ASSURED GUARANTY LTD

AG Support of AGUK

AG and AGUK have in place a co-guarantee structure pursuant to which each of AG and AGUK directly guarantees a share of certain issued obligations (Co-Guarantee Structure). Under the current Co-Guarantee Structure: (i) AGUK directly guarantees 15% of the obligations issued in a particular transaction; (ii) AG directly guarantees 85% of the guaranteed obligations; and (iii) AG also provides a second-to-pay guarantee for AGUK’s 15% portion of the guaranteed obligations. The Co-Guarantee Structure has been in place since 2011 for public finance business and since 2021 for non-public finance business.

Separate and apart from the Co-Guarantee Structure, AG provides support to AGUK through a quota share and excess of loss reinsurance agreement (Reinsurance Agreement) and a net worth maintenance agreement (Net Worth Agreement).

Under the quota share cover of the Reinsurance Agreement, AG reinsures approximately 50-100% of most of the outstanding financial guaranties that AGUK wrote prior to the initial implementation of the Co-Guarantee Structure in 2011. The quota share cover of the Reinsurance Agreement also obligates AG to reinsure 85% of new business written by AGUK where the Co-Guarantee Structure cannot be utilized; currently, there is no such outstanding business at AGUK.

Under the excess of loss cover of the Reinsurance Agreement, AG is obligated to pay AGUK quarterly the amount (if any) by which (i) the sum of: (a) AGUK’s incurred losses, calculated in accordance with generally accepted accounting practice in the U.K. (UK GAAP) as reported by AGUK in its financial returns filed with the Prudential Regulation Authority (PRA); and (b) AGUK’s paid losses and loss adjustment expenses (LAE), in both cases net of all other performing reinsurance (including the reinsurance provided by AG under the quota share cover of the Reinsurance Agreement), exceeds (ii) an amount equal to: (a) AGUK’s capital resources under U.K. law; minus (b) 110% of the greatest of the amounts as may be required by the PRA as a condition for maintaining AGUK’s authorization to carry on a financial guarantee business in the U.K. The purpose of this excess of loss cover is to ensure that AGUK maintains capital resources equal to at least 110% of the most stringent amount of capital that it may be required to maintain as a condition to carrying on a financial guarantee business in the U.K.

AG secures its quota share reinsurance obligations to AGUK under the Reinsurance Agreement by posting collateral in trust equal to 102% of the sum of AG’s assumed share of the following in respect of the reinsured AGUK policies: (i) AGUK’s unearned premium reserve (net of AGUK’s reinsurance premium payable to AG); (ii) AGUK’s provisions for unpaid losses and allocated LAE (net of any salvage recoverable); and (iii) any unexpired risk provisions of AGUK, in each case (i) - (iii) as calculated by AGUK in accordance with UK GAAP.

AGUK may terminate the Reinsurance Agreement upon the occurrence of any of the following events: (i) AG’s rating by Moody’s falls below “Aa3” or its rating by S&P falls below “AA-” (and AG fails to restore such rating(s) within a prescribed period of time); (ii) AG’s insolvency, failure to maintain the minimum capital required under the laws of AG’s domiciliary jurisdiction, filing a petition in bankruptcy, going into liquidation or rehabilitation, or having a receiver appointed; or (iii) AG’s failure to maintain its required collateral described above. AGUK has had a right to terminate the Reinsurance Agreement since 2013 when Moody’s downgraded AG below “Aa3”, but has not elected to exercise this right. AG is currently rated “A1” by Moody’s.

