ASSURED GUARANTY LTD

Real gross domestic product (GDP) increased 2.8% in 2024, compared to an increase of 2.9% in 2023, according to the second estimate released by the U.S. Bureau of Economic Analysis (BEA). Additionally, the BEA reported real GDP increased at an annual rate of 2.3% in the fourth quarter of 2024. At the end of December 2024, the U.S. unemployment rate, seasonally adjusted, stood at 4.1%, higher than where it started the year at 3.8%. The Company believes a more robust economy makes it less likely that obligors whose obligations it guarantees will default.

According to the U.S. Bureau of Labor Statistics, the inflation rate in the U.S. before seasonal adjustment for the 12-month period ending December 2024, as measured by the Consumer Price Index for All Urban Consumers, was 2.9%, as compared to 3.4% for the 12-month period ending December 2023. According to the U.K. Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs rose 3.5% for the 12 months through December 2024, as compared to 4.2% for the 12 months through December 2023. The Company believes that higher inflation may put pressure on the budgets of obligors whose obligations it guarantees and make defaults more likely. In addition, consumer price inflation in the U.K. increases reported net par outstanding for certain U.K. exposures with approximately $23.2 billion of net par outstanding as of December 31, 2024, and also increases projected future installment premiums on the portion of such exposure that pays at least a portion of the premium on an installment basis over the term of the exposure.

At its September 17-18, 2024 meeting, the Federal Open Market Committee (FOMC) decided to lower the federal funds rate, which was a reversal of the rate increases it had initiated in March 2022 to combat inflation. The federal funds rate is the rate at which banks lend to and borrow from each other, is the benchmark for most interest rates, and tends to influence mortgage rates. As the federal funds rate decreases, interest rates, including mortgage rates, tend to decrease. From September 2024 through December 2024, the FOMC lowered the federal funds rate from a target range of 5.25% to 5.50% to a range of 4.25% to 4.50%. At its January 28-29, 2025 meeting, the FOMC held the federal funds at a range of 4.25% to 4.50%, stating that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run, and that the risks to achieving its employment and inflation goals are roughly in balance. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the FOMC has indicated it will carefully assess incoming data, the evolving outlook, and the balance of risks. These assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

The level and direction of change of interest rates and credit spreads impact the Company in numerous ways. On the one hand, lower interest rates may increase the fair value of fixed-maturity securities currently held in the Company’s investment portfolio, encourage municipal bond issuance and positively impact the finances of some of the obligors whose payments the Company insures. On the other hand, lower interest rates may decrease the base on which the Company charges up-front premium on most new U.S. municipal bond transactions and may also decrease amounts the Company can earn on fixed-maturity securities newly acquired for its investment portfolio. Lower interest rates also are often accompanied by narrower spreads, which may also decrease the level of premiums the Company can charge for those products.

The 30-year AAA Municipal Market Data (MMD) rate is a measure of interest rates in the Company’s largest financial guaranty insurance market, U.S. public finance. The MMD rate averaged 3.68% for 2024, similar to the 3.65% rate in 2023 but higher than the 3.00% average for 2022. Meanwhile, the difference, or credit spread, between the 30-year BBB-rated general obligation relative to the 30-year AAA MMD averaged 90 basis points (bps) in 2024, which is narrower compared to the 101 bps average for 2023, but the same as the 90 bps average for 2022. The Company believes that wider spreads could permit it to increase its premium rates on new business.

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.85% as of December 26, 2024, near the 30-year mortgage rate of 6.61% from one year ago. The Company believes that restricted housing inventory continues to influence home prices where demand outpaces supply. Higher housing prices may benefit distressed RMBS the Company insures. The National Association of Realtors reported that year-over-year existing-home sales increased 9.3% from December 2023 to December 2024, and that the median existing-home sales price also increased from December 2023 ($381,400) to December 2024 ($404,400), a 6.0% increase.