
measure this, the Company performs a discounted cash flow analysis. For PCD securities that are also beneficial interests,
favorable or adverse changes in expected cash flows are recognized as a change in the allowance for credit losses. Changes in
expected cash flows that are not captured through the allowance are reflected as a prospective adjustment to the security’s yield
within net investment income.
188
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The Company has elected to not measure credit losses on its accrued interest receivable and instead writes off accrued
interest when it is six-months past due or on the date it is deemed uncollectible, if earlier. All write-offs of accrued interest are
recorded as a reduction to net investment income in the consolidated statements of operations. For securities the Company
intends to sell the amortized cost is written down to fair value with a corresponding charge to net realized investment gains
(losses) if (1) it is more-likely-than-not that the Company will be required to sell before recovery of its amortized cost, and (2)
the fair value of the security is below amortized cost. No allowance is established in these situations and any previously
recorded allowance is reversed. The new cost basis is not adjusted for subsequent increases in estimated fair value.
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. The Company has established investment guidelines for its
investment managers 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) Loss Mitigation Securities;
(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 2022 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 $78 million as of December 31, 2022 related to certain of the Company’s
alternative investments, other than AssuredIM Funds.
Investment Portfolio
Carrying Value
Fixed-maturity securities, available-for-sale (1):
Externally managed
Loss Mitigation Securities and other
AssuredIM managed
Fixed-maturity securities - Puerto Rico New Recovery Bonds (2)
Fixed-maturity securities, trading - Puerto Rico CIVs (2)
Short-term investments (3)
Other invested assets:
Equity method investments
Other
Total
As of December 31,
2022
2021
(in millions)
$
$
5,519
705
537
358
303
810
123
10
8,365
$
$
6,843
818
541
—
—
1,225
169
12
9,608
____________________
(1)
7.4% and 7.5% of fixed-maturity securities were rated BIG as of December 31, 2022 and December 31, 2021,
respectively, consisting primarily of Loss Mitigation Securities. 5.9% and 0.9% were not rated, as of December 31,
2022 and December 31, 2021, respectively.
These securities are not rated.
Weighted average credit rating of AAA as of both December 31, 2022 and December 31, 2021, based on the lower of
the Moody’s Investors Service, Inc. (Moody’s) and S&P classifications.
(2)
(3)
The U.S. Insurance Subsidiaries, through their jointly-owned investment subsidiary, AGAS, are authorized to invest
up to $750 million in AssuredIM Funds. Adding distributed gains from inception through December 31, 2022, the U.S.
Insurance Subsidiaries may invest a total of up to $810 million in AssuredIM Funds through AGAS. As of December 31, 2022,
the U.S. Insurance Subsidiaries had total commitments to AssuredIM Funds of $755 million, of which $536 million represented
net invested capital and $219 million was undrawn. This capital was committed to several funds, each dedicated to a single
strategy, including CLOs, asset-based finance, and healthcare structured capital. As of December 31, 2022 and December 31,
2021, the fair value of AGAS’ interest in AssuredIM Funds was $569 million and $543 million, respectively.
189
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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 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
noncontrolling interests. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.
Accrued investment income was $71 million and $69 million as of December 31, 2022 and December 31, 2021,
respectively. In 2022, 2021 and 2020, the Company did not write off any accrued investment income.
Available-for-Sale Fixed-Maturity Securities by Security Type
As of December 31, 2022
Security Type
Obligations of state and political
subdivisions
U.S. government and agencies
Corporate securities (3)
Mortgage-backed securities (4):
RMBS
Commercial mortgage-backed
securities (CMBS)
Asset-backed securities:
CLOs
Other
Non-U.S. government securities
Total available-for-sale fixed-maturity
securities
Percent
of
Total (1)
Amortized
Cost
Allowance
for Credit
Losses
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(dollars in millions)
Weighted
Average
Credit
Rating (2)
45 % $
3,509 $
(14) $
37 $
(138) $
3,394
A
2
31
5
4
6
5
2
118
2,387
418
282
449
423
121
—
(6)
(19)
—
—
(26)
—
1
2
3
—
—
22
—
(8)
111
AA+
(299)
2,084
A
(62)
340
BBB
(11)
271
AAA
(21)
(26)
(23)
428
393
98
A+
CCC+
AA-
100 % $
7,707 $
(65) $
65 $
(588) $
7,119
A
190
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Available-for-Sale Fixed-Maturity Securities by Security Type
As of December 31, 2021
Security Type
Obligations of state and political
subdivisions
U.S. government and agencies
Corporate securities (3)
Mortgage-backed securities (4):
RMBS
CMBS
Asset-backed securities:
CLOs
Other
Non-U.S. government securities
Total available-for-sale fixed-maturity
securities
Percent
of
Total (1)
Amortized
Cost
Allowance
for Credit
Losses
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(dollars in millions)
43 % $
3,386 $
(12) $
290 $
(4) $
3,660
2
32
6
4
6
5
2
123
2,516
454
332
457
420
134
—
(1)
(17)
—
—
(12)
—
7
111
24
14
1
26
5
(2)
128
(21)
2,605
(24)
—
—
(2)
(3)
437
346
458
432
136
Weighted
Average
Credit
Rating (2)
AA-
AA+
A
BBB+
AAA
AA-
CCC+
AA-
100 % $
7,822 $
(42) $
478 $
(56) $
8,202
A+
____________________
(1)
(2)
Based on amortized cost.
Ratings represent the lower of the Moody’s and S&P classifications, except for Loss Mitigation Securities 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 2022 Puerto Rico
Resolutions are not rated.
Includes securities issued by taxable universities and hospitals.
U.S. government-agency obligations were approximately 30% of mortgage-backed securities as of December 31, 2022
and 31% as of December 31, 2021, based on fair value.
(3)
(4)
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, 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
U.S. government and agencies
Corporate securities
Mortgage-backed securities:
RMBS
CMBS
Asset-backed securities:
CLOs
Other
Non-U.S. government securities
Total
Number of securities (1)
$
$
1,763 $
32
1,276
147
270
171
27
65
3,751 $
163 $
52
519
(56) $
(8)
(147)
1,926 $
84
1,795
3
—
(1)
—
150
270
250
—
30
1,017 $
(14)
—
(13)
(239) $
466
421
27
95
4,768 $
(135)
(8)
(242)
(10)
(11)
(21)
(2)
(23)
(452)
1,776
(79) $
—
(95)
(9)
(11)
(7)
(2)
(10)
(213) $
1,340
191
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, 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 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
U.S. government and agencies
Corporate securities
Mortgage-backed securities:
RMBS
Asset-backed securities:
CLOs
Non-U.S. government securities
Total
Number of securities (1)
$
$
117 $
26
407
(3) $
—
(12)
10 $
32
70
(1) $
(2)
(5)
127 $
58
477
4
—
—
—
4
226
24
804 $
—
(2)
(17) $
355
—
8
120 $
—
(1)
(9) $
60
226
32
924 $
(4)
(2)
(17)
—
—
(3)
(26)
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 December 31, 2022 and December 31, 2021 were not related to credit quality, and in the case
of 2022, were primarily attributable to rising interest rates. As of December 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 December 31, 2022,
of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 567 securities had
unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2021, 23 securities had unrealized
losses in excess of 10% of their carrying value. The total unrealized loss for these securities was $329 million as of
December 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 December 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 December 31, 2022
Due within one year
Due after one year through five years
Due after five years through 10 years
Due after 10 years
Mortgage-backed securities:
RMBS
CMBS
Total
Amortized
Cost
Estimated
Fair Value
$
(in millions)
290
1,713
1,778
3,226
418
282
7,707
$
282
1,585
1,667
2,974
340
271
7,119
$
$
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 $222 million as of December 31, 2022 and $243 million as of December 31, 2021. The investment
192
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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 amount of $1,169 million and $1,231 million
based on fair value as of December 31, 2022 and December 31, 2021, respectively.
No material investments of the Company were non-income producing during the twelve months period ending
December 31, 2022. There were no investments that were non-income producing during the twelve months period ending
December 31, 2021.
Income from Investments
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.
Puerto Rico CVIs in the investment portfolio are classified as trading. Equity in earnings (losses) of investees
represents the Company’s interest in the earnings of its equity method investments.
Income from Investments
Investment income:
Externally managed
Loss Mitigation Securities and other
Managed by AssuredIM (1)
Investment income
Investment expenses
Net investment income
Fair value gains (losses) on trading securities (2)
Equity in earnings (losses) of investees
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
$
189
63
22
274
(5)
269
$
$
(34) $
(39) $
204
55
16
275
(6)
269
—
94
$
$
$
$
231
65
8
304
(7)
297
—
27
____________________
(1)
(2)
Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.
Fair value losses on trading securities pertaining to securities still held as of December 31, 2022 were $29 million for
2022.
Realized Investment Gains (Losses)
The table below presents the components of net realized investment gains (losses).
193
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Net Realized Investment Gains (Losses)
Gross realized gains on sales of available-for-sale securities
Gross realized losses on sales of available-for-sale securities (1)
Net foreign currency gains (losses)
Change in the allowance for credit losses and intent to sell (2)
Other net realized gains (losses) (3)
Net realized investment gains (losses)
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
3
(45)
(4)
(21)
11
(56) $
20
(5)
2
(7)
5
15
$
$
27
(5)
6
(17)
7
18
____________________
(1)
(2)
2022 related primarily to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.
Change in allowance for credit losses in 2022 and 2021 was primarily due to Loss Mitigation Securities. COVID-19
pandemic restrictions contributed to the increase in the allowance for credit losses in 2020.
Net realized gains in 2022 related primarily to the sale of one of the Company’s alternative investments.
(3)
The following table presents the roll forward of allowance for the credit losses on available-for-sale fixed-maturity
securities.
Roll Forward of Allowance for Credit Losses
for Available-for-Sale Fixed-Maturity Securities
Balance, beginning of period
Effect of adoption of accounting guidance on credit losses on January 1,
2020
Additions for securities for which credit losses were not previously
recognized
Additions for purchases of securities accounted for as purchased financial
assets with credit deterioration
Additions (reductions) for securities for which credit losses were previously
recognized
Reductions for securities sold and other settlements
Balance, end of period
Year Ended December 31,
2022
2021
(in millions)
2020
$
42 $
78 $
—
7
2
14
—
65 $
—
4
—
2
(42)
42 $
$
—
62
1
—
15
—
78
The Company recorded $21 million, $6 million and $16 million in credit loss expense for the years ended
December 31, 2022, 2021 and 2020, respectively. During the 2022, the Company purchased a Loss Mitigation Security with a
fair value of $22 million that was accounted for as a PCD security. At acquisition, this security had an unpaid principal on
remaining collateral of $31 million, an allowance for credit losses of $2 million, and a non-credit related discount of $7 million.
The Company did not purchase any other securities with credit deterioration during the periods presented. As of December 31,
2022 and 2021, the majority of allowance for credit losses relates to Loss Mitigation Securities.
Equity in Earnings (Losses) of Investees
Equity in Earnings (Losses) of Investees
AssuredIM Funds
Other
Total equity in earnings (losses) of investees (1)
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
2
(41)
(39) $
30
64
94
$
$
14
13
27
____________________
(1)
Includes $36 million, and $14 million for the year ended December 31, 2021 and 2020, respectively, related to fair
value gains on investments at FVO using net asset value (NAV), as a practical expedient.
194
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Dividends received from equity method investments were $10 million, $15 million and $10 million for the years ended
December 31, 2022, 2021 and 2020, respectively.
The table below presents summarized financial information for equity method investments that meet, in aggregate, the
requirements for reporting summarized disclosures. Amounts in the table below represent amounts reported in the consolidated
financial statements as of December 31, 2022 and 2021, and for the years ended December 31, 2022, 2021 and 2020. The
financial statements for the majority of these equity method investments are reported on a lag.
Aggregate Equity Investments’
Summarized Balance Sheet Data
Total assets
Total liabilities
Total equity
Total revenues
Total expenses
Net income (loss)
$
As of December, 31
2022
2021
$
(in millions)
697
76
621
1,543
412
1,131
Aggregate Equity Investments’
Summarized Statement of Operations Data
Year Ended December 31,
2022
2021
(in millions)
2020
$
(315) $
49
(364)
548 $
64
484
225
84
141
8.
Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles
Accounting Policy
The types of entities that the Company assesses for consolidation principally include: (i) financial guaranty variable
interest entities which include entities whose debt obligations the insurance subsidiaries insure in its financial guaranty
business, and Puerto Rico Trusts, and (ii) investment vehicles in which AGAS has a variable interest and which AssuredIM
manages (including CLOs that are collateralized financing entities (CFEs), CLO warehouses and AssuredIM Funds). For each
of these types of entities, the Company first determines whether the entity is a VIE or a voting interest entity (VOE) which
involves assessing, amongst other conditions, whether the equity investment at risk is sufficient to cover the entity’s expected
losses and whether the holders of the equity investment at risk (as a group) have substantive voting rights.
For entities determined to be a VIE, and for which the Company has a variable interest, the Company assesses whether
it is the primary beneficiary of the VIE at the time it becomes involved with an entity and continuously reassesses whether it is
the primary beneficiary. In determining whether it is the primary beneficiary, the Company considers all facts and
circumstances, including an evaluation of economic interests in the VIE held directly and indirectly through related parties and
entities under common control. The Company is the primary beneficiary of a VIE when it has both: (i) the power to direct the
activities of a VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses of
the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be
significant to the VIE.
If the Company concludes that it is the primary beneficiary of the VIE, it consolidates the VIE in the Company’s
consolidated financial statements. If, as part of its continual reassessment of the primary beneficiary determination, the
Company concludes that it is no longer the primary beneficiary of a VIE, the Company deconsolidates the VIE and recognizes
the impact of that change on the consolidated financial statements. If the entity being evaluated for consolidation is not initially
determined to be a VIE (or, later, if a significant event occurs that causes an entity to no longer qualify as a VIE), then the entity
would be a VOE. Consolidation generally is required when the Company, directly or indirectly, has a controlling financial
interest of the VOE being assessed.
195
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
FG VIEs
For structured finance and certain other FG VIEs, the Company elected the FVO for all assets and liabilities. Upon
initial adoption of the accounting guidance for VIEs in 2010, the Company elected to fair value its structured finance and other
FG VIE assets and liabilities as the carrying amount transition method was not practical. To allow for consistency in the
accounting for its consolidated structured finance and other FG VIE assets and liabilities, the Company elected the FVO for
structured finance and other FG VIEs that it has subsequently consolidated. For the Puerto Rico Trusts described below, the
assets primarily include fixed-maturity debt securities that are carried at fair value and the Company elected the FVO for the
Puerto Rico Trusts’ liabilities in order to simplify the accounting for these instruments.
The change in fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the
consolidated statement of operations, except for (i) the change in fair value attributable to change in instrument-specific credit
risk (ISCR) on FG VIEs’ liabilities, and (ii) unrealized gains and losses on the New Recovery Bonds in the Puerto Rico Trusts,
which are reported OCI. Interest income and interest expense are derived from the trustee reports and also included in “fair
value gains (losses) on FG VIEs.” Investment income on the New Recovery Bonds and changes in fair value on the CVIs in the
Puerto Rico Trusts are all reported in “fair value gains (losses) on FG VIEs” on the consolidated statement of operations.
The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse 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
Company’s CDS spread from the most recent date of consolidation to the current period. In general, if the Company’s CDS
spread tightens, more value will be assigned to the Company’s credit; however, if the Company’s CDS widens, less value is
assigned to the Company’s credit.
The Company has limited contractual rights to obtain the financial records of its consolidated structured finance and
other FG VIEs. The structured finance and other FG VIEs do not prepare separate GAAP financial statements; therefore, the
Company compiles the FG VIE GAAP financial information based on trustee reports prepared by and received from third
parties. Such trustee reports are not available to the Company until approximately 30 days after the end of any given period.
The time required to perform adequate reconciliations and analyses of the information in these trustee reports results in a one
quarter lag in reporting the structured finance and other FG VIEs’ activities. As a result of the lag in reporting structured
finance and other FG VIEs, cash and short-term investments do not reflect cash outflows to the holders of the debt issued by the
structured finance and other FG VIEs for claim payments made by the Company’s insurance subsidiaries to the consolidated
structured finance and other FG VIEs until the subsequent reporting period.
The cash flows generated by the FG VIEs’ assets, except for interest income, are classified as cash flows from
investing activities. Paydowns of FG VIEs’ liabilities are supported by the cash flows generated by FG VIEs’ assets and, for
liabilities with recourse, possibly claim payments made by AGM or AGC under their financial guaranty insurance
contracts. Paydowns of FG VIEs’ liabilities both with and without recourse are classified as cash flows used in financing
activities. Interest income, interest expense and other expenses of the FG VIEs’ assets and liabilities are classified as operating
cash flows. Claim payments made by AGM and AGC under the financial guaranty contracts issued to the FG VIEs are
eliminated upon consolidation and therefore such claim payments are treated as paydowns of FG VIEs’ liabilities and as a
financing activity as opposed to an operating activity.
The Company’s exposure provided through its financial guaranties with respect to debt obligations of FG VIEs is
included within net par outstanding in Note 3, Outstanding Exposure.
CIVs
CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses in which the Company is the primary
beneficiary. The consolidated AssuredIM Funds are investment companies for accounting purposes and therefore account for
their underlying investments at fair value. The consolidated CLOs are CFEs, and therefore, the debt issued by, and loans held
by, the consolidated CLOs are measured under the FVO using the CFE practical expedient. The assets and liabilities of
consolidated CLO and CLO warehouses managed by AssuredIM (collectively, the consolidated CLOs) are also reported at fair
value. Changes in the fair value of assets and liabilities of CIVs, interest income and interest expense are reported in “fair value
gains (losses) on consolidated investment vehicles” in the consolidated statements of operations. Interest income from CLO
assets is recorded based on contractual rates. Certain AssuredIM private equity funds and CLO warehouses, whose financial
statements are not prepared in time for the Company’s periodic reporting, are reported on a lag.
196
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Upon consolidation of an AssuredIM Fund, the Company records NCI for the portion of each fund owned by
employees and any third-party investors. Mandatorily redeemable NCI is classified as a liability. NCI that is redeemable outside
of the control of the Company is classified as temporary equity or redeemable noncontrolling interests, and non-redeemable
NCI is presented within shareholders’ equity in the consolidated balance sheets. Amendments to redemption features may result
in reclassifications between permanent equity, temporary equity and liability.
