Exhibit 99.1

Assured Guaranty Re Ltd.

(a wholly-owned subsidiary of Assured Guaranty Ltd.)

Consolidated Financial Statements

December 31, 2021 and 2020

Assured Guaranty Re Ltd.

Index to Consolidated Financial Statements

December 31, 2021 and 2020

	Page(s)
Report of Independent Auditors	1
Consolidated Balance Sheets as of December 31, 2021 and 2020	2
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020	3
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020	4
Consolidated Statements of Shareholder’s Equity for the years ended December 31, 2021 and 2020	5
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020	6
Notes to Consolidated Financial Statements	7

Report of Independent Auditors

To the Board of Directors of Assured Guaranty Re Ltd.

Opinion

We have audited the accompanying consolidated financial statements of Assured Guaranty Re Ltd. and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of shareholder’s equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are available to be issued.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with US GAAS, we:

•Exercise professional judgment and maintain professional skepticism throughout the audit.

•Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.

•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

•Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/ PricewaterhouseCoopers LLP

New York, New York

April 21, 2022

1

Assured Guaranty Re Ltd.

Consolidated Balance Sheets

(dollars in thousands except par value and share amounts)

	As of December 31,
	2021		2020
Assets
Investments, at fair value:
Fixed-maturity securities, available-for-sale, net of allowance for credit loss of $6 and $0 (amortized cost of $1,228,522 and $1,229,704)	$	1,310,942	$	1,368,221
Short-term investments	28,371		116,573
Total investments	1,339,313		1,484,794
Cash	1,017		1,516
Loan receivable from affiliate	20,000		30,000
Premiums receivable, net of commissions payable	257,335		254,972
Deferred acquisition costs	239,161		242,512
Salvage and subrogation recoverable	88,953		136,042
Assumed funds held from affiliates	92,920		35,050
Other assets (includes $368 and $571, at fair value)	25,964		21,836
Total assets	$	2,064,663	$	2,206,722
Liabilities
Unearned premium reserve	$	806,294	$	823,596
Loss and loss adjustment expense reserve	261,086		312,767
Other liabilities (includes $28,978 and $18,884, at fair value)	52,530		43,631
Total liabilities	1,119,910		1,179,994
Commitments and contingencies (Note 12)
Shareholder’s equity
Preferred stock ($0.01 par value, 2 shares authorized; none issued and outstanding in 2021 and 2020)	—		—
Common stock ($1.00 par value, 1,377,587 shares authorized, issued and outstanding in 2021 and 2020)	1,378		1,378
Additional paid-in capital	856,604		856,604
Retained earnings	9,325		37,896
Accumulated other comprehensive income, net of tax of $4,980 and $7,667	77,446		130,850
Total shareholder’s equity	944,753		1,026,728
Total liabilities and shareholder’s equity	$	2,064,663	$	2,206,722

The accompanying notes are an integral part of these consolidated financial statements.

2

Assured Guaranty Re Ltd.

Consolidated Statements of Operations

(in thousands)

	Year Ended December 31,
	2021		2020
Revenues
Net earned premiums	$	97,058	$	102,722
Net investment income	44,890		49,168
Net realized investment gains (losses)	954		2,829
Fair value gains (losses) on credit derivatives	(8,557)		5,571
Other income (loss)	5,809		7,518
Total revenues	140,154		167,808
Expenses
Loss and loss adjustment expenses (benefit)	(28,442)		93,569
Amortization of deferred acquisition costs	28,289		30,988
Employee compensation and benefit expenses	11,968		11,118
Other operating expenses	5,880		7,156
Total expenses	17,695		142,831
Income (loss) before income taxes	122,459		24,977
Provision (benefit) for income taxes	1,168		1,046
Net income (loss)	$	121,291	$	23,931

The accompanying notes are an integral part of these consolidated financial statements.

3

Assured Guaranty Re Ltd.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Year Ended December 31,
	2021		2020
Net income (loss)	$	121,291	$	23,931
Change in net unrealized gains (losses) on:
Investments with no credit impairment, net of tax provision (benefit) of $(2,687) and $3,068	(53,394)		50,275
Investments with credit impairment, net of tax	(10)		—
Other comprehensive income (loss)	(53,404)		50,275
Comprehensive income (loss)	$	67,887	$	74,206

The accompanying notes are an integral part of these consolidated financial statements.

4

Assured Guaranty Re Ltd.

Consolidated Statements of Shareholder’s Equity

Years Ended December 31, 2021 and 2020

(in thousands)

	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholder’s Equity
Balance at December 31, 2019	$	—	$	1,378	$	856,604	$	159,310	$	80,575	$	1,097,867
Net income	—		—		—		23,931		—		23,931
Dividends	—		—		—		(145,345)		—		(145,345)
Other comprehensive income	—		—		—		—		50,275		50,275
Balance at December 31, 2020	—		1,378		856,604		37,896		130,850		1,026,728
Net income	—		—		—		121,291		—		121,291
Dividends	—		—		—		(149,862)		—		(149,862)
Other comprehensive loss	—		—		—		—		(53,404)		(53,404)
Balance at December 31, 2021	$	—	$	1,378	$	856,604	$	9,325	$	77,446	$	944,753

The accompanying notes are an integral part of these consolidated financial statements.

5

Assured Guaranty Re Ltd.

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	121,291	$	23,931
Change in deferred acquisition costs	3,351		(7,912)
Change in premiums receivable, net of premiums and commissions payable	(2,307)		(41,647)
Change in ceded unearned premium reserve	1,478		12,886
Change in assumed funds held	(57,870)		2,592
Change in unearned premium reserve	(17,302)		33,870
Change in loss and loss adjustment expense reserve, net	(5,303)		(9,382)
Change in credit derivatives assets and liabilities, net	10,297		(9,832)
Other	(2,739)		1,931
Net cash flows provided by (used in) operating activities	50,896		6,437
Cash flows from investing activities:
Fixed-maturity securities:
Purchases	(226,957)		(114,744)
Sales	51,613		88,418
Maturities	129,625		196,789
Short-term investments with original maturities of over three months:
Purchases	—		(7,661)
Sales	—		999
Maturities	6,665		—
Net sales (purchases) of short-term investments with original maturities of less than three months	81,536		(76,965)
Proceeds from repayment of loan to affiliate	10,000		10,000
Other	—		(42)
Net cash flows provided by (used in) investing activities	52,482		96,794
Cash flows from financing activities:
Dividends paid	(103,800)		(102,638)
Net cash flows provided by (used in) financing activities	(103,800)		(102,638)
Effect of foreign exchange rate changes	(77)		(26)
Increase (decrease) in cash	(499)		567
Cash at beginning of period	1,516		949
Cash at end of period	$	1,017	$	1,516
Supplemental cash flow information
Income taxes paid (received)	$	600	$	1,196
Supplemental disclosure of non-cash investing and financing activities:
Purchases of fixed-maturity securities	$	—	$	(1,030)
Sales of fixed-maturity securities	—		1,030
Dividends paid in the form of fixed-maturity securities and accrued interest	(46,054)		(47,362)

The accompanying notes are an integral part of these consolidated financial statements.

6

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements

1.    Business and Basis of Presentation

Business

Assured Guaranty Re Ltd. (AG Re or, together with its subsidiaries, the Company) is wholly owned by Assured Guaranty Ltd. (AGL and, together with its subsidiaries, Assured Guaranty), a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the United States (U.S.) and international public finance (including infrastructure) and structured finance markets, as well as asset management services.

AG Re is incorporated under the laws of Bermuda and is licensed as a Class 3B Insurer under the Insurance Act 1978, and amendments thereto and related regulations. AG Re owns Assured Guaranty Overseas US Holdings Inc. (AGOUS), a Delaware corporation, which owns the entire share capital of a Bermuda reinsurer, Assured Guaranty Re Overseas Ltd. (AGRO). AGRO was incorporated with limited liability under the Bermuda Companies Act 1981 and is licensed as a Class 3A Insurer and a Class C Long-Term Insurer under the Insurance Act 1978, and amendments thereto and related regulations. AGRO owns AG Intermediary Inc., a New York company.

AG Re and AGRO write business as reinsurers of third-party primary insurers and as reinsurers/retrocessionaires of certain affiliated companies. Under a reinsurance agreement, the reinsurer, in consideration of a premium paid to it, agrees to indemnify another insurer, called the ceding company, for part or all of the liability of the ceding company under one or more insurance policies that the ceding company has issued. The Company reinsures financial guaranty insurance contracts under quota share and excess of loss reinsurance treaties and, through AGRO, provides certain other types of insurance and reinsurance.

AG Re underwrites financial guaranty reinsurance. Financial guaranty insurance protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. If an obligor defaults on a scheduled payment due on an obligation, including a scheduled principal or interest payment (collectively, debt service), the insurer is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation. The Company provides financial guaranty reinsurance under quota share and excess of loss treaties.

    AGRO provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form, and has provided financial guaranty reinsurance. The Company currently provides specialty insurance and reinsurance mainly for life insurance transactions and aircraft residual value insurance (RVI) transactions. The Company's specialty insurance and reinsurance offerings also include life reserve financing, and risk based capital and regulatory capital relief.

The Company’s affiliates, Assured Guaranty Corp. (AGC), Assured Guaranty Municipal Corp. (AGM), Assured Guaranty UK Limited (AGUK) and Assured Guaranty (Europe) SA (AGE, and together with AGC, AGM and AGUK, the affiliated ceding companies), account for all of the new financial guaranty reinsurance business written by the Company in 2021 and 2020.

Basis of Presentation

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In management’s opinion, all material adjustments necessary for a fair statement of the financial condition, results of operations and cash flows of the Company are reflected in the periods presented and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of AG Re and its direct and indirect subsidiaries. Intercompany accounts and transactions between and among AG Re and its subsidiaries have been eliminated. Certain prior year balances have been reclassified to conform to the current year’s presentation.

Significant Accounting Policies

    The Company revalues assets, liabilities, revenue and expenses denominated in non-U.S. currencies into U.S. dollars using applicable exchange rates. Gains and losses relating to translating transactions in foreign denominations are reported in the consolidated statements of operations.

7

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

    The Company participates in AGL's long term incentive plans. AGL follows the fair value recognition provisions for share based compensation expense. The Company is allocated its proportionate share of all compensation expense based on time studies conducted annually, in accordance with the Amended and Restated Service Agreement (the Group Service Agreement). See Note 11, Related Party Transactions for additional information.

    Other accounting policies are included in the following notes to the consolidated financial statements.

Note Name	Note Number
Expected loss to be paid (recovered)	Note 3
Contracts accounted for as insurance	Note 4
Contracts accounted for as credit derivatives	Note 5
Reinsurance	Note 6
Investments and cash	Note 7
Fair value measurement	Note 8
Income taxes	Note 9
Loan receivable from affiliate	Note 11
Commitments and contingencies	Note 12

Recent Accounting Standards Adopted

Simplification of the Accounting for Income Taxes

    In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions and clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax expenses and annual effective tax rate calculations. The ASU was effective for interim and annual periods beginning after December 15, 2020. This ASU did not have an impact on the Company’s consolidated financial statements.

Reference Rate Reform

    In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU only apply to contracts that reference the London Interbank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued due to reference rate reform. This ASU became effective upon issuance and may be applied prospectively for contract modifications that occur from March 12, 2020 through December 31, 2022 (the Reference Rate Transition Period).

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies the scope of relief related to ASU 2020-04. This ASU became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022.

The Company adopted the optional relief afforded by these ASUs in the third quarter of 2021 on a prospective basis, and the guidance will be followed until the optional relief terminates on December 31, 2022. The Company has identified insurance contracts, derivatives and other financial instruments that are directly or indirectly influenced by LIBOR, and will be applying the accounting relief as relevant contract modifications are made during the Reference Rate Transition Period. There was no impact to the Company’s consolidated financial statements upon the initial adoption of these ASUs.

Recent Accounting Standards Not Yet Adopted

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.  The amendments in this ASU:

8

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

•improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows,

•simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,

•simplify the amortization of deferred acquisition costs (DAC), and

•improve the effectiveness of the required disclosures.

    This ASU does not affect the Company’s financial guaranty insurance contracts, but may affect its accounting for certain specialty (non-financial guaranty) insurance contracts. In November 2020, the FASB deferred the effective date of this ASU to January 1, 2023 with early adoption permitted. If early adoption is elected, there is transition relief allowing for the transition date to be either the beginning of the prior period presented or the beginning of the earliest period presented. If early adoption is not elected, the transition date is required to be the beginning of the earliest period presented. The Company is evaluating when it will adopt this ASU and does not expect this ASU to have a material effect on its consolidated financial statements.

