ASSURED GUARANTY LTD

On April 2, 2025, the U.S. government announced a “reciprocal tariff” strategy entailing extensive global tariff increases, with the objective of rectifying trade practices that contribute to large and persistent annual U.S. goods trade deficits. The announcement of global tariffs disrupted international trade, sent shocks through the global economy, and heightened volatility in the financial markets. The U.S. subsequently postponed newly announced reciprocal tariffs to August 7, 2025. As of August 7, 2025, the U.S. has reached agreements with several countries while lifting its pause on “reciprocal tariffs” for other countries as significant uncertainty remains. U.S. tariffs can add to inflation, and the Company believes that ongoing uncertainty may increase volatility in U.S. equities and other risk assets, curb corporate capital and consumer spending and raise the risk of recession. Market volatility and the risk of recession may impact the Company in different ways. The Company believes that a recession may make it more likely that obligors whose obligations it guarantees will default. However, market volatility may also cause credit spreads to widen as investors seek security, which tends to create new business opportunities for the Company.

At the end of June 2025, the U.S. unemployment rate, seasonally adjusted, stood at 4.1%, the same as where it started the year. According to the second quarter 2025 advance estimate released by the U.S. Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annual rate of 3.0% in second quarter 2025, compared to a real GDP decrease of 0.5% in the first quarter of 2025.

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 June 2025, as measured by the Consumer Price Index for All Urban Consumers, was 2.7%, as compared to 3.0% for the 12-month period ending June 2024. According to the U.K. Office for National Statistics, the Consumer Prices Index including owner occupiers’ housing costs rose 4.1% for the 12 months through June 2025, as compared to 2.8% for the 12 months through June 2024. 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 $25.8 billion of net par outstanding as of June 30, 2025, 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 the FOMC’s first five meetings of 2025, including most recently at its July 29-30, 2025 meeting, it held the federal funds rate 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. 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 credit 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 4.47% for the quarter ended June 2025, higher than the 4.03% average for the quarter ended March 2025 and higher than the 3.82% average for the quarter ended June 2024.

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) for the quarter ended June 2025, which is the same as the 90 bps average for the quarter ended March 2025 and the quarter ended June 2024. 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 rate averaged 6.77% for the week ending June 26, 2025, lower than the 30-year mortgage rate average of 6.86% 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 residential mortgage-backed securities (RMBS) the Company insures. The National Association of Realtors reported that there was no change in year-over-year existing-home sales from June 2024 to June 2025, and that the median existing-home sales price increased from June 2024 ($426,900) to June 2025 ($435,300), a 2% increase.