Investment transactions in the consolidated AssuredIM Funds are recorded on a trade/contract date basis. Money
market funds in consolidated AssuredIM Funds are classified as cash equivalents and carried at cost, consistent with those
funds’ separately issued financial statements, and therefore the Company has included these amounts in the total amount of cash
and cash equivalents on the consolidated statements of cash flows. Cash flows of the CIVs attributable to such entities’
investment purchases and dispositions, as well as operating expenses of the investment vehicles, are presented as cash flows
from operating activities in the consolidated statements of cash flows. Borrowings under credit facilities, debt issuances and
repayments, and capital cash flows to and from investors are presented as financing activities, consistent with investment
company guidelines.
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.
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 structured finance and other 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 to no longer 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
197
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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.
Number of Consolidated
Structured Finance and Other FG VIEs
Beginning of year
Consolidated
Deconsolidated
Matured
December 31
Puerto Rico Trusts
Year Ended December 31,
2022
2021
2020
25
2
(2)
—
25
25
1
(1)
—
25
27
2
(2)
(2)
25
As of December 31, 2022, the Company consolidated 45 custodial trusts established as part of the 2022 Puerto Rico
Resolutions (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposures to Puerto Rico. During 2022, the
Company consolidated 48 and deconsolidated three Puerto Rico Trusts. With respect to certain insured securities covered by the
2022 Puerto Rico Resolutions, 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/or CVIs that constitute distributions under the 2022 Puerto
Rico Resolutions. (At least one separate custodial trust was set up for each legacy insured bond, and the trusts are
deconsolidated as each is paid off.) 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 or prepay 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 as available-for-sale securities
($204 million fair value and $204 million amortized cost as of December 31, 2022) and CVIs as trading securities ($5 million
fair value as of December 31, 2022 and $1 million fair value losses on trading securities for 2022). As of December 31, 2022,
the available-for-sale securities had gross unrealized gains of $4 million and gross unrealized losses of $4 million. Fourteen
securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $4 million and had a fair value of $110
million. All of these securities were in a continuous unrealized loss position for less than 12 months. 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
December 31, 2022 were primarily attributable to rising interest rates, rather than credit quality. As of December 31, 2022, the
Company did not intend to and was not required to sell these investments prior to an expected recovery in value. As of
December 31, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded,
eight securities had unrealized losses in excess of 10% of their carrying value. The total unrealized loss for these securities was
$3 million as of December 31, 2022.
The amortized cost and estimated fair value of available-for-sale New Recovery Bonds by contractual maturity as of
December 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.
198
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
New Recovery Bonds in FG VIEs’ Assets
Distribution by Contractual Maturity
As of December 31, 2022
Due within one year
Due after one year through five years
Due after five years through 10 years
Due after 10 years
Total
Components of FG VIE Assets and Liabilities
Amortized
Cost
Estimated
Fair Value
$
$
(in millions)
1
6
41
156
204
$
$
1
5
41
157
204
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 contracts.
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 FG VIEs’ assets and liabilities, segregated by type of collateral.
Consolidated FG VIEs by Type of Collateral
FG VIEs’ assets:
U.S. RMBS first lien
U.S. RMBS second lien
Puerto Rico Trusts’ assets (includes $209 million at fair value) (1)
Other
Total FG VIEs’ assets
FG VIEs’ liabilities with recourse:
U.S. RMBS first lien
U.S. RMBS second lien
Puerto Rico Trusts’ liabilities
Other
Total FG VIEs’ liabilities with recourse
FG VIEs’ liabilities without recourse:
U.S. RMBS first lien
Total FG VIEs’ liabilities without recourse
____________________
(1)
Includes $2 million of cash.
As of December 31,
2022
2021
(in millions)
$
$
$
$
$
$
167
30
212
7
416
176
24
495
7
702
13
13
$
$
$
$
$
$
221
39
—
—
260
227
42
—
—
269
20
20
The change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIEs’ assets at FVO)
held as of December 31, 2022, 2021 and 2020 that was reported in the consolidated statements of operations for 2022, 2021 and
2020 were gains of $10 million, $14 million and $6 million, respectively. 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 FVO) 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.
199
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Selected Information for FG VIEs’ Assets and Liabilities
Measured under the FVO
Excess of unpaid principal over fair value of:
FG VIEs’ assets
FG VIEs’ liabilities with recourse
FG VIEs’ liabilities without recourse
Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due
Unpaid principal for FG VIEs’ liabilities with recourse (1)
As of December 31,
2022
2021
(in millions)
$
265 $
21
15
34
723
255
12
15
52
281
____________________
(1)
FG VIEs’ liabilities with recourse will mature at various dates ranging from 2023 through 2041.
CIVs
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.
Number of Consolidated CIVs by Type
CIV Type
Funds
CLOs
CLO warehouses
Total number of consolidated CIVs (1)
As of December 31,
2022
2021
8
10
4
22
8
9
3
20
____________________
(1)
As of December 31, 2022, two CIVs were VOEs and as of December 31, 2021 one CIV was a VOE. Certain funds
meet the criteria for a VOE because the Company possesses substantially all of the economics and all of the decision-
making authority.
The table below summarizes the change in the number of consolidated CIVs during each of the periods. During 2022,
2021 and 2020, two, five and two, respectively, consolidated CLO warehouses became CLOs.
Roll Forward of Number of Consolidated CIVs
Beginning of year
Consolidated
Deconsolidated (1)
December 31
Year Ended December 31,
2022
2021
2020
20
4
(2)
22
11
10
(1)
20
4
7
—
11
____________________
(1)
During 2022 the Company deconsolidated a CLO with assets and liabilities of $417 million.
200
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
In the fourth quarter of 2021, an AssuredIM Fund secured additional capital commitments, triggering a reconsideration
of the Company’s previous conclusion not to consolidate that AssuredIM Fund (the Fund). As a result of the reconsideration,
the Company concluded that it became the Fund’s primary beneficiary, as the dilution of the Fund’s lead investor’s interest
caused that investor to lose its substantive ability to dissolve the Fund and remove the Company as the Fund’s general partner.
Accordingly, the Company consolidated the Fund and recognized a gain on consolidation of $31 million in 2021. Total assets
and liabilities at the time of consolidation were $273 million and $33 million, respectively. In addition, the consolidation
resulted in an NCI of $89 million at the time of consolidation. There were no other gains or losses on consolidation or
deconsolidation during the periods presented.
The gain on consolidation is primarily the difference between: (i) the sum of the carrying value of the Company’s
interest in the Fund immediately prior to consolidation; and (ii) the sum of the fair value of the partners’ capital allocated to the
Company, relating to its limited partner and general partner interests in the Fund immediately prior to consolidation. The fair
value of the general partner’s capital represents an allocation of undistributed carried interest. The carried interest has not yet
been recorded by AssuredIM as the requirements for revenue recognition have not yet been met. Carried interest generated by
the Fund will be recognized as revenue, by AssuredIM, once the probability of a significant reversal of revenue no longer
exists. Meanwhile the compensation related to that carried interest, that is awarded to certain employees that manage the Fund,
would be recognized as an expense by AssuredIM to the extent that it is probable of being made and reasonably estimable. Any
carried interest that is recognized as revenue, relating to a consolidated AssuredIM fund, is reported in the Asset Management
segment, and eliminated in consolidation.
201
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Assets and Liabilities of CIVs
Assets:
Fund assets:
Cash and cash equivalents
Fund investments, at fair value:
Equity securities and warrants
Obligations of state and political subdivisions
Corporate securities
Structured products
Due from brokers and counterparties
Other
CLO and CLO warehouse assets:
Cash
CLO investments:
Loans in CLOs, FVO
Loans in CLO warehouses, FVO
Short-term investments, at fair value
Due from brokers and counterparties
Total assets (1)
Liabilities:
CLO obligations, FVO (2)
Warehouse financing debt, FVO (3)
Securities sold short, at fair value
Due to brokers and counterparties
Other liabilities
Total liabilities
As of December 31,
2022
2021
(in millions)
$
59 $
434
—
96
128
—
1
38
4,202
368
135
32
5,493 $
4,090 $
313
—
112
110
4,625 $
$
$
$
64
252
101
98
62
49
1
156
3,913
331
145
99
5,271
3,665
126
41
570
34
4,436
____________________
(1)
(2)
(3)
Includes investments in AssuredIM Funds and other affiliated entities of $392 million and $223 million as of
December 31, 2022 and December 31, 2021, respectively. Includes assets and liabilities of voting interest entities as of
December 31, 2022 of $58 million and $1 million, respectively, and assets of $12 million as of December 31, 2021.
The weighted average maturity of CLO obligations was 6.2 years as of December 31, 2022 and 6.6 years as of
December 31, 2021. The weighted average interest rate of CLO obligations was 5.3% as of December 31, 2022 and
1.8% for December 31, 2021. CLO obligations will mature at various dates from 2034 to 2035.
The weighted average maturity of warehouse financing debt of CLO warehouses was 1.9 years as of December 31,
2022 and 1.8 years as of December 31, 2021. The weighted average interest rate of warehouse financing debt of CLO
warehouses was 4.5% as of December 31, 2022 and 1.1% as of December 31, 2021. Warehouse financing debt will
mature at various dates from 2023 to 2031.
The “equity securities and warrants” category in the table above includes $127 million as of December 31, 2022
related to a consolidated feeder’s investment in a municipal master fund that was unwound in January 2023 based on the
December 31, 2022 valuation. On January 31, 2023 the fund distributed substantially all of its available cash to AGAS and
other investors in the fund. Other liabilities in the table above includes redeemable NCI as described below.
As of December 31, 2022, the CIVs had commitments to invest of $424 million.
As of December 31, 2022 and December 31, 2021, the CIVs included derivative contracts with notional amounts
totaling $46 million and $49 million, respectively, and average notional amounts of $47 million and $34 million, respectively.
The fair value of derivative contracts is reported in the “assets of CIVs” or “liabilities of CIVs” in the consolidated balance
sheets. The net change in fair value is reported in “fair value gains (losses) on CIVs” in the consolidated statements of
operations. The net change in fair value of derivative contracts were gains of $3 million in 2022.
202
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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 December 31, 2022, these credit facilities had varying maturities ranging from 2023 to 2031 with the aggregate
principal amount not exceeding $1.6 billion. The available commitments were based on the amount of equity contributed to the
warehouse which was $377 million. As of December 31, 2022, $284 million was drawn under credit facilities with interest rates
ranging from 3-month SOFR plus 150 basis points (bps) to 3-month Euro InterBank Offered Rate (Euribor) plus 200 bps (with
a floor on Euribor of zero). The CLO warehouses were in compliance with all financial covenants as of December 31, 2022.
As of December 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 $110 million jointly and $71 million individually for the consolidated healthcare fund. The available commitment
was based on the capital committed to the funds. As of December 31, 2022, $58 million was drawn 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 December 31, 2022.
Noncontrolling Interest in CIVs
Noncontrolling interest in CIVs represents the proportion of the consolidated funds not owned by the Company, and
includes ownership interests of 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.
Redeemable NCI in CIVs
Year Ended December 31,
2022
2021
(in millions)
2020
Beginning balance
Net income (loss) attributable to the redeemable NCI
Reallocation of ownership interests
Reclassification to liabilities as mandatorily redeemable NCI (1)
Contributions
Distributions
December 31,
$
$
22 $
(1)
—
(21)
21
(21)
— $
21 $
1
—
—
—
—
22 $
7
(1)
(10)
—
25
—
21
____________________
(1)
Included in “liabilities of consolidated investment vehicles” on the consolidated balance sheets. On January 31, 2023
this liability has been substantially paid.
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 obligations under the original financial guaranty insurance or insured 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 $86 million and liabilities of $12 million as of December 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 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 15 thousand policies monitored as of December 31, 2022, approximately 14 thousand policies are not within the
203
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
scope of FASB Accounting Standards Codification (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 December 31, 2022 and 2021, the Company identified 85
and 69 policies, respectively, that contain provisions and experienced events that may trigger consolidation. See above for
information on VIEs that were consolidated based on management’s assessment of these potential triggers or events.
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 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 December 31, 2022 and 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. See Note 16, Related Party
Transactions, for other receivables from and payables to AssuredIM funds.
9.
Fair Value Measurement
Accounting Policy
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 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 consolidated balance sheets or statements of operations and
comprehensive income.
The Company’s valuation methods produce fair values that may not be indicative of net realizable value or 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, with Level 1 being the highest and Level 3 the lowest. An asset’s or liability’s
categorization within the hierarchy 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.
204
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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.
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 December 31, 2022, the Company used models to price 188 securities. 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 as Level 1 as their value is based on quoted
market prices. Securities such as discount notes are classified as 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 method investments for which the
Company elected the FVO using NAV, as a practical expedient, and, therefore, are excluded from the fair value hierarchy; and
(ii) equity securities traded in active markets that are classified as Level 1 in the fair value hierarchy as their value is based on
quoted market prices.
Other Assets
Committed Capital Securities
The fair value of CCS, which is reported in “other assets” on the 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 (see Note 12, Long-Term Debt and Credit Facilities). 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 consolidated
statements of operations. The estimated current cost of the Company’s CCS is based on several factors, including AGM and
205
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
AGC CDS spreads, LIBOR 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.
Supplemental Executive Retirement Plans
The Company classified 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 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 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 were generally terminated for an amount that approximated 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 December 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 by 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.
206
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The primary sources of information used to determine gross spread include:
•
•
•
•
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 2.78% to 5.08% at December 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 December 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
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.
207
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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
FG VIEs include Puerto Rico Trusts, structured finance and other FG VIEs. Assets in the Puerto Rico Trusts, which
consist of New Recovery Bonds and CVIs, are classified as Level 2. The Company elected the FVO for the Puerto Rico Trusts’
liabilities and they are classified as Level 3. See “ - Fixed Maturity Securities” above for a description of the fair value
methodology for the New Recovery Bonds and CVIs in the Puerto Rico Trusts, which represent the majority of the assets in the
Puerto Rico Trusts. For structured finance and other FG VIEs’ assets and liabilities the Company elected the FVO and they are
classified as Level 3. The prices are generally determined with the assistance of an independent third party, based on a
discounted cash flow approach. The Company records the fair value of structured finance and other FG VIEs’ assets and
liabilities based on modeled prices. The Company records the fair value of Puerto Rico Trusts’ liabilities based on quoted
prices.
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 fair 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
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
an 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,
208
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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.
Assets and Liabilities of CIVs
The consolidated CLOs are CFEs, and therefore the debt issued by, and loans held by, the consolidated CLOs are
measured under the FVO 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 underlying financial liabilities to 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 FVO 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 FVO), 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.
Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.
209
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Fair Value Hierarchy of Financial Instruments Carried at Fair Value
As of December 31, 2022
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total
(in millions)
$
— $
—
—
3,347 $
111
2,084
47 $
—
—
—
—
—
—
—
—
771
2
—
—
—
—
—
135
135
54
962 $
— $
—
—
—
—
—
—
— $
161
271
27
98
6,099
303
39
—
209
5
—
82
4,570
—
4,657
46
11,353 $
— $
—
—
277
—
277
7
284 $
179
—
794
—
1,020
—
—
5
204
297
96
46
—
—
439
48
1,716 $
163 $
715
4,090
36
28
4,154
—
5,032 $
3,394
111
2,084
340
271
821
98
7,119
303
810
7
413
302
96
128
4,570
135
5,231
148
14,031
163
715
4,090
313
28
4,431
7
5,316
Assets:
Investments:
Fixed-maturity securities, available-for-sale:
Obligations of state and political subdivisions
U.S. government and agencies
Corporate securities
Mortgage-backed securities:
RMBS
CMBS
Asset-backed securities
Non-U.S. government securities
Total fixed-maturity securities, available-for-sale
Fixed-maturity securities, trading
Short-term investments
Other invested assets (1)
FG VIEs’ assets
Assets of CIVs (2):
Fund investments:
Equity securities and warrants
Corporate securities
Structured products
CLOs and CLO warehouse assets:
Loans
Short-term investments
Total assets of CIVs
Other assets
Total assets carried at fair value
Liabilities:
Credit derivative liabilities
FG VIEs’ liabilities (3)
Liabilities of CIVs:
CLO obligations of CFEs
Warehouse financing debt
Securitized borrowing
Total liabilities of CIVs
Other liabilities
$
$
Total liabilities carried at fair value
$
210
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, 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
U.S. government and agencies
Corporate securities
Mortgage-backed securities:
RMBS
CMBS
Asset-backed securities
Non-U.S. government securities
Total fixed-maturity securities, available-for-sale
Short-term investments
Other invested assets (1)
FG VIEs’ assets
Assets of CIVs (2):
Fund investments:
Equity securities and warrants
Obligations of state and political subdivisions
Corporate securities
Structured products
CLOs and CLO warehouse assets:
Loans
Short-term investments
Total assets of CIVs
Other assets
Total assets carried at fair value
Liabilities:
Credit derivative liabilities
FG VIEs’ liabilities (3)
Liabilities of CIVs:
CLO obligations of CFEs
Warehouse financing debt
Securities sold short
Securitized borrowing
Total liabilities of CIVs
Other liabilities
$
$
$
— $
—
—
3,588 $
128
2,605
72 $
—
—
—
—
—
—
—
1,225
6
—
—
—
—
—
221
346
27
136
7,051
—
—
—
7
101
7
62
—
145
145
53
1,429 $
4,244
—
4,421
54
11,526 $
— $
—
—
—
—
—
—
—
— $
— $
—
—
103
41
—
144
1
145 $
216
—
863
—
1,151
—
6
260
239
—
91
—
—
—
330
25
1,772 $
156 $
289
3,665
23
—
17
3,705
—
4,150 $
3,660
128
2,605
437
346
890
136
8,202
1,225
12
260
246
101
98
62
4,244
145
4,896
132
14,727
156
289
3,665
126
41
17
3,849
1
4,295
Total liabilities carried at fair value
$
____________________
(1)
(2)
Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis. Excludes $23 million and $19 million of
equity method investments measured at fair value under the FVO using the NAV as a practical expedient as of December 31, 2022
and December 31, 2021, respectively.
Excludes $5 million and $6 million as of December 31, 2022 and December 31, 2021, respectively, in investments in AssuredIM
Funds for which the Company records a 100% NCI. The consolidation of these funds results in a gross up of assets and NCI on the
consolidated financial statements; however, it results in no economic equity or net income attributable to AGL. As of December 31,
211
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
(3)
2022, excludes a $127 million investment in the AssuredIM municipal relative value master fund, which is measured using NAV as
a practical expedient.
Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse. See Note 8, Financial Guaranty Variable
Interest Entities and Consolidated Investment Vehicles.
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 the years ended December 31, 2022 and 2021.
Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis
Year Ended December 31, 2022
Fixed-Maturity Securities, Available-for-
Sale
Assets of CIVs
Obligations
of State and
Political
Subdivisions
Asset-
Backed
Securities
FG VIEs’
Assets
RMBS
Equity
Securities
and
Warrants
Corporate
Securities
Structured
Products
Other
(7)
(in millions)
$
72
$ 216
$
863
$
260
$
239
$
91
$
—
$ 27
1 (1)
16 (1)
5 (1)
(3) (2)
1 (4)
2 (4)
(5) (4)
24 (3)
(12)
—
—
(14)
—
—
(36)
22
—
(39)
—
—
(47)
43
(13)
(57)
—
—
—
—
—
(60)
22
(15)
—
73
(16)
—
—
—
—
16
(13)
—
—
—
—
52
(21)
—
—
20
(1)
—
—
—
—
—
$
47
$ 179
$
794
$
204
$
297
$
96
$
46
$ 50
$
(12)
$
(32)
$
(45)
$
(3) (2) $
(8) (4) $
1 (4) $
(4) (4) $ 24 (3)
$
(1)
Fair value as of December 31,
2021
Total pre-tax realized and
unrealized gains (losses)
recorded in:
Net income (loss)
Other comprehensive income
(loss)
Purchases
Sales
Settlements
Consolidations
Deconsolidation
Fair value as of December 31,
2022
Change in unrealized gains
(losses) related to financial
instruments held as of December
31, 2022 included in:
Earnings
OCI
Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis
Year Ended December 31, 2022
Fair value as of December 31, 2021
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)
Other comprehensive income (loss)
Issuances
Sales
Settlements
Consolidations
Deconsolidations
Fair value as of December 31, 2022
Change in unrealized gains (losses) related to financial instruments held as of
December 31, 2022 included in:
Earnings
OCI
212
Credit Derivative
Asset (Liability),
net (5)
$
(154)
FG VIEs’
(Liabilities) (8)
(Liabilities) of
CIVs
(in millions)
$
(289)
$
(3,705)
(11) (6)
—
—
—
3
—
—
(162)
$
34 (2)
(3)
—
—
99
(571)
15
(715)
$
178 (4)
42
(1,421)
2
402
(26)
374
(4,154)
(11) (6) $
$
59 (2) $
$
(3)
217 (4)
42
$
$
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis
Year Ended December 31, 2021
Fixed-Maturity Securities
Assets of CIVs
Obligations
of State and
Political
Subdivisions
Corporate
Securities
RMBS
Asset-
Backed
Securities
FG VIEs’
Assets
(in millions)
Equity
Securities
and
Warrants
Corporate
Securities
Other
(7)
$
101
$
30
$
255
$
940
$
296
$
2
$ —
$
54
23 (1)
2 (1)
16 (1)
18 (1)
26 (2)
35 (4)
(5)
—
(44)
(3)
—
16
—
(48)
—
—
(1)
—
—
(54)
—
(5)
344
(142)
(292)
—
—
—
—
(62)
—
—
56
(28)
—
174
—
—
—
—
—
91
$
72
$ —
$
216
$
863
$
260
$
239
$
91
$
(27) (3)
—
—
—
—
—
27
$
1
$ —
$
(1)
$
(6)
$
27 (2) $
(2) (4) $ —
$
(28) (3)
Fair value as of December 31,
2020
Total pre-tax realized and
unrealized gains (losses)
recorded in:
Net income (loss)
Other comprehensive income
(loss)
Purchases
Sales
Settlements
Consolidation
Fair value as of December 31,
2021
Change in unrealized gains
(losses) related to financial
instruments held as of December
31, 2021 included in:
Earnings
OCI
Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis
Year Ended December 31, 2021
Fair value as of December 31, 2020
Total pre-tax realized and unrealized gains (losses) recorded in:
Net income (loss)
Other comprehensive income (loss)
Issuances
Settlements
Consolidations
Fair value as of December 31, 2021
Change in unrealized gains (losses) related to financial instruments held as of
December 31, 2021 included in:
Earnings
OCI
Credit Derivative
Asset (Liability),
net (5)
$
(100)
FG VIEs’
(Liabilities) (8)
(Liabilities) of
CIVs
(in millions)
$
(333)
$
(1,227)
(58) (6)
—
—
4
—
(154)
$
(8) (2)
(1)
—
53
—
(289)
$
(74) (6) $
$
(6) (2) $
(1)
15 (4)
—
(3,367)
891
(17)
(3,705)
(2) (4)
$
$
__________________
(1)
(2)
(3)
(4)
(5)
Included in “net realized investment gains (losses)” and “net investment income”.
Included in “fair value gains (losses) on FG VIEs”.
Reported in “fair value gains (losses) on CCS”, “net investment income” and “other income (loss)”.
Reported in “fair value gains (losses) on CIVs”.
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 consolidated
balance sheets based on net exposure by transaction.
Reported in “fair value gains (losses) on credit derivatives”.
Includes CCS and other invested assets.
Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse.
(6)
(7)
(8)
213
Level 3 Fair Value Disclosures
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Quantitative Information About Level 3 Fair Value Inputs
As of December 31, 2022
Financial Instrument Description
Investments (2):
Fixed-maturity securities,
available-for-sale (1):
Obligations of state and
political subdivisions
RMBS
Fair Value
Assets
(Liabilities)
(in millions)
$
47
179
Asset-backed securities:
Life insurance transactions
CLOs
Others
FG VIEs’ assets (1)
342
428
24
204
Assets of CIVs (3):
Equity securities and warrants
297
Corporate securities
Structured products
Other assets (1)
96
46
47
Significant Unobservable
Inputs
Range
Weighted
Average (4)
Yield
7.4 % - 13.5%
3.8 % - 16.1%
1.5 % - 12.0%
50.0 % - 125.0%
7.5 % - 11.3%
11.3%
1.8 % - 4.1%
7.4 % - 12.9%
0.9 % - 21.9%
1.3 % - 41.0%
45.0 % - 100.0%
6.6 % - 10.9%
10.0%
19.8 % - 25.1%
1.05x - 1.10x
9.4%
8.2%
5.9%
82.5%
9.0%
3.0%
12.8%
12.9%
7.6%
81.0%
7.5%
22.7%
1.08x
2.50x - 11.00x
10.25x
1.15x
4.50x
3.0% - 4.0%
8.00x - 12.00x
1.30x
5.50x
1.00x
20.8 % - 23.8%
16.3%
8.00x
1.00x
2.50x - 2.75x
12.8 % - 37.1%
7.7 % - 8.4%
10 years
3.5%
10.53x
21.7%
2.63x
18.9%
8.1%
CPR
CDR
Loss severity
Yield
Yield
Discount Margin
Yield
CPR
CDR
Loss severity
Yield
Yield
Discount rate
Market multiple-enterprise
value/revenue
Market multiple-enterprise
value/EBITDA (6)
Market multiple-price to book
Market multiple-price to
earnings
Terminal growth rate
Exit multiple -EBITDA
Exit multiple-price to book
Exit multiple-price to earnings
Cost
Discount rate
Yield
Exit multiple-EBITDA
Cost
Market multiple-enterprise
value/EBITDA
Yield
Implied Yield
Term (years)
214
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Financial Instrument Description
Credit derivative liabilities, net (1)
Fair Value
Assets
(Liabilities)
(in millions)
(162)
FG VIEs’ liabilities (1)
(715)
Significant Unobservable
Inputs
Hedge cost (in bps)
Bank profit (in bps)
Internal credit rating
CPR
CDR
Loss severity
Yield
Liabilities of CIVs (1):
CLO obligations of CFEs (5)
Warehouse financing debt
Securitized borrowing
(4,090)
(36)
(28)
Yield
Yield
Discount rate
Terminal growth rate
Exit multiple-EBITDA
Market multiple-enterprise
value/EBITDA
Range
11.5 % - 25.2%
51.0 - 270.5
AAA - CCC
0.9 % - 21.9%
1.3 % - 41.0%
45.0 % - 100.0%
4.8 % - 10.9%
3.0 % - 27.4%
11.7 % - 16.9%
20.9%
3.0%
11.00x
10.00x - 11.00x
Weighted
Average (4)
15.7%
109.4
AA
6.3%
3.7%
39.9%
5.9%
5.5%
12.9%
10.50x
____________________
(1)
(2)
(3)
Discounted cash flow is used as the primary valuation technique.
Excludes several investments reported in “other invested assets” with a fair value of $5 million.
The primary valuation technique uses the income and/or market approach; the key inputs to the valuation are yield/
discount rates and market multiples.
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.
See CFE fair value methodology described above for consolidated CLOs.
Earnings before interest, taxes, depreciation, and amortization (EBITDA).
(4)
(5)
(6)
215
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Quantitative Information About Level 3 Fair Value Inputs
As of December 31, 2021
Financial Instrument Description
Investments (2):
Fixed-maturity securities, available-
for-sale (1):
Obligations of state and political
subdivisions
RMBS
Asset-backed securities:
Life insurance transactions
CLOs
Others
FG VIEs’ assets (1)
Fair Value
Assets (Liabilities)
(in millions)
Significant
Unobservable
Inputs
Range
Weighted
Average (4)
$
72
216
367
458
38
260
Yield
4.4 % - 24.5%
CPR
CDR
Loss severity
Yield
Yield
Discount margin
Yield
CPR
CDR
Loss severity
Yield
0.0 % 22.7%
1.4 % - 12.0%
50.0 % - 125.0%
3.8 % - 5.6%
5.0%
0.0 % - 2.9%
3.2 % - 7.9%
0.9 % - 24.5%
1.4 % - 26.9%
45.0 % - 100.0%
1.4 % - 8.0%
6.2%
10.4%
5.9%
84.9%
4.5%
1.8%
7.9%
13.3%
7.6%
81.6%
4.6%
Assets of CIVs (3):
Equity securities and warrants
239
Corporate securities
Other assets (1)
91
23
Credit derivative liabilities, net (1)
(154)
FG VIEs’ liabilities (1)
(289)
Yield
Discount rate
Market multiple-enterprise value/
revenue
Market multiple-enterprise value/
EBITDA
Market multiple-price to book
Discount rate
Yield
Implied Yield
Term (years)
Year 1 loss estimates
Hedge cost (in bps)
Bank profit (in bps)
Internal floor (in bps)
Internal credit rating
CPR
CDR
Loss severity
Yield
Liabilities of CIVs (1):
CLO obligations of CFEs (5)
Warehouse financing debt
Securitized borrowing
(3,665)
(23)
(17)
Yield
Yield
Discount rate
Market multiple-enterprise value/
revenue
7.7%
14.7% -
23.9%
21.6%
1.10x
3.00x
-
10.50x
8.95x
1.85x
14.7 % - 21.4%
16.4%
2.7 % - 3.3%
10 years
0.0 % - 85.8%
8.0 - 37.1
0.0 - 187.8
8.8
AAA - CCC
0.9 % - 24.5%
1.4 % - 26.9%
45.0 % - 100.0%
1.4 % - 8.0%
1.6 % - 13.7%
12.6 % - 16.0%
23.9%
10.50x
17.8%
3.0%
0.1%
12.6
67.9
AA
13.3%
7.6%
81.6%
3.7%
2.1%
13.8%
____________________
(1)
(2)
(3)
Discounted cash flow is used as the primary valuation technique.
Excludes several investments reported in “other invested assets” with a fair value of $6 million.
The primary valuation technique uses the income and/or market approach, the key inputs to the valuation are yield/discount rates
and market multiples.
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.
See CFE fair value methodology described above for consolidated CLOs.
(4)
(5)
216
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, 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 represents balances on a net-by counterparty basis on the 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 $35 million and $37 million as of December 31, 2022 and December 31,
2021, respectively, of 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.
The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are
presented in the following table.
217
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Fair Value of Financial Instruments Not Carried at Fair Value
As of December 31, 2022
As of December 31, 2021
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Assets (liabilities):
Assets of CIVs (1)
Other assets (including other invested assets) (2)
$
Financial guaranty insurance contracts (3)
Long-term debt
Liabilities of CIVs (4)
Other liabilities (5)
46 $
92
(2,335)
(1,675)
(170)
(43)
(in millions)
46 $
93
(986)
(1,477)
(170)
(43)
171 $
134
(2,394)
(1,673)
(586)
(45)
171
135
(2,315)
(1,832)
(586)
(45)
____________________
(1)
(2)
Includes due from brokers and counterparties and cash equivalents. Carrying value approximates fair value.
Primarily 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.
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.
Includes due to brokers and counterparties and fund’s loan payable. Carrying value approximates fair value.
Primarily includes accrued interest, repurchase agreement liability and payables for securities purchased, for which
carrying value approximates fair value.
(3)
(4)
(5)
10.
Asset Management Fees
The Company receives a management fee, as well as performance fee, incentive allocation or carried interest
(collectively referred to as performance fees) in exchange for providing investment advisory services to manage investment
funds and CLOs. The annual management fees are typically based on a percentage of the value of the client’s net assets under
management, and are generally as follows:
•
•
Depending on the investment strategy, the management fee charged is a range of up to 2.00% per annum calculated on
either the beginning of the month or quarter, or month-end NAV or other relevant basis (e.g., committed capital) of the
respective funds.
For the Company’s management and/or servicing of the AssuredIM CLOs, the Company receives, generally 0.25% to
0.50% (combined senior investment management fee and subordinated investment management fee) per annum based
on total adjusted par outstanding. The portion of these fees that pertains to the investment by AssuredIM wind-down
funds is typically rebated to such AssuredIM Funds.
In accordance with the investment management agreements, and by serving as the general partner, managing member
or managing general partner, the Company also receives performance fees. Performance fee revenues are generated on certain
management contracts when certain minimum rates of return,( i.e., performance hurdles), are exceeded. Performance fee
revenue may fluctuate from period to period and may not correlate with general market changes. Annual performance fee rates
generally range from 10% to 20% of the net profits in excess of the high-water mark for the respective fund.
For the Company’s management or servicing of the AssuredIM CLOs, the Company generally receives a performance
fee of 20% per annum of the remaining interest proceeds and principal proceeds after a performance hurdle is exceeded. The
portion of these fees that pertains to the investment by AssuredIM wind-down funds is typically rebated to such AssuredIM
Funds.
The general partner has the right, in its sole discretion, to require certain AssuredIM Funds to distribute to the general
partner an amount equal to its presumed tax liability attributable to the allocation of estimated taxable income relating to
performance fees with respect to such fiscal year and are contractually not subject to clawback. The general partner received tax
distributions in 2022 related to its presumed tax liability in 2022 and 2021, and there were no tax distributions for 2020.
218
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The Company may credit, reduce or waive the management fee and/or the performance fee with respect to any investor
and/or affiliate. Certain current and former employees of the Company who have investments in the AssuredIM Funds may not
be charged any management fees or performance fee.
Accounting Policy
Management, CLO and performance fees earned by AssuredIM are accounted for as contracts with customers. An
entity may recognize revenue when the contractual performance criteria have been met and only to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated
with the variable consideration is resolved. Given the uniqueness of each fee arrangement, performance fee contractual
provisions are evaluated on an individual basis to determine the timing of revenue recognition.
Components of Asset Management Fees
The following table presents the sources of asset management fees on a consolidated basis.
Management fees:
CLOs (1)
Opportunity funds and liquid strategies
Wind-down funds
Total management fees
Performance fees
Reimbursable fund expenses
Total asset management fees
Asset Management Fees
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
34 $
17
2
53
19
21
93 $
41 $
17
7
65
1
22
88 $
21
8
25
54
—
35
89
_____________________
(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, were $34 million in 2022, $47 million in 2021 and $40 million in 2020.
The Company had management and performance fees receivable, which are included in “other assets” on the
consolidated balance sheets, of $10 million as of December 31, 2022 and $8 million as of December 31, 2021. Performance
fees earned in 2022 were attributable to the healthcare and asset-based funds.
11.
Goodwill and Other Intangible Assets
All of the Company’s goodwill relates to the AssuredIM entities that were acquired in 2019 as part of the acquisition
of BlueMountain Capital Management, LLC (BlueMountain, now known as Assured Investment Management LLC) and its
associated entities (the BlueMountain Acquisition). All of the goodwill is assigned to the Asset Management reporting unit and
segment. Once goodwill is assigned to a reporting unit, generally all of the activities within the reporting unit, whether acquired
or organically grown, are available to support the value of the goodwill.
Accounting Policy
Goodwill represents the excess of cost over the net fair value of assets and liabilities at the date of acquisition. The
Company tests goodwill for impairment annually, as of December 31, or more frequently if circumstances indicate an
impairment may have occurred. The goodwill impairment analysis is performed at the reporting unit level, which is the same as
the Company’s operating segment level excluding the effects of the subleases on AssuredIM’s prior office space. If, after
assessing qualitative factors, the Company believes that it is more likely than not that the fair value of the reporting unit is less
than its carrying amount, the Company will evaluate impairment quantitatively to determine the amount of goodwill
impairment, which is the excess of the carrying amount of the reporting unit over its fair value.
219
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Finite-lived intangible assets are recorded at fair value on the date of acquisition and are amortized over their estimated
useful lives. The Company assesses finite-lived intangible assets for impairment if certain events occur or circumstances change
indicating that the carrying amount of the intangible asset may not be recoverable. The carrying amount is deemed
unrecoverable if it is greater than the sum of undiscounted cash flows expected to result from use and eventual disposition of
the finite-lived intangible asset. If deemed unrecoverable, the Company records an impairment loss for the excess of the
carrying amount over fair value.
Goodwill and Intangible Assets
Inherent in the fair value determinations are certain judgments and estimates relating to future cash flows, including
the Company’s interpretation of current economic indicators and market valuations, and assumptions about the Company’s
strategic plans with regard to its operations. The Company’s ability to raise third-party funds and increase and retain AUM is
directly related to the performance of the assets it manages as measured against market averages and the performance of the
Company’s competitors. If the Company performs worse than its competitors, it could impede its ability to raise funds, seek
investors and hire and retain professionals, and may lead to an impairment of goodwill. The Company’s goodwill impairment
assessment is sensitive to the Company’s assumptions of discount rates, market multiples, projections of AUM growth and
other factors, which may vary. Due to the uncertainties associated with such estimates, actual results could differ from such
estimates.
The Company’s finite-lived intangible assets consist primarily of contractual rights to earn future asset management
fees from the acquired management and CLO contracts as well as a CLO distribution network.
