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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.06pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.03pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.09pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
negatively+6
adverse+5
mismatch+5
lapse+5
losses+4
Positive rising
assured+24
opportunities+2
benefit+2
gains+1
successfully+1
Risk Factors (Item 1A)
18,634 words
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, capital, liquidity, business prospects and/or share price.
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 and/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 global financial markets, political systems and economy generally.
• Significant budget deficits and pension funding and revenue of certain public finance obligors that issue obligations the Company insures.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+16
litigation+6
volatility+4
recession+4
troubled+4
Positive rising
gains+16
assured+13
opportunities+5
enhancement+4
enhance+3
MD&A (Item 7)
21,998 words
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 2024 results to 2023 results have been omitted in this Form 10-K. The Company’s comparison of 2024 results to 2023 results is included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 , under Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
• Significant risks from large individual or correlated exposures.
• Losses on obligations insured by the Company significantly in excess of those expected by the Company or recoveries significantly below those expected by the Company.
• Higher U.S. debt-to-GDP ratio and/or 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.
• Changes in attitudes toward debt repayment negatively impacting the Company’s insurance portfolio.
• The impact of narrow credit spreads on the demand for financial guaranty insurance and annuity reinsurance.
• The effect of credit losses and interest rate changes on the Company’s investments.
• Effects of global climate change on the Company’s insurance portfolio and investments.
Risks Related to Estimates, Assumptions and Valuations
• The impact on reserves from uncertainties of estimates of expected insurance losses to be paid (recovered).
• The subjectivity of the valuation of many of the Company’s assets and liabilities.
• Experience making pricing assumptions for life and annuity reinsurance products relating to longevity, mortality, policy lapses, withdrawals, surrenders, investment returns and expenses.
Strategic Risks
• Competition in the Company’s industries.
• Strategic transactions not resulting in the benefits anticipated or subjecting the Company to negative consequences.
• The Company’s investments in Sound Point.
• Minority ownership interests and the inability to control the business, management or policies of such interests.
• Alternative investments, including investments managed by Sound Point and exclusivity with Sound Point, may not result in the benefits anticipated, and may increase credit, interest rate, liquidity, reputational, and other risks.
• A downgrade of the financial strength or financial enhancement ratings of any of the Company’s insurance or reinsurance subsidiaries.
• The Assured Life Re Acquisition may negatively impact the Company, including how it is perceived by its investors, regulators, rating agencies or obligors, as well as Assured Life Re’s business relationships.
• Risks related to entering the life and annuity reinsurance business, including integration with the Company’s core competencies.
Operational Risks
• Fluctuations in foreign exchange rates.
• Exposure to less predictable political, credit and legal risks by underwriting insurance in non-U.S. markets and/or covering new sectors or classes of business.
• Loss of senior management and other key employees and delay or inability to develop or recruit suitable replacements.
• 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.
• Evolving cybersecurity, privacy and data security regulations.
• The exploration of artificial intelligence used in some of the Company’s business operations.
• Errors in, overreliance on, or misuse of, models.
• Reduction in the Company’s liquidity from significant claim payments.
• A sudden need to raise additional capital as a result of insurance losses or as a result of changes in regulatory or rating agency capital requirements applicable to its insurance subsidiaries at a time when additional capital may not be available or may be available only on unfavorable terms.
• Large insurance losses substantially increasing the Company’s insurance subsidiaries’ leverage ratios, and preventing them from writing new insurance.
• Constraints on the Company’s holding companies' ability to meet their obligations.
• Limitations on the ability of AGL and its subsidiaries to meet their liquidity needs.
• Losses arising from asset/liability mismatch in the Company’s annuity reinsurance business.
Risks Related to Taxation
• The impacts of changes in U.S. tax laws on the demand or profitability of financial guaranty insurance and the Company’s investments.
• Certain of the Company’s non-U.S. subsidiaries may be subject to U.S. tax.
• AGL may become, and AG Re and AGRO are, subject to taxes in Bermuda.
• U.S. Persons holding AGL’s shares may be subject to taxation under the U.S. CFC rules.
• U.S. Persons holding AGL’s shares may be subject to additional U.S. income taxation on their proportionate share of the Company's RPII.
• U.S. tax-exempt shareholders may be subject to unrelated business taxable income rules.
• Adverse tax consequences to U.S. Persons holding AGL’s shares 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 the Company and an investment in AGL’s common shares.
• U.S. federal tax consequences of an ownership change under Section 382 of the Code.
• 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.
• 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.
• 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.
• An adverse adjustment under U.K. transfer pricing legislation.
• Measures taken in response to the OECD Base Erosion and Profit Shifting (BEPS) project.
Risks Related to Applicable Law, Litigation and GAAP
• The impact of changes in or inability to comply with applicable law and regulations.
• The impact of changes in applicable laws or regulations on the ability of issuers to satisfy their obligations.
• Legislation, regulation, legal or regulatory determinations, or litigation arising out of struggles of distressed obligors.
• Certain insurance regulatory requirements and restrictions constraining AGL’s ability to pay dividends and fund share repurchases and other activities.
• Difficulties in effecting a change of control of AGL under applicable insurance laws.
• The inability to obtain accurate and timely financial information from Sound Point or other alternative investment managers.
• Changes in the fair value of the Company’s insured credit derivatives portfolio, certain of its investments, its committed capital securities (CCS), its FG VIEs, and/or the consolidation or deconsolidation of one or more FG VIEs during a financial reporting period.
• Changes in industry and other accounting practices.
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 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 global financial markets, political systems and the economy generally may adversely affect the Company’s financial condition, results of operations, capital, liquidity, business prospects and share price.
In recent years, global financial markets, political systems and the economy generally have been impacted by changes in inflation and interest rates, governmental policies such as tariffs, and geopolitical events, including regional and global military conflicts and strategic competition and trade confrontations, and could be impacted by other natural and man-made events in the future.
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 products, the amount of losses incurred on transactions it guarantees, the value and performance of its investments, the Company’s earnings from its ownership interest in Sound Point, the capital and liquidity position and financial strength and enhancement ratings of its insurance subsidiaries, and the price of its common shares.
Public finance obligors that have issued obligations insured or reinsured by the Company are experiencing, or may in the future experience, significant budget deficits, and pension and revenue shortfalls, and difficulties in obtaining additional financing, that could result in increased credit losses or liquidity claims and increased rating agency capital charges on those insured obligations.
Certain territorial or local governments, including ones that have issued obligations insured or reinsured 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 are 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 liquidity claims on its insured public finance obligations.
Obligations supported by revenue streams, which may include both revenue and non-revenue bonds, such as those issued by healthcare facilities, 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 including hybrid work models, telecommuting and other alternative work arrangements, reduced governmental aid, or other causes. These obligations may also be adversely affected by increased costs resulting from operational strain, high financing costs and other capital constraints. These obligations, which may not necessarily benefit from financial support from other tax revenues or governmental authorities, may experience increased losses if the revenue streams are insufficient to pay scheduled debt service and the obligors are unable or unwilling to increase utility rates or revenues, decrease costs, or obtain other additional financing.
The Company may be subjected to significant risks from large individual or correlated financial guaranty 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 (whether related to cybersecurity incidents, mismanagement, fraud or otherwise) or other reasons, and the amount of financial guaranty insurance exposure the Company has to some risks is quite large. The Company seeks to reduce this risk by 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 financial guaranty insurance business and establishing underwriting criteria to manage risk aggregations. However, in certain cases, the Company’s ultimate exposure to a single risk may exceed its underwriting guidelines (caused by, for example, bond accretion exceeding the risk limitation, acquisitions, reassumptions or other strategic exceptions). Additionally, certain lines of business written by the Company have short durations of less than one year and a systemic event could cause the Company to have losses in excess of available liquidity. Should the Company's risk assessments prove inaccurate and/or should the applicable limits prove inadequate, the Company could be exposed to larger than anticipated losses, could be required by the rating agencies to hold additional capital against insured exposures whether or not the insured obligations are downgraded by the rating agencies, and external financing may or may not be available to the Company in the future on satisfactory terms.
The Company is exposed to correlation risk across its insured exposures and in its investment portfolio. 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 sector. During a broad economic downturn or in the face of a significant natural or man-made event
or disaster, 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; ratings downgrades of the Company’s insurance or reinsurance subsidiaries; a reduction in the value of the Company’s investments; and actual defaults and losses in its insurance portfolio and/or investments.
Losses on obligations insured by the Company significantly in excess of those expected by the Company or recoveries significantly below those expected by the Company could have a negative effect on the Company’s financial condition, results of operations, capital, business prospects and share price.
Losses on insured exposures significantly in excess of those expected by the Company could have a negative effect on the Company’s financial condition, results of operations, capital, business prospects and share price. Certain issuers 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 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 and legal actions related to that exposure may be found in Part II, Item 8. Financial Statements and Supplementary Data, Note 4. Expected Loss to be Paid (Recovered).
A higher U.S. debt-to-GDP ratio and/or 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 deficitconcerns, 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 global economy and banking system, cause market volatility, raise the cost of credit, reduce public investment, increase interest rates and inflation, 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. Historically the U.S. federal government has provided aid to state and local governments; however, certain state and local governments remain under financial stress. If the issuers of the obligations in the Company’s U.S. public finance financial guaranty 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.
A higher U.S. debt-to-GDP ratio and/or 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.
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 its 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 due to legal rulings or debt relief programs that may absolve them of the repayment obligation or otherwise, 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 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.
Narrow credit spreads could adversely affect demand for financial guaranty insurance and annuity reinsurance.
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 the bond market is less volatile or 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. Similarly, demand for annuity insurance and reinsurance products can be a function of the size of credit spreads, with wider credit spreads generally providing purchasers of annuity financial products more opportunities for higher returns.
Credit losses and changes in interest rates could adversely affect the Company’s investments.
The Company’s results of operations are affected by the performance of its investments, which primarily consist of fixed-maturity securities and short-term investments. 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. Alternative investments, including the Company’s equity method investment in Sound Point funds and its ownership interest in Sound Point, Loss Mitigation Securities and CVIs may be more susceptible to credit losses than most of the rest of the Company’s fixed-maturity 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, the value of the Company’s existing fixed-rate investments would generally be expected to increase, resulting in an unrealized gain on investments and improving the Company’s financial condition. At the same time, funds reinvested in new fixed rate investments will have a lower expected yield, reducing the Company’s future investment income compared to the amount it would have earned if interest rates had not declined. Conversely, if interest rates increase, the Company’s future results of operations could improve because of higher future reinvestment income from its new fixed rate investments, but its financial condition could be adversely affected because the value of the fixed-rate investments generally would be reduced. Regarding the Company’s existing floating rate investments, as interest rates decline or increase, income from such investments will generally decrease or increase, respectively, while the value of such investments may or may not experience a material gain or loss commensurate with changes in prevailing interest rates.
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.
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.
Risks Related to Estimates, Assumptions and Valuations
Estimates of expected financial guaranty 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, ability to raise additional capital and share price may all be adversely affected.
The Company does not use traditional actuarial approaches for its financial guaranties to determine its estimates of expected losses to be paid (recovered). The determination of financial guaranty 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 financial guaranty 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 financial guaranty 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. Financial guaranty 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 financial guaranty losses and its related reserves may also change materially.
See Part II, Item 8. Financial Statements and Supplementary Data, Note 4. Expected Loss to be Paid (Recovered), and Note 17. Contingencies, for additional information.
The valuation of many of the Company’s assets and liabilities includes methodologies, estimates and assumptions that are subjective 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.
The Company carries a significant portion of its assets and certain of its liabilities 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 creditworthiness 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, 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 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 reported within the financial statements, and period-to-period changes in value could vary significantly.
The Company makes assumptions when pricing its life and annuity reinsurance products relating to longevity, mortality, policy lapses, withdrawals, surrenders, investment returns and expenses, and significant deviations in experience could negatively affect the Company’s financial condition and results of operations.
The Company’s life and annuity reinsurance contracts expose it to longevity risk, which is the risk that the period the Company pays annuity or pension benefits exceeds that which it assumed in pricing its reinsurance contracts. Some of the
Company’s life and annuity reinsurance contracts are exposed to mortality risk, which is the risk that the level of death claims may differ from that which was assumed in pricing the reinsurance contracts. In addition, the Company’s reinsurance contracts are exposed to lapse risk (i.e., risk that a policyholder stops paying premium and allows a policy to terminate before maturity) and withdrawal and/or surrender risk (i.e., where a policyholder withdraws part or all of the cash value of a life insurance policy). An adversedeviation of longevity, mortality, lapse and/or surrender rates from the Company’s expectations could have a negative impact on its financial performance.
The Company’s life and annuity reinsurance risk analysis and underwriting processes are designed with the objective of controlling the quality of this business and establishing appropriate pricing for the risks it assumes. Among other things, these processes rely heavily on the Company’s underwriting, its analysis of longevity and mortality trends, lapse rates, withdrawal and surrender rates, expenses and the Company’s understanding of medical advances or impairments and their effect on longevity or mortality.
The Company expects longevity, mortality, lapse, withdrawal and surrender experience to fluctuate somewhat from period to period, but believes they should remain reasonably predictable over a period of many years. Longevity, mortality, lapse, withdrawal or surrender experience that is less favorable than the rates that the Company used in pricing a reinsurance agreement may cause its net income to be less than otherwise expected because the premiums it receives for the risks it assumes may not be sufficient to cover the claims and profit margin.
The Company regularly reviews its reserves and associated assumptions as part of its ongoing assessment of its business performance. If the Company concludes that its reserves are insufficient to cover actual or expected reinsurance contract liabilities as a result of changes in experience, assumptions or otherwise, the Company would be required to increase its reserves and incur charges in the period in which it makes the determination. The amounts of such increases may be significant, and this could materially adversely affect the Company’s financial condition and results of operations and may require it to fund additional capital in its life and annuity reinsurance business.
The Company’s financial condition and results of operations may also be adversely affected if its actual investment returns and expenses differ from its pricing and reserve assumptions. Changes in economic conditions may lead to changes in market interest rates, credit spreads, availability of liquidity, foreign exchange rates, or changes in the Company’s investment strategies, any of which could cause the Company’s actual investment returns and expenses to differ from its pricing and reserve assumptions.
Strategic Risks
Competition in the Company’s industries may adversely affect its financial condition, results of operations, capital, business prospects and share price.
As described in greater detail under Item 1. Business — Insurance — Market Demand and Competition and Item 1. Business — Asset Management — Market Demand and Competition, the Company can face competition in its financial guaranty insurance, life and annuity reinsurance and asset management businesses from other insurance companies, providers of other credit enhancement, or other asset managers which could have an adverse effect on the Company’s financial condition, results of operations, capital, business prospects and share price.
