GAAP Highlights

• Net income attributable to Assured Guaranty Ltd. was $98 million, or $1.29 per share,⁽¹⁾ for second quarter 2021.
• Shareholders’ equity attributable to Assured Guaranty Ltd. per share was $87.74 as of June 30, 2021, the highest ever reported.

Non-GAAP Highlights

• Adjusted operating income⁽²⁾ was $120 million, or $1.59 per share, for second quarter 2021.
• Adjusted operating shareholders’ equity⁽²⁾ per share and adjusted book value (ABV)⁽²⁾ per share reached record highs of $81.81 and $119.72, respectively, as of June 30, 2021.

Return of Capital to Shareholders

• Second quarter 2021 capital returned to shareholders was $105 million, including share repurchases of $88 million, or 1.9 million shares, and dividends of $17 million.
• On August 4, 2021, the Board of Directors authorized an additional $350 million in share repurchases.

Debt Issuance and Redemptions

• Issued $500 million of 3.15% Senior Notes due in 2031.
• Redeemed $200 million of long-term debt on July 9, 2021: $100 million of 6 7/8% Quarterly Interest Bonds due in 2101 and $100 million of 6.25% Notes due in 2102.

Insurance Segment

• Insurance segment adjusted operating income was $152 million for second quarter 2021.
• Gross written premiums (GWP) were $84 million for second quarter 2021.
• Present value of new business production (PVP)⁽²⁾ was $81 million for second quarter 2021.

Asset Management Segment

• Asset Management segment adjusted operating loss was $2 million for second quarter 2021.
• Gross inflows were $426 million for second quarter 2021.

Assured Guaranty Ltd. (NYSE: AGO) (AGL and, together with its consolidated entities, Assured Guaranty or the Company) announced today its financial results for the three-month period ended June 30, 2021 (second quarter 2021).

“At mid-year, our key measures of shareholder value – shareholders’ equity, adjusted operating shareholders’ equity and adjusted book value - stood at all-time highs on a per-share basis,” said President and CEO Dominic Frederico. “Our insurance production has been very strong, with total first-half gross premiums written and PVP reaching $171 million and $167 million, respectively. After a first quarter driven by exceptional new business production in U.S. public finance, second-quarter production was well distributed across our U.S. and international public finance and global structured finance businesses, illustrating again the advantage of what S&P Global Ratings recently described as our ‘well-defined, diverse underwriting strategy’ in their July report affirming our AA with Stable Outlook financial strength ratings.

“Assured Investment Management has continued its progress since the beginning of the year,” Mr. Frederico added, “increasing AUM to $17.6 billion, aided by the issuance of three CLOs, and bringing fee-earning AUM to 93% of the total. Fee-earning AUM on June 30, 2021 was $16.3 billion, a 64% increase over the $9.9 billion in fee-earning AUM a year earlier on June 30, 2020.”

As of June 30, 2021, on a per share basis, shareholders' equity attributable to AGL, adjusted operating shareholders' equity and ABV all reached record highs. See "Common Share Repurchases" on page 11. Shareholders' equity attributable to AGL, adjusted operating shareholders' equity and ABV declined, mainly due to share repurchases and dividends, offset in part by income earned, and in the case of ABV, net written premiums.

Insurance Segment

The Insurance segment primarily consists of the Company's insurance subsidiaries that provide credit protection products to the United States (U.S.) and international public finance (including infrastructure) and structured finance markets. The Insurance segment is presented without giving effect to the consolidation of financial guaranty variable interest entities (FG VIEs) and consolidated investment vehicles (CIVs), which are primarily funds and collateralized loan obligations (CLOs) managed by Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM). In the case of FG VIEs, the Insurance segment includes premiums and losses of the financial guaranty insurance policies associated with the FG VIEs' debt. In the case of CIVs, the Insurance segment includes the insurance subsidiaries' share of earnings from its investments in funds managed by AssuredIM (AssuredIM Funds).

Insurance adjusted operating income for second quarter 2021 was $152 million, compared with $154 million for the three-month period ended June 30, 2020 (second quarter 2020). The decrease was mainly due to the following:

• The commutation of a previously ceded book of business resulted in a commutation gain of $38 million in second quarter 2020 that did not recur in 2021.

• Net earned premiums and credit derivative revenues were lower in second quarter 2021, compared with second quarter 2020 primarily due to lower accelerations from refundings as presented in the table below.

The declines mentioned above were substantially offset by the following:

• Loss expense was a $12 million benefit in second quarter 2021, compared with an expense of $39 million in second quarter 2020. The benefit in second quarter 2021 was primarily attributable to U.S. residential mortgage-backed securities (RMBS) exposures. Loss expense in second quarter 2020 was primarily attributable to certain Puerto Rico exposures.

• The investments in the Insurance segment generated $119 million of income in second quarter 2021, compared with $108 million of income in second quarter 2020, as presented in the table below.