The following table summarizes the carrying value for the Company’s goodwill and other intangible assets:
Goodwill (1)
Finite-lived intangible assets:
CLO contracts
Investment management contracts
CLO distribution network
Trade name
Favorable sublease
Lease-related intangibles
Finite-lived intangible assets, gross
Accumulated amortization
Finite-lived intangible assets, net
Goodwill and Other Intangible Assets
Weighted Average
Amortization Period as
of December 31, 2022
As of December 31,
2022
2021
$
(in millions)
117
$
5.8 years
1.5 years
1.8 years
6.8 years
1.2 years
4.3 years
4.6 years
117
42
24
9
3
1
3
82
(30)
52
6
175
42
24
9
3
1
3
82
(42)
40
6
163
$
Indefinite-lived intangible assets (insurance licenses)
Total goodwill and other intangible assets
$
_____________________
(1)
Includes goodwill allocated to the European subsidiaries of BlueMountain. The balance changes due to foreign
currency translation. The amount of goodwill deductible for tax purposes was approximately $92 million as of
December 31, 2022 and $99 million as of December 31, 2021.
Goodwill and substantially all finite-lived intangible assets relate to AssuredIM. In 2022, the results of a qualitative
assessment indicated that it was more likely-than-not that the fair value of the reporting unit was greater than its carrying value
and therefore no goodwill impairment was recorded. To date, there have been no impairments of goodwill or finite-lived
intangible assets. Amortization expense associated with the finite-lived intangible assets was $11 million, $12 million and
$13 million for the years ended December 31, 2022, 2021 and 2020, respectively, and is reported in “other operating expenses”
in the consolidated statements of operations.
220
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
On February 24, 2021, the Company received the last regulatory approval required to merge MAC with and into
AGM, with AGM as the surviving company. The merger was effective on April 1, 2021. 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 the indefinite-lived intangible asset related to the MAC insurance licenses in the first quarter of 2021. This
was reported in “other operating expenses” in the Insurance segment.
As of December 31, 2022, future annual amortization of finite-lived intangible assets is estimated to be:
Estimated Future Amortization Expense for Finite-Lived Intangible Assets
Year
2023
2024
2025
2026
2027
Thereafter
Total
As of December 31, 2022
(in millions)
$
$
11
10
6
5
5
3
40
12.
Long-Term Debt and Credit Facilities
Accounting Policy
Long-term debt is recorded at principal amounts net of any: (1) unamortized original issue discount or premium; (2)
unamortized acquisition date fair value adjustments for AGM and AGMH debt; and (3) debt issuance costs. Original issue
discount and premium, acquisition date fair value adjustments for AGM and AGMH debt, and debt issuance costs are accreted
into interest expense over the contractual term of the applicable debt. When long-term debt is redeemed, the difference between
the cash paid to redeem the debt and the carrying value of the debt is reported as a “loss on extinguishment of debt” in the
consolidated statements of operations. When one consolidated subsidiary (AGUS) purchases outstanding debt of another
consolidated subsidiary (AGMH), the difference between the cash paid to redeem the debt and the carrying value of the debt is
reported as “other income” in the consolidated statements of operations.
CCS are carried at fair value with changes in fair value reported in the consolidated statement of operations. See Note
9, Fair Value Measurement, – Other Assets – Committed Capital Securities, for a discussion of the fair value measurement of
the CCS.
Long-Term Debt
The Company’s long-term debt outstanding primarily consists of debt issued by the U.S. Holding Companies. All of
the U.S. Holding Companies’ long-term debt is fully and unconditionally guaranteed by AGL; AGL’s guarantee of the junior
subordinated debentures is on a junior subordinated basis.
221
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Principal and Carrying Amounts of Debt
The principal and carrying values of the Company’s debt are presented in the table below.
Principal and Carrying Amounts of Long-Term Debt
AGUS 7% Senior Notes
AGUS 5% Senior Notes
AGUS 3.15% Senior Notes
AGUS 3.6% Senior Notes
AGUS Series A Enhanced Junior Subordinated
Debentures
AGMH Junior Subordinated Debentures (1)
AGM Notes Payable
Total
As of December 31, 2022
As of December 31, 2021
Principal
Carrying
Value
Principal
Carrying
Value
$
$
200 $
330
500
400
150
146
—
1,726 $
(in millions)
198 $
329
495
395
150
108
—
1,675 $
200 $
330
500
400
150
146
2
1,728 $
197
329
495
395
150
105
2
1,673
____________________
(1)
Carrying amounts are different than principal amounts primarily due to fair value adjustments at the date of the
AGMH acquisition, which are accreted into interest expense over the remaining terms of these obligations. Net of
AGMH’s long-term debt purchased by AGUS.
Debt Issued by AGUS
7% Senior Notes. On May 18, 2004, AGUS issued $200 million of 7% Senior Notes due 2034 (7% Senior Notes) for
net proceeds of $197 million. Although the coupon on the Senior Notes is 7%, the effective rate is approximately 6.4%, taking
into account the effect of a cash flow hedge executed by the Company in March 2004. The notes are redeemable, in whole or in
part, at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, the make-whole
redemption price.
5% Senior Notes. On June 20, 2014, AGUS issued $500 million of 5% Senior Notes due 2024 (5% Senior Notes) for
net proceeds of $495 million. The net proceeds from the sale of the notes were used for general corporate purposes, including
the purchase of AGL common shares. The notes are redeemable, in whole or in part, at their principal amount plus accrued and
unpaid interest to the date of redemption or, if greater, the make-whole redemption price. On September 27, 2021, the Company
used a portion of the proceeds from the issuance of AGUS’s 3.6% Senior Notes on August 20, 2021 to redeem $170 million of
the outstanding principal of these 5% Senior Notes.
3.15% Senior Notes. On May 26, 2021, AGUS issued $500 million of 3.150% Senior Notes due 2031 (3.15% Senior
Notes) for net proceeds of $494 million The net proceeds from the issuance were used for the redemption of AGMH’s debt, as
described below, with the balance being used for general corporate purposes, including share repurchases. AGUS may redeem
all or part of the 3.15% Senior Notes at any time or from time to time prior to March 15, 2031 (the date that is three months
prior to the maturity of the 3.15% Senior Notes), at its option, at a redemption price equal to the greater of: (i) 100% of the
principal amount of the 3.15% Senior Notes being redeemed; or (ii) the sum of the present values of the remaining scheduled
payments of principal and interest on the Notes being redeemed (excluding interest accrued to the redemption date) from the
redemption date to March 15, 2031 discounted to the date of redemption on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at a discount rate equal to the Treasury Rate plus 25 bps; plus, in each case, accrued and
unpaid interest on the 3.15% Senior Notes to be redeemed to, but excluding, the redemption date. AGUS may redeem all or part
of the 3.15% Senior Notes at any time or from time to time on and after March 15, 2031, at its option, at a redemption price
equal to 100% of the principal amount of the 3.15% Senior Notes being redeemed, plus accrued and unpaid interest on the
3.15% Senior Notes to be redeemed to, but excluding, the redemption date. The 3.15% Senior Notes are fully and
unconditionally guaranteed on a senior unsecured basis by AGL. The 3.15% Senior Notes are senior unsecured obligations of
AGUS and rank equally in right of payment with all of AGUS’s other unsecured and unsubordinated indebtedness outstanding.
The guarantee is a senior unsecured obligation of AGL and ranks equally in right of payment with all of AGL’s other unsecured
and unsubordinated indebtedness outstanding.
222
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
3.6% Senior Notes. On August 20, 2021, AGUS issued $400 million of 3.600% Senior Notes due 2051 (3.6% Senior
Notes) for net proceeds of $395 million. The net proceeds from the issuance were used for the redemption on September 27,
2021, of AGMH’s debt and a portion of AGUS’s debt maturing in 2024, as described below. AGUS may redeem all or part of
the 3.6% Senior Notes at any time or from time to time prior to March 15, 2051 (the date that is six months prior to the maturity
of the 3.6% Senior Notes), at its option, at a redemption price equal to the greater of: (i) 100% of the principal amount of the
3.6% Senior Notes being redeemed; or (ii) the sum of the present values of the remaining scheduled payments of principal and
interest on the Notes being redeemed (excluding interest accrued to the redemption date) from the redemption date to March 15,
2051 discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at a discount rate equal to the Treasury Rate plus 30 bps; plus, in each case, accrued and unpaid interest on the 3.6%
Senior Notes to be redeemed to, but excluding, the redemption date. AGUS may redeem all or part of the 3.6% Senior Notes at
any time or from time to time on and after March 15, 2051, at its option, at a redemption price equal to 100% of the principal
amount of the 3.6% Senior Notes being redeemed, plus accrued and unpaid interest on the 3.6% Senior Notes to be redeemed
to, but excluding, the redemption date. The 3.6% Senior Notes are fully and unconditionally guaranteed on a senior unsecured
basis by AGL. The 3.6% Senior Notes are senior unsecured obligations of AGUS and rank equally in right of payment with all
of AGUS’s other unsecured and unsubordinated indebtedness outstanding. The guarantee is a senior unsecured obligation of
AGL and ranks equally in right of payment with all of AGL’s other unsecured and unsubordinated indebtedness outstanding.
Series A Enhanced Junior Subordinated Debentures. On December 20, 2006, AGUS issued $150 million of
Debentures due 2066. The Debentures pay a floating rate of interest, reset quarterly, at a rate equal to three month LIBOR plus
a margin equal to 2.38%. AGUS may select at one or more times to defer payment of interest for one or more consecutive
periods for up to ten years. Any unpaid interest bears interest at the then applicable rate. AGUS may not defer interest past the
maturity date. The debentures are redeemable, in whole or in part, at their principal amount plus accrued and unpaid interest to
the date of redemption.
Debt Issued by AGMH
Junior Subordinated Debentures. On November 22, 2006, AGMH issued $300 million face amount of Junior
Subordinated Debentures with a scheduled maturity date of December 15, 2036 and a final repayment date of December 15,
2066. The final repayment date of December 15, 2066 may be automatically extended up to four times in five-year increments
provided certain conditions are met. The debentures are redeemable, in whole or in part, at any time prior to December 15, 2036
at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, the make-whole redemption
price. Interest on the debentures will accrue from November 22, 2006 to December 15, 2036 at the annual rate of 6.4%. If any
amount of the debentures remains outstanding after December 15, 2036, then the principal amount of the outstanding
debentures will bear interest at a floating interest rate equal to one-month LIBOR plus 2.215% until repaid. AGMH may elect at
one or more times to defer payment of interest on the debentures for one or more consecutive interest periods that do not exceed
ten years. In connection with the completion of this offering, AGMH entered into a replacement capital covenant for the benefit
of persons that buy, hold or sell a specified series of AGMH long-term indebtedness ranking senior to the debentures. Under the
covenant, the debentures will not be repaid, redeemed, repurchased or defeased by AGMH or any of its subsidiaries on or
before the date that is 20 years prior to the final repayment date, except to the extent that AGMH has received proceeds from
the sale of replacement capital securities. The proceeds from this offering were used to pay a dividend to the shareholders of
AGMH. Over the past several years AGUS purchased, and as of December 31, 2022 and 2021, AGUS holds approximately
$154 million in principal of the AGMH Subordinated Debentures.
Loss on Extinguishment of Debt
On July 9, 2021, a portion of the proceeds from the issuance of the 3.15% Senior Notes was used to redeem
$200 million of AGMH debt as follows:
•
•
all $100 million of AGMH’s 6 7/8% Notes (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 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 5.6%% 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’s 5% Senior Notes due in 2024.
223
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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) in the year ended December 31, 2021, which represents the difference
between the amount paid to redeem the debt and the carrying value of the debt. The loss on extinguishment of debt primarily
consists of a $156 million acceleration of unamortized fair value adjustments that were originally recorded upon the acquisition
of AGMH in 2009, and a $19 million make-whole payment associated with the redemption of $170 million of AGUS’s 5%
Senior Notes.
Debt Maturity and Interest Expense
Scheduled principal payments of the Company’s debt are as follows:
Debt Maturity Schedule (1)
As of December 31, 2022
Year
2023
2024
2025
2026
2027
2028-2047
2048-2066
Total
Principal
(in millions)
—
330
—
—
—
700
696
1,726
$
$
____________________
(1)
Includes eliminations of AGMH’s debt purchased by AGUS.
The Company’s interest expense was $81 million, $87 million and $85 million for the years ended December 31,
2022, 2021 and 2020, respectively.
Committed Capital Securities
Each of AGC and AGM have entered into put agreements with four separate custodial trusts allowing 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 the 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 CPS is one-month LIBOR plus 200 bps.
224
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Short-Term Loan Facility
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 on March 14, 2022 and repaid it in full, with
interest at 1.10%, on March 16, 2022. The ability of the Company to borrow under the facility has expired.
13.
Employee Benefit Plans
Assured Guaranty Ltd. 2004 Long-Term Incentive Plan
Under the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan, as amended (the Incentive Plan), the number of
AGL common shares that may be delivered under the Incentive Plan may not exceed 18,670,000. As of December 31, 2022,
8,059,991 common shares were available for grant under the Incentive Plan. In the event of certain transactions affecting
AGL’s common shares, the number or type of shares subject to the Incentive Plan, the number and type of shares subject to
outstanding awards under the Incentive Plan, and the exercise price of awards under the Incentive Plan, may be adjusted.
The Incentive Plan authorizes the grant of incentive stock options, non-qualified stock options, stock appreciation
rights, and full value awards that are based on AGL’s common shares. The grant of full value awards may be in return for a
participant's previously performed services, or in return for the participant surrendering other compensation that may be due, or
may be contingent on the achievement of performance or other objectives during a specified period. The grant of full value
awards are subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating
to completion of service by the participant, or achievement of performance or other objectives. Awards under the Incentive Plan
may accelerate and become vested upon a change in control of AGL.
The Incentive Plan is administered by the Compensation Committee of AGL's Board of Directors (the Board), except
as otherwise determined by the Board. The Board may amend or terminate the Incentive Plan.
Accounting Policy
Share-based compensation expense is based on the grant date fair value using the grant date closing price or the Monte
Carlo or Black-Scholes-Merton (Black-Scholes) pricing models. The Company amortizes the fair value of share-based awards
on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods, with the
exception of retirement-eligible employees. For retirement-eligible employees, the portion of the unvested time-based awards
that become fully vested upon retirement eligibility are expensed immediately.
The fair value of each award under the Assured Guaranty Ltd. Employee Stock Purchase Plan is estimated at the
beginning of the offering period using the Black-Scholes option valuation model and are expensed over the period which the
employee participates in the plan and pays for the shares.
Long-Term Incentive Plan
Restricted Stock Units
Restricted stock units are valued based on the closing price of the underlying shares at the date of grant. The Company
awards restricted stock units to employees that generally vest after a three-year or over a four-year period. Occasionally the
Company may award restricted stock units to employees that vest after a four-year period. The shares are delivered on the
vesting date.
225
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Restricted Stock Unit Activity
Nonvested Stock Units
Nonvested at December 31, 2021
Granted
Vested
Forfeited
Nonvested at December 31, 2022
Number of
Stock Units
Weighted Average
Grant Date Fair
Value Per Share
906,302 $
441,436
(279,089)
(1,583)
1,067,066 $
43.25
56.46
41.26
47.39
49.18
As of December 31, 2022, the total unrecognized compensation cost related to outstanding non-vested restricted stock
units was $21 million, which the Company expects to recognize over the weighted-average remaining service period of 1.8
years. The total fair value of restricted stock units vested during the years ended December 31, 2022, 2021 and 2020 was $12
million, $12 million and $11 million, respectively. The weighted-average grant-date fair value of restricted stock units granted
during the years ended December 31, 2022, 2021 and 2020 was $56.46, $44.08, and $41.31, respectively.
Performance Restricted Stock Units
Each performance restricted stock unit represents a contingent right to receive up to a certain number of the
Company’s common shares. Awards tied to core adjusted book value per share represent the right to receive up to two shares at
the end of a three-year performance period, depending on the growth in core adjusted book value per share over the three-year
performance period. Performance restricted stock units tied to total shareholder return (TSR) relative to the TSR of the 55th
percentile of the Russell Midcap Financial Services Index represent the right to receive up to 2.5 shares at the end of a three-
year performance period. The shares related to awards tied to core adjusted book value per share are delivered on the vesting
date and the shares related to awards tied to relative TSR are generally delivered on the fourth anniversary of the grant date.
Performance Restricted Stock Unit Activity
Performance Restricted Stock Units
Nonvested at December 31, 2021
Granted (1)
Vested (1)
Forfeited
Nonvested at December 31, 2022 (2)
Number of
Performance Share
Units
Weighted Average
Grant Date Fair
Value Per Share
614,912 $
217,551
(197,078)
—
635,385 $
46.25
62.89
41.34
—
54.26
____________________
(1)
Includes 94,209 performance restricted stock units that were granted prior to 2022 at a weighted average grant date fair
value of $41.34, but met performance hurdles and vested during 2022. The weighted average grant date fair value per
share excludes these shares.
Excludes 167,942 performance restricted stock units that have met performance hurdles and will be eligible for vesting
after December 31, 2022.
(2)
As of December 31, 2022, the total unrecognized compensation cost related to outstanding non-vested performance
share units was $15 million, which the Company expects to recognize over the weighted-average remaining service period of
1.7 years. The total value of performance restricted stock units vested during the years ended December 31, 2022, 2021 and
2020 was based on grant date fair value and was $8 million, $9 million and $8 million, respectively.
For the 2022, 2021 and 2020 awards, the grant-date fair value of the performance restricted stock units tied to relative
TSR was calculated using a Monte Carlo simulation in order to determine the total return of the Company’s shares relative to
the total return of financial companies in the Russell Midcap Financial Services Index. The inputs to the simulation include the
beginning prices of shares, historical volatilities, and dividend yields of all relevant companies as well as all possible pairwise
correlation coefficients among the relevant companies. In addition, the risk-free return and discount for illiquidity are also
included.
226
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The following are significant assumptions used in determining the fair value of the performance restricted stock units
tied to relative TSR.
Expected term
Expected volatility
Dividend yield
Risk-free-rates
Grant-date fair value
2022
2.85 years
27.19 % – 78.96%
0.00%
1.74%
$83.97
Years Ended December 31,
2021
2.85 years
26.55 % – 65.84%
0.00%
0.22%
$60.06
2020
2.84 years
11.93 % – 48.12%
0.00%
1.14%
$38.96
For the 2022, 2021 and 2020 awards, the grant-date fair value of the performance restricted stock units tied to core
adjusted book value was based on the grant date closing price.