The life and annuity reinsurance market is extremely competitive and expansion of the Company’s life and annuity reinsurance business may be slower than anticipated. While the Company believes that its annuity reinsurance platform provides a compelling market proposition, it may experience difficulties executing its business strategies, including market acceptance of the Assured Life Re platform and obtaining acceptable market rates of return for business opportunities.
The Company’s Asset Management segment primarily consists of its ownership interest in Sound Point, which operates in highly competitive markets. Sound Point competes with many other firms in every aspect of the asset management industry, including raising funds, seeking investments, and hiring and retaining professionals. Sound Point’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 its competitors. Some of Sound Point’s competitors may have a lower cost of funds and access to funding and other resources that are not available to Sound Point. In addition, some of Sound Point’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than Sound Point does. Furthermore, Sound Point may lose investment opportunities if it does not match its competitors’ pricing, terms and structure. The loss of such investment opportunities may limit Sound Point’s ability to grow or cause it to have to shrink the size of its AUM, which could decrease its earnings. If Sound Point matches its competitors’ pricing, terms and structure, it may experience decreased earnings and increased risk of investment losses. If Sound Point is
unable to successfully compete, it may result in decreased earnings for Sound Point and increased risk of investment losses in Sound Point funds, which could materially adversely impact the Company’s ownership interest in Sound Point and/or its investment in Sound Point funds and, ultimately, the Company’s financial condition, results of operations, capital, business prospects and share price.
Strategic transactions may not result in the benefits anticipated.
From time to time the Company evaluates potential mergers, acquisitions, divestitures and other strategic opportunities, including transactions involving legacy financial guaranty companies and financial guaranty portfolios, asset managers, life and annuity reinsurers, and other companies, and has executed a number of such transactions in the past. Such transactions 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 or portfolio; (b) difficulty in estimating the value of a new entity or portfolio; (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; (g) failure to identify legal risks associated with the strategic transaction with an entity or portfolio, (h) failure of a strategic transaction to perform as expected, (i) deployment of financial resources towards certain strategic initiatives may limit the Company’s ability to deploy capital for other strategic initiatives or other purposes, and (j) 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 or portfolios 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 or portfolios 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.
The Company’s investments in Sound Point are subject to the risks of Sound Point’s business that may adversely affect the Company’s financial condition, results of operations, capital, business prospects and share price.
Since July 1, 2023, the Company participates in the asset management business through its ownership interest in Sound Point, which is subject to the risks of Sound Point’s business. See Item 1. Business — Asset Management. External factors, such as changes in inflation, interest rates, credit markets or segments thereof, geopolitical risk, developments in the global financial markets, general macroeconomic factors, and industry conditions, as well as the financial performance of Sound Point relative to the Company’s expectations at the time of the Sound Point Transaction, could result in an impairment, which could adversely affect the Company’s financial condition, results of operations and share price.
Asset management services are primarily a fee-based business, and Sound Point’s asset management and performance fees are based on the amount of its AUM as well as the performance of those assets. Sound Point’s business operates in highly competitive markets with many other firms in every aspect of the asset management industry. See “– Competition in the Company’s industries may adversely affect its financial condition, results of operations, capital, business prospects and share price.” Industry competition, volatility or declines in the markets in which Sound Point invests as an asset manager, or poor performance of its investments, may negatively affect its AUM and its asset management and performance fees, may deter future investment by third parties in Sound Point’s asset management products, and may result in an impairment to the Company’s ownership interest in Sound Point.
Sound Point is dependent on certain key personnel, including Sound Point’s Managing Partner and Chief Investment Officer, and its future success depends on their continued service. The departure of any of Sound Point’s key personnel for any reason could have a material adverse effect on Sound Point’s business, financial condition or results of operations and, consequently, the Company’s ownership interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.
The asset management business is also subject to legal, regulatory, compliance, accounting, valuation and political risks that differ from those that may affect the Company’s insurance business. Sound Point operates in a highly regulated industry and, as a registered investment adviser, is subject to the provisions of the Investment Advisers Act of 1940, as
amended. Sound Point is, from time to time, subject to formal and informal examinations, investigations, inquiries, audits and reviews from numerous regulatory authorities both in response to issues and questions raised in such examinations or investigations and in connection with the changing priorities of the applicable regulatory authorities across the market in general.
Because the Company does not control the business, management or policies of Sound Point, it relies upon Sound Point to make appropriate decisions and operate in a manner consistent with applicable rules and regulations. In turn, Sound Point may rely on third party service providers such as custodians and fund administrators whom they do not control to comply with applicable rules and regulations. Failure of Sound Point or its service providers to comply with applicable rules and regulations could have a material adverse effect on the value of the Company’s ownership interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.
The Company’s interest in Sound Point is subject to the risks normally associated with a noncontrolling interest.
Since the Company holds a noncontrolling interest in Sound Point, it is unable to control the business, management or policies of Sound Point. For example, the Company is not be able to control the timing or amount of distributions from Sound Point and is not involved on a day-to-day basis with Sound Point’s operations or its decision-making or its adoption and implementation of policies and procedures with respect to its investment, reporting, internal control, legal, compliance or risk functions. In most cases, the Company will be bound by the decisions made by the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point. In the event that the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point have interests, objectives and incentives that differ from those of the Company, there can be no assurance that the decisions they make will be aligned with the interests of the Company. Decisions made by the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point not in the Company’s interest could have a material adverse effect on the Company’s interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.
Alternative investments, including allocations of investments to Sound Point and the exclusivity arrangement with Sound Point, may not result in the benefits anticipated, and may expose it to increased credit, interest rate, liquidity, reputational and other risks.
The Company has 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. Alternative investments are generally less liquid than most of the Company’s other investments and so may be difficult to convert to cash or investments that receive more favorable treatment under the capital models to which the Company is subject, and so may increase the risks described under “— Operational Risks — The ability of AGL and its subsidiaries to meet their liquidity needs may be limited.” Although the Company uses what it believes to be excess capital to make alternative investments, 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. In addition, the changes in fair value of certain of these assets are reported in results of operations may be more volatile than net investment income earned from fixed maturity securities.
The Company is using Sound Point’s investment knowledge and experience to expand the categories and types of its alternative investments by: (a) allocating capital in Sound Point managed funds, other vehicles and separately managed accounts; (b) redeploying return of capital, gains and dividends from Sound Point managed funds, other vehicles and separately managed accounts in future Sound Point managed funds, other vehicles and separately managed accounts; and (c) having Sound Point serve as AG’s sole alternative credit manager. This expansion of categories and types of investments, allocations to Sound Point and exclusivity arrangement with Sound Point may increase the credit, interest rate and liquidity risk in the Company’s investments and expose the Company to reputational or other risks.
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, A.M. Best Company, Inc. and Fitch Ratings, Inc. to 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. 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. In the event of a downgrade by a rating agency of the financial strength or financial enhancement ratings of one or more of the Company’s subsidiaries, certain beneficiaries may have the right to cancel their credit protection and certain ceding companies may have a right to cancel policies ceded to the Company’s insurance subsidiaries and recapture premium, in each case resulting in the loss of future premium earnings and the reversal of any fair value gains recorded by the Company. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity — Insurance Subsidiaries —Assumed Reinsurance. In addition, any such downgrade may result in the loss of future premium if potential policyholders would receive less benefit from a financial guaranty issued by a lower rated insurance company. Any such downgrade, resulting loss of premium earnings and reversal of fair value gains may impair the Company’s financial condition, results of operation, capital, liquidity, business prospects and/or share price.
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, financial condition and share price.
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 subsidiaries. For example, a Moody’s rating was dropped from AG Re and AGRO in 2015.
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 that the number of transactions that would benefit from the Company’s insurance would be reduced and that its premium rates on new business would decrease; consequently, a downgrade by rating agencies could harm the Company’s new insurance business production.
The Assured Life Re Acquisition may negatively impact the Company, including how it is perceived by its investors, regulators, rating agencies or obligors it insures, as well as Assured Life Re’s business relationships.
The Assured Life Re Acquisition represents the Company’s platform dedicated solely to the life and annuity reinsurance business and may involve significant investments by the Company. The Company has engaged in preliminary discussions regarding the Assured Life Re Acquisition with its relevant regulators and with the rating agencies, and, on that basis, does not believe that the Assured Life Re Acquisition will have a negative impact on its regulators’ or rating agencies’ views of Assured Guaranty or cause those regulators or rating agencies to take any actions that would impede the Company's continued pursuit of its current businesses. There can be no assurance, however, that the Assured Life Re Acquisition will not negatively impact the Company or the perception of the Company by its investors, regulators, rating agencies or obligors it insures and/or its business or results of operations.
The Company and Assured Life Re are dependent on the experience and industry knowledge of their respective management personnel and other key employees, including, in the case of Assured Life Re, key life and annuity reinsurance professionals, to execute their business plans. The Company’s success in the life and annuity reinsurance business will depend in part upon the ability of the Company and Assured Life Re to attract, motivate and retain key management personnel and other key employees, including asset-liability management financial professionals and other key life and annuity reinsurance professionals. Uncertainties associated with the Assured Life Re Acquisition may result in the departure of management personnel and other key employees at Assured Life Re or the Company, and Assured Life Re and the Company may have difficulty attracting and motivating management personnel and other key employees
Entering the life and annuity reinsurance business may present integration risks and other risks specific to the life and annuity reinsurance business that could have a negative effect on the Company’s business, results of operations or financial condition.
While the Assured Life Re Acquisition is intended to diversify Assured Guaranty’s earnings, entering this business line, which the Company believes is in line with its risk profile and benefits from its core competencies, may present integration risks as well as new risks that could have a negative effect on the Company's business, results of operations or financial condition.
The Company’s focus on the growth of the life and annuity reinsurance business may divert management’s attention from the Company’s core operations and other priorities resulting in strategic misalignment. Moreover, the use of the Company’s financial resources for the Assured Life Re Acquisition and growth of the life and annuity reinsurance business may limit the Company’s ability to invest in other strategic initiatives or deploy capital for other purposes.
Successfully integrating Assured Life Re into the Company’s existing operations involves challenges such as integrating or implementing new complex systems, preparing Assured Life Re’s financial statements in accordance with GAAP and in compliance with the SEC’s accounting regulations, consolidating financial statements, aligning organizational cultures, and retaining key personnel. Failure to effectively manage any of the integration processes could disrupt the Company’s operations and negatively impact its financial performance.
The Company’s due diligence process may not have identified all potential liabilities and risks associated with the Assured Life Re Acquisition. This could result in unexpected financial and operational challenges post-acquisition, including regulatory non-compliance, undisclosed liabilities, or operational inefficiencies.
Assured Life Re’s life and annuity reinsurance business is also subject to legal, regulatory and compliance risks that differ from those involved in the Company’s current business of providing credit protection products. Failure to comply with applicable laws or regulations can result in legal penalties, regulatory actions, or reputational damage, which could have a material adverse effect on the Company’s business. In addition, in recent years, annuity and reinsurance products have come under increased regulatory scrutiny reflecting concerns over financial stability, consumer protection, and the evolving complexity of insurance-linked financial products, potentially leading to increased compliance costs, limitations on forms of product offerings, and higher capital and solvency requirements, which could negatively impact the business and financial performance of Assured Life Re.
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 foreign exchange rate risk in its financial guaranty business. 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.
The Company’s underwriting of insurance in non-U.S. markets and/or covering new sectors or classes of business may expose it to less predictable political, credit and legal risks.
The Company pursues new business opportunities in non-U.S. markets and/or covering new sectors or classes of business. 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.
The underwriting of insurance in new sectors or classes of business may subject the Company to additional credit risk because its underwriting history and loss experience for such exposures is minimal or nonexistent which could adversely affect the Company’s results of operations. In addition, the underwriting of insurance in new sectors or classes of business may present novel legal issues or political challenges beyond the Company’s control.
The Company is dependent on members of senior management and other key employees and the loss of any of these individuals, or the delay or inability to develop or recruit suitable replacements, 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.
The Company relies substantially upon the services of its Chief Executive Officer, other members of senior management and other key employees. The market to build, retain and replace talent is highly competitive. Although the Company has succession plans and has designed its compensation plans with the goal of retaining and creating incentives for its senior management and other key employees, the Company’s succession plans may not operate effectively and the Company may not be successful in retaining the services of senior management and other key employees. The loss of the services of any of these individuals, or the delay or inability to develop or recruit suitable replacements, could adversely affect the implementation of its business strategy.
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 third party provider’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 conduct its businesses and interact with market participants and vendors. The Company’s ability to adequately price products and services, to establish reserves, to provide effective, efficient and secure service to its customers, to value its investments and to timely and accurately report its financial results also depends significantly on the integrity and availability of the data it maintains, including that within its information systems, as well as data in, and assets held through, third party service providers and systems. A cybersecurity threat or breach of the Company’s systems or the systems of its third party providers in the future could have a material adverse effect on the Company, including its business strategy, results of operations or financial condition. The Company receives and stores confidential information, including personally identifiable information, in connection with certain loss mitigation and due diligence activities related to its businesses, along with information regarding employees and directors and counterparties, among others. A breach of these systems could jeopardize the personal information of the Company’s employees, consultants and vendors, or sensitive and confidential information regarding the Company’s business and other information processed and stored within these systems, which could result in operational impairments, business interruptions, lost business, reputational harm, the disclosure or misuse of confidential, proprietary or personal information, incorrect reporting, legal costs, regulatory penalties (including under applicable data protection laws and regulations) and financial losses that may not be insured against or not fully covered by insurance, all of which would have an adverse effect on the Company’s business.
Information technology security threats and events are increasing in frequency and sophistication. The rapid evolution and increased adoption of computer systems that are able to learn and adapt without following explicit instructions or perform tasks that simulate human intelligence (Artificial Intelligence) technologies may intensify the Company’s cybersecurity risks. As Artificial Intelligence capabilities improve and are increasingly adopted, they may be used by bad actors to identify vulnerabilities and craft increasingly sophisticated cybersecurity attacks. In addition, vulnerabilities may be introduced from the use of Artificial Intelligence by the Company, its counterparties, vendors and other business partners and third party providers. Although the Company has implemented administrative and technical controls and has taken protective actions designed to reduce the risk of cyber incidents and to protect its information technology and assets, the Company’s data systems and those of third parties on which it relies have been, and the Company expects will continue to be, vulnerable to and the target of, security and data privacy breaches due to cyberattacks, viruses, malware, ransomware, other malicious codes, hackers, unauthorized access, or other computer-related penetrations, and other external hazards, as well as inadvertenterrors, 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, including hostile actions taken by nation-states or terrorist organizations. As a result, the Company may be required to expend significant additional resources to modify its protective measures or to investigate and remediate vulnerabilities or other exposures and to pursue recovery of lost data or assets. In addition, like other global companies, the Company has an increasing challenge of attracting and retaining highly qualified personnel to assist in combating these security threats.