2.    Outstanding Exposure

The Company's outstanding exposure consists primarily of reinsurance of financial guaranty contracts written in insurance form. Until 2009, the Company also reinsured some financial guaranty contracts that were in credit derivative form, primarily credit default swaps (CDS). Whether written directly or assumed, the Company considers credit derivative contracts to be financial guaranty contracts. The Company also writes specialty insurance and reinsurance that is consistent with its risk profile and benefits from its underwriting experience.

The Company seeks to limit its exposure to losses by underwriting obligations that it views to be investment grade at inception, diversifying its insured portfolio across sector and geography and, in the structured finance portfolio, typically requiring subordination or collateral to protect it from loss.

Public finance obligations assumed by the Company primarily consist of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, healthcare facilities and government office buildings. The Company also includes within public finance obligations similar obligations issued by territorial and non-U.S. sovereign and sub-sovereign issuers and governmental authorities.

Structured finance obligations assumed by the Company are generally issued by special purpose entities and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. The Company also provides specialty insurance and reinsurance on transactions without special purpose entities but with risk profiles similar to those of its structured finance exposures written in financial guaranty form.

Significant Risk Management Activities

The Portfolio Risk Management Committee of the Company’s indirect parent, AGL, which includes members of Assured Guaranty’s senior management and senior risk and surveillance officers, is responsible for enterprise risk management for Assured Guaranty and focuses on measuring and managing insurance credit, market and liquidity risk for Assured Guaranty. This committee establishes Assured Guaranty-wide credit policy for Assured Guaranty’s direct and assumed insurance business. It implements specific insurance underwriting procedures and limits for Assured Guaranty and allocates underwriting capacity among AGL’s insurance subsidiaries, including the Company. All insurance transactions in new asset classes or new jurisdictions must be approved by this committee.

Separate from AGL’s Portfolio Risk Management Committee, the Company has its own risk management and underwriting committees. The Company’s risk management committee conducts an in-depth review of the Company’s insured portfolio, focusing on varying portions of the portfolio at regular, periodic meetings. The Company’s risk management committee reviews and may revise internal ratings assigned to the insured transactions and reviews sector reports, monthly product line surveillance reports and compliance reports.

9

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

All transactions in the Company’s insured portfolio are assigned internal credit ratings by the relevant Company underwriting committee at the transaction’s inception, which credit ratings are updated by the risk management committee based on changes in transaction credit quality. As part of the surveillance process, the Company monitors trends and changes in transaction credit quality and recommends such remedial actions as may be necessary or appropriate; however, most loss mitigation occurs at the Company's ceding companies, which are primarily liable for the Company's assumed obligations. The Company’s ceding companies, including the Company’s affiliates AGM, AGC, AGUK and AGE also develop strategies to enforce their contractual rights and remedies and to mitigate their losses, engage in negotiations with transaction participants and, when necessary, manage any litigation proceedings. The Company generally assumes its proportionate share of any net benefits realized by the ceding company for loss mitigation strategies.

Surveillance Categories

The Company segregates its insured portfolio into investment grade and below-investment-grade (BIG) surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review of each exposure. BIG exposures include all exposures with internal credit ratings below BBB-.

The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and generally reflect an approach similar to that employed by the rating agencies, except that the Company’s internal credit ratings focus on future performance rather than lifetime performance.

The Company classifies those portions of risks benefiting from reimbursement obligations collateralized by eligible assets held in trust in acceptable reimbursement structures as being the higher of ‘AA’ or their current internal rating. Unless otherwise noted, ratings disclosed herein on the Company’s insured portfolio reflect its internal ratings.

The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector. Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled. For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating.

Exposures identified as BIG are subjected to further review to determine the probability of a loss. See Note 3, Expected Loss to be Paid (Recovered), for additional information. Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid. The Company uses a tax-equivalent investment portfolio yield to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction. For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss.

More extensive monitoring and intervention are employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will in the future pay claims on that transaction that will not be fully reimbursed. The three BIG surveillance categories are:

•    BIG Category 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected.

•    BIG Category 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year) have yet been paid.

•    BIG Category 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid.

10

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Impact of COVID-19 Pandemic

    The coronavirus disease known as COVID-19 was declared a pandemic by the World Health Organization in early 2020 and it (including its variants) continues to spread throughout the world. Several vaccines and therapeutics have been developed and approved by governments, and distribution of vaccines and therapeutics is proceeding unevenly across the globe. The emergence of COVID-19 and reactions to it, including various closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets. While the COVID-19 pandemic has been impacting the global economy and the Company for over two years, its ultimate size, depth, course and duration, and the effectiveness, acceptance and distribution of vaccines and therapeutics for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve. Consequently, and due to the nature of the Company’s business, all of the direct and indirect consequences of COVID-19 on the Company are not yet fully known to the Company, and still may not emerge for some time. For information about how the COVID-19 pandemic has impacted the Company’s loss projections, see Note 3, Expected Loss to be Paid (Recovered).

From shortly after the pandemic reached the U.S. through early 2021 the Company’s surveillance department conducted supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions or an economic downturn. Given significant federal funding in 2021 and the performance it observed, the Company’s surveillance department has reduced these supplemental procedures, but is still monitoring those sectors it identified as most at risk for any developments related to COVID-19 that may impact the ability of issuers to make upcoming debt service payments. The Company’s internal ratings and loss projections reflect its supplemental COVID-19 surveillance activity. Through April 20, 2022, the Company has paid less than $8.5 million in insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19. The Company has already received reimbursement for most of those claims.

Financial Guaranty Exposure

    The Company measures its financial guaranty exposure in terms of (i) gross and net par outstanding and (ii) gross and net debt service.

    In its financial guaranty reinsurance business, the Company typically reinsures the ceding companies’ guarantees of the payment of debt service when due. Since most of these payments are due in the future, the Company generally uses gross and net par outstanding as a proxy for its financial guaranty exposure. Gross par outstanding generally represents the principal amount of the insured obligation at a point in time. Net par outstanding equals gross par outstanding net of any reinsurance. The Company includes in its par outstanding calculation the impact of any consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date.

    Gross debt service outstanding represents the sum of all estimated future debt service payments on the insured obligations, on an undiscounted basis. Net debt service outstanding equals gross debt service outstanding net of any reinsurance. Future debt service payments include the impact of any consumer price index inflator after the reporting date, as well as, in the case of accreting (zero-coupon) obligations, accretion after the reporting date.

    The Company calculates its debt service outstanding as follows:

•for insured obligations that are not supported by homogeneous pools of assets (which category includes most of the Company’s public finance transactions), as the total estimated contractual future debt service due through maturity, regardless of whether the obligations may be called and regardless of whether, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, the Company believes the obligations will be repaid prior to contractual maturity; and

•for insured obligations that are supported by homogeneous pools of assets that are contractually permitted to prepay principal (which category includes, for example, residential mortgage-backed securities (RMBS)), as the total estimated expected future debt service due on insured obligations through their respective expected terms, which includes the Company’s expectations as to whether the obligations may be called and, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity.

11

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

     The calculation of debt service requires the use of estimates, which the Company updates periodically, including estimates and assumptions for the expected remaining term of insured obligations supported by homogeneous pools of assets, updated interest rates for floating and variable rate insured obligations, behavior of consumer price indices for obligations with consumer price index inflators, foreign exchange rates and other assumptions based on the characteristics of each insured obligation. Debt service is a measure of the estimated maximum potential exposure to insured obligations before considering the Company’s various legal rights to the underlying collateral and other remedies available to it under its financial guaranty contract.

    Actual debt service may differ from estimated debt service due to refundings, terminations, negotiated restructurings, prepayments, changes in interest rates on variable rate insured obligations, consumer price index behavior differing from that projected, changes in foreign exchange rates on non-U.S. dollar denominated insured obligations and other factors.

Financial Guaranty Portfolio

Debt Service and Par Outstanding

	As of December 31, 2021				As of December 31, 2020
	Gross		Net		Gross		Net
	(in thousands)
Debt Service Outstanding
Public finance	$	86,906,242	$	86,906,242	$	90,753,197	$	90,753,197
Structured finance	3,432,185		3,427,185		3,182,173		3,177,173
Total financial guaranty	$	90,338,427	$	90,333,427	$	93,935,370	$	93,930,370
Par Outstanding
Public finance	$	56,378,776	$	56,378,776	$	58,667,017	$	58,667,017
Structured finance	3,371,440		3,366,440		3,083,441		3,078,441
Total financial guaranty	$	59,750,216	$	59,745,216	$	61,750,458	$	61,745,458

Financial Guaranty

Net Debt Service Outstanding (1)

	As of December 31, 2021						As of December 31, 2020
	AG Re		AGRO		Total		AG Re		AGRO		Total
	(in thousands)
Public finance	$	86,747,275	$	158,967	$	86,906,242	$	90,571,521	$	181,676	$	90,753,197
Structured finance	3,427,185		—		3,427,185		2,691,101		486,072		3,177,173
Total financial guaranty	$	90,174,460	$	158,967	$	90,333,427	$	93,262,622	$	667,748	$	93,930,370

 ____________________

(1)    Under U.S. single risk limit calculations, $83,439.7 million and $87,658.1 million as of December 31, 2021 and December 31, 2020, respectively, of AG Re's net debt service outstanding relates to exposures that would comply with the single risk limitations in the U.S.

12

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2021

	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S.				Structured Finance Non-U.S.				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in thousands)
AAA	$	62,559	0.1	%	$	756,279	6.7	%	$	57,718	1.8	%	$	45,475	53.8	%	$	922,031	1.5	%
AA	3,797,183		8.4		942,942		8.4		2,435,459		74.2		6,794		8.0		7,182,378		12.0
A	25,091,707		55.6		1,212,317		10.8		261,339		8.0		3,379		4.0		26,568,742		44.5
BBB	14,818,042		32.8		8,269,593		73.6		102,212		3.0		21,419		25.3		23,211,266		38.9
BIG	1,373,962		3.1		54,192		0.5		425,114		13.0		7,531		8.9		1,860,799		3.1
Total net par outstanding	$	45,143,453	100.0%		$	11,235,323	100.0%		$	3,281,842	100.0%		$	84,598	100.0%		$	59,745,216	100.0%

Financial Guaranty Portfolio by Internal Rating

As of December 31, 2020

	Public Finance U.S.				Public Finance Non-U.S.				Structured Finance U.S.				Structured Finance Non-U.S.				Total
Rating Category	Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%		Net Par Outstanding		%
	(dollars in thousands)
AAA	$	76,013	0.2	%	$	821,932	7.0	%	$	119,406	3.9	%	$	2,460	4.7	%	$	1,019,811	1.6	%
AA	3,999,795		8.5		987,434		8.5		1,893,481		62.6		3,560		6.7		6,884,270		11.1
A	26,335,896		56.0		1,430,570		12.2		311,257		10.3		—		—		28,077,723		45.5
BBB	15,202,379		32.4		8,346,173		71.4		233,465		7.7		36,506		69.0		23,818,523		38.6
BIG	1,364,296		2.9		102,529		0.9		467,946		15.5		10,360		19.6		1,945,131		3.2
Total net par outstanding	$	46,978,379	100.0%		$	11,688,638	100.0%		$	3,025,555	100.0%		$	52,886	100.0%		$	61,745,458	100.0%

13

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Financial Guaranty Portfolio

Net Par Outstanding by Sector

	As of December 31,
Sector	2021		2020
	(in thousands)
Public finance:
U.S. public finance:
General obligation	$	19,757,434	$	20,891,972
Tax backed	9,099,138		9,426,399
Municipal utilities	6,075,904		6,593,446
Transportation	3,866,244		3,624,098
Higher education	1,892,805		1,946,346
Infrastructure finance	1,865,673		1,864,646
Healthcare	1,713,765		1,628,223
Investor-owned utilities	283,698		284,439
Housing revenue	195,931		230,927
Renewable energy	57,389		61,498
Other public finance	335,472		426,385
Total U.S. public finance	45,143,453		46,978,379
Non-U.S. public finance:
Regulated utilities	5,528,476		5,487,127
Infrastructure finance	3,262,723		3,566,990
Sovereign and sub-sovereign	1,308,358		1,368,266
Pooled infrastructure	685,912		724,330
Renewable energy	449,854		541,925
Total non-U.S. public finance	11,235,323		11,688,638
Total public finance	$	56,378,776	$	58,667,017
Structured finance:
U.S. structured finance:
Life insurance transactions	$	2,740,971	$	2,124,896
Consumer receivables	219,679		298,580
RMBS	167,882		244,512
Pooled corporate obligations	42,029		244,632
Other structured finance	111,281		112,935
Total U.S. structured finance	3,281,842		3,025,555
Non-U.S. structured finance:
Pooled corporate obligations	49,157		83
RMBS	11,492		13,892
Commercial receivables	8,851		12,786
Other structured finance	15,098		26,125
Total non-U.S. structured finance	84,598		52,886
Total structured finance	3,366,440		3,078,441
Total net par outstanding	$	59,745,216	$	61,745,458

Actual maturities of insured obligations could differ from contractual maturities because borrowers have the right to call or prepay certain obligations. The expected maturities of structured finance obligations are, in general, considerably shorter than the contractual maturities for such obligations.