The weighted-average grant-date fair value of the 2022, 2021 and 2020 awards was $62.89, $52.04 and $41.03,
respectively.
Restricted Stock Awards
Restricted stock awards are valued based on the closing price of the underlying shares at the date of grant. The
Company awards restricted stock awards to non-executive directors that vest after one year. The shares are delivered on the
vesting date.
Restricted Stock Award Activity
Nonvested Shares
Nonvested at December 31, 2021
Granted
Vested
Forfeited
Nonvested at December 31, 2022
Number of
Shares
Weighted Average
Grant Date Fair
Value Per Share
44,797 $
36,403
(44,797)
—
36,403 $
51.34
59.47
51.34
—
59.47
As of December 31, 2022, the total unrecognized compensation cost related to outstanding non-vested restricted stock
awards was $0.7 million, which the Company expects to recognize over the weighted-average remaining service period of 0.3
years. The total fair value of shares vested during the years ended December 31, 2022, 2021 and 2020 was $2.3 million, $1.9
million and $2.3 million, respectively. The weighted-average grant-date fair value of shares granted during the years ended
December 31, 2022, 2021 and 2020 was $59.47, $51.34 and $28.12, respectively.
Employee Stock Purchase Plan
The Company established the AGL Employee Stock Purchase Plan (Stock Purchase Plan) in accordance with Internal
Revenue Code of 1986 (the Code) Section 423, and participation is available to all eligible employees. Maximum annual
purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to 10% of the
participant's compensation or, if less, shares having a value of $25,000. Participants may purchase shares at a purchase price
equal to 85% of the lesser of the fair market value of the stock on the first day or the last day of the subscription period. The
Company has reserved for issuance and purchases under the Stock Purchase Plan 850,000 AGL common shares. As of
December 31, 2022, 65,042 common shares were available for grant under the Stock Purchase Plan.
The fair value of each award under the Stock Purchase Plan is estimated using the following assumptions: a) the
expected dividend yield is based on the current expected annual dividend and share price on the grant date; b) the expected
volatility is estimated at the date of grant based on the historical share price volatility, calculated on a daily basis; c) the risk-
free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of
grant; and d) the expected life is based on the term of the offering period.
227
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Stock Purchase Plan
Proceeds from purchase of shares by employees
Number of shares issued by the Company
Share-Based Compensation Expense
Year Ended December 31,
2022
2021
2020
$
2.4
53,453
(dollars in millions)
2.1
$
67,615
$
1.5
72,797
The following table presents share-based compensation costs and the amount of such costs that are deferred as policy
acquisition costs, pre-tax. Amortization of previously deferred share compensation costs is not shown in the table below.
Share-Based Compensation Expense Summary
Share-based compensation expense
Share-based compensation capitalized as DAC
Income tax benefit
Defined Contribution Plan
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
39
3
6
$
27
2
4
25
1
4
The Company maintains a savings incentive plan, which is qualified under Section 401(a) of the Code for U.S.
employees. Eligible participants may contribute a percentage of their eligible compensation subject to U.S. Internal Revenue
Service (IRS) limitations. The Company’s matching contribution is an amount equal to 100% of each participant’s
contributions up to 7% of such participant’s eligible compensation, subject to IRS limitations. Certain eligible participants may
also contribute a percentage of eligible compensation over the IRS limitations to a nonqualified supplemental executive
retirement plan. The Company's matching contribution in the nonqualified plan is an amount equal to 100% of each
participant’s contributions up to 6% of participant’s eligible compensation above the IRS limitations for the qualified plan. The
Company also makes core contributions of 7% of the participant’s eligible compensation to the qualified plan, subject to IRS
limitations, regardless of whether the employee otherwise contributes to the plan, and a core contribution of 6% of the
participant’s eligible compensation above the IRS limitations for the qualified plan to the nonqualified plan for eligible
employees. Employees become fully vested in Company contributions to the qualified and nonqualified plans after one year of
service, as defined in the plan (or upon reaching age 65 for the nonqualified plan, if earlier). Plan eligibility is immediate upon
hire. The Company also maintains similar non-qualified plans for non-U.S. employees. The Company recognized defined
contribution expenses of $20 million, $20 million and $20 million for the years ended December 31, 2022, 2021 and 2020,
respectively.
14.
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
228
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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)
Net deferred tax assets (liabilities)
Net current tax assets (liabilities)
Deferred and Current Tax Assets (Liabilities)
As of December 31,
2022
2021
$
(in millions)
114 $
63
(33)
(43)
229
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Components of Net Deferred Tax Assets (Liabilities)
Deferred tax assets:
Unearned premium reserves, net
Net unrealized investment losses
Rent
Investments
Foreign tax credit
Net operating loss
Depreciation
Deferred compensation
Deferred balances related to non-U.S. affiliates
Other
Total deferred tax assets
Deferred tax liabilities:
Net unrealized investment gains
Investments
DAC
Loss and LAE reserve
Lease
Other
Total deferred tax liabilities
Less: Valuation allowance
Net deferred tax assets (liabilities)
As of December 31,
2022
2021
(in millions)
26
70
18
7
5
25
30
30
14
23
248
—
—
20
74
14
21
129
5
114
$
$
51
—
17
—
24
28
27
29
—
19
195
74
30
20
44
16
20
204
24
(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.
230
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
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
Expected tax provision (benefit)
Tax-exempt interest
Change in liability for uncertain tax positions
Return to provision adjustment
Noncontrolling interest
State taxes
Taxes on reinsurance
Foreign taxes
Stock based compensation
Other
Total provision (benefit) for income taxes
Year Ended December 31,
2022
23
(14)
—
(20)
(3)
12
—
6
5
2
11
2021
(in millions)
76
(19)
—
(4)
(8)
7
(2)
8
4
(4)
58
$
$
$
$
2020
83
(20)
(17)
(7)
(1)
4
9
(3)
—
(3)
45
$
$
Effective tax rate
7.2 %
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.
231
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
The following tables present pre-tax income and revenue by jurisdiction.
Pre-tax Income (Loss) by Tax Jurisdiction
U.S.
Bermuda
U.K.
France
Total
U.S.
Bermuda
U.K.
France
Other
Total
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
189
44
(69)
(16)
148
$
$
378
115
(8)
(8)
477
$
$
385
16
13
(1)
413
Revenue by Tax Jurisdiction
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
661
84
(15)
(8)
1
723
$
$
685
123
41
(3)
2
848
$
$
894
151
60
6
4
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.
15.
Insurance Company Regulatory Requirements
The following table summarizes the policyholder’s surplus and net income amounts reported to local regulatory bodies
in the U.S. and Bermuda for insurance subsidiaries within the group. The discussion that follows describes the basis of
accounting and differences to GAAP.
232
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Insurance Regulatory Amounts Reported
U.S. and Bermuda
U.S. statutory companies:
AGM (1)
AGC (2)
Bermuda statutory companies:
AG Re
AGRO
Policyholders’ Surplus
As of December 31,
2022
2021
Net Income (Loss)
Year Ended December 31,
2021
2020
2022
(in millions)
$
2,747 $
1,916
$
3,053
2,070
163 $
62
352 $
282
839
390
944
425
53
9
121
6
398
73
24
7
____________________
(1)
Policyholders’ surplus is net of contingency reserves of $855 million and $877 million as of December 31, 2022 and
December 31, 2021, respectively.
Policyholders’ surplus is net of contingency reserves of $347 million and $348 million as of December 31, 2022 and
December 31, 2021, respectively.
(2)
Basis of Regulatory Financial Reporting
United States
Each of the Company’s U.S. domiciled insurance companies’ ability to pay dividends depends, among other things,
upon its financial condition, results of operations, cash requirements, compliance with rating agency requirements, and is also
subject to restrictions contained in the insurance laws and related regulations of its state of domicile and other states. Financial
statements prepared in accordance with accounting practices prescribed or permitted by local insurance regulatory authorities
differ in certain respects from GAAP.
The Company’s U.S. domiciled insurance companies prepare statutory financial statements in accordance with
accounting practices prescribed or permitted by the National Association of Insurance Commissioners (NAIC) and their
respective insurance departments. Prescribed statutory accounting practices (SAP) are set forth in the NAIC Accounting
Practices and Procedures Manual. The Company has no permitted accounting practices on a statutory basis.
GAAP differs in certain significant respects from the U.S. insurance companies’ statutory accounting practices
prescribed or permitted by insurance regulatory authorities. The principal differences result from the statutory accounting
practices listed below.
•
•
•
•
•
Upfront premiums are earned upon expiration of risk and installment premiums are earned on a pro-rata basis over
the installment period, rather than in proportion to the amount of insurance protection provided under GAAP. The
timing of premium accelerations may also differ between statutory and GAAP. Under GAAP, premiums are
accelerated only upon the legal defeasance of an insured obligation, whereas statutory premiums may be
accelerated earlier if an insured obligation is economically defeased prior to legal defeasance.
Acquisition costs are charged to expense as incurred rather than expensed over the period that the related
premiums are earned under GAAP. Ceding commission income is earned immediately except for amounts in
excess of acquisition costs, which are deferred, rather than fully deferred under GAAP.
A contingency reserve is established according to applicable insurance laws, whereas no such reserve is required
under GAAP.
Certain assets designated as “non-admitted assets” are charged directly to statutory surplus, rather than reflected as
assets under GAAP.
Investments in subsidiaries are carried on the balance sheet on the equity basis, to the extent admissible, rather
than consolidated with the parent under GAAP.
233
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
•
•
•
•
•
•
•
•
•
•
•
The amount of admitted deferred tax assets are subject to an adjusted surplus threshold and subject to a limitation
calculated in accordance with statutory accounting principles. Under GAAP there is no non-admitted asset
determination, rather a valuation allowance is recorded to reduce the deferred tax asset to an amount that is more
likely than not to be realized.
Insured credit derivatives are accounted for as insurance contracts rather than accounted for as derivative contracts
that are measured at fair value under GAAP.
Bonds are reported at either amortized cost or the lower of amortized cost or fair value, rather than classified as
available-for-sale or trading securities and carried at fair value under GAAP.
The impairment model for fixed-maturity debt securities classified as available-for-sale under GAAP differs from
the statutory impairment model. Under SAP, debt securities that have been determined to be other-than-
temporarily impaired, are written down to fair value or the present value of cash flows. Under GAAP, an
allowance for credit losses is established, and can be reversed for subsequent increases in expected cash flows.
Insured obligations of VIEs, where the Company is deemed the primary beneficiary, are accounted for as
insurance contracts. Under GAAP, such VIEs are consolidated and any transactions with the Company are
eliminated.
Surplus notes are recognized as surplus and each payment of principal and interest is recorded only upon approval
of the insurance regulator rather than as liabilities with periodic accrual of interest under GAAP.
Acquisitions are accounted for as either statutory purchases or statutory mergers, rather than under the purchase
method under GAAP.
Losses are discounted at pre-tax book yields, and recorded when there is a significant credit deterioration on
specific insured obligations and the obligations are in default or default is probable. Under GAAP, expected losses
are discounted at the risk-free rate at the end of each reporting period and are recorded only to the extent they
exceed deferred premium revenue.
The present value of contractual or expected installment premiums and commissions are not recorded on the
balance sheet as they are under GAAP.
The put options in CCS are not accounted for as derivatives as they are under GAAP.
Foreign denominated unearned premiums reserve is remeasured at current exchange rates. rather than carried at
historical rates under GAAP.
Bermuda
AG Re, a Bermuda regulated Class 3B insurer, and AGRO, a Bermuda regulated Class 3A and Class C insurer,
prepare their statutory financial statements in conformity with the accounting principles set forth in the Insurance Act 1978,
amendments thereto and related regulations. As of December 31, 2016, the Bermuda Monetary Authority (the Authority)
requires insurers to prepare statutory financial statements in accordance with the particular accounting principles adopted by the
insurer (which, in the case of AG Re and AGRO, are GAAP), subject to certain adjustments. The adjustments are mainly
related to certain assets designated as “non-admitted assets” which are charged directly to statutory surplus rather than reflected
as assets as they are under GAAP.
United Kingdom
AGUK prepares its Solvency and Financial Condition Report and other required regulatory financial reports based on
Prudential Regulation Authority and Solvency II Regulations (Solvency II). As of December 31, 2022 AGUK’s Own Funds
were an estimated £592 million (or $716 million). As of December 31, 2021 AGUK’s Own Funds were £591 million (or $800
million).
234
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
France
AGE prepares its Solvency and Financial Condition Report and other required regulatory financial reports based on
Autorité de Contrôle Prudentiel et de Résolution (ACPR) regulations and Solvency II. As of December 31, 2022 AGE’s Own
Funds were an estimated €52 million (or $56 million). As of December 31, 2021 AGE’s Own Funds were €58 million (or $66
million).
Dividend Restrictions and Capital Requirements
United States
Under the New York insurance law, AGM may only pay dividends out of “earned surplus,” which is the portion of an
insurer’s surplus that represents the net earnings, gains or profits (after deduction of all losses) that have not been distributed to
the insurer’s shareholders as dividends, transferred to stated capital or capital surplus, or applied to other purposes permitted by
law, but does not include unrealized appreciation of assets. AGM may pay dividends without the prior approval of the New
York State Department of Financial Services Superintendent (New York Superintendent) in an amount that, together with all
dividends declared or distributed by it during the preceding 12 months, does not exceed the lesser of 10% of its policyholders’
surplus (as of its last annual or quarterly statement filed with the New York Superintendent) or 100% of its adjusted net
investment income during that period.
The maximum amount available during 2023 for AGM to distribute as dividends without regulatory approval is
estimated to be approximately $209 million. Of such $209 million, $40 million is estimated to be available for distribution in
the first quarter of 2023.
Under Maryland’s insurance law, AGC may, with prior notice to the Maryland Insurance Administration
Commissioner, pay an ordinary dividend in an amount that, together with all dividends paid in the prior 12 months, does not
exceed the lesser of 10% of its policyholders’ surplus (as of the prior December 31) or 100% of its adjusted net investment
income during that period. The maximum amount available during 2023 for AGC to distribute as ordinary dividends is
approximately $102 million. Of such $102 million, approximately $20 million is available for distribution in the first quarter of
2023.
Bermuda
For AG Re, any distribution (including repurchase of shares) of any share capital, contributed surplus or other
statutory capital that would reduce its total statutory capital by 15% or more of its total statutory capital as set out in its previous
year's financial statements requires the prior approval of the Authority. Separately, dividends are paid out of an insurer’s
statutory surplus and cannot exceed that surplus. Furthermore, annual dividends cannot exceed 25% of total statutory capital
and surplus as set out in its previous year’s financial statements, which is $210 million, without AG Re certifying to the
Authority that it will continue to meet required margins. Based on the foregoing limitations, in 2023 AG Re has the capacity to:
(i) make capital distributions in an aggregate amount up to $129 million without the prior approval of the Authority; and (ii)
declare and pay dividends in an aggregate amount up to approximately $210 million as of December 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 $138 million as of December 31, 2022; and (ii) the
amount of statutory surplus, which as of December 31, 2022 was a deficit of $19 million.
For AGRO, a subsidiary of AG Re, annual dividends cannot exceed $98 million, without AGRO certifying to the
Authority that it will continue to meet required margins. Based on the foregoing limitations, in 2023 AGRO 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 $98 million as of December 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 $374 million as of December 31, 2022; and (ii) the
amount of statutory surplus, which as of December 31, 2022 was $253 million.
United Kingdom
U.K. company law prohibits AGUK from declaring a dividend to its shareholders unless it has “profits available for
distribution.” The determination of whether a company has profits available for distribution is based on its accumulated realized
profits less its accumulated realized losses. While the U.K. insurance regulatory laws impose no statutory restrictions on a
235
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
general insurer’s ability to declare a dividend, the Prudential Regulation Authority’s capital requirements may in practice act as
a restriction on dividends for AGUK.
France
French company law prohibits AGE from declaring a dividend to its shareholders unless it has “profits and/or reserves
available for distribution.” The determination of whether a company has profits available for distribution is based on its
accumulated realized profits less its accumulated realized losses. While French law imposes no statutory restrictions on an
insurer’s ability to declare a dividend, the ACPR’s capital requirements may, in practice, act as a restriction on dividends for
AGE.
Dividend Restrictions and Capital Requirements
Distributions from / Contributions to Insurance Company Subsidiaries
Dividends paid by AGC to AGUS
Dividends paid by AGM to AGMH
Dividends paid by AG Re to AGL (1)
Dividends from AGUK to AGM (2)
Contributions from AGM to AGE (2)
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
207
266
—
—
—
$
94
291
150
—
—
166
267
150
124
(123)
____________________
(1)
The 2021 and 2020 amounts included fixed-maturity securities with a fair value of $46 million and $47 million,
respectively.
In 2020, the dividend paid to AGM from AGUK was contributed to AGE.
(2)
16.
Related Party Transactions
From time to time, certain officers, directors, employees, their family members and related charitable foundations may
make investments in various private funds, vehicles or accounts managed by AssuredIM. These investments are available to
those of the Company’s employees whom the Company has determined to have a status that reasonably permits the Company
to offer them these types of investments in compliance with applicable laws. Generally, these investments are not subject to the
management fees and performance allocations or incentive fees charged to other investors. See Note 10, Asset Management
Fees, for information on management fees from AssuredIM Funds and CLOs.
As of December 31, 2022 and December 31, 2021, each of Wellington Management Company, LLP (together with its
affiliates, Wellington) and BlackRock Financial Management Inc. (together with its affiliates, BlackRock) directly or indirectly
owned more than 5% of the Company’s common shares. Wellington is one of the Company’s investment managers, and
BlackRock was also one of the Company’s investment managers until September 2020. BlackRock also provides investment
reporting software to the Company.
The Company owns a minority interest in Wasmer, Schroeder & Company LLC (Wasmer), which until July 1, 2020,
was also one of the Company’s investment portfolio managers. The Company’s investment management agreement with
Wasmer was transferred to the Charles Schwab Corporation (Schwab) on July 1, 2020, in connection with the closing on July 1,
2020 of the purchase by Schwab of the business of Wasmer.
The investment management and reporting software expense from transactions with Wellington, BlackRock and
Wasmer were approximately $2.0 million in 2022, $2.4 million in 2021 and $3.4 million in 2020. In addition, the Company
recognized $0.5 million in 2020 in income from its investment in Wasmer, which is included in “equity in earnings of
investees” in the consolidated statements of operations.