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, financial reporting, claims processing, regulatory filings, treasury and investment operations and payroll. These failures could result in additional costs, loss of business, fines and litigation.
Evolving cybersecurity, privacy and data security regulations could adversely affect the Company’s business.
The Company and its subsidiaries are subject to numerous cybersecurity, data privacy and protection laws and regulations in a number of jurisdictions, particularly with regard to personally identifiable information, including the EU General Data Protection Regulation, the UK Data Protection Act 2018, and the Bermuda Personal Information Protection Act 2016. In the U.S., there are numerous federal, state and local cybersecurity, privacy and data security laws and regulations governing the collection, sharing, use, retention, disclosure, security, transfer, storage and other processing of personal information. These laws and regulations are increasing in complexity and number, change frequently, and sometimes conflict. The Company’s compliance efforts are further complicated by the fact that these cybersecurity, privacy and data security laws and regulations around the world may be subject to uncertain or inconsistent interpretations and enforcement. The Company’s failure to comply with these requirements could result in penalties and fines, regulatory enforcement actions, reputational harm and/or criminalprosecution in one or more jurisdictions, which could require significant effort from its management and technical personnel to remedy, increase the Company’s costs of doing business, and ultimately have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company continues to explore the use of Artificial Intelligence in some of its business operations, and challenges with properly managing the use of Artificial Intelligence, compliance with new laws and regulations applicable to Artificial Intelligence, difficulties implementing Artificial Intelligence technologies efficiently and effectively, and challenges to the Company’s competitive position from faster or more effective use of Artificial Intelligence by competitors or other third-parties, could adversely affect the Company’s business.
The Company continues to explore the use of Artificial Intelligence technologies in its business, and its research into and continued deployment of such capabilities remain ongoing. The introduction and use of Artificial Intelligence technologies may result in unintended consequences or other new or expanded risks and liabilities. If the content, analyses or recommendations that Artificial Intelligence applications assist in producing are, or are alleged to be, deficient, inaccurate or biased, such as due to limitations in Artificial Intelligence algorithms, insufficient or biased base data or flawed training methodologies, the Company’s business, financial condition, results of operations and reputation may be adversely affected. In addition, the use of Artificial Intelligence carries inherent risks related to data privacy and security, such as unintended or inadvertent transmission of proprietary or sensitive information, including personal data. There is uncertainty in the legal and regulatory landscape for Artificial Intelligence, which is not fully developed and rapidly evolving, and any laws, regulations or industry standards adopted in response to the emergence of Artificial Intelligence may be burdensome, could entail significant costs, and may restrict or impede the Company’s ability to successfully develop, adopt and deploy Artificial Intelligence technologies efficiently and effectively. Additionally, the Company’s competitors or other third parties may incorporate Artificial Intelligence into their products and services more quickly or more successfully, which could cause the Company to experience competitive disadvantages that adversely affect its results of operations.
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 (recovered), evaluating risks in its insurance portfolio 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 governance and 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 global financial crisis that began in 2008, many of the larger claims paid by the Company were with respect to insured U.S. RMBS securities and, beginning in 2016, certain insured Puerto
Rico exposures. 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 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 subsidiaries, 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 subsidiaries. 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 agencies. 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 from the issuance of 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 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 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 and its equity method ownership interest in Sound Point and certain alternative investments. The Company expects that 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, to fund investments and commitments to alternative investments, 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 respective state/country of domicile. Additionally, in recent years AG and AGUK 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 investments 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, to fund investments and commitments to alternative investments, 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, fund investments and commitments to alternative investments, 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 strategic initiatives. 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; from earnings from its ownership interest in Sound Point; 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, 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.
Losses arising from asset/liability mismatch in the Company’s annuity reinsurance business could have an adverse effect on its financial condition, results of operations, and ability to meets its obligations under annuity reinsurance contracts.
The Company’s annuity reinsurance business is subject to the risk of asset/liability mismatch, which arises when the characteristics of the assets held do not align with the expected timing, amount, or nature of the liabilities assumed under reinsurance contracts. This mismatch may occur for several reasons, including due to differences in interest rate sensitivity, liquidity profiles, credit quality, or duration between assets and liabilities. In particular, the liabilities associated with annuity reinsurance contracts often involve complex cash flow patterns, and changes in market conditions can influence policyholder behavior, including in respect of surrenders, transfers, benefit elections, and retirement timing, while the underlying investment portfolio may be subject to market volatility, changing interest rates, and evolving credit conditions.
If the Company’s investment strategy fails to adequately match the cash flows, durations, or risk profiles of its assets and liabilities, it could be exposed to increased volatility in earnings, difficulties in meeting contractual obligations, or the need to liquidate assets under unfavorable market conditions. Additionally, sudden shifts in interest rates or adverse market movements may exacerbatemismatches, potentially requiring the Company to raise additional capital, adjust its investment portfolio and realize losses, or experience reduced profitability. Asset and liability mismatches may also affect collateral arrangements, obliging the Company to fund any shortfalls that arise under such agreements. If the Company is unable to post collateral due to liquidity constraints or other reasons, its annuity reinsurance business may be subject to termination and recapture.
The Company actively manages this risk through prudent asset/liability management practices, including by maintaining a well-diversified investment portfolio with a duration closely aligned to that of its liabilities, holding prudent short-term liquidity buffers, and hedging interest rate, inflation, and currency risks; however, there can be no assurance that such efforts will be successful in all market environments. Failure to effectively manage asset/liability mismatch risk could have an adverse effect on the Company’s financial condition, results of operations, and ability to meet its obligations under annuity reinsurance contracts.
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.
Changes in U.S. federal, state or local laws that materially adversely affect the tax treatment of municipal securities, including potential loss of tax-exemption, may impact the market for those securities and result in 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 (except for its non-U.S. subsidiaries that elect to be taxed as a U.S. corporation) 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 contendsuccessfully that AGL or any of its non-U.S. subsidiaries (except for its non-U.S. subsidiaries that elect to be taxed as a U.S. corporation) 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 may become, and AG Re and AGRO are, subject to taxes in Bermuda, which may adversely affect the Company’s future results of operations and 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.
Notwithstanding the above, on December 27, 2023 the Government of Bermuda enacted a corporate income tax which applies to accounting periods starting on or after January 1, 2025. Importantly, under the Corporate Income Tax Act 2023 of Bermuda, any liability to the tax will apply regardless of any assurances previously provided under the Exempted Undertakings Tax Protection Act 1966 of Bermuda. Broadly, the Bermuda corporate income tax is intended to be treated as a covered tax for the purposes of Pillar Two (see below) and therefore no double taxation is expected to arise from these rules and the top-up taxes under Pillar Two in other jurisdictions. AG Re and AGRO are subject to this tax beginning in 2025.
Further, the Corporate Income Tax Act 2023 of Bermuda incorporates a number of measures which allow Bermuda resident companies to recognize deferred tax assets in respect of certain ETAs which may be utilized in the calculation of the Company’s effective tax rate for the purposes of top-up taxes in other jurisdictions. The Company believes that the corporate income tax imposed by the Corporate Income Tax Act 2023 of Bermuda would not be applicable to AGL because AGL is a UK tax resident but is applicable to its Bermuda subsidiaries.
However, the treatment of the Bermuda corporate income tax as a covered tax is subject to interpretation in other jurisdictions and therefore remains uncertain at this time. If the Bermuda corporate income tax is not regarded as a covered tax for the purposes of Pillar Two in other jurisdictions, this may have a material impact on the Company’s future income tax expense. In addition, a change in the Corporate Income Tax Act 2023 or its interpretation, or any change in the regulatory treatment of the corporate income tax or matters related thereto, by Bermuda could adversely affect Assured Guaranty’s financial results. See “– Assured Guaranty’s financial results may be affected by measures taken in response to the OECD BEPS project”.
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. Proposed regulations could, if finalized in their current form, substantially expand the definition of RPII to include insurance income of the Company’s Foreign Insurance Subsidiaries related to affiliate reinsurance transactions. If these proposed regulations are finalized in their current form, it could limit the Company’s 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 the Company’s 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 2025 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 the Company and an investment in AGL’s common shares.
The tax treatment of non-U.S. companies and their U.S. and non-U.S. subsidiaries may be the subject of future legislation that could have an adverse impact on the Company and/or its shareholders. For example, U.S. federal income tax laws and interpretations regarding whether a company is engaged in a trade or business within the U.S. or 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 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. Further, following consultation in Spring 2025, on December 4, 2025, the U.K. government published the draft Finance Bill which repeals the law relating to diverted profits tax and incorporates analogous anti-avoidance measures within the U.K.'s transfer pricing regime. Pursuant to the new charging provisions, if a company within the charge to U.K. corporation tax has "unassessed transfer pricing profits" (UTPP) such profits may be subject to corporation tax at the higher “UTPP rate” (currently 31%). If any U.K. resident company in the Assured Guaranty group is liable to corporation tax at the UTPP rate, this could adversely affect the Company'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 greaterscrutiny 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).
Assured Guaranty’s financial results may be affected by measures taken in response to the OECD BEPS project.
The Organization for Economic Cooperation and Development (OECD) has developed guidance known as base erosion and profit shifting as part of its initiative to address corporate tax planning strategies used by some multinationals to shift profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax jurisdictions. This guidance generally imposes rules with a global minimum tax of 15%, and many jurisdictions have enacted implementing legislation or are in the course of doing so. In particular, the U.K. enacted legislation in July 2023 and February 2024, and HMRC published guidance in respect of such legislation which broadly implement the OECD’s guidance into U.K. domestic legislation of accounting periods starting on or after December 31 2023. In addition, in December 2023 the Government of Bermuda adopted legislation for a corporate income tax which would share many key concepts with the Model Rules and is intended to constitute a “covered tax” for the purposes of the Model Rules. See “– AGL may become, and AG Re and AGRO are, subject to taxes in Bermuda, which may adversely affect the Company’s future results of operations and an investment in the Company” above. In many countries, the rules will apply from January 1, 2024, although some jurisdictions have elected to postpone for one year or more.
In January 2025, the OECD issued Administrative Guidance on Article 9.1 of the Global Anti-Base Erosion Model Rules, which excludes certain deferred tax assets for purposes of computing a multinational enterprise group’s effective tax rate when they arose prior to the application of the global minimum tax as a result of certain governmental arrangements or following the introduction of a new corporate income tax. If this guidance were adopted in countries in which the Company operates it could adversely affect tax expense.
The Company’s analysis is ongoing as the OECD continues to release additional guidance, countries enact legislation, and the U.S. formulates its potential response. To the extent additional legislative changes take place in the countries in which the Company operates, it is possible that they will alter long-standing tax principles, be highly complex and be subject to differing applications and interpretations across jurisdictions. Although the Company cannot predict the approach of each relevant jurisdiction to the OECD’s framework, their implementation could adversely affect Assured Guaranty’s tax liability.
Risks Related to Applicable Law, Litigation and GAAP
Changes in, or inability to comply with, applicable laws and regulations could adversely affect the Company’s financial condition, results of operations, capital, liquidity, business prospects and share pric e .
The Company’s businesses are subject to detailed insurance, asset management and other financial services laws and government regulations in the jurisdictions in which they operate. In the U.S., financial guaranty insurers are subject to specific regulatory requirements and limitations applicable to their portfolios of outstanding insured obligations, consisting of single risk limits, aggregate risk limits, exposure limits to municipal (and related) obligations that lack an underlying investment grade NRSRO or SVO designation, and exposure limits to non-U.S. dollar insured obligations. Such insurers also must comply with specific regulatory requirements and limitations applicable to their investment portfolios, including limits on the portion of such portfolio rated BIG or non-rated. While the Company’s U.S. financial guaranty insurer, AG, manages these requirements, it is possible for the limitations to be exceeded for several reasons, including a strategic acquisition of a financial guaranty insurance company (or reinsurance of a company’s insured portfolio) by AG increasing concentrations of AG’s insurance exposures, decline of AG’s statutory capital (against which single risk and aggregate risk limits are measured), deterioration of AG’s insurance portfolio, foreign exchange fluctuations, downgrades of AG’s investment grade investments or positive returns in AG’s non-rated alternative investments (thereby increasing the valuation of such investments on its balance sheet). In addition to the insurance, asset management and other regulations and laws specific to the industries in which the Company operates or
invests, regulatory agencies in jurisdictions in which the Company’s businesses operate have broad administrative power over many aspects of the Company’s business, which may include ethical issues, money laundering, cybersecurity, privacy, recordkeeping and marketing and sales practices.
Noncompliance with applicable laws or regulations, or future changes to laws or regulations 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. If the Company fails to comply with applicable laws or regulations it could be exposed to fines, the loss of licenses, including insurance 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. Future changes to laws and regulations may, among other things, limit the types of risks the Company may insure, lower applicable single or aggregate risk limits related to its insurance business, increase required reserves or capital for its insurance subsidiaries, provide insured obligors with additional avenues for avoiding or restructuring the repayment of their insured liabilities, increase the level of supervision or regulation to which the Company’s operations may be subject, impose restrictions that make the Company’s products less attractive to potential buyers and investors, and require the Company to change certain of its business practices exposing it to additional costs (including increased compliance costs).
Changes in applicable laws or regulations or governmental policies may adversely impact the ability of issuers to satisfy obligations insured or reinsured by the Company.
Certain issuers of obligations insured or reinsured by the Company are reliant on governmental subsidies, funding, grants, loans and other forms of financial assistance, including, for example, emergency funding for disasters and catastrophes, regulated subsidies paid to utilities, housing subsidies and federal aid for schools. In addition, certain issuers of obligations insured or reinsured by the Company may rely on current federal, state and local tax laws (such as tariff regimes impacting imports and the transportation sector) and/or on legal and regulatory frameworks impacting their businesses (for example, the healthcare industry’s development around, and reliance on, Medicaid, Medicare and the Affordable Care Act). If current laws or regulations or governmental policies impacting issuers of obligations in the Company’s insurance portfolio are changed in a manner adversely impacting such issuers (for example, nationalization of assets) and/or governmental financial assistance supporting such issuers is reduced or eliminated, the Company may experience increased levels of losses or claims on its insured obligations.
