Segment Information

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Segment Information

Segment Information

The Company reports its results of operations consistent with the manner in which the Company's chief operating decision maker (CODM) reviews the business to assess performance and allocate resources. Prior to the acquisition of BlueMountain on October 1, 2019, the Company's operating subsidiaries were all insurance companies, and results of operations were viewed by the CODM as one segment. Beginning in the fourth quarter of 2019, with the acquisition of BlueMountain and expansion into the asset management business, the Company established the Assured Investment Management platform and now operates in two distinct segments, Insurance and Asset Management. The following describes the components of each segment, along with the Corporate division and Other categories. The Insurance and Asset Management segments are presented without giving effect to the consolidation of the financial guaranty (FG) VIEs and investment vehicles. See Note 11, Variable Interest Entities.

The Insurance segment primarily consists of the Company's domestic and foreign insurance subsidiaries and their wholly-owned subsidiaries that provide credit protection products to the U.S. and international public finance (including infrastructure) and structured finance markets. The Insurance segment also includes the income (loss) from its proportionate equity investments in funds managed in the Assured Investment Management platform (Assured Investment Management funds).

The Asset Management segment consists of the Company's Assured Investment Management platform subsidiaries, which provide asset management services to outside investors as well as to the Company's Insurance segment. The Asset Management segment presents reimbursable fund expenses netted in other operating expenses, whereas on the condensed consolidated statement of operations such reimbursable expenses are shown gross, as components of asset management fees and other operating expenses.

The Corporate division consists primarily of interest expense on the debt of AGUS and AGMH, as well as other operating expenses attributed to holding company activities, including administrative services performed by operating subsidiaries for the holding companies.

Other items consist of intersegment eliminations, reclassification of asset management reimbursable expenses, and consolidation adjustments, including the effect of consolidating FG VIEs and certain Assured Investment Management investment vehicles in which the Insurance segment invests. See Note 11, Variable Interest Entities.

The Company does not report assets by reportable segment as the CODM does not use assets to assess performance and allocate resources and only reviews assets at a consolidated level.

Total adjusted operating income includes the effect of consolidating both FG VIEs and investment vehicles; however, the effect of consolidating such entities, including the related eliminations, is included in the "other" column in the tables below, which represents the CODM's view, consistent with the management approach guidance for presentation of segment metrics.

The Company analyzes the operating performance of each segment using "adjusted operating income." Results for each segment include specifically identifiable expenses as well as allocations of expenses between legal entities based on time studies and other cost allocation methodologies based on headcount or other metrics. Adjusted operating income is defined as net income (loss) attributable to AGL, as reported under GAAP, adjusted for the following:

1) Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading.

2) Elimination of non-credit-impairment unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments.

3) Elimination of fair value gains (losses) on the Company’s committed capital securities (CCS) that are recognized in net income.

4) Elimination of foreign exchange gains (losses) on remeasurement of net premium receivables and loss and loss adjustment expense (LAE) reserves that are recognized in net income.

5) Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

The following tables present the Company's operations by operating segment. The information for the prior year has been conformed to the new segment presentation.

Segment Information

	Second Quarter 2020
	Insurance		Asset Management			Corporate			Other			Total
	(in millions)
Third-party revenues	$	244	$	12		$	—		$	38		$	294
Intersegment revenues	2		1			—			(3		)	—
Total revenues	246		13			—			35			294
Total expenses	90		24			32			4			150
Income (loss) before income taxes and equity in net earnings of investees	156		(11		)	(32		)	31			144
Equity in net earnings of investees	26		—			—			(26		)	—
Adjusted operating income (loss) before income taxes	182		(11		)	(32		)	5			144
Provision (benefit) for income taxes	28		(2		)	(6		)	—			20
Noncontrolling interests	—		—			—			5			5
Adjusted operating income (loss)	$	154	$	(9	)	$	(26	)	$	—		$	119
Supplemental income statement information
Net investment income	$	82	$	—		$	—		$	(4	)	$	78
Interest expense	—		—			23			(2		)	21
Non-cash compensation and operating expenses (1)	9		6			—			—			15

	Second Quarter 2019
	Insurance		Asset Management		Corporate			Other			Total
	(in millions)
Third-party revenues	$	241	$	—	$	1		$	21		$	263
Intersegment revenues	—		—		—			—			—
Total revenues	241		—		1			21			263
Total expenses	40		—		31			14			85
Income (loss) before income taxes and equity in net earnings of investees	201		—		(30		)	7			178
Equity in net earnings of investees	1		—		—			—			1
Adjusted operating income (loss) before income taxes	202		—		(30		)	7			179
Provision (benefit) for income taxes	41		—		(4		)	1			38
Noncontrolling interests	—		—		—			—			—
Adjusted operating income (loss)	$	161	$	—	$	(26	)	$	6		$	141
Supplemental income statement information
Net investment income	$	110	$	—	$	1		$	(1	)	$	110
Interest expense	—		—		22			—			22
Non-cash compensation and operating expenses (1)	9		—		2			—			11

