The Company provides financial guaranties with respect to debt obligations of special purpose entities, including VIEs, but does not act as the servicer or collateral manager for any VIE obligations guaranteed by its insurance subsidiaries. The transaction structure generally provides certain financial protections to the Company. This financial protection can take several forms, the most common of which are overcollateralization, first loss protection (or subordination) and excess spread. In the case of overcollateralization (i.e., the principal amount of the securitized assets exceeds the principal amount of the structured finance obligations guaranteed by the Company), the structure allows defaults of the securitized assets before a default is experienced on the structured finance obligation guaranteed by the Company. In the case of first loss, the Company's financial guaranty insurance policy only covers a senior layer of losses experienced by multiple obligations issued by the VIEs. The first loss exposure with respect to the assets is either retained by the seller or sold off in the form of equity or mezzanine debt to other investors. In the case of excess spread, the financial assets contributed to VIEs generate interest income that are in excess of the interest payments on the debt issued by the VIE. Such excess spread is typically distributed through the transaction’s cash flow waterfall and may be used to create additional credit enhancement, applied to redeem debt issued by the VIE (thereby, creating additional overcollateralization), or distributed to equity or other investors in the transaction.

Assured Guaranty is not primarily liable for the debt obligations issued by the VIEs it insures 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 subsidiaries’ creditors do not have any rights with regard to the collateral supporting the debt issued by the FG VIEs. Proceeds from sales, maturities, prepayments and interest from such underlying collateral may only be used to pay debt service on FG VIEs’ liabilities. Net fair value gains and losses on FG VIEs are expected to reverse to zero at maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by Assured Guaranty under the financial guaranty insurance contract. The Company’s estimate of expected loss to be paid for FG VIEs is included in Note 5, Expected Loss to be Paid.

As part of the terms of its financial guaranty contracts, the Company, under its insurance contract, obtains certain protective rights with respect to the VIE that give the Company additional controls over a VIE. These protective rights are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager's financial condition. At deal inception, the Company typically is not deemed to control a VIE; however, once a trigger event occurs, the Company's control of the VIE typically increases. The Company continuously evaluates its power to direct the activities that most significantly impact the economic performance of VIEs that have debt obligations insured by the Company and, accordingly, where the Company is obligated to absorb VIE losses or receive benefits that could potentially be significant to the VIE. The Company is deemed to be the control party for certain VIEs under GAAP, typically when its protective rights give it the power to both terminate and replace the deal servicer, which are characteristics specific to the Company's financial guaranty contracts. If the protective rights that could make the Company the control party have not been triggered, then the VIE is not consolidated. If the Company is deemed no longer to have those protective rights, the VIE is deconsolidated.

The change in the ISCR of the FG VIEs’ assets held as of March 31, 2020 that was recorded in the condensed consolidated statements of operations for First Quarter 2020 was a loss of $3 million. The change in the ISCR of the FG VIEs’ assets was a gain of $6 million for First Quarter 2019. To calculate ISCR, the change in the fair value of the FG VIEs’ assets is allocated between changes that are due to ISCR and changes due to other factors, including interest rates. The ISCR amount is determined by using expected cash flows at the original date of consolidation discounted at the effective yield less current expected cash flows discounted at that same original effective yield.

The inception to date change in fair value of the FG VIEs’ liabilities with recourse attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the Company’s CDS spread from the most recent date of consolidation to the current period. In general, if the Company’s CDS spread tightens, more value will be assigned to the Company’s credit; however, if the Company’s CDS widens, less value is assigned to the Company’s credit.



	As of March 31, 2020		As of December 31, 2019
	(in millions)
Excess of unpaid principal over fair value of:
FG VIEs’ assets	$	316	$	279
FG VIEs’ liabilities with recourse	49		21
FG VIEs’ liabilities without recourse	30		19
Unpaid principal balance for FG VIEs’ assets that were 90 days or more past due	53		52
Unpaid principal for FG VIEs’ liabilities with recourse(1)	361		388

____________________

Through a jointly owned subsidiary, AGM, AGC and MAC, the U.S. insurance subsidiaries, initially intend to invest $500 million in Assured Investment Management funds. As of March 31, 2020 and December 31, 2019, $192 million and $79 million, respectively, was invested in three separate Assured Investment Management funds: AHP, ABIF and CLO Warehouse Fund. As of March 31, 2020 and December 31, 2019, the fair value of such investments was $179 million and $77 million, respectively. CLO Warehouse Fund invested in the subordinated notes of CLO XXVI.

