ASSURED GUARANTY LTD

Other (Effect of Consolidating FG VIEs and CIVs)

The effect of consolidating FG VIEs and CIVs and intersegment eliminations are presented in “other.” See Item 1. Financial Statements, Note 3. Segment Information.

As described in Item 1. Financial Statements, Note 10. Variable Interest Entities, the types of entities the Company consolidates when it is deemed to be the primary beneficiary primarily include: (i) FG VIEs; (ii) CIVs; and (iii) annuity reinsurance VIEs that have been established as part of coinsurance arrangements with cedants in the annuity reinsurance business to hold assets supporting assumed blocks of business. The Company eliminates the effects of intercompany transactions between its FG VIEs and CIVs and its FG insurance and asset management subsidiaries, as well as intercompany transactions between CIVs.

Consolidating FG VIEs (as opposed to accounting for the related FG insurance contracts in the Financial Guaranty segment) has a gross-up effect on the condensed consolidated financial statements, and includes: (i) the establishment of the FG VIEs’ assets and liabilities and related changes in fair value on the condensed consolidated financial statements; (ii) eliminating the premiums and losses/recoveries associated with the FG insurance contracts between the FG insurance subsidiaries and the FG VIEs; and (iii) eliminating the investment balances associated with the FG 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 equity method investments of the FG insurance subsidiaries, and related equity in earnings (losses) of investees; and (iii) establishing NCI for amounts not owned by the Company. The economic effect of AG’s ownership interests in CIVs is presented in the Financial Guaranty 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 condensed 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 Condensed Consolidated Statements of Operations

Increase (Decrease)

(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.

(3) Includes net earned premiums, net investment income, foreign exchange gains (losses) on remeasurement, intersegment asset management revenues, other income (loss) and loss and LAE (benefit).

(4) Represents the proportion of consolidated FG VIEs and CIVs managed by Sound Point that is not attributable to the Company’s ownership interest.