14

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Financial Guaranty Portfolio

Expected Amortization of Net Par Outstanding

As of December 31, 2021

	Public Finance		Structured Finance		Total
	(in thousands)
0 to 5 years	$	14,705,922	$	494,169	$	15,200,091
5 to 10 years	10,866,503		840,968		11,707,471
10 to 15 years	10,662,554		1,131,430		11,793,984
15 to 20 years	8,985,289		640,899		9,626,188
20 years and above	11,158,508		258,974		11,417,482
Total net par outstanding	$	56,378,776	$	3,366,440	$	59,745,216

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of December 31, 2021

	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
	(in thousands)
Public finance:
U.S. public finance	$	540,720	$	20,823	$	812,419	$	1,373,962	$	45,143,453
Non-U.S. public finance	45,930		—		8,262		54,192		11,235,323
Public finance	586,650		20,823		820,681		1,428,154		56,378,776
Structured finance:
Life insurance transactions	—		—		293,798		293,798		2,740,971
U.S. RMBS	4,136		5,106		62,917		72,159		167,882
Other structured finance	—		50,269		16,419		66,688		457,587
Structured finance	4,136		55,375		373,134		432,645		3,366,440
Total	$	590,786	$	76,198	$	1,193,815	$	1,860,799	$	59,745,216

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of December 31, 2020

	BIG Net Par Outstanding								Net Par
	BIG 1		BIG 2		BIG 3		Total BIG		Outstanding
	(in thousands)
Public finance:
U.S. public finance	$	532,235	$	3,898	$	828,163	$	1,364,296	$	46,978,379
Non-U.S. public finance	93,240		—		9,289		102,529		11,688,638
Public finance	625,475		3,898		837,452		1,466,825		58,667,017
Structured finance:
Life insurance transactions	—		—		294,008		294,008		2,124,896
U.S. RMBS	15,076		5,487		72,281		92,844		244,512
Other structured finance	10,027		62,957		18,470		91,454		709,033
Structured finance	25,103		68,444		384,759		478,306		3,078,441
Total	$	650,578	$	72,342	$	1,222,211	$	1,945,131	$	61,745,458

15

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Financial Guaranty Portfolio

BIG Net Par Outstanding and Number of Risks

As of December 31, 2021

	Net Par Outstanding						Number of Risks(1)
Description	Financial Guaranty Insurance		Credit Derivative		Total		Financial Guaranty Insurance	Credit Derivative	Total
	(dollars in thousands)
BIG:
Category 1	$	588,729	$	2,057	$	590,786	79	2	81
Category 2	75,625		573		76,198		9	1	10
Category 3	1,187,084		6,731		1,193,815		77	8	85
Total BIG	$	1,851,438	$	9,361	$	1,860,799	165	11	176

Financial Guaranty Portfolio

BIG Net Par Outstanding and Number of Risks

As of December 31, 2020

	Net Par Outstanding						Number of Risks (1)
Description	Financial Guaranty Insurance		Credit Derivative		Total		Financial Guaranty Insurance	Credit Derivative	Total
	(dollars in thousands)
BIG:
Category 1	$	640,165	$	10,413	$	650,578	87	6	93
Category 2	71,729		613		72,342		8	1	9
Category 3	1,215,282		6,929		1,222,211		74	7	81
Total BIG	$	1,927,176	$	17,955	$	1,945,131	169	14	183

____________________

(1)    A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.

16

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

The Company seeks to maintain a diversified portfolio of insured obligations designed to spread its risk across a number of geographic areas.

Financial Guaranty Portfolio

Geographic Distribution of Net Par Outstanding

As of December 31, 2021

	Number of Risks	Net Par Outstanding		Percent of Total Net Par Outstanding
	(dollars in thousands)
U.S.:
U.S. public finance:
California	1,149	$	8,831,211	14.8	%
Texas	947	4,586,447		7.7
Pennsylvania	471	3,809,647		6.4
New York	433	3,635,878		6.1
Illinois	422	3,459,537		5.8
New Jersey	225	2,411,130		4.0
Florida	201	1,880,890		3.1
Louisiana	129	1,413,891		2.4
Michigan	216	1,359,238		2.3
Alabama	217	968,611		1.6
Other	1,645	12,786,973		21.4
Total U.S. public finance	6,055	45,143,453		75.6
U.S. structured finance (multiple states)	277	3,281,842		5.5
Total U.S.	6,332	48,425,295		81.1
Non-U.S.:
United Kingdom	468	8,775,546		14.7
France	6	971,015		1.6
Spain	6	311,535		0.5
Australia	7	290,192		0.5
Mexico	3	232,867		0.4
Other	41	738,766		1.2
Total non-U.S.	531	11,319,921		18.9
Total	6,863	$	59,745,216	100.0	%

Exposure to Puerto Rico

    The Company had reinsured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $804.5 million net par outstanding as of December 31, 2021, all of which was rated BIG. Beginning on January 1, 2016, a number of Puerto Rico exposures defaulted on bond payments, and the Company has now paid claims on all of its outstanding Puerto Rico exposures except the Municipal Finance Agency (MFA).

    On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. PROMESA established a seven-member Financial Oversight and Management Board (the FOMB) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico. Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under Chapter 9 of the United States Bankruptcy Code (Bankruptcy Code).

The Company’s relevant affiliated ceding companies negotiated with the FOMB and other stakeholders over approximately five years and entered into support agreements covering $767.1 million, or 95% of the Company’s insured net par outstanding, of Puerto Rico exposures as of December 31, 2021. All of the Company’s Puerto Rico exposures that were in payment default on December 31, 2021 were covered by support agreements on that date. The plan of adjustment contemplated

17

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

by one of those support agreements, covering $353.3 million, or 44% of the Company’s insured net par outstanding of Puerto Rico exposures, was consummated on March 15, 2022, while on March 8, 2022, Puerto Rico terminated another of the support agreements, covering $210.2 million of the Company’s insured net par outstanding of Puerto Rico exposures, leaving one support agreement, covering $202.9 million of the Company’s insured net par outstanding of Puerto Rico exposures, in effect after the consummation of the support agreement on March 15, 2022. Both economic and political developments, including those related to the COVID-19 pandemic, may impact implementation of the resolution of the Company’s remaining Puerto Rico exposures and the value of the consideration the Company has received or may receive in the future in connection with any such resolutions. The impact of developments relating to Puerto Rico during any quarter or year could be material to the Company’s results of operations and shareholders’ equity.

Plan of Adjustment

On January 18, 2022, an order and judgment confirming the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan) was entered by the United States District Court of the District of Puerto Rico acting under Title III of PROMESA (the Title III Court). The GO/PBA Plan restructured approximately $35 billion of debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities and $50 billion in pension obligations (none of which is insured by the Company) consistent with the terms of the settlement embodied in a revised GO and PBA plan support agreement (PSA) entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the FOMB (GO/PBA PSA). The GO/PBA Plan was consummated on March 15, 2022 (GO/PBA Effective Date.)

As of December 31, 2021, the Company had $352.7 million of insured net par outstanding of GO bonds and $0.6 million of PBA bonds covered by the GO/PBA Plan, all comprising reinsurance assumed from its affiliates AGM and AGC. Of that amount, $3.6 million was second-to-pay exposure.

	Assumed Second-to-Pay		Assumed Direct		Total
GO	$	3,625	$	349,126	$	352,751
PBA	—		556		556
Total GO and PBA	$	3,625	$	349,682	$	353,307

On the GO/PBA Effective Date the AGM and AGC paid claims to their beneficiaries covering all principal and accrued interest for, and extinguishing the Company’s insurance obligations on, all of the direct GO and PBA bonds the Company reinsured except $16.4 million in insured par outstanding covered by the second election described in the second paragraph below. In return, the Company is entitled to receive (excluding amounts received in connection with the second election described in the second paragraph below) from its ceding affiliates the benefits of the following they received under the GO/PBA Plan:

•$134.4 million in cash,

•$164.8 million of new recovery bonds, which represents the face value of current interest bonds and the maturity value of capital appreciation bonds, and

•$67.9 million of contingent value instruments (CVI), which represents the original notional value.

The Company expects to make additional payments and receive additional amounts in connection with its assumed second-to-pay exposure of $3.6 million.

The CVI is intended to provide creditors with additional returns tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps. The net financial statement impact of the GO/PBA settlement, which includes the impact of both the claims paid and recoveries received on the GO/PBA Settlement Date and future investment gains and losses on the GO/PBA recovery bonds and CVI, will fluctuate based on changes in fair value of the recovery bonds and CVIs after the GO/PBA Effective Date. AGM and AGC will retain the gross amount of recovery bonds and CVIs until they mature or are sold, at which time, AGM and AGC will settle with their reinsurers, including the Company.

18

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

In August 2021, AGM and AGC exercised certain elections under the GO/PBA Plan that impact the timing of payments under their insurance policies. In accordance with the terms of the GO/PBA Plan, the payment of the principal of all GO bonds and PBA bonds insured by the Company was accelerated against the Commonwealth and became due and payable as of the GO/PBA Effective Date. In accordance with the terms of their insurance policies, AGM and AGC each elected to pay 100% of the then outstanding principal amount of insured bonds plus accrued interest thereon to the date of payment (Acceleration Price) on the GO/PBA Effective Date to holders of insured securities with respect to $328.0 million of the Company’s assumed direct insured par outstanding as of December 31, 2021. With respect to the remaining approximately $21.7 million of the Company’s assumed direct insured par outstanding as of December 31, 2021, insured bondholders were permitted to elect either: (1) to receive the Acceleration Price on the GO/PBA Effective Date; or (2) to receive custody receipts that represent an interest in the legacy insurance policy and cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan. Insured bondholders made the first election with respect to approximately $5.3 million the Company’s insured par outstanding of these bonds, while insured bondholders made the second election with respect to the remaining $16.4 million of the Company’s insured par outstanding of these bonds. For those making the second election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds. The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates to the extent that distributions of Plan Consideration are insufficient to pay such amounts after giving effect to the distributions described in the immediately preceding sentence. Copies of the documents governing the terms of the custody receipts are available for review by insured bondholders in connection with the distribution of a supplement to the GO/PBA Plan. Further, in the case of insured bondholders who elected to receive custody receipts, AGM and AGC each retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying the applicable Acceleration Price. Retention by each of AGM and AGC of the right to satisfy its obligations under its insurance policy with respect to the relevant insured bonds by paying the Acceleration Price is authorized by the GO/PBA Plan and each of their rights under its related insurance policies and is reflected in the applicable custodial trust documentation.

Support Agreements

In addition to the GO/PBA PSA, the Company’s relevant affiliated ceding companies entered into the support agreements described below (Support Agreements):

•HTA/CCDA PSA: A PSA with certain other stakeholders, the Commonwealth, and the FOMB with respect to the Puerto Rico Highways and Transportation Authority (PRHTA) and the Puerto Rico Convention Center District Authority (PRCCDA), entered into by AGM and AGC on May 5, 2021.

•PRIFA PSA: A PSA signed on July 27, 2021 by certain other stakeholders, the Commonwealth, and the FOMB with respect to the Puerto Rico Infrastructure Financing Authority (PRIFA) and joined by AGC on July 28, 2021.

•PREPA RSA: A restructuring support agreement with the Puerto Rico Electric Power Authority (PREPA) and other stakeholders, including a group of uninsured PREPA bondholders, the Commonwealth and the FOMB with respect to PREPA, entered into by AGM and AGC on May 3, 2019. This agreement was terminated by Puerto Rico on March 8, 2022. The Company is still evaluating the potential impact of the termination of this agreement on the financial statements.

HTA/CCDA PSA. As of December 31, 2021, the Company had $202.9 million of insured net par outstanding that is now covered by the HTA/CCDA PSA: $177.6 million insured net par outstanding of PRHTA (transportation revenue) bonds and $25.3 million insured net par outstanding of PRHTA (highway revenue) bonds. The transportation revenue bonds are secured by a subordinate gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls, plus a first lien on taxes on crude oil, unfinished oil and derivative products. The highway revenue bonds are secured by a gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls. The FOMB has filed a petition under Title III of PROMESA with respect to PRHTA.