Legislation, regulation, determinations made by legal or regulatory authorities, or litigation arising out of the struggles of distressed obligors may adversely impact obligations insured or reinsured by the Company, the Company’s legal rights as creditor and its investments.
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, legal or regulatory determinations, or litigation that may adversely impact obligations insured or reinsured by the Company, the Company’s legal rights as creditor and its investments. 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.
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 expected losses and results of operations and cash flows. For a discussion of material litigation, see Part II, Item 8. Financial Statements and Supplementary Data, Note 4. Expected Loss to be Paid (Recovered), and Note 17. 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.
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 Item 1. Business
– Regulation – State Dividend Limitations, Item 1. Business – Regulation – Non-U.S. Regulation – Bermuda – Restrictions on Dividends and Distributions, Item 1. Business – Regulation – Non-U.S. Regulation – United Kingdom Insurance and Financial Services Regulation – Restrictions on Dividend Payments and Item 1. Business – Regulation – Non-U.S. 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 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 their holding companies 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 regulatory commissioner or superintendent 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, 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.
An inability to obtain accurate and timely financial information from Sound Point or other alternative investment managers may impair the Company’s ability to comply with reporting obligations under federal securities law.
The Company will be reliant on Sound Point and other alternative investment managers to provide accurate and timely financial reporting that will allow the Company to timely prepare and file its own financial statements in accordance with generally accepted accounting principles in the United States (GAAP) and in compliance with SEC regulations and NYSE listing rules.
As private companies, Sound Point and other alternative investment managers are generally not required to prepare their financial statements in compliance with the SEC’s accounting regulations and timelines. The Company expects to report certain of its investments in Sound Point, the Sound Point funds, other vehicles and separately managed accounts and other alternative investment funds on a one-quarter lag. While each of Sound Point, other alternative investment managers and their respective related parties have agreed to provide to the Company financial information necessary to complete and file its periodic SEC reports on a timely basis, any failure by Sound Point, other alternative investment managers or their respective related parties to provide the Company with accurate and timely financial information could result in a delay in the Company’s timely reporting of its results of operations or it not filing one or more periodic reports with the SEC on time or inaccuracies in its financial statements.
Changes in the fair value of the Company’s insured credit derivatives portfolio, CCS, FG VIEs, alternative investments, including those accounted for as CIVs, and/or the consolidation or deconsolidation of one or more FG VIEs and/or CIVs during a financial reporting period, may subject its 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 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 VIEs, which generally consist of (1) entities to which it has provided financial guaranties and (2) funds and vehicles in which it invests, such as those managed by Sound Point (and, prior to July 1, 2023, AssuredIM), if it concludes that it is the primary beneficiary of such VIE. 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. Variable Interest Entities.
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 methodologies and the application of GAAP 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 U.S. GAAP accounting standards or statutory accounting standards in the jurisdictions in which the Company is domiciled, such as those that affect the measurement, amount and/or timing of revenue or loss recognition, or those that limit the admissibility of certain assets, among others, could adversely affect the Company’s financial condition, results of operations, business prospects and share price and or the insurance subsidiaries’ ability to pay dividends to AGMH, and ultimately, to AGL. 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.
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, life and annuity reinsurance 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) Company’s ability to repay debt; (e) the Company’s dividend policy; (f) the amount of share repurchases authorized by the AGL’s Board; (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 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. 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 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.
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 reduced 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.
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 reviews the business to assess performance and allocate resources. The Company’s Corporate division and other activities (including financial guaranty VIEs (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. The Company participates in the asset management business through its ownership interest in Sound Point. See Part I, Item 1. Business – Asset Management, and Item 8. Financial Statements and Supplementary Data, Note 1. Business and Basis of Presentation.
The Corporate division primarily consists of the results of holding companies that have issued public equity or debt. The Other category primarily includes the effect of consolidating FG VIEs and CIVs (FG VIE and CIV consolidation). See Item 8. Financial Statements and Supplementary Data, Note 2. Segment Information.
Financial Strength Ratings
Demand for the financial guaranties issued by the Company’s financial guaranty 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 financial guaranty 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.
KBRA
Moody’s
A.M. Best Company,
Inc.
AA (stable) (6/30/25)
AA+ (stable) (8/4/25)
A1 (stable) (7/10/24)
AA (stable) (6/30/25)
AGRO
AA (stable) (6/30/25)
A+ (stable) (7/19/25)
AGUK
AA (stable) (6/30/25)
AA+ (stable) (8/4/25)
A1 (stable) (7/10/24)
AGE
AA (stable) (6/30/25)
AA+ (stable) (8/4/25)
In addition, the Company’s life and annuity reinsurance subsidiary, Assured Life Re, is rated BBB (Outlook Positive) (1/28/26) by Fitch Ratings, Inc.
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 Part I, Item 1A. Risk Factors – Strategic Risks captioned “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.”
Economic Environment
On April 2, 2025, the U.S. administration announced a “reciprocal tariff” strategy under the authority of the International Emergency Economic Powers Act (IEEPA) entailing extensive global tariff increases, with the objective of rectifying trade practices that contribute to large and persistent annual U.S. goods trade deficits. The announcement of global tariffs disrupted international trade, sent shocks through the global economy, and heightened volatility in the financial markets. The U.S. subsequently postponed newly announced reciprocal tariffs, which took effect on August 7, 2025. On August 29, 2025, the U.S. Court of Appeals for the Federal Circuit ruled that the U.S. administration had exceeded its authority under the IEEPA but permitted the tariffs to remain in effect to provide time for the government to appeal. The U.S. Supreme Court granted certiorari on September 9, 2025, and heard oral arguments on the case on November 5, 2025; on February 20, 2026 the U.S. Supreme Court held that the IEEPA does not authorize the President of the United States to impose tariffs. The U.S. administration has indicated that tariffs found to be illegal by the U.S. Supreme Court will be replaced with alternative import taxes as uncertainty remains. U.S. tariffs can add to inflation, and the Company believes that ongoing uncertainty may increase volatility in U.S. equities and other risk assets, curb corporate capital and consumer spending and raise the risk of recession. Market volatility and the risk of recession may impact the Company in different ways. The Company believes that a recession may make it more likely that obligors whose obligations it guarantees will default. However, market volatility may also cause credit spreads to widen as investors seek security, which tends to create new business opportunities for the Company.
Real gross domestic product (GDP) increased 2.2% in 2025, compared to an increase of 2.8% in 2024, according to the advance estimate released by the U.S. Bureau of Economic Analysis (BEA). Additionally, the BEA reported real GDP increased at an annual rate of 1.4% in the fourth quarter of 2025. At the end of December 2025, the U.S. unemployment rate, seasonally adjusted, stood at 4.4%, higher than where it started the year at 4.1%. 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 2025, as measured by the Consumer Price Index for All Urban Consumers, was 2.7%, as compared to 2.9% for the 12-month period ending December 2024. According to the U.K. Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs rose 3.6% for the 12 months through December 2025, as compared to 3.5% for the 12 months through December 2024. Generally, inflation reduces the real value of money over time. For obligors whose payments the Company insures, inflation can mean that the real value of their fixed debt payments decreases, potentially making it relatively easier for obligors to service these fixed-rate debts and less likely for them to default. However, if inflation increases operating expenses and revenues or incomes do not keep pace, obligors may find it more difficult to make their payment obligations, even if nominal debt payments remain unchanged. Higher inflation can also lead to tighter monetary policies, which are actions taken by sovereign central banks to reduce the amount of money circulating in the economy, including raising interest rates, which can make refinancing or servicing debt more difficult. In addition, consumer price inflation in the U.K. affects reported net par outstanding for certain U.K. exposures with $24.5 billion of net par outstanding as of December 31, 2025, and also affects 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.
At its September 2024 meeting, the Federal Open Market Committee (FOMC) decided to lower the federal funds rate, which was a reversal of the rate increases it had initiated in March 2022 to combat inflation. The federal funds rate is the rate at which banks lend to and borrow from each other, is the benchmark for most interest rates, and tends to influence mortgage rates. As the federal funds rate decreases, interest rates, including mortgage rates, tend to decrease. From September 2024 through December 2025, the FOMC lowered the federal funds rate from a target range of 5.25% to 5.50% to a range of 3.50% to 3.75%. Most recently, at its January 2026 meeting, the FOMC held the federal funds rate at a target range of 3.50% to 3.75%, stating that it is strongly committed to supporting maximum employment and returning inflation to its 2% objective. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the FOMC has indicated it will carefully assess incoming data, the evolving outlook, and the balance of risks. These assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
From 2022 through February 2026, the Bank of England’s Monetary Policy Committee (MPC) took actions similar to those of the FOMC to combat inflation and spur economic growth. In 2022, the MPC raised the Bank of England base rate (Bank Rate) from historic lows in response to surging inflation, increasing the rate multiple times into 2023 as inflation remained high above MPC’s 2% target. By the end of 2023, the MPC signaled a pause in further increases as inflation began to decline and economic growth slowed. During 2024, as inflationary pressures eased further and the U.K. economy showed signs of stagnation or mild recession, the MPC kept the rate unchanged for most of the year, before beginning to decrease the Bank Rate in August 2024. In 2025 and early 2026, with inflation being closer to the MPC’s target level and economic growth slowed, the MPC further lowered the Bank Rate several times, standing at 3.75% as of February 5, 2026, aiming to support economic growth while maintaining price stability.
The level and direction of change of interest rates and credit spreads impact the Company in numerous ways. On the one hand, lower interest rates may increase the fair value of fixed-maturity securities currently held in the Company’s investment portfolio, encourage municipal and infrastructure bond issuance and positively impact the finances of some of the obligors whose payments the Company insures. On the other hand, lower interest rates may decrease the base on which the Company charges up-front premium on most new municipal and infrastructure bond transactions and may also decrease amounts the Company can earn on securities newly acquired for its investment portfolio. Lower interest rates also are often accompanied by narrower credit spreads, which may also decrease the level of premiums the Company can charge for transactions.
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 4.30% for 2025, higher than the 3.68% average rate in 2024 and higher than the 3.65% average rate for 2023. Meanwhile, the difference, or credit spread, between the 30-year BBB rated general obligation relative to the 30-year AAA MMD averaged 89 basis points (bps) in 2025, which is narrower compared to the 90 bps average for 2024 and compared to the 101 bps average for 2023. The Company believes that wider spreads could permit it to increase its premium rates on new business.
According to Freddie Mac, the 30-year fixed-rate mortgage rate averaged 6.15% for the week ending December 31, 2025, lower than the 30-year mortgage rate average of 6.85% from one year ago. The National Association of Realtors reported that there was a 1.4% increase in year-over-year existing-home sales from December 2024 to December 2025, and that the median existing-home sales price increased 0.4% from December 2024 ($403,700) to December 2025 ($405,400). Higher housing prices may benefitdistressed RMBS the Company insures.
Key Business Strategies
The Company continually evaluates its business strategies and is currently pursuing key business strategies in four areas: (i) growth of its insurance and asset management businesses; (ii) loss mitigation; (iii) enhancement of investment returns through alternative investments; and (iv) capital management.
Insurance and Asset Management Growth
The Company seeks to grow its core financial guaranty insurance business through new business production in established sectors and jurisdictions and by entering into new markets, lines and classes of business. In addition, the Company seeks to leverage its core credit competencies by expanding its business into revenue streams independent of its financial guaranty insurance business, such as annuity reinsurance through its life and annuity reinsurance platform and its asset management business, with the objective of bolstering net income growth and predictability and generating high-return business opportunities.
Financial Guaranty Insurance Portfolio
The Company seeks to grow its financial guaranty 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: (i) encourages retail investors, who typically have fewer resources than the Company for analyzing municipal bonds, to purchase such bonds; (ii) enables institutional investors to operate more efficiently; and (iii) allows smaller, less well-known issuers to gain market access on a more cost-effective basis.
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 with the levels before the financial crisis. 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, over time, wider credit spreads may improve demand for bond insurance.
In certain segments of the non-U.S. infrastructure and global structured finance markets, the Company believes its financial guaranty product is competitive with other financing options. In the infrastructure market, the Company’s financial guaranty can enhance the insured obligation’s rating, lower the cost of long-term funding and enhance the liquidity and transferability of debt obligations. Certain investors may receive advantageous capital requirement treatment with the addition of the Company’s financial 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 production may vary from period to period.
U.S. Municipal Market Data and Bond Insurance Penetration Rates (1)
Based on Sale Date
Year Ended December 31,
(dollars in billions)
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
(1) Source: The amounts in the table are those reported by London Stock Exchange Group. The table excludes private placements and Corporate-CUSIP transactions insured by Assured Guaranty, certain of which the Company also considers to be public finance business.
In addition, the Company considers opportunities to acquire financial guaranty portfolios, whether by acquiring financial guarantors that are no longer actively writing new business or their insured portfolios, generally through reinsurance or novations. These transactions enable the Company to improve its future earnings and deploy excess capital.
The Company seeks to expand its financial guaranty business geographically by entering new markets; in 2024, the Company opened new offices in Australia and Singapore. The Company has recently undertaken, and continues to undertake, several initiatives to broaden its insurance lines and classes of business, and improve the efficiency of its secondary market execution. For example, the Company has enhanced its structured finance new business production by developing fund finance into a flow business line. In addition, the Company is pursuing nonpayment insurance business strategies through internal and/or external growth opportunities.
Life and Annuity Reinsurance
On January 21, 2026, the Company purchased all of the outstanding share capital in Warwick Company (UK) Limited (which is the 100% indirect owner of Assured Life Reinsurance Ltd. (Assured Life Re, f/k/a Warwick Re Limited), for a purchase price of $158 million, subject to certain post-closing adjustments (Assured Life Re Acquisition). Assured Life Re is a Class E long-term (life) reinsurance company incorporated and registered in Bermuda and is rated BBB (Outlook Positive) (1/28/26) by Fitch Ratings, Inc. Assured Life Re focuses on annuity reinsurance including U.K. bulk purchase annuity (pension risk transfers) and U.S. multi-year guaranteed annuity transactions. The Company believes that the acquisition of the Assured Life Re platform will provide it with life and annuity business opportunities that complement its financial guaranty and asset management businesses, are consistent with its risk profile and benefit from its core competencies, including credit enhancement. The Assured Life Re Acquisition represents the Company’s first platform dedicated solely to the life and annuity reinsurance business.