Under the Net Worth Agreement, AG is obligated to make capital contributions to AGUK in amounts sufficient to ensure that AGUK maintains capital resources equal to 110% of the greatest of the amounts as may be required by the PRA as a condition of AGUK maintaining its authorization to carry on a financial guarantee business in the U.K., provided that, except with the express approval (or non-disapproval) of the Maryland Insurance Administration (MIA), (a) no individual contribution by AG to AGUK for such purpose shall exceed $25 million; (b) AG shall not be permitted to make more than two (2) individual contributions to AGUK under the Net Worth Agreement during any calendar year, which two (2) contributions together shall not exceed $25 million; and (c) the aggregate contributions by AG to AGUK under the Net Worth Agreement shall not exceed $100 million. The Net Worth Agreement obligates AG to provide AGUK with support similar to that which AG also provides AGUK under the excess of loss cover of the Reinsurance Agreement, except the latter is meant to protect against erosion of AGUK’s capital resources due to insurance and/or reinsurance losses in AGUK’s insured portfolio, while the former is meant to protect against an erosion of AGUK’s capital resources for other reasons (e.g., poor investment performance or origination expenses exceeding premium). Given this purpose, the Net Worth Agreement clarifies that any amounts due thereunder must take into account all amounts paid, or reasonably expected to be paid, under the Reinsurance Agreement. The Net Worth Agreement also includes termination provisions substantially similar to those in the Reinsurance Agreement. AG has never been required to make any contributions to AGUK’s capital under the current Net Worth Agreement; however, AG may elect to make, from time to time and subject to MIA approval or non-disapproval, capital contributions to AGUK not required by the net worth maintenance agreement.

AG Support of AGE

AGE has in place similar reinsurance and capital support agreements as are in place with AGUK.

AG’s reinsurance agreements with AGE generally apply to all AGE policies that insure business in EEA jurisdictions. These agreements consist of:

(i) a quota share reinsurance agreement whereby AG provides AGE with 90% proportional reinsurance for new business written by AGE since its authorization in January 2020;

(ii) a second quota share reinsurance agreement between AGE and AG pursuant to which AG:

a. reinsures approximately 70-100% of business that was transferred to AGE by AGUK effective October 1, 2020 pursuant to the Part VII of the Financial Services and Markets Act 2000 (FSMA) (Part VII Transfer) (i.e., the same reinsurance to AGE as AGUK received prior to such transfer); and

b. provides 90% proportional reinsurance for certain business transferred to AGE pursuant to the Part VII Transfer that was not reinsured by AG (or its affiliates) when such business was part of AGUK’s insured portfolio; and

(iii) an excess of loss reinsurance agreement, similar to the excess of loss cover of AG’s Reinsurance Agreement with AGUK, pursuant to which AG is obligated, effectively, to ensure that AGE maintains capital resources equal to at least 110% of the most stringent amount of capital that AGE may be required to maintain as a condition of it maintaining its authorization to carry on a financial guarantee business in France.

AG secures its quota share reinsurance obligations to AGE under the agreements described above by depositing collateral in accounts maintained by an EEA financial institution and pledging such accounts to AGE under French law. The measure of AG’s required collateral for AGE is generally the same as the measure of AG’s required collateral for AGUK, except that the former is determined in accordance with generally accepted accounting principles in France (French GAAP).

AG also has in place with AGE a net worth maintenance agreement that is similar to AG’s Net Worth Agreement with AGUK - i.e., the former obligates AG to ensure that AGE maintains capital resources at least equal to 110% of its most stringent capital requirement for maintaining its authorization to carry on a financial guarantee business in France, subject to limitations on the amount of individual and aggregate contributions that AG can make to AGE under the agreement without MIA approval or non-disapproval. AG may elect to make, from time to time and subject to MIA approval or non-disapproval, capital contributions to AGE not required by the net worth maintenance agreement.

Other Group Support of the European Insurance Subsidiaries for Certain Legacy Business

AG Re also provide reinsurance support to the European Insurance Subsidiaries for certain legacy business that was insured prior to 2009 by AGUK. Some of this business continues to reside at AGUK, while some of it was transferred to AGE in October 2020 pursuant to the Part VII Transfer. AG Re does not currently provide direct reinsurance support for new business being written by AGUK or AGE.

AG Re secures its reinsurance of this legacy business in essentially the same manner as AG secures its reinsurance of the European Insurance Subsidiaries - i.e., AG Re pledges collateral equal to its assumed UK GAAP liabilities for AGUK and equal to its assumed French GAAP liabilities for AGE.