    The HTA/CCDA PSA provides for payments to AGM and AGC consisting of (i) cash, (ii) in the case of PRHTA, new bonds expected to be backed by toll revenue (Toll Bonds); and (iii) a CVI. Under the HTA/CCDA PSA, bondholders and bond insurers of PRHTA will receive, in the aggregate, $389 million of cash; $1.2 billion par in Toll Bonds; and the CVI. The HTA/CCDA PSA includes a number of conditions and PRHTA’s plan of adjustment must be approved by the Title III Court, so there

19

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

can be no assurance that the consensual resolution for PRHTA embodied in the HTA/CCDA PSA will be achieved in its current form, or at all.

On May 27, 2021 the FOMB certified a revised fiscal plan for PRHTA. The revised certified PRHTA fiscal plan will need to be further revised to be consistent with the HTA/CCDA PSA.

PREPA RSA. As of December 31, 2021, the Company had $210.2 million insured net par outstanding of PREPA obligations subject to the PREPA RSA. The PREPA obligations are secured by a lien on the revenues of the electric system. The Company has been making claim payments on these bonds since July 1, 2017. On July 2, 2017, the FOMB commenced proceedings for PREPA under Title III of PROMESA.

    The PREPA RSA contemplated the exchange of PREPA’s existing revenue bonds for new securitization bonds issued by a special purpose corporation and secured by a segregated transition charge assessed on electricity bills. On March 8, 2022, Puerto Rico terminated the PREPA RSA. The Company is still evaluating the potential impact of the termination of this agreement on the financial statements.

On May 27, 2021, the FOMB certified a revised fiscal plan for PREPA.

PRIFA PSA. As of December 31, 2021, the Company had $0.7 million insured net par outstanding of PRIFA bonds, which are secured primarily by the return to PRIFA and its bondholders of a portion of federal excise taxes paid on rum.

The PRIFA PSA provides for payments to AGC consisting of: (i) cash; (ii) CVI; and (iii) a contingent value instrument based on potential outperformance of Puerto Rico’s general fund rum tax collections relative to projections in the 2021 certified fiscal plan (Rum Tax CVI). Under the PRIFA PSA, bondholders and bond insurers of PRIFA receive, in the aggregate, $204 million in cash, the CVI, and the Rum Tax CVI. On January 20, 2022, the United States District Court of the District of Puerto Rico (Federal District Court for Puerto Rico) entered an order under Title VI of PROMESA modifying the PRIFA debt consistent with the PRIFA PSA (PRIFA Modification). On March 15, 2022 the PRIFA Modification was consummated, and AGC paid claims to its beneficiaries covering all principal and accrued interest for, and extinguishing the AGC’s insurance obligations on, all of its PRIFA exposures.

Other Puerto Rico Exposures

MFA. As of December 31, 2021, the Company had $37.5 million net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues. All debt service payments due to date on the insured MFA bonds have been paid in full by the obligor.

Puerto Rico Litigation

    Currently, there are numerous legal actions relating to the default by the Commonwealth and certain of its instrumentalities on debt service payments, and related matters, and the Company is a party to a number of them. Each of the Company’s affiliated ceding companies has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to Puerto Rico obligations which the Company insures. In addition, the Commonwealth, the FOMB and others have taken legal action naming each of the Company’s affiliated ceding companies as party.

Actions That Were Resolved on the GO/PBA Effective Date. As of the GO/PBA Effective Date, the following litigation matters were settled, with all related claims and causes of action against the Company and the other parties being satisfied and discharged:

•Declaratory judgment and injunction sought by AGM and AGC against Governor Alejandro García Padilla et al., filed on January 17, 2016 in the Federal District Court for Puerto Rico.

•Declaratory judgment sought by AGM and AGC against Puerto Rico’s fiscal plan, filed on May 23, 2018 in the Federal District Court for Puerto Rico.

•Motion for relief from the automatic stay or, in the alternative, for adequate protection against Puerto Rico’s diversion of revenues securing the PRHTA bonds (solely as it relates to the Commonwealth), filed on January 16, 2020 in the Federal District Court for Puerto Rico.

20

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

•Motion concerning application of the automatic stay to the revenues securing the PRCCDA bonds, filed January 16, 2020 in the Federal District Court for Puerto Rico.

•Motion concerning application of the automatic stay to the revenues securing the PRIFA rum tax bonds, filed on January 16, 2020 in the Federal District Court for Puerto Rico.

•Declaratory judgment sought by the FOMB to disallow administrative rent claims, filed December 21, 2018 in the Federal District Court for Puerto Rico.

•Claim objection by the FOMB and the Official Committee of Unsecured Creditors to invalidate certain Commonwealth general obligation bonds, filed on January 14, 2019 in the Title III Court.

•Declaratory judgment sought by the FOMB that Commonwealth general obligation bonds are not secured by consensual or statutory liens, filed May 2, 2019 in the Federal District Court for Puerto Rico.

•Adversary complaint by the FOMB against AGC and others seeking to disallow claims based on PRIFA bonds insured by AGC and others, filed January 16, 2020 in the Federal District Court for Puerto Rico.

•Adversary complaint by the FOMB against AGC and others seeking to disallow claims based on PRCCDA bonds insured by AGC and others, filed January 16, 2020 in the Federal District Court for Puerto Rico.

•Adversary complaint by the FOMB against AGM, AGC and others seeking to disallow claims in the Commonwealth Title III proceedings based on PRHTA bonds insured by AGM, AGC and others, filed January 16, 2020 in the Federal District Court for Puerto Rico.

Remaining Stayed Proceedings. The following Puerto Rico proceedings in which at least one of the Company’s affiliated ceding companies is involved remain stayed:

•On June 26, 2017, AGM and AGC filed a complaint in the Federal District Court for Puerto Rico to compel the FOMB to certify the PREPA RSA for implementation under Title VI of PROMESA. On July 21, 2017, considering its PREPA Title III petition on July 2, 2017, the FOMB filed a notice of stay under PROMESA.

•On July 18, 2017, AGM and AGC filed a motion for relief in the Federal District Court for Puerto Rico from the automatic stay filed in the PREPA Title III Bankruptcy proceeding. The court denied the motion on September 14, 2017, but on August 8, 2018, the First Circuit vacated and remanded the court’s decision. On October 3, 2018, AGM and AGC, together with other bond insurers, filed a motion with the court to lift the automatic stay to commence an action against PREPA for the appointment of a receiver. On May 3, 2019, AGM and AGC entered into the PREPA RSA, but on March 8, 2022, the Commonwealth and PREPA terminated the PREPA RSA. Given the termination of the PREPA RSA, the Company is considering several options to enforce its rights in respect of insured PREPA bonds, including, among other things, a renewal of the motion to lift the automatic stay and seek the appointment of a receiver.

•On May 20, 2019, the FOMB and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court for Puerto Rico challenging the validity, enforceability, and extent of security interests in PRHTA revenues. On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element; Judge Swain extended the stay through December 31, 2019, and subsequently extended the stay again pending further order of the court on the understanding that these issues will be resolved in other proceedings.

•On September 30, 2019, certain fuel line lenders filed an amended adversary complaint against the FOMB and other parties, including AGC and AGM, seeking subordination of PREPA bondholder claims to fuel line lender claims. The FOMB filed a status report on May 15, 2020 regarding PREPA’s financial condition and its request for approval of the PREPA RSA settlement, in which it requested that it be permitted to file an updated report by July 31, 2020, that all proceedings related to the approval of the PREPA RSA settlement continue to be adjourned, and that the hearing in this adversary proceeding scheduled for June 3, 2020 be adjourned. On May 22, 2020, the Title III Court issued an order to that effect.

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Notes to Consolidated Financial Statements, Continued

•On October 30, 2019, the retirement system for PREPA employees (SREAEE) filed an amended adversary complaint in the Federal District Court for Puerto Rico against the FOMB and other parties, seeking subordination of PREPA bondholder claims to SREAEE claims. The FOMB filed a status report on May 15, 2020 regarding PREPA’s financial condition and its request for approval of the PREPA RSA settlement, in which it requested that it be permitted to file an updated report by July 31, 2020, that all proceedings related to the approval of the PREPA RSA settlement continue to be adjourned, and that the hearing in this adversary proceeding scheduled for June 3, 2020 be adjourned. On May 22, 2020, the Title III Court issued an order to that effect.

•On January 16, 2020, the FOMB, on behalf of the PRHTA, brought an adversary proceeding in the Federal District Court for Puerto Rico against AGM and AGC and other insurers of PRHTA bonds, objecting to the bond insurers claims in the PRHTA Title III proceedings and seeking to disallow such claims. Considering the Plan Support Agreement, on May 25, 2021, Judge Swain stayed the participation of AGM and AGC.

Dismissed Complaint. On June 26, 2021, the GDB Debt Recovery Authority, through its servicer and collateral monitor and as a holder of PRHTA subordinated debt, brought an adversary proceeding in the Federal District Court for Puerto Rico against AGM, AGC and others challenging the resolution of the PRHTA priority issues set forth in the HTA/CCDA PSA. On August 26, 2021, AGM and AGC filed a motion to dismiss the complaint, which was granted on October 29, 2021.

Puerto Rico Par and Debt Service Schedules

    All Puerto Rico exposures are internally rated BIG. The following tables show the Company’s reinsurance exposure to general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.

Puerto Rico

Gross Par and Gross Debt Service Outstanding (1)

	Gross Par Outstanding				Gross Debt Service Outstanding
	As of December 31,				As of December 31,
	2021		2020		2021		2020
	(in thousands)
Exposure to Puerto Rico	$	804,523	$	829,933	$	1,220,622	$	1,288,324

__________________

(1)    AG Re has not ceded its exposure to the Commonwealth of Puerto Rico to any third party or affiliated reinsurer.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Puerto Rico

Net Par Outstanding

	As of December 31,
	2021		2020
	(in thousands)
Puerto Rico Exposures Subject to a Plan or Support Agreement
Commonwealth of Puerto Rico - GO (1)	$	352,751	$	353,411
PBA (1)	556		556
Total GO/PBA Plan	353,307		353,967
PRHTA (Transportation revenue)	177,557		180,356
PRHTA (Highway revenue)	25,350		30,647
Total HTA/CCDA PSA	202,907		211,003
PRIFA (3)	665		665
Total Subject to a Plan or Support Agreement	556,879		565,635
Other Puerto Rico Exposures
PREPA	210,191		215,455
MFA (2)	37,453		48,843
Total Other Puerto Rico Exposures	247,644		264,298
Total net exposure to Puerto Rico	$	804,523	$	829,933

____________________

(1)On March 15, 2022, the Modified Eighth Amended Title III Joint Plan of Adjustment, confirmed on January 18, 2022, was consummated, pursuant to which the Company’s relevant affiliated insurance companies, among other things, fully paid claims on all of their direct insured Puerto Rico GO bonds (other than certain GO bonds whose holders made certain elections), reducing the Company's net par exposure to insured Puerto Rico GO bonds by approximately $332.9 million. On the same date and pursuant to the same Plan of Adjustment, its affiliate fully paid claims on its PBA bonds (other than certain PBA bonds whose holders made certain elections), reducing its exposure by $0.4 million. The Company has yet to receive reports on the impact of the consummation of the GO/PBA Plan on its second-to-pay GO and PBA exposure.

(2)    All debt service on this insured exposure has been paid to date without any insurance claim being made on the Company.

(3)    On March 15, 2022, the Company fully paid claims on all of its insured PRIFA bonds, eliminating its exposure to insured PRIFA bonds as of March 15, 2022, pursuant to Title VI orders entered on January 20, 2022.

    The following table shows the scheduled amortization of the reinsured general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations. The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so. In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors. The following table does not reflect the impact of the GO/PBA Plan or the PRIFA Modification consummated on March 15, 2022.

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Notes to Consolidated Financial Statements, Continued

Amortization Schedule of Puerto Rico Net Par Outstanding

and Net Debt Service Outstanding

As of December 31, 2021

	Scheduled Net Par Amortization		Scheduled Net Debt Service Amortization
	(in thousands)
2022 (January 1 – March 31)	$	—	$	19,975
2022 (April 1 – June 30)	—		485
2022 (July 1 – September 30)	33,173		53,148
2022 (October 1 – December 31)	—		485
Subtotal 2022	33,173		74,093
2023	38,429		77,731
2024	55,823		93,363
2025	45,612		80,317
2026	47,250		79,709
2027-2031	178,050		307,628
2032-2036	260,799		342,283
2037-2041	145,387		165,498
Total	$	804,523	$	1,220,622

Exposure to the U.S. Virgin Islands

    As of December 31, 2021, the Company had $146.6 million of assumed net par outstanding to the U.S. Virgin Islands and its related authorities (USVI), all of which was rated BIG (up from $65.5 million BIG as of December 31, 2020). The BIG USVI net par outstanding consisted of bonds of the Public Finance Authority secured by a gross receipts tax and the general obligation, full faith and credit pledge of the USVI. The COVID-19 pandemic and evolving governmental and private responses to the pandemic have been impacting the USVI economy, especially the tourism sector. The USVI is benefiting from the federal response to the 2017 hurricanes and COVID-19 and has made its debt service payments to date, but is experiencing fiscal pressure.