See Part I, Item 1A. Risk Factors – Strategic Risks, captioned “The Assured Life Re Acquisition may negatively impact the Company, including how it is perceived by its investors, regulators, rating agencies or obligors it insures, as well as Assured Life Re’s business relationships,” “Entering the life and annuity reinsurance business may present integration risks and other risks specific to the life and annuity reinsurance business that could have a negative effect on the Company’s business, results of operations or financial condition,” “Strategic transactions may not result in the benefits anticipated” and “The Company makes assumptions when pricing its life and annuity reinsurance products relating to longevity, mortality, policy lapses, withdrawals, surrenders, investment returns and expenses, and significant deviations in experience could negatively affect the Company’s financial condition and results of operations.”
The Company continues to investigate additional opportunities in the life and annuity reinsurance business and in other businesses in line with its risk profile and that would benefit from its core competencies.
Asset Management
The Company participates in the asset management business through its ownership interest in Sound Point, and does not directly manage investments for third parties. The Company’s ownership interest in Sound Point furthers its growth strategy of participating in a diversifying fee-based earnings stream independent of the risk-based premiums generated by its financial guaranty business. In addition to its ownership interest in Sound Point, the Company also has in place a letter agreement (Letter Agreement) with Sound Point relating to the Company’s alternative investments portfolio which supports other key strategic initiatives. See “Enhancement of Investment Returns Through Alternative Investments” below. See Item 8. Financial Statements and Supplementary Data, Note 1. Business and Basis of Presentation and Note 7. Investments and Cash, for a description of the Company’s participation in the asset management business through its ownership interest in Sound Point.
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 solutions, 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 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, as well as Detroit, Michigan and Stockton, California. For public finance credits, the Company’s surveillance function monitors and proactively engages with the distressed credits to offer assistance aimed to improve operations and financial performance, including access to external consultants and other industry experts.
The Company also, from time to time and where appropriate, participates in litigation to enforce or defend its rights. For example, the Company 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. In addition, the Company successfullydefendedclaims brought by Lehman Brothers International (Europe) (in administration) (LBIE) and prevailed in its counterclaimagainst LBIE; following the exhaustion of LBIE’s appeals, the Company recognized a realized gain on credit derivatives in the first quarter of 2025 of $103 million, which represents the full satisfaction of the judgment it was awarded and its claims for attorneys’ fees, expenses and interest in connection with this litigation. See, Item 8. Financial Statements and Supplementary Data, Note 17. Contingencies, Litigation, for additional information.
The Company may also purchase Loss Mitigation Securities in order to mitigate the economic effect of insured losses. The fair value of Loss Mitigation Securities as of December 31, 2025 (excluding the value of the Company’s insurance) was $140 million.
In July 2025, the Company’s largest BIG exposure in the investment portfolio, which was obtained as part of a loss mitigation strategy, with an aggregate carrying value of $408 million as of June 30, 2025, reached its final resolution after many years of negotiation and was paid down after liquidation of the trust assets. The Company received $459 million in connection with this resolution, including principal, accrued interest and other expected recoveries. This resolution did not have a significant effect on the consolidated statements of operations. Also, in connection with the sale in October 2025 of a commercially leased building that was part of a loss mitigation strategy for a troubled insured exposure, the Company recognized a pre-tax gain of $23 million in the fourth quarter of 2025, and realized a positive inception-to-date internal rate of return on the insured exposure.
The Company is, and for several years has been, working with the servicers of some of the U.S. 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.
In some instances, the terms of the Company’s financial guaranty policies or the terms of certain workout orders and resolutions 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.
Enhancement of Investment Returns Through Alternative Investments
The Company seeks to maintain an investment portfolio that supports the requirements of its insurance subsidiaries, strategic initiatives and liquidity needs, while maximizing the income it earns from such investments. In support of that goal, the Company aims to diversify the types of investments in its portfolio. The Company expects its relationship with Sound Point to enhance its alternative investment opportunities and the return on its investments. The Company has agreed to invest an aggregate amount of $1.5 billion in alternative investments, which includes $1 billion in Sound Point managed investments, subject to certain conditions precedent. See Item 8. Financial Statements and Supplementary Data, Note 7. Investments and Cash, for a description of the alternative investments agreement with Sound Point.
Capital Management
The Company’s capital management strategy is designed to efficiently allocate and utilize capital across the Assured Guaranty group in order to optimize outcomes for rating agency assessments, regulatory compliance and the Company’s own strategic initiatives and risk management requirements. The Company believes this disciplined approach to capital management supports the long-term stability and strength of Assured Guaranty, enabling it to advance its financial guaranty, asset management and annuity reinsurance businesses, and other corporate strategies. Assured Guaranty seeks to enhance financial flexibility and resiliency by proactively managing its capital and aligning resources with its business objectives and stakeholder interests.
From 2013 through February 25, 2026, the Company has repurchased 157 million common shares for $5.9 billion, representing 81% of the total shares outstanding at the beginning of the repurchase program in 2013. On August 6, 2025 and November 5, 2025, the Board authorized the repurchase of an additional $300 million and $100 million, respectively, of the Company’s common shares. As of February 25, 2026, the remaining amount the Company was authorized to purchase was $204 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 18. Shareholders’ Equity, for additional information about the Company’s repurchases of its common shares.
Summary of Share Repurchases
Amount (1)
Number of Shares
Average price per share (1)
(in millions, except per share data)
2026 (through February 25, 2026)
Cumulative repurchases since the beginning of 2013
(1) Excludes commissions.
As of December 31, 2025, the estimated accretive effect of the cumulative repurchases of common shares since the beginning of 2013 was approximately: $68.77 per share in shareholders’ equity attributable to AGL, $69.94 per share in adjusted operating shareholders’ equity and $116.18 per share in adjusted book value (ABV).
Over the last several years, the Company has received approval from its insurance regulators to redeem a portion of its insurance subsidiaries’ stock and pay extraordinary dividends from its insurance subsidiaries. Most recently, in the third quarter of 2025, after receiving approval from the MIA, AG redeemed $250 million of its common stock from AGMH in exchange for $213 million in cash and $37 million in alternative investments.
The Company considers the appropriate mix of debt and equity in its capital structure. The Company may in the future choose to issue new debt or redeem or purchase its existing debt. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies.”
Executive Summary
The primary drivers of volatility in the Company’s net income include: loss and LAE, changes in fair value of certain alternative investments, credit derivatives, FG VIEs, CIVs, trading securities and CCS, as well as foreign exchange gains (losses), the level of refundings of insured obligations, the effects of any large transactions, settlements, commutations and loss mitigation strategies, among other factors. 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.
Financial Performance of Assured Guaranty
Financial Results
Year Ended December 31,
(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 (1)
Adjusted operating income (loss)
Adjusted operating income per diluted share
Weighted average diluted shares
Components of total adjusted operating income (loss)
Insurance segment
Asset Management segment
Corporate division (2)
Other (3)
Adjusted operating income (loss)
Insurance Segment
Gross written premiums (GWP)
Present value of new business production (PVP) (1)
Gross par written
As of December 31, 2025
As of December 31, 2024
Amount
Per Share
Amount
Per Share
(in millions, except per share amounts)
Shareholders’ equity attributable to AGL
Adjusted operating shareholders’ equity (1)
ABV (1)
Common shares outstanding (4)
(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.
(2) In 2023, the Corporate division results include the gain on the Sound Point Transaction and AHP Transaction.
(3) Relates to the effect of consolidating FG VIEs and CIVs.
(4) See “— Overview— Key Business Strategies — Capital Management” above for information on common share repurchases.
Consolidated Results of Operations
Consolidated Results of Operations
Year Ended December 31,
(in millions)
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
Gain on sale of asset management subsidiaries
Other income (loss)
Total revenues
Expenses:
Loss and LAE (benefit)
Interest expense
Amortization of deferred acquisition costs (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 interest (NCI)
Net income (loss) attributable to Assured Guaranty Ltd.
Effective tax rate
Net income attributable to AGL in 2025 was higher compared with 2024 primarily due to the following:
• foreign exchange remeasurement gains of $96 million in 2025, compared with losses of $27 million in 2024,
• a gain on credit derivatives related to the resolution of the LBIE litigation of $103 million in 2025,
• higher other income due to a gain of $23 million recognized in connection with the sale in 2025 of a commercially leased building that was part of a loss mitigation strategy for a troubled insured exposure and $15 million associated with the workout and purchase of bonds issued by a U.K. regulated utility to which the Company has insured exposure and interest on late financial guaranty premiums,
• higher equity in earnings of investees in 2025, primarily generated by the Company’s investments in Sound Point, healthcare funds and legacy alternative investments, and
• fair value gains on committed capital securities in 2025, compared with losses in 2024.
These increases were partially offset by:
• loss and LAE in 2025 of $56 million, compared with a benefit of $26 million in 2024,
• net realized investment losses in 2025 primarily due to changes in the allowance for credit losses for alternative investments and Loss Mitigation Securities,
• lower fair value gains on trading securities in 2025, and
• lower net earned premiums in 2025, compared with 2024 due to lower refundings of financial guaranty insurance exposures.
The Company’s effective tax rate reflects the proportion of income recognized by each of the Company’s operating subsidiaries in the jurisdiction in which they are taxed, with U.S. subsidiaries and foreign subsidiaries that have made an election to be a U.S. taxpayer 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 25% for periods starting April 1, 2023, and 19% for periods ending on or before March 31, 2023, and the French subsidiary taxed at the French marginal corporate tax rate of 25%, and AG Re and Cedar Personnel Ltd. taxed at the Bermuda marginal corporate tax rate of 15% starting January 1, 2025 and 0% for 2024 and 2023. See Part I, Item 1. Business – Regulation, and Part II, Item 8. Financial Statements and Supplementary Data, Note 13. Income Taxes.
Adjusted Operating Income
Adjusted operating income in 2025 was $445 million, compared with $389 million in 2024. The increase was primarily due to the gain related to the resolution of the LBIE litigation in 2025, higher equity in earnings of investees and the gain recognized in connection with the sale of a commercially leased building that was part of a loss mitigation strategy for a troubled insured exposure, offset in part by a higher loss expense in public finance sectors, lower fair value gains on the trading portfolio and lower earned premiums on refundings of financial guaranty insurance contracts in 2025. 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 ABV
Shareholders’ equity attributable to AGL as of December 31, 2025 increased compared with December 31, 2024, primarily due to net income and unrealized gains on the investment portfolio, partially offset by share repurchases and dividends. Adjusted operating shareholders’ equity and ABV decreased primarily due to share repurchases and dividends, partially offset by adjusted operating income and GWP. See “— Non-GAAP Financial Measures” below for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and ABV.
On a per share basis, shareholders’ equity attributable to AGL, adjusted operating shareholders’ equity and ABV increased as of December 31, 2025 compared with December 31, 2024, due, in part, to the accretive effect of the share repurchase program. See “— Non-GAAP Financial Measures” for the reconciliation of shareholders’ equity attributable to AGL to adjusted operating shareholders' equity and ABV.
Other Matters
Inflation
By some key measures, consumer price inflation in the U.S. and the U.K. was higher in recent years than it has been in decades. In addition, government policies such as increased deficit spending or the imposition of tariffs on imported goods could increase inflationary pressures in the future. Consumer price inflation in the U.K. can impact the Company directly by increasing exposure for certain index-linked U.K. debt with par that accretes based on inflation, and also by 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. See “— Overview — Economic Environment.”
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 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 $198 million in net par outstanding as of December 31, 2025, comprising of the sovereign debt of Poland. The Company rates this exposure investment grade.
Middle East Conflict
In light of events in the Middle East that began on October 7, 2023, the Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, for exposures to the Middle East. After review, the Company’s surveillance and treasury functions have identified no material direct exposure to such area. The Company’s direct insurance exposure to the Middle East is generally limited to funded and unfunded commitments to fund finance facilities. When fund finance facilities are launched, they obtain aggregate commitments across numerous investors in the fund. For certain facilities guaranteed by the Company, a small minority of investors are domiciled in the Middle East, which are generally sovereign wealth funds and pensions. Fund finance facilities guaranteed by the Company are always overcollateralized with uncalled capital commitments exceeding borrowings, and defaults of Middle East investors alone cannot cause a loss. Such facilities have additional mitigants, including the ability to call on performing investors to cover the obligations of defaulting investors and rights to sell defaulting positions to other investors at a discount. The Company rates all such insurance exposure investment grade.
January 2025 Los Angeles Wildfires
In January 2025, a series of destructive wildfires affected Los Angeles, California. The Company’s surveillance function has reviewed the Company’s insurance portfolio for exposures located within Los Angeles County and currently has not identified any material impact on the ability of such exposures to pay their obligations.
2026 U.S. Operation in Venezuela
On January 3, 2026, the U.S. executed an operation within Venezuela apprehending President Nicholas Maduro and his wife Cilia Flores who were taken to New York City and indicted in the U.S. Southern District Court of New York on several charges related to narcoterrorism. In light of this development, the Company’s surveillance and treasury functions have reviewed the Company’s insurance and investment portfolios, respectively, and have identified no direct exposure to Venezuela. The Company’s direct insurance exposure to South America is generally limited to $128 million in net par outstanding as of December 31, 2025, comprising of infrastructure finance in Colombia and Chile. The Company rates these exposures investment grade.
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 consolidated financial statements. 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 periodically evaluated 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 due to changes in these estimates and assumptions.
Listed below are the accounting estimates that the Company believes are most dependent on the application of judgment and assumptions. See Item 8. Financial Statements and Supplementary Data, Note 1. Business and Basis of Presentation, for the Company’s list of significant accounting policies which includes a reference to the applicable note where further details regarding the significant estimates and assumptions are provided. In addition, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk, for further details regarding sensitivity analyses.
• Expected loss to be paid (recovered);
• Fair value of certain assets and liabilities, primarily:
• Investments (primarily alternative investments)
• Assets and liabilities of FG VIEs;
• Impairments of equity method investments and credit allowances for financial instruments; and
• Income tax assets and liabilities, including the recoverability of all deferred tax assets (liabilities) and in particular the Bermuda deferred tax asset recorded in 2023.
Results of Operations by Segment
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.
Insurance Segment Results
Insurance Segment Results
Year Ended December 31,
(in millions)
Segment revenues
Net earned premiums and credit derivative revenues
Net investment income
Foreign exchange gains (losses) on remeasurement
Fair value gains (losses) on trading securities
Other income (loss)
Total segment revenues
Segment expenses
Loss expense (benefit)
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)
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, or books of business acquired in business combinations. 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 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 any remaining nonrefundable deferred premium revenue. The amortization of the Company’s outstanding book of business along with the previously high levels of refunding activity and the higher interest rate environment has led to a lower volume of refunding opportunities over the last several years.
