ASSURED GUARANTY LTD

7. Investments

The majority of the investment portfolio comprises investment grade fixed-maturity securities managed bythree outside managers. The Company has established investment guidelines for these investment managers regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector.

The remainder of the investment portfolio primarily consists of (i) Loss Mitigation Securities; (ii) trading securities consisting primarily of CVIs received in connection with the 2022 Puerto Rico Resolutions; (iii) equity method investments; and (iv) short-term investments. Equity method investments primarily consist of the investment in Sound Point and fund investments across a variety of strategies.

Carrying Value

(1)9.1% and 9.2% of fixed-maturity securities, available-for-sale, were rated BIG or not rated as of September 30, 2024 and December 31, 2023, respectively. BIG rated securities consisted primarily of Loss Mitigation Securities.

(2) These securities are not rated. Includes CVIs of $136 million and $318 million as of September 30, 2024 and December 31, 2023, respectively.

(3) Excludes certain investments in funds of $278 million and $305 million as of September 30, 2024 and December 31, 2023, respectively, that are consolidated and accounted for as CIVs. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

(4) The aggregate carrying value of the Company’s investments in Sound Point managed funds, excluding the investment in Sound Point of $417 million and $429 million as of September 30, 2024 and December 31, 2023, respectively, and excluding certain investments in funds that are consolidated and accounted for as CIVs, was $288 million and $202 million as of September 30, 2024 and December 31, 2023, respectively.

The Company’s alternative investment commitments as of September 30, 2024 include $690 million in unfunded commitments and funded investments with a fair value of $848 million for a total of $1.5 billion, including a $1 billion commitment to invest in Sound Point managed alternative investments. Capital allocated to alternative investments was committed to several funds pursuing various strategies, including CLOs, middle market direct lending, asset-based/specialty finance and private healthcare investing. See Note 1, Business and Basis of Presentation, for a description of the Sound Point Transaction. As of September 30, 2024, three funds in which the Company invests are accounted for as CIVs. See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

In addition to the commitments above, the Company has agreed to subscribe for liquidity bonds to be issued by a U.K. regulated utility to which it has insured exposure. At this time, it has committed to provide £80 million in capacity.

Accrued investment income, which is reported in “other assets,” was $71 million as of both September 30, 2024 and December 31, 2023.

Available-for-Sale Fixed-Maturity Securities by Security Type

Available-for-Sale Fixed-Maturity Securities by Security Type

(1)Based on amortized cost.

(2)Includes securities issued by taxable universities and hospitals.

(3)U.S. government-agency obligations were approximately 67% and 42% of mortgage-backed securities as of September 30, 2024 and December 31, 2023, respectively, based on fair value.

Gross Unrealized Loss by Length of Time

for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded

Gross Unrealized Loss by Length of Time

for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded

(1) The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.

The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss. The Company has determined that the unrealized losses recorded as of September 30, 2024 and December 31, 2023 were primarily related to higher interest rates rather than credit quality. As of September 30, 2024, the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value. As of September 30, 2024, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded,317 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2023,409 securities had unrealized losses in excess of 10% of their carrying value. The total unrealized loss for these securities was $149 million as of September 30, 2024 and $200 million as of December 31, 2023.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of September 30, 2024 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity

Based on fair value, fixed-maturity securities, short-term investments and cash that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements or otherwise pledged or restricted totaled $77 million as of September 30, 2024 and $234 million as of December 31, 2023. The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or are otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements with a fair value of $1,176 million and $1,154 million as of September 30, 2024 and December 31, 2023, respectively.

The components of income derived from the investment portfolio are presented in the following tables.

(1) Fair value gains on trading securities pertaining to securities still held as of September 30, 2024 were $7 million for third quarter 2024 and $26 million for nine months 2024. Fair value gains on trading securities pertaining to securities still held as of September 30, 2023 were $4 million for third quarter 2023 and $42 million for nine months 2023.

(2) Beginning in the fourth quarter of 2023, equity in earnings (losses) of investees includes the Company’s share of the earnings of Sound Point, which is reported on a one-quarter lag.

(3) Sound Point and AHP funds and, prior to July 1, 2023, AssuredIM funds.

Realized Investment Gains (Losses)

The table below presents the components of net realized investment gains (losses). Realized gains and losses on sales of investments are determined using the specific identification method.

(1) Gross realized gains and losses in nine months 2023 related primarily to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

(2) Change in allowance for credit losses for all periods was primarily related to Loss Mitigation Securities.

The proceeds from sales of fixed-maturity securities classified as available-for-sale were $87 million in third quarter 2024, $73 million in third quarter 2023, $575 million in nine months 2024 and $767 million in nine months 2023.

The following table presents the roll forward of allowance for the credit losses on available-for-sale fixed-maturity securities.

Roll Forward of Allowance for Credit Losses

for Available-for-Sale Fixed-Maturity Securities

The Company didnot purchase any securities with credit deterioration during the periods presented.