Specialty Insurance and Reinsurance Exposure

    The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form. As of December 31, 2021, gross exposure of $143.9 million and net exposure of $83.9 million of aircraft residual value insurance was rated BIG. As of December 31, 2020, gross and net exposure of $12.8 million of aircraft residual value insurance was rated BIG. All other exposures in the table below are investment-grade quality.

Specialty Insurance and Reinsurance

Exposure

	As of December 31, 2021				As of December 31, 2020
	Gross Exposure		Net Exposure		Gross Exposure		Net Exposure
	(in thousands)
Life insurance transactions (1)	$	1,249,979	$	870,476	$	1,121,037	$	720,036
Aircraft RVI policies	355,101		200,048		362,600		207,548
Total	1,605,080		1,070,524		1,483,637		927,584

____________________

(1)    The life insurance transactions net exposure is projected to reach $1.1 billion by September 30, 2026.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

3.    Expected Loss to be Paid (Recovered)

Accounting Policy    

Expected loss to be paid (recovered) is equal to the present value of expected future cash outflows for loss and loss adjustment expense (LAE) payments, net of (i) inflows for expected salvage, subrogation and other recoveries, and (ii) excess spread on underlying collateral, as applicable. Cash flows are discounted at current risk-free rates. The Company updates the discount rates each quarter and reflects the effect of such changes in economic loss development. Net expected loss to be paid (recovered) is net of amounts ceded to reinsurers. The Company’s net expected loss to be paid (recovered) incorporates management’s probability weighted estimates of all possible scenarios.

Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about the likelihood of all possible outcomes based on all information available to the Company. Those assumptions consider the relevant facts and circumstances and are consistent with the information tracked and monitored through the Company’s risk-management activities. Expected loss to be paid (recovered) is important from a liquidity perspective in that it represents the present value of amounts that the Company expects to pay or recover in future periods for all contracts.

Management compiles and analyzes loss information for all exposures on a consistent basis, in order to effectively evaluate and manage the economics and liquidity of the entire insured portfolio. The Company monitors and assigns ratings and calculates expected loss to be paid (recovered) in the same manner for all its exposures regardless of form or differing accounting models. This note provides information regarding expected claim payments to be made under all contracts in the insured portfolio.

Economic loss development represents the change in net expected loss to be paid (recovered) attributable to the effects of changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts.

    The insured portfolio includes policies accounted for under two separate accounting models depending on the characteristics of the contract. The two models are: (1) insurance as described in "Financial Guaranty Insurance Losses" in Note 4, Contracts Accounted for as Insurance and (2) derivatives as described in Note 5, Contracts Accounted for as Credit Derivatives and Note 8, Fair Value Measurement. The Company has paid and expects to pay future losses and/or recover past losses on policies which fall under each of the two accounting models.

Loss Estimation Process

    The Company’s loss reserve committees estimate expected loss to be paid (recovered) for all contracts by reviewing analyses that consider various scenarios with corresponding probabilities assigned to them. Depending upon the nature of the risk, the Company’s view of the potential size of any loss and the information available to the Company, that analysis may be based upon individually developed cash flow models, internal credit rating assessments, sector-driven loss severity assumptions and/or judgmental assessments. In the case of its assumed business, the Company may conduct its own analysis as just described or, depending on the Company’s view of the potential size of any loss and the information available to the Company, the Company may use loss estimates provided by ceding insurers. The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the period and their view of future performance.

    The exposures reinsured or insured by the Company may cover an extended period of time, in some cases over 30 years, and in most circumstances the Company has no right to cancel such reinsurance or insurance. As a result, the Company's estimate of ultimate loss on a policy is subject to significant uncertainty over the life of the reinsured or insured transaction. Credit performance can be adversely affected by economic, fiscal and financial market variability and the market for assets (for RVI transactions) over the life of most contracts.

    The Company does not use traditional actuarial approaches to determine its estimates of expected losses. The determination of expected loss to be paid (recovered) is an inherently subjective process involving numerous estimates, assumptions and judgments by management, using both internal and external data sources with regard to frequency, severity of loss, economic projections, governmental actions, negotiations, recovery rates, delinquency and prepayment rates (with respect to RMBS), timing of cash flows, and other factors that affect credit performance. These estimates, assumptions and judgments, and the factors on which they are based, may change materially over a reporting period, and have a material effect on the

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Company’s financial statements. Each quarter, the Company may revise its scenarios and update its assumptions including the probability weightings of its scenarios based on public information as well as nonpublic information obtained through its surveillance and loss mitigation activities. Such information includes management’s view of the potential impact of COVID-19 on its distressed exposures. Management assesses the possible implications of such information on each insured obligation, considering the unique characteristics of each transaction.

    Changes over a reporting period in the Company’s loss estimates for municipal obligations supported by specified revenue streams, such as revenue bonds issued by toll road authorities, municipal utilities or airport authorities, generally will be influenced by factors impacting their revenue levels, such as changes in demand; changing demographics; and other economic factors, especially if the obligations do not benefit from financial support from other tax revenues or governmental authorities. Changes over a reporting period in the Company’s loss estimates for its tax-supported public finance transactions generally will be influenced by factors impacting the public issuer’s ability and willingness to pay, such as changes in the economy and population of the relevant area; changes in the issuer’s ability or willingness to raise taxes, decrease spending or receive federal assistance; new legislation; rating agency actions that affect the issuer’s ability to refinance maturing obligations or issue new debt at a reasonable cost; changes in the priority or amount of pensions and other obligations owed to workers; developments in restructuring or settlement negotiations; and other political and economic factors. Changes in loss estimates may also be affected by the Company’s loss mitigation efforts and other variables.

    Changes in the Company’s loss estimates for structured finance transactions generally will be influenced by factors impacting the performance of the assets supporting those transactions. For example, changes over a reporting period in the Company’s loss estimates for its RMBS transactions may be influenced by factors such as the level and timing of loan defaults experienced, changes in housing prices, results from the Company’s loss mitigation activities, and other variables.

    Actual losses will ultimately depend on future events or transaction performance and may be influenced by many interrelated factors that are difficult to predict. As a result, the Company’s current projections of losses may be subject to considerable volatility and may not reflect the Company’s ultimate claims paid.

    In some instances, the terms of the ceding companies' policy or the terms of certain workout orders and resolutions give them the option to pay principal losses that have been recognized in the transaction but which they are not yet required to pay, thereby reducing the amount of guaranteed interest due in the future. The ceding companies have sometimes exercised this option, which uses cash but reduces projected future losses.

Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

by Accounting Model

	Net Expected Loss to be Paid (Recovered)				Net Economic Loss Development (Benefit)
	As of December 31,				Year Ended December 31,
Accounting Model	2021		2020		2021		2020
	(in thousands)
Insurance (see Notes 4 and 6)	$	186,614	$	197,458	$	(35,076)	$	88,703
Credit derivatives (see Note 5)	658		712		1,220		1,164
Total	$	187,272	$	198,170	$	(33,856)	$	89,867

The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts under all accounting models (insurance and derivative). The Company used risk-free rates for U.S. dollar denominated obligations, that ranged from 0.00% to 1.98% with a weighted average of 1.00% as of December 31, 2021 and 0.00% to 1.72% with a weighted average of 0.54% as of December 31, 2020. Expected losses to be paid for transactions denominated in currencies other than the U.S. dollar represented approximately 0.5% and 2.0% of the total as of December 31, 2021 and December 31, 2020, respectively.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Net Expected Loss to be Paid (Recovered)

Roll Forward

	Year Ended December 31,
	2021		2020
	(in thousands)
Net expected loss to be paid (recovered), beginning of period	$	198,170	$	210,900
Economic loss development (benefit) due to:
Accretion of discount	1,734		2,273
Changes in discount rates	(15,281)		4,047
Changes in timing and assumptions	(20,309)		83,547
Total economic loss development (benefit)	(33,856)		89,867
Net (paid) recovered losses	22,958		(102,597)
Net expected loss to be paid (recovered), end of period	$	187,272	$	198,170

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector

	Year Ended December 31, 2021
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2020		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses		Net Expected Loss to be Paid (Recovered) as of December 31, 2021
	(in thousands)
Public finance:
U.S. public finance	$	113,696	$	(32,859)	$	13,602	$	94,439
Non-U.S public finance	3,816		(2,457)		(343)		1,016
Public finance	117,512		(35,316)		13,259		95,455
Structured finance:
U.S. RMBS	9,617		(11,710)		6,941		4,848
Life insurance transactions	53,441		8,134		(1,842)		59,733
Other structured finance	17,600		5,036		4,600		27,236
Structured finance	80,658		1,460		9,699		91,817
Total	$	198,170	$	(33,856)	$	22,958	$	187,272

	Year Ended December 31, 2020
Sector	Net Expected Loss to be Paid (Recovered) as of December 31, 2019		Economic Loss Development (Benefit)		Net (Paid) Recovered Losses		Net Expected Loss to be Paid (Recovered) as of December 31, 2020
	(in thousands)
Public finance:
U.S. public finance	$	140,789	$	62,306	$	(89,399)	$	113,696
Non-U.S public finance	2,038		1,865		(87)		3,816
Public finance	142,827		64,171		(89,486)		117,512
Structured finance:
U.S. RMBS	11,089		(3,414)		1,942		9,617
Life insurance transactions	35,130		22,721		(4,410)		53,441
Other structured finance	21,854		6,389		(10,643)		17,600
Structured finance	68,073		25,696		(13,111)		80,658
Total	$	210,900	$	89,867	$	(102,597)	$	198,170

    The tables above include: (i) LAE paid of $8.6 million and $8.4 million for the years ended December 31, 2021 and 2020, respectively, and (ii) expected LAE to be paid of $5.7 million as of December 31, 2021 and $7.1 million as of December 31, 2020.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Selected U.S. Public Finance Transactions

    The Company reinsures general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $804.5 million net par outstanding as of December 31, 2021, all of which was BIG. For additional information regarding the Company's Puerto Rico exposure, see "Exposure to Puerto Rico" in Note 2, Outstanding Exposure.

In the fourth quarter of 2021, the affiliated ceding companies sold a portion of their salvage and subrogation recoverable asset associated with certain matured Puerto Rico GO and PREPA exposures on which the Company had previously paid claims. This sale resulted in proceeds of $74.0 million, which is included in “net (paid) recovered losses” in the tables above. Also in the fourth quarter of 2021, the Company updated its assumptions for the value of the CVIs and recovery bonds to be received under the GO/PBA Plan and other settlements. During 2021, the Company also incorporated refinements to reflect certain terms of the Puerto Rico support agreements.

    On February 25, 2015, a plan of adjustment resolving the bankruptcy filing of the City of Stockton, California under chapter 9 of the Bankruptcy Code became effective. As of December 31, 2021, the Company’s net assumed par outstanding subject to the plan consisted of $45.3 million of pension obligation bonds. As part of the plan of adjustment, the City will repay claims paid on the pension obligation bonds from certain fixed payments and certain variable payments contingent on the City’s revenue growth. 

    The Company projects its total net expected loss across its troubled U.S. public finance exposures as of December 31, 2021, including those mentioned above, to be $94.4 million, compared with a net expected loss of $113.7 million as of December 31, 2020.

    The economic benefit for U.S. public finance transactions was $32.9 million in 2021, which was primarily attributable to Puerto Rico exposures. The changes attributable to the Company’s Puerto Rico exposures reflect adjustments the Company made to the assumptions it used in its scenarios based on the public information as well as nonpublic information related to affiliated ceding companies' loss mitigation activities during the period.

U.S. RMBS Loss Projections

The Company projects losses on its assumed U.S. RMBS on a transaction-by-transaction basis by projecting the performance of the underlying pool of mortgages over time and then applying the structural features (i.e., payment priorities and tranching) of the RMBS and any expected representation and warranty (R&W) recoveries/payables to the projected performance of the collateral over time. The resulting projected claim payments or reimbursements are then discounted using risk-free rates.

The further behind mortgage borrowers fall in making payments, the more likely it is that they will default. The rate at which borrowers from a particular delinquency category (number of monthly payments behind) eventually default is referred to as the “liquidation rate.” The Company derives its liquidation rate assumptions from observed roll rates, which are the rates at which loans progress from one delinquency category to the next and eventually to default and liquidation. The Company applies liquidation rates to the mortgage loan collateral in each delinquency category and makes certain timing assumptions to project near-term mortgage collateral defaults from loans that are currently delinquent.