Terminations are generally negotiated agreements with beneficiaries resulting in the extinguishment of the Company’s insurance obligation. Terminations have historically been more common in the structured finance sector, but may also occur in the public finance sector. 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
Year Ended December 31,
(in millions)
Net earned premiums:
Financial guaranty insurance:
Public finance
Scheduled net earned premiums (1)
Refundings and terminations
Total public finance
Structured finance
Scheduled net earned premiums (1)
Accelerations
Total structured finance
Specialty insurance and reinsurance
Total net earned premiums
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 2025 compared with 2024 primarily due to credit derivative revenues related to the resolution of the LBIE litigation (see Item 8. Financial Statements and Supplementary Data, Note 6. Contracts Accounted for as Credit Derivatives) and earnings on large transactions and supplemental premiums written in 2024, partially offset by lower financial guaranty insurance refundings and terminations. As of December 31, 2025, $3.6 billion of net deferred premium revenue remained to be earned over the life of the financial guaranty insurance contracts.
New Business Production
Gross Written Premiums and New Business Production
Year Ended December 31,
(in millions)
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.
Total PVP
Gross Par Written (1):
Public finance—U.S.
Public finance—non-U.S.
Structured finance—U.S.
Structured finance—non-U.S.
Total gross par written
(1) 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.” PVP was discounted at 5.0% in both 2025 and 2024 and 4.0% in 2023.
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 financial guaranty business written (discounted at risk-free rates); and (iii) the effects of changes in the estimated premium or 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 not included in GWP. PVP and gross par written include the present value of future gross revenues and exposure, respectively, associated with a financial guaranty written by the Company that, under GAAP, is accounted for under Accounting Standards Codification (ASC) 460, Guarantees .
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 and PVP include transactions closed in both the primary and secondary markets. Secondary market GWP and PVP each increased to $44 million in 2025 from $8 million in 2024. The Company’s par written in the secondary market represented 7.3% of U.S. public finance par written in 2025, compared with 2.5% in 2024.
U.S. public finance GWP and PVP in the primary market were higher in 2024 primarily due to a large transportation revenue transaction that was written in 2024. U.S. public finance GWP and PVP in 2025 included transportation revenue and infrastructure transactions. The Company’s primary par written represented 58% of the total U.S. primary municipal market insured par sold in both 2025 and in 2024, and the Company’s penetration of all municipal issuance was 4.4% in 2025 compared with 4.8% in 2024.
GWP for non-U.S. public finance in 2025 were negative primarily due to the early repayment of several U.K. sub-sovereign credits. GWP for non-U.S. public finance in 2024 included a change in the present value of future premiums on a large existing transaction, which was not a result of new business production and therefore excluded from PVP. Non-U.S. public finance PVP in 2025 was lower than PVP in 2024, primarily due to a lower volume of large transactions in 2025. Non-U.S. public finance PVP in 2025 included several primary infrastructure finance transactions in the European Union and secondary transactions in the U.K.
U.S. and non U.S. structured finance GWP and PVP in 2025 were primarily attributable to fund finance facilities, insurance securitizations, the upsize of a transaction providing protection on a core lending portfolio for an Australian bank, and consumer receivable transactions.
Business activity in the non-U.S. public finance and structured finance markets often 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 resolution of defaulting Puerto Rico exposures in 2022 are classified as trading with changes in fair value reported in “fair value gains (losses) on trading securities” in the consolidated statements of operations. The fair value of remaining CVIs as of December 31, 2025 and December 31, 2024 was $114 million and $123 million, respectively.
Equity method investments in the Insurance segment include certain alternative investments. The income (loss) on such investments is reported in “equity in earnings (losses) of investees” and typically represents the Company’s share of earnings of its investees. As part of stock redemptions that occurred in 2025 and 2024, certain alternative investments were distributed to AGMH, whose results are reported in the Corporate division.
Insurance Segment
Income from Investments (1)
Year Ended December 31,
(in millions)
Net investment income
Fixed-maturity securities, available-for-sale
Short-term investments
Intercompany loans
Other invested assets
Investment income
Investment expenses
Net investment income
Fair value gains (losses) on trading securities
Equity in earnings (losses) of investees
CLOs
Private healthcare investing
Asset-based/specialty finance
Private minority stakes in alternative asset manager
Commercial real estate finance
Other
Equity in earnings (losses) of investees
(1) Foreign exchange gains on remeasurement of certain investments were $5 million for 2025 and $1 million for 2023.
Net investment income for 2025 increased compared to 2024, primarily due to investment income on CLO equity tranches in the available-for-sale portfolio. Certain CLO equity tranche investments were reclassified to the available-for-sale fixed-maturity portfolio in the fourth quarter of 2024, with interest income now reported in “net investment income,” and changes in fair value reported in “other comprehensive income.” The Company had previously held the CLO equity tranches in a Sound Point managed fund with changes in net asset value (NAV) reported in “equity in earnings (losses) of investees.” Short-term investment income declined as a result of lower short-term interest rates and lower short-term average investment balances. The overall pre-tax book yield of available-for-sale fixed-maturity securities and short-term investments was 4.76% as of December 31, 2025 and 4.57% as of December 31, 2024.
Equity in earnings (losses) of investees for 2025 decreased compared to 2024, primarily due to the reclassification of certain CLO equity tranches to the available-for-sale portfolio, as described above. In addition, equity in earnings (losses) of investees in 2024 included $18 million related to certain alternative investments reported in “private minority stakes in alternative asset manager” and “other” in the table above that AG transferred to AGMH as part of a stock redemption in 2024. These decreases were partially offset by an increase in the NAV of a asset based/specialty finance and private healthcare funds in 2025.
Other Income (Loss)
The increase in “other income (loss)” in 2025 compared with 2024 was primarily attributable to a gain of $23 million recognized in connection with the sale in 2025 of a commercially leased building that was part of a loss mitigation strategy for a troubled insured exposure and $15 million associated with the workout and purchase of bonds issued by a U.K. regulated utility to which the Company has insured exposure and interest on late financial guaranty premiums.
Economic Loss Development (Benefit)
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 GAAP accounting policies for measurement and recognition 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) is equal to the present value of expected future cash outflows for loss and LAE payments, net of: (i) inflows for expected salvage, subrogation and other recoveries; (ii) excess spread on underlying collateral, as applicable; and (iii) amounts ceded to reinsurers. 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 are consistent for each sector regardless of the accounting model used.
Current risk-free rates are used to discount expected losses at the end of each reporting period. Therefore, changes in such rates from period to period affect economic loss development and loss and LAE. However, the effect of changes in discount rates is not indicative of actual credit impairment or improvement. The weighted average discount rates used to discount expected losses (recoveries) were 3.92%, 4.38% and 4.09% as of December 31, 2025, 2024 and 2023, respectively.
The composition of economic loss development (benefit) by accounting model and by sector is 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
Net Expected Loss to be Paid (Recovered)
Net Economic Loss Development (Benefit)
As of December 31,
Year Ended December 31,
Accounting Model
(in millions)
Insurance
FG VIEs
Credit derivatives
Total
(in billions)
Net exposure rated BIG
(1) Includes $63 million of recoveries related to the resolution of the LBIE litigation.
Net Expected Loss to be Paid (Recovered)
Roll Forward by Sector
Year Ended December 31, 2025
Sector
Net Expected Loss to be Paid (Recovered) as of December 31, 2024
Net Economic Loss
Development (Benefit)
Net
(Paid)
Recovered
Losses (1)
Net Expected Loss to be Paid (Recovered) as of December 31, 2025
(in millions)
Public finance:
U.S. public finance
Non-U.S. public finance
Public finance
Structured finance:
U.S. RMBS
Other structured finance
Structured finance
Total
Year Ended December 31, 2024
Sector
Net Expected Loss to be Paid (Recovered) as of December 31, 2023
Net Economic Loss
Development (Benefit)
Net
(Paid)
Recovered
Losses (1)
Net Expected Loss to be Paid (Recovered) as of December 31, 2024
(in millions)
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 effects of changes in the risk-free rates included in economic loss development (benefit) were losses of $7 million and $4 million in 2025 and 2024, respectively.
2025 Net Economic Loss Development
Public Finance: The economic loss development of $64 million for U.S. public finance exposures was primarily attributable to PREPA and certain healthcare exposures. The economic loss development of $33 million for non-U.S. public finance exposures was primarily attributable to certain U.K. student accommodation and U.K. regulated utility exposures.
U.S. RMBS: The economic benefit attributable to U.S. RMBS of $43 million was mainly attributable to a $33 million benefit from higher assumed and realized recoveries for secured second lien charged-off loans.
Other Structured Finance: The benefit attributable to other structured finance of $63 million was primarily attributable to recoveries related to the resolution of the LBIE litigation (see Item 8. Financial Statements and Supplementary Data, Note 6. Contracts Accounted for as Credit Derivatives).
See Item 8. Financial Statements and Supplementary Data, Note 4. Expected Loss to be Paid (Recovered), for additional information.
2024 Net Economic Loss Development
Public Finance: The economic benefit of $9 million for U.S. public finance exposures was primarily attributable to certain healthcare exposures, partially offset by higher expected loss adjustment expenses related to certain Puerto Rico exposures. The economic loss development of $81 million for non-U.S. public finance exposures was primarily attributable to certain U.K. regulated utilities and healthcare exposures.
U.S. RMBS: The net benefit attributable to U.S. RMBS of $75 million was mainly attributable to a $43 million benefit from higher assumed and realized recoveries for secured second lien charged-off loans and a $15 million benefit from higher assumed recoveries for first lien deferred principal balances.
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 or benefits on credit derivatives.
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 acquired in business combinations or seasoned portfolios assumed from legacy financial guaranty insurers (particularly BIG transactions) generally have large deferred premium revenue balances. To the extent that a BIG transaction has a large deferred premium revenue, the difference between economic development and loss and LAE may be significant.
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 regardless of accounting model, 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 statements of operations in future periods as deferred premium revenue amortizes into income for financial guaranty insurance policies. 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.
The amount of Insurance segment loss expense, which includes losses on 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 (benefit).
Insurance Segment
Loss Expense (Benefit)
Year Ended December 31,
(in millions)
U.S. public finance
Non-U.S. public finance
Structured finance:
U.S. RMBS
Other structured finance (1)
Structured finance
Total Insurance segment loss expense (benefit)
(1) 2025 includes $63 million of recoveries in connection with the resolution of the LBIE litigation. See Item 8. Financial Statements and Supplementary Data, Note 6. Contracts Accounted for as Credit Derivatives.
Employee Compensation and Benefit Expenses
The increase in employee compensation and benefit expenses to $182 million 2025 from $170 million in 2024 was primarily attributable to higher long-term compensation expenses, increase in headcount and other employee benefit costs.
Asset Management Segment Results
Asset Management Segment Results
Year Ended December 31,
(in millions)
Segment revenues
Less: 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)
Results in the table above primarily represent (i) equity in earnings (losses) of Sound Point since the third quarter of 2023 (Sound Point results are reported on a one-quarter lag), net of the amortization of finite-lived intangible assets associated with the basis difference in Sound Point, (ii) an impairmentloss of $3 million in 2024 for a small financial services advisory firm, and (iii) other asset management related income.
Corporate Division Results
Corporate Division Results
Year Ended December 31,
(in millions)
Revenues
Gain on sale of asset management subsidiaries
Other
Total revenues
Expenses
Interest expense
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)
Corporate division interest expense primarily relates to debt issued by the AGUS and AGMH (U.S. Holding Companies), and also includes intersegment interest expense. See “— Liquidity and Capital Resources — AGL and its U.S. Holding Companies, Intercompany Loans Payable” for additional information.
Equity in earnings of investees in 2025 and 2024 relates to certain alternative investments, that AG transferred to AGMH as part of stock redemptions in 2024 and 2025. See “— Liquidity and Capital Resources—Insurance Subsidiaries—Stock Redemptions by Insurance Subsidiaries” below. The carrying value of these transferred investments as of December 31, 2025 was $184 million.
Corporate division employee compensation and benefits expenses and other operating 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 including the Board’s expenses, legal fees and other direct or allocated expense.
Other (Effect of Consolidating FG VIEs and CIVs)
The effect of consolidating FG VIEs and CIVs, intersegment eliminations and, prior to July 1, 2023, reclassifications of reimbursable fund expenses to revenue are presented in “other.” See Item 8. Financial Statements and Supplementary Data, Note 2. Segment Information.
As described in Item 8. Financial Statements and Supplementary Data, Note 8. Variable Interest Entities, the types of entities the Company consolidates when it is deemed to be the primary beneficiary primarily include: (i) FG VIEs; and (ii) CIVs. 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 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/recoveries 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 investment vehicles in which the Company invests (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 (prior to July 1, 2023); (iii) eliminating the equity method investments of the insurance subsidiaries, and related equity in earnings (losses) of investees; and (iv) establishing NCI for amounts not owned by the Company. The economic effect of AG’s 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 (“fair value gains (losses) on consolidated investment vehicles” and “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.
Effect of Consolidating FG VIEs and CIVs on the Consolidated Statements of Operations
Increase (Decrease)
Year Ended December 31,
Effect on Financial Statement Line Item
(in millions)
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 NCI (4)
Effect on net income (loss) attributable to AGL
By Type of VIE
FG VIEs
CIVs
Effect on net income (loss) attributable to AGL
(1) Changes in fair value of the FG VIEs’ assets and liabilities reported in the statements of operations are attributable to factors other than (i) changes in the Company’s own credit risk on the FG VIEs’ liabilities with recourse and (ii) unrealized gains and losses on available-for-sale fixed maturity securities.
(2) Represents the elimination of the equity in earnings (losses) of investees of the Company’s investments in certain alternative investments, primarily Sound Point funds (and prior to July 1, 2023, AssuredIM managed funds).
(3) Includes net earned premiums, net investment income, foreign exchange gains (losses) on remeasurement, other income (loss), loss and LAE (benefit) and, for 2023, other operating expenses and asset management fees.
(4) Represents the proportion of consolidated funds managed by Sound Point and, prior to July 1, 2023, AssuredIM funds’ income that is not attributable to the Company’s ownership interest.
Reconciliation to GAAP
Reconciliation of Net Income (Loss) Attributable to AGL
to Adjusted Operating Income (Loss)
Year Ended December 31,
(in millions)
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 $2, $(2) and $(5)) included in adjusted operating income
Year Ended December 31,
(per diluted share amounts)
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 included in adjusted operating income
Net Realized Investment Gains (Losses)
The table below presents the components of net realized investment gains (losses).