Other related party transactions include receivables from and payables to AssuredIM Funds and receivables due from
employees. Total other assets and liabilities with related parties were $3 million and $1 million, respectively, as of
December 31, 2022 and $4 million and $3 million, respectively, as of December 31, 2021. In addition, see Note 8, Financial
Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for the investments in AssuredIM Funds and other
affiliated entities that are held by CIVs.
236
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
In addition, the Company cancelled 385,777 common shares it received in December 2020 from the Company’s
former Chief Investment Officer and Head of Asset Management pursuant to the terms of the separation agreement. The
Company recognized $12 million benefit in “other income” in the consolidated statements of operations in connection with this
cancellation, with an offset to “retained earnings”.
17.
Leases
The Company is party to various non-cancelable lease agreements, all of which are operating leases as of December
31, 2022. The majority of the Company's leases relate to office space dedicated to the Company's operations in various
locations (primarily New York City, San Francisco, Bermuda, London and Paris) consisting of a total of 271 thousand square
feet with expiration dates ranging from 2023 to 2032. The Company subleases certain properties that are not used in its
operations.
Accounting Policy
The Company determines if an arrangement is a lease at inception. For operating leases with an original term of more
than 12 months, where the Company is the lessee, it recognizes a right-of-use (ROU) asset in “other assets” and a lease liability
in “other liabilities” on the consolidated balance sheets. An ROU asset represents the Company’s right to use an underlying
asset for the lease term, and a lease liability represents the Company’s obligation to make lease payments arising from the lease.
At the inception of a lease, the total fixed payments under a lease agreement are discounted utilizing an incremental borrowing
rate that represents the Company’s collateralized borrowing rate. The rate is determined based on the lease term as of the lease
commencement date. Some of the Company’s leases include renewal options, which are not included in the lease terms unless
the Company is reasonably certain it will exercise the option.
The Company elected the practical expedient to account for all lease components and their associated non-lease
components (i.e., common area maintenance, real estate taxes, building insurance, etc.) as a single lease component and include
all fixed payments in the measurement of ROU assets and lease liabilities. Operating lease expense is recognized on a straight-
line basis over the lease term. Costs related to variable lease and non-lease components for the Company’s leases are expensed
in the period incurred. Sublease income is earned on a straight-line basis over the term of the lease.
The Company assesses ROU assets for impairment when certain events occur or when there are changes in
circumstances including potential alternative uses. If circumstances require an ROU asset to be tested for possible impairment,
and the carrying value of the ROU asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to
the extent that the carrying value exceeds its fair value and reported in “other operating expenses” in the consolidated statement
of operations.
Lease Assets and Liabilities
As of December 31, 2022, the ROU asset and lease liability was $87 million and $116 million, respectively. As of
December 31, 2021, the ROU asset and lease liability was $100 million and $136 million, respectively. The weighted average
remaining lease term as of December 31, 2022 and December 31, 2021 was 8.2 years and 8.6 years, respectively. The Company
used a weighted average discount rate of 2.49% and 2.40% as of December 31, 2022 and December 31, 2021, respectively.
237
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Lease Expense and Other Information
Operating lease cost (1)
Other lease costs (2)
Sublease income
Total lease cost (3)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows for operating leases
ROU assets obtained in exchange for new operating lease liabilities (4)
Year Ended December 31,
2022
2021
(in millions)
2020
$
$
$
16 $
3
(7)
12 $
23 $
1
16 $
3
(5)
14 $
20 $
35
30
4
(3)
31
19
4
____________________
(1)
(2)
(3)
The 2020 amount includes $13 million ROU asset impairment.
Includes variable, short-term and finance lease costs.
Includes amortization on finance lease ROU assets and interest on finance lease liabilities reported in “other operating
expenses” in the consolidated statements of operations.
The amounts in 2021 relate primarily to additional office space leased in New York City.
(4)
During the fourth quarter of 2020, the Company made the decision to actively market for sublease the office space
acquired in the BlueMountain Acquisition. Accordingly, the Company recognized an ROU asset impairment of $13 million as
of December 31, 2020 within the Asset Management segment, reducing the carrying value of the associated ROU asset to its
estimated fair value. This ROU asset fair value was estimated using an income-approach based on forecasted future cash flows
expected to be derived from the property based on current sublease market rent.
Future Minimum Rental Payments
Operating Leases
Year
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Imputed interest
Total lease liabilities
18.
Commitments and Contingencies
Legal Proceedings
As of December 31,
2022
(in millions)
$
$
23
16
13
12
12
53
129
13
116
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, 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 or liquidity 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. See
also “Recovery Litigation” section of Note 4, Expected Loss to be Paid (Recovered), for a description of recovery litigation
238
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
unrelated to Puerto Rico. 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.
Accounting Policy
The Company establishes accruals for litigation and regulatory matters to the extent it is probable that a loss has been
incurred and the amount of that loss can be reasonably estimated and discloses such amounts if material to the financial position
of the Company. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable
but not reasonably estimable, no accrual is established, but if the matter is material, it would be disclosed below. The Company
reviews relevant information with respect to its litigation and regulatory matters on a quarterly basis and updates its accruals,
disclosures and estimates of reasonably possible loss based on such reviews.
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 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 (as
described below) 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 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 (the Appellate Division),
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 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. A bench trial was held before Justice Melissa A. Crane of the New York Supreme Court from
October 18 through November 19, 2021. Post-trial briefing was submitted on June 21, 2022. In December 2022, both parties
provided written submissions at the request of Justice Crane; a decision is anticipated in the first half of 2023.
19.
Shareholders’ Equity
Accounting Policy
The Company records share repurchases as a reduction to “common shares” and “additional paid-in capital”. Once
additional paid-in capital has been exhausted, share repurchases are recorded as a reduction to common shares and retained
earnings.
239
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Share Issuances
AGL has authorized share capital of $5 million divided into 500,000,000 shares with a par value $0.01 per share.
Except as described below, AGL’s common shares have no preemptive rights or other rights to subscribe for additional
common shares, no rights of redemption, conversion or exchange and no sinking fund rights. In the event of liquidation,
dissolution or winding-up, the holders of AGL’s common shares are entitled to share equally, in proportion to the number of
common shares held by such holder, in AGL’s assets, if any remain after the payment of all AGL’s debts and liabilities and the
liquidation preference of any outstanding preferred shares. Under certain circumstances, AGL has the right to purchase all or a
portion of the shares held by a shareholder at fair market value. All of the common shares are fully paid and non-assessable.
Holders of AGL’s common shares are entitled to receive dividends as lawfully may be declared from time to time by the Board.
In general, and except as provided below, shareholders have one vote for each common share held by them and are
entitled to vote with respect to their fully paid shares at all meetings of shareholders. However, if, and so long as, the common
shares (and other of AGL’s shares) of a shareholder are treated as “controlled shares” (as determined pursuant to section 958 of
the Code) of any U.S. Person and such controlled shares constitute 9.5% or more of the votes conferred by AGL’s issued and
outstanding shares, the voting rights with respect to the controlled shares owned by such U.S. Person shall be limited, in the
aggregate, to a voting power of less than 9.5% of the voting power of all issued and outstanding shares, under a formula
specified in AGL’s Bye-Laws. The formula is applied repeatedly until there is no U.S. Person whose controlled shares
constitute 9.5% or more of the voting power of all issued and outstanding shares and who generally would be required to
recognize income with respect to AGL under the Code if AGL were a CFC as defined in the Code and if the ownership
threshold under the Code were 9.5% (as defined in AGL’s Bye-Laws as a 9.5% U.S. Shareholder).
Subject to AGL’s Bye-Laws and Bermuda law, AGL’s Board has the power to issue any of AGL’s unissued shares as
it determines, including the issuance of any shares or class of shares with preferred, deferred or other special rights.
Under AGL’s Bye-Laws and subject to Bermuda law, if AGL’s Board determines that any ownership of AGL's shares
may result in adverse tax, legal or regulatory consequences to the Company, any of the Company’s subsidiaries or any of
AGL’s shareholders or indirect holders of shares or its affiliates (other than such as AGL’s Board considers de minimis), the
Company has the option, but not the obligation, to require such shareholder to sell to AGL, or to a third party to whom AGL
assigns the repurchase right, the minimum number of common shares necessary to avoid or cure any such adverse
consequences at a price determined in the discretion of the Board to represent the shares’ fair market value (as defined in
AGL’s Bye-Laws). In addition, AGL’s Board may determine that shares held carry different voting rights when it deems it
appropriate to do so to: (i) avoid the existence of any 9.5% U.S. Shareholder; and (ii) avoid adverse tax, legal or regulatory
consequences to AGL or any of its subsidiaries or any direct or indirect holder of shares or its affiliates. “Controlled shares”
includes, among other things, all shares of AGL that such U.S. Person is deemed to own directly, indirectly or constructively
(within the meaning of section 958 of the Code). Further, these provisions do not apply in the event one shareholder owns
greater than 75% of the voting power of all issued and outstanding shares.
Under these provisions, certain shareholders may have their voting rights limited to less than one vote per share, while
other shareholders may have voting rights in excess of one vote per share. Moreover, these provisions could have the effect of
reducing the votes of certain shareholders who would not otherwise be subject to the 9.5% limitation by virtue of their direct
share ownership. AGL’s Bye-Laws provide that it will use its best efforts to notify shareholders of their voting interests prior to
any vote to be taken by them.
Share Repurchases
On February 23, 2022 and August 3, 2022, the Board authorized the repurchase of an additional $350 million and $250
million, respectively, of its common shares. As of February 28, 2023, the Company was authorized to purchase $201 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.
240
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Share Repurchases
Year
2020
2021
2022
2023 (through February 28, 2023 on a settlement date basis)
Deferred Compensation
Number of
Shares
Repurchased
15,787,804
10,519,040
8,847,981
36,369
Total Payments
(in millions)
$
446
496
503
2
Average Price
Paid Per Share
28.23
$
47.19
56.79
62.23
Certain executives of the Company elected to invest a portion of their AG US Group Services Inc. supplemental
executive retirement plan (AGS SERP) accounts in the employer stock fund in the AGS SERP. Each unit in the employer stock
fund represents the right to receive one AGL common share upon a distribution from the AGS SERP. Each unit equals the
number of AGL common shares which could have been purchased with the value of the account deemed invested in the
employer stock fund as of the date of such election. As of December 31, 2022 and 2021, there were 74,309 and 74,309 units,
respectively, in the AGS SERP.
Dividends
Any determination to pay dividends is at the discretion of the Company’s Board, and depends upon the Company’s
results of operations, cash flows from operating activities, its financial position, capital requirements, general business
conditions, legal, tax, regulatory, rating agency and contractual restrictions on the payment of dividends, other potential uses for
such funds, and any other factors the Company’s Board deems relevant. For more information concerning regulatory constraints
that affect the Company’s ability to pay dividends, see Note 15, Insurance Company Regulatory Requirements.
On February 22, 2023, the Company declared a quarterly dividend of $0.28 per common share compared with $0.25
per common share paid in 2022, an increase of 12%.
20.
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 consolidated statements of operations.
Changes in Accumulated Other Comprehensive Income (Loss) by Component
Year Ended December 31, 2022
Balance, December 31, 2021
Other comprehensive income (loss) before
reclassifications
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)
Fair value gains (losses) on FG VIEs
Interest expense
Total before tax
Tax (provision) benefit
Total amount reclassified from AOCI, net of tax
Other comprehensive income (loss)
Balance, December 31, 2022
$
Net Unrealized Gains
(Losses) on Investments with:
No Credit
Impairment
Credit
Impairment
ISCR on
FG VIEs’
Liabilities
with Recourse
Cumulative
Translation
Adjustment
Cash
Flow
Hedge
Total
AOCI
$
375 $
(24) $
(in millions)
(21) $
(36) $
6 $
300
(755)
(103)
(4)
(9)
—
(871)
(44)
—
—
(44)
7
(37)
(718)
(343) $
(21)
—
—
(21)
4
(17)
(86)
(110) $
—
(3)
—
(3)
1
(2)
(2)
(23) $
—
—
—
—
—
—
(9)
(45) $
—
—
—
—
—
—
—
6 $
(65)
(3)
—
(68)
12
(56)
(815)
(515)
241
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Changes in Accumulated Other Comprehensive Income (Loss) by Component
Year Ended December 31, 2021
Balance, December 31, 2020
Other comprehensive income (loss) before
reclassifications
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)
Fair value gains (losses) on FG VIEs
Interest expense
Total before tax
Tax (provision) benefit
Total amount reclassified from AOCI, net of tax
Other comprehensive income (loss)
Balance, December 31, 2021
$
Net Unrealized Gains
(Losses) on Investments with:
No Credit
Impairment
Credit
Impairment
ISCR on
FG VIEs’
Liabilities
with Recourse
Cumulative
Translation
Adjustment
Cash
Flow
Hedge
Total
AOCI
$
577 $
(30) $
(in millions)
(20) $
(36) $
7 $
498
(184)
—
(3)
—
—
(187)
21
—
—
21
(3)
18
(202)
375 $
(7)
—
—
(7)
1
(6)
6
(24) $
—
(3)
—
(3)
1
(2)
(1)
(21) $
—
—
—
—
—
—
—
(36) $
—
—
1
1
—
1
(1)
6 $
14
(3)
1
12
(1)
11
(198)
300
Changes in Accumulated Other Comprehensive Income (Loss) by Component
Year Ended December 31, 2020
Net Unrealized Gains
(Losses) on Investments with:
No Credit
Impairment
Credit
Impairment
ISCR on
FG VIEs’
Liabilities
with Recourse
Cumulative
Translation
Adjustment
Cash
Flow
Hedge
Total
AOCI
$
352 $
48 $
(in millions)
(27) $
(38) $
7 $
342
62
189
30
30
(4)
26
163
577 $
(62)
(29)
(16)
(16)
3
(13)
(16)
(30) $
—
7
—
—
—
—
7
(20) $
—
2
—
—
—
—
—
—
2
(36) $
—
—
—
—
—
7 $
—
169
14
14
(1)
13
156
498
Balance, December 31, 2019
Effect of adoption of accounting guidance on
credit losses
Other comprehensive income (loss) before
reclassifications
Less: Amounts reclassified from AOCI to:
Net realized investment gains (losses)
Total before tax
Tax (provision) benefit
Total amount reclassified from AOCI, net of tax
Other comprehensive income (loss)
Balance, December 31, 2020
$
21.
Earnings Per Share
Accounting Policy
The Company computes earnings per share (EPS) using the two-class method, which is an earnings allocation formula
that determines EPS for: (i) each class of common shares (the Company has a single class of common shares); and (ii)
participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings.
Awards and share units under the AGS SERP with non-forfeitable dividends are considered participating securities.
242
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Basic EPS is computed by dividing net income (loss) available to common shareholders of Assured Guaranty by the
weighted-average number of common shares outstanding during the period. Diluted EPS adjusts basic EPS for the effects of
restricted stock, restricted stock units, stock options and other potentially dilutive financial instruments (dilutive securities),
only in the periods in which such effect is dilutive. The effect of the dilutive securities is reflected in diluted EPS by application
of the more dilutive of: (1) the treasury stock method; or (2) the two-class method assuming nonvested shares are not converted
into common shares.
Computation of Earnings Per Share
Year Ended December 31,
2022
2021
2020
(in millions, except per share amounts)
Basic EPS:
Net income (loss) attributable to AGL
Less: Distributed and undistributed income (loss) available to nonvested
shareholders
Distributed and undistributed income (loss) available to common
shareholders of AGL and subsidiaries, basic
Basic shares
Basic EPS
Diluted EPS:
Distributed and undistributed income (loss) available to common
shareholders of AGL and subsidiaries, basic
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
Basic shares
Dilutive securities:
Options and restricted stock awards
Diluted shares
Diluted EPS
Potentially dilutive securities excluded from computation of EPS because of
antidilutive effect
$
$
$
$
$
$
124
$
1
123
62.9
1.95
$
$
389
—
389
73.5
5.29
$
123
$
389
$
—
123
62.9
1.0
63.9
1.92
0.6
$
$
—
389
73.5
0.8
74.3
5.23
0.1
$
$
362
1
361
85.5
4.22
361
—
361
85.5
0.7
86.2
4.19
0.8
243
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
22.
Parent Company
The following tables present the condensed financial statements of Assured Guaranty Ltd.
Assured Guaranty Ltd. (Parent Company)
Condensed Balance Sheets
(in millions)
Assets
Investments
Investments in subsidiaries
Dividends receivable from subsidiaries
Other assets (1)
Total assets
Liabilities
Other liabilities (1)
Total liabilities
Total shareholders’ equity attributable to AGL
Total liabilities and shareholders’ equity
____________________
(1)
Mainly consists of due from and due to affiliates.
As of December 31,
2022
2021
26
4,984
18
58
5,086
22
22
5,064
5,086
$
$
$
$
$
$
188
5,994
81
46
6,309
17
17
6,292
6,309
$
$
$
$
$
$
Assured Guaranty Ltd. (Parent Company)
Condensed Statements of Operations and Comprehensive Income
(in millions)
Revenues
Net investment income
Net realized investment gains (losses)
Total revenues
Expenses
Other expenses (1)
Total expenses
Income (loss) before equity in earnings of subsidiaries
Equity in earnings of subsidiaries
Net income attributable to AGL
Other comprehensive income (loss) attributable to AGL
Comprehensive income (loss) attributable to AGL
____________________
(1)
Includes expense allocations from subsidiaries.
Year Ended December 31,
2022
2021
2020
$
$
$
3
(4)
(1)
45
45
(46)
170
124
(815)
(691) $
$
1
—
1
35
35
(34)
423
389
(198)
191
$
—
—
—
34
34
(34)
396
362
156
518
244
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Assured Guaranty Ltd. (Parent Company)
Condensed Statements of Cash Flows
(in millions)
Year Ended December 31,
2022
2021
2020
$
124 $
389 $
362
Cash flows from operating activities:
Net income attributable to AGL
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Equity in earnings of subsidiaries
Net realized investment losses (gains)
Cash dividends from subsidiaries
Other
Net cash flows provided by (used in) operating activities
Cash flows from investing activities:
Short-term investments with maturities of over three months:
Purchases
Sales
Maturities and paydowns
Net sales (purchases) of short-term investments with original maturities of
less than three months
Net cash flows provided by (used in) investing activities
Cash flows from financing activities:
Dividends paid
Repurchases of common shares
Other
Net cash flows provided by (used in) financing activities
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosure of non-cash investing activities:
Dividend from a subsidiary in the form of fixed-maturity securities
Basis of Presentation
$
$
(170)
4
437
32
427
—
52
5
92
149
(64)
(500)
(12)
(576)
—
—
— $
(423)
—
539
22
527
—
—
4
41
45
(66)
(496)
(10)
(572)
—
—
— $
— $
46 $
(396)
—
547
19
532
(4)
—
—
(3)
(7)
(69)
(446)
(10)
(525)
—
—
—
47
These condensed financial statements of Assured Guaranty Ltd. (AGL) should be read in conjunction with the
Company’s consolidated financial statements and notes thereto. Assured Guaranty Ltd. is a Bermuda-based holding company
that provides, through its operating subsidiaries, credit protection products to the U.S. and non-U.S. public finance (including
infrastructure) and structured finance markets, as well as asset management services. See Note 1, Business and Basis of
Presentation, for further information regarding the basis of presentation.