Mortgage borrowers that are not behind on payments and have not fallen two or more payments behind in the last two years (generally considered performing borrowers) have demonstrated an ability and willingness to pay through challenging economic periods, and as a result are viewed as less likely to default than delinquent borrowers or those that have experienced delinquency recently. Performing borrowers that eventually default will also need to progress through delinquency categories before any defaults occur. The Company projects how many of the currently performing loans will default and when they will default, by first converting the projected near term defaults of delinquent borrowers derived from liquidation rates into a vector of conditional default rates (CDR), then projecting how the CDR will develop over time. Loans that are defaulted pursuant to the CDR after the near-term liquidation of currently delinquent loans represent defaults of currently performing loans and projected re-performing loans. A CDR is the outstanding principal amount of defaulted loans liquidated in the current month divided by the remaining outstanding amount of the whole pool of loans (collateral pool balance). The collateral pool balance decreases over time as a result of scheduled principal payments, partial and whole principal prepayments, and defaults.

In order to derive collateral pool losses from the collateral pool defaults it has projected, the Company applies a loss severity. The loss severity is the amount of loss the transaction experiences on a defaulted loan after the application of net

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

proceeds from the disposal of the underlying property. The Company projects loss severities by sector and vintage based on its experience to date. The Company continues to update its evaluation of these loss severities as new information becomes available.

The Company projects the overall future cash flow from a collateral pool by adjusting the payment stream from the principal and interest contractually due on the underlying mortgages for the collateral losses it projects as described above; assumed voluntary prepayments; and servicer advances. The Company then applies an individual model of the structure of the transaction to the projected future cash flow from that transaction’s collateral pool to project the Company’s future claims and claim reimbursements for that individual transaction. Finally, the projected claims and reimbursements are discounted using risk-free rates. The Company runs several sets of assumptions regarding mortgage collateral performance, or scenarios, and probability weights them.

Each period the Company makes a judgment as to whether to change the assumptions it uses to make RMBS loss projections based on its observation during the period of the performance of its insured transactions (including early-stage delinquencies, late-stage delinquencies and loss severity) as well as the residential property market and economy in general, and, to the extent it observes changes, it makes a judgment as to whether those changes are normal fluctuations or part of a trend. The assumptions that the Company uses to project RMBS losses are shown in the sections below.

Net Economic Loss Development (Benefit)

U.S. RMBS

	Year Ended December 31,
	2021		2020
	(in thousands)
First lien U.S. RMBS	$	(2,021)	$	(571)
Second lien U.S. RMBS	(9,689)		(2,843)

First Lien U.S. RMBS Loss Projections: Alt-A, Prime, Option ARM and Subprime

The majority of projected losses in first lien RMBS transactions are expected to come from non-performing mortgage loans (those that are or have recently been two or more payments behind, have been modified, are in foreclosure, or have been foreclosed upon). Changes in the amount of non-performing loans from the amount projected in the previous period are one of the primary drivers of loss projections in this portfolio. In order to determine the number of defaults resulting from these delinquent and foreclosed loans, the Company applies a liquidation rate assumption to loans in each of various non-performing categories. The Company arrived at its liquidation rates based on data purchased from a third-party provider and assumptions about how delays in the foreclosure process and loan modifications may ultimately affect the rate at which loans are liquidated. Each quarter the Company reviews recent data and (if necessary) adjusts its liquidation rates based on its observations. The following table shows liquidation assumptions for various non-performing and re-performing categories.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

First Lien Liquidation Rates

	As of December 31,
	2021	2020
Current but recently delinquent (1)
Alt-A and Prime	20%	20%
Option ARM	20	20
Subprime	20	20
30 – 59 Days Delinquent
Alt-A and Prime	35	35
Option ARM	35	35
Subprime	30	30
60 – 89 Days Delinquent
Alt-A and Prime	40	40
Option ARM	45	45
Subprime	40	40
90+ Days Delinquent
Alt-A and Prime	55	55
Option ARM	60	60
Subprime	45	45
Bankruptcy
Alt-A and Prime	45	45
Option ARM	50	50
Subprime	40	40
Foreclosure
Alt-A and Prime	60	60
Option ARM	65	65
Subprime	55	55
Real Estate Owned
All	100	100

___________________

(1)    Prior to the third quarter of 2021, the Company included current loans that had missed one payment (30 + days delinquent) within the last 12 months in this category. The Company observed that during the COVID-19 pandemic: (i) loans that became 60+ days delinquent may have elevated future default risk for longer than a year; and (ii) there may be an increased number of loans that missed only a single payment that should not be considered at elevated risk of default. Based on this view, starting in the third quarter of 2021, the Company includes only current loans that had been 60+ days delinquent within the last 24 months in this category, rather than current loans that had been 30+ days delinquent in the past 12 months.

Towards the end of the first quarter of 2020, lenders began offering mortgage borrowers the option to forbear interest and principal payments of their loans due to the COVID-19 pandemic, and to repay such amounts at a later date. This resulted in an increase in early-stage delinquencies in RMBS transactions during the second quarter of 2020 and late-stage delinquencies during the second half of 2020. Until the third quarter of 2021, the Company’s expected loss estimate assumed that some delinquencies were due to COVID-19 related forbearances, and had applied a liquidation rate of 20% to such loans, which was the same liquidation rate assumption used when estimating expected losses for current loans that were recently modified or delinquent. A substantial portion of the loans have resolved favorably, and the Company now expects that the loans that continue to be delinquent will default at a higher rate than the original overall assumption of 20%. Therefore, the Company discontinued the segregation of COVID-19 related forbearances and the application of a special 20% liquidation rate to such COVID-19 forbearances. Beginning in the third quarter of 2021, the Company includes remaining COVID-19 forbearance loans in the relevant delinquency categories consistent with all other loans. Assuming all other variables are held constant, applying the higher liquidation rates to the previously forborne loans that remain delinquent, rather than the previous assumption of 20% that was applied to all COVID-19 forborne loans, did not significantly increase expected losses on this cohort.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

While the Company uses liquidation rates as described above to project defaults of non-performing loans (including current loans that were recently modified or delinquent), it projects defaults on presently current loans by applying a CDR curve. The start of that CDR curve is based on the defaults the Company projects will emerge from currently nonperforming, recently nonperforming and modified loans. The total amount of expected defaults from the non-performing loans is translated into a constant CDR (i.e., the CDR plateau), which, if applied for each of the next 36 months, would be sufficient to produce approximately the amount of defaults that was calculated to emerge from the various delinquency categories. The CDR thus calculated individually on the delinquent collateral pool for each RMBS is then used as the starting point for the CDR curve used to project defaults of the presently performing loans.

In the most heavily weighted scenario (the base case), after the initial 36-month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to an intermediate CDR (calculated as 20% of its CDR plateau); that intermediate CDR is held constant and then steps to a final CDR of 5% of the CDR plateau. In the base case, the Company assumes the final CDR will be reached 1.5 years after the initial 36-month CDR plateau period. Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were recently modified or delinquent, or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36 month period represent defaults attributable to borrowers that are currently performing or are projected to reperform.

Another important driver of loss projections is loss severity, which is the amount of loss the transaction incurs on a loan after the application of net proceeds from the disposal of the underlying property. The Company assumes in the base case that recent (still historically elevated) loss severities will improve after loans with accumulated delinquencies and foreclosure cost are liquidated. The Company is assuming in the base case that the recent levels generally will continue for another 18 months. The Company determines its initial loss severity based on actual recent experience. Each quarter the Company reviews available data and (if necessary) adjusts its severities based on its observations. The Company then assumes that loss severities begin returning to levels consistent with underwriting assumptions beginning after the initial 18 month period, declining to 40% in the base case over 2.5 years.

The following table shows the range as well as the average, weighted by outstanding net insured par, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for first lien U.S. RMBS.

31

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Key Assumptions in Base Case Expected Loss Estimates

First Lien U.S. RMBS

	As of December 31, 2021		As of December 31, 2020
	Range	Weighted Average	Range	Weighted Average
Alt-A and Prime
Plateau CDR	2.3% - 11.6%	6.0%	0.0% - 9.6%	5.3%
Final CDR	0.1% - 0.6%	0.3%	0.0% - 0.5%	0.3%
Initial loss severity:
2005 and prior	60%		60%
2006	60%		70%
2007+	60%		70%
Option ARM
Plateau CDR	3.3% - 11.9%	5.1%	2.8% - 11.9%	5.1%
Final CDR	0.2% - 0.6%	0.3%	0.1% - 0.6%	0.3%
Initial loss severity:
2005 and prior	60%		60%
2006	60%		60%
2007+	60%		60%
Subprime
Plateau CDR	3.3% - 8.6%	6.6%	2.7% - 11.3%	5.7%
Final CDR	0.2% - 0.4%	0.3%	0.1% - 0.6%	0.3%
Initial loss severity:
2005 and prior	60%		60%
2006	60%		70%
2007+	60%		70%

The rate at which the principal amount of loans is voluntarily prepaid may impact both the amount of losses projected (since that amount is a function of the CDR, the loss severity and the loan balance over time) as well as the amount of excess spread (the amount by which the interest paid by the borrowers on the underlying loan exceeds the amount of interest owed on the insured obligations). The assumption for the voluntary conditional prepayment rate (CPR) follows a pattern similar to that of the CDR. The current level of voluntary prepayments is assumed to continue for the plateau period before gradually increasing over 12 months to the final CPR, which is assumed to be 15% in the base case. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. These CPR assumptions are the same as those the Company used for December 31, 2020.

In the third quarter of 2021, the Company implemented a new recovery assumption into its reserving model to reflect observed trends in recoveries of deferred principal balances of modified first lien loans that had been previously written off. The Company now assumes that 20% of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans. The addition of this new assumption resulted in an economic benefit of $0.6 million.

In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien transactions by varying its assumptions of how fast a recovery is expected to occur. One of the variables used to model sensitivities was how quickly the CDR returned to its modeled equilibrium, which was defined as 5% of the initial CDR. The Company also stressed CPR and the speed of recovery of loss severity rates. The Company probability weighted a total of five scenarios as of December 31, 2021 and December 31, 2020.

Total expected loss to be paid on all first lien U.S. RMBS was $6.9 million and $7.6 million as of December 31, 2021 and December 31, 2020, respectively. The $2.0 million economic benefit in 2021 for first lien U.S. RMBS was primarily attributable to changes in discount rates and the implementation of a recovery assumption for deferred principal balances that had previously been written off, partially offset by lower excess spread.

Certain transactions benefit from excess spread when they are supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) but have insured floating rate debt linked to LIBOR. An increase in projected LIBOR decreases excess spread, while lower LIBOR results in higher excess spread. LIBOR is anticipated to be discontinued after June

32

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

30, 2023, and it is not yet clear how this will impact the calculation of the various interest rates in this portfolio referencing LIBOR.

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of December 31, 2021 as it used as of December 31, 2020, increasing and decreasing the periods of stress from those used in the base case.

In the Company’s most stressful scenario where loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 15 months, expected loss to be paid would increase from current projections by approximately $1.0 million for all first lien U.S. RMBS transactions. In the Company’s least stressful scenario where the CDR plateau was six months shorter (30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over nine months), expected loss to be paid would decrease from current projections by approximately $0.6 million for all first lien U.S. RMBS transactions.

Second Lien U.S. RMBS Loss Projections

Second lien RMBS transactions include both home equity lines of credit (HELOC) and closed end second lien mortgages. The Company believes the primary variable affecting its expected losses in second lien RMBS transactions is the amount and timing of future losses or recoveries in the collateral pool supporting the transactions. Expected losses are also a function of the structure of the transaction, the CPR of the collateral, the interest rate environment, and assumptions about loss severity.

In second lien transactions, the projection of near-term defaults from currently delinquent loans is relatively straightforward because loans in second lien transactions are generally “charged off” (treated as defaulted) by the securitization’s servicer once the loan is 180-days past due. The Company estimates the amount of loans that will default over the next six months by calculating current representative liquidation rates. Second lien transactions have seen an increase in delinquencies because of COVID-19 related forbearances. As in the case of first lien transactions, starting in the third quarter of 2021, the Company includes remaining COVID-19 forbearance loans in the relevant delinquency categories consistent with all other loans. Assuming all other variables are held constant, applying the higher liquidation rates to the previously forborne loans that remain delinquent, rather than the previous assumption of 20% that was applied to all COVID-19 forborne loans, increased expected losses by approximately $1.5 million for second lien transactions.

Similar to first liens, the Company then calculates a CDR for six months, which is the period over which the currently delinquent collateral is expected to be liquidated. That CDR is then used as the basis for the plateau CDR period that follows the embedded plateau losses.