Net Realized Investment Gains (Losses)
Year Ended December 31,
(in millions)
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 the allowance for credit losses and intent to sell
Other net realized gains (losses)
Net realized investment gains (losses)
The change in the allowance for credit losses for 2025 was primarily associated with CLO equity tranches and Loss Mitigation Securities. The change in the allowance for credit losses for 2024 was primarily related 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. 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. See Item 8. Financial Statements and Supplementary Data, Note 9. Fair Value Measurement, for additional information.
During 2025, non-credit impairment-related unrealized fair value gains of $6 million were primarily due to generally lower collateral asset spreads. During 2024, non-credit impairment-related unrealized fair value gains of $14 million were generated primarily due to the termination of certain structured finance policies and generally lower collateral asset spreads.
Fair Value Gains (Losses) on CCS
Fair value gains on CCS of $20 million in 2025 were primarily due to changes in the rate environment and market view on liquidity of floating rate instruments. Fair value losses on CCS of $10 million in 2024 were primarily due to a tightening in market spreads. Fair value gains (losses) on CCS are heavily affected by, and in part fluctuate with, changes in market credit spreads and interest rates, and other market factors and are not expected to result in an economic gain or loss. See Item 8. Financial Statements and Supplementary Data, Note 9. Fair Value Measurement.
Foreign Exchange Gains (Losses) on Remeasurement
Foreign exchange gains of premiums receivable and loss and LAE reserves of $85 million, losses of $26 million and gains of $51 million in 2025, 2024 and 2023, respectively, primarily relate to remeasurement of long-dated premiums receivable, for which the Company records the present value of future installment premiums. Foreign exchange gains and losses 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. Approximately 68% and 69% of gross premiums receivable, net of commissions payable as of December 31, 2025 and December 31, 2024, respectively, are denominated in currencies other than the U.S. dollar. 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 the balance sheet dates.
Foreign Exchange Rates
U.S. Dollar Per Foreign Currency
As of December 31,
Pound sterling
Euro
Non-GAAP Financial Measures
The Company discloses both: (i) financial measures determined in accordance with GAAP; and (ii) 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.
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.
The Company’s management 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: (i) adjusted operating income per share, further adjusted to remove the effect of FG VIE and CIV consolidation (core operating income per share); (ii) adjusted operating shareholders’ equity per share, further adjusted to remove the effect of FG VIE and CIV consolidation (core operating shareholders’ equity per share); (iii) ABV per share, further adjusted to remove the effect of FG VIE and CIV consolidation (core ABV per share); (iv) core operating return on equity, which is calculated as core operating income divided by the average of core operating shareholders’ equity at the beginning and end of the period; and (v) PVP.
The Company’s management believes that many investors, analysts and financial news reporters use adjusted operating shareholders’ equity and/or ABV, 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.
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
The Company’s 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 that are recognized in net income (loss) attributable to AGL, 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.
2) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income (loss) attributable to AGL, which is the amount of fair value gains (losses) in excess of the present value of the expected estimated economic credit losses. 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.
3) Elimination of fair value gains (losses) on the Company’s CCS that are recognized in net income (loss) attributable to AGL. 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.
4) Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and LAE reserves that are recognized in net income (loss) attributable to AGL. 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.
5) 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.
Adjusted operating income per share is calculated by dividing adjusted operating income by the weighted average diluted shares. The method for calculating weighted average diluted shares is in accordance with GAAP. 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 ABV
The Company’s 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. The Company’s management uses ABV, further adjusted to remove the effect of FG VIE and CIV consolidation, to measure the intrinsic value of the Company, excluding franchise value. The Company’s management believes that ABV is a useful measure because it enables an evaluation of the Company’s in-force premiums and revenues net of expected losses.
Adjusted operating shareholders’ equity per share and ABV per share, each further adjusted for FG VIE and CIV consolidation (core operating shareholders’ equity per share and core ABV per share, respectively), are two 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.
Adjusted operating shareholders’ equity is defined as shareholders’ equity attributable to AGL, as reported under GAAP, adjusted for the following:
1) Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are reported on the consolidated balance sheet, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses. 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.
2) Elimination of fair value gains (losses) on the Company’s CCS that are reported on the consolidated balance sheet. 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.
3) 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 result in an economic gain or loss.
4) 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.
ABV 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.
2) Addition of the net present value of estimated net future revenue. See below.
3) 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.
4) 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.
Shares outstanding as of the end of the reporting period are used to calculate adjusted operating shareholders’ equity per share and ABV per share.
The unearned premiums and revenues included in ABV will be earned in future periods, but actual earnings may differ materially from the estimated amounts used in determining current ABV 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 ABV
As of December 31, 2025
As of December 31, 2024
Total
Per Share
Total
Per Share
(dollars in millions, except share amounts)
Shareholders’ equity attributable to AGL
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
ABV
Gain (loss) related to FG VIE and CIV consolidation included in:
Adjusted operating shareholders’ equity (net of tax provision (benefit) of $2 and $0)
ABV (net of tax provision (benefit) of $1 and $(2))
Net Present Value of Estimated Net Future Revenue
The Company’s 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.
PVP or Present Value of New Business Production
The Company’s 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
Year Ended December 31, 2025
Public Finance
Structured Finance
Non - U.S.
Non - U.S.
Total
(in millions)
GWP
Less: Installment GWP and other GAAP adjustments (1)
Upfront GWP
Plus: Installment premiums and other (2)
PVP
Year Ended December 31, 2024
Public Finance
Structured Finance
Non - U.S.
Non - U.S.
Total
(in millions)
GWP
Less: Installment GWP and other GAAP adjustments (1)
Upfront GWP
Plus: Installment premiums and other (2)
PVP
Year Ended December 31, 2023
Public Finance
Structured Finance
Non - U.S.
Non - U.S.
Total
(in millions)
GWP
Less: Installment GWP and other GAAP adjustments (1)
Upfront GWP
Plus: Installment premiums and other (2)
PVP
(1) Includes the present value of new business on installment policies discounted at the prescribed GAAP discount rates, and GWP adjustments on existing installment policies due to changes in assumptions and other GAAP adjustments.
(2) 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-maturity securities such as Loss Mitigation Securities. Includes the present value of future premiums and fees associated with other business written by the Company that, under GAAP, are accounted for under 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. Unless otherwise noted, ratings on Assured Guaranty’s insured portfolio are 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 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, 2025.
Ten Largest U.S. Public Finance Exposures by Revenue Source
As of December 31, 2025
Net Par Outstanding
Percent of Total U.S. Public Finance Net Par Outstanding
Rating
(dollars in millions)
JFK New Terminal One, New York
BBB-
Pennsylvania (Commonwealth of)
BBB
Metro Washington Airports Authority (Dulles Toll Road)
BBB+
New Jersey (State of)
BBB
Alameda Corridor Transportation Authority, California
BBB
Lower Colorado River Authority
New York Power Authority
New York Metropolitan Transportation Authority
Foothill/Eastern Transportation Corridor Agency, California
BBB+
CommonSpirit Health, Illinois
Total of top ten U.S. public finance exposures
Ten Largest U.S. Structured Finance Exposures
As of December 31, 2025
Net Par Outstanding
Percent of Total U.S. Structured Finance Net Par Outstanding
Rating
(dollars in millions)
Private US Insurance Reserve Financing
Private US Insurance Reserve Financing
Private US Insurance Reserve Financing
Private US Insurance Reserve Financing
Private US Insurance Reserve Financing
Private Middle Market CLO
Private US Insurance Securitization
Private Middle Market CLO
BBB+
Private US Insurance Securitization
Private Fund Finance Transaction
Total of top ten U.S. structured finance exposures
Ten Largest Non-U.S. Exposures
As of December 31, 2025
Country
Net Par Outstanding
Percent of Total Non-U.S. Net Par Outstanding
Rating
(dollars in millions)
Southern Water Services Limited
United Kingdom
BBB-
Thames Water Utilities Finance PLC
United Kingdom
Dwr Cymru Financing Limited
United Kingdom
Anglian Water Services Financing PLC
United Kingdom
National Grid Gas PLC
United Kingdom
Yorkshire Water Services Finance Plc
United Kingdom
BBB
Channel Link Enterprises Finance PLC
France, United Kingdom
BBB
Severn Trent Water Utilities Finance Plc
United Kingdom
BBB+
Capital Hospitals (Issuer) PLC
United Kingdom
BBB-
United Utilities Water PLC
United Kingdom
BBB+
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, 2025
Original Par Amount Per Issue
Number of
Issues
Net Par
Outstanding
% of Public
Finance
Net Par
Outstanding
(dollars in billions)
Less than $10 million
$10 million through $50 million
$50 million through $100 million
$100 million through $200 million
$200 million or greater
Total
Structured Finance Portfolio by Issue Size
As of December 31, 2025
Original Par Amount Per Issue
Number of
Issues
Net Par
Outstanding
% of Structured
Finance
Net Par
Outstanding
(dollars in billions)
Less than $10 million
$10 million through $50 million
$50 million through $100 million
$100 million through $200 million
$200 million or greater
Total
Exposure to Puerto Rico
All of the Company’s insured exposure to various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) is rated BIG. The Company’s Puerto Rico net par and net debt service outstanding as of December 31, 2025 were $553 million and $643 million, respectively, compared with net par and net debt service outstanding as of December 31, 2024 of $637 million and $756 million, respectively.
As of December 31, 2025, the Company’s only remaining outstanding unresolved insured Puerto Rico exposure subject to a payment default was PREPA, to which the Company had net par and debt service outstanding of $464 million and $537 million, respectively. As of December 31, 2024, PREPA net par and debt service outstanding were $532 million and $629 million, respectively. See “—Liquidity and Capital Resources—Insurance Subsidiaries, Financial Guaranty Policies” below and Item 8. Financial Statements and Supplementary Data, Note 4. Expected Loss to be Paid (Recovered), for more information.
The following table shows the scheduled amortization for PREPA. The Company guarantees payment of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so. When obligors default on their obligations, the Company is only required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors.
Amortization Schedule of PREPA
Net Par Outstanding and Net Debt Service Outstanding
As of December 31, 2025
Scheduled Net Par Amortization
Scheduled Net Debt Service Amortization
(in millions)
2026 (January 1 - March 31)
2026 (April 1 - June 30)
2026 (July 1 - September 30)
2026 (October 1 - December 31)
Subtotal 2026
Total
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 outstanding. AGUS directly owns AGMH, a U.S. holding company with public debt outstanding. AGMH directly owns AG, an insurance company domiciled in Maryland. 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, stock redemptions and other distributions from their operating subsidiaries (see “— Insurance Subsidiaries — Ordinary Dividends From Insurance Subsidiaries to Holding Companies” below) and 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 and in alternative investments;
• fund acquisitions of new businesses or expand insurance business;
• 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 over the next four quarters. 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.
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.
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 11. Long-Term Debt and Credit Facilities, and Guarantor and U.S. Holding Companies’ Summarized Financial Information below.
U.S. Holding Companies
Long-Term Debt and Intercompany Loans
As of December 31,
(in millions)
Effective Interest Rate
Final Maturity
Principal Amount
AGUS - long-term debt
6.125% Senior Notes
3.15% Senior Notes
7% Senior Notes
3.6% Senior Notes
Series A Enhanced Junior Subordinated Debentures
3 month CME Term SOFR +2.64%
AGUS long-term debt
AGUS - intercompany loans from:
AGRO
AGUS intercompany loans
Total AGUS long-term debt and intercompany loans
AGMH
Junior Subordinated Debentures (1)
Total AGMH long-term debt
AGMH’s long-term debt purchased by AGUS (2)
U.S. Holding Company long-term debt
(1) 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 Chicago Mercantile Exchange (CME) Term Secured Overnight Finance Rate (SOFR) plus 2.33%.
(2) 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
Year Ended December 31,
(in millions)
AGUS - long-term debt
AGUS - intercompany loans
Total AGUS
AGMH - long-term debt
AGMH’s long-term debt purchased by AGUS
Total interest paid
On August 21, 2023, AGUS issued $350 million of 6.125% Senior Notes due 2028. On September 25, 2023, AGUS redeemed $330 million of 5% Senior Notes due 2024. See Item 8. Financial Statements and Supplementary Data, Note 11. Long-Term Debt and Credit Facilities.
U.S. Holding Companies
Expected Debt Service of Long-Term Debt
As of December 31, 2025
Year
AGUS
AGMH
Eliminations (1)
Total
(in millions)
Total
(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, 2033 (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 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, AG made a 10-year, 3.5% interest rate intercompany loan to AGUS, in the amount of $250 million, to fund the acquisition of, and capital contributions to, BlueMountain Capital Management LLC and its associated entities, which were subsequently contributed to Sound Point or sold. 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. During 2025, AGUS repaid $50 million in outstanding principal as well as accrued and unpaid interest. As of December 31, 2025, $200 million remained outstanding.
Guarantor and U.S. Holding Companies’ Summarized Financial Information
AGL fully and unconditionally guarantees the payment of the principal of, and interest on, the $1,450 million aggregate principal amount of notes issued by the U.S. Holding Companies, 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.
As of December 31, 2025
AGL
U.S. Holding Companies
(in millions)
Assets, excluding investments in subsidiaries
Fixed-maturity securities (1)
Ownership interest in Sound Point
Other invested assets
Short-term investments and cash
Receivables from affiliates (2)
Other assets
Liabilities
Long-term debt
Loans payable to affiliates
Payable to affiliates (2)
Other liabilities
(1) As of December 31, 2025, weighted average durations of AGL’s and the U.S. Holding Companies’ fixed-maturity securities were 10.9 years and 1.5 years, respectively.
(2) Primarily represents receivables and payables with non-guarantor subsidiaries.
Year Ended December 31, 2025
AGL
U.S. Holding Companies
(in millions)
Revenues
Expenses
Interest expense
Other expenses
Income (loss) before provision for income taxes and equity in earnings (losses) of investees
Equity in earnings (losses) of investees
Net income (loss) excluding investments in subsidiaries
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.
AGL and U.S. Holding Companies
Selected Cash Flow Items
Year Ended December 31, 2025
AGL
U.S. Holding Companies
(in millions)
Dividends received from U.S. Holding Companies
Dividends received from other subsidiaries
Distributions from equity method investees (1)
Interest paid on intercompany loans
Interest paid on long term debt
Investments in subsidiaries
Redemption of stock by insurance subsidiaries
Dividends paid to AGL
Repayment of intercompany loans
Dividends paid to AGL shareholders
Repurchases of common shares (2)
(1) Includes distributions from Sound Point of $18 million and other alternative investments.