	Six Months Ended June 30, 2020
	Insurance		Asset Management			Corporate			Other			Total
	(in millions)
Third-party revenues	$	437	$	28		$	(4	)	$	23		$	484
Intersegment revenues	5		2			—			(7		)	—
Total revenues	442		30			(4		)	16			484
Total expenses	174		52			67			3			296
Income (loss) before income taxes and equity in net earnings of investees	268		(22		)	(71		)	13			188
Equity in net earnings of investees	17		—			(5		)	(16		)	(4		)
Adjusted operating income (loss) before income taxes	285		(22		)	(76		)	(3		)	184
Provision (benefit) for income taxes	46		(4		)	(11		)	(1		)	30
Noncontrolling interests	—		—			—			2			2
Adjusted operating income (loss)	$	239	$	(18	)	$	(65	)	$	(4	)	$	152
Supplemental income statement information
Net investment income	$	165	$	—		$	1		$	(8	)	$	158
Interest expense	—		—			48			(5		)	43
Non-cash compensation and operating expenses (1)	18		9			3			—			30

	Six Months Ended June 30, 2019
	Insurance		Asset Management		Corporate			Other			Total
	(in millions)
Third-party revenues	$	474	$	—	$	1		$	22		$	497
Intersegment revenues	1		—		—			(1		)	—
Total revenues	475		—		1			21			497
Total expenses	147		—		62			14			223
Income (loss) before income taxes and equity in net earnings of investees	328		—		(61		)	7			274
Equity in net earnings of investees	2		—		1			—			3
Adjusted operating income (loss) before income taxes	330		—		(60		)	7			277
Provision (benefit) for income taxes	58		—		(9		)	1			50
Noncontrolling interests	—		—		—			—			—
Adjusted operating income (loss)	$	272	$	—	$	(51	)	$	6		$	227
Supplemental income statement information
Net investment income	$	209	$	—	$	2		$	(3	)	$	208
Interest expense	—		—		46			(1		)	45
Non-cash compensation and operating expenses (1)	20		—		3			—			23

_____________________

(1) Consists of amortization of deferred acquisition costs and intangible assets, depreciation and share-based compensation.

Reconciliation of Net Income (Loss) Attributable to AGL

to Adjusted Operating Income (Loss)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in millions)
Net income (loss) attributable to AGL	$	183		$	142		$	128		$	196
Less pre-tax adjustments:
Realized gains (losses) on investments	4			8			(1		)	(4		)
Non-credit impairment unrealized fair value gains (losses) on credit derivatives	97			(12		)	9			(40		)
Fair value gains (losses) on CCS	(25		)	19			23			10
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	2			(12		)	(55		)	(3		)
Total pre-tax adjustments	78			3			(24		)	(37		)
Less tax effect on pre-tax adjustments	(14		)	(2		)	—			6
Adjusted operating income (loss)	$	119		$	141		$	152		$	227

Revenue by Country of Domicile

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
U.S.	$	243	$	212	$	393	$	394
Bermuda	38		46		72		90
U.K. and other	13		5		19		13
Total	$	294	$	263	$	484	$	497

The following table reconciles the Company's total consolidated revenues and expenses to segment revenues and expenses:

Reconciliation of Segment Revenues and Expenses

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in millions)
Revenues
Total consolidated revenues	$	372		$	266		$	468		$	461
Less: Realized gains (losses) on investments	4			8			(1		)	(4		)
Less: Non-credit impairment unrealized fair value gains (losses) on credit derivatives	97			(12		)	9			(40		)
Less: Fair value gains (losses) on CCS	(25		)	19			23			10
Less: Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves	2			(12		)	(55		)	(3		)
Plus: Credit derivative impairment (recoveries) (1)	—			—			(8		)	(1		)
Total segment revenues	$	294		$	263		$	484		$	497
Expenses
Total consolidated expenses	$	150		$	85		$	304		$	224
Plus: Credit derivative impairment (recoveries) (1)	—			—			(8		)	(1		)
Total segment expenses	$	150		$	85		$	296		$	223

_____________________

(1)

Credit derivative impairment (recoveries) are included in "Net change in fair value of credit derivatives" in the Company's condensed consolidated statements of operations.