For the base case scenario, the CDR (the plateau CDR) was held constant for six months. Once the plateau period has ended, the CDR is assumed to gradually trend down in uniform increments to its final long-term steady state CDR. (The long-term steady state CDR is calculated as the constant CDR that would have yielded the amount of losses originally expected at underwriting.) In the base case scenario, the time over which the CDR trends down to its final CDR is 28 months. Therefore, the total stress period for second lien transactions is 34 months, representing six months of delinquent loan liquidations, followed by 28 months of decrease to the steady state CDR, the same as of December 31, 2020.

HELOC loans generally permit the borrower to pay only interest for an initial period (often ten years) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment. This causes the borrower's total monthly payment to increase, sometimes substantially, at the end of the initial interest-only period.

The HELOC loans underlying the Company’s insured HELOC transactions are now past their original interest-only reset date, although a significant number of HELOC loans were modified to extend the original interest-only period. The Company does not apply a CDR increase when such loans are projected to reach their principal amortization period due to the likelihood that those loans will either prepay or once again have their interest-only periods extended. In addition, based on recent trends, in the third quarter of 2021, the Company reduced the CDR floor from 2.5% to 1.0%, as the future steady state CDR on all its HELOC transactions.

When a second lien loan defaults, there is generally a low recovery. The Company assumed, as of December 31, 2021 and December 31, 2020 that it will generally recover 2% of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time. A second lien on the borrower’s home may be retained in the Company’s second lien transactions after the loan is charged off and the loss applied to the transaction, particularly in cases where the holder of the first lien has not foreclosed. If the second lien is retained and the value of the home increases, the servicer may be able to use the second lien to increase recoveries, either by arranging for the borrower to resume payments or

33

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

by realizing value upon the sale of the underlying real estate. The Company evaluates its assumptions quarterly based on actual recoveries of charged-off loans observed from period to period.  In instances where the Company is able to obtain information on the lien status of charged-off loans, it assumes there will be a certain level of future recoveries of the balance of the charged-off loans where the second lien is still intact. In the third quarter of 2021, the Company increased its recovery assumption for charged-off loans from 20% to 30%, as shown in the table below, based on recent observed trends. The higher recovery assumption, together with higher actual recoveries and other information obtained on charged-off loans, resulted in a $6.8 million increase in expected recoveries. Such recoveries are assumed to be received evenly over the next five years. If the recovery rate increases to 40%, expected loss to be paid would decrease from current projections by approximately $4.0 million. If the recovery rate decreases to 20% expected loss to be paid would increase from current projections by approximately $4.0 million. 

The rate at which the principal amount of loans is prepaid may impact both the amount of losses projected as well as the amount of excess spread. In the base case, an average CPR (based on experience of the past year) is assumed to continue until the end of the plateau before gradually increasing to the final CPR over the same period the CDR decreases. The final CPR is assumed to be 15% for second lien transactions (in the base case), which is lower than the historical average but reflects the Company’s continued uncertainty about the projected performance of the borrowers in these transactions. For transactions where the initial CPR is higher than the final CPR, the initial CPR is held constant and the final CPR is not used. This pattern is consistent with how the Company modeled the CPR as of December 31, 2020. To the extent that prepayments differ from projected levels it could materially change the Company’s projected excess spread and losses.

     In estimating expected losses, the Company modeled and probability weighted five scenarios, each with a different CDR curve applicable to the period preceding the return to the long-term steady state CDR. The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers behind the amount of losses the collateral will likely suffer.

    The following table shows the range as well as the average, weighted by net par outstanding, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for HELOCs.

Key Assumptions in Base Case Expected Loss Estimates

HELOCs

	As of December 31, 2021		As of December 31, 2020
	Range	Weighted Average	Range	Weighted Average
Plateau CDR	8.4% - 39.6%	16.0%	5.0% - 36.2%	12.8%
Final CDR trended down to	1.0%		2.5% - 3.2%	2.5%
Liquidation rates:
Current but recently delinquent (1)	20%		20%
30 – 59 Days Delinquent	30		30
60 – 89 Days Delinquent	40		40
90+ Days Delinquent	60		60
Bankruptcy	55		55
Foreclosure	55		55
Real Estate Owned	100		100
Loss severity on future defaults	98%		98%
Projected future recoveries on previously charged-off loans	30%		20%

___________________

(1)    Prior to the third quarter of 2021, the Company included current loans that had missed one payment (30 + days delinquent) within the last 12 months in this category. The Company observed that during the COVID-19 pandemic: (i) loans that became 60+ days delinquent may have elevated future default risk for longer than a year; and (ii) there may be an increased number of loans that missed only a single payment that should not be considered at elevated risk of default. Based on this view, starting in the third quarter of 2021, the Company includes only current loans that had been 60+ days delinquent within the last 24 months in this category, rather than current loans that had been 30+ days delinquent in the past 12 months.

The Company continues to evaluate the assumptions affecting its modeling results. The Company believes the most important driver of its projected second lien RMBS losses is the performance of its HELOC transactions. Total expected

34

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

recovery on all second lien U.S. RMBS was $2.1 million as of December 31, 2021 and expected loss to be paid was $2.0 million as of December 31, 2020. The $9.7 million economic benefit in 2021 was primarily attributable to higher recoveries on previously charged-off loans and improved performance in certain transactions.

The Company’s base case assumed a six month CDR plateau and a 28 month ramp-down (for a total stress period of 34 months). The Company also modeled a scenario with a longer period of elevated defaults and another with a shorter period of elevated defaults. In the Company’s most stressful scenario, increasing the CDR plateau to eight months and increasing the ramp-down by three months to 31 months (for a total stress period of 39 months) would increase the expected loss by approximately $0.6 million for HELOC transactions. On the other hand, in the Company’s least stressful scenario, reducing the CDR plateau to four months and decreasing the length of the CDR ramp-down to 25 months (for a total stress period of 29 months), and lowering the ultimate prepayment rate to 10% would decrease the expected loss by approximately $0.7 million for HELOC transactions.

Life Insurance Transactions

The Company had $2,741.0 million of net par exposure to financial guaranty life insurance transactions as of December 31, 2021, of which $293.8 million in net par is rated BIG. The life insurance transactions are based on discrete blocks of individual life insurance business. In older vintage life insurance transactions, which include the BIG-rated transactions, the amounts raised by the sale of the notes reinsured by the Company were used to capitalize a special purpose vehicle that provides reinsurance to a life insurer or reinsurer. The amounts have been invested since inception in accounts managed by third-party investment managers. In the case of the BIG-rated transactions, material amounts of their assets were invested in U.S. RMBS. The Company projects that its total net expected loss across its troubled life insurance exposures as of December 31, 2021 will be $59.7 million, compared with a net expected loss of $53.4 million as of December 31, 2020. The economic loss development was $8.1 million during 2021, which was primarily attributable to expected weakened economics in certain transactions.

Structured Finance Other Than U.S. RMBS and Life Insurance

The Company provides financial guaranty reinsurance on $219.2 million net par of student loan securitizations issued by private issuers. Of this amount, $55.5 million is rated BIG due to: (i) the poor credit performance of private student loan collateral and high loss severities, or (ii) high interest rates on auction rate securities with respect to which the auctions have failed. In addition, $83.9 million of aircraft RVI exposure was rated BIG. The net expected loss to be paid on structured finance transactions other than U.S. RMBS and life insurance transactions was $27.2 million. The economic loss development during 2021 was approximately $5.0 million, which was primarily attributable to deterioration of certain aircraft RVI exposures and LAE for certain transactions.

Recovery Litigation

    In the ordinary course of their respective businesses, affiliated ceding companies are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future.The impact, if any, of these and other proceedings on the amount of recoveries the affiliated ceding companies receive and losses they pay in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company's financial statements.

    The relevant affiliated ceding companies have asserted claims in a number of legal proceedings in connection with their exposure to Puerto Rico. See Note 2, Outstanding Exposure, for a discussion of the Company's exposure to Puerto Rico and related recovery litigation being pursued by the affiliated ceding companies.

4.    Contracts Accounted for as Insurance

The portfolio of outstanding exposures discussed in Note 2, Outstanding Exposure, and Note 3, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts and derivatives. Amounts presented in this note relate only to contracts accounted for as insurance, unless otherwise specified. See Note 5, Contracts Accounted for as Credit Derivatives for amounts that relate to CDS.

35

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Premiums

Accounting Policies

Financial Guaranty Insurance

Financial guaranty contracts that meet the scope exception under derivative accounting guidance are subject to industry specific guidance for financial guaranty insurance. The accounting for contracts that fall under the financial guaranty insurance definition is consistent whether contracts are written on a direct basis, assumed from another financial guarantor under a reinsurance treaty, or ceded to another insurer under a reinsurance treaty.

Premiums receivable represent the present value of contractual or expected future premium collections discounted using risk free rates. Unearned premium reserve represents deferred premium revenue, less claim payments made (net of recoveries received) that have not yet been recognized in the statement of operations (contra-paid). The following discussion relates to the deferred premium revenue component of the unearned premium reserve, while the contra-paid is discussed below under "Financial Guaranty Insurance Losses."

The amount of deferred premium revenue at contract inception is determined as follows:

•For premiums received upfront on financial guaranty insurance contracts, deferred premium revenue is equal to the amount of cash received. Upfront premiums typically relate to public finance transactions.

•For premiums received in installments on financial guaranty insurance contracts, deferred premium revenue is the present value (discounted at risk free rates) of either (i) contractual premiums due or (ii) in cases where the underlying collateral is composed of homogeneous pools of assets, the expected premiums to be collected over the life of the contract. To be considered a homogeneous pool of assets, prepayments must be contractually allowable, the amount of prepayments must be probable, and the timing and amount of prepayments must be reasonably estimable. Installment premiums typically relate to structured finance and infrastructure transactions, where the insurance premium rate is determined at the inception of the contract but the insured par is subject to prepayment throughout the life of the transaction.

When the Company adjusts prepayment assumptions or expected premium collections for obligations backed by homogeneous pools of assets an adjustment is recorded to the deferred premium revenue, with a corresponding adjustment to the premium receivable. Premiums receivable are discounted at the risk-free rate at inception and such discount rate is updated only when changes to prepayment assumptions are made that change the expected date of final maturity. Accretion of the discount on premiums receivable is reported in “net earned premiums”.

The Company recognizes deferred premium revenue as earned premium over the contractual period or expected period of the contract in proportion to the amount of insurance protection provided. As premium revenue is recognized, a corresponding decrease to the deferred premium revenue is recorded. The amount of insurance protection provided is a function of the insured par amount outstanding. Accordingly, the proportionate share of premium revenue recognized in a given reporting period is a constant rate calculated based on the relationship between the insured par amounts outstanding in the reporting period compared with the sum of each of the insured par amounts outstanding for all periods. When an insured financial obligation is retired before its maturity, the financial guaranty insurance contract is extinguished, and any nonrefundable deferred premium revenue related to that contract is accelerated and recognized as premium revenue. Effective January 1, 2020, the Company periodically assesses the need for an allowance for credit loss on premiums receivables.

For assumed reinsurance contracts, net earned premiums reported in the consolidated statements of operations are calculated based upon data received from ceding companies; however, some ceding companies report premium data between 30 and 90 days after the end of the reporting period. The Company estimates net earned premiums for the lag period.  Differences between such estimates and actual amounts are recorded in the period in which the actual amounts are determined. When installment premiums are related to assumed reinsurance contracts, the Company assesses the credit quality and available liquidity of the ceding companies and the impact of any potential regulatory constraints to determine the collectability of such amounts.

36

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Specialty Insurance and Reinsurance

For RVI transactions, the amount of unearned premium reserve at contract inception is equal to the cash premiums received upfront. The Company then recognizes that RVI unearned premium reserve as earned premium over the remaining contract period in proportion to the amount of insurance protection provided. For life insurance transactions, the unearned premium reserve is equal to the amount of contractual premiums currently due. The Company then recognizes that life insurance unearned premium reserve when premiums are due. For specialty insurance and reinsurance, premiums receivable consist of the amount of contractual premiums due.