Guaranties of Obligations of Affiliates
AGL fully and unconditionally guarantees all of the U.S. Holding Companies’ debt. See Note 12, Long-Term Debt
and Credit Facilities, for additional information.
245
Assured Guaranty Ltd.
Notes to Consolidated Financial Statements, Continued
Credit Facility with Affiliate
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. In September 2018, AGL and AGUS amended the revolving
credit facility to extend the commitment until October 25, 2023 (the loan commitment termination date). The unpaid principal
amount of each loan will bear interest at a fixed rate equal to 100% of the then applicable interest rate as determined under
Section 1274(d) of the Code, and interest on all loans will be computed for the actual number of days elapsed on the basis of a
year consisting of 360 days. Accrued interest on all loans will be paid on the last day of each June and December, beginning on
December 31, 2013, and at maturity. AGL must repay the then unpaid principal amounts of the loans by the third anniversary of
the loan commitment termination date. No amounts are currently outstanding under the credit facility.
Income Taxes
AGL is not subject to any income, withholding or capital gains taxes under current Bermuda law. 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. See Note 14, Income Taxes, for further information regarding AGL’s income
taxes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Assured Guaranty’s management, with the participation of AGL’s Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), has evaluated the effectiveness of AGL’s disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of
December 31, 2022. The controls and procedures are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management,
including AGL’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures. Based on this
evaluation, AGL’s CEO and CFO have concluded that, as of December 31, 2022, AGL’s disclosure controls and procedures are
effective in recording, processing, summarizing and reporting, within the time periods specified in the Commission’s rules and
forms, information required to be disclosed by AGL (including its consolidated subsidiaries) in the reports that it files or
submits under the Exchange Act.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the Company’s quarter
ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
The management of AGL is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process
designed by, or under the supervision of the Company’s CEO and CFO to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in
accordance with GAAP.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
246
Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2022 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in the 2013 Internal Control-Integrated Framework. Based on this evaluation, management concluded that
the Company’s internal control over financial reporting was effective as of December 31, 2022 based on criteria in the 2013
Internal Control-Integrated Framework issued by the COSO.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their “Report of Independent
Registered Public Accounting Firm” included in Item 8, Financial Statements and Supplementary Data.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
247
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information pertaining to this item is incorporated by reference to the sections entitled “Proposal No. 1: Election Of
Directors”, “Corporate Governance—Delinquent Section 16(a) Reports”, “Corporate Governance—How Are Directors
Nominated?” and “Corporate Governance—Committees Of The Board—The Audit Committee” of the definitive proxy
statement for the Annual General Meeting of Shareholders, which involves the election of directors and will be filed with the
SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
Information about the executive officers of AGL is set forth at the end of Part I of this Form 10-K and is hereby
incorporated by reference.
Code of Ethics
The Company has adopted a Global Code of Ethics, which sets forth standards by which all employees, officers and
directors of the Company must abide as they work for the Company. The Global Code of Ethics is available at
www.assuredguaranty.com/governance. The Company intends to disclose on its internet site any amendments to, or waivers
from, its Global Code of Ethics that are required to be publicly disclosed pursuant to the rules of the SEC or the NYSE.
ITEM 11. EXECUTIVE COMPENSATION
This item is incorporated by reference to the sections entitled “Executive Compensation”, “Corporate Governance—
Compensation Committee Interlocking And Insider Participation” and “Corporate Governance—How Are Directors
Compensated?” of the definitive proxy statement for the Annual General Meeting of Shareholders, which will be filed with the
SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
This item is incorporated by reference to the sections entitled “Information About Our Common Share Ownership”
and “Equity Compensation Plans Information” of the definitive proxy statement for the Annual General Meeting of
Shareholders, which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation
14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
This item is incorporated by reference to the sections entitled “Corporate Governance—What Is Our Related Person
Transactions Approval Policy And What Procedures Do We Use To Implement It?”, “Corporate Governance—What Related
Person Transactions Do We Have?” and “Corporate Governance—Director Independence” of the definitive proxy statement for
the Annual General Meeting of Shareholders, which will be filed with the SEC not later than 120 days after the close of the
fiscal year pursuant to regulation 14A.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
This item is incorporated by reference to the section entitled “Proposal No. 3: Appointment Of Independent Auditor—
Independent Auditor Fee Information” and “Proposal No. 3: Appointment Of Independent Auditor—Pre-Approval Policy Of
Audit And Non-Audit Services” of the definitive proxy statement for the Annual General Meeting of Shareholders, which will
be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
248
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statements, Financial Statement Schedules and Exhibits
1.
Financial Statements
The following financial statements of Assured Guaranty Ltd. have been included in, Part II, Item 8, Financial
Statements and Supplementary Data, hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021
and 2020
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
136
138
139
140
141
142
144
2.
Financial Statement Schedules
The financial statement schedules are omitted because they are not applicable or the required information is shown in
the consolidated financial statements or notes thereto.
3.
Exhibits*
Description of Document
3.1 Certificate of Incorporation and Memorandum of Association of the Registrant, as amended by Certificate of
Incorporation on Change of Name dated March 30, 2004 and Certificate of Deposit of Memorandum of Increase
of Capital dated April 21, 2004 (Incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended
December 31, 2009)
3.2 First Amended and Restated Bye-laws of the Registrant, as amended (Incorporated by reference to Exhibit 3.1 to
Form 8-K filed on May 10, 2011)
4.1 Specimen Common Share Certificate (Incorporated by reference to Exhibit 4.1 to Form S-1 (#333-111491))
4.2 Certificate of Incorporation and Memorandum of Association of the Registrant, as amended by Certificate of
Incorporation on Change of Name dated March 30, 2004 and Certificate of Deposit of Memorandum of Increase
of Capital dated April 21, 2004 (See Exhibit 3.1)
4.3 Bye-laws of the Registrant (See Exhibit 3.2)
4.4 Indenture, dated as of May 1, 2004, among the Company, Assured Guaranty U.S. Holdings Inc. and The Bank of
New York, as trustee (Incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter ended March 31,
2004)
4.5 Indenture, dated as of December 1, 2006, entered into among Assured Guaranty Ltd., Assured Guaranty U.S.
Holdings Inc. and The Bank of New York, as trustee (Incorporated by reference to Exhibit 4.1 to Form 8-K filed
on December 20, 2006)
4.6 First Supplemental Subordinated Indenture, dated as of December 20, 2006, entered into among Assured
Guaranty Ltd., Assured Guaranty U.S. Holdings Inc. and The Bank of New York, as trustee (Incorporated by
reference to Exhibit 4.2 to Form 8-K filed on December 20, 2006)
4.7 Replacement Capital Covenant, dated as of December 20, 2006, between Assured Guaranty U.S. Holdings Inc.
and Assured Guaranty Ltd., in favor of and for the benefit of each Covered Debtholder (as defined therein)
(Incorporated by reference to Exhibit 4.1 to Form 8-K filed on December 20, 2006)
4.8 Replacement Capital Covenant, dated as of November 22, 2006, by Financial Security Assurance Holdings Ltd.
(Incorporated by reference to Exhibit 10.5 to Financial Security Assurance Holdings Ltd.'s Form 8-K filed on
November 28, 2006)
4.9 Amended and Restated Trust Indenture dated as of February 24, 1999 between Financial Security Assurance
Holdings Ltd. and the Senior Debt Trustee (Incorporated by reference to Exhibit 4.1 to Financial Security
Assurance Holdings Ltd.'s Registration Statement to Form S-3 (#333-74165))
249
Description of Document
4.10 Supplemental Indenture, dated as of August 26, 2009, between Assured Guaranty Ltd., Financial Security
Assurance Holdings Ltd. and U.S. Bank National Association, as trustee (Incorporated by reference to
Exhibit 99.1 to Form 8-K filed on September 1, 2009)
4.11 Indenture, dated as of November 22, 2006, between Financial Security Assurance Holdings Ltd. and The Bank of
New York, as Trustee (Incorporated by reference to Exhibit 4.1 to Financial Security Assurance Holdings Ltd.'s
Form 8-K filed on November 28, 2006)
4.12 Form of Financial Security Assurance Holdings Ltd. Junior Subordinated Debenture, Series 2006-1
(Incorporated by reference to Exhibit 10.3 to Financial Security Assurance Holdings Ltd.'s Form 8-K filed on
November 28, 2006)
4.13 Supplemental Indenture, dated as of August 26, 2009, between Assured Guaranty Ltd., Financial Security
Assurance Holdings Ltd. and The Bank of New York Mellon, as trustee (Incorporated by reference to
Exhibit 99.2 to Form 8-K filed on September 1, 2009)
4.14 Officers’ Certificate, dated June 20, 2014, related to 5.000% Senior Notes due 2024, containing form of 5.000%
Senior Notes due 2024 as Exhibit A thereto (Incorporated by reference to Exhibit 4.1 to Form 8-K filed on
June 20, 2014)
4.15 Form of Officer’s Certificate related to 3.150% Senior Notes due 2031, containing Form of 3.150% Senior Notes
due 2031 as Exhibit A (Incorporated by reference to Exhibit 4.1 to Form 8-K filed on May 26, 2021)
4.16 Form of Officer’s Certificate related to 3.600% Senior Notes due 2051, containing Form of 3.600% Senior Notes
due 2051 as Exhibit A (Incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 17, 2021)
4.17 Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of
1934 (Incorporated by reference to Exhibit 4.17 to Form 10-K for the year ended December 31, 2021)
10.1 Guaranty by Assured Guaranty Re Ltd. in favor of Assured Guaranty Re Overseas Ltd., effective as of January 1,
2019 (Incorporated by reference to Exhibit 10.1 to Form 10-K for the year ended December 31, 2018)
10.2 Put Agreement between Assured Guaranty Corp. and Woodbourne Capital Trust [I][II][III][IV] (Incorporated by
reference to Exhibit 10.6 to Form 10-Q for the quarter ended March 31, 2005)
10.3 Custodial Trust Expense Reimbursement Agreement (Incorporated by reference to Exhibit 10.7 to Form 10-Q for
the quarter ended March 31, 2005)
10.4 Assured Guaranty Corp. Articles Supplementary Classifying and Designating Series of Preferred Stock as
Series A Perpetual Preferred Stock, Series B Perpetual Preferred Stock, Series C Perpetual Preferred Stock,
Series D Perpetual Preferred Stock (Incorporated by reference to Exhibit 10.8 to Form 10-Q for the quarter ended
March 31, 2005)
10.5 Purchase Agreement among Dexia Holdings Inc., Dexia Crédit Local S.A. and the Company dated as of
November 14, 2008 (Incorporated by reference to Exhibit 99.1 to Form 8-K filed on November 17, 2008)
10.6 Amended and Restated Revolving Credit Agreement dated as of June 30, 2009 among FSA Asset
Management LLC, Dexia Crédit Local S.A. and Dexia Bank Belgium S.A. (Incorporated by reference to
Exhibit 10.1 to Form 8-K filed on July 8, 2009)
10.7 First Amendment to Amended and Restated Revolving Credit Agreement dated as of September 20, 2010 among
FSA Asset Management LLC, Dexia Crédit Local S.A. and Dexia Bank Belgium S.A. (Incorporated by reference
to Exhibit 10.11 to Form 10-K for the year ended December 31, 2013)
10.8 Second Amendment to Amended and Restated Revolving Credit Agreement dated as of May 16, 2012 among
FSA Asset Management LLC, Dexia Crédit Local S.A. and Dexia Bank Belgium S.A. (Incorporated by reference
to Exhibit 10.12 to Form 10-K for the year ended December 31, 2013)
10.9 Assignment Pursuant to the Amended and Restated Revolving Credit Agreement, as amended, dated as of
December 12, 2013 between Belfius Bank SA/NV and Dexia Crédit Local S.A. (Incorporated by reference to
Exhibit 10.13 to Form 10-K for the year ended December 31, 2013)
10.10 ISDA Master Agreement (Multicurrency-Cross Border) dated as of June 30, 2009 among Dexia SA, Dexia
Crédit Local S.A. and FSA Asset Management LLC (Incorporated by reference to Exhibit 10.3.1 to Form 8-K
filed on July 8, 2009)
10.11 Schedule to the 1992 Master Agreement, Guaranteed Put Contract, dated as of June 30, 2009 among Dexia
Crédit Local S.A., Dexia SA and FSA Asset Management LLC (Incorporated by reference to Exhibit 10.3.2 to
Form 8-K filed on July 8, 2009)
10.12 Put Option Confirmation, Guaranteed Put Contract, dated June 30, 2009 to FSA Asset Management LLC from
Dexia SA and Dexia Crédit Local S.A. (Incorporated by reference to Exhibit 10.3.3 to Form 8-K filed on July 8,
2009)
10.13 ISDA Credit Support Annex (New York Law) to the Schedule to the ISDA Master Agreement, Guaranteed Put
Contract, dated as of June 30, 2009 between Dexia Crédit Local S.A. and Dexia SA and FSA Asset
Management LLC (Incorporated by reference to Exhibit 10.3.4 to Form 8-K filed on July 8, 2009)
10.14 ISDA Master Agreement (Multicurrency-Cross Border) dated as of June 30, 2009 among Dexia SA, Dexia
Crédit Local S.A. and FSA Asset Management LLC (Incorporated by reference to Exhibit 10.4.1 to Form 8-K
filed on July 8, 2009)
250
Description of Document
10.15 Schedule to the 1992 Master Agreement, Non-Guaranteed Put Contract, dated as of June 30, 2009 among Dexia
Crédit Local S.A., Dexia SA and FSA Asset Management LLC (Incorporated by reference to Exhibit 10.4.2 to
Form 8-K filed on July 8, 2009)
10.16 Put Option Confirmation, Non-Guaranteed Put Contract, dated June 30, 2009 to FSA Asset Management LLC
from Dexia SA and Dexia Crédit Local S.A. (Incorporated by reference to Exhibit 10.4.3 to Form 8-K filed on
July 8, 2009)
10.17 ISDA Credit Support Annex (New York Law) to the Schedule to the ISDA Master Agreement, Non-Guaranteed
Put Contract, dated as of June 30, 2009 between Dexia Crédit Local S.A. and Dexia SA and FSA Asset
Management LLC (Incorporated by reference to Exhibit 10.4.4 to Form 8-K filed on July 8, 2009)
10.18 First Demand Guarantee Relating to the “Financial Products” Portfolio of FSA Asset Management LLC issued
by the Belgian State and the French State and executed as of June 30, 2009 (Incorporated by reference to
Exhibit 10.5 to Form 8-K filed on July 8, 2009)
10.19 Guaranty, dated as of June 30, 2009, made jointly and severally by Dexia SA and Dexia Crédit Local S.A., in
favor of Financial Security Assurance Inc. (Incorporated by reference to Exhibit 10.6 to Form 8-K filed on
July 8, 2009)
10.20 Indemnification Agreement (GIC Business) dated as of June 30, 2009 by and among Financial Security
Assurance Inc., Dexia Crédit Local S.A. and Dexia SA (Incorporated by reference to Exhibit 10.7 to Form 8-K
filed on July 8, 2009)
10.21 Pledge and Administration Agreement, dated as of June 30, 2009, among Dexia SA, Dexia Crédit Local S.A.,
Dexia Bank Belgium SA, Dexia FP Holdings Inc., Financial Security Assurance Inc., FSA Asset
Management LLC, FSA Portfolio Asset Limited, FSA Capital Markets Services LLC, FSA Capital Markets
Services (Caymans) Ltd., FSA Capital Management Services LLC and The Bank of New York Mellon Trust
Company, National Association (Incorporated by reference to Exhibit 10.8 to Form 8-K filed on July 8, 2009)
10.22 Separation Agreement, dated as of July 1, 2009, among Dexia Crédit Local S.A., Financial Security
Assurance Inc., Financial Security Assurance International, Ltd., FSA Global Funding Limited and Premier
International Funding Co. (Incorporated by reference to Exhibit 10.9 to Form 8-K filed on July 8, 2009)
10.23 Funding Guaranty, dated as of July 1, 2009, made by Dexia Crédit Local S.A. in favor of Financial Security
Assurance Inc. and Financial Security Assurance International, Ltd. (Incorporated by reference to Exhibit 10.10
to Form 8-K filed on July 8, 2009)
10.24 Reimbursement Guaranty, dated as of July 1, 2009, made by Dexia Crédit Local S.A. in favor of Financial
Security Assurance Inc. and Financial Security Assurance International, Ltd. (Incorporated by reference to
Exhibit 10.11 to Form 8-K filed on July 8, 2009)
10.25 Indemnification Agreement (FSA Global Business), dated as of July 1, 2009, by and between Financial Security
Assurance Inc., Assured Guaranty Ltd. and Dexia Crédit Local S.A. (Incorporated by reference to Exhibit 10.13
to Form 8-K filed on July 8, 2009)
10.26 Pledge and Administration Annex Amendment Agreement dated as of July 1, 2009 among Dexia SA, Dexia
Crédit Local S.A., Dexia Bank Belgium SA, Dexia FP Holdings Inc., Financial Security Assurance Inc., FSA
Asset Management LLC, FSA Portfolio Asset Limited, FSA Capital Markets Services LLC, FSA Capital
Markets Services (Caymans) Ltd., FSA Capital Management Services LLC and The Bank of New York Mellon
Trust Company, National Association (Incorporated by reference to Exhibit 10.14 to Form 8-K filed on July 8,
2009)
10.27 Put Confirmation Annex Amendment Agreement dated as of July 1, 2009 among Dexia SA and Dexia Crédit
Local S.A. and FSA Asset Management LLC and Financial Security Assurance Inc. (Incorporated by reference
to Exhibit 10.15 to Form 8-K filed on July 8, 2009)
10.28 Master Repurchase Agreement between FSA Capital Management Services LLC and FSA Capital Markets
Services LLC (Incorporated by reference to Exhibit 10.20 to Form 10-Q for the quarter ended June 30, 2009)
10.29 Confirmation to Master Repurchase Agreement (Incorporated by reference to Exhibit 10.21 to Form 10-Q for the
