ASSURED GUARANTY LTD

Real gross domestic product increased at an annual rate of 2.8% in the third quarter 2024, compared to an increase of 3.0% in the three-month period ended June 30, 2024 (second quarter 2024), according to the third quarter 2024 advance estimate news release issued by the U.S. Bureau of Economic Analysis. At the end of September 2024, the U.S. unemployment rate, seasonally adjusted, stood at 4.1%, the same as where it stood at the end of second quarter 2024. 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 September 2024, as measured by the Consumer Price Index for All Urban Consumers, was 2.4%, as compared to 3.0% for the 12-month period ending June 2024. According to the United Kingdom’s (U.K.) Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs rose 2.6 % for the 12 months through September 2024, down from 2.8% for the 12 months ended June 2024. The Company believes that higher inflation may put pressure on the budgets of obligors whose obligations it guarantees and make defaults more likely. In addition, consumer price inflation in the U.K. increases reported net par outstanding for certain U.K. exposures with approximately $24.0 billion of net par outstanding as of September 30, 2024, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion of the premium on an installment basis over the term of the exposure.

At its September 17-18, 2024 meeting, the Federal Open Market Committee (FOMC) decided to lower the federal funds rate by 0.50% to a range of 4.75% to 5.00%, 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 follow. At its November 6-7, 2024 meeting, the FOMC further lowered the federal funds rate by 0.25% to a range of 4.50% to 4.75%, stating that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run, and that the risks to achieving its employment and inflation goals are roughly in balance. In considering 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.

The level and direction 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 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 U.S. municipal bond transactions and may also decrease amounts the Company can earn on fixed-maturity securities newly acquired for its investment portfolio. Lower interest rates also are often accompanied by narrower spreads, which may also decrease the level of premiums the Company can charge for those products.

The 30-year AAA Municipal Market Data (MMD) rate is a measure of interest rates in the Company’s largest financial guaranty insurance market, U.S. public finance. The MMD rate averaged 3.60% for third quarter 2024, lower than the 3.82% average for second quarter 2024, and lower than the 3.77% average for the quarter ended September 2023. Meanwhile, the difference, or credit spread, between the 30-year BBB-rated general obligation relative to the 30-year AAA MMD averaged 90 basis points (bps) in third quarter 2024, which is flat compared to the 90 bps average for second quarter 2024, and narrower than the 101 bps average for the quarter ended September 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 averaged 6.08% as of September 26, 2024, down from 7.31% one year ago. The Company believes that, despite recent decreases in mortgage interest rates, restricted housing inventory continues to influence home prices where demand outpaces supply. Higher housing prices may benefit distressed residential mortgage-backed securities (RMBS) the Company insures. The National Association of Realtors reported that year-over-year existing-home sales decreased 3.5% from September 2023 to September 2024, while the median existing-home sales price increased 3.0% from September 2023 ($392,700) to September 2024 ($404,500).