(2) See Item 8. Financial Statements and Supplementary Data, Note 18. 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.
Insurance Subsidiaries
The Company has several financial guaranty insurance subsidiaries. AG is an insurance subsidiary domiciled in Maryland. As of August 1, 2024, AG 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 that owns AGRO, an insurance company that is also domiciled in Bermuda.
The Company conducts its life and annuity reinsurance business through Assured Life Re, an insurance company domiciled in Bermuda which was acquired by the Company on January 21, 2026.
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 parent,
• reinsurance premiums,
• expansion of the insurance business, and
• capital investments in their own subsidiaries and in alternative investments.
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. The Company generally targets a 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, 2025, 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 and 2024 in connection with the resolution of certain defaulting 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 $464 million in insured net par outstanding of PREPA obligations as of December 31, 2025. For more information, see Item 8. Financial Statements and Supplementary Data, and Note 4. Expected Loss to be Paid (Recovered).
The terms of the Company’s credit default swap (CDS) contracts generally are modified from standard CDS contract forms approved by International Swaps and Derivatives Association, Inc. 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 documentation for certain CDS was negotiated to require the Company to also pay if the obligor were to become 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.
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, 2025. This amount is not reduced for cessions under reinsurance contracts. See Item 8. Financial Statements and Supplementary Data, Note 5. Contracts Accounted for as Insurance.
Estimated Expected Claim Payments
(Undiscounted)
As of December 31, 2025
(in millions)
Less than 1 year
1-3 years
3-5 years
More than 5 years
Total
Ordinary Dividends From Insurance Subsidiaries to Holding Companies
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 14. Insurance Company Regulatory Requirements.
Dividend restrictions by insurance subsidiary are as follows:
• Under Maryland’s insurance law, AG may, with prior notice to the Commissioner of its domiciliary regulator, the MIA, pay an ordinary dividend in an amount that, together with all dividends and distributions 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. “Adjusted net investment income” means the sum of (x) AG’s net investment income during the 12-month period ending December 31 of the preceding year (excluding realized capital gains and pro rata distributions of its own securities), and (y) AG’s net investment income (excluding realized capital gains) from the three calendar years prior to the preceding calendar year that has not already been paid out as dividends. The maximum amount available during 2026 for AG to distribute as ordinary dividends is approximately $245 million of which approximately $29 million is available for distribution in the first quarter of 2026.
• The Company expects the amount of dividends available for distribution by AG Re in 2026 to be approximately $213 million. Based on applicable law and regulations, in 2026 AG Re has the capacity to declare and pay dividends in an aggregate amount up to 25% of the prior year statutory surplus (i.e., up to $292 million as of December 31, 2025); provided that such payment cannot exceed AG Re’s unencumbered assets ($213 million as of December 31, 2025) or its statutory surplus ($312 million as of December 31, 2025). Additionally, in 2026 AG Re can make capital distributions in an aggregate amount up to $129 million without the prior approval of the Authority.
Ordinary Dividends
From Insurance Company Subsidiaries
to Holding Companies
Year Ended December 31,
(in millions)
Dividends by AG Re to AGL
Dividends by AG to U.S. Holding Companies (1)
(1) Prior to a reorganization of the Company’s U.S. corporate structure, AG had been directly owned by AGUS. As a result of the reorganization, effective as of August 1, 2024, AG is directly owned by AGMH, a subsidiary of AGUS.
Stock Redemptions by Insurance Subsidiaries
In the third quarter of 2025, after receiving approval from the MIA, AG redeemed $250 million of its common stock from AGMH in exchange for $213 million in cash and $37 million in alternative investments.
Assumed Reinsurance
Some of the Company’s insurance subsidiaries (Assuming Subsidiaries) assumed financial guaranty insurance from legacy financial guarantors. The agreements under which the Assuming Subsidiaries assumed such business are generally subject to termination at the option of the ceding company (i) if the Assuming Subsidiary fails to meet certain financial and regulatory criteria; (ii) if the Assuming Subsidiary fails to maintain a specified minimum financial strength rating; or (iii) 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 exposure on insured obligations (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, 2025, if each legacy financial guarantor 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 $243 million. In addition, 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.
Committed Capital Securities
AG is party to an arrangement that enables it to access, at its discretion, up to $400 million of capital, at any time, and has the right to use such capital for any purpose, including to pay claims. See Item 8. Financial Statements and Supplementary Data, Note 9. Fair Value Measurement.
Federal Home Loan Bank Membership
In the fourth quarter of 2025, AG became a member of the Federal Home Loan Bank of New York (FHLBNY), thereby gaining access to collateralized FHLBNY borrowings as an additional source of liquidity. The Board has authorized a maximum borrowing capacity of $300 million. As of December 31, 2025, the Company had not borrowed any funds or pledged any collateral under the FHLBNY program.
Investment Portfolio
The Company’s principal objectives in managing its investment portfolio are to support the highest possible ratings for each operating company, manage investment risk within the context of the underlying portfolio of insurance risk, maintain sufficient liquidity to cover unexpectedstress in the insurance portfolio and maximize after-tax net investment income. As of December 31, 2025, the Company had $6,369 million of available-for-sale fixed-maturity securities, of which $5,640 million were managed by three investment managers who are required to, in accordance with the Company’s investment guidelines, maintain their portion of the Company’s investment portfolio with an overall credit quality rated at a minimum of A+/A1/A+ by S&P/Moody’s/Fitch Ratings, Inc. In addition, $228 million of available-for-sale fixed-maturity securities were CLO equity tranches managed by Sound Point.
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 7. Investments and Cash, and Note 9. Fair Value Measurement.
Investment Portfolio
Carrying Value
As of December 31,
(in millions)
Fixed-maturity securities, available-for-sale
Fixed-maturity securities, trading (1)
Short-term investments
Other invested assets (2)
Total
(1) Includes primarily CVIs received as part of resolutions of Puerto Rico exposures in 2022, which are not rated.
(2) Excludes investments in Sound Point funds that are consolidated. See Item 8. Financial Statements and Supplementary Data, Note 8. Variable Interest Entities.
The Company’s available-for-sale fixed-maturity securities had a duration of 4.9 years as of December 31, 2025 and 4.3 years as of December 31, 2024, respectively.
Available-for-Sale 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, 2025 and December 31, 2024. Ratings generally reflect the lower of Moody’s and S&P classifications, except for (i) Loss Mitigation Securities rated BIG and (ii) CLO equity tranches, which are not rated. See Item 8. Financial Statements and Supplementary Data, Note 7. Investments and Cash, for additional information.
Distribution of Available-for-Sale Fixed-Maturity Securities by Rating
As of December 31,
Rating
AAA
BBB
BIG
Not rated
Total
Portfolio of Obligations of State and Political Subdivisions
The Company’s fixed-maturity available-for-sale securities include 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 $1,769 million (fair value) of obligations of state and political subdivisions included in the Company’s available-for-sale fixed-maturity securities investment portfolio as of December 31, 2025.
Fair Value of Available-for-Sale Fixed-Maturity Securities Investment Portfolio
of Obligations of State and Political Subdivisions
As of December 31, 2025 (1)
State
General
Obligation
Revenue Bonds
Total Fair
Value
Amortized
Cost
(in millions)
California
Texas
New York
Florida
Washington
Massachusetts
Illinois
Colorado
Pennsylvania
Georgia
All others
Total
(1) Excludes $56 million as of December 31, 2025 of pre-refunded bonds, at fair value.
The revenue bond portfolio primarily consists of essential service revenue bonds issued by transportation authorities, utilities and universities.
Revenue Bonds
Sources of Funds
As of December 31, 2025
Type
Amortized
Cost
Fair Value
(in millions)
Transportation
Tax revenue
Education
Utilities
Healthcare
All others
Total
Other Investments
Other invested assets, which are generally less liquid than fixed-maturity securities, primarily consist of the ownership interest in Sound Point and alternative investments across a variety of strategies. See “— Commitments” below.
Sound Point and Alternative Investments
As of December 31, 2025 (1)
As of December 31, 2024
Investments
CIVs
Consolidated
Investments
CIVs
Consolidated
(in millions)
Fixed-maturity securities, available-for-sale
Fixed-maturity securities, trading
Other invested assets:
Ownership interest in Sound Point
CLOs
Private healthcare investing
Asset-based/specialty finance
Private minority stakes in alternative asset manager
Commercial real estate finance
Other
Subtotal
Assets of CIVs, net of non-redeemable NCI
(1) The alternative investments, which do not include the Company’s ownership interest in Sound Point, had an inception-to-date annualized internal rate of return of 13%.
Effect of Ownership Interest in Sound Point and Alternative Investments
on Consolidated Statements of Operations (1)
Year Ended December 31, 2025
Investments
CIVs
Consolidated
(in millions)
Net investment income (2)
Net realized investment gains (losses)
Fair value gains (losses) on trading securities
Equity in earnings (losses) of investees:
Ownership interest in Sound Point
Alternative investments:
CLOs
Private healthcare investing
Asset-based/specialty finance
Private minority stakes in alternative asset manager
Commercial real estate finance
Other
Equity in earnings (losses) of investees
Subtotal
Fair value gains (losses) on CIVs, net of NCI
(1) Foreign exchange gains on remeasurement of alternative investments were $1 million for 2025.
(2) Includes CLO equity tranches distributed from a CLO fund in the fourth quarter of 2024.
Effect of Ownership Interest in Sound Point and Alternative Investments
on Consolidated Statements of Operations
Year Ended December 31, 2024
Investments
CIVs
Consolidated
(in millions)
Net investment income (1)
Net realized investment gains (losses)
Fair value gains (losses) on trading securities
Equity in earnings (losses) of investees:
Ownership interest in Sound Point
Alternative investments:
CLOs
Private healthcare investing
Asset-based/specialty finance
Private minority stakes in alternative asset manager
Other
Equity in earnings (losses) of investees
Subtotal
Fair value gains (losses) on CIVs, net of NCI
(1) Includes CLO equity tranches distributed from the CLO fund in the fourth quarter of 2024.
Effect of Ownership Interest in Sound Point and Alternative Investments
on Consolidated Statements of Operations
Year Ended December 31, 2023
Investments
CIVs
Consolidated
(in millions)
Net investment income
Net realized investment gains (losses)
Fair value gains (losses) on trading securities
Equity in earnings (losses) of investees:
Ownership interest in Sound Point
Alternative investments:
CLOs
Private healthcare investing
Asset-based/specialty finance
Private minority stakes in alternative asset manager
Other
Equity in earnings (losses) of investees
Subtotal
Fair value gains (losses) on CIVs, net of noncontrolling interests
Commitments
The Company has agreed to invest an aggregate amount of $1.5 billion in alternative investments, which includes $1 billion in Sound Point managed investments, subject to certain conditions precedent. Unfunded commitments for alternative investments as of December 31, 2025 were $490 million. See Item 8. Financial Statements and Supplementary Data, Note 7. Investments and Cash, for a description of the alternative investments agreement with Sound Point.
Restricted Assets
Based on fair value, fixed-maturity securities, short-term investments and cash 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 $77 million and $79 million as of December 31, 2025 and December 31, 2024, respectively. In addition, the total collateral funded into a reinsurance trust or a similar account by certain AGL subsidiaries or is otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements had a fair value of $813 million and $1,135 million as of December 31, 2025 and December 31, 2024, respectively.
Lease Obligations
The Company has entered into several lease agreements for office space in Bermuda, New York, London, Paris, and other locations with various lease terms. See Item 8. Financial Statements and Supplementary Data, Note 16. Leases, for a table of minimum lease obligations.
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.
• CIVs. The primary sources and uses of cash in the CIVs include using capital to make investments generating cash income from investments, paying expenses and distributing cash flow to investors. 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. Variable Interest Entities, for additional information.
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 segments and Corporate division, separately from the aggregate effect of consolidating FG VIEs and CIVs. In the third quarter of 2023, as a result of the Sound Point Transaction and AHP Transaction, the Company deconsolidated all CLOs and CLO warehouses and certain funds. Therefore, beginning July 1, 2023, the Company’s cash flow statements no longer include all the operating, investing and financing cash flow activity of those deconsolidated CIVs. See Item 8. Financial Statements and Supplementary Data, Note 1. Business and Basis of Presentation, and Note 8. Variable Interest Entities, for additional information.
Summarized Consolidated Cash Flows
Year Ended December 31,
(in millions)
Net cash flows provided by (used in) operating activities, excluding FG VIEs and CIVs operating cash flows
FG VIEs and CIVs operating cash flows
Net cash flows provided by (used in) operating activities
Net cash flows provided by (used in) investing activities, excluding FG VIEs and CIVs investing cash flows
FG VIEs and CIVs investing cash flows
Net cash flows provided by (used in) investing activities
Net cash flows provided by (used in) financing activities, excluding FG VIEs and CIVs financing cash flows
Dividends paid
Repurchases of common shares
Issuance of long-term debt, net of issuance costs
Redemption of debt
Other
FG VIEs and CIVs financing cash flows
Net cash flows provided by (used in) financing activities (1)
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) 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 operating activities were inflows of $259 million in 2025 and $47 million in 2024. The 2025 cash flow from operations includes the receipt of $103 million in satisfaction of the judgment the Company was awarded and its recoveries in connection with the resolution of the LBIE litigation. In addition, 2025 cash flows from operations were higher than in 2024 due to a $114 million decrease in net claim payments.
Investing activities primarily consisted of net sales (purchases) of fixed-maturity securities and short-term investments and paydowns on, and sales of, FG VIEs’ assets. The decrease in investing cash inflows compared with the prior year is primarily due to the need for liquidity to fund higher claim payments in 2024. In addition, increased operating cash flows in 2025, due in part to the cash inflow related to the resolution of the LBIE litigation, reduced the need to liquidate investments. See Item 8. Financial Statements and Supplementary Data, Note 4. Expected Loss to be Paid (Recovered), for additional information.
Financing activities primarily consist of (i) AGL share repurchases and dividends, and (ii) paydowns of FG VIEs’ liabilities. In 2024, FG VIEs’ financing cash flows were $375 million, which primarily related to the paydown of Puerto Rico Trust liabilities.
From January 1, 2026 through February 25, 2026, the Company repurchased an additional 546 thousand common shares. As of February 25, 2026, the Company was authorized to purchase $204 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 18. Shareholders’ Equity.
