ASSURED GUARANTY LTD

The Company invests primarily in fixed-maturity securities, short-term investments and various alternative investments (some of which are accounted for as consolidated investment vehicles (CIVs)). Investment income from the Company’s investments is one of the primary sources of cash flow supporting its claim payments and other operational costs, as well as its capital management objectives. The Company’s principal objectives in managing its investment portfolio are to maintain sufficient liquidity to cover unexpected stress in the insurance portfolio; to maximize after tax book income; to manage investment risk within the context of the underlying portfolio of insurance risk; and to preserve the highest possible ratings for each Assured Guaranty subsidiary.

If the Company’s calculations with respect to its insurance subsidiaries liabilities are incorrect or other unanticipated payment obligations arise, or if the Company improperly structures its investments to meet these and other corporate liabilities, it could have unexpected losses, including losses resulting from forced liquidation of investments. The investment policies of the Company’s insurance subsidiaries are subject to insurance law requirements, and may change depending upon regulatory, economic, rating agency and market conditions and the existing or anticipated financial condition and operating requirements, including the tax position, of the businesses. The performance of invested assets is subject to the ability of the Company and its investment managers to select and manage appropriate investments.

As of December 31, 2023 and 2022, approximately 91% and 98%, respectively, of the total investments of $9.1 billion and $8.4 billion, respectively, were fixed-maturity securities and short-term investments consisting primarily of the following:

Fixed-maturity securities and short term investments: As of December 31, 2023, other than Loss Mitigation Securities, the Puerto Rico New Recovery Bonds and CVIs (described below), the majority (59%, or $5.4 billion) of the $9.1 billion investment portfolio was managed by Goldman Sachs Asset Management, L.P., Wellington Management Company, LLP, and MacKay Shields LLC. Each of these three investment managers has discretionary authority over the portion of the investment portfolio it manages, within the limits of the investment guidelines approved by the Company’s Board of Directors. Each manager is compensated based upon a fixed percentage of the market value of the portion of the portfolio being managed by such manager. Wellington Management Company LLP owns or manages funds that own more than 5% of the Company’s common shares.

As of December 31, 2023, Loss Mitigation Securities represent 5% of the investment portfolio, or $459 million, based on fair value.

After over five years of negotiations, a substantial portion of the Company’s Puerto Rico exposure was resolved in 2022 in accordance with four orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) related to the Company’s exposure to all insured Puerto Rico credits experiencing payment default in 2022 except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions). As a result of the 2022 Puerto Rico Resolutions, the Company received substantial amounts of cash and Contingent Value Instruments (CVIs), as well as new general obligation bonds (under the GO/PBA Plan) (New GO Bonds) and new bonds backed by toll revenues (under the HTA Plan) (Toll Bonds, and together with the New GO Bonds, New Recovery Bonds). On December 28, 2023, all outstanding Toll Bonds were called. As of December 31, 2023, 4% of the investment portfolio, with a fair value of $332 million, represents New Recovery Bonds and CVIs obtained as part of the 2022 Puerto Rico Resolutions. See Part II, Item 8, Financial Statements and Supplementary Data, Note 3, Outstanding Exposure.

Other investments: In addition to its fixed-maturity and short-term investments portfolio, the Company also has other investments which primarily include the Company’s investment in Sound Point and alternative investments including investments across a variety of strategies and asset classes such as CLO equity tranches, direct lending, structured credit, strategic capital, specialty finance, asset-based investing and healthcare-focused private equity. The Company leverages the knowledge and experience of Sound Point to manage its alternative investments.

As of December 31, 2023 and December 31, 2022, the Company had $829 million and $133 million, respectively, in alternative investments that were reported in other invested assets on the consolidated balance sheets. The Company also has alternative investments accounted for as consolidated investment vehicles (CIVs). As of December 31, 2023 and December 31, 2022, CIVs had a combined net asset value (NAV) of $305 million and $569 million, respectively.

Puerto Rico Trust Assets: In addition to New Recovery Bonds and CVIs described above, for bondholders that elected to receive custody receipts that represent an interest in the legacy insurance policy plus any cash, New Recovery Bonds and CVIs under the 2022 Puerto Rico Resolutions, such assets were reported in consolidated trusts. As of December 31, 2023, the Company reported $155 million in Puerto Rico Trusts’ assets in financial guaranty VIEs (FG VIEs) assets on the consolidated balance sheets, primarily consisting of cash. In the fourth quarter of 2023, all of the Toll Bonds in the Puerto Rico Trusts were called, resulting in cash proceeds of $154 million. Such cash proceeds comprise the vast majority of the assets in the Puerto Rico Trusts as of December 31, 2023. In January 2024, such proceeds were used to pay down a portion of the liabilities of the Puerto Rico Trusts. The remaining liabilities of the Puerto Rico Trusts will be paid by the U.S. Insurance Subsidiaries under their financial guaranty policies and are no longer dependent on the credit of Puerto Rico Highway and Transportation Authority (PRHTA).

See Part II, Item 8, Financial Statements and Supplementary Data, Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for information on the Puerto Rico Trusts and the CIVs.