AHP, ABIF, CLO Warehouse Fund and CLO XXVI (collectively, the consolidated investment vehicles) are VIEs. The Company consolidates these investment vehicles as it is deemed to be the primary beneficiary based on its power to direct the most significant activities of each VIE (through its Assured Investment Management platform asset management subsidiaries) and its level of economic interest in the entities (through its U.S. insurance subsidiaries).

AHP, ABIF and CLO Warehouse Fund are investment companies for accounting purposes and therefore account for their underlying investments at fair value. CLO XXVI is a CFE. Under the practical expedient for CFEs, the Company elected to measure CLO XXVI's assets and liabilities using the fair value of its assets, which are more observable. Changes in the fair value of assets and liabilities of consolidated investment vehicles are recorded in "fair value gains (losses) on consolidated investment vehicles" in the condensed consolidated statements of operations.

As a result of consolidating AHP, ABIF and CLO Warehouse Fund, the Company records noncontrolling interest for the portion of each fund owned by employees and any third party investors. As of March 31, 2020, redeemable employee-owned noncontrolling interest in CLO Warehouse Fund was classified outside of shareholders’ equity, within temporary equity, and non-redeemable employee-owned noncontrolling interest in AHP and ABIF is presented within shareholders' equity in the consolidated balance sheets. As of December 31, 2019, redeemable employee-owned noncontrolling interest, held in ABIF and CLO Warehouse Fund, was classified outside of shareholders' equity, within temporary equity. For AHP, nonredeemable noncontrolling interest is presented within shareholders' equity in the consolidated balance sheets. During First Quarter 2020, redemption features for employee-owned interests in ABIF were amended, resulting in a reclassification from redeemable NCI to non-redeemable noncontrolling interest.

The assets and liabilities of the Company's consolidated investment vehicles (which include consolidated funds: AHP, ABIF and CLO Warehouse Fund as well as CLO XXVI) are held within separate legal entities. The assets of the consolidated investment vehicles are not available to creditors of the Company, other than creditors of the applicable consolidated investment vehicles. In addition, creditors of the consolidated investment vehicles have no recourse against the assets of the Company, other than the assets of such applicable consolidated investment vehicles.

Generally, the consolidation of the Company's consolidated investment vehicles and FG VIEs has a significant gross-up effect on the Company's assets, liabilities and cash flows. The consolidated investment vehicles have no net effect on the net income attributable to the Company, other than the economic interest the Company holds in consolidated funds in the Company's Insurance segment. The ownership interests of the Company's consolidated funds, to which the Company has no

economic rights, are reflected as either redeemable or nonredeemable noncontrolling interest in the consolidated funds in the Company's consolidated financial statements. Liquidity available at the Company's consolidated investment vehicles is typically not available for corporate liquidity needs, except to the extent of the Company's investment in the fund.



	As of March 31, 2020		As of December 31, 2019
	(in millions)
Assets:
Cash and restricted cash(1)	$	82	$	14
Corporate loans of CFE, at fair value	433		494
Corporate loans, at fair value	53		47
Other assets (2)	77		17
Total assets	$	645	$	572
Liabilities:
CLO obligations of CFE, at fair value(3)	426		481
Other liabilities	5		1
Total liabilities	$	431	$	482

The effect on the statements of operations and financial condition of consolidating FG VIEs includes (i) changes in fair value gains (losses) on FG VIEs’ assets and liabilities, (ii) the elimination of premiums and losses related to the AGC and AGM FG VIEs’ liabilities with recourse and (iii) the elimination of investment balances related to the Company’s purchase of AGC and AGM insured FG VIEs’ debt. Upon consolidation of a FG VIE, the related insurance and, if applicable, the related investment balances are considered intercompany transactions and therefore eliminated. Such eliminations are included in the table below to present the full effect of consolidating FG VIEs.

The effect on the statements of operations and financial condition of consolidating Assured Investment Management investment vehicles includes (i) changes in fair value of consolidated investment vehicles assets and liabilities, (2) the elimination of the equity in earnings in investees related to the Insurance segment's investments in the consolidated Assured Investment Management funds, (3) the elimination of debt of the CLO XXVI against the assets of the consolidated CLO Warehouse Fund, (4) the recording of noncontrolling interest for the proportion of each consolidated Assured Investment Management fund that is not owned by any other subsidiary of the Company, and (5) the elimination of intercompany asset management fees.

