ASSURED GUARANTY LTD

7. Annuity Reinsurance

Accounting Policies

The Company’s annuity reinsurance agreements consist oftwo contracts, a PRT contract and a MYGA contract, acquired as part of the Assured Life Re Acquisition that are both accounted for under ASC 944, Financial Services – Insurance. The PRT block of business is accounted for as a long-duration limited-payment insurance contract and the MYGA block of business is accounted for as an investment-type contract.

PRT

On the Acquisition Date, the Company recorded (i) the invested assets and derivatives supporting the PRT block of business at fair value and designated the invested assets as available-for-sale (See Note 8. Derivatives, and Note 9. Investments for additional information); (ii) a liability for future policy benefits (LFPB) and a deferred profit liability (DPL), that are reported together in the condensed consolidated balance sheets in the line item “future policy benefits for annuity reinsurance contracts;” and (iii) a VOBA asset representing the difference between the fair value of the PRT obligation and the sum of the insurance liabilities described in (ii) above.

Gross premiums are recognized as revenue when due from policyholders. As PRT agreements are single-premium reinsurance contracts, the premium on the PRT contract was collected prior to the Acquisition Date, and no future premiums are due. The LFPB is calculated using the net premium ratio approach and represents the present value of estimated future benefits and related expenses less the present value of estimated future net premiums for the PRT block of business. The principal assumptions used in the measurement of these insurance liabilities include longevity, investment returns, inflation, discount rate and other factors. Each reporting period, the LFPB is updated to reflect actual experience to date. Changes to the LFPB to reflect actual experience, along with actual claims paid, are reported in “benefit expense for annuity reinsurance contracts” in the condensed consolidated statement of operations.

The DPL represents the excess of gross premiums over the LFPB at the Acquisition Date. The DPL is amortized over the lifetime of the contract and accrues interest on the unamortized balance. The amortization of the DPL is reported in “benefit expense for annuity reinsurance contracts” in the condensed consolidated statement of operations.

On an annual basis, or more often if circumstances warrant, the Company conducts a comprehensive review of its assumptions based on experience, industry benchmarking and other factors, as applicable. Updates to assumptions are applied on a retrospective basis, and the change in reserves resulting from updates to assumptions is reported in “benefit expense for annuity reinsurance contracts” in the condensed consolidated statements of operations.

The discount rate used to measure the LFPB is based on the yield of upper-medium grade (low-credit-risk) fixed-income instruments, as prescribed by ASC 944. This is interpreted as a single-A corporate yield, constructed from the U.K. gilt curve plus an observed credit spread. The discount rate used to recognize interest accretion on the LFPB is locked in at the initial measurement of the reinsurance contract (the locked in discount rate). Each reporting period thereafter, the LFPB is remeasured using the current discount rate. The difference between the LFPB calculated using the current discount rate and the LFPB calculated using the locked in discount rate is recorded in “other comprehensive income (loss)” (OCI).

MYGA

On the Acquisition Date, in respect of the MYGA agreement, the Company recorded (i) funds withheld at fair value; (ii) a liability representing the account value of the assumed block of business (i.e., the policyholder account balances), (iii) a VOBA liability representing the excess of fair value of the MYGA obligation over the account value; and (iv) other payables representing pending settlement amounts due to the ceding company.

The MYGA block of business is an investment-type contract accounted for under the deposit method. Deposits related to investment-type contracts are credited (i.e., reported as deposits) to “policyholder account balances for annuity reinsurance contracts” on the condensed consolidated balance sheets. Expenses consist primarily of the interest credited to policyholder deposits and are reported in “benefit expense for annuity reinsurance contracts” on the condensed consolidated statements of operations.

Funds withheld represents a receivable for assets contractually withheld and legally owned by the ceding company. Funds withheld contain an embedded derivative related to the Company’s right to receive the total return on the assets supporting the funds withheld coinsurance arrangement which is measured at the fair value of the underlying assets in the condensed consolidated balance sheets. The change in the fair value of this embedded derivative is based on the unrealized gains and losses of the underlying assets and reported as a component of “fair value gains (losses) on derivatives” in the condensed consolidated statements of operations. See Note 8. Derivatives.

Policyholder account balances for annuity reinsurance contracts represent the assumed contract values that have accrued to the benefit of the policyholders as of the balance sheet date where account balances are equal to deposits plus interest credited less withdrawals and other charges assessed against the account balance, as applicable.

Future Policy Benefits for Annuity Reinsurance Contracts

The following table presents the components of “future policy benefits for annuity reinsurance contracts” on the condensed consolidated balance sheet.

Future Policy Benefits for Annuity Reinsurance Contracts

(1) See the roll forward of LFPB table below for further information.

Roll Forward of LFPB

(1) The weighted average duration represents average cohort-level duration, weighted by the benefit reserves amount, derived from the discounted expected future benefit cash flows.

The interest expense included in “benefit expense for annuity reinsurance contracts” in the condensed consolidated statement of operations was $4 million for first quarter 2026.

Policyholder Account Balances for Annuity Reinsurance Contracts

The following table presents the balances and the rollforward of “policyholder account balances for annuity reinsurance contracts” which consists of MYGA.

Roll Forward of Policyholder Account Balances for Annuity Reinsurance Contracts

The following table presents policyholder account balances for annuity reinsurance contracts by range of guaranteed minimum crediting rates offered at inception. The Company is currently not accepting renewals on the MYGA book of business.