The decrease in net investment income was primarily due to lower average balances in the fixed-maturity investment portfolio and lower reinvestment yields on short-term investments. The fixed-maturity investment portfolio declined mainly due to dividends paid by the insurance subsidiaries that were used for AGL share repurchases.

In the Insurance segment, investments in AssuredIM Funds are recorded at net asset value (NAV), with the change in NAV recorded in the line item "equity in earnings of investees." The AssuredIM Funds include healthcare, CLOs, municipal bond and asset-based funds. Equity in earnings of investees also includes the Company's proportionate interests in other alternative investments managed by third parties. To the extent additional fixed-maturity securities are shifted to AssuredIM Funds and other alternative investments, the corresponding income will also shift from net investment income to equity in earnings of investees.

Equity in earnings of AssuredIM Funds in second quarter 2021 was a gain of $37 million, compared with a gain of $26 million in second quarter 2020. In both periods, gains were mainly generated by the healthcare and CLO funds. In addition, alternative investments managed by third parties generated gains of $11 million in second quarter 2021.

The Insurance segment is authorized to invest up to $750 million into AssuredIM Funds. As of June 30, 2021, the Insurance segment had total commitments to AssuredIM Funds of $587 million of which $366 million represented net invested capital and $221 million was undrawn. The Insurance segment's interest in AssuredIM Funds was valued at $433 million as of June 30, 2021.

Economic Loss Development

The net economic benefit of $20 million in second quarter 2021 primarily consists of a $28 million benefit on U.S. RMBS, attributable to higher excess spread, higher recoveries received for charged-off loans, and improved performance in certain transactions, partially offset by changes in discount rates. Certain U.S. RMBS transactions with insured floating-rate debt are supported by large portions of fixed-rate assets. When the interest rates on floating-rate debt decrease, as they generally did in second quarter 2021, excess spread increases. The economic loss development attributable to changes in discount rates for all transactions was a loss of $15 million for second quarter 2021.

New Business Production

GWP relates to both financial guaranty insurance and specialty insurance and reinsurance contracts. Financial guaranty GWP includes: (1) amounts collected upfront on new business written, (2) the present value of future contractual or expected premiums on new business written (discounted at risk free rates), and (3) the effects of changes in the estimated lives of certain transactions in the in-force book of business. Specialty insurance and reinsurance 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 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 whether in insurance or credit derivative form. See “Explanation of Non-GAAP Financial Measures” at the end of this press release.

U.S. public finance GWP and PVP in second quarter 2021 both decreased, compared with second quarter 2020, when the COVID-19 pandemic generated a significant increase in demand for insurance, particularly in the secondary market. The average rating of U.S. public finance par written in second quarter 2021 was A. The Company's gross par written represented 52% of the total U.S. municipal market insured issuance in second quarter 2021.

In second quarter 2021, non-U.S. GWP and PVP was primarily attributable to several large transactions. Non-U.S. GWP decreased 46%, while non-U.S. PVP increased 54%. Excluding amounts relating to one large long-dated policy written in second quarter 2020, for which GWP includes the present value of all contractual future premiums, while PVP includes the present value of only expected future premiums, non-U.S. GWP and PVP both increased, by 91% and 96%, respectively.

Asset Management Segment

The Asset Management segment consists of AssuredIM, which provides asset management services to third party investors as well as to the Insurance segment.

Management fees in second quarter 2021 increased by 58% compared with second quarter 2020, primarily due to an increase in CLO fees as a result of (i) higher fee-earning CLO assets under management (AUM) due to the sale to third-parties of CLO equity from legacy funds and the issuance of new CLOs, and (ii) the deferral of CLO fees in second quarter 2020 that did not recur in second quarter 2021. As of June 30, 2021 substantially all of the CLO equity held by legacy funds has been sold to third parties, which ends the fee rebates made back to these funds. In addition, the COVID-19 pandemic and downgrades in loan markets had triggered over-collateralization provisions in CLOs in the second and third quarters of 2020, resulting in the deferral of CLO management fees. As of June 30, 2021, there were no CLOs triggering over-collateralization provisions.

The increase in fees from opportunity funds and liquid strategies was mainly attributable to funds created since the Company established AssuredIM, while fees from the wind-down funds decreased as distributions to investors continued.

While total AUM increased slightly in second quarter 2021 from $17.5 billion as of March 31, 2021 to $17.6 billion as of June 30, 2021, fee-earning AUM rose by 13% over the same period, from $14.4 billion to $16.3 billion. Compared with June 30, 2020, fee-earning AUM increased 64% from $9.9 billion.

As of June 30, 2020, total AUM was $17.0 billion, consisting of $13.2 billion in CLOs, $1.3 billion in opportunity funds and liquid strategies, and $2.5 billion in wind-down funds.