Ceded unearned premium reserve is recorded as an asset. Direct, assumed and ceded earned premiums are presented together as net earned premiums in the statement of operations. See Note 6, Reinsurance, for a breakout of direct, assumed and ceded premiums. The components of net earned premiums are shown in the table below:

Insurance Contracts’ Premium Information

Net Earned Premiums

	Year Ended December 31,
	2021		2020
	(in thousands)
Financial guaranty:
Scheduled net earned premiums	$	72,165	$	67,969
Accelerations from refundings and terminations	16,221		26,822
Accretion of discount on net premiums receivable	5,403		5,577
Financial guaranty insurance net earned premiums	93,789		100,368
Specialty net earned premiums	3,269		2,354
Net earned premiums	$	97,058	$	102,722

Components of

Unearned Premium Reserve

	As of December 31, 2021						As of December 31, 2020
	Gross		Ceded (2)		Net		Gross		Ceded (2)		Net
	(in thousands)
Financial guaranty:
Deferred premium revenue	$	788,454	$	5	$	788,449	$	802,194	$	24	$	802,170
Contra-paid (1)	(2,129)		—		(2,129)		(1,114)		—		(1,114)
Unearned premium reserve	786,325		5		786,320		801,080		24		801,056
Unearned premium reserve - Specialty insurance and reinsurance	19,969		9,044		10,925		22,516		10,503		12,013
Unearned premium reserve	$	806,294	$	9,049	$	797,245	$	823,596	$	10,527	$	813,069

 ____________________

(1)    See “Losses – Insurance Contracts’ Loss Information” below for an explanation of “contra-paid.”

(2)Reported in “other assets” on the consolidated balance sheets.

37

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Net Unearned Premium Reserve by Company

	As of December 31, 2021						As of December 31, 2020
	AGRO		AG Re		Total		AGRO		AG Re		Total
	(in thousands)
Financial guaranty (1)	$	124	$	786,196	$	786,320	$	12,449	$	788,607	$	801,056
Specialty insurance and reinsurance	10,925		—		10,925		12,013		—		12,013
Unearned premium reserve	$	11,049	$	786,196	$	797,245	$	24,462	$	788,607	$	813,069

 ____________________

(1)    Under U.S. single risk limit calculations, $672.9 million and $691.1 million as of December 31, 2021 and December 31, 2020, respectively, of AG Re net unearned premium reserve relates to exposures that would comply with the single risk limitations in the U.S.

Gross Premium Receivable, Net of Commissions on Assumed Business

Roll Forward

	Year Ended December 31,
	2021		2020
	(in thousands)
Beginning of year	$	254,972	$	227,356
Less: Specialty insurance premium receivable	551		2,073
Financial guaranty insurance premiums receivable	254,421		225,283
Gross written premiums on new business, net of commissions	54,124		82,052
Gross premiums received, net of commissions	(49,456)		(76,042)
Adjustments:
Changes in the expected term	(109)		18,835
Accretion of discount, net of commissions on assumed business	1,976		2,647
Foreign exchange gain (loss) on remeasurement	(3,830)		5,955
Cancellation of assumed reinsurance	—		(4,903)
Other adjustments	(498)		594
Financial guaranty insurance premium receivable	256,628		254,421
Specialty insurance premium receivable	707		551
December 31,	$	257,335	$	254,972

Approximately 54% and 59% of gross premiums receivable, net of commissions on assumed business as of December 31, 2021 and December 31, 2020, respectively, are denominated in currencies other than the U.S. dollar, primarily the pound sterling and euro.

The timing and cumulative amount of actual collections and net earned premiums may differ from those of expected collections and of expected net earned premiums in the table below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations, restructurings, changes in expected lives and new business.

38

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Financial Guaranty Insurance

Expected Future Premium Collections and Earnings

	As of December 31, 2021
	Future Gross Premiums to be Collected (1)		Future Net Premiums to be Earned (2)
	(in thousands)
2022 (January 1 – March 31)	$	16,452	$	17,139
2022 (April 1 – June 30)	6,013		17,222
2022 (July 1 – September 30)	5,895		17,208
2022 (October 1 – December 31)	10,882		16,718
Subtotal 2022	39,242		68,287
2023	23,890		63,153
2024	20,143		56,692
2025	15,366		49,174
2026	14,462		46,061
2027-2031	64,606		196,600
2032-2036	46,566		131,989
2037-2041	31,081		77,203
After 2041	49,846		99,290
Total	$	305,202	788,449
Future accretion			68,657
Total future net earned premiums			$	857,106

____________________

(1)    Net of assumed commissions payable.

(2)     Net of reinsurance.

Selected Information for Financial Guaranty Insurance Policies with Premiums Paid in Installments

	As of December 31,
	2021		2020
	(dollars in thousands)
Premiums receivable, net of commissions payable	$	256,628	$	254,421
Deferred premium revenue	376,808		369,733
Weighted‑average risk-free rate used to discount premiums	1.8%		1.8%
Weighted‑average period of premiums receivable (in years)	11.3		11.2

Policy Acquisition Costs

Accounting Policy

Policy acquisition costs that are directly related and essential to successful insurance contract acquisition, as well as ceding commission income and expense on ceded and assumed reinsurance contracts, are deferred and reported net.

Capitalized policy acquisition costs include the cost of underwriting personnel attributable to successful underwriting efforts. The Company conducts an annual time study, which requires the use of judgement, to estimate the amount of costs to be deferred.

Ceding commission expense on assumed reinsurance contracts and ceding commission income on ceded reinsurance contracts that are associated with premiums received in installments are calculated at their contractually defined commission rates, discounted consistent with premiums receivable for all future periods, and included in DAC, with a corresponding offset to net premiums receivable or reinsurance balances payable.

    DAC is amortized in proportion to net earned premiums. Amortization of deferred policy acquisition costs includes the accretion of discount on ceding commission receivable and payable. When an insured obligation is retired early, the remaining related DAC is expensed at that time.

39

Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Costs incurred for soliciting potential customers, market research, training, administration, unsuccessful acquisition efforts, and product development as well as overhead costs are charged to expense as incurred.

    Expected losses and LAE, investment income, and the remaining costs of servicing the insured or reinsured business, are considered in determining the recoverability of DAC.

Roll Forward of Deferred Acquisition Costs

	Year Ended December 31,
	2021		2020
	(in thousands)
Beginning of year	$	242,512	$	234,600
Deferrals	23,786		37,928
Amortization	(27,137)		(30,016)
December 31,	$	239,161	$	242,512

Losses

Accounting Policies

Loss and LAE Reserve

Loss and LAE reserve reported on the balance sheet relates only to direct and assumed reinsurance contracts that are accounted for as insurance, substantially all of which are financial guaranty insurance contracts. The corresponding reserve ceded to reinsurers is reported as “reinsurance recoverable on unpaid losses” and reported in “other assets”. As discussed in Note 8, Fair Value Measurement, contracts that meet the definition of a derivative, are recorded separately at fair value.

    Under financial guaranty insurance accounting, the sum of unearned premium reserve and loss and LAE reserve represents the Company’s stand‑ready obligation. At contract inception, the entire stand-ready obligation is represented entirely by unearned premium reserve. Unearned premium reserve is deferred premium revenue, less claim payments (net of recoveries received) that have not yet been recognized in the statement of operations (contra-paid). A loss and LAE reserve for a financial guaranty insurance contract is recorded only to the extent, and for the amount, that expected loss to be paid plus contra-paid (total losses) exceed the deferred premium revenue, on a contract-by-contract basis. As a result, the Company has expected loss to be paid that has not yet been expensed. Such amounts will be recognized in future periods as deferred premium revenue amortizes into income.

When a claim or LAE payment is made on a contract, it first reduces any recorded loss and LAE reserve. To the extent there is no loss and LAE reserve on a contract, then such claim payment is recorded as “contra-paid,” which reduces the unearned premium reserve. The contra-paid is recognized in “loss and loss adjustment expenses (benefit)” in the consolidated statement of operations when and for the amount that total losses exceed the remaining deferred premium revenue on the insurance contract. “Loss and loss adjustment expenses (benefit)” in the consolidated statement of operations is presented net of cessions to reinsurers.

Salvage and Subrogation Recoverable

When the Company becomes entitled to the cash flow from the underlying collateral of, or other recoveries in relation to, an insured exposure under salvage and subrogation rights as a result of a claim payment or estimated future claim payment, it reduces the expected loss to be paid on the contract. Such reduction in expected loss to be paid can result in one of the following: (i) a reduction in the corresponding loss and LAE reserve with a benefit to the consolidated statement of operations, (ii) no effect on the consolidated balance sheet or consolidated statement of operations, if “total loss” is not in excess of deferred premium revenue, or (iii) the recording of a salvage asset with a benefit to the consolidated statement of operations if the transaction is in a net recovery position at the reporting date. The ceded component of salvage and subrogation recoverable is reported in “other liabilities”.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Expected Loss to be Expensed

    Expected loss to be expensed represents past or expected future financial guaranty insurance net claim payments that have not yet been expensed. Such amounts will be expensed in future periods as deferred premium revenue amortizes into income. Expected loss to be expensed is the Company’s projection of incurred losses that will be recognized in future periods, excluding accretion of discount.

Insurance Contracts’ Loss Information

Loss reserves are based on expected loss to be paid (recovered) which is discounted at risk-free rates for U.S. dollar denominated financial guaranty insurance obligations that ranged from 0.00% to 1.98% with a weighted average of 1.00% as of December 31, 2021 and 0.00% to 1.72% with a weighted average of 0.54% as of December 31, 2020.

The following tables provide information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance.

Net Reserve (Salvage) by Sector

	As of December 31,
Sector	2021		2020
	(in thousands)
Public finance:
U.S. public finance	$	82,308	$	99,722
Non-U.S public finance	152		1,517
Public finance	82,460		101,239
Structured finance:
U.S. RMBS	4,637		9,466
Life insurance transactions	57,569		50,882
Other structured finance	25,218		15,128
Structured finance	87,424		75,476
Total	$	169,884	$	176,715

Components of Net Reserve (Salvage)

	As of December 31,
	2021		2020
	(in thousands)
Loss and LAE reserve	$	261,086	$	312,767
Reinsurance recoverable on unpaid losses (1)	(2,305)		(66)
Other payable (2)	55		55
Loss and LAE reserve, net and other payable	258,836		312,756
Salvage and subrogation recoverable	(88,953)		(136,042)
Salvage and subrogation reinsurance payable (2)	1		1
Salvage and subrogation recoverable, net	(88,952)		(136,041)
Net reserve (salvage)	$	169,884	$	176,715

____________________

(1)Reported in “other assets” on the consolidated balance sheets.

(2)Reported in “other liabilities” on the consolidated balance sheets.

    The following table presents the loss and LAE (benefit) reported in the consolidated statements of operations by sector for insurance contracts. Amounts presented are net of reinsurance.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Loss and LAE (Benefit) by Sector

	Year Ended December 31,
Sector	2021		2020
	(in thousands)
Public finance:
U.S. public finance	$	(31,662)	$	66,448
Non-U.S public finance	(1,231)		465
Public finance	(32,893)		66,913
Structured finance:
U.S. RMBS	(8,122)		(1,397)
Life insurance transactions	8,529		23,144
Other structured finance	4,044		4,909
Structured finance	4,451		26,656
Loss and LAE (benefit)	$	(28,442)	$	93,569

In each of the years presented, the primary component of U.S. public finance loss and LAE (benefit) was Puerto Rico exposures.

Financial Guaranty Insurance Loss Information

    The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed. Expected loss to be paid (recovered) for financial guaranty insurance contracts differs from expected loss to be expensed due to: (i) the contra-paid, which represents the claim payments made and recoveries received that have not yet been recognized in the statements of operations; (ii) salvage and subrogation recoverable for transactions that are in a net recovery position where the Company has not yet received recoveries on claims previously paid (and therefore recognized in income but not yet received); and (iii) loss reserves that have already been established (and therefore expensed but not yet paid).

Reconciliation of Net Expected Loss to be Paid (Recovered) to Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts

	As of December 31, 2021
	(in thousands)
Net expected loss to be paid (recovered) - financial guaranty insurance	$	181,802
Contra-paid, net	2,129
Salvage and subrogation recoverable	88,952
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance	(254,023)
Net expected loss to be expensed (present value)	$	18,860

    The following table provides a schedule of the expected timing of net expected losses to be expensed. The amount and timing of actual loss and LAE may differ from the estimates shown below due to factors such as accelerations, commutations, changes in expected lives and updates to loss estimates.

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Assured Guaranty Re Ltd.

Notes to Consolidated Financial Statements, Continued

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts

	As of December 31, 2021
	(in thousands)
2022 (January 1 – March 31)	$	445
2022 (April 1 – June 30)	447
2022 (July 1 – September 30)	404
2022 (October 1 – December 31)	397
Subtotal 2022	1,693
2023	1,553
2024	1,474
2025	1,532
2026	1,481
2027-2031	6,026
2032-2036	3,384
2037-2041	976
After 2041	741
Net expected loss to be expensed	18,860
Future accretion	36,355
Total expected future loss and LAE	$	55,215

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance BIG Transaction Loss Summary

As of December 31, 2021

	BIG Categories
	BIG 1	BIG 2	BIG 3	Total
	(dollars in thousands)
Number of risks (1)	79	9	77	165
Remaining weighted-average period (in years)	9.0	9.8	9.1	9.1