The cash flows generated by the FG VIEs’ assets are classified as cash flows from investing activities. Paydowns of FG VIEs' liabilities are supported by the cash flows generated by FG VIEs’ assets, and for liabilities with recourse, possibly claim payments made by AGM or AGC under its financial guaranty insurance contracts. Paydowns of FG VIEs' liabilities both with and without recourse are classified as cash flows used in financing activities. Interest income, interest expense and other expenses of the FG VIEs’ assets and liabilities are classified as operating cash flows. Claim payments made by AGC and AGM under the financial guaranty contracts issued to the FG VIEs are eliminated upon consolidation and therefore such claim payments are treated as paydowns of FG VIEs’ liabilities and as a financing activity as opposed to an operating activity of AGM and AGC.

Cash flows of the consolidated investment vehicles attributable to such entities' investment purchases and dispositions, as well as operating expenses of the investment vehicles, are presented as cash flow from operating activities in the condensed consolidated statements of cash flows. Financing activities and capital cash flows to and from investors are presented as financing activities consistent with investment company guidelines.



	As of March 31, 2020			As of December 31, 2019
	(in millions)
Assets
Investment portfolio:
Fixed maturity securities and short-term investments	$	(34	)	$	(39	)
Equity method investments(1)	(179		)	(77		)
Total investments	(213		)	(116		)
Premiums receivable, net of commissions payable	(7		)	(7		)
Salvage and subrogation recoverable	(9		)	(8		)
FG VIEs’ assets, at fair value	368			442
Assets of consolidated investment vehicles(1)	645			572
Other assets	(1		)	—
Total assets	$	783		$	883
Liabilities and shareholders’ equity
Unearned premium reserve	$	(41	)	$	(39	)
Loss and LAE reserve	(44		)	(41		)
Deferred tax liabilities	2			—
FG VIEs’ liabilities with recourse, at fair value	312			367
FG VIEs’ liabilities without recourse, at fair value	82			102
Liabilities of consolidated investment vehicles(1)	431			482
Total liabilities	742			871

Redeemable noncontrolling interests in consolidated investment vehicles(1)	8			7

Retained earnings	30			34
Accumulated other comprehensive income	(22		)	(35		)
Total shareholders’ equity attributable to Assured Guaranty Ltd.	8			(1		)
Nonredeemable noncontrolling interests (1)	25			6
Total shareholders’ equity	33			5
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	783		$	883

Increase (Decrease)



	First Quarter
	2020			2019
	(in millions)
Net earned premiums	$	(1	)	$	(3	)
Net investment income	(1		)	(1		)
Asset management fees	(1		)	—
Fair value gains (losses) on FG VIEs	(9		)	5
Fair value gains (losses) on consolidated investment vehicles	(12		)	—
Loss and LAE	6			(1		)
Equity in net earnings of investees	10			—
Effect on income before tax	(8		)	—
Less: Tax provision (benefit)	(1		)	—
Effect on net income (loss)	(7		)	—
Effect on redeemable noncontrolling interests	(3		)	—
Effect on net income (loss) attributable to AGL	$	(4	)	$	—

For First Quarter 2020, the fair value losses on FG VIEs were attributable to price depreciation due to the observed widening in the market spreads for the underlying collateral. The change in fair value of consolidated investment vehicles was a loss of $12 million for First Quarter 2020 attributable to price depreciation on underlying assets. For First Quarter 2019, the primary driver of the gain was price appreciation on the FG VIE assets resulting from improvement in the underlying collateral.

In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the original insured financial guaranty insurance or credit derivative contract, the Company classifies the assets and liabilities of those VIEs in the line items that most accurately reflect the nature of the items, as opposed to within the FG VIEs’ assets and FG VIEs’ liabilities. The largest of these VIEs had assets of $93 million and liabilities of $23 million as of March 31, 2020, and assets of $91 million and liabilities of $12 million as of December 31, 2019, primarily recorded in the investment portfolio and credit derivative liabilities on the condensed consolidated balance sheets.

As described in Note 4, Outstanding Insurance Exposure, the Company monitors all policies in the insured portfolio. Of the approximately 18 thousand policies monitored as of March 31, 2020, approximately 16 thousand policies are not within the scope of ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization. The majority of the remaining policies involve transactions where the Company is not deemed to currently have control over the FG VIEs’ most significant activities. As of March 31,

2020 and December 31, 2019, the Company identified 87 and 90 policies, respectively, that contain provisions and experienced events that may trigger consolidation. Based on management’s assessment of these potential triggers or events, the Company consolidated 26 and 27 FG VIEs as of March 31, 2020 and December 31, 2019, respectively. The Company’s exposure provided through its financial guaranties with respect to debt obligations of FG VIEs is included within net par outstanding in Note 4, Outstanding Insurance Exposure.