Corporate Division

The Corporate division primarily consists of interest expense on the debt of Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings Inc. (AGMH), as well as other operating expenses attributed to holding company activities such as Board of Directors' expenses and administrative services performed by the operating subsidiaries.

The Corporate division loss in second quarter 2021 increased compared to second quarter 2020 primarily due to the interest expense associated with the May 26, 2021 issuance of $500 million in 3.15% Senior Notes due in 2031, as well as higher state and local income tax expense. On July 9, 2021, a portion of the proceeds of the debt issuance was used to redeem the following AGMH debt: $100 million of 6 7/8% Quarterly Interest Bonds due in 2101, and $100 million of 6.25% Notes due in 2102. In the third quarter of 2021, the Company will recognize a pre-tax loss of approximately $66 million ($52 million after-tax) associated with the redemption of AGMH debt, which represents the difference between the amount paid to redeem AGMH's 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.

Other Items

Other items primarily consist of intersegment eliminations, reclassifications of the reimbursement of fund expenses to revenue, and consolidation adjustments, including the effect of consolidating FG VIEs and AssuredIM investment vehicles. The majority of the economic effect of the Company's interest in consolidated AssuredIM Funds, as well as the premiums, investment income and losses associated with consolidated FG VIEs, are presented in the Insurance segment. On a consolidated basis, the ownership interests of the consolidated AssuredIM Funds to which it has no economic rights, are reflected as either redeemable or nonredeemable noncontrolling interests in the Company's condensed consolidated financial statements.

Reconciliation to GAAP

The following table presents a reconciliation of net income (loss) attributable to AGL to adjusted operating income.

Non-credit impairment unrealized fair value losses on credit derivatives in second quarter 2021 were generated primarily as a result of the tightening of Assured Guaranty Corp. (AGC) spreads; these losses were partially offset by general price improvements of the underlying collateral. In second quarter 2020, non-credit impairment unrealized fair value gains on credit derivatives were generated primarily as a result of price improvements of the underlying collateral, partially offset by losses due to the tightening of AGC spreads. Except for underlying credit impairment, which is recognized as loss expense in the Insurance segment, the fair value adjustments on credit derivatives in the insured portfolio are non-economic adjustments that reverse to zero over the remaining term of that portfolio.

Fair value losses on CCS in second quarter 2021 were primarily due to a tightening in market spreads during the quarter. Fair value losses on CCS in second quarter 2020 were caused by the steep reduction in LIBOR during the period. Fair value of CCS is heavily affected by, and in part fluctuates with, changes in market interest rates, credit spreads and other market factors and are not expected to result in an economic gain or loss.

Common Share Repurchases

From 2013 through August 5, 2021, the Company repurchased a total of 126.6 million common shares at an average price of $30.68, representing approximately 65% of the total shares outstanding at the beginning of the repurchase program in 2013. On August 4, 2021, the Board of Directors authorized the repurchase of an additional $350 million of common shares. As of August 5, 2021, the Company was authorized to purchase $379 million of its common shares. These repurchases can be made 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, some of which factors may be impacted by the direct and indirect consequences of the course and duration of the COVID-19 pandemic and evolving governmental and private responses to the pandemic. The repurchase program may be modified, extended or terminated by the Board of Directors at any time. It does not have an expiration date.

Financial Statements

Explanation of 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:

• certain FG VIEs, which the Company does not own and where its exposure is limited to its obligation under the financial guaranty insurance contract, and
• certain investment vehicles for which the Company is deemed the primary beneficiary.

The Company provides the effect of VIE 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 of each of the consolidated FG VIEs and CIVs is reflected primarily in the results of the Insurance segment.

Management and the Board of Directors use non-GAAP financial measures further adjusted to remove the effect of VIE 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 core financial measures that the Company uses to help determine compensation are: (1) adjusted operating income, further adjusted to remove the effect of VIE consolidation, (2) adjusted operating shareholders' equity, further adjusted to remove the effect of VIE consolidation, (3) growth in adjusted book value per share, further adjusted to remove the effect of VIE consolidation, and (4) PVP.

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 VIE 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 VIE consolidation to evaluate the Company’s capital adequacy.

Adjusted operating income, further adjusted for the effect of VIE 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:

See "Reconciliation to GAAP" above 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:

Management uses adjusted book value, further adjusted for VIE consolidation, to measure the intrinsic value of the Company, excluding franchise value. Growth in adjusted book value per share, further adjusted for VIE 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:

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.

Net Present Value of Estimated Net Future Revenue

Management believes that this amount is a useful measure because it enables an evaluation of the value of the present value of estimated net future revenue for contracts other than financial guaranty insurance contracts (such as specialty insurance and reinsurance contracts and credit derivatives). 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.

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 for the Company 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 premium 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), whether in insurance or credit derivative contract 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 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.