quarter ended June 30, 2009)
10.30 Master Repurchase Agreement Annex I (Incorporated by reference to Exhibit 10.22 to Form 10-Q for the quarter
ended June 30, 2009)
10.31 Pledge and Intercreditor Agreement, among Dexia Crédit Local, Dexia Bank Belgium S.A., Financial Security
Assurance Inc. and FSA Asset Management LLC, dated November 13, 2008 (Incorporated by reference to
Exhibit 10.3 to Financial Security Assurance Holdings Ltd.'s Form 10-Q for the quarter ended September 30,
2008)
10.32 Amended and Restated Pledge and Intercreditor Agreement, dated as of February 20, 2009, between Dexia
Crédit Local, Dexia Bank Belgium S.A., Financial Security Assurance Inc., FSA Asset Management LLC, FSA
Capital Markets Services LLC and FSA Capital Management Services LLC (Incorporated by reference to
Exhibit 10.19 to Financial Security Assurance Holdings Ltd.'s Form 10-K for the year ended December 31, 2008)
10.33 Put Option Agreement, dated as of June 23, 2003 by and between FSA and Sutton Capital Trust I (Incorporated
by reference to Exhibit 99.5 to Financial Security Assurance Holdings Ltd.’s Form 10-Q for the quarter ended
June 30, 2003)
251
Description of Document
10.34 Put Option Agreement, dated as of June 23, 2003 by and between FSA and Sutton Capital Trust II (Incorporated
by reference to Exhibit 99.6 to Financial Security Assurance Holdings Ltd.’s Form 10-Q for the quarter ended
June 30, 2003)
10.35 Put Option Agreement, dated as of June 23, 2003 by and between FSA and Sutton Capital Trust III (Incorporated
by reference to Exhibit 99.7 to Financial Security Assurance Holdings Ltd.’s Form 10-Q for the quarter ended
June 30, 2003)
10.36 Put Option Agreement, dated as of June 23, 2003 by and between FSA and Sutton Capital Trust IV (Incorporated
by reference to Exhibit 99.8 to Financial Security Assurance Holdings Ltd.’s Form 10-Q for the quarter ended
June 30, 2003)
10.37 Contribution Agreement, dated as of November 22, 2006, between Dexia S.A. and Financial Security Assurance
Holdings Ltd. (Incorporated by reference to Exhibit 10.4 to Financial Security Assurance Holdings Ltd.’s
Form 8-K filed on November 28, 2006)
10.38 Agreement and Amendment between Dexia Holdings Inc., Dexia Credit Local S.A. and the Company dated as of
June 9, 2009 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 12, 2009)
10.39 Stock Purchase Agreement, dated as of December 22, 2014, between Assured Guaranty Corp. and Radian
Guaranty Inc. (Incorporated by reference to Exhibit 10.44 to Form 10-K for the year ended December 31, 2014)
10.40 Summary of Annual Compensation*
10.41 Director Compensation Summary (Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended
March 31, 2019)*
10.42 Assured Guaranty Ltd. 2004 Long-Term Incentive Plan, as amended and restated as of May 7, 2009 and as
amended through the Fourth Amendment (Incorporated by reference to Exhibit 10.43 to Form 10-K for the year
ended December 31, 2016)*
10.43 Form of Restricted Stock Agreement for Outside Directors under Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan, as in effect for awards commencing in 2015 (Incorporated by reference to Exhibit 10.4 to Form
10-Q for the quarter ended March 31, 2015)*
10.44 Assured Guaranty Ltd. Employee Stock Purchase Plan, as amended through the third amendment (Incorporated
by reference to Exhibit 10.4 to Form 10-Q for the quarter ended March 31, 2019)*
10.45 Assured Guaranty Ltd. Executive Severance Plan (amended and restated effective February 21, 2022)
(Incorporated by reference to Exhibit 10.45 to Form 10-K for the year ended December 31, 2021)*
10.46 Form of Acknowledgement Letter for Participants in Assured Guaranty Ltd. Executive Severance Plan and
Executive Officer Recoupment Policy(Incorporated by reference to Exhibit 10.46 to Form 10-K for the year
ended December 31, 2021)*
10.47 Assured Guaranty Ltd. Perquisite Policy, established February 9, 2012, and amended and restated on November
1, 2018 (Incorporated by reference to Exhibit 10.57 to Form 10-K for year ended December 31, 2018)*
10.48 Form of Indemnification Agreement between the Company and its executive officers and directors (Incorporated
by reference to Exhibit 10.8 to Form 10-Q for the year ended May 6, 2022)*
10.49 Amended and Restated Assured Guaranty Ltd. Executive Officer Recoupment Policy (amended and restated
effective February 21, 2022) (Incorporated by reference to 10.49 to Form 10-K for the year ended December 31,
2021)*
10.50 Form of Acknowledgement of Amended and Restated Assured Guaranty Ltd. Executive Officer Recoupment
Policy (Incorporated by reference to Exhibit 10.85 to Form 10-K for the year ended December 31, 2015)*
10.51 AG US Group Services Inc. Supplemental Executive Retirement Plan as Amended and Restated Effective
January 1, 2020 (Incorporated by reference to Exhibit 10.60 to Form 10-K for the year ended December 31,
2019)*
10.52 Financial Security Assurance Holdings Ltd. 1989 Supplemental Executive Retirement Plan (amended and
restated as of December 17, 2004) (Incorporated by reference to Exhibit 10.4 to Financial Security Assurance
Holdings Ltd.'s Form 8-K filed on December 17, 2004)*
10.53 Amendment to the Financial Security Assurance Holdings Ltd. 1989 Supplemental Employee Retirement Plan
(Incorporated by reference to Exhibit 10.29 to Form 10-Q for the quarter ended June 30, 2009)*
10.54 Financial Security Assurance Holdings Ltd. 2004 Supplemental Executive Retirement Plan, as amended on
February 14, 2008 (Incorporated by reference to Exhibit 10.3 to Financial Security Assurance Holdings Ltd.'s
Form 8-K filed on February 15, 2008)*
10.55 Agreement and Plan of Merger, dated as of April 12, 2016, among Assured Guaranty Corp., Cultivate Merger
Sub, Inc. and CIFG Holding Inc. (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended
March 31, 2016)
10.56 Share Purchase Agreement relating to the sale and purchase of MBIA UK Insurance Limited, dated September
29, 2016, between MBIA UK (Holdings) Limited and Assured Guaranty Corp. (Incorporated by reference to
Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2016)
252
Description of Document
10.57 2019 Form of Executive TSR Performance Based Restricted Stock Unit Agreement under Assured Guaranty Ltd.
2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended
March 31, 2019)*
10.58 2019 Form of Executive ABV Performance Based Restricted Stock Unit Agreement under Assured Guaranty
Ltd. 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter
ended March 31, 2019)*
10.59 2020 Form of Executive TSR Performance Based Restricted Stock Unit Agreement under the Assured Guaranty
Ltd. 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter
ended March 31, 2020)*
10.60 2020 Form of Executive ABV Performance Based Restricted Stock Unit Agreement under the Assured Guaranty
Ltd. 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter
ended March 31, 2020)*
10.61 2020 Form of Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan (Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2020)*
10.62 2020 Form of Executive Non-Equity Incentive Award Agreement under the Assured Guaranty Ltd. 2004 Long-
Term Incentive Plan (Incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended March 31,
2020)*
10.63 2020 Form of Non-Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-
Term Incentive Plan (Incorporated by reference to Exhibit 10.6 to Form 10-Q for the quarter ended March 31,
2020)*
10.64 Purchase Agreement, dated as of August 7, 2019, among BlueMountain Capital Management, LLC,
BlueMountain GP Holdings, LLC, BlueMountain CLO Management, LLC, Assured Guaranty US Holdings Inc.,
Assured Guaranty Ltd., Affiliated Managers Group, Inc. and the sellers named therein (Incorporated by reference
to Exhibit 2.1 to Form 10-Q for the quarter ended June 30, 2019)*
10.65 2021 Form of Executive TSR Performance Based Restricted Stock Unit Agreement under the Assured Guaranty
Ltd. 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter
ended March 31, 2021)*
10.66 2021 Form of Executive ABV Performance Based Restricted Stock Unit Agreement under the Assured Guaranty
Ltd. 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter
ended March 31, 2021)*
10.67 2021 Form of Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan (Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2021)*
10.68 2021 Form of Non-Executive Performance Retention Award under the Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan (Incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended March 31, 2021)*
10.69 2021 Form of Non-Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-
Term Incentive Plan (Incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarter ended March 31,
2021)*
10.70 Separation Agreement, dated as of December 21, 2021, between the Company and Russell B. Brewer II
(Incorporated by reference to 10.72 to Form 10-K for the year ended December 31, 2021)*
10.71 2022 Form of Executive TSR Performance Based Restricted Stock Unit Agreement under the Assured Guaranty
Ltd. 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter
ended March 31, 2022)*
10.72 2022 Form of Executive ABV Performance Based Restricted Stock Unit Agreement under the Assured Guaranty
Ltd. 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter
ended March 31, 2022)*
10.73 2022 Form of Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan (Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2022)*
10.74 2022 Form of Executive Non-Equity Incentive Award Agreement under the Assured Guaranty Ltd. 2004 Long-
Term Incentive Plan (Incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended March 31,
2022)*
10.75 2022 Form of Non-Executive Performance Retention Award under the Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan (Incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarter ended March 31, 2022)*
10.76 2022 Form of Non-Executive Restricted Stock Unit Agreement under the Assured Guaranty Ltd. 2004 Long-
Term Incentive Plan (Incorporated by reference to Exhibit 10.6 to Form 10-Q for the quarter ended March 31,
2022)*
10.77 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 (Incorporated by reference to Exhibit 10.7 to Form
10-Q for the quarter ended March 31, 2022)*
10.78 2023 Form of Executive TSR Performance Based Restricted Stock Unit Agreement under the Assured Guaranty
Ltd. 2004 Long-Term Incentive Plan*
253
Description of Document
21.1 Subsidiaries of the Registrant
22.0 Subsidiary Guarantors and Issuers of Guaranteed Securities (Incorporated by reference to Exhibit 22.0 to Form
10-K for the year ended December 31, 2021)
23.1 Accountants Consent
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 Annual Report on Form 10-K for the year
ended December 31, 2022 formatted in inline XBRL: (i) Consolidated Balance Sheets at December 31, 2022 and
2021; (ii) Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020;
(iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020;
(iv) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020;
(v) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020; and
(vi) Notes to Consolidated Financial Statements.
104.1 The Cover Page Interactive Data File from Assured Guaranty Ltd.’s Annual Report on Form 10-K for the year
ended December 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
ITEM 16. FORM 10-K SUMMARY
None.
254
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Assured Guaranty Ltd.
By:
/s/ Dominic J. Frederico
Name: Dominic J. Frederico
Title: President and Chief Executive Officer
Date: March 1, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Position
Date
/s/ Francisco L. Borges
Francisco L. Borges
/s/ Dominic J. Frederico
Dominic J. Frederico
Chairman of the Board; Director
March 1, 2023
President and Chief Executive Officer;
Director
March 1, 2023
/s/ Robert A. Bailenson
Robert A. Bailenson
Chief Financial Officer (Principal
Financial Officer)
March 1, 2023
/s/ Laura Bieling
Laura Bieling
/s/ Bonnie L. Howard
Bonnie L. Howard
/s/ Thomas W. Jones
Thomas W. Jones
/s/ Patrick W. Kenny
Patrick W. Kenny
/s/ Alan J. Kreczko
Alan J. Kreczko
/s/ Simon W. Leathes
Simon W. Leathes
/s/ Yukiko Omura
Yukiko Omura
Chief Accounting Officer and Controller
(Principal Accounting Officer)
March 1, 2023
March 1, 2023
March 1, 2023
March 1, 2023
March 1, 2023
March 1, 2023
March 1, 2023
Director
Director
Director
Director
Director
Director
255
Name
/s/ Lorin P.T. Radtke
Lorin P.T. Radtke
/s/ Courtney C. Shea
Courtney C. Shea
Position
Director
Director
Date
March 1, 2023
March 1, 2023
256
This page is intentionally left blank
This page is intentionally left blank
CEO Letter
Environmental / Social
Leadership
Financial Highlights
Board of Directors
Corporate Information
Form 10-K
Assured Guaranty Ltd.
Corporate information
Corporate Headquarters
Assured Guaranty Ltd.
30 Woodbourne Avenue
Hamilton HM 08
Bermuda
Phone: +1 (441) 279 5700
Other Locations
Bermuda
Assured Guaranty Re Ltd.
Assured Guaranty Re Overseas Ltd.
30 Woodbourne Avenue
Hamilton HM 08
Phone: +1 (441) 279 5700
United States
Assured Guaranty Municipal Corp.
Assured Guaranty Corp.
1633 Broadway, 23rd, 24th Floor
New York, NY 10019
Phone: +1 (212) 974 0100
150 California Street
Suite 500
San Francisco, CA 94111
Phone: +1 (415) 995 8000
Assured Investment Management LLC
1633 Broadway, 25th Floor
New York, NY 10019
Phone: +1 (212) 905 3900
United Kingdom
Assured Guaranty UK Limited
11th Floor, 6 Bevis Marks
London, EC3A 7BA
Phone: +44 (0) 20 7562 1900
Assured Investment Management (London) LLP
12th floor, 6 Bevis Marks
London, EC3A 7BA
Phone: +44 (0) 20 7647 0700
France
Assured Guaranty (Europe) SA
71, rue du Faubourg Saint-Honoré
75008, Paris, France
Phone: +33 (0)1 78 86 90 20
Stock Exchange Listing
Assured Guaranty Ltd. is listed on the New
York Stock Exchange under the symbol AGO.
Investor Inquiries
Our annual report on Form 10-K, quarterly
reports on Form 10-Q, proxy statement,
quarterly earnings releases and other investor
information may be obtained at no cost by
contacting our Investor Relations Department.
Links to our SEC filings, press releases, product
descriptions and other information may be
found on our website at AssuredGuaranty.com.
Our Global Code of Ethics; Corporate
Governance Guidelines; Bye-Laws; Board
Committee Charters; Statements on
Environmental Policy, Climate Change, Diversity
and Inclusion, and Human Rights; and other
information relating to corporate governance
are also available on our website at
AssuredGuaranty.com/governance.
Our Investor Relations Department can be
contacted at:
Assured Guaranty Ltd.
Investor Relations Department
30 Woodbourne Avenue
Hamilton HM 08
Bermuda
Phone: +1 (441) 279 5705
E-mail: ir@agltd.com
Independent Auditors
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
Transfer Agent of
Shareholder Records
Shareholder correspondence should
be mailed to:
First Class/Registered/Certified Mail:
Computershare Investor Services
PO Box 505000
Louisville, KY 40233-5000
Courier/Overnight Services:
Computershare Investor Services
462 South 4th Street Suite 1600
Louisville, KY 40202
Shareholder website
www.computershare.com/investor
In the U.S.
Phone: 1 (866) 214 2267
Outside the U.S.
Phone: +1 (201) 680 6578
For hearing impaired in the U.S.
Phone: 1 (800) 231 5469
For hearing impaired outside the U.S.
Phone: +1 (201) 680 6610
Forward-Looking Statements
Forward-looking statements are being made in this Annual Report that reflect the current views of Assured Guaranty with respect to future events and financial performance. They are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from these statements. Assured Guaranty’s forward-looking
statements, including those about its future base of predictable earned premium; demand and growth potential for its financial guaranty insurance, including the impact of increased federal
spending on opportunities for it to insure large-scale infrastructure projects; the impact on Assured Guaranty of any actions by the Oversight Board in Puerto Rico and any future resolution of
additional Puerto Rico credits under the Puerto Rico Oversight, Management and Economic Stability Act, including any resolution relating to the Puerto Rico Electric Power Authority, any
actions Assured Guaranty may take in future related to such credits, any related litigation or actions of the Title III court, the timing of any potential resolutions to such credits, and the future
course of Puerto Rico’s economy and its ability and willingness to pay its debt in the future; Assured Guaranty’s intent to continue to sell securities received in connection with the resolution of
Puerto Rico exposures already resolved; Assured Guaranty’s ability to improve returns on its insurance companies’ investment portfolios by investing in AssuredIM Funds; Assured Guaranty’s
objective of growing asset management-related earnings and its efforts to identify and execute on alternative accretive strategies for doing so; the direction of interest rates and credit spreads
and the effect of interest rates and credit spreads or volatility in either on the demand for financial guaranty insurance or the premium Assured Guaranty is able to charge for its financial
guaranties; whether the increased penetration of municipal bond insurance that began with the COVID-19 pandemic will be sustained; market understanding of Assured Guaranty’s financial
guaranty value proposition; future demand for Assured Guaranty’s product and the stability of the world economy; Assured Guaranty’s positioning for growth in the years ahead and its ability
to protect insured investors and shareholders through disciplined underwriting and risk management, produce savings and broaden opportunities for issuers, expand its markets, and actively
and prudently manage its capital; Assured Guaranty’s calculations of adjusted book value, PVP, net present value of estimated future installment premiums in force and total estimated net future
premium earnings; the adequacy of its capital and its ability to manage such capital; Assured Guaranty’s ability to realize loss recoveries assumed in its expected loss estimates, to appropriately
reserve for and to resolve its exposure to troubled credits within its insured portfolio; Assured Guaranty’s future share repurchase activity, could be affected by a number of factors, including those
identified in Assured Guaranty’s filings with the Securities and Exchange Commission, which are available on its website. Do not place undue reliance on these forward-looking statements, which are
made only as of the date of the statement or, if a date is not specified, as of March 1, 2023 with respect to statements contained in the Annual Report on Form 10-K, and otherwise March 21, 2023.
Assured Guaranty does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
m
o
c
.
s
r
o
n
n
o
c
-
n
a
r
r
u
c
.
w
w
w
/
.
c
n
I
,
s
r
o
n
n
o
C
&
n
a
r
r
u
C
y
b
n
g
i
s
e
D
t
r
o
p
e
R
l
a
u
n
n
A